SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
CEDAR INCOME FUND, LTD.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which
transaction applies:
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ---------------------------------------
(2) Form, Schedule or Registration Statement No.: -----------------
(3) Filing Party: -------------------------------------------------
(4) Date Filed: ---------------------------------------------------
<PAGE>
CEDAR INCOME FUND, LTD.
44 South Bayles Avenue
Port Washington, New York 11050
June __, 1998
Dear Fellow Stockholder:
The Board of Directors and officers of Cedar Income Fund, Ltd. (the
"Company") are pleased to invite you to attend the Company's 1998 Annual Meeting
of Stockholders to be held at [name and address of location], on Thursday, June
25, 1998, at 10:00 a.m., local time.
As described in the accompanying Notice of Annual Meeting of
Stockholders and Proxy Statement, stockholders of the Company will be asked to
vote: (i) to approve a change in the state of incorporation of the Company from
the State of Iowa to the State of Maryland by means of a merger of the Company
with and into a wholly-owned Maryland subsidiary, and in connection therewith,
to approve certain changes to the charter of the Company, including approving a
classified Board of Directors, an increase in the number of authorized shares of
Common Stock from 5,020,000 to 50,000,000 and the authorization of 5,000,000
shares of preferred stock; (ii) to approve the transfer of substantially all of
the assets of the Company to a newly-formed limited partnership, of which the
Company shall be the general partner; (iii) to elect directors of the Company;
(iv) to approve the appointment of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998; and (v) to approve the
Company's 1998 Stock Option Plan. Executive officers of the Company will be
present at the Annual Meeting and will be available to talk with stockholders.
We hope you will be able to attend.
I URGE YOU TO VOTE YOUR PROXY AS SOON AS POSSIBLE. Your vote is very
important, regardless of the number of shares you own. Please mark, sign and
date each proxy card you receive and return it, at your earliest convenience, in
the postage-paid envelope provided, even if you currently plan to attend the
Annual Meeting. Returning your proxy card will not prevent you from voting in
person, but will assure that your vote is counted if you are unable to attend. I
encourage you to vote "FOR" each of the Board's nominees for directors and "FOR"
each of the proposals referenced above.
PLEASE VOTE AND PROMPTLY RETURN YOUR PROXY CARD.
Sincerely,
Leo S. Ullman
Chairman of the Board and
President
<PAGE>
CEDAR INCOME FUND, LTD.
44 South Bayles Avenue
Port Washington, New York 11050
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
To the Stockholders of CEDAR INCOME FUND, LTD.
The 1998 Annual Meeting of Stockholders of Cedar Income Fund, Ltd., an
Iowa corporation (the "Company"), will be held at [name and address of
location], on Thursday, June 25, 1998, at 10:00 a.m., local time, for the
following purposes:
1. To approve a change in the state of incorporation
of the Company from the State of Iowa to the State
of Maryland by means of a merger of the Company
with and into a wholly-owned Maryland subsidiary,
and in connection therewith, to approve certain
changes to the charter of the Company, including
(i) approving the classification of the Board of
Directors into three classes, with the terms of
the classes ending in successive years, (ii)
approving an increase in the number of authorized
shares of Common Stock from 5,020,000 to
50,000,000 and (iii) authorizing 5,000,000 shares
of preferred stock;
2. To approve the transfer of substantially all of
the assets of the Company to a newly-formed
limited partnership, of which the Company shall be
the general partner;
3. If proposal 1, which is to change the state of
incorporation and which proposal includes a change
in the Company's charter to provide for a
classified Board of Directors, is approved, to
elect a Board of Directors consisting of five
directors, divided and classified into three
classes. If proposal 1 is not approved, to elect
five directors to serve until the next annual
meeting of stockholders of the Company and until
their successors are elected and qualified. The
five nominees for director, in either case, are:
Leo S. Ullman, J.A.M.H. der Kinderen, Everett B.
Miller III, Brenda J. Walker and Jean-Bernard
Wurm;
4. To approve the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal
year ending December 31, 1998;
5. If proposal 1 is approved, to approve the
Company's 1998 Stock Option Plan; and
6. To transact such other business as may properly
come before the meeting or any adjournment or
postponement thereof.
The Board of Directors has fixed the close of business on May 29,
1998, as the record date for the determination of stockholders entitled to
notice of and to vote at the meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOU ARE
URGED TO SIGN, DATE AND OTHERWISE COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON EVEN IF
YOU HAVE SIGNED AND RETURNED YOUR PROXY CARD.
Stockholders may be entitled to assert dissenter's rights under
Sections 1301-1331 of the Iowa Business Corporation Act, a copy of which is
attached as Appendix A to the Proxy Statement.
By Order of the Board of Directors
Leo S. Ullman
Chairman of the Board and
President
Port Washington, New York
June __, 1998
<PAGE>
CEDAR INCOME FUND, LTD.
44 SOUTH BAYLES AVENUE
PORT WASHINGTON, NEW YORK 11050
----------------------------
PROXY STATEMENT
----------------------------
The accompanying Proxy is solicited by the Board of Directors of Cedar
Income Fund, Ltd., an Iowa corporation (the "Company"), for use at the Annual
Meeting of Stockholders (the "Meeting") to be held on June 25, 1998, at 10:00
a.m., local time, or any adjournment thereof, at which stockholders of record at
the close of business on May 29, 1998 shall be entitled to vote. The cost of
solicitation of proxies will be borne by the Company. The Company may use the
services of its Directors, officers and others to solicit proxies, personally or
by telephone; arrangements may also be made with brokerage houses and other
custodians, nominees, fiduciaries and stockholders of record to forward
solicitation material to the beneficial owners of stock held of record by such
persons. The Company may reimburse such solicitors for reasonable out-of-pocket
expenses incurred by them in soliciting, but no compensation will be paid for
their services.
Each proxy executed and returned by a stockholder may be revoked at
any time before it is voted by timely submission of written notice of revocation
or by submission of a duly executed proxy bearing a later date (in either case
directed to the Secretary of the Company) or, if a stockholder is present at the
Meeting, he may elect to revoke his proxy and vote his shares personally.
There is being mailed herewith to each stockholder of record the
Company's Annual Report to Stockholders for the fiscal year ended December 31,
1997. The date of this Proxy Statement is the approximate date on which this
Proxy Statement and form of Proxy were first sent or given to stockholders.
On May 29, 1998, the Company had outstanding and entitled to vote with
respect to all matters to be acted upon at the meeting 2,245,411 shares of
Common Stock, $1.00 per value per share ("Common Stock"). Each holder of Common
Stock is entitled to one vote for each share of stock held by such holder. The
presence of holders representing a majority of all the votes entitled to be cast
at the meeting will constitute a quorum at the meeting. In accordance with Iowa
law, abstentions, but not broker non-votes, are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
The proposal to approve the change of the state of incorporation of the Company,
including the classification of the Board of Directors, the increase in the
number of authorized shares of Common Stock and the authorization of 5,000,000
shares of preferred stock, and the proposal to approve the transfer of
substantially all of the assets of the Company to a newly-organized limited
partnership, each require the affirmative vote of a majority of all votes
entitled to be cast on such proposals in order to pass. The proposals to elect
directors, approve the appointment of the independent auditors for 1998 and
approve the 1998 Stock Option Plan require the affirmative vote of a majority of
the shares voted on each such proposal in order to pass. Abstentions and broker
non- votes are not counted in determining the votes cast with respect to any of
the matters submitted to a vote of stockholders. Cedar Bay Company, a New York
general partnership ("Cedar Bay"), which owns approximately 84% of the
outstanding shares of Common Stock of the Company, has informed the Company that
it intends to vote in favor of all of the proposals. Accordingly, even if no
other stockholder votes in favor of any of the proposals, approval of each
proposal is assured.
On January 12, 1998, Cedar Bay commenced a Tender Offer (the "Offer")
for all of the outstanding shares of Common Stock of the Company. On April 2,
1998, Cedar Bay purchased 1,893,038.335 shares of Common Stock, or approximately
84% of the outstanding shares of Common Stock, at a price of $7.00 per share,
net to the seller in cash in accordance with the terms of Offer. Based on the
acquisition of approximately 84% of the shares of Common Stock, Cedar Bay
acquired control of the Company. Because of its ownership of 584,567 shares of
Common Stock, or approximately 26% of the issued and outstanding shares of
Common Stock, and restrictions in the Company's Restated Certificate of
Incorporation on any person owing in excess of 9.8% of the issued and
outstanding shares of Common Stock, AEGON USA, Inc. had effective control of the
Company prior to the acquisition of shares by Cedar Bay.
The total amount of funds required by Cedar Bay to purchase the shares
of Common Stock pursuant to the Offer and to pay related fees and expenses was
approximately $14,451,000, approximately $13,251,000 of which was needed to
purchase the shares of Common Stock that were tendered, and approximately
$1,200,000 of which was needed for Cedar Bay's out-of- pocket expenses
associated with the Offer.
In order to pay a certain earnest money escrow (the "Earnest Money
Deposit") required pursuant to the terms of the Memorandum of Understanding
dated as of December 5, 1997 (the "Memorandum of Understanding") by and between
SKR Management Corp. ("SKR") and the Company, Point Associates (one of the two
partners of Cedar Bay), on behalf of SKR, borrowed $750,000 from Donald E. Axinn
(the "Axinn Loan"). The principal under the Axinn Loan must be repaid no later
than November 30, 1998, together with accrued interest thereon at an interest
rate per annum equal to 10%. The Axinn Loan is secured by a second mortgage and
assignment of rents covering a shopping center owned by Point Associates. Cedar
Bay, on behalf of Point Associates, intends to repay the Axinn Loan upon the
replacement of certain of the existing financing of the property owned by Point
Associates.
In addition, pursuant to an option agreement (the "Axinn Option
Agreement"), dated as of December 1, 1997, among Mr. Axinn, SKR, Point
Associates and Cedar Bay, Mr. Axinn was granted an option to purchase from SKR
that number of shares of Common Stock which is determinable, at Mr. Axinn's
election, by dividing either: (i) $250,000 (of the total principal amount of the
Axinn Loan), or (ii) $500,000 (of the total principal amount of the Axinn Loan),
or (iii) the aggregate principal and accrued interest outstanding under the
Axinn Loan, by, generally, $7.00. The purchase price paid by Mr. Axinn for any
such shares of Common Stock shall be effected through an adjustment to the then
outstanding principal amount of the Axinn Loan. Generally, such purchase option
must be exercised, if at all, within 90 days after the consummation of the
Offer. To date, the purchase option has not been exercised.
The Axinn Option Agreement also requires that SKR cause the Company to
issue to Axinn warrants to purchase 20,000 unregistered shares of Common Stock,
with an exercise price equal to the amount paid for shares of Common Stock by
Cedar Bay in the Offer. Such warrants will expire one year after issuance. If,
for any reason, the Company is unable to issue such warrants and the underlying
shares of Common Stock, Cedar Bay is required to sell to Axinn up to 20,000
Shares then owned by Cedar Bay. Since the Company's Restated Articles of
Incorporation currently prohibit the issuance of warrants or options, the
warrants may not be issued by the Company unless the proposal to reincorporate
in Maryland is approved by stockholders. See "Reincorporation in Maryland"
below.
Mr. Axinn has agreed not to sell or transfer any of the shares of
Common Stock acquired upon exercise of the purchase option or warrants described
above for a period of 18 months after such exercise and acquisition.
SKR has also agreed to cause Mr. Axinn to be elected to the Board of
Directors of the Company upon the full exercise of the Axinn purchase option,
and that, for so long as Cedar Bay, SKR or any of their affiliates owns shares
of Common Stock, it will vote such shares of Common Stock in favor of Mr.
Axinn's election to such Board of Directors.
Leo S. Ullman also executed in favor of Mr. Axinn a limited guaranty
of the obligations of Point Associates arising under the Axinn Loan and related
documentation.
On March 31, 1998, Cedar Bay and Point Associates obtained from Titan
Management, L.P. ("Titan") a credit facility which provides for, among other
things, a loan in an amount up to $15,100,000 (the "Titan Facility"), the
proceeds of which were used to finance (i) the purchase of the shares of Common
Stock tendered in the Offer and (ii) costs incurred in connection with the
Offer.
Amounts borrowed by Cedar Bay and Point Associates under the Titan
Facility bear interest at an annual rate of 13%, and will mature on April 15,
1999. Amounts borrowed by Cedar Bay and Point Associates under the Titan
Facility are unconditionally guaranteed as to payment of principal and interest
by each of Cedar Bay, Point Associates, SKR, Selbridge Corp., the general
partner of Point Associates, and Leo S. Ullman. Amounts borrowed under the Titan
Facility are secured by a pledge by Cedar Bay of the shares of Common Stock
purchased in the Offer, as well as a grant of mortgages on certain properties
owned by the partners of Cedar Bay. Cedar Bay and Point Associates may prepay
portions of the principal amount borrowed subject to terms contained in the
Titan Facility.
Cedar Bay and Point Associates do not presently have any plans, nor
have Cedar Bay and Point Associates made any arrangements, to repay or refinance
the Titan Facility.
On March 31, 1998, Triangle Center Associates, L.P. ("Triangle
Center") obtained from General Electric Capital Corporation ("GECC") a credit
facility which provides for, among other things, a loan in an amount up to
$10,800,000 (the "GECC Facility"), approximately $2,422,000 of the proceeds of
which were used to finance (i) the purchase of the shares of Common Stock
tendered in the Offer and (ii) costs incurred in connection with the Offer.
Amounts borrowed by Triangle Center under the GECC Facility bear
interest initially at an annual rate of 7.39% and will mature on April 1, 2023.
Amounts borrowed by Triangle Center are unconditionally guaranteed as to payment
of principal and interest by Leo S. Ullman. Amounts borrowed under the GECC
Facility are secured by a mortgage of property owned by Triangle Center.
Triangle Center may prepay portions of the principal amount borrowed subject to
terms contained in the GECC Facility.
Triangle Center does not presently have any plans, nor has it made any
arrangements, to repay or refinance the GECC Facility.
It is expected that the following business will be considered at the
Meeting and action taken thereon:
1. REINCORPORATION IN MARYLAND
GENERAL
The Board of Directors of the Company (the "Board") has unanimously
approved a proposal to change the Company's state of incorporation from Iowa to
Maryland (the "Reincorporation Proposal" or the "Proposed Reincorporation"). For
the reasons set forth below, the Board of Directors believes that it is in the
best interests of the Company and its stockholders to change the Company's
corporate domicile. As discussed below, through the implementation of the
Reincorporation Proposal, the Company will gain the greater flexibility afforded
by Maryland corporate law. Also, under the Proposed Reincorporation the Company
will adopt new Articles of Incorporation which will make certain changes,
discussed in greater detail below, including but not limited to: (i) the Company
will be able to issue warrants and options to officers, directors and others;
(ii) the Company will increase the number of shares of Common Stock it is
authorized to issue and the Company will be authorized to issue up to 5,000,000
shares of preferred stock; (iii) the Company will eliminate from its charter
restrictions on amounts payable to its advisor and restrictions on investments
the Company is permitted to make; and (iv) the new charter will provide for a
classified Board of Directors, with three classes and terms ending in successive
years. The Proposed Reincorporation should also enhance the Company's ability to
retain and, if necessary, attract qualified directors, although, to date, the
Company has not experienced difficulty in retaining directors.
The Proposed Reincorporation would be effected by merging the Company
(hereinafter sometimes referred to as the "Iowa Company") into a newly-formed
Maryland corporation which, before the merger (the "Merger"), will be a
wholly-owned subsidiary of the Iowa Company (the "Maryland Company"). Upon
completion of the Merger, the Iowa Company will cease to exist and the Maryland
Company will continue to operate the business of the Company under the name
Cedar Income Fund, Ltd. The Proposed Reincorporation will not result in any
change in the Company's business, assets or liabilities, will not cause its
corporate headquarters to be moved and will not result in any relocation of
management.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement"),
attached as Appendix B to this Proxy Statement, on the effective date of the
Proposed Reincorporation, each outstanding share of Common Stock of the Iowa
Company will automatically be converted into one share of Common Stock of the
Maryland Company, and stockholders of the Iowa Company will automatically become
stockholders of the Maryland Company. On the effective date of the Proposed
Reincorporation, the number of outstanding shares of Common Stock of the
Maryland Company will be equal to the number of shares of Common Stock of the
Iowa Company outstanding immediately prior to the effective date of the
reincorporation.
Certificates representing shares of the Company will automatically
represent an equal number of shares of the Maryland Company upon completion of
the Merger. IT WILL NOT BE NECESSARY FOR STOCKHOLDERS TO EXCHANGE THEIR EXISTING
STOCK CERTIFICATES FOR STOCK CERTIFICATES OF THE MARYLAND COMPANY. However,
stockholders may exchange their certificates if they so choose. The Common Stock
of the Company is included for quotation on the Nasdaq SmallCap Market and,
after the Merger, the Company's Maryland Common Stock will continue to be quoted
on the Nasdaq SmallCap Market without interruption, under the same symbol
("CEDR").
If the Reincorporation Proposal is approved by the stockholders, it is
anticipated that the reincorporation would be completed promptly following the
Annual Meeting of Stockholders to which this Proxy Statement relates. The
Proposed Reincorporation may be abandoned or the Merger Agreement may be amended
(with certain exceptions), either before or after stockholder approval has been
obtained, if in the opinion of the Board, and the Board of Directors of the
Maryland Company, in the case of an amendment, circumstances arise that make
such action advisable; provided, that any amendment that would effect a material
change from the charter provisions discussed in this Proxy Statement would
require further approval by the holders of a majority of the outstanding shares
of the Common Stock.
The discussion set forth below is qualified in its entirety by
reference to the Merger Agreement, the Articles of Incorporation of the Maryland
Company and the Bylaws of the Maryland Company, copies of which are attached
hereto as Appendices B, C and D, respectively.
APPROVAL BY STOCKHOLDERS OF THE PROPOSED REINCORPORATION WILL
CONSTITUTE APPROVAL OF THE MERGER AGREEMENT, THE ARTICLES OF INCORPORATION AND
THE BYLAWS OF THE MARYLAND COMPANY AND ALL PROVISIONS THEREOF.
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION.
In recent years, a number of real estate investment trusts have been
incorporated in Maryland. As the Company plans for the future, the Board of
Directors and management believe that it will be advantageous to the Company and
its stockholders to be able to draw upon the established principles of corporate
governance in making legal and business decisions. The predictability of
Maryland corporate law provides a reliable foundation on which the Company's
governance decisions can be based, and the Company believes that the
stockholders will benefit from the responsiveness of Maryland corporate law to
their needs and to those of the corporation they own.
Maryland follows a policy of encouraging incorporation in that state.
In furtherance of that policy, Maryland has adopted and implemented
comprehensive corporate laws responsive to the legal and business needs of
corporations organized under its laws. The Maryland legislature is sensitive to
issues regarding corporate law and is responsive to changing business needs and
to developments in modern corporate law. The Maryland courts have developed
expertise in dealing with corporate issues, and a body of case law has developed
construing Maryland law and establishing public policies with respect to
corporate legal affairs. As a result of these factors, it is anticipated that
Maryland law will provide greater predictability in the Company's legal affairs
than is presently available under Iowa law.
The increasing frequency of claims and litigation directed against
directors and officers has greatly expanded the risks facing directors and
officers of corporations in exercising their respective duties. The amount of
time and money required to respond to such claims and to defend such litigation
can be substantial. It is the Company's desire to reduce these risks to its
directors and officers and to limit situations in which monetary damages can be
recovered against directors so that the Company may continue to attract and
retain qualified directors who otherwise might be unwilling to serve because of
the risks involved. Both Iowa and Maryland law permit a corporation to include a
provision in its articles of incorporation which reduces or limits the monetary
liability of directors for breaches of fiduciary duty in certain circumstances.
The Company believes that, in general, Maryland law provides greater protection
to directors than Iowa law and that Maryland case law regarding a corporation's
ability to limit director liability is more developed and provides more guidance
than Iowa law.
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by
the Iowa Business Corporation Act ("IBCA"), the Company's state of
incorporation, and by the Company's Restated Articles of Incorporation, as
amended (the "Iowa Articles") and the Company's Bylaws (the "Iowa Bylaws"),
which have been adopted pursuant to Iowa law. The Iowa Articles and Iowa Bylaws
are available for inspection during business hours at the principal executive
offices of the Company. In addition, copies may be obtained by writing to the
Company at Cedar Income Fund, Ltd., 44 South Bayles Avenue, Port Washington, New
York 11050, Attention: Investor Relations.
If the Reincorporation Proposal is adopted, the Company will merge
into, and its business will be continued by, the Maryland Company. Following the
Merger, issues of corporate governance and control would be controlled by the
Maryland General Corporation Law ("MGCL"), rather than the IBCA. The Iowa
Articles and Iowa Bylaws will, in effect, be replaced by the Articles of
Incorporation of the Maryland Company (the "Maryland Articles") and the bylaws
of the Maryland Company (the "Maryland Bylaws"), copies of which are attached as
Appendices C and D, respectively, to this Proxy Statement. Accordingly, the
differences among these documents and between Maryland and Iowa law are relevant
to your decision whether to approve the Reincorporation Proposal.
CAPITAL STOCK. The authorized capital stock of the Iowa Company
consists of 5,020,000 shares of Common Stock, of which 2,245,411 shares are
issued and outstanding. There are no shares of preferred stock authorized. Each
share of Common Stock is entitled to one vote on all matters presented to the
stockholders.
