Document:

Exhibit

Exhibit 10.1

PRIVATE & CONFIDENTIAL
Emmanuel Babeau
Email delivery

    
 
Lausanne, February 28, 2020

Dear Mr. Babeau,

We are pleased to confirm the following terms and conditions of your employment with Philip Morris Products S.A. (hereafter referred to as the "Company"):

Position

You will be appointed Chief Financial Officer, reporting to Mr. André Calantzopoulos, Chief Executive Officer PMI, and based in Lausanne, Switzerland.

Effective Date 

This contract will be effective as of May 1, 2020 (the “Effective Date”) for an indefinite period of time.

Annual Base Salary 

Your gross annual base salary, to be paid in 13 installments, will be Swiss Francs (CHF) 1,200,004.--, corresponding to your grade, which is 26.

The 13th installment will be pro-rated for the number of months worked, and paid to you in November.

Sign-On Stock Awards 

You will be granted on the later of (1) the date you start employment or (2) the date the Committee approves the stock awards:
		
	I.
	Restricted Stock Units (“RSUs”) with a fair market value of CHF 5,000,000.--. This stock grant is scheduled to vest in two equal installments, in February 2021 and in February 2022 respectively.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Sign-On Stock Awards (cont’d)

		
	II.
	Stock units with a fair market value of CHF 3,300,000.-- granted as follows: 

		
	(a)
	40% in the form of RSUs and

		
	(b)
	60% in the form of Performance Share Units (“PSUs”). The performance measures and targets for the PSUs will be reflected in the respective award statement.

		
	(c)
	Both RSUs and PSUs are scheduled to vest in February 2023.

		
	III.
	It is understood that you will act in good faith and make every effort to agree with your current employer regular vesting of your stock awards due to vest in March 2020. Should your current employer cancel your stock awards scheduled to vest in March 2020, you will be entitled to an additional stock grant based on the value of the cancelled awards. Such stock award will be subject to a specific approval of the Board of Directors and the Compensation and Leadership Development Committee of the Board of Directors of Philip Morris International Inc.

You will be entitled to receive dividend equivalents during the vesting periods for the RSUs. You will receive dividend equivalents on your vested PSUs after the end of the performance period when the company performance is certified and the final number of vested PSUs is determined.

The stock awards will be subject to the terms of the 2017 Performance Incentive Plan and the applicable stock agreements.

Incentive Compensation Award Program 

As a grade 26 employee, you will be eligible to participate in the Incentive Compensation (“IC”) Award Program, which is administered at the sole discretion of the Committee  pursuant and subject to the terms of the 2017 Performance Incentive Plan (or any similar plan adopted by the Company from time to time). Each eligible employee has an annual IC award target that assumes a PMI company performance rating and an individual performance rating of 100.

For a grade 26 employee, the current target is 125% of annual base salary. Targets are reviewed annually by the Company and are made available to employees under the PMI 23-G4 Guidelines Global Variable Compensation Programs Annex 1.

Stock Award Program 

As a grade 26 employee, you will be eligible to participate in the Stock Award Program, which is administered at the sole discretion of the Committee pursuant and subject to the terms of the 2017 Performance Incentive Plan (or any similar plan adopted by the Company from time to time) and the applicable stock agreements. Each eligible employee has an annual stock award target that assumes an individual performance rating of 100.

For a grade 26 employee, the current target is 275% of annual base salary. Targets are reviewed annually by the Company and are made available to employees under the PMI 23-G4 Guidelines Global Variable Compensation Programs Annex 2.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Stock Award Program (cont’d) 

The Incentive Compensation and Stock Award Programs are discretionary and do not obligate the Company to make an award nor entitle employees to receive an award. Eligibility to participate in the Programs does not guarantee receipt of an award and receiving an annual award does not guarantee receipt of an award in the future. Any awards that are made may be higher or lower than the targets mentioned above. Targets may be amended at the discretion of the Company at any time without prior notice.

Vacation Days 

Your vacation entitlement is 25 working days per calendar year. For every incomplete calendar year your entitlement will be calculated pro rata temporis.

In addition, the Company grants (i) two Floating Days per calendar year, that may be taken at any time during the year (these two days cannot be carried over to the following year), and (ii) two fixed days as company holidays in addition to the public holidays of the Canton de Vaud. It corresponds to the current Company practice, that the Company keeps the right to change at any time without notice or compensation.

Fidelity Premium

For each completed year of service, the Company pays a cumulative bonus of CHF 150.-- on each anniversary of the Effective Date, up to a maximum of CHF 3,000.-- for 20 years of service.

Termination of Employment 

This contract shall be terminable in accordance with Swiss law. Each party may terminate the agreement for the end of a month by giving one month notice within the first year of employment, two months notice from the second to ninth year of employment or three months notice as of the tenth year of employment. 

Should the Company unilaterally terminate your employment within 24 (twenty-four) months of the Effective Date (reference: end of employment date as notified by the employer) for a reason which does not constitute a “Cause” as defined in this section, and provided you shall execute the separation agreement proposed by the Company, the Company shall offer you the following severance conditions (gross amounts):
		
	(a)
	A severance lump sum corresponding to two years base salary.

		
	(b)
	An amount in lieu of your Incentive Compensation for two years, calculated with individual and PMI company performance ratings both at 100. 

		
	(c)
	All unvested Restricted Stock Units (RSUs) grants made to you will fully vest. The shares acquired must be held for at least one year following the accelerated vesting date.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Termination of Employment (cont’d) 

		
	(d)
	Your unvested Performance Share Units (PSUs) will vest at the scheduled vesting date to the extent the PMI performance targets are achieved as certified by the Committee as set out in the applicable award agreements, prorated based on the number of months you were employed between the award date and the vesting date of each award. If the respective PSU agreements entitle you to full or accelerated vesting under the circumstances set forth in such agreements, such provisions shall govern. 

