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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 (Date of Earliest Event Reported) July 23, 1999
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia
(State or Other Jurisdiction of Incorporation)
001-12875 54-1589139
(Commission File Number) (IRS Employer Identification No.)
306 East Main Street, Richmond, Virginia 23219
(Address of Principal Executive Offices) (Zip Code)
(804) 643-1761
(Registrant's Telephone Number, Including Area Code)
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Item 2. Acquisition or Disposition of Assets.
Effective on July 23, 1999, Apple Residential Income Trust, Inc., a
Virginia corporation ("Apple"), merged with and into Cornerstone Acquisition
Company, a Virginia corporation and majority-owned subsidiary of the registrant
(the "Merger"). The completion of the Merger was announced in a press release on
July 26, 1999, a copy of which is filed as an exhibit hereto and is incorporated
herein by this reference.
Both the registrant and Apple were originally organized by Glade M.
Knight, who served as Chairman, Chief Executive Officer and President of both
companies. Glade M. Knight and Penelope W. Kyle served as directors of both
companies. In addition, pursuant to certain contracts, the registrant had been
providing company management, property management and property acquisition
services to Apple in exchange for payments of fees. The management positions
that Mr. Knight held with the registrant prior to the Merger were not changed by
the Merger.
Pursuant to the Merger, each common share of Apple (other than those
common shares held by shareholders exercising dissenters' rights) was exchanged
for 0.4 of a Series A Convertible Preferred Share of the registrant. Holders of
Apple's common shares immediately prior to the Merger received a total of
12,021,614.87 Series A Convertible Preferred Shares as part of the Merger. In
addition, pursuant to the Merger, each Class B Convertible Share of Apple was
converted into 8 common shares of Apple, and then immediately exchanged for 0.4
of a Series A Convertible Preferred Share of the registrant. As a net result,
holders of Apple's Class B Convertible Shares received a total of 640,000 Series
A Convertible Preferred Shares as part of the Merger.
Effective as of July 22, 1999, the registrant amended its Articles of
Incorporation to create the Series A Convertible Preferred Shares. A copy of the
registrant's Articles of Amendment, as filed with the State Corporation
Commission of Virginia, is also filed as an exhibit hereto and is incorporated
herein by reference.
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Item 5. Other Events.
Pursuant to Rule 12g-3(a) and (f) under the Securities Exchange Act of
1934, as amended (the "1934 Act"), the registrant's Series A Convertible
Preferred Shares are hereby deemed to be registered under Section 12(g) of the
1934 Act. In connection with the Merger, Series A Convertible Preferred Shares
were issued to the holders of Apple's common shares, which class of securities
was registered pursuant to Section 12(g) of the 1934 Act.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Financial statements of Apple previously have been filed and reported by
the registrant in the registrant's Registration Statement on Form S-4
(Registration Statement No. 333-78117), which incorporated by reference the
following reports of Apple:
(i) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(ii)Annual Report on Form 10-K for the year ended December 31, 1998
(b) Pro forma financial information.
The Cornerstone Realty Income Trust, Inc. Unaudited Pro Forma Condensed
Combined Financial Statements relating to the Merger previously have been filed
and reported by the registrant in the registrant's Registration Statement on
Form S-4 (Registration Statement No. 333-78117).
(c) Exhibits.
2 Agreement and Plan of Merger, dated as of March 30, 1999, by and
among the registrant, Apple Residential Income Trust, Inc. and Cornerstone
Acquisition Company (Incorporated herein by reference to Exhibit 2 included in
the registrant's Registration Statement on Form S-4; Registration Statement No.
333-78117).
3.1 Amended and Restated Articles of Incorporation of Cornerstone
Realty Income Trust, Inc., as amended. (Incorporated herein by reference to
Exhibit 3.1 included in the registrant's Report on Form 8-K dated May 12, 1998;
File No. 1-12875).
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Cornerstone Realty Income Trust, Inc., which are filed
herewith.
3.3 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended Through
July 15, 1999), which are filed herewith.
99 Press Release of the registrant, dated July 26, 1999, regarding
completion of the Merger, which is filed herewith.
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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.
Dated: August 6, 1999 By: /s/ Glade M. Knight
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Glade M. Knight
Chief Executive Officer
Exhibit 3.2
CORNERSTONE REALTY INCOME TRUST, INC.
ARTICLES OF AMENDMENT TO
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
Designating the
SERIES A CONVERTIBLE PREFERRED SHARES
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,
adds Article IX to the Amended and Restated Articles of Incorporation which
creates a series of Preferred Shares (the Series A Convertible Preferred
Shares), states the designation and number of Shares in the series and fixes the
preferences, limitations and relative rights thereof.
3. Board Action. At a meeting held on the 30th day of March, 1999, the
Board of Directors of the Corporation found the amendment to the Amended and
Restated Articles of Incorporation to be in the best interests of the
Corporation. Shareholder approval is not required.
Dated: July 20, 1999
CORNERSTONE REALTY INCOME TRUST, INC.
