<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 1-10150
--------------------------
ISTAR FINANCIAL INC. *
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 95-6881527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1114 AVENUE OF THE AMERICAS, 27(TH) FLOOR 10036
NEW YORK, NY 10036 (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (212)930-9400
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class: Name of Exchange on which registered:
COMMON STOCK, $0.001 PAR VALUE NEW YORK STOCK EXCHANGE
9.375% SERIES B CUMULATIVE REDEEMABLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, $0.001 PAR VALUE
9.200% SERIES C CUMULATIVE REDEEMABLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, $0.001 PAR VALUE
8.000% SERIES D CUMULATIVE REDEEMABLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, $0.001 PAR VALUE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant; (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (ii) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of May 5, 2000, there were 85,279,088 shares of common stock of IStar
Financial Inc., $0.001 par value per share outstanding ("Common Stock").
* On November 4, 1999, the registrant completed a transaction in which its
name was changed from Starwood Financial Trust to Starwood Financial Inc., it
issued Common Stock in exchange for the class A and class B shares then
outstanding, and the registrant listed its Common Stock on the New York Stock
Exchange. Further, effective on April 30, 2000, the registrant changed its name
to IStar Financial Inc.
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<PAGE>
ISTAR FINANCIAL INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION.......................... 3
Item 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2000 AND
DECEMBER 31, 1999......................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS--FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999............................. 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY--FOR THE THREE MONTHS ENDED MARCH 31, 2000......... 5
CONSOLIDATED STATEMENTS OF CASH FLOWS--FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999............................. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS................................................ 32
PART II. OTHER INFORMATION........................................... 39
Item 1. LEGAL PROCEEDINGS........................................... 39
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................... 39
Item 3. DEFAULTS UPON SENIOR SECURITIES............................. 39
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 39
Item 5. OTHER INFORMATION........................................... 39
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 39
SIGNATURES.................................................. 40
</TABLE>
2
<PAGE>
ISTAR FINANCIAL INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Loans and other lending investments, net.................... $2,120,744 $2,003,506
Real estate subject to operating leases, net................ 1,664,350 1,714,284
Cash and cash equivalents................................... 41,710 34,408
Restricted cash............................................. 11,256 10,195
Marketable securities....................................... 95 4,344
Accrued interest and operating lease income receivable...... 17,624 16,211
Deferred operating lease income receivable.................. 3,429 1,147
Deferred expenses and other assets.......................... 37,081 29,074
Investment in IStar Operating Inc........................... 251 383
---------- ----------
Total assets.............................................. $3,896,540 $3,813,552
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable, accrued expenses and other liabilities.... $ 52,154 $ 54,773
Dividends payable........................................... 5,225 53,667
Debt obligations............................................ 1,987,394 1,901,204
---------- ----------
Total liabilities......................................... 2,044,773 2,009,644
---------- ----------
Commitments and contingencies............................... -- --
Minority interests in consolidated entities................. 2,565 2,565
Shareholders' equity:
Series A Preferred Stock, $0.001 par value, liquidation
preference $50.00 per share, 4,400,000 shares authorized
and outstanding at March 31, 2000 and December 31, 1999,
respectively.............................................. 4 4
Series B Preferred Stock, $0.001 par value, liquidation
preference $25.00 per share, 2,000,000 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively.............................................. 2 2
Series C Preferred Stock, $0.001 par value, liquidation
preference $25.00 per share, 1,300,000 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively.............................................. 1 1
Series D Preferred Stock, $0.001 par value, liquidation
preference $25.00 per share, 4,000,000 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively.............................................. 4 4
Common Stock, $0.001 par value, 200,000,000 shares
authorized, 85,279,088 and 84,985,392 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively.............................................. 85 85
Warrants and options........................................ 17,935 17,935
Accumulated other comprehensive income (losses)............. -- (229)
Additional paid in capital.................................. 1,958,946 1,953,972
Retained earnings (deficit)................................. (87,230) (129,992)
Treasury stock (at cost).................................... (40,545) (40,439)
---------- ----------
Total shareholders' equity................................ 1,849,202 1,801,343
---------- ----------
Total liabilities and shareholders' equity................ $3,896,540 $3,813,552
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
ISTAR FINANCIAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
REVENUE:
Interest income........................................... $ 60,083 $ 49,919
Operating lease income.................................... 46,272 3,727
Other income.............................................. 4,533 1,778
-------- --------
Total revenue........................................... 110,888 55,424
-------- --------
COSTS AND EXPENSES:
Interest expense.......................................... 37,789 19,693
Property operating costs.................................. 3,325 --
Depreciation and amortization............................. 9,009 1,365
General and administrative................................ 6,903 484
Provision for possible credit losses...................... 1,500 1,000
Stock option compensation expense......................... 548 --
Advisory fees............................................. -- 4,665
-------- --------
Total costs and expenses................................ 59,074 27,207
-------- --------
Net income before minority interest, gain on sale and
extraordinary loss........................................ 51,814 28,217
Minority interest in consolidated entities.................. (41) --
Gain on sale of net lease assets............................ 533 --
-------- --------
Net income before extraordinary loss........................ 52,306 28,217
Extraordinary loss on early extinguishment of debt.......... (317) --
-------- --------
Net income.................................................. $ 51,989 $ 28,217
======== ========
Preferred dividend requirements............................. $ (9,227) $ (5,308)
-------- --------
Net income allocable to common shareholders................. $ 42,762 $ 22,909
======== ========
Basic earnings per common share(1).......................... $ 0.50 $ 0.43
======== ========
Diluted earnings per common share(1)........................ $ 0.50 $ 0.41
======== ========
EXPLANATORY NOTE:
</TABLE>
- ------------------------
(1) Net income per basic common share excludes 1% of net income allocable to
the Company's class B shares prior to November 4, 1999. These shares were
exchanged for Common Stock in connection with the TriNet acquisition and
related transactions on November 4, 1999. As a result, the Company now has
a single class of Common Stock outstanding.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
ISTAR FINANCIAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
SERIES A SERIES B SERIES C SERIES D COMMON WARRANTS OTHER
PREFERRED PREFERRED PREFERRED PREFERRED STOCK AND COMPREHENSIVE TREASURY
STOCK STOCK STOCK STOCK AT PAR OPTIONS INCOME STOCK
--------- --------- --------- --------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999...... $ 4 $ 2 $ 1 $ 4 $ 85 $ 17,935 $ (229) $ (40,439)
Dividends declared - preferred
stock........................... -- -- -- -- -- -- -- --
Acquisition of ACRE Partners...... -- -- -- -- -- -- -- --
Restricted stock units issued to
employees in lieu of cash
bonuses......................... -- -- -- -- -- -- -- --
Restricted stock units granted to
employees....................... -- -- -- -- -- -- -- --
Treasury stock.................... -- -- -- -- -- -- -- (106)
Change in accumulated other
comprehensive income............ -- -- -- -- -- -- 229 --
Net income for the period......... -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at March 31, 2000......... $ 4 $ 2 $ 1 $ 4 $ 85 $ 17,935 $ -- $ (40,545)
======== ======== ======== ======== ======== ======== ========== =========
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT) TOTAL
----------- --------- ----------
<S> <C> <C> <C>
Balance at December 31, 1999...... $ 1,953,972 $(129,992) $1,801,343
Dividends declared - preferred
stock........................... -- (9,227) (9,227)
Acquisition of ACRE Partners...... 3,637 -- 3,637
Restricted stock units issued to
employees in lieu of cash
bonuses......................... 1,125 -- 1,125
Restricted stock units granted to
employees....................... 212 -- 212
Treasury stock.................... -- -- (106)
Change in accumulated other
comprehensive income............ -- -- 229
Net income for the period......... -- 51,989 51,989
----------- --------- ----------
Balance at March 31, 2000......... $ 1,958,946 $ (87,230) $1,849,202
=========== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
ISTAR FINANCIAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 51,989 $ 28,217
Adjustments to reconcile net income to cash flows provided
by operating activities:
Minority interest......................................... 41 --
Equity in (earnings) loss of unconsolidated joint ventures
and subsidiaries........................................ (324) 105
Depreciation and amortization............................. 11,134 2,905
Amortization of discounts/premiums, deferred interest and
costs on lending investments............................ (7,067) (7,302)
Distributions from operating joint ventures............... 952 --
Straight-line operating lease income adjustments.......... (2,282) --
Realized (gains) losses on sales of securities............ 229 --
Gain on sale of net lease assets.......................... (533) --
Extraordinary loss on early extinguishment of debt........ 317 --
Provision for possible credit losses...................... 1,500 1,000
Changes in assets and liabilities:
(Increase) decrease in restricted cash.................. (1,061) 1,553
(Increase) decrease in accrued interest and operating
lease income receivable................................ (1,413) 156
Increase in deferred expenses and other assets.......... (2,895) (411)
Decrease in accounts payable, accrued expenses and other
liabilities............................................ (4,756) (3,707)
--------- -----------
Cash flows provided by operating activities............... 45,831 22,516
--------- -----------
Cash flows from investing activities:
New loan or investment originations/acquisitions............ (211,925) (154,318)
Principal fundings on existing loan commitments............. (16,542) (7,127)
Net proceeds from sale of net lease assets.................. 45,291 --
Repayments of and principal collections from loans and other
lending investments....................................... 121,803 56,668
Net investments in and advances to unconsolidated joint
ventures.................................................. (668) --
Capital expenditures on real estate subject to operating
leases.................................................... (1,858) --
--------- -----------
Cash flows used in investing activities................... (63,899) (104,777)
--------- -----------
Cash flows from financing activities:
Net borrowings under revolving credit facilities............ 65,177 87,148
Borrowings under term loans................................. 30,000 29,717
Repayments under term loans................................. (9,726) --
Repayments under repurchase agreements...................... (119) (453)
Common dividends paid....................................... (48,441) (21,704)
Preferred dividends paid.................................... (9,144) (929)
Minority interest........................................... (41) --
Extraordinary loss on early extinguishment of debt.......... (317) --
Payment for deferred financing costs........................ (1,913) (4,813)
Purchase of treasury stock.................................. (106) --
Proceeds from exercise of options........................... -- 722
--------- -----------
Cash flows provided by financing activities............... 25,370 89,688
--------- -----------
Increase in cash and cash equivalents....................... 7,302 7,427
Cash and cash equivalents at beginning of period............ 34,408 10,110
--------- -----------
Cash and cash equivalents at end of period.................. $ 41,710 $ 17,537
========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ 36,850 $ 18,797
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BUSINESS
ORGANIZATION--IStar Financial Inc.(1) (the "Company") began its business in
1993 through private investment funds (collectively, the "Starwood Investors")
formed to capitalize on inefficiencies in the real estate finance market. In
March 1998, these funds contributed their approximately $1.1 billion of assets
to the Company's predecessor, Starwood Financial Trust, in exchange for a
controlling interest in that company. Since that time, the Company has grown by
originating new lending and leasing transactions, as well as through corporate
acquisitions. Specifically, in September 1998, the Company acquired the loan
origination and servicing business of a major insurance company, and in
December 1998, the Company acquired the mortgage and mezzanine loan portfolio of
its largest private competitor. Additionally, in November 1999, the Company
acquired TriNet Corporate Realty Trust, Inc. ("TriNet"), the largest publicly
traded company specializing in the net leasing of corporate office and
industrial facilities. The TriNet acquisition was structured as a
stock-for-stock merger of TriNet with a subsidiary of the Company. Concurrent
with the TriNet acquisition, the Company also acquired its external advisor (the
"Advisor Transaction") in exchange for shares of common stock, $0.001 par value,
of the Company ("Common Stock"), and converted its organizational form to a
Maryland corporation (the "Incorporation Merger"). As part of the conversion to
a Maryland corporation, the Company replaced its dual class common share
structure with a single class of Common Stock. The Company's Common Stock began
trading on the New York Stock Exchange under the symbol "SFI" in November 1999.
During 1993 through 1997, the Company did not qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). However, pursuant to a closing agreement with the Internal Revenue
Service (the "IRS") obtained in March 1998, the Company was eligible and elected
to be taxed as a REIT for the taxable year beginning January 1, 1998.
BUSINESS--The Company believes it is the largest publicly traded finance
company in the United States focused exclusively on the commercial real estate
industry. The Company, which is taxed as a real estate investment trust,
provides structured mortgage, mezzanine and lease financing through its
nationwide origination, acquisition and servicing platform. The Company's
investment strategy targets specific sectors of the real estate credit markets
in which it can deliver value-added, flexible financial solutions to its
customers, thereby differentiating its financial products from those offered by
other capital providers.
The Company has implemented its investment strategy by: (i) focusing on the
origination of large, highly structured mortgage, mezzanine and lease financings
where customers require flexible financial solutions, and avoiding commodity
businesses in which there is significant direct competition from other providers
of capital; (ii) developing direct relationships with borrowers and corporate
tenants as opposed to sourcing transactions through intermediaries;
(iii) adding value beyond simply providing capital by offering borrowers and
corporate tenants specific lending expertise, flexibility, speed, certainty and
continuing relationships beyond the closing of a particular financing
transaction; and (iv) taking advantage of market anomalies in the real estate
financing markets when the Company believes credit is mispriced by other
providers of capital such as the spread between lease yields and the yields on
corporate tenants' underlying credit obligations.
The Company intends to continue to emphasize a mix of portfolio financing
transactions to create built-in diversification and single-asset financings for
properties with strong, long-term positioning.
EXPLANATORY NOTE:
- ------------------------------
(1) As more fully discussed in Note 4, on November 4, 1999, the Company changed
its form and became a corporation under Maryland law and changed its name
from Starwood Financial Trust to Starwood Financial Inc. Further, effective
on April 30, 2000, the registrant changed its name to IStar Financial Inc.
7
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements have been
prepared in conformity with the instructions to Form 10-Q and Article 10, Rule
10-01 of Regulation S-X for interim financial statements. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial statements. The
Consolidated Financial Statements include the accounts of the Company, its
qualified REIT subsidiaries, and its majority-owned and controlled partnership.
Certain third-party mortgage servicing operations are conducted through IStar
Operating Inc. ("IStar Operating"), a taxable corporation which is not
consolidated with the Company for financial reporting or income tax purposes.
The Company owns all of the preferred stock and a 95% economic interest in IStar
Operating, which is accounted for under the equity method for financial
reporting purposes. In addition, the Company has an investment in TriNet
Management Operating Company, Inc. ("TMOC"), a taxable noncontrolled subsidiary
of the Company, which is also accounted for under the equity method. Further,
certain other investments in partnerships or joint ventures which the Company
does not control are also accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying financial statements contain
all adjustments, consisting of normal and recurring accruals, necessary for a
fair presentation of the Company's financial condition at March 31, 2000 and
December 31, 1999 and the results of its operations, changes in shareholders'
equity and its cash flows for the three-month periods ended March 31, 2000 and
1999, respectively. Such operation results are not necessarily indicative of the
results that may be expected for any other interim periods or the entire year.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOANS AND OTHER LENDING INVESTMENTS, NET--As described in Note 5 "Loans and
Other Lending Investments," includes the following investments: senior
mortgages, subordinate mortgages, partnership loans/ unsecured notes, loan
participations and other lending investments. In general, management considers
its investments in this category as held-to-maturity and, accordingly, reflects
such items at amortized historical cost.
REAL ESTATE SUBJECT TO OPERATING LEASES AND DEPRECIATION--Real estate
subject to operating leases is generally recorded at cost. Certain improvements
and replacements are capitalized when they extend the useful life, increase
capacity or improve the efficiency of the asset. Repairs and maintenance items
are expensed as incurred. The Company capitalizes interest costs incurred during
the land development or construction period on qualified development projects
including investments in joint ventures accounted for under the equity method.
Depreciation is computed using the straight line method of cost recovery over
estimated useful lives of 40.0 years for buildings, seven years for furniture
and equipment, the shorter of the remaining lease term or expected life for
tenant improvements, and the remaining life of the building for building
improvements.
Real estate assets to be disposed of are reported at the lower of their
carrying amount or fair value less cost to sell. The Company also periodically
reviews long-lived assets to be held and used for an impairment in value
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. In management's opinion, real estate assets
to be held and used are not carried at amounts in excess of their estimated
recoverable amounts.
8
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash held in
banks or invested in money market funds with original maturity terms of less
than 90 days.
MARKETABLE SECURITIES--From time to time, the Company invests excess working
capital in marketable securities such as those issued by the Government National
Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), and
Federal Home Loan Mortgage Corporation (FHLMC). Although the Company generally
intends to hold such investments for investment purposes, it may, from time to
time, sell any of its investments in these securities as part of its management
of liquidity. Accordingly, the Company considers such investments as
"available-for-sale" and reflects such investments at fair market value with
changes in fair market value reflected as a component of shareholders' equity.
REPURCHASE AGREEMENTS--The Company may enter into sales of securities or
loans under agreements to repurchase the same security or loan. The amounts
borrowed under repurchase agreements are carried on the balance sheet as part of
debt obligations at the amount advanced plus accrued interest. Interest incurred
on the repurchase agreements is reported as interest expense.
REVENUE RECOGNITION--The Company's revenue recognition policies are as
follows:
LOANS AND OTHER LENDING INVESTMENTS: The Company generally intends to hold
all of its loans and other lending investments to maturity. Accordingly, it
reflects all of these investments at amortized cost less allowance for loan
losses, acquisition premiums or discounts, deferred loan fees and undisbursed
loan funds. The Company may acquire loans at either premiums or discounts based
on the credit characteristics of such loans. These premiums or discounts are
recognized as yield adjustments over the lives of the related loans. If loans
that were acquired at a premium or discount are prepaid, the Company immediately
recognizes the unamortized premium or discount as a decrease or increase in the
prepayment gain or loss, respectively. Loan origination or exit fees, as well as
direct loan origination costs, are also deferred and recognized over the lives
of the related loans as a yield adjustment. Interest income is recognized using
the effective interest method applied on a loan-by-loan basis.
Certain of the Company's loans provide for accrual of interest at specified
rates which differ from current payment terms. Interest is recognized on such
loans at the accrual rate subject to management's determination that accrued
interest and outstanding principal are ultimately collectible, based on the
underlying collateral and operations of the borrower.
Prepayment penalties or yield maintenance payments from borrowers are
recognized as additional income when received. Certain of the Company's loan
investments provide for additional interest based on the borrower's operating
cash flow or appreciation of the underlying collateral. Such amounts are
considered contingent interest and are reflected as income only upon certainty
of collection.
LEASING INVESTMENTS: Operating lease revenue is recognized on the
straight-line method of accounting from the later of the date of the origination
of the lease or the date of acquisition of the facility subject to existing
leases. Accordingly, contractual lease payment increases are recognized evenly
over the term of the lease. The difference between lease revenue recognized
under this method and actual cash receipts is recorded as a deferred rent
receivable on the balance sheet.
PROVISION FOR POSSIBLE CREDIT LOSSES--The Company's accounting policies
require that an allowance for estimated credit losses be maintained at a level
that management, based upon an evaluation of known and inherent risks in the
portfolio, considers adequate to provide for possible credit losses. Specific
valuation allowances are established for impaired loans in the amount by which
the carrying value, before allowance
9
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for estimated losses, exceeds the fair value of collateral less disposition
costs on an individual loan basis. Management considers a loan to be impaired
when, based upon current information and events, it believes that it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement on a timely basis. Management measures
these impaired loans at the fair value of the loans' underlying collateral less
estimated disposition costs. Impaired loans may be left on accrual status during
the period the Company is pursuing repayment of the loan, however, these loans
are placed on non-accrual status at such time that the loans either: (i) become
90 days delinquent; or (ii) management determines the borrower is incapable of,
or has ceased efforts toward, curing the cause of the impairment. While on
non-accrual status, interest income is recognized only upon actual receipt.
Impairment losses are recognized as direct write-downs of the related loan with
a corresponding charge to the provision for possible credit losses. Charge-offs
occur when loans, or a portion thereof, are considered uncollectible and of such
little value that further pursuit of collection is not warranted. Management's
periodic evaluation of the allowance for possible credit losses is based upon an
analysis of the portfolio, historical and industry loss experience, economic
conditions and trends, collateral values and quality and other relevant factors.
INCOME TAXES--The Company did not qualify as a REIT from 1993 through 1997;
however, it did not incur any material tax liabilities as a result of its
operations. See Note 10 to the Consolidated Financial Statements for more
information.
As confirmed in a closing agreement with the IRS obtained in March 1998, the
Company was eligible and elected to be taxed as a REIT for its tax year
beginning January 1, 1998. As a REIT, the Company will be subject to federal
income taxation at corporate rates on its REIT taxable income; however, the
Company is allowed a deduction for the amount of dividends paid to its
stockholders, thereby subjecting the distributed net income of the Company to
taxation at the shareholder level only. IStar Operating and TMOC are not
consolidated for federal income tax purposes and are taxed as corporations. For
financial reporting purposes, current and deferred taxes are provided for in the
portion of earnings recognized by the Company with respect to its interest in
IStar Operating and TMOC.
NET INCOME ALLOCABLE TO COMMON SHARES--Net income allocable to common shares
excludes 1% of net income allocable to the class B shares prior to November 4,
1999. The class A and class B shares were exchanged for Common Stock in
connection with the TriNet acquisition, as more fully described in Note 4.
EARNINGS (LOSS) PER COMMON SHARES--In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128") effective for periods
ending after December 15, 1997. SFAS No. 128 simplifies the standard for
computing earnings per share and makes them comparable with international
earnings per share standards. The statement replaces primary earnings per share
with basic earnings per share ("Basic EPS") and fully-diluted earnings per share
with diluted earnings per share ("Diluted EPS").
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles 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.
NEW ACCOUNTING STANDARDS--In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS No. 131")
10
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effective for financial statements issued for periods beginning after
December 15, 1997. SFAS No. 131 requires disclosures about segments of an
enterprise and related information regarding the different types of business
activities in which an enterprise engages and the different economic
environments in which it operates. The Company adopted the requirements of this
pronouncement in its financial statements beginning with its reporting for
fiscal 1999. As of March 31, 2000, the Company maintains two basic business
segments for reporting purposes: real estate lending and credit tenant leasing.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). On June 23, 1999 the FASB voted to defer the effectiveness of
SFAS 133 for one year. SFAS 133 is now effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 1998. SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments as fair value. If certain conditions are met, a derivative may
be specifically designated as: (i) a hedge of the exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm
commitment; (ii) a hedge of the exposure to variable cash flows of a forecasted
transaction; or (iii) in certain circumstances a hedge of a foreign currency
exposure. The Company currently plans to adopt this pronouncement as required
effective January 1, 2001. The adoption of SFAS 133 is not expected to have a
material financial impact on the financial position or results of operations of
the Company.
NOTE 4--CAPITAL TRANSACTIONS
PRIOR TRANSACTIONS WITH AFFILIATES--Through a series of transactions
beginning in November 1993 and through March 18, 1998, the date of the
Recapitalization Transactions described in the following section, Starwood
Mezzanine Investors, L.P. ("Starwood Mezzanine") and certain other affiliates
(collectively, the "Starwood Investors") had acquired controlling interests in
the Company represented by an aggregate of 874,016 class A shares, or 69.46% of
the then total class A shares outstanding, and 629,167 class B shares,
representing 100% of the then total class B shares outstanding. Together, the
class A and class B shares held by the Starwood Investors represented 79.64% of
the voting interests of the Company.
During the quarter ended March 31, 1998, the Company consummated certain
transactions and entered into agreements which significantly recapitalized and
expanded its capital resources, as well as modified future operations, including
those described herein below in "Recapitalization Transactions" and "Advisor
Transaction."
RECAPITALIZATION TRANSACTIONS--As more fully discussed above, pursuant to a
series of transactions beginning in March 1994 and including the exercise of the
Class A and Class B Warrants in January 1997, the Starwood Investors acquired
joint ownership of 69.46% and 100% of the outstanding class A shares and
class B shares of the Company, respectively, through which they controlled
approximately 79.64% of the voting interests in the Company as of December 31,
1997. Prior to the consummation of these transactions (collectively, the
"Recapitalization Transactions"), Starwood Mezzanine also owned 761,491 units
which represented the remaining 91.95% of APMT Limited Partnership not held by
the Company. Those units were convertible into cash, an additional 761,491
class A shares of the Company, or a combination of the two, as determined by the
Company.
11
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL TRANSACTIONS (CONTINUED)
On March 18, 1998, each outstanding unit held by Starwood Mezzanine was
exchanged for one class A share of the Company and, concurrently, the
partnership was liquidated through a distribution of its net assets to the
Company, its then sole partner.
Simultaneously, Starwood Mezzanine contributed various real estate loan
investments to the Company in exchange for 9,191,333 class A shares and
$25.5 million in cash, as adjusted. Starwood Opportunity Fund IV, L.P., one of
the Starwood Investors ("SOF IV"), contributed loans and other lending
investments, $17.9 million in cash and certain letters of intent in exchange for
41,179,133 class A shares of the Company and a cash payment of $324.3 million.
Concurrently, the holders of the class B shares who were affiliates of the
Starwood Investors acquired 25,565,979 additional class B shares sufficient to
maintain existing voting preferences pursuant to the Company's Amended and
Restated Declaration of Trust. Immediately after these transactions, the
Starwood Investors owned approximately 99.27% of the outstanding class A shares
of the Company and 100% of the class B shares. Assets acquired from Starwood
Mezzanine have been reflected using step acquisition accounting at predecessor
basis adjusted to fair value to the extent of post-transaction third-party
ownership. Assets acquired from SOF IV have been reflected at their fair market
value.
ADVISORY AGREEMENT--In connection with the Recapitalization Transactions,
the Company and the Advisor, an affiliate of the Starwood Investors, entered
into an Advisory Agreement (the "Advisory Agreement") pursuant to which the
Advisor managed the affairs of the Company, subject to the Company's purpose and
investment policy, the investment restrictions and the directives of the Board
of Directors. The services provided by the Advisor included the following:
(i) identifying investment opportunities for the Company; (ii) advising the
Company with respect to and effecting acquisitions and dispositions of the
Company's investments; (iii) monitoring, managing and servicing the Company's
loan portfolio; and (iv) arranging debt financing for the Company. The Advisor
was prohibited from acting in a manner inconsistent with the express direction
of the Board of Directors, and reported to the Board of Directors and the
officers of the Company with respect to its activities.
The Company paid the Advisor a quarterly base management fee of 0.3125%
(1.25% per annum) of the "Book Equity Value" of the Company determined as of the
last day of each quarter but estimated and paid in advance subject to
recomputation. "Book Equity Value" was generally defined as the excess of the
book value of the assets of the Company over all liabilities of the Company.
In addition, the Company paid the Advisor a quarterly incentive fee of 5.00%
of the Company's "Adjusted Net Income" during each quarter that the Adjusted Net
Income for such quarter (restated and annualized as a rate of return on the
Company's Book Equity Value for such quarter) equaled or exceeded the "Benchmark
BB Rate." "Adjusted Net Income" was generally defined as the Company's gross
income less the Company's expenses for the applicable quarter (including the
base fee for such quarter but not the incentive fee for such quarter). In
calculating both Book Equity Value and Adjusted Net Income, real estate-related
depreciation and amortization (other than amortization of financing costs and
other prepaid expenses to the extent such costs and prepaid expenses have
previously been booked as an asset of the Company) were not deducted. The
Advisor was also reimbursed for certain expenses it incured on behalf of the
Company.
The Advisory Agreement had an initial term of three years subject to
automatic renewal for one-year periods unless the Company had been liquidated or
a Termination Event (as defined in the Advisory Agreement and which generally
included violations of the Advisory Agreement by the Advisor, a
12
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL TRANSACTIONS (CONTINUED)
bankruptcy event of the Advisor or the imposition of a material liability on the
Company as a result of the Advisor's bad faith, willful misconduct, gross
negligence or reckless disregard of duties) had occurred and was continuing. In
addition, the Advisor could have terminated the Advisory Agreement on 60 days'
written notice to the Company and the Company could have terminated the Advisory
Agreement upon 60 days' written notice if a Termination Event had occurred or if
the decision to terminate were based on affirmative vote of the holders of two
thirds or more of the voting shares of the Company at the time outstanding.
Prior to the transactions described below through which, among other things,
the Company became internally-managed, the Company was dependent on the services
of the Advisor and its officers and employees for the successful execution of
its business strategy.
1999 TRANSACTIONS--On November 3, 1999, consistent with previously announced
terms, the Company's shareholders approved a series of transactions including:
(i) the acquisition, through a merger, of TriNet; (ii) the acquisition, through
a merger and a contribution of interests, of 100% of the ownership interests in
the Advisor; and (iii) the change in form, through a merger, of the Company's
organization into a Maryland corporation. TriNet stockholders also approved the
TriNet acquisition on November 3, 1999. These transactions were consummated on
November 4, 1999. As part of these transactions, the Company also changed its
name to Starwood Financial Inc. and replaced its dual class common share
structure with a single class of Common Stock.
TRINET ACQUISITION--TriNet merged with and into a subsidiary of the Company,
with TriNet surviving as a wholly-owned subsidiary of the Company (the "Leasing
Subsidiary"). In the TriNet acquisition, each share of TriNet common stock was
converted into 1.15 shares of Common Stock, resulting in an aggregate issuance
of 28.9 million shares of Common Stock. Each share of TriNet Series A, Series B
and Series C Cumulative Redeemable Preferred Stock was converted into a share of
Series B, Series C or Series D (respectively) Cumulative Redeemable Preferred
Stock of the Company. The Company's preferred stock issued to the former TriNet
preferred stockholders has substantially the same terms as the TriNet preferred
stock, except that the new Series B, C, and D preferred stock has additional
voting rights not associated with the TriNet preferred stock. The holders of the
Company's Series A preferred stock will retain the same rights and preferences
as existed prior to the TriNet acquisition.
The TriNet acquisition was accounted for as a purchase. Because the
Company's stock prior to the transaction was largely held by the Starwood
Investors, and, as a result, the stock was not widely traded relative to the
amount of shares outstanding, the pro forma financial information presented
below was prepared utilizing a stock price of $28.14 per TriNet share, which was
the average stock price of TriNet during the five-day period before and after
the TriNet acquisition was agreed to and announced.