In consideration of the above mentioned conditions, you agree that the period of 24 months following the end of employment date will serve as a worldwide non-compete period with no further compensation. 

Should the Company unilaterally terminate your employment for a date beyond 24 (twenty-four) months of the Effective Date (reference: end of employment date as notified by the employer) for a reason which does not constitute a ‘Cause’ as defined in this section, and provided you shall execute the separation agreement proposed by the Company, the Company shall offer you the following severance conditions (gross amounts):
		
	(a)
	A severance lump sum corresponding to one annual base salary.

		
	(b)
	Your Incentive Compensation prorated until the end of employment date, (a) based on actual individual and PMI company performance ratings if the termination of employment is on or after June 30 or (b) otherwise, based on individual and PMI company performance ratings both at 100; provided that in case of (a), the payment shall be made after the performance is determined in the normal course.

		
	(c)
	All unvested Restricted Stock Units (RSUs) grants made to you will fully vest. The shares acquired must be held for at least one year following the accelerated vesting date.

		
	(d)
	Your unvested Performance Share Units (PSUs) will vest at the scheduled vesting date to the extent the PMI performance targets are achieved as certified by the Committee as set out in the applicable award agreements, prorated based on the number of months you were employed between the award date and the vesting date of each award. If the respective PSU agreements entitle you to full or accelerated vesting under the circumstances set forth in such agreements, such provisions shall govern. 

In consideration of the above mentioned conditions, you agree that the period of 24 months following the end of employment date will serve as a worldwide non-compete period with no further compensation. 

The PMI policy regarding the adjustment or recovery of compensation shall also apply to the severance conditions stipulated under this section.

The treatment of compensation granted under the PMI performance incentive plans upon a change of control shall be governed by the applicable performance incentive plan.
 
Any individual tax and social security obligations that may arise under the severance conditions stipulated under this section in any jurisdiction are solely the employee's. The Company will have no responsibility, directly or indirectly, with respect to such obligations, including any obligation to pay, reimburse or gross up any payments to the employee. 

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Termination of Employment (cont’d) 

For the purposes of this section, “Cause” means termination because of:
(i) continued failure to substantially perform the employee’s job duties (other than resulting from incapacity due to disability) after a written demand by the Company (or any of its subsidiaries or affiliates, as the case may be) that identifies the manner in which the Company (or any of its subsidiaries or affiliates, as the case may be) has reasonably determined that the employee has not performed his or her duties;
(ii) gross negligence in the performance of the employee’s job duties, willful misconduct, or a material violation of Company policy (including the PMI code of conduct), that the Company has reasonably determined has resulted in, or is likely to result in, a material and demonstrable detriment to the business, operations, properties, financial condition or reputation of the Company (or any of its subsidiaries or affiliates); 
(iii) the employee’s conviction of a felony or a plea of nolo contendere by the employee with respect to a felony.

Pension Fund  

In accordance with the Swiss Federal Pension Law (“LPP”), you will become a member of the “Caisse de pension Philip Morris en Suisse” (the “Pension Fund”), providing old age, disability, and survivor’s benefits. For further details, please refer to the Pension Fund regulations.

Your contribution to the Pension Fund will be deducted each month from your salary according to the current Pension Fund regulations.

Swiss Social Security Schemes (AVS/AI/APG/AC)

Contributions to the various Swiss Federal insurance schemes will be deducted from your compensation each month in accordance with the applicable Swiss laws.

Accident Insurance

In accordance with Swiss Federal Insurance Law (LAA), you are automatically covered for accident in the event of occupational or non-occupational accidents. This cover is paid for by the Company.

Health Insurance 

If you wish, you may join the Company group health insurance contract. Employees and their eligible dependents (spouse and dependent children up to age 18 or up to age 25 if full-time students or apprentices) can enroll into this group health insurance scheme. The Company bears a portion of the insurance premium cost. No Company contributions will be paid if you choose to arrange an individual cover outside the group scheme.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Salary Continuation in the Event of Sickness 

In accordance with the regulations of the Company’s insurer, 100% of the annual base salary is paid for up to 2 years from the first day you are unable to work. This cover is paid for by the Company without affecting the right of each party to end the contract.

Life Insurance

In accordance with the regulations of the Company’s insurer and in coordination with the Pension Fund, you are provided with an insurance cover in case of death and permanent disability paid for by the Company.

Office Working Hours 

The weekly basic work schedule is 40 hours spread over 5 days, from Monday to Friday, based on a full time occupational rate. You understand and agree that your annual base salary includes all compensation for time worked in excess of the basic work schedule, and that there will be no extra compensation for such work. For further details, please refer to the People & Culture Department. 

Relocation Expenses 

With prior approval of the People & Culture Department, the Company will pay a remover selected by the Company to pack, transport, store if necessary, and unpack your household goods from your home address in France to Switzerland, in accordance with Company Policy. The Relocation Services Department will coordinate this with you. Your move should take place within eighteen months from the Effective Date.

The Company will also pay you a relocation allowance amounting to CHF 34,014.-- to assist you with expenses related to your relocation from your home address in France to Switzerland. This amount will be subject to social security deductions and will be taxable.

The Company will also pay for the travel costs associated with your relocation from your home address in France to Switzerland, in accordance with the Company’s business travel policy.

Temporary Accommodation

In accordance with Company policy, temporary accommodation will be provided to you for up to 30 days.

