<PAGE> 1
REGISTRATION NO. 33-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TARRAGON REALTY INVESTORS, INC.
(Exact name of registrant as specified in governing instruments)
Nevada
.............................................................................
(State or other jurisdiction of incorporation or organization)
.............................................................................
(Primary Standard Industrial Classification Code Number)
94-2432628
.............................................................................
(IRS Employer Identification No.)
3100 Monticello Avenue, Suite 200
Dallas, Texas 75205
(214) 599-2200
(Address of principal executive offices)
----------------------------------------
William S. Friedman, Esq.
280 Park Avenue, East Building, 20th Floor
New York, New York 10017
(212) 949-5000
(Name and address of agent for service)
With a Copy to:
Steven C. Metzger, Esq.
Hill & Metzger, L.L.P.
3878 Oak Lawn Avenue, Fourth Floor
Dallas, Texas 75219
(214) 523-3700
(214) 523-3838 (Fax)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Title of Securities to be Amount to be Proposed maximum Proposed maximum Amount of
Registered registered offering price per unit aggregate offering price registration fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tarragon Realty 1,343,119 $10(2) $13,431,190(2) $4,070.06
Investors, Inc. common
stock, par value $0.01
per share(1)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tarragon Realty Investors, Inc. ("TRII") common stock is being offered
in exchange for 1,343,119 shares of Beneficial Interest of Vinland
Property Trust (the "Trust") pursuant to the "Incorporation Procedure"
which is subject to approval by the Trust's shareholders.
(2) Pursuant to Rule 457(f), the proposed Maximum Offering Price Per Unit
and Proposed Maximum Aggregate Offering Price have been calculated
upon the basis of the average of the bid and asked price of the Trust
shares on April 4, 1997 which was $10.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
VINLAND PROPERTY TRUST
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-4 ITEM NO. AND CAPTION LOCATION IN PROSPECTUS
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Outside Front Cover Page of Prospectus . . . .
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages
Prospectus . . . . . . . . . . . . . . . . . .
3. Risk Factors, Ratio of Earnings to Fixed Charges Prospectus Summary; Certain Risk Factors
and Other Information . . . . . . . . . . . . .
4. Terms of the Transaction . . . . . . . . . . . Proposed Incorporation Procedure
5. Pro Forma Financial Information . . . . . . . . *
6. Material Contacts with the Company Being *
Acquired . . . . . . . . . . . . . . . . . . .
7. Additional Information Required for Re-offering Proposed Incorporation Procedure; Business Activities After
by Persons and Parties Deemed to be Underwriters Incorporation Procedure
8. Interests of Named Experts and Counsel . . . . *
9. Disclosure of Commission Position on Liability of Certain Persons
Indemnification for Securities Act Liabilities
10. Information with Respect to S-3 Registrants . . *
11. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . . .
12. Information with Respect to S-2 and S-3 *
Registrants . . . . . . . . . . . . . . . . . .
13. Incorporation of Certain Information by *
Reference . . . . . . . . . . . . . . . . . . .
14. Information with Respect to Registrants other Business and Properties of TRII Nevada; Incorporation Procedure;
Than S-3 and S-2 . . . . . . . . . . . . . . . Index to Financial Statements
15. Registrant's Information with Respect to S-3 *
Companies . . . . . . . . . . . . . . . . . . .
16. Information with Respect to S-2 or S-3 Companies *
17. Information with respect to Companies other than Business and Properties of the Trust; Market Prices of the Shares;
S-3 or S-2 Companies . . . . . . . . . . . . . Distributions and Related Shareholder Matters; Selected Financial
Data; Index to Financial Statements; Incorporation of Certain
Documents by Reference
18. Information if Proxies, Consents or General Shareholder Information; Solicitation of Proxies;
Authorizations are to be Solicited . . . . . . Interests of Certain Persons in Matters to be Acted Upon;
Principal Shareholders and Management; Election of Trustees
19. Information if Proxies, Consents or *
Authorizations are not to be Solicited or in an
Exchange Offer . . . . . . . . . . . . . . . .
</TABLE>
__________________________________
* Not applicable or answered in negative and item omitted from Prospectus.
<PAGE> 3
VINLAND PROPERTY TRUST
3100 Monticello
Suite 200
Dallas, Texas 75205
(214) 599-2200
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Vinland Property Trust:
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of Vinland
Property Trust (the "Trust") will be held at 2:00 p.m., local New York City
time, on Tuesday, June 24, 1997, at 280 Park Avenue, East Building, 20th Floor,
New York, New York 10017, to consider and vote on the following matters:
(1) election of four Trustees of the Trust;
(2) approval of the Trust's Current Advisory Agreement with
Tarragon Realty Advisors, Inc.;
(3) a proposal to change the name of, and convert the Trust from a
California business trust into a Nevada corporation through
the "Incorporation Procedure" described in the accompanying
Proxy Statement/Prospectus;
(4) the transaction of such other business as may properly come
before the Annual Meeting or any adjournments thereof.
The principal components of the Incorporation Procedure are:
(i) the filing of articles of incorporation with the Secretary of
State of California, converting the Trust from a California
business trust into Vinland Property Corporation, a California
corporation (the "California Corporation") on a one-for-one
basis;
(ii) the execution of an Agreement and Plan of Merger between the
California Corporation (as successor to the Trust) and its
recently organized, wholly-owned Nevada subsidiary Tarragon
Realty Investors, Inc. ("TRII Nevada"), that provides, among
other things, for (a) the merger of the California Corporation
with and into TRII Nevada such that the California Corporation
shall cease to exist and TRII Nevada shall be the surviving
corporation (the "Merger"), (b) the issuance by TRII Nevada of
one share of its common stock in exchange for each share of
common stock of the California Corporation and (c) for the
cancellation of all shares of TRII Nevada's common stock held
by the California Corporation, with the effect that (i) the
shareholders of the California Corporation would become the
stockholders of TRII Nevada without any change in their
percentage ownership, (ii) the California Corporation would
cease to exist, and (iii) TRII Nevada would succeed to all the
rights and properties, and be subject to all the obligations
and liabilities, of the Trust incorporated as the California
Corporation; and
(iii) the filing of articles of merger with the Secretary of State
of Nevada and the Secretary of State of California to effect
the Merger.
THE INCORPORATION PROCEDURE IS PRESENTED AS A SINGLE UNIFIED PROPOSAL
TO BE APPROVED OR REJECTED BY SHAREHOLDERS IN ITS ENTIRETY. APPROVAL OF THE
INCORPORATION PROCEDURE WILL CONSTITUTE APPROVAL OF EACH OF COMPONENTS (I) TO
(III) ABOVE, INCLUDING (1) ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, (2)
APPROVAL AND RATIFICATION OF (A) THE FORMATION OF TRII NEVADA AS A WHOLLY-OWNED
SUBSIDIARY OF THE TRUST AND (B) EACH OF THE OTHER COMPONENTS OF THE
INCORPORATION PROCEDURE AND (3) APPROVAL AND RATIFICATION OF ANY AND ALL
FURTHER STEPS NECESSARY OR APPROPRIATE IN THE JUDGMENT OF MANAGEMENT TO
EFFECTUATE THE INCORPORATION PROCEDURE.
If Shareholders approve the proposed Incorporation Procedure, each of
the current Trustees of the Trust would continue to serve as a director of TRII
Nevada until his initial term expires under TRII Nevada's Articles of
Incorporation or until a successor is elected. TRII Nevada would succeed to
and assume, by operation of law, all rights and obligations of the Trust.
Only Shareholders of record at the close of business on Friday, May 9,
1997 will be entitled to vote at the Annual Meeting. Shareholders are
cordially invited to attend the Annual Meeting in person.
Regardless of whether you plan to be present at the Annual Meeting,
please promptly date, mark, sign, and mail the enclosed proxy ballot card to
American Stock Transfer and Trust Company, in the envelope provided. Any
Shareholder who executes and delivers the enclosed proxy may revoke the
authority granted thereunder at any time prior to its use by giving written
notice of such revocation to American Stock Transfer and Trust Company, 40 Wall
Street, 46th Floor, New York, New York 10005, or by executing and delivering a
proxy bearing a later date. A SHAREHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING
AND VOTING AT THE ANNUAL MEETING. Your vote is important, regardless of the
number of shares you own.
<PAGE> 4
The Annual Report to Shareholders for the year ended November 30, 1995
was previously mailed to Shareholders under separate cover.
Dated: May 20, 1997
BY ORDER OF THE BOARD OF TRUSTEES OF
VINLAND PROPERTY TRUST
Lawrence Hartman, Vice President
and Secretary
IMPORTANT
YOU CAN HELP THE TRUST AVOID THE NECESSITY AND EXPENSE OF SENDING
FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY
BALLOT CARD. IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, PLEASE MARK,
DATE, SIGN AND RETURN THE ENCLOSED PROXY BALLOT CARD SO THAT THE NECESSARY
QUORUM MAY BE REPRESENTED AT THE ANNUAL MEETING. THE ENCLOSED ENVELOPE
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
FAILURE TO VOTE MAY SUBJECT THE TRUST TO FURTHER EXPENSE
If your shares are held in the name of a brokerage firm, nominee or other
institution, only it can vote your shares.
Please contact promptly the person responsible for your account and give
instructions for your shares to be voted.
THIS PROXY STATEMENT/PROSPECTUS IS A PROSPECTUS OFFERING VINLAND
PROPERTY INVESTORS, INC.'S COMMON STOCK, PAR VALUE $0.01 PER SHARE AS A RESULT
OF THE INCORPORATION PROCEDURE TO BE VOTED UPON BY SHAREHOLDERS OF VINLAND
PROPERTY TRUST.
THE COMMON STOCK OF TRII NEVADA TO BE ISSUED IN CONNECTION WITH THE
INCORPORATION PROCEDURE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________________
The date of this Proxy Statement/Prospectus is May _____, 1997.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Trust and TRII Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Proposed Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Principal Components of the Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Business Activities after Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Material Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Selected Historical Consolidated Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
GENERAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Shareholders Entitled to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Vote Required for Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Future Proposals of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PRINCIPAL SHAREHOLDERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Security Ownership of Certain Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Security Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PROPOSAL ONE-ELECTION OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Litigation and Claims Involving Mr. Friedman Related to Southmark Corporation . . . . . . . . . . . . . . . . 6
Board Committees and Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Compliance with Section 16(a) of the Securities Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . 9
The Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Property Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Real Estate Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PROPOSAL TWO-APPROVAL OF THE CURRENT ADVISORY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Current Advisory Agreement with Tarragon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PROPOSAL THREE-PROPOSED INCORPORATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SHAREHOLDERS OF THE TRUST WILL NOT HAVE ANY DISSENTERS' RIGHTS OF
APPRAISAL WITH RESPECT TO THE INCORPORATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Certain Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Principal Reasons for the Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Greater Legal Certainty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Replacement of the Fixed-Life Trust with a Perpetual-Life Corporation . . . . . . . . . . . . . . . . . . . 29
Acquisition Safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certain Potential Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
The One-for-One Exchange of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Comparison of Principal Differences Between the Trust and TRII Nevada . . . . . . . . . . . . . . . . . . . 34
Management after Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Liability of Certain Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Business Activities After Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Comparison of the Securities of TRII Nevada and the Trust . . . . . . . . . . . . . . . . . . . . . . . . . 43
Stockholder Management Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Establishment of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Amendment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Material Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Certain Foreign, State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
MARKET PRICES OF THE SHARES; DISTRIBUTIONS AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . 52
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Odd-Lot Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
BUSINESS AND PROPERTIES OF TRII NEVADA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
TRII Nevada's Policy with Respect to Certain Activities . . . . . . . . . . . . . . . . . . . . . . . . . . 55
BUSINESS AND PROPERTIES OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Business Description and Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Certain Factors Associated with Real Estate and Related Investments . . . . . . . . . . . . . . . . . . . . 56
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Lending Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Policies with Respect to Other Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . 63
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Allowance for Estimated Losses and Provisions for Losses . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SELECTION OF AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SOLICITATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
INDEX OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ADVISORY AGREEMENT BETWEEN VINLAND PROPERTY TRUST AND
TARRAGON REALTY ADVISORS, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
AGREEMENT AND PLAN OF MERGER OF VINLAND PROPERTY CORPORATION
AND TARRAGON REALTY INVESTORS, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
ARTICLES OF INCORPORATION OF TARRAGON REALTY INVESTORS, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
BYLAWS OF VINLAND PROPERTY INVESTORS, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
AMENDED AND RESTATED DECLARATION OF TRUST OF
CONSOLIDATED CAPITAL REALTY INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
RESTATED TRUSTEE'S REGULATIONS OF VINLAND PROPERTY TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 7
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED IN
THE BODY OF THE PROXY STATEMENT/PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY
THE DETAILED INFORMATION CONTAINED THEREIN. THIS BRIEF SUMMARY IS INTENDED
MERELY TO HIGHLIGHT CERTAIN INFORMATION TO ASSIST SHAREHOLDERS. A THOROUGH
READING OF THE ENTIRE PROXY STATEMENT/PROSPECTUS, AS WELL AS CONSULTATION WITH
QUALIFIED ADVISORS, IS RECOMMENDED. THE TRUST AND TRII NEVADA
The Trust is a California business trust that has invested in mortgage
loans and in equity interests in real estate. TRII Nevada is a Nevada
corporation and a wholly-owned subsidiary of the Trust formed on April 2, 1997
to facilitate the proposed Incorporation Procedure. The principal executive
offices of the Trust and TRII Nevada are located at 3100 Monticello, Suite 200,
Dallas, Texas 75205, telephone number (214) 599-2200.
THE ANNUAL MEETING
TIME, DATE AND PLACE. The Annual Meeting of Shareholders will be held
at 2:00 p.m., local New York City time on June 24, 1997 at 280 Park Avenue,
East Building, 20th Floor, New York, New York 10017.
PURPOSES OF ANNUAL MEETING. At the Annual Meeting Shareholders will
consider and vote upon:
(i) the election of four Trustees
(ii) the approval of the current Advisory Agreement
(iii) The approval of a proposal to change the name of and convert
the Trust from a California business trust into TRII Nevada, a
Nevada corporation, through the "Incorporation Procedure"
described in this Proxy Statement/Prospectus.
As the Trust's independent auditors, representatives from Arthur
Andersen LLP are expected to be present at the Annual Meeting to respond to
appropriate questions, and such representatives will have an opportunity to
make a statement if they desire to do so.
RECORD DATE; VOTING INFORMATION. Only holders of record of issued and
outstanding shares of beneficial interest of the Trust (the "Shares") at the
close of business on the record date, May 9, 1997, are entitled to vote at the
Annual Meeting. As of May 9, 1997, there were 1,343,119 Shares outstanding and
entitled to one vote each, of which approximately 28% are currently held by
trustees, executive officers and their affiliates. The affirmative vote of the
then holders of a majority of the outstanding shares (at least 671,560 Shares)
is required to approve the proposed Incorporation Procedure. The affirmative
vote of a majority of the Shares present at the meeting is required for the
election of Trustees and the approval of the current Advisory Agreement.
PROPOSED INCORPORATION PROCEDURE
The Incorporation Procedure would be accomplished by incorporating the
Trust in California into a California corporation named Vinland Property
Corporation (the "California Corporation") and merging the Trust, after it is
so incorporated, with and into TRII Nevada (the "Merger"). As a result of the
Merger, (i) TRII Nevada, by operation of law, would succeed to all the rights
and properties, and be subject to all the obligations and liabilities, of the
Trust as incorporated as the California Corporation, (ii) each of the current
Trustees of the Trust would continue to serve as directors of TRII Nevada, and
(iii) existing Shareholders would automatically become stockholders of TRII
Nevada by the deemed exchange of all shares of the California Corporation for
newly issued shares of common stock, par value $.01 per share, of TRII Nevada
("Nevada Common Stock") on the basis of a one-to-one exchange. The name of the
resulting entity will be the name of TRII Nevada.
The issuance of shares of Nevada Common Stock and the exchange will
not affect the proportionate security holdings of any Shareholder of the Trust.
Although Shareholders will be required to surrender their Share certificates in
exchange for Nevada Common Stock certificates if the Incorporation Procedure is
approved, Shareholders should not return their Share certificates with their
proxies at this time. The Board of Trustees recommends the Incorporation
Procedure in order to (i) change the current charter of the Trust to eliminate
restrictions on investments and provisions regarding liquidation, and (ii)
cause the Trust to do business as a corporation rather than a trust.
The Incorporation Procedure, if approved, will result in a fundamental
change to Shareholders in the nature of their investment. The Incorporation
Procedure may alter Shareholders' rights: (i) The directors of the Nevada
corporation, unlike the Trustees of the Trust, will be entitled to be
indemnified for liability arising from gross negligence and reckless disregard
of duty, (ii) the Nevada corporation will adopt certain anti-takeover defenses
that have not been adopted by the Trust which could have the effect of
rendering more difficult or discouraging a future attempt to acquire control of
TRII Nevada by a merger, tender offer, proxy contest or removal of incumbent
management without the approval of the Board of Directors, and (iii) certain
protections available under California law will be eliminated.
If Shareholders approve the proposed Incorporation Procedure, each of
the current Trustees of the Trust would continue to serve as a director of TRII
Nevada until his initial term expires under TRII Nevada's Articles of
Incorporation or until a successor
<PAGE> 8
is elected. Under TRII Nevada's Articles of Incorporation, the initial terms
of its directors extend to the first annual meeting of stockholders.
TRII Nevada would succeed to and assume, by operation of law, all
rights and obligations of the Trust, including those under its current Advisory
Agreement (the "Advisory Agreement") with Tarragon.
PRINCIPAL COMPONENTS OF THE INCORPORATION PROCEDURE
The principal components of the Incorporation Procedure are:
(i) the filing of articles of incorporation with the
Secretary of State of California, converting the Trust from a
California business trust into the California Corporation and
converting shares of the Trust into shares of the California
Corporation on a one-for-one basis.
(ii) the execution of an Agreement and Plan of Merger
between the California Corporation (as successor to the Trust) and
TRII Nevada that provides, among other things, for (a) the merger of
the California Corporation with and into TRII Nevada such that the
California Corporation shall cease to exist and TRII Nevada shall be
the surviving corporation (the "Merger"), (b) the issuance by TRII
Nevada of one share of Nevada Common Stock in exchange for each share
of common stock outstanding of the California Corporation, and (c) the
cancellation of all shares of Nevada Common Stock then held by the
California Corporation, with the effect that (x) the shareholders of
the California Corporation would become the stockholders of TRII
Nevada without any change in their percentage ownership, (y) the
California Corporation would cease to exist, and (z) TRII Nevada would
succeed to all the rights and properties, and be subject to all the
obligations and liabilities of the Trust incorporated as the
California Corporation including, without limitation, those under the
Advisory Agreement referred to above (as amended to provide for a
substantially identical contractual operating expense limitation); and
(iii) the filing of articles of merger with the Secretary
of State of Nevada and the Secretary of State of California to effect
the Merger.
THE INCORPORATION PROCEDURE IS PRESENTED AS A SINGLE UNIFIED PROPOSAL
TO BE APPROVED OR REJECTED BY SHAREHOLDERS IN ITS ENTIRETY. APPROVAL OF THE
INCORPORATION PROCEDURE WILL CONSTITUTE APPROVAL OF EACH OF THE COMPONENTS OF
THE INCORPORATION PROCEDURE, INCLUDING (1) ADOPTION OF THE AGREEMENT AND PLAN
OF MERGER REFERENCED ABOVE IN ALL RESPECTS, INCLUDING AS A SHAREHOLDER OF THE
CALIFORNIA CORPORATION, (2) APPROVAL AND RATIFICATION OF (A) THE FORMATION OF
TRII NEVADA AS A WHOLLY-OWNED SUBSIDIARY OF THE TRUST AND (B) EACH OF THE OTHER
COMPONENTS OF THE INCORPORATION PROCEDURE AND (3) APPROVAL AND RATIFICATION OF
ANY AND ALL FURTHER STEPS NECESSARY OR APPROPRIATE IN THE JUDGMENT OF
MANAGEMENT TO EFFECTUATE THE INCORPORATION PROCEDURE.
BUSINESS ACTIVITIES AFTER INCORPORATION
The Incorporation Procedure will not otherwise significantly change
the nature or conduct of the Trust's business, assets, operations, location of
executive office, liabilities, financial status or, except to the extent TRII
Nevada may issue special or preferred stock in the future, voting rights per
share. The affairs and the rights of stockholders of TRII Nevada will be
governed by Nevada corporate law and articles of incorporation and bylaws
rather than by California law and the Declaration of rust and the Trustees'
Regulations; the governing documents of TRII Nevada provide for no restrictions
on the investments of TRII Nevada, indemnification standards that are somewhat
more beneficial to directors and a larger array of anti-takeover mechanisms
than is found in the Declaration of Trust. The Incorporation Procedure could
have the effect of rendering more difficult or discouraging a future attempt to
acquire control of TRII Nevada, either by a merger, tender offer, proxy contest
or removal of incumbent management without the approval of the Board of
Directors, even though certain stockholders of TRII Nevada might desire such a
change in control. No change in the Trust's continued qualification for
taxation as a real estate investment trust under the Code is expected to result
from the Incorporation Procedure or TRII Nevada's operation of the Trust's
business in corporate form following the Merger.
The Incorporation Procedure would result in certain other changes
affecting Shareholders including, among other things, the existence of certain
legal and procedural differences caused by the Trust's change from a business
trust governed by California law and by the Declaration of rust and the
Restated Trustees' Regulations dated as of April 21, 1989 (the "Trustees
Regulations") to a corporation governed by Nevada corporate law and by its
Articles of Incorporation and Bylaws.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Trust and TRII Nevada have received an opinion from Counsel to the
effect that: (i) the Incorporation Procedure will constitute a reorganization
within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended (the "Code"); (ii) upon consummation of the Incorporation
Procedure, TRII Nevada will be treated as the same taxpayer as the Trust for
federal income tax purposes; (iii) thus, the conversion of the Trust into TRII
Nevada essentially will be irrelevant for federal income tax purposes and the
operations of the rust and TRII Nevada will be combined for purposes of
determining whether TRII Nevada qualifies as a real estate investment trust for
the taxable year in which the Incorporation Procedure is consummated; and (iv)
the Incorporation Procedure will not, in and of itself, adversely affect the
ability of the Trust or TRII Nevada to qualify as a real estate
<PAGE> 9
investment trust for federal income tax purposes. It should be noted that an
opinion of counsel is not binding on the Internal Revenue Service or on the
courts.