By: /s/ Glade M. Knight
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Glade M. Knight, Chairman
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ARTICLE IX
SERIES A CONVERTIBLE PREFERRED SHARES
9.1 Designation, Number and Rank.
Twelve Million Seven Hundred Thousand (12,700,000) authorized but
unissued Preferred Shares (no par value) are hereby designated as a series of
Preferred Shares to be called the Series A Convertible Preferred Shares (the
"Series A Preferred Shares"). The Series A Preferred Shares shall, with respect
to distribution rights and rights upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, rank (a) senior to all classes or
series of Common Shares and to all equity securities issued by the Corporation
the terms of which provide that such equity securities shall rank junior to such
Series A Preferred Shares; (b) on a parity with all equity securities issued by
the Corporation the terms of which provide that such equity securities shall
rank on a parity with the Series A Preferred Shares; and (c) junior to all other
equity securities issued by the Corporation. The Corporation retains the power
and authority to issue Preferred Shares which rank senior to or on a parity with
the Series A Preferred Shares as to dividends or as to rights in liquidation,
but only if, at the time of and after giving effect to the issuance of Preferred
Shares which rank senior to the Series A Preferred Shares, the sum of (i) the
aggregate liquidation preferences of all Preferred Shares which rank senior to
the Series A Preferred Shares, and (ii) the aggregate liquidation preferences of
all of the Series A Preferred Shares, does not exceed 20% of the Corporation's
Total Assets (as hereinafter defined), as disclosed on the balance sheet of the
Corporation most recently filed on a report with the United States Securities
and Exchange Commission. For the purposes of this Section 9.1, "Total Assets" as
of any date means the sum of (a) Undepreciated Real Estate Assets and (b) all
other assets of the Corporation determined in accordance with generally accepted
accounting principles (but excluding intangibles). "Undepreciated Real Estate
Assets" as of any date means the cost (original cost plus capital improvements)
of real estate assets of the Corporation on such date, before depreciation and
amortization, determined in accordance with generally accepted accounting
principles.
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9.2 Dividends.
(a) The holders of the outstanding Series A Preferred Shares shall be
entitled to receive, if, when and as declared by the Board of Directors, out of
any funds legally available therefor, cash dividends at the Specified Rate (as
hereinafter defined), and no more, payable in quarterly installments on the 20th
day of January, April, July and October of each year (each, a "Dividend Payment
Date") commencing on the 20th day of October, 1999. The Specified Rate shall be
the rate per annum per Series A Preferred Share set forth in the following
table:
Dividend Rate Per Annum Period from Date of Issuance of
Per Series A Preferred Share Series A Preferred Share
$ 2.125 Year 1
$ 2.250 Year 2
$ 2.375 Year 3 and thereafter
Dividends shall be cumulative and shall accrue on the Series A
Preferred Shares from and after the date of issue thereof, whether or not such
dividends shall be declared or there shall be funds of the Corporation legally
available for the payment of such dividends for any given dividend period. If
any Dividend Payment Date occurs on a day that is not a business day, any
accrued dividends otherwise payable on such Dividend Payment Date shall be paid
on the next succeeding business day. The amount of dividends payable on Series
A Preferred Shares for each full dividend period shall be calculated by dividing
by four (4) the Specified Rate set forth in this paragraph (a). Dividends
payable in respect of the first dividend period and any subsequent period which
is less than a full dividend period in length will be calculated on the basis of
a 360-day year consisting of twelve 30-day months. Dividends shall be paid to
the holders of record of the Series A Preferred Shares as their names appear on
the stock re cords of the Corporation at the close of business on the applicable
record date (the "Dividend Record Date"), which shall be the same day as the
record date for any dividend payable on the Common Shares with respect to the
same period or, if no such Common Shares dividend is payable, then the Dividend
Record Date for such Dividend Payment Date shall be the Friday occurring between
the tenth and sixteenth days of the calendar month in which the applicable
Dividend Payment Date falls or on such date as shall be fixed by the Board of
Directors at the time of declaration of the dividend, which shall be not less
than 10 nor more than 30 days prior to the Dividend Payment Date. "Business Day"
shall mean any day, other than a Saturday or Sunday,
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that is neither a legal holiday nor a day on which banking institutions in New
York City, New York are authorized or required by law, regulation or executive
order to close.
(b) When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series A Preferred Shares and any
other Preferred Shares ranking on a parity as to dividends with the Series A
Preferred Shares, all dividends declared on the Series A Preferred Shares and
any other Preferred Shares ranking on a parity with the Series A Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
share of Series A Preferred Shares and such other Preferred Shares for the same
or similar dividend period shall in all cases bear to each other the same ratio
that accrued dividends per share on the Series A Preferred Shares and such other
Preferred Shares bear to each other.
(c) Unless (i) Full Cumulative Dividends (as hereinafter defined in
Section 9.7) (to the extent that the amount thereof shall have become
determinable) on all outstanding Series A Preferred Shares and any outstanding
Preferred Shares ranking senior to or on a parity with the Series A Preferred
Shares as to dividends for all past dividend periods shall have been declared
and paid, or declared and a sum sufficient for the payment thereof set apart,
and (ii) unless all mandatory sinking fund payments required pursuant to the
terms of any outstanding Preferred Shares ranking senior to or on a parity with
the Series A Preferred Shares as to rights in liquidation shall have been paid,
then (i) no dividend (other than a dividend payable solely in shares ranking
junior to the Series A Preferred Shares) shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any shares of the Corporation
ranking junior to the Series A Preferred Shares as to dividends; (ii) no other
distribution shall be made with respect to any shares of the Corporation
ranking junior to the Series A Preferred Shares as to rights in liquidation;
(iii) no shares of the Corporation ranking junior to the Series A Preferred
Shares as to dividends or rights in liquidation shall be purchased, redeemed or
otherwise acquired for value by the Corporation or by any Subsidiary; and (iv)
no monies shall be paid into or set apart or made available for a sinking or
other like fund for the purchase, redemption or other acquisition for value of
any shares of the Corporation ranking junior to the Series A Preferred Shares as
to dividends or rights in liquidation by the Corporation or any Subsidiary.
(d) Dividends in respect of any past dividend periods that are in
arrears may be declared and paid at any time to holders of record of the Series
A Preferred Shares as of the applicable Dividend Record Date.
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(e) Any dividend payment made on the Series A Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to such shares which remains payable.
(f) Accrued but unpaid dividends on the Series A Preferred Shares will
not bear interest. Holders of the Series A Preferred Shares will not be entitled
to dividends in excess of Full Cumulative Dividends.