Tax Assistance

The Company will pay the fees of tax advisers chosen by the Company on the first and second occasions you are required to complete a tax declaration in Switzerland (provided you are still employed by the Company at this time). This entitlement may be subject to income tax and/or social security deductions if applicable, which the Company does not compensate. Should you not opt for this benefit, please send a note at YOURHR@pmi.com within three months from the Effective Date of the contract.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Tax Assistance (cont’d)

After this initial period, the Company will either (i) pay the fees of tax advisers chosen by the Company on the occasions you are required to complete a tax declaration in Switzerland subject to you contributing for CHF 3,500.-- per year (amount to be deducted from your salary) or (ii) pay you an allowance of CHF 1,500.-- per year in lieu of tax assistance. This entitlement may be subject to income tax and/or social security deductions if applicable. 

You must indicate your preference by sending a note at YOURHR@pmi.com. Should no preference be indicated, the Company will automatically opt for the second (ii) option.

Company Car (or Cash Allowance / Yearly Travel Pass)  

You will be entitled to a company car in accordance with Company policy. 

If you choose not to receive a company car, you may opt for a cash allowance or a travelcard in Switzerland for you and your partner in accordance with Company policy. 

Taxability of Benefits 

Certain benefits described in this contract are subject to income tax and social security deductions. Please also take into account that the tax and social security treatment of all benefits may change in the future according to Swiss law or Company policy. Details may be obtained from the People & Culture Department.

Data Protection

The Company will, in the course of its business, process personal data relating to you (for example, personal details, bank account information, or automated records of your use of information systems, or information required for building access control systems).

The Company may also in the course of its business, process personal information relating to other persons whose personal information you provide, such as your relative(s) or partner(s) (“Your Contacts”) (for example contact details or information in connection with employee benefits).

You give your consent to the Company to:

		
	(a)
	process your personal information for its, and its Affiliates’, business purposes. Those purposes include legal, personnel, administrative and management purposes (including, for example: payroll administration; correspondence; IT systems development, operation and maintenance; building access controls; performance review, and talent management);

		
	(b)
	process your sensitive personal data (for example data relating to health), where this is necessary for the administration of the employment relationship, and is permitted by law (for example, to administer health benefits);

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Data Protection (cont’d)

		
	(c)
	make your personal information available to its Affiliates for them to process for their own benefit, for the same purposes as described above;

		
	(d)
	make your personal information available, and to permit the Company’s Affiliates also to make your personal information available:

		
	(i)
	to third parties who provide products or services to the Company or its Affiliates (such as advisers, payroll administrators, and information services providers) for the same purposes as described above; and

		
	(ii)
	to other third parties, where required or permitted by law, including: regulatory authorities; potential or future employers; and governmental or quasi-governmental organisations.

You also confirm that, before providing us with personal information of Your Contacts, you will obtain their consent to the Company processing their data as above.

As a multi-national organisation, PMI transfers personal information globally. You consent to the transfer of your personal information, as outlined above, either within or outside Switzerland and including where the country or territory in question does not maintain data protection standards that are equivalent to those of Switzerland. In all cases, PMI will implement adequate measures for the treatment of the data in accordance with PMI 03-C.

You may request access to the personal information that we hold about you, or request the correction or deletion of your personal information, by contacting your People & Culture Department.

Confidential Information

Consistent with your obligations under Swiss law, you undertake not to disclose any Confidential Information, whether before, during or after your employment by the Company, and upon termination of your employment to return any Confidential Information in tangible or electronic form in your possession. For these purposes “Confidential Information” means any trade secrets and other proprietary information pertaining to the Company or its affiliates, which has not been made available to the general public by an authorized representative of the Company or its affiliates, whether patentable or not, including for example any idea, formula, technique, invention, process, program, business, marketing and sales plans, financial, organizational and sales data, and similar information in line with all Company Records & Information Management (RIM) policies, procedures, and guidelines.

The Company may provide you with information and/or documents with respect to your future position before the Effective Date, and some of them may be of confidential nature. You expressly agree that this section "Confidential information" applies to any confidential information and/or documents you may have access to before the beginning of your employment.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Intellectual Property Rights

You hereby assign to the Company to the fullest extent permitted by law, throughout the world and for the entire term of protection, all copyrights (including all rights in software and databases) and neighboring rights in the works created by you, alone or with others, within and outside your contractual duties, while performing your activity for the Company. If and to the extent that an assignment of any of such rights is not permitted under applicable law, you agree not to assert them and authorize the Company to exercise such rights on your behalf. In particular, the Company shall have the unrestricted right to exercise the author's moral rights in the works, including without limitation the right to alter the works, create derivative works and to determine whether, when, how and under what name the works shall be published.

Concerning the inventions, patents and designs generated by you alone or with others while performing your employment activity for the Company:

		
	a)
	If they have been generated within your contractual duties, they belong to the Company, regardless of whether they are protectable or not, and no specific compensation is due to you by the Company;

		
	b)
	If they have been generated outside the performance of your contractual duties, the Company is entitled to acquire them. In this case, if you make such invention/patent/design, you shall promptly inform the Company thereof in writing. If the Company declares that it wishes to acquire such invention/patent/design, you shall be entitled to an appropriate special compensation, which shall be determined by taking into account all circumstances, such as the business value of the invention, patent or design, the contribution of the Company or its auxiliary persons, the utilization of the Company's installations, as well as your expenses and your position within the Company.

All tangible and/or intangible work results (including without limitation all documents, drawings, samples, know-how, trade secrets, concepts and ideas) and any intellectual property rights therein, which are generated by you, alone or with others, within and outside your contractual duties while performing your employment activity for the Company, shall belong to the Company.

Save for the special compensation according to the subsection b) above, you shall not be entitled to any compensation for the rights granted to the Company under this Section "Intellectual Property Rights" in addition to the salary agreed between the parties.