No gain or loss will be recognized by the Trust as a result of the
Incorporation Procedure. Similarly, no gain or loss will be recognized by
Shareholders. The federal income tax consequences of the Incorporation
Procedure to the Trust and to Shareholders would be materially different from
those described herein if a determination were made that the Incorporation
Procedure did not constitute a reorganization under the Code. Such a
determination could have adverse federal income tax consequences to TRII Nevada
and to Shareholders. All Shareholders should consult their own tax advisors as
to the effect of the Incorporation Procedure on their individual tax liability
under applicable foreign, state or local income tax laws.
REGULATORY REQUIREMENTS
The Board of Trustees is not aware of any license, regulatory permit
or of any approval by any domestic or foreign governmental or administrative
agency that would be required to effect the Incorporation Procedure.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes selected historical consolidated
financial information of the Trust for last five years ended November 30, 1992
through 1996 and the three month periods ended February 28, 1997 and February
29, 1996. TRII Nevada is a newly-created corporation that, by operation of
law, would succeed to all the rights and properties, and be subject to all the
obligations and liabilities of the Trust as incorporated as the California
Corporation upon consummation of the proposed Incorporation Procedure. Thus,
for accounting purposes, the assets, liabilities and stockholder's equity of
TRII Nevada would be accounted for, on a carry- over basis, as the continuing
entity which would be the successor to the Trust. The Incorporation Procedure,
if adopted, will have no effect on the book value of the assets, liabilities or
Shareholder's equity of the Trust.
The historical consolidated financial information is not necessarily
indicative of TRII Nevada's future results of operations or financial
condition. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the "Trust's Consolidated Financial Statements and
Supplementary Data." Results for the interim periods are not necessarily
indicative of the results for a full year.
VINLAND PROPERTY TRUST
SELECTED FINANCIAL DATA (HISTORICAL)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the
Three
Months
Ended For the Years Ended November 30,
------------------------ ---------------------------------------------------------------
OPERATING DATA Feb. 28, Feb. 29,
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income . . . . . . . . . . . . . . . .$ 2,182 $ 2,380 $ 9,464 $ 8,437 $ 6,846 $ 6,042 $ 4,679
Expense . . . . . . . . . . . . . . . 2,224 2,280 9,537 8,410 7,275 6,649 5,174
---------- ---------- ----------- ---------- ---------- ---------- ----------
Income <loss> before minority interest,
net gain on sale of real estate and
extraordinary item . . . . . . . . . (42) 100 (73) 27 (429) (607) (495)
Net gain <loss> on sale of
real estate . . . . . . . . . . . . - (193) 673 - - - 1,875
Minority interest in income of
consolidated Partnership . . . . . (9) - - - - - -
---------- ---------- ----------- ---------- ---------- ---------- ----------
Income <loss> from continuing
operations . . . . . . . . . . . . . (51) (93) 600 27 (429) (607) 1,380
Extraordinary gain . . . . . . . . . . - 253 253 - - - -
---------- ---------- ----------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . .$ (51) $ 160 $ 853 $ 27 $ (429) $ (607) $ 1,380
========== ========== =========== ========== ========== ========== ==========
EARNINGS PER SHARE DATA
Income (loss) from continuing
operations . . . . . . . . . . . . $ (.04) $ (.06) $ 0.44 $ 0.02 $ (.31) $ (.51) $ 1.16
Extraordinary Gain . . . . . . . . . - 0.18 0.19 - - - -
---------- ---------- ----------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . $ (.04) $ 0.12 $ 0.63 $ 0.02 $ (.31) $ (.51) $ 1.16
========== ========== =========== ========== ========== ========== ==========
Distributions . . . . . . . . . . . . $ - $ - $ - $ - $ - $ 1.25 $ -
Weighted average shares . . . . . . 1,343,867 1,378,161 1,354,415 1,392,006 1,368,527 1,193,572 1,193,157
<CAPTION>
November 30,
February 28, ---------------------------------------------------------------
BALANCE SHEET DATA 1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Real estate . . . . . . . . . . . . . $ 28,578 $ 22,489 $ 31,927 $ 20,362 $ 20,438 $ 19,931
Notes and interest receivable . . . . 128 734 737 2,658 3,486 3,633
Total assets . . . . . . . . . . . . . 32,684 28,757 36,978 22,738 23,478 22,556
Notes, debentures, and interest payable 21,684 17,516 26,491 12,442 13,058 10,006
Shareholders' equity 9,807 9,869 9,256 9,229 8,932 10,990
Book value per share(1) . . . . . . . $ 7.30 $ 7.34 $ 6.65 $ 6.63 $ 7.42 $ 9.21
</TABLE>
(1) Share and per share data have been restated to give effect to the
one-for-five reverse split effected December 1, 1995.
<PAGE> 10
VINLAND PROPERTY TRUST
3100 Monticello
Suite 200
Dallas, Texas 75205
(214) 599-2200
PROXY STATEMENT
For the Annual Meeting of Shareholders
To Be Held on June 24, 1997
GENERAL SHAREHOLDER INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Trustees of Vinland Property Trust (the "Trust" or "VPT") of
proxies to be used at the Annual Meeting of Shareholders for consideration and
voting upon (1) the election of four Trustees, (2) the approval of the Trust's
Advisory Agreement with Tarragon Realty Advisors, Inc. ("Tarragon" or the
"Advisor"), (3) a proposal to convert the Trust from a California business
trust into a Nevada corporation through the "Incorporation Procedure" described
in the accompanying Proxy Statement/Prospectus; and (4) the transaction of such
other business as may properly come before the Annual Meeting or any
adjournments thereof. The Annual Meeting will be held at 2:00 p.m., local New
York City time, on June 24, 1997 at 280 Park Avenue, East Building, 20th Floor,
New York, New York 10017. The Trust's financial statements for the year ended
November 30, 1995 and 1996 were audited by Arthur Andersen, LLP. A
representative from Arthur Andersen, LLP is expected to be present at the
Annual Meeting to respond to appropriate questions, and such representative
will have an opportunity to make a statement if such representative desires to
do so. The Trust's Annual Report for the fiscal year ended November 30, 1995,
which includes financial statements, has preceded this Proxy Statement. This
Proxy Statement and the accompanying proxy are first being mailed to
Shareholders on or about May 20, 1997.
Although the Board of Trustees is directly responsible for managing
the affairs of the Trust and setting the policies which guide it, the
day-to-day operations have historically been performed by a contractual
Advisor. Since March 1, 1994, Tarragon has been the Advisor under an Advisory
Agreement which delineates the duties and compensation of the Advisor.
Consistent with the terms of the Amended and Restated Declaration of Trust
dated as of May 27, 1987, as amended (the "Declaration of Trust"), the Advisory
Agreement with Tarragon is being submitted to Shareholders for approval (see
Proposal Two). The Trustees have unanimously approved the Trust's current
Advisory Agreement with Tarragon as in the best interest of the Trust and its
Shareholders because the terms of such agreement are, in their view, as
favorable to the Trust as those that would be obtained from unaffiliated third
parties for the performance of similar services, while at the same time the
agreement gives the Advisor an incentive to improve the performance of the
Trust's properties and mortgages. See Proposal Two. The Trustees strongly
recommend that you vote FOR the advisory agreement and FOR each of the nominees
as Trustees.
The Trustees believe that approval and effectuation of the
Incorporation Procedure will be advantageous to the Trust and its Shareholders
by alleviating any necessity for piecemeal revision of the Declaration of
Trust, granting greater flexibility and certainty to the Trustees and the Trust
permitting a wider variety of investments, and eliminating restrictions which
impact the ability of the Trustees to obtain the highest returns for
Shareholders. For such reasons, among others, the Trustees recommend that the
Shareholders vote FOR the approval of the Incorporation Procedure.
1
<PAGE> 11
SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding Shares of Beneficial
Interest, no par value, of the Trust (the "Shares") at the close of business on
May 9, 1997 (the "Record Date"), are entitled to vote at the Annual Meeting and
at any adjournments thereof. At the close of business on May 9, 1997, there
were 1,343,119 Shares outstanding. Each holder is entitled to one vote for
each Share held on the Record Date.
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted thereon. As to the election of the five nominees as
Trustees (Proposal One), Shareholders may choose to vote for all of the
nominees, withhold authority for voting for all of the nominees or withhold
authority for voting for any individual nominee. As to the approval of the
Trust's current Advisory Agreement with Tarragon (Proposal Two), and the
Incorporation Procedure (Proposal Three), Shareholders may choose to vote for,
against or abstain from voting on such proposal in its entirety. In the
absence of other instructions, the Shares represented by a properly executed
and submitted proxy will be voted in favor of the five nominees for election to
the Board of Trustees and in favor of Proposals Two and Three. The Board of
Trustees does not know of any other business which may be properly brought
before the Annual Meeting. If, however, any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
proxy to vote such proxy in accordance with their judgment on such matters.
VOTE REQUIRED FOR APPROVAL
Pursuant to Section 6.7 of the Declaration of Trust, election of any
Trustee requires the affirmative vote of a majority of the votes cast at a
meeting of Shareholders by holders of Shares entitled to vote thereon. Such
Section also provides that a majority of the issued and outstanding Shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any such meeting. The approval of the Trust's current Advisory Agreement
with Tarragon (Proposal Two) also requires the affirmative vote of a majority
of the votes cast at the Annual Meeting.
Section 3.5 of the Declaration of Trust provides that upon a vote of
two-thirds of the Trustees and with the approval of the holders of a majority
of the Shares, the Trustees shall have the power to cause the conversion of the
Trust to a corporation. Section 200.5 of the California General Corporation
Law requires an affirmative vote of the holders of a majority of the
outstanding Shares to approve the Incorporation Procedure.
Abstentions will be included in vote totals and, as such, will have
the same effect on each proposal as a negative vote. Broker non-votes, if any,
will not be included in vote totals and, as such, will have no effect on any
proposal.
As of May 9, 1997, management and affiliates hold 373,603 Shares
representing approximately 28% of the Shares outstanding. Management and such
affiliates intend to vote all Shares in favor of all of the proposals in
accordance with the recommendations of the Board of Trustees.
REVOCATION OF PROXIES
A proxy is enclosed herewith. Any Shareholder who executes and
delivers the proxy may revoke the authority granted thereunder at any time
prior to its use by giving written notice of such revocation to American Stock
Transfer and Trust Company, 40 Wall Street, 46th Floor, New York, New York
10005, or by executing and delivering a proxy bearing a later date. A
SHAREHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE ANNUAL
MEETING.
2
<PAGE> 12
FUTURE PROPOSALS OF SHAREHOLDERS
Any proposal intended to be presented by a Shareholder at the next
Annual Meeting of Shareholders of the Trust must be received at the principal
office of the Trust not later than September 30, 1997, in order to be
considered for inclusion in the Trust's proxy statement and form of proxy (as
the case may be) for that meeting.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of May 9, 1997, according to the Share transfer records of the
Trust and other information available to the Trust, the following persons were
known to be beneficial owners of more than 5% of the Shares of Beneficial
Interest of the Trust:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- -------------------------------------------- -------------------------- ------------
<S> <C> <C> <C>
Lucy N. Friedman 365,803 (2) 27%
280 Park Avenue
East Building, 20th Floor
New York, New York 10017
</TABLE>
________________________________
(1) Percentages are based upon 1,343,119 Shares of Beneficial Interest
outstanding at May 9, 1997.
(2) Includes 272,007 shares owned by Lucy N. Friedman; also, includes
29,750 shares owned by Tarragon Capital Corporation, of which William
S. Friedman is an executive officer and Lucy N. Friedman may be deemed
to be a beneficial owner by virtue of her position as an executive
officer, director and shareholder; also includes 43,046 shares owned
by Tarragon Partners, Ltd., a Texas limited partnership of which
Tarragon Capital Corporation is the general partner, and Lucy N.
Friedman and William S. Friedman are limited partners; also includes
19,000 shares owned by Beachwold Partners, L.P., a Texas limited
partnership, of which William S. Friedman and Lucy N. Friedman are
the general partners and their four children are the limited partners;
also includes 2,000 shares owned by Mr. Friedman's minor sons, Gideon
and Samuel. Does not include 7,750 shares owned by Tanya Friedman, or
2,000 shares owned by Ezra Friedman, adult children of Mrs. Friedman;
Mrs. Friedman disclaims any beneficial ownership of such Shares.
SECURITY OWNERSHIP OF MANAGEMENT
As of May 9, 1997, according to the Share transfer records of the
Trust and other information available to the Trust, the executive officers,
current Trustees and nominees for election as Trustees at the Annual Meeting
and all officers and Trustees as a group beneficially owned the following
Shares of Beneficial Interest of the Trust:
3
<PAGE> 13
<TABLE>
<CAPTION>
Amount and Nature Approximate
of Beneficial Percent of
Name of Beneficial Owner Ownership Class (a)
- ------------------------------------------- ---------------------------- ---------
<S> <C> <C>
William S. Friedman 365,803 (b)(c)(d)(e)(f) 27%
Chester Beck 3,200 (h) *
Willie K. Davis 2,400 (g) *
Michael E. Smith 2,200 (i) *
All Trustees and Executive Officers as a group 373,603 (b)(c)(d)(e) 27.7%
(7 individuals) (e)(f)(g)(h)(i)
</TABLE>
___________________________________
* Less than 1%.
(a) Percentages are based upon 1,343,119 Shares of Beneficial Interest
outstanding at May 9, 1997.
(b) Includes 272,007 shares owned by William S. Friedman's wife, Lucy N.
Friedman. Mrs. Friedman has complete control over the Shares owned by
her and Mr. Friedman disclaims beneficial ownership of such shares.
147,000 of such shares have been pledged as collateral for bank loans.
(c) Includes 29,750 shares owned by Tarragon Capital Corporation, of which
Lucy N. Friedman and William S. Friedman are executive officers and
directors and Lucy N. Friedman is a shareholder. 25,000 of such
shares have been pledged as collateral for bank loans.
(d) Includes 43,046 shares owned by Tarragon Partners, Ltd., of which Lucy
N. Friedman and William S. Friedman are limited partners and Tarragon
Capital Corporation is the general partner.
(e) Includes 19,000 shares owned by Beachwold Partners, L.P., a Texas
limited partnership, of which William S. and Lucy N. Friedman are the
general partners and their four children are the limited partners.
(f) Does not include 7,750 shares owned by Tanya Friedman, or 2,000 shares
owned by Ezra Friedman, Mr. Friedman's adult children, as to which
shares Mr. Friedman disclaims any beneficial ownership; does include
2,000 shares owned by Mr. Friedman's minor sons, Gideon and Samuel.
(g) Includes 1,200 shares owned by Mr. Davis personally and 1,200 shares
covered by three separate presently exercisable options.
(h) Includes 2,000 shares owned by Mr. Beck personally and 1,200 shares
covered by three separate presently exercisable options.
(i) Includes 1,000 shares owned by Mr. Smith personally and 1,200 shares
covered by three separate presently exercisable options held by Mr.
Smith.
PROPOSAL ONE
ELECTION OF TRUSTEES
GENERAL
The affairs of the Trust are managed and controlled by a Board of
Trustees presently consisting of four members who have all been nominated to
serve as Trustees until the next Annual Meeting of Shareholders.
4
<PAGE> 14
Each of the nominees is currently serving as a Trustee and each was elected to
such capacity at the Trust's last Annual Meeting of Shareholders held on
November 20, 1995. John A. Doyle, who was originally elected in February 1994
to a vacancy created by an increase in the number of members of the Board of
Trustees, resigned effective August 30, 1996. The Trustees are elected at the
Annual Meeting of Shareholders or appointed by the incumbent Board of Trustees
and serve until the next Annual Meeting of Shareholders or until their
respective successor has been duly elected.
NOMINEES
The following persons have been nominated to serve as Trustees of the
Trust: Chester Beck, Willie K. Davis, William S. Friedman and Michael E.
Smith. Each of the four nominees is currently a Trustee of the Trust and has
been nominated by the Board of Trustees to serve for an additional term until
the next Annual Meeting of Shareholders or until his successor shall have been
duly elected and qualified. Each nominee has consented to being named in this
Proxy Statement as a nominee and has agreed to serve as a Trustee if elected.
When a proxy is properly executed and returned, the Shares represented thereby
will be voted in favor of the election of each of the nominees, unless
authority to vote for any such nominee is specifically withheld. There will be
no cumulative voting for the election of Trustees. If any nominee is unable to
serve or will not serve (an event which is not anticipated), then the person
acting pursuant to the authority granted under the proxy will cast votes for
the remaining nominees and, unless the Board of Trustees takes action to reduce
the number of Trustees, for such other person(s) as he or she may select in
place of such nominee(s).
The four nominees are listed below, together with their ages, terms of
service, all positions and offices with the Trust or the Trust's advisor,
Tarragon, other principal occupations, business experience and directorships
with other companies during the last five years or more. The designation
"Affiliated," when used below with respect to a Trustee, means that the Trustee
is an officer, director or employee of the Advisor or an officer of the Trust.
The designation "Independent," when used below with respect to a Trustee, means
the Trustee is neither an officer or employee of the Trust nor a director,
officer or employee of the Advisor, although the Trust may have certain
business or professional relationships with such Trustee as discussed below
under "Certain Business Relationships and Related Transactions."
<TABLE>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
<S> <C> <C>
CHESTER BECK: Trustee since May 1995 (Independent) 67
President (since March 1995) of Highland Funding Corp., a mortgage
brokerage firm; National Sales Manager (January 1994 to March 1995) of
Columbia Equities Limited, a real estate financing entity; Senior Vice
President (April 1992 to January 1994) of Peregine Mortgage Company,
Inc., an FHA approved mortgagee specializing in multifamily and
healthcare project financing; Senior Vice President (1988 to March
1992) of Related Mortgage Corporation, an FHA Co-Insurer and Approved
Mortgagee.
WILLIE K. DAVIS: Trustee since October, 1988 (Independent) 65
President (1971 to 1985) and Chairman and 50% shareholder (since 1985)
of Mid-South Financial Corporation, holding company for Mid-South
Mortgage Company and Gibbs Mortgage Company; President (1978 to 1995)
and Chairman and sole shareholder (since December 1985) of FMS, Inc.,
a property management and real estate development firm; President
(1983 to February 1990) of BVT Management Services, Inc., a real
estate advisory and tax service firm; Director (since 1987) of
Southtrust Bank of Middle Tennessee; Trustee and Treasurer (since
1986) of Baptist Hospital, Inc., a Tennessee general welfare
not-for-profit corporation; and Trustee or Director (October 1988 to
March 7, 1995) of Continental Mortgage and Equity Trust ("CMET");
Income Opportunity Trust ("IORT"); Transcontinental Realty Investors,
Inc. ("TCI"); and Trustee (October 1988 to March 31, 1995) of National
Income Realty Trust ("NIRT").
</TABLE>
5
<PAGE> 15
<TABLE>
<S> <C> <C>
WILLIAM S. FRIEDMAN: Trustee since March 1988 (Affiliated) 53
Trustee (since March 1988), Chief Executive Officer (since December
1993), President (since December 1988), Acting Chief Financial Officer
(May 1990 to February 1991), Treasurer (August to September 1989) and
Acting Principal Financial and Accounting Officer (December 1988 to
August 1989) of the Trust and NIRT; Trustee or Director (March 1988 to
February 1994), Chief Executive Officer (December 1993 to February
1994), President (December 1988 to February 1994), Acting Chief
Financial Officer (May 1990 to February 1991), Treasurer (August to
September 1989) and Acting Principal Accounting Officer (December 1988
to August 1989) of CMET, IORT and TCI; Director and Chief Executive
Officer (since December 1990) of Tarragon, the Advisor to the Trust
effective April 1, 1994; President (February 1989 to March 1993) and
Director (February to December 1989) of Basic Capital Management, Inc.
("BCM"), the Advisor to the Trust (March 1989 to March 1994); General
Partner (1987 to March 1994) of Syntek Asset Management, L.P.
("SAMLP"), which is the General Partner of National Realty, L.P.
("NRLP") and National Operating, L.P. ("NOLP"); Director and
President (March 1989 to February 1994) and Secretary (March 1989 to
December 1990) of Syntek Asset Management, Inc. ("SAMI"), the
Managing General Partner of SAMLP and a corporation owned by BCM;
President (1982 to October 1990) of Syntek Investment Properties, Inc.
("SIPI"), which has invested in, developed and syndicated real estate
through its subsidiaries and other related entities since 1973;
Director and President (1982 to October 1990) of Syntek West, Inc.
("SWI"); Vice President (1984 to October 1990) of Syntek Finance
Corporation; Director (1981 to December 1992), President (July 1991 to
December 1992), Vice President and Treasurer (January 1987 to July
1991) and Acting Chief Financial Officer (May 1990 to February 1991)
of American Realty Trust, Inc. ("ART"); practicing Attorney (since
1971) with the Law Offices of William S. Friedman; Director and
Treasurer (November 1989 to February 1991) of Carmel Realty Services,
Inc. ("CRSI"); Limited Partner (January 1991 to December 1992) of
Carmel Realty Services, Ltd. ("Carmel, Ltd."). Also see "Litigation
and Claims Involving Mr. Friedman Related to Southmark Corporation"
below.
MICHAEL E. SMITH: Trustee (from October 1988 to August 1991 and since May 1995 54
(Independent)
Lawyer and Assistant Professor of Law (effective August 1995),
University of Wisconsin, Madison, Wisconsin; President (1988 to
December, 1994) and Director (1978 to 1995) of the Vera Institute of
Justice, a New York not-for-profit corporation concerned with the
administration of justice; Trustee of Prosecuting Attorney's Research
Council, Inc. (since 1987), New York Lawyers for the Public Interest
(since 1986), Housing and Services, Inc. (since 1986), Manhattan
Bowery Corporation, Inc. (since 1978), Center for Alternative
Sentencing and Employment Services, Inc., formerly the Court
Employment Project, Inc. (since 1978), and New York City Criminal
Justice Agency, Inc. (since 1978); Trustee or Director (October 1988
to March 1992) of IORT, CMET and TCI; and Attorney at Law (since
1971).
</TABLE>
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES NAMED ABOVE.
LITIGATION AND CLAIMS INVOLVING MR. FRIEDMAN RELATED TO SOUTHMARK CORPORATION
Until January 1989, William S. Friedman, the President, Chief
Executive Officer and a Trustee of the Trust, was an executive officer and
director of Southmark Corporation ("Southmark"), serving as Vice Chairman of
the Board (since 1982), Director (since 1980) and Secretary (since 1984) of
Southmark. As a result of a deadlock on Southmark's Board of Directors, Mr.