The authorized capital stock of the Maryland Company will consist of
50,000,000 shares of Common Stock, $.01 par value per share ("Maryland Common
Stock"), and 5,000,000 shares of preferred stock, $.01 par value per share (the
"Preferred Stock"). Initially, 2,245,411 shares of Maryland Common Stock, and no
shares of Preferred Stock, will be issued and outstanding. Each share of
Maryland Common Stock will be entitled to one vote on all matters presented to
the stockholders.
The Board believes that it is prudent and in the best interest of the
Company and its stockholders to have additional authorized shares of Common
Stock readily available for issuance in connection with future financing
transactions, acquisitions, stock dividends, and stock issuances pursuant to any
benefit plans to be enacted in the future, and other appropriate corporate
opportunities and purposes. Having such shares available for issuance in the
future would give the Company greater flexibility and allow shares of Common
Stock to be issued without the expense and delay of a special stockholders
meeting. However, the Company has no agreements, commitments or understandings
at this time with respect to the issuance of additional shares of Common Stock,
which would be made possible by the proposed amendment, in connection with any
financing transaction, acquisition, stock dividend or other transaction.
Pursuant to the Maryland Articles, stockholders of the Maryland Company
will have no preemptive rights with respect to the additional shares being
authorized. The Maryland Articles do not require further approval by
stockholders prior to the issuance of additional shares of Common or Preferred
Stock. All of the Preferred Stock of the Maryland Company will have such voting
rights, designations, preferences, qualifications, limitations or restrictions
thereon as shall be set by the Maryland Board pursuant to authority vested in it
by the Maryland Articles. The Maryland Board will have the sole discretion to
issue additional shares of Maryland Common Stock. The issuance of additional
shares of stock will have the effect of diluting the percentage of stock
ownership and voting rights of the present stockholders of the Company.
CERTAIN DIFFERENCES BETWEEN THE IOWA ARTICLES AND THE MARYLAND ARTICLES
The Iowa Articles require a majority of the Iowa Board, and any
committee thereof, to be directors ("Independent Directors") who are
unaffiliated, directly, or indirectly, with the Advisor (as defined therein).
Each year the Iowa Company is required to retain, for a term of up to one year,
an Advisor to manage the day-to-day business affairs of the Iowa Company in lieu
of officers of the Iowa Company. The Iowa Board is required to evaluate the
performance of the Advisor each year prior to entering into or renewing an
agreement with the Advisor. The Independent Directors are required to supervise
the Advisor and evaluate its compensation in relation to the services it
performs for the Iowa Company. In addition, the Iowa Articles contain provisions
limiting the Iowa Company's expenses and borrowings, limiting or prohibiting the
Iowa Company's ability to invest in certain assets, including unimproved real
estate, and prohibiting the Iowa Company from issuing certain securities,
including warrants or options to purchase shares of its Common Stock. The
Maryland Articles contain none of these requirements and limitations. However,
it is currently anticipated that the Maryland Company will retain an advisor in
lieu of officers of the Maryland Company.
The Iowa Articles require any stockholder or proposed stockholder of
the Iowa Company to provide to the Iowa Company, upon demand, with information
necessary to determine whether any issuance or transfer of stock will result in
a person owning in excess of 9.8% of the outstanding shares of the Iowa Company
or a group of five or fewer persons owning together in excess of 50% of the
beneficial interest of the Company. The Iowa Articles permit the Iowa Board to
redeem any shares in excess of such limits. The Maryland Articles generally
prohibit holders of Maryland Common Stock from holding more than 3.5% of the
outstanding Maryland Common Stock.
PREEMPTIVE RIGHTS. Under the IBCA, the stockholders of an Iowa
corporation formed prior to 1990 have a preemptive right to acquire the
corporation's unissued shares, except to the extent the articles of
incorporation limit or deny such right. The Iowa Articles do not permit
preemptive rights to stockholders.
Under the MGCL, the stockholders of a Maryland corporation do not have
preemptive rights to subscribe for additional issuances of the corporation's
stock unless the corporation's charter expressly provides otherwise. The
Maryland Articles do not permit preemptive rights to stockholders.
DIVIDENDS AND DISTRIBUTIONS. Under the IBCA, a corporation may make
distributions approved by its Board of Directors to its stockholders subject to
restriction by the articles of incorporation and subject to the further
limitation that no distribution may be made if, after giving it effect, (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business or (ii) the corporation's total assets would be less than the
sum of its liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to those
receiving the distribution.
The MGCL allows the payment of dividends and other distributions (e.g.,
redemption of stock), after authorization by the board of directors, unless,
after giving effect to the distribution, (a) the corporation would not be able
to pay its indebtedness as it becomes due in the usual course of business or (b)
the corporation's total assets would be less than the sum of its total
liabilities plus, unless the charter provides otherwise, the amount that would
be needed upon dissolution to satisfy the preferential rights of those
stockholders whose preferential rights upon dissolution are superior to those
receiving the distribution.
AMENDMENT OF GOVERNING DOCUMENTS
ARTICLES OF INCORPORATION. Under the IBCA, amendments to the articles
of incorporation generally must be recommended by the board of directors and
approved by the stockholders. If the proposed amendment would not create
dissenters' rights with respect to a voting group entitled to vote, for a
proposed amendment to be approved by such voting group, more votes of such group
must be cast in favor of the proposed amendment than against, provided a quorum
is present. If the proposed amendment would create dissenters' rights in one or
more voting groups, the stockholders in such voting groups must approve the
amendment by a majority of the votes entitled to be cast on the amendment. In
either case, the articles of incorporation or a by-law adopted by the
stockholders or the board of directors may require a greater vote. Under the
IBCA, unless otherwise provided, certain specified amendments to the articles of
incorporation may be made by the board of directors (without stockholder
approval). In addition, certain specified amendments affecting the rights of
holders of a class of securities must be approved by a vote of holders of shares
of such class entitled to vote thereon, even though they ordinarily would not
have voting rights. The Iowa Articles provide that amendments to the Iowa
Articles require a vote of the holders of a majority of the shares entitled to
vote thereon, except that an amendment that would reduce the amount payable upon
liquidation of the corporation upon any outstanding shares or would diminish or
eliminate any voting rights of any outstanding shares requires the affirmative
vote of at least two-thirds of the shares entitled to vote thereon.
Under the MGCL, unless otherwise provided in the charter (which the
Maryland Articles do not), a proposed amendment to the charter requires the
affirmative vote of two-thirds of all votes entitled to be cast on the matter.
BYLAWS. Under the IBCA, a corporation's board of directors may amend
or repeal the corporation's Bylaws, except to the extent otherwise provided in
the articles of incorporation or the IBCA, or a by-law adopted by the
stockholders, and except that a by-law adopted or amended by the stockholders
which fixes a greater quorum or voting requirement for stockholders or voting
groups of stockholders than is required by the articles of incorporation may not
be adopted, amended or repealed by the board of directors. A by-law that fixes a
greater quorum or voting requirement for the board of directors may be amended
or repealed (i) if originally adopted by the stockholders, only by the
stockholders, and (ii) if originally adopted by the board of directors, by the
board of directors or the stockholders, except that such by-law, if adopted by
the stockholders, may provide that it may be amended or repealed only by a
specified vote of either the stockholders or the board of directors. A
corporation's stockholders may amend or repeal the corporation's Bylaws even
though the Bylaws may also be amended or repealed by the board of directors. The
Iowa Bylaws provide that the Iowa Bylaws may only be amended by the affirmative
vote of a majority of the directors then in office.
Under the MGCL, the power to change the bylaws is vested with the
stockholders, except to the extent it is vested with the board of directors. The
Maryland Articles and the Maryland Bylaws provide that the Maryland Bylaws may
be amended only by the Maryland Board.
DIRECTORS AND OFFICERS
NUMBER AND ELECTION OF DIRECTORS; CLASSIFICATION OF BOARD. The IBCA
permits both a classified board of directors and cumulative voting, although the
Iowa Articles provide for neither. The Iowa Articles and the Iowa Bylaws fix the
number of directors at no less than three and no more than seven, as determined
from time to time by resolutions of the Iowa Board. The Iowa Board currently
consists of three directors.
The Maryland Articles and the Maryland Bylaws provide that the number
of directors shall be fixed from time to time by the Maryland Company's Board,
but may not consist of less than three persons. Currently, the number of
directors is anticipated to be five. Although permitted by the MGCL, the
Maryland Articles provide that there shall be no cumulative voting in the
election of directors. The Maryland Articles and Maryland Bylaws provide for the
classification of the Maryland Company's Board into three classes. Except for
the initial election, each class has a three-year term expiring on the date of
the third annual meeting of stockholders succeeding their election. As a result,
approximately one-third of the Board of Directors will be elected each year.
REMOVAL; VACANCIES. Under the IBCA, any or all directors may be
removed, with or without cause, by the stockholders unless the articles of
incorporation provide that directors may be removed only for cause, except that
(i) if cumulative voting is authorized, a director shall not be removed if the
number of votes sufficient to elect that director under cumulative voting is
voted against the director's removal and (ii) if cumulative voting is not
authorized, a director may be removed only if the number of votes cast to remove
that director exceeds the number of votes cast not to remove the director.
The IBCA provides that, unless the articles of incorporation of a
corporation provide otherwise, vacancies on the board of directors, including
those resulting from an increase in the number of directors, may be filled by a
vote of the board of directors or the stockholders. If the number of directors
then in office is less than a quorum, the vacancies may be filled by a vote of a
majority of directors then in office. If the vacant office was held by a
director elected by a voting group of stockholders, only the holders of shares
of that voting group are entitled to fill the vacancy if it is filled by the
stockholders.
The MGCL provides that, unless the charter provides otherwise, the
stockholders of a corporation may remove any director, with or without cause, by
the affirmative vote of a majority of the votes entitled to be cast for the
election of directors. The Maryland Articles provide that a director may be
removed only for cause and only by the affirmative vote of a majority of all the
votes entitled to be cast for the election of directors.
The MGCL provides that the stockholders may elect a successor to fill
any vacancy that results from the removal of a director, unless the director was
elected by the stockholders of a class or series of stock, in which case the
stockholders of that class or series may elect the successor. If the
stockholders do not elect a successor, unless the corporation's charter or
bylaws provide otherwise, a majority of the remaining directors may fill the
vacancy. However, if the removed director was elected by the stockholders of a
class or series, a majority of the remaining directors elected by that same
class or series may fill the vacancy. All other vacancies shall be filled by the
board of directors, unless the corporation's charter or bylaws provides
otherwise.
FIDUCIARY DUTIES. Under the IBCA, a director must perform his duties as
a director, including his duties as a member of any committee of the board upon
which he may serve, in good faith and with the care which an ordinarily prudent
person in a like position would exercise under similar circumstances and in a
manner the director reasonably believes to be in the best interests of the
corporation. A director shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
to be unwarranted. A person who so performs his duties shall have no liability
by reason of being or having been a director of the corporation.
The MGCL requires a director of a Maryland corporation to perform his
duties as a director in good faith, in a manner he reasonably believes to be in
the best interests of the corporation and with the care that an ordinarily
prudent person in a like position would use under similar circumstances.
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS. The IBCA permits an
Iowa corporation to include in its charter a provision eliminating or limiting
the liability of its directors to the corporation and its stockholders for money
damages for breach of fiduciary duty, except for liability resulting from (a)
breach of a director's duty of loyalty to the corporation or its stockholders,
(b) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (c) a transaction from which the director derives
an improper personal benefit or (d) an unlawful distribution by the corporation.
The Iowa Articles include such a provision, and, in addition, exculpate a
Director for any act or omission except willful misfeasance, gross negligence or
reckless disregard of duty or not having acted in good faith in the reasonable
belief that his action was in the best interests of the corporation.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Maryland Articles
contain such a provision which eliminates such liability to the maximum extent
permitted by the MGCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The IBCA requires a
corporation (unless its charter provides otherwise, which the Iowa Articles do
not) to indemnify a director or officer who has been successful, on the merits
or otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. The IBCA permits a corporation to
indemnify its present and former directors and officers, among others, against
reasonable expenses, including counsel fees, incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those capacities if (a) the individual acted in good faith, (b) the individual
reasonably believed that (i) in the case of conduct in his official capacity,
his conduct was in the corporation's best interests, and (ii) in all other
cases, his conduct was at least not opposed to the corporation's best interests,
and (c) in a criminal proceeding, the individual had no reasonable cause to
believe his conduct was unlawful. However, an individual may not be indemnified
(x) in connection with a proceeding by or in the right of the corporation in
which the individual was adjudged liable to the corporation or (y) in any other
proceeding charging improper personal benefit to the individual, whether or not
in his official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him. The Iowa Articles contain such
a provision.
The Maryland Articles provide that the Maryland Company shall
indemnify, to the fullest extent permitted by law, all persons who may be
indemnified pursuant to the MGCL. The MGCL requires a corporation (unless its
charter provides otherwise, which the Maryland Articles do not) to indemnify a
director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
receipt by the corporation of (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the corporation and (b) a written undertaking
by or on his behalf to repay the amount paid or reimbursed by the corporation if
it shall ultimately be determined that the standard of conduct was not met.
ACTION OF STOCKHOLDERS AND DIRECTORS
SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the Iowa Company
stockholders may be called at any time by the Iowa Company Board, by the
Chairman of the Board, the President, the Board of Directors or the Independent
Directors (as defined therein) of Iowa Company, and shall be called by the Iowa
Company Board upon the written demand, signed, dated and delivered to the
Secretary of Iowa Company, of the holders of at least ten percent of all the
votes entitled to be cast on any issue proposed to be considered at the meeting.
Under the MGCL, a special meeting of stockholders may be called by the
president, the board of directors or any other person specified in the
corporation's charter or bylaws and must be called upon the written request of
stockholders entitled to cast at least 25% of all the votes entitled to be cast
at the meeting unless the charter or bylaws provide for a greater (but not more
than a majority) or lesser percentage.
STOCKHOLDER ACTION BY WRITTEN CONSENT. Under the IBCA, unless otherwise
provided in the charter, any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting if written consents are
signed by the holders of outstanding shares having not less than ninety percent
of the votes entitled to be cast at a meeting at which all shares entitled to
vote on the action were present and voted, and are delivered to the corporation
for inclusion in minutes or filing with the corporate records. The corporation
must give all stockholders written notice at least ten days prior to any
proposed action by written consent for which notice is required by the IBCA to
be given to stockholders not entitled to vote.
Under the MGCL, any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting only if (i) a unanimous
written consent setting forth the action and signed by each stockholder entitled
to vote on such matters and (ii) a written waiver of any right to dissent signed
by each stockholder entitled to notice of the meeting but not entitled to vote
at it, are filed with the records of stockholders meetings.
PROVISIONS APPLICABLE TO BUSINESS COMBINATIONS AND CHANGES IN
CONTROL
STATE ANTI-TAKEOVER LAWS. Under Section 490.1109 of the IBCA, no
business combination (defined to include mergers, sales of assets, sales of
outstanding stock, and loans) involving the Iowa Company and an Interested
Stockholder (defined to include any holder of 10% or more of its voting stock)
may be entered into within three years of the time the stockholder became an
interested stockholder unless: (a) the business combination or the purchase of
shares which resulted in the stockholder becoming an interested stockholder is
approved by the Iowa Company Board before the stockholder became an interested
stockholder, (b) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least eighty-five percent of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding, for purposes of determining
the number of shares outstanding, those shares owned by persons who are
directors and officers, and by employee stock plans in which employee
participants do not have rights to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offering; or (c) at
or after the stockholder became an interested stockholder, the business
combination is approved by the Iowa Company Board and approved at an annual or
special meeting of stockholders by two-thirds of the outstanding voting stock of
the Iowa Company which is not owned by the interested stockholder.
Section 490.1108 of the IBCA provides that in considering acquisition
proposals, directors may consider, in addition to the consideration of the
effects of any action on stockholders, the effects on the corporation's
employees, suppliers, creditors, customers and the communities in which it
operates, as well as the long-term and short-term interests of the company.
Consideration of any or all community interest factors is not a violation of the
business judgment rule, even if the directors reasonably determine that effects
on a community or other factors outweigh the financial or other benefits to the
corporation or a stockholder or group of stockholders. Section 490.624A of the
IBCA also includes authorization of "poison pills" which include, without
limitation, terms and conditions of stock rights or options issued by a
corporation that preclude or limit the exercise, transfer or receipt of stock
rights by persons owning or offering to acquire a specified number or percentage
of a corporation's outstanding shares.
Under the MGCL, certain business combinations, including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities, between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate of such an
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at least
(i) 80% of the votes entitled to be cast by holders of outstanding voting shares
of the corporation and (ii) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder(s) with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation prior to
the time that the Interested Stockholder becomes an Interested Stockholder. The
Maryland Company has exempted from the business combination provisions of the
MGCL all business combinations involving any person. As a result, any Interested
Stockholder may be able to enter into business combination with Maryland Company
that may not be in the best interest of the Maryland Company stockholders
without compliance by the Maryland Company with the super majority vote
requirements of the MGCL.
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock or shares of beneficial interest owned by the
acquirer or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock or voting shares of beneficial
interest which, if aggregated with all other such shares of stock or shares of
beneficial interest previously acquired by the acquirer, or in respect of which
the acquirer is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquirer to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third; (ii) one-third or more but
less than a majority; or (iii) a majority of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition or ownership of, or power to vote, control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses and delivery of an "acquiring person statement"), may compel the
corporation's board of directors to call a special meeting of stockholders to be
held within 50 days of demand (or another date requested by such person, not to
be less than 30 days of such demand) to consider the voting rights of the
shares. If no request for a meeting is made, the corporation may itself present
the question at any stockholders meeting.
Unless the charter or bylaws provide otherwise, if voting rights are
not approved at the meeting or if the acquiring person does not deliver an
acquiring person statement as required by the statute, then, subject to certain
conditions and limitations, the corporation may redeem any or all of the control
shares (except those for which voting rights have previously been approved) for
fair value determined, without regard to the absence of voting rights for the
control shares, as of the date of the last control share acquisition by the
acquirer or the date of any meeting of stockholders at which the voting rights
of such shares are considered and not approved. Moreover, unless the charter or
Bylaws provide otherwise, if voting rights for control shares are approved at a
stockholders meeting and the acquirer becomes entitled to exercise or direct the
exercise of a majority or more of all voting power, all other stockholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid by the acquirer in the control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the Maryland Company is a party
to the transaction, or to acquisitions approved or exempted by the charter or
bylaws of the Maryland Company. The Bylaws of the Maryland Company have exempted
from the MGCL all control share acquisitions involving any person. There can be
no assurance that such provisions will not be amended or eliminated at any time
in the future.
CERTAIN EXTRAORDINARY TRANSACTIONS. Under the IBCA, the sale, lease,
exchange or other disposition of all or substantially all the assets of a
corporation not in the ordinary course of business conducted by it, as well as
any merger, share exchange or voluntary dissolution, requires approval by
holders of a majority of all votes entitled to be cast, unless the charter or
the board of directors requires a greater vote or a vote by voting groups.
Under the MGCL, a consolidation, merger, share exchange, dissolution or
transfer of all or substantially all the assets of a corporation not in the
ordinary course of business conducted by it requires approval by holders of
two-thirds of the shares of the corporation entitled to vote on such matters,
unless the charter provides for a greater or lesser (but not less than a
majority) percentage.
DISSENTERS' RIGHTS. Under the IBCA, a stockholder is entitled to
dissent from, and obtain payment of the fair value of the stockholder's shares
in the event of: (a) the consummation of a plan of merger if (i) stockholder
approval is required for the merger and the stockholder is entitled to vote
thereon or (ii) the corporation is a subsidiary that is merged with its parent;
(b) the consummation of a plan of share exchange if the stockholder is entitled
to vote on the plan; (c) the consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the stockholder is entitled to vote on the
sale or exchange; or (d) an amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares. A
dissenting stockholder is not entitled to challenge the corporate action
creating the stockholder's entitlement to dissent unless the action is unlawful
or fraudulent with respect to the stockholder or the corporation.
Under the MGCL, stockholders of a corporation are entitled to
appraisal rights in certain mergers, consolidations or share exchanges involving
such corporation or upon the disposition of all or substantially all of its
assets, as well as when such corporation amends its charter in a way which
alters the contractual rights of any outstanding shares as expressly set forth
in the charter and substantially adversely affects such stockholders' rights if
the right to do so is not reserved in the charter. However, except with respect
to certain transactions involving an Interested Stockholder, stockholders
generally have no appraisal rights with respect to their shares if (i) the
shares are listed on a national securities exchange or are designated as a
national market system security on a interdealer quotation system by the
National Association of Securities Dealers, Inc. ("NASD"), or (ii) the shares
are those of the successor in the merger, unless (a) the merger alters the
contractual rights of the shares as expressly set forth in the charter, and the
charter does not reserve the right to do so, or (b) the shares are to be changed
or converted in whole or in part in the merger into something other than either
shares in the successor or cash, scrip or other rights or interests arising out
of provisions for the treatment of fractional shares in the successor.
STOCKHOLDER AND STOCKHOLDER INSPECTION RIGHTS. Under the IBCA, any
stockholder, his agent or attorney may inspect and copy minutes of any meetings
of the board of directors, any committee of the board, stockholders, action
taken without a meeting by the board of directors or stockholders, accounting
records and the list of stockholders. The right to copy and inspect is subject
to (a) the stockholder's inspection demand being in good faith and for a proper
purpose, (b) the stockholder describing with particularity his purpose and the
records he desires to inspect and (c) the records being directly connected with
the stockholder's purpose.