ADVISOR TRANSACTION--Contemporaneously with the consummation of the TriNet
acquisition, the Company acquired 100% of the interests in the Advisor in
exchange for total consideration of four million shares of Common Stock. For
accounting purposes, the Advisor Transaction was not considered the acquisition
of a "business" in applying Accounting Principles Board Opinion No. 16,
"Business Combinations" and, therefore, the market value of the Common Stock
issued in excess of the fair value of the net tangible assets acquired of
approximately $94.5 million was charged to operating income as a one-time item
in the fourth quarter of 1999, rather than capitalized as goodwill.
INCORPORATION MERGER--Prior to the consummation of the TriNet acquisition
and the Advisor Transaction, the Company changed its form from a Maryland trust
to a Maryland corporation in the Incorporation
13
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL TRANSACTIONS (CONTINUED)
Merger, which technically involved a merger of the Company with a wholly-owned
subsidiary formed solely to effect such merger. In the Incorporation Merger, the
class B shares were converted into shares of Common Stock on a 49-for-one basis
(the same ratio at which class B shares were previously convertible into
class A shares), and the class A shares were converted into shares of Common
Stock on a one-for-one basis. As a result, the Company no longer has multiple
classes of common shares. The Incorporation Merger was treated as a transfer of
assets and liabilities under common control. Accordingly, the assets and
liabilities transferred from Starwood Financial Trust to Starwood
Financial Inc. were reflected at their predecessor basis and no gain or loss was
recognized.
The Company declared and paid a special dividend of one million shares of
its Common Stock payable pro rata to all holders of record of its Common Stock
following completion of the Incorporation Merger, but prior to the effective
time of the TriNet acquisition and the Advisor Transaction.
PRO FORMA INFORMATION--The summary unaudited pro forma consolidated
statement of operations for the three-month period ended March 31, 1999 is
presented as if the following transactions, consummated in November 1999, had
occurred on January 1, 1999: (i) the TriNet acquisition; (ii) the Advisor
Transaction; and (iii) the borrowing necessary to consummate the aforementioned
transactions. The unaudited pro forma information is based upon the historical
consolidated results of operations of the Company and TriNet for the three-month
period ended March 31, 1999, after giving effect to the events described above.
14
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL TRANSACTIONS (CONTINUED)
PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1999
------------------
(UNAUDITED)
<S> <C>
REVENUE:
Interest income........................................... $ 52,089
Operating lease income.................................... 47,275
Other income.............................................. 2,127
--------
Total revenue........................................... 101,491
--------
EXPENSES:
Interest expense.......................................... 32,830
Property operating costs.................................. 2,897
Depreciation and amortization............................. 9,010
General and administrative................................ 5,241
Provision for possible credit losses...................... 1,000
Stock option compensation expense......................... 549
--------
Total expenses.......................................... 51,527
--------
Income before minority interest........................... 49,964
Minority interest in consolidated entities................ (41)
--------
Net income from continuing operations..................... $ 49,923
Preferred dividend requirements........................... (9,227)
--------
Net income from continuing operations allocable to common
shareholders............................................ $ 40,696
========
BASIC EARNINGS PER SHARE:
Basic earnings per common share........................... $ 0.47
========
Weighted average number of common shares outstanding...... 87,245
========
</TABLE>
Investments and dispositions are assumed to have taken place as of
January 1, 1999; however, loan originations and acquisitions are not reflected
in these pro forma numbers until the actual origination or acquisition date by
the Company. General and administrative costs represent estimated expense levels
as an internally-managed Company.
The pro forma financial information is not necessarily indicative of what
the consolidated results of operations of the Company would have been as of and
for the periods indicated, nor does it purport to represent the results of
operations for future periods.
15
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LOANS AND OTHER LENDING INVESTMENTS
The following is a summary description of the Company's loans and other
lending investments (in thousands):
<TABLE>
<CAPTION>
CARRYING VALUE AS OF
# OF ORIGINAL PRINCIPAL --------------------------
BORROWERS COMMITMENT BALANCES MARCH 31, DECEMBER 31,
TYPE OF INVESTMENT UNDERLYING PROPERTY TYPE IN CLASS AMOUNT OUTSTANDING 2000 1999
- --------------------------- --------------------------- --------- ------------ ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Senior Mortgages Office/Hotel/Mixed Use/ 19 $ 975,493 $ 880,989 $ 880,904 $ 938,040
Apartment/Retail/Resort
Subordinated Mortgages (4) Office/Hotel/Mixed Use/ 18 580,835 544,192 527,493 540,441
Retail/Conference Center
Partnership Loans/Unsecured Office/Hotel/Residential/Land 14 408,273 400,685 398,312 309,768
Notes
Loan Participations Office/Retail 4 168,747 133,031 132,886 152,782
Other Lending Investments Real Estate-Related N/A N/A N/A 190,149 69,975
Securities/Ventures
---------- ----------
Gross Carrying Value $2,129,744 $2,011,006
Provision for Possible ) )
Credit Losses (9,000 (7,500
---------- ----------
Total, Net $2,120,744 $2,003,506
========== ==========
<CAPTION>
EFFECTIVE PRINCIPAL PARTICI-
MATURITY CONTRACTUAL INTEREST CONTRACTUAL INTEREST AMORTIZ- PATION
TYPE OF INVESTMENT DATES PAYMENT RATES(1) ACCRUAL RATES(3) ATION FEATURES
- --------------------------- ------------- ----------------------- ----------------------- --------- --------
<S> <C> <C> <C> <C> <C>
Senior Mortgages 2000 to 2009 Fixed: 7.28% to 18.00% Fixed: 7.28% to 20.00% Yes (2) Yes (3)
Variable: LIBOR + 1.25% Variable: LIBOR + 1.25%
to 5.00% to 5.00%
Subordinated Mortgages (4) 2000 to 2007 9.53% to 15.25% 9.53% to 17.00% Yes (2) Yes (3)
Variable: LIBOR + 4.50% Variable: LIBOR + 4.00%
to 5.80% to 5.80%
Partnership Loans/Unsecured 2000 to 2028 8.00% to 15.00% 8.50% to 17.50% Yes Yes (3)
Notes Variable: LIBOR + 5.37% Variable: LIBOR + 5.37%
to 7.50% to 7.50%
Loan Participations 2000 to 2005 Fixed: 10.00% to 13.60% Fixed: 10.00% to 13.60% No Yes (3)
Variable: LIBOR + 4.00% Variable: LIBOR + 4.00%
to 6.00% to 6.00%
Other Lending Investments 2002 and 2007 Fixed: 10.00% to 12.75% Fixed: 10.00% to 12.75% No No
Gross Carrying Value
Provision for Possible
Credit Losses
Total, Net
</TABLE>
EXPLANATORY NOTES:
- ----------------------------------
(1) Substantially all variable-rate loans are based on 30-day LIBOR and reprice
monthly.
(2) The loans require fixed payments of principal and interest resulting in
partial principal amortization over the term of the loan with the remaining
principal due at maturity. In addition, one of the loans permits additional
annual prepayments of principal of up to $1.3 million without penalty at the
borrower's option.
(3) Under some of these loans, the lender receives additional payments
representing additional interest from participation in available cash flow
from operations of the property and the proceeds, in excess of a base
amount, arising from a sale or refinancing of the property.
(4) As of March 31, 2000 and December 31, 1999, the unfunded commitment amount
on one of the Company's construction loans, included in subordinated
mortgages, was $8.9 million and $16.2 million, respectively.
16
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LOANS AND OTHER LENDING INVESTMENTS (CONTINUED)
During the three-month periods ended March 31, 2000 and 1999, respectively,
the Company and its affiliated ventures originated or acquired an aggregate of
approximately $211.9 million and $152.1 million in loans and other lending
investments, funded $16.5 million and $7.1 million under existing loan
commitments and received principal repayments of $117.6 million and
$56.7 million.
The Company has reflected additional provisions for possible credit losses
of approximately $1.5 million and $1.0 million in its results of operations
during the three months ended March 31, 2000 and 1999, respectively. There was
no other activity in the Company's reserve balances during this period. These
provisions represent portfolio reserves based on management's evaluation of
general market conditions, the Company's and industry loss experience,
likelihood of delinquencies or defaults and the underlying collateral. No direct
impairment reserves on specific loans were considered necessary. Management may
transfer reserves between general and specific reserves as considered necessary.
NOTE 6--REAL ESTATE SUBJECT TO OPERATING LEASES
The Company's investments in real estate subject to operating leases, at
cost, were as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Buildings and improvements.......................... $1,346,564 $1,390,933
Land and land improvements.......................... 271,367 277,872
Less accumulated depreciation....................... (13,737) (14,627)
---------- ----------
1,604,194 1,654,178
Investments in unconsolidated joint ventures........ 60,156 60,106
---------- ----------
Real estate subject to operating leases,
net......................................... $1,664,350 $1,714,284
========== ==========
</TABLE>
Under certain leases, the Company receives additional participating lease
payments to the extent gross revenues of the tenant exceed a base amount. The
Company earned no such additional participating lease payments in the
three-month period ended March 31, 2000.
At March 31, 2000, the Company had investments in five joint ventures:
(i) TriNet Sunnyvale Partners L.P. ("Sunnyvale") whose external partners are
John D. O'Donnell, Trustee, John W. Hopkins, and Donald S. Grant;
(ii) Corporate Technology Associates LLC ("CTC I") whose external member is
Corporate Technology Centre Partners LLC; (iii) Sierra Land Ventures ("Sierra"),
whose external joint venture partner is Sierra-LC Land, Ltd.; (iv) Corporate
Technology Centre Associates II LLC ("CTC II") whose external joint venture
member is Corporate Technology Centre Partners II LLC; and (v) TriNet Milpitas
Associates, LLC ("Milpitas") whose external member is The Prudential Insurance
Company of America, for the purpose of operating, acquiring and in certain
cases, developing properties. Effective November 22, 1999, the joint venture
partners, who are affiliates of Whitehall Street Real Estate Limted Partnership,
IX and The Goldman Sachs Group L.P. (the "Whitehall Group") in W9/TriNet
Poydras, LLC ("Poydras") elected to exercise their right under the partnership
agreement, which was accelerated as a result of the TriNet acquisition, to
exchange all of their membership units for 350,746 shares of Common Stock of the
Company and a $767,000 distribution of available cash. As a consequence, Poydras
is now wholly owned and is reflected on a consolidated basis in these financial
statements.
17
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--REAL ESTATE SUBJECT TO OPERATING LEASES (CONTINUED)
At March 31, 2000, the ventures comprised 25 net leased facilities totaling
1.7 million square feet, 18.3 acres of land under development and 28.4 acres of
land held for development and sale. The Company's combined investment in these
joint ventures at March 31, 2000 was $60.2 million. The joint ventures' purchase
price for the 25 operating facilities owned at March 31, 2000 was
$269.9 million. The purchase price of the land, both under development, or held
for development, was approximately $38.6 million. In the aggregate, the joint
ventures had total assets of $343.3 million, total liabilities of
$261.4 million, and net income of $0.7 million. The Company accounts for these
investments under the equity method because its joint venture partners have
certain participating rights which limit the Company's control. The Company's
investments in and advances to unconsolidated joint ventures, its percentage
ownership interests, its respective income and pro rata share of third-party
debt as of March 31, 2000 are presented below (in thousands):
<TABLE>
<CAPTION>
ACCRUED JOINT
UNCONSOLIDATED OWNERSHIP EQUITY NOTES INTEREST TOTAL VENTURE INTEREST TOTAL
JOINT VENTURE % INVESTMENT RECEIVABLE RECEIVABLE INVESTMENT INCOME INCOME INCOME
- ---------------------- ---------- ---------- ---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating:
Sunnyvale........... 44.7% $ 13,616 $ -- $ -- $ 13,616 $ 310 $ -- $ 310
CTC II.............. 50.0% 4,320 21,205 4,790 30,315 (273) 1,312 1,039
Milpitas............ 50.0% 20,647 -- -- 20,647 629 -- 629
Development:
Sierra.............. 50.0% 5,354 -- -- 5,354 (155) -- (155)
CTC I............... 50.0% 16,219 -- -- 16,219 (55) -- (55)
-------- -------- -------- -------- -------- ------- --------
Total $ 60,156 $ 21,205 4,790 $ 86,151 $ 456 $ 1,312 $ 1,768
======== ======== ======== ======== ======== ======= ========
<CAPTION>
PRO RATA
SHARE OF
UNCONSOLIDATED THIRD-PARTY
JOINT VENTURE DEBT
- ---------------------- -----------
<S> <C>
Operating:
Sunnyvale........... $ 7,416
CTC II.............. 8,240
Milpitas............ 41,011
Development:
Sierra.............. 2,588
CTC I............... 35,390
--------
Total $ 94,645
========
</TABLE>
At March 31, 2000 the Company was the guarantor for 50% of CTC I's
$70.8 million construction loan. Additionally, if the Company agrees with its
joint venture partner to commence the development of phase II of the project. As
a result, it has an additional commitment to fund further development costs in
the amount of approximately $10.0 million. This amount will vary depending upon
the amount of senior third-party financing obtained.
Currently, the limited partners of the Sunnyvale partnership have the option
to convert their partnership interest into cash; however, the Company may elect
to deliver 297,728 shares of Common Stock in lieu of cash. Additionally,
commencing in February 2002, subject to acceleration under certain
circumstances, partnership units held by certain partners of Milpitas may be
converted into 984,476 shares of Common Stock.
18
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS
As of March 31, 2000 and December 31, 1999, the Company has debt obligations
under various arrangements with financial institutions as follows (in
thousands):
<TABLE>
<CAPTION>
MAXIMUM CARRYING VALUE AS OF STATED SCHEDULED
AMOUNT MARCH 31, DECEMBER 31, INTEREST MATURITY
AVAILABLE 2000 1999 RATES DATE
---------- ----------- ------------- -------------------------- ----------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SECURED REVOLVING CREDIT
FACILITIES:
Line of credit............... $ 675,000 $ 649,249 $ 592,984 LIBOR + 1.50% March 2001
Line of credit............... 500,000 203,964 169,952 LIBOR + 1.50% - 1.75%(1) August 2002(1)
---------- ---------- ----------
Total secured revolving 1,175,000 853,213 762,936
credit facilities...........
UNSECURED REVOLVING CREDIT
FACILITIES:
Line of credit............... 350,000 144,600 186,700 LIBOR + 1.55% May 2001
Line of credit............... 50,000 17,000 -- LIBOR + 2.00% - 2.25% January 2002
---------- ---------- ----------
Total revolving credit $1,575,000 1,014,813 949,636
facilities..................
==========
SECURED TERM LOANS:
Secured by real estate under operating 152,865 153,618 7.44% March 2009
leases..................................
Secured by senior and subordinate 109,062 109,398 LIBOR + 1.00% August 2000
mortgage investments....................
Secured by senior mortgage investment.... 90,623 90,902 LIBOR + 1.00% August 2000
Secured by mezzanine investment.......... 30,000 -- LIBOR + 3.50% June 2000
Secured by real estate under operating 78,610 78,610 LIBOR + 1.38% June 2001
leases..................................
Secured by real estate under operating 64,925 73,279 Fixed: 6.00% + 11.30% (3)
leases.................................. Variable: LIBOR + 1.00%
Secured by senior mortgage investment.... 54,000 54,000 LIBOR + 1.75% (2) May 2000(2)
---------- ----------
Total term loans......................... 580,085 559,807
Less debt discounts...................... (388) (521)
---------- ----------
Total secured term loans................. 579,697 559,286
UNSECURED NOTES:
6.75% Dealer Remarketable Securities 125,000 125,000 6.75% March 2013
(4).....................................
7.30% Notes.............................. 100,000 100,000 7.30% March 2001
7.70% Notes.............................. 100,000 100,000 7.70% July 2017
7.95% Notes.............................. 50,000 50,000 7.95% May 2006
---------- ----------
Total unsecured notes.................... 375,000 375,000
Less debt discount (5)................... (20,756) (21,481)
---------- ----------
Total unsecured notes.................... 354,244 353,519
OTHER DEBT OBLIGATIONS....................... 38,640 38,763 Various Various
---------- ----------
TOTAL DEBT OBLIGATIONS....................... $1,987,394 $1,901,204
========== ==========
</TABLE>
EXPLANATORY NOTES:
- ----------------------------------
(1) On February 4, 2000, the Company extended the term of its $500.0 million
facility to August 2002 and increased pricing under the facility to LIBOR +
1.50% to 1.75%.
(2) Based on a 12-month LIBOR contract currently at 5.317%, repricing in May
2000. Subsequent to quarter end, the Company extended its $54.0 million term
loan to November 2000.
(3) Other mortgage loans mature at various dates through 2010.
(4) Subject to mandatory tender on March 31, 2003, to either the Dealer or the
Leasing Subsidiary. The initial coupon of 6.75% applies to first five-year
term through the mandatory tender date. If tendered to the Dealer, the notes
must be remarketed. The rates reset upon remarketing.
(5) These obligations were assumed as part of the TriNet acquisition. As part of
the accounting for the purchase, these fixed rate obligations were
considered to have stated interest rates which were below the then
prevailing market rates at which the Leasing Subsidiary could issue new debt
obligations and, accordingly, the Company ascribed a market discount to each
obligation. Such discounts will be amortized as an adjustment to interest
expense using the effective interest method over the related term of the
obligations. As adjusted, the effective annual interest rates on these
obligations were 8.81%, 8.75%, 9.51% and 9.04%, for the 6.75% Dealer
Remarketable Securities, 7.30% Notes, 7.70% Notes and 7.95% Notes,
respectively.
19
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT OBLIGATIONS (CONTINUED)
Availability of amounts under the secured revolving credit facilities are
based on percentage borrowing base calculations. Except as indicated above, all
debt obligations are based on 30-day LIBOR and reprice monthly.
Certain of the Leasing Subsidiary's debt obligations contain financial
covenants pertaining to the subsidiary. Such obligations also establish
restrictions on certain intercompany transactions between the Leasing Subsidiary
and other Company affiliates. Further, such obligations also provide for a limit
on distributions from the Leasing Subsidiary at 85% of cash flow from operations
on a rolling four-quarter basis.
On January 31, 2000, the Company closed a new unsecured revolving credit
facility. The facility is led by a major commercial bank, which has committed
$50.0 million of the facility amount and intends to increase the facility to
$100.0 million through syndication. The new facility has a two-year primary term
and one-year extension at the Company's option, and bears interest at LIBOR plus
2.00% to 2.25%, depending upon certain conditions.
On February 4, 2000, the Company extended the term of its existing $500.0
million secured credit facility. The Company extended the original August 2000
maturity date to August 2002, through a one-year extension to the facility's
draw period and an additional one-year "term out" period during which
outstanding principal amortizes 25% per quarter. In connection with the
extension, the Company and the facility lender also expanded the range of assets
that the lender would accept as collateral under the facility. In exchange for
the extension and expansion, the Company agreed to increase the facility's
interest rate from LIBOR plus 1.25% to 1.50%, to a revised rate of LIBOR plus
1.50% to 1.75%, depending upon certain conditions.
During the three-month period ended March 31, 2000, the Company incurred an
extraordinary loss of approximately $0.3 million as a result of the early
retirement of certain debt obligations of its Leasing Subsidiary.
Future maturities of outstanding long-term debt obligations are as follows
(in thousands):
<TABLE>
<S> <C>
2000 (remaining nine months)................................ $ 298,745
2001........................................................ 1,176,423
2002........................................................ 32,256
2003........................................................ --
2004........................................................ 36,296
Thereafter.................................................. 464,818
----------
Total principal maturities.................................. 2,008,538
Net unamortized debt (discounts)/premiums................... (21,144)
----------
Total debt obligations...................................... $1,987,394
==========
</TABLE>
NOTE 8--STOCKHOLDERS' EQUITY
Prior to November 4, 1999, the Company was authorized to issue
105.0 million shares, representing 70.0 million class A shares and 35.0 million
class B shares, with a par value of $1.00 and $0.01 per share, respectively.
Class B shares were required to be issued by the Company in an amount equal to
one half of the number of class A shares outstanding. Class A and class B shares
were each entitled to one vote per
20
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCKHOLDERS' EQUITY (CONTINUED)
share with respect to the election of directors and other matters. Pursuant to
the Declaration of Trust, the class B shares were convertible at the option of
the class B shareholders into class A shares on the basis of 49 class B shares
for one class A share. However, the holder of class B shares had agreed with the
Company that it would not convert the class B shares into class A shares without
the approval of a majority of directors that were not affiliated with such
holder. All distributions of cash were made 99% to the holders of class A shares
and 1% to the holders of class B shares.
On December 15, 1998, for an aggregate purchase price of $220.0 million, the
Company issued 4.4 million shares of Series A Preferred Stock and warrants to
acquire 6.1 million common shares of Common Stock, as adjusted for dilution, at
$35.00 per share. The warrants are exercisable on or after December 15, 1999 at
a price of $35.00 per share and expire on December 15, 2005. The proceeds were
allocated between the two securities issued based on estimated relative fair
values.
As more fully described in Note 4, the Company consummated a series of
transactions on November 4, 1999, in which its class A and class B shares were
exchanged into a single class of Common Stock. The Company's charter now
provides for the issuance of up to 200.0 million shares of Common Stock, par
value $0.001 per share, and 30.0 million shares of preferred stock. As part of
these transactions, the Company adopted articles supplementary creating four
series of preferred stock designated as 9.5% Series A Cumulative Redeemable
Preferred Stock, consisting of 4.4 million shares, 9.375% Series B Cumulative
Redeemable Preferred Stock, consisting of 2.3 million shares, 9.20% Series C
Cumulative Redeemable Preferred Stock, consisting of approximately 1.5 million
shares, and 8.0% Series D Cumulative Redeemable Preferred Stock, consisting of
4.6 million shares. The Series B, C and D Cumulative Redeemable Preferred Stock
were issued in the TriNet acquisition in exchange for similar issuances of
TriNet stock then outstanding. The Series A, B, C and D Cumulative Redeemable
Preferred Stock are redeemable without premium at the option of the Company at
their respective liquidation preferences beginning on December 15, 2003,
June 15, 2001, August 15, 2001 and October 8, 2002, respectively.
STOCK REPURCHASE PROGRAM: The Board of Directors approved, and the Company
has implemented, a stock repurchase program under which the Company is
authorized to repurchase up to 5.0 million shares of its Common Stock from time
to time, primarily using proceeds from the disposition of assets and excess cash
flow from operations, but also using borrowings under its credit facilities if
the Company determines that it is advantageous to do so. As of March 31, 2000
and December 31, 1999, the Company had repurchased approximately 2.3 million
shares, at an aggregate cost of approximately $40.5 and $40.4 million,
respectively.
NOTE 9--RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS
RISK MANAGEMENT--In the normal course of its on-going business operations,
the Company encounters economic risk. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Company is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different speeds, or different bases, than its
interest-earning assets. Credit risk is the risk of default on the Company's
loan assets that results from a property's, borrower's or tenant's inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of loans, securities available for sale and purchased
mortgage servicing rights due to changes in interest rates or other market
factors, including the rate of prepayments of principal and the value of the
collateral underlying loans and the valuation of real estate held by the
Company.
21
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS (CONTINUED)
USE OF DERIVATIVE FINANCIAL INSTRUMENTS--The Company's use of derivative
financial instruments is primarily limited to the utilization of interest rate
agreements or other instruments to manage interest rate risk exposure. The
principal objective of such arrangements is to minimize the risks and/or costs
associated with the Company's operating and financial structure as well as to
hedge specific anticipated transactions. The counterparties to these contractual
arrangements are major financial institutions with which the Company and its
affiliates may also have other financial relationships. The Company is
potentially exposed to credit loss in the event of nonperformance by these
counterparties. However, because of their high credit ratings, the Company does
not anticipate that any of the counterparties will fail to meet their
obligations.
The Company has entered into LIBOR interest rate caps struck at 9.00%, 7.50%
and 7.50% in notional amounts of $300.0 million, $40.4 million and $38.3
million, respectively, which expire in March 2001, January 2001 and June 2001,
respectively. In addition, in connection with the TriNet acquisition, the
Company acquired LIBOR interest rate caps currently struck at 7.75%, 7.75%, and
7.50% in notional amounts of $75.0 million, $35.0 million, and $75.0 million,
respectively, which expire in December 2004, December 2004, and August 2001,
respectively. At March 31, 2000 and December 31, 1999, the fair value of the
Company's interest rate caps were $1.8 and $2.2 million, respectively.
The Company has entered into approximately $205.0 million of interest rate
swaps to effectively fix the interest rate on a portion of the Company's
floating-rate term loan obligations. In addition, in connection with the TriNet
acquisition, the Company acquired an interest rate swap agreement which,
together with certain existing interest rate cap agreements, effectively fix the
interest rate on $75.0 million of the Leasing Subsidiary's LIBOR-based
borrowings at 5.58% plus the applicable margin through December 1, 2004.
Management expects that it will have aggregate LIBOR-based borrowings at the
Leasing Subsidiary in excess of the notional amount for the duration of the
swap. The actual borrowing cost to the Company with respect to indebtedness
covered by the swap will depend upon the applicable margin over LIBOR for such
indebtedness, which will be determined by the terms of the relevant debt
instruments. At March 31, 2000 and December 31, 1999, the fair value of the
Company's interest rate swaps were $4.1 and $3.4 million, respectively.
The Company is currently pursuing or recently consummated certain
anticipated long-term fixed rate borrowings and had entered into certain
derivative instruments based on U.S. Treasury securities to hedge the potential
effects of interest rate movements on these transactions. Under these
agreements, the Company would generally receive additional cash flow at
settlement if interest rates rise and pay cash if interest rates fall. The
effects of such receipts or payments will be deferred and amortized over the
term of the specific related fixed-rate borrowings. During the year ended
December 31, 1999, the Company settled an aggregate notional amount of
approximately $63.0 million that was outstanding under such agreements,
resulting in a receipt of approximately $0.6 million to be amortized over the
term of the anticipated borrowing.
During the year ended December 31, 1999, the Company refinanced its
$125.0 million term loan maturing March 15, 1999 with a $155.4 million term loan
maturing March 5, 2009. The new term loan bears interest at 7.44% per annum,
payable monthly, and amortizes over an approximately 22-year schedule. The new
term loan represented one of the forecasted transactions for which the Company
had previously entered into U.S. Treasury-based hedging transactions. The net
$3.4 million cost of the settlement of the related interest rate hedges has been
deferred and will be amortized as an increase to the effective financing cost of
the new term loan over its effective 10-year term.
22
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--RISK MANAGEMENT AND USE OF FINANCIAL INSTRUMENTS (CONTINUED)
In the event that, in the opinion of management, it is no longer probable
that the remaining forecasted transaction will occur under terms substantially
equivalent to those projected, the Company will cease recognizing such
transactions as hedges and immediately recognize related gains or losses based
on actual settlement or estimated settlement value of the underlying derivative
contract. No such gains or losses have been recognized by the Company.
CREDIT RISK CONCENTRATIONS--Concentrations of credit risks arise when a
number of borrowers or tenants related to the Company's investments are engaged
in similar business activities, or activities in the same geographic region, or
have similar economic features that would cause their ability to meet
contractual obligations, including those to the Company, to be similarly
affected by changes in economic conditions. The Company regularly monitors
various segments of its portfolio to assess potential concentrations of credit
risks. Management believes the current credit risk portfolio is reasonably well
diversified and does not contain any unusual concentration of credit risks.
Substantially all of the Company's real estate subject to operating leases
(including those held by joint ventures), loans and other lending investments
are collateralized by properties located in the United States, with significant
concentrations (i.e., greater than 10%) as of March 31, 2000 in California
(25.6%) and Texas (14.3%). As of March 31, 2000, the Company's investments also
contain significant concentrations in the following asset/collateral types:
office (50.5%), hotel/resorts (13.1%), retail (7.6%) and industrial (7.6%).
The Company underwrites the credit of prospective borrowers and tenants and
often requires them to provide some form of credit support such as corporate
guarantees or letters of credit. Although the Company's loans and other lending
investments and net lease assets are geographically diverse and the borrowers
and tenants operate in a variety of industries, to the extent the Company has a
significant concentration of interest or operating lease revenues from any
single borrower or tenant, the inability of that borrower or tenant to make its
payment could have an adverse effect on the Company. As of March 31, 2000, the
Company's five largest borrowers or tenants collectively accounted for
approximately 17.1% of the Company's annualized interest and operating lease
revenue.
NOTE 10--INCOME TAXES
Although originally formed to qualify as a REIT under the Code for the
purpose of making and acquiring various types of mortgage and other loans,
during 1993 through 1997, the Company failed to qualify as a REIT. As confirmed
by a closing agreement with the Internal Revenue Service (the "IRS") obtained in
March 1998, the Company was eligible and elected to be taxed as a REIT for the
tax years commencing on January 1, 1998. The Company did not incur any material
tax liabilities as a result of its operations during such years.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and income tax purposes, as well as operating loss and tax credit carry
forwards. A valuation allowance is recorded if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
income tax asset will not be realized. Given the limited nature of the Company's
operations and assets and liabilities from 1993 through 1997, the only deferred
tax assets were net operating loss carry forwards ("NOL's") of approximately
$4.0 million, which arose during such periods. Since the Company has elected to
be treated as a REIT for its tax years beginning January 1, 1998, the NOL's have
expired unutilized. Accordingly, no net
23
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
deferred tax asset value, after consideration of a 100% valuation allowance, has
been reflected in these financial statements as of March 31, 2000 or
December 31, 1999 nor a net tax provision for the three-month periods ended
March 31, 2000 and 1999.
