SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: May 12, 1998
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 1-12875 54-1589139
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 8-K
Index
Item 5. Other Events
Item 7. Financial Statements and Exhibits
a. Exhibits
3.1 Amended and Restated Articles of Incorporation of
Cornerstone Realty Income Trust, Inc., as amended.
3.2 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended
through May 12, 1998).
10.1 First Amendment to the Cornerstone Realty Income Trust, Inc.
1992 Non-Employee Directors Stock Option Plan.
2
<PAGE>
Item 5. Other Events
Cornerstone Realty Income Trust, Inc. (the "Company") held its annual
meeting of shareholders on May 5, 1998.
The shareholders were asked to vote on six matters: (1) the election of
two directors, (2) a proposed amendment to the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized Common Shares,
(3) a proposed amendment to the Company's Amended and Restated Articles of
Incorporation to authorize a new class of preferred shares, (4) a proposed
amendment of the Company's 1992 Non-Employee Directors Stock Option Plan, (5) a
proposed amendment of the Company's Bylaws to permit the Company under certain
circumstances to invest in equity securities of an issuer for a period in excess
of 18 months, and (6) a proposed amendment of the Company's Bylaws to permit the
Company under certain circumstances to issue securities that are redeemable.
At the annual meeting of shareholders on May 5, a quorum was present in
person or by proxy, and the following persons, both previously serving as
directors of the Company, were re-elected as directors:
Number of Number of
Name of Director Votes Received Votes Withheld
---------------- -------------- --------------
Penelope W. Kyle 32,625,482 370,518
Harry S. Taubenfeld 32,625,482 370,518
The following persons are directors of the Company whose terms of
office continued after the annual meeting and expire after 1998:
Name of Director
----------------
Glade M. Knight
Stanley J. Olander, Jr.
Glenn W. Bunting, Jr.
Leslie A. Grandis
Martin Zuckerbrod
There being insufficient votes for a determination with respect to the
other issues, the meeting with respect to the other issues was adjourned until
May 12, 1998. The following paragraphs describe the specifics of the proposals
for shareholder vote and the results of such vote as obtained at the adjourned
meeting of May 12, 1998.
1. Proposal to Amend the Company's Amended and Restated
Articles of Incorporation to Increase the Number of
Authorized Common Shares.
The Amended and Restated Articles of Incorporation were proposed to be
amended to increase the number of authorized Common Shares of the Company from
50 million to 100 million. Unless otherwise required by applicable law or
regulation, under this proposal, the
3
<PAGE>
additional Common Shares would be issuable without further authorization by
holders of the Common Shares and on such terms and for such consideration as may
be determined by the Board.
This amendment to the Company's Amended and Restated Articles of
Incorporation was approved, with the Inspector of Election certifying the
following votes:
FOR the Amendment: 31,971,084 Votes
AGAINST the Amendment: 823,509 Votes
ABSTAIN from voting: 201,407 Votes
2. Proposal to Amend the Company's Amended and Restated
Articles of Incorporation to Authorize a New Class of
Preferred Shares.
The Amended and Restated Articles of Incorporation were proposed to be
amended to authorize the Company to issue up to 25 million preferred shares.
Unless otherwise required by applicable law or regulation, under this proposal,
the preferred shares would be issuable without further authorization of the
holders of the Common Shares and on such terms and for such consideration as may
be determined by the Board. The preferred shares could be issued from time to
time in one or more series having varying voting rights, redemption and
conversion features, distribution (including liquidating distribution) rights
and preferences, and other rights, including rights of approval of specified
transactions. A series of preferred shares could be given rights that are
superior to certain rights of holders of Common Shares and a series having
preferential distribution rights could limit Common Share distributions and
reduce the amount holders of Common Shares would otherwise receive on
dissolution of the Company. The Board could authorize the issuance of preferred
shares with terms and conditions that could have the effect of discouraging a
takeover or other transaction which holders of some, or a majority, of the
Common Shares might believe to be in their best interests or in which holders of
some, or a majority, of the Common Shares might receive a premium for their
Common Shares over the then market price of such Common Shares. As of the date
hereof no preferred shares are outstanding and the Company has no present plans
to issue any preferred shares.
This amendment to the Company's Amended and Restated Articles of
Incorporation was approved, with the Inspector of Election certifying the
following votes:
FOR the Amendment: 26,830,688 Votes
AGAINST the Amendment: 1,695,356 Votes
ABSTAIN from voting: 438,764 Votes
4
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3. Proposal to Amend the Company's 1992 Non-Employee Directors
Stock Option Plan.
As it existed prior to the proposed amendment, the Company's 1992
Non-Employee Directors Stock Option Plan (the "Plan") entitled each non-employee
director to receive an automatic grant of stock options on June 1 of each year
through 1998. The Plan was proposed to be amended to extend the grant period
through 1999, so that each non-employee director would receive an additional
automatic grant, pursuant to the same formula, on June 1, 1999. Eligibility
under the Directors Plan and other material terms and provisions thereof will
remain unchanged.
This amendment to the Company's 1992 Non-Employee Directors Stock
Option Plan was approved, with the Inspector of Election certifying the
following votes:
FOR the Amendment: 26,579,203 Votes
AGAINST the Amendment: 1,863,557 Votes
ABSTAIN from voting: 642,350 Votes
4. Proposal to Amend the Company's Bylaws to Permit the Company
to Invest in Equity Securities for a Period in Excess of 18
Months.
The Company's Bylaws were proposed to be amended to permit the Company
to invest in the equity securities of a non-governmental issuer for a period in
excess of 18 months (which was previously prohibited by the Bylaws), subject to
the Board of Directors' determination that such action is in furtherance of the
investment objectives and policies of the Company.
This amendment to the Company's Bylaws was approved, with the Inspector
of Election certifying the following votes:
FOR the Amendment: 26,890,224 Votes
AGAINST the Amendment: 1,488,797 Votes
ABSTAIN from voting: 575,819 Votes
5. Proposal to Amend the Company's Bylaws to Permit the Company
to Issue Securities that are Redeemable.
The Company's Bylaws were proposed to be amended to permit the Company
to issue redeemable securities (which was previously prohibited by the Bylaws),
subject to the Board of Directors' determination that such action is in
furtherance of the financing plans and objectives of the Company.
5
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This amendment to the Company's Bylaws was approved, with the
Inspector of Election certifying the following votes:
FOR the Amendment: 27,005,591 Votes
AGAINST the Amendment: 1,461,828 Votes
ABSTAIN from voting: 885,389 Votes
6
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cornerstone Realty Income Trust, Inc.
Date: May 26, 1998 By: /s/ Stanley J. Olander, Jr.
---------------------------
Stanley J. Olander, Jr.,
Chief Financial Officer
of Cornerstone Realty
Income Trust, Inc.
7
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EXHIBIT INDEX
Cornerstone Realty Income Trust
Form 8-K dated May 12, 1998
Exhibit Number Exhibit
- -------------- -------
3.1 Amended and Restated Articles of Incorporation of
Cornerstone Realty Income Trust, Inc., as amended.
3.2 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended
through May 12, 1998).
10.1 First Amendment to the Cornerstone Realty Income Trust, Inc.
1992 Non-Employee Directors Stock Option Plan.
8
EXHIBIT 3.1
CORNERSTONE REALTY INCOME TRUST, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
TO THE
ARTICLES OF INCORPORATION
1. Name. The name of the Corporation is Cornerstone Realty Income
Trust, Inc.
2. Action of Directors. By written consent effective as of October 7,
1992, the directors of the corporation found the Amended and Restated
Articles of Incorporation, a copy of which is attached hereto as Exhibit A,
to be in the best interests of the Corporation and approved the amendment
and restatement.
3. Action of Shareholders. By written consent effective as of October
7, 1992, all of the shareholders of the corporation found the Amended and
Restated Articles of Incorporation to be in the best interests of the
Corporation approved the amendment and restatement.
Dated: October 8th, 1992
CORNERSTONE REALTY INCOME TRUST, INC.
By: /s/ Glade M. Knight
--------------------------
Glade M. Knight, President
<PAGE>
EXHIBIT A
CORNERSTONE REALTY INCOME TRUST, INC.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is Cornerstone Realty Income Trust, Inc.
ARTICLE II
PURPOSE
The Corporation shall have the power to engage in any lawful business not
required by the Virginia Stock Corporation Act to be stated in the Articles of
Incorporation.
ARTICLE III
AUTHORIZED SHARES
3.1 Number and Designation. The aggregate number of shares that the
Corporation shall have authority to issue is as follows:
Class Number of Shares
----- ----------------
Common 10,000,000
The Board of Directors may, in its discretion, issue additional shares or
other equity of the Corporation, including options, warrants and rights, for
cash, property or other consideration, on such terms and at such prices as the
Board of Directors in its sole discretion may in good faith determine.
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to (i) any shares of any class of the Corporation,
whether now or hereafter authorized, (ii) any warrants, rights or options to
purchase any
<PAGE>
such shares, or (iii) any obligations convertible into any such shares or into
warrants, rights or options to purchase any such shares.
ARTICLE IV
COMMON SHARES
4.1 Voting Rights. The holders of outstanding Common Shares shall, to the
exclusion of the holders of any other class of shares of the Corporation, have
the sole power to vote for the election of directors and for all other purposes
without limitation, except as may be required by law.
4.2 Distributions. The Corporation's Board of Directors shall have the
authority to declare dividends from funds available for such purposes under the
Virginia Stock Corporation Act and shall declare such dividends to the extent
necessary to ensure the Corporation's qualification as a real estate investment
trust under the Internal Revenue Code of 1986, as the same may be amended from
time to time (the "Code"). The holders of outstanding Common Shares shall be
entitled to receive, if, when and as declared by the Board of Directors,
dividends and distributions of the net assets of the Corporation upon the
liquidation, dissolution or winding up of the affairs of the Corporation.
2
<PAGE>
ARTICLE V
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation, which is located
in the City of Richmond, Virginia, is c/o McGuire, Woods, Battle & Boothe, 901
East Cary Street, Richmond, Virginia 23219. The initial registered agent of the
Corporation is Leslie A. Grandis, Esq., whose business office is identical with
the registered office and who is a resident of Virginia and a member of the
Virginia State Bar.
ARTICLE VI
LIMIT ON LIABILITY AND INDEMNIFICATION
6.1 Limit on Liability. In every instance in which the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of liability of directors or officers of a
corporation to the corporation or its shareholders, the directors and officers
of this Corporation shall not be liable to the Corporation or its shareholders.
6.2 Mandatory Indemnification. The Corporation shall indemnify any
individual or entity who is, was or is threatened to be made a party to a civil,
criminal, administrative, investigative or other proceeding (including a
proceeding by or in the right of the Corporation or by or on behalf of its
shareholders) because such individual or entity is or was a director, officer or
affiliate (as hereinafter defined) of the Corporation or of any legal entity
controlled by the Corporation,
3
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or is or was a fiduciary of any employee benefit plan established at the
direction of the Corporation, against all liabilities and reasonable expenses
incurred by him or it on account of the proceeding, provided that the directors
of the Corporation (excluding the indemnified party) determine in good faith
that his or its course of conduct which caused the loss or liability was
undertaken in good faith within what he or it reasonably believed to be the
scope of his or its authority and for a purpose which he or it reasonably
believed to be in the best interests of the Corporation or its shareholders, and
further that such liabilities and expenses were not incurred because of his or
its misconduct, bad faith, negligence, reckless disregard of duties or violation
of the criminal law. Unless a determination has been made that indemnification
is not permissible, the Corporation shall make advances and reimbursement for
expenses incurred by any of the persons or entities named above upon receipt of
an undertaking from him or it to repay the same if it is ultimately determined
that such individual or entity is not entitled to indemnification. The
Corporation is authorized to contract in advance to indemnify any of the persons
or entities named above to the extent it is required to indemnify them pursuant
to the provisions of this Section 6.2
Notwithstanding the above, indemnification will not be allowed for any
liability imposed by judgment, and costs associated therewith, including
attorneys' fees, arising from or
4
<PAGE>
out of a violation of federal or state securities laws associated with the
public offering of the Common Shares unless (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee, or (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee, or (iii) a court of competent jurisdiction
approves a settlement of the claims agianst a particular indemnitee.
For purposes of these Articles of Incorporation, the term "affiliate" of a
specified person or entity means any other person or entity who: (i) directly or
indirectly controls, is controlled by, or is under common control with the
specified person or entity: or (ii) owns or controls 10% or more of the
outstanding voting securities or comparable equity interest in such specified
person or entity; or (iii) is an officer, director, partner or trustee of the
specified person or entity; or (iv) if the specified person or entity is an
officer, director, partner or trustee of another entity, then the entity for
which that person or entity acts in any such capacity.
6.3 Miscellaneous. The rights of each person or entity entitled to
indemnification under this Article shall inure to the benefit of such person's
or entity's heirs, executors, administrators, successors or assigns.
Indemnification pursuant to this Article shall not be exclusive of any other
right of indemnification to which any person or entity may be entitled,
5
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including indemnification pursuant to a valid contract, indemnification by legal
entities other than the Corporation, and indemnification under policies of
insurance purchased and maintained by the Corporation or others. However, no
person or entity shall be entitled to indemnification by the Corporation to the
extent such person or entity is indemnified by another, including an insurer.
6.4 Amendments. No amendment, modification or repeal of this Article shall
diminish the rights provided hereunder to any person or entity arising from
conduct or events occurring before the adoption of such amendment, modification
or repeal.
ARTICLE VII
AMENDMENT
These Articles may be amended at any time, and from time to time, upon the
vote of a majority of the holders of the outstanding Common Shares of the
Corporation, with each share entitled to one vote.
6
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CORNERSTONE REALTY INCOME TRUST, INC.
ARTICLES OF AMENDMENT TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
1. Name. The name of the Corporation is Cornerstone Realty Income Trust,
Inc.
2. The Amendment. The Amendment, a copy of which is attached hereto as
Exhibit A, amends Section 3.1 of the Amended and Restated Articles of
Incorporation to increase the number of authorized shares of the Corporation's
common stock.
