FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 1-14166
MERIDIAN INDUSTRIAL TRUST, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 94-3224765
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
455 Market Street
17th Floor
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 281-3900
-------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $0.001 per share New York Stock Exchange
Warrants to Purchase Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
---
Indicate the number of shares outstanding of the common and preferred stock, as
of the latest practicable date:
Shares of Series B Preferred Stock as of August 1, 1996 : 2,272,727
Shares of Common Stock as of August 1, 1996 : 9,690,174
<PAGE>
- ------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated condensed financial statements
should be read in conjunction with the 1995 Form 10-K and quarter ended March
31, 1996 Form 10-Q of the registrant (the "Company"). These consolidated
statements have been prepared in accordance with the instructions of the
Securities and Exchange Commission Form 10-Q and do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of the Company's management, all material adjustments of a
normal, recurring nature considered necessary for a fair presentation of results
of operations for the interim period have been included. The results of
consolidated operations for the three and six month periods ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
As of June 30, 1996 and December 31, 1995
(unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE:
Rental Properties $248,903 $ 300
Less: Accumulated Depreciation (1,794) --
-------- -------
247,109 300
OTHER ASSETS:
Cash and Cash Equivalents 2,638 475
Restricted Cash 5,551 --
Cash Held in Escrow 1,928 --
Investment in Marketable Security -- 2,607
Accounts Receivable, Net of Reserves of $826 at
June 30, 1996 1,255 --
Notes Receivable from Affiliate 720 --
Capitalized Loan Fees, Lease Commissions and
Other Assets, Net 3,293 342
-------- -------
TOTAL ASSETS $262,494 $ 3,724
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage Loan $ 66,094 $ --
Unsecured Credit Facility 11,900 --
Notes Payable to Affiliates -- 750
Accrued Dividends Payable 3,515 29
Accounts Payable 4,186 10
Due to Affiliate -- 232
Short-Term Loan Payable -- 2,351
Prepaid Rent, Tenant Deposits and Other Liabilities 2,137 66
-------- -------
TOTAL LIABILITIES 87,832 3,438
-------- -------
REDEEMABLE SERIES A PREFERRED STOCK--Par value
$0.001; fully redeemed at June 30, 1996;
1,000,000 shares issued and outstanding at
December 31, 1995 -- 1,000
-------- -------
STOCKHOLDERS' EQUITY:
Authorized Shares -- 175,000,000 shares of Common
Stock and 25,000,000 shares of Preferred Stock
authorized, each with par value of $0.001;
9,689,457 and 900 shares of Common Stock
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively; and 2,272,727
shares of Series B Preferred Stock issued and
outstanding at June 30, 1996 with liquidation
preference of $35,000 12 1
Paid-in Capital 176,764 607
Distributions in Excess of Income (2,114) (1,322)
-------- -------
TOTAL STOCKHOLDERS' EQUITY 174,662 (714)
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $262,494 $ 3,724
======== =======
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Three and Six Month Period Ended June 30, 1996 and
For the Period From May 18, 1995 (Inception) to June 30, 1995
(unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------- ------ -------
<S> <C> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments $ 9,904 $ -- $ -- 13,372
Interest and Other Income 228 5 384 5
TOTAL REVENUES -------- ------- ------- -------
10,132 5 13,756 5
-------- ------- ------- -------
EXPENSES:
Interest Expense 1,679 -- 2,537 --
Property Taxes 1,347 -- 1,896 --
Property Operating Costs 1,144 -- 1,314 --
General and Administrative 1,183 -- 1,788 --
Depreciation and Amortization 1,337 -- 1,843 --
TOTAL EXPENSES -------- ------- ------- -------
6,690 -- 9,378 --
-------- ------- ------- -------
Income Before Gain on Sale of Property
and Extraordinary Item 3,442 5 4,378 5
Gain on Sale of Property 7 -- 7 --
-------- ------- ------- -------
Income Before Extraordinary Item 3,449 5 4,385 5
Extraordinary Item - Expenses Incurred
in Connection with Debt Retirements (36) -- (411) --
NET INCOME $ 3,413 $ 5 $3,974 $ 5
======== ======= ======= =======
Net Income $ 3,413 $ 5 $ 3,974 $ 5
LESS: PREFERRED DIVIDENDS DECLARED (705) -- (1,000) --
-------- ------- ------- -------
NET INCOME ALLOCABLE TO COMMON $ 2,708 $ 5 $ 2,974 $ 5
======== ======= ======= =======
NET INCOME ALLOCABLE TO COMMON PER
WEIGHTED AVERAGE COMMON SHARE
OUTSTANDING $ 0.28 $ 5.56 $ 0.45 $ 5.56
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Six Month Period Ended June 30, 1996 and
For the Period May 18, 1995 (Inception) to June 30, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,974 $ 5
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 1,817 --
Amortization 212 --
Straight Line Rent (530) --
Gain on Sale of Property (7) --
Extraordinary Item - Expenses Incurred
in Connection with Debt Retirements 411 --
Increase in Cash Held In Escrow (29) --
Decrease in Accounts Receivable 884 --
Increase in Accounts Payable 1,288 --
Decrease in Due to Affiliates (468) --
Decrease in Other Assets 4 --
Decrease in Prepaid Rent and Other
Liabilities (2,772) --
--------- ---------
Net Cash Provided by Operating Activities 4,784 5
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Contributed by Merged Trusts 11,892 --
Net Cash Received from Property Disposition 3,889 --
Net Cash Paid in Connection with Asset Purchase (3,257) --
Redemption of Series A Preferred Stock and
Accrued
Dividends Payable (83) --
Acquisition of Rental Properties (17,756) --
Land Acquisition and Property Development Costs (4,415) --
Recurring Building Improvements (204) --
Recurring Tenant Improvements (294) --
Recurring Leasing Commissions (477) --
Maturity of Short-Term Investment 2,607 --
Purchase of Personal Property (203) --
--------- ---------
Net Cash Used in Investing Activities (8,301) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capitalized Loan Fees (455) --
Retirement of Notes Payable to Affiliates (750) --
Debt Retirements (59,408) --
Payoff of Short-Term Loan Payable (2,351) --
Drawdowns on Unsecured Credit Facility 40,900 --
Payments on Unsecured Credit Facility (29,000) --
Distributions Paid to Stockholders (1,278) --
Proceeds from the Issuance of Common and
Preferred Stock, Net 58,022 1,018
--------- ---------
Net Cash Provided by Financing Activities 5,680 1,018
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,163 1,023
Cash and Cash Equivalents- Beginning of Period 0 --
--------- ---------
CASH AND CASH EQUIVALENTS- END OF PERIOD $ 2,638 $ 1,023
========= =========
Cash Paid for Interest $ 1,652 $ --
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Six Month Period Ended June 30, 1996 and
For the Period From May 18, 1995 (Inception) to June 30, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS:
Merger Transaction:
Acquisition Cost Allocated to Investment in
Real Estate 203,489 --
Restricted Cash 5,551 --
Receivables, Net 2,889 --
Note Receivable from Affiliate 720 --
Capitalized Loan Fees 992 --
Cancellation of Redeemable Series A
Preferred Stock 960 --
Mortgage Loan Assumed (66,094) --
Other Long-Term Debts Assumed (43,191) --
Accounts Payable Assumed (2,869) --
Shares of Common Stock Issued, at Par Value (8) --
Paid-in Capital (109,842) --
Other Net Liabilities Assumed (4,489) --
Asset Purchase Transaction:
Acquisition Cost Allocated to Investment in
Real Estate 26,342 --
Restricted Cash Applied to Debt Payment 117 --
Mortgage Notes Payable Assumed (16,334) --
Paid-in Capital of Common Shares Issued (6,392) --
Accrued Closing Costs and Pro-rated Items (476) --
Property Acquisitions:
Purchase Price 18,056 --
Land for Built-to-Suit Facilities 2,296 --
Deposit Applied to Purchase Price (300) --
Property Disposition:
Net Property Basis of Moorpark R & D Building (3,877) --
Other Assets, Net of Other Liabilities (5) --
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
As of June 30, 1996
(unaudited, in thousands, except share data)
1. Organization.
Meridian Industrial Trust, Inc. (the "Company") was incorporated in the
state of Maryland on May 18, 1995. The Company is a self-administered and
self-managed operating company engaged primarily in the business of owning,
developing, acquiring, leasing and managing income-producing
warehouse/distribution and light industrial properties. The Company's principal
asset is its portfolio of 80 industrial and seven retail properties.
On February 23, 1996, the Company merged with Meridian Point Realty Trust
IV Co., Meridian Point Realty Trust VI Co. and Meridian Point Realty Trust VII
Co. ("Trust IV," "Trust VI" and "Trust VII," respectively; collectively referred
to as the "Merged Trusts"), with the Company as the surviving entity (that
transaction is referred to below as the "Merger"). In addition, concurrent with
the Merger, the Company acquired certain properties, and assumed certain
mortgage notes and other liabilities, from Meridian Point Realty Trust `83
("Trust 83") (that transaction is referred to below as the "Asset Purchase").
Concurrent with the closing of the Merger and Asset Purchase, the Company
closed a private placement of preferred stock (the "Preferred Stock Private
Placement") and entered into an unsecured credit facility (the "Unsecured Credit
Facility") (see Notes 4 and 5). The Preferred Stock Private Placement consisted
of the issuance of 2,272,727 shares of Series B convertible preferred stock, par
value $0.001 per share ("Series B Preferred Stock"), at $15.40 per share for
gross proceeds of $35,000. The Unsecured Credit Facility provides for a maximum
borrowing amount of $75,000 and is intended to provide the Company with funds
for property development, acquisitions and working capital needs.
Prior to February 23, 1996, the Company had no operating activities other
than interest on its investments and general and administrative expenses.
2. Summary of Significant Accounting Policies.
(a) Management Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(b) Cash and Cash Equivalents. The Company considers all
short-term investments with an original maturity of three months or
less to be cash equivalents.
(c) Restricted Cash. The restricted cash of $5,551 served as collateral
for a letter of credit issued in favor of the lender of the Mortgage Loan (see
Note 4). Subsequent to June 30, 1996, the Company was able to obtain from the
lender a release of the restricted cash by adding one property to the Mortgage
Loan collateral. The Company used the released funds to make a payment on the
Unsecured Credit Facility.
<PAGE>
(d) Income Taxes. The Company intends to make an election to be taxed as a
real estate investment trust ("REIT") for federal income tax purposes for the
tax year ended December 31, 1996. To qualify for REIT status, the Company must
meet a number of ongoing organizational and operational requirements. If the
Company satisfies those REIT requirements, it generally will not be subject to
federal income tax to the extent it currently distributes all of its net taxable
income (including net capital gains) to its stockholders. If the Company fails
to qualify as a REIT in any taxable year, it will be subject to certain state
and federal taxes imposed on its income and properties. The Company does not
intend to seek a ruling from the Internal Revenue Service regarding its status
as a REIT.
(e) Net Income Per Share. Net income per share is calculated by dividing
net income, after deduction of preferred stock dividends declared, by the
weighted average number of shares of common stock outstanding during the period.
The weighted average number of common shares outstanding was 9,656,490 and
6,538,309 for the three and six months ended June 30, 1996, respectively. The
weighted average number of common shares outstanding was 900 for the period from
May 18, 1995 (Inception) to June 30, 1995 (see Note 5).
3. Investment in Real Estate.
In accordance with generally accepted accounting principles, the Company
has accounted for the Merger and Asset Purchase using the purchase method (see
Note 9). As a result, the assets and liabilities acquired in connection with the
Merger and Asset Purchase are recorded at their "acquisition cost," representing
the fair value of the consideration surrendered and liabilities assumed. The
acquisition cost was then allocated to all identifiable assets based upon their
individual estimated fair market values. The following is a summary of the
acquisition cost recorded in connection with the Merger and Asset Purchase:
<TABLE>
<CAPTION>
<S> <C>
Fair value of the Company's common stock valued at $16.375 per
share, based upon the average of the closing price of the
Company's common stock for the first five post-Merger trading
days, issued to the Merged Trusts' shareholders other than Hunt
Realty Acquisitions, L.P., a Delaware Partnership ("Hunt")
and USAA Real Estate Company, a Delaware corporation ("USAA") $ 72,677
Fair value of the Company's common stock totaling 390,360
shares, valued at $16.375 per share, issued to Trust 83 6,392
Common stock issued to Hunt and USAA valued at the consideration
they paid for their interests in the Merged Trusts 37,173
Cash consideration paid to Trust 83 in connection with the
Asset Purchase before pro-rated items 3,600
Liabilities of the Merged Trusts and Trust 83 assumed by the
Company upon consummation of the Merger and Asset Purchase 133,453
Closing and other accrued costs incurred in connection with the
Merger and Asset Purchase 204
---------
Acquisition cost basis 253,499
Acquisition cost basis allocated to assets other than
Investment in Real Estate (23,668)
---------
Acquisition cost basis allocated to Investment in Real Estate
as a result of the Merger and Asset Purchase $ 229,831
=========
</TABLE>
Investments in Real Estate are depreciated over 35 years using the
straight-line method. Expenditures for maintenance, repairs and improvements
which do not materially prolong the normal useful life of an asset are charged
to operations as incurred. Tenant improvements and leasing commissions are
capitalized and amortized under the straight-line method over the terms of the
related lease.
<PAGE>
4. Debt Facilities.
The Company has a fixed rate facility which it acquired in connection with
the Merger (the "Mortgage Loan"). The Mortgage Loan bears interest at the annual
rate of 8.63%, requires interest only payments until its maturity in 2005 and is
secured by a pool of the Company's properties with a net book value of $134,205
as of June 30, 1996.
Concurrent with the Merger, the Company closed on the Unsecured Credit
Facility. The facility bears interest at LIBOR plus 1.7% per annum, requires
interest only payments until maturity in February 1998, and provides for an
annual fee on the unused facility of 25 basis points to the extent that less
than 65% of the facility is used and 15 basis points to the extent that more
than 65% of the facility is used. The Unsecured Credit Facility provides for a
maximum borrowing amount of $75,000.
During the six months ended June 30, 1996, the Company received advances
on the Unsecured Credit Facility totaling $40,900 to payoff debt acquired in
connection with the Merger and Asset Purchase and fund property acquisitions
(see Note 7).
Also during the six months ended June 30, 1996, the Company made payments
on the Unsecured Credit Facility totaling $29,000 using proceeds received from:
(i) an offering of 1,500,000 shares of the Company's common stock, par value
$0.001 per share (the "Common Stock") (see Note 5), (ii) the sale of the
Moorpark R & D Building (see Note 8), and (iii) existing cash reserves.
As of June 30, 1996, the Company had $11,900 outstanding on the Unsecured
Credit Facility.
5. Common and Preferred Stock.
The initial capitalization of the Company consisted of 900 shares of
Common Stock, issued for a total consideration of $14 (originally $18 of which
$4 was subsequently refunded). In connection with the Merger and Asset Purchase
transactions, the Company issued 7,601,478 and 390,360 shares of Common Stock,
respectively.
Concurrent with the Merger and Asset Purchase, the Company closed the
Preferred Stock Private Placement. The proceeds from the Preferred Stock Private
Placement were used to retire debt acquired in connection with the Merger and
Asset Purchase in the principal amount of $33,500.
On March 25, 1996, the Company declared dividends to holders of Common
Stock and Series B Preferred Stock in the aggregated amount of $983 and $295,
respectively, or $0.12 and $0.13 per share, respectively, payable on April 19
and April 15, 1996, respectively.
On April 3, 1996, the Company closed on an offering comprising the
issuance of 1,500,000 shares of the Company's Common Stock at an offering price
of $16.375 per share, resulting in gross proceeds of $24,563 (the "Offering").
The Company used the net proceeds of the Offering and existing cash reserves to
make a $24,000 payment on its Unsecured Credit Facility. In connection with the
Offering, the Company was able to negotiate an increase of the maximum borrowing
amount under the Unsecured Credit Facility from $50,000 to $75,000.
On June 11, 1996, the Company declared dividends to holders of Common
Stock and Series B Preferred Stock in the aggregated amount of $2,810 and $705,
respectively, or $0.29 and $0.31 per share, respectively, payable on July 19 and
July 15, 1996, respectively.
<PAGE>
6. Stock Plan.
The Board of Directors of the Company has adopted an incentive plan (the
"Stock Plan") to enable the Company to attract, retain and motivate key
employees, directors and, on occasion, consultants and advisors, by providing
them with equity participation in the Company. The Stock Plan provides for the
grant of incentive stock options, non-qualified stock options, unrestricted
stock, restricted stock and stock appreciation rights.
Certain officers of the Company exercised stock options granted in 1995
and purchased 191,400 shares of the Company's Common Stock. In connection with
the grant of these options, the Company agreed to repurchase certain promissory
notes executed by the officers from a third party lender in the event that the
officers default under such notes.
7. Property Acquisitions.
During the six months ended June 30, 1996, the Company purchased two
properties located in California with an aggregate square footage of 492,790.
