U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 1-13080
GROVE PROPERTY TRUST
(Exact name of small business issuer as specified in its charter)
Maryland 06-1391084
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
598 Asylum Avenue, Hartford, Connecticut 06105
(Address of principal executive offices) (Zip Code)
(860) 246-1126
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes: X No:
3,953,829 common shares, $.01 par value, were outstanding as of November 11,
1997.
Transitional Small Business Disclosure Format (check one): Yes: No: X
<PAGE>
GROVE PROPERTY TRUST
Form 10-QSB
Index
Page
----
Part I: Financial Information
Item 1: Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
as of September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for the three
months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Income for the nine
months ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
(In thousands, except per share data)
ASSETS
Real estate assets:
Land .................................................. $ 15,013 $ 920
Buildings and improvements ............................ 124,229 8,528
Furniture, fixtures and equipment ..................... 6,313 350
--------- ---------
145,555 9,798
Less - accumulated depreciation
(33,541) (1,050)
--------- ---------
Net real estate assets
112,014 8,748
Cash and cash equivalents, including resident security deposits 1,158 539
Other Assets .................................................. 3,268 234
--------- ---------
Total assets ................................................. $ 116,440 $ 9,521
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ................................ $ 53,862 $ 5,669
Revolving credit facility ............................. 11,125 --
Other liabilities ..................................... 5,201 369
--------- ---------
Total liabilities ............................................. 70,188 6,038
--------- ---------
Commitments
Minority interests in consolidated partnerships ............... 1,560 --
Minority interest in operating partnership .................... 20,831 --
Shareholders' equity:
Preferred shares, $.01 par value per share,
4,000,000 shares authorized; no shares
issued or outstanding ............................. -- --
Common shares, $.01 par value per share,
10,000,000 shares authorized; 3,953,829 and
620,102 shares issued and outstanding ............. 40 6
Additional paid-in capital ............................. 24,590 3,912
Distributions in excess of earnings .................... (769) (435)
---- ----
Total shareholders equity .................................... 23,861 3,483
--------- ---------
Total liabilities and shareholders' equity .................... $116,440 $ 9,521
========= =========
<FN>
See notes to financial statements
</FN>
<PAGE>
</TABLE>
<TABLE>
GROVE PROPERTY TRUST
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<CAPTION>
For the Three Months Ended
--------------------------
---------
September 30, September 30,
1997 1996
---- ----
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Rental income ..............................................$ 5,506 $ 520
Property management ........................................ 162 --
Interest and other income .................................. 47 8
--------- ---------
Total revenues ......................................... 5,715 528
--------- ---------
Expenses:
Property operating and maintenance ......................... 1,782 139
Real estate taxes .......................................... 600 53
Related party management fees .............................. -- 27
General and administrative ................................. 258 15
--------- ---------
Total expenses ......................................... 2,640 234
--------- ---------
Net operating income 3,075 294
Interest expense ............................................... 918 103
Depreciation and amortization .................................. 1,225 95
--------- ---------
Income before minority interests ................... 932 96
Minority interests in consolidated partnerships .... 65 --
Minority interest in operating partnership ......... 347 --
--------- ---------
Net income ..................................................... $ 520 $ 96
========= =========
Net income per common share .................................... $ 0.13 $ 0.16
========= =========
Weighted average number of common shares ....................... 3,953,829 620,102
========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<CAPTION>
For the Nine Months Ended
------------------------
June 30, June 30,
1997 1996
---------- ----------
(In thousands, except per share data)
<S> <C> <C>
Revenues:
Rental income .................................................. $ 10,944 $ 1,521
Property management ............................................ 380 --
Interest and other income ...................................... 212 28
------- ------
Total revenues ............................................. 11,536 1,549
--------- ---------
Expenses:
Property operating and maintenance ............................. 3,741 485
Real estate taxes .............................................. 1,143 155
Related party management fees .................................. 22 80
General and administrative ..................................... 610 55
------- ------
Total expenses ............................................. 5,516 775
--------- -------
Net operating income 6,020 774
Interest expense ................................................... 1,732 292
Depreciation and amortization ...................................... 2,380 293
--------- -------
Income before minority interests ....................... 1,908 189
Minority interests in consolidated partnerships ........ 114 --
Minority interest in operating partnership ............. 658 --
---------- ----------
Net income ......................................... $ 1,136 $ 189
---------- ----------
et income per common share ........................................ $ 0.37 $ 0.30
========== ==========
Weighted average number of common shares ........................... 3,074,535 620,102
========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended
------------------------
September 30, September 30,
1997 1996
---- ----
<S> <C> <C>
(In thousands)
Operating activities
Net income ............................................. $ 1,136 $ 189
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................... 2,380 293
Minority interests .............................. 772 --
Non-cash compensation expenses ................... 90 --
Imputed interest - mortgage ...................... 20 28
(Increase)in other assets .............................. (1,247) (59)
Increase in accounts payable, accrued
expenses and other liabilities ..................... 693 30
------- -------
Net cash provided by operating activities .............. 3,844 481
------- -------
Investing activities
Purchase of partnership interests ...................... (8,333) --
Cash acquired on purchase of partnership interests ..... 3,013 --
Deferred charges ....................................... (1,076 --
Additions to real estate assets ........................ (5,846) (89)
------- -------
Net cash (used in) investing activities ........... (12,242) (89)
------- -------
Financing activities
Net proceeds from mortgages payable .................... 26,209 220
Financing costs ........................................ (648) (57)
Repayment of mortgages payable ......................... (41,888) (42)
Net proceeds from New Equity investment ................ 27,524 --
Payments to affiliates ................................. (758) (95)
Dividends and distribution paid ........................ (1,422) (360)
------- -------
Net cash provided by (used in) financing activities 9,017
(334)
------- -------
Net increase in cash and cash equivalents .............. 619 58
Cash and cash equivalents, beginning of period ......... 539 384
------- -------
Cash and cash equivalents, end of period ............... $ 1,158 $ 442
======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
GROVE PROPERTY TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (dollars in thousands)
1. FORMATION AND BUSINESS OF THE COMPANY
Grove Property Trust (formerly Grove Real Estate Asset Trust) (the
"Company") was organized in the State of Maryland on April 4, 1994 as a
Real Estate Investment Trust ("REIT"). The Company currently operates
thirty-three properties with a total of 2,863 residential apartments and
95,000 square feet of commercial property including a 79,000 square foot
neighborhood retail center. The Company purchased three properties on June
23, 1994 (the "Original Properties"), a fourth property ("Cambridge") in
January of 1996, twenty additional properties on March 14, 1997 (the
"Partnership Properties") from affiliated partnerships (the "Property
Partnerships") in conjunction with a series of transactions (the
"Consolidation Transactions"), three additional properties on June 2, 1997
(the "June97 Properties") from affiliated partnerships in conjunction with
the assumption of debt and the issuance of additional Common Units (as
defined below) (the "June97 Acquisitions"), one property effective on July
1, 1997 from an unrelated third party (the "July97 Property") and two
additional properties effective on September 1, 1997 (the "September97
Properties") and three additional properties effective on October 31, 1997
(the "October97 Properties") (collectively the "Properties").
These statements do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, the accompanying unaudited
financial statements reflect all the adjustments necessary to present
fairly the financial position of the Company at September 30, 1997 and
results of operations and its cash flows for the three and nine months
ended September 30, 1997 and 1996. These unaudited financial statements
should be read in conjunction with the audited financial statements and
notes contained in the Company's Form 10-KSB for the year ended December
31, 1996, as amended. Results of operations for this period are not
necessarily indicative of results to be expected for the full year.
Earnings per share is based on the weighted average number of common shares
issued and outstanding during the period; 620,102 shares from January 1,
1996 to March 14, 1997; 3,953,435 shares from March 15, 1997 to April 30,
1997, and 3,953,829 shares from May 1, 1997 to September 30, 1997 (all
adjusted for the Stock Split, as discussed in Note 2). The dilutive effect
of the assumed exercise of outstanding stock options and warrants is less
than 3% and, therefore, is not included.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the stock options will be excluded. The impact of Statement 128 on
the calculation of primary and fully diluted earnings per share for the
periods ended September 30, 1997 and 1996, is not material.
2. CONSOLIDATION TRANSACTIONS
The Consolidation Transactions were completed on March 14, 1997 and
included the following:
The Company formed an operating partnership to serve as the vehicle
for the consolidation of ownership and/or control of the operations and
assets of the Company (the "Operating Partnership").
Pursuant to an exchange offer, the Operating Partnership purchased
from limited partners (the "Limited Partners") the outstanding
partnership interests in each of the Property Partnerships in exchange
for partnership units (the "Common Units") of the Operating
Partnership, or, in certain circumstances, cash. The number of Common
Units received by a Limited Partner was calculated based upon such
partner's interest in the applicable partnership as applied to the
value of the Property Partnership associated therewith.
Immediately prior to the consummation of the Consolidation
Transactions, the Company declared a stock dividend aggregating 26,222
Common Shares and concurrently effected a stock split of 1.125 to 1
(collectively the "Stock Split"), thereby issuing on a pro rata basis a
total of 95,102 Common Shares to the holders of the issued and
outstanding Common Shares as of March 10, 1997.
The Company issued 3,333,333 Common Shares to new equity investors in
exchange for $30 million.
Pursuant to a contribution agreement (the "Contribution Agreement")
among the Company, certain companies and individuals affiliated with
the Company (the "Grove Companies") and the Operating Partnership,
substantially all of the assets and operations of the Company, the
management services division of Grove Property Services Limited
Partnership and the Grove Companies' interests in the acquired Property
Partnerships were transferred to the Operating Partnership.
In exchange for the above, the Grove Companies received an aggregate of
909,115 Common Units in the Operating Partnership and a cash payment of
$178 from the Company, and the Company received 620,102 Common Units in
the Operating Partnership. Additionally, the Company contributed to the
Operating Partnership the gross proceeds received from new equity
investments in exchange for a number of additional Common Units equal
to the number of Common Shares issued by the Company to the new equity
investors.
In connection with the Consolidation Transactions, the Operating
Partnership entered into a three-year secured revolving acquisition and
working capital credit facility of approximately $25 million (the
"Revolving Credit Facility") and an approximately $15.1 million
ten-year term mortgage loan.
The Company used a portion of the proceeds from the new equity
investment, together with borrowings under the new credit facilities to
refinance approximately $39.6 million of mortgage indebtedness of the
Property Partnerships and to acquire certain minority interests in
certain of the Property Partnerships.
3. RECENT ACQUISITIONS
Pursuant to a Contribution Agreement dated as of May 30, 1997 (the
"Contribution Agreement"), effective June 1, 1997, the Company acquired two
related party residential apartment complexes through the Operating Partnership.
These acquisitions were effected by the Operating Partnership through the
acquisition of the assets (other than certain amounts of cash) and the
assumption of liabilities of Northeast Apartments I Limited Partnership, the
owner of Four Winds Apartments ("Northeast L.P."), and of West Hartford Center
Associates, Limited Partnership, the owner of Brooksyde Apartments ("West
Hartford L.P."). In addition, simultaneously with the acquisition of Four Winds
Apartments and Brooksyde Apartments and through the Operating Partnership, the
Company acquired a 28.9% controlling interest in Windsor Arbor Limited
Partnership, the owner of River's Bend Apartments ("Windsor Arbor"), and
acquired the remaining limited partner ship interests in Windsor Arbor on
September 30, 1997 for $4.9 million.
Upon consummation of the transactions referred to above, the Operating
Partnership issued an aggregate of 420,183 Common Units valued at $10 per
unit, which, under certain circumstances, could be redeemed for an equal
number of Common Shares of the Company. The Company also assumed mortgage
debt on Four Winds Apartments and Brooksyde Apartments in the aggregate
remaining principal amount of $6.2 million. Additionally, the Windsor Arbor
investment is encumbered by $8.6 million mortgage debt which is included in
the Company's consolidated financial statements at September 30, 1997. To
complete these transactions, the Company borrowed $1.8 million under its
line of credit and used $68 of its available cash.
Four Winds Apartments is a 168-unit apartment complex located in North Fall
River, Massachusetts. The complex, which includes six two-story wood frame
buildings, a clubhouse, indoor and outdoor pools, tennis courts and other
recreational facilities, is located on approximately 24 acres of land. The
Company intends to continue to operate the complex as rental apartments.
Brooksyde Apartments is an 80-unit apartment complex located in West
Hartford, Connecticut. The complex, which includes eight two-story
buildings, is located on approximately 4 acres. The property is located near
retail and recreational facilities. The Company intends to continue to
operate the complex as rental apartments.
River's Bend Apartments is a 432-unit condominium complex located in
Windsor, Connecticut, of which 349 units are own by Windsor Arbor. The
complex, which includes 33 two-story buildings, outdoor and indoor pools and
a fitness center, is located on approximately 72 acres of land. The Company
intends to continue to operate the complex as rental apartments.
Effective on July 1, 1997, the Company purchased 127 condominium units
constituting a part of Greenfield Village Condominium in Rocky Hill,
Connecticut. The purchase was made pursuant to a Purchase and Sale Agreement
dated May 14, 1997, between Highland Income Partners, L.P. and Grove
Corporation, an affiliate of the Company. The $4,282,500 purchase price for
Greenfield Village was paid utilizing a portion of the Company's cash and
borrowings under the Revolving Credit Facility. In addition, Grove Rocky
Hill assumed certain obligations of the seller, principally related to
security deposits held by the seller. In connection with the purchase of
Greenfield Village, the Company paid $107,000 for expense and overhead
reimbursements to National Realty Services, L.P., a limited partnership[
owned by four of the executive officers of the Company.
Effective on September 1, 1997, the Company acquired three residential
apartment complexes through the Operating Partnership. These acquisitions
were completed by the Operating Partnership through the acquisition of the
assets (other than certain amounts of cash) and the assumption of
liabilities of Heritage Court Associates Limited Partnership, the owner of
Glastonbury Apartments, and of Farmington Summit Associates Limited
Partnership, the owner of Summit Apartments and Birch Hill Apartments.
Upon consummation of the September 1, 1997 transactions referred to above,
the Operating Partnership issued an aggregate of 325,836 Common Units valued
at $10.50 per unit, which under certain circumstances could be redeemed for
an equal number of Common Shares of the Company. The Company also assumed
mortgage debt on Summit Apartments, Birch Hill Apartments and Glastonbury
Center Apartments in the aggregate remaining principal amount of $9.8
million. To complete these transactions the Company borrowed $750,000 under
its Revolving Credit Facility, assumed a current liability of $1.1 million
(subsequently paid), including approximately $200,000 due to an affiliate,
and paid the balance from its available cash.
Glastonbury Center Apartments includes a total of 104 apartments and is
located in Glastonbury, Connecticut. Summit and Birch Hill Apartments
includes a total of 184 apartments and is located in Farmington,
Connecticut.
On October 31, 1997, the Company purchased a 100 unit apartment complex in
Ellington, Connecticut. The purchase was made pursuant to a Purchase and
Sale from an unrelated party. The $4,200,000 (including closing costs)
purchase price for High Meadow Apartments was paid utilizing borrowings
under the Revolving Credit Facility.
Pursuant to a Solicitation of Consent and Offer to Exchange Certain
Outstanding Limited Partnership Interests in two affiliated partnerships,
effective October 31, 1997, the Company acquired two retail communities
through the Operating Partnership. These acquisitions were completed by the
Operating Partnership through the acquisition of certain assets and
liabilities of Grove Coastal Associates Limited Partnership, the owner of
the Wharf and Corner Block.
Upon consummation of the October 31, 1997 transactions, the Operating
Partnership issued 148,668 Common Units valued at $10.50 per unit which
under certain circumstances, could be redeemed for an equal number of Common
Shares of the Company. To complete these transactions, the Company borrowed
approximately $7 million under its Revolving Credit Facility.
The Corner Block and Wharf building properties are specialty retail
properties which include a total of 16,427 square feet of space and are
located in Edgartown, Massachussets.
4. PRO FORMA INFORMATION
The following unaudited pro forma information for the nine months ended
September 30, 1997 and 1996 is presented as if the Consolidation
Transactions, the June97, July97 and the September97 Acquisitions had
occurred at the beginning of 1996. The unaudited information does not
purport to represent what the Company's results of operations would have
actually been if such transactions, in fact, had occurred on January 1,
1996, nor does it purport to represent the results of operations for future
periods.
September 30, September 30,
1997 1996
---- ----
Revenues $18,474 $17,316
Net income $ 1,459 $ 1,340
Earnings per share $ 0.37 $ 0.34
5. MORTGAGE NOTES PAYABLE
Mortgage notes payable at September 30, 1997 and December 31, 1996 consist
of the following (in thousands):
Nine Months Ended
September 30, 1997 December 31, 1996
------------------ -----------------
Amortizing first mortgage notes $ 14,425 $ 5,669
Interest only first mortgage notes 39,437 -
------ --------
$ 53,862 $ 5,669
======== ========
The Amortizing first mortgage notes have fixed interest rates between 7.04%
and 8.33%, have monthly principal and interest payments based on
amortization schedules between 25 and 30 years, and maturities between the
year 2000 and 2013. The notes are collateralized by 6 of the Properties and
are partially guaranteed by certain executive officers and shareholders of
the Company.
The Interest only first mortgage notes are comprised of variable rate and
fixed rate notes, are collateralized by 13 of the Properties, and are
partially guaranteed by certain executive officers and shareholders of the
Company. One note has a principal balance of $4.0 million, monthly payments
of interest only at a fixed rate of 7.50%, and matures in 1999. One note
has a principal balance of $15.1 million, monthly payments of interest only
at a variable rate of one month LIBOR plus 1.14% and matures in 2007. Four
notes have an aggregate principal balance of $20.3 million, monthly
payments of interest only at a variable rate of one month LIBOR plus 1.20%,
and mature between 1999 and 2005.