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS
The Company's 1996 Long-Term Incentive Plan (the "Plan") is designed to
provide incentive compensation for officers, other key employees and directors
of the Company. The Plan provides for awards of stock options and restricted
stock and other performance awards. The maximum number of shares of Common Stock
available for awards under the Plan is 9% of the outstanding shares of Common
Stock, calculated on a fully diluted basis, from time to time; provided that,
the number of shares of Common Stock reserved for grants of options designated
as incentive stock options is 5.0 million, subject to certain antidilution
provisions in the Plan. All awards under the Plan, other than automatic awards
to non-employee directors, are at the discretion of the Board or a committee of
the Board. At March 31, 2000, a total of approximately 7.7 million shares of
Common Stock were available for awards under the Plan, of which options to
purchase approximately 5.4 million shares of Common Stock were outstanding.
Concurrently with the Recapitalization Transactions, the Company issued
approximately 2.5 million fully vested (as adjusted) and immediately exercisable
options to purchase class A shares at $15.00 per share to the Advisor with a
term of ten years. The Advisor granted a portion of these options to its
employees and the remainder allocated to an affiliate. In general, the grants to
the Advisor's employees provided for scheduled vesting over a predefined service
period of three to five years and in some cases provided for accelerated vesting
based on a change in control of the Advisor or completion of certain liquidity
transactions. These options expire concurrently with the original option grant
to the Advisor. Upon consummation of the Advisor Transaction these individuals
became employees of the Company.
In connection with the TriNet acquisition, outstanding options to purchase
TriNet stock under TriNet's stock option plans were converted into options to
purchase shares of Common Stock on substantially the same terms, except that
both the exercise price and number of shares issuable upon exercise of the
TriNet options were adjusted to give effect to the merger exchange ratio of 1.15
shares of Common Stock for each share of TriNet common stock. In addition,
options held by the directors of TriNet and certain executive officers became
fully vested as a result of the transaction.
The TriNet directors received a number of options of the Company to purchase
Common Stock on a fully vested basis on substantially the same terms as the
TriNet options, in each case giving effect to the 1.15 exchange ratio for their
options.
Also, as a result of the TriNet acquisition, TriNet terminated its dividend
equivalent rights program. The program called for immediate vesting and cash
redemption of all dividend equivalent rights upon a change of control of 50% or
more of the voting common stock. Concurrent with the TriNet acquisition, all
dividend equivalent rights were vested and amounts due to former TriNet
employees of approximately $8.3 million were paid by the Company. Such payments
were included as part of the purchase price paid by the Company to acquire
TriNet for financial reporting purposes.
24
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED)
Changes in options outstanding during the three months ended March 31, 2000
was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------------------- AVERAGE
NON-EMPLOYEE STRIKE
EMPLOYEES DIRECTORS OTHER PRICE
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
OPTIONS OUTSTANDING, DECEMBER 31, 1999......... 3,001,270 183,177 764,146 $19.08
Granted in 2000.............................. 1,626,683 80,000 50,000 $17.00
Exercised in 2000............................ -- -- -- $ --
Forfeited in 2000............................ (316,212) -- -- $25.25
--------- ------- -----------
OPTIONS OUTSTANDING, MARCH 31, 2000............ 4,311,741 263,177 814,146 $17.29
========= ======= ===========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL EXERCISE CURRENTLY EXERCISE
EXERCISE PRICE RANGE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$15.00 2,473,714 7.95 $15.00 1,303,803(1) $15.00
$16.88 1,104,990 9.77 $16.88 -- $ --
$17.00-$17.38 600,750 9.94 $17.36 -- $ --
$21.09 86,250 3.18 $21.09 86,250 $21.09
$22.45 149,500 1.11 $22.45 149,500 $ --
$23.32 167,325 1.99 $23.32 167,325 $ --
$23.64 109,020 4.15 $23.64 -- $ --
$24.13-$24.57 239,657 3.61 $24.38 212,632 $24.36
$24.67 56,322 0.86 $25.33 52,872 $25.33
$27.88-$28.37 122,764 1.57 $28.33 108,102 $28.35
$29.63 10,185 8.10 $30.18 10,185 $29.63
$30.33 253,145 2.16 $30.33 197,967 $30.33
$33.15-$33.70 10,350 4.94 $33.39 7,475 $33.49
$57.50 5,092 9.65 $58.58 5,092 $57.50
--------- ---- ------ --------- ------
5,389,064 7.39 $18.19 2,301,203 $19.58
========= ==== ====== ========= ======
</TABLE>
EXPLANATORY NOTE:
- ------------------------------
(1) Includes approximately 764,000 options which were granted, on a fully
exercisable basis, in connection with the Recapitalization Transactions to
an entity related to Starwood Capital Group, and which were subsequently
regranted by that entity to employees of Starwood Capital Group subject to
vesting and exercisability requirements. As a result of those requirements,
less than 2,000 of these options are currently exercisable by the beneficial
owners. In the event that these employees forfeit such options, they revert
to such entity, which may regrant them at its discretion.
The Company has elected to use the intrinsic method for accounting for
options issued to employees or directors, as allowed under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("SFAS 123") and, accordingly, recognizes no compensation charge in connection
with these options to the extent that the options exercise price equals or
exceeds the quoted price of the
25
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED)
Company's common shares at the date of grant or measurement date. In connection
with the Advisor Transaction, as part of the computation of the one-time charge
to earnings, the Company calculated a deferred compensation charge of
approximately $5.1 million. This deferred charge represents the difference of
the closing sales price of the shares of Common Stock on the date of the Advisor
Transaction of $20.25 over the strike price of the options of $15.00 for the
unvested portion of the options granted to former employees of the Advisor who
are now employees of the Company. This deferred charge will be amortized over
the related remaining vesting terms to the individual employees as additional
compensation expense.
In connection with the original grant of options to the Advisor, the Company
utilized the option value method as required by SFAS 123 to account for the
initial grant of options to the Advisor. An independent financial advisory firm
estimated the value of these options at date of grant to be approximately $2.40
per share using a Black-Scholes valuation model. In the absence of comparable
historical market information for the Company, the advisory firm utilized
assumptions consistent with activity of a comparable peer group of companies
including an estimated option life of five years, a 27.5% volatility rate and an
estimated annual dividend rate of 8.5%. The resulting charge to earnings was
calculated as the number of options allocated to the Advisor multiplied by the
estimated value at consummation. A charge of approximately $6.0 million had been
reflected in the Company's first quarter 1998 financial results for this
original grant.
Future charges may be taken to the extent of additional option grants, which
are at the discretion of the Board of Directors.
Effective November 4, 1999, the Company implemented a savings and retirement
plan (the "401 (k) Plan"), which is a voluntary, defined contribution plan. All
employees are eligible to participate in the 401 (k) Plan following completion
of six months of continuous service with the Company. Each participant may
contribute on a pretax basis between 2% and 15% of such participant's
compensation. At the discretion of the Board of Directors, the Company may make
matching contributions on the participant's behalf up to 50% of the first 10% of
the participant's annual contribution. The Company made contributions of
approximately $0.1 million to the 401 (k) Plan for the three-month period ended
March 31, 2000.
NOTE 12--EARNINGS PER SHARE
Prior to November 4, 1999, basic EPS was computed based on the income
allocable to class A shares (net income reduced by accrued dividends on
preferred shares and by 1% allocated to class B shares) divided by the weighted
average number of class A shares outstanding during the period. Diluted EPS was
based on the net earnings allocable to class A shares plus dividends on class B
shares which were convertible into class A shares, divided by the weighted
average number of class A shares and dilutive potential class A shares that were
outstanding during the period. Dilutive potential class A shares included the
class B shares, which were convertible into class A shares at a rate of 49
class B shares for one class A share, and potentially dilutive options to
purchase class A shares issued to the Advisor and the Company's directors and
warrants to acquire class A shares.
As more fully described in Note 4, in the Incorporation Merger, the class B
shares were converted into shares of Common Stock on a 49-for-one basis (the
same ratio at which class B shares were previously convertible into class A
shares), and the class A shares were converted into shares of Common Stock on a
one-for-one basis. As a result, the Company no longer has multiple classes of
common shares. Basic and
26
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--EARNINGS PER SHARE (CONTINUED)
diluted earnings per share are based upon the following weighted average shares
outstanding during the three-month periods ended March 31, 2000 and 1999,
respectively (in thousands):
<TABLE>
<CAPTION>
THREE-MONTH
PERIODS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Weighted average common shares outstanding for basic
earnings per common share................................. 85,087 52,447
Add effect of assumed shares issued under treasury stock
method for stock options and restricted stock units....... 362 1,715
Add effects of conversion of class B shares (49-for-one).... -- 535
Add effects of assumed warrants exercised under treasury
stock method for stock options............................ -- 1,849
------ ------
Weighted average common shares outstanding for diluted
earnings per common share................................. 85,449 56,546
====== ======
</TABLE>
NOTE 13--COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective for fiscal
years beginning after December 15, 1997. The statement changes the reporting of
certain items currently reported as changes in the shareholders' equity section
of the balance sheet and establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 requires that all components of comprehensive
income shall be reported in the financial statements in the period in which they
are recognized. Furthermore, a total amount for comprehensive income shall be
displayed in the financial statements. The Company has adopted this standard
effective January 1, 1998. Total comprehensive income was $51.7 million and
$28.1 million for the three-month periods ended March 31, 2000 and 1999,
respectively. The primary component of comprehensive income other than net
income was the change in value of certain investments in marketable securities
classified as available-for-sale.
27
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--DIVIDENDS
In order to maintain its election to qualify as a real estate investment
trust, the Company must distribute, at a minimum, an amount equal to 95% of its
taxable income and must distribute 100% of its taxable income to avoid paying
corporate federal income taxes. Accordingly, the Company anticipates it will
distribute all of its taxable income to its shareholders. Because taxable income
differs from cash flow from operations due to non-cash revenues or expenses, in
certain circumstances, the Company may be required to borrow to make sufficient
dividend payments to meet this anticipated dividend threshold.
On November 4, 1999, the class A shares were converted into shares of Common
Stock on a one-for-one basis. Total dividends declared by the Company aggregated
$116.1 million, or $1.86 per common share, for the year ended December 31, 1999.
On April 3, 2000, the Company declared a dividend of approximately
$51.2 million, or $0.60 per common share applicable to the three-month period
ended March 31, 2000 and payable to shareholders of record on April 14, 2000.
The Company also declared dividends aggregating $5.2 million, $1.2 million,
$0.7 million, and $2.0 million, respectively, on its Series A, B, C and D
preferred stock, respectively, for the three-month period ended March 31, 2000.
There are no dividend arrearages on any of the preferred shares currently
outstanding.
In November 1999, the Company declared and paid a dividend of a total of one
million shares of Common Stock pro rata to all holders of record of Common Stock
as of the close of business on November 3, 1999.
The Series A preferred stock has a liquidation preference of $50.00 per
share and carry an initial dividend yield of 9.50% per annum. The dividend rate
on the preferred shares will increase to 9.75% on December 15, 2005, to 10.00%
on December 15, 2006 and to 10.25% on December 15, 2007 and thereafter.
Dividends on the Series A preferred shares are payable quarterly in arrears and
are cumulative.
Holders of shares of the Series B preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 9.375% per annum of the $25.00 liquidation preference, equivalent to a fixed
annual rate of $2.34 per share. Dividends are cumulative from the date of
original issue and are payable quarterly in arrears on or before the 15th day of
each March, June, September and December or, if not a business day, the next
succeeding business day. Any dividend payable on the Series B preferred stock
for any partial dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends will be payable to holders of
record as of the close of business on the first day of the calendar month in
which the applicable dividend payment date falls or on another date designated
by the Board of Directors of the Company for the payment of dividends that is
not more than 30 nor less than 10 days prior to the dividend payment date.
Holders of shares of the Series C preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 9.20% of the $25.00 liquidation preference per year, equivalent to a fixed
annual rate of $2.30 per share.
Holders of shares of the Series D preferred stock are entitled to receive,
when and as declared by the Board of Directors, out of funds legally available
for the payment of dividends, cumulative preferential cash dividends at the rate
of 8.00% of the $25.00 liquidation preference per year, equivalent to a fixed
annual rate of $2.00 per share.
28
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ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--DIVIDENDS (CONTINUED)
The exact amount of future quarterly dividends to common shareholders will
be determined by the Board of Directors based on the Company's actual and
expected operations for the fiscal year and the Company's overall liquidity
position.
NOTE 15--SEGMENT REPORTING
Statement of Financial Accounting Standard No. 131 ("SFAS 131") establishes
standards for the way the public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected financial information about operating segments in
interim financial reports issued to stockholders.
The Company has two reportable segments: real estate lending and credit
tenant leasing. The Company does not have substantial foreign operations. The
accounting policies of the segments are the same as those described in Note 3.
The Company has no single customer that accounts for 10% or more of revenues
(see Note 9 for other information regarding concentrations of credit risk).
29
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--SEGMENT REPORTING (CONTINUED)
The Company evaluates performance based on the following financial measures
for each segment. Selected results of operations for the three months ended
March 31, 2000 and 1999 and selected asset information as of March 31, 2000 and
December 31, 1999 regarding the Company's operating segments are as follows (in
thousands):
<TABLE>
<CAPTION>
CREDIT
REAL ESTATE TENANT CORPORATE/ COMPANY
LENDING LEASING (1) OTHER (2) TOTAL
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues(3):
Three months ended:
March 31, 2000 $ 60,083 $ 46,272 $ 4,533 $ 110,888
March 31, 1999 49,919 3,727 1,778 55,424
Total operating and interest expense(4):
Three months ended:
March 31, 2000 $ 22,517 $ 29,080 $ 7,477 $ 59,074
March 31, 1999 18,379 3,679 5,149 27,207
Net operating income before minority
interests(5):
Three months ended:
March 31, 2000 $ 37,566 $ 17,192 $ (2,944) $ 51,814
March 31, 1999 31,540 48 (3,371) 28,217
Total long-lived assets(6):
March 31, 2000 $2,120,744 $1,664,350 N/A $3,785,094
December 31, 1999 2,003,506 1,714,284 N/A 3,717,790
Total assets:
March 31, 2000 N/A N/A $3,896,540 $3,896,540
December 31, 1999 N/A N/A 3,813,552 3,813,552
</TABLE>
EXPLANATORY NOTES:
- ------------------------------
(1) Includes the Company's pre-existing Credit Tenant Leasing investments
acquired in the Recapitalization Transactions since March 18, 1998 and the
Credit Tenant Leasing business acquired in the TriNet acquisition since
November 4, 1999.
(2) Corporate and Other represents all corporate-level items, including,
general and administrative expenses and any intercompany eliminations
necessary to reconcile to the consolidated Company totals. This caption also
includes the Company's servicing business, which is not considered a
material separate segment.
(3) Total revenues represents all revenues earned during the period from the
assets in each segment. Revenue from the Real Estate Lending Business
primarily represents interest income and revenue from the Credit Tenant
Leasing business primarily represents operating lease income.
(4) Total operating and interest expense represents provision for possible
credit losses for the Real Estate Lending business and property operating
costs (including real estate taxes) for the Credit Tenant Leasing business.
Interest expense, general and administrative, advisory fees and stock option
compensation expense is included in Corporate and Other for all periods.
Depreciation and amortization of $9,009 and $1,365 for the three-month
periods ended March 31, 2000 and 1999, respectively, are included in the
amounts presented above.
(5) Net operating income before minority interests represents total revenues, as
defined in note (3) above, less total operating and interest expense, as
defined in note (4) above, for each period.
(6) Long-lived assets is comprised of Loans and Other Lending Investments, net
and Real Estate Subject to Operating Leases, net, for each respective
segment.
30
<PAGE>
ISTAR FINANCIAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--SUBSEQUENT EVENTS
On April 14, 2000, the Company announced that its Board of Directors
appointed Jay Sugarman, president and chief executive officer, to the added post
of chairman of the board. In connection with the appointment, Barry S.
Sternlicht stepped down as chairman, but remains a board member. In addition, on
April 30, 2000, the Company changed its name from Starwood Financial Inc. to
IStar Financial Inc.
In May 2000 the Company expects to close the inaugural offering under its
proprietary matched funding program, IStar Asset Receivables, Series 2000-1
("STARS"). In the initial transaction, a trust which is wholly owned by the
Company will issue $886.0 million of investment grade bonds secured by the
trust's assets. The maturity of the bonds will match fund the maturity of the
underlying assets financed under the program.
31
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
As more fully discussed in Note 4 to the Company's Consolidated Financial
Statements, on March 18, 1998, the Company completed the Recapitalization
Transactions which, among other things, substantially recapitalized the Company
and modified its investment policy. Effective June 18, 1998, the Company (which
was organized under California law) changed its domicile to Maryland by merging
with a newly-formed subsidiary organized under Maryland law, and issued new
shares of the subsidiary to the Company's shareholders in exchange for their
shares in the Company. Concurrently, the Company consummated a one-for-six
reverse stock split.
Immediately prior to the consummation of the Recapitalization Transactions,
the Company's assets primarily consisted of approximately $11.0 million in
short-term, liquid real estate investments, cash and cash equivalents.
On December 15, 1998, the Company sold $220.0 million of preferred shares
and warrants to purchase class A shares to a group of investors affiliated with
Lazard Freres. Concurrent with the sale of the preferred shares and warrants,
the Company purchased $280.3 million in real estate loans and participation
interests from a group of investors also affiliated with Lazard Freres. These
transactions are referred to collectively as the "Lazard Transaction."
As more fully discussed in Note 4 to the Company's Consolidated Financial
Statements, on November 3, 1999, the Company's shareholders approved a series of
transactions including: (i) the acquisition of TriNet; (ii) the acquisition of
the Company's external advisor; and (iii) the reorganization of the Company from
a trust to a corporation and the exchange of the class A and class B shares for
Common Stock. Pursuant to the TriNet acquisition, TriNet merged with and into a
subsidiary of the Company, with TriNet surviving as a wholly-owned subsidiary of
the Company. In the acquisition, each share of common stock of TriNet was
converted into 1.15 shares of Common Stock. Each share of TriNet Series A,
Series B and Series C Cumulative Redeemable Preferred Stock was converted into a
share of Series B, Series C or Series D (respectively) Cumulative Redeemable
Preferred Stock of the Company. The Company's preferred stock issued to the
former TriNet preferred stockholders has substantially the same terms as the
TriNet preferred stock, except that the new Series B, C, and D preferred stock
have additional voting rights not associated with the TriNet preferred stock.
The Company's Series A Preferred Stock remained outstanding with the same rights
and preferences as existed prior to the TriNet acquisition. As a consequence of
the acquisition of its external advisor, the Company is now internally-managed
and will no longer pay external advisory fees.
The transactions described above and other related transactions have
materially impacted the historical operations of the Company and will continue
to impact the Company's future operations. Accordingly, the reported historical
financial information for periods prior to these transactions is not believed to
be fully indicative of the Company's future operating results or financial
condition.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THE THREE-MONTH PERIOD ENDED
MARCH 31, 1999
During the three-month period ended March 31, 2000, total revenue increased
by approximately $55.5 million over total revenue for the same period in 1999.
This increase is a result of the interest generated by $211.9 million of loan
investments newly-originated or acquired by the Company during 2000, an
additional $16.5 million funded under existing loan commitments, and
approximately $42.1 million in operating lease income generated from net lease
assets acquired in the TriNet acquisition. The increase was partially offset by
a reduction in interest earned as a result of principal repayments of
approximately $117.6 million made to the Company on its loan investments during
the three months ended March 31, 2000. Included in other income for fiscal year
1999 are prepayment fees of approximately $3.1 million
32
<PAGE>
resulting from the partial repayments of three loans, a forbearance fee of
$1.1 million resulting from the purchase of a sub-performing loan and subsequent
restructuring of such loan to fully performing status, and approximately
$0.5 million in additional revenue from certain cash flow participation features
on four of the Company's loan investments.
The Company's total costs and expenses during the three-month period ended
March 31, 2000 increased by approximately $31.9 million compared to the same
period in 1999, as explained in more detail below. These increases were
generally the result of the increased scope of the Company's operations as a
result of costs associated with additional lending operations and the TriNet
acquisition.
The Company's interest expense increased by $18.1 million for the
three-month period ended March 31, 2000 over the same period in the prior year.
This was in part the result of higher interest rates and higher average
borrowings by the Company on its credit facilities and other term loans, the
proceeds of which were used to fund additional loan origination and acquisition
activities. Further, interest expense in fiscal 2000 includes interest incurred
by the Leasing Subsidiary subsequent to its acquisition.
Property operating costs represent unreimbursed property operating expenses
incurred by the Leasing Subsidiary subsequent to its acquisition. All costs of
this kind were borne directly by the tenant on the Company's pre-existing credit
tenant leasing portfolio prior to the TriNet acquisition.
Depreciation and amortization increased approximately $7.6 million for the
three-month period ended March 31, 2000 over the same period in the prior year,
primarily as a result of depreciation and amortization on the Leasing
Subsidiary's net leased assets subsequent to its acquisition.
General and administrative costs increased by approximately $6.4 million for
the three-month period ended March 31, 2000 as a result of additional costs
incurred subsequent to the acquisition of the Company's external advisor, as
well as additional administrative expenses associated with the Leasing
Subsidiary subsequent to its acquisition.
There were no advisory fees during the three-month period ended March 31,
2000 as, subsequent to the acquisition of the Company's external advisor, the
Company is now internally-managed and no further advisory fees will be incurred.
The Company's charge for provision for possible credit losses increased to
$1.5 million from $1.0 million as a result of expanded lending operations as
well as additional seasoning of the Company's existing lending portfolio. As
more fully discussed in Note 5 to the Company's Consolidated Financial
Statements, the Company has not realized any actual losses on any of its loan
investments to date.
Stock compensation expense increased by approximately $0.5 million as a
result of charges relating to grants of stock options to the Company's
employees.
During the three-month period ended March 31, 2000, the Company incurred an
extraordinary loss of approximately $0.3 million as a result of the early
retirement of certain debt obligations of its Leasing Subsidiary.
INTEREST RATE RISK MANAGEMENT
Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices and equity prices. In
pursuing its business plan, the primary market risk to which the Company is
exposed is interest rate risk. Consistent with its expected election to qualify
as a REIT, the Company has implemented an interest rate risk management policy
based on match funding, with the objective that floating-rate assets be
primarily financed by floating-rate liabilities and fixed-rate assets be
primarily financed by fixed-rate liabilities.
33
<PAGE>
The Company's operating results will depend in part on the difference
between the interest and related income earned on its assets and the interest
expense incurred in connection with its interest-bearing liabilities.
Competition from other providers of real estate financing may lead to a decrease
in the interest rate earned on the Company's interest-bearing assets, which the
Company may not be able to offset by obtaining lower interest costs on its
borrowings. Changes in the general level of interest rates prevailing in the
financial markets may affect the spread between the Company's interest-earning
assets and interest-bearing liabilities. Any significant compression of the
spreads between interest-earning assets and interest-bearing liabilities could
have a material adverse effect on the Company. In addition, an increase in
interest rates could, among other things, reduce the value of the Company's
interest-bearing assets and its ability to realize gains from the sale of such
assets, and a decrease in interest rates could reduce the average life of the
Company's interest-earning assets.
A substantial portion of the Company's loan investments are subject to
significant prepayment protection in the form of lock-outs, yield maintenance
provisions or other prepayment premiums which provide substantial yield
protection to the Company. Those assets generally not subject to prepayment
penalties include: (i) variable-rate loans based on LIBOR, originated or
acquired at par, which would not result in any gain or loss upon repayment; and
(ii) discount loans and loan participations acquired at discounts to face
values, which would result in gains upon repayment. Further, while the Company
generally seeks to enter into loan investments which provide for substantial
prepayment protection, in the event of declining interest rates, the Company
could receive such prepayments and may not be able to reinvest such proceeds at
favorable returns. Such prepayments could have an adverse effect on the spreads
between interest-earning assets and interest-bearing liabilities.
While the Company has not experienced any significant credit losses,
delinquencies or defaults, in the event of a significant rising interest rate
environment and/or economic downturn, defaults could increase and result in
credit losses to the Company which adversely affect its liquidity and operating
results. Further, such delinquencies or defaults could have an adverse effect on
the spreads between interest-earning assets and interest-bearing liabilities.
Interest rates are highly sensitive to many factors, including governmental
monetary and tax policies, domestic and international economic and political
conditions, and other factors beyond the control of the Company. As more fully
discussed in Note 9 to the Company's Consolidated Financial Statements, the
Company employs match funding-based hedging strategies to limit the effects of
changes in interest rates on its operations, including engaging in interest rate
caps, floors, swaps, futures and other interest rate-related derivative
contracts. These strategies are specifically designed to reduce the Company's
exposure, on specific transactions or on a portfolio basis, to changes in cash
flows as a result of interest rate movements in the market. The Company does not
enter into derivative contracts for speculative purposes nor as a hedge against
changes in credit risk of its borrowers or of the Company itself.
Each interest rate cap or floor agreement is a legal contract between the
Company and a third party (the "counterparty"). When the Company purchases a cap
or floor contract, the Company makes an up-front payment to the counterparty and
the counterparty agrees to make payments to the Company in the future should the
reference rate (typically one- or three-month LIBOR) rise above (cap agreements)
or fall below (floor agreements) the "strike" rate specified in the contract.
Each contract has a notional face amount. Should the reference rate rise above
the contractual strike rate in a cap, the Company will earn cap income. Should
the reference rate fall below the contractual strike rate in a floor, the
Company will earn floor income. Payments on an annualized basis will equal the
contractual notional face amount multiplied by the difference between actual
reference rate and the contracted strike rate. The cost of the up-front payment
is amortized over the term of the contract.
Interest rate swaps are agreements in which a series of interest rate flows
are exchanged over a prescribed period. The notional amount on which swaps are
based is not exchanged. In general, the
34
<PAGE>
Company's swaps are "pay fixed" swaps involving the exchange of floating-rate
interest payments from the counterparty for fixed interest payments from the
Company.
Interest rate futures are contracts, generally settled in cash, in which the
seller agrees to deliver on a specified future date the cash equivalent of the
difference between the specified price or yield indicated in the contract and
the value of that of the specified instrument (e.g., U.S. Treasury securities)
upon settlement. The Company generally uses such instruments to hedge forecasted
fixed-rate borrowings. Under these agreements, the Company will generally
receive additional cash flow at settlement if interest rates rise and pay cash
if interest rates fall. The effects of such receipts or payments will be
deferred and amortized over the term of the specific related fixed-rate
borrowings. In the event that, in the opinion of management, it is no longer
probable that a forecasted transaction will occur under terms substantially
equivalent to those projected, the Company will cease recognizing such
transactions as hedges and immediately recognize related gains or losses based
on actual settlement or estimated settlement value. No such gains or losses have
been recognized by the Company.
While a REIT may freely utilize the types of derivative instruments
discussed above to hedge interest rate risk on its liabilities, the use of
derivatives for other purposes, including hedging asset-related risks such as
credit, prepayment or interest rate exposure on the Company's loan assets, could
generate income which is not qualified income for purposes of maintaining REIT
status. As a consequence, the Company may only engage in such instruments to
hedge such risks on a limited basis.
There can be no assurance that the Company's profitability will not be
adversely affected during any period as a result of changing interest rates. In
addition, hedging transactions using derivative instruments involve certain
additional risks such as counterparty credit risk, legal enforceability of
hedging contracts and the risk that unanticipated and significant changes in
interest rates will cause a significant loss of basis in the contract. With
regard to loss of basis in a hedging contract, indices upon which contracts are
based may be more or less variable than the indices upon which the hedged assets
or liabilities are based, thereby making the hedge less effective. The
counterparties to these contractual arrangements are major financial
institutions with which the Company and its affiliates may also have other
financial relationships. The Company is potentially exposed to credit loss in
the event of nonperformance by these counterparties. However, because of their
high credit ratings, the Company does not anticipate that any of the
counterparties will fail to meet their obligations. There can be no assurance
that the Company will be able to adequately protect against the foregoing risks
and that the Company will ultimately realize an economic benefit from any
hedging contract it enters into which exceeds the related costs incurred in
connection with engaging in such hedges.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to fund its investment origination and
acquisition activities and operating expenses. The Company's capital sources
include cash flow from operations, borrowings under lines of credit, additional
term borrowings, long-term financing secured by the Company's assets, unsecured
financing and the issuance of common, convertible and/or preferred equity
securities.
As a result of the Recapitalization Transactions, the Lazard Transaction,
the TriNet acquisition, the acquisition of the Company's external advisor, and
other transactions completed by the Company, the Company has significant access
to capital resources to fund its existing business plan, which includes the
expansion of its real estate lending and credit tenant leasing businesses.
Further, the Company may acquire other businesses or assets using its capital
stock, cash or a combination thereof.
The distribution requirements under the REIT provisions of the Code restrict
the Company's ability to retain earnings and thereby replenish capital committed
to its operations. However, the Company believes that its significant capital
resources and access to financing will provide it with financial flexibility and
market responsiveness at levels sufficient to meet current and anticipated
capital requirements, including expected new lending and leasing transactions.
35
<PAGE>
The Company's ability to meet its long-term (i.e., beyond one year)
liquidity requirements is subject to the renewal of its credit lines and/or
obtaining other sources of financing, including issuing additional debt or
equity from time to time. Any decision by the Company's lenders and investors to
enter into such transactions with the Company will depend upon a number of
factors, such as compliance with the terms of its existing credit arrangements,
the Company's financial performance, industry or market trends, the general
availability of and rates applicable to financing transactions, such lenders'
and investors' resources and policies concerning the terms under which they make
such capital commitments and the relative attractiveness of alternative
investment or lending opportunities.
Based on its monthly interest and other expenses, monthly cash receipts,
existing investment commitments and funding plans, the Company believes that its
existing sources of funds will be adequate to purposes of meeting its short- and
long-term liquidity needs. Material increases in monthly interest expense or
material decreases in monthly cash receipts would negatively impact the
Company's liquidity. On the other hand, material decreases in monthly interest
expense would positively affect the Company's liquidity.