Insofar as a transfer of Intellectual Property Rights would be required, you shall at the Company's first request, co-operate and perform all actions that the Company may deem desirable or necessary to effectuate or formalize such transfer.

The provisions of this Section "Intellectual Property Rights" shall survive the termination or expiration of the employment relationship.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Company Property

Furthermore upon termination of your employment, you should return to the Company and/or its affiliates all paper and electronic files and documents, tapes, CD’s, and copies thereof and other items belonging to the Company and its affiliates, irrespective of their source and origin, including Company corporate cards, telephone cards, keys, access and identification cards, computers, and, if requested, will certify that this has been done to the best of your belief and that you also comply with all Company Records & Information Management (RIM) policies, procedures, and guidelines before your departure.

The settlement of any outstanding expenses due to the Company, including, but not limited to any outstanding balance on the account of the corporate card issued in your name could be set-off with any payable sums.

Duties of the Employee

You shall complete your tasks and promote the affairs of the Company diligently and carefully, and shall safeguard the interests of the Company. You have to exercise your responsibilities, functions, duties and powers in compliance with applicable laws and regulations and with the strategies and guidelines of the Company, and will comply with the codes, principles, practices and procedures that are applicable within the Company, as issued or amended during the employment relationship.
You may remain member of one board of directors provided that such membership does not create any conflict of interest with respect to the Company. Membership in any other board of directors must be terminated latest effective December 31, 2020. 

Governing Law, Applicable Policies and Jurisdiction

The validity, construction and performance of this agreement shall be governed by the laws of Switzerland without regard to its conflict of law provisions and shall be subject to the exclusive jurisdiction of the competent courts of the Canton de Vaud, Switzerland. The Policies and Procedures of the Company, Philip Morris International, as amended or newly issued from time to time, shall also apply.

Miscellaneous

The foregoing represents the basis of your employment with the Company. Please indicate your acceptance thereof by signing and returning one copy of this contract to us by February 29, 2020 the latest. After this date this contract will become null and void.

Should you have any questions, feel free to contact Mr. Constantin Romanov, Global Head of Total Rewards.

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01

Miscellaneous (cont’d)

Regarding administrative matters, the People & Culture Department will contact you during your first weeks of employment.

We look forward to your joining Philip Morris Products S.A. in Lausanne, and remain,

Yours sincerely,

PHILIP MORRIS PRODUCTS S.A.

	
		
	/s/ CONSTANTIN ROMANOV
	/s/ RALF ZYSK

	

Constantin Romanov
Global Head of Total Rewards  

	

Ralf Zysk
Global Head of People Sustainability, 
Employee Relations

	
				
	Read and approved:
	/s/ EMMANUEL BABEAU
	Date:
	28/02/2020

	 
	(Emmanuel Babeau)
	 
	 

Philip Morris Products S.A., Avenue de Rhodanie 50, 1007 Lausanne, Switzerland 
T:+41 (58) 242 00 00, F: +41 (58) 242 01 01eprt-ex44_161.htm

 

Exhibit 4.4

DESCRIPTION OF REGISTRANT’S SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Essential Properties Realty Trust, Inc. has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): its common stock, par value $0.01 per share (the “common stock”). For purposes of this exhibit, unless the context otherwise requires, the words “we,” “our,” “us” and “our company” refer to Essential Properties Realty Trust, Inc., a Maryland corporation.

 

DESCRIPTION OF COMMON STOCK

General

The following summary sets forth some of the general terms of our common stock. Because this is a summary, it does not contain all of the information that may be important to you. For a more detailed description of our common stock, you should read our charter and bylaws, each of which is an exhibit to our Annual Report on Form 10-K to which this summary is also an exhibit, and the applicable provisions of the Maryland General Corporation Law (the “MGCL”).

Our charter authorizes us to issue up to 500,000,000 shares of common stock, $0.01 par value per share, and 150,000,000 shares of preferred stock, $0.01 par value per share. A majority of our entire board of directors has the power, without common stockholder approval, to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue. 

Under Maryland law, our stockholders generally are not liable for our debts or obligations solely as a result of stockholders’ status as stockholders.

Terms

Our outstanding shares of common stock are duly authorized, fully paid and nonassessable. Holders of our common stock are entitled to receive distributions when authorized by our board of directors and declared by us out of assets legally available for the payment of dividends. Holders of our common stock are also entitled to share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up, after payment of, or adequate provision for, all of our known debts and liabilities. These rights are subject to the preferential rights of any other class or series of our stock, including any shares of preferred stock we may issue, ranking senior to our common stock and to the provisions of our charter regarding restrictions on ownership and transfer of our stock.

Subject to our charter restrictions on ownership and transfer of our stock and the terms of any other class or series of our stock, each outstanding share of our common stock entitles the holder thereof to one vote on all matters submitted to a vote of stockholders, including the election of directors. Cumulative voting in the election of directors is not permitted. Directors are elected by a plurality of the votes cast at the meeting at which directors are being elected and at which a quorum is present. This means that the holders of a majority of the outstanding shares of our common stock can effectively elect all of the directors then standing for election, and the holders of the remaining shares will not be able to elect any directors.

Our common stockholders have no preference, conversion, exchange, sinking fund or redemption rights and have no preemptive rights to subscribe for any of our capital stock. Our charter provides that our stockholders generally have no appraisal rights unless our board of directors determines that appraisal rights will apply to one or more transactions in which our common stockholders would otherwise be entitled to exercise such rights. Subject to our charter restrictions on ownership and transfer of our stock, holders of shares of our common stock will initially have equal dividend, liquidation and other rights.