Friedman and Gene E. Phillips (who served as Trustee of the Trust until
December 31, 1992), reached a series of related agreements (later modified)
with Southmark on January 17, 1989 (collectively, the "Separation Agreement"),
whereby Messrs. Friedman and Phillips resigned
6
<PAGE> 16
their position with Southmark and certain of Southmark's subsidiaries and
affiliates. Southmark filed a voluntary petition in bankruptcy under Chapter
11 of the United States Bankruptcy Code on July 14, 1989. Subsequent to the
filing of the Southmark bankruptcy, several lawsuits were filed against
Southmark, its former officers and directors (including Mr. Friedman) and
others, alleging, among other things, that such persons and entities
misrepresented the financial condition of Southmark. Mr. Friedman denies all
of such allegations. Those lawsuits in which Mr. Friedman was also a defendant
are summarized below. THE TRUST WAS NOT A DEFENDANT IN ANY OF THESE LAWSUITS,
ALL OF WHICH HAVE NOW BEEN DISMISSED OR SETTLED.
In Burt v. Grant Thornton, Gene E. Phillips and William S. Friedman,
the plaintiff, a purchaser of Southmark preferred stock, alleged that the
defendants disseminated false and misleading corporate reports, financial
analyses and news releases in order to induce the public to continue investing
in Southmark. Grant Thornton served as independent certified public
accountants to Southmark and, for 1988 and 1989, to the Trust. The plaintiff
sought actual damages of less than $10,000, treble damages and punitive damages
in an unspecified amount plus attorneys' fees and costs. This case was settled
in October 1993 for a nominal payment.
Consolidated actions entitled Salsitz v. Phillips et al., purportedly
brought as class actions on behalf of purchasers of Southmark securities during
specified periods, were pending before the United States District court for the
Northern District of Texas. Mr. Friedman entered into a settlement agreement
with the plaintiffs, which was approved by the court in October 1993.
Mr. Friedman also served as a director of Pacific Standard Life
Insurance Company ("PSL"), a wholly-owned subsidiary of Southmark, from October
1984 to January 1989. In a proceeding brought by the California Insurance
Commissioner, a California Superior Court appointed a conservator for PSL on
December 11, 1989. On October 12, 1990, the California Insurance Commissioner
filed suit against the former directors of PSL (including Mr. Friedman) seeking
damages of $12 million and additional punitive damages. Such lawsuit alleged,
among other things, that the defendants knowingly and willfully conspired among
themselves to breach their duties as directors of PSL to benefit Southmark.
Such suit further alleged that PSL's board of directors failed to convene
meetings and delegated to Mr. Phillips authority to make decisions regarding
loans, investments and other transfers and exchanges of PSL assets. In August
1993, five former directors of PSL, including Mr. Friedman, settled this
lawsuit without admitting any liability (the "PSL Settlement"). At that time,
a judgment was entered securing certain payments agreed to be made by Mr.
Friedman and other individuals. After making two of the scheduled payments,
the payment due in November 1994 was not made. After discussions and
additional litigation, effective December 13, 1995, the Commissioner and
Messrs. Phillips and Friedman entered into a modification of the PSL Settlement
(the "PSL Modification") pursuant to which the $4,450,000 balance of the
original payments is to be paid over a ten-year period. Mr. Friedman's
liability terminates when the Commissioner has received an aggregate of $1.2
million under the PSL Modification. Tarragon has guaranteed 80% of each of Mr.
Friedman's scheduled payments under the PSL Modification. Tarragon and Mr.
Friedman have entered into an agreement that Tarragon may offset any amounts
paid under such guaranty against salary and other compensation due Mr.
Friedman.
One of Southmark's principal businesses was real estate syndication
and from 1981 to 1987 Southmark raised over $500 million in investments from
limited partners of several hundred limited partnerships. Seven lawsuits were
filed by investors alleging breach of fiduciary duties on the part of Mr.
Friedman and others. Two cases were settled in July and October, 1993 for
nominal payments. In one case, all claims were dismissed by the Court and the
defendants (including Mr. Friedman) were awarded sanctions against plaintiffs'
counsel. The other four cases were voluntarily dismissed by the plaintiffs
without payment of any kind by the defendants.
San Jacinto Savings Association. On November 30, 1990, San Jacinto
Savings Association ("SJSA"), a savings institution that had been owned by
Southmark since 1983, was placed under conservatorship of the Resolution Trust
Corporation ("RTC") by federal banking authorities. The Office of Thrift
Supervision ("OTS") also conducted a formal investigation of SJSA and its
affiliates. During late November 1994, Mr. Friedman entered into certain
agreements with the RTC and OTS settling all claims relating to (i) his
involvement with SJSA and (ii) any guarantor arrangement of Mr. Friedman as to
other financial institutions taken over by the RTC. Pursuant to such
arrangements, Mr. Friedman and certain other respondents (including Mr.
Phillips) agreed to pay restitution over a 10-year period in the amount of
$20,000,000. Mr. Friedman's liability
7
<PAGE> 17
terminated in September 1996 at which time the respondents as a group had paid
a total of $4,000,000 out of the total requirement. Mr. Friedman also
consented to an order prohibiting him from participating in the conduct of the
affairs of an insured depository institution without the prior written approval
of the Director of OTS, and agreed to submit certain information to the OTS on
a periodic basis. Such arrangements constitute an order limiting Mr. Friedman
from engaging in a type of business practice.
BOARD COMMITTEES AND MEETINGS
The Trust's Board of Trustees held two meetings and acted by written
consent four times during the fiscal year ended November 30, 1995. For such
year, no incumbent Trustee attended fewer than 75% of the aggregate of (iii)
the total number of meetings held by the Board of Trustees during the period
for which he had been a Trustee and (iv) the total number of meetings held by
all committees of the Board of Trustees on which he served during the periods
that he served.
The Trust's Board of Trustees has an Audit Committee, the function of
which is to review the Trust's operating and accounting procedures. The
current members of the Audit Committee are Chester Beck and Willie K. Davis
(Chairman). The Audit Committee met one time during fiscal 1995 and one time
during fiscal 1996.
The Board of Trustees also has an Option Committee which is comprised
of Messrs. Friedman and Smith. The Option Committee determines grants under
the Share Option and Incentive Plan.
The Trust's Board of Trustees does not have Nominating or Compensation
or any other Committees.
EXECUTIVE OFFICERS
The only person currently serving as an executive officer of the Trust
is William S. Friedman, President and Chief Executive Officer. Mr. Friedman's
positions with the Trust are not subject to a vote of Shareholders. The age,
terms of service, all positions and offices with the Trust or Tarragon, other
principal occupations, business experience and directorships with other
companies during the last five years or more of Mr. Friedman is set forth
above.
OFFICERS
Although not executive officers of the Trust, the following persons
currently serve as officers of the Trust: Bruce A. Schnitz, Chief Operating
Officer; Robert C. Irvine, Chief Financial Officer; Chris W. Clinton, Senior
Vice President - Asset Management; R.W. Lockhart, Senior Vice President - Asset
Management; Erin D. Davis, Vice President and Chief Accounting Officer;
Lawrence Hartman, Vice President and Secretary; and Todd C. Minor, Treasurer.
Their positions with the Trust are not subject to a vote of shareholders.
Their ages, terms of service, all positions and offices with the Trust or
Tarragon, other principal occupations, business experience and directorships
with other companies during the last five years or more are set forth below.
BRUCE A. SCHNITZ; Age 47, Chief Operating Officer (since January 1996)
Chief Operating Officer (since January 1996) of the Trust, NIRT, and
Tarragon; President and Chief Executive Officer (1993-1994) of McNeil
Acquisition Corporation; President, Chief Operating Officer, and
Director (1991-1993), McNeil Real Estate Management, Inc.
ROBERT C. IRVINE: Age 47, Executive Vice President and Chief Financial Officer
(since September 1996)
Executive Vice President and Chief Financial Officer (since September
1996) of the Trust, NIRT and Tarragon; Executive Vice President and
Chief Financial Officer of FYI, Inc. (February 1996 to July 1996);
Executive Vice President, Secretary, Treasurer, Chief Financial
Officer and a director of McNeil Real Estate Management, Inc. and a
Vice President of McNeil Investors, an affiliated entity (1991- 1995).
Certified Public Accountant (since 1997).
8
<PAGE> 18
CHRIS W. CLINTON: Age 50, Senior Vice President - Asset Management (since May
1995) and Senior Vice President - Commercial Asset Management (March
1994 to April 1995).
Senior Vice President - Asset Management (since May 1995) and Senior
Vice President - Commercial Asset Management (March 1994 to April
1995) of the Trust and NIRT; Senior Vice President (since March 1994)
of Tarragon; Vice President (October 1988 to March 1994) of ART, CMET,
IORT, NIRT, TCI, VPT and BCM.
R.W. LOCKHART: Age 51, Senior Vice President - Asset Management (since May
1995); Senior Vice President - Residential Asset Management (March
1994 to April 1995).
Senior Vice President - Asset Management (since May 1995); Senior Vice
President - Residential Asset Management (since May 1995) of the Trust
and NIRT; Senior Vice President (since March 1994) of Tarragon;
Independent Consultant (March 1992 to February 1994); Senior Vice
President (July 1989 to March 1992) of BCM and CRSI.
ERIN D. DAVIS: Age 35, Vice President and Chief Accounting Officer (since
September 1996)
Vice President and Chief Accounting Officer (since September 1996) of
the Trust, NIRT and Tarragon; Accounting Manager of the Trust, NIRT
and Tarragon (June 1995 to August 1996); Senior Associate, BDO Seidman
(January 1993 to June 1995); Senior Accountant and other positions
with E&Y Kenneth Leventhal Real Estate Group (formerly Kenneth
Leventhal & Company) (January 1988 to December 1992); and Certified
Public Accountant (since 1990).
LAWRENCE S. HARTMAN: Age 31, Vice President and Secretary (since June 1996)
Vice President and Secretary of the Trust and NIRT (since June 1996);
Vice President of Tarragon (since May 1996); Associate (March 1994
through May 1996), Coudert Brothers; Partner (September 1990 through
March 1994), Anderson, Kill, Olick & Oshinsky; Student (September 1987
through May 1990).
TODD C. MINOR: Age 38, Treasurer (since December 1996); Senior Vice President
- Mortgage Servicing and Financing (May 1995 to December 1996) and
Senior Vice President - Finance (March 1994 to April 1995 and from
July 1993 to January 1994).
Senior Vice President - Mortgage Servicing and Financing (since May
1995) and Senior Vice President - Finance (March 1994 to April 1995
and from July 1993 to January 1994) of the Trust and NIRT; Senior Vice
President (since March 1994) of Tarragon; Senior Vice President
-Finance (from July 1993 to March 1994) of BCM, ART, CMET, IORT and
TCI; Vice President (from January 1989 to July 1993) of BCM and (from
April 1991 to July 1993) of ART, CMET, IORT, NIRT, TCI and VPT.
In addition to the foregoing officers, the Trust has other officers
who are not listed herein.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Trust's Trustees,
executive officers, and any persons holding more than ten percent of the
Trust's shares of beneficial interest are required to report their ownership of
the Trust's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Trust is required to report any failure to file
by these dates. All of these filing requirements (except as noted below) were
satisfied by its Trustees and executive officers and ten percent holders. In
making these statements, the Trust has relied on the written representations of
its incumbent Trustees and executive officers and its ten percent holders and
copies of the reports that they have filed with the Commission. The following
reports filed under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") during or with respect to the fiscal year
9
<PAGE> 19
ended November 30, 1995, were not filed on a timely basis. Initial Forms 3 of
Chester Beck and Michael E. Smith upon election as Trustees of the Trust in May
1995 (these forms were subsequently filed in August 1995) and Forms 4 for
Chester Beck, Willie K. Davis and Michael E. Smith for the automatic options
granted to each of them by the Trust on November 20, 1995. The following
reports filed under the Exchange Act during or with respect to the fiscal year
ended November 30, 1996, were not filed on a timely basis: Forms 4 of Messrs.
Beck, Davis and Smith for the options received by each on December 1, 1995 and
Form 4 for Michael E. Smith for shares purchased in July 1996.
THE ADVISOR
Although the Trust's Board of Trustees is directly responsible for
managing the affairs of the Trust and for setting the policies which guide it,
the day-to-day operations of the Trust are performed by a contractual advisory
firm under the supervision of the Trust's Board of Trustees. The stated duties
of the Advisor include, among other things, locating, investigating, evaluating
and recommending real estate and mortgage note investment and sales
opportunities, as well as financing and refinancing sources for the Trust. The
Advisor also serves as a consultant in connection with the business plan and
investment policy decisions made by the Trust's Board of Trustees.
Consolidated Capital Equities Corporation ("CCEC") was the sponsor of
and original advisor to the Trust. CCEC was replaced as advisor on August 1,
1988, by Consolidated Advisors, Inc. ("CAI"), the parent of CCEC. On December
2, 1988, CCEC filed a petition seeking reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States District Court for the
Northern District of Texas. Mr. Friedman was director of CCEC and CAI from
March 1988 through January 1989. Southmark was a controlling shareholder of
The Consolidated Companies, the parent of CAI, from March 1988 through February
1989.
BCM served as the Trust's advisor from March 1989 to February 28,
1994. Mr. Friedman served as President of BCM until May 1, 1993. BCM is
beneficially owned by a trust for the benefit of the children of Mr. Phillips,
who served as a Trustee of the Trust until December 7, 1992. At the Trust's
annual meeting of shareholders held on April 26, 1993, the Trust's shareholders
approved the renewal of the Trust's Advisory Agreement with BCM. BCM resigned
as advisor to the Trust effective February 28, 1994. BCM also serves as
advisor to CMET, Income Opportunity Realty Investors, Inc, ("IORI"), the
successor to IORT, and TCI. One Trustee of the Trust, Willie K. Davis, was
also a trustee of CMET and IORT (the predecessor of IORI) and a director of TCI
until March 7, 1995. BCM served as advisor to NIRT until March 31, 1994. Mr.
Friedman, President of the Trust, also serves as President of NIRT. Messrs.
Friedman and Phillips served as executive officers and directors of ART until
November 6, 1992 and December 31, 1992, respectively. Mr. Friedman resigned
from his positions with CMET, IORT and TCI in February 1994 and from his
position with NRLP in March 1994 to concentrate his attention on the Trust,
NIRT and Tarragon.
On February 10, 1994, the Trust's Board of Trustees selected Tarragon
to replace BCM as the Trust's advisor. Since March 1, 1994, Tarragon has
provided advisory services to the Trust under an advisory agreement. Mr.
Friedman serves as a director and Chief Executive Officer of Tarragon.
Tarragon is owned by William S. and Lucy N. Friedman. The Friedman family owns
approximately 27% of the outstanding shares of the Trust.
The provisions of the Trust's initial Advisory Agreement dated
February 15, 1994 (the "Initial Advisory Agreement") with Tarragon were
substantially the same as those of the prior BCM advisory agreement. The
BCM advisory agreement provided for BCM to receive an annual base advisory fee
of $300,000. The Tarragon Initial Advisory Agreement called for an annual base
advisory fee of $50,000 (which was paid upon execution on March 1, 1994) plus
an incentive advisory fee equal to 16% of the Trust's adjusted funds from
operations before deduction of the advisory fee. Adjusted funds from
operations is defined as net income (loss) before gains or losses from the
sales of properties and debt restructurings plus depreciation and amortization
and after adjustments for unconsolidated partnerships and joint ventures plus
any loss due to the writedown or sale of any real property or mortgage loan
acquired prior to January 1, 1989. The incentive fee was cumulative within any
fiscal year to maintain the 16% per annum rate.
10
<PAGE> 20
The following provisions were included in both the BCM advisory
agreement and the Tarragon Initial Advisory Agreement:
(1) The Advisor or an Affiliate of the Advisor was to receive an
acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate for the Trust equal
to the lessor of (i) up to 1% of the cost of acquisition,
inclusive of commissions, if any, paid to non-affiliated
brokers or (ii) the compensation customarily charged in
arm's-length transactions by others rendering similar property
acquisition services as an ongoing public activity in the same
geographical location and for comparable property; provided
that the purchase price of each property (including
acquisition commissions and all real estate brokerage fees)
could not exceed such property's appraised value at
acquisition.
(2) The Advisor or an Affiliate of the Advisor was to receive a
mortgage or loan acquisition fee with respect to the
acquisition or purchase from an unaffiliated party of an
existing mortgage or loan by the Trust equal to the lesser of
(i) 1% of the amount of the mortgage or loan purchased or (ii)
a brokerage or refinancing fee which is reasonable and fair
under the circumstances. Such fee was not to be paid in
connection with the origination or funding by the Trust of any
mortgage loan.
(3) The Advisor or an Affiliate of the Advisor was also to receive
a mortgage brokerage and equity refinancing fee for obtaining
loans to the Trust or refinancing on Trust properties equal to
the lesser of (i) 1% of the amount of the loan or the amount
refinanced or (ii) a brokerage or refinancing fee which is
reasonable and fair under the circumstances; provided,
however, that no such fee was to be paid on loans from the
Advisor or an Affiliate of the Advisor without the approval of
the Trust's Board of Trustees. No fee was to be paid on loan
extensions.
(4) The Advisor or any Affiliate of the Advisor must pay to the
Trust one-half of any compensation received from third parties
with respect to the origination, placement or brokerage of any
loan made by the Trust, provided, however, that the
compensation retained by the Advisor or any Affiliate of the
Advisor shall not exceed the lesser of (i) 2% of the amount of
the loan committed by the Trust or (ii) a loan brokerage
commitment fee which is reasonable and fair under the
circumstances.
The Initial Advisory Agreement was replaced effective April 1, 1995
with the revised Advisory Agreement. By unanimous consent, the Board of
Trustees approved certain revisions to the Initial Advisory Agreement with
Tarragon effective April 1, 1995 which were submitted to the Shareholders for
approval and approved at the Annual Meeting of Shareholders held on November
20, 1995. The revised Advisory Agreement is very similar to the Initial
Advisory Agreement, but eliminated the $50,000 base annual fee and made various
technical changes designed to further clarify the responsibilities of Tarragon.
In addition, the revised Advisory Agreement provided that real estate
commissions shall be payable to Tarragon and its affiliates only following
specific approval by the Board of Trustees for each transaction rather than
pursuant to a general agreement. See "Proposal Two - Approval of the Current
Advisory Agreement" for a description of the compensation under the current
Advisory Agreement.
Under the Tarragon Advisory Agreement, the Advisor is required to
formulate and submit annually for approval by the Trust's Board of Trustees a
budget and business plan for the Trust containing a twelve-month forecast of
operations and cash flow, a general plan for asset sales or acquisitions,
lending, foreclosure and borrowing activity, and other investments, and the
Advisor is required to report quarterly to the Trust's Board of Trustees on the
Trust's performance against the business plan. In addition, all transactions
or investments by the Trust shall require prior approval by the Trust's Board
of Trustees unless they are explicitly provided for in the approved business
plan or are made pursuant to authority expressly delegated to the Advisor by
the Trust's Board of Trustees.
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<PAGE> 21
The Tarragon Advisory Agreement also requires prior approval of the
Trust's Board of Trustees for retention of all consultants and third party
professionals, other than legal counsel. The Advisory Agreement provides that
the Advisor shall be deemed to be in a fiduciary relationship to the Trust's
shareholders; contains guidelines for the Advisor's allocation of investment
opportunities as among itself, the Trust and other entities it advises; and
contains a broad standard governing the Advisor's liability for losses by the
Trust. Under the Advisory Agreement, none of the Advisors nor any of its
shareholders, directors, officers or employees shall be liable to the Trust,
the Trustees or the holders of securities of the Trust for any losses from the
operations of the Trust if the Advisor had determined, in good faith, that the
course of conduct which caused the loss or liability was in the best interests
of the Trust and the loss or liability was not the result of negligence or
misconduct by the Advisor. In no event will the directors, officers or
employees of the Advisor be personally liable for any action or inaction unless
it was the result of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
Also, if the Trust were to request that the Advisor render services to
the Trust other than those required by the advisory agreement, the Advisor or
an affiliate of the Advisor would be separately compensated for such additional
services on terms to be agreed upon from time to time. In the past, the Trust
had hired Carmel, Ltd., an affiliate of BCM, to provide property management
services for the Trust's properties. Since April 1, 1994, Tarragon has
provided property management services for the Trust's properties. Beginning
April 1, 1996, Tarragon Management, Inc. ("TMI"), a wholly-owned subsidiary of
Tarragon, assumed the property-level management of the Trust's multifamily
properties. The Trust also engaged, on a non-exclusive basis, Carmel Realty,
Inc. ("Carmel Realty"), also an affiliate of BCM, to perform brokerage services
for the Trust until March 31, 1994.
Approval, and any renewal, of the Tarragon Advisory Agreement is
required by the Trust's shareholders.
The Advisory Agreement may only be assigned with the prior consent of
the Trust.
The directors and principal officers of Tarragon are set forth below:
<TABLE>
<S> <C>
WILLIAM S. FRIEDMAN: Director and Chief Executive Officer
BRUCE A. SCHNITZ: Chief Operating Officer
ROBERT C. IRVINE: Executive Vice President and Chief Financial Officer
CHRIS W. CLINTON: Senior Vice President - Commercial Portfolio
ROBERT W. LOCKHART: Senior Vice President - Residential Portfolio
ERIN D. DAVIS: Vice President and Chief Accounting Officer
LAWRENCE HARTMAN: Vice President and Secretary
TODD C. MINOR: Treasurer
</TABLE>
PROPERTY MANAGEMENT
From February 1, 1990 until February 28, 1994, affiliates of BCM
provided property management services to the Trust. Carmel, Ltd. provided
property management services for a fee of 5% or less of the monthly gross rents
collected on the properties under management. In many cases, Carmel, Ltd.
subcontracted with other entities for the provision of the property-level
management services to the Trust at various rates. The general partner of
Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (iii) SWI, of
which Mr. Phillips is the sole shareholder, (iv) Mr. Phillips and (v) a trust
for the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property-level management and leasing of eleven of the Trust's commercial
properties and
12
<PAGE> 22
the commercial properties owned by two of the real estate partnerships in which
the Trust is a partner to Carmel Realty, which is owned by SWI. Carmel, Ltd.
resigned as property manager for the Trust's properties effective February 28,
1994.