The purchase prices totaled $18,056 and were financed by applying a $300 deposit
paid in 1995, with the balance funded by draws on the Unsecured Credit Facility.
Also during the six months ended June 30, 1996, the Company entered into
separate agreements with two identified tenants to develop two build-to-suit
facilities with an aggregate square footage of 730,000. The total cost for the
design and construction of the facilities located in Texas is estimated to total
approximately $25,800, with targeted completion dates of December 1996 and
January 1997. The Company anticipates funding a majority of the costs with draws
from the Unsecured Credit Facility.
8. Property Disposition.
On May 15, 1996, the Company sold the Moorpark R & D Building located in
Moorpark, California for $4,100. After closing costs and pro-rated items which
totaled $211, the Company received net proceeds from the sale of the property
amounting to $3,889. The net proceeds were used to retire a portion of the
outstanding principal on the Unsecured Credit Facility (see Note 4).
9. Supplemental Information.
Pro Forma Operating Information.
As discussed in Note 3, in accordance with generally accepted accounting
principles, the Company accounted for the Merger and Asset Purchase by the
purchase method of accounting. As such, the Company is providing the following
pro forma and historical combined operating data as supplemental information.
<PAGE>
The pro forma consolidated operating data presented below for the
six-month periods ended June 30, 1996 and June 30, 1995 have been prepared on
the assumption that the following transactions occurred on January 1, 1996: (i)
the completion of the Offering and payment on the Unsecured Credit Facility,
(ii) the General Tire Facility and BT Office Products facility acquisitions,
(iii) the sale of the Moorpark R & D Building, (iv) the Merger, (v) the Asset
Purchase, (vi) the Private Placement, and (vii) certain other adjustments.
The pro forma information is unaudited and is not necessarily indicative
of the consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period presented or an
any particular date in the future, nor does it purport to represent the
financial position, results of operations or changes in cash flows for future
periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
-------- ---------
<S> <C> <C>
REVENUES:
Rentals from Real Estate Investments $ 19,996 $ 19,928
Interest and Other Income 384 132
-------- ---------
TOTAL REVENUES $ 20,380 20,060
EXPENSES:
Interest Expense 3,476 3,415
Property Taxes 2,858 2,765
Property Operating Costs 2,191 2,148
General and Administrative Expenses 2,400 2,400
Depreciation and Amortization 2,308 2,306
-------- ---------
TOTAL EXPENSES 13,233 13,034
-------- ---------
NET INCOME BEFORE EXTRAORDINARY ITEM $ 7,147 $ 7,026
======== =========
</TABLE>
<PAGE>
Historical Combined Operating Information
The statement of operations presented below represents the historical and
as adjusted historical combined consolidated operating data of the Merged Trusts
for the six months ended June 30, 1995. The financial data is presented for
informational use and is not intended to be compared to, nor is it comparable,
to the Company's Consolidated Statement of Operations for the six months ended
June 30, 1996.
This financial information is unaudited and is not necessarily indicative
of the combined consolidated results that would have occurred if the
transactions and adjustments reflected therein had been consummated in the
period presented or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.
<TABLE>
<CAPTION>
MERGED TRUSTS
SIX MONTHS ENDED JUNE 30, 1995
Historical Adjustment As Adjusted
Combined (1) Historical
--------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rentals from Real Estate Investments $ 17,191 $ (1,124) $ 16,067
Interest and Other Income 442 -- 442
--------- ---------- ----------
TOTAL REVENUES 17,633 (1,124) 16,509
--------- ---------- ----------
EXPENSES:
Interest and Amortization of Debt
Premium 5,472 (293) 5,179
Property Taxes 2,434 (71) 2,363
Property Operating Costs 2,629 (195) 2,434
General and Administrative 1,604 -- 1,604
Provision for Decrease in Net
Realizable Value 1,140 (1,140) --
Depreciation and Amortization 4,270 (331) 3,939
--------- ---------- ----------
TOTAL EXPENSES 17,549 (2,030) 15,519
--------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM $ 84 $ 906 $ 990
========= ========== ==========
<FN>
(1)The historical combined consolidated results of operations of the Merged
Trusts for the six months ended June 30, 1995 have been adjusted to eliminate
the operations of the Moorpark R & D Building and Paradise Marketplace
properties, which were sold in May 1996 and July 1995, respectively. In
addition, interest expense was reduced resulting from the payment on the
related debt using the net proceeds received from the sale of Paradise
Marketplace.
</FN>
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(dollars in thousands unless indicated otherwise)
Introduction
Meridian Industrial Trust, Inc. (the "Company") was incorporated in the
state of Maryland on May 18, 1995. The Company is a self-administered and
self-managed operating company engaged primarily in the business of owning,
developing, acquiring, leasing and managing income-producing
warehouse/distribution and light industrial properties. The Company's principal
asset is its portfolio of 80 industrial and seven retail properties.
The following discussion should be read in conjunction with the Company's
Form 10-K for 1995 and in conjunction with the Consolidated Condensed Balance
Sheets, Consolidated Condensed Statement of Operations and Cash Flows and the
notes thereto included in pages F-2 through F-11 of this report. Unless
otherwise defined in this report, or unless the context otherwise requires, the
capitalized words or phrases used in this section either (i) describe accounting
terms that are used as line items in such financial statements, or (ii) have the
meanings ascribed to them in such financial statements and the notes thereto.
Liquidity and Capital Resources
General
The Company intends to finance property developments, acquisitions,
expansions and renovations using a combination of cash flow from operations and
bank and institutional debt financing, supplemented with private or public debt
or equity placements. Where intermediate or long-term debt financing is
employed, the Company will generally seek to negotiate fixed interest rates or
enter into agreements intended to cap the effective interest rate on floating
rate debt.
Sources of Liquidity
The Company's main sources of liquidity are: (i) cash flows from operating
activities, (ii) cash reserves, (iii) drawdowns on the Unsecured Credit
Facility, (iv) proceeds from private or public equity or debt placements, and
(v) proceeds from property dispositions.
During the six months ended June 30, 1996, cash flows provided by (used
in) operating, investing and financing activities totaled $4,784, $(8,301) and
$5,680, respectively.
In addition to cash flows and net income, management and industry analysts
generally consider Funds From Operations to be an additional measure of the
performance of an equity REIT because, together with net income and cash flows,
Funds From Operations provides investors with an additional basis to evaluate
the ability of the Company to incur and service debt and to fund capital
expenditures. However, Funds From Operations does not measure whether cash flow
is sufficient to fund all the Company's cash needs including development,
acquisitions, principal amortization, capital improvements, and distributions to
stockholders. Funds From Operations also does not represent cash generated from
operating, investing or financing activities as determined in accordance with
generally accepted accounting principles. Funds From Operations should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. Funds From Operations represents net income before extraordinary
items, adjusted for depreciation on real property and amortization of tenant
improvement costs and lease commissions, and gains from the sale of property. A
reconciliation of the Company's net income before extraordinary item to Funds
From Operations for the six months ended June 30, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income Before Extraordinary Item $ 4,385
Reconciling Item:
Depreciation and Amortization
relating to real estate
operations 1,830
Gain on Sale of Property (7)
---------
Funds From Operations $ 6,208
=========
</TABLE>
As of June 30, 1996, the Company had $2,638 in unrestricted cash and cash
equivalents.
The Company used the proceeds from the Preferred Stock Private Placement
to pay off a portion of the total debt acquired in connection with the Merger
and Asset Purchase.
During the six months ended June 30, 1996, the Company received advances
on the Unsecured Credit Facility totaling $40,900 to payoff debt acquired in
connection with the Merger and Asset Purchase and fund property acquisitions.
Also during the six months ended June 30, 1996, the Company made payments
on the Unsecured Credit Facility totaling $29,000 using proceeds received from:
(i) an offering of 1,500,000 shares of the Company's Common Stock, (ii) the sale
of Moorpark R & D Building, and (iii) existing cash reserves. At June 30, 1996,
the Company had borrowings of $11,900 outstanding on the Unsecured Credit
Facility.
The Unsecured Credit Facility provides for a maximum borrowing amount of
$75 million, bears annual interest at LIBOR plus 1.7%, requires interest only
payments until maturity in February 1998, and provides for annual fees on the
unused facility of 25 basis points to the extent that less than 65% of the
facility is used and 15 basis points to the extent that more than 65% of the
facility is used.
In addition, the Company may incur indebtedness in the future that also
bears interest at a variable rate or may be required to refinance its debt at
higher rates. Increases in interest rates could increase the Company's interest
expense, which could adversely affect the Company's ability to pay expected
distributions to stockholders.
On May 11, 1993, Trust IV entered into an interest rate cap agreement that
provided for payments to Trust IV to the extent that the one month LIBOR
exceeded 4.5%. The agreement was based upon a notional amount of $11,170 for the
period from January 1, 1996 through its expiration on June 28, 1996. The
agreement was transferred to the Company upon completion of the Merger. Payments
made to the Company under this agreement ceased on June 28, 1996.
On April 3, 1996, the Company issued 1,500,000 shares of the Company's
Common Stock to investors for $16.375 per share, resulting in gross proceeds of
$24,563 (the "Offering"). The net proceeds from the Offering, together with cash
reserves, were used to make payments of $24,000 on the Unsecured Credit
Facility. In connection with the Offering, the Company was able to negotiate an
increase in the maximum borrowing amount under the Unsecured Credit Facility
from $50,000 to $75,000.
<PAGE>
In connection with the Merger, the Company issued to holders of Trust VI
and Trust VII common stock approximately 553,000 Merger Warrants to purchase an
equal number of shares of the Company's Common Stock. The Merger Warrants were
issued on April 8, 1996 and will be exercisable during the period May 23, 1997
through February 24, 1999. The exercise price of the Warrants ($16.23 per share)
equals the average of the closing prices of the Company's Common Stock as quoted
on the New York Stock Exchange during the first twenty trading days after the
Merger.
On May 15, 1996, the Company sold the Moorpark R & D Building located in
Moorpark, California for $4,100. After closing costs and pro-rated items which
totaled $211, the Company received net proceeds from the sale of the property
amounting to $3,889. The net proceeds were used to pay down the Unsecured Credit
Facility.
Uses of Liquidity
The Company's principal applications of its cash resources are (i)
operating costs including property expenses, property taxes, general and
administrative expenses, interest expense, and legal costs; (ii) tenant
improvement costs; leasing commissions and building improvements; (iii) payment
of distributions; (iv) principal payments on its debt; and (v) property
development and acquisitions.
The Company anticipates that it will have sufficient Funds From Operations
during 1996 to fund (i) its operating needs, (ii) capital expenditures on the
properties, and (iii) the proposed distributions to its common and preferred
stockholders.
During the three months ended March 31, 1996, the Company declared
dividends to holders of Common Stock and Series B Preferred Stock in the
aggregated amount of $982 and $295, respectively, or $0.12 and $0.13 per share,
respectively, payable on April 19 and April 15, 1996, respectively. The Common
Stock dividends represent a pro-rated quarterly rate of $0.29 per share to
holders of the Company's Common Stock, which on an annualized basis is
equivalent to an annual distribution of $1.16 per share of Common Stock. These
Series B Preferred Stock dividends represent a pro-rated quarterly rate of $0.31
per share, or an annualized dividend rate of $1.24 per share of Series B
Preferred Stock. The Company's initial distribution level is based on a number
of assumptions relating to future operations of the Company.
On June 11, 1996, the Company declared dividends to holders of Common
Stock and Series B Preferred Shares in the aggregated amount of $2,810 and $705,
respectively, or $0.29 and $0.31 per share, respectively, payable on July 19 and
July 15, 1996, respectively.
On March 29, 1996, the Company exercised its purchase option and acquired
a 332,790 square foot, single-tenant warehouse/distribution facility located in
the City of Industry, California. The purchase price totaled $9,527 and was
financed by applying the $300 deposit paid in 1995, with the $9,227 balance
funded by a draw on the Unsecured Credit Facility The current tenant occupying
the property is under a triple net lease running through March 2001.
On June 10, 1996, the Company acquired a recently completed 160,000 square
foot warehouse/distribution facility located in Newark, California that was
built-to-suit for an office products company. The total acquisition cost to the
Company was $8,529. The property is leased on a triple-net basis through the
year 2006 with two three-year renewal options.
<PAGE>
On March 6, 1996, the Company entered into an agreement with a tenant
currently occupying the Wildwood property. Pursuant to the terms of the
agreement, the Company will develop and lease to that tenant a 367,744 square
foot build-to-suit warehouse facility in Lewisville, Texas. The tenant has
agreed to a 15-year lease of this facility once developed. On April 18, 1996,
the Company purchased a 20.3 acre industrial site where the facility is being
constructed. The total cost for the design and construction of the facility is
estimated to be $10,200. Construction commenced on April 22, 1996 with a
targeted completion date of January 1997. As of June 30, 1996, the Company has
incurred $3,597 in project costs.
Upon completion of the build-to-suit warehouse facility, the tenant will
vacate the Wildwood property in favor of the build-to-suit facility. The tenant
is obligated to continue to pay rent on the vacated space for the lesser of six
months from the date the tenant vacates or until the building is leased.
In May 1996, the Company entered into another agreement to develop and
lease to an identified tenant a 362,000 square foot build-to-suit warehouse
facility in Grand Prairie, Texas. Once developed, the tenant will lease the
property on a 15-year, triple-net lease. The total cost for the design and
construction of the facility is estimated to be $15,600, with a targeted
completion date in December 1996. Total project costs as of June 30, 1996
totaled $1,994.
The Company has funded the project costs from cash reserves and draws from
the Unsecured Credit Facility. The Company anticipates funding a majority of the
future costs with draws from the Unsecured Credit Facility.
As previously reported, two of the Company's properties have experienced
groundwater contamination. Environmental consultants have reported that the
sources of the contamination appear to be adjoining parcels. Two responsible
parties have acknowledged, one in writing and one orally, that they must fund
remediation costs. Management has reviewed the financial condition of the
responsible parties (one a Fortune 500 company and the other a municipality
located in the San Francisco Bay Area) and believes that both parties have the
ability to fund the costs of remediation. Accordingly, the Company does not
believe that it will incur any costs associated with the remediation.
Material Changes in Results of Operations
The Company was incorporated on May 18, 1995. The Merger and Asset
Purchase were consummated on February 23, 1996. The Company's historical results
of operations for the six months ended June 30, 1996 reflect the operating
activities resulting from the Merger and Asset Purchase from February 23, 1996.
Prior to the Merger and Asset Purchase, the Company had no operating activities
other than interest on its investment and administrative expenses. Accordingly,
comparison of such historical results to either the pro forma or as adjusted
historical results from the prior year would not be meaningful.
Comparison of Pro Forma Operating Information for the Six Month Periods
Ended
June 30, 1996 and June 30, 1995
The Company's pro forma Interest and Other Income for the six months ended
June 30, 1996 and 1995 totaled $384 and $132, respectively. The increase of $252
or 190.9% during 1996, compared to 1995, was primarily due to higher average
cash balances available for investments.
Compared to 1995, pro forma Property Taxes for the six months ended June
30, 1996 increased by $93 to $2,858, or 3.4%. The increase was primarily due to
higher assessed values on the Company's properties located in Michigan.
Risks and Uncertainties Associated with Forward Looking Statements
This document contains forward looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that may cause such
difference include, but are not limited to, the risks described under the
captions (i) "Management's Discussions and Analysis of Financial Condition and
Results of Operations - Discussion of Known Trends, Events and Uncertainties" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
and (ii) "Risk Factors" in Amendment No. 1 to the Company's Registration
Statement on Form S-11 (Registration No.
333-02333).
<PAGE>
- ------------------------------------------------------------------------
PART II: OTHER INFORMATION
- ------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings which the Company or any
partnership in which the Company has an interest is a party or to which
any of the assets of the Company or any such partnership is subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders (the "Meeting") on
June 10, 1996. The stockholders of the Company voted on and approved the
following proposals:
1. The election of eight directors for terms expiring in 1997.
2. A proposal to ratify the selection of Arthur Andersen LLP
as the Company's independent auditors for the fiscal year
ending December 31, 1996.
The proposals were approved by the following votes:
1. Election of Directors
NAME FOR AGAINST
---- --- -------
Allen J. Anderson 8,793,040 60,900
C.E. Cornutt 8,794,108 59,832
T. Patrick Duncan 8,792,926 61,014
Peter O. Hanson 8,793,257 60,863
John S. Moody 8,794,548 59,392
James M. Pollak 8,793,032 60,908
Kenneth N. Stensby 8,793,223 60,717
Lee W. Wilson 8,794,052 59,888
2. Ratification of Independent Auditors
FOR AGAINST ABSTENTIONS BROKER
NON-VOTES
8,789,858 19,256 44,826 N/A
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
No. Description
3.1 The Company's Third Amended and Restated Articles of
Incorporation filed April 1, 1996. These articles of
incorporation supersede the Third Amended and Restated
Articles of Incorporation that (i) were filed on March 4,
1996, and (ii) were listed as an exhibit to the Company's
Annual Report on Form 10-K for 1995.