 

 

Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, convert into another form of entity, engage in a statutory share exchange or engage in a similar transaction unless such transaction is declared advisable by the board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of all of the votes entitled to be cast on the matter, unless a lesser percentage (but not less than a majority of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. Our charter provides for approval of these matters by the affirmative vote of stockholders entitled to cast a majority of all the votes entitled to be cast on such matter, except that the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on such matter is required to amend the provisions of our charter relating to the removal of directors or the vote required to amend the removal provisions. Maryland law also permits a corporation to transfer all or substantially all of its assets without the approval of its stockholders to an entity, all of the equity interests of which are owned, directly or indirectly, by the corporation. Because our operating assets are held by our operating partnership, Essential Properties, L.P., or its wholly owned subsidiaries, these subsidiaries may be able to merge or transfer all or substantially all of their assets without the approval of our stockholders.

Power to Reclassify Unissued Shares of Common Stock and Issue Additional Shares of Common Stock

Our charter authorizes our board of directors to reclassify any unissued shares of our common stock into other classes or series of stock, including classes or series of preferred stock, and to establish the designation and number of shares of each such class or series and to set, subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock and the terms of any other class or series of our stock, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of each such class or series. Thus, our board of directors could authorize the issuance of shares of common stock or preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our common stock or that our common stockholders otherwise believe to be in their best interests.

Transfer Agent and Registrar

The registrar and transfer agent for our common stock is Computershare Trust Company, N.A.

Listing

Our common stock is listed on the NYSE under the symbol “EPRT.”

Restrictions on Ownership and Transfer

In order for us to maintain our qualification for taxation as a REIT under Internal Revenue Code of 1986, as amended (the “Code”), our stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of stock (after taking into account options to acquire shares of stock) may be owned, directly or through certain constructive ownership rules, by five or fewer individuals (as defined in the Code to include certain entities such as private foundations) at any time during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).

Our charter contains restrictions on the ownership and transfer of our stock that are intended to assist us in complying with these requirements and maintaining our qualification as a REIT, among other reasons. The relevant sections of our charter provide that no person or entity may actually or beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our common stock or 9.8% in value of the aggregate of the outstanding shares of all classes and series of our stock, in each case excluding any shares of our stock that are not treated as outstanding for federal income tax purposes. We refer to each of these restrictions as an “ownership limit” and collectively as the “ownership limits.” A person or entity that would have acquired actual, beneficial or constructive ownership of our stock but for the application of the ownership limits or any of the other restrictions on ownership and transfer of our stock discussed below is referred to as a “prohibited owner.”

2

 

The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our common stock (or the acquisition of an interest in an entity that owns, actually or constructively, our common stock) by an individual or entity could, nevertheless, cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock and thereby violate the applicable ownership limit.

In addition, certain entities that are defined as designated investment entities in our charter, which generally includes pension funds, mutual funds and certain investment management companies, are permitted to own up to 9.8% (in value or in number of shares, whichever is more restrictive) or our outstanding common stock, or 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of all classes and series of stock, so long as each beneficial owner of the shares owned by such designated investment entity would satisfy the ownership limits if those beneficial owners owned directly their pro-rata share of our stock owned by the designated investment entity.

Our charter provides that our board of directors, subject to certain limits, upon receipt of a request that complies with the requirements of our charter and any policy adopted by our board of directors, may retroactively or prospectively exempt a person from either or both of the ownership limits or the designated investment entity limit and establish a different limit on ownership for such person. Subject to certain conditions, we have established an excepted holder limit for (i) a group of affiliated investors that authorizes such investors to own up to 18% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our common stock or 18% in value of the aggregate of the outstanding shares of all classes and series of our stock; and (ii) another group of affiliated investors that authorizes such investors to own up to 15% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our common stock or 15% in value of the aggregate of the outstanding shares of all classes and series of our stock.

Our board of directors may increase or decrease one or both of the ownership limits or the designated investment entity limit for one or more persons, except that a decreased ownership limit will not be effective for any person whose actual, beneficial or constructive ownership of our stock exceeds the decreased ownership limit or decreased investment entity limit at the time of the decrease until the person’s actual, beneficial or constructive ownership of our stock equals or falls below the decreased ownership limit or decreased investment entity limit, although any further acquisition of our stock (other than by a previously exempted person) will violate the decreased ownership limit or decreased investment entity limit. Our board of directors may not increase or decrease any ownership limit or the designated investment entity limit if the new ownership limit or the designated investment entity limit would allow five or fewer persons to actually or beneficially own more than 49.9% in value of our outstanding stock or could cause us to be “closely held” under 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 cause us to fail to continue to qualify as a REIT.

Our charter further prohibits:

	
 
	
•
	
any person from actually, beneficially or constructively owning shares of our stock that could result in us being “closely held” under 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 cause us to fail to continue to qualify as a REIT (including, but not limited to, actual, beneficial or constructive ownership of shares of our stock that could result in us owning (actually or constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income we derive from such tenant, taking into account our other income that would not qualify under the gross income requirements of Section 856(c) of the Code, would cause us to fail to satisfy any the gross income requirements imposed on REITs); and

	
 
	
•
	
any person from transferring shares of our stock if such transfer would result in shares of our stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code).

Any person who acquires or attempts or intends to acquire actual, beneficial or constructive ownership of shares of our stock that will or may violate the ownership limits, the designated investment entity limit or any of the other restrictions on ownership and transfer of our stock described above must give written notice immediately to us or, in the case of a proposed or attempted transaction, provide us at least 15 days prior written notice, and provide us with such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.

3

 

The ownership limits, the designated investment entity limit and other restrictions on ownership and transfer of our stock described above will not apply if our board of directors determines that it is no longer in our best interests to continue to qualify as a REIT or that compliance with any such restriction is no longer required in order for us to continue to qualify as a REIT. 