3. Board Action. The Board of Directors by unanimous written consent
effective as of April 18, 1994 declared the adoption of the Amendment to be in
the best interest of the Corporation and directed that it be submitted to a vote
of the shareholders at the annual meeting of shareholders to be held on the 25th
day of May, 1994.
4. Shareholder Action.
(a) Notice of the annual meeting, together with a copy of the proposed
Amendment, was given in the manner prescribed by the Virginia Stock Corporation
Act to all shareholders of record entitled to such notice.
(b) On the record date, the total number of shares of the
Corporation's common stock outstanding and entitled to vote on the Amendment was
3,317,809.
(c) On May 25, 1994, the annual meeting of shareholders was convened,
and was adjourned until July 8, 1994.
(d) On July 8, 1994, the annual meeting was reconvened and the
Amendment proposed by the Board of Directors was adopted.
<PAGE>
(e) The total number of votes cast FOR the Amendment was 2,216,524 and
AGAINST the Amendment was 239,433. The number of votes cast FOR the amendment
was sufficient for its approval.
Dated: September 6, 1994 CORNERSTONE REALTY INCOME
TRUST, INC.
By: /s/ Glade M. Knight
----------------------------
Glade M. Knight
Its: President
2
<PAGE>
Exhibit A
ARTICLE III
AUTHORIZED SHARES
3.1 Number and Designation. The aggregate number of shares that the
Corporation shall have authority to issue is as follows:
Class Number of Shares
----- ----------------
Common 50,000,000
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
ARTICLES OF AMENDMENT TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
1. Name. The name of the Corporation is Cornerstone Realty Income Trust,
Inc.
2. The Amendment. The Amendment, a copy of which is attached hereto as
Exhibit A, adds a new Article VII (and renumbers existing Article VII, as
Article VIII) to the Amended and Restated Articles of Incorporation of the
Corporation to provide for the election of directors to staggered terms of
office.
3. Board Action. The Board of Directors at a regular meeting held on
January 25, 1995 unanimously approved the Amendment, declared the adoption of
the Amendment to be in the best interest of the Corporation and directed that it
be submitted to a vote of the shareholders at the annual meeting of shareholders
to be held on April 26, 1995.
4. Shareholder Action.
(a) Notice of the annual meeting, together with a copy of the proposed
Amendment, was given in the manner prescribed by the Virginia Stock Corporation
Act to all shareholders of record entitled to such notice.
(b) On the record date, the total number of shares of the
Corporation's common stock outstanding and entitled to vote on the Amendment was
5,650,307.
<PAGE>
(c) On April 26, 1995, the annual meeting of shareholders was convened
and the Amendment proposed by the Board of Directors was adopted.
(d) The total number of vote cast FOR the Amendment was 3,633,038 and
AGAINST the Amendment was 59,205. The number of votes cast FOR the amendment was
sufficient for its approval.
Dated: August 10, 1995 CORNERSTONE REALTY INCOME
TRUST, INC.
By: /s/ Glade M. Knight
------------------------
Glade M. Knight
Title: President
2
<PAGE>
ARTICLE VII
BOARD OF DIRECTORS
Commencing with the 1996 Annual Meeting of Shareholders, the Board of
Directors shall be divided into three classes, denominated as Class I, Class II,
and Class III, each as nearly equal in number to the other two as possible. At
the 1996 Annual Meeting of Shareholders, directors of Class I shall be elected
to hold office for a term expiring at the 1997 Annual Meeting of Shareholders;
directors of Class II shall be elected to hold office for a term expiring at the
1998 Annual Meeting of Shareholders; and directors of Class III shall be elected
to hold office for a term expiring at the 1999 Annual Meeting of Shareholders.
At each Annual Meeting of Shareholders after 1996, the successors to the class
of directors whose terms shall then expire shall be identified as being of the
same class of directors they succeed and shall be elected to hold office for a
term expiring at the third succeeding Annual Meeting of Shareholders. When the
number of directors is changed, any newly created directorships or any decrease
in directorships shall be so apportioned among the classes by the Board of
Directors as to make all classes as nearly equal in number as possible.
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
ARTICLES OF AMENDMENT TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
1. Name. The name of the Corporation is Cornerstone Realty Income Trust,
Inc.
2. The Amendments. The Amendments, a copy of which are attached hereto as
Exhibit A, amend Article III and Article IV of the Amended and Restated Articles
of Incorporation of the Corporation to provide for (i) an increase in the number
of the Corporation's authorized common shares from 50 million to 100 million
common shares and (ii) (A) authorization of a new class of 25 million preferred
shares, issuable in series the characteristics of which may be fixed by the
Board of Directors and (B) certain conforming changes to reflect the fact that
the voting rights and rights to distributions of the holders of the common
shares will be subject to the prior rights of the holders of any
subsequently-issued preferred shares.
3. Board Action. The Board of Directors by unanimous consent effective
March 23, 1998 unanimously approved the Amendments, declared the adoption of the
Amendments to be in the best interest of the Corporation and directed that they
be submitted to a vote of the shareholders at the annual meeting of
shareholders to be held on May 5, 1998.
4. Shareholder Action.
(a) Notice of the annual meeting, together with a copy of the proposed
Amendments, were given in the manner prescribed by the Virginia Stock
Corporation Act to all shareholders of record entitled to such notice.
(b) On the record date, the total number of common shares of the
Corporation outstanding and entitled to vote on the Amendments was 35,750,752,
with each common share entitled to one vote.
(c) On May 5, 1998, the annual meeting of shareholders was convened
and the Amendments proposed by the Board of Directors were adopted.
(d) The total number of votes cast for (i) APPROVAL of the amendment
to increase the number of authorized common shares from 50 million to 100
million common shares was 31,971,084 and for DISAPPROVAL of such amendment was
823,509 (with 201,407 votes abstaining) and (ii) APPROVAL of the amendment to
authorize a new class of 25 million preferred shares and to adopt certain
conforming changes was 26,830,688 and for DISAPPROVAL of such amendment was
1,695,356 (with 438,764 abstaining). The number of votes cast for APPROVAL were
sufficient for the approval of both amendments.
Dated: May 12, 1998 CORNERSTONE REALTY INCOME
TRUST, INC.
By: /s/ Glade M. Knight
--------------------------
Glade M. Knight, President
<PAGE>
SECTION 3.1 OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE
CORPORATION IS REPLACED IN ITS ENTIRETY BY THE FOLLOWING:
3.1 Number and Designation.
(a) The Corporation shall have authority to issue 100,000,000 Common
Shares.
(b) The Corporation shall have authority to issue 25,000,000 preferred
shares, without par value. Notwithstanding anything to the contrary in
these Articles of Incorporation, the Board of Directors, by adoption
of an amendment of these Articles of Incorporation, may fix in whole
or in part the preferences, limitations and relative rights, within
the limits set forth in the Virginia Stock Corporation Act, of any
series within the preferred shares before the issuance of any shares
of that series.
SECTION 4.1 OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE
CORPORATION IS REPLACED IN ITS ENTIRETY BY THE FOLLOWING:
4.1 Voting Rights. The holders of outstanding Common Shares shall, to the
exclusion of the holders of any other class of shares of the Corporation, have
the sole power to vote for the election of directors and for all other purposes
without limitation, except (i) as otherwise provided in the Articles of
Amendment establishing any series of preferred shares, or (ii) as may be
required by law.
THE SECOND SENTENCE OF SECTION 4.2 OF THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION OF THE CORPORATION IS AMENDED TO READ AS FOLLOWS:
Subject to the rights of the holders of shares, if any, ranking senior to the
Common Shares as to dividends or rights in liquidation, dissolution or winding
up of the affairs of the Corporation, the holders of outstanding Common Shares
shall be entitled to receive, if, when and as declared by the Board of
Directors, dividends and distributions of the net assets of the Corporation upon
the liquidation, dissolution or winding up of the affairs of the Corporation.
EXHIBIT 3.2
Amended through:
May 12, 1998
------------
BYLAWS
OF
CORNERSTONE REALTY INCOME TRUST, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLES: Page
----
ARTICLE I
THE COMPANY; DEFINITIONS..............................................1
1.1 Name.........................................................1
1.2 Nature of Company............................................1
1.3 Definitions..................................................1
ARTICLE II
MINIMUM CAPITAL.......................................................6
2.1 Minimum Capital..............................................6
ARTICLE III
OFFICES; FISCAL YEAR..................................................6
3.1 Principal Office.............................................6
3.2 Other Offices................................................6
3.3 Fiscal Year..................................................6
ARTICLE IV
MEETINGS OF SHAREHOLDERS..............................................7
4.1 Place of Meetings............................................7
4.2 Annual Meetings..............................................7
4.3 Special Meetings.............................................8
4.4 Notice; Affidavit of Notice..................................8
4.5 Record Date for Shareholder Notice, Voting and Giving
Consents.....................................................9
4.6 Adjourned Meetings; Notice..................................10
4.7 Voting at Meetings of Shareholders..........................10
4.8 Quorum......................................................10
4.9 Waiver of Notice or Consent of Absent Shareholders..........11
4.10 Action Without Meeting......................................11
4.11 Proxies.....................................................11
4.12 Inspectors of Election......................................12
ARTICLE V
DIRECTORS............................................................13
5.1 Powers......................................................13
5.2 Number, Tenure and Qualifications...........................13
5.3 Nomination of Directors.....................................14
5.4 Vacancies...................................................15
5.5 Place of Meeting............................................16
5.6 Organization Meeting........................................17
5.7 Special Meetings............................................17
5.8 Adjournment.................................................17
5.9 Notice of Adjournment.......................................17
5.10 Entry of Notice.............................................17
5.11 Waiver of Notice............................................17
5.12 Quorum......................................................18
5.13 Fees and Compensation.......................................18
5.14 Action Without Meeting......................................18
ii
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5.15 Independent Directors.......................................18
5.16 Removal of Director for Cause...............................20
5.17 Removal of Director Without Cause...........................21
5.18 Committees..................................................21
5.19 Fiduciary Relationship......................................22
ARTICLE VI
OFFICERS.............................................................22
6.1 Officers....................................................22
6.2 Election....................................................22
6.3 Subordinate Officers........................................22
6.4 Removal and Resignation.....................................22
6.5 Vacancies...................................................23
6.6 Chairman of the Board.......................................23
6.7 President...................................................23
6.8 Vice Presidents.............................................23
6.9 Secretary...................................................23
6.10 Assistant Secretaries.......................................24
6.11 Chief Financial Officer.....................................24
6.12 Assistant Chief Financial Officers..........................24
ARTICLE VII
SHARES OF STOCK......................................................24
7.1 Registered Ownership, Share Certificates and Shares in
"Unissued Certificate" Form.................................24
7.2 Transfer of Shares..........................................25
7.3 Disclosures by Holders of Shares; Redemption of
Shares......................................................26
7.4 Right to Refuse to Transfer the Shares......................27
7.5 Limitation on Acquisition of Shares.........................27
7.6 Lost or Destroyed Certificates..............................29
7.7 Dividend Record Date and Closing Stock Books................29
7.8 Dividend Reinvestment Plan..................................30
ARTICLE VIII
EMPLOYMENT OF ADVISOR, LIMITATION
ON EXPENSES AND LEVERAGE.............................................30
8.1 Employment of Advisor.......................................30
8.2 Term........................................................31
8.3 Other Activities of Advisor.................................31
8.4 Limitation on Offering and Organization
Expenses and Acquisition Fees and Expenses .................32
8.5 Limitation on Operating Expenses ...........................32
8.6 Limitation on Real Estate Brokerage Commissions
on Purchase and Resale of Property .........................33
8.7 Limitation on Incentive Fees ...............................33
8.8 Limitations on Leverage ....................................34
ARTICLE IX
RESTRICTIONS ON INVESTMENTS AND ACTIVITIES...........................34
9.1 Restrictions................................................34
ARTICLE X
TRANSACTIONS WITH AFFILIATES; CERTAIN DUTIES AND LIABILITIES
OF DIRECTORS, SHAREHOLDERS, ADVISOR AND AFFILIATES...................36
10.1 Transactions with Affiliates................................36
10.2 Restriction of Duties and Liabilities.......................37
10.3 Persons Dealing with Directors or Officers..................37
10.4 Reliance....................................................38
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10.5 Income Tax Status...........................................38
ARTICLE XI
MISCELLANEOUS........................................................39
11.1 Competing Programs..........................................39
11.2 Corporate Seal..............................................39
11.3 Inspection of Bylaws........................................39
11.4 Inspection of Corporate Records.............................40
11.5 Checks, Drafts, Etc.........................................40
11.6 Contracts, Etc., How Executed...............................40
11.7 Representation of Shares of Other Corporations..............40
11.8 Annual Report...............................................40
11.9 Quarterly Reports...........................................41
11.10 Other Reports...............................................41
11.11 Provisions of the Company in Conflict with Law
or Regulation...............................................41
11.12 Voluntary Dissolution.......................................42
11.13 Distributions...............................................42
11.14 Shareholder Liability.......................................42
11.15 Return of Offering Proceeds.................................42
11.16 Certain New York Stock Exchange Requirements................42
ARTICLE XII
AMENDMENTS TO BYLAWS.................................................42
12.1 Amendments..................................................42
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ARTICLE I
THE COMPANY; DEFINITIONS
1.1 Name. The name of the corporation is CORNERSTONE REALTY INCOME TRUST,
INC. and is referred to in these Bylaws as the "Company." As far as practicable
and except as otherwise provided in the Organizational Documents, the Directors
shall direct the management of the business and the conduct of the affairs of
the Company, execute all documents and sue or be sued in the name of the
Company. If the Directors determine that the use of that name is not
practicable, legal or convenient, they may use such other designation or may
adopt another name under which the Company may hold property or conduct all or
part of its activities.
1.2 Nature of Company. The Company is a corporation organized under the
laws of the Commonwealth of Virginia. It is intended that the Company shall
carry on business as a "real estate investment trust" ("REIT").