10.1 MIT-MSAM Excepted Holder Agreement between Morgan
Stanley Asset Management Inc. and the Company dated
as of April 3, 1996.
(b) Reports on Form 8-K. The following Form 8-K reports
were filed during the quarter ended June 30, 1996:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MERIDIAN INDUSTRIAL TRUST, INC.
Dated: August 14, 1996 By: ALLEN J. ANDERSON
-----------------------
Allen J. Anderson
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: August 14, 1996 By: MILTON K. REEDER
----------------------
Milton K. Reeder
President and Chief Financial Officer
(Principal Financial Officer)
<PAGE>
MERIDIAN INDUSTRIAL TRUST, INC.
INDEX TO EXHIBITS
Exhibit Number
(corresponding to the Sequentially
Exhibit Table of Item Numbered
601 of Regulation S-K) Description Page
- ---------------------- ----------- ------------
3.1 The Company's Third Amended and Restated Articles of
Incorporation filed April 1, 1996. These articles of
incorporation supersede the Third Amended and
Restated Articles of Incorporation that (i) were filed
on March 4, 1996, and (ii) were listed as an exhibit to
the Company's Annual Report on Form 10-K for 1995.
10.1 MIT-MSAM Excepted Holder Agreement between Morgan
Stanley Asset Management Inc. and the Company
dated as of April 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,117,000
<SECURITIES> 0
<RECEIVABLES> 2,081,000
<ALLOWANCES> (826,000)
<INVENTORY> 0
<CURRENT-ASSETS> 4,013,000
<PP&E> 248,903,000
<DEPRECIATION> (1,794,000)
<TOTAL-ASSETS> 262,494,000
<CURRENT-LIABILITIES> 9,838,000
<BONDS> 77,994,000
0
2,000
<COMMON> 10,000
<OTHER-SE> 174,650,000
<TOTAL-LIABILITY-AND-EQUITY> 262,494,000
<SALES> 0
<TOTAL-REVENUES> 13,756,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,841,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,537,000
<INCOME-PRETAX> 4,378,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,378,000
<DISCONTINUED> 0
<EXTRAORDINARY> (404,000)
<CHANGES> 0
<NET-INCOME> 3,974,000
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.33
</TABLE>
THIRD AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MERIDIAN INDUSTRIAL TRUST, INC.
---------------------------------
<PAGE>
THIRD AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MERIDIAN INDUSTRIAL TRUST, INC.
---------------------------------
THE UNDERSIGNED, David Hannan, whose address is 300 East Lombard
Street, Baltimore, Maryland 21202-3268, being at least 18 years of age, acting
as incorporator, does hereby form a corporation under the general laws of the
State of Maryland.
<PAGE>
ARTICLE 1
NAME
The name of the corporation (the "Corporation") is MERIDIAN INDUSTRIAL
TRUST, INC.
ARTICLE 2
PURPOSE
The purposes for which the Corporation is formed and the business and
objects to be carried on and promoted by it are to engage in any lawful act or
activity (including, without limitation or obligation, engaging in business as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended, or any successor statute (the "Code")) for which corporations may be
organized under the general laws of the State of Maryland as now or hereafter in
force. For purposes of the charter of the Corporation, "REIT" means a real
estate investment trust under Sections 856 through 860 of the Code. The Board of
Directors may determine that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT and upon any such
determination the Board of Directors may revoke or otherwise terminate the
Corporation's election to be a REIT pursuant to Section 856(g) of the Code.
ARTICLE 3
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the Corporation's principal office in the State of
Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202. The name of the resident agent of the Corporation in the State
of Maryland is The Corporation Trust Incorporated, a Maryland corporation whose
address is 32 South Street, Baltimore, Maryland 21202.
ARTICLE 4
STOCK
4.1 Authorized Shares. The total number of shares of stock of all classes
which the Corporation shall have authority to issue is two hundred million
(200,000,000) shares, of which (a) one hundred seventy five million
(175,000,000) shares are shares of Common Stock, par value $.001 per share
("Common Stock"), and (b) twenty five million (25,000,000) shares are shares of
Preferred Stock, par value $.001 per share ("Preferred Stock"). The aggregate
par value of all authorized shares of stock having par value is $200,000.
4.2 Preferred Stock. The Board of Directors may classify any unissued
shares of Preferred Stock and reclassify any previously classified but unissued
shares of Preferred Stock of any series from time to time, in one or more series
of stock.
4.3 [Intentionally Eliminated]
<PAGE>
4.4 Series B Convertible Preferred Stock.
4.4.1 Number of Shares and Designation. This series of Preferred Stock
shall be designated as Series B Convertible Preferred Stock and the number of
shares which shall constitute such series shall not be more than 2,272,727
shares, par value $.001 per share, which number may be decreased (but not below
the number thereof then outstanding plus the number required to fulfill the
Corporation's obligations under options, warrants or similar rights issued by
the Corporation) from time to time by the Board of Directors.
4.4.2 Definitions. For purposes of this Section 4.4, the following
terms shall have the meanings indicated:
"Ameritech" shall mean Harris Trust & Savings Bank, not
individually but solely as Trustee for Ameritech Pension Trust (and any
successor Trustee therefor).
"Board of Directors" shall mean the Board of Directors of the
Corporation or committee authorized by such Board of Directors to perform
any of its responsibilities with respect to the Series B Preferred Shares.
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which state or federally chartered banking institutions in New
York City, New York are not required to be opened.
"Call Date" shall mean the date of the notice to holders required
under Section 4.4.6.
"Common Shares" shall mean the Common Stock of the Corporation,
par value $.001 per share.
"Constituent Person" shall have the meaning set forth in
subsection 5(f).
"Conversion Price" shall mean the conversion price per Common
Share for which the Series B Preferred Shares are convertible, as such
Conversion Price may be adjusted pursuant to Section 4.4.5. The initial
conversion price shall be $15.40 (equivalent to a conversion rate of one
Common Share for each Series B Preferred Share).
"Conversion Price Premium" shall have the meaning set forth in
subsection 4.4.5(b).
"Current Market Price" of publicly traded Common Shares or any
other class of stock or other security of the Corporation or any other
issuer for any day shall mean the last reported sales price, regular way on
such day, or, if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either
case as reported on the New York Stock Exchange ("NYSE") or, if such
security is not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading on any
national securities exchange, on The Nasdaq Stock Market or, if such
security is not quoted on The Nasdaq Stock Market, the average of the
closing bid and asked prices on such day in the over-the-counter market as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or, if bid and asked prices for such security
on such day shall not have been reported through NASDAQ, the average of the
bid and asked prices on such day as furnished by any NYSE member firm
regularly making a market in such security selected for such purpose by the
Board of Directors.
"Dividend Payment Date" shall mean a date fixed by the Board of
Directors which date shall not be more than 15 days following the end of
the applicable Dividend Period; provided, however, that if any Dividend
Payment Date falls on any day other than a Business Day, the dividend
payment due on such Dividend Payment Date shall be paid on the Business Day
immediately following such Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods
commencing on January 1, April 1, July 1 and October 1 of each year and
ending on and including March 31, June 30, September 30 and December 31 of
such year, respectively (other than the initial Dividend Period, which
shall commence on the Issue Date and end on and include March 31, 1996).
"Exempted Securities" shall mean any Common Shares or options or
other securities convertible into or exchangeable or exercisable for Common
Shares (and any security issued in connection with the exercise, conversion
or exchange of any such security) that are issued or granted (a) to any
director, officer or employee of the Corporation or its Subsidiaries, (b)
pursuant to the terms of that certain Option Agreement dated as of November
21, 1995, by and among USAA Real Estate Company, a Delaware corporation,
West Chicago Industrial, Ltd., a Texas limited partnership, and the
Corporation, including in connection with the warrant delivered in
connection therewith, or (c) pursuant to the terms of that certain (i)
Amended and Restated Agreement and Plan of Merger dated as of November 10,
1995, as amended, by and among the Corporation and the other parties
thereto, or (ii) Amended and Restated Asset Purchase Agreement dated as of
November 10, 1995, as amended, by and among the Corporation and Meridian
Point Realty Trust '83, a California business trust.
"Expiration Time" shall have the meaning set forth in
subsection 4.4.5(e).
"Fair Market Value" shall mean the average of the daily Current
Market Price of a Common Share during any 20 Trading Days selected by the
Corporation commencing not earlier than the 30th Trading Day preceding, and
ending not later than, the day in question.
"Follow on Preferred Shares" shall mean any Parity Shares or
Junior Shares issued in a Permitted Private Placement.
"Fully Junior Shares" shall mean the Common Shares and any other
class or series of stock of the Corporation now or hereafter issued and
outstanding over which the Series B Preferred Shares have preference or
priority in both (a) the payment of dividends and (b) the distribution of
assets on any liquidation, dissolution or winding up of the Corporation.
"Initial Investors" shall mean Harris Trust & Savings Bank, as
Trustee for Ameritech Pension Trust (and any successor trustee therefor),
and OTR, an Ohio general partnership acting on behalf of and as nominee for
The State Teachers Retirement Board of Ohio.
"Initial Preferred Shares" shall mean the Series B Preferred
Shares, together with any Follow on Preferred Shares.
"Issue Date" shall mean the first date on which the Series B
Preferred Shares are issued and sold.
"Junior Shares" shall mean the Common Shares, the Fully Junior
Shares and any other class or series of stock of the Corporation now or
hereafter issued and outstanding over which the Series B Preferred Shares
have preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
"Liquidation Preference" shall have the meaning set forth in
subsection 4.4.4(a).
"Mandatory Exchange" shall have the meaning set forth in
subsection 4.4.5(b).
"Minimum Ownership Level" shall mean 15% of the Corporation's
Publicly Traded Common Shares; provided that the Minimum Ownership Level
shall mean 18% of the Corporation's Publicly Traded Common Shares if the
Corporation completes one or more Permitted Private Placements in aggregate
amount of $30 million, and provided further that the Minimum Ownership
Level shall be reduced to one-half of the then applicable percentage in the
event of a partial redemption or conversion of the Initial Preferred Shares
by the Corporation.
"Non-Electing Share" shall have the meaning set forth in
subsection 4.4.5(f).
"Notice of Exchange" shall have the meaning set forth in
subsection 4.4.5(b).
"OTR" shall mean OTR, an Ohio general partnership acting on
behalf of and as nominee for The State Teachers Retirement Board of Ohio.
"Parity Shares" shall have the meaning set forth in
subsection 4.4.8(b).
"Permitted Private Placements" shall mean one or more private
placements of one or more series of preferred stock of the Corporation
ranking pari passu or junior to the Series B Preferred Shares in respect of
the payment of dividends or the distribution of assets on any liquidation,
dissolution or winding up of the Corporation in an amount not to exceed $30
million in the aggregate and that are completed on or before the first
anniversary of the Closing Date.
"Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Publicly Traded Common Shares" shall mean each issued and
outstanding Common Share of the Corporation that (a) was issued pursuant to
an effective registration statement under the Securities Act, or (b) is a
"restricted security" as defined in Rule 144 and is eligible for resale
without restriction pursuant to Rule 144(k); and provided that any Common
Shares held by the Initial Investors, any Subsequent Investors, Hunt Realty
Acquisitions, L.P., USAA Real Estate Company, and any directors and
executive officers of the Corporation shall not be deemed to be Publicly
Traded Common Shares.
"Purchased Shares" shall have the meaning set forth in
subsection 4.4.5(e).
"Redemption Price" shall have the meaning set forth in
Section 4.4.6.
"Rule 144" shall mean Rule 144 under the Securities Act, as
amended from time to time, and any successor rule thereto.
"Securities" and "Security" shall have the meanings set forth
in subsection 4.4.5(e)(iii).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Series B Preferred Shares" shall mean shares fo Series B
Convertible Preferred Stock of the Corporation.
"Set apart for payment" shall be deemed to include, without any
action by the Corporation other than the following, the recording by the
Corporation in its accounting ledgers of any accounting or bookkeeping
entry which indicates, pursuant to an authorization of dividends or other
distribution by the Board of Directors, the allocation of funds to be so
paid on any series or class of stock of the Corporation; provided, however,
that if any funds for any class or series of Junior Shares or any class or
series of stock ranking on a parity with the Series B Preferred Shares as
to the payment of dividends are placed in a separate account of the
Corporation or delivered to a disbursing, paying or other similar agent,
then "set apart for payment" with respect to the Series B Preferred Shares
shall mean placing such funds in a separate account or delivering such
funds to a disbursing, paying or other similar agent.
"Subsequent Investors" shall mean the purchasers of any Follow on
Preferred Shares in a Permitted Private Placement.
"Subsidiary" shall mean (i) a corporation, a majority of whose
stock with voting power, under ordinary circumstances, to elect directors
is at the time, directly or indirectly, owned by the Corporation, by a
Subsidiary of the Corporation or by the Corporation and another Subsidiary
or (ii) any other Person (other than a corporation) in which the
Corporation, a Subsidiary or the Corporation and a Subsidiary, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest.
"Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or if such securities are not listed or
admitted for trading on the NYSE, on the principal national securities
exchange on which such securities are listed or admitted, or if not listed
or admitted for trading on any national securities exchange, on The Nasdaq
Stock Market, or if such securities are not quoted on The Nasdaq Stock
Market, in the applicable securities market in which the securities are
traded.
"Transaction" shall have the meaning set forth in
subsection 4.4.5(f).
"Transfer Agent" means First Chicago Trust Company of New York,
or such other agent or agents of the Corporation as may be designated by
the Board of Directors or their designee as the transfer agent for the
Series B Preferred Shares.
4.4.3 Dividends.
(a) The holders of Series B Preferred Shares shall be entitled to
receive, when, as and if authorized by the Board of Directors out of funds
legally available for that purpose, quarterly cash dividends (i) for each of the
first eight Dividend Periods after the Issue Date, in an amount per share equal
to the greater of (A) $0.31 per full Dividend Period, or (B) 103% of the
quarterly dividend payable per Common Share during the corresponding Common
Share dividend period (determined as of the date on which the applicable Common
Share dividend is authorized), and (ii) thereafter, in an amount per share equal
to the greater of (A) the quarterly dividend payable on the Series B Preferred
Shares on the eighth Dividend Payment Date after the Issue Date or (B) the
dividend paid per Common Share (determined as of the date on which the Common
Share dividend for the corresponding Common Share dividend period is
authorized). If the Conversion Price is adjusted from time to time in accordance
with paragraph 4.4.5(e)(i) and the amount of the dividend payable per Series B
Preferred Share is to be determined by reference to the dividend paid or payable
per Common Share as described in the previous sentence, the dividend payable per
Series B Preferred Share shall be appropriately adjusted as determined by the
Board of Directors. The calculation of any such quarterly dividend shall be made
to the nearest cent (with $.005 being rounded upward). Such dividends shall
begin to accumulate and shall be fully cumulative from the Issue Date, whether
or not authorized by the Board of Directors and whether or not in any Dividend
Period or Periods there shall be funds of the Corporation legally available for
the payment of such dividends, and shall be payable quarterly in immediately
available funds, when, as and if authorized by the Board of Directors, in
arrears on Dividend Payment Dates or such other dates as provided herein,
commencing on the first Dividend Payment Date after the Issue Date. Each such
dividend shall be payable in arrears to the holders of record of Series B
Preferred Shares, as they appear on the stock records of the Corporation at the
close of business on such record dates, not more than 15 days preceding such
Dividend Payment Dates thereof, as shall be fixed by the Board of Directors.
Accumulated and unpaid dividends for any past Dividend Periods may be authorized
and paid at any time and for such interim periods, without reference to any
regular Dividend Payment Date, to holders of record on such date, not more than
15 days preceding the payment date thereof, as may be fixed by the Board of
Directors. Dividend payments shall be aggregated per holder and shall be made to
the nearest cent (with $.005 being rounded upward).
(b) The amount of dividends payable for the initial Dividend Period, or
any other period shorter or longer than a full Dividend Period, on the Series B
Preferred Shares shall be computed on the basis of twelve 30-day months and a
360-day year. Holders of Series B Preferred Shares shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of cumulative
dividends, as herein provided, on the Series B Preferred Shares. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series B Preferred Shares that may be in arrears.
(c) So long as any Series B Preferred Shares are outstanding, no
dividends shall be authorized or paid or set apart for payment on any class or
series of Parity Shares for any period unless full cumulative dividends have
been or contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof set apart for such payment on the Series B
Preferred Shares for all Dividend Periods terminating on or prior to the
dividend payment date on such class or series of Parity Shares.
(d) So long as any Series B Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Fully Junior
Shares) shall be authorized or paid or set apart for payment or other
distribution authorized or made upon Junior Shares, nor shall any Junior Shares
be redeemed, purchased or otherwise acquired (other than a redemption, purchase
or other acquisition of Common Shares made for purposes of an employee incentive
or benefit plan of the Corporation or any Subsidiary) for any consideration (or
any moneys be paid to or made available for a sinking fund for the redemption of
any shares of any such stock) by the Corporation, directly or indirectly (except
by conversion into or exchange for Fully Junior Shares), unless (i) the full
cumulative dividends on all outstanding Series B Preferred Shares and any other
Parity Shares shall have been paid or authorized and set apart for payment for
all past Dividend Periods with respect to the Series B Preferred Shares and all
past dividend periods with respect to such Parity Shares and (ii) sufficient
funds shall have been paid or authorized and set apart for the payment of the
dividend for the current Dividend Period with respect to the Series B Preferred
Shares and the current dividend period with respect to such Parity Shares.