(g) No dividends on the Series A Preferred Shares shall be declared by
the Board of Directors or paid or funds set apart for the payment thereof by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation, including any agreement relating to its indebtedness, prohibits
such declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration or payment shall be
restricted or prohibited by law. Notwithstanding the foregoing, dividends on the
Series A Preferred Shares shall accrue whether or not they are declared or paid.
9.3 Voting Rights.
(a) Except for the voting rights expressly conferred by this Section
9.3, and except to the extent provided by law, the holders of the outstanding
Series A Preferred Shares shall not be entitled (i) to vote at any meeting of
the shareholders for election of directors or for any other purpose, or (ii) to
receive notice of, or to otherwise participate in, any meeting of shareholders
of the Corporation at which they are not entitled to vote.
(b) Whenever distributions payable on any Series A Preferred Shares, or
on any class or series of preferred shares which ranks on a parity with the
Series A Preferred Shares as to dividends ("Parity Stock"), are in arrears for
six or more quarterly periods (whether or not consecutive), the number of
directors then constituting the Board of Directors of the Corporation will be
automatically increased by two, and the holders of the Series A Preferred
Shares, voting together as a class with the holders of shares of any other class
or series of Parity Stock entitled to such voting rights (collectively, the
"Voting Preferred Stock"), will have the right to elect at any annual meeting of
shareholders or a properly called special meeting of the holders of Voting
Preferred Stock two additional directors who are nominees of any holder of
Voting Preferred Stock to serve on the Corporation's Board of Directors until
all such accrued but unpaid dividends have been authorized and paid or declared
with a sufficient sum for payment thereof
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set aside for payment. Such right of the holders of the Voting Preferred Stock
to elect directors may be exercised until all dividends to which the holders of
Voting Preferred Stock shall have been entitled for (i) all previous dividend
periods and (ii) the current dividend period shall have been paid in full or
declared and a sum of money sufficient for payment thereof set aside for
payment, at which time the right of the holders of Voting Preferred Stock to
elect such two additional directors shall cease, the term of such directors
previously elected shall thereupon terminate, and the authorized number of
directors of the Corporation shall thereupon return to the number of authorized
directors otherwise in effect, but subject always to the same provisions for the
renewal and divestment of such special voting rights in the case of any such
future dividend arrearages in six quarterly periods.
(c) At any time when such voting power shall have vested in the holders of
the Voting Preferred Stock and prior to the termination of such voting power,
the Secretary of the Corporation may, and upon the written request of any holder
of Voting Preferred Stock (addressed to the Secretary at the principal office of
the Corporation) shall, call a special meeting of the holders of the Voting
Preferred Stock for the election of the two directors to be elected by them as
herein provided; such call to be made by notice similar to that provided in the
Bylaws of the Corporation for a special meeting of the shareholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Voting Preferred Stock may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the stock books of the Corporation. The directors elected at any such special
meeting shall serve until the next annual meeting of the shareholders or special
meeting held in lieu thereof and until their respective successors are duly
elected and qualified, if such directorship shall not have previously terminated
as above provided. If any vacancy shall occur among the directors elected by the
holders of the Voting Preferred Stock, a successor shall be elected by the Board
of Directors upon the nomination of the then-remaining director (or, if there is
no such remaining director or successor thereto, by the holders of the Voting
Preferred Stock) to serve until the next annual meeting of the shareholders or
special meeting held in lieu thereof and until the successor is duly elected and
qualified if such directorship shall not have previously been terminated as
provided above.
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(d) The affirmative vote of the holders of a majority of the
outstanding Series A Preferred Shares, voting as a separate voting group, shall
be required for the adoption of any amendment, alteration or repeal of any
provision of these Articles of Amendment, or of any provision of the Articles of
Incorporation of the Corporation, whether by merger, consolidation or otherwise,
that adversely changes any preferences, limitations, privileges, voting power or
relative rights of the Series A Preferred Shares or the holders thereof, it
being understood that the authorization of, or the increase in the authorized
number of shares of, any class of shares ranking senior to or on a parity with
the Series A Preferred Shares as to dividends or rights in liquidation and the
designation of the preferences, limitations, privileges, voting power and
relative rights of any such class is not such an adverse change.
(e) Whenever the holders of Series A Preferred Shares or Voting
Preferred Stock, respectively, are entitled to vote as a separate voting group
on any matter pursuant to the provisions of paragraphs (b), (c) or (d) of this
Section 9.3, the vote required to approve such matter shall be the affirmative
vote of a majority of all the votes entitled to be cast by the respective voting
group, with each share having one vote.
9.4 Redemption.
(a) The Series A Preferred Shares shall not be redeemable by the
Corporation for five years after the first issuance of the Series A Preferred
Shares. At any time and from time to time following the fifth anniversary of the
first issuance of the Series A Preferred Shares, the Corporation may, at its
option, redeem all or any portion of the outstanding Series A Preferred Shares
for the Redemption Consideration (as hereinafter defined). The Redemption
Consideration shall be either, or any combination of, the following amounts, as
selected by the Corporation: (i) cash in the amount of the Liquidation Payment
(as hereinafter defined) for the Series A Preferred Shares to be redeemed
together with an amount equal to all unpaid Dividends
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Accrued (as hereinafter defined) thereon to the date fixed for redemption (the
"Redemption Date"), or (ii) such number of Common Shares of the Corporation
(rounded to the nearest one one-thousandth (1/1000) of a Common Share) as is
equal to (A) the Liquidation Payment for the Series A Preferred Shares to be
redeemed together with an amount equal to all unpaid Dividends Accrued thereon
to the Redemption Date, divided by (B) the Conversion Price (as defined in
Section 9.6); provided, that the Corporation may exercise this option to deliver
Common Shares upon redemption only if for 20 trading days within the 30
consecutive trading days immediately preceding the Redemption Notice Date (as
defined in paragraph (b) of this Section 9.3) the average closing price of the
Common Shares on the New York Stock Exchange equals or exceeds the Conversion
Price (as defined in Section 9.6).