As more fully discussed in Note 7 to the Company's Consolidated Financial
Statements, at March 31, 2000, the Company had existing fixed-rate borrowings of
approximately $152.7 million secured by real estate under operating leases which
mature in 2009, an aggregate of approximately $283.7 million in LIBOR-based,
variable-rate loans secured by various senior and subordinate mortgage
investments which mature in fiscal 2000, fixed-rate corporate debt obligations
aggregating approximately $354.2 million which mature between 2001 and 2017, and
other variable- and fixed-rate secured debt obligations aggregating
approximately $143.5 million which mature at various dates through 2010.
In addition, the Company has entered into LIBOR-based secured revolving
credit facilities of $675.0 and $500.0 million which expire in fiscal 2001 and
2002 respectively. As of March 31, 2000, the Company had drawn approximately
$649.2 million and $204.0 million under these facilities. Availability under
these facilities is based on collateral provided under a borrowing base
calculation. In addition, the Leasing Subsidiary has an agreement with a group
of 13 banks led by Bank of America, N.A. which provides it with a
$350.0 million unsecured revolving credit facility. This facility matures on
May 31, 2001 and has a one-year extension period at the Company's option.
Interest incurred on the facility is LIBOR-based with a margin dependent on the
Company's credit ratings. Facility fees under the credit facility are also tied
to its credit ratings. All of the available commitment under the facility may be
borrowed for general corporate and working capital needs of the Leasing
Subsidiary, as well as for investments. Under the terms of this facility, the
Leasing Subsidiary is generally permitted to make cash distributions to the
Company in an amount equal to 85% of cash flow from operations in any rolling
four-quarter period. The facility requires interest-only payments until
maturity, at which time outstanding borrowings are due and payable. As of
March 31, 2000, the Company had $144.6 million drawn and $205.4 million
available under this facility.
The Company has entered into LIBOR interest rate caps struck at 9.00%, 7.50%
and 7.50% in notional amounts of $300.0 million, $40.4 million and
$38.3 million, respectively, which expire in March 2001, January 2001 and June
2001, respectively. In addition, in connection with the TriNet acquisition, the
Company acquired LIBOR interest rate caps currently struck at 7.75%, 7.75%, and
7.50% in notional amounts of $75.0 million, $35.0 million, and $75.0 million,
respectively, which expire in December 2004, December 2004, and August 2001,
respectively. At March 31, 2000, the fair value of the Company's interest rate
caps was $1.8 million.
The Company has originated or acquired certain assets using proceeds from
LIBOR-based borrowings. In connection with such borrowings, the Company entered
into approximately $205.0 million of interest rate swaps to effectively fix the
interest rate on such obligations. In addition, in connection with the TriNet
acquisition, the Company acquired an interest rate swap which, together with
certain existing interest rate cap agreements, effectively fix the interest rate
on $75.0 million of the Leasing Subsidiary's LIBOR-based borrowings at 5.58%
plus the applicable margin through December 1, 2004. Management
36
<PAGE>
expects that it will have aggregate LIBOR based borrowings at the Leasing
Subsidiary in excess of the notional amount for the duration of the swap. The
actual borrowing cost to the Company with respect to indebtedness covered by the
swap will depend upon the applicable margin over LIBOR for such indebtedness,
which will be determined by the terms of the relevant debt instruments. At
March 31, 2000, the fair value of the Company's interest rate swaps was
$4.1 million.
The Company is currently pursuing or has consummated certain anticipated
long-term fixed-rate borrowings and had entered into certain derivative
instruments based on U.S. Treasury securities to hedge the potential effects of
interest rate movements on these transactions. Under these agreements, the
Company would generally receive additional cash flow at settlement if interest
rates rise and pay cash if interest rates fall. The effects of such receipts or
payments will be deferred and amortized over the term of the specific related
fixed-rate borrowings. During the year ended December 31, 1999, the Company
settled an aggregate notional amount of approximately $63.0 million that was
outstanding under such agreements, resulting in a receipt of approximately
$0.6 million to be amortized over the term of the anticipated borrowing.
During the year ended December 31, 1999, the Company refinanced its
$125.0 million term loan maturing March 15, 1999 with a $155.4 million term loan
maturing March 5, 2009. The new term loan bears interest at 7.44% per annum,
payable monthly, and amortizes over an approximately 22-year schedule. The new
term loan represented one of the forecasted transactions for which the Company
had previously entered into U.S. Treasury-based hedging transactions. The net
$3.4 million cost of the settlement of such hedges has been deferred and will be
amortized as an increase to the effective financing costs of the new term loan
over its 10-year term.
In the event that, in the opinion of management, it is no longer probable
that the remaining forecasted transactions will occur under terms substantially
equivalent to those projected, the Company will cease recognizing such
transactions as hedges and immediately recognize related gains or losses based
on actual settlement or estimated settlement value. No such gains or losses have
been recognized by the company.
STOCK REPURCHASE PROGRAM: The Board of Directors approved, and the Company
has implemented, a stock repurchase program under which the Company is
authorized to repurchase up to 5.0 million shares of its Common Stock from time
to time, primarily using proceeds from the disposition of assets and excess cash
flow from operations, but also using borrowings under its credit facilities if
the Company determines that it is advantageous to do so. As of March 31, 2000
and December 31, 1999, the Company had repurchased approximately 2.3 million
shares, at an aggregate cost of approximately $40.5 and $40.4 million,
respectively.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS No. 131") effective for financial statements issued for periods beginning
after December 15, 1997. SFAS No. 131 requires disclosures about segments of an
enterprise and related information regarding the different types of business
activities in which an enterprise engages and the different economic
environments in which it operates. The Company adopted the requirements of this
pronouncement in its financial statements beginning with its reporting for
fiscal 1999. As of December 31, 1999, the Company is currently segmented between
its lending and credit tenant lease businesses.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). On June 23, 1999 the FASB voted to defer the effectiveness of
SFAS 133 for one year. SFAS 133 is now effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 1998. SFAS No. 133 establishes
accounting and reporting standards for derivative financial
37
<PAGE>
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as: (i) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment; (ii) a hedge of the exposure to variable cash
flows of a forecasted transaction; or (iii) in certain circumstances a hedge of
a foreign currency exposure. The Company currently plans to adopt this
pronouncement as required effective January 1, 2001. The adoption of SFAS 133 is
not expected to have a material financial impact on the financial position or
results of operations of the Company.
OTHER MATTERS
1940 ACT EXEMPTION
The Company at all times intends to conduct its business so as to not become
regulated as an investment company under the Investment Company Act of 1940. If
the Company were to become regulated as an investment company, then the
Company's ability to use leverage would be substantially reduced. 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" (i.e., "Qualifying Interests"). Under the current interpretation of
the staff of the SEC, in order to qualify for this exemption, the Company must
maintain at least 55% of its assets directly in Qualifying Interests. As of
March 31, 2000, the Company calculates that it is in and has maintained
compliance with this requirement.
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, in future SEC filings or in press releases or
other written or oral communications, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "project" or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
cautions that such forward looking statements speak only as of the date made and
that various factors including regional and national economic conditions,
changes in levels of market interest rates, credit and other risks of lending
and investment activities, and competitive and regulatory factors could affect
the Company's financial performance and could cause actual results for future
periods to differ materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of such statements except as required by law.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM-8-K
A. EXHIBITS
3.1 Amended and Restated Charter of the Company (including the Articles
Supplementary for the Series A, B, C and D Preferred Stock).
3.2 Bylaws of the Company.
27.1 Financial Data Schedule.
B. REPORTS ON FORM 8-K
None.
39
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C>
ISTAR FINANCIAL INC.
------------------------------------------------
REGISTRANT
Date: May 15, 2000 /s/ JAY SUGARMAN
------------------------------------------------
Jay Sugarman
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Date: May 15, 2000 /s/ SPENCER B. HABER
------------------------------------------------
Spencer B. Haber
EXECUTIVE VICE PRESIDENT--FINANCE,
CHIEF FINANCIAL OFFICER, DIRECTOR AND SECRETARY
</TABLE>
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Exhibit 3.1
iSTAR FINANCIAL INC.
AMENDED AND RESTATED CHARTER
ARTICLE I
INCORPORATION
The undersigned, Michael E. McTiernan, whose address is c/o Rogers &
Wells LLP, 200 Park Avenue, New York, New York 10166, being at least 18 years of
age, does hereby form a corporation under the general laws of the State of
Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is: iStar Financial
Inc.
ARTICLE III
PURPOSE
(a) The purposes for which the Corporation is formed and the business
and objects to be carried on and promoted by it are to engage in any lawful act
or activity (including, without limitation or obligation, engaging in business
as a REIT) for which corporations may be organized under the General Laws of the
State of Maryland as now or hereafter in force. In addition, the Corporation
shall have such further powers as are not inconsistent with, and are appropriate
to promote and attain, the purposes of the Corporation as set forth in this
Charter. For purposes of this Charter, "REIT" means a real estate investment
trust under Sections 856 through 860 of the Code.
(b) The primary purposes of the Corporation include to acquire a
diversified portfolio of debt and/or debt like interests in real estate and/or
real estate related assets, including (i) originating mortgage loans and/or
acquiring mortgage loans or acquiring securities collateralized, in whole or in
part, by such mortgage loans, as well as making equity investments in real
estate and real estate-related assets, (ii) acquiring direct or indirect
interests in short term, medium and long-term real estate-related debt
securities and mortgage interests, which may include warrants, equity
participations or similar rights incidental to a debt investment by the
Corporation, (iii) making, holding and disposing of purchase money loans with
respect to assets sold by the Corporation, and (iv) acquiring positions in
non-performing and sub-performing debt for the purpose of either restructuring
it as performing debt or if such efforts are unsuccessful, of obtaining shortly
thereafter primary management rights over or equity interests in the underlying
assets securing such debt (the "Diversified Portfolio"). Such investments may
incorporate a variety of real property equity and financing techniques,
including, without limitation, partnerships, joint ventures, purchase and
leasebacks, land purchase-leases, net lease financings, purchase and installment
salebacks, and Mortgages. The Corporation's authority with respect to the
Diversified Portfolio includes the power to acquire, hold, own, develop,
redevelop, construct, improve, maintain, operate, manage, sell, lease, rent,
transfer, encumber, mortgage, convey, exchange and otherwise dispose of all or
part of the Diversified Portfolio and the Diversified Portfolio may be held by
the Corporation directly or indirectly.
<PAGE>
(c) Without the amendment, termination or waiver of provisions of
certain non-competition agreements between Starwood Capital Group, L.P. and
Starwood Hotels & Resorts, Inc., a publicly traded hotel corporation and
Starwood Hotels & Resorts Worldwide, Inc., the Corporation is prohibited from:
(i) making investments in loans collateralized by hotel assets where it is
anticipated that the underlying equity will be acquired by the debt holder
within one (1) year from the acquisition of such debt, (ii) acquiring equity
interests in hotels (other than acquisitions of warrants, equity participations
or similar rights incidental to a debt investment by the Corporation or that are
acquired as a result of the exercise of remedies in respect of a loan in which
the Corporation has an interest) or (iii) selling or contributing to or
acquiring any interests in Starwood Hotels & Resorts, Inc., including debt
positions or equity interests obtained by the Corporation under, pursuant to or
by reason of the holding of debt positions.
(d) The foregoing enumerated purposes and objects shall be in no way
limited or restricted by reference to, or inference from, the terms of any other
clause of this or any other Article of this Charter, and each shall be regarded
as independent; and they are intended to be and shall be construed as powers as
well as purposes and objects of the Corporation and shall be in addition to and
not in limitation of the general powers of corporations under the General Laws
of the State of Maryland.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The present address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name and present address of the resident agent of
the Corporation in the State of Maryland are The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202. The resident agent is a corporation
of and resident of the State of Maryland. The Corporation may have such other
offices or places of business within or without the State of Maryland as the
Board may from time to time determine.
ARTICLE V
CAPITAL STOCK
(a) The total number of shares of stock of all classes which the
Corporation has authority to issue is 230,000,000 shares of Capital Stock (par
value $0.001 per share), amounting in aggregate par value to $230,000. Of these
shares, 200,000,000 are initially classified as "Common Stock" and 30,000,000
are initially classified as "Preferred Stock." Of the shares of Preferred Stock,
4,400,000 shares are initially classified as 9.5% Series A Cumulative Redeemable
Preferred Stock ("Series A Preferred Stock"), 2,300,000 shares are initially
classified as 9 3/8% Series B Cumulative Redeemable Preferred Stock ("Series B
Preferred Stock"), 1,495,000 shares are initially classified as 9.20% Series C
Cumulative Redeemable Preferred Stock ("Series C Preferred Stock"), and
4,600,000 shares are initially classified as 8% Series D Cumulative Redeemable
Preferred Stock ("Series D Preferred Stock"). Subject to the other provisions of
this Article V, the Board may: (i) classify and reclassify any unissued shares
of Capital Stock by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications or terms or
conditions of redemption of such shares of Capital Stock and (ii) to the extent
permitted by Maryland law from time to time, without any action by the
Shareholders, amend the Charter from time to
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time to increase or decrease the aggregate number of shares of Capital Stock or
the number of shares of Capital Stock of any class or series that the
Corporation has authority to issue.
(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:
(i) Each share of Common Stock shall have one vote, and, except as
otherwise provided in respect of the Preferred Stock and in respect of any
other class of stock hereafter classified or reclassified, the exclusive
voting power for all purposes shall be vested in the holders of the Common
Stock. Shares of Common Stock shall not have cumulative voting rights.
(ii) Subject to the provisions of law and any preferences of the
Preferred Stock or any other class of stock hereafter classified or
reclassified, dividends, including dividends payable in shares of another
class of the Corporation's stock, may be paid ratably on the Common Stock at
such time and in such amounts as the Board may deem advisable.
(iii) 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, together with the holders of any other class
of 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 net assets of the Corporation
remaining, 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 stock hereafter classified or reclassified having a preference on
distributions in the liquidation, dissolution or winding up of the
Corporation shall be entitled.
(c) The description of the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
of the Corporation are set forth in Annex A, Annex B, Annex C and Annex D to
this Charter, respectively.
(d) Subject to the foregoing, the power of the Board to classify and
reclassify any of the shares of Capital Stock shall include, without limitation,
subject to the provisions of this Charter, authority to classify or reclassify
any unissued shares of 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:
(i) 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 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 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 no longer be deemed to be outstanding and shall become
part of the authorized Capital Stock and be subject to classification and
reclassification as provided in this sub-paragraph.
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<PAGE>
(ii) Whether or not and, if so, the rates, amounts and times at
which, and the terms and 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 stock, and the status of any such dividends as
cumulative, cumulative to a limited extent or non-cumulative and as
participating or non-participating.
(iii) Whether or not shares of such class or series shall have
limitations on voting rights or voting rights in addition to any voting
rights provided by law, and, if so, the terms of such voting rights.
(iv) 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 shall determine.
(v) 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.
(vi) 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 stock.
(vii) 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 stock of the Corporation, or
upon any other action of the Corporation, including action under this
sub-paragraph, and, if so, the terms and conditions thereof.
(viii) 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.
(e) For the purposes hereof and of any articles supplementary to the
Charter 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
stock of the Corporation shall be deemed to rank:
(i) 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;
4
<PAGE>
(ii) 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
(iii) 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.
(f) All persons who shall acquire stock in the Corporation shall
acquire such stock subject to the provisions of this Charter and the Bylaws of
the Corporation. The Directors shall have the exclusive power to make, adopt,
amend, or repeal the Bylaws of the Corporation to the extent not inconsistent
with law or with this Charter.
ARTICLE VI
BOARD OF DIRECTORS
(a) The initial number of Directors of the Corporation shall be 10,
which number may be increased or decreased, from time to time, by resolution of
the Board approved by at least a majority of the Directors then in office
pursuant to the Bylaws of the Corporation, or by the affirmative vote of the
holders of a majority of the combined voting power of all shares of Capital
Stock entitled to vote thereon, voting together as a single class, provided that
the number of Directors so fixed shall not be less than seven nor more than 18,
and shall never be less than the minimum number permitted by the MGCL now or
hereafter in force.
(b) Subject to the rights of the holders of any class separately
entitled to elect one or more Directors, newly created Directorships resulting
from any increase in the authorized number of Directors or any vacancies on the
Board resulting from death, resignation, retirement, disqualification, removal
from office, or other cause shall be filled by resolution of the Board approved
by at least a majority of the Directors then in office, pursuant to the Bylaws
or by the affirmative vote of the holders of a majority of the votes cast at a
meeting at which a quorum is present. A Director so elected by the shareholders
shall hold office for the balance of the term then remaining. No decrease in the
number of Directors shall affect the tenure of office of any Director. Until
vacancies are filled, the remaining Directors (even though less than seven) may
exercise the powers of the Board hereunder.
(c) Whenever the holders of any one or more series of Capital Stock of
the Corporation shall have the right, voting separately as a class, to elect one
or more Directors of the Corporation, the Board shall consist of said Directors
so elected in addition to the number of Directors fixed as provided in paragraph
(a) of this Article VI. Notwithstanding the foregoing, and except as otherwise
may be required by law or by this Charter, whenever the holders of any one or
more series of Capital Stock of the Corporation shall have the right, voting
separately as a series, 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 Shareholders.
5
<PAGE>
(d) Subject to the rights of the holders of any series separately
entitled to elect one or more Directors, any Director, or the entire Board of
Directors, may be removed from office at any time, with or without cause, at a
special meeting of the Shareholders by the affirmative vote of a majority of the
holders 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. For purposes of the foregoing, "cause" shall mean a Director's willful
violations of this Charter or the Bylaws which violations are materially adverse
to the interests of the Shareholders, or gross negligence in the performance of
his or her duties.
(e) The Directors shall be divided into two classes as follows:
(i) the term of office of Class I Directors shall be until the
annual meeting of Shareholders held in the year 2000 and until their
successors shall be elected and have qualified and thereafter shall be for
two years and until their successors shall be elected and have qualified;
and
(ii) the term of office of Class II Directors shall be until the
annual meeting of Shareholders held in the year 2001 and until their
successors shall be elected and have qualified and thereafter shall be for
two 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 or attain, if possible, the
equality of the number of Directors in each class.
(f) The names of the individuals who now serve as Directors of the
Corporation and until their successors are elected and qualify are as follows:
(i) The following person shall serve as Class I Directors:
Jeffrey G. Dishner
Jonathan Eilian
Robin Josephs
Merrick R. Kleeman
Madison F. Grose
(ii) The following persons shall serve as Class II Directors:
Barry S. Sternlicht
Jay Sugarman
William M. Mathes
Kneeland C. Youngblood
Spencer B. Haber
(g) A minimum of the greater of (i) 33-1/3% of the total number of
Directors or (ii) three (3) members of the Board and the Executive Committee (as
established in the Bylaws) of the Board shall be Persons who are not Affiliates
of Starwood Capital Group, L.L.C.; provided, however, that if at any time the
number of Directors or members of the Executive Committee who are not Affiliates
of such
6
<PAGE>
Person becomes less than the minimum number set forth above, whether because of
the death, resignation, removal, or change in affiliation of one or more
Directors or members of the Executive Committee or otherwise, then such
requirement shall not be applicable for a period of ninety (90) days after such
event occurs, during which period the continuing Directors or Director then in
office shall appoint, pursuant to paragraph (b) of Article VI, a sufficient
number of other individuals as Directors or as members of the Executive
Committee so that again a minimum of the greater of (i) 33-1/3% of the total
number of Directors or (ii) three (3) members of the Board and the Executive
Committee then in office are not Affiliates of such Person. The Directors shall
at all times endeavor to comply with the requirement of this paragraph (i) of
Article VI as to independence, but failure so to comply with such requirement
shall not affect the validity or effectiveness of any action of the Directors or
of the Executive Committee.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE SHAREHOLDERS AND DIRECTORS
(a) The Board is empowered to authorize the issuance from time to time
of shares of Capital Stock of the Corporation of any class or series, whether
now or hereafter authorized, or Securities or rights convertible into shares of
its stock of any class or series, whether now or hereafter authorized, for such
consideration as the Board may deem advisable and without any action by the
Shareholders.
(b) No holder of any stock or any other Securities of the Corporation,
whether now or hereafter authorized, shall have any preemptive right to
subscribe for or purchase any stock or any other Securities of the Corporation
other than such, if any, as the Board, in its sole discretion, may determine and
at such price or prices and upon such other terms as the Board, in its sole
discretion, may fix; and any stock or other Securities which the Board may
determine to offer for subscription may, as the Board in its sole discretion
shall determine, be offered to the holders of any class or series of stock or
other Securities at the time outstanding to the exclusion of the holders of any
or all other classes or series of stock or other securities at the time
outstanding.
(c) The Corporation shall indemnify (i) 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 or reimbursement of reasonable
expenses as incurred (including reasonable attorneys fees) under the procedures
and to the full extent permitted by law and (ii) other employees and agents to
such extent as shall be authorized by the Board or the Corporation's Bylaws and
be permitted by law. The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification may be
entitled. The Board 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 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.
(d) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no Director or officer of the Corporation shall
be personally liable to the Corporation or its Shareholders for money damages.
No amendment of the Charter of the Corporation or
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repeal of any of its provisions shall limit or eliminate the limitation on
liability provided to Directors and officers hereunder with respect to any act
or omission occurring prior to such amendment or repeal. In addition to any
Maryland statute limiting the liability of directors or officers of a Maryland
corporation, no Director or officer of the Corporation shall be liable to the
Corporation or to any Director for any act or omission of any other Director,
Stockholder, officer, or agent of the Corporation or be held to any personal
liability whatsoever in tort, contract, or otherwise in connection with the
affairs of this Corporation except only that arising from his own willful
violation of the provisions of this Charter or of the Bylaws which violation is
materially against the interests of the Shareholders and results in material
harm to such interests, or gross negligence in the performance of his or her
duties.
(e) The determination as to any of the following matters, made in good
faith by or pursuant to the direction of the Board consistent with the Charter
and the Bylaws and in the absence of actual receipt of an improper benefit in
money, property or services or active and deliberate dishonesty established by a
court, shall be final and conclusive and shall be binding upon the Corporation
and every holder of shares of its Capital Stock: the amount of the net income of
the Corporation for any period and the amount of assets at any time legally
available for the payment of dividends, redemption of its Capital Stock or the
payment of other distributions on its Capital Stock; the amount of paid-in
surplus, net assets, other surplus, annual or other net profit, net assets in
excess of capital, undivided profits or excess of profits over losses on sales
of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Corporation; any matters relating to the acquisition,
holding and disposition of any assets by the Corporation; 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 shareholders, except as
otherwise provided by the MGCL 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.
(f) The Board shall use its reasonable best efforts to take such
actions as are necessary or appropriate to preserve the status of the
Corporation as a REIT; however, if the Board determines that it is no longer in
the best interests of the Corporation to continue to be qualified as a REIT, the
Board may revoke or otherwise terminate the Corporation's REIT election pursuant
to Section 856(g) of the Code.
(g) The Board shall, in connection with the exercise of its business
judgment involving a Business Combination (as defined in Section 3-601 of the
MGCL) or any actual or proposed transaction which would or may involve a change
in control of the Corporation (whether by purchases of shares of stock or any
other Securities of the Corporation in the open market, or otherwise, tender
offer, merger, consolidation, dissolution, liquidation, sale of all or
substantially all of the assets of the Corporation, proxy solicitation or
otherwise) in determining what is in the best interest of the Corporation and
its Shareholders and in making any recommendation to its Shareholders, give due
consideration to all relevant factors, including, but not limited to (i) the
economic effect, both immediate and long-term, upon the Corporation's
Shareholders, including Shareholders, if any, who do not participate in the
transaction; (ii) whether the proposal is acceptable based on the historical and
current operating results or financial condition of the Corporation; (iii)
whether a more favorable price could be obtained for the Corporation's stock or
other Securities in the future; (iv) the reputation and business practices of
the offeror and its management and affiliates as they would affect the employees
of the Corporation and its subsidiaries; (v) the future value of the stock or
any other Securities of the Corporation; (vi) any antitrust or other legal and
regulatory issues that are raised by the proposal; and (vii) the business and
financial condition and
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earnings prospects of the acquiring person or entity, including, but not limited
to, debt service and other existing financial obligations, financial obligations
to be incurred in connection with the acquisition, and other likely financial
obligations of the acquiring person or entity. If the Board determines that any
proposed Business Combination (as defined in Section 3-601 of the MGCL) or
actual or proposed transaction which would or may involve a change in control of
the Corporation should be rejected, it may take any lawful action to defeat such
transaction, including, but not limited to, any or all of the following:
advising Shareholders not to accept the proposal; instituting litigation against
the party making the proposal; filing complaints with governmental and
regulatory authorities; acquiring the stock or any of the Securities of the
Corporation; selling or otherwise issuing authorized but unissued stock, other
Securities, or granting options or rights with respect thereto; acquiring a
Corporation to create an antitrust or other regulatory problem for the party
making the proposal; and obtaining a more favorable offer from another
individual or entity. Nothing in this section shall preclude the Board of
Directors from specifically or generally approving or exempting business
combinations with the Corporation.
(h) Notwithstanding any provision of law permitting or requiring any
action to be taken or approved by the affirmative vote of the holders of shares
of Capital Stock entitled to cast a greater number of votes, any such action
shall be effective and valid if taken or approved by the affirmative vote of
holders of shares of Capital Stock entitled to cast a majority of all the votes
entitled to be cast on the matter, except as otherwise specifically provided in
the Charter.
(i) The Bylaws of the Corporation may be altered, amended or repealed,
and new Bylaws may be adopted, at any meeting of the Board by a majority vote of
the Directors.
(j) In the event that any provision or portion of a provision of this
Article VII is determined to be in conflict with any applicable statute, such
provision or portion thereof shall be inapplicable to the extent of such
conflict. In the event that any provision or portion of a provision of this
Article VII is determined to be invalid, void, illegal or unenforceable, the
remainder of the provisions of this Article VII shall continue to be valid and
enforceable and shall in no way be affected, impaired or invalidated. Nothing in
this Article VII shall be construed to diminish, limit or impair any rights or
defenses afforded to officers or Directors by common law, statute, other
provisions of this Charter, the Bylaws or otherwise, and the provisions of this
Article VII shall be deemed to be cumulative thereto. References in this Article
VII to Directors or officers shall be deemed to refer to any person who is or
was a Director or officer of the Corporation and any person who, while a
Director or officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise.
ARTICLE VIII
INVESTMENT POLICY
(a) GENERAL STATEMENT OF POLICY. While the Directors are authorized,
pursuant to Article VI, to invest the Corporation Assets in a wide variety of
investments, it is the present intention of the Corporation that it shall be a
principal investment objective and policy of the Corporation to invest the
Corporation Assets in the Diversified Portfolio.
Investments of the Corporation may be made in various combinations and
may involve participations with other Persons, including Affiliates of the
Directors. Such investments may incorporate a variety of real property equity
and financing techniques, including, without limitation, partnerships,
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joint ventures, purchase and leasebacks, land purchase-leases, net lease
financings, purchase and installment salebacks, and Mortgages, and include
investments through subsidiary corporations and other entities.
The general purpose of the Corporation is to seek qualifying real
estate investment trust gross income as defined in the REIT Provisions of the
Code consistent with the investment objective and policy of the Corporation as
set forth above. The Directors intend to make investments in such a manner as to
comply with the requirements of the REIT Provisions of the Code with respect to
the composition of the Corporation's investments and the derivation of its
income; provided, however, that no Director, officer, employee, or agent of the
Corporation shall be liable to any Person, including any Stockholder, for any
act or omission resulting in the loss of tax benefits, or in the incurrence of
tax detriments, under the Code or for the Corporation not being treated for tax
purposes as a "real estate investment trust" under the REIT Provisions of the
Code. Subject to paragraph (c) of this Article VIII hereof and subject to such
restrictions as may be necessary to qualify the Corporation as a "real estate
investment trust" as defined in the REIT Provisions of the Code, the Directors
may alter the above-declared investment policy in light of changes in economic
circumstances and other relevant factors, and the methods of implementing the
Corporation's investment policies may change, in the discretion of the Directors
as economic and other conditions change.
(b) OTHER PERMISSIBLE INVESTMENTS. To the extent that the Corporation
has assets not invested in accordance with paragraph (a) of this Article VIII,
the Corporation may invest them in, subject to such restrictions as may be
necessary to qualify the Corporation as a "real estate investment trust" as
defined in the REIT Provisions of the Code:
(i) Obligations of, or guaranteed or insured by, the United States
Government or any agency or political subdivision thereof;
(ii) Obligations of, or guarantees by, any state, territory, or
possession of the United States of America or any agency or political
subdivision thereof;
(iii) Evidences of deposits in, or obligations of, banking
institutions, savings and loan associations, and savings institutions;
(iv) Real and personal property and interests therein; and
(v) Other Securities, liquid short-term investments, and property.
(c) PROHIBITED INVESTMENTS AND ACTIVITIES. The Corporation shall not
invest in commodities, foreign currencies, or bullion except in connection with
investments in other property.
ARTICLE IX
RESTRICTION ON TRANSFER, ACQUISITION AND REDEMPTION
OF SHARES OF CAPITAL STOCK
(a) OWNERSHIP LIMITATION.
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(i) Except as provided in paragraphs (k) and (u) of Article IX,
and subject to sub-paragraph (iv) of this paragraph (a) of Article IX, from
the Restriction Commencement Date until the Restriction Termination Date, no
Person (other than an Excepted Holder) shall Beneficially or Constructively
Own shares of Capital Stock in excess of the Ownership Limit and no Excepted
Holder shall Beneficially or Constructively Own shares of Capital Stock in
excess of the Excepted Holder Limit for such Excepted Holder.
(ii) Subject to sub-paragraph (iv) of this paragraph (a) of
Article IX, from the Restriction Commencement Date until the Restriction
Termination Date, any Transfer that, if effective, would result in (1) 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 (2) the Corporation otherwise failing to
qualify as a REIT (including, but not limited to, Beneficial 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) shall be void and the
intended transferee shall acquire no rights in such shares of Capital Stock.