4.4.4 Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation shall be made to or set apart for
the holders of Junior Shares, the holders of the Series B Preferred Shares shall
be entitled to receive in immediately available funds $15.40 per Series B
Preferred Share, plus an amount equal to all dividends (whether or not
authorized) accumulated and unpaid thereon to the date of final distribution to
such holders (the "Liquidation Preference"); but such holders shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the Series B Preferred Shares shall
be insufficient to pay in full the Liquidation Preference and liquidating
payments on any other shares of any class or series of Parity Shares, then such
assets, or the proceeds thereof, shall be distributed among the holders of
Series B Preferred Shares and any such other Parity Shares ratably in accordance
with the respective amounts that would be payable on such Series B Preferred
Shares and any such other Parity Shares if all amounts payable thereon were paid
in full. The holders of Series B Preferred Shares shall be entitled to notice in
advance of any liquidation, dissolution or winding up of the Corporation as
provided in subsection 4.4.5(g). For the purposes of this Section 4.4.4, (i) a
consolidation or merger of the Corporation with one or more entities, (ii) a
sale or transfer of all or substantially all of the Corporation's assets, or
(iii) a statutory share exchange shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or prior to the Series B
Preferred Shares upon liquidation, dissolution or winding up of the Corporation,
after payment shall have been made in full to the holders of the Series B
Preferred Shares, as provided in this Section 4, any other series or class or
classes of Junior Shares shall, subject to the respective terms and provisions
(if any) applying thereto, be entitled to receive any and all assets remaining
to be paid or distributed, and the holders of the Series B Preferred Shares
shall not be entitled to share therein.
4.4.5 Conversion. Series B Preferred Shares shall be subject to
conversion into Common Shares, as follows:
(a) Conversion at the Option of the Holder. Subject to and upon
compliance with the provisions of this Section 4.4.5, a holder of Series B
Preferred Shares shall have the right, at his or her option, at any time to
convert all or any part of such shares into the number of fully paid and
non-assessable Common Shares obtained by dividing the aggregate Liquidation
Preference of such shares by the Conversion Price (as in effect at the time and
on the date provided for in the last paragraph of this subsection 4.4.5(a);
provided that any dividends accumulated on the Series B Preferred Shares
presented for conversion since the end of the last completed Dividend Period
shall not be included in such aggregate Liquidation Preference) by surrendering
such shares to be converted, such surrender to be made in the manner provided
herein; provided, however, that the right to convert shares called for
redemption pursuant to Section 6 shall terminate at the close of business on the
fifth Business Day prior to the Call Date fixed for such redemption, unless the
Corporation shall default in making payment of the cash payable upon such
redemption under Section 4.4.6.
In order to exercise the conversion right, the holder of each Series B
Preferred Share to be converted shall surrender the certificate representing
such share, duly endorsed or assigned to the Corporation or in blank, at the
office of the Transfer Agent, accompanied by written notice to the Corporation
that the holder thereof elects to convert such Series B Preferred Shares. Unless
the Common Shares issuable on conversion are to be issued in the same name as
the name in which such Series B Preferred Share is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
Holders of Series B Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding the
conversion thereof following such dividend payment record date and prior to such
Dividend Payment Date. However, Series B Preferred Shares surrendered for
conversion during the period between the close of business on any dividend
payment record date and the opening of business on the corresponding Dividend
Payment Date must be accompanied by payment of an amount equal to the dividend
payable on such shares on such Dividend Payment Date. A holder of Series B
Preferred Shares on a dividend payment record date who (or whose transferee)
tenders any such shares for conversion into Common Shares on the corresponding
Dividend Payment Date will receive the dividend payable by the Corporation on
Series B Preferred Shares on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of Series B
Preferred Shares for conversion.
As promptly as practicable after the surrender of certificates for
Series B Preferred Shares as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full Common Shares issuable upon
the conversion of such shares in accordance with provisions of this Section 5,
and any fractional interest in respect of a Common Share arising upon such
conversion shall be settled as provided in subsection (c) of this Section 4.4.5.
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for Series B
Preferred Shares shall have been surrendered and such notice received by the
Corporation as aforesaid (together with any required payments in respect of
dividends payable on such shares), and the person or persons in whose name or
names any certificate or certificates for Common Shares shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date unless the
stock transfer books of the Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date on which such shares shall have been
surrendered and such notice received by the Corporation (together with any
required payments in respect of dividends payable on such shares).
(b) Conversion at the Option of the Corporation. Beginning January 1,
1999 through and including December 31, 2004, the Corporation shall have the
right, at its option, at any time, in whole but not in part, to require all
holders of Series B Preferred Shares to exchange (a "Mandatory Exchange") such
holders' shares for the number of fully paid and non-assessable Common Shares
obtained by dividing the aggregate Liquidation Preference of such shares
(provided that any dividends accumulated on any Series B Preferred Shares so
converted since the end of the last completed Dividend Period shall not be
included in such aggregate Liquidation Preference) by the Conversion Price in
effect on the Trading Day preceding the day on which the Notice of Exchange
(hereinafter defined) with respect to the Mandatory Exchange is given, so long
as both (i) the Fair Market Value of the Common Shares on the Trading Day
immediately preceding the day on which the Notice of Exchange with respect to
such Mandatory Exchange is given by the Corporation shall have equaled or
exceeded the following percentages of the then applicable Conversion Price (the
"Conversion Price Premium"):
Year Percentage
On or after January 1, 1999, and on or before December 115.0%
31, 1999
After December 31, 1999, and on or before December 31, 119.0
2000
After December 31, 2000, and on or before December 31, 123.0
2001
After December 31, 2001, and on or before December 31, 127.5
2002
After December 31, 2002, and on or before December 31, 132.0
2004
and (ii) the Current Market Price on the Trading Day immediately preceding the
day on which the Notice of Exchange with respect to such Mandatory Exchange is
given shall have equaled or exceeded the applicable Conversion Price Premium.
In order to effect a Mandatory Exchange, (A) the Corporation shall
issue a press release announcing such Mandatory Exchange prior to the opening of
business on the second Trading Day after the day on which the conditions
described in clauses (i) and (ii) above have been satisfied and (B) a notice of
exchange (a "Notice of Exchange") of the Series B Preferred Shares shall be
given by the Corporation by mail to each record holder of Series B Preferred
Shares to be exchanged. For purposes of the calculation of the date of exchange
and the dates on which notices are given pursuant to this subsection 4.4.5(b), a
Notice of Exchange shall be deemed to be given on the day such notice is first
mailed by first class mail, postage prepaid, to holders of record of the Series
B Preferred Shares to be exchanged as of the close of business on the day
immediately preceding the day on which such Notice of Exchange is given. Each
Notice of Exchange shall be addressed to the holder of record at the address of
the holder appearing in the stock records of the Corporation. No defect in the
Notice of Exchange or in the mailing thereof or publication of its contents
shall affect the validity of the Mandatory Exchange proceedings. The Corporation
may only exercise its option under this subsection 4.4. 5(b) if, at the time a
Notice of Election is given, there are no accumulated and unpaid dividends on
the Series B Preferred Shares for any completed Dividend Period for which the
Dividend Payment Date has past.
As promptly as practicable after a Notice of Exchange is given by
the Corporation, the Corporation shall issue and shall deliver to each holder of
Series B Preferred Shares to be exchanged, against the surrender of the
certificate or certificates evidencing such shares (together with any required
payments in respect of dividends payable on such shares), a certificate or
certificates for the number of full Common Shares issuable upon the Mandatory
Exchange of such shares in accordance with the provisions of this subsection
4.4.5(b), and any fractional interest in respect of a Common Share arising upon
such exchange shall be settled as provided in subsection 4.4.5(c).
Each Mandatory Exchange shall be deemed to have been effected
immediately prior to the close of business on the date on which the Notice of
Exchange is given by the Corporation, and the person or persons in whose name or
names any certificate or certificates for the Common Shares shall be issuable
upon such exchange shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on such date. At such time
on such date, all rights of the holders of the Series B Preferred Shares to be
exchanged as such holders shall cease, and such holders shall thereupon and
thereafter be deemed to be and be for all purposes the holders of the Common
Shares issued in exchange therefor. All Common Shares delivered upon a Mandatory
Exchange will upon delivery be duly and validly issued and fully paid and
nonassessable.
Holders of Series B Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding the
Mandatory Exchange thereof following such dividend payment record date and prior
to such Dividend Payment Date. However, Series B Preferred Shares subject to a
Mandatory Exchange during the period between the close of business on any
dividend payment record date and the opening of business on the corresponding
Dividend Payment Date must be accompanied by payment of an amount equal to the
dividend payable on such shares on such Dividend Payment Date. A holder of
Series B Preferred Shares on a dividend payment record date whose (or whose
transferee's) shares are subject to a Mandatory Exchange on the corresponding
Dividend Payment Date will receive the dividend payable by the Corporation on
Series B Preferred Shares on such date, and the converting holder need not
include payment of the amount of such dividend upon the Mandatory Exchange of
such Series B Preferred Shares.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series B Preferred Shares. Instead
of any fractional interest in a Common Share that would otherwise be deliverable
upon the conversion of a Series B Preferred Share, the Corporation shall pay to
the holder of such share an amount in cash based upon the Current Market Price
of Common Shares on the Trading Day immediately preceding the date of
conversion. If more than one share shall be surrendered for conversion at one
time by the same holder, the number of full Common Shares issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
Series B Preferred Shares so surrendered.
(d) If at any time after the Issue Date the Corporation shall issue
for cash or other consideration Common Shares or any security convertible into
or exchangeable or exercisable for Common Shares (in each case other than
Exempted Securities) at a price, including any additional consideration payable
to the Corporation upon any such conversion, exchange or exercise (before
deduction of any reasonable and customary discounts, commissions, fees and other
expenses of issuance and marketing), that is less than $16.00 per share (as
appropriately adjusted from time to time by the Board of Directors upon
adjustment of the Conversion Price from time to time in accordance with
paragraph 4.4.5(e)(i)), then unless (i) such issuance is made in connection with
an acquisition of real property or a right to acquire real property by the
Corporation or any Subsidiary, either directly or indirectly through an
acquisition of equity securities or other rights or evidences of ownership in an
entity substantially all of whose operating assets consist of real property and
related assets, and (ii) such issuance is approved by all of the members of the
Investment Committee of the Board of Directors and the designee, if any, of the
holders of the Initial Preferred Shares then sitting on the Board of Directors
pursuant to subsection 4.4.9(a) hereof, there shall be an immediate reduction in
the Conversion Price in effect at the close of business on the day immediately
preceding such issuance in an amount equal to the amount by which $16.00 (as
appropriately adjusted from time to time by the Board of Directors upon
adjustment of the Conversion Price from time to time in accordance with
paragraph 4.4.5(e)(i)) exceeds such purchase, conversion, exchange or exercise
price, including the amount of any additional consideration payable to the
Corporation upon such conversion, exchange or exercise; provided that if the
Corporation shall engage in more than one such issuance the amount of the
adjustment to the Conversion Price under this subsection 4.4.5(d) shall be an
amount equal to the greatest individual reduction required hereunder and such
adjustments shall not be cumulative.
For the purposes of this subsection 4.4.5(d), the issuance by the
Corporation of securities (other than Exempted Securities) convertible into or
exchangeable or exercisable for Common Shares shall be deemed to involve the
immediate issuance of the maximum number of Common Shares issuable upon the
conversion, exchange or exercise of such securities for a consideration equal to
the minimum aggregate consideration receivable by the Corporation upon such
conversion, exchange or exercise. In the event that securities are issued by the
Corporation that result in an adjustment to the Conversion Price pursuant to
this subsection 4.4.5(d) and such securities are not converted, exchanged or
exercised prior to the expiration of the right of the holders of such securities
to effect any such action, then immediately upon such expiration the Conversion
Price shall be recomputed (but such redetermination shall not effect the
Conversion Price of any Series B Preferred Shares that have been converted prior
to such expiration) and effective immediately upon such expiration shall be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to subsection 4.4.5(e) after
the issuance of such securities) had such adjustment to the Conversion Price not
been made. For purposes of this subsection 4.4.5(d), if shares are issued for
consideration all or part of which is other than cash, the amount of such
non-cash consideration shall be deemed to be the value thereof as determined in
good faith by the Board of Directors. The provisions of this subsection 4.4.5(d)
shall not be applicable: (A) to any issuance for which an adjustment to the
Conversion Price is provided under subsection 4.4.5(e) below, (B) to any
issuance of rights, options, warrants or other instruments issued to all holders
of Common Shares entitling them for a period of 45 days after the record date
referred to in paragraph 4.4.5(e)(ii) to subscribe for or purchase Common
Shares, for which issuance no adjustment to the Conversion Price is required
under paragraph 4.4.5(e)(ii), or (C) to any issuance of Common Shares upon
actual exercise, exchange or conversion of any securities if the Conversion
Price was fully and properly adjusted at the time such securities were issued or
if no such adjustment was required hereunder at the time such securities were
issued.
(e) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after the Issue Date (A) pay a
dividend or make a distribution on its stock in Common Shares or any
security convertible into or exchangeable for Common Shares, (B) subdivide
its outstanding Common Shares into a greater number of shares, (C) combine
its outstanding Common Shares into a smaller number of shares or (D) issue
any shares of capital stock by reclassification of its Common Shares, the
Conversion Price in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive
such dividend or distribution or at the opening of business on the
Business Day next following the day on which such subdivision, combination
or reclassification becomes effective, as the case may be, shall be
adjusted so that the holder of any Series B Preferred Share thereafter
surrendered for conversion shall be entitled to receive the number of such
securities that such holder would have owned or have been entitled to
receive after the happening of any of the events described above as if
such Series B Preferred Shares had been converted immediately prior to the
record date in the case of a dividend or distribution or the effective
date in the case of a subdivision, combination or reclassification. An
adjustment made pursuant to this subparagraph (i) shall become effective
immediately after the opening of business on the Business Day next
following the record date (except as provided in subsection 4.4.5(j)
below) in the case of a dividend or distribution and shall become
effective immediately after the opening of business on the Business Day
next following the effective date in the case of a subdivision,
combination or reclassification.
(ii) If the Corporation shall after the Issue Date issue
rights, options, warrants or other instruments to all holders of Common
Shares entitling them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or purchase Common Shares at
a price per share less than 94% (100% if a stand-by underwriter is used
and charges the Corporation a commission) of the Current Market Price per
Common Share on the record date for the determination of shareholders
entitled to receive such rights, options, warrants or instruments, then
the Conversion Price in effect at the opening of business on the Business
Day next following such record date shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect immediately
prior to the opening of business on the Business Day next following the
date fixed for such determination by (B) a fraction, the numerator of
which shall be the sum of (1) the number of Common Shares outstanding on
the close of business on the date fixed for such determination and (2) the
number of shares that the aggregate proceeds to the Corporation from the
exercise of such rights, options, warrants or instruments for Common
Shares would purchase at 94% of such Current Market Price (or 100% in the
case of a stand-by underwriting), and the denominator of which shall be
the sum of (1) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (2) the number of
additional Common Shares offered for subscription or purchase pursuant to
such rights, options, warrants or instruments. Such adjustment shall
become effective immediately after the opening of business on the day next
following such record date (except as provided in paragraph 4.4.5(j)
below). In determining whether any rights, options, warrants or
instruments entitle the holders of Common Shares to subscribe for or
purchase Common Shares at less than 94% of such Current Market Price (or
100% in the case of a stand-by underwriting), there shall be taken into
account any consideration received by the Corporation upon issuance and
upon exercise of such rights, options, warrants or instruments, the value
of such consideration, if other than cash, to be determined in good faith
by the Board of Directors. In case any rights or warrants referred to in
this paragraph 4.4.5(e)(ii) in respect of which an adjustment shall have
been made shall expire unexercised after the same shall have been
distributed or issued by the Corporation, the Conversion Price shall be
readjusted at the time of such expiration to the Conversion Price that
would have been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
(iii) If the Corporation shall distribute to all holders of
its Common Shares any shares of stock of the Corporation (other than
Common Shares or any securities the distribution of which would require an
adjustment to the Conversion Price under paragraph 4.4.5(e)(i)) or
evidence of its indebtedness or assets (excluding cash dividends or
distributions paid with respect to the Common Shares which are not in
excess of the following: the sum of (A) the Corporation's cumulative Funds
From Operations, as determined by the Board of Directors calculated in
accordance with the March 1995 NAREIT White Paper on Funds From
Operations, minus (B) the amount of dividends accumulated or paid in
respect of the Series B Preferred Shares or any other class or series of
Preferred Shares of the Corporation after the Issue Date) or rights,
options, warrants, debt securities or any other instrument entitling them
to subscribe for or purchase any of its securities (excluding those
rights, options, warrants and instruments issued to all holders of Common
Shares entitling them for a period of 45 days after the record date
referred to in paragraph 4.4.5(e)(ii) above to subscribe for or purchase
Common Shares) (any of the foregoing being hereinafter in this
subparagraph (iii) collectively as the "Securities" and individually a
"Security"), then in each case the Conversion Price shall be adjusted so
that it shall equal the price determined by multiplying (A) the Conversion
Price in effect immediately prior to the close of business on the date
fixed for the determination of stockholders entitled to receive such
distribution by (B) a fraction, the numerator of which shall be the
Current Market Price per Common Share on the record date mentioned below
less the then fair market value (as determined in good faith by the Board
of Directors and described in a resolution of the Board of Directors) of
the portion of the capital shares or assets or evidences of indebtedness
so distributed or of such rights or warrants applicable to one Common
Share, and the denominator of which shall be the Current Market Price per
Common Share on the record date mentioned below. Such adjustment shall
become effective immediately at the opening of business on the Business
Day next following (except as provided in subsection 4.4.5(j) below) the
record date for the determination of stockholders entitled to receive such
distribution. For the purposes of this subparagraph (iii), the
distribution of a Security which is distributed not only to the holders of
the Common Shares on the date fixed for the determination of stockholders
entitled to such distribution of such Security, but also is distributed
with each Common Share delivered to a Person converting a Series B
Preferred Share after such determination date, shall not require an
adjustment of the Conversion Price pursuant to this subparagraph (iii);
provided that on the date, if any, on which a Person converting a Series B
Preferred Share would no longer be entitled to receive such Security with
a Common Share (other than as a result of the termination of all such
Securities), a distribution of such Securities shall be deemed to have
occurred and the Conversion Price shall be adjusted as provided in this
subparagraph (iii) (and such day shall be deemed to be "the date fixed for
the determination of the stockholders entitled to receive such
distribution" and "the record date" within the meaning of the two
preceding sentences).