1.3 Definitions. Whenever used in these Bylaws, the terms defined in this
Section 1.3 shall, unless the context otherwise requires, have the respective
meanings specified in this Section 1.3. In these Bylaws, words in the singular
number include the plural and in the plural number include the singular.
(a) Acquisition Expenses. The total expenses, including but not
limited to legal fees and expenses, travel and communications expenses, costs of
appraisals, non-refundable option payments on property not acquired, accounting
fees and expenses, title insurance, and miscellaneous expenses related to
selection and acquisition of properties, whether or not acquired. Acquisition
Expenses shall not include Acquisition Fees.
(b) Acquisition Fees. The total of all fees and commissions paid by
any party in connection with the purchase or development of real property by the
Company, except a development fee paid to a person not Affiliated with the
Sponsor in connection with the actual development of a project after acquisition
of the land by the Company. Included in the computation of such fees or
commissions shall be any real estate commission, selection fee, development fee,
nonrecurring management fee, or any fee of a similar nature, however designated.
(c) Adjusted Net Asset Value. The net assets of the Company (total
assets before deducting depreciation or non-cash reserves less total
liabilities) valued at fair market value as determined by qualified appraisals
or valuations of the assets.
(d) Advisor. The Person responsible for directing or performing the
day-to-day business affairs of the
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Company, including a Person to which the Advisor subcontracts substantially all
such functions.
(e) Affiliate. Means (i) any Person directly or indirectly
controlling, controlled by or under common control with another Person, (ii) any
Person owning or controlling 10% or more of the outstanding voting securities or
beneficial interests of such other Person, (iii) any officer, director, trustee
or general partner of such Person, and (iv) if such other Person is an officer,
director, trustee or partner of another entity, then the entity for which that
Person acts in any such capacity. "Affiliated" means being an Affiliate of a
specified Person.
(f) Annual Report. As set forth in Section 11.8.
(g) Appraisal. The values as of the date of the appraisal or valuation
of property in its existing state or in a state to be created, as determined by
the Directors, the Advisor or by another person, who is a member in good
standing of the American Institute of Real Estate Appraisers (M.A.I.) or who in
the sole judgment of the Directors is properly qualified to make such a
determination. The Directors may in good faith rely on a previous Appraisal made
on behalf of another Person, provided (i) it meets the standards of this
definition and was made in connection with an investment in which the Company
acquires the entire or a participating interest, and (ii) it was prepared not
earlier than two years prior to the acquisition by the Company of its interest
in the property. In appraising properties, appraisers may take into
consideration each of the specific terms and conditions of a purchase, including
any leaseback or other guarantee arrangement. The Appraisal may not necessarily
represent the cash value of the property but may consider the value of the
income stream from such property plus the discounted value of the fee interest
and other terms of the purchase. Such Appraisal shall be obtained from an
independent qualified appraiser if a majority of the Independent Directors so
decides or if the transaction is with the Advisor, Directors or any of their
Affiliates. Each Appraisal shall be maintained in the Company's records for a
minimum of five years and shall be available for inspection and duplication by
any Shareholder.
(h) Articles of Incorporation. The Articles of Incorporation of the
Company, including all amendments, restatements or modifications thereof.
(i) Average Invested Assets. The average of the aggregate book value
of the assets of the Company invested, directly or indirectly, in equity
interests in and loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves, computed by taking the average
of such values at the end of each month during any period.
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(j) Bylaws. These Bylaws, including all amendments, restatements or
modifications hereof.
(k) Competitive Real Estate Commission. The real estate or brokerage
commission paid for the purchase or sale of a property which is reasonable,
customary and competitive in light of the size, type and location of such
property.
(l) Contract Price. The amount actually paid or allocated to the
purchase, development, construction or improvement of real property exclusive of
Acquisition Fees and Acquisition Expenses.
(m) Directors. As of any particular time, the directors of the Company
holding office at such time.
(n) Dividend Reinvestment Plan. The program adopted by the Board of
Directors pursuant to Section 5.1 hereof and available to Shareholders to
reinvest dividends in Shares available under the Liquidity Matching Program.
(o) Independent Director. A Director of the Company who is not
Affiliated, directly or indirectly, with the Advisor, whether by ownership of,
ownership interest in, employment by, any material business or professional
relationship with, or serving as an officer or director of, the Advisor, or an
Affiliated business entity of the Advisor (other than as an Independent Director
of up to three other real estate investment trusts advised by the Advisor or an
Affiliate of the Advisor). An Independent Director may perform no other services
for the Company, except as a Director. Notwithstanding anything to the contrary
herein, any member of a law firm whose only material business or professional
relationship with the Company, the Advisor and their Affiliates is as legal
counsel to any of such entities shall constitute an Independent Director (unless
such person serves as a director for more than three REITs organized by the
Advisor and its Affiliates). The independence of any Independent Director must
be maintained throughout his term as Director. An "indirect" affiliation shall
be deemed to refer to circumstances in which a member of the "immediate family"
of a Director is Affiliated with the Advisor, and a person's "immediate family"
shall mean such person's spouse, parents, children, siblings, mother and
father-in-law, sons and daughters- in-law and brothers and sisters-in-law.
(p) Initial Investment. That portion of the initial capitalization of
the Company contributed by the Sponsor or its Affiliates.
(q) Leverage. The aggregate amount of indebtedness of the Company for
money borrowed (including
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purchase money mortgage loans) outstanding at any time, both secured and
unsecured.
(r) Liquidity Matching Program. The program adopted by the Board of
Directors pursuant to Section 5.1 hereof under which Shareholders may tender
Shares for resale to participants in the Dividend Reinvestment Plan.
(s) Net Assets. The total assets of the Company (other than intangible
assets) at cost before deducting depreciation or other non-cash reserves less
total liabilities, calculated at least quarterly on a basis consistently
applied.
(t) Net Income. The total revenues of the Company for any period, less
the expenses applicable to such period other than additions to reserves for
depreciation or bad debts or other similar non-cash reserves. For purposes of
calculating Operating Expenses, Net Income shall exclude any gain from the sale
of the Company's assets.
(u) Offering and Organization Expenses. Those expenses incurred in
connection with the formation and registration of the Company and in qualifying
and marketing the Shares under applicable federal and state law, and any other
expenses actually incurred and directly related to the qualification,
registration, offer and sale of the Shares, including such expenses as (i) all
marketing expenses and payments made to broker-dealers as compensation or
reimbursement for all costs of reviewing the offering, including due diligence
investigations and fees and expenses of their attorneys, accountants and other
experts; (ii) registration fees, filing fees and taxes; (iii) the costs of
printing, amending, supplementing and distributing the registration statement
and Prospectus; (iv) the costs of obtaining regulatory clearances of, printing
and distributing sales materials used in connection with the offer and sale of
the Shares; (v) the costs related to investor and broker-dealer sales meetings
concerning the offering; and (vi) accounting and legal fees incurred in
connection with any of the foregoing.
(v) Operating Expenses. All operating, general and administrative
expenses of the Company as determined under generally accepted accounting
principles (including regular compensation payable to the Advisor), excluding,
however, the following:
(i) expenses of raising capital;
(ii)interest payments;
(iii)taxes;
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(iv)non-cash expenditures, such as depreciation, amortization and bad
debt reserve;
(v) incentive fees paid to the Advisor, if any;
and
(vi)costs related directly to asset acquisition, operation and
disposition.
(w) Organizational Documents. The Articles of Incorporation and these
Bylaws.
(x) Person. An individual, corporation, partnership, joint venture,
association, company, trust, bank or other entity, or government and any agency
and political subdivision of a government.
(y) Prospectus. Shall mean a Prospectus as that term is defined by the
Securities Act of 1933, including a preliminary Prospectus, an offering circular
as described in Rule 256 of the General Rules and Regulations promulgated under
the Securities Act of 1933 and, in the case of an intra-state offering, any
document, by whatever name known, utilized for the purpose of offering and
selling securities to the public.
(z) REIT. A real estate investment trust, as defined in Section 856 of
the Internal Revenue Code of 1986, as amended.
(aa) REIT Provisions of the Internal Revenue Code. Part II, Subchapter
M of Chapter 1, of the Internal Revenue Code of 1986, as amended, or successor
statutes, and regulations and rulings promulgated thereunder.
(ab) Securities. Any stock, shares, voting trust certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities" or any certificates of interest, shares or participations
in temporary or interim certificates for, receipts (or, guarantees of, or
warrants, options or rights to subscribe to, purchase or acquire any of the
foregoing).
(ac) Shares or Common Shares. All of the common shares of the Company,
no par value.
(ad) Shareholders. As of any particular date, all holders of record of
outstanding Common Shares at such time.
(ae) Sponsor. Any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any Person who will manage or
participate in the management of the
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Company, and any Affiliate of any such Person, but not including a Person who is
an Independent Director or whose only relationship with the Company is that of
an independent property manager, whose only compensation is as such, or wholly
independent third parties such as attorneys, accountants and underwriters whose
only compensation is for professional services. No Independent Director shall be
deemed to be a Sponsor.
(af) Unimproved Real Property. Property which has the following three
characteristics: (i) an equity interest in property which was not acquired for
the purpose of producing rental or other operating income, (ii) has no
development or construction in process on such land, and (iii) no development or
construction on such land is planned in good faith to commence within one year.
ARTICLE II
MINIMUM CAPITAL
2.1 Minimum Capital. Prior to the public offering of the Shares, the
Sponsor or Affiliates of the Sponsor purchased 10 Common Shares for an aggregate
purchase price of $100, as an Initial Investment. The Sponsor or its Affiliates
may not withdraw the Initial Investment for a period of one year following
completion of the offering.
ARTICLE III
OFFICES; FISCAL YEAR
3.1 Principal Office. The principal executive office of the Company shall
be located at 306 East Main Street, Richmond, Virginia 23219, until otherwise
established by a vote of a majority of the Board of Directors.
3.2 Other Offices. Other offices may at any time be established by the
Board of Directors at any place or places they deem appropriate.
3.3 Fiscal Year. The fiscal year of the Company shall end on the 31st day
of December.
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ARTICLE IV
MEETINGS OF SHAREHOLDERS
4.1 Place of Meetings. All annual and all other meetings of Shareholders
shall be held at such place, either within or outside of the Commonwealth of
Virginia as from time to time may be fixed by the President or by the Board of
Directors.
4.2 Annual Meetings. The annual meetings of Shareholders shall be held on
such date as is fixed by the Directors; provided, however, that the first annual
meeting of Shareholders who purchase Shares in the public offering made by the
Prospectus shall be held in the year following the year in which the Initial
Closing (as defined in the Prospectus) occurs; and provided further, that such
date fixed by the Directors shall not be less than 30 days after the Board of
Directors shall have caused to be sent to the Shareholders an Annual Report as
provided in Section 11.8 of these Bylaws, but if no such date and time is fixed
by the President or the Board of Directors, the meeting for any calendar year
shall be held on the first Tuesday in May in such year, if not a legal holiday
under the laws of Virginia. If the date fixed by the Directors falls upon a
legal holiday, then any annual meeting of Shareholders shall be held at the same
time and place on the next day which is not a legal holiday. At each annual
meeting of Shareholders, only such business shall be conducted as is proper to
consider and has been brought before the meeting (i) pursuant to the Company's
notice of the meeting, (ii) by or at the direction of the Board of Directors, or
(iii) by a Shareholder who is a Shareholder of record of a class of Shares
entitled to vote on the business such Shareholder is proposing, both at the time
of the giving of the Shareholder's notice hereinafter described in this Section
4.2 and on the record date for such annual meeting, and who complies with the
notice procedures set forth in this Section 4.2.
In order to bring before an annual meeting of Shareholders any business
which may properly be considered and which a Shareholder has not had included in
the Company's proxy statement for the meeting, a Shareholder who meets the
requirements set forth in the preceding paragraph must give the Company timely
written notice. To be timely, a Shareholder's notice must be given, either by
personal delivery to the Secretary of the Company at the principal office of the
Company, or by first class United States mail, with postage thereon prepaid,
addressed to the Secretary of the Company at the principal office of the
Company. Any such notice must be received (i) on or after February 1st and
before March 1st of the year in which the meeting will be held, if clause (ii)
is not applicable, or (ii) not less than 60 days before the date of the meeting
if the date of such meeting is earlier than May 1 or later than May 31 in such
year.
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Each such Shareholder's notice shall set forth as to each matter the
Shareholder proposes to bring before the annual meeting (i) the name and
address, as they appear on the Company's stock transfer books, of the
Shareholder proposing business, (ii) the class and number of Shares of stock of
the Company beneficially owned by such Shareholder, (iii) a representation that
such Shareholder is a Shareholder of record at the time of the giving of the
notice and intends to appear in person or by proxy at the meeting to present the
business specified in the notice, (iv) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented and the reasons for wanting to conduct such
business, and (v) any interest which the Shareholder may have in such business.
The Secretary of the Company shall deliver each Shareholder's notice that
has been timely received to the Chairman for review.
4.3 Special Meetings. Special meetings of the Shareholders may be called at
any time for any purpose or purposes whatsoever by the President, by a majority
of the Board of Directors, by a majority of Independent Directors, by the
Chairman of the Board or by one or more Shareholders holding not less than 10%
of the eligible votes. If a meeting is called by any Person or Persons other
than the Board of Directors, the Chairman of the Board or the President, a
request shall be made in writing, specifying the time of the meeting and the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board, the President, or the Secretary of
the Company. The officer receiving the request shall cause notice to be promptly
given to the Shareholders entitled to vote, in accordance with the provisions of
Section 4.4.