(iii) Subject to sub-paragraph (iv) of this paragraph (a) of
Article IX, from the Restriction Commencement Date until the Restriction
Termination Date, any Transfer that, if effective, would result in the
shares of Capital Stock being beneficially owned by less than 100 Persons
(determined without reference to any rules of attribution) shall be void AB
INITIO as to the Transfer of shares of Capital Stock which would be
otherwise beneficially owned (as provided in Section 856(a) of the Code) by
the transferee and the intended transferee shall acquire no rights in such
shares of Capital Stock.
(iv) Nothing contained in this Article IX shall preclude the
settlement of any transaction entered into through the facilities of the
principal securities exchange on which the shares of Capital Stock are
currently traded. The fact that the settlement of any transaction is
permitted shall not negate the effect of any other provision of this Article
IX and any transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Article IX.
(b) TRANSFER IN TRUST. If, notwithstanding the other provisions
contained in this Article IX, at any time from the Restriction Commencement Date
until the Restriction Termination Date, there is a purported Transfer such that
any Person would Beneficially or Constructively Own shares of Capital Stock in
violation of sub-paragraph (a)(i) or (ii),
(i) then that number of shares of Capital Stock the Beneficial or
Constructive Ownership of which otherwise would cause such Person to
violate paragraph (a)(i) or (ii) (rounded to the higher whole share)
shall be automatically transferred to a Charitable Trust for the
benefit of a Charitable Beneficiary, as described in paragraph (n),
effective as of the close of business on the Business Day prior to the
date of such Transfer, and such Person shall acquire no rights in such
shares of Capital Stock; or
(ii) if the transfer to the Charitable Trust described in clause
(i) of this sentence would not be effective for any reason to prevent the
violation of paragraph (a)(i) or (ii), then the Transfer of that number of
shares of Capital Stock that otherwise would cause any
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Person to violate paragraph (a)(i) or (ii) shall be void AB INITIO, and the
intended transferee shall acquire no rights in such shares of Capital Stock.
(c) REMEDIES FOR BREACH. If the Board or its designee shall at any time
determine in good faith that a Transfer has taken place in violation of
paragraph (a) of Article IX 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 paragraph (a) of Article IX, the Board or its designee shall
take such action as it deems advisable to refuse to give effect to or to prevent
such transfer, including, but not limited to, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
such Transfer; PROVIDED, HOWEVER, that any Transfers or attempted Transfers in
violation of paragraph (a) of Article IX shall automatically result in the
transfer to the Charitable 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.
(d) NOTICE TO TRUST. Any Person who acquires or attempts to acquire
Beneficial or Constructive Ownership of Capital Stock in violation of paragraph
(a) of Article IX, or any Person who would be a transferee of such Capital Stock
but for the Transfer to the Charitable Trust under paragraph (b) of Article IX,
shall immediately give written notice or, in the event of a proposed or
attempted Transfer, shall give at least fifteen (15) days prior written notice
to the Corporation of such event 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 or attempted Transfer on the Corporation's status as a
REIT.
(e) INFORMATION FOR CORPORATION. From the Restriction Commencement Date
and until the Restriction Termination Date:
(i) every owner of more than 5% (or such other percentage, between
1/2 of 1% and 5%, as provided under the REIT Provisions of the Code) of the
number or value of outstanding shares of Capital Stock of the Corporation
shall upon the Corporation's written request, within thirty (30) days after
January 1 of each year, give written notice to the Corporation stating the
name and address of such owner, the number of shares of Capital Stock
Beneficially or Constructively Owned, and a description of how such shares
of Capital Stock are held. Each such Beneficial Owner shall provide to the
Corporation such additional information as the Corporation may reasonably
request in order to determine the effect, if any, of such Beneficial or
Constructive Ownership on the Corporation's status as a REIT.
(ii) each Person who is a Beneficial or Constructive Owner of
shares of Capital Stock and each Person (including the stockholder of
record) who is holding shares of Capital Stock for a Beneficial or
Constructive Owner shall provide to the Corporation in writing such
information with respect to direct, indirect and constructive ownership of
shares of Capital Stock as the Board deems reasonably necessary to comply
with the provisions of the Code applicable to a REIT, to determine the
Corporation's status as a REIT, to comply with the requirements of any
taxing authority or governmental agency or to determine any such compliance.
(f) OTHER ACTION BY BOARD. Subject to sub-paragraph (iv) of paragraph
(a) of Article IX, nothing contained in this Article IX shall limit the
authority of the Board to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its Shareholders by
preservation of the Corporation's status as a REIT.
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(g) AMBIGUITIES. In the case of an ambiguity in the application of any
of the provisions of this Article IX, including any definition contained in
Article XI, the Board shall have the power to determine the application of the
provisions of this Article IX with respect to any situation based on the facts
known to it and the Board's determination shall be conclusive for all purposes.
(h) MODIFICATION OF EXCEPTED HOLDER AND EXISTING HOLDER LIMITS. The
Excepted Holder and Existing Holder Limits may be modified as follows:
(i) Subject to the limitations provided in paragraph (j) of
Article IX, the Board may grant options which result in Beneficial or
Constructive Ownership of shares of Capital Stock by an Existing Holder
pursuant to an option plan approved by the Board and/or the Shareholders.
Any such grant shall increase the Existing Holder Limit for the affected
Existing Holder to the maximum extent possible under paragraph (j) of
Article IX to permit the Beneficial or Constructive Ownership of the shares
of Capital Stock issuable upon the exercise of such option.
(ii) Subject to the limitations provided in paragraph (j) of
Article IX, an Existing Holder may elect to participate in a dividend
reinvestment plan approved by the Board which results in Beneficial or
Constructive Ownership of shares of Capital Stock by such participating
Existing Holder. Any such participation shall increase the Existing Holder
Limit for the affected Existing Holder to the maximum extent possible under
paragraph (j) of Article IX to permit Beneficial or Constructive Ownership
of the shares of Capital Stock acquired as a result of such participation.
(iii) The Board shall reduce the Excepted Holder Limit for any
Excepted Holder after any Transfer permitted in this Article IX by such
Excepted Holder by the percentage of the outstanding shares of Capital Stock
so Transferred or after the lapse (without exercise) of an option described
in sub-paragraph (i) of this paragraph (h) of Article IX by the percentage
of the shares of Capital Stock that the option, if exercised, would have
represented, but in either case no Excepted Holder Limit shall be reduced to
a percentage which is less than the Ownership Limit.
(iv) Subject to the limitations provided in paragraph (j) of
Article IX, the Board may otherwise modify an Excepted Holder Limit from
time to time.
(i) INCREASE OR DECREASE IN OWNERSHIP LIMIT. Subject to the limitations
provided in paragraph (j) of Article IX, the Board may from time to time
increase or decrease the Ownership Limit; PROVIDED, HOWEVER, that any decrease
may only be made prospectively as to subsequent holders (other than a decrease
as a result of a retroactive change in existing law that would require a
decrease to retain REIT status, in which case such decrease shall be effective
immediately).
(j) LIMITATIONS ON CHANGES IN EXCEPTED HOLDER AND OWNERSHIP LIMITS.
(i) Neither the Ownership Limit nor any Excepted Holder Limit may
be increased (nor may any additional Excepted Holder Limit be created) if,
after giving effect to such increase (or creation), five Beneficial Owners
of shares of Capital Stock (including all of the then Excepted Holders)
could Beneficially Own, in the aggregate, more than 49.9% in number or value
of the outstanding shares of Capital Stock.
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(ii) Prior to the modification of any Excepted Holder Limit or
Ownership Limit pursuant to paragraphs (h) or (i) of Article IX, the Board
may require (but shall not be obligated to obtain) 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.
(iii) The Board 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
undertakings entered into with such Excepted Holder in connection with the
establishment of the Excepted Holder Limit for that Excepted Holder. No
Excepted Holder Limit shall be reduced to a percentage which is less than
the Ownership Limit.
(k) EXCEPTIONS BY BOARD.
(i) The Board, upon receipt of a ruling from the Internal Revenue
Service or an opinion of counsel or other evidence satisfactory to the Board
and upon at least fifteen (15) days written notice from a transferee prior
to the proposed Transfer which, if consummated, would result in the intended
transferee owning shares of Capital Stock in excess of the Ownership Limit
or the Excepted Holder Limit, as the case may be, and upon such other
conditions as the Board may direct, may grant an exception to the Ownership
Limit or the Excepted Holder Limit, as the case may be, with respect to such
transferee.
(ii) In addition to exceptions permitted under sub-paragraph (i)
above, the Board may grant an exception to the Ownership Limit with respect
to a Person if: (a) such Person submits to the Board information
satisfactory to the Board, in its reasonable discretion, demonstrating that
such Person is not an individual for purposes of Section 542(a)(2) of the
Code (determined taking into account Section 856(h)(3)(A) of the Code); (b)
such Person submits to the Board information satisfactory to the Board, in
its reasonable discretion, demonstrating that no Person who is an individual
for purposes of Section 542(a)(2) of the Code (determined taking into
account Section 856(h)(3)(A) of the Code) would be considered to
Beneficially Own shares of Capital Stock in excess of the Ownership Limit by
reason of the ownership of shares of Capital Stock in excess of the
Ownership Limit by the Person receiving the exception granted under this
sub-paragraph (ii); (c) such Person submits to the Board information
satisfactory to the Board, in its reasonable discretion, demonstrating that
the ownership of shares of Capital Stock in excess of the Ownership Limit by
the Person receiving the exception granted under this sub-paragraph (ii)
will not result in the Corporation failing to qualify as a REIT; and (d)
such Person provides to the Board such representations and undertakings, if
any, as the Board may, in its reasonable discretion, require to ensure that
the conditions in clauses (a), (b) and (c) above are satisfied and will
continue to be satisfied throughout the period during which such Person owns
shares of Capital Stock in excess of the Ownership Limit pursuant to any
exception granted under this sub-paragraph (ii), and such Person agrees that
any violation of such representations and undertakings or any attempted
violation thereof will result in the application of the remedies set forth
in paragraph (c) of Article IX with respect to shares of Capital Stock held
in excess of the Ownership Limit by such Person (determined without regard
to the exception granted such Person under this sub-paragraph (ii)).
(l) LEGEND. Each certificate for shares of Capital Stock shall bear
substantially the following legend:
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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 REIT
under the Internal Revenue Code of 1986, as amended. Except as
otherwise provided pursuant to the Charter, (i) no Person may
Beneficially or Constructively Own shares of Capital Stock in excess of
9.8% (or such greater percentage as may be determined by the Board of
Directors of the Corporation) of the number or value of the 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), (ii) no Person may Beneficially or Constructively Own
shares of 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 (iii) no Person may
Transfer shares of Capital Stock if such Transfer would result in
Capital Stock of the Corporation being owned by fewer than 100 Persons.
Any Person who attempts or proposes to Beneficially or Constructively
Own shares of Capital Stock in excess of the above limitations must
notify the Corporation in writing at least 15 days prior to such
proposed or attempted Transfer. If the restrictions on transfer are
violated, the securities represented hereby will be automatically
transferred to a Charitable Trustee of a Charitable 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. A Person who
attempts to Beneficially or Constructively Own Capital Stock in
violation of the ownership limitations described above shall have no
claim, cause of action, or any recourse whatsoever against a transferor
of such Capital Stock. All capitalized terms in this legend have the
meanings defined in the Charter, a copy of which, including the
restrictions on transfer, will be sent without charge to each
Stockholder who so requests.
Instead of the foregoing legend, the certificate may state
that the Corporation will furnish a full statement about certain
restrictions on transferability to a Stockholder on request and without
charge.
(m) SEVERABILITY. If any provision of this Article IX or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions shall be affected only to the extent
necessary to comply with the determination of such court.
(n) TRUST FOR SHARES TRANSFERRED TO CHARITABLE TRUST. Upon any
purported Transfer or other event that would result in a transfer of Capital
Stock to a Charitable Trust pursuant to paragraph (b) of Article IX, such
Capital Stock shall be deemed to have been transferred to the Charitable Trustee
as trustee of a Charitable Trust for the exclusive benefit of the Charitable
Beneficiary. Such transfer to the Charitable 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 Charitable Trust
pursuant to paragraph (b). The Charitable Trustee shall be appointed by the
Corporation and shall be a Person unaffiliated with the Corporation and any
Purported Beneficial Transferee. Each Charitable Beneficiary shall be designated
by the Corporation as provided in paragraph (t). Such Capital Stock so held in
trust shall be issued and outstanding shares of Capital Stock of the
Corporation. The Purported Beneficial Transferee shall have no rights in such
Capital Stock held by the Charitable Trustee except as provided in paragraph (b)
of Article IX. The Purported Beneficial Transferee shall not benefit
economically from ownership of any Capital Stock held in trust by the Charitable
Trustee, shall have no rights to dividends or other distributions and shall not
possess any rights to vote or other rights attributable to the Capital Stock
held in the Charitable Trust. The Purported Beneficial Transferee shall have no
claim, cause of action, or any other recourse whatsoever against the purported
transferor of such Capital Stock.
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(o) DISTRIBUTIONS ON SHARES HELD BY CHARITABLE TRUST. Any distributions
(whether as dividends, distributions upon liquidation, dissolution or winding up
or otherwise) on Capital Stock held by the Charitable Trustee shall be paid to
the Charitable Trust for the benefit of the Charitable Beneficiary. Upon
liquidation, dissolution or winding up, the Purported Record Transferee shall
receive the lesser of (i) the amount of any distribution made upon liquidation,
dissolution or winding up or (ii) the price paid by the Purported Record
Transferee for the shares of Capital Stock, or if the Purported Record
Transferee did not give value for the shares of Capital Stock, the Market Price
of the shares of Capital Stock on the day of the event causing the shares of
Capital Stock to be held in trust. Any such dividend paid or distribution paid
to the Purported Record Transferee in excess of the amount provided in the
preceding sentence prior to the discovery by the Corporation that the Capital
Stock with respect to which the dividend or distribution was made had been
transferred to the Charitable Trust pursuant to paragraph (b) shall be repaid to
the Charitable Trust for the benefit of the Charitable Beneficiary.
(p) VOTING OF SHARES HELD BY CHARITABLE TRUST. The Charitable Trustee
shall be entitled to all voting rights with respect to the Capital Stock held in
the Charitable Trust for the benefit of the Charitable Beneficiary on any
matter. Any vote taken by a Purported Record Transferee prior to the discovery
by the Corporation that the shares of Capital Stock were held in trust shall,
subject to Maryland Law, be rescinded and recast in accordance with the desires
of the Charitable Trustee acting for the benefit of the Charitable Beneficiary;
PROVIDED, HOWEVER, that if the Corporation has already taken irreversible
action, then the Charitable Trustee shall not have the power to rescind and
recast such vote. The owner of the Capital Stock held by the Charitable Trustee
shall be deemed to have given an irrevocable proxy to the Charitable Trustee to
vote the Capital Stock held by the Charitable Trustee for the benefit of the
Charitable Beneficiary.
(q) SALE OF SHARES HELD BY CHARITABLE TRUST. Shares held by the
Charitable Trust shall be transferable only as provided in this paragraph (q) of
Article IX. At the direction of the Corporation, the Charitable Trustee shall
sell the shares of Capital Stock held in the Charitable Trust to a person whose
ownership of the shares of Capital Stock will not violate paragraph (a). Such
transfer shall be made within 60 days after the latest of (i) the date of the
Transfer which resulted in such Transfer to the Charitable Trust and (ii) the
date the Board determines in good faith that a Transfer resulting in the
Transfer to the Charitable Trust has occurred, if the Corporation does not
receive a notice of such Transfer pursuant to paragraph (d) of Article IX. If
such a transfer is made, the interest of the Charitable Beneficiary shall
terminate and proceeds of the sale shall be payable to the Purported Record
Transferee and to the Charitable Beneficiary. The Purported Record Transferee
shall receive the lesser of (x) the price paid by the Purported Record
Transferee for the shares of Capital Stock or, if the Purported Record
Transferee did not give value for the shares of Capital Stock, the Market Price
of the shares of Capital Stock on the day of the event causing the shares of
Capital Stock to be held in the Charitable Trust, and (y) the price received by
the Charitable Trust from the sale or other disposition of the shares of Capital
Stock. Any proceeds in excess of the amount payable to the Purported Record
Transferee shall be paid to the Charitable Beneficiary. Prior to any transfer of
any shares of Capital Stock held by the Charitable Trust by the Charitable
Trustee, the Corporation must have waived in writing its purchase rights under
paragraph (r) of Article IX. It is expressly understood that the Purported
Record Transferee may enforce the provisions of this paragraph (q) of Article IX
against the Charitable Beneficiary.
(r) If any of the foregoing restrictions on transfer of shares held by
the Charitable Trust is determined to be void, invalid or unenforceable by any
court of competent jurisdiction, then the Purported Record Transferee may be
deemed, at the option of the Corporation, to have acted as an agent of the
Corporation in acquiring such shares and to hold such shares on behalf of the
Corporation.
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(s) CALL BY CORPORATION ON SHARES HELD BY THE CHARITABLE TRUST. Shares
of Capital Stock held by the Charitable Trust 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 created such
shares held by the Charitable Trust (or, in the case of a devise, gift or other
transaction in which no value was given for such shares held by the Charitable
Trust, the Market Price at the time of such devise, gift or other transaction)
and (ii) the Market Price of the shares of Capital Stock to which such shares
held by the Charitable Trust relates on the date the Corporation, or its
designee, accepts such offer (the "Redemption Price"). The Corporation shall
have the right to accept such offer until the Charitable Trustee has sold the
shares of Capital Stock held in the Charitable Trust pursuant to paragraph (q).
Upon such a sale to the Corporation, the interest of the Charitable Beneficiary
in the shares of Capital Stock sold shall terminate and the Charitable Trustee
shall distribute the net proceeds of the sale to the Purported Record
Transferee.
(t) DESIGNATION OF CHARITABLE BENEFICIARIES. By written notice to the
Charitable Trustee, the Corporation shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Charitable
Trust such that (i) Capital Stock held in the Charitable Trust would not violate
the restrictions set forth in paragraph (a) in the hands of such Charitable
Beneficiary and (ii) each such organization must be described in Section
501(c)(3), 170(b)(1)(A) or 170(c)(2) of the Code.
(u) UNDERWRITTEN OFFERINGS. The Ownership Limit shall not apply to the
acquisition of shares of Capital Stock or rights, options or warrants for, or
securities convertible into, shares of Capital Stock by an underwriter in a
public offering, provided that the underwriter makes a timely distribution of
such shares of Capital Stock or rights, options or warrants for, or securities
convertible into, shares of Capital Stock.
ARTICLE X
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendments of the Charter which may now or hereafter be authorized by law,
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. Except as otherwise provided in the Charter, any
amendment to the Charter shall be valid only if approved by the affirmative vote
of a majority of all the votes entitled to be cast on the matter.
ARTICLE XI
DEFINITIONS
(a) The following terms shall, whenever used in this Charter, unless
the context otherwise requires, have the meanings specified in this Article XI.
The singular shall refer to the plural, and the masculine gender shall be deemed
to refer to the feminine and neuter, and vice versa, as the context requires.
"AFFILIATE" shall mean with respect to a Stockholder or Director (i)
any Person directly or indirectly owning, controlling, or holding, with power to
vote, 20% or more of the outstanding voting securities of such Stockholder, (ii)
any Person 20% or more of whose outstanding voting securities are
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directly or indirectly owned, controlled, or held, with power to vote, by such
Director, or such Stockholder, and (iii) any officer, director, or partner of
such Stockholder.
"BENEFICIAL OWNERSHIP" shall mean ownership of shares of Capital Stock
by a Person who would be treated as an owner of such shares of Capital Stock
either directly or constructively through the application of Section 544 of the
Code, as modified by Section 856(h) of the Code. The terms "BENEFICIAL Owner,"
"BENEFICIALLY OWNS," "BENEFICIALLY OWN" and "BENEFICIALLY OWNED" shall have
correlative meanings.
"BOARD" shall mean the Board of Directors of the Corporation.
"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.
"BYLAWS" shall mean the Bylaws of the Corporation and all amendments
thereto.
"CAPITAL STOCK" shall mean all classes and series of stock which the
Corporation shall have authority to issue. The term "CAPITAL STOCK" shall
include Common Stock, preferred stock, preference stock, special stock or other
stock.
"CHARITABLE BENEFICIARY" shall mean one or more beneficiaries of the
Charitable Trust as determined pursuant to paragraph (t) of Article IX, provided
that each such organization must be described in Sections 501(c)(3),
170(b)(1)(A) and 170(c)(2) of the Code.
"CHARITABLE TRUST" shall mean any trust provided for in paragraph
(b)(i) and paragraph (n) of Article IX.
"CHARITABLE TRUSTEE" shall mean the Person unaffiliated with the
Corporation and a Purported Beneficial Transferee, that is appointed by the
Corporation to serve as trustee of the Charitable Trust.
"CHARTER" shall mean these Articles of Amendment and Restatement of the
Corporation, as amended, supplemented or modified from time to time. References
in this Charter to "herein" and "hereunder" shall be deemed to refer to this
Charter in its entirety and shall not be limited to the particular text,
article, or section in which such words appear.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, including successor statutes thereto.
"CONSTRUCTIVE OWNERSHIP" shall mean ownership of Capital Stock by a
Person, whether the interest in 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.
"CORPORATION ASSETS" shall mean, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is held,
transferred, conveyed, or paid to the Corporation and all rents, income,
profits, and gains therefrom.
"DEBT" shall mean indebtedness of the Corporation.
"DIRECTOR" shall mean the Person that is elected pursuant to Article VI
to serve as Director of the Corporation, and any successor thereto.
"EXCEPTED HOLDER" shall mean (i) a stockholder of the Corporation for
whom an Excepted Holder Limit is created by the Board pursuant to paragraph (k)
of Article IX and (ii) an Existing Holder.
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"EXCEPTED HOLDER LIMIT" shall mean (i) provided that the affected
Excepted Holder agrees to comply with the requirements established by the Board
pursuant to paragraph (k) of Article IX and subject to adjustment pursuant to
paragraph (h) of Article IX, the percentage limit established by the Board for
such Excepted Holder pursuant to paragraph (k) of Article IX and (ii) with
respect to an Existing Holder, the Existing Holder Limit.
"EXISTING HOLDER" shall mean (i) any Person who is, or would be upon
the exchange of Debt or any Security of the Corporation, the Beneficial or
Constructive Owner of shares of Capital Stock in excess of the Ownership Limit
immediately after the Restriction Commencement Date, so long as, but only so
long as, such Person Beneficially or Constructively Owns or would, upon exchange
of Debt or any Security of the Corporation, Beneficially or Constructively Own
shares of Capital Stock in excess of the Ownership Limit and (ii) any Person to
whom an Existing Holder Transfers, subject to the limitations provided in this
Article IX, Beneficial or Constructive Ownership of shares causing such
transferee to Beneficially or Constructively Own shares of Capital Stock in
excess of the Ownership Limit.
"EXISTING HOLDER LIMIT" (i) for any Existing Holder who is an Existing
Holder by virtue of clause (i) of the definition thereof, shall mean, initially,
the percentage of the outstanding shares of Capital Stock Beneficially or
Constructively Owned (with such percentage for each class determined separately)
or which would be Beneficially or Constructively Owned upon the exchange of Debt
or any Security of the Corporation, by such Existing Holder upon and immediately
after the Restriction Commencement Date, and, after any adjustment pursuant to
paragraph (h) of Article IX, shall mean such percentage of the outstanding
shares of Capital Stock as so adjusted, and (ii) for any Existing Holder who
becomes an Existing Holder by virtue of clause (ii) of the definition thereof,
shall mean, initially, the percentage of the outstanding shares of Capital Stock
Beneficially or Constructively Owned (with such percentage for each class
determined separately) by such Existing Holder at the time that such Existing
Holder becomes an Existing Holder, but in no event shall such percentage be
greater than the lesser of (a) the Existing Holder Limit for the Existing Holder
who Transferred Beneficial or Constructive Ownership of such shares of Capital
Stock or, in the case of more than one transferor, in no event shall such
percentage be greater than the smallest Existing Holder Limit of any
transferring Existing Holder, or (b) the Ownership Limit if the Existing Holder
is a person other than a trust qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code, and, after any adjustment
pursuant to paragraph (h) of Article IX, shall mean such percentage of the
outstanding shares of Capital Stock as so adjusted. From the Restriction
Commencement Date until the Restriction Termination Date, the Corporation shall
maintain and, upon request, make available to each Existing Holder, a schedule
which sets forth the then current Existing Holder Limit for each Existing
Holder.
"MARKET PRICE" shall mean the last reported sales price reported on the
NYSE for a particular class of shares of Capital Stock on the trading day
immediately preceding the relevant date, or if not then traded on such exchange,
the last reported sales price for such class of shares of Capital Stock on the
trading day immediately preceding the relevant date as reported on any exchange
or quotation system over or through which such class of shares of Capital Stock
may be traded, or if not then traded over or through any exchange or quotation
system, then the market price of such class of shares of Capital Stock on the
relevant date as determined in good faith by the Board.
"MGCL" shall mean the Maryland General Corporation Law, as amended from
time to time, including successor statutes thereto.
"MORTGAGES" shall mean mortgages, deeds of trust, or other security
instruments on real property or rights or interests in real property or entities
owning or controlling real property.
"OWNERSHIP LIMIT" shall initially mean 9.8%, in number of shares of
Capital Stock, or value of the aggregate outstanding shares of Capital Stock,
whichever is more restrictive, of the Corporation, and after any adjustment as
set forth in paragraph (i) of Article IX, shall mean such percentage in number
of
19
<PAGE>
shares of Capital Stock, or value of the aggregate outstanding shares of Capital
Stock, as so adjusted. Such number and/or value shall be determined by the Board
in good faith, which determination shall be conclusive for all purposes hereof.
"PERSON" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity.
"PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any
purported Transfer, any Person who, but for the provisions of paragraph (b) of
Article IX, would Beneficially or Constructively Own shares of Capital Stock.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any purported
Transfer, any Person who, but for the provisions of paragraph (b) of Article IX,
would be the record owner of shares of Capital Stock.
"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code.
"REIT PROVISIONS OF THE CODE" shall mean Part II, Subchapter M of
Chapter 1 of Subtitle A of the Code, as now enacted or hereafter amended,
including successor statutes and regulations promulgated thereunder.
"RESTRICTION COMMENCEMENT DATE" shall mean the date upon which the
Charter containing this Article IX is accepted for record with the State
Department of Assessments and Taxation of Maryland.
"RESTRICTION TERMINATION DATE" shall mean the first day after the
Restriction Commencement Date on which the Board determines that it is no longer
in the best interests of the Corporation to attempt to, or continue to, qualify
as a REIT.
"SECURITIES" shall mean common and preferred stock in a corporation,
shares of beneficial interest in a trust or other unincorporated association,
general partner interests in a general partnership, interests in a joint
venture, general or limited partnership interests in a limited partnership,
membership interests or non-member manager interests in a limited liability
company, notes, debentures, bonds, and other evidences of indebtedness,
including Mortgages, whether secured or unsecured, and includes any options,
warrants, and rights to subscribe to or convert into any of the foregoing.
"SHAREHOLDERS" shall mean, at any particular time, those Persons who
are shown as the holders of record of all shares of Capital Stock on the records
of the Corporation at such time.
"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 or Constructive Ownership, of shares of Capital Stock
(including (a) a change in the capital structure of the Corporation, (b) a
change in the relationship between two or more Persons which causes a change in
Beneficial or Constructive Ownership of shares of Capital Stock, (c) Transfers
of interests in other entities that result in changes in Beneficial or
Constructive Ownership of shares of Capital Stock, (d) the granting of any
option, warrant or similar agreement, or entering into any agreement for the
sale, transfer or other disposition of shares of Capital Stock, (e) the sale,
transfer, assignment or other disposition of any Securities or rights
convertible into or exchangeable for shares of Capital Stock, but excluding the
exchange of Debt or any Security of the Corporation for shares of Capital Stock
and (f) any transfer or other disposition of any interest in shares of Capital
Stock as a result of a change in the marital status of the holder thereof),
whether voluntary or involuntary, whether of record, constructively or
beneficially and whether by operation of law or otherwise. The terms "TRANSFERS"
and "TRANSFERRED" shall have correlative meanings.
20
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ANNEX A
SERIES A PREFERRED STOCK
1. DESIGNATION AND NUMER OF SHARES.
A series of Preferred Stock, designated the "9.5% Series A Cumulative
Redeemable Preferred Stock" (the "Series A Preferred Stock"), is hereby
established. The Series A Preferred Stock shall consist of 4,400,000 shares,
which number may be increased or decreased (but not below the number of Series A
Preferred Stock then issued and outstanding) from time to time by a resolution
or resolutions of the Board of Directors. Series A Preferred Stock repurchased
by the Corporation shall be canceled and shall revert to authorized but unissued
shares of Preferred Stock, undesignated as to class or series, subject to
reissuance by the Corporation as shares of Preferred Stock of any one or more
series.
2. RANK.
The distinctive name and designation of this series of preferred stock
is Series A Preferred Stock. Each share of Series A Preferred Stock shall rank
senior to any "Junior Securities" (herein defined) in the payment of dividends
and in the liquidation, dissolution or winding up of the Corporation. No Series
of Preferred Stock hereafter issued shall rank senior to or on a parity with the
Series A Preferred Stock unless the issuance thereof is in compliance with the
terms of the Investor Rights Agreement among the Corporation, certain holders of
the Series A Preferred Stock and certain other parties thereto relating among
other things to the Series A Preferred Stock.