(iv) In case a tender or exchange offer made by the
Corporation or any Subsidiary for all or any portion of the Common Shares
shall expire and such tender or exchange offer shall involve the payment
by the Corporation or such Subsidiary of consideration per Common Share
having a fair market value (as determined in good faith by the Board of
Directors and described in a resolution of the Board of Directors), at the
last time (the "Expiration Time") tenders or exchanges may be made
pursuant to such tender or exchange offer, that exceeds the Current Market
Price per Common Share on the Trading Day next succeeding the Expiration
Time, the Conversion Price shall be reduced so that the same shall equal
the price determined by multiplying the Conversion Price in effect
immediately prior to the effectiveness of the Conversion Price reduction
contemplated by this subparagraph, by a fraction the numerator of which
shall be the number of Common Shares outstanding (including any tendered
or exchanged shares) at the Expiration Time, multiplied by the Current
Market Price per Common Share on the Trading Day next succeeding the
Expiration Time, and the denominator shall be the sum of (A) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based upon the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all shares
validly tendered or exchanged and not withdrawn as of the Expiration Time
(the shares deemed so accepted, up to any maximum, being referred to as
the "Purchased Shares") and (B) the product of the number of Common Shares
outstanding (less any Purchased Shares) at the Expiration Time and the
Current Market Price per Common Share on the Trading Day next succeeding
the Expiration Time, such reduction to become effective immediately prior
to the opening of business on the day following the Expiration Time.
(v) No adjustment in the Conversion Price pursuant to any
provision of this Section 4.4.5 shall be required unless such adjustment
would require a cumulative increase or decrease of at least 1% in such
price; provided, however, that any adjustments that by reason of this
subparagraph (v) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment until made; and provided,
further, that any adjustment shall be required and made in accordance with
the provisions of this Section 4.4.5 (other than this subparagraph (v))
not later than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of Common Shares.
Notwithstanding any other provisions of this Section 4.4.5, the
Corporation shall not be required to make any adjustment of the Conversion
Price for the issuance of any Common Shares pursuant to any plan providing
for the reinvestment of dividends or interest payable on securities of the
Corporation and the investment of additional optional amounts in Common
Shares under such plan. All calculations under this Section 4.4.5 shall be
made to the nearest cent (with $.005 being rounded upward) or to be
nearest one-tenth of a share (with .05 of a share being rounded upward),
as the case may be. Anything in this subsection 4.4.5(e) to the contrary
notwithstanding, the Corporation will, to the extent permitted by law,
make such reductions in the Conversion Price, in addition to those
required by this subsection 4.4.5(e), as the Board of Directors in its
good faith discretion shall determine to be necessary in order that any
stock dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase stock or
securities, or a distribution of other assets (other than cash dividends)
hereafter made by the Corporation to its stockholders shall not be
taxable.
(f) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share exchange,
self tender offer for all or substantially all Common Shares, sale of all or
substantially all of the Corporation's assets or recapitalization of the Common
Shares and excluding any transaction as to which subparagraph (e)(i) of this
Section 4.4.5 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which all or substantially all
Common Shares are converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each Series B Preferred
Share, which is not redeemed or converted into the right to receive stock,
securities or other property prior to such Transaction, shall thereafter be
convertible into the kind and amount of shares of stock, securities and other
property (including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of Common Shares
into which one Series B Preferred Share was convertible immediately prior to
such Transaction, assuming such holder of Common Shares (i) is not a Person with
which the Corporation consolidated or into which the Corporation merged or which
merged into the Corporation or to which such sale or transfer was made, as the
case may be ("Constituent Person"), or an affiliate of a Constituent Person or
(ii) failed to exercise his rights of election, if any, as to the kind or amount
of stock, securities and other property (including cash) receivable upon such
Transaction (provided if the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction is not the same for
each Common Share held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-Electing Share"), then for the
purpose of this subsection 4.4.5(f) the kind and amount of stock, securities and
other property (including cash) receivable upon such Transaction by each holder
of a Non-Electing Share shall be deemed to be the kind and amount so receivable
per share by holders of a plurality of the Non-Electing Shares). The Corporation
shall not be a party to any Transaction unless the terms of such Transaction are
consistent with the provisions of this subsection 4.4.5(f), and it shall not
consent or agree to the occurrence of any Transaction until the Corporation has
entered into an agreement with the successor or purchasing entity, as the case
may be, for the benefit of the holders of the Series B Preferred Shares that
will contain provisions enabling the holders of the Series B Preferred Shares
that remain outstanding after such Transaction to convert into the consideration
received by holders of Common Shares at the Conversion Price in effect
immediately prior to such Transaction. The provisions of this subsection
4.4.5(f) shall similarly apply to successive Transactions.
(g) If, subject to the limitations set forth in Section 3 above:
(i) the Board of Directors of the Corporation shall authorize
a dividend (or any other distribution) on the Common Shares (other than
cash dividends or distributions paid with respect to the Common Shares not
in excess of the sum of the Corporation's cumulative Funds From
Operations, as determined by the Board of Directors calculated in
accordance with the March 1995 NAREIT White Paper on Funds From
Operations, minus the cumulative amount of dividends accumulated or paid
in respect of the Series B Preferred Shares or any other class or series
of Preferred Stock of the Corporation after the Issue Date); or
(ii) the Corporation shall authorize the granting to the
holders of Common Shares of rights, options or warrants to subscribe for
or purchase any shares of any class or any other rights, options or
warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subsection (e)(i) of this Section 4.4.5
applies) or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or a statutory share exchange, or a self tender offer by the
Corporation for all or substantially all of its outstanding Common Shares
or the sale or transfer of all or substantially all of the assets of the
Corporation as an entirety; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of the Series B Preferred Shares at their
address as shown on the stock records of the Corporation, as promptly as
possible, but at least 10 business days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights, options or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Shares of record to be entitled to such dividend, distribution or
rights, options or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Shares
of record shall be entitled to exchange their Common Shares for securities or
other property, if any, deliverable upon such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up. Failure to give or receive such notice or any defect therein shall
not affect the legality of validity of the proceedings described in this Section
4.4.5.
(h) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Promptly after
delivery of such certificate, the Corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion Price
and the date that such adjustment becomes effective and shall mail such notice
of such adjustment of the Conversion Price to the holder of each Series B
Preferred Share at such holder's last address as shown on the stock records of
the Corporation.
(i) No later than 30 days after mailing of notice of a determination
by the Board of Directors of fair market value pursuant to this Section 4.4.5,
the holders of a majority of the outstanding Series B Preferred Shares shall
have the right to challenge such determination, in which case such determination
of fair market value shall be made by an independent appraiser selected jointly
by the Board of Directors and the challenging parties, the cost of such
appraisal to be borne equally by the Corporation and the challenging parties.
(j) In any case in which subsection (e) of this Section 4.4.5
provides that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence of such
event (A) issuing to the holder of any Series B Preferred Share converted after
such record date and before the occurrence of such event the additional Common
Shares issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Shares issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder any amount of
cash in lieu of any fraction pursuant to subsection 4.4.5(c).
(k) There shall be no adjustment of the Conversion Price in case of
the issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this Section
4.4.5. If any action or transaction would require adjustment of the Conversion
Price pursuant to more than one paragraph of this Section 4.4.5, only one
adjustment shall be made and such adjustment shall be the amount of adjustment
that has the highest absolute value.
(l) If the Corporation shall take any action affecting the Common
Shares, other than an action described in this Section 4.4.5, that in the
opinion of the Board of Directors would adversely affect the conversion rights
of the holders of the Series B Preferred Shares, the Conversion Price for the
Series B Preferred Shares will be adjusted, to the extent permitted by law, in
such manner, if any, and at such time, as the Board of Directors, in its good
faith determines to be equitable in the circumstances.
(m) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting conversion
of the Series B Preferred Shares, the full number of Common Shares deliverable
upon the conversion of all outstanding Series B Preferred Shares not theretofore
converted. For purposes of this subsection 4.4.5(m), the number of Common Shares
that shall be deliverable upon the conversion of all outstanding Series B
Preferred Shares shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series B Preferred Shares shall be validly issued, fully paid
and non-assessable. Before taking any action that would cause an adjustment
reducing the Conversion Price below the then-par value of the Common Shares
deliverable upon conversion of the Series B Preferred Shares, the Corporation
will take any corporate action that, in the opinion of its counsel, may be
necessary in order that the Corporation may validly and legally issue fully paid
and (subject to any customary qualification based upon the nature of a business
trust) non-assessable Common Shares at such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series B Preferred Shares, prior to such
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Shares are listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall
be obligated to deliver upon conversion of the Series B Preferred Shares, the
Corporation shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any governmental
authority.
(n) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
Common Shares or other securities or property on conversion of the Series B
Preferred Shares pursuant hereto; provided, however, that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of Common Shares or other securities or
property in a name other than that of the holder of the Series B Preferred
Shares to be converted, and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Corporation
the amount of any such tax or established, to the reasonable satisfaction of the
Corporation, that such tax has been paid.
4.4.6 Redemption at the Option of the Corporation. The Series B Preferred
Shares may not be redeemed by the Corporation prior to January 1, 1999. On and
after such date until and including December 31, 2004, the Series B Preferred
Shares may be redeemed by the Corporation, at its option on any date set by the
Board of Directors, in whole or in part at any time (provided that no such
partial redemption shall be in an amount less than $1 million), subject to the
limitations, if any, imposed by the Maryland General Corporation Law, for an
amount payable in immediately available funds equal to the applicable price per
share set forth for the date fixed for redemption in the following table:
Date Fixed for Redemption Price
On or after January 1, 1999, and on or before December 31, $16.95
1999
After December 31, 1999, and on or before December 31, 2000 17.35
After December 31, 2000, and on or before December 31, 2001 17.80
After December 31, 2001, and on or before December 31, 18.25
2002
After December 31, 2002, and on or before December 31, 2004 18.70 plus, in each
case, an amount in immediately available funds equal to all per share dividends
on the Series B Preferred Shares accumulated and unpaid thereon, whether or not
authorized, to and including the date fixed for redemption, such sum being
hereinafter referred to as the "Redemption Price."
In case of the redemption of less than all of the then outstanding
Series B Preferred Shares, the Corporation shall effect such redemption pro
rata. Notwithstanding the foregoing, the Corporation shall not redeem less than
all of the Series B Preferred Shares at any time outstanding until all dividends
accumulated and in arrears upon all Series B Preferred Shares then outstanding
shall have been paid in full for all past Dividend Periods.
Not more than 60 nor less than 30 days prior to the date fixed for
redemption by the Board of Directors, notice thereof by first class mail,
postage prepaid, shall be given to the holders of record of the Series B
Preferred Shares to be redeemed, addressed to such holders at their last address
as shown upon the stock transfer books of the Corporation. The date of such
notice is referred to herein as the "Call Date." Each such notice of redemption
shall specify the date fixed for redemption, the Redemption Price, the place or
places of payment, that payment will be made upon presentation and surrender of
the Series B Preferred Shares, that after the date fixed for redemption
dividends will cease to accumulate on such shares, the Conversion Price in
effect on the Call Date, and that the right of holders to convert Series B
Preferred Shares shall terminate at the close of business on the fifth business
day prior to the date fixed for redemption (unless the Corporation defaults in
the payment of the Redemption Price).
Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder of Series B
Preferred Shares receives such notice; and failure to give such notice by mail,
or any defect in such notice, to the holders of any shares designated for
redemption shall not affect the validity of the proceedings for the redemption
of any other Series B Preferred Shares. On or after the date fixed for
redemption as stated in such notice, each holder of the shares called for
redemption shall surrender the certificate representing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price. If less than all the shares
represented by any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
No fractional Series B Preferred Shares shall be issued upon
redemption of less than all Series B Preferred Shares. If more than one
certificate representing Series B Preferred Shares shall be held at one time by
the same holder, the number of full shares issuable upon redemption of less than
all of such Series B Preferred Shares shall be computed on the basis of the
aggregate number of Series B Preferred Shares so held. Instead of any fractional
share of Series B Preferred Shares that would otherwise be issuable to a holder
upon redemption of less than all Series B Preferred Shares, the Corporation
shall pay a cash adjustment in respect of such fractional share in an amount in
cash equal to the same fraction of the Current Market Price on the Trading Day
immediately preceding the date fixed for redemption of the number of Common
Shares into which such Series B Preferred Share would then be convertible.
Notice having been given as aforesaid, if, on the date fixed for
redemption, funds necessary for the redemption shall be available therefor and
shall have been deposited with a bank or trust company with irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Series B Preferred Shares, then, notwithstanding that the certificates
representing any shares so called for redemption shall not have been
surrendered, dividends with respect to the shares so called shall cease to
accumulate after the date fixed for redemption, such shares shall no longer be
deemed outstanding, the holders thereof shall cease to be stockholders of the
Corporation, and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor) shall terminate.
If funds legally available for such purpose are not sufficient for redemption of
the Series B Preferred Shares which were to be redeemed, then Section 10 shall
apply and the certificates representing shares not redeemed pursuant to Section
10 shall be deemed not to be surrendered, such shares shall remain outstanding,
the right of the holder to receive payment of the Redemption Price for such
shares shall terminate, and the right of holders of Series B Preferred Shares
thereafter shall continue to be only those of a holder of shares of the Series B
Preferred Shares.
The Series B Preferred Shares shall not be subject to the operation
of any mandatory purchase, retirement or sinking fund.
4.4.7 Shares to Be Retired. All Series B Preferred Shares which shall have
been issued and reacquired in any manner by the Corporation shall be restored to
the status of authorized but unissued shares of Preferred Stock of the
Corporation, without designation as to class or series.
4.4.8 Ranking. Any class or series of stock of the Corporation shall
be deemed to rank:
(a) prior to the Series B Preferred Shares, as to the payment of
dividends or as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Series B Preferred Shares;
(b) on a parity with the Series B Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from
those of the Series B Preferred Shares, if the holders of such class of stock or
series and the Series B Preferred Shares shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accumulated and unpaid dividends
per share or Liquidation Preferences, without preference or priority one over
the other ("Parity Shares");
(c) junior to the Series B Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Junior Shares; and
(d) junior to the Series B Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Fully Junior Shares.
4.4.9 Voting. (a) The holders of Series B Preferred Shares shall vote
together as a single class with the holders of the Common Shares and the holders
of any Follow on Preferred Shares on an as converted basis on all matters
submitted to a vote of the Corporation's common stockholders. In addition, for
so long as the Initial Investors (together with the Subsequent Investors, if
any) collectively hold Initial Preferred Shares representing on an as converted
basis more than the Minimum Ownership Level, the holders of the Initial
Preferred Shares shall have the right (i) to require the Corporation to increase
the size of its Board of Directors by one person and (ii) to elect a designee of
the holders of the Initial Preferred Shares selected by a majority vote of the
Initial Preferred Shares voting as a single class to fill such vacancy as
provided in subsection 4.4.9(c); provided that no such demand shall be made
during the period beginning 90 days prior to the date of the Corporation's
annual meeting of stockholders for any given year and ending on the date of such
annual meeting. At the next annual meeting of stockholders of the Corporation
following any such appointment, the size of the Board of Directors shall be
reduced to nine persons (which shall remain the maximum size of the Board of
Directors for so long as the holders of the Initial Preferred Shares are
entitled to the rights with respect to the designation, appointment and election
of a member of the Board of Directors provided under this subsection 4.4.9(a))
and at such meeting and each succeeding annual meeting for so long as the
Initial Investors (together with the Subsequent Investors, if any) collectively
hold Initial Preferred Shares representing on an as converted basis more than
the Minimum Ownership Level and the holders of the Initial Preferred Shares
elect to exercise such right, the holders of Initial Preferred Shares, voting as
a single class, shall be entitled by majority vote to elect one director (who
shall be nominated by the holders of a majority of the then outstanding Initial
Preferred Shares voting as a single class) to serve on the Board of Directors.