Under the MGCL, one or more persons who have been stockholders for at
least six months and together own at least five percent of the outstanding stock
of any class of a Maryland corporation may inspect and copy the corporation's
books of account, request a written statement of the corporation's affairs and
request a list of the corporation's stockholders. In addition, any stockholder
of a Maryland corporation may (a) inspect and copy the bylaws, minutes of the
proceedings of stockholders and annual statements of affairs and (b) request the
corporation to provide a sworn statement showing all stock or shares, as well as
any other securities, issued and all consideration received by the corporation
during the preceding twelve months.
POTENTIAL ANTI-TAKEOVER EFFECTS
The following provisions of the Maryland Articles may make a potential
takeover more difficult.
The Maryland Company's Board of Directors will be divided into three
classes of directors, each class constituting approximately one-third of the
total number of directors, with the classes serving staggered terms. Except for
the initial election, at each annual meeting of stockholders, the class of
directors to be elected at such meeting will be elected for a three-year term
and the directors in the other two classes will continue in office. The Company
believes that classified directors will help to assure the continuity and
stability of the Maryland Board and the Company's business strategies and
policies as determined by the Maryland Board. The use of a staggered board may
render more difficult a change in control of the Maryland Company or removal of
incumbent management.
For the Maryland Company to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), not
more than 50% in value of the outstanding Maryland Common Stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code)
during the last half of a taxable year and the Maryland Common Stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (or during a proportionate part of a shorter taxable year). To
satisfy the above ownership requirements and certain other requirements for
qualification as a REIT, the Maryland Articles will restrict the ownership or
acquisition of shares of Maryland Common Stock.
The Maryland Board will have the authority, without further stockholder
approval, to issue the shares of Preferred Stock in one or more series from time
to time and to fix the powers, designations, preferences, and rights, and the
qualifications, limitations, or restrictions of such preferences and/or rights.
While the issuance of Preferred Stock could provide needed flexibility in
connection with possible acquisitions and for other corporate purposes, such
issuance could also make it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Maryland Company or discourage
an attempt to gain control of the Maryland Company, and might adversely affect
the holders of Maryland Company Common Stock.
DISSENTER'S RIGHTS
See the Section "Dissenter's Rights" located in "Sale of Substantially
all the Assets to Newly-formed Limited Partnership" for information on the
rights of those stockholders who desire to dissent from the Reincorporation
Proposal.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote at the Meeting, at which a quorum representing a majority
of all outstanding shares of Common Stock is present, is required for approval
of this proposal.
BOARD RECOMMENDATION
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Maryland and Iowa and does not purport to
be an exhaustive discussion of all of the differences. Such differences can be
determined in full by reference to the Iowa Business Corporation Act and to the
Maryland General Corporation Law. In addition, both Iowa and Maryland law
provide that some of the statutory provisions as they affect various rights of
holders of shares may be modified by provisions in the charter or bylaws of the
corporation.
A vote "FOR" the Reincorporation Proposal will constitute approval of
the Merger, the Maryland Articles, the Maryland Bylaws and all other aspects of
this Reincorporation Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE REINCORPORATION OF
THE COMPANY IN MARYLAND AND RELATED CHANGES TO THE RIGHTS OF STOCKHOLDERS.
<PAGE>
2. SALE OF SUBSTANTIALLY ALL OF THE ASSETS TO NEWLY-FORMED
LIMITED PARTNERSHIP
GENERAL
The Board has unanimously approved the proposed transaction to change
the Company's operating structure, contemporaneously with the reincorporation in
Maryland, into an umbrella partnership structure (an "UPREIT") through the
contribution of substantially all of its assets (the "Sale") into a newly-formed
limited partnership (the "Operating Partnership"), which will be controlled by
the Company as its sole general partner. The limited partnership interests
("Units") in the Operating Partnership can be issued to acquire property in
transactions that would not trigger immediate tax obligations for certain
sellers. Converting to an UPREIT could enable the Company to acquire properties
at lower prices because of the tax advantages to some sellers of receiving Units
as consideration. Such Units would be redeemable for cash or shares of Common
Stock of the Company. This UPREIT would be structured so that distributions of
cash from the Operating Partnership are allocated between the Company, as
general partner, and the limited partners based upon their respective Unit
ownership.
The Company cannot predict precisely the cost of converting to an
UPREIT at this time because the most appropriate method of transferring the
Company's properties to the Operating Partnership has not yet been determined.
Based on discussions with its advisors, the Company estimates that the cost of
the UPREIT conversion will be approximately $100,000, consisting primarily of
the one-time payment of state transfer taxes and related legal fees.
In the event this proposal is not adopted, the Company will continue
to operate as a Maryland corporation, or if the Reincorporation Proposal is not
adopted, an Iowa corporation, and not convert to an UPREIT structure.
REORGANIZATION AS AN UPREIT
Upon completion of the reincorporation in Maryland, the Company plans
to reorganize itself as an UPREIT. The reorganization is expected to be
accomplished through the contribution of substantially all of the assets of the
Company to the Operating Partnership in a tax-free transaction (other than
certain state transfer taxes). In exchange for its assets, the Company will
receive Units of interest in the Operating Partnership. Upon the initial
formation of the Operating Partnership, the Company will be the sole general
partner and Cedar Bay will be the sole limited partner of the Operating
Partnership. Promptly thereafter, Cedar Bay will exchange up to 1,705,000 shares
of Common Stock for up to 1,705,000 Units of the Operating Partnership, as
described below under " Exchange By Cedar Bay Of Common Stock For Units." As
additional limited partners are admitted to the Operating Partnership in
exchange for the contribution of properties, the Company's percentage ownership
in the Operating Partnership will decline.
After the reorganization, the Operating Partnership will be the entity
through which the Company will conduct substantially all of its business and own
substantially all of its assets (either directly or though subsidiaries). The
Board of Directors of the Company will manage the affairs of the Operating
Partnership by directing the affairs of the Company as general partner of the
Operating Partnership. The Company's general partnership interests in the
Operating Partnership will entitle it to share in cash distributions from, and
in the profits and losses of, the Operating Partnership in proportion to its
percentage interest therein.
Upon the admission of additional limited partners to the Operating
Partnership, the Company, as general partner, would owe a fiduciary obligation
to the limited partners. In most cases, the interests of the limited partners
would coincide with the interests of the Company and its stockholders because
(i) the Company would own all of the general partner interests in the Operating
Partnership and (ii) the limited partners will generally receive shares of the
Company's Common Stock upon redemption of their Units. Nevertheless, under
certain circumstances, the interests of the limited partners might conflict with
those of the stockholders. For example, the sale of certain properties or the
sale or merger of the Company could cause adverse tax consequences to particular
limited partners.
EXCHANGE BY CEDAR BAY OF COMMON STOCK FOR UNITS
In order to continue to qualify as a real estate investment trust,
five or fewer holders of the Company may not own in the aggregate more than 50%
of the outstanding Common Stock during the final six-month period of each year.
Therefore, concurrently with the contribution by the Company of substantially
all of its assets to the Operating Partnership, Cedar Bay will exchange up to
1,705,000 shares of Common Stock for up to 1,705,000 Units. The precise number
of shares to be exchanged may vary depending on the outstanding stock ownership
of the Company of the time of the exchange.
ANTICIPATED FORM OF PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
THE FOLLOWING SUMMARY OF THE PROPOSED PARTNERSHIP AGREEMENT OF THE
OPERATING PARTNERSHIP (THE "OPERATING PARTNERSHIP AGREEMENT") IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM OF OPERATING PARTNERSHIP AGREEMENT, WHICH
MAY BE OBTAINED FROM THE COMPANY UPON REQUEST. THE OPERATING PARTNERSHIP WILL BE
FORMED UNDER THE DELAWARE REVISED UNIFORM LIMITED PARTNERSHIP ACT, AS AMENDED.
DISTRIBUTIONS, ALLOCATIONS OF PROFITS AND LOSSES. The Operating
Partnership Agreement provides that the Company, as general partner of the
Operating Partnership, will cause the Operating Partnership to distribute all or
such portion as it determines of the Available Cash (as defined in the Operating
Partnership Agreement) of the Operating Partnership each quarter pro rata in
accordance with respective number of Units held by each partner. Profits and
losses for tax purposes will also generally be allocated among the partners in
accordance with their percentage interests, subject to compliance with
applicable law and regulations.
MANAGEMENT. As the sole general partner of the Operating Partnership,
the Company will generally have the exclusive right, responsibility and
discretion in the management and control of the Operating Partnership. The
limited partners of the Operating Partnership will generally have no authority
to transact business or take any action on behalf of, or make any decision for,
the Operating Partnership.
The Operating Partnership Agreement provides that the Company shall
not, without the consent of the limited partners, engage in any transaction or,
in its capacity as the general partner, authorize the Operating Partnership to
take any action to amend, modify or terminate the Operating Agreement (other
than amendments or modifications that do not adversely affect any limited
partner) except to reflect the admission, substitution, termination or
withdrawal of limited partners; to make a general assignment for the benefit of
creditors for all or any part of the assets of the Operating Partnership;
institute any proceeding for bankruptcy or similar creditors relief on behalf of
the Operating Partnership; to approve the transfer of the general partner's
general partnership interest to any person; or admit into the Operating
Partnership any additional or substitute general partners.
TRANSFERABILITY OF INTERESTS. The Operating Partnership Agreement
generally provides that the Company may not withdraw from the Operating
Partnership, or transfer or assign its interest in the Operating Partnership
without the consent of all limited partners. Prior to 18 months after the Merger
of the Company into the Maryland Company, the limited partners generally may not
transfer their respective interests in the Operating Partnership without the
consent of the Company, except in an exchange for shares of Common Stock of the
Company. Following 18 months after the Merger, the limited partners may transfer
their respective interests in the Operating Partnership to "Accredited
Investors" (as defined under the Securities Act of 1933, as amended), subject to
the Company's right of first refusal. No transferee, however, will be admitted
to the Operating Partnership as a substitute limited partner having the rights
of a limited partner without the consent of the Company and the satisfaction of
other conditions, including agreeing to be bound by the terms and conditions of
the Operating Partnership Agreement.
ADDITIONAL CAPITAL CONTRIBUTIONS; ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS. No limited partner is required under the terms of the Operating
Partnership Agreement to make additional capital contributions to the Operating
Partnership. The Company shall make additional capital contributions to the
Operating Partnership for the acquisition or development of additional
properties or for other partnership purposes. The Operating Partnership
Agreement authorizes the Company to issue on behalf of the Operating Partnership
additional partnership interests in the Operating Partnership to any person
other than the Company for any partnership purpose from time to time for such
capital contributions and other consideration and on such terms and with such
designations, preferences and rights as the Company shall determine. Such
additional interests in the Operating Partnership may not be issued to the
Company except in connection with an issuance of capital stock by the Company
with designations, preferences and rights substantially similar to the
additional partnership interests that are issued, and the Company must make a
capital contribution to the Operating Partnership in an amount equal to the
proceeds received by the Company in connection with the issuance of such stock
and, in the case of an exercise of a right, warrant or option, the Company shall
contribute to the Operating Partnership an amount equal to the exercise price of
such security. As additional partnership interests are issued to new partners,
the partnership interests of all existing partners of the Operating Partnership,
including the Company, will be diluted proportionately based upon the amount of
such contributions and the deemed value of the Operating Partnership at such
time.
Except in connection with the redemption rights described below, the
Company may not issue additional capital stock, unless the proceeds of the
issuance are contributed to the Operating Partnership as an additional capital
contribution.
REDEMPTION OF PARTNERSHIP UNITS. Generally, each limited partner shall
have the right to require the Operating Partnership to redeem its Units at a
redemption price equal to the fair market value of a share of Common Stock of
the Maryland Company. The General Partner shall then have the right to redeem
such Units for cash or to issue shares of Common Stock of the Maryland Company.
FIDUCIARY STANDARDS AND INDEMNIFICATIONS. The Operating Partnership
Agreement provides that the general partner will act in the interest of the
Operating Partnership as an entity distinct from the individual interests of the
partners. The Operating Partnership Agreement also provides that the general
partner and each person designated by the general partner will be indemnified
and held harmless by the Operating Partnership for any act performed for or on
behalf of the Operating Partnership, or in furtherance of the Operating
Partnership's business, unless (i) the act or omission of such indemnified
person was material to the matter giving rise to the proceeding and either was
committed in bad faith or was the result of active and deliberate dishonesty;
(ii) such indemnified person actually received an improper personal benefit in
money, property or services; or (iii) in the case of any criminal proceeding,
such indemnified person had reasonable cause to believe that the act or omission
was unlawful.
TAX MATTERS PARTNER. Pursuant to the Operating Partnership Agreement,
the Company will be the tax matters partner of the Operating Partnership and, as
such, will have authority to make tax elections under the Code on behalf of the
Operating Partnership.
OPERATIONS. The Operating Partnership Agreement requires the Operating
Partnership to be operated in a manner that will enable the Company to satisfy
the requirements for being classified as a real estate investment trust for
United States federal tax purposes.
TERM. The term of the Operating Partnership continues until December
31, 2098, or until sooner dissolved pursuant to the terms of the Operating
Partnership Agreement.
OTHER. The Operating Partnership is authorized to enter into in the
name of, and on behalf of, the Operating Partnership conflict avoidance
agreements with affiliates of the Operating Partnership and the Company, as it
believes advisable in its sole and absolute discretion.
DISSENTER'S RIGHTS
Any stockholder ("dissenting stockholder") who objects to the Merger
and/or the Sale (the "Proposed Action") will have the right to receive cash
payment of the fair value of his or her shares, provided the stockholder acts in
strict compliance with the provisions of IBCA 1301-1331. The dissenting
stockholder's right to receive cash payment is in lieu of a number of shares of
Maryland Common Stock equal to the number of shares of Iowa Common Stock owned
by the dissenting stockholder. The following summarizes the statutory procedures
required under the IBCA to perfect a dissenting stockholder's rights. This
summary is qualified in its entirety by reference to IBCA Sections 1301-1331
(the "Dissenters' Rights Law"), attached to this Proxy Statement as Appendix A.
In order to exercise dissenter's rights, a dissenting stockholder
shall (i) deliver to the Company, before the vote relating to the Proposed
Action is taken, written notice of the stockholder's intent to demand payment
for the stockholder's shares if the Proposed Action is effectuated, and (ii) not
vote his or her shares in favor of the Proposed Action to which the dissenting
stockholder dissents.
If the Proposed Action is authorized at the Meeting, within ten days
thereafter the Company shall deliver a written dissenting stockholders' notice
(the "Dissenting Stockholders' Notice") to all stockholders who properly
dissented to any Proposed Action. The Dissenting Stockholders' Notice shall (a)
state where the dissenting stockholders' payment demand must be sent, (b) state
where and when certificates representing shares of Iowa Common Stock must be
deposited, (c) supply a form for demanding payment that includes the date of the
first announcement to news media or to stockholders (the "Cut-off Date") of the
terms of the Proposed Action and requires the dissenting stockholders to certify
whether or not he or she acquired beneficial ownership of his or her shares
before that date, (d) set a date by which the Company must receive a payment
demand, which date shall not be fewer than thirty days nor more than sixty days
after the date the Dissenting Stockholder's Notice is delivered and (e) be
accompanied by a copy of the Dissenters' Rights Laws.
A stockholder sent a Dissenting Stockholder's Notice must demand
payment, certify whether he or she acquired beneficial ownership of the shares
of Iowa Common Stock before the Cut-off Date and deposit the shares in
accordance with the Dissenting Stockholders' Notice. A dissenting stockholder
who demands payment and deposits his or her shares in accordance with the
previous sentence retains all other rights of a stockholder until these rights
are canceled or modified by the taking of the Proposed Action. A dissenting
stockholder who does not demand payment or deposit the dissenting stockholder's
share certificates where required, each by the date set in the Dissenting
Stockholders' Notice, is not entitled to payment for the dissenting
stockholder's shares under Dissenters' Rights Laws.
Except as described below with respect to shares acquired after the
Cut-off Date, at the time the Proposed Action is taken, or upon receipt of a
payment demand, whichever occurs later, the Company shall pay each dissenting
stockholder who properly demanded payment and deposited the share certificates,
the amount the Company estimates to be the fair value of the dissenting
stockholder's shares, plus accrued interest ("Fair Value"), accompanied by all
of the following: (a) the Company's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in stockholders' equity for that
year, and the latest available interim financial statements, if any; (b) a
statement of the Company's estimate of the fair value of the shares; (c) an
explanation of how the interest was calculated; (d) a statement of the
dissenting stockholder's right to demand payment if he or she is dissatisfied
with the payment; and (e) a copy of the Dissenters' Rights Law.
If the Company does not take the Proposed Action within one hundred
eighty days after the date set for demanding payment and depositing share
certificates, the Company shall return the deposited certificates. If after
returning deposited certificates, the Company takes the Proposed Action, it must
send a new Dissenting Stockholders' Notice as if the Proposed Action was taken
without a vote of the stockholders and repeat the payment demand procedure.
The Company may elect to withhold the payment described above from a
dissenting stockholder unless the dissenting stockholder was the beneficial
owner of the shares before the Cut-off Date. To the extent the Company elects to
withhold such payment, after taking the Proposed Action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenting stockholder who agrees to accept it in full satisfaction of the
dissenting stockholder's demand. The Company shall send with its offer a
statement of its estimate of the fair value of the shares, an explanation of how
the interest was calculated, and a statement of the dissenting stockholder's
right to demand payment if he or she is dissatisfied with such payment.
A dissenting stockholder may notify the Company in writing of the
dissenting stockholder's own estimate of the fair value of the dissenting
stockholder's shares and amount of interest due, and demand payment (a
"Dissenting Stockholder's Demand") of the dissenting stockholder's estimate,
less any payment of Fair Value or reject the Company's offer described in the
previous paragraph and demand payment of the fair value of the dissenting
stockholder's shares and interest due, if any of the following apply: (a) the
dissenting stockholder believes that the amount paid or offered is less than the
fair value of the dissenting stockholder's shares or that the interest due is
incorrectly calculated; (b) the Company fails to make payment of Fair Value
under the third previous paragraph within sixty days after the date set for
demanding payment; or (c) the Company, having failed to take the proposed
action, does not return the deposited certificates within sixty days after the
date set for demanding payment. If the dissenting stockholder shall not have
made his or her Dissenting Stockholder's Demand to the Company within thirty
days after the Company shall have made or offered payment, he or she shall have
waived his or her right to demand payment for his or her shares.
If a Dissenting Stockholder's Demand remains unsettled, the Company
shall commence a proceeding within sixty days after receiving the Dissenting
Stockholder's Demand and petition the court to determine the fair value of the
shares and accrued interest. If the Company does not commence the proceeding
within such sixty-day period, it shall pay each dissenting stockholder whose
demand remains unsettled the amount demanded. The Company shall commence the
proceeding in the district court of the county where the Company's principal
office or, if none in this state, its registered office is located. The Company
shall make all dissenting stockholders, whether or not residents of this state,
whose demands remain unsettled parties to the proceeding as in an action against
their shares and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. The jurisdiction of the court in which such a proceeding is
commenced is plenary and exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend decision on the question of fair
value. The appraisers have the powers described in the order appointing them, or
in any amendment to it. The dissenting stockholders are entitled to the same
discovery rights as parties in other civil proceedings.
Each dissenting stockholder made a party to the proceeding is entitled
to judgment for either of the following: (i) the amount, if any, by which the
court finds the fair value of the dissenting stockholder's shares, plus
interest, exceeds the amount paid by the Company, or (ii) the fair value, plus
accrued interest, of the dissenting stockholder's after acquired shares for
which the Company elected to withhold payment.
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the Company,
except that the court may assess costs against all or some of the dissenting
stockholders, in amounts the court finds equitable, to the extent the court
finds the dissenting stockholders acted arbitrarily, vexatiously, or not in good
faith in demanding payment.
The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable, for either of
the following: (a) against the Company and in favor of any or all dissenting
stockholders if the court finds the Company did not substantially comply with
the requirements of the Dissenting Stockholder's Rights Law or (b) against
either the Company or a dissenting stockholder in favor or any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by the Dissenting Stockholder's Rights Law.
If the court finds that the services of counsel for any dissenting
stockholder were of substantial benefit to other dissenting stockholders
similarly situated, and that the fees for those services should be assessed
against the Company, the court may award to these counsel reasonable fees to be
paid out of the amounts awarded the dissenting stockholders who were benefited.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote at the Meeting, at which a quorum representing a majority
of all outstanding shares of Common Stock is present, is required for approval
of this proposal.
BOARD RECOMMENDATION
A vote "FOR" the proposal to sell substantially all of the assets of
the Company to newly- formed limited partnership will constitute approval of the
formation of the Operating Partnership and the sale of substantially all of the
assets of the Company to the Operating Partnership.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE SALE OF
SUBSTANTIALLY ALL THE ASSETS TO THE OPERATING PARTNERSHIP.
3. ELECTION OF DIRECTORS
If the proposal to reincorporate in Maryland is approved, the number
of Directors of the Company will be five and the Board of Directors will be
divided into three classes serving staggered three-year terms of office. In such
case, it is proposed to elect all of the nominees set forth below as follows:
(i) one Class I Director at this Meeting to hold office for a one-year term
until the 1999 Annual Meeting of Stockholders and every three years thereafter;
(ii) two Class II Directors at this Meeting to hold office for a two-year term
until the 2000 Annual Meeting of Stockholders and every three years thereafter;
and (iii) two Class III Directors at this Meeting to hold office for a
three-year term until the 2001 Annual Meeting of Stockholders and every three
years thereafter; and in each case, until their successors are duly elected and
qualify. If the proposal to reincorporate in Maryland is not approved, the
number of Directors of the Company will be five and the following nominees for
directors will be elected for one year terms, until the 1999 Annual Meeting of
Stockholders and until their successors are duly elected and qualify: Messrs.
