Exhibit 3.1

 

BLUEROCK RESIDENTIAL GROWTH REIT, INC.

 

ARTICLES SUPPLEMENTARY

 

Bluerock Residential Growth REIT, Inc., a Maryland corporation (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

 

FIRST: Under a power contained in Article V of the charter of the Corporation (the “Charter”) and Section 2-105 of the Maryland General Corporation Law, the Board of Directors of the Corporation (the “Board”), by duly adopted resolutions, classified 150,000 shares of authorized but unissued preferred stock, $0.01 par value per share, of the Corporation as shares of Series B Redeemable Preferred Stock, with the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption (which, upon any restatement of the Charter, may be made a part of Article V thereof, with any necessary or appropriate changes to the numeration or lettering of the sections or subsections hereof). Capitalized terms used but not defined herein shall have the meanings given to them in the Charter.

 

1.          Designation and Number. A series of Preferred Shares, designated the Series B Redeemable Preferred Stock (the “Series B Preferred Stock”), is hereby established. The number of authorized shares of Series B Preferred Stock shall be 150,000.

 

2.          Definitions. In addition to the capitalized terms elsewhere defined herein, the following terms, when used herein, shall have the meanings indicated:

 

(a)          “NYSE MKT” shall mean the NYSE MKT stock exchange or any successor exchange or exchange or automated quotation service upon which the Class A Common Stock is listed.

 

(b)          “Stated Value” shall mean $1,000, subject to appropriate adjustment in relation to any recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or other similar events which affect the Series B Preferred Stock.

 

(c)          “Trading Day” shall mean, (i) if the Class A Common Stock is listed or admitted to trading on the NYSE MKT, a day on which the NYSE MKT is open for the transaction of business, (ii) if the Class A Common Stock is not listed or admitted to trading on the NYSE MKT but is listed or admitted to trading on another national securities exchange or automated quotation system, a day on which the principal national securities exchange or automated quotation system, as the case may be, on which the Class A Common Stock is listed or admitted to trading is open for the transaction of business, or (iii) if the Class A Common Stock is not listed or admitted to trading on any national securities exchange or automated quotation system, 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.

 

 

(d)          “VWAP” shall mean, for any Trading Day, the volume-weighted average price, calculated by dividing the aggregate value of Class A Common Stock traded on the NYSE MKT during regular hours (price per share multiplied by number of shares traded) by the total volume (number of shares) of Class A Common Stock traded on the NYSE MKT for such Trading Day, or if such volume-weighted average price is unavailable, the market value of one share of Class A Common Stock on such Trading Day as determined by the Board in a commercially reasonable manner, using a volume-weighted average price method.

 

3.          Rank. The Series B Preferred Stock, with respect to priority of payment of dividends and other distributions and rights upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, will rank (a) senior to all classes or series of Common Shares and to any other class or series of capital stock of the Corporation issued in the future, unless the terms of such stock expressly provide that it ranks senior to, or on parity with, the Series B Preferred Stock with respect to priority of payment of dividends and other distributions or rights upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (together with the Common Shares, the “Junior Stock”); (b) on parity with any class or series of capital stock of the Corporation, the terms of which expressly provide that it ranks on parity with the Series B Preferred Stock, including the Series A Preferred Stock, with respect to priority of payment of dividends and other distributions or rights upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (the “Parity Preferred Stock”); and (c) junior to any class or series of capital stock of the Corporation, the terms of which expressly provide that it ranks senior to the Series B Preferred Stock with respect to priority of payment of dividends and other distributions or rights upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (the “Senior Stock”), and to all existing and future debt obligations of the Corporation. The term “capital stock” does not include convertible or exchangeable debt securities.

 

4.          Dividends.

 

(a)          Subject to the preferential rights of the holders of any class or series of capital stock of the Corporation ranking senior to the Series B Preferred Stock with respect to priority of dividend payments, holders of shares of the Series B Preferred Stock are entitled to receive, when and as authorized by the Board and declared by the Corporation, out of funds legally available for the payment of dividends, preferential cumulative cash dividends. From the date of original issue of the Series B Preferred Stock (the “Original Issue Date”) or the date of issue of any Series B Preferred Stock issued after the Original Issue Date (each, an “Issue Date”), the Corporation shall pay cumulative cash dividends on the Series B Preferred Stock at the rate of 6.0% per annum of the Stated Value. Dividends on the Series B Preferred Stock shall accrue and be cumulative from (and including) the date of issuance or the end of the most recent Dividend Period (as defined below) for which dividends on the Series B Preferred Stock have been paid and shall be payable monthly in arrears on the fifth day of each month or, if such date is not a Business Day (as defined below), on the next succeeding Business Day, with the same force and effect as if paid on such date (each, a “Dividend Payment Date”). A “Dividend Period” is the respective period commencing on and including the first day of each month and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the initial Dividend Period and the Dividend Period during which any shares of Series B Preferred Stock shall be redeemed or otherwise acquired by the Corporation). The term “Business Day” shall mean each day, other than a Saturday or Sunday, which is not a day on which banks in the State of New York are required to close. Any dividend payable on the Series B Preferred Stock for any Dividend Period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record of the Series B Preferred Stock as they appear in the stock records of the Corporation at the close of business on the 25^th day of the month preceding the applicable Dividend Payment Date (each, a “Dividend Record Date”).