(b) Notice of any redemption shall be given by the Corporation, by
first class mail, postage prepaid, not less than 30 nor more than 60 days prior
to the Redemption Date to each holder of record of Series A Preferred Shares to
be redeemed, notifying such holder of the Corporation's election to redeem such
shares. Such notice shall be mailed to such holder's address as the same appears
on the Corporation's stock records. The date such notice is mailed shall be the
"Redemption Notice Date." No failure to give such notice or any defect therein
or in the mailing thereof shall affect the validity of the proceedings for the
redemption of any Series A Preferred Shares except as to the holder to whom
notice was defective or not given. In addition to any information required by
law, such notice shall state: (i) the Redemption Date; (ii) the Conversion Price
and Redemption Consideration per redeemed share; (iii) the total number of
Series A Preferred Shares to be redeemed; (iv) the place or places where
certificates for such shares, if any, are to be surrendered for payment of the
Redemption Consideration; (v) the amount per Series A Preferred Share of unpaid
Dividends Accrued to the Redemption Date; (vi) that dividends on the shares to
be redeemed will cease to accumulate on such Redemption Date; and (vii) that
each holder of Series A Preferred Shares may exercise the conversion rights
described in Section 9.6 for any such shares at any time prior to the close of
business on the last full business day preceding the Redemption Date.
(c) If fewer than all of the outstanding Series A Preferred Shares are
to be redeemed, the Corporation shall prorate the total number of shares to be
so redeemed among the holders thereof in proportion, as nearly as may be, to the
number of shares registered in their respective names. In any such proration the
Corporation may make such adjustments, reallocations and eliminations as it
shall deem proper by increasing, decreasing or eliminating the number of shares
to be redeemed otherwise all ocable to any one holder on the basis of exact
proration by not more than ten shares, to the end that the numbers of shares so
prorated shall be integral multiples of ten shares. If less than all of the
Series A Preferred Shares held by any
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holder are to be redeemed, the notice mailed to such holder (pursuant to
paragraph (b) above) shall also specify the number of Series A Preferred Shares
held by such holder to be redeemed. The Corporation may not redeem less than all
of the outstanding Series A Preferred Shares unless Full Cumulative Dividends on
all outstanding Series A Preferred Shares for all dividend periods (whether full
or partial) up to and including the Redemption Date shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart.
(d) If notice of redemption of any outstanding Series A Preferred
Shares shall have been duly given as herein provided, then on or before the
Redemption Date the Corporation shall, as applicable, (i) cause to be issued in
the name of the record holder of Series A Preferred Shares being redeemed Common
Shares of the Corporation equal to the Redemption Consideration due for such
Series A Preferred Shares, or (ii) cause to be paid to the record holder of
Series A Preferred Shares being redeemed cash equal to the Redemption
Consideration due for such Series A Preferred Shares or (iii) cause to be issued
and paid some combination of (i) and (ii) equal in the aggregate to the
Redemption Consideration. From and after the Redemption Date, such redeemed
Series A Preferred Shares shall no longer be deemed to be outstanding for any
purpose, and all rights with respect to such shares shall thereupon cease and
terminate.
(e) The Corporation shall also have the right to acquire outstanding
Series A Preferred Shares, otherwise than by redemption (as provided in this
Section 9.4) from time to time for such consideration as may be acceptable to
the holders thereof; provided, however, that if Full Cumulative Dividends on all
outstanding Series A Preferred Shares for all past dividend periods shall not
have been declared and paid or declared and a sum sufficient for the payment
thereof set apart, and the dividend payable thereon for the next following
dividend period shall not have been declared and a sum sufficient for the
payment thereof set apart, neither the Corporation nor any Subsidiary shall so
acquire any Series A Preferred Shares except in accordance with a purchase or
exchange offer made on the same terms to all the holders of the outstanding
Series A Preferred Shares.
(f) At the close of business on the Redemption Date, each holder of
Series A Preferred Shares to be redeemed (unless the Corporation defaults in the
payment of the Common Shares portion of the Redemption Consideration) shall be
deemed to be the record holder of the number of Common Shares into which such
Series A Preferred Shares are to be so redeemed.
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(g) Series A Preferred Shares purchased, redeemed or otherwise acquired
by the Corporation shall not thereafter be disposed of as Series A Preferred
Shares but shall become authorized and unissued Preferred Shares undesignated as
to series. No additional Preferred Shares may be classified as Series A
Preferred Shares.
9.5 Liquidation.
In the event of the voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of the outstanding
Series A Preferred Shares shall be entitled to be paid in cash out of the assets
of the Corporation a liquidation payment of $25 per share (the "Liquidation
Payment") plus an amount equal to all unpaid Dividends Accrued thereon to the
date of payment, without interest, before any distribution or payment shall be
made to the holders of Common Shares or any other shares of the Corporation
ranking junior to the Series A Preferred Shares as to rights in liquidation.
After payment to the holders of the outstanding Series A Preferred Shares of the
full liquidation payment provided for in the preceding sentence, the holders of
the Series A Preferred Shares as such shall have no right or claim to any of the
remaining assets of the Corporation. For the purposes of the preceding two
sentences, neither the consolidation of the Corporation with nor the merger of
the Corporation into any other corporation, partnership, limited liability
company, trust or other entity, nor the sale, lease or other disposition of all
or substantially all of the Corporation's properties and assets shall, without
further corporate action, be deemed a liquidation, dissolution or winding up of
the affairs of the Corporation. If the assets of the Corporation legally
available for distribution to its shareholders are insufficient to pay to the
holders of the Series A Preferred Shares the full amounts to which they are
respectively entitled, such assets of the Corporation shall be distributed
ratably to the holders of the Series A Preferred Shares and the holders of other
Preferred Shares, if any, ranking on a parity with the Series A Preferred Shares
as to rights in liquidation in proportion to the full amounts to which they are
respectively entitled. Written notice of such liquidation, dissolution or
winding up of the Corporation, stating the payment date or dates when, and the
place or places where, the amount distributable in such circumstances shall be
payable, shall be given by the Corporation by press release or announcement in a
newspaper or periodical with national distribution (such as the Wall Street
Journal) not less than 30 days nor more than 60 days before the payment date
stated therein.