Ullman, der Kinderen, Miller and Wurm and Ms. Walker. It is intended that the
accompanying form of Proxy will be voted for the nominees set forth herein, all
of whom except Ms. Walker and Mr. Wurm are currently Directors of the Company.
If some unexpected occurrence should make necessary, in the Board of Directors'
judgment, the substitution of some other person or persons for any of the
nominees, shares will be voted for such other person or persons as the Board of
Directors may select. The Board of Directors is not aware that any nominee may
be unable or unwilling to serve as a Director.
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
TERM OF SERVED AS
PRINCIPAL OFFICE A
OCCUPATION AND WILL DIRECTOR
NAME AGE POSITIONS HELD EXPIRE SINCE
<S> <C> <C> <C> <C>
Leo S. Ullman 58 Mr. Ullman is Chairman of the 2001 1998
Board and President of the
Company and has been President
of SKR Management Corp. from
1994 through the current date; Chairman
of Brentway Management LLC from 1994
through the current date; President of
Cedar Bay Realty Advisors, Inc. since
its formation in January 1998.
Mr. Ullman has also been the President
and sole director of Selbridge Corp. and
Buttzville Corp. (the two partners of
Cedar Bay) from 1994 through the
current date. From 1992 through 1995,
Mr. Ullman was President of API Asset
Management Services Corp. and
API Asset Management, Inc. Mr.
Ullman has been involved in real estate
asset management for approximately
twenty years and has been practicing law
for more than thirty years. Since 1993,
Mr. Ullman has also served as "of
counsel" to Schnader Harrison Segal &
Lewis, LLP.
J.A.M.H. der 57 From 1984 through 1994, Mr. der 2000 1998
Kinderen Kinderen was Director of
Investments of Rabobank Pension
Fund, and has been or is
Chairman of the Board of the
following entities: Noro
America Real Estate B.V.
(1995-present); Noro Amerika Vast
Goed B.V. (1985-present); Mass
Mutual Pierson (M.M.P.)
(1988-1997); Rodin Properties - Shore
Mall, N.V. (1990-1995); and,
from 1996 to the present, a
director of Warner Building
Corporation.
Everett B. 50 Mr. Miller is currently the 2000 1998
Miller III Senior Vice President and Chief
Executive Officer of Endowment Realty
Investors, Inc., a regulated investment
advisor. Prior to that, starting in
March 1997, Mr. Miller was the Senior
Vice President and Chief Executive
Officer of Finite REITs, Endowment
Realty Investors and Endowment Realty
Investors II. From January 1995 through
March 1997, Mr. Miller was the Principal
Investment Officer for Real Estate and
Alternative Investment at the Office of
the Treasurer of the State of
Connecticut. Prior to that, Mr. Miller
was employed for twenty years at
Travelers Realty Investment Co., at
which his last position was Senior Vice
President.
Brenda J. 45 Ms. Walker is Vice President and 2001 -
Walker Treasurer of the Company and
has been Vice President of SKR
Management Corp. from 1994
through the current date; Vice
President of Brentway
Management LLC from 1994 through
the current date; President of
API Asset Management Services
Corp. and API Asset Management,
Inc. from 1992 through 1995.
Ms. Walker has been involved in
real estate asset management for
approximately fifteen years.
Jean-Bernard 48 Mr. Wurm has been a director 1999 -
Wurm B.V. Capital Markets Inc. since
January 1, 1993. Mr. Wurm
began his career with J.P.
Morgan in Paris in the
International Money Management
group and in Frankfurt as a
corporate lending officer
before moving to the U.S. in
1979. In 1986, Mr. Wurm
started advising European
investors in the U.S. real
estate market. From 1989 to
1992, Mr. Wurm was the President
of U.S. Land which provided
European lenders with expertise
and support in the workout or
disposition of their U.S. real
estate assets. Mr. Wurm has
been a member of the finance
committee of the GMHC since 1986
and has also been Treasurer of
the Sciences-Po Alumni
Association for the last two
years and a member of the Board
since 1988.
</TABLE>
The Board of Directors and Committees of the Board
The powers of the Company are exercised by, or under authority of, and
its business and affairs are managed under the direction of, the Board of
Directors. Under the Restated Articles of the Company, a majority of the Board
of Directors and any committee thereof must be "Independent Directors" who are
not affiliated, directly or indirectly, with an advisor to the Company and do
not perform services for the Company except as a Director. The Independent
Directors are required by the Articles of Incorporation to review investment
policies, supervise the performance of the "Advisor," determine that
compensation to the Advisor is reasonable, and determine that total fees and
expenses of the Company are reasonable, among other responsibilities. The
Advisor is the entity responsible for performing the day-to-day business affairs
of the Company.
In carrying out its responsibilities, the Board of Directors
established an Audit Committee, the current members of which are Messrs. der
Kinderen and Miller. The principal functions of the Audit Committee include
recommending to the Board of Directors the selection of the independent
auditors; consulting with the independent auditors with respect to matters of
interest to the Committee; approving the type, scope and costs of services to be
performed by the independent auditors; and reviewing the work of those persons
responsible for the Company's day-to-day compliance with accounting principles,
financial disclosure, income tax laws, internal controls and recordkeeping
requirements. The Board of Directors does not have standing nominating or
compensation committees. Special committees of the Board may be appointed from
time to time to consider and address specific matters of interest to the Board.
During 1997 the Board of Directors held seven meetings and the Audit Committee
held one meeting. Each Director attended at least 75% of the combined number of
meetings of the Board of Directors and of the committees on which he served.
Compensation of Directors and Executive Officers
The officers and Directors of the Company who are also affiliated with
Cedar Bay do not receive any remuneration for their services to the Company
other than reimbursement of travel and other expenses incurred in connection
with their duties. During 1997, with the exception of Mr. Falconio, the former
Chairman of the Board and a former Director of the Company, each Director
received an annual fee of $5,000 plus $750 for each Board meeting attended. Mr.
Falconio waived all fees for his services as a Director.
CERTAIN AGREEMENTS AND BUSINESS RELATIONSHIPS
The Company has no employees and has contracted with Cedar Bay Realty
Advisors, Inc. ("Cedar Bay Realty") to provide the Company with administrative,
advisory, acquisition, divestiture, property management, leasing and stockholder
services. A description of the agreements between Cedar Bay Realty and certain
of its affiliates and the Company follows. The description of the agreements is
qualified in its entirety by reference to the terms and provisions of such
agreements. Cedar Bay is a New York general partnership. Point Associates, a
Pennsylvania limited partnership, and Triangle Center Associates, L.P., a
Pennsylvania limited partnership ("Triangle Center"), are the sole partners of
Cedar Bay. The general partner of Point Associates is Selbridge Corp., a
Delaware corporation, wholly-owned by Leo S. Ullman. The general partner of
Triangle Center is Buttzville Corp., a Delaware corporation, wholly-owned by Mr.
Ullman. Mr. Ullman is the President and sole Director of each of Selbridge Corp.
and Buttzville Corp.
Cedar Bay Realty, a New York corporation, is wholly-owned by Mr.
Ullman. Mr. Ullman is president and a Director of, and Brenda J. Walker is vice
president, of Cedar Bay Realty.
Brentway Management LLC, a New York limited liability company
("Brentway"), is owned by Mr. Ullman and Ms. Walker. Mr. Ullman is Chairman and
Ms. Walker is President of Brentway.
Administrative and Advisory Services
Cedar Bay Realty provides administrative, advisory, acquisition and
divestiture services to the Company pursuant to an Administrative and Advisory
Agreement (the "Advisory Agreement"). The term of the Advisory Agreement is for
one (1) year and is automatically renewed annually for an additional year
subject to the right of either party to cancel the Advisory Agreement upon 60
days written notice.
Under the Advisory Agreement, Cedar Bay Realty is obligated to: (a)
provide office space and equipment, personnel and general office services
necessary to conduct the day-to-day operations of the Company; (b) select and
conduct relations with accountants, attorneys, brokers, banks and other lenders,
and such other parties as may be considered necessary in connection with the
Company's business and investment activities, including, but not limited to,
obtaining services required in the acquisition, management and disposition of
investments, collection and disbursement of funds, payment of debts and
fulfillment of obligations of the Company, and prosecuting, handling and
settling any claims of the Company; (c) provide property acquisition and
disposition services, research, economic and statistical data, and investment
and financial advice to the Company; and (d) maintain appropriate legal,
financial, tax, accounting and general business records of activities of the
Company and render appropriate periodic reports to the directors and
stockholders of the Company and to regulatory agencies, including the Internal
Revenue Service, the Securities and Exchange Commission, and similar state
agencies.
Cedar Bay Realty receives fees for its administrative and advisory
services as follows: (a) a monthly administrative and advisory fee equal to 1/12
of 3/4 of 1% of the estimated current value of real estate assets of the
Company, plus 1/12 of 1/4 of 1% of the estimated current value of all other
assets of the Company; (b) an acquisition fee equal to 5% of the gross purchase
price (before expenses and without deducting indebtedness assumed) of any real
property acquired during the term of the Advisory Agreement; provided that the
total of all such acquisition fees plus acquisition expenses in connection with
the purchase of any real property shall be reasonable and shall not exceed 6% of
the amount paid or allocated to the purchase, development, construction or
improvement of a property, exclusive of acquisition fees and acquisition
expenses; and (c) a disposition fee equal to 3% of the gross sales price (before
expenses but without deducting any indebtedness against the property) of any
real property disposed of during the term of the Advisory Agreement; provided
that no disposition fee shall be paid unless and until the stockholders have
received certain distributions from the Company. In addition, Cedar Bay Realty
may receive one-half of the brokerage commission on such a disposition but only
up to 3% of the price actually paid for the property, subject to certain
limitations. Furthermore, if the Advisory Agreement is terminated prior to the
liquidation of the Company, Cedar Bay Realty will be entitled to payment of
disposition fees based on the ratio of the number of years the Advisory
Agreement was operative to the number of years from the date the Advisory
Agreement was entered into that such fee became payable. The Company paid its
former advisor approximately $101,000 in administrative fees for 1997. No
incentive, acquisition or disposition fees were paid in 1997.
Management Services
Brentway provides property management and leasing services to the
Company pursuant to a Management Agreement. The term of the Management Agreement
is for one (1) year and is automatically renewed annually for an additional year
subject to the right of either party to cancel the Management Agreement upon 60
days written notice. Under the Management Agreement, Brentway is obligated to
provide property management services, which include leasing and collection of
rent, maintenance of books and records, establishment of bank accounts and
payment of expenses, maintenance and operation of property, reporting and
accounting to the Company regarding property operations, and maintenance of
insurance. All of the duties of Brentway are to be fulfilled at the Company's
expense; provided, however, the Company is not required to reimburse Brentway
for personnel expenses other than for on-site personnel at the properties
managed. Brentway receives fees for its property management services as follows:
a monthly management fee equal to 5% of the gross income from properties managed
and leasing fees of up to 6% of the rent to be paid during the term of the lease
procured. The Company paid the former manager approximately $119,000 in
management fees and approximately $39,000 in leasing fees for 1997. In 1997, the
former manager subcontracted with various local management companies for site
management and leasing services.
Financial Advisory Agreement
The Board of Directors has approved a Financial Advisory Agreement (the
"BVC Agreement") with B.V. Capital Markets Inc. ("BVC") pursuant to which BVC
has agreed to perform the following services as financial advisor to the
Company: (a) advise on acquisition financing and/or a line of credit for future
acquisitions; (b) advise on acquisitions of United States real property
interests and the consideration to be paid therefor; (c) arrange private
placements of the shares of the Company; (d) assist the Board of Directors in
developing suitable investment parameters for the Company; (e) develop and
maintain contacts on behalf of the Company with institutions with substantial
interests in real estate and capital markets; (f) advise the Board with respect
to additional private or public offerings of equity securities of the Company;
(g) review certain financial policy matters with consultants, accountants,
lenders, attorneys and other agents of the Company; and (h) prepare periodic
reports of its performance of the foregoing services. As compensation for the
foregoing services, the Company is required to pay BVC, (i) .25% of the
Company's net asset value, less any indebtedness affecting such net value, but
in any event, not less than $100,000 per year; (b) a one-time payment of 1.5% of
90% of the agreed value of properties contributed to the Company or its
affiliates by persons introduced to the Company by BV; and (c) upon the Company
becoming self-administered, a one-time payment equal to five times the annual
fee income attributable to fee receipts from clients or contacts of BVC that
have contributed property to the Company. The term of the BVC Agreement is for a
period of one (1) year and is automatically renewed annually for an additional
year subject to the right of either party to cancel at the end of any year upon
60 days written notice. Under the BVC Agreement, Cedar Bay Company has agreed to
cause its shares to be voted in favor of the election of Jean-Bernard Wurm as a
Director of the Company.
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The following line graph sets forth for the period January 1, 1993
through December 31, 1997, a comparison of the percentage change in the
cumulative total stockholder return on the Company's Common Stock compared to
the cumulative total return of the Standard & Poor's ("S&P") Stock Index; and
the index of equity real estate investment trusts prepared by the National
Association of Real Estate Investment Trusts ("NAREIT"), the NAREIT Equity REIT
Total Return Index.
The graph assumes that the shares of the Company's Common Stock were
bought at the price of $100.00 per share and that the value of the investment in
each of the Company's Common Stock and the indices was $100 at the beginning of
the period. The graph further assumes the reinvestment of dividends.
The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
CEDAR INCOME FUND, LTD.
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
Period Ending
-------------------------------------------------------------------------------------------
Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- --------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cedar Income Fund, 100.00 136.80 124.82 146.33 171.68 283.75
Ltd.
S&P 500 100.00 110.08 111.53 153.44 188.52 251.44
NAREIT All Equity 100.00 119.66 123.18 141.82 192.48 231.47
REIT
Index
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 29, 1998, to the knowledge of the Company, the following is a
schedule of all persons who beneficially owned more than 5% of the outstanding
Common Stock of the Company:
Number Of Shares
Name And Address Beneficially Owned Percentage Of Stock
Cedar Bay Company 1,893,038.335 84.3%
c/o SKR Management Corp.
44 South Bayles Avenue
Port Washington, NY
11050
The following table sets forth information concerning the security
ownership of directors, nominees for directors and executive officers as of May
29, 1998.
<PAGE>
Number of Shares
NAME BENEFICIALLY OWNED Percentage of Stock
Leo S. Ullman 1,893,038.335* 84.3%
J.A.M.H. der Kinderen 0 -
Everett B. Miller III 0 -
Brenda J. Walker 0 -
Jean-Bernard Wurm 0 -
Directors, Nominees and
Executive Officers as a 1,893,038.355 84.3%
group (7 persons)
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934
The Company believes that during 1997 all of its officers, directors
and holders of more than 10% of its Common Stock complied with all filing
requirements under Section 16(a) of the
Securities Exchange Act of 1934. In making this disclosure, the Company has
relied solely on written representations of its directors, officers and more
than 10% holders and on copies of reports that have been filed with the
Securities and Exchange Commission.
4. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending December 31,
1998. A representative of Ernst & Young LLP is expected to be present at the
meeting with the opportunity to make a statement if such representative so
desires and to respond to appropriate questions. Ernst & Young LLP acted as the
Company's auditors in 1997.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR
APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
COMPANY'S AUDITORS.
- --------
* Consists of 1,893,038.335 shares owned by Cedar Bay Company, which
shares are owned by Mr. Ullman through his ownership of the sole
general partners of each of the two partners of Cedar Bay Company.
<PAGE>
5. THE 1998 STOCK OPTION PLAN
If the proposal to reincorporate in Maryland is approved, it is
proposed to adopt the 1998 Stock Option Plan (the "Plan"). On May 12, 1998, the
Board of Directors of the Company adopted the Plan, subject to approval by the
stockholders of the Company of the reincorporation in Maryland and the Plan.
Incentive stock options, intended to qualify under Section 422 of the Code, and
nonqualified stock options may be granted under the Plan. The following is a
summary of the material provisions of the Plan.
In the event that the proposal to reincorporate in Maryland is not
adopted, the Plan will not be adopted.
PURPOSE
The purpose of the Plan is to advance the interests of the Company by
encouraging and enabling the acquisition of a larger personal proprietary
interest in the Company by directors, key employees, consultants and independent
contractors who are employed by, or perform services for, the Company and its
subsidiaries and upon whose judgment and keen interest the Company is largely
dependent for the successful conduct of its operations. It is also expected that
the opportunity to acquire such a proprietary interest will enable the Company
and its subsidiaries to attract and retain desirable personnel, directors and
other service providers.
ADMINISTRATION
The Plan is administered by a Committee (the "Committee") of the Board
of Directors, which must consist of two or more directors of the Company, each
of whom must be a "Non- Employee Director" within the meaning of Rule 16b-3
under the 1934 Act and an "outside director" within the meaning of Section
162(m) of the Code. The Committee may grant options to key employees, directors,
consultants and independent contractors to the Company. The term of each option
may not exceed ten years from the date of grant. The exercise price of an option
shall be determined by the Committee, but in the case of an incentive stock
option (as described below), the per share exercise price may not be less than
100% of the fair market value of a share of Common Stock on the date of grant.
The options generally vest at a rate determined by the Committee at the time of
grant.
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Options are
final. The Committee may authorize and establish such rules, regulations and
revisions thereof not inconsistent with the provisions of the Plan, as it may
deem advisable to make the Plan and Options effective, or provide for their
administration, and may take such other action with regard to the Plan and
Options as it deems desirable to effectuate their purpose.
MAJOR PROVISIONS OF THE PLAN
TYPES OF OPTIONS TO BE GRANTED. Under the Plan, the Committee may grant
either an "incentive stock option" within the meaning of Section 422 of the Code
or options which do not satisfy Section 422 of the Code ("non-qualified stock
options"). Options with respect to which no designation is made by the Committee
are deemed to be incentive stock options to the extent they meet the
requirements for incentive stock options. No option which is intended to qualify
as an incentive stock option may be granted under the Plan to any individual
who, at the time of such grant, is not an employee of the Company.
ELIGIBILITY. The potential recipients of Options under the Plan are
directors of the Company, key employees of the Company, and consultants and
independent contractors used by the Company (collectively, the "Eligible
Participants") each individually as determined by the Compensation Committee in
its sole discretion. At May 12, 1998, approximately 7 persons were eligible to
participate in the Plan. No Option which is intended to qualify as an incentive
stock option may be granted under this Plan to any employee who, at the time the
Option is granted, owns shares possessing more than ten percent of the total
combined voting power or value of all classes of stock of the Company, unless
the exercise price under such Option is at least 110% of the fair market value
of a share of Common Stock on the date such Option is granted and the duration
of such Option is no more than five years.
SHARES OF COMMON STOCK SUBJECT TO THE PLAN. The Board of Directors
proposes for stockholder approval that the Plan provide that the number of
shares of Common Stock that may be the subject of Options may not exceed 500,000
in the aggregate, which Common Stock may be held in treasury or authorized but
unissued. The maximum number of shares which may be the subject of options
granted to any individual during any calendar year shall not exceed 100,000
shares. If any Option shall expire, be canceled or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
may again be made subject to Options under the Plan; however, any option granted
to a "covered employee" as defined under Section 162(m) of the Code which is
canceled or repriced shall continue to be counted against the maximum number of
shares subject to options granted to such employee, in accordance with Section
162(m) of the Code.
GRANT OF OPTIONS. The Committee, in its sole discretion (subject to the
Plan) determines the number of shares of Common Stock subject to each Option
granted to any eligible participant under the Plan. The terms of the Plan do not
prohibit the issuance of Options at different times to the same person.
OPTION EXERCISE PRICE AND DURATION. The Committee fixes the price per
share of the Common Stock to be purchased pursuant to the exercise of any
Option; however, the per share exercise price under an incentive stock option
may not be less than the Fair Market Value (as defined in the Plan) of a share
of Common Stock on the day on which the Option is granted. The Committee fixes
the duration of an Option up to a maximum of ten years from the date of grant.
CONSIDERATION FOR OPTIONS. The Company must obtain such consideration
for the grant of an Option as the Committee in its discretion may request.
EXERCISE OF OPTIONS. An Option, once granted, will be exercisable by
the holder (or if deceased, by his estate) at such rate and times as may be
fixed by the Committee. Options become exercisable in full (but in no event
until stockholder approval of the Plan) upon (i) the holder's retirement on or
after his 65th birthday, (ii) the disability or death of the holder (subject to
the provisions on termination of employment), or (iii) under special
circumstances which in the opinion of the Committee warrant special
consideration. Options may not be transferred nor assigned by the holder except
that the Committee may authorize a transfer of a non-qualified option to certain
family members or trusts or to other entities as may be permitted by the
Committee, subject to such terms and conditions as are approved by the
Committee.
TERMINATION OF OPTIONS. Options terminate at the end of the tenth
business day following the holder's cessation of service as an employee,
director, consultant or independent contractor. This period is extended to three
months in the case of the holder's retirement on or after attaining age 65 or
disability, and to six months in the case of the holder's death (in which case
the Option is exercisable by the holder's estate). If the employment or service
of an Option holder is terminated due to a violation of his duties, the Option
terminates immediately. In no event may any option be exercised after the
expiration of the term of the option.
PAYMENT FOR AND ISSUANCE OF SHARES. Payment for the shares purchased
pursuant to the exercise of an Option shall be made in full at the time of the
exercise of the Option, in cash, by check, by delivery of previously-owned
shares of Common Stock (beneficially owned for at least six months and valued at
their Fair Market Value as of the date of the exercise), or by such other
methods as the Committee may permit from time to time. The Plan contains
standard provisions to assure that any exercise of an Option or the issuance of
shares pursuant thereto will not violate applicable securities and income tax
withholding laws.