 

 

(b)          No dividends on shares of Series B Preferred Stock shall be authorized by the Board or declared by the Corporation or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibits such authorization, declaration, payment or setting apart for payment or provides that such authorization, declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such authorization, declaration, payment or setting apart for payment shall be restricted or prohibited by law.

 

(c)          Notwithstanding the foregoing Section 4(b), dividends on the Series B Preferred Stock will accrue whether or not the Corporation has earnings, whether there are funds legally available for the payment of such dividends and whether or not such dividends are authorized by the Board or declared by the Corporation. No interest, or sum of money in lieu of interest, will be payable in respect of any dividend payment or payments on the Series B Preferred Stock which may be in arrears. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Preferred Stock and the shares of any class or series of Parity Preferred Stock, all dividends declared upon the Series B Preferred Stock and any class or series of Parity Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series B Preferred Stock and such class or series of Parity Preferred Stock shall in all cases bear to each other the same ratio that accumulated dividends per share on the Series B Preferred Stock and such class or series of Parity Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Parity Preferred Stock does not have a cumulative dividend) bear to each other.

 

(d)          Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series B Preferred Stock have been or contemporaneously are declared and paid in cash or declared and a sum sufficient for the payment thereof is set apart for payment for all past Dividend Periods that have ended, no dividends (other than dividends or other distributions in shares of Junior Stock or in options, warrants or rights to subscribe for or purchase any such shares of Junior Stock) shall be declared and paid or declared and set apart for payment nor shall any other distribution be declared and made upon the Junior Stock or the Parity Preferred Stock, nor shall any shares of Junior Stock or Parity Preferred Stock be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Class A Common Stock made for purposes of an equity incentive or benefit plan of the Corporation) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any shares of any such stock), directly or indirectly, by the Corporation (except by conversion into or exchange for shares of Junior Stock, or options, warrants or rights to subscribe for or purchase shares of Junior Stock).

 

 

(e)          Notwithstanding anything to the contrary set forth above, the Corporation shall not be prohibited from (i) declaring or paying or setting apart for payment any dividend or other distribution on any shares of Junior Stock or Parity Preferred Stock, or (ii) redeeming, purchasing or otherwise acquiring any Junior Stock or Parity Preferred Stock, in each case, if such declaration, payment, setting apart for payment, redemption, purchase or other acquisition is necessary in order to maintain the continued qualification of the Corporation as a REIT under Section 856 of the Code.

 

5.          Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of shares of Series B Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its stockholders, after payment of or provision for the Corporation’s debts and other liabilities, a liquidation preference equal to the Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not authorized or declared) thereon to and including the date of payment, but without interest, before any distribution of assets is made to holders of Junior Stock. If the assets of the Corporation legally available for distribution to stockholders are insufficient to pay in full the liquidation preference on the Series B Preferred Stock and the liquidation preference on the shares of any class or series of Parity Preferred Stock, all assets distributed to the holders of the Series B Preferred Stock and any class or series of Parity Preferred Stock shall be distributed pro rata so that the amount of assets distributed per share of Series B Preferred Stock and such class or series of Parity Preferred Stock shall in all cases bear to each other the same ratio that the liquidation preference per share on the Series B Preferred Stock and such class or series of Parity Preferred Stock bear to each other. Written notice of any distribution in connection with any such liquidation, dissolution or winding up of the affairs of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable in such circumstances shall be payable, shall be given by first class mail, postage pre-paid, not less than 30 nor more than 60 days prior to the payment date stated therein, to each record holder of the Series B Preferred Stock at the respective addresses of such holders as the same shall appear on the stock transfer records of the Corporation. After payment of the full amount of the liquidation distributions to which they are entitled, the holders of Series B Preferred Stock will have no right or claim to any of the remaining assets of the Corporation. The consolidation or merger of the Corporation with or into another entity, a consolidation or merger of another entity with or into the Corporation, a statutory share exchange by the Corporation or a sale, lease, transfer or conveyance of all or substantially all of the Corporation’s property or business shall not be deemed to constitute a liquidation, dissolution or winding up of the affairs of the Corporation. In determining whether a distribution (other than upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation) by dividend, redemption or other acquisition of shares of stock of the Corporation or otherwise is permitted under the Maryland General Corporation Law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of the Series B Preferred Stock.