Pursuant to our charter, if any purported transfer of our stock or any other event would otherwise result in any person violating the ownership limits, the designated investment entity limit or such other limit established by our board of directors, would result in us 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 continue to qualify as a REIT, then the number of shares causing the violation (rounded up to the nearest whole share) will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable beneficiaries selected by us. The prohibited owner will have no rights in shares of our stock held by the trustee. The automatic transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in the transfer to the trust. Any dividend or other distribution paid to the prohibited owner prior to our discovery that the shares had been automatically transferred to a trust as described above must be repaid to the trustee upon demand. If the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable restriction on ownership and transfer of our stock, then the transfer of the number of shares that otherwise would cause any person to violate the above restrictions will be void and of no force or effect, regardless of any action or inaction by the board of directors, and the intended transferee will acquire no rights in the shares. If any transfer of our stock would result in shares of our stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code), then any such purported transfer will be void and of no force or effect and the intended transferee will acquire no rights in the shares.

Shares of our stock transferred to the trustee are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price per share in the transaction that resulted in the transfer of the shares to the trust (or, in the event of a gift, devise or other such transaction, the last sale price reported on the NYSE on the day of the transfer or other event that resulted in the transfer of such shares to the trust) and (2) the last sale price reported on the NYSE on the date we accept, or our designee accepts, such offer. We must reduce the amount payable to the trustee by the amount of dividends and distributions paid to the prohibited owner and owed by the prohibited owner to the trustee and may pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary. We have the right to accept such offer until the trustee has sold the shares of our stock held in the trust. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates and the trustee must distribute the net proceeds of the sale to the prohibited owner and any dividends or other distributions held by the trustee with respect to such stock will be paid to the charitable beneficiary.

Within 20 days of receiving notice from us of the transfer of shares to the trust, the trustee must sell the shares to a person or persons designated by the trustee who can own the shares without violating the ownership limits, the designated investment entity limit or other restrictions on ownership and transfer of our stock. Upon such sale, the interest of the charitable beneficiary will terminate and the trustee must distribute to the prohibited owner an amount equal to the lesser of (1) the price paid by the prohibited owner for the shares (or, if the prohibited owner did not give value in connection with the transfer or other event that resulted in the transfer to the trust (e.g., a gift, devise or other such transaction), the last sale price reported on the NYSE on the day of the transfer or other event that resulted in the transfer of such shares to the trust) and (2) the sales proceeds (net of commissions and other expenses of sale) received by the trustee for the shares. The trustee must reduce the amount payable to the prohibited owner by the amount of dividends and other distributions paid to the prohibited owner and owed by the prohibited owner to the trustee. Any net sales proceeds in excess of the amount payable to the prohibited owner will be immediately paid to the charitable beneficiary, together with any dividends or other distributions thereon. In addition, if prior to discovery by us that shares of our stock have been transferred to the trustee, such shares of stock are sold by a prohibited owner, then such shares shall be deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for or in respect of such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount must be paid to the trustee upon demand.

The trustee will be designated by us and will be unaffiliated with us and with any prohibited owner. Prior to the sale of any shares by the trust, the trustee will receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to such shares, and may exercise all voting rights with respect to such shares for the exclusive benefit of the charitable beneficiary.

4

 

Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee may, at the trustee’s sole and absolute discretion:

	
 
	
•
	
rescind as void any vote cast by a prohibited owner prior to our discovery that the shares have been transferred to the trust; and

	
 
	
•
	
recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary.

However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote.

If our board of directors determines that a proposed transfer or other event has taken place that violates the restrictions on ownership and transfer of our stock set forth in our charter, our board of directors may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including, but not limited to, causing us to redeem shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.

Every owner of 5% or more (or such lower percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding shares of our stock, within 30 days after the end of each taxable year, must give written notice to us stating the name and address of such owner, the number of shares of each class and series of our stock that the owner actually or beneficially owns and a description of the manner in which the shares are held. Each such owner also must provide us with any additional information that we may request in order to determine the effect, if any, of the person’s actual or beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits, the designated investment entity limit and the other restrictions on ownership and transfer of our stock set forth in our charter. In addition, any person that is an actual, beneficial owner or constructive owner of shares of our stock and any person (including the stockholder of record) who is holding shares of our stock for an actual, beneficial owner or constructive owner must disclose to us in writing such information as we may request in order to determine our status as a REIT and comply with requirements of any taxing authority or governmental authority or to determine such compliance.

Any certificates representing shares of our stock will bear a legend referring to the restrictions on ownership and transfer of our stock described above.

These restrictions on ownership and transfer could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for our common stock that our stockholders believe to be in their best interest.

Our Board of Directors

Under our charter and bylaws, the number of directors of our company may be established, increased or decreased only by a majority of our entire board of directors but may not be fewer than the minimum number required under the MGCL (which is one) nor, unless our bylaws are amended, more than 15. 

Removal of Directors

Our charter provides that, subject to the rights of holders of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be removed only for cause (as defined in our charter), and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors.

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Business Combinations

Under the MGCL, certain “business combinations” (including a merger, consolidation, statutory share exchange or, in certain circumstances specified under the statute, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any interested stockholder, or an affiliate of such an interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Maryland law defines an interested stockholder as:

	
 
	
•
	
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or

	
 
	
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an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

A person is not an interested stockholder under the MGCL if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. In approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of the approval, with any terms and conditions determined by it.

After such five-year period, any such business combination must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

	
 
	
•
	
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation, voting together as a single voting group; and

	
 
	
•
	
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, voting together as a single voting group.

These supermajority approval requirements do not apply if, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares.