4.4 Notice; Affidavit of Notice. Notice of meetings of the Shareholders of
the Company shall be given in writing to each Shareholder entitled to vote
thereat, either personally or by first class mail, or, if the Company has 500 or
more Shareholders, by third-class mail, or other means of written communication,
charges prepaid, addressed to the Shareholder at his address appearing on the
books of the Company or given by the Shareholder to the Company for the purpose
of notice. Notice of any such meeting of Shareholders shall be sent to each
Shareholder entitled thereto not less than 10 nor more than 60 days before the
meeting; provided, however, that within 10 business days after receipt by the
Company, in person, or by registered mail, of a written request for a meeting by
Shareholders holding not less than 10% of the outstanding Shares entitled to
vote at such meeting, the Company shall provide written notice of such meeting
to all Shareholders, and such
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meeting shall be held not less than 20 nor more than 60 days after the Company's
receipt of such written Shareholder request; and, provided further, that if such
notice is not given within 10 business days after receipt of the request, the
Person or Persons requesting the meeting may give the notice. Nothing contained
in this Section 4.4 shall be construed as limiting, fixing or affecting the time
when a meeting of Shareholders called by action of the Board of Directors may be
held. All notices given pursuant to this Section shall state the place, date and
hour of the meeting and, (i) in the case of special meetings, the general nature
of the business to be transacted, and no other business may be transacted, or
(ii) in the case of annual meetings, those matters which the Board of Directors,
at the time of the mailing of the notice, intends to present for action by the
Shareholders, and (iii) in the case of any meeting at which Directors are to be
elected, the names of the nominees intended at the time of the mailing of the
notice to be presented by management for election. An affidavit of the mailing
or other means of giving any notice of any Shareholders' meeting shall be
executed by the Secretary, Assistant Secretary or any transfer agent of the
Company giving the notice, and shall be filed and maintained in the minute book
of the Company.
4.5 Record Date for Shareholder Notice, Voting and Giving Consents. For
purposes of determining the Shareholders entitled to notice of any meeting or to
vote or entitled to give consent to corporate action without a meeting, the
Board of Directors may fix, in advance, a record date, which shall not be more
than 60 days nor less than 10 days before the date of any meeting nor more than
60 days before any action without a meeting, and in this event only Shareholders
of record on the date so fixed are entitled to notice and to vote or to give
consents, as the case may be, notwithstanding any transfer of any Shares on the
books of the Company after the record date.
If the Board of Directors does not so fix a record date:
(a) The record date for determining Shareholders entitled to notice of
or to vote at a meeting of Shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the date on
which the meeting is held.
(b) The record date for determining Shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, shall be the day on which the first written
consent in given, or (ii) when prior action of the Board has been taken, shall
be at the close of business on the day on which the
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Board adopts the resolution relating to that action, or the 60th day before the
date of the other action, whichever is later.
4.6 Adjourned Meetings; Notice. Any Shareholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the Shares, the holders of which are either
present in person or represented by proxy, but in the absence of a quorum no
other business may be transacted at the meeting.
When any Shareholders' meeting, either annual or special, is adjourned for
more than 45 days or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given as in the case
of a special meeting. In all other cases, it shall not be necessary to give any
notice of an adjournment or of the business to be transacted at any adjourned
meeting other than by announcement at the meeting at which the adjournment is
taken.
4.7 Voting at Meetings of Shareholders. Subject to the provisions of the
Virginia Stock Corporation Act, and subject to the right of the Board of
Directors to provide otherwise, only Persons in whose name Shares entitled to
vote standing on the stock records of the Company on the record date shall be
entitled to the notice of and to vote at the meeting, notwithstanding any
transfer of any Shares on the books of the Company after the record date.
The vote may be via voice or by ballot; provided, however, that all
elections for Directors must be by ballot upon demand made by any Shareholder at
any election and before the voting begins. Except as provided in this Section
4.7, each outstanding Share shall be entitled to one vote on each matter
submitted to a vote of Shareholders.
4.8 Quorum. The presence in person or by proxy of a majority of the Shares
entitled to vote at any meeting shall constitute a quorum for the transaction of
business. Except as otherwise expressly provided in these Bylaws, if a quorum
exists, action on a matter, other than the election of Directors, is approved if
the votes cast favoring the action exceed the votes cast opposing the action
unless a vote of a greater number is required by the Articles of Incorporation
or by the Virginia Stock Corporation Act. Directors shall be elected by a
plurality of the votes cast by the Shares entitled to vote in the election at a
meeting at which a quorum is present. The Shareholders present at a duly called
or held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough Shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the Shares required to constitute a quorum.
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4.9 Waiver of Notice or Consent of Absent Shareholders. The transactions of
any meeting of Shareholders, either annual or special, however called and
noticed, shall be as valid as though made at a meeting duly held after regular
call and notice, if a quorum is present either in person or by proxy and if,
either before or after the meeting, each of the Shareholders entitled to vote,
not present in person or by proxy, signs a written waiver of notice or a consent
to the holding of the meeting or an approval of the minutes. All waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
4.10 Action Without Meeting. Any action which may be taken at any annual or
special meeting of Shareholders may be taken without a meeting and without
action by the Board of Directors, if the action is taken by all the Shareholders
entitled to vote on the action. The action shall be evidenced by one or more
written consents describing the action taken, signed by all the Shareholders
entitled to vote on the action, and delivered to the Secretary of the Company
for inclusion in the minutes or filing with the corporate records. Action taken
under this Section 4.10 shall be effective when all consents are in the
possession of the Company, unless the consent specifies a different effective
date and states the date of execution by each Shareholder, in which event it
shall be effective according to the terms of the consent. A Shareholder may
withdraw consent only be delivering a written notice of withdrawal to the
Company prior to the time that all consents are in the possession of the
Company.
The record date for determining Shareholders entitled to take action
without a meeting is the date the first Shareholder signs the consent described
in the preceding paragraph.
Any form of written consent distributed to 10 or more Shareholders must
afford the Person whose consent is thereby solicited an opportunity to specify a
choice among approval, disapproval or abstention as to each matter or group of
related matters presented, other than elections of Directors or officers.
4.11 Proxies. Every Person entitled to vote or execute consents shall have
the right to do so either in person or by one or more agents authorized by a
written proxy executed by such Person or his duly authorized agent and filed
with the Secretary of the Company, provided that no such proxy shall be valid
after the expiration of 11 months from the date of its execution, unless the
Person executing it specifics in the proxy the length of time for which the
proxy is to continue in force.
A proxy shall be deemed signed if the Shareholder's name is placed on the
proxy (whether by manual signature,
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typewriting, telegraphic transmission or otherwise) by the Shareholder or the
Shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless revoked by
the Person executing it before the vote pursuant to that proxy by (i) a writing
delivered to the Company stating that the proxy is revoked, (ii) execution of a
subsequent proxy, (iii) attendance at the meeting and voting in person (but only
as to any items on which the Shareholder chooses to vote in person), or (iv)
transfer of the Shares represented by the proxy to a transferee who becomes a
Shareholder of record prior to the record date established for the vote. A
validly executed proxy otherwise may be revoked by written notice of the death
or incapacity of the maker of that proxy received by the Company before the vote
pursuant to that proxy is counted.
Any proxy distributed to 10 or more Shareholders must afford the Person
voting an opportunity to specify a choice among approval, disapproval or
abstention as to each matter or group of related matters, other than election of
Directors or officers.
4.12 Inspectors of Election. Before any meeting of Shareholders, the Board
of Directors may appoint any Persons, other than nominees for office, to act as
inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the Chairman of the meeting may, and on the request
of any Shareholder or a Shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be either one or three.
If inspectors are appointed at a meeting on the request of one or more
Shareholders or proxies, the holders of a majority of Shares or their proxies
present at the meeting shall determine whether one or three inspectors are to be
appointed. If any Person appointed as inspector fails to appear or fails or
refuses to act, the Chairman of the meeting may, and upon the request of any
Shareholder or a Shareholder's proxy shall, appoint a Person to fill that
vacancy.
These inspectors shall:
(a) Determine the number of Shares outstanding and the voting power of
each, the Shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
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(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all Shareholders.
ARTICLE V
DIRECTORS
5.1 Powers. Subject to limitations contained in the Articles of
Incorporation, these Bylaws and the Virginia Stock Corporation Act relating to
action required to be authorized or approved by the Shareholders, or by the
holders of a majority of the outstanding Shares, and subject to the duties of
Directors as prescribed by these Bylaws, all corporate powers shall be exercised
by or under the authority of, and the business and affairs of the Company shall
be controlled by, the Board of Directors. The Board of Directors may delegate
the management of the day-to-day operation of the business of the Company to the
Advisor, provided that the business and affairs of the Company shall be managed
and all corporate powers shall be exercised under the ultimate direction of the
Board of Directors. The Board of Directors shall establish policies on
investments and borrowings and shall monitor the administrative procedures,
investment operations and performance of the Company and the Advisor, to assure
that such policies are carried out. In addition, and unless otherwise contained
in the Articles of Incorporation, these Bylaws or the Virginia Stock Corporation
Act, the Board of Directors has the ability to adopt, renew, modify, extend,
consolidate or cancel the Dividend Reinvestment Plan and Liquidity Matching
Program.
Each individual Director, including each Independent Director, may engage
in other business activities of the type conducted by the Company and is not
required to present to the Company any investment opportunities presented to
them even though the investment opportunities may be within the Company's
investment policies.
5.2 Number, Tenure and Qualifications. The authorized number of Directors
of the Board of Directors shall be not less than three nor more than 15 as shall
be determined from time to time by resolution of the Board of Directors.
Commencing with the 1996 Annual Meeting of Shareholders, the Board of
Directors shall be divided into three classes, denominated as Class I, Class II
and Class III, each as nearly equal in number to the other two as possible. At
the 1996 Annual Meeting of Shareholders, Directors of Class I shall be
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elected to hold office for a term expiring at the 1997 Annual Meeting of
Shareholders, Directors of Class II shall be elected to hold office for a term
expiring at the 1998 Annual Meeting of Shareholders, and Directors of Class III
shall be elected to hold office for a term expiring at the 1999 Annual Meeting
of Shareholders. At each Annual Meeting of Shareholders after 1996, the
successors to the class of Directors whose terms shall then expire shall be
identified as being of the same class of Directors they succeed and shall be
elected to hold office for a term expiring at the third succeeding Annual
Meeting of Shareholders. When the number of Directors is changed, any newly
created directorships or any decrease in directorships shall be so apportioned
among the classes by the Board of Directors as to make all classes as nearly
equal in number as possible. If any such Annual Meeting of Shareholders is not
held or the Directors are not elected, the Directors may be elected at any
special meeting of Shareholders held for that purpose. Each Director shall hold
office until his death, resignation or removal or until his successor is duly
elected.
Each individual Director, including each Independent Director, shall have
at least three years of relevant experience demonstrating the knowledge and
experience required successfully to acquire and manage the type of assets being
acquired by the Company, and as set forth in Section 5.15 at least one
Independent Director shall have relevant real estate experience.Directors need
not be Shareholders.
Except as provided in Section 5.3, the Directors elected by the holders of
the Shares at a meeting of Shareholders at which a quorum is present shall be
those persons who receive the greatest number of votes even though they do not
receive a majority of the votes cast. No individual shall be named or elected as
a Director without his prior consent.
5.3 Nomination of Directors. No person shall be eligible for election as a
Director at a meeting of Shareholders unless nominated (i) by the Board of
Directors or any committee thereof or (ii) by a Shareholder who is a Shareholder
of record of a class of Shares entitled to vote for the election of Directors,
both at the time of the giving of the Shareholder's notice hereinafter described
in this Section 5.3 and on the record date for the meeting at which the
nominee(s) will be voted upon, and who complies with the notice procedures set
forth in this Section 5.3.
In order to nominate for election as Directors at a meeting of Shareholders
any persons who are not listed as nominees in the Company's proxy statement for
the meeting, a Shareholder who meets the requirements set forth in the preceding
paragraph must give the Company timely written notice. To be timely, a
Shareholder's notice must be given, either by personal
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delivery to the Secretary of the Company at the principal office of the Company,
or by first class United States mail, with postage thereon prepaid, addressed to
the Secretary of the Company at the principal office of the Company. Any such
notice must be received (i) on or after February 1st and before March 1st of the
year in which the meeting will be held if the meeting is to be an annual meeting
and clause (ii) is not applicable, or (ii) not less than 60 days before an
annual meeting, if the date of the applicable annual meeting is earlier than May
1 or later than May 31 in such year, or (iii) not later than the close of
business on the tenth day following the day on which notice of a special meeting
of Shareholders called for the purpose of electing Directors is first given to
Shareholders.
Each such Shareholder's notice shall set forth the following: (i) as to the
Shareholder giving the notice, (a) the name and address of such Shareholder as
they appear on the Company's stock transfer books, (b) the class and number of
Shares of the Company beneficially owned by such Shareholder, (c) a
representation that such Shareholder is a Shareholder of record at the time of
giving the notice and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, and (d) a description of
all arrangements or understandings, if any, between such Shareholder and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made; and (ii) as to each
person whom the Shareholder wishes to nominate for election as a Director, (a)
the name, age, business address and residence address of such person, (b) the
principal occupation or employment of such person, (c) the class and number of
Shares of the Company which are beneficially owned by such person, and (d) all
other information that is required to be disclosed about nominees for election
as Directors in solicitations of proxies for the election of Directors under the
rules and regulations of the Securities and Exchange Commission. In addition,
each such notice shall be accompanied by the written consent of each proposed
nominee to serve as a Director if elected and such consent shall contain a
statement from the proposed nominee to the effect that the information about him
or her contained in the notice is correct.
5.4 Vacancies. Vacancies in the Board of Directors may be filled by a
majority of the remaining Directors, though less than a quorum, or by a sole
remaining Director, except that a vacancy created by the removal of a Director
by the vote or written consent of the Shareholders or by court order may be
filled only by the vote of a majority of the Shares entitled to vote represented
at a duly held meeting at which a quorum is present, or by the written consent
of holders of a majority of the outstanding Shares entitled to vote. Each
Director so
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elected shall hold office until his successor is elected at an annual or a
special meeting of the Shareholders.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
in case of the death, resignation or removal of any Director or if the
authorized number of Directors is increased or if the Shareholders fail, at any
annual or special meeting of Shareholders at which any Director or Directors are
elected, to elect the full authorized number of Directors to be voted for at
that meeting.
Any Director may resign effective on giving written notice to the Chairman
of the Board, the President, the Secretary, or the Board of Directors. The
Shareholders may elect a Director or Directors at any time to fill any vacancy
or vacancies not filled by the Directors. Any election by written consent to
fill a vacancy shall require the consent of a majority of the outstanding Shares
entitled to vote.