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9.6 Conversion.
(a) Each holder of outstanding Series A Preferred Shares shall have the
right, at any time, to convert any of such shares into Common Shares of the
Corporation. The number of Common Shares into which each Series A Preferred
Share shall be convertible shall be equal to the number (rounded to the nearest
one one-thousandth (1/1000) of a Common Share) arrived at by dividing $25.00 by
the conversion price per Common Share fixed or determined as hereinafter
provided. The conversion price shall initially be Fifteen Dollars and Eighty
Cents ($15.80) per Common Share, subject to the adjustments hereinafter provided
(such price, as adjusted at any time, being hereinafter called the "Conversion
Price"). As to Series A Preferred Shares called for redemption, each such holder
shall have the right at any time prior to the close of business on the last full
business day preceding the Redemption Date (unless default shall be made by the
Corporation in the payment of the Redemption Consideration, in which case such
right of conversion shall continue uninterrupted) to convert any of such Series
A Preferred Shares into Common Shares.
(b) Each holder of outstanding Series A Preferred Shares may exercise
the conversion right provided in paragraph (a) above as to all or any portion of
the shares he holds by delivering to the Corporation during regular business
hours, at the principal office of the Corporation or at such other place as may
be designated in writing by the Corporation, a written notice stating that the
holder elects to convert such shares and stating the name or names (with address
and applicable social security or other tax identification number) in which the
certificate or certificates for Common Shares are to be issued. Conversion shall
be deemed to have been effected on the date (the "Conversion Date") when such
delivery is made if the notice is in the form required by the Corporation. As
promptly as practicable thereafter the Corporation shall issue and deliver to
such holder the number of Common Shares to which he is entitled. The person in
whose name the Common Shares are to be issued shall be deemed to have become a
shareholder of record on the Conversion Date, unless the transfer books of the
Corporation are closed on that date, in which event he shall be deemed to have
become a shareholder of record on the next succeeding date on which the transfer
books are open; but the Conversion Price shall be that in effect on the
Conversion Date.
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(c) The Corporation shall issue fractional Common Shares, rounded to
the nearest one one-thousandth (1/1000) of a Common Share, upon conversion of
Series A Preferred Shares and will not pay cash with respect to any fractional
shares.
(d) The issuance of Common Shares on conversion of outstanding Series A
Preferred Shares shall be made by the Corporation without charge for expenses or
for any tax in respect of the issuance of such Common Shares, but the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of Common Shares in any
name other than that of the holder of record on the books of the Corporation of
the outstanding Series A Preferred Shares converted, and the Corporation shall
not be required to issue any Common Shares unless and until the person
requesting the issuance thereof shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid.
(e) Holders of Series A Preferred Shares at the close of business on a
Dividend Record Date shall be entitled to receive the dividend payable on such
shares on the corresponding Dividend Payment Date notwithstanding the conversion
of such shares following such Dividend Record Date and prior to such Dividend
Payment Date. Except as provided in the preceding sentence, the Corporation
shall make no payment or allowance for unpaid dividends, whether or not in
arrears, on converted shares or for dividends on the Common Shares issued upon
such conversion.
(f) The Conversion Price shall be subject to the following adjustments:
(i) If the Corporation shall (A) pay a dividend on its outstanding Common Shares
in Common Shares or subdivide or otherwise split its outstanding Common Shares
into a larger number of shares, (B) combine its outstanding Common Shares into a
smaller number of shares, or (C) reclassify its Common Shares, the Conversion
Price in effect at the time of the record date for the happening of such event
shall be adjusted so that the holder of any Series A Preferred Shares
surrendered for conversion after such record date shall be entitled to receive
the same aggregate number of Common Shares that such holder would have owned or
have been entitled to receive after the happening of such event had such Series
A Preferred Shares been converted immediately prior to such record date. An
adjustment made pursuant to this subparagraph (i) shall become effective
immediately upon the opening of business on the
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day next following the record date in the case of a dividend (except as provided
in paragraph (h) of this Section 9.6 below) and shall become effective
immediately upon the opening of business on the day next following the effective
date in the case of a subdivision, combination or reclassification.
(ii) If the Corporation shall issue rights, warrants or options to all
holders of its Common Shares entitling them (for a period expiring within 90
days after the record date mentioned below) to subscribe for or purchase Common
Shares at a price per share which is less than the Current Market Value per
share (as hereinafter defined) on the record date mentioned below, the
Conversion Price shall be adjusted to a price determined by multiplying (A) the
Conversion Price in effect immediately prior to the issuance of such rights,
warrants or options by (B) a fraction, the numerator of which shall be the sum
of (i) the number of Common Shares outstanding at the close of business on the
record date fixed for the determination of shareholders entitled to receive such
rights, warrants or options and (ii) the number of Common Shares which the
aggregate exercise price of all such rights, warrants or options would purchase
at such Current Market Value, and the denominator of which shall be the sum of
(i) the number of Common Shares outstanding at the close of business on the
record date fixed for the determination of shareholders entitled to receive such
rights, warrants or options and (ii) the number of additional Common Shares
offered for subscription pursuant to such rights, warrants or options. Such
adjustment shall be effective immediately upon the opening of business on the
day next following the record date for the determination of the shareholders
entitled to receive such rights, warrants or options (except as provided in
paragraph (h) of this Section 9.6 below). For the purposes of this Section
9.6(f), the "Fair Market Value" of one Common Share shall, if the Common Shares
are traded in the over-the-counter market, be deemed to be the mean between the
bid and asked prices on the date the value is required to be determined, as
reported by NASDAQ or any similar service, and if the Common Shares are listed
and traded on a national stock exchange, be deemed to be the closing price of
the Common Shares for such day derived from the New York Stock Exchange
Composite Tape or any similar service; provided, however, that if the Common
Shares are not traded on that date, then the Fair Market Value shall be
determined, in the manner as just set forth, on the most recent preceding
Business Day on
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which the Common Shares were traded; provided further, however, that if the Fair
Market Value of the Common Shares cannot be determined in accordance with the
foregoing provisions (for example, if the Common Shares are not traded), the
Fair Market Value of the Common Shares shall be determined in good faith by the
Corporation's Board of Directors. "Current Market Value" per Common Share on any
date shall be deemed to be the average of the Fair Market Value of one Common
Share on each of the 20 consecutive trading days commencing 40 trading days
before such date (a trading day being a day on which securities are traded in
the over-the-counter market or, if the Common Shares are then listed on any
national stock exchange, on such exchange) and if the Common Shares are not then
traded, the Fair Market Value of one Common Share (as determined under this
Section 9.6(f)) as of the date in question.