The interest rate on the variable notes has been partially fixed with three
interest rate swap contracts (the "Interest Swaps") with two banks. The
Interest Swaps, in effect, (i) have fixed $7.6 million of debt at 7.67% for
the period from October 1, 1997 through October 1, 2007, (ii) have fixed
$7.6 million of debt at 7.68% for the period from October 1, 1997 through
January 4, 2005, and (iii) have fixed $9.1 million of debt at 7.09% from
December 15, 1995 through December 15, 2000. The Interest Swaps have been
pledged as collateral under the various related variable notes.
6. REVOLVING CREDIT FACILITY
In March 1997, the Operating Partnership entered into a three year
Revolving Credit Facility with a bank, guaranteed by the Company, for up to
$25.0 million. Borrowings under the Revolving Credit Facility are
collateralized by 9 of the Properties (the "Collateral Properties") and
bear interest payable monthly at a floating rate of 1.2% above the 30, 60,
or 90 day LIBOR rate. The Operating Partnership is required to maintain
certain financial covenants as defined in the Revolving Credit Facility
agreement. The Revolving Credit Facility is available to fund future
property acquisitions, up to $4.0 million is available to fund working
capital needs, and up to $2.0 million is available to fund the redemption
of Common Units or the purchase of Common Shares by the Operating
Partnership. As of September 30, 1997, there was $11.125 million
outstanding under the Revolving Credit Facility.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Report. All dollar
amounts are in thousands except per share amounts
The results of operations for the nine months ended September 30, 1997 and the
three months ended September 30, 1997 include the three multifamily properties
(the "Original Properties") that Grove Property Trust (the "Company") has owned
since its inception, a fourth property ("Cambridge") that the Company acquired
on January 12, 1996, twenty properties acquired on March 14, 1997 in conjunction
with the Consolidation Transactions (the "Consolidation Properties"), three
properties acquired on June 1, 1997 from affiliated partnerships, one property
acquired on July 2, 1997 from an unrelated third party and two additional
properties on September 1, 1997 (the twenty March 14, 1997 acquisitions, the
three June 1, 1997 acquisitions, the July, 1 1997 acquisition and the September
1, 1997 acquisitions collectively referred to as the "1997 Acquisitions")
(collectively, the "Properties").
Results of Operations
Results of operations of the Company for the nine months ended September 30,
1997 and September 30, 1996.
Total revenues increased $9,987 from $1,549 to $11,536 during the nine months
ended September 30, 1997, as compared to the corresponding period in 1996.
Approximately $9,472 of the increase is due to the operations of the 1997
Acquisitions. Additionally, $380 of the increase is related to property
management revenues which represent fees earned on management services provided
to properties owned by affiliated entities. Such revenue is derived from
management contracts acquired in conjunction with the Consolidation
Transactions; therefore, there was no comparable revenue during the
corresponding period in 1996. The remainder of the increase in total revenues is
attributable to the increases in rental rates and slight increases in occupancy
experienced at the Original Properties and Cambridge, discussed below.
The Original Properties and Cambridge experienced increases in rental rates
which increased revenues. The weighted average rental rates for the Original
Properties and Cambridge increased to $712 for the nine months ended September
30, 1997 from $690 for the nine months ended September 30, 1996. Economic
occupancy for the Original Properties and Cambridge increased to an aggregate
weighted average occupancy of 97.6% for the nine months ended September 30, 1997
from an aggregate weighted average of 97.3% for the nine months ended September
30, 1996. At September 30, 1997 the weighted average economic occupancy for the
Properties was 96.4%.
Property operating and maintenance expenses increased $3,256 from $485 to $3,741
during the nine months ended September 30, 1997, as compared to the
corresponding period in 1996. The increase is primarily due to the operations of
the 1997 Acquisitions.
Real estate taxes increased $988 from $155 to $1,143 during the nine months
ended September 30, 1997, as compared to the corresponding period in 1996. The
increase is due primarily to the 1997 Acquisitions. Related party management
fees decreased $58 from $80 to $22. This decrease is due to the Company's
acquisition of the assets of the management company in conjunction with the
Consolidation Transactions, resulting in the elimination of all such expenses in
consolidation.
General and administrative expenses increased $555 from $55 to $610 during the
nine months ended September 30, 1997, as compared to the corresponding period in
1996. This increase is primarily due to the increased costs associated with the
change in size and structure of the Company.
Interest expense increased $1,440 from $292 to $1,732 during the nine months
ended September 30, 1997, as compared to the corresponding period in 1996. The
increase is primarily due to the $38.3 million mortgage debt assumed and/or
refinanced as part of the 1997 Acquisitions.
Depreciation and amortization increased $2,087 from $293 to $2,380 during the
nine months ended September 30, 1997, as compared to the corresponding period in
1996. This increase results from depreciation and amortization attributable to
the 1997 Acquisitions.
The Company's net income increased $947 from $189 to $1,136 during the nine
months ended September 30, 1997, as compared to the corresponding period in
1996. Approximately $100 of this increase results from the net effect of
decreased expenses and increased rental rates at the Original Properties and
Cambridge. The remaining increase is due to the operations of the 1997
Acquisitions.
Results of operations of the Company for the three months ended September 30,
1997 and September 30, 1996.
Total revenues increased $5,187 from $528 to $5,715 during the three months
ended September 30, 1997, as compared to the corresponding period in 1996.
Approximately $5,010 of the increase is due to the operations of the 1997
Acquisitions. Additionally, $162 of the increase is related to property
management revenues which represent fees earned on management services provided
to properties owned by affiliated entities. Such revenue is derived from
management contracts acquired in conjunction with the Consolidation
Transactions; therefore, there was no comparable revenue during the
corresponding period in 1996. The remainder of the increase in total revenues is
attributable to the increases in rental rates and slight increases in occupancy
experienced at the Original Properties and Cambridge, discussed below.
The Original Properties and Cambridge experienced increases in rental rates
which increased revenues. The weighted average rental rates for the Original
Properties and Cambridge increased to $717 for the three months ended September
30, 1997 from $696 for the three months ended September 30, 1996. Economic
occupancy for the Original Properties and Cambridge increased to an aggregate
weighted average occupancy of 96.9% for the three months ended September 30,
1997 from an aggregate weighted average of 96.8% for the three months ended
September 30, 1996.
Property operating and maintenance expenses increased $1,643 from $139 to $1,782
during the three months ended September 30, 1997, as compared to the
corresponding period in 1996. Expenses increased primarily due to the operations
of the 1997 Acquisitions.
Real estate taxes increased $547 from $53 to $600 during the three months ended
September 30, 1997, as compared to the corresponding period in 1996. The
increase is primarily due to the 1997 acquisitions. Related party management
fees decreased $27 from $27 to $0 during the three months ended September 30,
1997, as compared to the corresponding period in 1996. This decrease is due to
the Company's acquisition of the assets of the management company in conjunction
with the Consolidation Transactions, resulting in the elimination of all such
expenses in consolidation.
General and administrative expenses increased $243 from $15 to $258 during the
three months ended September 30, 1997, as compared to the corresponding period
in 1996. This increase is primarily due to the increased costs associated with
the change in size and structure of the Company.
Interest expense increased $815 from $103 to $918 during the three months ended
September 30, 1997, as compared to the corresponding period in 1996. The
increase is due primarily to the mortgage debt assumed and/or refinanced as part
of the 1997 Acquisitions.
Depreciation and amortization increased $ 1,130 from $95 to $1,225 during the
three months ended September 30, 1997, as compared to the corresponding period
in 1996. The increase is primarily due to the 1997 Acquisitions.
The Company's net income increased $424 from $96 to $520 during the three months
ended September 30, 1997, as compared to the corresponding period in 1996.
Approximately $9 of this increase results from the net effect of decreased
expenses and increased rental rates and occupancy at the Original Properties and
Cambridge, as discussed above. The remaining increase is due to the operations
of the 1997 Acquisitions.
Liquidity and Capital Resources
Cash and cash equivalents, including resident security deposits totaled $1,158
as of September 30, 1997. The Company's debt, including the Revolving Credit
Facility, to total market capitalization on September 30, 1997 was 44.5% based
on total market capitalization of $145,907 based on 2,860,458 Operating
Partnership units and 3,953,829 Common Shares outstanding assuming a Common
Share price of $11.875 per share/unit (price of common stock as of September 30,
1997) plus debt of $64,987, including the Revolving Credit Facility.
For the nine months ended September 30, 1997, cash provided by operating
activities was $3,844; cash used in investing activities was $12,242, and cash
provided by financing activities was $9,017.
On September 11, 1997 the Company declared a dividend of $0.1575 per share for
the three months ended September 30, 1997. The dividend was paid on October 17,
1997 to shareholders of record on September 30, 1997. On June 18, 1997, the
Company declared a "long" period dividend of $0.189 per share for the period
from March 14, 1997 to June 30, 1997. The dividend was paid on July 16, 1997 to
shareholders of record on June 30, 1997. On March 10, 1997, the Company declared
a "short" period dividend of $0.184 per share for the period from January 1,
1997 to March 13, 1997, which was paid on March 28, 1997 to shareholders of
record on March 10, 1997. The dividends declared during the period of $.5305 per
share resulted in a 61.5% payout of funds from operations for the nine months
ended September 30, 1997.
The Operating Partnership declared a distribution of $0.1575 per common unit of
for the three months ended September 30, 1997. The distribution amount was
prorated for unit holders that were not unit holders for the entire three months
ended September 30, 1997.
The distribution was paid on October 17, 1997. .
The Company intends to meet its short term liquidity requirements through cash
provided by operations. The Company considers its ability to generate cash to be
adequate, and expects it to continue to be adequate to meet operating
requirements and pay shareholder dividends in accordance with REIT requirements.
The Company may use other sources of capital to finance additional acquisitions
including, but not limited to, the selling of additional equity interest in the
Company, non-distributed funds from operations, the issuance of debt securities,
funds from the Revolving Credit Facility, and exchanging Common Shares or Common
Units for properties or interests in properties.
The Company continuously evaluates properties for possible acquisition or
disposition. Individual properties may be acquired through direct purchase of
the property or through the purchase of the entity owning such property and may
be made for cash or securities of the Company or the Operating Partnership. In
connection with any acquisition, the Company may incur additional indebtedness.
If the Company acquires or disposes of any property, such acquisition or
disposition could have a significant effect on the Company's financial
condition, results of operations or cash flows.
Funds from Operations
Industry analysts generally consider funds from operations ("FFO") an
appropriate measure of performance of an equity REIT. Funds from operations is
defined as income before gains (losses) on investments and extraordinary items
(computed in accordance with generally accepted accounting principles) plus real
estate depreciation, less preferred dividends and after adjustment for
significant non-recurring items, if any. This definition conforms to the
recommendations set forth in a White Paper adopted by the National Association
of Real Estate Investment Trusts ("NAREIT") in early 1995. The Company believes
that in order to facilitate a clear understanding of its operating results, FFO
should be examined in conjunction with the net income as presented in the
financial statements and information included elsewhere in this Report. FFO does
not represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative of
cash available to fund cash needs. FFO should not be considered as an
alternative to net income as an indication of the Company's performance or as an
alternative to cash flow as a measure of liquidity.
FFO increased $1,941 from $443 for the nine months ended September 30, 1996 to
$2,384 for the nine months ended September 30, 1997. Dividends declared for the
nine months ended September 30, 1997 were $1,467, representing 61.5% of FFO.
Dividends declared for the nine months ended September 30, 1996 were $361,
representing 81.4% of FFO. FFO per share was $0.78 and $0.71 for the nine months
ended September 30, 1997 and 1996, respectively.
FFO increased $923 from $175 for the three months ended September 30, 1996 to
$1,098 for the three months ended September 30, 1997. Dividends declared for the
three months ended September 30, 1997 were $623, representing 56.7% of FFO.
Dividends declared for the three months ended September 30, 1996 were $121,
representing 69.0% of FFO. FFO per share was $0.28 for the three months ended
September 30, 1997 and 1996.
FFO was calculated as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
September 30 September 30, September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income before minority interests .................... $ 932 $ 96 $ 1,098 $ 189
Real estate depreciation and amortization ............... 1,079 78 2,073 254
Non-recurring expenses .................................. -- -- 69 --
--------- -------- ------ --------
Funds from operations before minority interests ......... 2,011 174 4,050 443
Minority interests in consolidated patnerships .......... 180 -- 286 --
Minority interest in operating partnership .............. 733 -- 1,380 --
------- -------- ------- ---------
FFO ..................................................... $ 1,098 $ 174 $ 2,384 $ 443
========== ========== ========== ==========
FFO/ Share .............................................. $ 0.28 $ 0.28 $ 0.78 $ 0.71
========== ========== ========== =========
</TABLE>
Inflation
Substantially all of the leases at the properties are for a term of one year or
less, which may enable the Company to seek increased rents upon renewal or
reletting. Such short-term leases generally lessen the risk to the Company of
the potential adverse effects of inflation.
"Safe Harbor" Statement under Private Securities Litigation Reform Act of 1996
Certain statements contained in this report, and in particular in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," statements in other filings with the Securities and Exchange
Commission and statements in other public documents of the Company may be
forward looking and are subject to a variety of risks and uncertainties. Many
factors could cause actual results to differ materially from these statements.
These factors include, but are not limited to, (i) population shifts which may
increase or decrease the demand for rental housing, (ii) the values of
commercial and residential rental properties in the Northeast where all of the
Company's properties are located, in recent years, have fluctuated considerably,
(iii) the effect on the Company's properties of competition from new apartment
complexes which may be completed in proximity to such properties thereby
increasing competition, (iv) the effect of weather and other conditions which
can significantly affect property operating expenses, (v) the availability of
acquisition financing or refinancing, (vi) compliance with applicable laws and
regulations and (vii) other factors which might be described from time to time
in the Company's filings with the Securities and Exchange Commission. In
addition, the Company is subject to the effects of changes in the general
business economic conditions.
Although the Company believes that its properties will continue to be attractive
to tenants and that it will be able to control expenses, future revenue and
operating trends cannot be reliably predicted. These trends may cause the
Company to adjust its operation in the future. Factors external to the Company
can also affect the price of the Company's Common Shares. Because of the
foregoing and other factors, recent trends should not be considered reliable
indicators of future financial results or stock prices.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3 Third Amended and Restated Declaration of Trust of
the Company as amended by Articles Supplementary
thereto substantially as filed with the State of
Maryland State Department of Assessments and Taxation
27 - Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company filed
a Current Report on Form 8-K dated July 2, 1997 responding to Items 2 and 7.
Amendment No. 1 to such Current Report included the following financial
statements:
Financial Statements of Businesses Acquired.
Statement of Revenue and Certain Expenses of Greenfield Village for the
three months ended March 31, 1997 [Unuadited] and year December 31,
1996.
Pro Forma Financial Statements
Pro Forma Condensed Balance Sheet as of March 31, 1997. Pro Forma
Condensed Consolidated Statement of Operations for the year ended
December 31, 1996 and the three months ended March 31, 1997 [Unaudited]
Also during the quarter ended September 30, 1997, the Company filed a
Current Report on Form 8-K dated September 2, 1997 responding to Items 1 and 7.
Such Current Report did not contain financial statements for the business
acquired or pro forma financial statements. In accordance with the instructions
to Item 7, such financial statements will be filed by amendment not later than
60 days after the date of such Current Report was required to be filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGISTRANT:
GROVE PROPERTY TRUST
Date: November 14, 1997 By: /s/Joseph R. LaBrosse
---------------------------
Name: Joseph R. LaBrosse
(on behalf of the registrant
and as Chief Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Third Amended Restated Declaration of Trust of the Company as
amended by Articles Supplementary thereto substantially as
filed with the State of Maryland State Department of
Assessments and Taxation
27 Financial Data Schedule
<PAGE>
GROVE REAL ESTATE ASSET TRUST
THIRD AMENDED AND RESTATED
DECLARATION OF TRUST
Dated March 14, 1997
THIS THIRD AMENDED AND RESTATED DECLARATION OF TRUST is made in conformity
with the provisions of Section 12.5 hereof, as of the date set forth above by
the undersigned Trust Managers.
ARTICLE I
THE TRUST; CERTAIN DEFINITIONS
SECTION 1.1 Name. The name of the trust (the "TRUST") is:
GROVE PROPERTY TRUST
SECTION 1.2 Resident Agent. The name and address of the resident agent of
the Trust in the State of Maryland is the CT Corporation System, Maryland, 32
South Street, Baltimore, Maryland 21202. The Trust may have such offices or
places of business within or without the State of Maryland as the Trustees may
from time to time determine.
SECTION 1.3 Nature of Trust. The Trust is a real estate investment trust
within the meaning of "Title 8", defined below.
SECTION 1.4 Powers. The Trust shall have all of the powers granted to real
estate investment trusts generally by Title 8 and shall have any other and
further powers as are not inconsistent with Title 8 or other applicable law.
SECTION 1.5 Definitions. As used in this Declaration of Trust, the following
terms shall have the following meanings unless the context otherwise requires:
"AFFILIATE" or "AFFILIATED" means, as to any corporation, partnership, trust
or other association (other than the Trust), any Person (i) that holds
beneficially, directly or indirectly, 5% or more of the outstanding stock or
equity interests thereof or (ii) who is an officer, director, partner or trustee
thereof or of any Person which controls, is controlled by, or is under common
control with, such corporation, partnership, trust or other association or (iii)
which controls, is controlled by, or is under common control with, such
corporation, partnership, trust or other association.
"BOARD OF TRUST MANAGERS" means the Board of Trust Managers of the Trust.
"BYLAWS" means the Bylaws of the Trust, as amended.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DECLARATION" or "DECLARATION OF TRUST" means this Declaration Trust,
including any amendments or supplements hereto.
"EXECUTIVE OFFICERS" means Damon D. Navarro, Brian Navarro, Edmund Navarro,
Joseph LaBrosse and Gerald McNamara.
"INDEPENDENT TRUST MANAGER" means a member of the Board of Trust Managers of
the Trust which is not employed by or affiliated with the Trust or an Affiliate
of the Trust.