If the Board of Directors accepts the resignation of a Director tendered to
take effect at a future time, the Board or the Shareholders shall have the power
to elect a successor to take office when the resignation is to become effective;
provided, however, that any remaining Independent Directors shall nominate
replacements for vacancies among the Independent Director positions.
No reduction of the authorized number of Directors shall have the effect of
removing any Director prior to the expiration of his term of office.
If the number of vacancies occurring during a year is sufficiently large
that a majority of the Directors in office has not been elected by the
Shareholders, the holders of 5% or more of the outstanding Shares entitled to
vote may call a special meeting of Shareholders to elect the entire Board of
Directors.
5.5 Place of Meeting. Regular meetings of the Board of Directors shall be
held at any place within or without the Commonwealth of Virginia which has been
designated from time to time by the Chairman of the Board or by written consent
of all members of the Board. In the absence of a designation, regular meetings
shall be held at the principal office of the Company. Special meetings of the
Board may be held either at a place so designated or at the principal office.
Members of the Board may participate in a meeting through use of conference
telephone or similar communication equipment, so long as all members
participating in such meeting can hear one another. Participation in a meeting
by telephone or similar communication equipment shall constitute presence in
person at the meeting.
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5.6 Organization Meeting. Immediately following each annual meeting of
Shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, election of officers and the transaction of other
business. Notice of that meeting is hereby dispensed with.
5.7 Special Meetings. Special meetings of the Board of Directors for any
purpose or purposes shall be called at any time by the Chairman of the Board or
the President or Vice President or the Secretary or any two Directors.
Written notice of the time and place of special meetings shall be delivered
personally to the Directors or sent to each Director by mail or by other form of
written communication, charges prepaid, addressed to him at his address as it
appears upon the records of the Company or, if it is not so shown or is not
readily ascertainable, at the place in which the meetings of Directors are
regularly held. In case the notice is mailed, it shall be deposited in the
United States mail in the place in which the principal office of the Company is
located at least four days prior to the time of the meeting. In case the notice
is delivered personally, telegraphed or communicated by electronic means, it
shall be delivered, deposited with the telegraph company or communicated at
least 48 hours prior to the time of the meeting. Mailing, telegraphing or
delivery, as above provided, shall be due legal and personal notice to the
Director.
5.8 Adjournment. A majority of the Directors present, whether or not a
quorum is present, may adjourn any Directors' meeting to another time and place.
5.9 Notice of Adjournment. If a meeting is adjourned for more than 24
hours, notice of any adjournment to another time or place shall be given prior
to the time of the adjourned meeting to the Directors who were not present at
the time of adjournment.
5.10 Entry of Notice. Whenever any Director has been absent from any
special meeting of the Board of Directors, an entry in the minutes to the effect
that notice has been duly given shall be conclusive and incontrovertible
evidence that due notice of the special meeting was given to that Director as
required by law and the Bylaws of the Company.
5.11 Waiver of Notice. The transactions of any meeting of the Board of
Directors, however called and noticed, or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the Directors not
present signs a written waiver of notice of or consent to holding the meeting or
an approval of the minutes. All waivers, consents
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or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
5.12 Quorum. A majority of the authorized number of Directors shall be
necessary to constitute a quorum for the transaction of business, except to
adjourn as provided below or to fill a vacancy. Every act or decision done or
made by a majority of the Directors at a meeting duly held at which a quorum is
present shall be regarded as an act of the Board of Directors unless a greater
number be required by law or by the Articles of Incorporation or these Bylaws.
However, a meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of Directors, if any action
taken is approved by at least a majority of the required quorum for the meeting.
5.13 Fees and Compensation. The Directors shall be entitled to receive such
reasonable compensation for their services as Directors as the Directors may fix
or determine from time to time by resolution of the Board of Directors;
provided, however, that Directors and officers of the Company who are Affiliated
with the Advisor shall not receive compensation from the Company for their
services as Directors or officers of the Company. The Directors, either directly
or indirectly, shall also be entitled to receive remuneration for services
rendered to the Company in any other capacity. Those services may include,
without limitation, services as an officer of the Company, legal, accounting or
other professional services, or services as a broker, transfer agent or
underwriter, whether performed by a Director or any Person Affiliated with a
Director.
5.14 Action Without Meeting. Any action required or permitted to be taken
by the Board of Directors under the Virginia Stock Corporation Act and these
Bylaws may be taken without a meeting if all members of the Board individually
or collectively consent in writing to such action. The consent or consents shall
be filed with the minutes of the meetings of the Board. Any certificate or other
document filed under the provision of the Virginia Stock Corporation Act which
relates to action so taken shall state that the action was taken by unanimous
written consent of the Board of Directors without a meeting.
5.15 Independent Directors. At all times after Initial Closing (as defined
in the Prospectus), a majority of the Directors of the Company, and a majority
of the members of any Board committee, will be Independent Directors, except
during the 60 days following the departure of an Independent Director. Successor
Independent Directors will be nominated by any remaining Independent Directors.
At least one of the Independent Directors shall have had three years of actual
direct experience in acquiring or managing the type of real estate to be
acquired
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by the Company for his or her account or as an agent. The Directors shall, in
good faith, determine for all purposes which persons constitute or would
constitute Independent Directors and which persons do not or would not
constitute Independent Directors. Notwithstanding any other provision of these
Bylaws, the Independent Directors, in addition to their other duties, to the
extent that they may legally do so, shall:
(a) Monitor the relationship of the Company with the Advisor. In this
regard, the Independent Directors as a group, in addition to all Directors as a
group, will monitor the Advisor's performance of the advisory contract and will
determine at least annually that the Advisor's compensation is reasonable in
relation to the nature and quality of services performed. This determination
will be based on (i) the size of the advisory fee in relationship to the size,
composition and profitability of the invested assets; (ii) the investment
opportunities generated by the Advisor; (iii) advisory fees paid to other
advisors by other real estate investment trusts and to advisors performing
similar services by investors other than real estate investment trusts; (iv)
additional revenues realized by the Advisor and its Affiliates through their
relationship with the Company, including loan administration, underwriting or
broker commissions, servicing, engineering, inspection and other fees, whether
paid by the Company or by others with whom the Company does business; (v) the
quality and extent of service and advice furnished by the Advisor; (vi) the
performance of the investment portfolio of the Company, including income,
conservation or appreciation of capital, frequency of problem investments and
competence in dealing with distress situations; (vii) quality of the portfolio
of the Company in relationship to the investments generated by the Advisor for
its own account; and (viii) all other factors the Independent Directors may deem
relevant. The Independent Directors will also determine that the Advisor's
compensation is within the limits prescribed by Sections 8.5, 8.6 and 8.7.
The Independent Directors shall approve all transactions between the
Company and the Advisor or any Affiliates of the Advisor (other than as provided
in Section 10.1 herein). The material terms and circumstances of all such
approved transactions shall be fully disclosed in the Annual Report of the
Company as required by Section 11.8, and the Independent Directors shall examine
and comment in the Annual Report on the fairness of such transactions.
(b) Review at least annually the Company's investment policies to
determine that they remain in the best interests of the Shareholders. The
findings of the Independent Directors shall be set forth in the minutes of
meetings of the Board of Directors. Such investment policies may be altered from
time to time by the Board of Directors with the consent of a majority of the
Independent Directors and without approval of the
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Shareholders upon a determination that such a change is in the best interests of
the Company and the Shareholders.
(c) Take reasonable steps to ensure that the Annual Report is sent to
Shareholders and that the annual meeting is conducted pursuant to Article IV.
(d) Determine at least annually that the total fees and expenses of
the Company are reasonable in light of its Net Assets and Net Income, the
investment experience of the Company, and the fees and expenses of comparable
advisors in real estate. In this regard, the Independent Directors will have the
fiduciary responsibility of limiting Operating Expenses to amounts that do not
exceed the limitation set forth in Section 8.5, unless they conclude that a
higher level of expense is justified for such a year based on unusual and
nonrecurring factors which they deem sufficient.
Within 60 days after the end of any fiscal quarter of the Company for which
Operating Expenses (for the 12 months then ended) exceed the limitations set
forth in Section 8.5, there shall be sent to the Shareholders a written
disclosure of such fact together with an explanation of the factors the
Independent Directors considered in arriving at the conclusion that the higher
Operating Expenses were justified. In the event the Independent Directors
determine that the excess expenses are not justified, the Advisor shall
reimburse the Company at the time and in the manner set forth in the Company's
agreement with the Advisor.
(e) The Independent Directors shall review at least quarterly the
aggregate borrowings, secured and unsecured, of the Company to determine that
the relation of such borrowings to Net Assets does not exceed the limitations
set forth in Sections 8.8 and 9.1(k) and (l) of these Bylaws. Any excess in
borrowings over the limitations set forth in Sections 9.1(k) and (l) shall be
approved by a majority of the Independent Directors and disclosed to
Shareholders in the next quarterly report of the Company, along with a
justification of the excess.
(f) For all purposes, a transaction which is subject to approval by
the Independent Directors shall be approved if the Independent Directors voting
to approve the transaction in any vote of the Directors or the Independent
Directors constitute an absolute majority of all Independent Directors serving
at such time.
5.16 Removal of Director for Cause. The Board of Directors may declare
vacant the office of a Director who has been declared of unsound mind by an
order of court, or who has pled guilty or nolo contendere to or been convicted
of a felony involving moral turpitude. In addition, throughout the term of
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the existence of the Company, any Director may be removed for cause by: (i) a
vote or written consent of all Directors other than the Director who is to be
removed, or (ii) the vote of the holders of a majority of the outstanding Shares
of the Company at a meeting of the Shareholders called for such purpose. The
notice for such special meeting of Shareholders shall state that the purpose, or
one of the purposes, of the meeting is to vote on the removal of a Director.
"For cause" shall mean, for purposes of this Section, a willful violation of the
Articles of Incorporation or these Bylaws, or gross negligence in the
performance of a Director's duties.
5.17 Removal of Director Without Cause. Any or all Directors may be removed
without cause upon the affirmative vote of a majority of the outstanding Shares
entitled to vote. A Director may be removed by the Shareholders only at a
meeting called for the purpose of removing him and the meeting notice must state
that the purpose, or one of the purposes of the meeting, is removal of the
Director. Any reduction of the authorized number of Directors shall not operate
to remove any Director prior to the expiration such Director's term of office.
5.18 Committees. The Board of Directors may, by resolution adopted by a
majority of the authorized number of Directors, designate one or more
committees, each consisting of three or more Directors, to serve at the pleasure
of the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized number
of Directors. Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have all the authority of the Board of Directors
in the management of the business and affairs of the Company, except that no
committee shall have authority to take any action with respect to (i) the
approval of any action requiring Shareholders' approval or approval of the
outstanding Shares, (ii) the filling of vacancies of the Board or any committee,
(iii) the fixing of compensation of Directors for serving on the Board or a
committee, (iv) the adoption, amendment or repeal of these Bylaws, (v) the
amendment or repeal of any resolution of the Board that by its express terms is
not so amendable or repealable, (vi) a distribution to Shareholders, except at a
rate or in a periodic amount or within a price range determined by the Board,
and (vii) the appointment of other committees of the Board or the members
thereof. A majority of the Directors on all committees must be Independent
Directors and only Independent Directors may serve as alternate members for
Independent Directors on committees. However, notwithstanding anything to the
contrary in these Bylaws, the Board of Directors may appoint a committee to
administer any stock incentive plan adopted by the Company, which committee may
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have as few as two (2) Directors, and each of whose Directors may be either an
Independent Director or not an Independent Director, except as otherwise
provided in the applicable stock incentive plan.
5.19 Fiduciary Relationship. The Directors of the Company have a fiduciary
relationship to the Shareholders as provided by applicable Virginia law, which
includes a fiduciary duty to the Shareholders to supervise the relationship of
the Company with the Advisor. A majority of the Independent Directors must
approve matters which these Bylaws state are subject to the approval of the
Independent Directors.
ARTICLE VI
OFFICERS
6.1 Officers. The officers of the Company shall be as determined by the
Board of Directors and shall include a President and Secretary, and may include
a Chairman of the Board, Chief Financial Officer (Treasurer) and such other
officers with such titles and duties as may be appointed in accordance with the
provisions of Section 6.3 of this Article. Any number of offices may be held by
the same person.
6.2 Election. The officers of the Company, except such officers as may be
appointed in accordance with the provisions of Section 6.3 or Section 6.5 of
this Article, shall be chosen annually by the Board of Directors to serve at the
pleasure of the Board of Directors, and each shall hold his office until he
shall resign or shall be removed or otherwise disqualified to serve or his
successor shall be elected and qualified. All officers serve at the will of the
Board of Directors and nothing in these Bylaws shall give any officer any
expectation or vesting of employment.
6.3 Subordinate Officers. The Board of Directors may appoint other officers
as the business of the Company may require, each of whom shall hold office for
the period, have the authority and perform the duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
6.4 Removal and Resignation. Any officer may be removed, either with or
without cause, by a majority of the Directors at the time in office, at any
regular or special meeting of the Board or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the Chairman, the President or to the Secretary of the Company.
A resignation
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shall take effect at the date of the receipt of the notice or any later time
specified in the notice; and, unless otherwise specified, the acceptance of the
resignation shall not be necessary to make it effective.
6.5 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these Bylaws for regular appointments to such office.
6.6 Chairman of the Board. The Chairman of the Board shall be the Chief
Executive Officer of the Company, and, if present, shall preside at all meetings
of the Board of Directors and Shareholders and exercise and perform all other
powers and duties as may from time to time be assigned to him by the Board of
Directors or prescribed by these Bylaws.
6.7 President. The President shall, subject to the Board of Directors and
the supervisory powers of the Chairman of the Board, have general supervision,
direction and control of the business of the Company. He shall preside at
meetings of the Shareholders or at meetings of the Board of Directors if the
Chairman is absent. He shall have general powers and duties of management,
together with any other powers and duties as may be prescribed by the Board of
Directors.