These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a corporation’s board of directors prior to the time that the interested stockholder becomes an interested stockholder. As permitted by the MGCL, our board of directors has adopted a resolution exempting any business combination between us and any other person from the provisions of this statute. Consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations involving us. As a result, any person will be able to enter into business combinations with us that may not be in the best interests of our stockholders, without compliance with the supermajority vote requirements and other provisions of the statute. Our bylaws provide that this resolution or any other resolution of our board of directors exempting any business combination from the business combination provisions of the MGCL may only be revoked, altered or amended, and our board of directors may only adopt an inconsistent resolution, if approved by the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors.

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Control Share Acquisitions

The MGCL provides that a holder of “control shares” of a Maryland corporation acquired in a “control share acquisition” has no voting rights with respect to those shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast by stockholders entitled to exercise or direct the exercise of the voting power in the election of directors generally but excluding: (1) the person who has made or proposes to make the control share acquisition; (2) any officer of the corporation; or (3) any employee of the corporation who is also a director of the corporation. “Control shares” are voting shares of stock that, if aggregated with all other such shares of stock previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges:

	
 
	
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one-tenth or more but less than one-third;

	
 
	
•
	
one-third or more but less than a majority; or 

	
 
	
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a majority or more of all voting power.

Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition, directly or indirectly, of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses and making an “acquiring person statement” as described in the MGCL), may compel the board of directors of the Maryland corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the control shares. If no request for a special meeting is made, the corporation may itself present the question at any stockholders meeting.

If voting rights of control shares are not approved at the meeting or if the acquiring person does not deliver an “acquiring person statement” as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or, if a meeting of stockholders is held at which the voting rights of such shares are considered and not approved, as of the date of such meeting. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.

The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or statutory share exchange if the corporation is a party to the transaction or (2) to acquisitions approved or exempted by the charter or bylaws of the corporation.

Our bylaws contain a provision exempting from the control share acquisition statute any and all control share acquisitions by any person of shares of our stock, and this provision of our bylaws cannot be amended without the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors.

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Subtitle 8

Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to be subject to any or all of the following five provisions:

	
 
	
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a classified board;

	
 
	
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a two-thirds vote requirement for removing a director;

	
 
	
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a requirement that the number of directors be fixed only by vote of the directors;

	
 
	
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a requirement that a vacancy on the board be filled only by a vote of the remaining directors (whether or not they constitute a quorum) and for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies; or

	
 
	
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a majority requirement for the calling of a special meeting of stockholders.

We have elected to be subject to the provision of Subtitle 8 that provides that vacancies on our board of directors may be filled only by the remaining directors (whether or not they constitute a quorum) and that a director elected by the board of directors to fill a vacancy will serve for the remainder of the full term of the directorship. We have not elected to be subject to any of the other provisions of Subtitle 8, including the provisions that would permit us to classify our board of directors without stockholder approval. Moreover, our charter provides that, without the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors, we may not elect to be subject to any of these additional provisions of Subtitle 8. Through provisions in our charter and bylaws unrelated to Subtitle 8, we (1) vest in our board of directors the exclusive power to fix the number of directors, (2) require, unless called by our chairman, our chief executive officer, our president or our board of directors, the request of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting to call a special meeting of stockholders and (3) provide that a director may be removed only for cause and by the affirmative vote of two-thirds of the votes entitled to be cast generally in the election of directors.

Amendments to Our Charter and Bylaws

Except as described herein and as provided in the MGCL, amendments to our charter must be advised by our board of directors and approved by the affirmative vote of our stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter, and our board of directors has the exclusive power to amend our bylaws. Any amendment to the provisions of our charter relating to the removal of directors or amendments to such provisions will require the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter. In addition, amendments to the provisions of our bylaws prohibiting our board of directors from revoking, altering or amending its resolution exempting any business combination from the “business combination” provisions of the MGCL or exempting any acquisition of our stock from the “control share” provisions of the MGCL without the approval of our stockholders must be approved by the affirmative vote of a majority of the votes cast on the matter by our stockholders entitled to vote generally in the election of directors.

Meetings of Stockholders

Under our bylaws and pursuant to Maryland law, annual meetings of stockholders will be held each year at a date and at the time and place determined by our board of directors. Special meetings of stockholders may be called by our board of directors, the chairman of our board of directors, our president or our chief executive officer. Additionally, subject to the provisions of our bylaws, special meetings of the stockholders to act on any matter must be called by our secretary upon the written request of stockholders entitled to cast a majority of all the votes entitled to be cast on such matter at such meeting who have requested the special meeting in accordance with the procedures set forth in, and provided the information and certifications required by, our bylaws. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials), and the requesting stockholder must pay such estimated cost before our secretary may prepare and deliver the notice of the special meeting.

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Corporate Opportunities

Our charter provides that, to the maximum extent permitted by Maryland law, each of Eldridge Industries, LLC (“Eldridge”), its affiliates, each of their representatives, and each of our directors or officers that is an employee, affiliate or designee for nomination as a director of Eldridge or its affiliates has the right to, and has no duty not to, (x) directly or indirectly engage in the same or similar business activities or lines of business as us, including those deemed to be competing with us, or (y) directly or indirectly do business with any of our clients, customers or suppliers.  In the event that Eldridge or any of its affiliates or employees, or any of their representatives or designees, acquires knowledge of a potential transaction or matter that may be a corporate opportunity for us, Eldridge, its affiliates and employees and any of their representatives or designees, to the maximum extent permitted by Maryland law, have no duty to communicate or present such corporate opportunity to us or any of our affiliates and shall not be liable to us or any of our affiliates, subsidiaries, stockholders or other equity holders for breach of any duty by reason of the fact that Eldridge or any of its affiliates or employees, or any of their representatives or designees, directly or indirectly, pursues or acquires such opportunity for themselves, directs such opportunity to another person or does not present such opportunity to us or any of our affiliates; provided, however, that such corporate opportunity is not presented to such person in his or her capacity as a director or officer of us.  As of the date of filing, no affiliates of Eldridge currently serve as directors or officers of us.