"PERSON" means an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used
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exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 508(a) of the
Code, joint stock company or other entity, or any government and agency or
political subdivision thereof.
"REIT PROVISIONS OF THE CODE" means Section 856 through 860 of the Code and
any other successor provisions of the Code relating to real estate investment
trust (including provisions as to the attribution of ownership of beneficial
interests therein) and the regulations promulgated thereunder.
"SECURITIES" means Shares (defined below), any stock, shares or other
evidences of equity, beneficial or other interests, 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 for,
guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"SECURITIES OF THE TRUST" means any securities issued by the Trust.
"SHAREHOLDERS" means holders of record of Shares.
"SHARES" means transferable shares of beneficial interest of the Trust of
any class or series.
"TITLE 8" means Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland, or any successor statute.
"TRUST MANAGER" means, individually, an individual, and "TRUST MANAGERS"
means, collectively, the individuals, in each case, as named in Section 2.2 of
this Declaration so long as they continue in office and any and all other
individuals who have been duly elected and qualify as Trust Managers of the
Trust hereunder.
"TRUST PROPERTY" means any and all property, real, personal or otherwise,
tangible or intangible, which is transferred or conveyed to the Trust or the
Trust Managers (including all rents, income, profits and gains therefrom), which
is owned or held by, or for the account of, the Trust or the Trust Managers.
ARTICLE II
TRUST MANAGERS
SECTION 2.1 Number, Composition. The number of Trust Managers initially
shall be five, which number may thereafter be increased or decreased by the
Trust Managers then in office from time to time; however, the total number of
Trust Managers shall be not less than two and not more than 15. No reduction in
the number of Trust Managers shall cause the removal of any Trust Managers from
office prior to the expiration of his term.
At all times after the date of closing of the Initial Public Offering (as
defined herein), the composition of the Board of Trust Managers shall consist of
a majority of Independent Trust Managers.
SECTION 2.2 Term. At each Annual Meeting of Shareholders, the successors to
the class of Trust Managers whose term expires at such Meeting shall be elected
to hold office for a term expiring at the annual Meeting of Shareholders held in
the third year following the year of their election and the other Trust Managers
shall continue in office.
SECTION 2.3 Resignation, Removal or Death. Any Trust Manager may resign by
written notice to the remaining Trust Managers, effective upon execution and
delivery to the Trust of such written notice or upon any future date specified
in the notice. A Trust Manager may be removed, only with Cause (as hereinafter
defined), at a Meeting of the Shareholders called for that purpose, by the
affirmative vote of the holders of not less than two-thirds of the Shares then
outstanding and entitled to vote in the election of Trustees. As used herein,
"CAUSE" shall mean (a) material theft, fraud or embezzlement or active and
deliberate dishonesty by a Trust Manager; (b) habitual neglect of duty by a
Trust Manager having a material and adverse significance to the Trust; or (c)
the conviction of a Trust Manager of a felony or of
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<PAGE>
any crime involving moral turpitude. Upon the incapacity, death, resignation or
removal of any Trust Manager, or his otherwise ceasing to be a Trust Manager, he
shall automatically cease to have any right, title or interest in and to the
Trust Property and shall execute and deliver such documents as the remaining
Trust Managers require for the conveyance of any Trust Property held in his
name, and shall account to the remaining Trust Managers as they require for all
property which he holds as Trust Manager.
SECTION 2.4 Legal Title. Legal title to all Trust Property shall be vested
in the Trust, but the Trust may cause legal title to any Trust Property to be
held by or in the name of any or all of the Trust Managers or any other Person
as nominee. Any right, title or interest of the Trust Managers in and to the
Trust Property shall automatically vest in successor and additional Trust
Managers upon their qualification and acceptance of election or appointment as
Trust Managers, and they shall thereupon have all the right and obligations of
Trust Managers, whether or not conveyancing documents have been executed and
delivered pursuant to Section 2.3 or otherwise. Written evidence of the
qualification and acceptance of election or appointment of successor and
additional Trust Managers may be filed with the records of the Trust and in such
other offices, agencies or places as the Trust or Trust Managers may deem
necessary or desirable.
ARTICLE III
POWERS OF TRUST MANAGERS
Subject to the express limitations herein or in the Bylaws, (1) the business
and affairs of the Trust shall be managed under the direction of the Board of
Trust Managers and (2) the Trust Managers shall have full, exclusive and
absolute power, control and authority over the Trust Property and over the
business of the Trust as if they, in their own right, were the sole owners
thereof. The Trustees may take any actions as in their sole judgment and
discretion are necessary or desirable to conduct the business of the Trust. This
Declaration of Trust shall be construed with a presumption in favor of the grant
of power and authority to the Trust Managers. Any construction of this
Declaration or determination made in good faith by the Trust Managers concerning
their powers and authority hereunder shall be conclusive. The powers of the
Trust Managers shall in no way be limited or restricted by reference to or
inference from the terms of this or any other provision of this Declaration or
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Trust Managers under the general laws of the State
of Maryland as now or hereafter in force.
ARTICLE IV
INVESTMENT POLICY
The fundamental investment policy of the Trust is to make investments in
such a manner as to comply with the REIT Provisions of the Code and with the
requirements of Title 8 with respect to the composition of the Trust's
investments and the derivation of its income. Subject to Section 6.7, the Trust
Managers shall use their best efforts to carry out this fundamental investment
policy and to conduct the affairs of the Trust in such a manner as to continue
to qualify the Trust for the tax treatment provided in the REIT Provisions of
the Code; PROVIDED, HOWEVER, that no Trust Manager, officer, employee or agent
of the Trust shall be liable for any action or omission resulting in the loss of
tax benefits under the Code, except to the extent provided in Section 11.2. The
Trust Managers may change from time to time, either by resolution or by
amendment to the Bylaws of the Trust, such investment policies as they determine
to be in the best interest of the Trust, including prohibitions or restrictions
upon certain types of investments.
ARTICLE V
SHARES
SECTION 5.1 Authorized Shares. The total number of Shares which the Trust
has authority to issue is 14,000,000 shares, of which 10,000,000 are Common
Shares, $.01 par value per share (each, a "COMMON SHARE" or collectively,
"COMMON SHARES"), and 4,000,000 are Preferred Shares, $.01 par value per share
(each a "PREFERRED SHARE" or collectively, "PREFERRED SHARES").
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<PAGE>
SECTION 5.2 Common Shares. Subject to the provisions of Article VII
regarding Excess Shares (as such term is defined therein), each Common Share
shall entitle the holder thereof to one vote. Holders of Common Shares shall not
be entitled to cumulative voting.
SECTION 5.3 Preferred Shares. Preferred Shares may be issued, from time to
time, in one or more series, as authorized by the Board of Trust Managers. Prior
to issuance of Preferred Shares of each series, the Board of Trust Managers, by
resolution, shall designate that series of Preferred Shares to distinguish it
from all other series and classes of Preferred Shares, shall specify the number
of Preferred Shares to be included in the series and, subject to the provisions
of Article VII regarding Excess Shares, shall set the terms, preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption.
SECTION 5.4 Classification or Reclassification of Unissued Shares. Subject
to the express terms of any series of Preferred Shares or any class of Common
Shares outstanding at the time and notwithstanding any other provision of the
Declaration of Trust, the Board of Trust Managers may increase or decrease the
number of, alter the designation of or classify or reclassify any unissued
Shares by setting or changing, in any one or more respects, from time to time
before issuing the Shares, and subject to the provisions of Article VII
regarding Excess Shares, the terms, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption of any series or class of
Shares.
SECTION 5.5 Declaration of Trust and Bylaws. All persons who acquire Shares
shall acquire the same subject to the provisions of this Declaration of Trust
and the Bylaws.
SECTION 5.6 Exchange of OP Units. So long as the Trust remains the general
partner of Grove Operating, L.P., the board of trust managers is hereby
expressly vested with authority (subject to the restrictions on ownership,
transfer and redemption of Equity Shares set forth in Article VII hereof) to
issue, and shall issue to the extent provided in the Partnership Agreement,
Common Shares in exchange for the units into which partnership interests in
Grove Operating, L.P. ("OP Units") are divided, as the same may be adjusted, as
provided in the Partnership Agreement.
SECTION 5.7 Reservation of Shares. Pursuant to the obligations of the Trust
under the Partnership Agreement to issue Common Shares in exchange for OP Units,
the board of trust managers is hereby required to reserve and authorize for
issuance a sufficient number of authorized but unissued Common Shares to permit
the Trust to issue Common Shares in exchange for OP Units that may be exchanged
for or converted into Common Shares as provided in the Partnership Agreement.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
TRUST AND OF THE SHAREHOLDERS AND TRUST MANAGERS
SECTION 6.1 Authorization by Board of Share Issuance. The Board of Trust
Managers may authorize the issuance from time to time of Shares of any class,
whether now or hereafter authorized, or securities convertible into Shares of
any class, whether now or hereafter authorized, for such consideration as the
Board of Trust Managers may deem advisable, subject to such restrictions or
limitations, if any, as may be set forth in this Declaration of Trust or in the
Bylaws or in the general corporation laws or other laws of the State of Maryland
affecting or having application to real estate investment trusts.
SECTION 6.2 Preemptive and Appraisal Rights. Except as may be provided by
the Board of Trust Managers in authorizing the issuance of Preferred Shares
pursuant to Section 5.3, no holder of Shares shall, as such holder, (a) have any
preemptive right to purchase or subscribe for any additional Shares or any other
security of the Trust which the Trust may issue or sell or (b), except as
expressly required by Title 8, have any right to require the Trust to pay him
the fair value of his Shares in an appraisal or similar proceeding.
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<PAGE>
SECTION 6.3 Advisor or Property Management Agreements. Subject to such
approval of the Shareholders and other conditions, if any, as may be required by
any applicable statute, rule or regulation, the Board of Trust Managers may
authorize the execution and performance by the Trust of one or more agreements
with any person, corporation, association, company, trust, partnership (limited
or general) or other organization, whether or not an Affiliate of the Trust
(each, an "ADVISOR"), whereby, subject to the supervision and control of the
Board of Trust Managers, any such Advisor shall render or make available to the
Trust managerial, investment, advisory and/or related services, office space,
and property management services, and other services and facilities (including,
if deemed advisable by the Board of Trust Managers, the management or
supervision of the investments of the Trust) upon such terms and conditions as
may be provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Trust Managers, the compensation payable thereunder by
the Trust), subject to the provisions of Section 11.6.
SECTION 6.4 Related Party Transactions.
(a) Without limiting any other procedures available by law or otherwise to
the Trust, the Board of Trust Managers may authorize any agreement of the
character described in Section 6.3 or any other transaction with any Advisor,
although one or more of the Trust Managers or officers of the Trust may be a
party to such agreement or may be an officer, director, stockholder or member of
such Advisor, and no such agreement or transaction shall be invalidated or
rendered void or voidable solely by reason of the existence of any such
relationship if the existence is disclosed or known to the Board of Trust
Managers, and the contract or transaction is approved by the Board of Trust
Managers (including the affirmative vote of a majority of the Independent Trust
Managers, even if they constitute less than a quorum of the Board). Any Trust
Manager who is also a director, officer, stockholder or member of an Advisor or
other entity with whom the Trust proposes to engage in business may be counted
in determining the existence of a quorum at any meeting of the Board of Trust
Managers considering such matter.
(b) Subsequent to the Closing Date (as defined herein), the affirmative vote
of a majority of the Independent Trust Managers (even if they constitute less
than a quorum of the Board) shall be required to approve the purchase by the
Trust or its subsidiaries of any multifamily residential or mixed-use
properties, the ownership of which is under the control, whether directly or
indirectly, of Messrs. Damon D. Navarro and Joseph R. LaBrosse or any of the
Executive Officers of the Trust, or their respective Affiliates.
SECTION 6.5 Determinations by Board. The determination as to any of the
following matters, made in good faith by, or pursuant to the direction of, the
Board of Trust Managers consistent with this Declaration of Trust and in the
absence of actual receipt of an improper benefit in money, property or services
or active and deliberate dishonesty established by a court, shall be final and
conclusive and shall be binding upon the Trust and every holder of Shares: (a)
the amount of the net income of the Trust for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
Shares or the payment of other distributions with respect to Shares; (b) the
amount of paid-in surplus, net assets, other surplus, annual or other net
profit, net assets in excess of capital, undivided profits or excess of profits
over losses on sales of assets; (c) the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges and
the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
(d) the fair value, or any sale, bid or asked price to be applied in determining
the fair value, of any asset owned or held by the Trust; and (e) any matters
relating to the acquisition, holding and disposition of any assets by the Trust.
The affirmative vote of a majority of the Independent Trust Managers, even
if they constitute less than a quorum, shall be required to approve any and all
matters for which approval by the Board of Trust Managers is required by this
Declaration of Trust.
SECTION 6.6 Reserved Powers of Board. The enumeration and definition of
powers of the Board of Trust Managers included in this Article VI shall in no
way be limited or restricted by reference to or inference from the terms of any
other clause of this or any other provision of the Declaration of Trust, or
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<PAGE>
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Board of Trust Managers under the general laws of
the State of Maryland as now or hereafter in force.
SECTION 6.7 REIT Qualification. The Board of Trust Managers shall use its
reasonable best efforts to cause the Trust and the Shareholders to qualify for
federal income tax treatment in accordance with the REIT Provisions of the Code.
In furtherance of the foregoing, the Board of Trust Managers shall use its
reasonable best efforts to take such actions as are necessary, and may take such
actions as in its sole judgment and discretion are desirable, to preserve the
status of the Trust as a REIT, including amending the provisions of this
Declaration of Trust as provided in Article IX; provided, however, that if the
Board of Trust Managers determines that it is no longer in the best interests of
the Trust for it to continue to qualify as a REIT, the Board of Trust Managers
may revoke or otherwise terminate the Trust's REIT election.
ARTICLE VII
RESTRICTIONS ON OWNERSHIP AND TRANSFER
TO PRESERVE TAX BENEFIT
SECTION 7.1 Definitions. For the purposes of this Article VII, the following
terms shall have the following meanings:
"BENEFICIAL OWNERSHIP" shall mean ownership of Equity Shares by a Person who
is or would be treated as an owner of such Equity Shares either actually or
constructively through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially
Own," "Beneficially Owns" and "Beneficially Owned" shall have the correlative
meanings.
"CHARITABLE BENEFICIARY" shall mean one or more beneficiaries of a Special
Trust as determined pursuant to Section 7.3(f) of this Article VII.
"CLOSING DATE" shall mean the time and date of the payment for and delivery
of Common Shares issued pursuant to the Initial Public Offering.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
"CONSTRUCTIVE OWNERSHIP" shall mean ownership of Equity Shares by a Person
who is or would be treated as an owner of such Equity Shares either actually or
constructively through the application of Section 318 of the Code, as modified
by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Own," "Constructively Owns" and "Constructively Owned" shall
have the correlative meanings.
"DEFERRED STOCK GRANT" means a grant, pursuant to the Trust's 1996 Share
Incentive Plan of Common Shares.
"EQUITY SHARES" shall mean Common Shares and/or Preferred Shares.
"EXECUTIVE OFFICERS" shall mean Damon Navarro, Brian Navarro, Edmund
Navarro, Joseph LaBrosse and Gerald McNamara.
"EXECUTIVE OFFICER OWNERSHIP LIMIT" means 20% (by value or by number of
Shares, whichever is more restrictive) of the outstanding Equity Shares of the
Trust.
"INITIAL PUBLIC OFFERING" shall mean the sale of Common Shares pursuant to
the Trust's first effective registration statement for such Common Shares filed
under the Securities Act of 1933, as amended, on Form SB-2 in June 1994.
"IRS" means the United States Internal Revenue Service.
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"MARKET PRICE" shall mean the last reported sales price reported on the
Emerging Company Marketplace of the American Stock Exchange, Inc. (the "AMEX"),
or otherwise on the AMEX, of the Common Shares, or Preferred Shares, as the case
may be, on the trading day immediately preceding the relevant date, or if not
then traded on the AMEX, the last reported sales price of the Common Shares, or
Preferred Shares, as the case may be, on the trading day immediately preceding
the relevant date as reported on any exchange or quotation system over which the
Common Shares, or Preferred Shares, as the case may be, may be traded, or if not
then traded over any exchange or quotation system, then the market price of the
Common Shares, or Preferred Shares, as the case may be, on the relevant date as
determined in good faith by the Board of Trust Managers.
"OPTION" means an option, granted pursuant to the Trust's 1994 Share Option
Plan or 1996 Share Incentive Plan, to acquire Common Shares.
"OWNERSHIP LIMIT" shall mean 5.0% (by value or by number of shares,
whichever is more restrictive) of the outstanding Equity Shares of the Trust.
"PARTNERSHIP AGREEMENT" shall mean the Agreement of Limited Partnership of
Grove Operating, L.P., of which the Trust is the sole general partner, dated as
of , 1996, as such agreement may be amended from time to time.
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside
for or to be used exclusively for the purposes described in Section 642(c) of
the Code, association, private foundation within the meaning of Section 509(a)
of the Code, joint stock company or other entity; but does not include an
underwriter acting in a capacity as such in a public offering of the Common
Shares, or Preferred Shares, as the case may be, provided that the ownership of
Common Shares, or Preferred Shares, as the case may be, by such underwriter
would not result in the Trust being "closely held" within the meaning of Section
856(h) of the Code, or otherwise result in the Trust failing to qualify as a
REIT.
"PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any purported
Transfer which results in a transfer to a Special Trust, as provided in Section
7.2(b) of this Article VII, the purported beneficial transferee or owner for
whom the Purported Record Transferee would have acquired or owned Equity Shares,
if such Transfer had been valid under Section 7.2(a) of this Article VII.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any purported
Transfer which results in a transfer to a Special Trust, as provided in Section
7.2(b) of this Article VII, the record holder of the Equity Shares if such
Transfer had been valid under Section 7.2(a) of this Article VII.
"REIT" shall mean a real estate investment trust under Sections 856 through
860 of the Code.