6.8 Vice Presidents. In the absence or disability of the President, the
Vice Presidents in order of their rank as fixed by the Board of Directors or, if
not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon, the President. The Vice
Presidents shall have any other powers and shall perform other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or these Bylaws.
6.9 Secretary. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office, or any other place as the Board of Directors
may order, of all meetings of Directors or Shareholders, with the time and place
of holding, whether regular or special and, if special, how authorized, the
notice thereof given, the names of those present at Directors' meetings, the
number of Shares present or represented at Shareholders' meetings and the
proceedings of meetings.
The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the Company's transfer agent, a Share register or a duplicate
Share register showing the names of the Shareholders and their addresses, the
number and classes of Shares held by each (whether in certificate or "unissued
certificate" form), the number and the date of
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certificates issues, if any, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the Shareholders and of the Board of Directors required by these Bylaws or by
law to be given, shall keep the seal of the Company (if any) in safe custody and
shall have such other powers and shall perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
6.10 Assistant Secretaries. In the absence or disability of the Secretary,
the Assistant Secretaries in order of their rank as fixed by the Board of
Directors or, if not ranked, the Assistant Secretary designated by the Board of
Directors, shall perform all the duties of the Secretary and, when so acting,
shall have all the powers of and be subject to all the restrictions upon, the
Secretary. The Assistant Secretaries shall have any other powers and shall
perform other duties as from time to time may be prescribed for them by the
Board of Directors or these Bylaws.
6.11 Chief Financial Officer. The Chief Financial Officer may also be
designated by the alternate title of "Treasurer." The Chief Financial Officer
shall have custody of all moneys and securities of the Company and shall keep
regular books of account. Such officer shall disburse the funds of the Company
in payment of the just demands against the Company, or as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors from time to time as may be required of such
officer, an account of all transactions as Chief Financial Officer and of the
financial condition of the Company. Such officer shall perform all duties
incident to such officer or which are properly required by the President or by
the Board of Directors.
6.12 Assistant Chief Financial Officers. The Assistant Treasurer or the
Assistant Treasurers, in the order of their seniority, shall, in the absence or
disability of the Chief Financial Officer, or in the event of such officer's
refusal to act, perform the duties and exercise the powers of the Chief
Financial Officer, and shall have such powers and discharge such duties as may
be assigned from time to time by the President or by the Board of Directors.
ARTICLE VII
SHARES OF STOCK
7.1 Registered Ownership, Share Certificates and Shares in "Unissued
Certificate" Form. Certificates shall be issued and transferred in accordance
with these Bylaws, but need not be issued if the Shareholder elects to have his
Shares
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maintained in "unissued certificate" form. The Persons in whose names
certificates of Shares in "unissued certificate" form are registered on the
records of the Company shall be deemed the absolute owners of the Shares
represented thereby for all purposes of the Company; but nothing in these Bylaws
shall be deemed to preclude the Directors or officers, or their agents or
representatives, from inquiring as to the actual ownership of Shares. The Shares
are non-assessable. Until a transfer is duly effected on the records of the
Company, the Directors shall not be affected by any notice of transfer, either
actual or constructive. The receipt by the Person in whose name any Shares are
registered on the records of the Company or of the duly authorized agent of that
Person, or if the Shares are so registered in the names of more than one Person,
the receipt by any one of these Persons, or by the duly authorized agent of that
Person, shall be a sufficient discharge for all dividends or distributions
payable or deliverable in respect of the Shares and from all liability to see
the application of those funds. The certificates of Shares of the capital stock
of the Company, if any, shall be in a form consistent with the Articles of
Incorporation and the laws of the Commonwealth of Virginia as shall be approved
by the Board of Directors. All certificates shall be signed by (i) the Chairman
of the Board or the President or a Vice President and (ii) the Treasurer or the
Secretary or any Assistant Secretary, certifying the number of Shares and the
class or series of Shares owned by the Shareholder. Any or all of the signatures
on the certificate may be facsimile signatures.
7.2 Transfer of Shares. Subject to the provisions of law and of Sections
7.3, 7.4 and 7.5, Shares shall be transferable on the records of the Company
only by the record holder or by his agent thereunto duly authorized in writing
upon delivery to the Directors or a transfer agent of the certificate or
certificates (unless held in "unissued certificate" form, in which case an
executed stock power duly guaranteed must be delivered), properly endorsed or
accompanied by duly executed instruments of transfer and accompanied by all
necessary documentary stamps together with evidence of the genuineness of each
endorsement, execution or authorization and of other matters as may reasonably
be required by the Directors or transfer agent. Upon delivery, the transfer
shall be recorded in the records of the Company and a new certificate, if
requested, for the Shares so transferred shall be issued to the transferee and
in case of a transfer of only a part of the Shares represented by any
certificate or account, a new certificate or statement of account for the
balance shall be issued to the transferor. Any Person becoming entitled to any
Shares in consequence of the death of a Shareholder or otherwise by operation of
law shall be recorded as the holder of such Shares and shall receive a new
certificate, if requested, but only upon delivery to the Directors or a transfer
agent of instruments and other evidence required by the Directors or the
transfer agent to demonstrate that entitlement, the
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existing certificate (or appropriate instrument of transfer if held in "unissued
certificate" form) for the Shares and any necessary releases from applicable
governmental authorities. Nothing in these Bylaws shall impose upon the
Directors or a transfer agent any duty or limit their rights to inquire into
adverse claims.
7.3 Disclosures by Holders of Shares; Redemption of Shares. The Holders of
the Shares shall upon demand disclose to the Directors in writing such
information with respect to direct and indirect ownership of their Shares as the
Directors deem necessary to comply with the provisions of the Internal Revenue
Code of 1986, as amended, and applicable regulations, as amended, or to comply
with the requirements of any taxing authority. If the Directors shall at any
time and in good faith be of the opinion that direct or indirect ownership of
the Shares of the Company has or may become concentrated to an extent which
would prevent the Company from qualifying as a REIT under the REIT provisions of
the Internal Revenue Code, the Directors shall have the power by lot or other
means deemed equitable by them to prevent the transfer and/or call for
redemption of a number of the Shares sufficient in the opinion of the Directors
to maintain or bring the direct or indirect ownership of the Shares into
conformity with the requirements for a REIT. The redemption price shall be (i)
the last reported sale price of the Shares on the last business day prior to the
redemption date on the principal national securities exchange on which the
Shares are listed or admitted to trading, or (ii) if the Shares are not so
listed or admitted to trading, the average of the highest bid and lowest asked
prices on such last business day as reported by the NASDAQ, National Quotation
Bureau or a similar organization selected by the Company for that purpose, or
(iii) otherwise, as determined in good faith by the Directors. The holders of
any Shares so called for redemption shall be entitled to payment of such
redemption price within 21 days of the redemption date. From and after the date
fixed for redemption, the holders of such Shares shall cease to be entitled to
dividends, distributions, voting rights and other benefits with respect to the
Shares, excepting only the right to payment of the redemption price fixed as
described above. The redemption date with respect to any Shareholders shall be
the date specified by the Directors which is not less than one week after the
date postmarked on the disclosure demand made by the Directors under this
Section 7.3, or, if such date is not a business day, on the next business day
thereafter. For the purpose of this Section 7.3, the term "individual" shall be
construed as provided in Section 542(a)(2) of the Internal Revenue Code of 1986,
as amended, or any successor provisions and "ownership" of Shares shall be
determined as provided in Section 544 of the Internal Revenue Code of 1986, as
amended, or any successor provision.
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7.4 Right to Refuse to Transfer the Shares. Whenever it is deemed by them
to be reasonably necessary to protect the tax status of the Company, the
Directors may require statements or affidavits from any holder of the Shares or
proposed transferee of the Shares or warrants to purchase such Shares, setting
forth the number of Shares (and warrants to purchase such Shares) already owned
by him and any related Person specified in the form prescribed by the Directors
for that purpose. If, in the opinion of the Directors, which shall be conclusive
upon any proposed transferor or proposed transferee of Shares, or warrants to
purchase such Shares, any proposed transfer or exercise would jeopardize the
status of the Company as a REIT under the Internal Revenue Code of 1986, as
amended, the Directors may refuse to permit the transfer or exercise. Any
attempted transfer or exercise as to which the Directors have refused their
permission shall be void and of no effect to transfer any legal or beneficial
interest in the Shares. All contracts for the sale or other transfer or exercise
of the Shares or warrants to purchase such Shares, shall be subject to this
provision.
7.5 Limitation on Acquisition of Shares.
(a)(i) Subject to the provisions of Section 7.5(b), no Person may own
in excess of 9.8% of the total outstanding Shares, and no Shares shall be
transferred (or issued) to any Person if, following the transfer, the Person's
direct or indirect ownership of Shares would exceed this limit. For the purpose
of this Section 7.5, ownership of Shares shall be computed in accordance with
Internal Revenue Code Sections 856(h), 542(a)(2) and 544. The term "transfer"
shall include any sale, transfer, gift, assignment, devise or other disposition
of Shares, whether voluntary or involuntary, whether of record, constructive or
beneficial, and whether by operation of law or otherwise.
(ii) In the event any Person acquires Excess Shares (as defined below)
in contravention of the limitation on acquisition of Shares set forth in Section
7.5(a)(i), such Excess Shares may be redeemed by the Company at the discretion
of the Board of Directors. The redemption price for redeemed Excess Shares shall
be the lesser of (i) the price paid for the Excess Shares (or if there is no
purchase price, at a price to be determined by the Board of Directors, in its
sole discretion, but no lower than the lowest market price for the Common Shares
during the year prior to the date the Company exercises its purchase option) and
(ii) the fair market value of such Excess Shares, which shall be the fair market
value of the Shares as determined in good faith by the Board of Directors or, if
the Shares are listed on a national securities exchange, the closing price
(average of closing bid and asked prices if the Shares are quoted on the NASDAQ
National Market System) on the last business day prior to the redemption date.
To redeem Excess Shares, the
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Directors shall give a notice of redemption to the holder of such Excess Shares
not less than one week before the date fixed by the Directors for redemption.
The holder of such Excess Shares may sell such Excess Shares before the date
fixed for redemption. The redemption right granted to the Company by this
Section 7.5(a)(ii) shall be in addition to any other redemption right granted by
these Bylaws or by law.
(b) If Shares are purportedly acquired by any Person in violation of
this Section 7.5, the acquisition shall be valid only to the extent it does not
result in a violation of this Section 7.5, and the acquisition shall be null and
void with respect to the excess ("Excess Shares") unless the Person acquiring
the Excess Shares provides the Independent Directors with evidence so that the
Independent Directors are satisfied that the Company's qualification as a REIT
will not be jeopardized. Excess Shares shall be deemed to have been acquired and
to be held on behalf of the Company, and, as the equivalent of treasury shares
for that purpose, shall not be considered to be outstanding for quorum or voting
purposes, and shall not be entitled to receive dividends, interest or any other
distribution. Holders of Excess Shares are not entitled to voting rights,
dividends or distributions. If, after the purported transfer or other event
resulting in an exchange of Common Shares for Excess Shares and before discovery
by the Company of such exchange, (i) voting rights are purportedly exercised
with respect to Common Shares which have become Excess Shares, or (ii) dividends
or distributions are paid with respect to Common Shares that were exchanged for
Excess Shares, then (A) any votes attributable to such Excess Shares will be
deemed rescinded and void ab initio, and (B) such dividends or distributions are
to be repaid to the Company upon demand.
(c) This Section 7.5 shall apply to the acquisition of Shares only
after conclusion of the Company's initial public offering of its Shares, and a
Shareholder will not be required to dispose of Excess Shares acquired prior to
the conclusion of that offering. So long as any Person holds more than 9.8% of
the outstanding Shares, a lower percentage limit may be established by the
Directors to the extent necessary to assure, to the extent possible, that no
five persons own in the aggregate more than 50% of the outstanding Shares.
(d) The Company shall, if deemed necessary or desirable to implement
the provisions of any portion of this Article VII, include on the face or back
of each Share certificate issued by the Company an appropriate legend referring
the holder of the certificate to the restrictions contained in any portion of
this Article VII and stating that the complete text of Article VII, or these
Bylaws, is on file with the Secretary of the Company at the Company's offices,
and/or will be furnished without charge by the Company to any Shareholder.
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(e) Subject in all respects to Section 11.16 hereof, nothing in these
Bylaws (other than such Section 11.16) shall limit the ability of the Directors
to impose, or to seek judicial or other imposition of additional restrictions if
deemed necessary or advisable to protect the Company and the interests of its
Shareholders by preservation of the Company's status as a qualified REIT.
(f) If any provision of this Section 7.5 is determined to be invalid,
in whole or in part, by any federal or state court having jurisdiction, the
validity of the remaining provisions shall not be affected and the provision
shall be affected only to the extent necessary to comply with the determination
of the court.
(g) For purposes of this Section 7.5 only, "Shares" means the Common
Shares of the Company as defined in these Bylaws, and includes any Shares
issuable upon conversion, surrender or exercise of any other Securities of the
Company.
(h) The Advisor and its Affiliates shall not purchase in the offering
made by the Company's Prospectus dated December 31, 1992 more than 2.5% of the
total number of Shares sold in such offering. This limitation shall not apply to
any Shares issued pursuant to a stock incentive plan duly adopted by the
Company.
(i) The Company shall have the right to issue fractional Shares.
7.6 Lost or Destroyed Certificates. The holder of any Shares shall
immediately notify the Company of any loss or destruction of the Share
certificates, and the Company may issue a new certificate in the place of any
certificate alleged to have been lost or destroyed upon approval of the Board of
Directors. The Board may, in its discretion, as a condition to authorizing the
issue of such new certificate, require the owner of the lost or destroyed
certificate, or his legal representative, to make proof satisfactory to the
Board of Directors of the loss or destruction and to give the Company a bond or
other security, in such amount and with such surety or sureties, as the Board of
Directors may determine as indemnity against any claim that may be made against
the Company on account of the certificate alleged to have been lost or
destroyed.