ADJUSTMENT OF SHARES. The Plan contains usual anti-dilution provisions
in the event of certain corporate transactions.
AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors or the
Committee may at any time withdraw or from time to time amend the Plan and any
Options not theretofore granted. With respect to any outstanding Option, the
Board of Directors or the Committee, with the consent of the affected holder of
an Option, may at any time withdraw or from time to time amend the Plan and the
terms and conditions of any outstanding Option. Notwithstanding the foregoing,
any amendment by the Board of Directors or the Committee which would increase
the number of shares of Common Stock issuable under Options, increase the number
of Options which may be granted to any individual during a calendar year, or
change the class of persons to whom Options may be granted, shall be subject to
the approval of the stockholders of the Company. No Option shall be granted
under the Plan after May 11, 2008.
FEDERAL INCOME TAX CONSIDERATIONS
INCENTIVE STOCK OPTIONS. An employee will not recognize income upon
the grant or exercise of an incentive stock option. If an employee disposes of
the shares acquired upon exercise of an incentive stock option at least two
years after the date the Option was granted and at least one year after the date
the shares are transferred to him upon the exercise of an Option, the employee
will realize long-term capital gain in an amount equal to the excess, if any, of
his selling price for the shares over the exercise price. In such case, the
Company will not be entitled to any tax deduction. If an employee disposes of
the shares acquired upon the exercise of an incentive stock option prior to the
expiration of two years from the date the Option was granted, or one year from
the date the shares are transferred to him, any gain realized will be taxable at
such time as follows: (1) as ordinary income to the extent of the difference
between the Option exercise price and the lesser of (a) the fair market value of
the shares on the date the shares were transferred to him or (b) the amount
realized on such disposition, and (2) as capital gain to the extent of any
excess, which gain shall be treated as short-term or long-term capital gain
depending upon the employee's holding period. In such case, the Company may
claim an income tax deduction for the amount taxable to the employee as ordinary
income. The difference between the fair market value of the shares at the time
the incentive stock option is exercised and the exercise price will constitute
an item of adjustment, for purposes of determining alternative minimum taxable
income, and may under certain circumstances be subject, in the year in which the
Option is exercised, to the alternative minimum tax.
If an individual uses shares of Common Stock of the Company that he
owns to pay, in whole or in part, the exercise price under an incentive stock
option, (a) the individual's holding period for the newly-issued shares equal in
number to the surrendered shares (the "exchanged shares") shall include the
period during which the surrendered shares were held, (b) the employee's basis
in such exchanged shares will be the same as his basis in the surrendered
shares, and (c) no gain or loss will be recognized by the employee on the
exchange of the surrendered shares for the exchanged shares. Further, the
employee will have a zero basis in any additional shares received over and above
the exchanged shares. However, if an employee tenders shares acquired pursuant
to the exercise of an incentive stock option to pay all or part of the exercise
price under an incentive stock option, such tender will constitute a disposition
of such shares for purposes of the one-year (or two-year) holding period
requirement applicable to incentive stock options and such tender will be
treated as a taxable exchange if such holding period has not been met.
NON-QUALIFIED STOCK OPTIONS. A holder will not recognize any income at
the time a non-qualified stock option is granted. If the holder is not a
Director, officer, or principal stockholder (i.e., an owner of more than ten
percent of the Common Stock of the Company), he will recognize ordinary income
at the time he exercises a non-qualified stock option in a total amount equal
to: (1) in the case of Options which the holder exercises with cash, the excess
of the then fair market value of the shares acquired over the exercise price and
(2) in the case of Options which a holder exercises by tendering previously
owned shares, the then fair market value of the number of shares issued in
excess of the fair market value of the number of shares surrendered upon such
exercise. Section 83 of the Code generally provides that if a Director, officer,
or principal stockholder receives shares pursuant to the exercise of a
non-qualified stock option, he is not required to recognize income until the
date on which he can sell such shares at a profit without being subject to
liability under Section 16(b) of the 1934 Act. In general, pursuant to
regulations under Section 16(b) of the 1934 Act the restriction on selling such
shares at a profit will be considered to have lapsed six months after the later
of the original grant date of the option or the option holder's intervening
purchase of shares or other equity securities of the Company in a transaction
that is subject to the short-swing profit recovery provisions of Section 16(b)
of the 1934 Act. Alternatively, a Director, officer or principal stockholder who
would not otherwise be subject to tax on the value of his shares as of the date
they were acquired can file a written election, within 30 days after the shares
are transferred to him, pursuant to Section 83(b) of the Code, to be taxed as of
the date of transfer. In either case, the Director, officer, or principal
stockholder would realize income equal to the amount by which the fair market
value, at the time the income is recognized, of the shares acquired pursuant to
the exercise of such option exceeds the price paid for such shares.
All income realized upon the exercise of any non-qualified stock option
will be taxed as ordinary income. The Company may claim an income tax deduction
(if applicable tax withholding rules are satisfied) for the amount taxable to a
holder in the same year as those amounts are taxable to a holder. Shares issued
upon the exercise of a non-qualified stock option are generally eligible for
capital gain or loss treatment upon any subsequent disposition. Generally, a
holder's holding period will commence from the date such shares are issued to
him, and his basis in such shares will equal their fair market value as of that
date, but the holding period of a Director, officer, or principal stockholder
begins on the date he recognizes income with respect to such shares, and his
basis in the shares will be equal to the greater of the then fair market value
of the shares or the amount paid for such shares. If an individual uses shares
of Common Stock that he owns to exercise a non-qualified stock option, (a) the
individual's holding period for the newly-issued shares equal in number to the
surrendered shares (the "exchanged shares") shall include the period during
which the surrendered shares were held, (b) the holder's basis in such exchanged
shares will be the same as his basis in the surrendered shares, and (c) no gain
or loss will be recognized by the holder on the exchange of the surrendered
shares for the exchanged shares.
SECTION 280G OF THE CODE. In addition to the Federal income tax
consequences discussed above, Section 280G of the Code provides that if an
officer, stockholder or highly compensated individual receives a payment which
is in the nature of compensation and which is contingent upon a change in
control of the employer, and such payment equals or exceeds three times his Base
Salary (as hereinafter defined), then any amount received in excess of Base
Salary shall be considered an "excess parachute payment." An individual's Base
Salary is equal to his average annual compensation over the five-year period (or
period of employment, if shorter) ending with the close of the individual's
taxable year immediately preceding the taxable year in which the change in
control occurs. In addition to any income tax which would otherwise be owed on
such payment, the individual will be subject to an excise tax equal to 20% of
such excess payment (and the Company will not be allowed any deduction which
might otherwise have been allowed for such excess payment). If the taxpayer
establishes, by clear and convincing evidence, that the amount received is
reasonable compensation for past or future services, all or a portion of such
amount shall be deemed not to be an excess parachute payment.
Section 280G provides that payments made pursuant to a contract entered
into within one year of the change in control are presumed to be parachute
payments unless the individual establishes, by clear and convincing evidence,
that such contract was not entered into in contemplation of a change in control.
In addition, the General Explanation of the Tax Reform
Act of 1984 prepared by the Staff of the Joint Committee on Taxation indicates
that the grant of an Option within one year of the change in control or the
acceleration of an Option because of a change in control may be considered a
parachute payment, in an amount equal to the value of the Option or the value of
the accelerated portion of the Option, as the case may be. Pursuant to proposed
regulations, the acceleration of a non-qualified stock option because of a
change in control will be considered a parachute payment. Even if the grant of
an Option, if any, within one year of the change in control or the acceleration
of an Option, if any, is not a parachute payment for purposes of Section 280G,
the exercise of an Option granted within one year of the change in control or
the exercise of the accelerated portion of an Option may result in a parachute
payment, in an amount equal to the excess of the fair market value of the shares
received upon exercise of the Option over the exercise price. Payments received
for the cancellation of an Option, if any, because of a change in control may
also result in parachute payments.
SECTION 162(m) OF THE CODE. Section 162(m) of the Code generally
limits the Company's tax deduction with respect to certain compensation paid to
its Chief Executive Officer and the four other most highly compensated executive
officers to $1 million per year, per officer. Income pursuant to options under
the Plan may be treated as compensation that is subject to the $1 million
limitation on the Company's tax deduction under Section 162(m) of the Code.
However, income pursuant to options under the Plan with an exercise price that
is equal to the fair market value of the stock on the date of grant is intended
to qualify as "performance- based" compensation that is not subject to the
deduction limitation under Section 162(m) of the Code.
OPTIONS GRANTED
No options have been granted under the Plan. On May 29, 1998, the
closing price for a share of Common Stock of the Company was $_________.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast on the proposal to
approve the Plan is required for approval of the Plan.
BOARD RECOMMENDATION
The foregoing summarizes all material Federal income tax consequences;
however, reference is made to the applicable provisions of the Code. Each
participant may wish to discuss specific questions with his own tax adviser or
attorney. In addition, there may be tax considerations under state and local
laws applicable to participants.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE PLAN.
6. OTHER MATTERS
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company on or prior
to ___________, 1999 to be eligible for inclusion in the Company's Proxy
Statement and form of Proxy to be used in connection with such meeting.
OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
of Directors intends to present or knows that others will present at the Meeting
is that hereinabove set forth. If any other matter or matters are properly
brought before the meeting, or any adjournment thereof, it is the intention of
the persons named in the accompanying form of Proxy to vote the Proxy on such
matters in accordance with their judgment.
INCORPORATION BY REFERENCE
The information in the sections "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Financial Statement and
Supplementary Data" of the Company's Annual Report to Stockholders for the
fiscal year ended December 31, 1997 (a copy of which accompanies this Proxy
Statement) are incorporated herein by reference.
Leo S. Ullman
Chairman of the Board and
President
Dated: June __, 1998
<PAGE>
CEDAR INCOME FUND, LTD.
1998 Annual Meeting of Stockholders - June 25, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P The undersigned stockholder of CEDAR INCOME FUND, LTD., an
Iowa corporation, hereby appoints Leo S. Ullman and Brenda
R J. Walker and each of them the proxies of the undersigned
with full power of substitution to vote at the Annual
O Meeting of Stockholders of the Company to be held at 10:00
a.m. on June 25, 1998, and at any adjournment or
X adjournments thereof (the "Meeting"), with all the power which the
undersigned would have if personally present,
Y hereby revoking any proxy heretofore given. The undersigned hereby
acknowledges receipt of the proxy statement for the Meeting and
instructs the proxies to vote as directed on the reverse side.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, 4 AND 5.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
DETACH HERE
Please mark /X/ vote as in this example
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES LISTED BELOW, FOR THE REINCORPORATION MERGER, FOR THE TRANSFER OF THE
ASSETS TO A NEWLY-FORMED PARTNERSHIP, FOR THE RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998, FOR THE ADOPTION
OF THE 1998 STOCK OPTION PLAN AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO
ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING.
<PAGE>
FOR / / AGAINST / / ABSTAIN / /
1. To change the state of incorporation by means of a merger of the
Company with and into a wholly-owned Maryland subsidiary.
FOR / / AGAINST / / ABSTAIN / /
2. To transfer substantially all of the assets of the Company to
newly-formed limited partnership.
3. To elect 5 nominees for directors: Nominees: Leo S. Ullman, J.A.M.H.
der Kinderen, Everett B. Miller III, Brenda J. Walker and Jean-Bernard
Wurm / / FOR / / WITHHELD
/ /
For all nominees except
as noted above
FOR / / AGAINST/ / ABSTAIN / /
4. To ratify the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending December 31, 1998.
FOR / / AGAINST/ / ABSTAIN / /
5. To adopt the 1998 Stock Option Plan.
6. With discretionary authority upon such other matters as may properly
come before the Meeting.
MARK HERE MARK HERE
FOR ADDRESS/ / IF YOU PLAN / /
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Please sign exactly as your name appears on this
proxy card. When signing as attorney, executor,
trustee or guardian, please give your full title.
Signature_____________ Date_________ Signature_______________ Date_________
<PAGE>
APPENDIX A - IOWA BUSINESS CORPORATION ACT
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII.--In this division:
1. "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporation action under section 490.1302 and who exercises that right when and
in the manner required by sections 490.1320 through 490.1328.
4. "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT.--1. A shareholder is entitled to
dissent from, and obtain payment of the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
a. Consummation of a plan of merger to which the corporation is a
party if either of the following apply:
(1) Shareholder approval is required for the merger by section
490.1103 or the articles of incorporation and the shareholder is entitled to
vote on the merger.
(2) The corporation is a subsidiary that is merged with its
parent under section 490.1104.
b. Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale.
d. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it does any
or all of the following:
(1) Alters or abolishes a preferential right of the shares.
(2) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the redemption
or repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights.
(5) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired for
cash under section 490.604.
(6) Extends, for the first time after being governed by this
chapter, the period of duration of a corporation organized under chapter 491 or
496A and existing for a period of years on the day preceding the date the
corporation is first governed by this chapter.
e. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
2. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter is not entitled to challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--1. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in that shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
2. A beneficial shareholder may assert dissenters' right as to shares held
on the shareholder's behalf only if the shareholder does both of the following:
a. Submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights.
b. Does so with respect to all shares of which the shareholder is the
beneficial shareholder or over which that beneficial shareholder has power to
direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS.-- 1. If proposed corporate action
creating dissenters' rights under section 490.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this part and be accompanied
by a copy of this part.
2. If corporate action creating dissenters' rights under section 490.1302
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 490.1322.
490.1321 NOTICE OF INTENT TO DEMAND PAYMENT.--1. If proposed corporate
action creating dissenters' rights under section 490.1302 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must do all of the following:
a. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares if
the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of the
proposed action.
2. A shareholder who does not satisfy the requirements of subsection 1, is
not entitled to payment for the shareholder's shares under this part.
490.1322 DISSENTERS' NOTICE.--1. If proposed corporate action creating
dissenters' rights under section 490.1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 490.1321.
2. The dissenters' notice must be sent no later than ten days after the
proposed corporate action is authorized at a shareholders' meeting, or, if the
corporate action is taken without a vote of the shareholders, no later than ten
days after the corporate action is taken, and must do all of the following:
a. State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
c. Supply a form for a demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date.
d. Set a date by which the corporation must receive the payment
demand, which date shall not be fewer than thirty nor more than sixty days after
the date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division.
490.1323 DUTY TO DEMAND PAYMENT.--1. A shareholder sent a dissenter's
notice described in section 490.1322 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenter's notice pursuant to section 490.1322,
subsection 2, paragraph "c", and deposit the shareholder's certificate in
accordance with the terms of the notice.
2. The shareholder who demands payment and deposits the shareholder's
shares under subsection 1 retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
3. A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
division.
490.1324 SHARE RESTRICTIONS.--1. The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
section 490.1326.
2. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
490.1325 PAYMENT.--1. Except as provided in section 490.1327, at the time
the proposed corporate action is taken, or upon receipt of a payment demand,
whichever occurs later, the corporation shall pay each dissenter who complied
with section 490.1323 the amount the corporation estimates to be the fair value
of the dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any.
b. A statement of the corporation's estimate of the fair value of the
shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment under
section 490.1328.
e. A copy of this division.
490.1326 FAILURE TO TAKE ACTION.--1. If the corporation does not take the
proposed action within one hundred eighty days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 490.1322 as if the corporate action was taken
without a vote of the shareholders and repeat the payment demand procedure.
490.1327 AFTER-ACQUIRED SHARES.--1. A corporation may elect to withhold
payment required by section 490.1325 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment under
subsection 1, after taking the proposed corporate action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of the dissenter's
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under section
490.1328.
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--1. A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate, less any payment under section
490.1325, or reject the corporation's offer under section 490.1327 and demand
payment of the fair value of the dissenter's shares and interest due, if any of
the following apply:
a. The dissenter believes that the amount paid under section 490.1325
or offered under section 490.1327 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated.
b. The corporation fails to make payment under section 490.1325 within
sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
2. A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection 1 within thirty days after the corporation made or
offered payment for the dissenter's shares.
PART C
490.1330 COURT ACTION.--1. If a demand for payment under section 490.1328
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
3. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend decision on the question of fair
value. The appraisers have the powers described in the order appointing them, or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled to judgment
for either of the following:
a. The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES.--1. The court in appraisal
proceeding commenced under section 490.1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payments under section 490.1328.
2. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable, for either of
the following:
a. Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
<PAGE>
APPENDIX B - AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
OF CEDAR INCOME FUND, LTD.
(A MARYLAND CORPORATION)
AND
CEDAR INCOME FUND, LTD.
(AN IOWA CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER dated as of June , 1998 (the "Agreement")
is between Cedar Income Fund, Ltd., a Maryland corporation ("Cedar Income
Maryland"), and Cedar Income Fund, Ltd., an Iowa corporation ("Cedar Income
Iowa"). Cedar Income Maryland and Cedar Income Iowa are sometimes referred to
herein as the "Constituent Corporations."
RECITALS
A. Cedar Income Iowa is a corporation duly organized and existing under the
laws of the State of Iowa and has an authorized capital stock of 5,020,000
shares, all of which are designated "Common Stock." As of May , 1998, 2,245,411
shares of Common Stock were issued and outstanding.
B. Cedar Income Maryland is a corporation duly organized and existing under
the laws of the State of Maryland and has an authorized capital stock of
55,000,000 shares, 50,000,000 of which are designated "Common Stock," par value
$0.01 per share, and 5,000,000 of which are designated "Preferred Stock," par
value $0.01 per share. As of the date hereof, 100 shares of Common Stock are
issued and outstanding, all of which are held by Cedar Income Iowa. No shares of
Preferred Stock are issued and outstanding.
C. The Board of Directors of Cedar Income Iowa has determined that, for the
purpose of effecting the reincorporation of Cedar Income Iowa in the State of
Maryland, it is advisable and in the best interests of Cedar Income Iowa and its
stockholders that Cedar Income Iowa merge with and into Cedar Income Maryland
upon the terms and conditions herein provided.
D. The respective Boards of Directors of Cedar Income Maryland and Cedar
Income Iowa have approved this Agreement and have directed that this Agreement
be submitted to a vote of their respective sole stockholder and stockholders and
executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Cedar Income Maryland and Cedar Income Iowa hereby agree, subject
to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.01. MERGER. In accordance with the provisions of this Agreement, the Maryland
General Corporation Law and the Iowa Business Corporation Act, Cedar Income Iowa
shall be merged with and into Cedar Income Maryland (the "Merger"), the separate
existence of Cedar Income Iowa shall cease and Cedar Income Maryland shall
survive the Merger and shall continue to be governed by the laws of the State of
Maryland. Cedar Income Maryland shall be, and is herein sometimes referred to
as, the "Surviving Corporation." The name of the Surviving Corporation shall be
Cedar Income Fund, Ltd.
1.02. FILING AND EFFECTIVENESS. The Merger shall become effective when the
following actions shall have been completed:
(a) This Agreement and Merger shall have been adopted and approved by the
stockholders of each Constituent Corporation in accordance with the requirements
of the Maryland General Corporation Law and the Iowa Business Corporations Act;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart of this
Agreement meeting the requirements of the Maryland General Corporation Law shall
have been filed with the Secretary of State of the State of Maryland; and
(d) An executed Certificate of Merger or an executed counterpart of this
Agreement meeting the requirements of the Iowa Business Corporation Act shall
have been filed with the Secretary of State of the State of Iowa.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger."
1.03. EFFECT OF THE MERGER. On the Effective Date of the Merger, the separate
existence of Cedar Income Iowa shall cease and Cedar Income Maryland, as the
Surviving Corporation, (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) shall assume, accept, adopt, ratify and confirm, as if taken by
the Surviving Corporation, and thereby shall become subject to, all actions
previously taken by its and Cedar Income Iowa's Board of Directors, (iii) shall
succeed, without other transfer, to all of the assets, rights, powers and
property of Cedar Income Iowa in the manner more fully set forth in Section
3-114 of the Maryland General Corporation Law, (iv) shall continue to be subject
to all of the debts, liabilities and obligations of Cedar Income Maryland as
constituted immediately prior to the Effective Date of the Merger, and (v) shall
succeed, without other transfer, to all of the debts, liabilities and
obligations of Cedar Income Iowa in the same manner as if Cedar Income Maryland
had itself incurred them, all as more fully provided under the applicable
provisions of the Maryland General Corporation Law and the Iowa Business
Corporation Act.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.01. ARTICLES OF INCORPORATION. The Articles of Incorporation of Cedar Income
Maryland as in effect immediately prior to the Effective Date of the Merger
shall continue in full force and effect as the Articles of Incorporation of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law.
2.02. BYLAWS. The Bylaws of Cedar Income Maryland as in effect immediately prior
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.03. DIRECTORS AND OFFICERS. The directors and officers of Cedar Income Iowa
immediately prior to the Effective Date of the Merger shall become the directors
and officers of the Surviving Corporation until their successors shall have been
duly elected and qualified or until as otherwise provided by law, by the
Articles of Incorporation of the Surviving Corporation or by the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.01. CEDAR INCOME IOWA COMMON STOCK. On the Effective Date of the Merger, each
share of Cedar Income Iowa Common Stock issued and outstanding immediately prior
thereto shall, by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any other person, automatically
become and convert to one (1) fully paid and non-assessable share of Common
Stock, par value $0.01 per share, of the Surviving Corporation.
3.02. CEDAR INCOME MARYLAND COMMON STOCK. On the Effective Date of the Merger,
each share of Common Stock, par value $0.01 per share, of Cedar Income Maryland
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by Cedar Income Maryland, the holder of such shares or
any other person, be canceled and returned to the status of authorized but
unissued shares.