 

 

6.          Redemption at Option of Holders.

 

(a)          Each holder of shares of Series B Preferred Stock shall have the right, at such holder’s option, to require the Corporation to redeem any or all of such holder’s shares of Series B Preferred Stock at a redemption price per share of Series B Preferred Stock (the “Holder Redemption Price”) equal to (i) if the redemption occurs prior to the first anniversary of the Issue Date of the applicable shares of Series B Preferred Stock (the “Redemption Shares”), the Stated Value, less a 13.0% redemption fee, plus an amount equal to all accrued but unpaid dividends, if any, to and including the date fixed for redemption (the “Holder Redemption Date”), (ii) if the redemption occurs on or after the first anniversary of the Issue Date of the Redemption Shares and prior to the third anniversary of the Issue Date of the Redemption Shares, the Stated Value, less a 10.0% redemption fee, plus an amount equal to all accrued but unpaid dividends, if any, to and including the Holder Redemption Date, (iii) if the redemption occurs on or after the third anniversary of the Issue Date of the Redemption Shares and prior to the fourth anniversary of the Issue Date of the Redemption Shares, the Stated Value, less a 5.0% redemption fee, plus an amount equal to all accrued but unpaid dividends, if any, to and including the Holder Redemption Date, (iv) if the redemption occurs on or after the fourth anniversary of the Issue Date of the Redemption Shares and prior to the fifth anniversary of the Issue Date of the Redemption Shares, the Stated Value, less a 3.0% redemption fee, plus an amount equal to all accrued but unpaid dividends, if any, to and including the Holder Redemption Date, or (v) if the redemption occurs on or after the fifth anniversary of the Issue Date of the Redemption Shares, the Stated Value, plus an amount equal to all accrued but unpaid dividends, if any, to and including the Holder Redemption Date.

 

(b)          The Corporation has the right, in its sole discretion, to pay the Holder Redemption Price in cash or in equal value of shares of Class A Common Stock, calculated based on the VWAP of the Class A Common Stock for the 20 Trading Days prior to the Holder Redemption Date.

 

(c)          Redemption of the Series B Preferred Stock shall be made at the option of the holder thereof, upon:

 

(i)          delivery to the Corporation’s transfer agent, in its capacity as redemption and paying agent (the “Redemption and Paying Agent”) by such holder of a duly completed notice (the “Holder Redemption Notice”) in compliance with the required procedures including those of the Corporation’s transfer agent and of The Depository Trust Company (“DTC”) for tendering interests in global certificates (the “Stated Transfer Procedures”), and specifying the number of shares of Series B Preferred Stock to be redeemed that are held by such holder as of the date of such Holder Redemption Notice, prior to the close of business on the Business Day immediately preceding the Holder Redemption Date; and

 

(ii)         transfer of the Series B Preferred Stock in compliance with the Stated Transfer Procedures, such transfer being a condition to receipt by the holder of the Holder Redemption Price therefor.

 

 

(d)          Prior to 11:00 a.m. (local time in the City of New York) on the Holder Redemption Date, the Corporation must deposit with the Redemption and Paying Agent in trust sufficient funds (in immediately available funds if deposited on such Business Day) to pay the Holder Redemption Price of all the shares of Series B Preferred Stock that are to be redeemed in cash as of the Holder Redemption Date. If the Redemption and Paying Agent holds funds sufficient to pay the Holder Redemption Price of the Series B Preferred Stock for which a Holder Redemption Notice has been tendered, then as of such Holder Redemption Date, (i) such shares of Series B Preferred Stock shall cease to be outstanding and dividends shall cease to accrue thereon (whether or not transfer of such shares of Series B Preferred Stock is made) and (ii) all other rights of the holders in respect thereof shall terminate (other than the right to receive the Holder Redemption Price, in cash or in shares of Class A Common Stock, as applicable, upon transfer of such shares of Series B Preferred Stock). To the extent that the aggregate amount of cash deposited by the Corporation to satisfy the Holder Redemption Price exceeds the aggregate Holder Redemption Price of the shares of Series B Preferred Stock that the Corporation has elected to redeem in cash as of the Holder Redemption Date, then, following the Holder Redemption Date, the Redemption and Paying Agent must promptly return any such excess to the Corporation.

 

(e)          Notwithstanding any provision of this Section 6, no redemptions of shares of Series B Preferred Stock shall be made by the Corporation at such time as the terms and provisions of any agreement of the Corporation prohibits such redemption or provides that such redemption would constitute a breach thereof or a default thereunder, or if such redemption shall be restricted or prohibited by law.