If a vacancy shall occur with respect to such directorship, a successor
designated by the holders of a majority of the then outstanding Initial
Preferred Shares voting as a single class shall be elected by the Board of
Directors. If the holders of the Initial Preferred Shares do not advise the
Board of Directors in writing of their intention to designate a successor within
60 days after receipt of written notice of such a vacancy, a majority of the
remaining directors may fill such vacancy in their sole and absolute discretion.
If, at any time after the holders of the Initial Preferred Shares shall have
required the Board of Directors to appoint a designee of such holders as
provided in this subsection 4.4.9(a), (i) a vacancy occurs with respect to such
directorship, (ii) the holders of the Initial Preferred Shares shall fail to
designate a successor within 60 days after receipt of written notice of such
vacancy, and (iii) the holders of the Initial Preferred Shares fail to advise
(at least 90 days prior to the next annual meeting) the Board of Directors in
writing of their intention to elect a director at the next annual meeting of
stockholders of the Corporation (other than an annual meeting that occurs within
60 days after the resignation of a director elected or designated by the Initial
Preferred Holders), then the rights granted under this subsection 4.4.9(a) with
respect to the designation, appointment and election of a member of the Board of
Directors by the holders of the Initial Preferred Shares shall terminate. At
each annual meeting following the termination of such rights either as provided
in the preceding sentence or as a result of the Initial Investors (together with
the Subsequent Investors, if any) at any time failing to collectively hold
Initial Preferred Shares representing on an as converted basis more than the
Minimum Ownership Level, the members of the Board of Directors shall be elected
by the stockholders of the Corporation entitled to vote thereon by plurality
vote.
(b) In addition to the rights of the holders of Initial Preferred Shares
to elect, or designate for appointment, a designee to serve on the Board of
Directors as set forth in subsection 4.4.9(a), if and whenever six quarterly
dividends (whether or not consecutive) payable on the Series B Preferred Shares
or any Follow on Preferred Shares shall be in arrears (which shall, with respect
to any such quarterly dividend, mean that any such dividend has not been paid in
full), whether or not authorized, the number of directors then constituting the
Board of Directors shall be increased by one and the holders of a majority of
Initial Preferred Shares, voting as a single class, shall be entitled to elect
the additional director to serve on the Board of Directors at any annual meeting
of stockholders or special meeting held in place thereof, or at a special
meeting of the holders of the Initial Preferred Shares called as hereinafter
provided; provided, however, if no Follow on Preferred Shares have been issued
and the Initial Investors collectively hold all of the Series B Preferred
Shares, then the size of the Board of Directors shall be increased by two,
whether or not a director is then serving pursuant to subsection 4.4.9(a), and
Ameritech shall have the right to designate one such director and OTR shall have
the right to designate the other such director. At the next annual meeting of
stockholders of the Corporation following the election of such director(s), the
size of the Board of Directors shall be reduced to (i) nine persons if one
director is so elected and (ii) ten directors if two directors are so elected,
in either such case which shall remain the maximum size of the Board of
Directors until such time as all arrears in dividends on the Initial Preferred
Shares then outstanding shall have been paid. Whenever all arrears in dividends
on the Initial Preferred Shares then outstanding shall have been paid, then the
right of the holders of the Initial Preferred Shares to elect such additional
director(s) shall cease (but subject always to the same provision for the
vesting of such voting rights in the case of any similar future arrearages in
six quarterly dividends), and the terms of office of all persons elected as
directors by the holders of the Initial Preferred Shares shall forthwith
terminate and the number of the Board of Directors shall be reduced accordingly.
(c) At any time the power to elect one or more directors as
representatives of the holders of the Initial Preferred Shares shall have been
vested in the holders of Initial Preferred Shares as provided in subsections
4.4.9(a) or 4.4.9(b), the Secretary of the Corporation may, and upon the written
request of a holder or holders of Initial Preferred Shares representing at least
10% of the then outstanding Initial Preferred Shares (addressed to the Secretary
at the principal office of the Corporation) shall, call a special meeting of the
holders of the Initial Preferred Shares for the election of the director or
directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 10 days after receipt of any such request, then any holder of Initial
Preferred Shares may call such meeting, upon the notice above provided, and for
that purpose shall have access to the stock records of the Corporation. At any
time the power to elect one or more directors as representatives of the holders
of the Initial Preferred Shares shall have been vested in the holders of Initial
Preferred Shares as provided in subsections 4.4.9(a) and 4.4.9(b), to the extent
permissible under applicable law and the rules of any securities exchange upon
which any securities issued by the corporation are listed, the election of such
directors may be accomplished without a special meeting if a consent in writing
designating the individual(s) to serve on the board of directors shall be signed
by the holders of a majority of the Initial Preferred Shares and delivered to
the Secretary of the Corporation. The directors elected at any such special
meeting or by written consent shall hold office until the next annual meeting of
the stockholders or special meeting held in lieu thereof if such office shall
not have previously terminated as above provided. If any vacancy shall occur
among the directors elected by the holders of the Initial Preferred Shares
pursuant to this paragraph, a successor shall be elected by the Board of
Directors upon the nomination (i) in the case of a vacancy with respect to the
directorship provided for in subsection 4.4.9(a), of the holders of a majority
of the then outstanding Initial Preferred Shares, and (ii) in the case of a
vacancy with respect to either of the directorships provided for in subsection
4.4.9(b), (A) if no Follow on Preferred Shares have been issued and the Initial
Investors collectively hold all of the Series B Preferred Shares, of the Initial
Investor that selected the individual serving in the vacated directorship, and
(B) otherwise, of the then-remaining director elected by the holders of the
Initial Preferred Shares or the successor of such remaining director, to serve
until the next annual meeting of the stockholders or special meeting held in
place thereof if such office shall not have previously terminated as provided
above.
(d) So long as any Series B Preferred Shares are outstanding, in addition
to any other vote or consent of stockholders required by law or by the Charter,
the affirmative vote of at least 75% of the votes entitled to be cast by the
holders of the Series B Preferred Shares, at the time outstanding, given in
person or by proxy, either in writing without a meeting or by vote at any
meeting called for the purpose, shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the provisions of
the Charter or these Articles Supplementary that adversely affects the voting
powers, rights or preferences of the holders of the Series B Preferred Shares;
provided, however, that the amendment of the provisions of the Charter so as to
authorize or create or to increase the authorized amount of any Follow on
Preferred Shares or any Fully Junior Shares, (A) shall not be deemed to
adversely affect the voting powers, rights or preferences of the holders of
Series B Preferred Shares and (B) shall not in any case require a separate vote
of the holders of Series B Preferred Shares; or
(ii) A share exchange that affects the Series B Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation, unless in
each such case each Series B Preferred Share (A) shall remain outstanding
without any adverse change to its terms and rights or (B) shall be converted
into or exchanged for convertible preferred stock of the surviving entity having
preferences, conversion of other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption thereof identical to that of a Series B Preferred Share (except for
changes that do not adversely affect the holders of the Series B Preferred
Shares); or
(iii) The authorization or creation of, or the increase in the
authorized amount of, (A) any shares of any class or any security convertible
into shares of any class ranking prior to the Series B Preferred Shares in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation or in the payment of dividends, (B) any class of Parity Shares or
(C) any class of Junior Shares, other than any class or series of Follow on
Preferred Shares to be issued in a Permitted Private Placement and other than
Fully Junior Shares;
provided, however, that no such vote of the holders of Series B Preferred Shares
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such shares or convertible
security is to be made, as the case may be, provision is made for the redemption
of all Series B Preferred Shares at the time outstanding in accordance with the
terms hereof.
(e) So long as any Initial Preferred Shares are outstanding, in addition
to any other vote or consent of stockholders required by law or by the Charter,
the affirmative vote of at least a majority of the votes entitled to be cast by
the holders of the Initial Preferred Shares at the time outstanding, given in
person or by proxy, either in writing without a meeting or by vote at any
meeting called for the purpose, shall be necessary for effecting or validating a
merger, consolidation, or statutory share exchange in which the Corporation is
not the surviving entity (other than a merger, consolidation or statutory share
exchange that would result in the voting stock of the Corporation outstanding
immediately before the completion thereof continuing to represent (either by
remaining outstanding or by being converted into voting stock of the surviving
entity or of a parent of the surviving entity) a majority of the combined voting
power of the voting stock of the surviving entity (or its parent) outstanding
immediately after that merger, consolidation or statutory share exchange), or a
sale of all or substantially all of the Corporation's assets.
For purposes of the foregoing provisions of this Section 4.4.9, each
Series B Preferred Share shall have one (1) vote per share, except that when the
Series B Preferred Shares and the Follow on Preferred Shares, if any, or the
Common Shares shall vote together as a single class, then the Series B Preferred
Shares shall be entitled to the number of votes to which such shares would be
entitled if such shares had been converted into Common Shares at the Conversion
Price in effect on the record date for any such vote. Except as otherwise
required by applicable law or as set forth herein, the consent of the holders of
the Series B Preferred Shares shall not be required for the taking of any
corporate action.
4.4.10 Partial Payments. Upon an optional redemption by the Corporation,
if at any time the Corporation does not pay amounts sufficient to redeem all
Series B Preferred Shares, then such funds which are paid shall be applied to
redeem such Series B Preferred Shares pro rata.
4.4.11 Record Holders. The Corporation and the Transfer Agent may deem and
treat the record holder of any Series B Preferred Shares as the true and lawful
owner thereof for all purposes, and neither the Corporation nor the Transfer
Agent shall be affected by any notice to the contrary.
4.5 Common Stock. Subject to the provisions of Article 5, each share of
Common Stock shall entitle the holder thereof to one vote. The Board of
Directors may reclassify any unissued shares of Common Stock from time to time
in one or more classes or series of stock.
4.6 Classified or Reclassified Shares. Prior to issuance of classified or
reclassified shares of any class or series, the Board of Directors by resolution
shall: (a) designate that class or series to distinguish it from all other
classes and series of stock of the Corporation; (b) specify the number of shares
to be included in the class or series; (c) set, subject to the provisions of
Article 5 and subject to the express terms of any class or series of stock of
the Corporation outstanding at the time, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption for each
class or series; and (d) cause the Corporation to file articles supplementary
with the State Department of Assessments and Taxation of Maryland ("SDAT"). Any
of the terms of any class or series of stock set pursuant to clause (c) of this
Section 4.5 may be made dependent upon facts or events ascertainable outside the
charter (including determinations by the Board of Directors or other facts or
events within the control of the Corporation) and may vary among holders
thereof, provided that the manner in which such facts, events or variations
shall operate upon the terms of such class or series of stock is clearly and
expressly set forth in the articles supplementary filed with the SDAT.
4.7 Charter and Bylaws. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions of the charter and
the Bylaws as they may be amended pursuant to the terms thereof.
4.8 Preemptive Rights. Except as may be provided by the Board of Directors
in setting the terms of classified or reclassified shares of stock pursuant to
Section 4.5, no holder of shares of stock of the Corporation shall, as such
holder, have any preemptive right to purchase or subscribe for any additional
shares of stock of the Corporation or any other security of the Corporation
which it may issue or sell.
4.9 Issuance of Rights to Purchase Securities and Other Property. Subject
to the rights of the holders of any series of Preferred Stock then outstanding,
the Board of Directors is hereby authorized to create and to authorize and
direct the issuance (on either a pro rata or a non-pro rata basis) by the
Corporation of rights, options and warrants for the purchase of shares of
capital stock of the Corporation, other securities of the Corporation, or shares
or other securities of any successor in interest of the Corporation (a
"Successor"), at such times, in such amounts, to such persons, for such
consideration (if any), with such form and content (including without limitation
the consideration for which any shares of capital stock of the Corporation,
other securities of the Corporation, or shares or other securities of any
Successor are to be issued) and upon such terms and conditions as it may, from
time to time, determine upon, subject only to the restrictions, limitations,
conditions and requirements imposed by applicable laws and these Articles.
ARTICLE 5
REIT OWNERSHIP PROVISIONS
5.1 Definitions. The following terms shall have the following
meanings:
"Beneficial Ownership" shall mean ownership of Equity Stock by a
Person, whether the interest in the shares of Equity Stock is held directly or
indirectly (including by a nominee), and shall include interests that would be
treated as owned through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner", "Beneficially
Owns" and "Beneficially Owned" shall have correlative meanings. For example, if
a corporation is the actual beneficial owner of Equity Stock, the shares will be
treated as Beneficially Owned by that corporation (due to its direct ownership
of the shares), and the stockholders of that corporation will Beneficially Own
their respective proportionate interests in those shares (due to their deemed
ownership under Code Section 544(a)(1)), and interests in the same shares may
also be treated as Beneficially Owned by others, depending upon the identity of,
and relationships between, the stockholders and those related to the
stockholders.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Bylaws" shall mean the Bylaws of the Corporation.
"Charitable Beneficiary" shall mean, with respect to any Trust, one
or more organizations that are named by the Corporation as the beneficiary or
beneficiaries of such Trust in accordance with the provisions of Subsection
5.6.1, provided that each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055, and 2522 of
the Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Constructive Ownership" shall mean ownership of Equity Stock by a
Person, whether the interest in the shares of Equity Stock is held directly or
indirectly (including by a nominee), and shall include interests that would be
treated as owned through the application of Section 318(a) of the Code, as
modified by Section 856(d)(5) of the Code. The terms AConstructive Owner,
"Constructively Owns" and "Constructively Owned" shall have correlative
meanings. For example, if a corporation is the actual beneficial owner of Equity
Stock, the shares will be treated as Constructively Owned by that corporation
(due to its direct ownership of the shares), and the 10% or more stockholders of
that corporation will Constructively Own their respective proportionate
interests in those shares (due to their deemed ownership under Code Section
318(a)(2)(C) as modified by Code Section 856(d)(5)), and interests in the same
shares may also be treated as Constructively Owned by others, depending upon the
identity of, and relationships between, the stockholders and those related to
the stockholders.
"Equity Stock" shall mean stock that is either Preferred Stock or
Common Stock and shall include all shares of Preferred Stock or Common Stock
that are held as Shares-in-Trust in accordance with the provisions of Sections
5.5 and 5.6, but shall not include Series A Preferred Stock.
"Excepted Holder" shall mean a stockholder of the Corporation for
whom an Excepted Holder Limit is created by these Articles or by the Board of
Directors pursuant to Subsection 5.3.3.
"Excepted Holder Limit" shall mean, as to any class or series of the
outstanding Equity Stock, provided that the affected Excepted Holder agrees to
comply with the requirements established by the Board of Directors pursuant to
Subsection 5.3.5, and subject to adjustment pursuant to Subsections 5.3.3 and
5.3.4: (a) for the Hunt Group, thirty percent (30%) of the lesser of the number
or value of the outstanding shares of that class or series, (b) for USAA Real
Estate Company ("USAA"), twenty percent (20%) of the lesser of the number or
value of the outstanding shares of that class or series, and (c) for other,
subsequently designated Excepted Holders, the percentage limit established by
the Board of Directors pursuant to Subsection 5.3.3.
"Hunt Group" shall mean: (a) Hunt Realty Acquisitions, L.P., a
Delaware limited partnership, and (b) any Indirect Hunt Owner.
"Indirect Hunt Owner" shall mean any Person that Beneficially Owns
or Constructively Owns Equity Stock that is directly owned by Hunt Realty
Acquisitions, L.P.
"Market Price" on any date shall mean, with respect to any class or
series of outstanding shares of Equity Stock, the average of the Closing Price
for such Equity Stock for the five consecutive Trading Days ending on such date.
The "Closing Price" on any date shall mean the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, for such Equity Stock in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the principal national securities
exchange on which such Equity Stock is listed or admitted to trading or, if such
Equity Stock is not listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or,
if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if such Equity Stock is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in such Equity Stock selected by
the Board of Directors of the Company, or if no such trading or market pricing
is available for such Equity Stock, the fair market value of the Equity Stock,
as determined by the Board of Directors. "Trading Day" shall mean a day on which
the principal national securities exchange on which the Equity Stock is listed
or admitted to trading is open for the transaction of business or, if the Equity
Stock is not listed or admitted to trading on any national securities exchange,
shall mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Limit" shall mean either the Excepted Holder Limit or the Ownership
Limit, or both, as appropriate in the context.