3. DIVIDENDS.
(a) Each share of Series A Preferred Stock shall entitle the holder
thereof to receive dividends out of any assets legally available therefor, prior
to and in preference to any declaration or payment of any dividend (payable
other than in Junior Securities) payable on any Junior Securities and pari passu
with any securities ranking on parity with the Series A Preferred Stock and
junior to any Senior Preferred Stock (herein defined). Dividends shall be
payable when and as authorized by the Board of Directors and declared by the
Corporation. Dividends on each share of Series A Preferred Stock shall accrue at
the rate determined pursuant to Section 3(c) (the "Dividend Rate") on the
Liquidation Value. The dividend on the Series A Preferred Stock shall be
cumulative and shall be payable in cash in arrears on April 15, July 15, October
15 and January 15 of each year (each a "Dividend Payment Date"), to holders of
record on the last day of the month immediately preceding such Dividend Payment
Date (i.e., March 31, June 30, September 30 and December 31). Dividends shall
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. To the extent that any dividend on the Series A Preferred
Stock is not paid on the Dividend Payment Date, such dividend shall accumulate
and compound quarterly from that date at the then applicable Dividend Rate until
such dividend is paid in full. The date on which the Corporation initially
issues a Series A Preferred Stock shall be referred to as the Original Issue
Date regardless of the number of transfers of such shares made on the stock
records maintained by or for the Corporation and regardless of the number of
certificates that may be issued to evidence such share.
(b) The Corporation shall not (i) pay or set aside for payment any
dividends (payable other than in Junior Securities), on Junior Securities or
(ii) redeem, repurchase or otherwise acquire any Junior Securities (except as
required by Article IX of the Amended and Restated Charter of the Corporation
(the "Charter") or the real estate investment trust qualification provisions of
applicable law)
<PAGE>
until all accumulated, accrued and unpaid dividends (including any compounded
dividends thereon) have been paid on the Series A Preferred Stock through the
last preceding Dividend Payment Date.
(c) The Dividend Rate shall initially be 9.5% per annum. On each of
December 15, 2005, 2006 and 2007, the Dividend Rate shall increase by 0.25% per
annum. If the Corporation fails to pay on any four (4) or more consecutive
Dividend Payment Date the full amount of unpaid dividends accrued or accumulated
as of each such Dividend Payment Date on the Series A Preferred Stock (whether
or not such payments are legally permissible or are prohibited by an agreement
to which the Corporation is subject), any of which dividends remain unpaid on
the day after the fourth such Dividend Payment Date, the Dividend Rate on the
Series A Preferred Stock then in effect shall be increased by 0.50% per annum
with such increase being effective retroactive to the immediately prior Dividend
Payment Date with respect to which all accrued or accumulated but unpaid
dividends have been paid. Such increased Dividend Rate shall remain in effect
until the close of business on the date that all accrued or accumulated
dividends (including any compounded dividends thereon) in arrears on the Series
A Preferred Stock are paid in full at which time the Dividend Rate increase
shall be of no further force and effect, the Dividend Rate shall be reset to
that Dividend Rate that would have been in effect at such time pursuant to the
first and second sentences of this Section 3(c) but for the effect of the third
sentence of this Section 3(c) (subject to subsequent increases pursuant to this
section) and the calculation of the periods dividends are in arrears shall be
reset to zero (0). Subject to subsequent increases after reset pursuant to the
preceding sentence, no additional dividend rate increases shall be made for
defaults in the payment of dividends in excess of such four (4) consecutive
Dividend Payment Dates, but the aforesaid increase shall remain in effect in
accordance with the immediately preceding sentence until the time specified
therein.
(d) The amount of dividends payable for each quarterly dividend period
for the Series A Preferred Stock shall be computed by dividing the Dividend Rate
by four. The amount of dividends payable for the initial dividend period or any
other period shorter or longer than a full quarterly period shall be computed on
the basis of twelve 30-day months and a 360-day year.
(e) Dividend payments shall be made by wire transfer to an account
designated by each holder of Series A Preferred Stock or, if no account
information is provided to the Corporation by a holder of Series A Preferred
Stock, dividend payments shall be made by check delivered by first class mail to
the address of such holder as set forth in the stock records of the Corporation.
4. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS, CONSOLIDATIONS
AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders after and subject to
the payment in full of all amounts required to be distributed to the holders of
any other class or series of Shares of the Corporation that specifically state
that on liquidation they rank prior and in preference to the Series A Preferred
Stock, whether or not convertible into Junior Securities (collectively referred
to as "Senior Preferred Stock"), but before any payment shall be made to the
holders of Common Stock or any other class or series of stock ranking on
liquidation junior to the Series A Preferred Stock (the Common Stock and any
other class or series of stocks ranking in payment of dividends or on
liquidation junior to the Series A Preferred Stock, or options, warrants or
rights to purchase or that are convertible into any such stock but in no event
including any Senior Preferred Stock being collectively referred to as "Junior
Securities") by reason of their ownership thereof, an amount equal to $50.00 per
share (such amount being the "Liquidation Value"), plus any dividends declared,
accumulated or accrued (including any compounded dividends thereon) but unpaid
thereon. If, upon any such liquidation, dissolution or winding up of the
Corporation, the remaining assets of the Corporation available for distribution
to its
<PAGE>
stockholders shall be insufficient to pay the holders of Series A Preferred
Stock and all other classes or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock the full amount to which they shall be
entitled, the holders of Series A Preferred Stock and any class or series of
stock ranking on liquidation on a parity with the Series A Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the stock held by them upon such distribution if all
amounts payable on or with respect to such stock were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Senior Preferred Stock, Series A Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation on a parity
with the Series A Preferred Stock, upon the dissolution, liquidation or winding
up of the Corporation, the holders of shares of Junior Securities then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its shareholders.
(c) The voluntary consolidation or merger of the Corporation into or
with any other entity or entities which results in the exchange of outstanding
stock of the Corporation for securities or other consideration issued or paid or
caused to be issued or paid by any such entity or affiliate thereof, and the
voluntary sale or transfer by the Corporation of all or substantially all its
assets, shall not be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of the provisions of this Section 4 unless
such sale, conveyance, exchange or transfer is in connection with a dissolution
or winding up of the business of the Corporation, provided, however, that any
consolidation or merger of the Corporation in which the Corporation is not the
surviving entity shall be deemed to be a liquidation, dissolution or winding up
of the affairs of the Corporation within the meaning of this Section 4 if, (i)
in connection therewith, any holders of Junior Securities receive as
consideration, whether in whole or in part, for such: (1) cash (other than as
payment for fractional shares), (2) notes, debentures or other evidences of
indebtedness or obligations to pay cash (other than as payment for fractional
shares) or (3) preferred stock of the surviving entity (whether or not the
surviving entity is the Corporation) which ranks on a parity with or senior to
the preferred stock received by holders of the Series A Preferred Stock with
respect to liquidation or dividends or (ii) the holders of the Series A
Preferred Stock do not receive preferred stock of the surviving entity with
rights, powers and preferences equal to (or more favorable to the holders than)
the rights, powers and preferences of the Series A Preferred Stock.
5. VOTING.
(a) Except as otherwise provided in Section 8 hereof or by the
provisions of Subsection 5(b) below, holders of Series A Preferred Stock shall
not be entitled to vote.
(b) Without the written consent or affirmative vote of the holders of a
majority of the then outstanding Series A Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
class, the Corporation shall not amend, alter or repeal the preferences, special
rights or other powers of the Series A Preferred Stock as set forth in these
terms of the Series A Preferred Stock.
6. OPTIONAL REPURCHASE BY THE CORPORATION.
(a) From and after December 15, 2003, the Corporation shall have the
right to repurchase and redeem (the "Repurchase") all, or any part of the Series
A Preferred Stock outstanding on the date of notice of Repurchase (the
"Repurchase Date"), for a price per share equal to the Liquidation Value thereof
plus all unpaid dividends that have been declared, accumulated or accrued
(including any compounded dividends thereon) to the Repurchase Date; provided
that after the Corporation has redeemed 74% of the total number of Series A
Preferred Stock issued on the Original Issue Date, the
<PAGE>
Corporation must redeem all remaining outstanding Series A Preferred Stock if
any are redeemed. Any Repurchase of Series A Preferred Stock shall be made pro
rata among all holders of Series A Preferred Stock and shall be in minimum
amounts equal to the lesser of (i) $10 million in Liquidation Value or (ii) the
remaining amount of Series A Preferred Stock then outstanding.
(b) All holders of record of Series A Preferred Stock will be given
written notice of the Repurchase not less than 30 days nor more than 60 days
prior to the Repurchase Date, which notice shall set forth the Repurchase Date
and place designated for Repurchase of the Series A Preferred Stock pursuant to
this Section 6. Such notice shall be sent by overnight courier or first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock at such holder's address last shown on the records of the transfer agent
for the Series A Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent). On or before the Repurchase Date, the
Corporation shall irrevocably deposit, for the benefit of the holders of the
Series A Preferred Stock, the funds necessary to effect the Repurchase in full
with a bank or trust company in the Borough of Manhattan, The City of New York
having a capital and surplus of not less than $500 million. The Corporation
shall have the right to revoke the notice of the Repurchase at any time prior to
the designated Repurchase Date. On or before the Repurchase Date, each holder of
Series A Preferred Stock shall surrender his, her or its certificate or
certificates for all such Series A Preferred Stock to the Corporation at the
place designated in such notice, and on the later of the Repurchase Date and the
date such certificates are surrendered, shall receive the payment to which such
holder is entitled pursuant to this Section 6. On the Repurchase Date, provided
that the Corporation has so deposited the funds necessary to effect the
Repurchase in full as provided in this Section 6, all rights with respect to the
Series A Preferred Stock, including the rights, if any, to receive notices and
vote, will terminate, except only the rights of the holders thereof, upon
surrender of their certificate or certificates therefor, to receive payment for
the Series A Preferred Stock. If so required by the Corporation, certificates
surrendered shall be endorsed or accompanied by written instrument or
instruments of transfer, in form reasonably satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. (c) All certificates evidencing Series A Preferred Stock that are
required to be surrendered for repurchase in accordance with the provisions
hereof shall, if the Corporation has deposited the funds necessary to effect the
Repurchase in full as provided in Section 6(b) above, from and after the
Repurchase Date, be deemed to have been retired and canceled and the Series A
Preferred Stock represented thereby converted into the right to receive payment
for such Series A Preferred Stock, notwithstanding the failure of the holder or
holders thereof to surrender such certificates on or prior to such date. The
Corporation may thereafter take such appropriate action (without the need for
shareholder action) as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
7. OPTIONAL REDEMPTION BY THE HOLDERS.
(a) In the event of a Change of Control, as defined below, each holder
of Series A Preferred Stock shall have the right to elect to have the
Corporation repurchase (the "Redemption") all, but not less than all, of the
Series A Preferred Stock held by such holder on the date of the Change of
Control (the "Change of Control Date") for a price per share equal to the
Liquidation Value thereof plus all unpaid dividends that have been declared,
accumulated or accrued (including any compounded dividends thereon) to the
Redemption Date. The procedure for electing the Redemption is set forth in
Section (b) and (c) below. The Corporation shall not be required to redeem any
Series A Preferred Stock unless holders of not less than a majority of the
Series A Preferred Stock outstanding have elected to have their Series A
Preferred Stock redeemed in which case the Corporation shall redeem all
outstanding Series A Preferred Stock including those owned by holders who have
not so elected.
(b) If a Change of Control (as defined below) has occurred, the
Corporation shall give prompt written notice of such Change of Control (the
"Change of Control Notice"), describing in
<PAGE>
reasonable detail the definitive terms and date of consummation thereof, to each
holder of Series A Preferred Stock, but in any event, such notice shall be given
no later than five business days after the Change of Control Date. Such notice
shall be sent by overnight courier or first class or registered mail, postage
prepaid, to each record holder of Series A Preferred Stock at such holder's
address last shown on the records of the transfer agent for the Series A
Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent) and shall set forth the date of the closing of the Redemption
(the "Redemption Date"), which Redemption Date shall be the later of the Change
of Control Date or 30 days after the date the Change of Control Notice was first
mailed by the Corporation to the holders of Series A Preferred Stock, and place
designated for the redemption of the Series A Preferred Stock pursuant to this
Section 7. Upon receipt of such notice, each holder of Series A Preferred Stock
will have 20 days to elect to exercise the Redemption by delivering written
notice thereof to the Corporation. If the Corporation does not receive from the
holders of at least a majority the Series A Preferred Stock outstanding notice
of their election to exercise the Redemption within the 20 day period, no Series
A Preferred Stock shall be repurchased by the Corporation and all rights under
this Section 7 shall terminate with respect to the Change of Control identified
in the Change of Control Notice but not with respect to any future Change of
Control. If the holders of at least a majority of the Series A Preferred Stock
outstanding give notice of election to exercise the Redemption within the
required time period then on or before the Redemption Date, the Corporation
shall irrevocably deposit, for the benefit of the holders of all of the Series A
Preferred Stock, the funds necessary to effect the Redemption in full with a
bank or trust company in the Borough of Manhattan, The City of New York with
capital and surplus of not less than $500 million. On or before the Redemption
Date, each holder of Series A Preferred Stock shall surrender his, her or its
certificate for all such Series A Preferred Stock to the Corporation at the
place designated in the notice, and on the Redemption Date shall receive the
payment to which such holder is entitled pursuant to this Section 7. On the
Redemption Date, the Corporation will redeem all of the Series A Preferred Stock
for the consideration such holder is entitled pursuant to this Section 7;
provided that no holder of Series A Preferred Stock shall be entitled to receive
such consideration until the certificates representing his, her or its Shares
have been delivered to the Corporation at the place designated in such notice.
On the Redemption Date, provided that the Corporation has so deposited the funds
necessary to effect the Redemption in full as provided in this Section 7, all
rights with respect to the Series A Preferred Stock, including the rights, if
any, to receive notices and vote, will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive payment for the Series A Preferred Stock. If so required by the
Corporation, certificates surrendered shall be endorsed or accompanied by
written instrument or instruments of transfer, in form reasonably satisfactory
to the Corporation, duly executed by the registered holder or by his or its
attorney duly authorized in writing. On the later of the Redemption Date and the
surrender of the certificate or certificates for Series A Preferred Stock, the
Corporation shall cause to be delivered to such holder, a cash payment for such
redeemed Series A Preferred Stock. If a proposed Change of Control is not
consummated, all elections to redeem in connection therewith shall automatically
be rescinded.
(c) All certificates evidencing Series A Preferred Stock that are
required to be surrendered for repurchase in accordance with the provisions
hereof shall, if the Corporation has deposited the funds necessary to effect the
Redemption in full as provided in Section 7(b) above, from and after the
Redemption Date, be deemed to have been retired and canceled and the Series A
Preferred Stock represented thereby converted into the right to receive payment
for such shares, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for shareholder
action) as may be necessary to reduce the authorized Series A Preferred Stock
accordingly.
(d) "Change of Control" means the occurrence of one or more of the
following events that is not approved by the Board of Directors of the
Corporation prior to the occurrence of such event: (i) any Person or "Group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange
<PAGE>
Act), other than the Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have beneficial ownership of all shares that such Person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of a number of shares of the
voting stock of the Corporation which would entitle the holder thereof to cast a
majority of the votes entitled to be cast on matters generally to be voted on by
the stockholders of the Corporation; provided that if the Permitted Holders have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Corporation a
Change of Control shall not be deemed to occur even if the Permitted Holders
"beneficially own" (as so defined) a lesser percentage of such voting stock than
such other person; or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Corporation to any Person or Group, together with any
affiliates thereof other than the Permitted Holders. "Permitted Holders" shall
mean B. Holdings, L.L.C., Starwood Mezzanine Investors, L.P., Starwood
Opportunity Fund IV, L.P., SOFI-IV SMT HOLDINGS, L.L.C., the direct the indirect
general partners thereof and their respective affiliates.
8. BOARD REPRESENTATION.
(a) If the Corporation fails to pay within 30 days of any single
Dividend Payment Date the full dividend then accrued or accumulated but unpaid
on the Series A Preferred Stock, whether or not such payment is legally
permissible or is prohibited by any agreement to which the Corporation is
subject (a "Single Dividend Deficiency Period"), then the number of directors
constituting the Board of Directors of the Corporation shall be increased to
permit the holders of a majority of the Series A Preferred Stock (the "Majority
Holders") voting separately as one class, to elect one director. If the
Corporation fails to pay the full dividends then accrued or accumulated but
unpaid (including compounded dividends) on the Series A Preferred Stock for any
six consecutive Dividend Payment Dates (including the initial Single Dividend
Deficiency Period) so that six consecutive dividend payments are not paid in
full as of the day after the sixth such Divided Payment Date, whether or not
such payment is legally permissible or is prohibited by any agreement to which
the Corporation is subject (a "Multiple Dividend Deficiency Period" and together
with a Single Dividend Deficiency Period an "Election Period"), then the number
of Directors of the Corporation shall be increased to permit the Majority
Holders, voting separately as one class, to elect one more director. Any
director elected pursuant to this Section 8 is referred to as a Preferred
Director. Upon the payment in full of all accrued or accumulated but unpaid
dividends (including compounded dividends) on the Series A Preferred Stock, the
calculation of the periods dividends are in arrears shall reset to zero (0).
(b) The right of the Majority Holders voting separately as one class to
elect Preferred Directors shall continue until such time as all accrued or
accumulated dividends (including compounded dividends) that are in arrears on
the Series A Preferred Stock are paid in full, at which time the term of any
Preferred Director shall terminate and the number of Directors constituting the
Board of Directors shall be reduced to the number necessary to reflect the
termination of the right of the Majority Holders to elect Preferred Directors;
subject to the right of the holders of Series A Preferred Stock to elect the
appropriate number of Preferred Directors if a subsequent Election Period should
occur. Any Preferred Directors shall continue in office until the earlier of (A)
such time as his or her successor shall have been elected by Majority Holders
and (B) the termination of his or her term in accordance with the immediately
preceding sentence. Notwithstanding any other sections of the Charter, during
any Election Period, the Majority Holders shall be entitled to (A) remove from
the Board any Preferred Director elected under the foregoing subsection (i), and
(B) elect each successor to any such Preferred Director removed in accordance
herewith or who otherwise vacates such office.
(c) The right of the Majority Holders to elect Preferred Directors may
be exercised at the special meeting called pursuant to this Section, at any
annual or other special meeting of stockholders
<PAGE>
and, to the extent and in the manner permitted by applicable law, pursuant to a
written consent in lieu of a stockholders meeting. A proper officer of the
Corporation shall, upon the written request of the Majority Holders, addressed
to any officer of the Corporation, call a special meeting of the stockholders
for the purpose of electing trustees pursuant to this Section. Such meeting
shall be held at the earliest legally permissible date at the principal office
of the Corporation, or at such other place designated by the Majority Holders.
If such meeting has not been called by a proper officer of the Corporation
within 15 days after personal delivery, by hand or by a nationally recognized,
overnight courier guaranteeing next business day delivery, of such written
request upon any officer of the Corporation or within 20 days after mailing the
same to the Secretary of the Corporation at its principal office, then the
Majority Holders may call such meeting at the expense of the Corporation, and
such meeting may be called upon the notice required for annual meetings of
stockholders and shall be held at the Corporation's principal office, or at such
other place designated by the Majority Holders. In the event that the
Corporation is then subject to the proxy solicitation rules of the Securities
Exchange Act of 1934, as amended, the 15 day and 20 day periods referenced above
shall be increased to 120 days and 125 days, respectively. The Majority Holders
shall be given access to the stock record books of the Corporation for the
purpose of causing a meeting of stockholders to be called pursuant to this
Section.
(d) At any meeting or at any adjournment thereof at which the holder of
the Series A Preferred Stock have the right to elect directors, the presence, in
person or by proxy, of the holders of a majority of the Series A Preferred Stock
shall be required to constitute a quorum for the election or removal of any
director by the Majority Holders. The affirmative vote of the holders of a
majority of the Series A Preferred Stock represented in person or proxy at such
meeting shall be required to elect or remove any Preferred Director.
9. RESTRICTION ON TRANSFER, ACQUISITION AND REDEMPTION OF SERIES A
PREFERRED STOCK
The Series A Preferred Stock are subject to the provisions of Article
IX of the Charter, including, without limitation, the provision for the
redemption of shares transferred to the Charitable Trust. For this purpose, the
Market Price of the Series A Preferred Stock shall equal $50.00 per share, plus
all accrued and unpaid dividends on the Series A Preferred Stock.
10. THE CORPORATION.
Each of the parties hereto acknowledges and agrees that the name
Starwood Financial Inc. is a designation of the Corporation under the
Corporation's Charter, and all persons dealing with the Corporation shall look
solely to the Corporation's assets for the enforcement of any claims against the
Corporation, and the Directors, officers, agents and security holders of the
Corporation assume no personal liability for obligations entered into on behalf
of the Corporation, and their respective individual assets shall not be subject
to the claims of any person relating to such obligations.
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ANNEX B
SERIES B PREFERRED STOCK
(1) DESIGNATION AND NUMBER. A series of Preferred Stock, designated the
"9-3/8% Series B Cumulative Redeemable Preferred Stock" (the "Series B Preferred
Stock"), is hereby established. The number of shares of the Series B Preferred
Stock shall be 2,300,000.
(2) RANK. The Series B Preferred Stock shall, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the
Corporation, rank (a) senior to all classes or series of Common Stock of the
Corporation, and to all equity securities ranking junior to such Series B
Preferred Stock; (b) on a parity with the Corporation's 9.5% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock"), 9.2% Series C
Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock") and 8%
Series D Cumulative Redeemable Preferred Stock (the "Series D Preferred Stock");
and all equity securities issued by the Corporation the terms of which
specifically provide that such equity securities rank on a parity with the
Series B Preferred Stock and (c) junior to all equity securities issued by the
Corporation the terms of which specifically provide that such equity securities
rank senior to the Series B Preferred Stock. The term "equity securities" shall
not include convertible debt securities.
(3) DIVIDENDS.
(a) Holders of the then outstanding shares of Series B Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors,
out of funds legally available for the payment of dividends, cumulative
preferential cash dividends at the rate of 9-3/8% of the $25.00 liquidation
preference per annum (equivalent to a fixed annual amount of $2.34375 per
share). Such dividends shall be cumulative from the first date on which any
Series B Preferred Stock is issued and shall be payable quarterly in arrears on
or before March 15, June 15, September 15 and December 15 of each year or, if
not a business day, the next succeeding business day (each, a "Dividend Payment
Date"). Any dividend payable on the Series B Preferred Stock for any partial
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends will be payable to holders of record as they
appear in the stock records of the Corporation at the close of business on the
applicable record date, which shall be the first day of the calendar month on
which the applicable Dividend Payment Date falls or on such other date
designated by the Board of Directors of the Corporation for the payment of
dividends that is not more than 30 nor less than 10 days prior to such Dividend
Payment Date (each, a "Dividend Record Date").
(b) No dividends on shares of Series B Preferred Stock shall be
declared by the Board of Directors of the Corporation or paid or set apart for
payment by the Corporation at such time as the terms and provisions of any
agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting apart for payment
or provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration or
payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the Series B Preferred
Stock shall accrue whether or not the terms and provisions set forth in Section
3(b) hereof at any time prohibit the current payment of dividends, whether or
not the Corporation has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared. Accrued but unpaid dividends on the Series B Preferred Stock will
accumulate as of the Dividend Payment Date on which they first become payable.
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(d) Except as provided in Section 3(e) below, no dividends will be
declared or paid or set apart for payment on any capital stock of the
Corporation or any other series of preferred stock ranking, as to dividends, on
a parity with or junior to the Series B Preferred Stock (other than a dividend
in shares of the Corporation's Common Stock or in any other class of stock
ranking junior to the Series B Preferred Stock as to dividends and upon
liquidation) for any period unless (i) full cumulative dividends have been or
contemporaneously are declared and paid or declared and (ii) a sum sufficient
for the payment thereof is set apart for such payment on the Series B Preferred
Stock for all past dividend periods and the then current dividend period.
(e) When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series B Preferred Stock and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Series B Preferred Stock, all dividends declared upon the
Series B Preferred Stock and any other series of Preferred Stock ranking on a
parity as to dividends with the Series B Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Series B Preferred
Stock and such other series of Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the Series B Preferred
Stock and such other series of Preferred Stock (which shall not include any
accrual in respect of unpaid dividends for prior dividend periods if such
Preferred Stock does not have a cumulative dividend) bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Series B Preferred Stock which may be in
arrears.
(f) Except as provided in the immediately preceding paragraph, unless
full cumulative dividends on the Series B Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in shares of Common Stock
or other shares of capital stock ranking junior to the Series B Preferred Stock
as to dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or any other capital stock of the Corporation ranking junior to or on a
parity with the Series B Preferred Stock as to dividends or upon liquidation,
nor shall any shares of Common Stock, or any other shares of capital stock of
the Corporation ranking junior to or on a parity with the Series B Preferred
Stock as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any such shares) by the Corporation (except
by conversion into or exchange for other capital stock of the Corporation
ranking junior to the Series B Preferred Stock as to dividends and upon
liquidation).
(g) Any dividend payment made on shares of the Series B Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due,
with respect to such shares, which remains payable. Holders of the Series B
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or stock in excess of full cumulative dividends on the Series B
Preferred Stock as described above.
(4) LIQUIDATION PREFERENCE.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding are entitled to be paid out of the assets of
the Corporation, legally available for distribution to its stockholders, a
liquidation preference of $25.00 per share, plus an amount equal to any accrued
and unpaid dividends to the date of payment, before any distribution of assets
is made to holders of Common Stock or any other class or series of capital stock
of the Corporation that ranks junior to the Series B Preferred Stock as to
liquidation rights.
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(b) In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Corporation
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Series B Preferred Stock and the corresponding amounts
payable on all shares of other classes or series of capital stock of the
Corporation ranking on a parity with the Series B Preferred Stock in the
distribution of assets, then the holders of the Series B Preferred Stock and all
other such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
(c) After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series B Preferred Stock will have no
right or claim to any of the remaining assets of the Corporation.
(d) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place or
places where, the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage pre-paid, not less than 30 nor more
than 60 days prior to the payment date stated therein, to each record holder of
the Series B Preferred Stock at the respective addresses of such holders as the
same shall appear on the stock transfer records of the Corporation.
(e) The consolidation or merger of the Corporation with or into any
other corporation, trust or entity or of any other corporation with or into the
Corporation, or the sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Corporation.
(5) REDEMPTION.
(a) RIGHT OF OPTIONAL REDEMPTION. The Series B Preferred Stock is not
redeemable prior to June 15, 2001. However, in order to ensure that the
Corporation remains a qualified real estate investment trust ("REIT") for
Federal income tax purposes, the Series B Preferred Stock will be subject to the
provisions of Article IX of the Charter. Pursuant to Article IX, Series B
Preferred Stock, together with other equity stock of the Corporation, owned by a
stockholder in excess of the Ownership Limit will automatically be transferred
to a Charitable Trust for the benefit of a Charitable Beneficiary and the
Corporation will have the right to purchase such transferred shares from the
Charitable Trust. On and after June 15, 2001, the Corporation, at its option and
upon not less than 30 nor more than 60-days' written notice, may redeem shares
of the Series B Preferred Stock, in whole or in part, at any time or from time
to time, for cash at a redemption price of $25.00 per share, plus all accrued
and unpaid dividends thereon to the date fixed for redemption (except as
provided in Section 5(c) below), without interest. If less than all of the
outstanding Series B Preferred Stock is to be redeemed, the Series B Preferred
Stock to be redeemed shall be selected pro rata (as nearly as may be practicable
without creating fractional shares) or by any other equitable method determined
by the Corporation.
(b) LIMITATIONS ON REDEMPTION.
(i) The redemption price of the Series B Preferred Stock (other
than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital stock of the
Corporation, which may include other series of Preferred Stock, and from no
other source. For purposes of the preceding sentence, "capital stock" means
any equity securities (including Common Stock and Preferred Stock), shares,
interest, participation or other ownership interests (however designated)
and any rights (other than debt securities convertible into or exchangeable
for equity securities) or options to purchase any of the foregoing.
(ii) Unless full cumulative dividends on all shares of Series B
Preferred Stock shall have been, or contemporaneously are, declared and paid
or declared and a sum
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sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no shares of Series B
Preferred Stock shall be redeemed unless all outstanding shares of Series B
Preferred Stock are simultaneously redeemed, and the Corporation shall not
purchase or otherwise acquire directly or indirectly any shares of Series B
Preferred Stock (except by exchange for capital stock of the Corporation
ranking junior to the Series B Preferred Stock as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase by the Corporation of shares transferred to a Charitable Trust
pursuant to Article IX in order to ensure that the Corporation remains
qualified as a REIT for Federal income tax purposes or the purchase or
acquisition of shares of Series B Preferred Stock pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares
of Series B Preferred Stock.
(c) RIGHTS TO DIVIDENDS ON SHARES CALLED FOR REDEMPTION. Immediately
prior to any redemption of Series B Preferred Stock, the Corporation shall pay,
in cash, any accumulated and unpaid dividends through the redemption date,
unless a redemption date falls after a Dividend Record Date and prior to the
corresponding Dividend Payment Date, in which case each holder of Series B
Preferred Stock at the close of business on such Dividend Record Date shall be
entitled to the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such shares before such Dividend
Payment Date. Except as provided above, the Corporation will make no payment or
allowance for unpaid dividends, whether or not in arrears, on Series B Preferred
Stock which is redeemed.
(d) PROCEDURES FOR REDEMPTION.
(i) Notice of redemption will be (A) given by publication in a
newspaper of general circulation in the City of New York, such publication
to be made once a week for two successive weeks commencing not less than 30
nor more than 60 days prior to the redemption date, and (B) mailed by the
Corporation, postage prepaid, not less than 30 nor more than 60 days prior
to the redemption date, addressed to the respective holders of record of the
Series B Preferred Stock to be redeemed at their respective addresses as
they appear on the stock transfer records of the Corporation. No failure to
give such notice or any defect thereto or in the mailing thereof shall
affect the validity of the proceedings for the redemption of any shares of
Series B Preferred Stock except as to the holder to whom notice was
defective or not given.
(ii) In addition to any information required by law or by the
applicable rules of any exchange upon which Series B Preferred Stock may be
listed or admitted to trading, such notice shall state: (A) the redemption
date; (B) the redemption price; (C) the number of shares of Series B
Preferred Stock to be redeemed; (D) the place or places where the Series B
Preferred Stock is to be surrendered for payment of the redemption price;
and (E) that dividends on the shares to be redeemed will cease to accrue on
such redemption date. If less than all of the Series B Preferred Stock held
by any holder is to be redeemed, the notice mailed to such holder shall also
specify the number of shares of Series B Preferred Stock held by such holder
to be redeemed.