 

7.          Optional Redemption by the Corporation.

 

(a)          Beginning on the third anniversary of the Original Issue Date, the Series B Preferred Stock shall be redeemable by the Corporation, at the Corporation’s option, in whole or in part, at any time or from time to time (the “Corporation Redemption Right”), at a redemption price per share of Series B Preferred Stock (the “Corporation Redemption Price”) equal to the Stated Value plus an amount equal to all accrued but unpaid dividends, if any, to and including the date fixed for redemption (the “Corporation Redemption Date”).

 

(b)          If fewer than all of the outstanding shares of Series B Preferred Stock are to be redeemed, the shares of Series B Preferred Stock to be redeemed shall be redeemed pro rata (as nearly as may be practicable without creating fractional shares) by lot or by any other equitable method that the Corporation determines will not violate the Series B Ownership Limit (as defined in Section 10 below). If redemption is to be by lot and, as a result, any holder of shares of Series B Preferred Stock, other than a holder of shares of Series B Preferred Stock that has received an exemption from the Series B Ownership Limit, would have actual ownership or Constructive Ownership of more than 9.8% of the issued and outstanding shares of Series B Preferred Stock by value or number of shares, whichever is more restrictive, because such holder’s shares of Series B Preferred Stock were not redeemed, or were only redeemed in part, then, except as otherwise provided in the Charter, the Corporation shall redeem the requisite number of shares of Series B Preferred Stock of such holder such that no holder will own Series B Preferred Stock in excess of the Series B Ownership Limit, subsequent to such redemption. Holders of Series B Preferred Stock to be redeemed shall surrender such Series B Preferred Stock at the place, or in accordance with the procedures, designated in such notice and shall be entitled to the Corporation Redemption Price payable upon such redemption following such surrender. If (i) notice of redemption of any shares of Series B Preferred Stock has been given (in the case of a redemption of the Series B Preferred Stock other than to preserve the qualification of the Corporation as a REIT), (ii) the funds necessary for such redemption have been set apart by the Corporation in trust for the benefit of the holders of any shares of Series B Preferred Stock so called for redemption and (iii) irrevocable instructions have been given to pay the Corporation Redemption Price, then from and after the Corporation Redemption Date, dividends shall cease to accrue on such shares of Series B Preferred Stock, such shares of Series B Preferred Stock shall no longer be deemed outstanding, and all rights of the holders of such shares of Series B Preferred Stock shall terminate, except the right to receive the Corporation Redemption Price in cash or in shares of Class A Common Stock, as applicable, upon transfer of such shares of Series B Preferred Stock. The Corporation has the right, in its sole discretion, to pay the Corporation Redemption Price in cash or in equal value of shares of Class A Common Stock, calculated based on the VWAP of the Class A Common Stock for the 20 Trading Days prior to the Redemption Date.

 

 

(c)          Unless full cumulative dividends on the Series B Preferred Stock for all past Dividend Periods that have ended shall have been or contemporaneously are declared and paid in cash or declared and a sum sufficient for the payment thereof is set apart for payment, no shares of Series B Preferred Stock shall be redeemed pursuant to the Corporation Redemption Right unless all outstanding shares of Series B Preferred Stock are simultaneously redeemed, and the Corporation shall not purchase or otherwise acquire directly or indirectly any shares of Series B Preferred Stock or any class or series of Junior Stock or Parity Preferred Stock (except (i) by conversion into or exchange for Junior Stock, (ii) the purchase of shares of Junior Stock or Parity Preferred Stock pursuant to the Charter to the extent necessary to ensure that the Corporation meets the requirements for qualification as a REIT for federal income tax purposes or (iii) the purchase or other acquisition of shares of Series B Preferred Stock or Parity Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series B Preferred Stock).

 

(d)          Notice of redemption pursuant to the Corporation Redemption Right shall be mailed by the Corporation, postage prepaid, 30 days prior to the Corporation Redemption Date, addressed to the respective holders of record of all, but not less than all, of the Series B Preferred Stock at their respective addresses as they appear on the transfer records maintained by the Corporation’s transfer agent. No failure to give such notice or defect therein shall affect the validity of the proceedings for the redemption of any Series B Preferred Stock except as to the holder to whom such notice was defective or not given; provided that notice given to the last address of record shall be deemed to be valid notice. In addition to any information required by law or by the applicable rules of any exchange upon which the Series B Preferred Stock may be listed or admitted to trading, each such notice shall state: (i) the Corporation Redemption Date; (ii) the Corporation Redemption Price; (iii) the number of shares of Series B Preferred Stock to be redeemed; (iv) the Stated Transfer Procedures for transfer of shares of Series B Preferred Stock for payment of the Corporation Redemption Price; (v) that dividends on the shares of Series B Preferred Stock to be redeemed will cease to accrue on the Corporation Redemption Date; and (vi) that payment of the Corporation Redemption Price will be made upon transfer of such Series B Preferred Stock in compliance with Stated Transfer Procedures. If fewer than all of the shares of Series B Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series B Preferred Stock held by such holder to be redeemed or the method for determining such number. Notwithstanding anything else to the contrary herein, the Corporation shall not be required to provide notice to the holder of Series B Preferred Stock in the event such holder’s Series B Preferred Stock is redeemed in order for the Corporation to qualify or to maintain the Corporation’s status as a REIT.