Commencing March 1, 1994, Tarragon has provided property
management services to the Trust for a fee of 4.5% of the monthly gross rents
collected on apartment properties and not in excess of 5% of the monthly gross
rents collected on commercial properties. Until April 1996, Tarragon
subcontracted with other entities for the provision of the property-level
management services to the Trust. TMI, a wholly-owned subsidiary of Tarragon,
currently provides property-level management services to the Trust's
multifamily properties for a fee of 4.5% of the monthly gross rents collected,
while the property-level management services are provided by subcontractors for
the Trust's commercial properties.
REAL ESTATE BROKERAGE
Prior to December 1, 1992, affiliates of BCM provided brokerage
services to the Trust and received brokerage commissions in accordance with the
advisory agreement. Effective December 1, 1992, the Trust's Board of Trustees
approved the non-exclusive engagement by the Trust of Carmel Realty to provide
brokerage services for the Trust. Such agreement terminated March 31, 1994.
Carmel Realty was entitled to receive a real estate acquisition commission for
locating and negotiating the lease or purchase by the Trust of any property
equal to the lesser of (vi) up to 3% of the purchase price, inclusive of
commissions, if any, paid by the Trust to other brokers or (vii) the
compensation customarily charged in arm's-length transactions by others
rendering similar property acquisition services in the same geographical
location and for comparable property. Any commission paid to Carmel Realty by
the seller was to be credited against the commission to be paid by the Trust.
Carmel Realty was also entitled to receive a real estate sales commission for
the sale of each Trust property equal to the lesser of (viii) 3% (inclusive of
fees, if any, paid by the Trust to other brokers) of the sales price of each
property or (ix) the compensation customarily charged in arm's-length
transactions paid by others rendering similar services in the same geographic
location for comparable property.
Since March 1, 1994, the Trust has also engaged Tarragon to
perform acquisition services for the Trust. Tarragon is available to and may
act as a broker in both purchases and sales of Trust property with commissions
payable in amounts customarily charged in arms-length transactions by others
rendering similar property acquisition services in the same geographical
location and for comparable property.
EXECUTIVE COMPENSATION
The Trust has no employees, payroll or benefit plans and pays no
compensation to the executive officers of the Trust. The Trustees and
executive officers of the Trust who are also officers or employees of Tarragon
are compensated by Tarragon. Such affiliated Trustees and executive officers
of the Trust perform a variety of services for the Advisor and the amount of
their compensation is determined solely by Tarragon. Compensation for certain
officers of the Trust who are responsible for legal and accounting services are
allocated among the various entities for which Tarragon serves as advisor.
The only direct remuneration paid by the Trust is to the Trustees
who are not officers or directors of Tarragon or their affiliated companies.
The Independent Trustees (x) review the business plan of the Trust to determine
that it is in the best interest of the Trust's shareholders, (xi) review the
Trust's contract with the advisor, (xii) supervise the performance of the
Trust's advisor and review the reasonableness of the compensation which the
Trust pays to its advisor in terms of the nature and quality of services
performed, (xiii) review the reasonableness of the total fees and expenses of
the Trust and (xiv) select, when necessary, a qualified independent real estate
appraiser to appraise properties acquired by the Trust. From and after June 1,
1993, the Independent Trustees receive compensation in the amount of $6,000 per
year, plus reimbursement for expenses. In addition, each Independent Trustee
receives (xv) $3,000 per year for each committee of the Board of Trustees on
which he serves, (xvi) $2,500 per year for each committee chairmanship and
(xvii) $1,000 per day for any special services rendered by him to the Trust
outside of his ordinary duties as Trustee, plus reimbursement for expenses,
provided such services are specifically requested by the Board.
13
<PAGE> 23
Pursuant to the approval of the Independent Trustee Share Option
Plan (the "Trustee Plan") at the November 1995 Shareholder meeting, the Trust
issued to each of the three Independent Trustees on November 20, 1995 options
to purchase 600 Post-Split Shares (a total of 1,800 shares). The exercise
price of the options is equal to the market price on the grant date. The
options expire on the earlier of the first anniversary of the date on which a
Trustee ceases to be a Trustee of the Trust or November 20, 2005 (the
"Termination Date"), and are exercisable at any time between the date of grant
and the Termination Date. These options have been adjusted to give effect to
the one-for-five reverse share split effective December 1, 1995. In addition,
for each year such Trustee continues to serve as a Trustee, he will
automatically be awarded an option covering 300 Post-Split Shares on December 1
of each year. Accordingly, on each of December 1, 1995 and December 1, 1996,
the Trust issued additional options covering 900 Post- Split Shares (300 shares
each) with an exercise price equal to the market price on the date of grant and
the same Termination Date as the options granted in November 1995. The Trustee
Plan provides for a total of 60,000 Post-Split Shares.
During fiscal 1994, $38,000 was paid to the Independent Trustees
in total Trustees' fees for all services, including the annual fee for service
during the period, and 1994 special service fees: Willie K. Davis, $9,000; Dan
L. Johnston (a Trustee from December 1992 to May 1995), $6,000; Raymond V.J.
Schrag (a Trustee from October 1988 to May 1995), $11,500; Carl Weisbrod (a
Trustee from February 1994 to May 1995), $5,500; and Bennett B. Sims (a Trustee
from December 1992 to August 1994), $6,000. Messrs. Davis and Schrag have
served on the Fairness Committee of NRLP (for which they each received $4,000
in 1993) whose function is to review certain transactions between NRLP and its
general partner and affiliates of such general partner. Mr. Schrag has also
served as a lawyer to Mr. Friedman's family for several years.
During fiscal 1995, fees paid to the Independent Trustees totaled
$28,250 for all services, including the annual stipend, as follows: Willie K.
Davis, $7,500; Dan L. Johnston, $3,000; Raymond V. J. Schrag, $5,750; Carl
Weisbrod, $3,000; Bennett B. Sims, $3,000; Michael E. Smith, $3,000; and
Chester Beck $3,000. Additionally, Tarragon paid Mr. Johnston $34,000 during
1995 for Tarragon legal services.
During fiscal 1996, fees paid to Independent Trustees totaled
$26,250 for all services, including the annual stipend, as follows: Willie K.
Davis, $14,250; Michael E. Smith, $6,000; and Chester Beck, $6,000.
PERFORMANCE GRAPH
Securities and Exchange Commission rules require that a line graph
performance presentation be provided comparing cumulative total stockholder
return with a performance indicator of a broad market index and either a
nationally recognized industry index or a registrant constructed peer group
index over a minimum period of five years. The following performance graph
compares the cumulative total shareholder return on the Trust's shares of
beneficial interest with the Standard & Poor's 500 Stock Index ("S&P 500
Index") and the National Association of Real Estate Investment Trusts, Inc.
Equity REIT Total Return Index ("REIT Index"). The comparison assumes that
$100 was invested on November 30, 1991 in the Trust's shares of beneficial
interest and in each of the indices and further assumes the reinvestment of all
dividends. Past performance is not necessarily an indicator of future
performance.
14
<PAGE> 24
COMPARISON OF FIVE YEARS ENDED NOVEMBER 30, 1996
CUMULATIVE TOTAL RETURN
VINLAND PROPERTY TRUST, S&P 500 INDEX, AND NAREIT EQUITY REIT
TOTAL RETURN INDEX
<TABLE>
<CAPTION>
=======================================================================================================
11/30/91 11/30/92 11/30/93 11/30/94 11/30/95 11/30/96
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THE TRUST 100 89.19 243.73 278.55 313.37 313.37
- -------------------------------------------------------------------------------------------------------
S&P 500 STOCK INDEX 100 118.43 130.36 131.76 180.39 230.48
- -------------------------------------------------------------------------------------------------------
NAREIT EQUITY REIT 100 120.61 147.17 141.27 165.68 214.09
INDEX
- -------------------------------------------------------------------------------------------------------
</TABLE>
The data set forth above in the graph and related table was obtained from the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"). All of
the data is based upon the last closing price of the month for all tax-
qualified REITs listed on the New York Stock Exchange ("NYSE"), American Stock
Exchange ("AMEX") and the NASDAQ National Market System. The data is market
weighted. The total return calculation is based upon the weighting at the
beginning of the period. Dividends are included in the month based upon their
payment date. The total return index includes dividends reinvested on a
monthly basis. At the end of November 1996, there were 169 tax-qualified REITs
in the NAREIT Equity REIT Total Return Index with a total market capitalization
of $70.1 billion.
15
<PAGE> 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS. On February 10, 1994, the Trust's
Board of Trustees selected Tarragon to replace BCM as the Trust's advisor
effective March 1, 1994 under an advisory agreement. Mr. Friedman serves as
director and Chief Executive Officer of Tarragon. Tarragon is owned by William
S. and Lucy N. Friedman. The Friedman family owns approximately 27% of the
outstanding shares of the Trust.
Also on February 10, 1994, NIRT's Board of Trustees selected
Tarragon to replace BCM as NIRT's advisor commencing April 1, 1994. William S.
Friedman, a Trustee and President and Chief Executive Officer of the Trust also
serves as a trustee and officer of NIRT. NIRT has the same relationship with
Tarragon as the Trust. Mr. Friedman owes fiduciary duties to such other
entities as well as the Trust under applicable law.
Tarragon occupied office space at the Trust's One Turtle Creek
Office/Retail Complex until October 11, 1996, which also served as the Trust's
executive offices until October 11, 1996. During the period of occupancy of
such space by Tarragon, Tarragon and its affiliates paid the Trust annual
rental of $12 per square foot which was at least equal to the rent paid to the
Trust by unaffiliated tenants for similar service.
From February 1, 1990 until February 28, 1994, affiliates of BCM
provided property management services to the Trust. Carmel, Ltd. provided
property management services for a fee of 5% or less of the monthly gross rents
collected on the properties under management. In many cases, Carmel, Ltd.
subcontracted with other entities for the property- level management services
to the Trust at various rates. The general partner of Carmel, Ltd. is BCM.
The limited partners of Carmel, Ltd. are (xviii) SWI, of which Mr. Phillips is
the sole shareholder, (xix) Mr. Phillips and (xx) a trust for the benefit of
the children of Mr. Phillips. Carmel, Ltd. subcontracted the property-level
management and leasing of eleven of the Trust's commercial properties and the
commercial properties owned by two of the real estate partnerships in which the
Trust is a partner to Carmel Realty, which is owned by SWI. Carmel, Ltd.
resigned as property manager for the Trust's properties effective March 31,
1994. Since March 1, 1994, Tarragon has provided property management services
to the Trust.
Effective December 1, 1992, the Trust engaged Carmel Realty, on a
non-exclusive basis, to provide brokerage services for the Trust. Carmel
Realty is owned by SWI. Such agreement terminated February 28, 1994.
RELATED PARTY TRANSACTIONS. Historically, the Trust has engaged in
and may continue to engage in business transactions, including real estate
partnerships, with related parties. All related party transactions entered
into by the Trust must be approved by a majority of the Trust's Board of
Trustees, including a majority of the Independent Trustees. The Trust's
management believes that all of the related party transactions were at least as
advantageous to the Trust as could have been obtained from unrelated third
parties.
In May 1995, the Trust purchased three apartment complexes
(Collegewood, Florida Towers, and Jefferson Towers) located in Tallahassee,
Florida, for $2.5 million, subject to an existing nonrecourse wrap mortgage of
$2.4 million. The Trust assumed the existing mortgage loan and paid the
remaining purchase price, along with closing costs, of $118,000 in cash from
the general working capital of the Trust. Concurrently with the execution of
the loan assumption, on June 5, 1995, the Trust paid the lender $300,000 in
cash reducing the principal balance by the same amount. The mortgage loan
calls for monthly interest payments calculated at 10% per annum and matures
June 1997. The Trust purchased such properties from Investors Florida Capitol
Fund II, Ltd., a Florida limited partnership (the "Seller"). Investors
General, Inc. ("IGI"), which owns a 1% general partnership interest in the
Seller, is owned by Investors General Acquisition Corporation ("IGAC"). John
A. Doyle, (a Trustee and officer of the Trust from January 1994 to August
1996), is a 62.5% stockholder of IGAC. Tarragon is owned by Lucy N. Friedman
and William S. Friedman. Mr. Friedman serves as President, Chief Executive
Officer, and Trustee of the Trust and Director and Chief Executive Officer of
Tarragon. The Friedman family owns approximately 27% of the outstanding shares
of the Trust. The purchase price of the properties was based on their fair
market values, and the entire transaction was approved by a majority of the
limited partners of the Seller as well as the Independent Trustees of the
Trust. IGI and Messrs. Friedman and Doyle abstained in the voting.
16
<PAGE> 26
On June 30, 1989, the Trust purchased from First City, Texas -
Houston ("First City"), a $1.2 million first lien mortgage note (the "Cochonour
Note") with respect to which an individual is the borrower, secured in part by
a lien on a thoroughbred horse breeding farm located in Carroll County,
Missouri, and a personal guarantee from a third party who, at the time, was an
officer of First City. Until November 30, 1992, F.C. MacArthur, Inc., a
wholly-owned subsidiary of Collecting Bank, N.A., owned approximately 16% of
the outstanding shares of beneficial interest of IORT and 4% of the outstanding
shares of common stock of TCI. First City performed substantial management and
investment functions for Collecting Bank, N.A. At the time, the Trustees of
the Trust also served as trustees or directors to IORT and TCI and at that time
IORT and TCI were deemed to be "related parties." At present, none of the
current Trustees also serve as a trustee of IORT and a director of TCI. The
note matured on December 7, 1990. In September 1991, the guarantor provided
additional collateral in the form of first lien mortgages and assignments of
mortgages on condominium units located in Cook County, Illinois. In return,
the Trust extended the maturity date of the note to December 7, 1995 and all
accrued but unpaid interest was added to principal and the outstanding
principal balance of the note was increased to $1.4 million. During 1993 and
1994, eighteen of the twenty condominium units securing the Cochonour Note
receivable were sold, and in accordance with the terms of the note, the
proceeds of such sales were applied to reduce the principal balance of the
note. In connection with the sale of three units, the Trust accepted five-year
notes in the principal amounts of $69,900, $73,000 and $66,400, secured by each
respective unit. Terms of the condominium notes provide for monthly payments
of principal and interest, based upon a 25-year amortization, with the unpaid
principal balance due at the notes' maturity. The notes bear interest from 6%
to 7% per annum for the first two years and from 8% to 9% per annum thereafter.
In September 1994, the Trust and the borrower agreed to a settlement of the
Cochonour Note. Under the agreed-upon terms, a portion of the collateral
property, a farm and luxury residence in Carroll County, Missouri, was conveyed
to the Trust. In April 1995, the two remaining condominium units securing the
note were sold and the net proceeds of sale were remitted to the Trust for
application against and payment in full of the principal balance of the
Cochonour Note of $110,000. Also in April 1995, one of the condominium notes
in the amount of $66,000 was paid in full.
In fiscal 1994, the Trust incurred fees to BCM and its affiliates of
$75,000 in advisory fees and $18,000 in property management fees. In addition,
also as provided in the BCM advisory agreement, BCM received cost
reimbursements from the Trust of $34,000 in fiscal 1994.
In fiscal 1994, the Trust paid Tarragon $157,000 in advisory fees,
$24,000 in acquisition fees and $51,000 in property management fees. The Trust
also incurred cost reimbursements totaling $127,000 to Tarragon in accordance
with the terms of the advisory agreement.
In fiscal 1995, the Trust paid to Tarragon $146,000 in advisory
fees, $53,000 in equity refinancing fees, $83,000 in property management fees
and cost reimbursements of $165,000.
In fiscal 1996, the Trust incurred fees and expenses paid to
Tarragon and TMI of $181,000 in advisory fees, $43,000 in acquisition fees,
$194,000 in brokerage commissions, $235,000 in property management fees, and
expense reimbursements of $232,000.
RESTRICTIONS ON RELATED PARTY TRANSACTIONS. The Trust's Declaration
of Trust provides that:
"The Trust shall not purchase or lease, directly or indirectly, any
Real Property from the Advisor or any affiliated Person, or from any
partnership in which any of the foregoing may also be a general
partner, and the Trust will not sell, directly or indirectly, any of
its Real Property to any of the foregoing Persons."
Moreover, the Declaration of Trust further provides that:
." . . the Trust shall not, directly or indirectly, engage in any
transaction with any Trustee, officer, or employee of the Trust or
any director, officer, or employee of the Advisor . . ., or of any
company or other organization of which any of the foregoing is an
Affiliate, except for . . . transactions with . . . the Advisor or
Affiliates thereof involving loans, real estate brokerage services,
mortgage brokerage
17
<PAGE> 27
services, real property management services, the servicing of
Mortgages, the leasing of personal property or other services,
provided such transactions are on terms not less favorable to the
Trust than the terms on which unaffiliated parties are then making
similar loans or performing similar services for comparable entities
in the same area and are not entered into on an exclusive basis with
such Person; provided, however, that any [such] transaction . . .
may be entered into only after a showing that such transaction is
fair and reasonable to the Shareholders and upon approval by
affirmative vote of a majority of the Trustees who are not, other
than as Trustees, interested in or Affiliates of any Person who is
interested in the transaction."
The Declaration of Trust defines "Affiliate" as follows:
"[A]s to any Person, any other Person who owns beneficially,
directly, or indirectly, 1% or more of the outstanding capital
stock, shares, or equity interests of such Person or of any other
Person which controls, is controlled by, or is under common control
with, such Person or is an officer, retired officer, director,
employee, partner, or trustee of such Person or of any other Person
which controls, is controlled by, or is under common control with,
such Person."
PROPOSAL TWO
APPROVAL OF THE CURRENT ADVISORY AGREEMENT
Section 4.2 of the Trust's Declaration of Trust provides that any
contract with the Advisor cannot have an initial term of more than two years
and must provide for annual renewal or extension thereafter, subject to
approval by the Shareholders of the Trust. Such provision also provides that
the Trustees shall not enter into such a contract with any person of which a
Trustee is an Affiliate unless such contract provides for renewal or extension
thereof by the affirmative vote of a majority of the Trustees who are not
Affiliates of such person. Such contract with the Advisor may be terminated
without penalty by the Advisor upon 120 days' written notice, or by action of
holders of a majority of the outstanding shares of the Trust without penalty,
or by the Trust without penalty by action of a majority of the Trustees,
including a majority of the Trustees not affiliated with the Advisor or any of
its Affiliates, upon 60 days' written notice in a manner to be set forth in the
contract with the Advisor.
In considering Proposal Two for the approval of the advisory
agreement, Shareholders should be aware that William S. Friedman, Trustee and
President of the Trust, is a director and the Chief Executive Officer of
Tarragon. Tarragon is owned by Lucy N. Friedman and William S. Friedman. If
the current advisory agreement is approved, Tarragon will be entitled to
receive payments of certain fees from the Trust for the services it will
perform. In addition, Tarragon serves as advisor to other entities engaged in
real estate investment activities that are similar to those of the Trust and
which may compete with the Trust in purchasing, selling, leasing and financing
real estate and related investments.
At the Trust's 1993 annual meeting, the Trust's Shareholders
approved a revised advisory agreement dated July 1, 1993 between the Trust and
BCM. William S. Friedman resigned as President of BCM on May 1, 1993. Prior
to that time, BCM and its affiliates (other than William S. Friedman) held a
substantial ownership interest in the shares of the Trust (approximately
13.9%). During late 1992 and early 1993, BCM and its affiliates divested
themselves of such ownership interest and by January 1, 1994, did not own any
direct or indirect significant interest in the Trust. At the time of such
event, BCM desired to be replaced as the Trust's Advisor. At the same time,
the Trustees desired to (xxi) make an advisory compensation arrangement
primarily incentive based, (ii) have an advisor which had a substantial
ownership interest in the Trust, either directly or indirectly through
affiliates of such advisor, and (iii) have an advisor with a presence in the
New York City area where a majority of the Trustees were then located. During
early February 1994, certain of the then independent Trustees (Carl B.
Weisbrod, Dan L. Johnston and Raymond V. J. Schrag) met as a committee and
considered these factors and a preliminary advisory service proposal from
Tarragon. The members of such committee recommended to the Board of Trustees,
on February 10, 1994, the replacement of BCM with Tarragon. No listing of the
various factors (or weight given to each) is available. However, such
committee (and ultimately
18
<PAGE> 28
the whole Board) considered only BCM and Tarragon because the Trustees felt
that due to the complexity of the operations and governance of the Trust,
continuity was essential. A number of Tarragon employees were formerly
employed by BCM in similar capacities, thus assuring that continuity.
On February 10, 1994, the Trust's Board of Trustees selected
Tarragon to replace BCM as the Trust's Advisor. At such meeting, the Board of
Trustees reviewed an advisory service proposal from Tarragon which contained a
copy of a proposed advisory agreement. At that time, Mr. Friedman advised the
Board of Trustees that such proposal was in line with his belief that the
Advisor should have a substantial ownership interest in the Trust which would
align it with the interests of the other shareholders of the Trust. Such
proposal disclosed the ownership of Tarragon, provided for an arrangement
similar to the prior BCM advisory agreement (except for the base fee), and
advised that Tarragon and its affiliates would undertake to inform the Board of
Trustees of all real estate investments Tarragon makes for its own account or
for the account of its principals and that Tarragon would allocate all
investment opportunities to those entities which have had uninvested funds for
the longest period of time. At that time, the Board of Trustees considered
only the continuation of BCM (the then Advisor) and/or the selection of
Tarragon; no listing of material factors (or the weight given to each) is
available; and the Board of Trustees approved the engagement of Tarragon to
replace BCM as the Trust's advisor.
Since March 1, 1994, Tarragon has provided advisory services to the
Trust under an Advisory Agreement dated February 15, 1994 between the Trust and
Tarragon (the "Initial Advisory Agreement"). The provisions of the Trust's
Initial Advisory Agreement with Tarragon were substantially the same as those
of the BCM Advisory Agreement except for the annual base advisory fee and the
elimination of the net income fee. The Tarragon Initial Advisory Agreement
called for an annual base advisory fee of $50,000 plus an incentive advisory
fee equal to 16% of the Trust's Adjusted Funds From Operations before deduction
of the advisory fee. Adjusted Funds From Operations is defined as net income
(loss) before gains or losses from the sale of properties and debt
restructuring plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures plus any loss due to the
write-down or sale of any real property or mortgage loan acquired prior to
January 1, 1989.