"RESTRICTION TERMINATION DATE" shall mean the first day after the Closing
Date on which the Board of Trust Managers determines that it is no longer in the
best interests of the Trust to attempt to, or continue to, qualify as a REIT.
"SPECIAL TRUST" shall mean each of the trusts provided for in Section 7.3 of
this Article VII.
"TRANSFER" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Equity Shares, including (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares or (ii) the sale, transfer, assignment or other disposition of any
securities (or rights convertible into or exchangeable for Equity Shares),
whether voluntary or involuntary, whether of record or beneficially or
Beneficially or Constructively (including but not limited to transfers of
interests in other entities which result in changes in Beneficial or
Constructive Ownership of Equity Shares), and whether by operation of law or
otherwise.
"TRUSTEE" shall mean any Person unaffiliated with the Trust, the Purported
Beneficial Transferee, and the Purported Record Transferee, that is appointed by
the Trust to serve as trustee of a Special Trust.
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Section 7.2 Restrictions on Ownership and Transfers.
(a) From the Closing Date and prior to the Restriction Termination Date:
(i) except as provided in Section 7.9 of this Article VII, (i) no Person
(other than an Executive Officer) shall Beneficially Own Equity Shares in
excess of the Ownership Limit and (ii) no Executive Officer shall, nor shall
all of the Executive Officers, in the aggregate, Beneficially Own Equity
Shares in excess of the Executive Officer Ownership Limit;
(ii) except as provided in Section 7.9 of this Article VII, no Person
shall Constructively Own in excess of 9.8% (by value or by number of shares,
whichever is more restrictive) of the outstanding Equity Shares of the
Trust; and
(iii) no Person shall Beneficially or Constructively Own Equity Shares
to the extent that such Beneficial or Constructive Ownership would result in
the Trust being "closely held" within the meaning of Section 856(h) of the
Code, or otherwise failing to qualify as a REIT (including, but not limited
to, ownership that would result in the Trust owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Trust (either directly
or indirectly through one or more partnerships) from such tenant would cause
the Trust to fail to satisfy any of the gross income requirements of Section
856(c) of the Code).
(b) If, during the period commencing on the Closing Date and prior to the
Restriction Termination Date, any Transfer (whether or not such Transfer is the
result of a transaction entered into through the facilities of the AMEX) or
other event occurs that, if effective, would result in any Person Beneficially
or Constructively Owning Equity Shares in violation of Section 7.2(a) of this
Article VII, (i) then that number of Equity Shares that otherwise would cause
such Person to violate Section 7.2(a) of this Article VII (rounded up to the
nearest whole share) shall be automatically transferred to a Special Trust for
the benefit of a Charitable Beneficiary, as described in Section 7.3, effective
as of the close of business on the business day prior to the date of such
Transfer or other event, and such Purported Beneficial Transferee shall
thereafter have no rights in such Equity Shares or (ii) if, for any reason, the
transfer to a Special Trust described in clause (i) of this sentence is not
automatically effective as provided therein to prevent any Person from
Beneficially or Constructively Owning Equity Shares in violation of Section
7.2(a) of this Article VII, then the Transfer of that number of Equity Shares
that otherwise would cause any Person to violate Section 7.2(a) shall be void AB
INITIO, and the Purported Beneficial Transferee shall have no rights in such
Equity Shares.
(c) Subject to Section 7.12 of this Article and notwithstanding any other
provisions contained herein, during the period commencing on the Closing Date
and prior to the Restriction Termination Date, any Transfer of Equity Shares
(whether or not such Transfer is the result of a transaction entered into
through the facilities of the AMEX) that, if effective, would result in the
capital stock of the Trust being beneficially owned by less than 100 Persons
(determined without reference to any rules of attribution) shall be void AB
INITIO, and the intended transferee shall acquire no rights in such Equity
Shares.
(d) It is expressly intended that the restrictions on ownership and Transfer
described in this Section 7.2 of Article VII shall apply to the
redemption/exchange rights provided in Section of the Partnership Agreement.
Notwithstanding any of the provisions of the Partnership Agreement or any other
agreement between Grove Operating, L.P. and any of its partners to the contrary,
a partner of Grove Operating, L.P. shall not be entitled to effect an exchange
of an interest in Grove Operating, L.P. for Equity Shares to the extent the
actual or beneficial or Beneficial or Constructive ownership of such Equity
Shares would be prohibited under the provisions of this Article VII.
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SECTION 7.3 Transfers of Equity Shares in Trust
(a) Upon any purported Transfer or other event described in Section 7.2(b)
of this Article VII, such Equity Shares shall be deemed to have been transferred
to the Trustee in his capacity as trustee of a Special Trust for the exclusive
benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee
shall be deemed to be effective as of the close of business on the business day
prior to the purported Transfer or other event that results in a transfer to a
Special Trust pursuant to Section 7.2(b). The Trustee shall be appointed by the
Trust and shall be a Person unaffiliated with the Trust, any Purported
Beneficial Transferee, and any Purported Record Transferee. Each Charitable
Beneficiary shall be designated by the Trust as provided in Section 7.3(f) of
this Article VII.
(b) Equity Shares held by the Trustee shall be issued and outstanding Common
Shares or Preferred Shares of the Trust, as the case may be. The Purported
Beneficial Transferee or Purported Record Transferee shall have no rights in the
Equity Shares held by the Trustee. The Purported Beneficial Transferee or
Purported Record Transferee shall not benefit economically from ownership of any
Equity Shares held in trust by the Trustee, shall have no rights to dividends
and shall not possess any rights to vote or other rights attributable to the
Equity Shares held in a Special Trust.
(c) The Trustee shall have all voting rights and rights to dividends with
respect to Equity Shares held in a Special Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or distribution paid prior to the discovery by the Trust that the Equity Shares
have been transferred to the Trustee shall be paid to the Trustee upon demand,
and any dividend or distribution declared but unpaid shall be paid when due to
the Trustee with respect to such Equity Shares. Any dividends or distributions
so paid over to the Trustee shall be held in trust for the Charitable
Beneficiary. The Purported Record Transferee and Purported Beneficial Transferee
shall have no voting rights with respect to the Equity Shares held in a Special
Trust and, subject to Maryland law, effective as of the date the Equity Shares
have been transferred to the Trustee, the Trustee shall have the authority (at
the Trustee's sole discretion) (i) to rescind as void any vote cast by a
Purported Record Transferee with respect to such Equity Shares prior to the
discovery by the Trust that the Equity Shares have been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary; PROVIDED, however,
that if the Trust has already taken irreversible action, then the Trustees shall
not have the authority to rescind and recast such vote. Notwithstanding the
provisions of this Article VII, until the Trust has received notification that
the Equity Shares have been transferred into a Special Trust, the Trust shall be
entitled to rely on its share transfer and other stockholder records for
purposes of preparing lists of stockholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise conducting votes
of stockholders.
(d) Within 20 days of receiving notice from the Trust that Equity Shares
have been transferred to a Special Trust, the Trustee of a Special Trust shall
sell the Equity Shares held in a Special Trust to a person, designated by the
Trustee, whose ownership of the Equity Shares will not violate the ownership
limitations set forth in Section 7.2(a). Upon such sale, the interest of the
Charitable Beneficiary in the Equity Shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and to the Charitable Beneficiary as provided in this Section 7.3(d). The
Purported Record Transferee shall receive the lesser of (i) the price paid by
the Purported Record Transferee for the Equity Shares in the transaction that
resulted in such transfer to the Special Trust (or, if the event which resulted
in the transfer to the Special Trust did not involve a purchase of such Equity
Shares at Market Price, the Market Price of such Equity Shares on the day of the
event which resulted in the transfer of the Equity Shares to the Special Trust)
and (ii) the price per share received by the Trustee (net of any commissions and
other expenses of sale) from the sale or other disposition of the Equity Shares
held in the Special Trust. Any net sales proceeds in excess of the amount
payable to the Purported Record Transferee shall be immediately paid to the
Charitable Beneficiary together with any dividends or other distributions
thereon. If, prior to the discovery by the Trust that such Equity Shares have
been transferred to the Trustee, such Equity Shares are sold by a Purported
Record Transferee then (i) such Equity Shares shall be deemed to
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have been sold on behalf of the Special Trust and (ii) to the extent that the
Purported Record Transferee received an amount for such Equity Shares that
exceeds the amount that such Purported Record Transferee was entitled to receive
pursuant to this subparagraph (3)(d), such excess shall be paid to the Trustee
upon demand.
(e) Equity Shares transferred to the Trustee shall be deemed to have been
offered for sale to the Trust, or its designee, at a price per share equal to
the lesser of (i) the price paid by the Purported Record Transferee for the
Equity Shares in the transaction that resulted in such transfer to a Special
Trust (or, if the event which resulted in the transfer to a Special Trust did
not involve a purchase of such Equity Shares at Market Price, the Market Price
of such Equity Shares on the day of the event which resulted in the transfer of
the Equity Shares to a Special Trust) and (ii) the Market Price on the date the
Trust, or its designee, accepts such offer. The Trust shall have the right to
accept such offer until the Trustee has sold the Equity Shares held in a Special
Trust pursuant to Section 7.3(d). Upon such a sale to the Trust, the interest of
the Charitable Beneficiary in the Equity Shares sold shall terminate and the
Trustee shall distribute the net proceeds of the sale to the Purported Record
Transferee and any dividends or other distributions held by the Trustee with
respect to such Equity Shares shall thereupon be paid to the Charitable
Beneficiary.
(f) By written notice to the Trustee, the Trust shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in a
Special Trust such that (i) the Equity Shares held in a Special Trust would not
violate the restrictions set forth in Section 7.2(a) in the hands of such
Charitable Beneficiary and (ii) each Charitable Beneficiary is an organization
described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
SECTION 7.4 Remedies for Breach. If the Board of Trust Managers, or a
committee thereof (or other designees if permitted by Maryland law) shall at any
time determine in good faith that a Transfer or other event has taken place in
violation of Section 7.2 of this Article VII or that a Person intends to
acquire, has attempted to acquire or may acquire beneficial ownership
(determined without reference to any rules of attribution), Beneficial Ownership
or Constructive Ownership of any Equity Shares of the Trust in violation of
Section 7.2 of this Article VII, the Board of Trust Managers, or a committee
thereof (or other designees if permitted by Maryland law) shall take such action
as it deems advisable to refuse to give effect to or to prevent such Transfer,
including, but not limited to, causing the Trust to redeem Equity Shares,
refusing to give effect to such Transfer on the books of the Trust or
instituting proceedings to enjoin such Transfer; PROVIDED, however, that any
Transfers (or, in the case of events other than a Transfer, ownership or
Constructive Ownership or Beneficial Ownership) in violation of Section 7.2(a)
of this Article VII, shall automatically result in the transfer to a Special
Trust as described in Section 7.2(b) and any Transfer in violation of Section
7.2(c) shall automatically be void AB INITIO, irrespective of any action (or
non-action) by the Board of Trust Managers.
SECTION 7.5 Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire Equity Shares in violation of Section 7.2 of this Article
VII or any Person who is a Purported Transferee such that an automatic transfer
to a Special Trust results under Section 7.2(b) of this Article VII, shall
immediately give written notice to the Trust of such event and shall provide to
the Trust such other information as the Trust may request in order to determine
the effect, if any, of such Transfer or attempted Transfer on the Trust's status
as a REIT.
SECTION 7.6 Owners Required to Provide Information. From the Closing Date
and prior to the Restriction Termination Date:
(a) Each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Equity Shares and each Person (including the shareholder
of record) who is holding Equity Shares for a beneficial owner or Beneficial
Owner or Constructive Owner shall, on demand, be required to disclose to the
Trust in writing such information as the Trust may request in order to determine
the effect, if any, of such shareholder's actual and constructive ownership of
Equity Shares on the the Trust's status as a REIT and
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to ensure compliance with the Ownership Limit, the Executive Officer Ownership
Limit, or such other limit as provided from time to time in this Third Amended
and Restated Declaration of Trust or as otherwise permitted by the Board of
Trust Managers.
(b) Each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Equity Shares and each Person (including the Shareholder
of record) who is holding Equity Shares for a beneficial owner or Beneficial
Owner or Constructive Owner shall, on demand, provide to the Trust a completed
questionnaire containing the information regarding their ownership of such
Equity Shares, as set forth in the regulations (as in effect from time to time)
of the U.S. Department of Treasury under the Code.
SECTION 7.7 Remedies Not Limited. Nothing contained in this Article VII (but
subject to Sections 6.7 and 7.12 of the Charter) shall limit the authority of
the Board of Trust Managers to take such other action as it deems necessary or
advisable to protect the Trust and the interests of its shareholders by
preservation of the Trust's status as a REIT.
SECTION 7.8 Ambiguity. In the case of an ambiguity in the application of any
of the provisions of Sections 7.2 through 7.9, 7.13 and 7.14 of this Article
VII, including any definition contained in Section 7.1, the Board of Trust
Managers shall have the power to determine the application of the provisions of
Sections 7.2 through 7.9, 7.13 and 7.14 with respect to any situation based on
the facts known to it (subject, however, to the provisions of Section 7.12 of
this Article). In the event any of Sections 7.2 through 7.9, 7.13 or 7.14
requires an action by the Board of Trust Managers and this Third Amended and
Restated Declaration of Trust fails to provide specific guidance with respect to
such action, the Board of Trust Managers shall have the power to determine the
action to be taken so long as such action is not contrary to the provisions of
such Sections 7.2 through 7.9 of this Article VII. Absent a decision to the
contrary by the Board of Trust Managers (which the Board of Trust Managers may
make in its sole and absolute discretion), if a Person would have (but for the
remedies set forth in Section 7.2(b)) acquired Beneficial or Constructive
Ownership of Equity Shares in violation of Section 7.2(a), such remedies (as
applicable) shall apply first to the Equity Shares which but for such remedies,
would have been actually owned by such Person, and second to Equity Shares
which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by such Person, PRO RATA among the
Persons who actually own such Equity Shares based upon the relative number of
the Equity Shares held by each such Person.
SECTION 7.9 Exceptions.
(a) Subject to Section 7.2(a)(iii), the Board of Trust Managers, in its sole
discretion, may exempt a Person from the limitation on a Person Beneficially
Owning Equity Shares in excess of the Ownership Limit or the Executive Officers
Beneficially Owning Equity Shares, in the aggregate, in excess of the Executive
Officer Ownership Limit, as the case may be, if the Board of Trust Managers
obtains such representations and undertakings from such Person or from such
Executive Officer or Executive Officers as are reasonably necessary to ascertain
that no individual's Beneficial Ownership or the Executive Officers' Beneficial
Ownership, in the aggregate, as the case may be, of such Equity Shares will
violate the Ownership Limit or the Executive Officer Ownership, as the case may
be, or that any such violation will not cause the Trust to fail to qualify as a
REIT under the Code, and agrees that any violation of such representations or
undertaking (or other action which is contrary to the restrictions contained in
Section 7.2 of this Article VII) or attempted violation will result in such
Equity Shares being transferred to a Special Trust in accordance with Section
7.2(b) of this Article VII.
(b) Subject to Section 7.2(a)(iii), the Board of Trust Managers, in its sole
discretion, may exempt a Person from the limitation on a Person Constructively
Owning Equity Shares in excess of 9.8% (by value or by number of Equity Shares,
whichever is more restrictive) of the outstanding Equity Shares of the Trust, if
such Person does not, and represents that it will not own, actually or
Constructively, an interest in a tenant of the Trust (or a tenant of any entity
owned in whole or in part by the Trust) that would cause the Trust to own,
actually or Constructively, more than a 9.8% interest (as set forth in Section
856(d)(2)(B) of the Code) in such tenant and the Trust obtains such
representations and undertakings from such Person as are
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reasonably necessary to ascertain this fact and agrees that any violation or
attempted violation will result in such Equity Shares being transferred to the
Trust in accordance with Section 7.2(b) of this Article VII. Notwithstanding the
foregoing, the inability of a Person to make the certification described in this
Section 7.9(b) shall not prevent the Board of Trust Managers, in its sole
discretion, from exempting such Person from the limitation on a Person
Constructively Owning Equity Shares in excess of 9.8% of the outstanding Equity
Shares if the Board of Trust Managers determines that the resulting application
of Section 856(d)(2)(B) of the Code would affect the characterization of less
than 0.5% of the gross income (as such term is used in Section 856(c)(2) of the
Code) of the Trust in any taxable year, after taking into account the effect of
this sentence with respect to all other Equity Shares to which this sentence
applies.
(c) Prior to granting any exception pursuant to Section 7.9(a) or (b) of
this Article VII, the Board of Trust Managers may require a ruling from the
Internal Revenue Service, or an opinion of counsel, in either case in form and
substance satisfactory to the Board of Trust Managers in its sole discretion, as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
SECTION 7.10 Legends. Each certificate for Equity Shares shall bear
substantially the following legends:
CLASS OF STOCK
"THE TRUST IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE CLASS,
CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK.
THE BOARD OF TRUST MANAGERS IS AUTHORIZED TO DETERMINE THE PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK
BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE TRUST
WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN REQUEST
THEREFOR, A COPY OF THE TRUST'S CHARTER AND A WRITTEN STATEMENT OF THE
DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, CONVERSION OR OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF
THE STOCK OF EACH CLASS WHICH THE CORPORATION HAS THE AUTHORITY TO ISSUE
AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL
CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND
PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii)
THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND
PREFERENCES OF SUBSEQUENT SERIES. REQUESTS FOR SUCH WRITTEN STATEMENT MAY
BE DIRECTED TO THE SECRETARY OF THE TRUST AT ITS PRINCIPAL OFFICE."