 

 

(e)          If a Corporation Redemption Date falls after a Dividend Record Date and on or prior to the corresponding Dividend Payment Date, each holder of Series B Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares on or prior to such Dividend Payment Date, and each holder of Series B Preferred Stock that surrenders its shares on the Corporation Redemption Date shall be entitled to an amount equal to the dividends accruing after the end of the Dividend Period to which such Dividend Payment Date relates, up to, but not including, the Corporation Redemption Date. Except as provided herein, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series B Preferred Stock for which a notice of redemption pursuant to the Corporation Redemption Right has been given.

 

8.          Optional Redemption Following Death of a Holder.

 

(a)          Subject to Section 8(c), beginning on the Issue Date of the applicable shares of Series B Preferred Stock and ending on the second anniversary of such Issue Date, the Corporation shall redeem shares of Series B Preferred Stock held by a natural person upon his or her death (a “Deceased Holder”) at the written request of such Deceased Holder’s estate at a redemption price per share of Series B Preferred Stock (the “Estate Redemption Price”) equal to the Stated Value, plus an amount equal to all accrued but unpaid dividends, if any, to and including the Redemption Date, less all dividends previously paid to such Deceased Holder or the Deceased Holder’s estate.

 

(b)          The Corporation has the right, in its sole discretion, to pay the Estate Redemption Price in cash or in equal value of shares of Class A Common Stock, calculated on the VWAP of the Class A Common Stock for the 20 Trading Days prior to the Redemption Date.

 

(c)          Notwithstanding any provision of this Section 8, no redemptions of shares of Series B Preferred Stock shall be made by the Corporation at such time as the terms and provisions of any agreement of the Corporation prohibits such redemption or provides that such redemption would constitute a breach thereof or a default thereunder, or if such redemption shall be restricted or prohibited by law.

 

9.          Voting Rights. Holders of the Series B Preferred Stock shall not have any voting rights.

 

10.         Restrictions on Ownership and Transfer.

 

(a)          As used herein, the following terms shall have the following meanings:

 

(i)          “Prohibited Series B Owner” shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who, but for the provisions of Section 10(c), would beneficially own (determined under the principles of Section 856(a)(5) of the Code), Beneficially Own or Constructively Own shares of Series B Preferred Stock and, if appropriate in the context, shall also mean any Person who would have been the record owner of shares of Series B Preferred Stock that the Prohibited Owner would have so owned.

 

 

(ii)         “Series B Beneficiary” shall mean one or more beneficiaries of the Series B Trust as determined pursuant to Section 10(i), 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.

 

(iii)        “Series B Excepted Holder” shall mean a holder of Series B Preferred Stock for whom a Series B Excepted Holder Limit is created by the Board pursuant to Section 10(n).

 

(iv)        “Series B Excepted Holder Limit” shall mean, provided that the affected Excepted Holder agrees to comply with the requirements established by the Board pursuant to Section 10(n) and subject to adjustment pursuant to Section 10(n), the percentage limit established by the Board pursuant to Section 10(n).

 

(v)         “Series B Ownership Limit” shall mean 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of Series B Preferred Stock or such other percentage determined by the Board in accordance with Section 10(n).

 

(vi)        “Series B Trust” shall mean any trust provided for in Section 10(d).

 

(vii)       “Series B Trustee” shall mean the Person unaffiliated with the Corporation and any Prohibited Series B Owner that is a “United States person” within the meaning of Section 7701(a)(30) of the Code and is appointed by the Corporation to serve as trustee of the Series B Trust. Until another Series B Trustee is otherwise appointed by the Corporation, the initial Series B Trustee shall be Kaplan Voekler Cunningham & Frank, PLC.

 

(b)          Prior to the Restriction Termination Date but subject to Section 10(q), (i) no Person, other than a Series B Excepted Holder, shall Beneficially Own or Constructively Own shares of Series B Preferred Stock in excess of the Series B Ownership Limit and (ii) no Series B Excepted Holder shall Beneficially Own or Constructively Own shares of Series B Preferred Stock in excess of the Series B Excepted Holder Limit for such Series B Excepted Holder.