(iii) If the Corporation shall distribute to all holders of its Common
Shares any equity securities of the Corporation (other than Common Shares) or
evidences of its indebtedness or assets (excluding dividends paid in cash out of
funds available for dividends in accordance with applicable law), or rights,
warrants or options to subscribe for or purchase securities of the Corporation
(other than those referred to in subparagraph (ii) of this Section 9.6(f)), then
in each case the Conversion Price shall be adjusted so that it shall equal the
price determined by multiplying (A) the Conversion Price in effect immediately
prior to the close of business on the record date fixed for the determination of
shareholders entitled to receive such distribution by (B) a fraction, the
numerator of which shall be the Current Market Value of one Common Share (as
defined in subparagraph (ii) of this Section 9.6(f)) on the record date fixed
for the determination of the shareholders entitled to receive such distribution
less the fair value (as conclusively determined in good faith by the Board of
Directors of the Corporation) at the time of such distribution of that portion
of the shares or evidences of indebtedness or assets so distributed, or of such
rights, warrants or options applicable to one Common Share, and the denominator
of which shall be the Current Market Value of one Common Share on the record
date fixed for the determination of shareholders entitled to receive such
distribution. Such adjustment shall become effective immediately upon the
opening of business on the day next following such record date (except as
provided in paragraph (h) of this Section 9.6 below).
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(g) Notwithstanding any of the foregoing provisions of this Section
9.6, no adjustment of the Conversion Price shall be made (i) if the Corporation
shall issue Common Shares or rights, warrants or options to purchase Common
Shares pursuant to one or more stock purchase plans, stock option plans, stock
purchase contracts, incentive compensation plans, or other remuneration plans
for employees (including officers) or directors of the Corporation or its
Subsidiaries adopted or approved as required by law before or after the
approval of these Articles of Amendment, (ii) in respect of any right granted by
the Corporation to all holders of its Common Shares to purchase Common Shares at
a discount from their Current Market Value by the reinvestment of dividends paid
on its Common Shares, or (iii) if the Corporation shall issue rights, warrants
or options to purchase Common Shares or other shares convertible into Common
Shares pursuant to one or more plans ("Shareholder Rights Plans") which, in
connection with certain acquisitions of an equity interest in the Corporation,
may permit the holders of such rights, warrants or options to subscribe for or
to purchase Common Shares or such other shares at a price per share which is
less than the then Current Market Value thereof. However, the Corporation shall
not adopt any Shareholder Rights Plans unless, in connection therewith, the
Corporation provides that the holders of Series A Preferred Shares will be
entitled to receive substantially similar rights, warrants or options upon
conversion of their Series A Preferred Shares.
(h) If any Series A Preferred Shares are converted into Common Shares
after the record date for the happening of any of the events described in
subparagraphs (i), (ii) or (iii) of Section 9.6(f) but before the happening of
such event, the Corporation may defer, until the happening of such event,
issuing to the holder of Series A Preferred Shares so converted the additional
Common Shares to which he is entitled by reason of the adjustment required
pursuant to any such subparagraph.
(i) Anything in this Section 9.6 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least $0.10 in such price; provided,
however, that any adjustments which by reason of this Section 9.6 are not
required to be made shall be carried forward and taken into account in making
subsequent adjustments. All calculations under this Section 9.6 shall be made to
the nearest cent.
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(j) Whenever the Conversion Price is adjusted pursuant to this Section
9.6, the Corporation shall (i) promptly place on file at its principal office
and at the office of each transfer agent for the Series A Preferred Shares, if
any, a statement, signed by the Chairman or President of the Corporation and by
its Treasurer, setting forth the Conversion Price after such adjustment and
setting forth in detail the facts requiring such adjustment, and shall make such
statement available for inspection by shareholders of the Corporation, and (ii)
as soon as practicable cause a notice to be mailed first class mail , postage
prepaid to each holder of record of outstanding Series A Preferred Shares
stating that such adjustment has been made and setting forth the adjusted
Conversion Price and the date on which such adjustment becomes effective. Such
notice shall be mailed to such holder's address as the same appears on the
Corporation's stock records.