RESTRICTION ON OWNERSHIP AND TRANSFER
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
TRUST'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO
CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
TRUST'S CHARTER, (I)(A) NO PERSON (EXCEPT FOR AN EXECUTIVE OFFICER) MAY
BENEFICIALLY OWN IN EXCESS OF 5.0% OF THE
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OUTSTANDING EQUITY SHARES OF THE TRUST (BY VALUE OR BY NUMBER OF SHARES,
WHICHEVER IS MORE RESTRICTIVE) AND (B) NO EXECUTIVE OFFICER MAY, NOR MAY
THE EXECUTIVE OFFICERS, IN THE AGGREGATE, BENEFICIALLY OWN IN EXCESS OF
20% OF THE OUTSTANDING EQUITY SHARES OF THE TRUST (BY VALUE OR BY NUMBER
OF SHARES, WHICHEVER IS MORE RESTRICTIVE); (II) NO PERSON MAY
CONSTRUCTIVELY OWN IN EXCESS OF 9.8% OF THE OUTSTANDING EQUITY SHARES OF
THE TRUST (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE
RESTRICTIVE); (III) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN
EQUITY SHARES THAT WOULD RESULT IN THE TRUST BEING "CLOSELY HELD" UNDER
SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE TRUST TO FAIL TO
QUALIFY AS A REIT; AND (IV) NO PERSON MAY TRANSFER EQUITY SHARES IF SUCH
TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE TRUST BEING OWNED BY
FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY
OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES
WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN
EQUITY SHARES IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY
THE TRUST. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE
VIOLATED, THE EQUITY SHARES REPRESENTED HEREBY WILL BE AUTOMATICALLY
TRANSFERRED TO A TRUSTEE OF A SPECIAL TRUST FOR THE BENEFIT OF ONE OR
MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE TRUST MAY REDEEM SHARES
UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF TRUST MANAGERS IN
ITS SOLE DISCRETION IF THE BOARD OF TRUST MANAGERS DETERMINES THAT
OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS
DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS,
ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY
BE VOID AB INITIO. ALL TERMS IN THIS LEGEND THAT ARE DEFINED IN THE
DECLARATION OF TRUST HAVE THE MEANINGS ASCRIBED TO THEM IN THE
DECLARATION OF TRUST OF THE TRUST, AS THE SAME MAY BE AMENDED FROM TIME
TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND
OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF EQUITY SHARES ON REQUEST
AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE TRUST, AT THE TRUST'S PRINCIPAL OFFICE."
SECTION 7.11 Severability. If any provision of this Article VII or any
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
SECTION 7.12 AMEX. Nothing in this Article VII shall preclude the settlement
of any transaction entered into through the facilities of the AMEX or any other
national securities exchange. The fact that the settlement of any transaction is
so permitted shall not negate the effect of any other provision of this Article
VII and any transferee in such a transaction shall be subject to all the
provisions and limitations of this Article VII.
SECTION 7.13 Changes In Ownership Limit and Executive Officer Ownership
Limit. Subject to the limitations provided in Section 7.14, the Board of Trust
Managers may from time to time increase (or
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decrease) the Ownership Limit and/or the Executive Officer Ownership Limit
(including, but not limited to, in connection with the grant of Options and/or
Deferred Stock Grants to the Executive Officers).
SECTION 7.14 Limitations on Changes In the Ownership Limit and the Executive
Officer Ownership Limit.
(a) Neither the Ownership Limit nor the Executive Officer Ownership Limit
may be increased if, as a result of such increase, five Beneficial Owners of
Equity Shares (including all of the Executive Officers) could Beneficially Own,
in the aggregate, more than 50.0% (in number or value, whichever is more
restrictive) of the then outstanding Equity Shares.
(b) Prior to the modification of the Ownership Limit or the Executive
Officer Ownership Limit pursuant to Section 7.13, the Board of Trust Managers
may require such opinions of counsel, affidavits, undertakings or agreements as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
(c) The Executive Officer Ownership Limit shall not be reduced to a
percentage which is less than the Ownership Limit.
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders. There shall be an Annual Meeting of
the Shareholders, to be held at such time and place as shall be determined by or
in the manner prescribed in Article II of the Bylaws, at which Trust Managers
shall be elected and any other proper business may be conducted. Except as
otherwise provided in this Declaration of Trust, special meetings of
Shareholders may be called in the manner provided in Article II of the Bylaws.
If there are no Trust Managers, the President or any other officer of the Trust
shall promptly call a special meeting of the Shareholders entitled to vote for
the election of successor Trust Managers. Any meeting may be adjourned and
reconvened as the Trust Managers determine or as provided in Article II of the
Bylaws.
SECTION 8.2 Voting Rights of Shareholders. Subject to the provisions of any
class or series of Shares then outstanding, the Shareholders shall be entitled
to vote only on the following matters: (a) the election or removal of Trust
Managers; (b) the amendment of this Declaration of Trust; (c) the voluntary
dissolution or termination of the Trust; (d) the reorganization of the Trust;
and (e) the merger or consolidation of the Trust or the sale or other
disposition of all or substantially all of the Trust Property. Except with
respect to the foregoing matters, no action taken by the Shareholders at any
meeting shall in any way bind the Trust Managers.
ARTICLE IX
AMENDMENT
SECTION 9.1 By Shareholders. Except as provided in Section 9.2 hereof, this
Declaration of Trust may be amended only by the affirmative vote of the holders
of not less than two-thirds of all the Shares then outstanding and entitled to
vote on the matter.
SECTION 9.2 By Trust Managers. The Trust Managers, by a two-thirds vote, may
amend provisions of this Declaration of Trust from time to time to enable the
Trust to qualify as a real estate investment trust under the Code or under Title
8.
SECTION 9.3 No Other Amendment. This Declaration of Trust may not be amended
except as provided in this Article IX.
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ARTICLE X
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8. The Trust may be voluntarily dissolved or
reorganized or its existence terminated only by the affirmative vote of the
holders of not less than two-thirds of all the Shares then outstanding and
entitled to vote on the matter. The Trust may sell or otherwise dispose of all
or substantially all of the Trust Property only by the affirmative vote of the
holders entitled to vote on the matter.
ARTICLE XI
LIABILITY OF SHAREHOLDERS, TRUST MANAGERS, OFFICERS,
EMPLOYEES AND AGENTS
AND TRANSACTIONS BETWEEN THEM AND THE TRUST
SECTION 11.1 Limitation of Shareholder Liability. No Shareholder shall be
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Trust Property or
the affairs of the Trust.
SECTION 11.2 Limitation of Trust Manager and Executive Officer Liability. To
the maximum extent that Maryland law in effect from time to time permits
limitations of the liability of trustees and officers of a real estate
investment trust, no Trust Manager or officer of the Trust shall be liable to
the Trust or to any Shareholder for money damages. Neither the amendment nor
repeal of this Section, nor the adoption or amendment of any other provision of
this Declaration of Trust inconsistent with this section, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption. In the absence of any Maryland statute limiting the liability of
trustees and officers of a Maryland real estate investment trust for money
damages in a suit by or on behalf of the Trust or by any Shareholder, no Trust
Manager or Executive Officer of the Trust shall be liable to the Trust or to any
Shareholder unless (a) that Trust Manager or Executive Officer actually received
an improper benefit or profit in money, property or services, and then, for the
amount of the benefit of profit in money or services actually received or (b) a
judgment or other final adjudication adverse to the Trust Manager or Executive
Officer is entered in a proceeding based on a finding in the proceeding that the
Trust Manager's or Executive Officer's action or failure to act was the result
of active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding or (c) otherwise, in accordance with the
provisions of an indemnification agreement between any of them and the Trust.
SECTION 11.3 Express Exculpatory Clauses in Instruments. Neither the
Shareholders nor the Trust Managers, Executive Officers, employees or agents of
the Trust shall be liable under any written instrument creating an obligation of
the Trust, and all Persons shall look solely to the Trust Property for the
payment of any claim under or for the performance of the instrument. The
omission of the foregoing exculpatory clause in such instrument shall not render
any Shareholder, Trust Manager, Executive Officer, employee or agent liable
thereunder to any third party, nor shall the Trust Manager or any officers,
employees or agents of the Trust be liable to anyone for such omission. In the
event of a conflict between the terms of this Declaration and any
indemnification agreement, the terms of the indemnification agreement shall
control.
SECTION 11.4 Indemnification and Advance for Expenses. The Trust shall have
the power, to the maximum extent permitted by Maryland law in effect from time
to time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to, (a) any individual
who is a present or former Shareholder, Trust Manager or officer of the Trust or
(b) any individual who, while a Shareholder, Trust Manager or officer of the
Trust and at the express request of the Trust, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or
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any other enterprise as a director, officer, Shareholder, partner or trustee of
such corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, from and against all claims and liabilities to which such
person may become subject and against all claims and liabilities to which such
person may become subject by reason of his being or having been a Shareholder,
Trust Manager or Executive Officer. The Trust shall have the power, with the
approval of its Board of Trust Managers, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Trust in any
of the capacities described in (a) or (b) above and to any employee or agent of
the Trust or a predecessor of the Trust.
SECTION 11.5 Transactions Between the Trust and its Trust Managers,
Executive Officers, Employees and Agents. Subject to any express restriction in
this Declaration of Trust, including, but not limited to, Section 6.4, any
restriction adopted by the Trust Managers in the Bylaws or by resolution, and in
accordance with the terms and provisions of any employment agreement and/or
non-competition agreement with any Trust Manager or Executive Officer and the
Trust, as applicable, the Trust may enter into any contract or transaction of
any kind (including, without limitation, for the purchase or sale of property or
for any type of services, including those in connection with the underwriting or
the offer or sale of Securities of the Trust) with any Person, including any
Trust Manager, Executive Officer, employee or agent of the Trust, whether or not
any of them has a financial interest in such transaction.
SECTION 11.6 Limitation on Total Operating Expenses. The Total Operating
Expenses of the Trust shall not exceed the greater of 2% of its average invested
assets or 25% of its net income in any fiscal year as defined below. The Trust
Managers will limit operating expenses to these levels unless a majority of the
Independent Trust Managers make a finding that, based on unusual or
non-recurring factors, a higher level of expenses is justified for that year.
Written records and supporting data shall be maintained by the Trust Managers in
this regard.
Within 60 days after the end of any fiscal quarter in which Total Operating
Expenses for the preceding twelve (12) months exceeded this limitation, the
Trust will disclose this fact to the Shareholders, together with an explanation
of the factors upon which the Independent Trust Managers relied in approving
higher operating expenses.
For purposes of this Section 11.6, "TOTAL OPERATING EXPENSES" shall include
all cash operating expenses, including additional expenses paid directly or
indirectly by the Trust to its Affiliates or third parties based upon their
relationship with the Trust, including loan administration, servicing,
engineering, inspection and all other expenses paid by the Trust, except the
expenses related to raising capital, for interest, taxes and direct property
acquisition, operation, maintenance and management costs.
"AVERAGE INVESTED ASSETS", for purposes of this Section 11.6, for any
period, shall mean the average of the aggregate book value of the assets of the
Trust, invested, directly or indirectly, in equity interests and in 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 such period.
"NET INCOME", for purposes of the calculation contained in this Section
11.6, shall mean total revenues applicable to such period, other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Governing Law. This Third Amended and Restated Declaration of
Trust is executed by the Trust Managers and delivered in the State of Maryland
with reference to the laws thereof, and the rights of all parties and the
validity, construction and effect of every provision hereof shall be subject to
and construed according to the laws of the State of Maryland without regard to
conflict of law provisions thereof.
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SECTION 12.2 Reliance by Third Parties. Any certificate shall be final and
conclusive as to any Person dealing with the Trust if executed by an individual
who, according to the records of the Trust or of any recording office in which
this Third Amended and Restated Declaration of Trust may be recorded, appears to
be the Secretary or an Assistant Secretary of the Trust or a Trust Manager, and
if certifying to: (a) the number or identity of Trust Managers, officers of the
Trust or Shareholders; (b) the due authorization of the execution of any
document; (c) any action or vote taken, and the existence of a quorum at a
meeting of Trust Managers or Shareholders; (d) a copy of this Declaration or of
the Bylaws as a true and complete copy as then in force; (e) an amendment to
this Declaration; (f) the termination of the Trust; or (g) the existence of any
fact or facts which relate to the affairs of the Trust. No purchaser, lender,
transfer agent or other Person shall be bound to make any inquiry concerning the
validity of any transaction purported to be made on behalf of the Trust by the
Trust Managers or by any officer, employee or agent of the Trust.
SECTION 12.3 Provisions in Conflict With Law or Regulations.
(a) The provisions of this Third Amended and Restated Declaration of Trust
are severable, and if the Trust Managers shall determine, with the advice of
counsel, that any one or more of such provisions are in conflict with the REIT
Provisions of the Code, Title 8 or any other applicable federal or state law,
the conflicting provisions shall be deemed never to have constituted a part of
this Declaration of Trust, even without any amendment of this Declaration of
Trust pursuant to Article IX; PROVIDED, HOWEVER, that such determination by the
Trust Managers shall not affect or impair any of the remaining provisions of
this Declaration of Trust or render invalid or improper any action taken or
omitted prior to such determination. No Trust Manager shall be liable for making
or failing to make such a determination.
(b) If any provision of this Third Amended and Restated Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such holding shall
not in any manner affect or render invalid or unenforceable such provision in
any other jurisdiction or any other provision of this Declaration of Trust in
any jurisdiction.
Section 12.4 Construction. In this Third Amended and Restated Declaration of
Trust, unless the context requires otherwise, words used in the singular or in
the plural include both the plural and singular and words denoting any gender
include all genders. Title and headings of different parts of this Declaration
are inserted for convenience and shall not affect the meaning, construction or
effect hereof. In defining or interpreting the powers and duties of the Trust
and its Trust Managers and officers, reference may be made, to the extent
appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3
of the Corporations and Associations Article of the Annotated Code of Maryland
(the "MARYLAND CODE"). In furtherance and not in limitation of the foregoing, in
accordance with the provisions of Title 3, Subtitles 6 and 7, of the Maryland
Code, the Trust shall be included within the definition of "corporation" for
purposes of such provisions.
SECTION 12.5 Recordation. This Third Amended and Restated Declaration of
Trust and any amendment or supplement hereto shall be filed for record with the
State Department of Assessments and Taxation of Maryland and may also be filed
or recorded in such other places as the Trust Managers deem appropriate, but
failure to file for record this Third Amended and Restated Declaration or any
amendment or supplement hereto in any office other than in the State of Maryland
shall not affect or impair the validity or effectiveness of this Third Amended
and Restated Declaration or any amendment hereto. This Third Amended and
Restated Declaration, and any subsequently amended and restated Declaration,
shall, upon filing, be conclusive evidence of all amendments or supplements
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments or supplements thereto.
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IN WITNESS WHEREOF, this Third Amended and Restated Declaration of Trust has
been signed on this day of , 1997, by the undersigned Trust Managers, each of
whom acknowledge that this document is his free act and deed, that, to the best
of his knowledge, information and belief, the matters and facts set forth herein
are true in all material respects and that this statement is made under the
penalties for perjury.
<TABLE>
<S> <C> <C>
/s/Harold Gorman /s/Damon Navarro /s/James F. Twaddell
- - --------------------- --------------------- ---------------------
Harold Gorman Damon D. Navarro James F. Twaddell
/s/J. Joseph Garrahy /s/Joseph R. LaBrosse
- - --------------------- ---------------------
J. Joseph Garrahy Joseph R. LaBrosse
</TABLE>
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Third Amended and Restated Declaration of Trust of the Company
substantially as filed with the State of Maryland State Department of
Assessments and Taxation.
4.1 Revolving Credit Agreement dated March 26,
1997, among Grove Operating L.P., the Company
and Rhode Island Hospital Trust National Bank
(a Bank of Boston company) and Other Banks
which may become parties to the Agreement and
Rhode Island Hospital Trust National Bank, as
Agent.
27 Financial Data Schedule
GROVE REAL ESTATE ASSET TRUST
THIRD AMENDED AND RESTATED
DECLARATION OF TRUST
Dated March 14, 1997
THIS THIRD AMENDED AND RESTATED DECLARATION OF TRUST is made in conformity
with the provisions of Section 12.5 hereof, as of the date set forth above by
the undersigned Trust Managers.
ARTICLE I
THE TRUST; CERTAIN DEFINITIONS
SECTION 1.1 Name. The name of the trust (the "TRUST") is:
GROVE PROPERTY TRUST
SECTION 1.2 Resident Agent. The name and address of the resident agent of
the Trust in the State of Maryland is the CT Corporation System, Maryland, 32
South Street, Baltimore, Maryland 21202. The Trust may have such offices or
places of business within or without the State of Maryland as the Trustees may
from time to time determine.
SECTION 1.3 Nature of Trust. The Trust is a real estate investment trust
within the meaning of "Title 8", defined below.
SECTION 1.4 Powers. The Trust shall have all of the powers granted to real
estate investment trusts generally by Title 8 and shall have any other and
further powers as are not inconsistent with Title 8 or other applicable law.
SECTION 1.5 Definitions. As used in this Declaration of Trust, the following
terms shall have the following meanings unless the context otherwise requires:
"AFFILIATE" or "AFFILIATED" means, as to any corporation, partnership, trust
or other association (other than the Trust), any Person (i) that holds
beneficially, directly or indirectly, 5% or more of the outstanding stock or
equity interests thereof or (ii) who is an officer, director, partner or trustee
thereof or of any Person which controls, is controlled by, or is under common
control with, such corporation, partnership, trust or other association or (iii)
which controls, is controlled by, or is under common control with, such
corporation, partnership, trust or other association.
"BOARD OF TRUST MANAGERS" means the Board of Trust Managers of the Trust.
"BYLAWS" means the Bylaws of the Trust, as amended.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DECLARATION" or "DECLARATION OF TRUST" means this Declaration Trust,
including any amendments or supplements hereto.
"EXECUTIVE OFFICERS" means Damon D. Navarro, Brian Navarro, Edmund Navarro,
Joseph LaBrosse and Gerald McNamara.
"INDEPENDENT TRUST MANAGER" means a member of the Board of Trust Managers of
the Trust which is not employed by or affiliated with the Trust or an Affiliate
of the Trust.