Advance Notice of Director Nominations and New Business

Our bylaws provide that with respect to an annual meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of business to be considered by stockholders at the annual meeting may be made only:

	
 
	
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pursuant to our notice of the meeting;

	
 
	
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by or at the direction of our board of directors; or

	
 
	
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by a stockholder who was a stockholder of record at the record date set by the board of directors for the meeting, at the time of giving of the notice of the meeting and at the time of the annual meeting (and any postponement or adjustment thereof), who is entitled to vote at the meeting in the election of each individual so nominated or on such other business and who has complied with the advance notice procedures set forth in, and provided the information and certifications required by, our bylaws.

With respect to special meetings of stockholders, our bylaws provide that only the business specified in our company’s notice of meeting may be brought before the special meeting of stockholders, and nominations of individuals for election to our board of directors may be made only:

	
 
	
•
	
by or at the direction of our board of directors; or

	
 
	
•
	
provided that the meeting has been called in accordance with our bylaws for the purpose of electing directors, by a stockholder who is a stockholder of record at the record date set by the board of directors for the meeting, at the time of giving of the notice required by our bylaws and at the time of the meeting (and any postponement or adjustment thereof), who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice provisions set forth in, and provided the information and certifications required by, our bylaws.

Requiring stockholders to give advance notice of nominations and other proposals affords our board of directors and our stockholders the opportunity to consider the qualifications of the proposed nominees or the advisability of the other proposals and, to the extent considered necessary by our board of directors, to inform stockholders and make recommendations regarding the nominations or other proposals. Although our bylaws do not give our board of directors the power to disapprove timely stockholder nominations and proposals, our bylaws may have the effect of precluding a contest for the election of directors or proposals for other action if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors to our board of directors or to approve its own proposal.

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Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws

The restrictions on ownership and transfer of our stock, the supermajority vote required to remove directors, our election to be subject to the provision of Subtitle 8 vesting in our board of directors the exclusive power to fill vacancies on our board of directors and the advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change of control of our company.

Further, a majority of our entire board of directors has the power, without common stockholder action, to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock that we are authorized to issue, to classify and reclassify any unissued shares of our stock into other classes or series of stock, and to authorize us to issue the newly classified shares, and could authorize the issuance of shares of common stock or another class or series of stock, including a class or series of preferred stock, that could have the effect of delaying, deferring or preventing a change in control of us. These actions may be taken without stockholder approval unless such approval is required by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation system on which any of our stock is listed or traded. We believe that the power of our board of directors to increase or decrease the number of authorized shares of stock and to classify or reclassify unissued shares of our common stock or preferred stock and thereafter to cause us to issue such shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise.

Our charter and bylaws also provide that the number of directors may be established only by our board of directors, which prevents our stockholders from increasing the number of our directors and filling any vacancies created by such increase with their own nominees. The provisions of our bylaws discussed under the captions “Meetings of Stockholders” and “Advance Notice of Director Nominations and New Business” require stockholders seeking to call a special meeting, nominate an individual for election as a director or propose other business at an annual or special meeting to comply with certain notice and information requirements. We believe that these provisions will help to assure the continuity and stability of our business strategies and policies as determined by our board of directors and promote good corporate governance by providing us with clear procedures for calling special meetings, information about a stockholder proponent’s interest in us and adequate time to consider stockholder nominees and other business proposals. However, these provisions, alone or in combination, could make it more difficult for our stockholders to remove incumbent directors or fill vacancies on our board of directors with their own nominees and could delay, defer or prevent a change in control, including a proxy contest or tender offer that might involve a premium price for our common stockholders or otherwise be in the best interest of our stockholders.

Exclusive Forum

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf, (c) any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (d) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our charter or bylaws or (e) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine.

Limitation of Liability and Indemnification of Directors and Officers

Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.

10

 

The MGCL requires a Maryland corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. The MGCL permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to or in which they may be made or are threatened to be made a party or witness by reason of their service in those or other capacities unless it is established that:

	
 
	
•
	
the act or omission of the director or officer was material to the matter giving rise to the proceeding and the action was committed in bad faith or was the result of active and deliberate dishonesty;

	
 
	
•
	
the director or officer actually received an improper personal benefit in money, property or services; or

	
 
	
•
	
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.

In addition, under the MGCL, a Maryland corporation may not indemnify a director or officer for an adverse judgment in a suit by or on behalf of the corporation or if the director or officer was adjudged liable on the basis that personal benefit was improperly received, unless, in either case, a court orders indemnification and then only for expenses. A court may order indemnification for expenses if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received.

In addition, the MGCL permits a Maryland corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of:

	
 
	
•
	
a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and

	
 
	
•
	
a written undertaking, which may be unsecured, by the director or officer or on his or her behalf to repay the amount paid if it shall ultimately be determined that the standard of conduct was not met.

Our charter obligates us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding without requiring a preliminary determination of the director’s or officer’s ultimate entitlement to indemnification to:

	
 
	
•
	
any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or 

	
 
	
•
	
any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.

Our charter also permits us, with the approval of our board of directors, to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities described above and to any employee or agent of our company or a predecessor of our company.

REIT Qualification

Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without approval of our stockholders if it determines that it is no longer in our best interest to attempt to  continue to qualify as a REIT.

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