(k) In the event of any reclassification or recapitalization of the
outstanding Common Shares (except a change in par value or from no par value to
par value or from par value to no par value, or subdivision or other split or
combination of shares), or in case of any consolidation or merger to which the
Corporation is a party, except a merger in which the Corporation is the
surviving corporation and which does not result in any such reclassification or
recapitalization, or in case of any sale or conveyance to a person or another
business entity of all or substantially all of the property of the Corporation,
in each case as a result of which Common Shares generally shall be converted
into the right to receive stock, securities or other property (including cash or
any combination thereof), effective provision shall be made by the Corporation
or by the successor or purchasing business entity (i) that the holder of each
Series A Preferred Share then outstanding shall thereafter have the right to
convert such share into the kind and amount of stock and other securities and
property receivable, upon such reclassification, recapitalization,
consolidation, merger, sale or conveyance, by a holder of the number of Common
Shares of the Corporation into which such Series A Preferred Shares might have
been converted immediately prior thereto, and (ii) that there shall be
subsequent adjustments of the Conversion Price which shall be equivalent, as
nearly as practicable, to the adjustments provided for in this Section 9.5. The
provisions of this paragraph (k) of this Section 9.6 shall similarly apply to
successive reclassifications, recapitalizations, consolidations, mergers, sales
or conveyances.
(l) Common Shares issued on conversion of Series A Preferred Shares
shall be issued as fully paid shares and shall be nonassessable by the
Corporation. The Corporation
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shall, at all times, reserve and keep available for the purpose of effecting the
conversion of the outstanding Series A Preferred Shares such number of its duly
authorized but unissued Common Shares as shall be sufficient to effect the
conversion of all of the outstanding Series A Preferred Shares.
(m) Series A Preferred Shares converted as provided herein shall become
authorized and unissued Preferred Shares which may be designated as shares of
any other series. No additional Preferred Shares, however, may be classified as
Series A Preferred Shares.
9.7 Definitions.
As used in these Articles of Amendment, unless the context otherwise
requires, the following terms shall have the following meanings:
"Dividends Accrued" means Full Cumulative Dividends to the date as of
which Dividends Accrued are to be computed, less the amount of all dividends
paid with respect to the relevant shares.
"Full Cumulative Dividends" with respect to any outstanding shares of
the Corporation which carry cumulative dividends (including, without limitation,
the Series A Preferred Shares) means an amount equal to the dividends accrued at
the full rate fixed for such shares from the date of issue to the date to which
reference is made, whether such amounts or any part thereof have been declared
and whether there shall be or have been any funds out of which such amount might
legally be paid.
"Subsidiary" means any corporation a majority of the outstanding voting
shares of which is owned, directly or indirectly, by the Corporation, by one or
more Subsidiaries of the Corporation or by the Corporation and one or more
Subsidiaries of the Corporation.
For the purpose of these Articles of Amendment the shares of any class
of the Corporation of any class or series shall be deemed to rank as follows:
(a) senior to the Series A Preferred Shares, either as to dividends or
as to rights in liquidation, if the holders of such shares shall be entitled to
the receipt of dividends or of amounts distributable upon the voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, as the case may be, in preference or priority to the holders of
Series A Preferred Shares;
(b) on a parity with the Series A Preferred Shares, either as to
dividends or as to rights in liquidation, whether or not the dividend rates,
dividend payment dates, or redemption
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or liquidation prices per share thereof be different from those of the Series A
Preferred Shares, if the holders of Series A Preferred Shares shall be entitled
to the receipt of dividends or of amounts distributable upon the voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, as the case may be, in proportion to their respective dividend
rates or liquidation prices, without preference or priority of one over the
other as between the holders of such shares; and
(c) junior to the Series A Preferred Shares, either as to dividends or
as to rights in liquidation, if such shares shall be Common Shares or if the
holders of the Series A Preferred Shares shall be entitled to the receipt of
dividends or of amounts distributable upon the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, as the
case may be, in preference or priority to the holders of such shares.
17
Exhibit 3.3
Amended through: July 15, 1999
------------------------------
BYLAWS
OF
CORNERSTONE REALTY INCOME TRUST, INC.
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
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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
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
5.20 Preferred Shares and Other Securities.............................. 22
ARTICLE VI
OFFICERS................................................................. 22
6.1 Officers........................................................... 22
6.2 Election........................................................... 22
6.3 Subordinate Officers............................................... 22
6.4 Removal and Resignation............................................ 23
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
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ARTICLE VII
SHARES OF STOCK.......................................................... 24
7.1 Registered Ownership, Share Certificates and Shares in
"Unissued Certificate" Form........................................ 25
7.2 Transfer of Shares................................................. 26
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..................................... 30
7.7 Dividend Record Date and Closing Stock Books....................... 30
7.8 Dividend Reinvestment Plan......................................... 30
ARTICLE VIII
EMPLOYMENT OF ADVISOR, LIMITATION
ON EXPENSES AND LEVERAGE................................................. 31
8.1 Employment of Advisor.............................................. 31
8.2 Term............................................................... 32
8.3 Other Activities of Advisor........................................ 32
8.4 Limitation on Offering and Organization Expenses and
Acquisition Fees and Expenses...................................... 33
8.5 Limitation on Operating Expenses................................... 33
8.6 Limitation on Real Estate Brokerage Commissions on
Purchase and Resale of Property.................................... 33
8.7 Limitation on Incentive Fees....................................... 34
8.8 Limitations on Leverage.............................................34
ARTICLE IX
RESTRICTIONS ON INVESTMENTS AND ACTIVITIES............................... 35
9.1 Restrictions....................................................... 35
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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.............................. 38
10.3 Persons Dealing with Directors or Officers......................... 38
10.4 Reliance........................................................... 39
10.5 Income Tax Status...................................................39
ARTICLE XI
MISCELLANEOUS............................................................ 39
11.1 Competing Programs................................................. 40
11.2 Corporate Seal..................................................... 40
11.3 Inspection of Bylaws............................................... 40
11.4 Inspection of Corporate Records.................................... 40
11.5 Checks, Drafts, Etc................................................ 40
11.6 Contracts, Etc., How Executed...................................... 41
11.7 Representation of Shares of Other Corporations..................... 41
11.8 Annual Report...................................................... 41
11.9 Quarterly Reports.................................................. 42
11.10 Other Reports...................................................... 42
11.11 Provisions of the Company in Conflict with Law or Regulation....... 42
11.12 Voluntary Dissolution.............................................. 43
11.13 Distributions...................................................... 43
11.14 Shareholder Liability.............................................. 43
11.15 Return of Offering Proceeds........................................ 43
11.16 Certain New York Stock Exchange Requirements....................... 43
ARTICLE XII
AMENDMENTS TO BYLAWS..................................................... 43
12.1 Amendments......................................................... 43
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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.