"PERSON" means an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used
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exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 508(a) of the
Code, joint stock company or other entity, or any government and agency or
political subdivision thereof.
"REIT PROVISIONS OF THE CODE" means Section 856 through 860 of the Code and
any other successor provisions of the Code relating to real estate investment
trust (including provisions as to the attribution of ownership of beneficial
interests therein) and the regulations promulgated thereunder.
"SECURITIES" means Shares (defined below), any stock, shares or other
evidences of equity, beneficial or other interests, 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 for,
guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"SECURITIES OF THE TRUST" means any securities issued by the Trust.
"SHAREHOLDERS" means holders of record of Shares.
"SHARES" means transferable shares of beneficial interest of the Trust of
any class or series.
"TITLE 8" means Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland, or any successor statute.
"TRUST MANAGER" means, individually, an individual, and "TRUST MANAGERS"
means, collectively, the individuals, in each case, as named in Section 2.2 of
this Declaration so long as they continue in office and any and all other
individuals who have been duly elected and qualify as Trust Managers of the
Trust hereunder.
"TRUST PROPERTY" means any and all property, real, personal or otherwise,
tangible or intangible, which is transferred or conveyed to the Trust or the
Trust Managers (including all rents, income, profits and gains therefrom), which
is owned or held by, or for the account of, the Trust or the Trust Managers.
ARTICLE II
TRUST MANAGERS
SECTION 2.1 Number, Composition. The number of Trust Managers initially
shall be five, which number may thereafter be increased or decreased by the
Trust Managers then in office from time to time; however, the total number of
Trust Managers shall be not less than two and not more than 15. No reduction in
the number of Trust Managers shall cause the removal of any Trust Managers from
office prior to the expiration of his term.
At all times after the date of closing of the Initial Public Offering (as
defined herein), the composition of the Board of Trust Managers shall consist of
a majority of Independent Trust Managers.
SECTION 2.2 Term. At each Annual Meeting of Shareholders, the successors to
the class of Trust Managers whose term expires at such Meeting shall be elected
to hold office for a term expiring at the annual Meeting of Shareholders held in
the third year following the year of their election and the other Trust Managers
shall continue in office.
SECTION 2.3 Resignation, Removal or Death. Any Trust Manager may resign by
written notice to the remaining Trust Managers, effective upon execution and
delivery to the Trust of such written notice or upon any future date specified
in the notice. A Trust Manager may be removed, only with Cause (as hereinafter
defined), at a Meeting of the Shareholders called for that purpose, by the
affirmative vote of the holders of not less than two-thirds of the Shares then
outstanding and entitled to vote in the election of Trustees. As used herein,
"CAUSE" shall mean (a) material theft, fraud or embezzlement or active and
deliberate dishonesty by a Trust Manager; (b) habitual neglect of duty by a
Trust Manager having a material and adverse significance to the Trust; or (c)
the conviction of a Trust Manager of a felony or of
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any crime involving moral turpitude. Upon the incapacity, death, resignation or
removal of any Trust Manager, or his otherwise ceasing to be a Trust Manager, he
shall automatically cease to have any right, title or interest in and to the
Trust Property and shall execute and deliver such documents as the remaining
Trust Managers require for the conveyance of any Trust Property held in his
name, and shall account to the remaining Trust Managers as they require for all
property which he holds as Trust Manager.
SECTION 2.4 Legal Title. Legal title to all Trust Property shall be vested
in the Trust, but the Trust may cause legal title to any Trust Property to be
held by or in the name of any or all of the Trust Managers or any other Person
as nominee. Any right, title or interest of the Trust Managers in and to the
Trust Property shall automatically vest in successor and additional Trust
Managers upon their qualification and acceptance of election or appointment as
Trust Managers, and they shall thereupon have all the right and obligations of
Trust Managers, whether or not conveyancing documents have been executed and
delivered pursuant to Section 2.3 or otherwise. Written evidence of the
qualification and acceptance of election or appointment of successor and
additional Trust Managers may be filed with the records of the Trust and in such
other offices, agencies or places as the Trust or Trust Managers may deem
necessary or desirable.
ARTICLE III
POWERS OF TRUST MANAGERS
Subject to the express limitations herein or in the Bylaws, (1) the business
and affairs of the Trust shall be managed under the direction of the Board of
Trust Managers and (2) the Trust Managers shall have full, exclusive and
absolute power, control and authority over the Trust Property and over the
business of the Trust as if they, in their own right, were the sole owners
thereof. The Trustees may take any actions as in their sole judgment and
discretion are necessary or desirable to conduct the business of the Trust. This
Declaration of Trust shall be construed with a presumption in favor of the grant
of power and authority to the Trust Managers. Any construction of this
Declaration or determination made in good faith by the Trust Managers concerning
their powers and authority hereunder shall be conclusive. The powers of the
Trust Managers shall in no way be limited or restricted by reference to or
inference from the terms of this or any other provision of this Declaration or
construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Trust Managers under the general laws of the State
of Maryland as now or hereafter in force.
ARTICLE IV
INVESTMENT POLICY
The fundamental investment policy of the Trust is to make investments in
such a manner as to comply with the REIT Provisions of the Code and with the
requirements of Title 8 with respect to the composition of the Trust's
investments and the derivation of its income. Subject to Section 6.7, the Trust
Managers shall use their best efforts to carry out this fundamental investment
policy and to conduct the affairs of the Trust in such a manner as to continue
to qualify the Trust for the tax treatment provided in the REIT Provisions of
the Code; PROVIDED, HOWEVER, that no Trust Manager, officer, employee or agent
of the Trust shall be liable for any action or omission resulting in the loss of
tax benefits under the Code, except to the extent provided in Section 11.2. The
Trust Managers may change from time to time, either by resolution or by
amendment to the Bylaws of the Trust, such investment policies as they determine
to be in the best interest of the Trust, including prohibitions or restrictions
upon certain types of investments.
ARTICLE V
SHARES
SECTION 5.1 Authorized Shares. The total number of Shares which the Trust
has authority to issue is 14,000,000 shares, of which 10,000,000 are Common
Shares, $.01 par value per share (each, a "COMMON SHARE" or collectively,
"COMMON SHARES"), and 4,000,000 are Preferred Shares, $.01 par value per share
(each a "PREFERRED SHARE" or collectively, "PREFERRED SHARES").
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SECTION 5.2 Common Shares. Subject to the provisions of Article VII
regarding Excess Shares (as such term is defined therein), each Common Share
shall entitle the holder thereof to one vote. Holders of Common Shares shall not
be entitled to cumulative voting.
SECTION 5.3 Preferred Shares. Preferred Shares may be issued, from time to
time, in one or more series, as authorized by the Board of Trust Managers. Prior
to issuance of Preferred Shares of each series, the Board of Trust Managers, by
resolution, shall designate that series of Preferred Shares to distinguish it
from all other series and classes of Preferred Shares, shall specify the number
of Preferred Shares to be included in the series and, subject to the provisions
of Article VII regarding Excess Shares, shall set the terms, preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption.
SECTION 5.4 Classification or Reclassification of Unissued Shares. Subject
to the express terms of any series of Preferred Shares or any class of Common
Shares outstanding at the time and notwithstanding any other provision of the
Declaration of Trust, the Board of Trust Managers may increase or decrease the
number of, alter the designation of or classify or reclassify any unissued
Shares by setting or changing, in any one or more respects, from time to time
before issuing the Shares, and subject to the provisions of Article VII
regarding Excess Shares, the terms, preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption of any series or class of
Shares.
SECTION 5.5 Declaration of Trust and Bylaws. All persons who acquire Shares
shall acquire the same subject to the provisions of this Declaration of Trust
and the Bylaws.
SECTION 5.6 Exchange of OP Units. So long as the Trust remains the general
partner of Grove Operating, L.P., the board of trust managers is hereby
expressly vested with authority (subject to the restrictions on ownership,
transfer and redemption of Equity Shares set forth in Article VII hereof) to
issue, and shall issue to the extent provided in the Partnership Agreement,
Common Shares in exchange for the units into which partnership interests in
Grove Operating, L.P. ("OP Units") are divided, as the same may be adjusted, as
provided in the Partnership Agreement.
SECTION 5.7 Reservation of Shares. Pursuant to the obligations of the Trust
under the Partnership Agreement to issue Common Shares in exchange for OP Units,
the board of trust managers is hereby required to reserve and authorize for
issuance a sufficient number of authorized but unissued Common Shares to permit
the Trust to issue Common Shares in exchange for OP Units that may be exchanged
for or converted into Common Shares as provided in the Partnership Agreement.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
TRUST AND OF THE SHAREHOLDERS AND TRUST MANAGERS
SECTION 6.1 Authorization by Board of Share Issuance. The Board of Trust
Managers may authorize the issuance from time to time of Shares of any class,
whether now or hereafter authorized, or securities convertible into Shares of
any class, whether now or hereafter authorized, for such consideration as the
Board of Trust Managers may deem advisable, subject to such restrictions or
limitations, if any, as may be set forth in this Declaration of Trust or in the
Bylaws or in the general corporation laws or other laws of the State of Maryland
affecting or having application to real estate investment trusts.
SECTION 6.2 Preemptive and Appraisal Rights. Except as may be provided by
the Board of Trust Managers in authorizing the issuance of Preferred Shares
pursuant to Section 5.3, no holder of Shares shall, as such holder, (a) have any
preemptive right to purchase or subscribe for any additional Shares or any other
security of the Trust which the Trust may issue or sell or (b), except as
expressly required by Title 8, have any right to require the Trust to pay him
the fair value of his Shares in an appraisal or similar proceeding.
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SECTION 6.3 Advisor or Property Management Agreements. Subject to such
approval of the Shareholders and other conditions, if any, as may be required by
any applicable statute, rule or regulation, the Board of Trust Managers may
authorize the execution and performance by the Trust of one or more agreements
with any person, corporation, association, company, trust, partnership (limited
or general) or other organization, whether or not an Affiliate of the Trust
(each, an "ADVISOR"), whereby, subject to the supervision and control of the
Board of Trust Managers, any such Advisor shall render or make available to the
Trust managerial, investment, advisory and/or related services, office space,
and property management services, and other services and facilities (including,
if deemed advisable by the Board of Trust Managers, the management or
supervision of the investments of the Trust) upon such terms and conditions as
may be provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Trust Managers, the compensation payable thereunder by
the Trust), subject to the provisions of Section 11.6.
SECTION 6.4 Related Party Transactions.
(a) Without limiting any other procedures available by law or otherwise to
the Trust, the Board of Trust Managers may authorize any agreement of the
character described in Section 6.3 or any other transaction with any Advisor,
although one or more of the Trust Managers or officers of the Trust may be a
party to such agreement or may be an officer, director, stockholder or member of
such Advisor, and no such agreement or transaction shall be invalidated or
rendered void or voidable solely by reason of the existence of any such
relationship if the existence is disclosed or known to the Board of Trust
Managers, and the contract or transaction is approved by the Board of Trust
Managers (including the affirmative vote of a majority of the Independent Trust
Managers, even if they constitute less than a quorum of the Board). Any Trust
Manager who is also a director, officer, stockholder or member of an Advisor or
other entity with whom the Trust proposes to engage in business may be counted
in determining the existence of a quorum at any meeting of the Board of Trust
Managers considering such matter.
(b) Subsequent to the Closing Date (as defined herein), the affirmative vote
of a majority of the Independent Trust Managers (even if they constitute less
than a quorum of the Board) shall be required to approve the purchase by the
Trust or its subsidiaries of any multifamily residential or mixed-use
properties, the ownership of which is under the control, whether directly or
indirectly, of Messrs. Damon D. Navarro and Joseph R. LaBrosse or any of the
Executive Officers of the Trust, or their respective Affiliates.
SECTION 6.5 Determinations by Board. The determination as to any of the
following matters, made in good faith by, or pursuant to the direction of, the
Board of Trust Managers consistent with this Declaration of Trust and in the
absence of actual receipt of an improper benefit in money, property or services
or active and deliberate dishonesty established by a court, shall be final and
conclusive and shall be binding upon the Trust and every holder of Shares: (a)
the amount of the net income of the Trust for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
Shares or the payment of other distributions with respect to Shares; (b) the
amount of paid-in surplus, net assets, other surplus, annual or other net
profit, net assets in excess of capital, undivided profits or excess of profits
over losses on sales of assets; (c) the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges and
the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
(d) the fair value, or any sale, bid or asked price to be applied in determining
the fair value, of any asset owned or held by the Trust; and (e) any matters
relating to the acquisition, holding and disposition of any assets by the Trust.
The affirmative vote of a majority of the Independent Trust Managers, even
if they constitute less than a quorum, shall be required to approve any and all
matters for which approval by the Board of Trust Managers is required by this
Declaration of Trust.
SECTION 6.6 Reserved Powers of Board. The enumeration and definition of
powers of the Board of Trust Managers included in this Article VI shall in no
way be limited or restricted by reference to or inference from the terms of any
other clause of this or any other provision of the Declaration of Trust, or
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construed or deemed by inference or otherwise in any manner to exclude or limit
the powers conferred upon the Board of Trust Managers under the general laws of
the State of Maryland as now or hereafter in force.
SECTION 6.7 REIT Qualification. The Board of Trust Managers shall use its
reasonable best efforts to cause the Trust and the Shareholders to qualify for
federal income tax treatment in accordance with the REIT Provisions of the Code.
In furtherance of the foregoing, the Board of Trust Managers shall use its
reasonable best efforts to take such actions as are necessary, and may take such
actions as in its sole judgment and discretion are desirable, to preserve the
status of the Trust as a REIT, including amending the provisions of this
Declaration of Trust as provided in Article IX; provided, however, that if the
Board of Trust Managers determines that it is no longer in the best interests of
the Trust for it to continue to qualify as a REIT, the Board of Trust Managers
may revoke or otherwise terminate the Trust's REIT election.
ARTICLE VII
RESTRICTIONS ON OWNERSHIP AND TRANSFER
TO PRESERVE TAX BENEFIT
SECTION 7.1 Definitions. For the purposes of this Article VII, the following
terms shall have the following meanings:
"BENEFICIAL OWNERSHIP" shall mean ownership of Equity Shares by a Person who
is or would be treated as an owner of such Equity Shares either actually or
constructively through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially
Own," "Beneficially Owns" and "Beneficially Owned" shall have the correlative
meanings.
"CHARITABLE BENEFICIARY" shall mean one or more beneficiaries of a Special
Trust as determined pursuant to Section 7.3(f) of this Article VII.
"CLOSING DATE" shall mean the time and date of the payment for and delivery
of Common Shares issued pursuant to the Initial Public Offering.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
"CONSTRUCTIVE OWNERSHIP" shall mean ownership of Equity Shares by a Person
who is or would be treated as an owner of such Equity Shares either actually or
constructively through the application of Section 318 of the Code, as modified
by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Own," "Constructively Owns" and "Constructively Owned" shall
have the correlative meanings.
"DEFERRED STOCK GRANT" means a grant, pursuant to the Trust's 1996 Share
Incentive Plan of Common Shares.
"EQUITY SHARES" shall mean Common Shares and/or Preferred Shares.
"EXECUTIVE OFFICERS" shall mean Damon Navarro, Brian Navarro, Edmund
Navarro, Joseph LaBrosse and Gerald McNamara.
"EXECUTIVE OFFICER OWNERSHIP LIMIT" means 20% (by value or by number of
Shares, whichever is more restrictive) of the outstanding Equity Shares of the
Trust.
"INITIAL PUBLIC OFFERING" shall mean the sale of Common Shares pursuant to
the Trust's first effective registration statement for such Common Shares filed
under the Securities Act of 1933, as amended, on Form SB-2 in June 1994.
"IRS" means the United States Internal Revenue Service.
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"MARKET PRICE" shall mean the last reported sales price reported on the
Emerging Company Marketplace of the American Stock Exchange, Inc. (the "AMEX"),
or otherwise on the AMEX, of the Common Shares, or Preferred Shares, as the case
may be, on the trading day immediately preceding the relevant date, or if not
then traded on the AMEX, the last reported sales price of the Common Shares, or
Preferred Shares, as the case may be, on the trading day immediately preceding
the relevant date as reported on any exchange or quotation system over which the
Common Shares, or Preferred Shares, as the case may be, may be traded, or if not
then traded over any exchange or quotation system, then the market price of the
Common Shares, or Preferred Shares, as the case may be, on the relevant date as
determined in good faith by the Board of Trust Managers.
"OPTION" means an option, granted pursuant to the Trust's 1994 Share Option
Plan or 1996 Share Incentive Plan, to acquire Common Shares.
"OWNERSHIP LIMIT" shall mean 5.0% (by value or by number of shares,
whichever is more restrictive) of the outstanding Equity Shares of the Trust.
"PARTNERSHIP AGREEMENT" shall mean the Agreement of Limited Partnership of
Grove Operating, L.P., of which the Trust is the sole general partner, dated as
of , 1996, as such agreement may be amended from time to time.
"PERSON" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside
for or to be used exclusively for the purposes described in Section 642(c) of
the Code, association, private foundation within the meaning of Section 509(a)
of the Code, joint stock company or other entity; but does not include an
underwriter acting in a capacity as such in a public offering of the Common
Shares, or Preferred Shares, as the case may be, provided that the ownership of
Common Shares, or Preferred Shares, as the case may be, by such underwriter
would not result in the Trust being "closely held" within the meaning of Section
856(h) of the Code, or otherwise result in the Trust failing to qualify as a
REIT.
"PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any purported
Transfer which results in a transfer to a Special Trust, as provided in Section
7.2(b) of this Article VII, the purported beneficial transferee or owner for
whom the Purported Record Transferee would have acquired or owned Equity Shares,
if such Transfer had been valid under Section 7.2(a) of this Article VII.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any purported
Transfer which results in a transfer to a Special Trust, as provided in Section
7.2(b) of this Article VII, the record holder of the Equity Shares if such
Transfer had been valid under Section 7.2(a) of this Article VII.
"REIT" shall mean a real estate investment trust under Sections 856 through
860 of the Code.