 

(c)          If any Transfer or Non-Transfer Event occurs which, if effective or otherwise, would result in any Person Beneficially Owning or Constructively Owning shares of Series B Preferred Stock in violation of Section 10(b), (i) then that number of shares of Series B Preferred Stock the Beneficial or Constructive Ownership of which otherwise would cause such Person to violate Section 10(b) (rounded up to the nearest whole share) shall be automatically transferred to a Series B Trust for the benefit of a Series B Beneficiary, as described in Section 10(d) through (i) below, effective as of the close of business on the Business Day prior to the date of such Transfer or Non-Transfer Event, and such Person (or, if different, the direct or Beneficial Owner of such shares) shall acquire no rights in such shares (or shall be divested of its rights in such shares) or (ii) if the Transfer to the Series B Trust described in clause (i) of this sentence would not be effective for any reason to prevent the violation of Section 10(b), then the Transfer of that number of shares of Series B Preferred Stock that otherwise would cause any Person to violate Section 10(b) shall be void ab initio, and the intended transferee shall acquire no rights in such shares.

 

 

(d)          Upon any purported Transfer or Non-Transfer Event described in Section 10(c) that would result in a Transfer of shares of Series B Preferred Stock to a Series B Trust, such shares shall be deemed to have been Transferred to the Series B Trustee as trustee of a Series B Trust for the exclusive benefit of one or more Series B Beneficiaries. Such Transfer to the Series B Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or Non-Transfer Event that results in the Transfer to the Series B Trust pursuant to Section 10(c). The Series B Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation and any Prohibited Series B Owner. Each Series B Beneficiary shall be designated by the Corporation as provided in Section 10(i) below.

 

(e)          Shares of Series B Preferred Stock held by the Series B Trustee shall continue to be issued and outstanding shares. The Prohibited Series B Owner shall have no rights in the shares of Series B Preferred Stock held by the Series B Trustee. The Prohibited Series B Owner shall not benefit economically from ownership of any shares of Series B Preferred Stock held in trust by the Series B Trustee, shall have no rights to dividends or other Distributions on such shares and shall not possess any rights to vote or other rights attributable to such shares.

 

(f)          The Trustee shall have all voting rights and rights to dividends or other Distributions with respect to shares of Series B Preferred Stock held in the Series B Trust, which rights shall be exercised for the exclusive benefit of the Series B Beneficiary. Any dividend or other Distribution paid prior to the discovery by the Corporation that shares of Series B Preferred Stock have been Transferred to the Series B Trustee shall be paid with respect to such shares to the Series B Trustee upon demand and any dividend or other Distribution authorized but unpaid shall be paid when due to the Series B Trustee. Any dividends or other Distributions so paid over to the Series B Trustee shall be held in trust for the Series B Beneficiary. The Prohibited Series B Owner shall have no voting rights with respect to shares of Series B Preferred Stock held in the Series B Trust and, subject to Maryland law, effective as of the date that Shares have been Transferred to the Series B Trust, the Series B Trustee shall have the authority (at the Series B Trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited Series B Owner prior to the discovery by the Corporation that shares of Series B Preferred Stock have been Transferred to the Series B Trustee and (ii) to recast such vote in accordance with the desires of the Series B Trustee acting for the benefit of the Series B Beneficiary; provided, however, that if the Corporation has already taken irreversible corporate action, then the Series B Trustee shall not have the authority to rescind and recast such vote. Notwithstanding the provisions of this Section 10, until the Corporation has received notification that shares of Series B Preferred Stock have been Transferred into a Series B Trust, the Corporation shall be entitled to rely on its share transfer and other stockholder records for purposes of preparing lists of holders of Series B Preferred Stock entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes of holders of Series B Preferred Stock.

 

 