By unanimous consent, the Board of Trustees approved certain
revisions to the Initial Advisory Agreement with Tarragon effective April 1,
1995. Prior to April 1, 1995, a group consisting of the then independent
Trustees (Dan L. Johnston, Raymond V. J. Schrag and Carl B. Weisbrod), who
each resigned on May 17, 1995, reviewed the performance of Tarragon and the
results of operations of the Trust during the first year under the Initial
Advisory Agreement. Based upon such review, such group recommended to the
Board of Trustees approval of the Advisory Agreement as amended by the
modification made on April 1, 1995; no listing of material factors (or the
weight given to each) is available; and the Board of Trustees, by unanimous
consent, approved the amendments to the Initial Advisory Agreement to result in
a revised Advisory Agreement which was an amendment and full restatement of,
and is similar to, the Initial Advisory Agreement but eliminated the $50,000
base annual fee, made certain technical changes designed to further clarify the
responsibilities and rights of Tarragon, and provided that real estate
commissions shall be payable to Tarragon and its affiliates only following
specific approval by the Board of Trustees for each transaction rather than
pursuant to a general agreement. At a Shareholders meeting held on November
20, 1995, the Shareholders approved the Advisory Agreement and were deemed to
have ratified the entry by the Trust into the Initial Advisory Agreement and
the amendments thereto.
On May 22, 1996, the Board of Trustees met to review and discuss
renewing the Advisory Agreement. After careful consideration of the Trust's
current needs and goals, the Board of Trustees approved the renewal of the
Advisory Agreement with all Trustees voting in favor except Mr. Friedman who
abstained.
The Board of Trustees recommends that Shareholders approve the
renewal through the next annual meeting of shareholders of the current advisory
agreement described below between the Trust and Tarragon. A copy of the
Advisory Agreement appears as Appendix A to this Proxy Statement and is
described below. If the Shareholders approve Proposal Two, the current
Advisory Agreement will have a term extending through the next Annual Meeting
of Shareholders, and any renewal of the Advisory Agreement thereafter will be
subject to Shareholder approval in accordance with the provisions of Section
4.2 of the Declaration of Trust. If the
19
<PAGE> 29
Shareholders fail to approve Proposal Two, the Board of Trustees may choose to
engage a different party to serve as Advisor under a different contract or may
operate the Trust without an advisor. The affirmative vote of a majority of
the votes cast at the Annual Meeting is required to approve the renewal of the
Advisory Agreement.
The Advisory Agreement may be terminated without cause or penalty
upon 60 days' written notice by the Trust to Tarragon or 120 days' written
notice by Tarragon to the Trust. Termination requires a majority vote of the
Trustees who are not affiliated with Tarragon or a majority vote of the
Shareholders. The Board of Trustees may enter into an advisory contract with a
new advisor without Shareholder approval. Such contract could not have an
initial term of more than two years and must provide for annual renewal or
extension thereafter, subject to Shareholder approval.
THE CURRENT ADVISORY AGREEMENT WITH TARRAGON
The current Advisory Agreement with Tarragon provides that Tarragon
is to be responsible for the day-to-day operations of the Trust and to receive
an advisory compensation from the Trust based on the following:
(1) no base or fixed advisory fee is payable, but the
Advisor is to receive an incentive advisory fee equal to 16% per
annum of the Trust's "Adjusted Funds From Operations" (funds from
operations plus any loss on a property or mortgage acquired prior
to January 1, 1989 and the amount of advisory fees payable to the
extent such fees are considered as current expenses in determining
profit or loss) for each Fiscal Year or portion thereof for which
the Advisor provides services, beginning March 31, 1994; the
incentive fee is payable monthly in advance based on the most
recent month for which a monthly financial statement has been
prepared and is cumulative within any fiscal year to maintain the
16% per annum rate.
(2) the Advisor or an Affiliate of the Advisor is to
receive an acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate for the Trust equal to
1% of the cost of acquisition, inclusive of commissions, if any,
paid to non-affiliated brokers except that no fee is due for the
acquisition through or from an affiliate of the Trust or the
Advisor; provided that the purchase price of each property
(including acquisition commissions and all real estate brokerage
fees) may not exceed such property's appraised value at
acquisition.
(3) the Advisor or an Affiliate of the Advisor is
also to receive a mortgage brokerage and refinancing fee for
obtaining loans to the Trust or refinancing on Trust properties
equal to the lesser of (i) 1% of the amount of the loan or the
amount refinanced or (ii) a brokerage or refinancing fee which is
reasonable and fair under the circumstances; provided, however,
that no such fee shall be paid on loans from the Advisor or an
Affiliate of the Advisor without the approval of the Trust's Board
of Trustees. No fee shall be paid on loan extensions.
(4) subject to the approval by the Board of Trustees,
the Trust may pay the Advisor or an Affiliate of the Advisor a
real estate brokerage commission for (i) the purchase of real
property by the Trust, or (ii) the sale of real property owned by
the Trust when the Advisor acts as the broker in such transaction
in amounts which are not to exceed customary fees charged by
nationally recognized real estate brokers for normal, similar
transactions on a non-exclusive basis.
The Advisor or any Affiliate of the Advisor must pay to the Trust
the full amount of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by the Trust.
Also under the Advisory Agreement, Tarragon is to receive
reimbursement of certain expenses incurred by it in the performance of the
Advisory services to the Trust. Under the Advisory Agreement (as required by
the Trust's Declaration of Trust), all or a portion of the annual Advisory fee
must be refunded by the Advisor to the Trustee if the Operating Expenses of the
Trust (as defined in the Trust's Declaration of Trust) exceed
20
<PAGE> 30
certain limits specified in the Declaration of Trust based on the book value,
net asset value and net income of the Trust during such fiscal year.
Additionally, if the Trust were to request Tarragon render
services to the Trust other than those required by the Advisory Agreement, the
Advisory Agreement provides that Tarragon or an Affiliate of Tarragon will be
separately compensated for such additional services on terms to be agreed upon
from time to time.
Tarragon may only assign the Advisory Agreement with the prior
consent of the Trust.
The following table sets forth the changes or alterations in
compensation payable to the Advisor under the BCM Advisory Agreement and the
Tarragon Advisory Agreement during the periods indicated:
<TABLE>
<CAPTION>
BCM ADVISORY TARRAGON INITIAL
AGREEMENT DATED ADVISORY AGREEMENT TARRAGON ADVISORY
JULY 1, 1993 DATED FEB. 15, 1994 AGREEMENT AS AMENDED
(JULY 1, 1993 TO (MARCH 1, 1994 TO DATED APRIL 1, 1995
FEB. 28, 1994) MARCH 31, 1995) (APRIL 1, 1995 FORWARD)
<S> <C> <C> <C>
Base fixed annual fee $300,000 $50,000 None
Incentive advisory fee None 16% per annum of Trust 16% per annum of Trust
for successful investment "Adjusted Funds from "Adjusted Funds from
and management of Trust's Operations" (as defined) Operations" (as defined)
assets
For supervision of the the lesser of (i) 4% of 1% of the cost, but no fee 1% of the cost, but no fee
acquisition, purchase or the cost paid to non- on acquisitions from on acquisitions from
long-term lease of real affiliated brokers or (ii) affiliates affiliates
property of the Trust compensation customarily
charged in arm's-length
transactions by others in
the same area
Mortgage brokerage and the lesser of (i) 1% of the lesser of (i) 1% of the lesser of (i) 1% of the
refinancing fees the amount of loan or the amount of loan or amount of loan or amount
amount refinanced or (ii) amount refinanced or (ii) refinanced or (ii) a fee
a fee which is reasonable a fee which is reasonable which is reasonable and
and fair under the and fair under the fair under the
circumstances circumstances circumstances
Mortgage or loan the lesser of (i) 1% of the lesser of (i) 1% of None
acquisition fees the amount of the mortgage the amount of the mortgage
or loan purchased by the or loan purchased by the
Trust or (ii) a fee which Trust or (ii) a fee which
is reasonable and fair is reasonable and fair
under the circumstances under the circumstances
</TABLE>
21
<PAGE> 31
<TABLE>
<CAPTION>
BCM ADVISORY TARRAGON INITIAL
AGREEMENT DATED ADVISORY AGREEMENT TARRAGON ADVISORY
JULY 1, 1993 DATED FEB. 15, 1994 AGREEMENT AS AMENDED
(JULY 1, 1993 TO (MARCH 1, 1994 TO DATED APRIL 1, 1995
FEB. 28, 1994) MARCH 31, 1995) (APRIL 1, 1995 FORWARD)
<S> <C> <C> <C>
Real estate brokerage the lesser of (i) 5% None--included in Subject to approval by
commissions (inclusive of fees paid to "Incentive Sales Board of Trustees, may pay
---
non-affiliated brokers) of Compensation" below if the Advisor or affiliate
sales price or (ii) acts as the broker in such
compensation customarily amounts not to exceed
charged in arm's-length customary fees charged by
transactions by others nationally recognized real
rendering similar services estate brokers for normal,
in the same geographic similar transactions on a
location non-exclusive basis
Incentive sales None fee equal to 10% of the None
compensation amount of sales
consideration for all real
property sold by the Trust
exceeds the results of a
formula consisting of four
separate parts
Third-party mortgage Advisor to pay Trust 1/2 Advisor to pay Trust 1/2 Advisor shall pay to Trust
placement fees of any compensation of any compensation all compensation received
received from third received from third from third parties for
parties for origination, parties for origination, origination, placement or
placement or brokerage of placement or brokerage of brokerage of any loan made
loan made by Trust but loan made by Trust but by the Trust
Advisor compensation Advisor compensation
retained may not exceed retained may not exceed
lesser of (i) 2% of amount lesser of (i) 2% of amount
of loan committed or (ii) of loan committed or (ii)
a fee which is reasonable a fee which is reasonable
and fair under the and fair under the
circumstances circumstances
Additional services If and to the extent If and to the extent If and to the extent
requested by the Trust, requested by the Trust, requested by the Trust,
separately on terms to be separately on terms to be separately on terms to be
agreed upon between the agreed upon between the agreed upon between the
Trust and such party Trust and such party Trust and such party
</TABLE>
In 1994, when BCM was replaced as the Trust's Advisor on March 1,
1994, the Trust paid BCM and its affiliates $75,000 in advisory fees and
$18,000 in property management fees; BCM also received cost reimbursements from
the Trust of $34,000 during such period. Assuming BCM had continued as the
Trust's Advisor for the full fiscal year 1994, and assuming the occurrence of
the same events for the Trust on the same basis, it is estimated that BCM would
have received $182,000 in advisory fees, at least $24,000 in real estate and
mortgage brokerage commissions, and at least $75,000 in property management
fees, and $161,000 in cost reimbursements.
22
<PAGE> 32
In 1994, the Trust paid Tarragon $157,000 in advisory fees,
$24,000 in real estate acquisition fees, and $51,000 in property management
fees. In addition, as provided in the Advisory Agreement, Tarragon received
cost reimbursements from the Trust of $127,000.
In 1995, the Trust paid Tarragon $146,000 in advisory fees,
$53,000 in mortgage brokerage commissions and $83,000 in property management
fees. In addition, as provided in the Advisory Agreement, Tarragon received
cost reimbursements from the Trust of $165,000.
In 1996, the Trust paid Tarragon and TMI $181,000 in advisory
fees, $43,000 in acquisition fees, $194,000 in brokerage commissions, and
$235,000 in property management fees. Also, as provided in the Advisory
Agreement, Tarragon received cost reimbursements from the Trust of $232,000.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE ADVISORY AGREEMENT because the terms of such agreement are, in its'
view, as favorable to the Trust as those that would be obtained from
unaffiliated third parties for the performance of similar services, while at
the same time the advisory agreement gives Tarragon adequate incentive to
improve the performance of the Trust's properties and mortgages.
PROPOSAL THREE
PROPOSED INCORPORATION PROCEDURE
GENERAL
To provide the Trust with an enhanced opportunity for long-term
planning, flexibility and long-term growth, the Board of Trustees has approved,
and recommends adoption by the Shareholders of, the proposal that the Trust be
transformed from a California business trust into a Nevada corporation that
would have perpetual duration. The alternatives considered by the Board of
Trustees included (i) continuing as a finite life business trust, holding its
properties until the Trust's termination; (ii) liquidating the assets of the
Trust; and (iii) the Incorporation Procedure. Based on discussions with
management and on the Trustees' knowledge of the general economic and financial
conditions to which the Trust and its assets are subject, the Board of Trustees
adopted the Incorporation Procedure as the option most likely to maximize
returns to Shareholders.
Shareholders should recognize that the Incorporation Procedure
will result in some fundamental changes in the nature of their investment. The
Incorporation Procedure could be viewed as limiting Shareholders' rights by the
following effects: (i) affiliates of the Trust may realize an increase in fees
and commissions over time, (ii) the directors of TRII Nevada will be entitled
to indemnification for gross negligence and reckless disregard of duty, (iii)
TRII Nevada will adopt certain anti-takeover defenses, (iv) certain protections
available under California law will be eliminated. See "-- Acquisition
Safeguards -- Possible Negative Considerations." "-- Certain Potential
Conflicts of Interest" and "-- Comparison of Principal Difference Between the
Trust and TRII Nevada."
Because no explicit statutory authority permits a California
business trust to become a Nevada corporation directly or to merge directly
with and into a Nevada corporation, the Incorporation Procedure would be
accomplished by incorporating the Trust in California (the "California
Corporation"), and merging the California Corporation (as successor to the
Trust) with and into its wholly-owned Nevada subsidiary corporation (the
"Merger"). The Board of trustees has caused TRII Nevada to be organized in
Nevada to facilitate the Incorporation Procedure. Prior to the Merger, TRII
Nevada will have no significant business assets or liabilities of any
consequence and no operating history. The audited balance sheet of TRII Nevada
as of April 21, 1997 is included under "Index to Financial Statements and
Supplementary Data."
The Merger will be accomplished pursuant to the terms of the
proposed agreement and plan of merger, the form of which is attached as
Appendix B to this Proxy Statement/Prospectus (the "Agreement and Plan of
Merger"), is incorporated herein by reference, and made a part of this Proxy
Statement/Prospectus. As a result of the Merger, (i) the California
Corporation would cease to exist as a separate entity, (ii) VPI Nevada, by
operation of law, would succeed to all the rights and properties, and be
subject to all the obligations and
23
<PAGE> 33
liabilities of the Trust incorporated as the California Corporation including
those under the current Advisory Agreement, (iii) each of the current Trustees
of the Trust would continue to serve as a director of TRII Nevada until his
initial term expires under TRII Nevada's Articles of Incorporation or until a
successor is elected and (iv) existing Shareholders would automatically become
stockholders of TRII Nevada by the exchange of all shares of the California
Corporation for newly issued Nevada Common Stock on a basis of a one-for-one
exchange (the "One-for-One Exchange"). The issuance of Nevada Common Stock via
the One-for-One Exchange will not affect the proportionate security holdings of
any Shareholder of the trust, either individually or in a group.
Shareholders will be required to surrender their Share
certificates in exchange for Nevada Common Stock certificates, but should not
do so at this time. Shareholders who do not surrender their Share certificates
will accrue dividends, if declared, but will have their distribution checks, if
any, held by American Stock Transfer and Trust Company (the transfer agent for
the Trust and TRII Nevada) until they surrender their old certificates. No
interest will be paid on amounts so held.
SHAREHOLDERS OF THE TRUST WILL NOT HAVE ANY DISSENTERS'
RIGHTS OF APPRAISAL WITH RESPECT TO THE INCORPORATION PROCEDURE
The discussion of the principal terms of the Merger contained in
this Proxy Statement/Prospectus is qualified in its entirety by reference to
the Agreement and Plan of Merger. THE PROPOSED INCORPORATION PROCEDURE IS A
SINGLE UNIFIED PROPOSAL TO BE APPROVED OR REJECTED BY SHAREHOLDERS IN ITS
ENTIRETY. If Shareholders do not approve the Incorporation Procedure, the
Trust would not incorporate in California, the formation of TRII Nevada as a
wholly-owned subsidiary of the Trust will be reversed and the Merger with TRII
Nevada and the attendant One-for-One Exchange will not occur. Rather, the
Trust would continue to operate as an unincorporated California business trust,
subject to the provisions set forth in the Declaration of Trust.
As discussed under "-- Principal Reasons for the Incorporation
Procedure," the members of the Board of Trustees believe it would afford TRII
Nevada (i) the opportunity for enhanced long-range planning, flexibility and
long- term growth as a perpetual-life corporation as opposed to the more
limited alternatives of a business trust, (ii) certain acquisition safeguards
not available to the Trust, which safeguards are designed to (a) discourage
unsolicited, non-negotiated takeover attempts that can be unfair to
stockholders, pressure management and disrupt the operational continuity,
long-range planning and long-term growth of the business of TRII Nevada as
successor to the Trust and (b) encourage persons who may wish to make a bona
fide offer to acquire TRII Nevada to negotiate with the Board of Directors in
good faith and to submit a proposal that is fair and equitable to TRII Nevada
and all its stockholders and (iii) greater legal certainty in matters of
corporate governance and indemnification as a corporation as opposed to a
business trust and hence greater predictability in the conduct of its business
as a corporation under Nevada law. Because no substantial body of law has
developed concerning the legal status, rights, obligations and liabilities of
business trusts and their trustees and shareholders, there is a degree of
uncertainty as to the legal principles applicable to business trusts under the
laws of the various states, including California, the jurisdiction of
organization of the Trust. By contrast, the status, rights, obligations and
liabilities of the stockholders, officers and directors of a corporation are
governed not only by a corporation's charter documents, but also by
comprehensive statutes and a body of case law interpreting those statutes and
their application to a corporation and its charter documents. The Board of
Trustees believes that the Articles of Incorporation of TRII Nevada, coupled
with the existence of a growing body of Nevada corporate law, would allow TRII
Nevada to plan the legal aspects of its future activities with more certainty
and predictability than currently exists with respect to the Declaration of
Trust and the less well- defined provisions of law currently applicable to the
operations of a business trust. See "-- Greater Legal Certainty" and
"--Comparison of Principal Differences Between the Trust and TRII Nevada." No
change in the Trust's continued qualification for taxation as a real estate
investment trust ("REIT") under the Code is expected to result from the
Incorporation Procedure or TRII Nevada's operation of the Trust's business in
corporate form following the Merger. See "-- Certain Federal Income Tax
Consequences."
Consummation of the Incorporation Procedure is contingent upon
Shareholder approval of the Incorporation Procedure. Pursuant to the
California General Corporation Law, the affirmative vote of the
24
<PAGE> 34
holders of a majority of the outstanding Shares will be required to approve
the Incorporation Procedure. In addition, Section 3.5 of the Declaration of
Trust requires a vote of two-thirds of the Trustees to approve the
Incorporation Procedure, which exceeds the voting requirement for aspects of
the Incorporation Procedure by applicable state law. The Trustees have
unanimously approved the Incorporation Procedure.
The Board of Trustees may, in its discretion and without further
approval by Shareholders, abandon the proposed Incorporation Procedure, in
whole or in part, at any time before the Merger is effective if any event
occurs that, in the Board's opinion, makes consummation of any part of the
Incorporation Procedure inadvisable. The Trustees anticipate consummating the
Incorporation Procedure as promptly as practicable after approval by the
Shareholders.
CERTAIN RISK FACTORS
In evaluating the proposed Incorporation Procedure, Shareholders
should consider, among other things, the risk factors set forth below and in
particular with respect to the Incorporation Procedure, the risk factors
discussed under "Certain Risk Factors" -- "Interests of Certain Persons in the
Incorporation Procedure, " " -- Authorization to Issue Preferred Stock" and
"-- Certain Anti-takeover Effects."
POTENTIAL REDUCTIONS IN DISTRIBUTIONS TO SHAREHOLDERS. The effect
on distributions to Shareholders of the Incorporation Procedure will depend
upon whether TRII Nevada is ultimately able to sell its properties and the
general or local economic conditions of the real estate markets in which the
Trust owns properties. If the Incorporation Procedure achieves the desired
results, Shareholders could, over time, receive a greater return on their
investment than under the present Trust. However, the success of the
Incorporation Procedure is dependent, in part, on factors beyond management's
control and there can be no assurance that the Incorporation Procedure will
achieve the desired result. Shareholders should recognize that a combination
of the expected increased costs to renovate and improve Trust properties,
additional operating expenses (including advisory fees) for operating the Trust
for a potentially longer period of time and the potentially slower rate of
sales of the Trust's assets may reduce the amount of cash available in the
short term for distribution to Shareholders. The minimum amount of
distributions will be determined by the amount required to quality for taxation
as a real estate investment trust under the Code, which requires distribution
of at least 95% of the Trust's taxable income (excluding any net capital gain).
FEES TO AFFILIATES. The current Advisory Agreement provides for
fees based in part on successful investment and management of the Trust's
assets and if the Incorporation Procedure is approved such fees paid to
Tarragon are likely to be higher over time.
EFFECT OF CERTAIN SUPER-MAJORITY VOTING PROVISIONS OF TRII NEVADA.
Shareholders should note that affiliates of Tarragon effectively will have veto
power over a limited number of corporate actions requiring the vote of
stockholders under super-majority provisions (i.e., provisions requiring more
than a simple majority vote) included in the Articles of Incorporation of TRII
Nevada. See "Proposed Incorporation Procedure -- Acquisition Safeguards --
Possible Negative Consideration" and "Proposed Incorporation Procedure --
Management after Incorporation Procedure -- The Director Removal Provision"
below.
INTERESTS OF CERTAIN PERSONS IN THE INCORPORATION PROCEDURE. In
considering the proposed Incorporation Procedure, Shareholders should be aware
that certain of the Trust's executive officers have interests that may present
them with conflicts of interest in connection with the Incorporation Procedure.
To the extent that Tarragon continues to serve as advisor, the Incorporation
Procedure is also likely to result in Tarragon earning greater fees for a
longer period of time than would be the case under the Trust's current
provisions. Additionally, in the future, Tarragon may benefit from the
elimination of certain limitations on investments currently applicable to the
Trust. The Articles of Incorporation of TRII Nevada would permit it to engage
in a larger class of transactions with related parties than is permitted by the
existing Declaration of Trust. The proposed Incorporation Procedure contains
certain safeguards regarding acquisition of TRII Nevada which may, among other
things, have the effect of making it more difficult for Shareholders to remove
incumbent management. See "Proposed Incorporation Procedure -- Acquisition
Safeguard -- Possible Negative Considerations" below. The Articles of
Incorporation of TRII Nevada would also limit the liability of directors
25
<PAGE> 35
to a greater degree than the Declaration of Trust as discussed more fully below
under "Proposed Incorporation Procedure -- Liability of Certain Persons -- The
Management Liability Provision." Certain other conflicts of interest that are
not expected to be affected by the Incorporation Procedure are described below
under "Other Conflicts of Interest."