"RESTRICTION TERMINATION DATE" shall mean the first day after the Closing
Date on which the Board of Trust Managers determines that it is no longer in the
best interests of the Trust to attempt to, or continue to, qualify as a REIT.
"SPECIAL TRUST" shall mean each of the trusts provided for in Section 7.3 of
this Article VII.
"TRANSFER" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Equity Shares, including (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares or (ii) the sale, transfer, assignment or other disposition of any
securities (or rights convertible into or exchangeable for Equity Shares),
whether voluntary or involuntary, whether of record or beneficially or
Beneficially or Constructively (including but not limited to transfers of
interests in other entities which result in changes in Beneficial or
Constructive Ownership of Equity Shares), and whether by operation of law or
otherwise.
"TRUSTEE" shall mean any Person unaffiliated with the Trust, the Purported
Beneficial Transferee, and the Purported Record Transferee, that is appointed by
the Trust to serve as trustee of a Special Trust.
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Section 7.2 Restrictions on Ownership and Transfers.
(a) From the Closing Date and prior to the Restriction Termination Date:
(i) except as provided in Section 7.9 of this Article VII, (i) no Person
(other than an Executive Officer) shall Beneficially Own Equity Shares in
excess of the Ownership Limit and (ii) no Executive Officer shall, nor shall
all of the Executive Officers, in the aggregate, Beneficially Own Equity
Shares in excess of the Executive Officer Ownership Limit;
(ii) except as provided in Section 7.9 of this Article VII, no Person
shall Constructively Own in excess of 9.8% (by value or by number of shares,
whichever is more restrictive) of the outstanding Equity Shares of the
Trust; and
(iii) no Person shall Beneficially or Constructively Own Equity Shares
to the extent that such Beneficial or Constructive Ownership would result in
the Trust being "closely held" within the meaning of Section 856(h) of the
Code, or otherwise failing to qualify as a REIT (including, but not limited
to, ownership that would result in the Trust owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Trust (either directly
or indirectly through one or more partnerships) from such tenant would cause
the Trust to fail to satisfy any of the gross income requirements of Section
856(c) of the Code).
(b) If, during the period commencing on the Closing Date and prior to the
Restriction Termination Date, any Transfer (whether or not such Transfer is the
result of a transaction entered into through the facilities of the AMEX) or
other event occurs that, if effective, would result in any Person Beneficially
or Constructively Owning Equity Shares in violation of Section 7.2(a) of this
Article VII, (i) then that number of Equity Shares that otherwise would cause
such Person to violate Section 7.2(a) of this Article VII (rounded up to the
nearest whole share) shall be automatically transferred to a Special Trust for
the benefit of a Charitable Beneficiary, as described in Section 7.3, effective
as of the close of business on the business day prior to the date of such
Transfer or other event, and such Purported Beneficial Transferee shall
thereafter have no rights in such Equity Shares or (ii) if, for any reason, the
transfer to a Special Trust described in clause (i) of this sentence is not
automatically effective as provided therein to prevent any Person from
Beneficially or Constructively Owning Equity Shares in violation of Section
7.2(a) of this Article VII, then the Transfer of that number of Equity Shares
that otherwise would cause any Person to violate Section 7.2(a) shall be void AB
INITIO, and the Purported Beneficial Transferee shall have no rights in such
Equity Shares.
(c) Subject to Section 7.12 of this Article and notwithstanding any other
provisions contained herein, during the period commencing on the Closing Date
and prior to the Restriction Termination Date, any Transfer of Equity Shares
(whether or not such Transfer is the result of a transaction entered into
through the facilities of the AMEX) that, if effective, would result in the
capital stock of the Trust being beneficially owned by less than 100 Persons
(determined without reference to any rules of attribution) shall be void AB
INITIO, and the intended transferee shall acquire no rights in such Equity
Shares.
(d) It is expressly intended that the restrictions on ownership and Transfer
described in this Section 7.2 of Article VII shall apply to the
redemption/exchange rights provided in Section of the Partnership Agreement.
Notwithstanding any of the provisions of the Partnership Agreement or any other
agreement between Grove Operating, L.P. and any of its partners to the contrary,
a partner of Grove Operating, L.P. shall not be entitled to effect an exchange
of an interest in Grove Operating, L.P. for Equity Shares to the extent the
actual or beneficial or Beneficial or Constructive ownership of such Equity
Shares would be prohibited under the provisions of this Article VII.
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SECTION 7.3 Transfers of Equity Shares in Trust
(a) Upon any purported Transfer or other event described in Section 7.2(b)
of this Article VII, such Equity Shares shall be deemed to have been transferred
to the Trustee in his capacity as trustee of a Special Trust for the exclusive
benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee
shall be deemed to be effective as of the close of business on the business day
prior to the purported Transfer or other event that results in a transfer to a
Special Trust pursuant to Section 7.2(b). The Trustee shall be appointed by the
Trust and shall be a Person unaffiliated with the Trust, any Purported
Beneficial Transferee, and any Purported Record Transferee. Each Charitable
Beneficiary shall be designated by the Trust as provided in Section 7.3(f) of
this Article VII.
(b) Equity Shares held by the Trustee shall be issued and outstanding Common
Shares or Preferred Shares of the Trust, as the case may be. The Purported
Beneficial Transferee or Purported Record Transferee shall have no rights in the
Equity Shares held by the Trustee. The Purported Beneficial Transferee or
Purported Record Transferee shall not benefit economically from ownership of any
Equity Shares held in trust by the Trustee, shall have no rights to dividends
and shall not possess any rights to vote or other rights attributable to the
Equity Shares held in a Special Trust.
(c) The Trustee shall have all voting rights and rights to dividends with
respect to Equity Shares held in a Special Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or distribution paid prior to the discovery by the Trust that the Equity Shares
have been transferred to the Trustee shall be paid to the Trustee upon demand,
and any dividend or distribution declared but unpaid shall be paid when due to
the Trustee with respect to such Equity Shares. Any dividends or distributions
so paid over to the Trustee shall be held in trust for the Charitable
Beneficiary. The Purported Record Transferee and Purported Beneficial Transferee
shall have no voting rights with respect to the Equity Shares held in a Special
Trust and, subject to Maryland law, effective as of the date the Equity Shares
have been transferred to the Trustee, the Trustee shall have the authority (at
the Trustee's sole discretion) (i) to rescind as void any vote cast by a
Purported Record Transferee with respect to such Equity Shares prior to the
discovery by the Trust that the Equity Shares have been transferred to the
Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary; PROVIDED, however,
that if the Trust has already taken irreversible action, then the Trustees shall
not have the authority to rescind and recast such vote. Notwithstanding the
provisions of this Article VII, until the Trust has received notification that
the Equity Shares have been transferred into a Special Trust, the Trust shall be
entitled to rely on its share transfer and other stockholder records for
purposes of preparing lists of stockholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise conducting votes
of stockholders.
(d) Within 20 days of receiving notice from the Trust that Equity Shares
have been transferred to a Special Trust, the Trustee of a Special Trust shall
sell the Equity Shares held in a Special Trust to a person, designated by the
Trustee, whose ownership of the Equity Shares will not violate the ownership
limitations set forth in Section 7.2(a). Upon such sale, the interest of the
Charitable Beneficiary in the Equity Shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and to the Charitable Beneficiary as provided in this Section 7.3(d). The
Purported Record Transferee shall receive the lesser of (i) the price paid by
the Purported Record Transferee for the Equity Shares in the transaction that
resulted in such transfer to the Special Trust (or, if the event which resulted
in the transfer to the Special Trust did not involve a purchase of such Equity
Shares at Market Price, the Market Price of such Equity Shares on the day of the
event which resulted in the transfer of the Equity Shares to the Special Trust)
and (ii) the price per share received by the Trustee (net of any commissions and
other expenses of sale) from the sale or other disposition of the Equity Shares
held in the Special Trust. Any net sales proceeds in excess of the amount
payable to the Purported Record Transferee shall be immediately paid to the
Charitable Beneficiary together with any dividends or other distributions
thereon. If, prior to the discovery by the Trust that such Equity Shares have
been transferred to the Trustee, such Equity Shares are sold by a Purported
Record Transferee then (i) such Equity Shares shall be deemed to
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have been sold on behalf of the Special Trust and (ii) to the extent that the
Purported Record Transferee received an amount for such Equity Shares that
exceeds the amount that such Purported Record Transferee was entitled to receive
pursuant to this subparagraph (3)(d), such excess shall be paid to the Trustee
upon demand.
(e) Equity Shares transferred to the Trustee shall be deemed to have been
offered for sale to the Trust, or its designee, at a price per share equal to
the lesser of (i) the price paid by the Purported Record Transferee for the
Equity Shares in the transaction that resulted in such transfer to a Special
Trust (or, if the event which resulted in the transfer to a Special Trust did
not involve a purchase of such Equity Shares at Market Price, the Market Price
of such Equity Shares on the day of the event which resulted in the transfer of
the Equity Shares to a Special Trust) and (ii) the Market Price on the date the
Trust, or its designee, accepts such offer. The Trust shall have the right to
accept such offer until the Trustee has sold the Equity Shares held in a Special
Trust pursuant to Section 7.3(d). Upon such a sale to the Trust, the interest of
the Charitable Beneficiary in the Equity Shares sold shall terminate and the
Trustee shall distribute the net proceeds of the sale to the Purported Record
Transferee and any dividends or other distributions held by the Trustee with
respect to such Equity Shares shall thereupon be paid to the Charitable
Beneficiary.
(f) By written notice to the Trustee, the Trust shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in a
Special Trust such that (i) the Equity Shares held in a Special Trust would not
violate the restrictions set forth in Section 7.2(a) in the hands of such
Charitable Beneficiary and (ii) each Charitable Beneficiary is an organization
described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
SECTION 7.4 Remedies for Breach. If the Board of Trust Managers, or a
committee thereof (or other designees if permitted by Maryland law) shall at any
time determine in good faith that a Transfer or other event has taken place in
violation of Section 7.2 of this Article VII or that a Person intends to
acquire, has attempted to acquire or may acquire beneficial ownership
(determined without reference to any rules of attribution), Beneficial Ownership
or Constructive Ownership of any Equity Shares of the Trust in violation of
Section 7.2 of this Article VII, the Board of Trust Managers, or a committee
thereof (or other designees if permitted by Maryland law) shall take such action
as it deems advisable to refuse to give effect to or to prevent such Transfer,
including, but not limited to, causing the Trust to redeem Equity Shares,
refusing to give effect to such Transfer on the books of the Trust or
instituting proceedings to enjoin such Transfer; PROVIDED, however, that any
Transfers (or, in the case of events other than a Transfer, ownership or
Constructive Ownership or Beneficial Ownership) in violation of Section 7.2(a)
of this Article VII, shall automatically result in the transfer to a Special
Trust as described in Section 7.2(b) and any Transfer in violation of Section
7.2(c) shall automatically be void AB INITIO, irrespective of any action (or
non-action) by the Board of Trust Managers.
SECTION 7.5 Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire Equity Shares in violation of Section 7.2 of this Article
VII or any Person who is a Purported Transferee such that an automatic transfer
to a Special Trust results under Section 7.2(b) of this Article VII, shall
immediately give written notice to the Trust of such event and shall provide to
the Trust such other information as the Trust may request in order to determine
the effect, if any, of such Transfer or attempted Transfer on the Trust's status
as a REIT.
SECTION 7.6 Owners Required to Provide Information. From the Closing Date
and prior to the Restriction Termination Date:
(a) Each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Equity Shares and each Person (including the shareholder
of record) who is holding Equity Shares for a beneficial owner or Beneficial
Owner or Constructive Owner shall, on demand, be required to disclose to the
Trust in writing such information as the Trust may request in order to determine
the effect, if any, of such shareholder's actual and constructive ownership of
Equity Shares on the the Trust's status as a REIT and
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to ensure compliance with the Ownership Limit, the Executive Officer Ownership
Limit, or such other limit as provided from time to time in this Third Amended
and Restated Declaration of Trust or as otherwise permitted by the Board of
Trust Managers.
(b) Each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Equity Shares and each Person (including the Shareholder
of record) who is holding Equity Shares for a beneficial owner or Beneficial
Owner or Constructive Owner shall, on demand, provide to the Trust a completed
questionnaire containing the information regarding their ownership of such
Equity Shares, as set forth in the regulations (as in effect from time to time)
of the U.S. Department of Treasury under the Code.
SECTION 7.7 Remedies Not Limited. Nothing contained in this Article VII (but
subject to Sections 6.7 and 7.12 of the Charter) shall limit the authority of
the Board of Trust Managers to take such other action as it deems necessary or
advisable to protect the Trust and the interests of its shareholders by
preservation of the Trust's status as a REIT.
SECTION 7.8 Ambiguity. In the case of an ambiguity in the application of any
of the provisions of Sections 7.2 through 7.9, 7.13 and 7.14 of this Article
VII, including any definition contained in Section 7.1, the Board of Trust
Managers shall have the power to determine the application of the provisions of
Sections 7.2 through 7.9, 7.13 and 7.14 with respect to any situation based on
the facts known to it (subject, however, to the provisions of Section 7.12 of
this Article). In the event any of Sections 7.2 through 7.9, 7.13 or 7.14
requires an action by the Board of Trust Managers and this Third Amended and
Restated Declaration of Trust fails to provide specific guidance with respect to
such action, the Board of Trust Managers shall have the power to determine the
action to be taken so long as such action is not contrary to the provisions of
such Sections 7.2 through 7.9 of this Article VII. Absent a decision to the
contrary by the Board of Trust Managers (which the Board of Trust Managers may
make in its sole and absolute discretion), if a Person would have (but for the
remedies set forth in Section 7.2(b)) acquired Beneficial or Constructive
Ownership of Equity Shares in violation of Section 7.2(a), such remedies (as
applicable) shall apply first to the Equity Shares which but for such remedies,
would have been actually owned by such Person, and second to Equity Shares
which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by such Person, PRO RATA among the
Persons who actually own such Equity Shares based upon the relative number of
the Equity Shares held by each such Person.
SECTION 7.9 Exceptions.
(a) Subject to Section 7.2(a)(iii), the Board of Trust Managers, in its sole
discretion, may exempt a Person from the limitation on a Person Beneficially
Owning Equity Shares in excess of the Ownership Limit or the Executive Officers
Beneficially Owning Equity Shares, in the aggregate, in excess of the Executive
Officer Ownership Limit, as the case may be, if the Board of Trust Managers
obtains such representations and undertakings from such Person or from such
Executive Officer or Executive Officers as are reasonably necessary to ascertain
that no individual's Beneficial Ownership or the Executive Officers' Beneficial
Ownership, in the aggregate, as the case may be, of such Equity Shares will
violate the Ownership Limit or the Executive Officer Ownership, as the case may
be, or that any such violation will not cause the Trust to fail to qualify as a
REIT under the Code, and agrees that any violation of such representations or
undertaking (or other action which is contrary to the restrictions contained in
Section 7.2 of this Article VII) or attempted violation will result in such
Equity Shares being transferred to a Special Trust in accordance with Section
7.2(b) of this Article VII.
(b) Subject to Section 7.2(a)(iii), the Board of Trust Managers, in its sole
discretion, may exempt a Person from the limitation on a Person Constructively
Owning Equity Shares in excess of 9.8% (by value or by number of Equity Shares,
whichever is more restrictive) of the outstanding Equity Shares of the Trust, if
such Person does not, and represents that it will not own, actually or
Constructively, an interest in a tenant of the Trust (or a tenant of any entity
owned in whole or in part by the Trust) that would cause the Trust to own,
actually or Constructively, more than a 9.8% interest (as set forth in Section
856(d)(2)(B) of the Code) in such tenant and the Trust obtains such
representations and undertakings from such Person as are
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reasonably necessary to ascertain this fact and agrees that any violation or
attempted violation will result in such Equity Shares being transferred to the
Trust in accordance with Section 7.2(b) of this Article VII. Notwithstanding the
foregoing, the inability of a Person to make the certification described in this
Section 7.9(b) shall not prevent the Board of Trust Managers, in its sole
discretion, from exempting such Person from the limitation on a Person
Constructively Owning Equity Shares in excess of 9.8% of the outstanding Equity
Shares if the Board of Trust Managers determines that the resulting application
of Section 856(d)(2)(B) of the Code would affect the characterization of less
than 0.5% of the gross income (as such term is used in Section 856(c)(2) of the
Code) of the Trust in any taxable year, after taking into account the effect of
this sentence with respect to all other Equity Shares to which this sentence
applies.
(c) Prior to granting any exception pursuant to Section 7.9(a) or (b) of
this Article VII, the Board of Trust Managers may require a ruling from the
Internal Revenue Service, or an opinion of counsel, in either case in form and
substance satisfactory to the Board of Trust Managers in its sole discretion, as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
SECTION 7.10 Legends. Each certificate for Equity Shares shall bear
substantially the following legends:
CLASS OF STOCK
"THE TRUST IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE CLASS,
CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK.
THE BOARD OF TRUST MANAGERS IS AUTHORIZED TO DETERMINE THE PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK
BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE TRUST
WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN REQUEST
THEREFOR, A COPY OF THE TRUST'S CHARTER AND A WRITTEN STATEMENT OF THE
DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, CONVERSION OR OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF
THE STOCK OF EACH CLASS WHICH THE CORPORATION HAS THE AUTHORITY TO ISSUE
AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL
CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS AND
PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii)
THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND
PREFERENCES OF SUBSEQUENT SERIES. REQUESTS FOR SUCH WRITTEN STATEMENT MAY
BE DIRECTED TO THE SECRETARY OF THE TRUST AT ITS PRINCIPAL OFFICE."