(g)          As soon as reasonably practicable after receiving notice from the Corporation that shares of Series B Preferred Stock have been Transferred to the Series B Trust (and no later than 20 days after receiving notice in the case of shares of Series B Preferred Stock that are listed or admitted to trading on any national securities exchange), the Series B Trustee shall sell the shares held in the Series B Trust to a Person, designated by the Series B Trustee, whose ownership of the shares will not violate Section 10(b). Upon such sale, the interest of the Series B Beneficiary in the shares sold shall terminate and the Series B Trustee shall distribute the net proceeds of the sale to the Prohibited Series B Owner and to the Series B Beneficiary as provided in this Section 10(g). The Prohibited Series B Owner shall receive the lesser of (i) the price paid by the Prohibited Series B Owner for the shares or, if the Prohibited Series B Owner did not give value for the shares in connection with the event causing the shares to be held in the Series B Trust (e.g,, in the case of a gift, devise or other such transaction), the Market Price of the shares on the day of the event causing the shares to be held in the Series B Trust and (ii) the sales proceeds received by the Series B Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares held in the Series B Trust. The Series B Trustee may reduce the amount payable to the Prohibited Series B Owner by the amount of dividends and other Distributions which have been paid to the Prohibited Series B Owner and are owed by the Prohibited Series B Owner to the Series B Trustee pursuant to Section 10(f). Any net sales proceeds in excess of the amount payable to the Prohibited Series B Owner shall be immediately paid to the Series B Beneficiary. If, prior to the discovery by the Corporation that shares of Series B Preferred Stock have been Transferred to the Series B Trustee, such shares are sold by a Prohibited Series B Owner, then (x) such shares shall be deemed to have been sold on behalf of the Series B Trust and (y) to the extent that the Prohibited Series B Owner received an amount for such shares that exceeds the amount that such Prohibited Series B Owner was entitled to receive pursuant to this Section 10(g), such excess shall be paid to the Series B Trustee upon demand.

 

(h)          Shares of Series B Preferred Stock Transferred to the Series B Trustee 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 (i) the price per share in the transaction that resulted in such Transfer to the Series B Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation may reduce the amount payable to the Prohibited Series B Owner by the amount of dividends and other Distributions which have been paid to the Prohibited Series B Owner and are owed by the Prohibited Series B Owner to the Series B Trustee pursuant to Section 10(f). The Corporation may pay the amount of such reduction to the Series B Trustee for the benefit of the Series B Beneficiary. The Corporation shall have the right to accept such offer until the Series B Trustee has sold the shares held in the Series B Trust pursuant to Section 10(g). Upon such a sale to the Corporation, the interest of the Series B Beneficiary in the shares sold shall terminate and the Series B Trustee shall distribute the net proceeds of the sale to the Prohibited Series B Owner.

 

 

(i)          By written notice to the Series B Trustee, the Corporation may change the Series B Beneficiary by designating one or more nonprofit organizations to be the Series B Beneficiary of the interest in the Series B Trust such that (i) shares of Series B Preferred Stock held in the Series B Trust would not violate Section 10(b) in the hands of such Series B Beneficiary and (ii) 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 l70(b)(1)(A) (other than clauses (vii) and (viii) thereof), 2055 and 2522 of the Code. Neither the failure of the Corporation to make such designation nor the failure of the Corporation to appoint the Series B Trustee before the automatic transfer provided for in Section 10(c) shall make such transfer ineffective, provided that the Corporation thereafter makes such designation and appointment. The designation of a nonprofit organization as a Series B Beneficiary shall not entitle such nonprofit organization to serve in such capacity and the Corporation may, in its sole discretion, designate a different nonprofit organization as the Series B Beneficiary at any time and for any or no reason. Any determination by the Corporation with respect to the application of this Section 10 shall be binding on each Series B Beneficiary.

 

(j)          If the Board or its designee (including any duly authorized committee of the Board) shall at any time determine in good faith that a Transfer or Non-Transfer Event has taken place that results in a violation of Section 10(b) or that a Person intends to acquire or has attempted to acquire Beneficial Ownership, Constructive Ownership or beneficial ownership (determined under the principles of Section 856(a)(5) of the Code) of any shares of Series B Preferred Stock in violation of Section 10(b) (whether or not such violation is intended), the Board or its designee shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or Non-Transfer Event or otherwise prevent such violation, including, without limitation, causing the Corporation to redeem shares of Series B Preferred Stock, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer or Non-Transfer Event; provided, however, that any Transfers or attempted Transfers in violation of Section 10(b) (or Non-Transfer Event that results in a violation of Section 10(b)) shall automatically result in the Transfer to the Series B Trust described above, or, if applicable, shall be void ab initio as provided above irrespective of any action (or non-action) by the Board or its designee.

 

(k)          Any Person who acquires or attempts or intends to acquire Beneficial Ownership, Constructive Ownership or beneficial ownership (determined under the principles of Section 856(a)(5) of the Code) of shares of Series B Preferred Stock that will or may violate Section 10(b), or any Person who held or would have owned shares of Series B Preferred Stock that resulted in a Transfer to the Series B Trust pursuant to Section 10(c), 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 qualification as a REIT.

 

(l)          Subject to Section 10(q), nothing contained in this Section 10 shall limit the authority of the Board to take such other action as it deems necessary or advisable to protect the Corporation and the interests of the Stockholders in preserving the Corporation's qualification as a REIT.