ELIMINATION OF CHARTER LIMITATION ON OPERATING EXPENSES. Under
certain provisions of the Declaration of Trust, Operating Expenses of the Trust
(as defined in the Declaration of Trust and discussed specifically under
"Proposed Incorporation Procedure -- Business Activities after Incorporation
Procedure") for any fiscal year must not exceed the lesser of (a) 1.5% of the
average of the Book Values of Invested Assets (as defined in the Declaration of
Trust) of the Trust at the end of each calendar month of such fiscal year or
(b) the greater of 1.5% of the average of the Net Asset Value (as defined in
the Declaration of Trust) of the Trust at the end of each calendar month of
such fiscal year or 25% of the Trust's Taxable Income (as defined in the
Declaration of Trust). The Declaration of Trust also provides that any
advisory agreement must specifically provide for a refund to the Trust of the
amount, if any, by which the operating expenses exceed the applicable amount,
provided that the maximum amount of such refund shall not exceed the amount of
the advisory fees paid to the advisor with respect to such fiscal year. In
accordance with such provisions, the current Advisory Agreement with Tarragon
specifically provides for a refund to the Trust of the amount by which the
Operating Expenses of the Trust for any fiscal year exceed the limitation set
forth in the aforementioned provisions of the Declaration of Trust, "or any
similar limitation (if contained) in a successor Declaration of Trust or
Articles of Incorporation. . . ." Although the Articles of Incorporation place
no limits on TRII Nevada's operating expenses, the aforementioned limitation on
operating expenses, assuming Shareholders approve the Incorporation Procedure,
will be included contractually in an amended Advisory Agreement. See "Proposed
Incorporation Procedure -- Business Activities after Incorporation Procedure."
The Trust's Declaration of Trust provides that any contract with an advisor
must provide for annual renewal or extension after an initial term of no more
than two years, subject to approval by Shareholders of the Trust. The Articles
of Incorporation of TRII Nevada contain no such requirement. Although the
current directors of TRII Nevada intend to continue to submit the Advisory
Agreement annually to stockholders following consummation of the Incorporation
Procedure, such practice may be discontinued at some time in the future. The
various fees payable to Tarragon under the current Advisory Agreement and the
means by which such fees are calculated are discussed in detail under Proposal
Two.
CERTAIN ANTI-TAKEOVER EFFECTS. Shareholders should recognize that
the acquisition safeguards discussed more fully below under "Proposed
Incorporation Procedure -- Acquisition Safeguards" could have the effect of
rendering more difficult or discouraging a future attempt to acquire control of
TRII Nevada by a merger, tender offer, proxy contest or removal of incumbent
management without the approval of the Board of Directors, even if certain
stockholders of TRII Nevada might desire such a change in control and even if
such a change in control would be beneficial to the stockholders generally. As
a result, stockholders might be deprived of an opportunity to receive a premium
for their shares over prevailing market prices and the Incorporation Procedure,
therefore, might be viewed as limiting stockholders' rights. See "Proposed
Incorporation Procedure -- Acquisition Safeguards -- Possible Negative
Considerations." These safeguards against acquisition of TRII Nevada include
(i) the requirement of an 80% vote to make, adopt, alter, amend, change or
repeal (a) TRII Nevada's Bylaws or (b) certain key provisions of TRII Nevada's
Articles of Incorporation that embody, among other things, the aforementioned
acquisition-related safeguards, (ii) the requirement of a two-thirds
super-majority vote for (a) the removal of a director from the Board of
Directors and (b) certain extraordinary corporate transactions and (iii) the
inability generally of stockholders to call meetings of stockholders. See
"Proposed Incorporation Procedure -- Comparison of the Principal Differences
Between the Trust and TRII Nevada." These acquisition-related safeguards and
the collective beneficial ownership of approximately 28% of the Trust's Shares
(as of May 9, 1997) by the Trustees and the Trust's executive officers and
entities with which they are affiliated, could help entrench the Board of
Directors and may effectively give TRII Nevada's management the power to block
certain extraordinary corporate transactions, as discussed more fully below
under "Proposed Incorporation Procedure -- Acquisition Safeguards -- Possible
Negative Consideration."
AUTHORIZATION TO ISSUE SPECIAL STOCK. The Articles of
Incorporation of TRII Nevada authorize the issuance of up to 10,000,000 shares
of special stock by action of the Board of Directors without stockholder
26
<PAGE> 36
approval, which special stock may be issued in one or more series with such
preferences, limitations and rights as shall be determined by the Board of
Directors of TRII Nevada. See "Proposed Incorporation Procedure -- Comparison
of the Securities of TRII Nevada and the Trust -- Preferred Stock." Although
no special stock has been issued or is being issued as part of the
Incorporation Procedure, and the Board of Directors has no present intention of
issuing any special stock, such stock could be issued as a safeguard against
acquisition of TRII Nevada to dilute the stock ownership and voting power of a
person or entity seeking to acquire control of TRII Nevada by (i) privately
placing such special stock with purchasers not hostile to the TRII Nevada Board
of Directors to oppose an unsolicited takeover bid or (ii) authorizing holders
of a series of special stock to vote as a class, either separately or with the
holders of the Nevada Common Stock, on any merger, sale or exchange of assets
or any other extraordinary corporate transaction involving TRII Nevada.
OTHER POTENTIAL CONFLICTS OF INTEREST. The real estate business
is highly competitive, and the Trust competes, and TRII Nevada will compete,
with numerous entities engaged in real estate activities. As described below
under "Business and Properties of the Trust -- Certain Business Relationships,"
the officers and trustees of the Trust also serve as officers, directors or
trustees of NIRT which is also advised by Tarragon, and which has business
objectives similar to those of the Trust. Such Trustees and officers and
Tarragon each owe a fiduciary duty to such other entities as well as to the
Trust under applicable law. Additionally, the Trust also competes with other
entities that may have investment objectives similar to those of the Trust and
that may compete with the Trust in leasing, selling and financing real estate
and mortgage notes. In resolving any potential conflicts of interest which may
arise, Tarragon has informed the Trust that it intends to continue to exercise
its best judgment as to what is fair and reasonable under the circumstances in
accordance with applicable law.
TRANSACTIONS WITH RELATED PARTIES. The Trust has engaged, and
TRII Nevada may continue to engage, in transactions with certain related
parties, as discussed more fully below under "Business and Properties of the
Trust -- Certain Business Relationships and Related Party Transactions." TRII
Nevada's Articles of Incorporation generally permit related party transactions
if approved by a majority of the independent directors, whereas the existing
Declaration of Trust absolutely prohibits certain transactions between the
Trust and certain related parties, regardless of the fairness of the terms of
such transactions and whether such transactions are authorized by a majority of
unaffiliated Trustees or approved by the Shareholders. Such specific
prohibitions as well as the general restrictions on transactions between the
trust and certain related parties are described under "Proposed Incorporation
Procedure -- Business Activities After Incorporation Procedure -- The
Restrictions on Related Party Transactions Provision." Because TRII Nevada's
Articles of Incorporation contain no analogous prohibitions, the Incorporation
Procedure could potentially permit TRII Nevada greater flexibility to engage in
a larger class of transactions with related parties than the Declaration of
Trust currently permits between the Trust and certain related parties, with
respect to renewal and modification from time to time of the Advisory Agreement
with Tarragon, the Declaration of Trust mandates the affirmative vote of a
majority of the votes cast at an annual meeting of Shareholders prior to any
such renewal or modification; however, if the Incorporation Procedure is
approved, TRII Nevada's Articles of Incorporation will not mandate such
stockholder approval. Instead, TRII Nevada's Board of Directors will be able
to renew and modify the Advisory Agreement with Tarragon upon the affirmative
vote of a majority of the Board of Directors. However, the Board of Directors
intends to continue to submit future renewals and modifications of the Advisory
Agreement with Tarragon to stockholders of TRII Nevada at their annual
meetings. The Board of Trustees believes that the restrictions in TRII
Nevada's Articles of Incorporation and those under Chapter 78 of the Nevada
Revised Statutes will offer adequate protection to ensure the fairness and
propriety of transactions between TRII Nevada and related parties.
CERTAIN RISK FACTORS ASSOCIATED WITH REAL ESTATE. The Trust is,
and TRII Nevada will be, subject to all the risks incident to ownership and
financing of real estate and interests therein, many of which relate to the
general illiquidity of real estate investments. These risks include, but are
not limited to: (1) changes in general or local economic conditions; (ii)
changes in interest rates and availability of permanent mortgage financing that
may render the sale or refinancing (and, in the event the Incorporation
Procedure is adopted, the acquisition) of a property difficult or unattractive
and that may make debt service more burdensome; (iii) changes in real estate
and zoning laws; (iv) increases in real estate taxes; (v) federal or local
economic or rent controls, and (vi) floods, earthquakes and other similar acts.
See "Business and Properties of the Trust --
27
<PAGE> 37
Certain Factors Associated with Real Estate and Related Investments." The
illiquidity of real estate investments generally may impair the ability of the
Trust to respond promptly to changing circumstances. The Trust's management
believes that such risks are partially mitigated by the diversification by
geographical region and property type of the Trust's real estate portfolio.
The Trust has acquired properties subject to or assumed existing debt and has
mortgaged, pledged or otherwise obtained financing for its properties. Such
borrowings increase the Trust's risk of loss because they represent a prior
claim on the trust's assets and require fixed payments regardless of
profitability. If the Trust (or TRII Nevada) defaults on secured indebtedness,
the lender may foreclose and the Trust (or TRII Nevada) could lose its
investment in the property. With regard to the Trust's mortgage loan
portfolio, if a borrower becomes unable to meet principal or interest payments
on a loan from the Trust or a loan cross-collateralized by property that is
security for a Trust loan, the Trust (or TRII Nevada) might be forced to
foreclose on a mortgaged property. The Trust (or TRII Nevada) might not
succeed in selling the foreclosed property for the total principal and accrued
interest owed to the Trust on the debt, or the ability of the Trust (or TRII
Nevada) to liquidate its collateral through foreclosure on a property could be
delayed because of the bankruptcy of the borrower or an injunctive proceeding
brought by the borrower. If the borrower defaults in payment of a loan held by
a prior lienholder, the trust (or TRII Nevada) to protect its own interest may
be required to make payments directly to the holder of the prior lien to
maintain the current status of such loan or to discharge it entirely. In the
opinion of the Trust's management the real property owned by the trust is
adequately covered by insurance; however, certain types of losses (generally of
a catastrophic nature) may be uninsurable or not economically insurable. Such
excluded risks generally include war, earthquakes, floods, environmental
liabilities and punitive damage judgments. If such losses occur and are not
covered by insurance, the Trust (or TRII Nevada) might suffer a loss of capital
invested in, and any profits that might be anticipated from, the property.
PRINCIPAL REASONS FOR THE INCORPORATION PROCEDURE
The Board of Trustees have approved the Incorporation Procedure as
in the best interest of the Trust and its Shareholders because the Board of
Trustees believes it would afford TRII Nevada (i) the opportunity for enhanced
long-range planning, flexibility and long-term growth as a perpetual-life
corporation as opposed to the more limited alternatives of a business trust,
(ii) certain acquisition safeguards not available to the Trust, which
safeguards are designed to (a) discourage unsolicited, non-negotiated takeover
attempts that can be unfair to stockholders, pressure management and disrupt
the operational continuity, long-range planning and long-term growth of the
business TRII Nevada as successor to the Trust and (b) encourage persons who
may wish to make a bona fide offer to acquire TRII Nevada to negotiate with the
Board of Directors in good faith and to submit a proposal that is fair and
equitable to TRII Nevada and all its stockholders and (iii) greater legal
certainty in matters of corporate governance and indemnification as a
corporation as opposed to a business trust and hence greater predictability in
the conduct of its business as a corporation under Nevada law.
GREATER LEGAL CERTAINTY
The Trustees urge Shareholders to adopt the Incorporation
Procedure because it will convert the Trust from a California business trust to
the more legally certain and predictable form of a Nevada corporation. For the
purpose of carrying on a business enterprise, the business trust is an
adaptation of the traditional common law trust. Business trusts are entities
created by agreement or under a governing document, such as the Declaration of
Trust, for which there is no prescribed form. Accordingly, the powers, rights
and obligations of the Trustees and Shareholders of the Trust are determined to
a large extent by contractual interpretation, rather than by reference to
powers or privileges under any statute.
Unlike a corporation, many basic legal issues affecting a business
trust are not determined by a body of statutory law, but must be spelled out in
the declaration of trust. Subject to overriding principles of common law, the
declaration of trust serves as a substitute for a corporate statute. Thus,
management and shareholders of business trusts must look to the trust
instrument or common law to determine questions which would usually be answered
by a corporation statute if that form were selected. On the other hand, state
corporation statutes generally provide detailed and comprehensive rules
concerning corporate organization, the composition, election, and duties of
boards of directors and corporate officers, the form and issuance of equity
shares (including voting,
28
<PAGE> 38
dividend, and merger rights), rules of meetings, mergers, reorganizations,
dissolutions, and derivative actions. Moreover, many matters not detailed in
the statutes are usually covered by a well developed body of case law.
Although the business trust form is regarded as legal and valid in
California, the jurisdiction of organization of the Trust, no substantial body
of law has developed concerning the legal status, rights, obligations and
liabilities of business trusts and their trustees and shareholders, and there
is a degree of uncertainty as to the legal principles applicable to business
trusts under the laws of California. For example, although the trustees of a
business trust are clearly fiduciaries owing a duty as such to the trust and
its shareholders, it might be asserted that their fiduciary duties are governed
by principles of law and equity applicable to traditional common law trusts,
rather than by the standards of care, loyalty and business judgment applied to
the directors of a corporation and by the standards defined in the governing
trust documents.
By contrast, the status, rights, obligations and liabilities of
the stockholders, officers and directors of a corporation are governing not
only by a corporation's charter documents, but also by comprehensive statutes
and a body of case law interpreting those statutes and their application to a
corporation and its charter documents. The existence of a more well-defined
body of law allows a corporation to plan the legal aspects of its future
activities with more certainty and predictability than currently exists with
respect to the Declaration of Trust and the less well-defined provisions of law
currently applicable to the operations of a business trust. Additionally,
state law governing qualification of an out-of-state business entity to
transact business is generally clearer for corporations than for business
trusts. Furthermore, corporations are far more numerous than business trusts
and are more familiar to investors or persons doing or proposing to do business
with a company.
Nevada has been selected as the proposed new governing
jurisdiction because, among other reasons, the Trustees believe that the Nevada
Revised Statutes ("NRS") set forth modern statutes that will meet the business
needs of the Trust once the Incorporation Procedure is effected. The NRS is
regarded as an extensive and modern corporate statute. In adopting the NRS,
the legislature in Nevada has demonstrated an ability and willingness to act
quickly and effectively to meet businesses' changing needs. For many years,
Nevada has followed a policy of encouraging incorporation in that state and, in
furtherance of that policy, has adopted comprehensive, modern, flexible
corporate statutes (very similar to those in effect in Delaware) that are
periodically updated and reviewed to meet changing business needs. The Trust's
Board of Trustees believes that the Incorporation Procedure will allow TRII
Nevada to plan the continuing legal aspects of its future activities with more
certainty and predictability than presently exists with respect to the
Declaration of Trust and the less-well defined provisions of law currently
applicable to the operations of a business trust. This certainty and
predictability could be beneficial in attracting and retaining qualified
management for TRII Nevada, in part because Nevada corporate law provides,
among other things, for a greater degree (and greater clarity) in
indemnification of directors and officers than is found with respect to
California business trusts. Incorporating in Nevada will also enable the Trust
to avoid significant annual franchise taxes assessed in certain other states of
incorporation. Further, TRII Nevada, as a corporation incorporated in Nevada,
will not be required to pay annual franchise or income taxes. The only annual
corporate fee in Nevada which TRII Nevada will be required to pay is an $85
filing fee.
REPLACEMENT OF THE FIXED-LIFE TRUST WITH A PERPETUAL-LIFE CORPORATION
The Trustees urge Shareholders to adopt the Incorporation
Procedure because, among other things, it will replace the limited duration
Trust with a perpetual-life corporation that the Board of Trustees believes
will have more flexibility in holding and liquidating investments to enhance
long-range planning and long-term growth. Corporations may provide for
perpetual existence, while even non-liquidating business trusts generally have
only limited duration.
Section 8.1 of the Declaration of Trust provides that the Trust
shall continue until the expiration of twenty years after the death of the last
survivor among five named individuals born between February 11, 1962 and March
15, 1966. Such individuals now range in age from 30 to 34 and, assuming
regular mortality, could live up to another fifty years or more, but no
assurance can be made that such assumption is correct. While it can
conceivably be argued that the Trust's finite term may be another 50 to 70
years (which might be viewed by some as equivalent to perpetual existence),
that termination may occur sooner. The Trust may also be
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terminated by the vote or consent of holders of a majority of all outstanding
Shares. In contrast, TRII Nevada has provided for perpetual duration, unless it
is terminated by its Board of Directors acting with stockholder consent. See
"Proposed Incorporation Procedure -- Stockholder-Management Relations."
The Board of Trustees has determined it to be in the best
interests of the Trust and its Shareholders to modify the Trust's initial
intended course of operations to allow the Trust to acquire additional assets
in addition to permitting the holding and disposition of assets with the
certainty of no required termination. The Incorporation Procedure is designed
to achieve such end.
The finite life provisions make it more difficult for the Trust to
obtain bank credit by potentially impairing a lender's position. Consequently,
the Trust might be required in the future to maintain much greater cash
reserves if the finite life provision is continued. The Trust will have to
expend funds to maintain its properties regardless of whether the Incorporation
Procedure is adopted. Although the amount of such expenditures might be less in
the short term and is expected to be greater over the long term if the
Incorporation Procedure is adopted, it is anticipated that the Trust may, in
time, have greater access to bank credit to the extent that its assets are not
encumbered to finance future renovations and improvements. A combination of
the expected increased costs of maintaining and improving the Trust's
properties, the additional operating expenses (including advisory fees) of
operating the Trust for a potentially longer period of time and the potentially
slower rate of sales of the Trust's portfolio may reduce the amount of cash
available for distribution to Shareholders. This effect may be partially
offset by the Trust's reduced need for cash reserves.
The effect of eliminating the finite life provision through the
Incorporation Procedure on distributions to Shareholders over the long term,
including the amount available for distribution at a future liquidation, will
depend upon TRII Nevada's success in improving its operating results, the
prices at which TRII Nevada is ultimately able to sell its properties and the
stability of the real estate markets in which the Trust owns real property.
To the extent that Tarragon continues to serve as the advisor under an
advisory agreement providing for similar fees as the current Advisory
Agreement, which fees are based in part on successful investment and management
of the Trust's assets (discussed in more detail above under "The "Advisor" and
under "Proposal Two -- Approval of the Current Advisory Agreement"), such fees
(and acquisition commissions) are likely to be higher over time. The Board of
Directors of TRII Nevada currently intends to continue to make any renewal of
the Advisory Agreement subject to approval by the stockholders of TRII Nevada
if Shareholders approve the Incorporation Procedure, although (i) advisory fees
would not be subject to a charter limitation on operating expenses, as they are
under the Declaration of Trust, and (ii) such stockholder approval is not
required by the Articles of Incorporation of TRII Nevada as it is under the
Declaration of Trust.
In any event, the Board of Trustees, based upon discussions with
management and the Trustees' knowledge of the general economic and financial
conditions to which the Trust and its assets are subject believes that the
potential long-term benefits of eliminating the finite life provisions through
the Incorporation Procedure justify affording the Trust an opportunity to
improve the Trust's operations and to seek higher prices for the Trust's
properties over time. With respect to future investments, if Shareholders
approve the proposed Incorporation Procedure, TRII Nevada plans to continue to
focus on investment in real estate (although it has not yet identified any
potential acquisitions). The Trust's investment strategy has been to maximize
each property's operating income through aggressive property management by
closely monitoring expenses while at the same time renovating properties where
appropriate. While such renovations require greater expenditures and therefore
increase the amount of revenue required to be generated by such property to
cover operating expenses, the Trust believes that such renovations are
necessary to maintain and possibly enhance the value of the Trust's properties.
With respect to properties acquired through foreclosure, management intends to
enhance the value of such properties through renovations. However, no
assurance can be given that eliminating the finite life provision through the
Incorporation Procedure will result in improvement in the Trust's operations or
higher prices for the Trust's properties, and, further, there can be no
assurance that attractive acquisition opportunities will be available after
consummation of the Incorporation Procedure.
The Board of Trustees believes that the current market price for
the Shares (see "Market Prices of the Shares; Dividends") does not represent
the long-term value of the Trust's assets. Nevertheless, no assurance can be
given that eliminating the finite life provision through the Incorporation
Procedure will result in the Trust's
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receiving a higher return on its assets upon sale or in increased stock prices
(after giving effect to the one-for-one exchange).
ACQUISITION SAFEGUARDS
Taking into account the negative considerations set forth below
under "Possible Negative Considerations," the Board of Trustees also endorses
the Incorporation Procedure because it will afford TRII Nevada certain
safeguards against acquisition of TRII Nevada that, together with certain
provisions of Nevada law, are designed to (a) discourage unsolicited,
non-negotiated takeover attempts that can be unfair to stockholders, pressure
management and disrupt the operational continuity, long-range planning and
long-term growth of the business and (b) encourage persons who may wish to make
a bona fide offer to acquire TRII Nevada to negotiate in good faith and to
submit a proposal that is fair and equitable to TRII Nevada and all its
stockholders. See "-- The Director Removal Provision," "-- The Business
Combination Provision," "-- Evaluation Provision," "-- Amendment Provisions"
and "-- Acquisition Safeguards -- Possible Negative Considerations."
It has become common for third parties to accumulate substantial
stock positions in public companies as a prelude to proposing a takeover,
restructuring, sale of all or a substantial part of the target company or other
similar extraordinary corporate action, or simply as a means to put the target
company "in play." Such actions are often undertaken by the third party
without advance notice to or consultation with management of the target
company. In many cases, the purchaser seeks representation on the target
company's board of directors or trustees in order to increase the likelihood
that its proposal will be implemented by the company. If the target company
resists the efforts of the purchaser to obtain representation on the company's
board, the purchaser may commence a proxy contest to have its nominees elected
to the board in place of certain directors or the entire board. The purchaser
may not be truly interested in taking over and running the target company, but
rather in using the threat of a proxy fight or a bid to take over the company
as a means of forcing it to repurchase the purchaser's equity position at a
substantial premium over market price. This predatory practice has come to be
known as "greenmail."