3.03. EXCHANGE OF CERTIFICATES. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of Cedar Income Iowa
Common Stock may, at such stockholder's option, surrender the same for
cancellation to Boston Equiserve, L.P., as exchange agent (the "Exchange
Agent"), and each such holder shall be entitled to receive in exchange therefor
a certificate or certificates representing the number of shares of the Surviving
Corporation's Common Stock into which the surrendered shares were converted as
herein provided. Unless and until so surrendered, each outstanding certificate
theretofore representing shares of Cedar Income Iowa Common Stock shall be
deemed for all purposes to represent the number of shares of the Surviving
Corporation's Common Stock into which such shares of Cedar Income Iowa Common
Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation of
any shares of stock represented by such outstanding certificate theretofore
representing shares of Cedar Income Iowa Common Stock shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Cedar Income Iowa so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws, or other such additional legends as agreed upon by the holder and the
Surviving Corporation.
If any certificate for shares of Cedar Income Maryland stock is to be issued in
a name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and comply with applicable
securities laws and that the person requesting such transfer pay to Cedar Income
Maryland or the Exchange Agent any transfer or other taxes payable by reason of
issuance of such new certificate in a name other than that of the registered
holder of the certificate surrendered or establish to the satisfaction of Cedar
Income Maryland that such tax has been paid or is not payable.
IV. GENERAL
4.01. COVENANTS OF CEDAR INCOME MARYLAND. Cedar Income Maryland covenants and
agrees that it will, on or before the Effective Date of the Merger take such
other actions as may be required by the Iowa Business Corporation Act.
4.02. FURTHER ASSURANCES. From time to time, as and when required by Cedar
Income Maryland or by its successors or assigns, there shall be executed and
delivered on behalf of Cedar Income Iowa such deeds and other instruments, and
there shall be taken or caused to be taken by Cedar Income Maryland and Cedar
Income Iowa such further and other actions as shall be appropriate or necessary
in order to vest or perfect in or confirm of record or otherwise by Cedar Income
Maryland the title to and possession of all the property, interests, assets,
rights, privileges, immunities, powers, franchises and authority of Cedar Income
Iowa and otherwise to carry out the purposes of this Agreement, and the officers
and directors of Cedar Income Maryland are fully authorized in the name and on
behalf of Cedar Income Iowa or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
4.03. ABANDONMENT. At any time before the Effective Date of the Merger, this
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Cedar Income Iowa or of Cedar
Income Maryland, or of both, notwithstanding the approval of this Agreement by
the stockholders of Cedar Income Iowa or by the sole stockholder of Cedar Income
Maryland, or by both.
4.04. AMENDMENT. The Boards of Directors of the Constituent Corporations may
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretaries of State of the States of
Maryland and Iowa, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholders of either Constituent Corporation shall not:
(a) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such Constituent Corporation; (b)
alter or change any term of the Articles of Incorporation of the Surviving
Corporation to be effected by the Merger; or (c) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of any
Constituent Corporation.
4.05. REGISTERED OFFICE. The registered office of the Surviving Corporation in
the State of Maryland is 300 East Lombard Street, Baltimore, Maryland 21202, and
The Corporation Trust, Incorporated is the registered agent of the Surviving
Corporation at such address.
4.06. AGREEMENT. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 44 South Bayles
Avenue, Port Washington, New York 11050, and copies thereof will be furnished to
any stockholder of either Constituent Corporation, upon request and without
cost.
4.07. GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Maryland and, so far as applicable, the merger provisions of the Iowa
Business Corporation Act.
4.08. COUNTERPARTS. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
<PAGE>
IN WITNESS WHEREOF, this Agreement having first been approved by the resolutions
of the Board of Directors of Cedar Income Fund, Ltd., a Maryland corporation,
and Cedar Income Fund, Ltd., an Iowa corporation, is hereby executed on behalf
of each of such corporations and attested by their respective officers thereunto
duly authorized.
CEDAR INCOME FUND, LTD.
a Maryland corporation
By:
---------------------------------
Name: Leo S. Ullman
Title: Chairman and President
ATTEST:
- ---------------------------------
Name: Stuart Widowski
Title: Secretary
CEDAR INCOME FUND, LTD.
an Iowa corporation
By:
---------------------------------
Name: Leo S. Ullman
Title: Chairman and President
ATTEST:
- ---------------------------------
Name: Stuart Widowski
Title: Secretary
<PAGE>
APPENDIX C - ARTICLES OF INCORPORATION OF THE MARYLAND COMPANY
ARTICLES OF INCORPORATION
OF
CEDAR INCOME FUND, LTD.
----------------------
I, THE UNDERSIGNED, JAMES T. CUNNINGHAM, whose post-office address is
c/o Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038,
being at least eighteen years of age, do hereby form a corporation, under and by
virtue of the General Laws of the State of Maryland authorizing the formation of
corporations.
ARTICLE I
NAME
The name of the Corporation shall be Cedar Income Fund, Ltd. (the
"Corporation").
ARTICLE II
PRINCIPAL OFFICE, REGISTERED OFFICE AND AGENT
The address of the Corporation's principal office in Maryland is c/o
The Corporation Trust, Incorporated, 300 East Lombard Street, Baltimore,
Maryland 21202. The address of the Corporation's principal office and registered
office in the State of Maryland is 300 East Lombard Street, Baltimore, Maryland
21202. The name of its registered agent at that office is The Corporation Trust,
Incorporated, a Maryland corporation.
ARTICLE III
PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Maryland as now or hereafter in force.
ARTICLE IV
CAPITAL STOCK
A. AUTHORIZED SHARES. The total number of shares of all classes of capital
stock that the Corporation shall have authority to issue is 55 million shares,
consisting of 50 million shares of Common Stock with a par value of $.01 per
share (the "Common Stock"), amounting in the aggregate to par value of $500,000,
and 5 million shares of Preferred Stock with a par value of $.01 per share (the
"Preferred Stock"), amounting in the aggregate to par value of $50,000.
B. COMMON STOCK
1. DIVIDEND RIGHTS. Subject to the preferential dividend rights of the
Preferred Stock, if any, as may be determined by the Board of Directors of the
Corporation pursuant to paragraph C of this Article IV, Holders (as defined
below) shall be entitled to receive such dividends as may be declared by the
Board of Directors of the Corporation. Upon the declaration of dividends
hereunder, Holders shall be entitled to share in all such dividends, pro rata,
in accordance with the relative number of shares of Common Stock held by each
such Holder.
2. RIGHTS UPON LIQUIDATION. Subject to the preferential rights of the
Preferred Stock, if any, as may be determined by the Board of Directors of the
Corporation pursuant to paragraph C of this Article IV, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each Holder shall be entitled to
receive, ratably with each other Holder, that portion of the assets of the
Corporation available for distribution to its stockholders as the number of
shares of the Common Stock held by such Holder bears to the total number of
shares of Common Stock then outstanding.
3. VOTING RIGHTS. Each Holder shall be entitled to vote on all matters
(on which a holder of Common Stock shall be entitled to vote), and shall be
entitled to one vote for each share of the Common Stock held by such Holder.
4. RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX BENEFIT.
(a) DEFINITIONS
For the purposes of this Article IV, the following terms shall have the
following meanings:
"Act" shall mean the General Corporation Law of Maryland.
"Beneficial Ownership" shall mean ownership of Common Stock by a
Person who would be treated as an owner of such shares of Common 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" and "Beneficially Owned" shall have the
correlative meanings.
"Charitable Trust" shall mean the trust created pursuant to
subparagraph B(4)(c)(i) of this Article IV.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Constructive Ownership" shall mean ownership of Common Stock by a
Person who would be treated as an owner of such shares of Common Stock
either directly or constructively through the application of Section 318 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.
"Date of the Merger" shall mean the latter of the Merger and the
redemption of shares of Common Stock held by Cedar Bay Company in exchange
for Units.
"Existing Holder" shall mean (i) Cedar Bay Company and (ii) any Person
(other than another Existing Holder) to whom an Existing Holder transfers
Beneficial Ownership of Common Stock causing such transferee to
Beneficially Own Common 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 Common Stock Beneficially Owned by such Person
immediately after the Merger, and after any adjustment pursuant to
subparagraph B(4)(i) of this Article IV, shall mean such percentage of the
outstanding Common 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 Common
Stock Beneficially Owned by such Existing Holder at the time that such
Existing Holder becomes an Existing Holder, and after any adjustment
pursuant to subparagraph B(4)(i) of this Article IV, shall mean such
percentage of the outstanding Common Stock as so adjusted; provided,
however, that the Existing Holding Limits for all Existing Holders when
combined shall not exceed 85% of the Corporation's Common Stock. For
purposes of determining the Existing Holder Limit, the amount of Common
Stock outstanding at the time of the determination shall be deemed to
include the maximum number of shares that Existing Holders may beneficially
own with respect to options and rights to convert Units into Common Stock
pursuant to Section 8.6 of the Partnership Agreement and shall not include
shares that may be Beneficially Owned solely by other persons upon exercise
of options or rights to convert into Common Stock. From the Date of the
Merger and prior to the Restriction Termination Date, the Secretary of the
Corporation shall maintain and, upon request, make available to each
Existing Holder, a schedule which sets forth the then current Existing
Holder Limits for each Existing Holder.
"Holder" shall mean the record holder of shares of Common Stock, or in
the case of shares held by a Purported Record Transferee, the Charitable
Trust.
"IRS" shall mean the United States Internal Revenue Service.
"Market Price" shall mean the last reported sales price reported on
the New York Stock Exchange of Common Stock on the trading day immediately
preceding the relevant date, or if the Common Stock is not then traded on
the New York Stock Exchange, the last reported sales price of the Common
Stock on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which the Common Stock
may be traded, or if the Common Stock is not then traded over any exchange
or quotation system, then the market price of the Common Stock on the
relevant date as determined in good faith by the Board of Directors of the
Corporation.
"Merger" shall mean the merger of Cedar Income Fund, Ltd., an Iowa
corporation, with and into the Corporation, its wholly-owned subsidiary.
"Ownership Limit" shall initially mean 3.5% of the outstanding Common
Stock of the Corporation, and after any adjustment as set forth in
subparagraph B(4)(i) of this Article IV, shall mean such greater
percentage.
"Partner" shall mean any Person owning Units.
"Partnership" shall mean Cedar Income Fund Partnership, L.P., a
Delaware limited partnership.
"Partnership Agreement" shall mean the Agreement of Limited
Partnership of the Partnership, of which the Corporation is the sole
general partner, as such agreement may be amended from time to time.
"Person" shall mean an individual, corporation, partnership, estate,
trust, 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 and also includes a group as that
term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended; but does not include (i) Cedar Bay Company, and
(ii) an underwriter which participates in a public offering of the Common
Stock provided that the ownership of Common Stock by such underwriter would
not result in the Corporation failing to qualify as a REIT.
"Purported Transferee" shall mean, with respect to any purported
Transfer which results in a violation of subparagraph B(4)(b) of this
Article IV, the purported beneficial transferee or owner for whom the
Purported Record Transferee would have acquired or owned shares of Common
Stock, if such Transfer had been valid under such subparagraph.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in a violation of subparagraph B(4)(b) of
this Article IV, the record holder of the Common Stock if such Transfer had
been valid under such subparagraph.
"REIT" shall mean a Real Estate Investment Trust under Section 856 of
the Code.
"Restriction Termination Date" shall mean the first day after the Date
of the Merger on which the Board of Directors of the Corporation determines
that it is no longer in the best interests of the Corporation to attempt
to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Common Stock (including (i) the granting of any option
or entering into any agreement for the sale, transfer or other disposition
of Common Stock or (ii) the sale, transfer, assignment or other disposition
of any securities or rights convertible into or exchangeable for Common
Stock), whether voluntary or involuntary, whether of record or beneficially
or Beneficially or Constructively (including but not limited to transfers
of interests in other entities which result in changes in Beneficial or
Constructive Ownership of Common Stock), and whether by operation of law or
otherwise.
"Trustee" shall mean the Corporation as trustee for the Charitable
Trust, and any successor trustee appointed by the Corporation.
"Units" shall mean the units into which partnership interests of the
Partnership are divided, and as the same may be adjusted, as provided in
the Partnership Agreement.
(b) RESTRICTION ON OWNERSHIP AND TRANSFERS.
(i) Except as provided in subparagraph B(4)(k) of this Article IV,
from the Date of the Merger and prior to the Restriction Termination Date,
no Person (other than an Existing Holder) shall Beneficially Own shares of
Common Stock in excess of the Ownership Limit, and no Existing Holder shall
Beneficially Own shares of Common Stock in excess of the Existing Holder
Limit for such Existing Holder.
(ii) Except as provided in subparagraph B(4)(k) of this Article IV,
from the Date of the Merger and prior to the Restriction Termination Date,
any Transfer that, if effective, would result in any Person (other than an
Existing Holder) Beneficially Owning Common Stock in excess of the
Ownership Limit shall be void AB INITIO as to the Transfer of such shares
of Common Stock which would be otherwise Beneficially Owned by such Person
in excess of the Ownership Limit; and the Purported Transferee shall
acquire no rights in such shares of Common Stock.
(iii) Except as provided in subparagraph B(4)(k) of this Article IV,
from the Date of the Merger and prior to the Restriction Termination Date,
any Transfer that, if effective, would result in any Existing Holder
Beneficially Owning Common Stock in excess of the applicable Existing
Holder Limit shall be void AB INITIO as to the Transfer of such shares of
Common Stock which would be otherwise Beneficially Owned by such Existing
Holder in excess of the applicable Existing Holder Limit; and such Existing
Holder shall acquire no rights in such shares of Common Stock.
(iv) Except as provided in subparagraph B(4)(k) of this Article IV,
from the Date of the Merger and prior to the Restriction Termination Date,
any Transfer that, if effective, would result in the Common 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
such shares of Common Stock which would be otherwise beneficially owned by
the transferee; and the intended transferee shall acquire no rights in such
shares of Common Stock.
(v) Notwithstanding any other provisions contained in this Article IV,
from the Date of the Merger and prior to the Restriction Termination Date,
any Transfer or other event that, if effective, would result in the
Corporation being "closely held" within the meaning of Section 856(h) of
the Code, or would otherwise result in the Corporation failing to qualify
as a REIT (including, but not limited to, a Transfer or other event that
would result in the Corporation owning (directly 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 AB INITIO as to the Transfer of
the shares of Common Stock which would cause the Corporation to be "closely
held" within the meaning of Section 856(h) of the Code or would otherwise
result in the Corporation failing to qualify as a REIT; and the intended
transferee or owner or Constructive or Beneficial Owner shall acquire or
retain no rights in such shares of Common Stock.
(c) EFFECT OF TRANSFER IN VIOLATION OF SUBPARAGRAPH (B)(4)(B).
(i) If, notwithstanding the other provisions contained in this Article
IV, at any time after the Date of the Merger and prior to the Restriction
Termination Date, there is a purported Transfer, change in the capital
structure of the Corporation, or other event such that one or more of the
restrictions on ownership and transfers described in subparagraph B(4)(b)
above has been violated, then the shares of Common Stock being Transferred
(or in the case of an event other than a Transfer, the shares owned or
Constructively Owned or Beneficially Owned) which would cause one or more
of the restrictions on ownership or transfer to be violated (rounded up to
the nearest whole share) (the "Trust Shares"), shall automatically be
transferred to the Corporation, as Trustee of a trust (the "Charitable
Trust") for the exclusive benefit of The American Cancer Society (the
"Designated Charity"), an organization described in Section 170(b)(1)(A)
and 170(c) of the Code. The Purported Transferee shall have no rights in
such Trust Shares.
(ii) The Corporation, as Trustee of the Charitable Trust, may transfer
the shares held in such trust to a Person whose ownership of the shares
will not result in a violation of the ownership restrictions (a "Permitted
Transferee"). If such a transfer is made, the interest of the Designated
Charity will terminate and proceeds of the sale will be payable to the
Purported Transferee and to the Designated Charity. The Purported
Transferee will receive the lesser of (1) the price paid by the Purported
Transferee for the shares or, if the Purported Transferee did not give
value for the shares, the Market Price of the shares on the day of the
event causing the shares to be held in trust, and (2) the price per share
received by the Corporation, as Trustee, from the sale or other disposition
of the shares held in trust. The Designated Charity will receive any
proceeds in excess of the amount payable to the Purported Transferee. The
Purported Transferee will not be entitled to designate a Permitted
Transferee.
(iii) All stock held in the Charitable Trust will be deemed to have
been offered for sale to the Corporation or its designee for a 90-day
period, at the lesser of the price paid for that stock by the Purported
Transferee and the Market Price on the date that the Corporation accepts
the offer. This period will commence on the date of the violative transfer,
if the Purported Transferee gives notice to the Corporation of the
transfer, or the date that the Board of Directors of the Corporation
determines that a violative transfer occurred, if no such notice is
provided.
(iv) Any dividend or distribution paid prior to the discovery by the
Corporation that shares of Common Stock have been transferred in violation
of subparagraph B(4)(b) of this Article IV, shall be repaid to the
Corporation upon demand and shall be held in trust for the Designated
Charity. Any dividend or distribution declared but unpaid shall be
rescinded as void AB INITIO with respect to such shares of stock.
(v) Subject to the preferential rights of the Preferred Stock, if any,
as may be determined by the Board of Directors of the Corporation pursuant
to paragraph C of this Article IV, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution
of the assets of, the Corporation, the Designated Charity shall be entitled
to receive, ratably with each other holder of Common Stock, that portion of
the assets of the Corporation available for distribution to its
stockholders as the number of Trust Shares bears to the total number of
shares of Common Stock then outstanding (including the Trust Shares). The
Corporation, as Trustee, or if the Corporation shall have been dissolved,
any trustee appointed by the Corporation prior to its dissolution, shall
distribute to the Designated Charity, when determined (or if not
determined, or only partially determined, ratably to the other holders of
Common Stock who have been determined and the Designated Charity), any such
assets received in respect of the Trust Shares in any liquidation,
dissolution or winding up of, or any distribution of the assets of, the
Corporation.
(vi) The Purported Transferee will not be entitled to vote any Common
Stock it attempts to acquire, and any stockholder vote will be rescinded if
a Purported Transferee votes and the stockholder vote would have been
decided differently if such Purported Transferee's vote was not counted.
(d) REMEDIES FOR BREACH. If the Board of Directors or its designees
shall at any time determine in good faith that a Transfer or other event has
taken place in violation of subparagraph B(4)(b) of this Article IV or that a
Person intends to acquire or has attempted to acquire beneficial ownership
(determined without reference to any rules of attribution), Beneficial Ownership
or Constructive Ownership of any shares of the Corporation in violation of
subparagraph B(4)(b) of this Article IV, the Corporation shall inform the
Purported Transferee of its obligations pursuant to this Article IV, including
such Purported Transferee's obligations to pay over to the Charitable Trust any
and all dividends received with respect to the Trust Shares. In addition, the
Board of Directors or its designees shall take such action as it deems advisable
to refuse to give effect 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 and to recover any dividend
erroneously paid and declaring any votes erroneously cast to be retroactively
invalid; provided, however, that any Transfers (or, in the case of events other
than a Transfer, ownership or Constructive Ownership or Beneficial Ownership) in
violation of subparagraph B(4)(b) of this Article IV shall automatically result
in a transfer to the Charitable Trust as described in subparagraph B(4)(c),
irrespective of any action (or non-action) by the Board of Directors.
(e) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or attempts
to acquire shares in violation of subparagraph B(4)(b) of this Article IV, or
any Person who is a Purported Transferee, shall immediately give 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.
(f) OWNERS REQUIRED TO PROVIDE INFORMATION. From the Date of the
Merger and prior to the Restriction Termination Date each Person who is a
beneficial owner or Beneficial Owner or Constructive Owner of Common Stock and
each Person (including the stockholder of record) who is holding Common Stock
for a Beneficial Owner or Constructive Owner shall provide to the Corporation
such information that the Corporation may request, in good faith, in order to
determine the Corporation's status as a REIT.
(g) REMEDIES NOT LIMITED. Nothing contained in this Article IV shall
limit the authority of the Board of Directors to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT.
(h) AMBIGUITY. In the case of an ambiguity in the application of any
of the provisions of subparagraph B(4) of this Article IV, including any
definition contained in subparagraph B(4)(a), the Board of Directors shall have
the power to determine the application of the provisions of this subparagraph
B(4) with respect to any situation based on the facts known to it.
(i) MODIFICATION OF OWNERSHIP LIMIT OR EXISTING HOLDER LIMIT. Subject
to the limitations provided in subparagraph B(4)(j), the Board of Directors may
from time to time increase the Ownership Limit or the Existing Holder Limit and
shall file Articles Supplementary with the State Department of Assessment and
Taxation of Maryland to evidence such increase.
(j) LIMITATIONS ON MODIFICATIONS.
(i) From the Date of the Merger and prior to the Restriction
Termination Date, neither the Ownership Limit nor any Existing Holder
Limit may be increased (nor may any additional Existing Holder Limit
be created) if, after giving effect to such increase (or creation),
five Persons who are Beneficial Owners of Common Stock (including all
of the then Existing Holders) could (taking into account the Ownership
Limit and the Existing Holder Limit) Beneficially Own, in the
aggregate, more than 49% of the outstanding Common Stock.
(ii) Prior to the modification of any Existing Holder Limit or
Ownership Limit pursuant to subparagraph B(4)(i) of this Article IV,
the Board of Directors of the Corporation may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the
Corporation's status as a REIT.
(iii) No Existing Holder Limit shall be reduced to a percentage
which is less than the Ownership Limit.
(iv) The Ownership Limit may not be increased to a percentage
which is greater than 9.9%.
(k) EXCEPTIONS.