"Option Right" shall mean any option, or right to acquire, convert
into, or exchange or exercise for, or any similar interest in, shares of Equity
Stock.
"Ownership Limit" shall initially mean eight and one half percent
(8.5%) of the lesser of the number or value of the outstanding shares of any
class or series of the Equity Stock of the Corporation, and after any adjustment
as set forth in Subsection 5.3.1, shall mean such greater percentage of the
number or value of the outstanding Equity Stock as so adjusted, but not more
than nine and eight tenths percent (9.8%). The number and value of outstanding
shares of any class or series of the Equity Stock of the Corporation shall be
determined by the Board of Directors in good faith, which determination shall be
conclusive.
"Permitted Transferee" shall mean any Person permitted to purchase
shares from the Trustee in accordance with the provisions of Subsection 5.6.5.
"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 and also includes a group as
that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, and any group to which a particular Excepted Holder
Limit may be applicable.
"Prohibited Owner" shall mean, with respect to any purported
Transfer, any Person who, but for the provisions of Section 5.5, would
Beneficially Own or Constructively Own shares of Equity Stock, and if
appropriate in the context, shall also mean any Person who would have been the
record owner of the shares that the Prohibited Owner would have so owned.
"REIT" shall mean a "real estate investment trust" within the
meaning of Section 856 of the Code.
"REIT Ownership Date" shall mean the earlier of: (1) that date
determined by the Board of Directors as the first date on which it is in the
best interests of this Corporation to attempt to comply with the stock ownership
provisions necessary to permit the Corporation to qualify as a REIT, or (2) the
Effective Date of the merger or mergers into the Corporation contemplated under
the Merger Agreement.
"Restriction Termination Date" shall mean the date determined by the
Board of Directors for termination of the Ownership Limit, Excepted Holder
Limits and restrictions on transfer by reason of the fact that it is no longer
in the best interests of the Corporation to attempt to, or continue to, qualify
as a REIT or that compliance with those limits and restrictions on transfer is
no longer required in order for the Corporation to qualify as a REIT.
"Shares-in-Trust" shall mean those shares of Equity Stock (or Option
Rights) that are transferred into a Trust pursuant to Section 5.5.
"Transfer" shall mean any issuance, sale, transfer, gift,
assignment, devise or other disposition, as well as any other event that causes
any Person to have or acquire Beneficial Ownership or Constructive Ownership, or
any agreement to take any such actions or cause any such events, of Equity Stock
or the right to vote or receive dividends on Equity Stock, including (a) the
granting or exercise of any option (or any disposition of an option), (b) any
disposition of any securities or rights convertible into or exchangeable or
exercisable for Equity Stock or any interest in Equity Stock or any exercise of
any such conversion or exchange or exercise right, and (c) Transfers of
interests in other entities that result in changes in Beneficial or Constructive
Ownership of Equity Stock; in each case, whether voluntary or involuntary,
whether of record, Constructively or Beneficially and whether by operation of
law or otherwise.
"Trust" shall mean any separate trust created pursuant to Section
5.5 and administered in accordance with the terms of Section 5.6, for the
benefit of any Charitable Beneficiary.
"Trustee" shall mean the person or entity, unaffiliated with both
the Corporation and any Prohibited Owner, that is designated by the Corporation
to act as trustee of any Trust, or any successor trustee designated by the
Corporation.
"Voting Stock" shall mean the outstanding shares of all classes of
stock of the Corporation entitled to vote generally in the election of
directors.
5.2 Basic Transfer and Ownership Restrictions. From the REIT
Ownership Date and prior to the Restriction Termination Date:
5.2.1 Ownership and Excepted Holder Limits. Except as provided in
Subsection 5.3.2, no Person (other than an Excepted Holder) shall Beneficially
Own or Constructively Own shares of the Equity Stock in excess of the Ownership
Limit, and no Excepted Holder shall Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Excepted Holder Limit for such Excepted
Holder.
5.2.2 Basic REIT Ownership Tests. No Person shall Beneficially Own
or Constructively Own shares of the Equity Stock to the extent that such
ownership would cause the Corporation to become "closely held" within the
meaning of Section 856(h) of the Code (without regard to whether the ownership
is held during the last half of a taxable year), or otherwise fail to qualify as
a REIT (including, but not limited to, such ownership that would result in the
Corporation owning actually or Constructively an interest in a tenant that is
described in Section 856(d)(2)(B) of the Code if income derived by the
Corporation from such tenant would cause the Corporation to fail to satisfy any
of the gross income requirements of Section 856(c) of the Code).
5.2.3 100 Owner Test. Any Transfer (whether or not the purported
Transfer results from a transaction entered into through the facilities of any
national securities exchange or automated inter-dealer quotation system) that,
if effective, would result in the Equity Stock being owned beneficially by fewer
than 100 persons (determined under the principles of Section 856(a)(5) of the
Code) shall be void ab initio and the intended transferee shall acquire no
rights in such shares of Equity Stock.
5.3 Modification of Limits.
5.3.1 Changes to Ownership Limit. Subject to the limitations
contained in Subsection 5.3.5, the Board of Directors may from time to time
increase the Ownership Limit.
5.3.2 Underwriter Exception to Ownership Limit. Subject to
compliance with Subsections 5.2.2, 5.2.3, and 5.3.5, the Board of Directors may
permit an underwriter that participates in a public offering or private
placement of the Equity Stock to Constructively Own or Beneficially Own shares
in excess of the Ownership Limit, but only to the extent necessary to facilitate
the public offering or private placement.
5.3.3 Creation of, or Increase to, Excepted Holder Limits. Subject
to Subsections 5.2.2 and 5.3.5, except as otherwise determined by the Board of
Directors of the Company, whether set forth in an Excepted Holder Agreement or
otherwise, the Board of Directors may establish a new Excepted Holder Limit, or
increase an already existing Excepted Holder Limit, for a Person pursuant to
resolutions setting forth such limitations and conditions as the Board of
Directors deems appropriate, if:
(a) such Person does not own, and represents that it will not
own, actually or Constructively, an interest in a tenant of the
Corporation (or a tenant of any entity owned or controlled by the
Corporation in whole or in part) that would cause the Corporation 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, provided, however, that
solely for purposes of this clause (a), a tenant from whom the Corporation
(or any entity owned or controlled by the Corporation in whole or in part)
derives or is expected to continue to derive a sufficiently small amount
of revenue such that, in the opinion of the Board of Directors, rent from
such tenant would not adversely affect the Corporation's ability to
qualify as a REIT shall not be treated as a tenant of the Corporation; and
(b) such Person agrees that any violation or attempted
violation of such representations, undertakings or arrangements (or other
action contrary to the ownership restrictions imposed under the charter of
the Corporation) will result in a transfer to the Trust of such shares of
Equity Stock, or the treatment of any such purported Transfer as void ab
initio, pursuant to Section 5.5.
5.3.4 Reduction of Excepted Holder Limits. The Board of Directors
may only reduce the Excepted Holder Limit for any Excepted Holder: (a) with the
written consent of such Excepted Holder at any time; or (b) pursuant to the
terms and conditions of the agreements and undertakings entered into with such
Excepted Holder in connection with the establishment of the Excepted Holder
Limit for such Excepted Holder.
5.3.5 Limitations on Modifications.
(a) Prior to any modification or creation of (or establishment
of an exception to) any Excepted Holder Limit or Ownership Limit, the
Board of Directors of the Corporation may require such opinions of counsel
(or rulings from the Internal Revenue Service), affidavits, certificates,
representations, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure the Corporation's status as a
REIT and the favorable tax treatment of its (and its stockholders') income
or to ascertain any facts relevant to determinations under this provision.
(b) No Excepted Holder Limit shall be reduced to a percentage
that is less than the Ownership Limit.
5.4 Reporting of Transfers and Ownership. From the REIT Ownership
Date and prior to the Restriction Termination Date:
5.4.1 Notice of Possibly Violative Transfers. Any Person who has, or
acquires, or attempts to acquire, or intends to acquire, Beneficial Ownership or
Constructive Ownership of shares of Equity Stock that will or may violate
Section 5.2, or any Person who would have so owned shares of Equity Stock that
resulted in a transfer to the Trust pursuant to the provisions of Section 5.5,
shall immediately give written notice to the Corporation of such event, or in
the case of such a proposed or attempted transaction, give at least 15 days
prior written notice, and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect, if
any, of such Transfer on the Corporation's status as a REIT.
5.4.2 Owners Required To Provide Information. Except as
otherwise determined by the Board of Directors of the Company, whether set
forth in an Excepted Holder Agreement or otherwise:
(a) Every Beneficial Owner or Constructive Owner of more than
5%, or such lower percentages as required pursuant to regulations under
the Code, of the number or value of the outstanding shares of any class or
series of the Equity Stock of the Corporation shall, within 30 days after
the close of each taxable year, give written notice to the Corporation
stating the name and address of such Beneficial Owner or Constructive
Owner, the number of shares of each class or series of Equity Stock
Beneficially Owned or Constructively Owned, and a description of how such
shares are held. Each such Beneficial Owner or Constructive Owner shall
provide to the Corporation such additional information as the Corporation
may request in order to determine the effect, if any, of such Beneficial
or Constructive Ownership on the Corporation's status as a REIT and to
ensure compliance with the Ownership Limit and Excepted Holder Limit.
(b) Each Person who is a Beneficial Owner or Constructive
Owner of Equity Stock and each Person (including the stockholder of
record) who is holding Equity Stock for a Beneficial Owner or Constructive
Owner shall provide to the Corporation such information as the Corporation
may request in order to determine the Corporation's status as a REIT, to
ensure compliance with the Ownership Limit and Excepted Holder Limit, to
comply with the requirements of any taxing authority or governmental
agency, or to determine any such compliance.
5.5 Transfers in Trust. From the REIT Ownership Date and prior to the
Restriction Termination Date, except as otherwise determined by the Board of
Directors of the Company, whether set forth in an Excepted Holder Agreement or
otherwise:
5.5.1 Automatic Transfer in Trust. If there is a purported Transfer
(whether or not the purported Transfer results from a transaction entered into
through the facilities of any national securities exchange or automated
inter-dealer quotation system) such that, if it were effective, any Person would
either Beneficially Own or Constructively Own Equity Stock in violation of the
restrictions of Subsections 5.2.1 or 5.2.2, then that number of shares that
otherwise would cause such Person to violate Subsections 5.2.1 or 5.2.2 (rounded
up to the nearest whole share) shall be automatically transferred to a Trust for
the benefit of a Charitable Beneficiary, as described in Sections 5.5 and 5.6,
and the Person who otherwise would have been treated as holding the excess
shares shall have no rights as to the excess shares. If the transfer to the
Trust described in the preceding sentence would not be effective for any reason
to prevent that Person from violating the applicable Limit, then the purported
Transfer shall be void ab initio and the intended transferee shall acquire no
rights in such shares of Equity Stock.
5.5.2 Treatment of Option Rights. For the purpose of applying the
first sentence of Subsection 5.5.1 (causing an automatic transfer to the Trust
when shares might otherwise be acquired or owned in violation of Subsections
5.2.1 or 5.2.2) to situations in which a violation would result because of a
Person's ownership of an interest in an Option Right, the following rules shall
govern the transfer to the Trust:
(a) if the owner of the Option Right Beneficially Owns or
Constructively Owns shares other than those represented by the Option
Right, that number of those other shares (rounded up to the nearest whole
share) necessary to prevent the violation shall be automatically
transferred to the Trust;
(b) if the procedure described in clause (a) would not be
effective for any reason to prevent the violation, the Option Right
(rather than the other shares so owned by the holder of the Option Right)
shall be automatically transferred to the Trust; and
(c) if the procedures described in clauses (a) and (b) would
not be effective for any reason to prevent the violation, that number of
shares (rounded up to the nearest whole share) necessary to prevent the
violation shall be automatically transferred to the Trust by the grantor
of the Option Right (or, if the grantor does not own shares, by the person
whose shares are subject to the Option Rights), and the purported holder
of the Option Right shall have no rights in such shares of Equity Stock.
5.6 Trust Terms.
5.6.1 Trust Creation. Any shares of Equity Stock (or Option Rights)
transferred to a Trust pursuant to the first sentence of Subsection 5.5.1 shall
be designated Shares-in-Trust, which will be deemed to have been transferred
automatically and by operation of law to the Trustee in its capacity as trustee
of a Trust for the exclusive benefit of one or more Charitable Beneficiaries.
The transfer to a Trust shall be effective as of the close of business on the
business day prior to the date of the purported Transfer that results in the
transfer to the Trust. Within five (5) business days after discovery of the
existence of a Trust, the Corporation shall appoint a Trustee, which shall be
unaffiliated with the Corporation and any Prohibited Owner, and shall name one
or more Charitable Beneficiaries of each Trust.
5.6.2 Status of Shares-in-Trust. Shares-in-Trust shall remain issued
and outstanding shares of Equity Stock of the Corporation and shall be entitled
to the same rights and privileges on identical terms and conditions as are all
other issued and outstanding shares of Equity Stock of the same class and
series. When transferred to the Permitted Transferee in accordance with the
provisions of Subsection 5.6.5, such Shares-in-Trust shall cease to be
designated as Shares-in-Trust.
5.6.3 Trustee's Distribution Rights. The Trustee shall be entitled
to receive all distributions as may be authorized and declared by the Board of
Directors of the Corporation on Shares-in-Trust held in the Trust and shall hold
such distributions in trust for the benefit of the Charitable Beneficiary or
Charitable Beneficiaries as set forth in Subsection 5.6.6. If any distributions
with respect to Shares-in-Trust were paid prior to the discovery of the transfer
to the Trust, the recipient of those payments shall pay that amount to the
Trustee. The Corporation shall take all measures that it determines reasonably
necessary to recover the amount of any such distribution, including, if
necessary, withholding any portion of future distributions payable on shares of
Equity Stock Beneficially Owned or Constructively Owned by the Prohibited Owner;
and, as soon as reasonably practicable following the Corporation's receipt or
withholding thereof, shall pay over to the Trustee for the benefit of the
Charitable Beneficiary or Charitable Beneficiaries as set forth in Subsection
5.6.6, the distributions so received or withheld, as the case may be.
5.6.4 Voting Rights. The Trustee shall be entitled to vote all
Shares-in-Trust. The Prohibited Owner shall be deemed to have given, as of the
close of business the business day prior to the date of the purported Transfer
that results in the transfer to the Trust, an irrevocable proxy to the Trustee
to vote the Shares-in-Trust in the manner in which the Trustee, in its sole and
absolute discretion, desires. Any vote by or on behalf of a Prohibited Owner as
a holder of shares of Equity Stock prior to the discovery by the Corporation
that the shares of Equity Stock are Shares-in-Trust shall be subject to
rescission by the Trustee if the rescission is permitted by applicable law and
the Board of Directors concludes that the rescission will not materially and
adversely affect the Corporation and in the case of such a rescission, any such
votes shall be void ab initio with respect to such Shares-in-Trust.
Notwithstanding the provisions of this Article 5, until the
Corporation has received notification that shares of Equity Stock have become
Shares-in-Trust, the Corporation 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.
5.6.5 Sale of Shares-in-Trust. As reasonably promptly as possible,
in an orderly fashion so as not to affect the Market Price of the
Shares-in-Trust materially and adversely, the Trustee shall sell the
Shares-in-Trust to a Permitted Transferee, provided, however, that (a) the
Permitted Transferee must purchase for valuable consideration (whether in a
public or private sale) the Shares-in-Trust and (b) the Permitted Transferee
must acquire such Shares-in-Trust without such acquisition resulting in a
transfer to a Trust and the redesignation of such shares of the Equity Stock so
acquired as Shares-in-Trust under Section 5.5. Amounts received by the Trustee
with respect to Shares-in-Trust upon the liquidation of the Corporation shall be
treated in the same fashion as would proceeds from the sale of the shares.
Upon completion of such a sale, the Trustee of a Trust shall: (a)
cause to be transferred to the Permitted Transferee that number of
Shares-in-Trust acquired by the Permitted Transferee; (b) cause to be recorded
on the books of the Corporation that the Permitted Transferee is the holder of
record of such number of shares of Equity Stock; and (c) distribute the net
proceeds of the sale pursuant to Subsection 5.6.6.
If, prior to the discovery by the Corporation that shares have
become Shares-in-Trust, those shares are sold by the Prohibited Owner, then (a)
such shares shall be deemed to have been sold on behalf of the Trust and (b) to
the extent that the amount received in that sale exceeds the amount that the
Prohibited Owner would have been entitled to retain from a sale under the
preceding provisions of this Subsection 5.6.6, the excess shall be immediately
delivered to the Trust.
Each Charitable Beneficiary and Prohibited Owner waive any and all
claims that they may have against the Trustee and the Corporation arising out of
the disposition of Shares-in-Trust, except for claims arising out of the gross
negligence or willful misconduct of such Trustee or the Corporation, or the
Trustee's or the Corporation's failure to make payments in accordance with
Subsection 5.6.6.