The Board of Trustees believes that the imminent threat of removal
of management in such situations would severely curtail management's ability to
negotiate effectively with such purchasers and with any other third party
interested in acquiring the Trust. Management would be deprived of the time and
information necessary to evaluate the takeover proposal, to study alternative
proposals and to help ensure that the best price is obtained. Furthermore,
management could be faced with the dilemma to either pay greenmail or allow the
Trust's business and management to be disrupted, perhaps irreparably.
In addition to pressuring the management of the target company,
unsolicited tender offers and other non- negotiated acquisition proposals may
involve terms and be structured in ways that may be less favorable to all the
stockholders than those of a transaction negotiated and approved by the board
of directors. Although such proposals may be made at a price substantially
above prevailing market prices, they are sometimes made for less than all of
the outstanding shares of a company. As a result, stockholders may be forced
either to partially liquidate their investment under circumstances that may be
disadvantageous to them or to retain their investment as minority stockholders
in an enterprise that is controlled by persons whose objectives may be at odds
with those of the remaining minority stockholders and former management.
Unsolicited tender offers or other purchases of substantial blocks of
outstanding shares may also be followed by non-negotiated mergers or similar
transactions that involve elimination of the remaining public stockholders of
the target company. Such transactions may not assure fair treatment of the
public stockholders remaining after the first step of the acquisition, because
the controlling stockholder's influence dominates the negotiations. Such
tender offers or purchase programs may also take the form of a two-tiered offer
in which cash is offered for a portion of a company's outstanding shares, and,
thereafter, securities that are or may be worth less than the cash portion are
offered for the remaining shares. Thus, stockholders are pressured into
selling as many of their shares as possible either to the purchaser or in the
open market without having the opportunity to make a considered investment
choice between remaining a stockholder of the company or disposing of their
shares. Two-tiered pricing tactics, as well as certain other unsolicited
proposals, may also be timed and designed to foreclose or minimize the
possibility of more favorable competing bids, which in turn may result in
stockholders losing the
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opportunity to consider alternative and possibly more attractive proposals. In
addition, persons who accumulate large blocks of stock without negotiating with
management through private or open market transactions may achieve a position
of substantial influence and control without paying stockholders a fair control
premium.
The Trustees recognize that acquisition proposals that have not
been negotiated with and approved by a company's board of directors do not
always have the unfavorable consequences or effects described above. See
"Acquisition Safeguards - Possible Negative Considerations." However, it is
the view of the Board of Trustees that the potential disadvantages of
non-negotiated acquisition proposals are sufficiently great that it would be in
the best interest of TRII Nevada and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of TRII Nevada and
to submit proposals that are fair and equitable to TRII Nevada and all of its
stockholders. In the judgment of the Board of Trustees, the proposed
acquisition safeguards will help ensure that the Board of Directors of TRII
Nevada, if confronted by a proposal from a third party that has acquired a
significant block of TRII Nevada stock, will have sufficient opportunity to
review and analyze the proposal and appropriate alternatives and to act as it
believes the best interest of all stockholders dictates. The Trustees also
believe that the changes resulting from the Incorporation Procedure should not
discourage acquisition proposals at a price reflective of the true value of
TRII Nevada that are fair and equitable to all stockholders. None of the
proposed acquisition safeguards would prevent any person from making a tender
offer to TRII Nevada's stockholders or prevent any stockholder from accepting
such an offer.
The Incorporation Procedure does not reflect any present knowledge
on the part of the Trustees of any pending, proposed or threatened takeover,
tender offer, leveraged buyout, proxy contest, sale of assets or other similar
transaction involving a change in control of the Trust. In addition to the
reasons discussed above, the Board of Trustees believes that the acquisition
safeguards are nonetheless necessary at this time because the effectiveness of
the acquisition safeguards depends on their being implemented before an
acquisition proposal is made. Otherwise, one of the purposes of the
acquisition safeguards -- to encourage potential acquiror negotiate directly
with the Board of Directors of TRII Nevada -- might be thwarted. In any event,
it is unlikely that the Trust or TRII Nevada would be able to implement the
full range of acquisition safeguards once a takeover attempt is already in
progress. For these reasons, the Board of Trustees believes that it would be
beneficial to adopt the acquisition safeguards as part of the Incorporation
Procedure.
The Board of Trustees does not currently have under consideration,
and does not have any current intention to propose or adopt, any other measures
that may have the effect of discouraging acquisitions apart from those proposed
in this Proxy Statement/Prospectus. Circumstances may change and it is, of
course, possible that the Board of Directors of TRII Nevada may adopt further
measures in the future, which measures may or may not require stockholder
approval. See "- Comparison of Principal Differences Between the Trust and
TRII Nevada."
POSSIBLE NEGATIVE CONSIDERATIONS. In addition to and
amplification of the risk factors discussed under "Certain Risk Factors" and
the possible negative effects of eliminating the Trust's finite life provision
discussed under "- Replacement of the Fixed Life Trust with a Perpetual- Life
Corporation," Shareholders should take into account the following possible
negative considerations concerning the acquisition safeguards described above
in evaluating the proposed Incorporation Procedure as a whole. Notwithstanding
the benefits of the Incorporation Procedure anticipated by the Board of
Trustees, Shareholders should recognize that the acquisition safeguards could
discourage a future attempt to acquire control of TRII Nevada that is not
presented to and approved by the Board of Directors, but which some of TRII
Nevada's stockholders might believe to be in their best interest or which might
offer stockholders a premium for their shares over prevailing market prices.
As a result, stockholders who might desire to participate in a transaction may
not have an opportunity to do so and the Incorporation Procedure might
therefore be viewed as limiting stockholders' rights. Furthermore, unsolicited
proposals are not necessarily less advantageous transactions negotiated with
management.
Consummation of the Incorporation Procedure could have the effect
of making it more difficult for holders of even a majority of the outstanding
shares of TRII Nevada (i) to obtain control either directly by making a tender
offer for the outstanding stock of TRII Nevada (see "-- The Business Combination
Provision") or by soliciting proxies or consents (see "--Stockholder/Management
Relations The Consent Provision") for use at a special or regular meeting of
TRII Nevada's stockholders (see "- Stockholders Management Relations
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- - The Stockholder Meeting Provision") or (ii) to change the composition of the
Board of Trustees to remove incumbent management (see "-- Management after
Incorporation Procedure -- The Director Removal Provision"). Accordingly, the
Incorporation Procedure, together with the protection afforded by the collective
beneficial ownership of approximately 28% of the Trust's Shares (as of May 9,
1997) by the Trustees and the Trust's executive officers and entities with which
they are affiliated, could entrench the Board of Directors, even in
circumstances where a majority of the stockholders may be dissatisfied with the
performance of the incumbent directors or otherwise desire to make changes.
With respect to (i) certain mergers and other related transactions
and (ii) certain amendments to TRII Nevada's Articles of Incorporation, the
acquisition safeguards will also effectively give veto power to holders of more
than one-third and one-fifth, respectively, of the outstanding voting shares of
TRII Nevada, even if such mergers or amendments were desired by a majority of
the stockholders.
The cumulative effect of the various changes resulting from the
Incorporation Procedure might also discourage some persons from investing in or
acquiring a large block of TRII Nevada stock by making it more difficult for a
substantial stockholder to exercise control, to complete an acquisition of TRII
Nevada or to negotiate a repurchase of its shares by TRII Nevada. Stockholders
may also have less opportunity to take advantage of temporary increases in the
market price of TRII Nevada's shares that might be caused by takeover
speculation.
The Trustees have considered these potential disadvantages and
differences and have concluded that the acquisition safeguards included in the
Incorporation Procedure outweigh these possible disadvantages.
CERTAIN POTENTIAL CONFLICTS OF INTEREST
The Incorporation Procedure is also likely to result in Tarragon,
as advisor, earning greater fees for a longer period of time than could be the
case under the Trust's current provisions. In addition, such advisory fees
would not be subject to the operating expense limitation currently contained in
the Declaration of Trust, although a substantially similar provision would be
included in an amendment to the current Advisory Agreement. While the Board of
Trustees believes that the Incorporation Procedure is in the best interest of
the Trust and its Shareholders, certain members of management could benefit
from the Incorporation Procedure and, therefore. may be viewed as having a
conflict of interest.
Shareholders should be aware that certain of the Trust's executive
officers have interests that may present them with conflicts of interest in
connection with the Incorporation Procedure. To the extent that Tarragon
continues to serve as advisor, the Incorporation Procedure is also likely to
result in Tarragon earning greater fees for a longer period of time.
Additionally, in the future, Tarragon may benefit from the elimination of
certain limitations on investments currently applicable to the Trust. The
Articles of Incorporation of TRII Nevada would permit it to engage in a larger
class of transactions with related parties than is permitted by the existing
Declaration of Trust. Furthermore, the proposed Incorporation Procedure
contains certain safeguards regarding acquisition of TRII Nevada which may,
among other things, have the effect of making it more difficult for
Shareholders to remove incumbent management. The Articles of Incorporation of
TRII Nevada would also limit the liability of directors to a greater degree
than the Declaration of Trust, as discussed more fully below under "Proposed
Incorporation Procedure -- Liability of Certain Persons -- The Management
Liability Provision''.
THE ONE-FOR-ONE EXCHANGE OF SHARES
As part of the Merger, existing Shareholders of the Trust would
automatically become stockholders of TRII Nevada by the exchange of all shares
of the California corporation for newly issued Nevada Common Stock on the basis
of the One-for-One Exchange. For reasons discussed under "Proposed
Incorporation Procedure - Comparison of the Securities of TRII Nevada and the
Trust - Common Equity," each share of Nevada Common Stock would have $0.01 par
value, unlike each existing Share, which has no par value.
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The One-for-One Exchange would result in issuance by TRII Nevada
of a number of shares of Nevada Common Stock equal to the number of Shares of
the Trust outstanding immediately before commencement of the Incorporation
Procedure. Based upon the 1,343,119 Shares outstanding on May 9, 1997, the
One-for-One Exchange would result in issuance of 1,343,119 shares of Nevada
Common Stock.
The One-for-One Exchange will not affect any Shareholder's
proportionate equity interest in the Trust. Upon consummation of the
Incorporation Procedure, each outstanding share of Nevada Common Stock shall be
entitled to one vote at each meeting of stockholders, as is the case with each
currently outstanding Share of the Trust.
THERE CAN BE NO ASSURANCE THAT THE MARKET PRICE PER SHARE OF
NEVADA COMMON STOCK AFTER THE ONE-FOR-ONE EXCHANGE WILL BE EQUAL TO THE MARKET
PRICE PER SHARE OF THE SHARES BEFORE THE ONE-FOR-ONE EXCHANGE OR THAT
MARKETABILITY OF NEVADA COMMON STOCK WILL REMAIN CONSISTENT WITH THE
MARKETABILITY OF THE SHARES. Prices for TRII Nevada Common Stock will be
determined in the marketplace and may be influenced by many factors, including
investor perception of the changes effected through the Incorporation
Procedure.
Assuming that the proposed Incorporation Procedure is approved,
Shareholders will be furnished with necessary materials and instructions to
exchange their certificates representing the existing Shares for certificates
representing Nevada Common Stock.
ADOPTION AND APPROVAL OF THE INCORPORATION PROCEDURE WILL
SIGNIFICANTLY AFFECT CERTAIN RIGHTS OF SHAREHOLDERS. ACCORDINGLY, SHAREHOLDERS
ARE URGED TO READ CAREFULLY THIS ENTIRE PROXY STATEMENT/PROSPECTUS AND THE
APPENDICES HERETO AND TO CONSIDER CAREFULLY THE DIFFERENCES BETWEEN THEIR
RIGHTS AS SHAREHOLDERS OF THE TRUST AND AS STOCKHOLDERS OF TRII NEVADA BEFORE
VOTING.
COMPARISON OF PRINCIPAL DIFFERENCES BETWEEN THE TRUST AND TRII NEVADA
If the proposed Incorporation Procedure is approved and
consummated, the business of the Trust will be conducted by a Nevada
corporation rather than by a business trust organized under the laws of the
State of California. The rights and powers of the Trust and its Shareholders
and Trustees currently are governed primarily by the Declaration of Trust and
the Trustees' Regulations and, to a lesser extent, by California business trust
law, while those of TRII Nevada and its stockholders and directors would be
governed by Articles of Incorporation and Bylaws and by Nevada corporate law.
Set forth below is a comparison of principal differences between those
respective rights and powers. Although the Trustees believe that the following
discussion sets forth the material differences between the rights of
Shareholders of the Trust and stockholders of TRII Nevada, the comparison does
not purport to be a complete statement of all differences and is qualified in
its entirety by reference to the Articles of Incorporation and Bylaws of TRII
Nevada and the Declaration of Trust and the Trustees' Regulations.
Shareholders should refer to the full text of TRII Nevada's Articles of
incorporation and Bylaws attached hereto as Appendices C and D, respectively,
and compare them with the Declaration of Trust and the Trustees' Regulations,
attached hereto as Appendices E and F, respectively.
For convenience and ease of reference, comparisons between the
Trust and TRII Nevada are set forth as follows: "Management After
Incorporation Procedure" discusses the role of TRII Nevada's advisor and how
the Trust's Board of Trustees would be reconstituted as TRII Nevada's Board of
Directors; "Liability of Certain Persons" addresses exculpation of trustees
and directors, indemnification of trustees, directors and officers and
shareholder liability; "Business Activities After Incorporation Procedure"
compares business objectives and restrictions on certain activities and related
party transactions; "Comparison of the Securities of TRII Nevada and the
Trust," in addition to comparing the Shares with the Nevada Common Stock,
outlines dissenters' rights, preferred stock, listing on the NASDAQ National
Stock Market and certain restrictions on ownership and transfer of shares;
"Stockholder-Management Relations" describes the mechanics of stockholder
voting and meetings; "The Business Combination Provision" discusses certain
provisions of TRII Nevada's Articles of
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Incorporation relating to acquisition transactions with interested
stockholders; "The Evaluation Provision" describes certain new provisions; and
"Amendment Provisions" sketches the requirements for amending the governing
documents of the Trust and TRII Nevada.
MANAGEMENT AFTER INCORPORATION PROCEDURE
CONSTITUENCY OF THE BOARD. The current Board of Trustees consists
of four members. The Articles of Incorporation of TRII Nevada sets the number
of initial directors at four. The exact number of directors may be fixed or
changed by the affirmative vote of a majority of the entire Board of Directors,
from time to time, within the limits set by the Articles of Incorporation. By
comparison, the Declaration of Trust provides that the number of Trustees shall
be no less than three nor more than fifteen as determined by the vote of the
Shareholders of the Trust or the Trustees. The Declaration of Trust provides a
maximum age limitation for Trustees of seventy (70) by providing that no person
shall be eligible for election, reelection or appointment as a Trustee after
having reached the age of seventy years. The Articles of Incorporation of TRII
Nevada do not place any age limitation on directors.
Notwithstanding any limitation on the maximum number of directors
in the Articles of Incorporation, whenever TRII Nevada issues preferred stock
and gives its holders the right to elect a director at an annual or special
meeting of stockholders, then the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Articles of Incorporation or the resolution(s) adopted by the
Board of Directors applicable thereto. See "Proposed Incorporation Procedure
- -- Comparison of the Securities of TRII Nevada and the Trust - Preferred
Stock."
Any vacancy on the Board of Directors of TRII Nevada will be
filled by a vote of the majority of the directors then in office or by a sole
remaining director. Any director elected to fill a vacancy not resulting from
an increase in the number of directors shall have the same remaining term as
that of his predecessor. The Declaration of Trust provides for filling Board
of Trustees vacancies by the remaining Trustees or by the vote or consent of a
majority of the outstanding shares entitled to vote thereon.
The Declaration of Trust requires that a majority of Trustees be
persons who are not affiliates of the original sponsor of the Trust and one of
the Trust's former advisors, or any of the original sponsor's affiliates or
successor entities. Under the Declaration of Trust, "Affiliate" is defined "as
to any person, any other person who owns beneficially, directly, or
indirectly, 1% or more of the outstanding capital stock, shares or equity
interests of such person or of any other person which controls, is controlled
by, or is under common control with, such person or is an officer, retired
officer, director, employee. partner, or trustee of such person or of any other
person which controls, is controlled by, or is under common control with, such
person." Under the Declaration of Trust, "Person" is defined to include
"individuals, corporations, limited partnerships, general partnerships, joint
stock companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other
entities and governments and agencies and political subdivisions thereof."
By contrast, Article SIXTH of the Articles of Incorporation does
not require that any of TRII Nevada's directors be independent of the advisor
or any other person. It should be noted. however, that all of the Trustees,
who would serve as directors of TRII Nevada, except William S. Friedman are
unaffiliated with Tarragon.
THE DIRECTOR REMOVAL PROVISION. Under Article ELEVENTH of the
Articles of Incorporation (the "Director Removal Provision"), each director of
the Board may be removed only by the affirmative vote of the holders of not
less than two-thirds of the outstanding stock of TRII Nevada then entitled to
vote for the election of such director. By contrast, under the Declaration of
Trust, Trustees may be removed by vote or consent of the holders of a majority
of the outstanding Shares entitled to vote thereon, or by a majority of the
remaining Trustees. The Director Removal Provision makes removal of a director
of TRII Nevada more difficult by requiring a super-majority vote.
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Shareholders should note that affiliates of Tarragon effectively
will have power over the removal of directors of TRII Nevada pursuant to the
Director Removal Provision.
The Director Removal Provision tends to ensure managerial
continuity and to deter certain kinds of unsolicited takeovers while making
changes in control somewhat more difficult. See "Proposed Incorporation
Procedure -- Acquisition Safeguards -- Possible Negative Considerations."
TRII NEVADA'S ADVISOR. It is anticipated that the day-to-day
operations of TRII Nevada will be performed by Tarragon from the effective time
of the Merger under the modified Advisory Agreement described under "Business
and Properties of the Trust -- The Advisory Agreement," subject to shareholder
approval the Incorporation Procedure.
Article THIRTEENTH of the Articles of Incorporation provides that
the Board of Directors may authorize advisory agreements. There is no
requirement that the Board of Directors obtain stockholder approval prior to
any renewal or modification of such advisory agreements (although the Board of
Directors intends to continue this practice). In contrast, the Declaration of
Trust currently requires that all advisory agreements have an initial term of
no more than two years and provide for annual renewal extension thereafter,
subject to shareholder approval.
The Declaration of Trust also provides for termination of advisory
agreements without penalty (i) by the advisor upon 120 days' written notice or
(ii) by the Shareholders (by a vote of the majority of the outstanding Shares)
or (iii) by the Board of Trustees (by majority vote including a majority of
unaffiliated Trustees) upon 60 days' written notices. The TRII Nevada Articles
of Incorporation leave termination provisions regarding advisory agreements to
the negotiation of the parties. Neither TRII Nevada's Articles of
Incorporation nor the Declaration of Trust requires Shareholder approval for
the selection of the advisor per se.
The Declaration of Trust requires that any advisory agreement
entered into with a Trustee or an affiliate (see "Proposed Incorporation
Procedure -- Management after Incorporation Procedure -- The Classified Board
Provision") of a Trustee must be made, approved or ratified by a majority of
the Trustees who are not so affiliated. Transactions of TRII Nevada with any
advisor or affiliate thereof would be governed by the NRS and the unified
related-party provisions contained in Article FOURTEENTH of the Articles of
Incorporation. Prior to entering certain related party transactions, except
certain specified contracts including the Advisory Agreement, the Board of
Directors would be required to agree that the transaction is in the best
interest of the corporation and that no other opportunity exists that is as
good as the opportunity presented by such transaction. Direct contractual
agreements for services, such as the Advisory Agreement between TRII Nevada and
Tarragon or one of its affiliates, would require the prior approval of a
majority of the directors.
Section 4.3 of the Declaration of Trust requires the Trust's
advisor to use its best efforts to present to the Trust a continuing and
suitable investment program, consistent with the Trust's investment policies
and objectives. However, consistent with the Declaration of Trust, neither the
advisor nor any affiliate of the advisor is obligated to present any particular
investment opportunity to the Trust. The advisor is, in fact, expressly
authorized to take for its own account or recommend to others any particular
investment opportunity. There is no comparable provision to such Section 4.3
in the Articles of Incorporation.
The Articles of Incorporation impose fewer explicit restrictions
on compensation of TRII Nevada's advisor than does the Declaration of Trust.
Article THIRTEENTH of the Articles of Incorporation provides that the
compensation payable under the Advisory Agreement must be approved as "fair and
equitable" by the Board of Directors, and the Restrictions on Related-Party
Transactions Provision also applies to compensation of the advisor. See,
however, the discussion of contractual limits on operating expenses below under
"Proposed Incorporation Procedure -- Business Activities after Incorporation
Procedure."
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LIABILITY OF CERTAIN PERSONS
THE MANAGEMENT LIABILITY PROVISION. The Incorporation Procedure
will enable TRII Nevada to define the liability of corporate officers and
directors with greater precision. The Board of Trustees believes that limited
liability will help retain and attract the best possible officers and
directors. Currently, each of the Trustees has been offered contractual
indemnification to the fullest extent permitted by the Declaration of Trust or
to the fullest extent not prohibited under applicable law. Under the
Management Liability Provision (Article NINTH of the Articles of
Incorporation), the directors will not have personal liability to TRII Nevada
or its stockholders for monetary damages for any breach of their fiduciary
duties as directors (including, without limitation, any liability for gross
negligence in the performance of their duties), except (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (ii) for the payment of dividends in violation of NRS 78.300. By
precluding personal liability for certain breaches of fiduciary duty, including
grossly negligent business decisions in evaluating takeover proposals to
acquire TRII Nevada, the Management Liability Provision supplements
indemnification rights afforded under TRII Nevada's Articles of Incorporation
and Bylaws which provide, in substance. that TRII Nevada shall indemnify its
directors, officers, employees and agents to the fullest extent permitted by
the NRS and other applicable laws.
The Articles of Incorporation provide that TRII Nevada "shall
indemnify to the fullest extent authorized or permitted by law (as now or
hereafter in effect) . . . to any person made or threatened to be made a
party or witness to any action, suit or proceeding (whether civil or criminal
or otherwise) by reason of the fact that such person is or was a director,
officer, employee or agent of TRII Nevada . . ." Further, the Bylaws provide
that "[e]ach officer, director or employee . . . shall be indemnified . . .
to the full extent permitted under Chapter 78 of the Nevada Revised Statutes .