(i) The Board of Directors, in its sole discretion, may exempt a
Person from the Ownership Limit or the Existing Holder Limit, as the
case may be, if such Person is not an individual for purposes of
Section 542(a)(2) of the Code and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably
necessary to ascertain that no individual's Beneficial Ownership of
such shares of Common Stock will violate the Ownership Limit or the
applicable Existing Holder Limit, as the case may be, and agrees that
any violation of such representations or undertaking (or other action
which is contrary to the restrictions contained in this subparagraph
B(4) of this Article IV) or attempted violation will result in such
shares of Common Stock automatically being transferred to the
Charitable Trust.
(ii) Prior to granting any exception pursuant to subparagraph
B(4)(k)(i) of this Article IV, the Board of Directors may require a
ruling from the IRS, or an opinion of counsel, in either case in form
and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to
determine or ensure the Corporation's status as a REIT.
5. LEGEND. Each certificate for shares of Common Stock shall bear
legends substantially to the effect of the following:
"The Corporation is authorized to issue two classes of capital stock
which are designated as Common Stock and Preferred Stock. The Board of Directors
is authorized to determine the preferences, limitations and relative rights of
the Preferred Stock before the issuance of any Preferred Stock. The Corporation
will furnish, without charge, to any stockholder making a written request
therefor, a copy of the Corporation's charter and a written statement of the
designations, relative rights, preferences and limitations applicable to each
such class of stock. Requests for the Corporation's charter and such written
statement may be directed to Cedar Income Fund, Ltd., 44 South Bayles Avenue,
Port Washington, New York 11050, Attention: Secretary.
The shares of Common Stock represented by this certificate are subject
to restrictions on ownership and Transfer for the purpose of the Corporation's
maintenance of its status as a Real Estate Investment Trust under the Code. No
Person may Beneficially Own shares of Common Stock in excess of 3.5% (or such
greater percentage as may be determined by the Board of Directors of the
Corporation) of the outstanding Common Stock of the Corporation (unless such
Person is an Existing Holder) with certain exceptions set forth in the
Corporation's charter. Any Person who attempts to Beneficially Own shares of
Common Stock in excess of the above limitations must immediately notify the
Corporation. All capitalized terms in this legend have the meanings defined in
the Corporation's charter. Transfers in violation of the restrictions described
above may be void AB INITIO.
In addition, upon the occurrence of certain events, if the
restrictions on ownership are violated, the shares of Common Stock represented
hereby may be automatically exchanged for Trust Shares which will be held in
trust by the Corporation. The Corporation has an option to acquire Trust Shares
under certain circumstances. The Corporation will furnish to the holder hereof
upon request and without charge a complete written statement of the terms and
conditions of the Trust Shares. Requests for such statement may be directed to
Cedar Income Fund, Ltd., 44 South Bayles Avenue, Port Washington, New York
11050, Attention: Secretary."
6. SEVERABILITY. If any provision of this Article IV or any
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provisions shall
be affected only to the extent necessary to comply with the determination of
such court.
C. PREFERRED STOCK. The Board of Directors of the Corporation, by
resolution, is hereby expressly vested with authority to provide for the
issuance of the shares of Preferred Stock in one or more classes or one or more
series, with such voting powers, full or limited, or no voting powers, and with
such designations, preferences and relative, participating, optional and other
special rights, and qualifications, limitations or restrictions thereof, if any,
as shall be stated and expressed in the resolution or resolutions providing for
such issue adopted by the Board of Directors. Except as otherwise provided by
law, the holders of the Preferred Stock of the Corporation shall only have such
voting rights as are provided for or expressed in the resolutions of the Board
of Directors relating to such Preferred Stock adopted pursuant to the authority
contained in the Articles of Incorporation. Before issuance of any such shares
of Preferred Stock, the Corporation shall file Articles Supplementary with the
State Department of Assessment and Taxation of Maryland in accordance with the
provision of Section 2-208 of the Act.
D. RESERVATION OF SHARES. Pursuant to the obligations of the
Corporation under the Partnership Agreement to issue shares of Common Stock in
exchange for Units, the Board of Directors is hereby required to reserve a
sufficient number of authorized but unissued shares of Common Stock to permit
the Corporation to issue shares of Common Stock in exchange for Units that may
be exchanged for shares of Common Stock pursuant to the Partnership Agreement.
E. PREEMPTIVE RIGHTS. No holder of shares of capital stock of the
Corporation shall, as such holder, have any preemptive or other right to
purchase or subscribe for any shares of Common Stock or any class of capital
stock of the Corporation which the Corporation may issue or sell.
F. CONTROL SHARES. Pursuant to Section 3-702(b) of the Act, the terms
of Subtitle 7 of Title 3 of the Act shall be inapplicable to any acquisition of
a Control Share (as defined in the Act) that is not prohibited by the terms of
Article IV.
G. BUSINESS COMBINATIONS. Pursuant to Section 3-603(e)(1)(iii) of the
Act, the terms of Section 3-602 of such law shall be inapplicable to the
Corporation.
ARTICLE V
BOARD OF DIRECTORS
A. MANAGEMENT. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
B. NUMBER. The number of directors which will constitute the entire
Board of Directors shall be fixed by, or in the manner provided in, the By-Laws
but shall in no event be less than three. The names of the directors who shall
act until the first annual meeting or until their successors are duly chosen and
qualified are Leo S. Ullman, J.A.M.H. der Kinderen and Everett B. Miller III.
C. CLASSIFICATION. The directors shall be classified, with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as possible, as shall be provided in the By-Laws of the
Corporation, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1999, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 2000, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 2001, with each class to
hold office until its successors are elected and qualified. At each annual
meeting of the stockholders of the Corporation, the date of which shall be fixed
by or pursuant to the By-Laws of the Corporation, the successors of the class of
directors whose terms expire at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election. No election of directors need be by
written ballot. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
D. VACANCIES. Newly created directorships resulting from any increase
in the number of directors may be filled by the Board of Directors, or as
otherwise provided in the By-Laws, and any vacancies on the Board of Directors
resulting from death, resignation, removal or other cause shall only be filled
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director, or as otherwise provided in the By-Laws. Any director elected in
accordance with the preceding sentence shall hold office until the next annual
meeting of the Corporation, at which time a successor shall be elected to fill
the remaining term of the position filled by such director.
E. REMOVAL. Any director may be removed from office only for cause and
only by the affirmative vote of the holders of a majority of the combined voting
power of the then outstanding shares entitled to vote in the election of
directors. For purposes of this subparagraph E of Article V "cause" shall mean
the willful and continuous failure of a director to substantially perform such
director's duties to the Corporation (other than any such failure resulting from
temporary incapacity due to physical or mental illness) or the willful engaging
by a director in gross misconduct materially and demonstrably injurious to the
Corporation.
F. BY-LAWS. The power to adopt, alter and/or repeal the By-Laws of the
Corporation is vested exclusively in the Board of Directors.
G. POWERS. The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit the powers
conferred upon the Board of Directors under the General Corporation Law of
Maryland as now or hereafter in force.
ARTICLE VI
LIABILITY
The liability of the directors and officers of the Corporation to the
Corporation and its stockholders for money damages is hereby limited to the
fullest extent permitted by Section 5-349 of the Courts and Judicial Proceedings
Code of Maryland (or its successor) as such provisions may be amended from time
to time.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify (A) its directors and officers,
whether serving the Corporation or at its request any other entity, to the full
extent required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law and (B) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Corporation's
By-Laws and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such By-Laws, resolutions or contracts
implementing such provisions or such further indemnification arrangements as may
be permitted by law. No amendment of the charter of the Corporation shall limit
or eliminate the right to indemnification provided hereunder with respect to
acts or omissions occurring prior to such amendment or repeal.
ARTICLE VIII
EXISTENCE
The Corporation is to have perpetual existence.
IN WITNESS WHEREOF, the undersigned incorporator of Cedar Income Fund,
Ltd. who executed the foregoing Articles of Incorporation hereby acknowledges
the same to be his act and further acknowledges that, to the best of his
knowledge the matters and facts set forth therein are true in all material
respects under the penalties of perjury.
Dated the ___ day of ______, 1998.
-----------------------------------
JAMES T. CUNNINGHAM
<PAGE>
APPENDIX D - BYLAWS OF THE MARYLAND COMPANY
CEDAR INCOME FUND, LTD.
BY-LAWS
adopted as of ________, 1998
ARTICLE 1
OFFICES
Cedar Income Fund, Ltd. (the "Corporation") shall maintain a registered
office in the State of Maryland as required by law. The Corporation may also
have offices at other places, within or without the State of Maryland as the
business of the Corporation may require.
ARTICLE 2
STOCKHOLDERS
Section 2.01. PLACE OF MEETINGS. Meetings of stockholders possessing voting
shares shall be held at such place in the United States, within or without the
State of Maryland, as the Board of Directors designates.
Section 2.02. ANNUAL MEETING. The annual meeting of the stockholders
possessing voting shares shall be held on such date and at such time as the
Board of Directors designates. At each annual meeting, such stockholders shall
elect the members of the Board of Directors whose terms have expired and
transact such other business as may be properly brought before the meeting.
Section 2.03. SPECIAL MEETINGS. Special meetings of stockholders may be
called by the Chairman of the Board and shall be called by the Chairman of the
Board or the Secretary at the request in writing of (x) a majority of the
Directors or (y) the holders of 25 percent or more of the issued and outstanding
shares of capital stock of the Corporation entitled to be voted at the meeting.
Such a request shall state the purpose or purposes of the proposed meeting.
Section 2.04. NOTICE OF STOCKHOLDER MEETINGS.
(a) REQUIRED NOTICE. Written notice stating the place, day and hour of any
annual or special stockholder meeting shall be delivered not less than 10 or
more than 60 days before the date of the meeting, either personally or by mail,
by or at the direction of the Chairman of the Board, the Board of Directors, or
other persons calling the meeting, to each stockholder of record entitled to
vote at such meeting and to any other stockholder entitled by the Maryland
General Corporation Law (the "Act") or the charter to receive notice of the
meeting. Notice shall be deemed to be effective at the earliest of: (1) when
deposited in the United States mail, addressed to the stockholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid; (2) on the date shown on the return receipt if sent by
registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee; or (3) when received.
(b) ADJOURNED MEETING. If any stockholder meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
and place, if the new date, time, and place is announced at the meeting before
adjournment. But if a new record date for the adjourned meeting is or must be
fixed then notice must be given pursuant to the requirements of paragraph (a) of
this Section 2.04, to those persons who are stockholders as of the new record
date.
(c) WAIVER OF NOTICE. A stockholder may waive notice of the meeting (or any
notice required by the Act, charter, or By-Laws), by a writing signed by the
stockholder entitled to the notice, which is delivered to the Corporation
(either before or after the date and time stated in the notice) for inclusion in
the minutes or filing with the corporate records.
A stockholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the meeting
unless the stockholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or
(2) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the
meeting notice, unless the stockholder objects to considering the
matter when it is presented.
(d) CONTENTS OF NOTICE. The notice of each special stockholder meeting
shall include a description of the purpose or purposes for which the meeting is
called. Except as provided in this Section 2.04(d), or as provided in the
Corporation's charter, or otherwise in the Act, the notice of an annual
stockholder meeting need not include a description of the purpose or purposes
for which the meeting is called.
Section 2.05. QUORUM. The holders, present in person or represented by
proxy, of shares of capital stock entitled to cast a majority of all votes
entitled to be cast at the meeting shall constitute a quorum for the transaction
of business at the meeting. If less than a quorum is present, the holders of a
majority of such shares whose holders are so present or represented may from
time to time adjourn the meeting to another place, date, or hour until a quorum
is present, whereupon the meeting may be held, as adjourned, without further
notice except as required by law or by Section 2.04.
Section 2.06. VOTING. When a quorum is present at a meeting of the
stockholders, the vote of the holders of a majority of the shares of capital
stock entitled to be voted whose holders are present in person or represented by
proxy shall decide any question brought before the meeting, unless the question
is one upon which, by express provision of law or of the Articles of
Incorporation or of these By-Laws, a different vote is required. Unless
otherwise provided in the charter, each holder of shares of Common Stock shall
at a meeting of the stockholders be entitled to one (1) vote in person or by
proxy for each share of Common Stock held by such stockholder. At a meeting of
the stockholders, all questions relating to the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
by the presiding officer of the meeting.
Section 2.07. PRESIDING OFFICER OF MEETINGS. The Chairman of the Board, or
in his absence, the President, or in his absence a Vice President, or in his
absence a chairman for the meeting chosen by the Board of Directors, shall
preside at all meetings of the stockholders. In the absence of all of the
foregoing, the presiding officer shall be elected by vote of the holders of a
majority of the shares of capital stock entitled to be voted whose holders are
present in person or represented by proxy at the meeting.
Section 2.08. SECRETARY OF MEETINGS. The Secretary of the Corporation shall
act as secretary of all meetings of the stockholders. In the absence of the
Secretary, the presiding officer of the meeting shall appoint any other person
to act as secretary of the meeting.
Section 2.09. ACTION IN LIEU OF MEETING. Any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if consents in
writing, setting forth the action so taken, are signed by all of the holders of
shares of capital stock entitled to vote thereon.
Section 2.10. PROXIES. At all meetings of stockholders, a stockholder may
vote in person, or vote by proxy which is executed in writing by the stockholder
or which is executed by his duly authorized attorney-in-fact. Such proxy shall
be filed with the Secretary of the Corporation or other persons authorized to
tabulate votes before or at the time of the meeting. No proxy shall be valid
after 11 months from the date of its execution unless otherwise provided in the
proxy.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.01. POWERS. The business of the Corporation shall be managed
under the direction of the Board of Directors, which shall exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
law or by the Articles of Incorporation or by these By-Laws directed or required
to be exercised or done by the stockholders.
Section 3.02. NUMBER; ELECTION; QUALIFICATION; TERM.
(a) The Board of Directors shall initially consist of at least three
members or as determined from time to time by amendment of this subsection. The
term of office of a Director shall not be affected by any decrease in the
authorized number of Directors.
(b) Until the first annual meeting of the stockholders, the Board of
Directors shall initially consist of the persons named as the Directors of the
Corporation by the incorporator in the charter. At the first annual meeting and
at each subsequent annual meeting of the stockholders, the stockholders shall
elect the successors of the class of Directors whose term have expired at that
meeting to serve for a term expiring in accordance with Section 3.02(d). The
number of Directors shall in no event be less than three.
(c) Unless by the terms of the action pursuant to which he was elected any
special condition or conditions must be fulfilled in order for him to be
qualified, a person elected as a Director shall be deemed to be qualified (1)
upon his receipt of notice of election and his indication of acceptance thereof
or (2) upon the expiration of ten days after notice of election is given to him
without his having given notice of inability or unwillingness to serve.
(d) The initial Directors shall serve until the first meeting of the
stockholders of the Corporation. Thereafter, the Directors shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible, with one class expiring at each
of the three subsequent annual meetings of stockholders. Each class will hold
office until its successors are elected and qualified. At each annual meeting of
the stockholders of the Corporation, the successors of the class of directors
whose terms expire at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. Directors need not be stockholders of the
Corporation.
Section 3.03. VACANCIES. Whenever between annual meetings of the
stockholders any vacancy exists in the Board of Directors by reason of death,
resignation, removal, or increase in the authorized number of Directors, or
otherwise, it may be filled by the Board of Directors (if permitted under the
Act) or by the stockholders at a special meeting of the stockholders called for
that purpose.
Section 3.04. PLACE OF MEETINGS. Any meeting of the Board of Directors may
be held either within or without the State of Maryland.
Section 3.05. ANNUAL MEETING. There shall be an annual meeting of the Board
of Directors for the election of officers and the transaction of such other
business as may be brought before the meeting. The annual meeting of the Board
shall be held immediately following the annual meeting of the stockholders or
any adjournment thereof, at the place where the annual meeting of the
stockholders was held or at such other place as a majority of the Directors who
are then present determine. If the annual meeting is not so held, it shall be
called and held in the manner provided herein for special meetings of the Board
or conducted pursuant to Section 3.11.
Section 3.06. REGULAR MEETINGS. Regular meetings of the Board of Directors,
other than the annual meeting, may be held without notice at such times and
places as the Board may have fixed by resolution.
Section 3.07. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President and shall be called
on the written request of a majority of the Directors. Not less than one day's
notice of a special meeting shall be given by the Secretary to each Director.
Section 3.08. ORGANIZATION. Every meeting of the Board of Directors shall
be presided over by the Chairman of the Board, or in his absence by the
President. In the absence of the Chairman of the Board and the President, a
presiding officer shall be chosen by a majority of the Directors present. The
Secretary of the Corporation shall act as secretary of the meeting. In his
absence the presiding officer shall appoint another person to act as secretary
of the meeting.
Section 3.09. QUORUM. The presence of a majority of the number of Directors
then serving shall be necessary to constitute a quorum for the transaction of
business at a meeting of the Board of Directors. If less than a quorum is
present, a majority of the Directors present may adjourn the meeting to another
time or place until a quorum is present, whereupon the meeting may be held, as
adjourned, without further notice.
Section 3.10. VOTE. The act of a majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by law, by the Articles of
Incorporation, or by these By-Laws. Where a vote of the Directors present
results in a tie, the action proposed shall not constitute an act of the Board
of Directors.
Section 3.11. ACTION IN LIEU OF A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all of the members of the Board or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Board or committee.
Section 3.12. CONFERENCE CALL MEETING. Members of the Board of Directors or
of any committee thereof may participate in a meeting of the Board or committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 3.13. REMOVAL OF DIRECTOR. Any Director shall be subject to removal
with or without cause at any time by the holders of a majority of the shares of
capital stock then entitled to be voted at an election of Directors.
ARTICLE 4
COMMITTEES
Section 4.01. COMMITTEES OF THE BOARD. The Board of Directors may, by
resolution passed by a majority of the Directors in office, establish one or
more committees, each committee to consist of two or more of the Directors. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member or members at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the Board, shall have and may exercise all the power and authority of the Board
for direction and supervision of the management of the business and affairs of
the Corporation, and may authorize the seal of the Corporation to be affixed to
all papers that may require it. No such committee, however, shall have power or
authority in reference to (i) amending the charter or the By-Laws, (ii) adopting
an agreement of merger or consolidation, (iii) recommending to the stockholders
the sale, lease, or exchange of all or substantially all of the Corporation's
property and assets, (iv) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, (v) electing a Director, or
electing or removing an officer; and (vi) unless the resolution expressly so
provided, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
Section 4.02. PROCEDURES; MINUTES OF MEETINGS. Each committee shall
determine its rules with respect to notice, quorum, voting, and the taking of
action, provided that such rules shall be consistent with law, the rules in
these By-Laws applicable to the Board of Directors, and the resolution of the
Board establishing the committee. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
ARTICLE 5
OFFICERS
Section 5.01. GENERAL. The Board of Directors shall elect the officers of
the Corporation, which shall include a President, Treasurer and a Secretary and
such other officers, including, without limitation, Chairman of the Board, Vice
Chairman, Chief Operating Officer, Vice-Presidents, Comptroller and General
Counsel as in the Board's opinion are desirable for the conduct of the business
of the Corporation. Any two or more offices may be held by the same person
except that the President shall not hold the office of Vice-President or
Secretary.
Section 5.02. POWERS AND DUTIES. Each of the officers of the Corporation
shall, unless otherwise ordered by the Board of Directors, have such powers and
duties as generally pertain to his respective office as well as such powers and
duties as from time to time may be conferred upon him by the Board and these
By-Laws.
Section 5.03. TERM OF OFFICE; REMOVAL AND VACANCY. Each officer shall hold
his office until his successor is elected and qualified or until his earlier
resignation or removal and shall be subject to removal with or without cause at
any time by the affirmative vote of a majority of the Directors in office. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.
Section 5.04. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the
Chief Executive Officer and, if present, shall preside at meetings of the Board
and of the stockholders, shall be the principal executive officer of the
Corporation and, subject to the control of the Board of Directors, shall
supervise and control in general all of the business and affairs of the
Corporation. He may sign, with the Secretary or any other proper officer of the
Corporation authorized by the Board of Directors, certificates for shares of the
Corporation and deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of chairman of the board and
chief executive officer and such other duties as may be prescribed by the Board
of Directors from time to time.
Section 5.05. PRESIDENT. The President shall be the chief operating officer
of the Corporation and, subject to the control of the Board of Directors, shall
supervise and control in general those operations of the Corporation designated
by the Chairman of the Board. He may sign, with the Secretary or any other
proper officer of the Corporation authorized by the Board of Directors,
certificates for shares of the Corporation and deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these By-Laws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of president and chief operating officer and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 5.06. TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the Corporation; (b)
receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever, and deposit all such moneys in the name of the Corporation in
such banks, trust companies, or other depositaries as shall be selected by the
Board of Directors; and (c) in general, perform all of the duties incident to
the office of treasurer and such other duties as from time to time may be
assigned to him by the Chairman of the Board, the President or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board of Directors shall determine.
Section 5.07. SECRETARY. The Secretary shall: (a) keep the minutes of the
proceedings of the stockholders and 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 By-Laws or as required by law; (c) be
custodian of the corporate records and of any seal of the Corporation and if
there is a seal of the Corporation, see that it is affixed to all documents the
execution of which on behalf of the Corporation under its seal is duly
authorized; (d) when requested or required, authenticate any records of the
Corporation; (e) keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder; (f) sign with the
Chairman of the Board, the President or a Vice-President, certificates for
shares of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (g) have general charge of the stock
transfer books of the Corporation; and (h) in general perform all duties
incident to the offices of secretary and such other duties as from time to time
may be assigned to him by the Chairman of the Board, the President or by the
Board of Directors.