(iii) If notice of redemption of any shares of Series B Preferred
Stock has been given and if the funds necessary for such redemption have
been set aside by the Corporation in trust for the benefit of the holders of
any shares of Series B Preferred Stock so called for redemption, then, from
and after the redemption date, dividends will cease to accrue on such shares
of Series B Preferred Stock, such shares of Series B Preferred Stock shall
no longer be deemed outstanding and all rights of the holders of such shares
will terminate, except the right to receive the redemption price. Holders of
Series B Preferred Stock to be redeemed shall surrender such Series B
Preferred Stock at the place designated in such notice and, upon surrender
in accordance with said notice of the certificates for shares of Series B
Preferred Stock so redeemed (properly endorsed or assigned for transfer, if
the Corporation shall so require and the notice shall
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<PAGE>
so state), such shares of Series B Preferred Stock shall be redeemed by the
Corporation at the redemption price plus any accrued and unpaid dividends
payable upon such redemption. In case less than all the shares of Series B
Preferred Stock represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed
shares of Series B Preferred Stock without cost to the holder thereof.
(iv) The deposit of funds with a bank or trust corporation for the
purpose of redeeming Series B Preferred Stock shall be irrevocable except
that:
(A) the Corporation shall be entitled to receive from such
bank or trust corporation the interest or other earnings, if any,
earned on any money so deposited in trust, and the holders of any
shares redeemed shall have no claim to such interest or other earnings;
and
(B) any balance of monies so deposited by the Corporation and
unclaimed by the holders of the Series B Preferred Stock entitled
thereto at the expiration of two years from the applicable redemption
dates shall be repaid, together with any interest or other earnings
thereon, to the Corporation, and after any such repayment, the holders
of the shares entitled to the funds so repaid to the Corporation shall
look only to the Corporation for payment without interest or other
earnings.
(e) APPLICATION OF ARTICLE IX. The shares of Series B Preferred Stock
are subject to the provisions of Article IX of the Charter, including, without
limitation, the provision for the redemption of shares transferred to the
Charitable Trust (as defined in such Article). For this purpose, the Market
Price of the Series B Preferred Stock shall equal $25.00 per share, plus all
accrued and unpaid dividends on the shares of Series B Preferred Stock.
(f) STATUS OF REDEEMED SHARES. Any shares of Series B Preferred Stock
that shall at any time have been redeemed shall, after such redemption, have the
status of authorized but unissued preferred stock, without designation as to
series until such shares are once more designated as part of a particular series
by the Board of Directors.
(6) VOTING RIGHTS.
(a) Holders of the Series B Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law.
(b) Whenever dividends on any shares of Series B Preferred Stock shall
be in arrears for six or more quarterly periods (a "Preferred Dividend
Default"), the holders of such shares of Series B Preferred Stock (voting
separately as a class with the Series C Preferred Stock, the Series D Preferred
Stock and all other series of Preferred Stock, other than the Series A Preferred
Stock, ranking on a parity with the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, and the Series D Preferred Stock
as to dividends or upon liquidation ("Parity Preferred") upon which like voting
rights have been conferred and are exercisable) will be entitled to vote for the
election of a total of two additional directors of the Corporation (the
"Preferred Stock Directors") at a special meeting called by the holders of
record of at least 20% of the Series B Preferred Stock or the holders of any
other series of Parity Preferred, other than the Series A Preferred Stock, so in
arrears (unless such request is received less than 90 days before the date fixed
for the next annual or special meeting of stockholders) or at the next annual
meeting of stockholders, and at each subsequent annual meeting until all
dividends accumulated on such shares of Series B Preferred Stock for the past
dividend periods and the dividend for the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment.
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(c) If and when all accumulated dividends and the dividend for the then
current dividend period on the Series B Preferred Stock shall have been paid in
full or set aside for payment in full, the holders of shares of Series B
Preferred Stock shall be divested of the voting rights set forth in Section 6(b)
hereof (subject to revesting in the event of each and every Preferred Dividend
Default) and, if all accumulated dividends and the dividend for the current
dividend period have been paid in full or set aside for payment in full on all
other series of Parity Preferred, other than the Series A Preferred Stock, upon
which like voting rights have been conferred and are exercisable, the term of
office of each Preferred Stock Director so elected shall terminate. Any
Preferred Stock Director may be removed at any time with or without cause by the
vote of, and shall not be removed otherwise than by the vote of, the holders of
record of a majority of the outstanding shares of the Series B Preferred Stock
when they have the voting rights set forth in Section 6(b) (voting separately as
a class with all other series of Parity Preferred, other than the Series A
Preferred Stock, upon which like voting rights have been conferred and are
exercisable). So long as a Preferred Dividend Default shall continue, any
vacancy in the office of a Preferred Stock Director may be filled by written
consent of the Preferred Stock Director remaining in office, or, if none remains
in office, by a vote of the holders of record of a majority of the outstanding
shares of Series B Preferred Stock when they have the voting rights set forth in
Section 6(b) (voting separately as a class with all other series of Parity
Preferred, other than the Series A Preferred Stock, upon which like voting
rights have been conferred and are exercisable). The Preferred Stock Directors
shall each be entitled to one vote per director on any matter.
(d) So long as any shares of Series B Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least two thirds of the shares of the Series B Preferred Stock
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to the Series B Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, or
reclassify any authorized capital stock of the Corporation into any such shares,
or create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares or (ii) amend, alter or repeal
the provisions of the Charter, whether by merger, consolidation or otherwise, so
as to materially and adversely affect any right, preference, privilege or voting
power of the Series B Preferred Stock or the holders thereof; provided, however,
that with respect to the occurrence of any event set forth in (ii) above, so
long as the Series B Preferred Stock remains outstanding with the terms thereof
materially unchanged, the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers of the holders of the Series B Preferred Stock and; provided, further,
that any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or any increase in
the amount of authorized shares of such series, in each case ranking on a parity
with or junior to the Series B Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
(e) Each share of Series B Preferred Stock (voting together with all
common stock of the Corporation and all other series of Preferred Stock of the
Corporation entitled to vote) will be entitled to cast twenty-five
one-hundredths of one vote with respect to all matters on which the holders of
common stock are entitled to vote at each meeting of stockholders of the
Corporation.
(f) The foregoing voting provisions will not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series B Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
(7) CONVERSION. The Series B Preferred Stock is not convertible into or
exchangeable for any other property or securities of the Corporation.
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ANNEX C
SERIES C PREFERRED STOCK
(1) DESIGNATION AND NUMBER. A series of Preferred Stock, designated the
"9.20% Series C Cumulative Redeemable Preferred Stock" (the "Series C Preferred
Stock"), is hereby established. The number of shares of the Series C Preferred
Stock shall be 1,495,000.
(2) RANK. The Series C Preferred Stock shall, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the
Corporation, rank (a) senior to all classes or series of Common Stock of the
Corporation, and to all equity securities ranking junior to such Series C
Preferred Stock; (b) on a parity with and the Corporation's 9.5% Series A
Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock"), 9-3/8%
Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred Stock")
and 8% Series D Cumulative Redeemable Preferred Stock (the "Series D Preferred
Stock") and all equity securities issued by the Corporation the terms of which
specifically provide that such equity securities rank on a parity with the
Series C Preferred Stock; and (c) junior to all equity securities issued by the
Corporation the terms of which specifically provide that such equity securities
rank senior to the Series C Preferred Stock. The term "equity securities" shall
not include convertible debt securities.
(3) DIVIDENDS.
(a) Holders of the then outstanding shares of Series C Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors,
out of funds legally available for the payment of dividends, cumulative
preferential cash dividends at the rate of 9.20% of the $25.00 liquidation
preference per annum (equivalent to a fixed annual amount of $2.30 per share).
Such dividends shall be cumulative from the first date on which any Series C
Preferred Stock is issued and shall be payable quarterly in arrears on or before
March 15, June 15, September 15 and December 15 of each year or, if not a
business day, the next succeeding business day (each, a "Dividend Payment
Date"). Any dividend payable on the Series C Preferred Stock for any partial
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends will be payable to holders of record as they
appear in the stock records of the Corporation at the close of business on the
applicable record date, which shall be the first day of the calendar month on
which the applicable Dividend Payment Date falls or on such other date
designated by the Board of Directors of the Corporation for the payment of
dividends that is not more than 30 nor less than 10 days prior to such Dividend
Payment Date (each, a "Dividend Record Date").
(b) No dividends on shares of Series C Preferred Stock shall be
declared by the Board of Directors of the Corporation or paid or set apart for
payment by the Corporation at such time as the terms and provisions of any
agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such declaration, payment or setting apart for payment
or provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration or
payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the Series C Preferred
Stock shall accrue whether or not the terms and provisions set forth in Section
3(b) hereof at any time prohibit the current payment of dividends, whether or
not the Corporation has earnings, whether or not there are funds
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legally available for the payment of such dividends and whether or not such
dividends are declared. Accrued but unpaid dividends on the Series C Preferred
Stock will accumulate as of the Dividend Payment Date on which they first become
payable.
(d) Except as provided in Section 3(e) below, no dividends will be
declared or paid or set apart for payment on any capital stock of the
Corporation or any other series of preferred stock ranking, as to dividends, on
a parity with or junior to the Series C Preferred Stock (other than a dividend
in shares of the Corporation's Common Stock or in any other class of stock
ranking junior to the Series C Preferred Stock as to dividends and upon
liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Series C Preferred Stock
for all past dividend periods and the then current dividend period.
(e) When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series C Preferred Stock and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Series C Preferred Stock, all dividends declared upon the
Series C Preferred Stock and any other series of Preferred Stock ranking on a
parity as to dividends with the Series C Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Series C Preferred
Stock and such other series of Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the Series C Preferred
Stock and such other series of Preferred Stock (which shall not include any
accrual in respect of unpaid dividends for prior dividend periods if such
Preferred Stock does not have a cumulative dividend) bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Series C Preferred Stock which may be in
arrears.
(f) Except as provided in the immediately preceding paragraph, unless
full cumulative dividends on the Series C Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in shares of Common Stock
or other shares of capital stock ranking junior to the Series C Preferred Stock
as to dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or any other capital stock of the Corporation ranking junior to or on a
parity with the Series C Preferred Stock as to dividends or upon liquidation,
nor shall any shares of Common Stock, or any other shares of capital stock of
the Corporation ranking junior to or on a parity with the Series C Preferred
Stock as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any such shares) by the Corporation (except
by conversion into or exchange for other capital stock of the Corporation
ranking junior to the Series C Preferred Stock as to dividends and upon
liquidation).
(g) Any dividend payment made on shares of the Series C Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due,
with respect to such shares, which remains payable. Holders of the Series C
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or stock in excess of full cumulative dividends on the Series C
Preferred Stock as described above.
(4) LIQUIDATION PREFERENCE.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding are entitled to be paid out of the assets of
the Corporation legally available for distribution to its stockholders a
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liquidation preference of $25.00 per share, plus an amount equal to any accrued
and unpaid dividends to the date of payment, before any distribution of assets
is made to holders of Common Stock or any other class or series of capital stock
of the Corporation that ranks junior to the Series C Preferred Stock as to
liquidation rights.
(b) In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Corporation
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Series C Preferred Stock and the corresponding amounts
payable on all shares of other classes or series of capital stock of the
Corporation ranking on a parity with the Series C Preferred Stock in the
distribution of assets, then the holders of the Series C Preferred Stock and all
other such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
(c) After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series C Preferred Stock will have no
right or claim to any of the remaining assets of the Corporation.
(d) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place or
places where, the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage pre-paid, not less than 30 nor more
than 60 days prior to the payment date stated therein, to each record holder of
the Series C Preferred Stock at the respective addresses of such holders as the
same shall appear on the stock transfer records of the Corporation.
(e) The consolidation or merger of the Corporation with or into any
other
corporation, trust or entity or of any other corporation with or into the
Corporation, or the sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Corporation.
(5) REDEMPTION.
(a) RIGHT OF OPTIONAL REDEMPTION. The Series C Preferred Stock is not
redeemable prior to August 15, 2001. However, in order to ensure that the
Corporation remains a qualified real estate investment trust ("REIT") for
Federal income tax purposes, the Series C Preferred Stock will be subject to the
provisions of Article IX of the Charter. Pursuant to Article IX, Series C
Preferred Stock, together with other equity stock of the Corporation, owned by a
stockholder in excess of the Ownership Limit will automatically be transferred
to a Charitable Trust for the benefit of a Charitable Beneficiary and the
Corporation will have the right to purchase such transferred shares from the
Charitable Trust. On and after August 15, 2001, the Corporation, at its option
and upon not less than 30 nor more than 60 days' written notice, may redeem
shares of the Series C Preferred Stock, in whole or in part, at any time or from
time to time, for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends thereon to the date fixed for redemption (except as
provided in Section 5(c) below), without interest. If less than all of the
outstanding Series C Preferred Stock is to be redeemed, the Series C Preferred
Stock to be redeemed shall be selected pro rata (as nearly as may be practicable
without creating fractional shares) or by any other equitable method determined
by the Corporation.
(b) LIMITATIONS ON REDEMPTION.
(i) The redemption price of the Series C Preferred Stock (other
than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital stock of the
Corporation, which may include other series of Preferred
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Stock, and from no other source. For purposes of the preceding sentence,
"capital stock" means any equity securities (including Common Stock and
Preferred Stock), shares, interest, participation or other ownership
interests (however designated) and any rights (other than debt securities
convertible into or exchangeable for equity securities) or options to
purchase any of the foregoing.
(ii) Unless full cumulative dividends on all shares of Series C
Preferred Stock shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period,
no shares of Series C Preferred Stock shall be redeemed unless all
outstanding shares of Series C Preferred Stock are simultaneously redeemed,
and the Corporation shall not purchase or otherwise acquire directly or
indirectly any shares of Series C Preferred Stock (except by exchange for
capital stock of the Corporation ranking junior to the Series C Preferred
Stock as to dividends and upon liquidation); provided, however, that the
foregoing shall not prevent the purchase by the Corporation of shares of
transferred to a Charitable Trust pursuant to Article IX in order to ensure
that the Corporation remains qualified as a REIT for Federal income tax
purposes or the purchase or acquisition of shares of Series C Preferred
Stock pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Series C Preferred Stock.
(c) Rights to Dividends on Shares Called for Redemption. Immediately
prior to any redemption of Series C Preferred Stock, the Corporation shall pay,
in cash, any accumulated and unpaid dividends through the redemption date,
unless a redemption date falls after a Dividend Record Date and prior to the
corresponding Dividend Payment Date, in which case each holder of Series C
Preferred Stock at the close of business on such Dividend Record Date shall be
entitled to the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such shares before such Dividend
Payment Date. Except as provided above, the Corporation will make no payment or
allowance for unpaid dividends, whether or not in arrears, on Series C Preferred
Stock which is redeemed.
(d) PROCEDURES FOR REDEMPTION.
(i) Notice of redemption will be (A) given by publication in a
newspaper of general circulation in the City of New York, such publication
to be made once a week for two successive weeks commencing not less than 30
nor more than 60 days prior to the redemption date, and (B) mailed by the
Corporation, postage prepaid, not less than 30 nor more than 60 days prior
to the redemption date, addressed to the respective holders of record of the
Series C Preferred Stock to be redeemed at their respective addresses as
they appear on the stock transfer records of the Corporation. No failure to
give such notice or any defect thereto or in the mailing thereof shall
affect the validity of the proceedings for the redemption of any shares of
Series C Preferred Stock except as to the holder to whom notice was
defective or not given.
(ii) In addition to any information required by law or by the
applicable rules of any exchange upon which Series C Preferred Stock may be
listed or admitted to trading, such notice shall state: (A) the redemption
date; (B) the redemption price; (C) the number of shares of Series C
Preferred Stock to be redeemed; (D) the place or places where the Series C
Preferred Stock is to be surrendered for payment of the redemption price;
and (E) that dividends on the shares to be redeemed will cease to accrue on
such redemption date. If less than all of the Series C Preferred Stock held
by any holder is to be redeemed, the notice mailed to such holder shall also
specify the number of shares of Series C Preferred Stock held by such holder
to be redeemed.
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(iii) If notice of redemption of any shares of Series C Preferred
Stock has been given and if the funds necessary for such redemption have
been set aside by the Corporation in trust for the benefit of the holders of
any shares of Series C Preferred Stock so called for redemption, then, from
and after the redemption date, dividends will cease to accrue on such shares
of Series C Preferred Stock, such shares of Series C Preferred Stock shall
no longer be deemed outstanding and all rights of the holders of such shares
will terminate, except the right to receive the redemption price. Holders of
Series C Preferred Stock to be redeemed shall surrender such Series C
Preferred Stock at the place designated in such notice and, upon surrender
in accordance with said notice of the certificates for shares of Series C
Preferred Stock so redeemed (properly endorsed or assigned for transfer, if
the Corporation shall so require and the notice shall so state), such shares
of Series C Preferred Stock shall be redeemed by the Corporation at the
redemption price plus any accrued and unpaid dividends payable upon such
redemption. In case less than all the shares of Series C Preferred Stock
represented by any such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed shares of Series C
Preferred Stock without cost to the holder thereof.
(iv) The deposit of funds with a bank or trust corporation for the
purpose of redeeming Series C Preferred Stock shall be irrevocable except
that:
(A) the Corporation shall be entitled to receive from such
bank or trust corporation the interest or other earnings, if any,
earned on any money so deposited in trust, and the holders of any
shares redeemed shall have no claim to such interest or other earnings;
and
(B) any balance of monies so deposited by the Corporation and
unclaimed by the holders of the Series C Preferred Stock entitled
thereto at the expiration of two years from the applicable redemption
dates shall be repaid, together with any interest or other earnings
thereon, to the Corporation, and after any such repayment, the holders
of the shares entitled to the funds so repaid to the Corporation shall
look only to the Corporation for payment without interest or other
earnings.
(e) APPLICATION OF ARTICLE IX. The shares of Series C Preferred Stock
are subject to the provisions of Article IX of the Charter, including, without
limitation, the provision for the redemption of shares transferred to the
Charitable Trust (as defined in such Article). For this purpose, the Market
Price of the Series B Preferred Stock shall equal $25.00 per share, plus all
accrued and unpaid dividends on the shares of Series C Preferred Stock.
(f) STATUS OF REDEEMED SHARES. Any shares of Series C Preferred Stock
that shall at any time have been redeemed shall, after such redemption, have the
status of authorized but unissued preferred stock, without designation as to
series until such shares are once more designated as part of a particular series
by the Board of Directors.
(6) VOTING RIGHTS.
(a) Holders of the Series C Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law.
(b) Whenever dividends on any shares of Series C Preferred Stock shall
be in arrears for six or more quarterly periods (a "Preferred Dividend
Default"), the holders of such shares of Series C Preferred Stock (voting
separately as a class with the holders of Series B Preferred Stock and Series D
Preferred Stock and all other series of Preferred Stock, other than the Series A
Preferred Stock, ranking
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on a parity with the Series A Preferred Stock, the Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock as to dividends or upon
liquidation ("Parity Preferred") upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of a
total of two additional directors of the Corporation (the "Preferred Stock
Directors") at a special meeting called by the holders of record of at least 20%
of the Series C Preferred Stock or the holders of any other series of Parity
Preferred, other than the Series A Preferred Stock, so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until all dividends
accumulated on such shares of Series C Preferred Stock for the past dividend
periods and the dividend for the then current dividend period shall have been
fully paid or declared and a sum sufficient for the payment thereof set aside
for payment.
(c) If and when all accumulated dividends and the dividend for the then
current dividend period on the Series C Preferred Stock shall have been paid in
full or set aside for payment in full, the holders of shares of Series C
Preferred Stock shall be divested of the voting rights set forth in Section 6(b)
hereof (subject to revesting in the event of each and every Preferred Dividend
Default) and, if all accumulated dividends and the dividend for the current
dividend period have been paid in full or set aside for payment in full on all
other series of Parity Preferred, other than the Series A Preferred Stock, upon
which like voting rights have been conferred and are exercisable, the term of
office of each Preferred Stock Director so elected shall terminate. Any
Preferred Stock Director may be removed at any time with or without cause by the
vote of, and shall not be removed otherwise than by the vote of, the holders of
record of a majority of the outstanding shares of the Series C Preferred Stock
when they have the voting rights set forth in Section 6(b) (voting separately as
a class with the Series B Preferred Stock, the Series D Preferred Stock and all
other series of Parity Preferred, other than the Series A Preferred Stock, upon
which like voting rights have been conferred and are exercisable). So long as a
Preferred Dividend Default shall continue, any vacancy in the office of a
Preferred Stock Director may be filled by written consent of the Preferred Stock
Director remaining in office, or, if none remains in office, by a vote of the
holders of record of a majority of the outstanding shares of Series C Preferred
Stock when they have the voting rights set forth in Section 6(b) (voting
separately as a class with all other series of Parity Preferred, other than the
Series A Preferred Stock, upon which like voting rights have been conferred and
are exercisable). The Preferred Stock Directors shall each be entitled to one
vote per director on any matter.
(d) So long as any shares of Series C Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least two thirds of the shares of the Series C Preferred Stock
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to the Series C Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, or
reclassify any authorized capital stock of the Corporation into any such shares,
or create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares or (ii) amend, alter or repeal
the provisions of the Charter, whether by merger, consolidation or otherwise, so
as to materially and adversely affect any right, preference, privilege or voting
power of the Series C Preferred Stock or the holders thereof; PROVIDED, HOWEVER,
that with respect to the occurrence of any event set forth in (ii) above, so
long as the Series C Preferred Stock remains outstanding with the terms thereof
materially unchanged, the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers of the holders of the Series C Preferred Stock and; PROVIDED, FURTHER,
that any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or any increase in
the amount of authorized shares of such series, in each case ranking on a parity
with or junior to the Series C Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
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winding up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
(e) Each share of Series C Preferred Stock (voting together with all
common stock of the Corporation and all other series of Preferred Stock of the
Corporation entitled to vote) will be entitled to cast twenty-five
one-hundredths of one vote with respect to all matters on which the holders of
common stock are entitled to vote at each meeting of stockholders of the
Corporation.
(f) The foregoing voting provisions will not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series C Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
(7) CONVERSION. The Series C Preferred Stock is not convertible into or
exchangeable for any other property or securities of the Corporation.
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ANNEX D
SERIES D PREFERRED STOCK
(1) DESIGNATION AND NUMBER. A series of Preferred Stock, designated the "8%
Series D Cumulative Redeemable Preferred Stock" (the "Series D Preferred
Stock"), is hereby established. The number of shares of the Series D Preferred
Stock shall be 4,600,000.
(2) RANK. The Series D Preferred Stock shall, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the
Corporation, rank (a) senior to all classes or series of Common Stock of the
Corporation, and to all equity securities the terms of which specifically
provide that such equity securities rank junior to such Series D Preferred
Stock; (b) on a parity with and the Corporation's 9.5% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock"), 9-3/8% Series B
Cumulative Redeemable Preferred Stock (the "Series B Preferred Stock") and 9.2%
Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock");
and all equity securities issued by the Corporation the terms of which
specifically provide that such equity securities rank on a parity with the
Series D Preferred Stock; and (c) junior to all equity securities issued by the
Corporation the terms of which specifically provide that such equity securities
rank senior to the Series D Preferred Stock. The term "equity securities" shall
not include convertible debt securities.
(3) DIVIDENDS.
(a) Holders of the then outstanding shares of Series D Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors,
out of funds legally available for the payment of dividends, cumulative
preferential cash dividends at the rate of 8% of the $25.00 liquidation
preference per annum (equivalent to a fixed annual amount of $2.00 per share).
Such dividends shall be cumulative from the first date on which any Series D
Preferred Stock is issued and shall be payable quarterly in arrears on or before
March 15, June 15, September 15 and December 15 of each year or, if not a
business day, the next succeeding business day (each, a "Dividend Payment
Date"). Any dividend payable on the Series D Preferred Stock for any partial
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends will be payable to holders of record as they
appear in the stock records of the Corporation at the close of business on the
applicable record date, which shall be the first day of the calendar month on
which the applicable Dividend Payment Date falls or on such other date
designated by the Board of Directors of the Corporation for the payment of
dividends that is not more than 30 nor less than 10 days prior to such Dividend
Payment Date (each, a "Dividend Record Date").
(b) No dividends on shares of Series D Preferred Stock shall be
declared by the Board of Directors of the Corporation or paid or set apart for
payment by the Corporation at such time as the terms and provisions of any
agreement of the Corporation, including any agreement relating to its
indebtedness, prohibit such declaration, payment or setting apart for payment or
provide that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration or
payment shall be restricted or prohibited by law.
(c) Notwithstanding the foregoing, dividends on the Series D Preferred
Stock shall accrue whether or not the terms and provisions set forth in Section
3(b) hereof at any time prohibit the current payment of dividends, whether or
not the Corporation has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are declared.
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Accrued but unpaid dividends on the Series D Preferred Stock will accumulate as
of the Dividend Payment Date on which they first become payable.
(d) Except as provided in Section 3(e) below, no dividends will be
declared or paid or set apart for payment on any Common Stock of the Corporation
or any series of Preferred Stock ranking, as to dividends, on a parity with or
junior to the Series D Preferred Stock (other than a dividend in shares of the
Corporation's Common Stock or in shares of any series of Preferred Stock ranking
junior to the Series D Preferred Stock as to dividends and upon liquidation) for
any period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for such payment on the Series D Preferred Stock for all past dividend
periods and the then current dividend period.
(e) When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series D Preferred Stock and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Series D Preferred Stock, all dividends declared upon the
Series D Preferred Stock and any other series of Preferred Stock ranking on a
parity as to dividends with the Series D Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share of Series D Preferred
Stock and such other series of Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the Series D Preferred
Stock and such other series of Preferred Stock (which shall not include any
accrual in respect of unpaid dividends for prior dividend periods if such
Preferred Stock does not have a cumulative dividend) bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Series D Preferred Stock which may be in
arrears.
(f) Except as provided in the immediately preceding paragraph, unless
full cumulative dividends on the Series D Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in shares of Common Stock
or in shares of any series of Preferred Stock ranking junior to the Series D
Preferred Stock as to dividends and upon liquidation) shall be declared or paid
or set aside for payment nor shall any other distribution be declared or made
upon the Common Stock, or any Preferred Stock of the Corporation ranking junior
to or on a parity with the Series D Preferred Stock as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any shares of Preferred
Stock of the Corporation ranking junior to or on a parity with the Series D
Preferred Stock as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Corporation (except by conversion into or exchange for other capital stock of
the Corporation ranking junior to the Series D Preferred Stock as to dividends
and upon liquidation).
(g) Any dividend payment made on shares of the Series D Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due,
with respect to such shares, which remains payable. Holders of the Series D
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
property or stock in excess of full cumulative dividends on the Series D
Preferred Stock as described above.
(4) LIQUIDATION PREFERENCE.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of shares of Series D
Preferred Stock then outstanding are entitled to be paid out of the assets of
the Corporation, legally available for distribution to its stockholders, a
liquidation preference of $25.00 per share, plus an amount equal to any accrued
and unpaid dividends to
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the date of payment, before any distribution of assets is made to holders of
Common Stock or any series of Preferred Stock of the Corporation that ranks
junior to the Series D Preferred Stock as to liquidation rights.
(b) In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Corporation
are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Series D Preferred Stock and the corresponding amounts
payable on all shares of other classes or series of capital stock of the
Corporation ranking on a parity with the Series D Preferred Stock in the
distribution of assets, then the holders of the Series D Preferred Stock and all
other such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
(c) After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series D Preferred Stock will have no
right or claim to any of the remaining assets of the Corporation.
(d) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place or
places where, the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage pre-paid, not less than 30 nor more
than 60 days prior to the payment date stated therein, to each record holder of
the Series D Preferred Stock at the respective addresses of such holders as the
same shall appear on the stock transfer records of the Corporation.
(e) The consolidation or merger of the Corporation with or into any
other corporation, trust or entity or of any other corporation with or into the
Corporation, or the sale, lease or conveyance of all or substantially all of the
property or business of the Corporation, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Corporation.
(5) REDEMPTION.
(a) RIGHT OF OPTIONAL REDEMPTION. The Series D Preferred Stock is not
redeemable prior to October 8, 2002. However, in order to ensure that the
Corporation remains a qualified real estate investment trust ("REIT") for
Federal income tax purposes, the Series D Preferred Stock will be subject to the
provisions of Article IX of the Charter. Pursuant to Article IX, Series D
Preferred Stock, together with other equity stock of the Corporation, owned by a
stockholder in excess of the Ownership Limit will automatically be transferred
to a Charitable Trust for the benefit of a Charitable Beneficiary and the
Corporation will have the right to purchase such transferred shares from the
Charitable Trust. On and after October 8, 2002, the Corporation, at its option
and upon not less than 30 nor more than 60 days' written notice, may redeem
shares of the Series D Preferred Stock, in whole or in part, at any time or from
time to time, for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid dividends thereon to the date fixed for redemption (except as
provided in Section 5(c) below), without interest. If less than all of the
outstanding Series D Preferred Stock is to be redeemed, the Series D Preferred
Stock to be redeemed shall be selected pro rata (as nearly as may be practicable
without creating fractional shares) or by any other equitable method determined
by the Corporation.
(b) LIMITATIONS ON REDEMPTION.
(i) The redemption price of the Series D Preferred Stock (other
than the portion thereof consisting of accrued and unpaid dividends) is
payable solely out of the sale proceeds of other capital stock of the
Corporation, which may include other series of Preferred Stock, and from no
other source. For purposes of the preceding sentence, "capital stock" means
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any equity securities (including Common Stock and Preferred Stock), shares,
interest, participation or other ownership interests (however designated)
and any rights (other than debt securities convertible into or exchangeable
for equity securities) or options to purchase any of the foregoing.