<PAGE>
(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 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.
5.20 Preferred Shares and Other Securities. Notwithstanding anything to the
contrary in this Article V or elsewhere in these Bylaws, holders of any
preferred shares or other Securities of the Company who, pursuant to the
documents duly creating such preferred shares or other Securities, are granted
voting rights, including rights to nominate and elect Directors, shall have such
rights as set forth in the documents creating such preferred shares or other
Securities. Furthermore, notwithstanding anything to the contrary in these
Bylaws, the Directors may interpret these Bylaws and may propose and adopt
amendments to these Bylaws as they deem necessary or convenient to give effect
to the foregoing provision of this Section 5.20.
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 By laws 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
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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 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
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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 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
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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.
(a) Certificates shall be issued and transferred in accordance with these
Bylaws, but need not be issued if the Shareholder elects to have his Shares
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.
(b) Notwithstanding anything to the contrary in this Section 7.1 or elsewhere in
these Bylaws, if the documents duly creating any preferred shares or other
Securities of the Company provide that such preferred shares or other Securities
of the Company are to be "uncertificated," certificates need not be issued in
respect of such preferred shares or other Securities. The provisions of these
Bylaws addressing Shares held in uncertificated form shall apply to any such
preferred shares or other Securities . Notwithstanding anything to the contrary
in these Bylaws, the Directors may interpret these Bylaws and may
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propose and adopt such amendments to these Bylaws as shall be necessary or
convenient to give effect to the foregoing provisions of this Section 7.1(b).
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 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
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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.
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 number of the issued and outstanding Shares of any separate
class or
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series, and no Shares shall be transferred (or issued) to any person if,
following the transfer or issuance, 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 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
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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.
(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 Section 7.3, 7.4 and 7.5, "Shares" means the Common Shares
of the Company and any other stock of the Company (as "stock" is defined in
applicable Internal Revenue Code Sections addressing stock ownership
requirements for REITs).
(h) The Advisor and its Affiliates shall not purchase in the offering made by
the Company's Prospectus dated
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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 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.
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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 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
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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 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
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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 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
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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 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.
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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);
(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
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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.
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.
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(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 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
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(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 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.
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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 Board of
Directors may also amend or revise the Bylaws to the extent other provisions of
these Bylaws expressly permit such amendment or revision. 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.
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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 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.
44
Exhibit 99
RICHMOND, VA. July 26, 1999 -
Cornerstone Realty Income Trust, Inc. (NYSE:TCR) announced today that it has
completed its merger with Apple Residential Income Trust, Inc. and now operates
as a leading owner and manager of apartment communities in the South with 87
properties. The combined company owns 20,965 apartment units and has a total
market capitalization approaching $1 billion.
The merger was overwhelmingly approved by shareholders of both companies on July
15, 1999. More than 92% of the voting shareholders of each company endorsed the
transaction. The merged company will operate under the Cornerstone name and will
continue to trade on the New York Stock Exchange under the symbol "TCR". The
company's corporate headquarters remains in Richmond, VA. In connection with the
transaction, Cornerstone was advised by PaineWebber Incorporated and Apple was
advised by Bowles Hollowell Conner, a subsidiary of First Union Capital Markets
Corp.
"When Cornerstone began operations as a start-up REIT in 1993, we envisioned
becoming a company with one billion dollars in total market capitalization. This
merger significantly advances this goal. Our larger, more diverse asset base
will enable us to reduce our cost of capital over time. Additionally, we are in
a favorable position of operating our company with significant balance sheet
flexibility and a total debt-to-capitalization ratio of only 25%. We also
believe we can improve future operating and administrative efficiencies as a
result of the transaction," said Glade M. Knight, Chairman and Chief Executive
Officer of Cornerstone.
"As a result of this merger, which will be accretive short and long term to
funds from operations, we now are a major participant in many of the strongest
growth markets in the South, including Atlanta, Charlotte and Dallas. This
merger accomplishes our long-term goal of consolidating all of our apartment
operations into one company. The transaction establishes a strong foundation for
the continued growth of our company in the years ahead," Knight said.
Knight added, "The Apple portfolio consists of high quality and well located
properties. In addition, the portfolio has been substantially renovated over the
past two years and this renovation will translate into increased income through
rental increases. These increases will be captured by the Cornerstone
shareholders in future earnings. The Apple portfolio, which is of similar
quality to the Cornerstone portfolio, was purchased at an average price of
approximately $39,000 per unit and at a capitalization rate of approximately
10%, including all of the renovations."
<PAGE>
"Finally, since Cornerstone has acted as Apple's management agent, there are no
social issues to impede the integration of the two companies. We are excited to
be off and running with a larger and stronger Cornerstone that is focused on
significantly increasing the value of our shareholders' investments," Knight
commented.
Certain statements contained herein may constitute "forward-looking statements"
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the future results, performance
or achievements of the Company to be materially different from any
forward-looking statements. Such factors include, among others, the possibility
that the merger of Cornerstone and Apple will not have the effect anticipated by
Cornerstone, risks associated with the timing of, costs associated with, and
effects of property improvements, financing commitments and general competitive
factors.
For additional information please contact Glade M. Knight, Chairman and Chief
Executive Officer, S.J. Olander, Executive Vice President and Chief Financial
Officer, David S. McKenney, Senior Vice President of Corporate Services, or
Krissy Gathright, Investor Relations Manager at (804) 643-1761. More information
about Cornerstone can be found on the company's web site at
http://www.cornerstonereit.com.