ARTICLE 6
CAPITAL STOCK
Section 6.01. CERTIFICATES OF STOCK. Certificates for shares of capital
stock of the Corporation shall be in such form as the Board of Directors may
from time to time prescribe and shall be signed by the Chairman of the Board,
the President or a Vice-President and by the Secretary or the Treasurer. Any or
each of the signatures on a stock certificate, including that of any transfer
agent or registrar, may be a facsimile. If any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent, or registrar before
the certificate is issued, the certificate may be issued by the Corporation with
the same effect as if the officer, transfer agent, or registrar were the
officer, transfer agent, or registrar at the date of issuance.
Section 6.02. TRANSFER OF STOCK. Shares of stock of the Corporation shall
be transferable on the books of the Corporation only by the holder of record
thereof, in person or by duly authorized attorney, upon surrender and
cancellation of a certificate or certificates for a like number of shares, with
an assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the Corporation or
its agents may require.
Section 6.03. OWNERSHIP OF STOCK. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it has express or other notice thereof, except as otherwise expressly provided
by law or in the charter.
Section 6.04. LOST, STOLEN, OR DESTROYED CERTIFICATES. In case any
certificate for stock of the Corporation is lost, stolen, or destroyed, the
Corporation may require such proof of the fact and such indemnity to be given to
it, to its transfer agent, or to its registrar, if any, as deemed necessary or
advisable by it.
ARTICLE 7
MISCELLANEOUS
Section 7.01. CORPORATE SEAL. The seal of the Corporation shall be circular
in form and shall contain the name of the Corporation, the year of
incorporation, and the word "Maryland."
Section 7.02. FISCAL YEAR. The Corporation's fiscal year shall end on
December 31. The Board of Directors shall have power to change the fiscal year
of the Corporation from time to time.
ARTICLE 8
INDEMNIFICATION; TRANSACTIONS
WITH INTERESTED PERSONS
Section 8.01. INDEMNIFICATION. The Corporation shall, to the fullest extent
required or permitted by applicable law, indemnify any person who is or was, or
is the personal representative of a deceased person who was, a Director,
officer, employee, or agent of the Corporation against any judgments, penalties,
fines, settlements and reasonable expenses and any other liabilities to the
fullest extent permitted by Section 2-418 of the Act as in effect from time to
time; provided that, unless applicable law otherwise requires, indemnification
shall be contingent upon a determination, by the Board of Directors by a
majority vote of a quorum consisting of Directors not, at the time, parties to
the proceeding, or, if such a quorum cannot be obtained, then by a majority vote
of a committee of the Board of Directors consisting solely of two or more
Directors not, at the time, parties to such proceeding and who were duly
designated to act in the matter by a majority vote of the full board in which
the designated Directors who are parties may participate or by special legal
counsel selected by and if directed by the Board of Directors as set forth
above, that indemnification is proper in the circumstances because such
Director, officer, employee, or agent has met the applicable standard of conduct
prescribed by Section 2-418(b) of the Act.
Section 8.02. TRANSACTIONS WITH INTERESTED PERSONS. No contract or
transaction between the Corporation and any of its Directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which any of its Directors or officers is a director or
officer or has a financial interest, shall be void or voidable solely for that
reason, or solely because the Director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof at which the
contract or transaction is authorized or solely because his vote is counted for
such purpose, if
(a) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith approves or
ratifies the contract or transaction by the affirmative vote of a majority of
the disinterested Directors, even though the disinterested Directors are less
than a quorum;
(b) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by a majority of the votes cast by the stockholders other than the
votes of shares owned of record or beneficially by the interested Director,
officer, corporation, firm or other entity; or
(c) the contract or transaction is fair and reasonable as to the
Corporation as of the time it is authorized, approved, or ratified by the Board
of Directors, a committee thereof, or the stockholders.
ARTICLE 9
AMENDMENT
The power to amend or repeal these By-Laws and to adopt new By-Laws is
vested exclusively in the Board of Directors.
The undersigned, being the Secretary of Cedar Income Fund, Ltd., hereby
certifies the foregoing to be the By-Laws of that Corporation as adopted by the
Board of Directors on the _____ day of ______, 1998.
Date: __________, 1998
------------------------------
[Name]
Secretary
<PAGE>
1998 STOCK OPTION PLAN
OF
CEDAR INCOME FUND, LTD.
1. PURPOSE. The purpose of this Stock Option Plan is to advance the
interests of the Corporation by encouraging and enabling the acquisition of a
larger personal proprietary interest in the Corporation by directors, key
employees, consultants and independent contractors who are employed by, or
perform services for, the Corporation and its Subsidiaries and upon whose
judgment and keen interest the Corporation is largely dependent for the
successful conduct of its operations. It is anticipated that the acquisition of
such proprietary interest in the Corporation will stimulate the efforts of such
directors, key employees, consultants and independent contractors on behalf of
the Corporation and its Subsidiaries and strengthen their desire to remain with
the Corporation and its Subsidiaries. It is also expected that the opportunity
to acquire such a proprietary interest will enable the Corporation and its
Subsidiaries to attract desirable personnel, directors and other service
providers.
2. DEFINITIONS. When used in this Plan, unless the context otherwise
requires:
a) "Board of Directors" shall mean the Board of Directors of the
Corporation, as constituted at any time.
b) "Chairman of the Board" shall mean the person who at the time shall
be Chairman of the Board of Directors.
c) "Committee" shall mean the Committee hereinafter described in
Section 3.
d) "Corporation" shall mean Cedar Income Fund, Ltd.
e) "Fair Market Value" on a specified date shall mean the closing
price at which one Share is traded on the stock exchange, if any, on which
Shares are primarily traded, or the last sale price or average of the bid
and asked closing prices at which one Share is traded on the
over-the-counter market, as reported on the National Association of
Security Dealers Automated Quotation System, but if no Shares were traded
on such date, then on the last previous date on which a Share was so
traded, or, if none of the above are applicable the value of a Share as
established by the Committee for such date using any reasonable method of
valuation.
f) "Options" shall mean the stock options granted pursuant to this
Plan.
g) "Plan" shall mean this 1998 Stock Option Plan of Cedar Income Fund,
Ltd., as adopted by the Board of Directors on May 12, 1998, as such Plan
from time to time may be amended.
h) "Share" shall mean a share of common stock of the Corporation.
i) "Subsidiary" shall mean any corporation or partnership 50% or more
of whose stock having general voting power or, in the case of a
partnership, partnership interests, is owned by the Corporation, or by
another Subsidiary as herein defined, of the Corporation.
3. COMMITTEE. The Plan shall be administered by a Committee which shall
consist of two or more directors of the Corporation, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and an "outside director"
within the meaning of Section 162 (m) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). The members of the Committee shall be
selected by the Board of Directors. Any member of the Committee may resign by
giving written notice thereof to the Board of Directors, and any member of the
Committee may be removed at any time, with or without cause, by the Board of
Directors. If, for any reason, a member of the Committee shall cease to serve,
the vacancy shall be filled by the Board of Directors. The Committee shall
establish such rules and procedures as are necessary or advisable to administer
the Plan.
4. PARTICIPANTS. The class of persons who are potential recipients of
Options granted under this Plan consist of the (i) directors of the Corporation
or a Subsidiary, (ii) key employees of the Corporation or a Subsidiary, as
determined by the Committee and (iii) consultants and independent contractors
used by the Corporation or a Subsidiary, as determined by the Committee in its
sole discretion. The directors, key employees, consultants and independent
contractors to whom Options are granted under this Plan, and the number of
Shares subject to each such Option, shall be determined by the Committee in its
sole discretion, subject, however, to the terms and conditions of this Plan.
Persons to whom Options may be granted include key employees who are also
directors of the Corporation or a Subsidiary, directors who are not also key
employees and consultants and independent contractors who are not also key
employees.
5. SHARES. The Committee may, but shall not be required to, grant, in
accordance with this Plan, Options to purchase an aggregate of up to 500,000
Shares, which may be either Shares held in treasury or authorized but unissued
Shares. The maximum number of Shares which may be the subject of Options granted
to any individual during any calendar year shall not exceed 100,000 Shares. If
the Shares that would be issued or transferred pursuant to any Option are not
issued or transferred and cease to be issuable or transferable for any reason,
the number of Shares subject to such Option will no longer be charged against
the limitation provided for herein and may again be made subject to Options;
provided, however, that with respect to any Option granted to any Eligible
Person who is a "covered employee" as defined in Section 162(m) of the Code and
the regulations promulgated thereunder that is canceled or repriced, the number
of Shares subject to such Option shall continue to count against the maximum
number of Shares which may be the subject of Options granted to such Eligible
Person and such maximum number of Shares shall be determined in accordance with
Section 162(m) of the Code and the regulations promulgated thereunder.
At the time an Option is granted, the Committee may, in its sole
discretion, designate whether such Option (a) is to be considered as an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code, or (b) is not to be treated as an incentive stock option for purposes of
this Plan and the Internal Revenue Code. No Option which is intended to qualify
as an incentive stock option shall be granted under this Plan to any individual
who, at the time of such grant, is not an employee of the Corporation or a
Subsidiary.
Notwithstanding any other provision of this Plan to the contrary, to the
extent that the aggregate Fair Market Value (determined as of the date an Option
is granted) of the Shares with respect to which Options which are designated as
incentive stock options, and any other incentive stock options, granted to an
employee (under this Plan, or any other incentive stock option plan maintained
by the Corporation or any Subsidiary that meets the requirements of Section 422
of the Internal Revenue Code) first become exercisable in any calendar year
exceeds $100,000, such Options shall be treated as Options which are not
incentive stock options. Options with respect to which no designation is made by
the Committee shall be deemed to be incentive stock options to the extent that
the $100,000 limitation described in the preceding sentence is met. This
paragraph shall be applied by taking options into account in the order in which
they are granted.
If any Option shall expire, be cancelled or terminate for any reason
without having been exercised in full, the unpurchased Shares subject thereto
may again be made subject to Options under the Plan.
Nothing herein contained shall be construed to prohibit the issuance of
Options at different times to the same employee, director, consultant or
independent contractor.
The form of Option shall be determined from time to time by the Committee.
A certificate of Option signed by the Chairman of the Board of Directors or the
President or a Vice President of the Corporation, shall be issued to each person
to whom an Option is granted. The certificate of Option for an Option shall be
legended to indicate whether or not the Option is an incentive stock option.
6. PRICE. The price per Share of the Shares to be purchased pursuant to the
exercise of any Option shall be fixed by the Committee at the time of grant;
provided, however, that the purchase price per share of the Shares to be
purchased pursuant to the exercise of an Option which is intended to be an
incentive stock option shall not be less than the Fair Market Value of a Share
on the day on which the Option is granted.
7. DURATION OF OPTIONS. The duration of any Option granted under this Plan
shall be fixed by the Committee in its sole discretion; provided, however, that
no Option shall remain in effect for a period of more than ten years from the
date upon which the Option is granted.
8. TEN PERCENT SHAREHOLDERS. Notwithstanding any other provision of this
Plan to the contrary, no Option which is intended to qualify as an incentive
stock option may be granted under this Plan to any employee who, at the time the
Option is granted, owns shares possessing more than ten percent of the total
combined voting power or value of all classes of stock of the Corporation,
unless the exercise price under such Option is at least 110% of the Fair Market
Value of a Share on the date such Option is granted and the duration of such
Option is no more than five years.
9. CONSIDERATION FOR OPTIONS. The Corporation shall obtain such
consideration for the grant of an Option as the Committee in its discretion may
request.
10. RESTRICTIONS ON TRANSFERABILITY OF OPTIONS. Options shall not be
transferable otherwise than by will or by the laws of descent and distribution
or as provided in this Section 12. Notwithstanding the preceding the Committee
may, in its discretion, authorize a transfer of all or a portion of any Option,
other than an Option which is intended to qualify as incentive stock option, by
the initial holder to (i) the spouse, children, stepchildren, grandchildren or
other family members of the initial holder ("Family Members"), (ii) a trust or
trusts for the exclusive benefit of such Family Members, (iii) a corporation or
partnership in which such Family Members and the initial holder are the only
shareholders or partners, or (iv) such other persons or entities which the
Committee may permit; provided, however, that subsequent transfers of such
Options shall be prohibited except by will or the laws of descent and
distribution. Any transfer of such an Option shall be subject to such terms and
conditions as the Committee shall approve, including that such Option shall
continue to be subject to the terms and conditions of the Option and of the Plan
as amended from time to time. The events of termination of employment or service
under Section 12 shall continue to be applied with respect to the initial
holder, following which a transferred Option shall be exercisable by the
transferee only to the extent and for the periods specified under Section 12. An
Option which is intended to qualify as an incentive stock option shall not be
transferable otherwise than by will or by the laws of descent and distribution
and shall be exercisable during the holder's lifetime only by the holder
thereof.
11. EXERCISE OF OPTIONS. An Option, after the grant thereof, shall be
exercisable by the holder at such rate and times as may be fixed by the
Committee.
Notwithstanding the foregoing, all or any part of any remaining unexercised
Options granted to any person may be exercised in the following circumstances
(but in no event prior to approval of the Plan by stockholders as provided in
Section 17): (a) immediately upon (but prior to the expiration of the term of
the Option) the holder's retirement from the Corporation and all Subsidiaries on
or after his 65th birthday, (b) subject to the provisions of Section 12 hereof,
upon the disability (to the extent and in a manner as shall be determined by the
Committee in its sole discretion) or death of the holder, or (c) upon the
occurrence of such special circumstances or event as in the opinion of the
Committee merits special consideration.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect, together with the Option
certificate and the full purchase price of the Shares purchased pursuant to the
exercise of the Option, to the Chairman of the Board or an officer of the
Corporation appointed by the Chairman of the Board for the purpose of receiving
the same. Payment of the full purchase price shall be made as follows: in cash;
by check payable to the order of the Corporation; by delivery to the Corporation
of Shares which shall be valued at their Fair Market Value on the date of
exercise of the Option; or by such other methods as the Committee may permit
from time to time; provided, however, that a holder may not use any Shares to
pay the exercise price unless the holder has beneficially owned such Shares for
at least six months. No Option may be granted pursuant to the Plan or exercised
at any time when such Option, or the granting, exercise or payment thereof, may
result in the violation of any law or governmental order or regulation.
Within a reasonable time after the exercise of an Option, the Corporation
shall cause to be delivered to the person entitled thereto, a certificate for
the Shares purchased pursuant to the exercise of the Option. If the Option shall
have been exercised with respect to less than all of the Shares subject to the
Option, the Corporation shall also cause to be delivered to the person entitled
thereto a new Option certificate in replacement of the certificate surrendered
at the time of the exercise of the Option, indicating the number of Shares with
respect to which the Option remains available for exercise, or the original
Option certificate shall be endorsed to give effect to the partial exercise
thereof.
12. TERMINATION OF EMPLOYMENT OR SERVICE. All or any part of any Option, to
the extent unexercised, shall terminate immediately (i) in the case of an
employee, upon the cessation or termination for any reason of the Option
holder's employment by the Corporation and all Subsidiaries, or (ii) in the case
of a director, consultant or independent contractor of the Corporation or a
Subsidiary who is not also an employee of the Corporation or a Subsidiary, upon
the holder's ceasing to serve as a director, consultant or independent
contractor of the Corporation or a Subsidiary, except that in either case the
Option holder shall have until the end of the tenth business day following the
cessation of his employment with the Corporation and Subsidiaries or his service
as a director, consultant or independent contractor of the Corporation or a
Subsidiary, as the case may be, and no longer, to exercise any unexercised
Option that he could have exercised on the day on which such employment, or
service as a director, consultant or independent contractor, terminated;
provided that such exercise must be accomplished prior to the expiration of the
term of such Option. Notwithstanding the foregoing, if the cessation of
employment or service as a director, consultant or independent contractor is due
to retirement on or after attaining the age of sixty-five (65) years, or to
disability (to an extent and in a manner as shall be determined in each case by
the Committee in its sole discretion) or to death, the Option holder or the
representative of the Estate or the heirs of a deceased Option holder shall have
the privilege of exercising the Options which are unexercised at the time of
such retirement, or of such disability or death; provided, however, that such
exercise must be accomplished prior to the expiration of the term of such Option
and (a) within three months of the Option holder's retirement or disability, or
(b) within six months of the Option holder's death, as the case may be. If the
employment or service of any Option holder with the Corporation or a Subsidiary
shall be terminated because of the Option holder's violation of the duties of
such employment or service with the Corporation or a Subsidiary as he may from
time to time have, the existence of which violation shall be determined by the
Committee in its sole discretion (which determination by the Committee shall be
conclusive) all unexercised Options of such Option holder shall terminate
immediately upon such termination of the holder's employment or service with the
Corporation and all Subsidiaries, and an Option holder whose employment or
service with the Corporation and Subsidiaries is so terminated, shall have no
right after such termination to exercise any unexercised Option he might have
exercised prior to the termination of his employment or service with the
Corporation and Subsidiaries.
Nothing contained herein or in the Option certificate shall be construed to
confer on any employee or director any right to be continued in the employ of
the Corporation or any Subsidiary or as a director of the Corporation or a
Subsidiary or derogate from any right of the Corporation and any Subsidiary to
request the resignation of or discharge any employee, director, consultant or
independent contractor (without or with pay), at any time, with or without
cause.
13. ADJUSTMENT OF OPTIONED SHARES. If prior to the complete exercise of any
Option there shall be declared and paid a stock dividend upon the common stock
of the Corporation or if the common stock of the Corporation shall be split up,
converted, exchanged, reclassified, or in any way substituted for, the Option,
to the extent that it has not been exercised, shall entitle the holder thereof
upon the future exercise of the Option to such number and kind of securities or
other property subject to the terms of the Option to which he would have been
entitled had he actually owned the Shares subject to the unexercised portion of
the Option at the time of the occurrence of such stock dividend, split-up,
conversion, exchange, reclassification or substitution; and the aggregate
purchase price upon the future exercise of the Option shall be the same as if
the originally optioned Shares were being purchased thereunder. Any fractional
shares or securities payable upon the exercise of the Option as a result of such
adjustment shall be payable in cash based upon the Fair Market Value of such
shares or securities at the time of such exercise. If any such event should
occur, the number of Shares with respect to which Options remain to be issued,
or with respect to which Options may be reissued, shall be adjusted in a similar
manner.
Notwithstanding any other provision of the Plan, in the event of a
recapitalization, merger, consolidation, rights offering, separation,
reorganization or liquidation, or any other change in the corporate structure or
outstanding Shares, the Committee may make such equitable adjustments to the
number of Shares and the class of shares available hereunder or to any
outstanding Options as it shall deem appropriate to prevent dilution or
enlargement of rights.
14. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT. The Corporation
may postpone the issuance and delivery of Shares upon any exercise of an Option
until (a) the admission of such Shares to listing on any stock exchange on which
Shares of the Corporation of the same class are then listed, and (b) the
completion of such registration or other qualification of such Shares under any
State or Federal law, rule or regulation as the Corporation shall determine to
be necessary or advisable. Any person exercising an Option shall make such
representations and furnish such information as may, in the opinion of counsel
for the Corporation, be appropriate to permit the Corporation, in the light of
the then existence or non-existence with respect to such Shares of an effective
Registration Statement under the Securities Act of 1933, as from time to time
amended (the "Securities Act"), to issue the Shares in compliance with the
provisions of the Securities Act or any comparable act. The Corporation shall
have the right, in its sole discretion, to legend any Shares which may be issued
pursuant to the exercise of an Option, or may issue stop transfer orders in
respect thereof.
15. INCOME TAX WITHHOLDING. If the Corporation or a Subsidiary shall be
required to withhold any amounts by reason of any Federal, State or local tax
rules or regulations in respect of the issuance of Shares pursuant to the
exercise of such Option, the Corporation or the Subsidiary shall be entitled to
deduct and withhold such amounts from any cash payments to be made to the holder
of such Option. In any event, the holder shall make available to the Corporation
or Subsidiary, promptly when requested by the Corporation or such Subsidiary,
sufficient funds to meet the requirements of such withholding; and the
Corporation or Subsidiary shall be entitled to take and authorize such steps as
it may deem advisable in order to have such funds made available to the
Corporation or Subsidiary out of any funds or property due or to become due to
the holder of such Option.
16. ADMINISTRATION AND AMENDMENT OF THE PLAN. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Options not theretofore granted, and the Board of Directors or the
Committee, with the consent of the affected holder of an Option, may at any time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Option. Notwithstanding the foregoing, any
amendment by the Board of Directors or the Committee which would increase the
number of Shares issuable under Options granted pursuant to the Plan or to any
individual during any calendar year or change the class of persons to whom
Options may be granted shall be subject to the approval of the stockholders of
the Corporation within one year of such amendment.
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Options shall be
final. The Committee may authorize and establish such rules, regulations and
revisions thereof not inconsistent with the provisions of the Plan, as it may
deem advisable to make the Plan and Options effective or provide for their
administration, and may take such other action with regard to the Plan and
Options as it shall deem desirable to effectuate their purpose.
17. EFFECTIVE DATE. This Plan is conditioned upon its approval by the
stockholders of the Corporation on or before May 12, 1999, at any special or
annual meeting of the stockholders of the Corporation, except that this Plan is
adopted and approved by the Board of Directors effective May 12, 1998, to permit
the grant of Options prior to the approval of the Plan by the stockholders of
the Corporation as aforesaid. In the event that this Plan is not approved by the
stockholders of the Corporation as aforesaid, this Plan and any Options granted
hereunder shall be void and of no force or effect.
18. FINAL ISSUANCE DATE. No Option shall be granted under the Plan after
May 11, 2008.