RESTRICTION ON OWNERSHIP AND TRANSFER
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
TRUST'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO
CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
TRUST'S CHARTER, (I)(A) NO PERSON (EXCEPT FOR AN EXECUTIVE OFFICER) MAY
BENEFICIALLY OWN IN EXCESS OF 5.0% OF THE
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<PAGE>
OUTSTANDING EQUITY SHARES OF THE TRUST (BY VALUE OR BY NUMBER OF SHARES,
WHICHEVER IS MORE RESTRICTIVE) AND (B) NO EXECUTIVE OFFICER MAY, NOR MAY
THE EXECUTIVE OFFICERS, IN THE AGGREGATE, BENEFICIALLY OWN IN EXCESS OF
20% OF THE OUTSTANDING EQUITY SHARES OF THE TRUST (BY VALUE OR BY NUMBER
OF SHARES, WHICHEVER IS MORE RESTRICTIVE); (II) NO PERSON MAY
CONSTRUCTIVELY OWN IN EXCESS OF 9.8% OF THE OUTSTANDING EQUITY SHARES OF
THE TRUST (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE
RESTRICTIVE); (III) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN
EQUITY SHARES THAT WOULD RESULT IN THE TRUST BEING "CLOSELY HELD" UNDER
SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE TRUST TO FAIL TO
QUALIFY AS A REIT; AND (IV) NO PERSON MAY TRANSFER EQUITY SHARES IF SUCH
TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE TRUST BEING OWNED BY
FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY
OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN EQUITY SHARES
WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN
EQUITY SHARES IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY
THE TRUST. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE
VIOLATED, THE EQUITY SHARES REPRESENTED HEREBY WILL BE AUTOMATICALLY
TRANSFERRED TO A TRUSTEE OF A SPECIAL TRUST FOR THE BENEFIT OF ONE OR
MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE TRUST MAY REDEEM SHARES
UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF TRUST MANAGERS IN
ITS SOLE DISCRETION IF THE BOARD OF TRUST MANAGERS DETERMINES THAT
OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS
DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS,
ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY
BE VOID AB INITIO. ALL TERMS IN THIS LEGEND THAT ARE DEFINED IN THE
DECLARATION OF TRUST HAVE THE MEANINGS ASCRIBED TO THEM IN THE
DECLARATION OF TRUST OF THE TRUST, AS THE SAME MAY BE AMENDED FROM TIME
TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND
OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF EQUITY SHARES ON REQUEST
AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE TRUST, AT THE TRUST'S PRINCIPAL OFFICE."
SECTION 7.11 Severability. If any provision of this Article VII or any
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
SECTION 7.12 AMEX. Nothing in this Article VII shall preclude the settlement
of any transaction entered into through the facilities of the AMEX or any other
national securities exchange. The fact that the settlement of any transaction is
so permitted shall not negate the effect of any other provision of this Article
VII and any transferee in such a transaction shall be subject to all the
provisions and limitations of this Article VII.
SECTION 7.13 Changes In Ownership Limit and Executive Officer Ownership
Limit. Subject to the limitations provided in Section 7.14, the Board of Trust
Managers may from time to time increase (or
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<PAGE>
decrease) the Ownership Limit and/or the Executive Officer Ownership Limit
(including, but not limited to, in connection with the grant of Options and/or
Deferred Stock Grants to the Executive Officers).
SECTION 7.14 Limitations on Changes In the Ownership Limit and the Executive
Officer Ownership Limit.
(a) Neither the Ownership Limit nor the Executive Officer Ownership Limit
may be increased if, as a result of such increase, five Beneficial Owners of
Equity Shares (including all of the Executive Officers) could Beneficially Own,
in the aggregate, more than 50.0% (in number or value, whichever is more
restrictive) of the then outstanding Equity Shares.
(b) Prior to the modification of the Ownership Limit or the Executive
Officer Ownership Limit pursuant to Section 7.13, the Board of Trust Managers
may require such opinions of counsel, affidavits, undertakings or agreements as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT.
(c) The Executive Officer Ownership Limit shall not be reduced to a
percentage which is less than the Ownership Limit.
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders. There shall be an Annual Meeting of
the Shareholders, to be held at such time and place as shall be determined by or
in the manner prescribed in Article II of the Bylaws, at which Trust Managers
shall be elected and any other proper business may be conducted. Except as
otherwise provided in this Declaration of Trust, special meetings of
Shareholders may be called in the manner provided in Article II of the Bylaws.
If there are no Trust Managers, the President or any other officer of the Trust
shall promptly call a special meeting of the Shareholders entitled to vote for
the election of successor Trust Managers. Any meeting may be adjourned and
reconvened as the Trust Managers determine or as provided in Article II of the
Bylaws.
SECTION 8.2 Voting Rights of Shareholders. Subject to the provisions of any
class or series of Shares then outstanding, the Shareholders shall be entitled
to vote only on the following matters: (a) the election or removal of Trust
Managers; (b) the amendment of this Declaration of Trust; (c) the voluntary
dissolution or termination of the Trust; (d) the reorganization of the Trust;
and (e) the merger or consolidation of the Trust or the sale or other
disposition of all or substantially all of the Trust Property. Except with
respect to the foregoing matters, no action taken by the Shareholders at any
meeting shall in any way bind the Trust Managers.
ARTICLE IX
AMENDMENT
SECTION 9.1 By Shareholders. Except as provided in Section 9.2 hereof, this
Declaration of Trust may be amended only by the affirmative vote of the holders
of not less than two-thirds of all the Shares then outstanding and entitled to
vote on the matter.
SECTION 9.2 By Trust Managers. The Trust Managers, by a two-thirds vote, may
amend provisions of this Declaration of Trust from time to time to enable the
Trust to qualify as a real estate investment trust under the Code or under Title
8.
SECTION 9.3 No Other Amendment. This Declaration of Trust may not be amended
except as provided in this Article IX.
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<PAGE>
ARTICLE X
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8. The Trust may be voluntarily dissolved or
reorganized or its existence terminated only by the affirmative vote of the
holders of not less than two-thirds of all the Shares then outstanding and
entitled to vote on the matter. The Trust may sell or otherwise dispose of all
or substantially all of the Trust Property only by the affirmative vote of the
holders entitled to vote on the matter.
ARTICLE XI
LIABILITY OF SHAREHOLDERS, TRUST MANAGERS, OFFICERS,
EMPLOYEES AND AGENTS
AND TRANSACTIONS BETWEEN THEM AND THE TRUST
SECTION 11.1 Limitation of Shareholder Liability. No Shareholder shall be
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Trust Property or
the affairs of the Trust.
SECTION 11.2 Limitation of Trust Manager and Executive Officer Liability. To
the maximum extent that Maryland law in effect from time to time permits
limitations of the liability of trustees and officers of a real estate
investment trust, no Trust Manager or officer of the Trust shall be liable to
the Trust or to any Shareholder for money damages. Neither the amendment nor
repeal of this Section, nor the adoption or amendment of any other provision of
this Declaration of Trust inconsistent with this section, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption. In the absence of any Maryland statute limiting the liability of
trustees and officers of a Maryland real estate investment trust for money
damages in a suit by or on behalf of the Trust or by any Shareholder, no Trust
Manager or Executive Officer of the Trust shall be liable to the Trust or to any
Shareholder unless (a) that Trust Manager or Executive Officer actually received
an improper benefit or profit in money, property or services, and then, for the
amount of the benefit of profit in money or services actually received or (b) a
judgment or other final adjudication adverse to the Trust Manager or Executive
Officer is entered in a proceeding based on a finding in the proceeding that the
Trust Manager's or Executive Officer's action or failure to act was the result
of active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding or (c) otherwise, in accordance with the
provisions of an indemnification agreement between any of them and the Trust.
SECTION 11.3 Express Exculpatory Clauses in Instruments. Neither the
Shareholders nor the Trust Managers, Executive Officers, employees or agents of
the Trust shall be liable under any written instrument creating an obligation of
the Trust, and all Persons shall look solely to the Trust Property for the
payment of any claim under or for the performance of the instrument. The
omission of the foregoing exculpatory clause in such instrument shall not render
any Shareholder, Trust Manager, Executive Officer, employee or agent liable
thereunder to any third party, nor shall the Trust Manager or any officers,
employees or agents of the Trust be liable to anyone for such omission. In the
event of a conflict between the terms of this Declaration and any
indemnification agreement, the terms of the indemnification agreement shall
control.
SECTION 11.4 Indemnification and Advance for Expenses. The Trust shall have
the power, to the maximum extent permitted by Maryland law in effect from time
to time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to, (a) any individual
who is a present or former Shareholder, Trust Manager or officer of the Trust or
(b) any individual who, while a Shareholder, Trust Manager or officer of the
Trust and at the express request of the Trust, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or
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<PAGE>
any other enterprise as a director, officer, Shareholder, partner or trustee of
such corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, from and against all claims and liabilities to which such
person may become subject and against all claims and liabilities to which such
person may become subject by reason of his being or having been a Shareholder,
Trust Manager or Executive Officer. The Trust shall have the power, with the
approval of its Board of Trust Managers, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Trust in any
of the capacities described in (a) or (b) above and to any employee or agent of
the Trust or a predecessor of the Trust.
SECTION 11.5 Transactions Between the Trust and its Trust Managers,
Executive Officers, Employees and Agents. Subject to any express restriction in
this Declaration of Trust, including, but not limited to, Section 6.4, any
restriction adopted by the Trust Managers in the Bylaws or by resolution, and in
accordance with the terms and provisions of any employment agreement and/or
non-competition agreement with any Trust Manager or Executive Officer and the
Trust, as applicable, the Trust may enter into any contract or transaction of
any kind (including, without limitation, for the purchase or sale of property or
for any type of services, including those in connection with the underwriting or
the offer or sale of Securities of the Trust) with any Person, including any
Trust Manager, Executive Officer, employee or agent of the Trust, whether or not
any of them has a financial interest in such transaction.
SECTION 11.6 Limitation on Total Operating Expenses. The Total Operating
Expenses of the Trust shall not exceed the greater of 2% of its average invested
assets or 25% of its net income in any fiscal year as defined below. The Trust
Managers will limit operating expenses to these levels unless a majority of the
Independent Trust Managers make a finding that, based on unusual or
non-recurring factors, a higher level of expenses is justified for that year.
Written records and supporting data shall be maintained by the Trust Managers in
this regard.
Within 60 days after the end of any fiscal quarter in which Total Operating
Expenses for the preceding twelve (12) months exceeded this limitation, the
Trust will disclose this fact to the Shareholders, together with an explanation
of the factors upon which the Independent Trust Managers relied in approving
higher operating expenses.
For purposes of this Section 11.6, "TOTAL OPERATING EXPENSES" shall include
all cash operating expenses, including additional expenses paid directly or
indirectly by the Trust to its Affiliates or third parties based upon their
relationship with the Trust, including loan administration, servicing,
engineering, inspection and all other expenses paid by the Trust, except the
expenses related to raising capital, for interest, taxes and direct property
acquisition, operation, maintenance and management costs.
"AVERAGE INVESTED ASSETS", for purposes of this Section 11.6, for any
period, shall mean the average of the aggregate book value of the assets of the
Trust, invested, directly or indirectly, in equity interests and in 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 such period.
"NET INCOME", for purposes of the calculation contained in this Section
11.6, shall mean total revenues applicable to such period, other than additions
to reserves for depreciation or bad debts or other similar non-cash reserves.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Governing Law. This Third Amended and Restated Declaration of
Trust is executed by the Trust Managers and delivered in the State of Maryland
with reference to the laws thereof, and the rights of all parties and the
validity, construction and effect of every provision hereof shall be subject to
and construed according to the laws of the State of Maryland without regard to
conflict of law provisions thereof.
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<PAGE>
SECTION 12.2 Reliance by Third Parties. Any certificate shall be final and
conclusive as to any Person dealing with the Trust if executed by an individual
who, according to the records of the Trust or of any recording office in which
this Third Amended and Restated Declaration of Trust may be recorded, appears to
be the Secretary or an Assistant Secretary of the Trust or a Trust Manager, and
if certifying to: (a) the number or identity of Trust Managers, officers of the
Trust or Shareholders; (b) the due authorization of the execution of any
document; (c) any action or vote taken, and the existence of a quorum at a
meeting of Trust Managers or Shareholders; (d) a copy of this Declaration or of
the Bylaws as a true and complete copy as then in force; (e) an amendment to
this Declaration; (f) the termination of the Trust; or (g) the existence of any
fact or facts which relate to the affairs of the Trust. No purchaser, lender,
transfer agent or other Person shall be bound to make any inquiry concerning the
validity of any transaction purported to be made on behalf of the Trust by the
Trust Managers or by any officer, employee or agent of the Trust.
SECTION 12.3 Provisions in Conflict With Law or Regulations.
(a) The provisions of this Third Amended and Restated Declaration of Trust
are severable, and if the Trust Managers shall determine, with the advice of
counsel, that any one or more of such provisions are in conflict with the REIT
Provisions of the Code, Title 8 or any other applicable federal or state law,
the conflicting provisions shall be deemed never to have constituted a part of
this Declaration of Trust, even without any amendment of this Declaration of
Trust pursuant to Article IX; PROVIDED, HOWEVER, that such determination by the
Trust Managers shall not affect or impair any of the remaining provisions of
this Declaration of Trust or render invalid or improper any action taken or
omitted prior to such determination. No Trust Manager shall be liable for making
or failing to make such a determination.
(b) If any provision of this Third Amended and Restated Declaration of Trust
shall be held invalid or unenforceable in any jurisdiction, such holding shall
not in any manner affect or render invalid or unenforceable such provision in
any other jurisdiction or any other provision of this Declaration of Trust in
any jurisdiction.
Section 12.4 Construction. In this Third Amended and Restated Declaration of
Trust, unless the context requires otherwise, words used in the singular or in
the plural include both the plural and singular and words denoting any gender
include all genders. Title and headings of different parts of this Declaration
are inserted for convenience and shall not affect the meaning, construction or
effect hereof. In defining or interpreting the powers and duties of the Trust
and its Trust Managers and officers, reference may be made, to the extent
appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3
of the Corporations and Associations Article of the Annotated Code of Maryland
(the "MARYLAND CODE"). In furtherance and not in limitation of the foregoing, in
accordance with the provisions of Title 3, Subtitles 6 and 7, of the Maryland
Code, the Trust shall be included within the definition of "corporation" for
purposes of such provisions.
SECTION 12.5 Recordation. This Third Amended and Restated Declaration of
Trust and any amendment or supplement hereto shall be filed for record with the
State Department of Assessments and Taxation of Maryland and may also be filed
or recorded in such other places as the Trust Managers deem appropriate, but
failure to file for record this Third Amended and Restated Declaration or any
amendment or supplement hereto in any office other than in the State of Maryland
shall not affect or impair the validity or effectiveness of this Third Amended
and Restated Declaration or any amendment hereto. This Third Amended and
Restated Declaration, and any subsequently amended and restated Declaration,
shall, upon filing, be conclusive evidence of all amendments or supplements
contained therein and may thereafter be referred to in lieu of the original
Declaration and the various amendments or supplements thereto.
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<PAGE>
IN WITNESS WHEREOF, this Third Amended and Restated Declaration of Trust has
been signed on this day of , 1997, by the undersigned Trust Managers, each of
whom acknowledge that this document is his free act and deed, that, to the best
of his knowledge, information and belief, the matters and facts set forth herein
are true in all material respects and that this statement is made under the
penalties for perjury.
<TABLE>
<S> <C> <C>
/s/Harold Gorman /s/Damon Navarro /s/James F. Twaddell
- - --------------------- --------------------- ---------------------
Harold Gorman Damon D. Navarro James F. Twaddell
/s/J. Joseph Garrahy /s/Joseph R. LaBrosse
- - --------------------- ---------------------
J. Joseph Garrahy Joseph R. LaBrosse
</TABLE>
I-18
GROVE PROPERTY TRUST
Articles Supplementary
GROVE PROPERTY TRUST, a Maryland real estate investment trust
(the "Trust"), hereby certifies to the Maryland State Department of Assessments
and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of
Trustees of the Trust by the Third Amended and Restated Declaration of Trust
(the "Declaration of Trust"), the Board of Trustees has duly reclassified
3,999,000 Preferred Shares (par value $0.01 per share) of the Trust as 3,999,000
Common Shares (par value $0.01 per share) of the Trust and has provided for the
issuance of such shares.
SECOND: The reclassification increases the number of shares
classified as Common Shares from 10,000,000 shares immediately prior to the
reclassification to 13,999,000 shares immediately after the reclassification.
The reclassification decreases the number of shares classified as Preferred
Shares from 4,000,000 shares immediately prior to the reclassification to 1,000
shares immediately after the reclassification.
THIRD: The description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of the Common Shares and Preferred
Shares contained in the Declaration of Trust is not altered by these Articles
Supplementary.
IN WITNESS WHEREOF, GROVE PROPERTY TRUST has caused these
presents to be signed in its name on its behalf by its President and witnessed
by its Secretary on October ___, 1997,
WITNESS: GROVE PROPERTY TRUST
By:/s/Joseph R. LaBrosse By:/s/Damon D. Navarro
- ----------------------- ----------------------
Joseph R. LaBrosse Damon D. Navarro
Secretary President
THE UNDERSIGNED, President of GROVE PROPERTY TRUST, who
executed on behalf of the Trust the Articles Supplementary of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Trust the foregoing Articles Supplementary to be the corporate act of said
Trust and hereby certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
Damon D. Navarro
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JUN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 1,158 1,158
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,268 3,268
<PP&E> 145,555 145,555
<DEPRECIATION> 33,541 33,541
<TOTAL-ASSETS> 116,440 116,440
<CURRENT-LIABILITIES> 5,201 5,201
<BONDS> 64,987 64,987
0 0
0 0
<COMMON> 40 40
<OTHER-SE> 23,821 23,821
<TOTAL-LIABILITY-AND-EQUITY> 116,440 116,440
<SALES> 0 0
<TOTAL-REVENUES> 11,536 528
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 7,896 329
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,732 103
<INCOME-PRETAX> 1,136 96
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 1,136 96
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,136 96
<EPS-PRIMARY> .37 .16
<EPS-DILUTED> .37 .16
</TABLE>