7.7 Dividend Record Date and Closing Stock Books. The Board of Directors
may fix a date in the future as a record date for the determination of the
Shareholders entitled to receive any dividend or distribution or any allotment
of rights or to exercise rights with respect to any change, conversion or
exchange of Shares. The record date so fixed shall not be more than 60 days or
less than 10 days prior to the date of the event
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for the purposes of which it is fixed. When a record date is so fixed, only
Shareholders of record on that day shall be entitled to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any Shares on the books of the Company after
the record date.
7.8 Dividend Reinvestment Plan. The Company's Dividend Reinvestment Plan
shall provide that:
(a) all material information regarding the distribution to the
Shareholder and the effect of reinvesting such distribution, including the tax
consequences thereof, shall be provided to the Shareholder at least annually,
and
(b) each Shareholder participating in the Dividend Reinvestment Plan
shall have a reasonable opportunity to withdraw from the Dividend Reinvestment
Plan at least annually after receipt of the information required by Section
7.8(a) of these Bylaws.
ARTICLE VIII
EMPLOYMENT OF ADVISOR, LIMITATION
ON EXPENSES AND LEVERAGE
8.1 Employment of Advisor. The Directors have absolute and exclusive
control of the management of the Company, its property and the disposition
thereof. The Directors are responsible for the general policies of the Company
and for general supervision of the business of the Company conducted by all
officers, agents, employees, advisors, managers or independent contractors of
the Company as may be necessary to insure that the business conforms to the
provisions of these Bylaws. However, the Directors shall not be required
personally to conduct all the business of the Company, and subject to their
ultimate responsibility as stated above, the Directors shall have the power to
appoint, employ or contract with any Person (including one or more of themselves
or any corporation, partnership, or company in which one or more of them may be
directors, officers, stockholders, partners or directors) as the Directors may
deem necessary or proper for the transaction of the business of the Company. The
Directors may employ or contract with such a Person and the Directors may grant
or delegate authority to any such Person as the Directors may in their sole
discretion deem necessary or desirable without regard to whether that authority
is normally granted or delegated by Directors.
The Directors (subject to the provisions of this Article VIII) shall have
the power to determine the terms and compensation of the Advisor or any other
Person whom they may employ or with whom they may contract; provided, however,
that
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any determination to employ or contract with any Director or any Person of which
a Director is an Affiliate, shall be valid only if made, approved or ratified by
the Independent Directors. The Directors may exercise broad discretion in
allowing the Advisor to administer and regulate the operations of the Company,
to act as agent for the Company, to execute documents on behalf of the Company,
and to make executive decisions which conform to general policies and general
principals previously established by the Directors. The Directors must evaluate
the performance of the Advisor and the criteria used in such evaluation shall be
reflected in the minutes of the meeting.
Notwithstanding anything to the contrary in the advisory contract or these
Bylaws, the Advisor shall not be required to, and shall not, advise the Company
as to any investments in securities, except when, and to the extent that, the
Advisor and the Company specifically agree (i) that such advice is desirable,
and (ii) that such advice can be rendered consistently with applicable legal
requirements, including any applicable provisions of relevant "investment
advisor" laws. The Directors and officers of the Company shall be responsible
for decisions as to investments in securities, except insofar as the Directors
elect to consult with (i) the Advisor in compliance with the preceding sentence,
or (ii) any other Person in compliance with any applicable laws.
8.2 Term. The Directors shall not enter into any advisory contract with the
Advisor unless the contract has a term of no more than one year and provides for
annual renewal or extension thereafter, except that the initial contract may
have a term ending one year after Final Closing, where "Final Closing" is the
last closing of the sale of Shares offered by the Prospectus. The Directors
shall not enter into a similar contract with any Person of which a Director is
an Affiliate unless the contract provides for renewal or extension by the
Independent Directors. The advisory contract with the Advisor may be terminated
by the Advisor upon 60 days' written notice or by the Company without cause by
action of the Independent Directors of the Company upon 60 days' written notice,
in a manner to be set forth in the advisory contract with the Advisor. The
advisory contract shall also require the Advisor to cooperate with the Company
to provide an orderly management transition after any termination. The Directors
shall determine that any successor Advisor (i) is qualified to perform advisory
functions for the Company and (ii) can justify the compensation provided for in
the advisory contract.
8.3 Other Activities of Advisor. The Advisor shall not be required to
administer the investment activities of the Company as its sole and exclusive
function and may have other business interests and may engage in other
activities similar or in addition to those relating to the Company, including
the
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performance of services and advice to other Persons (including other real estate
investment companies) and the management of other investments (including
investments of the Advisor and its Affiliates). The Directors may request the
Advisor to engage in other activities which complement the Company's investment,
and the Advisor may receive compensation or commissions for those activities
from the Company or other Persons.
The Advisor shall be required to use its best efforts to present a
continuing and suitable investment program to the Company which is consistent
with the investment policies and objectives of the Company, but neither the
Advisor nor any Affiliate of the Advisor shall be obligated generally to present
any particular investment opportunity to the Company even if the opportunity is
of a character which, if presented to the Company, could be taken by the
Company, and, subject to the forgoing, shall be protected in taking for its own
account or recommending to others the particular investment opportunity.
Upon request of any Director, the Advisor and any Person who controls, is
controlled by, or is under common control with the Advisor, shall from time to
time promptly furnish the Directors with information on a confidential basis as
to any investments within the Company's investment policies made by the Advisor
or the other Person for its own account.
8.4 Limitation on Offering and Organization Expenses and Acquisition Fees
and Expenses. The Offering and Organization Expenses paid by the Company in
connection with the Company's formation or the offering of its Shares or other
Securities shall in each case be reasonable and in no event exceed an amount
equal to 15% of the gross proceeds raised in any such offering.
The total of all Acquisition Fees and Acquisition Expenses paid by the
Company in connection with the purchase of real property by the Company shall be
reasonable and shall in no event exceed an amount equal to 6% of the Contract
Price for such real property, or, in the case of a mortgage loan, 6% of the
funds advanced, unless a majority of the Directors (including a majority of the
Independent Directors) not otherwise interested in the transaction approve the
transaction as being commercially competitive, fair and reasonable to the
Company.
Any Offering and Organization Expenses or Acquisition Fees and Acquisition
Expenses incurred by the Company in excess of the permitted limits set forth in
this Section 8.4 shall be payable by the Advisor immediately upon demand of the
Company.
8.5 Limitation on Operating Expenses. The total Operating Expenses of the
Company, including fees paid to the Advisor, shall not exceed in any year the
greater of 2% of the total Average Invested Assets of the Company or 25% of the
Net
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Income of the Company for such year. Subject to the determination referred to in
Section 5.14(d), the Advisor shall reimburse the Company at least annually for
the amount by which Operating Expenses of the Company exceed the above
limitations. All figures used in the foregoing computation shall be determined
in accordance with generally accepted accounting principals applied in a
consistent basis. The compensation of the Advisor shall be computed by an
independent certified public accountant at the end of each year and there shall
be made any necessary adjustments between the compensation so computed and that
already paid.
8.6 Limitation on Real Estate Brokerage Commissions on Purchase and Resale
of Property. If the Advisor, any Director or any Affiliate thereof provides a
substantial amount of the services in the effort to purchase or sell the real
property of the Company, then such Person may receive a real estate or brokerage
commission which is reasonable, customary and competitive in light of the size,
type and location of such property; provided that such commission shall not
exceed an amount equal to 2% of the contracted for purchase or sales price for
such property. In the event such real estate or brokerage commissions are also
payable to any other party pursuant to such transactions, the Advisor, any
Director or any Affiliate may receive up to one-half of the brokerage commission
paid but in no event to exceed an amount equal to 2% of the contracted for
purchase or sales price for such property. In addition, the amount paid when
added to the sums paid to unaffiliated parties in such a capacity shall not
exceed the lesser of the Competitive Real Estate Commission or an amount equal
to 6% of the contracted for sales price. The Company may enter into an agreement
(with any term approved by the Directors) pursuant to which the Advisor, any
Director or any Affiliate thereof will provide the services referred to in this
Section with respect to all of the Company's properties, and will receive
compensation therefor.
8.7 Limitation on Incentive Fees. An incentive fee based upon an interest
in the gain from the sale, financing or refinancing of real property of the
Company, for which full consideration is not paid in cash or property of
equivalent value, shall be allowed provided the amount or percentage of such
interest is reasonable. Such an interest in gain from the sale of real property
of the Company shall be considered reasonable if it does not exceed 15% of the
balance of such gain remaining after payment to Shareholders, in the aggregate,
of an amount equal to 100% of the adjusted price per Share (defined to be the
original issue price of the Common Shares reduced by prior distributions of gain
from the sale of the Company's assets), plus an amount equal to a 6% per annum
cumulative (noncompounded) return on the adjusted price per Share. In the case
of multiple Advisors, Advisors and their Affiliates shall be allowed incentive
fees provided such fees are distributed by a
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proportional method reasonably designed to reflect the value added to such
assets by each respective Advisor or Affiliate. Distribution of incentive fees
to Advisors and their Affiliates in proportion to the length of time served as
Advisor while such property was held by the Company or in ratio to the fair
market value of the asset at the time of the Advisor's termination, and the fair
market value of the asset upon its disposition by the Company shall be
considered reasonable methods by which to apportion incentive fees.
8.8 Limitations on Leverage. All borrowings by the Company must be approved
by the Directors. The aggregate borrowings of the Company, secured and
unsecured, shall be reasonable in relation to the Net Assets of the Company and
shall be reviewed by the Directors at least quarterly.
ARTICLE IX
RESTRICTIONS ON INVESTMENTS AND ACTIVITIES
9.1 Restrictions. Notwithstanding any other provision of these Bylaws, the
Company shall not:
(a) invest more than 10% of the total assets of the Company in
Unimproved Real Property or mortgage loans on Unimproved Real Property;
(b) invest in commodities or commodity future contracts or effect
short sales of commodities or securities, except when done solely for hedging
purposes;
(c) invest in or make mortgage loans on property unless the Company
shall obtain a mortgagee's or owner's title insurance policy or commitment as to
the priority of the mortgage or the condition of the title;
(d) invest in contracts for the sale of real estate unless they are
recordable in the chain of title;
(e) make or invest in mortgage loans, including construction loans, on
any one property if the aggregate amount of all mortgage loans outstanding on
the property (at the time the Company makes or invests in its mortgage loan),
including the loans of the Company, would exceed 85% of the appraised value of
the property;
(f) make or invest in junior mortgage loans (provided that this and
the preceding limitation shall not apply to the Company taking back secured debt
in connection with the sale of any property);
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(g) issue securities that are redeemable, unless the Board of
Directors determines that the issuance of redeemable securities, such as
redeemable preferred shares, is in furtherance of the financing plans and
objectives of the Company;
(h) issue debt securities unless the historical debt service coverage
(in the most recently completed fiscal year) as adjusted for known changes is
sufficient to properly service the higher level of debt or unless the cash flow
of the Company (for the last fiscal year) excluding extraordinary, nonrecurring
items, is sufficient to cover the debt service on all debt securities to be
outstanding;
(i) invest in the equity securities of any non- governmental issuer,
including other REITs or limited partnerships for a period in excess of 18
months unless the Board of Directors determines such action to be in furtherance
of the investment objectives and policies of the Company;
(j) issue equity securities on a deferred payment basis or other
similar arrangement;
(k) incur any indebtedness, secured or unsecured, which would result
in an aggregate amount of indebtedness in excess of 100% of Net Assets (before
subtracting any liabilities), unless any excess borrowing over such 100% level
shall be approved by a majority of the Independent Directors and disclosed to
the Shareholders in the next quarterly report of the Company, along with
justification for such excess;
(l) allow aggregate borrowings of the Company to exceed 50% of the
Adjusted Net Asset Value (before subtracting any liabilities) of the Company,
unless any excess borrowing over such 50% level shall be approved by a majority
of the Independent Directors and disclosed to the Shareholders in the next
quarterly report of the Company, along with justification for such excess;
(m) invest in single-family residential homes, condominiums, secondary
homes, resort or recreation properties, nursing homes, gaming facilities, mobile
home parks, any other commercial or industrial properties (other than shopping
centers), or undeveloped land except in connection with the acquisition of an
existing apartment complex or shopping center;
(n) engage in any short sale, underwrite or distribute, as an agent,
securities issued by others, or engage in trading, as compared with investment
activities; and
(o) acquire Securities in any company holding investments or engaging
in activities prohibited by the Internal Revenue Code of 1986, as amended,
Virginia law or this Section 9.1.
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The foregoing limitations shall not limit the manner in which any required
investment by the Advisor or its Affiliates in the Company is made or preclude
the Company from structuring an investment in real property to minimize
Shareholder liability and facilitate the investment policies of the Company
under Article IX.
ARTICLE X
TRANSACTIONS WITH AFFILIATES; CERTAIN DUTIES AND LIABILITIES
OF DIRECTORS, SHAREHOLDERS, ADVISOR AND AFFILIATES
10.1 Transactions with Affiliates.
(a) Neither the Advisor nor any Affiliate of the Advisor shall sell,
transfer or lend any assets or property to the Company or purchase, borrow or
otherwise acquire any assets or property from the Company, directly or
indirectly, unless the transaction comes within one of the following exceptions:
(i) the transaction consists of the acquisition of property or assets
at the formation of the Company or shortly thereafter, and is fully
disclosed in the Prospectus; or
(ii) the transaction is a borrowing of money by the Company on terms
not less favorable than those then prevailing for comparable arms-length
borrowings; or
(iii) the transaction consists of the acquisition by the Company of
federally insured or guaranteed mortgages at prices not exceeding the
currently quoted prices at which the Federal National Mortgage Association
is purchasing comparable mortgages; or
(iv) the transaction consists of the acquisition of other mortgages if
an Appraisal is obtained concerning the underlying property and on terms
not less favorable to the Company than similar transactions involving
unaffiliated parties; or
(v) the transaction consists of the acquisition by the Company of
other property at prices not exceeding the fair value thereof as determined
by an independent Appraisal.