 

 

(m)          The Board shall have the power to determine the application of any provisions of this Section 10 and any definition in Section 10(a), including in the case of an ambiguity in the application of any provisions of this Section 10 or any such definition, with respect to any situation based on the facts known to it. In the event this Section 10 requires an action by the Board and the Charter fails to provide specific guidance with respect to such action, the Board shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Article V of the Charter or this Section 10.

 

(n)          Subject to clause (ii) below, the Board, in its sole discretion, may exempt (prospectively or retroactively) a Person from the Series B Ownership Limit and establish or increase a Series B Excepted Holder Limit for such Person if (i) the Board obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that such Person’s Beneficial Ownership or Constructive Ownership of shares of Series B Preferred Stock in excess of the Series B Ownership Limit will not now or in the future jeopardize the Corporation’s ability to qualify as a REIT under the Code and (ii) such Person agrees that any violation or attempted violation of such representations or undertakings (or other action which is contrary to the restrictions contained in this Section 10) will result in such shares being automatically Transferred to a Series B Trust in accordance with Section 10(d) through (i) above. Prior to granting any exception or waiver or creating any Series B Excepted Holder Limit pursuant to this Section 10(n), the Board may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Corporation’s qualification as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board may impose such conditions or restrictions as it deems appropriate in connection with granting such exemption or waiver or creating any Series B Excepted Holder Limit. The Board may only reduce the Series B Excepted Holder Limit for a Series B Excepted Holder (x) with the written consent of such Series B Excepted Holder at any time or (y) pursuant to the terms and conditions of the agreements and undertakings entered into with such Series B Excepted Holder in connection with the establishment of the Series B Excepted Holder Limit for that Series B Excepted Holder. The Board may from time to time increase the Series B Ownership Limit for one or more Persons and decrease the Series B Ownership Limit for all other Persons; provided, however, that any such decreased Series B Ownership Limit will not be effective for any Person whose percentage ownership in shares of Series B Preferred Stock is in excess of the decreased Series B Ownership Limit until such time as such Person’s percentage of shares of Series B Preferred Stock equals or falls below the decreased Series B Ownership Limit, but any further acquisition of shares of Series B Preferred Stock in excess of such percentage ownership of shares will be in violation of the Series B Ownership Limit; and provided, further, that the new Series B Ownership Limit would not result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT.

 

(o)          Subject to Section 6.1.1(a)(iii) of the Charter, an underwriter, placement agent or initial purchaser in a Rule 144A transaction that participates in a public offering, private placement or other private offering of Series B Preferred Stock may Beneficially Own or Constructively Own shares of Series B Preferred Stock in excess of the Series B Ownership Limit, but only to the extent (i) necessary to facilitate such public offering, private placement or other private offering and (ii) such Beneficial Ownership or Constructive Ownership does not cause the Corporation to fail to satisfy the requirements of Section 856(a)(6) of the Code or cause a violation of Section 6.1.1(a)(iii) or (iv) of the Charter.

 

(p)          Each certificate representing shares of Series B Preferred Stock, if certificated, shall bear a legend that substantially describes the foregoing restrictions on transfer and ownership or, instead of such legend, the certificate, if any, may state that the Corporation will furnish a full statement about certain restrictions on transferability to a stockholder on request and without charge.

 

 

(q)          Nothing in this Section 10 shall preclude the settlement of any transaction entered into through the facilities of the NYSE MKT or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction occurs shall not negate the effect of any other provision of this Section 10 and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Section 10.

 

11.         Conversion. The Series B Preferred Stock is not convertible into or exchangeable for any other property or securities of the Corporation.

 

12.         Term. The Series B Preferred Stock has no stated maturity date and shall not be subject to any sinking fund and, except as otherwise set forth herein, is not subject to mandatory redemption. The Corporation shall not be required to set aside funds to redeem the Series B Preferred Stock.

 

13.         Status of Redeemed or Repurchased Series B Preferred Stock. All shares of Series B Preferred Stock redeemed, repurchased or otherwise acquired in any manner by the Corporation shall be retired and shall be restored to the status of authorized but unissued Preferred Shares, without designation as to series or class.

 

SECOND: The shares of Series B Preferred Stock have been classified and designated by the Board under the authority contained in the Charter.

 

THIRD: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law.

 

FOURTH: The undersigned acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

 

 

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its Chairman of the Board, Chief Executive Officer and President and attested to by its Chief Operating Officer, Secretary and General Counsel on this 16^th day of December, 2015.

 

ATTEST:			BLUEROCK RESIDENTIAL GROWTH REIT, INC.
/s/ Michael L. Konig			By:	/s/ R. Ramin Kamfar		(SEAL)
Name:	Michael L. Konig			Name:	R Ramin Kamfar
Title:	Chief Operating Officer, Secretary and General			Title:	Chairman of the Board, Chief
	Counsel				Executive Officer and President