5.6.6 Application of Distributions and Sale Proceeds.
(a) The Trustee shall apply any distributions from
Shares-in-Trust in the following order:
(1) first, to pay any expenses of the Trust;
(2) second, to pay any expenses of the Corporation
incurred in connection with the Trust or the creation or
disposition of the Shares-in-Trust; and
(3) finally, to pay any excess to the Charitable
Beneficiary (or Charitable Beneficiaries).
(b) The Trustee shall apply any net proceeds realized from the
sale of Shares-in-Trust in the following order:
(1) first, to pay any expenses of the Trust not
paid out of distributions under clause (a)(1) above;
(2) second, to pay any expenses of the Corporation
incurred in connection with the Trust or the creation or disposition
of the Shares-in-Trust not paid out of distributions under clause
(a)(2) above;
(3) third, to pay to the Prohibited Owner out of
any remaining net proceeds from sale, the lesser of
(i) in the case of (A) a purported Transfer in
which the Prohibited Owner gave value for shares of
Equity Stock, the price per share, if any, such
Prohibited Owner paid for the Equity Stock, or (B) a
purported Transfer in which the Prohibited Owner did not
give value for such shares (e.g., if the shares were
received through a gift or devise), the price per share
equal to the Market Price on the date of such purported
Transfer, and
(ii) the price per share received by the Trustee
of the Trust from the sale or other disposition of such
Shares in accordance with Subsection 5.6.5;
provided, however, that in computing any amount under this clause
(b)(3), any amounts paid pursuant to clauses (a)(1) and (b)(1)
(Trust expenses) and (a)(2) and (b)(2) (the Corporation's expenses)
of this Subsection 5.6.6 shall be treated as amounts paid to the
Prohibited Owner and shall reduce any amount that otherwise would be
payable to the Prohibited Owner; and
(4) finally, to the Charitable Beneficiary (or
Charitable Beneficiaries).
5.6.7 Purchase Right in Shares-in-Trust. Shares-in-Trust shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (a) the price per share in the
transaction that created such Shares-in-Trust (or, in the case of devise, gift
or other event in which no such price is paid, the Market Price at the time of
such devise, gift or event) and (b) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation shall have the
right to accept such offer for a period of ninety days after the later of (a)
the date of the purported Transfer which resulted in such Shares-in-Trust and
(b) the date the Corporation determines in good faith that a purported Transfer
resulting in Shares-in-Trust has occurred, if the Corporation does not receive a
notice of such purported Transfer pursuant to Section 5.4, but in no event later
than a transfer to a Permitted Transferee pursuant to Section 5.6.5.
5.7 Legend. Each certificate for Equity Stock shall bear substantially the
following legend or such other legend as the Corporation may from time-to-time
determine to be appropriate:
"The shares of stock represented by this certificate are subject to
restrictions on transfer for the purpose of the Corporation's maintenance
of its status as a real estate investment trust under the Internal Revenue
Code of 1986, as amended (the "Code"). No Person may (i) Beneficially Own
or Constructively Own shares of Equity Stock in excess of 8.5% (or such
other percentage as may be determined by the Board of Directors of the
Corporation) of the lesser of the number or value of any class or series
of the outstanding Equity Stock of the Corporation unless such Person is
an Excepted Holder (in which case the Excepted Holder Limit shall be
applicable); or (ii) Beneficially Own or Constructively Own Equity Stock
which would result in the Corporation being "closely held" under Section
856(h) of the Code or otherwise cause the Corporation to fail to qualify
as a REIT. Any Person who attempts to Beneficially Own or Constructively
Own shares of Equity Stock in excess of the above limitations must notify
the Corporation in writing at least 15 days prior to such attempted
transfer. If the restrictions above are violated, the shares of Equity
Stock represented hereby will be transferred automatically and by
operation of law to a Trust and shall be designated Shares-in-Trust. All
capitalized terms in this legend have the meanings defined in the
Corporation's charter, as the same may be further amended from time to
time, a copy of which, including the restrictions on transfer, will be
sent without charge to each stockholder who so requests."
5.8 Interpretation; Remedies.
5.8.1 Ambiguity. In the case of any ambiguity or uncertainty in the
interpretation or application of any of the provisions of Article 5, including
any definition contained in Section 5.1, the Board of Directors shall have the
power to determine the interpretation or application of the provisions of this
Article 5 with respect to any situation based on the facts known to it.
5.8.2 Severability. If any provision in these Articles 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.
5.8.3 Remedies. If the Corporation or its designees shall at any
time determine in good faith that a Transfer has taken place in violation of
Section 5.2 or that a Person intends to acquire or dispose of, or has attempted
to acquire or dispose of, Beneficial Ownership or Constructive Ownership of any
shares of Equity Stock in violation of Section 5.2 or resulting in a transfer to
a Trust pursuant to Section 5.5 (whether or not the violation is intended),
subject to Section 5.8.5, the Corporation shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or acquisition
or other event, including, but not limited to, causing the Corporation to
purchase shares, refusing to give effect to any Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer, acquisition or
other event. Any action (or inaction) by the Corporation pursuant to this
Subsection 5.8.3 shall not affect the automatic transfer into a Trust or the
treatment of such event as void ab initio as otherwise provided in this Article
5.
5.8.4 Remedies Not Limited. Other than Section 5.8.5, nothing
contained in this Article 5 shall limit the authority of the Corporation to take
such other action as it deems necessary or advisable to protect the Corporation
and the interests of its stockholders by preservation of the Corporation's
status as a REIT and to ensure compliance with the Ownership Limit and Excepted
Holder Limit and the other provisions of these Articles.
5.8.5 Exchange or Market Transactions. Nothing in the other
provisions of Article 5 shall preclude the settlement of any transaction in the
stock of this Corporation entered into through the facilities of any national
securities exchange or automated inter-dealer quotation system. The fact that
the settlement of any transactions takes place shall not negate the effect of
any other provision of these Articles of Incorporation and any transferee in
such a transaction shall be subject to all of the provisions and limitations set
forth in these Articles.
ARTICLE 6
DIRECTORS
6.1 Number; Current Directors. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be nine, which
number may be increased or decreased pursuant to the Bylaws of the Corporation;
provided, however, that the number of directors shall never be less than three
or greater than fifteen and that the number of directors shall not be reduced so
as to shorten the term of any director then in office. The names of the
Corporation's current directors who shall serve until their successors are
elected and qualify are as follows: (1) Allen J. Anderson, (2) C.E. Cornutt, (3)
T. Patrick Duncan, (4) Peter O. Hanson, (5) John Moody, (6) James M. Pollak, (7)
Robert E. Morgan, (8) Kenneth N.
Stensby, and (9) Lee W. Wilson.
6.2 Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director may be removed from office at any
time in accordance with applicable law.
6.3 Stock Issuances. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, the Board of Directors is hereby empowered to
authorize the issuance from time to time of shares of stock of the Corporation
of any class or series, whether now or hereafter authorized, or securities
convertible into, or exchangeable or exercisable for, shares of stock of the
Corporation of any class or series, whether now or hereafter authorized, for
such consideration as may be deemed advisable by the Board of Directors without
any action by the stockholders and subject to such restrictions or limitations,
if any, as may be set forth in the charter or the Bylaws.
6.4 Independent Directors. A majority of the entire Board of Directors and
a majority of every committee of the Board of Directors shall be "Independent
Directors" except that: (a) all members of the Audit and Compensation Committees
shall be "Independent Directors"; and (b) if a committee other than the Audit or
Compensation Committee shall consist of two persons, then at least one member of
such committee shall be an "Independent Director." For purposes of this Article
6, "Independent Directors" shall mean Directors who are not (a) officers of the
Corporation; (b) full time employees of the Corporation; or (c) members of the
immediate family of any of the foregoing.
ARTICLE 7
AMENDMENTS
The Corporation reserves the right at any time and from time to time
to make any amendment to its charter, now or hereafter authorized by law,
including any amendment altering the terms or contract rights, as expressly set
forth in its charter, of any shares of outstanding stock. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, any amendment
to the charter of the Corporation shall be valid only if such amendment shall
have been approved by the affirmative vote of the holders of a majority of the
outstanding voting stock, voting together as a single class. Subject to Articles
8 and 9, all rights and powers conferred by the charter of the Corporation on
stockholders, directors and officers are granted subject to this reservation.
ARTICLE 8
INDEMNIFICATION
The Corporation shall to the maximum extent permitted by Maryland
law in effect from time to time, indemnify, and enter into contractual
obligations which to obligate itself to indemnity, and to pay or reimburse
reasonable expenses (including court costs, attorneys' fees and related
disbursements) in advance of final disposition of a proceeding to, (a) any
individual who is a present or former director or officer of the Corporation or
(b) any individual who, while a director of the Corporation and at the request
of the Corporation, serves or has served as a director, officer, partner or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason of
his status as a present or former director or officer of the Corporation. The
Corporation shall have the power, with the approval of the Board of Directors,
to provide such indemnification and advancement of expenses to a person who
served a predecessor of the Corporation in any of the capacities described in
(a) or (b) above and to any employee or agent of the Corporation or a
predecessor of the Corporation. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such bylaws, resolutions or contracts
implementing such provisions or such further indemnification arrangements as may
be permitted by law. No amendment of the charter of the Corporation or repeal of
any of its provisions shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
ARTICLE 9
LIMITATION OF LIABILITY
To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no director or officer of the Corporation shall
be personally liable to the Corporation or its stockholders for money damages.
No amendment of the charter or the Bylaws of the Corporation or repeal of any of
the provisions of the charter or the Bylaws of the Corporation shall limit or
eliminate the limitation on liability provided to directors and officers
hereunder with respect to any act or omission occurring prior to such amendment
or repeal.
ARTICLE 10
EXTRAORDINARY ACTIONS
Notwithstanding any provision of law permitting or requiring any
action to be taken or authorized by the affirmative vote of the holders of a
greater number of votes, but subject to the rights of any series of Preferred
Stock then outstanding, any such action shall be valid and effective if
authorized by the affirmative vote of the holders of shares entitled to cast a
majority of all the votes entitled to be cast on the matter.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles to be
signed in its name and on its behalf by its Vice President and attested to by
its Secretary as of this 30th day of March, 1996.
MERIDIAN INDUSTRIAL TRUST, INC.
By: CELESTE K. WOO
-----------------
Celeste K. Woo
Vice President
ATTEST:
ROBERT A. DOBBIN
- ----------------
Robert A. Dobbin
Secretary
MIT - MSAM
EXCEPTED HOLDER AGREEMENT
This EXCEPTED HOLDER AGREEMENT is made and entered into as of April 3,
1996 by and between MERIDIAN INDUSTRIAL TRUST, INC., a Maryland corporation (the
"Company"), and MORGAN STANLEY ASSET MANAGEMENT INC., a Delaware corporation
("MSAM").
R E C I T A L S
A. The Company intends to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
B. To help the Company qualify and maintain its status as a REIT, the
Company's Third Amended and Restated Articles of Incorporation (the "Articles")
impose certain limitations on the ownership of the Company's stock. (Capitalized
terms used in this Agreement that are not otherwise defined shall have the
meanings given to them in the Articles.) The Articles contain a general
restriction prohibiting any Person from owning more than a specified percentage
(initially set at eight and one half percent) of the lesser of the number or
value of any class of outstanding shares of the Company (the "Ownership Limit").
C. The Company's Board of Directors is permitted to establish an "Excepted
Holder Limit" allowing ownership in excess of the Ownership Limit if certain
conditions are satisfied. This Agreement is intended to create an Excepted
Holder Limit for MSAM, acting on its own behalf and on behalf of its client
accounts over which it has investment discretion ("MSAM Clients").
A G R E E M E N T
1. REPRESENTATIONS AND COVENANTS OF MSAM
Beginning on the date hereof, and during any period that an Excepted
Holder Limit established pursuant to this Agreement (as subsequently adjusted)
remains in effect, MSAM represents and agrees as follows:
1.1 The shares of the Company over which MASM exercises discretionary
authority, either on its own behalf or on behalf of the MSAM Clients, will be
treated as being owned actually, Beneficially and Constructively by one Person
solely for the purposes of this Agreement and the provisions of Article 5 of the
Articles. This section shall not constitute an admission by MSAM that MSAM
actually, Beneficially or Constructively owns any shares of Equity Stock of the
Company owned by any MSAM Clients, or that any combination of MSAM and any MSAM
Clients may be considered to be a group for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934.
1.2 Neither MSAM, acting on its own behalf, nor any individual MSAM Client
owns or will own actually, Beneficially or Constructively more than eight and
one half percent of the outstanding shares of Equity Stock of the Company. In
the case of MSAM Clients which are pooled investment vehicles, this limit shall
not be applicable to the vehicle itself, but shall apply to the participants in
the vehicle, who shall be deemed to own their allocable share of the vehicle's
investment in shares of Equity Stock of the Company based on the participant's
percentage ownership of the vehicle.
1.3 MSAM and the MSAM Clients shall not collectively own actually,
Beneficially or Constructively shares of the Company's Equity Stock in excess of
the Excepted Holder Limit established pursuant to this Agreement.
1.4 MSAM, on behalf of itself and each of the MSAM Clients, agrees that
any violation or attempted violation of Article 1 of this Agreement or the
provisions of the Board of Directors' resolution implementing this Agreement (or
other action contrary to the ownership restrictions imposed under the Articles)
will automatically subject the shares that otherwise would result in the
violation to the treatment described in Sections 5.5 and 5.6 of the Articles
(the shares will be immediately transferred to a Trust, or if the transfer to
the Trust would be ineffective, the purported Transfer will be void ab initio).
1.5 MSAM will not intentionally take any action which would result in a
breach of any representation, warranty or covenant of MSAM set forth in this
Agreement.
2. ESTABLISHMENT OF AN EXCEPTED HOLDER LIMIT FOR MSAM
Based on the above representations and agreements, the board of directors
of the Company, effective as of the date of this Agreement, has established an
Excepted Holder Limit for MSAM by adopting a resolution in the form attached to
this Agreement as Exhibit "A".
3. MISCELLANEOUS
3.1 All questions concerning the construction, validity and interpretation
of this Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Maryland, without giving effect to any choice of
law or conflict of law provision (whether of the State of Maryland or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Maryland.
3.2 This Agreement may be signed by the parties in separate counterparts,
each of which when so signed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument.
<PAGE>
Each of the parties has caused this Agreement to be signed by its duly
authorized officers as of the date set forth in the introductory paragraph of
this Agreement.
The "Company" "Morgan"
MERIDIAN INDUSTRIAL TRUST, INC., a MORGAN STANLEY ASSET MANAGEMENT
Maryland corporation INC., acting on its own behalf and
on behalf of the MSAM Clients
By: ALLEN J. ANDERSON By: RUSSELL C. PLATT
------------------- ------------------
Allen J. Anderson Name: Russell C. Platt
Its: Chairman of the Board and Chief Its: Principal
Executive Officer
<PAGE>
EXHIBIT "A"
MIT C MSAM
EXCEPTED HOLDER LIMIT RESOLUTION
In accordance with Article 5 of the Company's Third Amended and Restated
Articles of Incorporation ("Articles"), the Directors hereby determine that,
effective upon the execution of an Excepted Holder Agreement (capitalized terms
used in this resolution that are not otherwise defined shall have the meanings
given to those terms in the Articles), and subject to adjustment as set forth
below:
1. An Excepted Holder Limit equal to the greater of (a) 1,600,000 shares
of the Company's Common Stock or (b) eight and one half percent of the number or
value of outstanding shares of the Company's Common Stock shall apply to MORGAN
STANLEY ASSET MANAGEMENT INC., a Delaware corporation ("MSAM"), acting on its
own behalf and on behalf of its client accounts over which it has investment
discretion (the "MSAM Clients") (which shall include any shares of Common Stock
issuable upon the exercise of any warrants or options exercisable for shares of
Common Stock held by MSAM or any MSAM Client); provided, however, that in the
event of a redemption, repurchase or cancellation of shares of Common Stock or
similar action on the part of the Company that results in the number of shares
of Common Stock then actually, Beneficially or Constructively Owned by MSAM or
any MSAM Client representing in the aggregate a greater percentage of the
outstanding shares of Common Stock, such Ownership Limit shall be increased
proportionately;
2. As to each Person that is deemed to Beneficially Own or Constructively
Own an interest in shares of the Company that are held by MSAM or any MSAM
Client, that Person's deemed indirect interest in the shares held by MSAM or any
such MSAM Client shall be disregarded for purposes of applying the Ownership
Limit to that Person, provided, however, if such a Person also owns actually,
Beneficially or Constructively an interest in other shares of the Company, the
interest held through MSAM or any MSAM Client shall not be so disregarded; and
3. When MSAM or any MSAM Client sells or otherwise transfers ownership of
shares of Common Stock of the Company outside of MSAM and the MSAM Clients, the
Excepted Holder Limit then applicable to MSAM and the MSAM Clients shall be
reduced by the interest that is sold or transferred, but the limit applicable to
MSAM and the MSAM Clients shall not be reduced below the basic Ownership Limit.