All of the above transactions and all other transactions (other than the
entering into, and the initial term under, the Advisory Agreement, the Property
Acquisition/Disposition Agreement, and the Property Management Agreement for
each property acquired by the Company, each of which agreement is specifically
disclosed in the Prospectus), whether such
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transaction involves the transfer of property, the lending of money or the
rendition of any services, in which any such Persons have any direct or indirect
interest shall be permitted only if:
(i) such transaction has been approved by the affirmative vote of
the majority of the Independent Directors; and
(ii) if the transaction involves the purchase or acquisition of
property, the purchase or acquisition from any such Person is on terms
not less favorable to the Company than those then prevailing for
arms-length transactions concerning comparable property (based upon a
determination of a majority of the Directors, including a majority of
the Independent Directors); and
(iii) each such transaction is in all respects on such terms at
the time of the transaction and under the circumstances then
prevailing, fair and reasonable to the Shareholders of the Company
and, in the case of a purchase or acquisition of property, at a price
to the Company no greater than the cost of the asset to such Persons
(based upon a determination of a majority of the Directors, including
a majority of the Independent Directors) or, if the price to the
Company is in excess of such cost, then substantial justification for
such excess must exist and such excess is not unreasonable (based upon
a determination of a majority of the Directors, including a majority
of the Independent Directors).
(b) Neither the Advisor nor any Affiliate of the Advisor shall invest
in joint ventures with the Company, unless (i) such transaction has been
approved by the affirmative vote of a majority of the Independent Directors;
(ii) the transaction is on terms not less favorable to the Company than those
then prevailing for comparable arms-length transactions (based upon a
determination of a majority of the Directors, including a majority of the
Independent Directors); and (iii) each such transaction is in all respects on
such terms at the time of the transaction and under the circumstances then
prevailing, fair and reasonable to the Shareholders of the Company and on
substantially the same terms and conditions as those received by other joint
venturers (based upon a determination of a majority of the Directors, including
a majority of the Independent Directors).
10.2 Restriction of Duties and Liabilities. The duties and liabilities of
Shareholders, Directors and officers shall in no event be greater than the
duties and liabilities of shareholders, directors and officers of a Virginia
corporation. The Shareholders, Directors and officers shall in no event have
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any greater duties or liabilities than those imposed by applicable law as shall
be in effect from time to time. However, in no event shall the duties and
liabilities of Shareholders, Directors and officers be inconsistent with the
standards contained in the Articles of Incorporation.
10.3 Persons Dealing with Directors or Officers. Any act of the Directors
or officers purporting to be done in their capacity as such shall, as to any
Persons dealing in good faith with the Directors or officers, be conclusively
deemed to be within the purposes of this Company and within the powers of the
Directors and officers.
The Directors may authorize any officer or officers or agent or agents to
enter into any contract or execute any instrument in the name and on behalf of
the Company and/or Directors.
No Person dealing in good faith with the Directors or any of them or with
the authorized officers, employees, agents or representatives of the Company,
shall be bound to see to the application of any funds or property passing into
their hands or control. The receipt of the Directors, or any of them, or of
authorized officers, employees, agents, or representatives of the Company, for
moneys or other considerations, shall be binding upon the Company.
10.4 Reliance. The Directors and officers may consult with counsel and the
advice or opinion of the counsel shall be full and complete personal protection
to all of the Directors and officers in respect of any action taken or suffered
by them in good faith and in reliance on and in accordance with such advice or
opinion. In discharging their duties, Directors and officers, when acting in
good faith, may rely upon financial statements of the Company represented to
them to be correct by the Chairman or the officer of the Company having charge
of its books of account, or stated in a written report by an independent
certified public accountant fairly to present the financial position of the
Company. The Directors may rely, and shall be personally protected in acting
upon any instrument or other document believed by them to be genuine.
10.5 Income Tax Status. Without limitation of any rights of indemnification
or non-liability of the Directors, the Directors by these Bylaws make no
commitment or representation that the Company will qualify for the dividends
paid deduction permitted by the Internal Revenue Code of 1986, as amended, and
the Rules and Regulations pertaining to real estate investment trusts under the
Internal Revenue Code of 1986, as amended, and any such failure to qualify shall
not render the Directors liable to the Shareholders or to any other Person or in
any manner operate to annul the Company.
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ARTICLE XI
MISCELLANEOUS
11.1 Competing Programs. Nothing in these Bylaws shall be deemed to
prohibit any Affiliate of the Company from dealing, or otherwise engaging in
business with, Persons transacting business with the Company or from providing
services relating to the purchase, sale, management, development or operation of
real property and receiving compensation therefor, not involving any rebate,
reciprocal arrangement or other transaction which would have the effect of
circumventing any restrictions set forth herein relating to the dealings between
the Company and its Affiliates. The Company shall not have any right, by virtue
of these Bylaws, in or to such other ventures or activities or to the income or
proceeds derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Company, shall not be deemed wrongful or
improper. No Affiliate of the Company shall be obligated to present any
particular investment opportunity to the Company, even if such opportunity is of
a character which, if presented to the Company, could be taken by the Company;
provided, however, that until substantially all the net proceeds of the offering
of the Shares have been invested or committed to investment, the Sponsor shall
be obligated to present to the Company any investment opportunity which is of an
amount and character which, if presented to the Company, would be a suitable
investment for the Company. To the extent necessary, the Sponsor shall seek to
allocate investment opportunities between the Company and other entities based
upon differences in investment policies and objectives, the make-up of the
investment portfolio of each entity, the amount of cash available to each entity
for investment financing, the estimated income tax effects of the purchase on
each entity, and the policies of each relating to leverage. Subject to the
limitations in this Section, it will be within the discretion of the Sponsor to
allocate the investment opportunities as it deems advisable. The Sponsor shall
attempt to resolve any other conflicts of interests between the Company and
others by exercising the good faith required of fiduciaries.
11.2 Corporate Seal. The Company shall have a corporate seal in the form of
a circle containing the name of the Company and such other details as may be
required by the Board of Directors.
11.3 Inspection of Bylaws. The Company shall keep at its principal office
in this Commonwealth for the transaction of business, a list of the names and
addresses of the Company's Shareholders and the original or a copy of the
Bylaws, as amended, certified by the Secretary, which shall be open to
inspection by Shareholders at any reasonable time during office hours.
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11.4 Inspection of Corporate Records. Shareholders of the Company, or any
holders of a voting trust certificate, shall have the right to inspect the
accounting books and records of the Company, and the minutes of proceedings of
the Shareholders and the Board and committees of the Board as provided by the
Virginia Stock Corporation Act.
11.5 Checks, Drafts, Etc. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the Company, shall be signed or endorsed by the Person or Persons and
in the manner as from time to time shall be determined by resolution of the
Board of Directors.
11.6 Contracts, Etc., How Executed. The Board of Directors, except as
provided elsewhere in these Bylaws, may authorize any officer or officers or
agent or agents to enter into any contract or execute any instrument in the name
of and on behalf of the Company. That authority may be general or confined to
specific instances. Unless so authorized by the Board of Directors or as
otherwise provided in these Bylaws, no officer, agent or employee shall have any
power or authority to bind the Company by any contract or engagement or to
pledge its credit to render it liable for any purpose or to any amount.
11.7 Representation of Shares of Other Corporations. The Chairman or the
President or, in the event of their absence or inability to serve, any Vice
President and the Secretary or Assistant Secretary of this Company, are
authorized to vote, represent and exercise, on behalf of the Company, all rights
incidental to any and all shares of any other company standing in the name of
the Company. The authority granted to such officers to vote or represent on
behalf of the Company any and all shares held by the Company in any other
company may be exercised by any authorized Person in person or by proxy or power
of attorney duly executed by the officers.
11.8 Annual Report. The Board of Directors of the company shall cause to be
sent to the Shareholders, not later than 120 days after the close of the fiscal
or calendar year, and not less than 30 days before the date of the Company's
annual meeting of Shareholders as provided in Section 4.2 of these Bylaws, an
Annual Report in the form deemed appropriate by the Board of Directors,
including without limitation, any explanation of excess expenses as set forth in
Sections 5.14 and 8.5. The reports shall also disclose the ratio of the cost of
raising capital to the capital raised during the year and the aggregate amount
of the advisory fees and other fees paid during the year to the Advisor and its
Affiliates, including fees or charges paid to the Advisor and Affiliates by a
third party on behalf of the Company. The Annual Report also shall include as
required by Section 5.14 full disclosure of all material terms, factors and
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circumstances surrounding any and all transactions involving the Company and the
Directors, Advisor and/or Affiliates thereof occurring during the year, and the
Independent Directors shall examine and comment in the report as to the fairness
of any such transactions. The Annual Report shall include a statement of assets
and liabilities and a statement of income and expense of the Company prepared in
accordance with generally accepted accounting principles. The financial
statements shall be accompanied by the report of an independent certified public
accountant. A manually signed copy of the accountant's report shall be filed
with the Directors.
11.9 Quarterly Reports. At least quarterly, the Directors shall send
interim reports to the Shareholders having the form and content as the Directors
deem proper. The quarterly reports shall disclose (i) the ratio of the costs of
raising capital during the quarter to the capital raised, and (ii) the aggregate
amount of the advisory fees and the fees paid during the quarter to the Advisor
and its Affiliates, including fees or charges paid to the Advisor and its
Affiliates by third parties on behalf of the Company. The quarterly report shall
also disclose any excess in borrowings over the level specified in Section 8.8,
along with a justification for such excess.
11.10 Other Reports. The Directors shall furnish the Shareholders at least
annually with a statement in writing advising as to the source of dividends or
distributions so distributed. If the source has not been determined, the
communication shall so state and the statement as to the source shall be sent to
the Shareholders not later than 60 days after the close of the fiscal year in
which the distribution was made.
11.11 Provisions of the Company in Conflict with Law or Regulation.
(a) The provisions of these Bylaws are severable, and if the Directors
shall determine, with the advice of counsel, that any one or more of these
provisions (the "Conflicting Provisions") are in conflict with the REIT
Provisions of the Internal Revenue Code, or with other applicable laws and
regulations, the Conflicting Provisions shall be deemed never to have
constituted a part of these Bylaws, and the Directors shall be able to amend or
revise the Bylaws to the extent necessary to bring the provisions of these
Bylaws into conformity with the REIT Provisions of the Internal Revenue Code, or
any other applicable law or regulation; however, this determination by the
Directors shall not affect or impair any of the remaining provisions of these
Bylaws or render invalid or improper any action taken or omitted (including but
not limited to the election of Directors) prior to the determination. A
certification in recordable form signed by a majority of the Directors setting
forth any such determination and reciting that
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it was duly adopted by the Directors, or a copy of these Bylaws, with the
Conflicting Provisions removed pursuant to the determination, in recordable
form, signed by a majority of the Directors, shall be conclusive evidence of
such determination when logged in the records of the Company. The Directors
shall not be liable for failure to make any determination under this Section
11.11.
(b) If any provisions of these Bylaws shall be held invalid or
unenforceable, the invalidity or unenforceability shall attach only to that
provision and shall not in any manner affect or render invalid or unenforceable
any other provision, and these Bylaws shall be carried out as if the invalid or
unenforceable provision were not present.
11.12 Voluntary Dissolution. The Company may elect to wind up and dissolve
by the vote of Shareholders entitled to exercise a majority of the voting power
of the Company.
11.13 Distributions. The payment of distributions on Shares shall be at the
discretion of the Directors, including a majority of the Independent Directors,
and shall depend upon the earnings, cash flow and general financial condition of
the Company, and such other facts as the Directors deem appropriate.
11.14 Shareholder Liability. The holders of the Company's Shares shall not
be personally liable on account of any obligation of the Company.
11.15 Return of Offering Proceeds. The Directors shall have the right and
power, at any time, to return to Shareholders offering proceeds to the extent
required by applicable law, including to the extent necessary to avoid
characterization of the Company as an "investment company."
11.16 Certain New York Stock Exchange Requirements. Nothing contained in
these Articles shall impair the settlement of transactions entered into through
the facilities of the New York Stock Exchange, Inc.
ARTICLE XII
AMENDMENTS TO BYLAWS
12.1 Amendments. These Bylaws may be amended or repealed by the vote of
Shareholders entitled to exercise a majority of the voting power of the Company;
provided, however, that any amendment to these Bylaws or any provision hereof
which would affect any rights with respect to any outstanding Common Shares or
other Securities, or diminish or eliminate any voting rights pertaining thereto,
may not be effected unless approved by the vote of the holders of two-thirds of
the outstanding
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securities of the class of Securities affected. The Board of Directors may
propose any such amendment to the Shareholders, but the Board of Directors may
not amend the Bylaws or any portion, except to the extent expressly provided in
Section 11.11.
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EXHIBIT 10.1
FIRST AMENDMENT
TO THE
CORNERSTONE REALTY INCOME TRUST, INC.
1992 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
FIRST AMENDMENT, dated as of May 12, 1998, to the Cornerstone Realty Income
Trust, Inc. 1992 Non-Employee Directors Stock Option Plan, as amended and
restated July 8, 1994, by Cornerstone Realty Income Trust, Inc. (the "Company").
The Company maintains the Cornerstone Realty Income Trust, Inc. 1992
Non-Employee Directors Stock Option Plan, as amended and restated effective as
of July 8, 1994 (the "Plan"). The Company's Board of Directors and shareholders
have approved an amendment to the Plan, as described herein.
NOW, THEREFORE, the Plan is amended as follows:
I. Plan Section 7(a)(iii) is amended to read as follows:
(iii) As of each June 1 during the years 1994 through 1999 (inclusive),
each Eligible Director shall automatically receive an Option to purchase
0.02% of the total number of shares of Common Stock issued and outstanding
on that date.
II. This Amendment shall be effective as of May 12, 1998.
III. In all respects not amended, the Plan is hereby ratified and
confirmed.
* * * * * *
To record the adoption of the Amendment as set forth above, the Company has
caused this document to be signed as of the 12th day of May, 1998.
Cornerstone Realty Income Trust, Inc.
By /s/ Stanley J. Olander, Jr.
Chief Financial Officer