(ii) Unless full cumulative dividends on all shares of Series D
Preferred Stock shall have been, or contemporaneously are, declared and paid
or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period,
no shares of Series D Preferred Stock shall be redeemed unless all
outstanding shares of Series D Preferred Stock are simultaneously redeemed,
and the Corporation shall not purchase or otherwise acquire directly or
indirectly any shares of Series D Preferred Stock (except by exchange for
capital stock of the Corporation ranking junior to the Series D Preferred
Stock as to dividends and upon liquidation); provided, however, that the
foregoing shall not prevent the purchase by the Corporation of shares
transferred to a Charitable Trust pursuant to Article IX in order to ensure
that the Corporation remains qualified as a REIT for Federal income tax
purposes or the purchase or acquisition of shares of Series D Preferred
Stock pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Series D Preferred Stock.
(c) RIGHTS TO DIVIDENDS ON SHARES CALLED FOR REDEMPTION. Immediately
prior to any redemption of Series D Preferred Stock, the Corporation shall pay,
in cash, any accumulated and unpaid dividends through the redemption date,
unless a redemption date falls after a Dividend Record Date and prior to the
corresponding Dividend Payment Date, in which case each holder of Series D
Preferred Stock at the close of business on such Dividend Record Date shall be
entitled to the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such shares before such Dividend
Payment Date. Except as provided above, the Corporation will make no payment or
allowance for unpaid dividends, whether or not in arrears, on Series D Preferred
Stock which is redeemed.
(d) PROCEDURES FOR REDEMPTION.
(i) Notice of redemption will be (A) given by publication in a
newspaper of general circulation in the City of New York, such publication
to be made once a week for two successive weeks commencing not less than 30
nor more than 60 days prior to the redemption date, and (B) mailed by the
Corporation, postage prepaid, not less than 30 nor more than 60 days prior
to the redemption date, addressed to the respective holders of record of the
Series D Preferred Stock to be redeemed at their respective addresses as
they appear on the stock transfer records of the Corporation. No failure to
give such notice or any defect thereto or in the mailing thereof shall
affect the validity of the proceedings for the redemption of any shares of
Series D Preferred Stock except as to the holder to whom notice was
defective or not given.
(ii) In addition to any information required by law or by the
applicable rules of any exchange upon which Series D Preferred Stock may be
listed or admitted to trading, such notice shall state: (A) the redemption
date; (B) the redemption price; (C) the number of shares of Series D
Preferred Stock to be redeemed; (D) the place or places where the Series D
Preferred Stock is to be surrendered for payment of the redemption price;
and (E) that dividends on the shares to be redeemed will cease to accrue on
such redemption date. If less than all of the Series D Preferred Stock held
by any holder is to be redeemed, the notice mailed to such holder shall also
specify the number of shares of Series D Preferred Stock held by such holder
to be redeemed.
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(iii) If notice of redemption of any shares of Series D Preferred
Stock has been given and if the funds necessary for such redemption have
been set aside by the Corporation in trust for the benefit of the holders of
any shares of Series D Preferred Stock so called for redemption, then, from
and after the redemption date, dividends will cease to accrue on such shares
of Series D Preferred Stock, such shares of Series D Preferred Stock shall
no longer be deemed outstanding and all rights of the holders of such shares
will terminate, except the right to receive the redemption price. Holders of
Series D Preferred Stock to be redeemed shall surrender such Series D
Preferred Stock at the place designated in such notice and, upon surrender
in accordance with said notice of the certificates for shares of Series D
Preferred Stock so redeemed (properly endorsed or assigned for transfer, if
the Corporation shall so require and the notice shall so state), such shares
of Series D Preferred Stock shall be redeemed by the Corporation at the
redemption price plus any accrued and unpaid dividends payable upon such
redemption. In case less than all the shares of Series D Preferred Stock
represented by any such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed shares of Series D
Preferred Stock without cost to the holder thereof.
(iv) The deposit of funds with a bank or trust corporation for the
purpose of redeeming Series D Preferred Stock shall be irrevocable except
that:
(A) the Corporation shall be entitled to receive from such
bank or trust corporation the interest or other earnings, if any,
earned on any money so deposited in trust, and the holders of any
shares redeemed shall have no claim to such interest or other earnings;
and
(B) any balance of monies so deposited by the Corporation and
unclaimed by the holders of the Series D Preferred Stock entitled
thereto at the expiration of two years from the applicable redemption
dates shall be repaid, together with any interest or other earnings
thereon, to the Corporation, and after any such repayment, the holders
of the shares entitled to the funds so repaid to the Corporation shall
look only to the Corporation for payment without interest or other
earnings.
(e) APPLICATION OF ARTICLE IX. The shares of Series D Preferred Stock
are subject to the provisions of Article IX of the Charter, including, without
limitation, the provision for the redemption of shares transferred to the
Charitable Trust (as defined in such Article). For this purpose, the Market
Price of the Series D Preferred Stock shall equal $25.00 per share, plus all
accrued and unpaid dividends on the shares of Series D Preferred Stock.
(f) STATUS OF REDEEMED SHARES. Any shares of Series D Preferred Stock
that shall at any time have been redeemed shall, after such redemption, have the
status of authorized but unissued Preferred Stock, without designation as to
series until such shares are once more designated as part of a particular series
by the Board of Directors.
(6) VOTING RIGHTS.
(a) Holders of the Series D Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law.
(b) Whenever dividends on any shares of Series D Preferred Stock shall
be in arrears for six or more quarterly periods (a "Preferred Dividend
Default"), the holders of such shares of Series D Preferred Stock (voting
separately as a class with the holders of Series B Preferred Stock and Series C
Preferred Stock and all other series of Preferred Stock, other than the Series A
Preferred Stock, ranking
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on a parity with the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock as to dividends or upon
liquidation ("Parity Preferred") upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of a
total of two additional directors of the Corporation (the "Preferred Stock
Directors") at a special meeting called by the holders of record of at least 20%
of the Series D Preferred Stock or the holders of any other series of Parity
Preferred, other than the Series A Preferred Stock, so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until all dividends
accumulated on such shares of Series D Preferred Stock for the past dividend
periods and the dividend for the then current dividend period shall have been
fully paid or declared and a sum sufficient for the payment thereof set aside
for payment.
(c) If and when all accumulated dividends and the dividend for the then
current dividend period on the Series D Preferred Stock shall have been paid in
full or set aside for payment in full, the holders of shares of Series D
Preferred Stock shall be divested of the voting rights set forth in Section 6(b)
hereof (subject to revesting in the event of each and every subsequent Preferred
Dividend Default) and, if all accumulated dividends and the dividend for the
current dividend period have been paid in full or set aside for payment in full
on all other series of Parity Preferred, other than the Series A Preferred
Stock, upon which like voting rights have been conferred and are exercisable,
the term of office of each Preferred Stock Director so elected shall terminate.
Any Preferred Stock Director may be removed at any time with or without cause by
the vote of, and shall not be removed otherwise than by the vote of, the holders
of record of a majority of the outstanding shares of the Series D Preferred
Stock when they have the voting rights set forth in Section 6(b) (voting
separately as a class with the Series B Preferred Stock, the Series C Preferred
Stock and all other series of Parity Preferred, other than the Series A
Preferred Stock, upon which like voting rights have been conferred and are
exercisable). So long as a Preferred Dividend Default shall continue, any
vacancy in the office of a Preferred Stock Director may be filled by written
consent of the Preferred Stock Director remaining in office, or, if none remains
in office, by a vote of the holders of record of a majority of the outstanding
shares of Series D Preferred Stock when they have the voting rights set forth in
Section 6(b) (voting separately as a class with all other series of Parity
Preferred, other than the Series A Preferred Stock, upon which like voting
rights have been conferred and are exercisable). The Preferred Stock Directors
shall each be entitled to one vote per director on any matter.
(d) So long as any shares of Series D Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of at least two thirds of the shares of the Series D Preferred Stock
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to the Series D Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, or
reclassify any authorized capital stock of the Corporation into any such shares,
or create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares or (ii) amend, alter or repeal
the provisions of the Charter, whether by merger, consolidation or otherwise, so
as to materially and adversely affect any right, preference, privilege or voting
power of the Series D Preferred Stock or the holders thereof; provided, however,
that with respect to the occurrence of any event set forth in (ii) above, so
long as the Series D Preferred Stock remains outstanding with the terms thereof
materially unchanged, the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers of the holders of the Series D Preferred Stock and; provided, further,
that any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or any increase in
the amount of authorized shares of such series, in each case ranking on a parity
with or junior to the Series D Preferred Stock with respect to
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payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
(e) Each share of Series D Preferred Stock (voting together with all
common stock of the Corporation and all other series of Preferred Stock of the
Corporation entitled to vote) will be entitled to cast twenty-five
one-hundredths of one vote with respect to all matters on which the holders of
common stock are entitled to vote at each meeting of stockholders of the
Corporation.
(f) The foregoing voting provisions will not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding shares of Series D Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
(7) CONVERSION. The Series D Preferred Stock is not convertible into or
exchangeable for any other property or securities of the Corporation.
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Exhibit 3.2
iSTAR FINANCIAL INC.
BYLAWS
--------------------------------------
ARTICLE I
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of iStar Financial Inc. (the "Company") shall be located at such place or
places as the Board of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Company may have additional
offices at such places as the Board of Directors may from time to time determine
or the business of the Company may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All meetings of shareholders shall be held
at the principal office of the Company or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the
shareholders for the election of directors and the transaction of any business
within the powers of the Company shall be held on such date as shall be set by
the Board of Directors. Except as the Amended and Restated Charter of the
Company, as further amended (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 Company's existence or affect any otherwise valid
corporate acts.
Section 3. SPECIAL MEETINGS. The president, chief executive
officer or Board of Directors may call special meetings of the shareholders.
Special meetings of shareholders shall also be called by the secretary of the
Company upon the written request of the holders of shares entitled to cast not
less than a majority of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. The secretary shall inform such shareholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Company by such shareholders of such costs, the secretary
shall give notice to each shareholder entitled to notice of the meeting.
Section 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than
ten nor more than 90 days before each shareholders' meeting, the Secretary shall
give notice of the meeting to each shareholder entitled to vote at the meeting
and each other shareholder entitled to notice of the meeting in any manner
permitted under Maryland General Corporation
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Law now or hereafter enforced. The notice shall state the time and place of the
meeting and, if the meeting is a special meeting or notice of the purpose is
required by statute, the purpose of the meeting. Notice is given to a
shareholder when it is personally delivered to him or her, left at his or her
residence or usual place of business, mailed to him or her at his or her address
as it appears on the records of the Company, or electronically delivered in
accordance with Maryland General Corporation Law now or hereafter enforced.
Notwithstanding the foregoing provisions, each person who is entitled to notice
waives notice if he or she before or after the meeting signs a waiver of the
notice which is filed with the records of shareholders' meetings, or is present
at the meeting in person or by proxy.
Section 5. ORGANIZATION. At every meeting of shareholders, 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 shareholders
entitled to cast a majority of the votes which all shareholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
secretary of the Company, or, in his absence, an assistant secretary of the
Company, or in the absence of both the Secretary and assistant secretaries, a
person appointed by the Chairman shall act as Secretary.
Section 6. QUORUM; ADJOURNMENTS. At any meeting of
shareholders, the presence in person or by proxy of shareholders entitled to
cast a majority of all the votes entitled to be cast at such meeting shall
constitute a quorum; but this section shall not affect any requirement under any
statute or the Charter of the Company for the vote necessary for the adoption of
any measure. If, however, such quorum shall not be present at any meeting of the
shareholders, the shareholders entitled to vote at such meeting, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time to a date not more than 120 days after the original record date without
notice other than announcement at the meeting. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 7. VOTING. A plurality of all the votes cast at a
meeting of shareholders duly called and at which a quorum is present shall be
sufficient to elect a director. Each share 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. A majority of the votes cast at a meeting of shareholders
duly called and at which a quorum is present shall be sufficient to approve any
other matter which may properly come before the meeting, unless more than a
majority of the votes cast is required by statute or by the Charter. Unless
otherwise provided in the Charter, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
Section 8. PROXIES. A shareholder 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 shareholder
at any time without condition or qualification unless the proxy states that it
is irrevocable and the proxy is
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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 Company or its assets or liabilities.
Section 9. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Company registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Company directly or indirectly owned by
it shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by
which a shareholder may certify in writing to the Company that any shares of
stock registered in the name of the shareholder are held for the account of a
specified person other than the shareholder. The resolution shall set forth the
class of shareholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Company; and any other provisions with respect to the procedure which the
Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the shareholder of record of
the specified stock in place of the shareholder who makes the certification.
Section 10. INSPECTORS. At any meeting of shareholders, the
chairman of the meeting may, or upon the request of any shareholder shall,
appoint one or more persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of shares represented at the meeting based
upon their determination of the validity and effect of proxies, count all votes,
report the results and perform such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by
him or by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be PRIMA FACIE evidence thereof.
Section 11. NOMINATIONS AND SHAREHOLDER BUSINESS
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(a) ANNUAL MEETINGS OF SHAREHOLDERS. Nominations of persons
for election to the Board of Directors and the proposal of business to be
considered by the shareholders may be made at an annual meeting of shareholders
(i) pursuant to the Company's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any shareholder of the Company who was a
shareholder of record at the time notice of such meeting was sent.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall
be conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected (i) pursuant to the
Company's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any shareholder of the
Company who is a shareholder of record at the time of giving of notice provided
for in this Section 11(b), who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section 11(b). In the
event the Company calls a special meeting of shareholders for the purpose of
electing one or more directors to the Board of Directors, any such shareholder
may nominate a person or persons (as the case may be) for election to such
position as specified in the Company's notice of meeting.
(c) GENERAL. (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section 11 shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 11. The presiding officer 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 11 and, if any proposed nomination or
business is not in compliance with this Section 11, to declare that such
defective nomination or proposal be disregarded.
(2) Notwithstanding the foregoing provisions of this Section
11, a shareholder shall also comply with all applicable requirements of state
law with respect to the matters set forth in this Section 11.
Section 12. VOTING BY BALLOT. Voting on any question or in any
election may be VIVA VOCE unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
Section 13. LIST OF SHAREHOLDERS. At each meeting of
shareholders, a full, true and complete list of all shareholders 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 of the
Company, shall be furnished by the secretary of the Company.
Section 14. INFORMAL ACTION BY SHAREHOLDERS. Any action
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting if there is filed with the records of shareholders meetings a
unanimous written consent which sets forth the action and is signed by each
shareholder entitled to vote on the matter and a written waiver of any right to
dissent signed by each shareholder entitled to notice of the meeting but not
entitled to vote at it.
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Section 15. MEETING BY CONFERENCE TELEPHONE. Shareholders 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 these means
constitutes presence in person at a meeting.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS; QUALIFICATIONS. The business and
affairs of the Company shall be managed under the direction of its Board of
Directors. All powers of the Company may be exercised by or under authority of
the Board of Directors, except as conferred on or reserved to the shareholders
by statute or by the Charter or Bylaws.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular
meeting or at any special meeting called for that purpose, a majority of the
entire Board of Directors may establish, increase or decrease the number of
directors, provided that the number thereof shall never be less than 7 nor more
than 18, and shall never be less than the minimum number required by the
Maryland General Corporation Law now or hereafter enforced, and further provided
that the tenure of office of a director shall not be affected by any decrease in
the number of directors. The directors shall be divided into two classes as
nearly equal in number as possible. At each successive annual meeting of
shareholders, the holders of stock present in person or by proxy at such meeting
and entitled to vote thereat shall elect members of such successive class to
serve for two year terms and until their successors are elected and qualify. 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, and any additional director of any class
shall, subject to Section 13, hold office for a term that shall coincide with
the remaining term of that class, but in no case shall a decrease in the number
of directors shorten the term of any incumbent director.
Section 3. RESIGNATION. Any director may resign at any time by
sending a written notice of such resignation to the principal executive office
of the Company addressed to the Chairman of the Board or the President. Unless
otherwise specified therein such resignation shall take effect upon receipt
thereof by the Chairman of the Board or the President.
Section 4. REMOVAL OF DIRECTOR. Any director or the entire
Board of Directors may be removed only in accordance with the provisions of the
Charter.
Section 5. ANNUAL AND REGULAR MEETINGS. An annual meeting of
the Board of Directors shall be held immediately after and at the same place as
the annual meeting of shareholders, no notice other than this Bylaw being
necessary. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Maryland, for the holding of
regular meetings of the Board of Directors without other notice than such
resolution.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the chairman of the board (or
any co-chairman of the board if more than one), president or by a majority of
the directors then in office. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either
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within or without the State of Maryland, as the place for holding any special
meeting of the Board of Directors called by them.
Section 7. NOTICE. Except as provided in Sections 5 and 6, the
Secretary shall give notice to each director of each regular and special meeting
of the Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to him or
her, left at his or her residence or usual place of business, or sent by
telegraph, facsimile transmission, electronic transmission (in accordance with
Maryland General Corporation Law now or hereafter enforced) or telephone, at
least 24 hours before the time of the meeting or, in the alternative by mail to
his or her address as it shall appear on the records of the Company, at least 72
hours before the time of the meeting. Unless these 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 regular or special meeting
of the Board of Directors. No notice of any 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 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. QUORUM. A majority of the directors shall
constitute a quorum for transaction of business at any meeting of the Board of
Directors, provided that, if less than a majority of such directors are present
at said meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice, and provided further that if, pursuant
to the Charter of the Company or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The Board of Directors present at a meeting which has been
duly called and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 9. VOTING. The action of the majority of the directors
present at a 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 applicable statute.
Section 10. PRESUMPTION OF ASSENT. A director of the Company
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
Company immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a director who votes in favor of such action.
Section 11. TELEPHONE MEETINGS. 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 these means shall constitute presence in
person at the meeting.
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Section 12. INFORMAL ACTION BY DIRECTORS. Any action required
or permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 13. VACANCIES. If for any reason any or all the
directors cease to be directors, such event shall not terminate the Company or
affect these Bylaws or the powers of the remaining directors hereunder (even if
fewer than three directors remain). Any vacancy on the Board of Directors for
any cause other than an increase in the number of directors shall be filled by a
majority of the remaining directors, although such majority is less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as director shall hold office for the
unexpired term of the director he is replacing.
Section 14. COMPENSATION. Directors shall not receive any
stated salary for their services as directors but, by resolution of the Board of
Directors, may receive fixed sums per year and/or per meeting and/or per visit
to real property owned or to be acquired by the Company and for any service or
activity they performed or engaged in as directors. Directors may be reimbursed
for expenses of attendance, if any, at each annual, regular or special meeting
of the Board of Directors or of any committee thereof and for their expenses, if
any, in connection with each property visit and any other service or activity
they performed or engaged in as directors; but nothing herein contained shall be
construed to preclude any directors from serving the Company in any other
capacity and receiving compensation therefor.
Section 15. LOSS OF DEPOSITS. No director shall be liable for
any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.
Section 16. SURETY BONDS. Unless required by law, no director
shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 17. RELIANCE. Each director, officer, employee and
agent of the Company shall, in the performance of his duties with respect to the
Company, 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
Company, upon an opinion of counsel or upon reports made to the Company 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
Company, regardless of whether such counsel or expert may also be a director.
Section 18. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS. The directors shall have no responsibility to devote their full time
to the affairs of the Company. Any director or officer, employee or agent of the
Company, in his personal capacity or in a 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 or in competition with those
of or relating to the Company.
ARTICLE IV
COMMITTEES
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Section 1. NUMBER, TENURE AND QUALIFICATIONS. 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, to serve at the pleasure of the Board of Directors; provided,
however, that the Audit Committee, if formed, shall consist only of independent
directors and the Compensation Committee, if formed, shall consist of two or
more Independent Directors. For purposes of this section, an "Independent
Director" shall mean any person if, in the opinion of the Board of Directors
such person will exercise independent judgment and will materially assist in the
function of the committee, except that such person shall not be an officer or
employee of the Company, or a director who represents a close relative of a
person who would not qualify as an Independent Director.
Section 2. POWERS. The Board of Directors may delegate to
committees appointed under Section 1 of this Article any of the powers of the
Board of Directors, except the power to authorize dividends on stock, elect
directors, issue stock other than as provided in the next sentence, recommend to
the shareholders any action which requires shareholder approval, amend these
Bylaws, or approve any merger or share exchange which does not require
shareholder approval. 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 or shares to be issued, a committee of the
Board of Directors, 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.
Section 3. MEETINGS. Notice of committee meetings shall be
given in the same manner as notice for special meetings of the Board of
Directors. A majority of the members of the committee shall constitute a quorum
for the transaction of business at any meeting of the committee. The act of a
majority of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or any two members of any committee may fix the time and place of
its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee 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
these means shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required
or permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. 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
8
<PAGE>
vacancies, to designate alternate members to replace any absent or disqualified
member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Company
shall include a chief executive officer, a president, a secretary and a chief
financial officer and may include a chairman of the board (or one or more
co-chairmen of the board), a vice chairman of the board, one or more executive
vice presidents, one or more senior vice presidents, one or more vice
presidents, a chief operating officer, a treasurer, one or more assistant
secretaries and one or more assistant treasurers. In addition, the Board of
Directors may from time to time appoint such other officers with such powers and
duties as they shall deem necessary or desirable or authorize any committee or
officer to appoint assistant or subordinate officers. The officers of the
Company shall be elected annually by the Board of Directors at the first meeting
of the Board of Directors held after each annual meeting of shareholders, except
that the chief executive officer may appoint one or more vice presidents,
assistant secretaries and assistant treasurers. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office at the pleasure
of the Board of Directors or until his death, resignation or removal in the
manner hereinafter provided. Any two or more offices except president and vice
president may be held by the same person. In its discretion, the Board of
Directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the Company and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of
the Company may be removed by the Board of Directors if in its judgment the best
interests of the Company would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Company may resign at any time by giving written notice of his
resignation to the Board of Directors, the chairman of the board (or any
co-chairman of the board if more than one), the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Company.
Section 3. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer. In the absence of such designation, the
chairman of the board (or, if more than one, the co-chairmen of the board in the
order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall be the chief executive
officer of the Company. The chief executive officer shall have general
responsibility for implementation of the policies of the Company, as determined
by the Board of Directors, and for the management of the business and affairs of
the Company.
Section 4. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
9
<PAGE>
Section 5. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a chairman of the board (or one or more co-chairmen of the board). The
chairman of the board shall preside over the meetings of the Board of Directors
and of the shareholders at which he shall be present. If there be more than one,
the co-chairmen designated by the Board of Directors will perform such duties.
The chairman of the board shall perform such other duties as may be assigned to
him or them by the Board of Directors.
Section 7. CHAIRMAN OF THE BOARD EMERITUS. The directors may
elect by a majority vote, from time to time, a chairman of the board emeritus
(or one or more co-chairmen of the board emeritus). The chairman of the board
emeritus shall be an honorary position and shall have no vote on any matter
considered by the directors. The chairman of the board emeritus shall serve for
such term as determined by the Board of Directors and may be removed by a
majority role of directors with or without cause.
Section 8. PRESIDENT. The president or chief executive
officer, as the case may be, shall in general supervise and control all of the
business and affairs of the Company. In the absence of a designation of a chief
operating officer by the Board of Directors, the president shall be the chief
operating officer. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Company or shall be required by law to be otherwise 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 9. VICE PRESIDENTS. In the absence of the president or
in the event of a vacancy in such office, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their election) shall perform the duties of the president
and when so acting shall have all the powers of and be subject to all the
restrictions upon the president; and shall perform such other duties as from
time to time may be assigned to him by the president or by the Board of
Directors. The Board of Directors may designate one or more vice presidents as
executive vice president or as vice president for particular areas of
responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the
minutes of the proceedings of the shareholders, the Board of Directors and
committees of the Board of Directors in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the Company; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
secretary by such shareholder; (e) have general charge of the share transfer
books of the Company; and (f) in general perform such other duties as from time
to time may be assigned to him by the chief executive officer, the president or
by the Board of Directors.
10
<PAGE>
Section 11. TREASURER. The treasurer shall have the custody of
the funds and securities of the Company and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Company and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be designated by the Board of
Directors. In the absence of a designation of a chief financial officer by the
Board of Directors, the treasurer shall be the chief financial officer of the
Company.
The treasurer shall disburse the funds of the Company as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Company.
If required by the Board of Directors, the treasurer shall
give the Company a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Company, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Company.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The assistant secretaries and assistant treasurers, in general, shall perform
such duties as shall be assigned to them by the secretary or treasurer,
respectively, or by the president or the Board of Directors. The assistant
treasurers shall, if required by the Board of Directors, give bonds for the
faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of
the officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Company and such authority may be
general or confined to specific instances. Any agreement, deed, mortgage, lease
or other document executed by one or more of the directors or by an authorized
person shall be valid and binding upon the Board of Directors and upon the
Company when authorized or ratified by action of the Board of Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Company shall be signed by such officer or agent of the
Company in such manner as shall from time to time be determined by the Board of
Directors.
11
<PAGE>
Section 3. DEPOSITS. All funds of the Company not otherwise
employed shall be deposited from time to time to the credit of the Company in
such banks, trust companies or other depositories as the Board of Directors may
designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. The Board of Directors may determine
to issue certificated or uncertificated shares of capital stock and other
securities of the Company.
Section 2. TRANSFERS. Upon surrender to the Company or the
transfer agent of the Company of a stock certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Company shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The Company shall be entitled to treat the holder of record of
any share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any
class of stock will be subject in all respects to the Charter of the Company and
all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by
the Board of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing the issuance
of a new certificate, an officer designated by the Board of Directors may, in
his discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he shall require and/or
to give bond, with sufficient surety, to the Company to indemnify it against any
loss or claim which may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
The Board of Directors may set, in advance, a record date for the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or determining shareholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of shareholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
shareholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of shareholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock
12
<PAGE>
transfer books are closed for the purpose of determining shareholders entitled
to notice of or to vote at a meeting of shareholders, such books shall be closed
for at least ten days before the date of such meeting.
If no record date is fixed and the stock transfer books are
not closed for the determination of shareholders, (a) the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day on which the notice of
meeting is mailed or transmitted or the 30th day before the meeting, whichever
is the closer date to the meeting; and (b) the record date for the determination
of shareholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Company shall maintain at its
principal executive office or at the office of its counsel, accountants or
transfer agent, an original or duplicate share ledger containing the name and
address of each shareholder and the number of shares of each class held by such
shareholder.
Section 6. CERTIFICATION OF BENEFICIAL OWNERS. The Board of
Directors may adopt by resolution a procedure by which a shareholder of the
Company may certify in writing to the Company that any shares of stock
registered in the name of the shareholder are held for the account of a
specified person other than the shareholder. The resolution shall set forth the
class of shareholders who may certify; the purpose for which the certification
may be made; the form of certification and the information to be contained in
it; if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
transfer books within which the certification must be received by the Company;
and any other provisions with respect to the procedure which the Board of
Directors considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board of Directors in accordance with
this Section, the person specified in the certification is, for the purpose set
forth in the certification, the holder of record of the specified stock in place
of the shareholder who makes the certification.
Section 7. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the Charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Company. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Company, except that the Board of Directors may provide that for a
specified period securities of the Company issued in such unit may be
transferred on the books of the Company only in such unit.
ARTICLE VIII
13
<PAGE>
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to
time, to fix the fiscal year of the Company by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions
upon the stock of the Company may be authorized and declared by the Board of
Directors, subject to the provisions of law and the Charter of the Company.
Dividends and other distributions may be paid in cash, property or stock of the
Company, subject to the provisions of law and the Charter.
Section 2. CONTINGENCIES. Before payment of any dividends or
other distributions, there may be set aside out of any assets of the Company
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Company or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Company, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the Charter of the Company, the
Board of Directors may from time to time adopt, amend, revise or terminate any
policy or policies with respect to investments by the Company as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the
adoption of a seal by the Company. The seal shall contain the name of the
Company and the year of its incorporation. The Board of Directors may authorize
one or more duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Company is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Company.
ARTICLE XII
INDEMNIFICATION AND ADVANCES FOR EXPENSES
14
<PAGE>
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 Company
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 Company.
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 Company has not received
both (i) an undertaking as required by law to repay such advance sin the event
it shall ultimately be determined that the standard of conduct has not been met
and (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 Company 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 shareholders 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 Company, shall continue in respect of all events
occurring while a person was as 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. The Company 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. All rights to indemnification
and advance of expenses under the Charter of the Company and hereunder shall be
deemed to be a contract between the Company and each director or officer of the
Company 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 Company arising hereunder with respect to events occurring,
or claims made, while this Bylaw or any provision hereof is in force.
Section 3. SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this Article XII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
Bylaw" in this Article XII means this Article XII in its entirety.
ARTICLE XIII
WAIVER OF NOTICE
15
<PAGE>
Whenever any notice is required to be given pursuant to the
Charter of the Company or these Bylaws or pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of such meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
In accordance with the Charter, these Bylaws may be repealed,
altered, amended or rescinded (a) by the shareholders of the Company but only by
the affirmative vote of not less than 80% of all the votes entitled to be cast
by the outstanding shares of capital stock of the Company entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the shareholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting) or (b) by affirmative vote of not less
than two-thirds of the Board of Directors at a meeting held in accordance with
the provisions of these Bylaws.
ARTICLE XV
MISCELLANEOUS
Section 1. BOOKS AND RECORDS. The Company shall keep correct
and complete books and records of its accounts and transactions and minutes of
the proceedings of its shareholders 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 Company 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 these Bylaws
shall be kept at the principal office of the Company.
Section 2. VOTING STOCK IN OTHER COMPANIES. Stock of other
corporations or associations, registered in the name of the Company, 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. MAIL. 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 4. ELECTRONIC NOTICES. Any notice provided by the
Company as required by these Bylaws may be delivered electronically when
permitted under, and in accordance with, Maryland General Corporation Law now or
hereafter enforced.
16
<PAGE>
Section 4. EXECUTION OF DOCUMENTS. A person who holds more
than one office in the Company may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
17
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