. . and other applicable law." Pursuant to the NRS, a corporation may
indemnify persons for expenses related to an action, suit or proceeding, except
an action by or in the right of the corporation, by reason of the fact that
such person is or was a director, officer, employee or agent, if such person
acted in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, if such person had no reasonable cause to
believe his conduct was unlawful. The expenses indemnified against in this
provision include attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred connection with the action, suit or
proceeding. The NRS further provides that a corporation may indemnify persons
for attorneys' fees related to an action, suit or proceeding by or in the right
of the corporation to procure a judgment in its favor by reason of the fact
that such person is or was a director, officer, employee or agent, if such
person acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation. The corporation
may also indemnify directors for amounts paid for judgments and settlements in
such a suit, but only if ordered by a court after determining that the person
is "fairly and reasonably" entitled to indemnity.
The Management Liability Provision contained in the Articles of
Incorporation is analogous to Article VII of the Declaration of Trust. Article
VII, however, explicitly exculpates Trustees, officers, employees and agents
of the Trust while the Management Liability Provision explicitly exculpates
only directors. Further, under the Declaration of Trust, a Trustee would not
be indemnified for liability arising from gross negligence or reckless
disregard of duty, whereas a director of TRII Nevada may be indemnified for
such liability under the Articles of Incorporation.
Current Trustees and the directors of TRII Nevada could personally
benefit from expanding limitation on their personal liability.
The NRS and Nevada common law provide that a corporation's board
of directors owes certain fiduciary duties to the corporation and its
stockholders, including a duty of loyalty and a duty of care. The duty of care
generally considered to require directors to be sufficiently diligent and
careful in informing themselves regarding, and in deciding whether to take or
not to take, corporate action. The duty of care to which directors are bound
is that which ordinarily prudent and diligent men would exercise under similar
circumstances. The duty of loyalty is generally considered to require
directors to act in what they determine is good faith, at appropriate
consideration, to be in the best interest of the corporation and not to engage
in self-dealing. With respect to limitations on the personal liability of
directors to TRII Nevada or its stockholders, the Management Liability
Provision is more expansive than the provision in the Declaration of Trust that
addresses the limitations on the personal liability of Trustees to the Trust or
its shareholders. Consequently, the Management Liability Provision expands the
current limitation
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on personal liability of members of management to cover, in addition, certain
violations of their fiduciary duty of care rising to the level of gross
negligence or reckless disregard of duty. The Management Liability Provision
would not, however, insulate directors of TRII Nevada from liability to TRII
Nevada or its stockholders for (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law or (ii) the payment of
distributions in violation of NRS 78.300. The limitation of liability applies
only to claims by TRII Nevada or its stockholders and does not preclude or
limit recovery of damages by others, such as creditors. Furthermore, the
limitation of liability applies prospectively only and would therefore not
affect a Trustee's potential liability for acts or omissions in his capacity as
a Trustee prior to the effective time of the Merger.
The Management Liability Provision further provides that any
repeal or modification of Article NINTH would not increase the personal
liability of any director of TRII Nevada for any act or occurrence taking place
prior to such repeal or modification, or otherwise adversely affect any right
or protection of a director of TRII Nevada existing at the time of such repeal
or modification. Moreover, the Management Liability Provision provides that if
Nevada law is, in the future, amended to further eliminate or limit the
liability of directors, the liability of a director shall be eliminated or
limited to the fullest extent permitted by Nevada law, as so amended.
By protecting directors from assessments of monetary damages for
breaches of the duty of care, Management Liability Provision limits the
remedies available to a stockholder seeking to challenge a Board of Directors
decision protected by the Management Liability Provision, including, for
example, decisions relating to acquisition proposals or similar transactions.
However, it does not eliminate or change the duty of care. Accordingly, the
Management Liability Provision does not limit the availability of equitable
remedies, such as an injunction or rescission based on a director's breach of
the duty of care, although, as a practical matter, particular equitable
remedies may not be available (e.g., after a transaction has already been
effected). Additionally, the Bylaws of TRII Nevada provide indemnification to
each officer, director and employee of TRII Nevada to the fullest extent
permitted by Chapter 78 of the NRS and other applicable law.
The Management Liability Provision also provides that TRII Nevada
shall indemnify to the fullest extent permitted by law any person who is a
party or is made or threatened to be made a party or witness to any action,
suit or proceeding (whether civil or criminal or otherwise) by reason of the
fact that such person is or was a director, officer, employee or agent of TRII
Nevada, or is or was serving at the request of TRII Nevada, any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity. The Management Liability Provision also provides
that TRII Nevada shall advance expenses to the fullest extent permitted by law
to such indemnitee. The Management Liability Provision further states that any
amendment to or repeal of Article NINTH would not diminish such indemnification
with respect to any acts or omissions occurring prior to such amendment or
repeal. The Declaration of Trust provides that the Trust shall indemnify and
reimburse any person made a party to any action, suit or proceeding or against
whom any claim or liability is asserted because he was or is a Trustee,
officer, employee or agent of the Trust for any judgments, fines, amounts paid
on account thereof (whether in settlement or otherwise) and reasonable
expenses, including attorneys' fees, actually and reasonably incurred by him in
defending against such claim, action, suit or proceeding, or alleged liability
or in connection with any appeal therein, except where the claim, obligation or
liability arose out of such person's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. The indemnity provisions of the
Management Liability Provision and Section 78.751 of the NRS are comparable
except that Section 78.751 of the NRS provides that a corporation shall make no
indemnification in respect of any claim as to which a final adjudication
establishes that the director is liable to TRII Nevada or for amounts paid in
settlement to TRII Nevada unless and only to the extent that the court in which
the action was brought determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses.
As herein described, directors and officers of TRII Nevada are
indemnified against certain liabilities under provisions of the Articles of
Incorporation and Bylaws. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act") may be
permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that in
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the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
In addition, the Management Liability Provision provides, as
permitted by the NRS, that TRII Nevada may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of TRII Nevada
or another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise against such expense, liability or loss, whether or
not TRII Nevada would have the power to indemnify such person against any such
expense, liability or loss under the NRS. Section 7.4 of the Trust's
Declaration of Trust is analogous to this portion of the Management Liability
Provision. Although the Trust has had the power to purchase such insurance, to
date the Trust has not done so.
The Trustees and officers of the Trust are indemnified under the
Declaration of Trust against judgments, fines, amounts paid on account of and
reasonable expenses (including attorneys' fees) incurred in connection with the
defense of suits or proceedings in which a claim or liability against a person
is asserted by reason of the fact that he is a Trustee or officer of the Trust,
as the case may be. Currently, each of the Trustees of the Trust has been
offered contractual indemnification to the fullest extent permitted by the
Declaration of Trust or to the fullest extent not prohibited under applicable
law.
SHAREHOLDER LIABILITY. Limitations on the potential personal
liability of stockholders for the acts and obligations applicable to TRII
Nevada under Nevada law are comparable to the limitations under California law
and the Declaration of Trust applicable to Shareholders of the Trust with
respect to the Trust's acts and obligations. Though the Articles of
Incorporation do not expressly limit stockholder liability, pursuant to Article
8, Section 3, of the Nevada constitution and Section 78.225 of the NRS,
stockholders are not personally liable for the payment of a corporation's
debts, except to the extent a stockholder has not paid the consideration for
which that stockholder's shares were authorized to be issued or which was
specified in a written subscription agreement between the corporation and the
stockholder. Similarly, the Declaration of Trust provides that Shareholders
shall not be subject to any personal liability for the acts or obligations of
the Trust and that every written undertaking made by the Trust shall contain a
provision that such undertaking is not binding on any Shareholder personally.
Under Section 23001 of the California Corporations Code, no shareholder of a
real estate investment trust like the Trust shall be personally liable for any
liabilities, debts or obligations of, or claims against, such real estate
investment trust. Section 23002 of the Corporations Code further provides that
Section 23001 applies to any real estate investment trust under the laws of
California with respect to liabilities, debts, obligations and claims wherever
arising. Under Section 23000 of the California Corporations Code, the Trust is
classified as a "real estate investment trust" for purposes of the foregoing
provisions of California law. Thus, it appears that the Incorporation
Procedure will not materially alter Shareholder liability in California. It
should be noted that the law regarding other states where the Trust does
business might treat Shareholders' liability in a different manner (i.e.,
impose liability) if a court in such state were not to apply California law to
such issue.
BUSINESS ACTIVITIES AFTER INCORPORATION PROCEDURE
No significant change in the nature of the Trust's business is
anticipated as a result of the Incorporation Procedure, though TRII Nevada will
be empowered under the Articles of Incorporation to engage in a wider range of
business activities than those currently permitted under the Declaration of
Trust. It should be noted that the Articles of Incorporation place no
limitations on TRII Nevada's operating expenses, as discussed below.
Article THIRD of the Articles of Incorporation states that TRII
Nevada may engage in any lawful activity, subject to the restrictions set forth
above under "Proposed Incorporation Procedure -- Management after Incorporation
Procedure -- TRII Nevada Advisor" and below under "Proposed Incorporation
Procedure -- Business Activities after Incorporation Procedure -- The
Restrictions on Related-Party Transactions Provision." While, unlike the
Declaration of Trust, the Articles of Incorporation neither dictate specific
investment policies nor formally restrict particular activities of TRII Nevada,
it is currently expected that the investment policies and activities of TRII
Nevada will be substantially similar to the existing investment policies and
activities of the Trust. Notwithstanding such expectation, TRII Nevada may
avail itself of the greater flexibility permitted by the Articles of
Incorporation to make certain investments that the Trust is not authorized to
make. No
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assurance can be given that TRII Nevada's investment policies will not change
if, in the opinion of the Board of Directors, circumstances so require, and
certain investment policies may be changed without stockholder approval.
To continue to qualify for taxation as a REIT under the Code, TRII
Nevada will, among other things, be required (i) to hold at least 75% of the
value of its total assets in real estate assets, government securities, cash
and cash items at the close of each quarter of each taxable year, (ii) to
distribute 95% of its taxable income each year (excluding any net capital gain)
as dividends, (iii) to ensure that no more than 50% in value of its outstanding
stock is held by five or fewer individuals or certain organizations at any time
during the last half of each taxable year and (iv) to ensure that no fewer than
100 persons are beneficial owners of stock of TRII Nevada during at least 335
days of each taxable year. Section 5.3 of the Declaration of Trust contains
substantial limits on the business activities in which the Trust may engage,
some of which facilitate compliance with the aforementioned Code requirements.
Section 5.3 of the Declaration of Trust prohibits or restricts the
Trustees from investing (i) in any foreign currency, bullion or commodities,
(ii) in contracts of sale for real estate in excess of a value of 1% of the
total assets of the Trust Estate, except in conjunction with the acquisition or
sale of real property or when such investments are held as security for
mortgages made or acquired by the Trust, (iii) in any short role, (iv) in any
equity security, including the shares of other REITs, and (v) in single-family
homes. Furthermore, Section 5.3 prohibits the Trustees from investing more
than 10% of the assets of the Trust estate (a) in equity ownership of, or
mortgage loans on, unimproved real property that does not produce income or in
participation in the ownership of, or mortgage loans on, unimproved real
property that does not produce income, except pursuant to an agreement for the
development of the land within a reasonable time or (b) in junior mortgage
loans, excluding wraparound loans, and from issuing certain equities and debt
securities as more fully described in "Proposed Incorporation Procedure --
Comparison of the Securities of TRII Nevada and the Trust -- Preferred Stock."
Subject to the foregoing restrictions and the restrictions on
related-party transactions discussed below, the Trustees may change the
investment policy of the Trust without Shareholder approval if they determine
that such change would be in the best interest of the Trust. As mentioned
above, certain of the restrictions contained in Section 5.3 were designed to
facilitate the Trust's continuing qualification as a REIT under the Code.
Provided TRII Nevada operates as a REIT, and it is not expected that TRII
Nevada will conduct its future business activities in such a manner as to
terminate its anticipated REIT status, its investment policies would be limited
by applicable Code provisions. Nevertheless, TRII Nevada would have
substantially greater flexibility and fewer restrictions on its investment
policy than the Trust presently has.
Additionally, Section 4.4 of the Declaration of Trust places
specific limits on the Trust's "operating expenses" (defined in Section 1.4[s]
of the Declaration of Trust). For purposes of those limits, operating expenses
include (i) aggregate annual expenses constituting operating expenses under
generally accepted accounting principles, (ii) the advisory fee payable to the
Trust's advisor and (iii) the fees and expenses paid to the Trustees who are
not employees or affiliates of the advisor. However, such operating expenses
specifically exclude (a) the cost of money borrowed by the Trust, (b) income
taxes, taxes and assessments on real property and all other taxes applicable to
the Trust, (c) expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of the Trust's
securities, (d) fees and expenses paid to independent mortgage servicers,
contractors, consultants, managers and other agents retained by or on behalf of
the Trust, (e) expenses directly connected with the purchase origination,
ownership and disposition of real properties or mortgage loans, other than
expenses with respect thereto of employees of the Trust's advisor, except
legal, internal auditing, mortgage servicing, foreclosure and computer costs
and transfer agent services performed by employees of the Trust's advisor, (f)
the expenses of maintaining and managing real estate equity interests and
processing and servicing mortgage and other loans, (g) expenses connected with
payments of dividends, interest or distributions by the Trust to Shareholders,
(h) expenses connected with communicating to Shareholders and maintaining
Shareholder relations, (i) transfer agent's, registrar's and indenture
trustee's fees and charges, (j) the cost of any accounting, statistical,
bookkeeping or computer equipment necessary for maintaining the Trust's books
and records and (k) reserves for depletion, depreciation and amortization and
losses and provisions for losses. The following direct expenses of the advisor
shall be
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excluded from the Trust's operating expenses and shall be borne by the advisor:
(1) employment expenses of the advisor's personnel (including Trustees,
officers and employees of the Trust who also serve as directors, officers, or
employees of the Trust's advisor or affiliates of the advisor), (2) rent,
telephone, utilities, office furnishings and other office expenses of the
Trust's advisor (except those relating to a separate office, if any, maintained
solely for the Trust), and (3) overhead of the Trust's advisor directly related
to performance of its functions under the Advisory Agreement.
Under Section 4.4 of the Declaration of Trust, operating expenses
of the Trust for any fiscal year must not exceed the lesser of (a) 1.5% of the
average of the "Book Values of Invested Assets" (as defined in the Declaration
of Trust) of the Trust at the end of each calendar month of such fiscal year,
or (b) the greater of 1.5% of the average of the "Net Asset Value" (as defined
in the Declaration of Trust) of the Trust at the end of each calendar month of
such fiscal year and 25% of the Trust's "Taxable Income" (as defined in the
Declaration of Trust). Section 4.4 of the Declaration of Trust further
provides that any advisory agreement shall specifically provide for a refund to
the Trust of the amount, if any, by which the operating expenses exceed the
applicable amount, provided that the amount of such refund shall not exceed the
aggregate advisory fees paid to the advisor under such contract with respect to
such fiscal year.
In accordance with this section, the Advisory Agreement described
under Proposal Two specifically provides for a refund to the Trust of the
amount by which the operating expenses of the Trust for any fiscal year exceed
the limitation set forth in Section 4.4 of the Declaration of Trust, "or in any
similar limitation (if contained) in a successor Declaration of Trust or
Certificate or [Articles] of Incorporation...." Although the Articles of
Incorporation place no limitations on TRII Nevada's operating expenses, the
limitation on operating expenses under the current Advisory Agreement, assuming
Shareholders approve the Incorporation Procedure, will be included
contractually in the Advisory Agreement through an amendment thereto. See
"Certain Risk Factors -- Elimination of Charter Limitation on Operating
Expenses."
THE RESTRICTIONS ON RELATED-PARTY TRANSACTIONS PROVISION. Article
FOURTEENTH of the Articles of Incorporation provides that TRII Nevada shall
not, directly or indirectly, contract or engage in any transaction with (i) any
director, officer or employee of TRII Nevada, (ii) any director, officer or
employee of the advisor, (iii) the advisor or (iv) any affiliate or associate
(as such terms are defined in Rule 12b-2 under the Exchange Act, as amended) of
TRII Nevada or any person identified in the foregoing clauses (i) through (iii)
unless (a) the material facts as to the relationship among or financial
interest of the relevant individuals or persons and as to the contract or
transaction are disclosed to or are known by the Board of Directors or the
appropriate committee thereof and (b) the Board of Directors or committee
thereof determines that such contract or transaction is fair to TRII Nevada and
simultaneously authorizes or ratifies such contract or transaction by the
affirmative vote of a majority of the independent directors of TRII Nevada
entitled to vote thereon. Article FOURTEENTH defines an "independent director"
as one who is neither an officer or employee of TRII Nevada nor a director,
officer or employee of TRII Nevada's advisor.
Stockholders should note that Article FOURTEENTH does not supplant
Nevada law regarding related-party transactions; rather, Article FOURTEENTH
provides additional protection against the possibility of related-party
transactions unfavorable to TRII Nevada. Under the NRS, a contract or
transaction between a corporation and one or more of its directors or officers,
or between a corporation and any corporation, firm or association in which one
or more of its directors or officers are directors or officers or are
financially interested, is not void or voidable solely for this reason, or
solely because the director or officer is present at the meeting of the board
of directors or a committee thereof which authorizes or approves the contract
or transaction, because the vote or votes of common or interested directors are
counted for that purpose, provided that one of the four requirements below is
met:
(i) The fact of the common directorship, office or
financial interest is disclosed or known to the board of directors
or committee and noted in the minutes, and the board or committee
authorizes, approves or ratifies the contract or transaction in
good faith by a vote sufficient for the purpose without counting
the vote or votes of the common or interested director or
directors.
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(ii) The fact of the common directorship, office or
financial interest is disclosed or known to the stockholders, and
they approve or ratify the contract or transaction in good faith
by a majority vote of stockholders holding a majority of voting
power. The votes of the common or interested directors or
officers must be counted in any such vote of stockholders.
(iii) The fact of the common directorship, office or
financial interest is not disclosed or known to the director or
officer at the time the transaction is brought before the board of
directors of the corporation for action.
(iv) The contract or transaction is fair as to the
corporation at the time it is authorized or approved.
The basic restriction on transactions between the Trust and
related parties contained in the Declaration of Trust is similar to
restrictions contained in TRII Nevada's Articles of Incorporation and the NRS.
Section 7.6 of the Declaration of Trust provides that, absent fraud and except
as otherwise prohibited by the Declaration of Trust, a contract, act or other
transaction between the Trust and any other person, or in which the Trust is
interested, shall be valid even though one or more of the Trustees or officers
of the Trust (i) are directly or indirectly interested in, or connected with,
or are trustees, partners, directors, officers or related officers of such
other person or (ii) individually or jointly with others, are parties to or
directly or indirectly interested in, or connected with, such contract, act or
transaction. Further, no Trustee or officer shall be under any disability from
or have any liability as a result of entering into any such contract, act or
transaction provided that (a) such interest or connection is disclosed or known
to the Trustees and thereafter the non-interested Trustee vote to authorize
such contract, act or other transaction: (b) such interest or connection is
disclosed or known to the Shareholders and thereafter such contract, act or
transaction is approved by the Shareholders; and (c) such contract, act or
transaction is fair and reasonable to the Trust at the time it is authorized by
the Trustees or by the Shareholders.
The Declaration of Trust also contains specific restrictions on
certain transactions between the Trust and certain other persons. Although the
standards and procedures by which such transactions are permissible under TRII
Nevada's Articles of Incorporation and Nevada law, on the one hand, and the
Declaration of Trust, on the other, are not dissimilar in the opinion of the
Board of Trustees, the Declaration of Trust absolutely prohibits certain
transactions between the Trust and certain related parties, as discussed below,
regardless of the fairness of the terms of such transactions and whether such
transactions are authorized by a majority of unaffiliated Trustees or approved
by the Shareholders. Because TRII Nevada's Articles of Incorporation contains
no analogous prohibition, the Incorporation Procedure could potentially permit
TRII Nevada greater flexibility to engage in a larger class of transactions
with related parties than the more limited class of transactions between the
Trust and certain related parties than is currently permitted by the
Declaration of Trust. Nevertheless, the Board of Trustees believes that the
restrictions in TRII Nevada's Articles of Incorporation and the restrictions
mandated by the NRS will offer adequate protection to ensure the fairness and
propriety of transactions between TRII Nevada and related parties.
Section 7.6 of the Declaration of Trust states that the Trust
"shall not purchase or lease, directly or indirectly, any real property from
the [a]dvisor or any affiliated person or from any partnership in which any of
the foregoing may also be a general partner." Further, the Trust shall not
"sell or lease, directly or indirectly, any of its real property to any of the
foregoing persons." The original sponsor or the Trust's advisor may make
mortgage loans, purchase real property and assume loans in connection therewith
in its own name and temporarily hold title thereto for the purpose of
facilitating the acquisition of such real property or mortgage loans or the
borrowing of money or obtaining of financing for the Trust, or for any other
purpose related to the Trust's business, as long as the price for which the
Trust purchases such asset is no greater than the cost to the original sponsor
or the Trust's advisor and there is no difference in the interest rates of the
loans related thereto at the time acquired by the original sponsor or the
Trust's advisor and the time acquired by the Trust, nor any other benefit to
the original sponsor or the Trust's advisor arising out of such transaction
apart from compensation otherwise permitted by the prospectus pursuant to which
the Trust offered its Shares to the public.
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The Declaration of Trust further provides in Section 7.6 that:
"the Trust shall not, directly or indirectly, engage in any
transaction with any Trustee, officer, or employee of the Trust or
any director, officer, or employee of the [a]dvisor, or of any
company or other organization of which any of the foregoing is an
affiliate, except for... (iii) transactions with the [a]dvisor or
Affiliates thereof involving loans, real estate brokerage
services, mortgage brokerage services, real property management
services, the servicing of mortgages, the leasing of personal
property, or other services, provided such transactions are on
terms not less favorable to the Trust than the terms on which
unaffiliated parties are then making similar loans or performing
similar services for comparable entities in the same area and are
not entered into on an exclusive basis with such person; provided,
however, that any transaction referred to in clause (iv) may be
entered into only upon approval by affirmative vote or consent of
a majority of the Trustees who are not interested in or affiliates
of any person who is interested in the transaction."
The Declaration of Trust defines "Affiliate" as follows:
"[A]s to any person, any other person who owns beneficially,
directly or indirectly, 1% or more of the outstanding capital
stock, shares, or equity interests of such person or of any other
person which controls, is controlled by, or is under common
control with, such person or is an officer, retired officer,
director, employee, partner, or trustee of such person or of any
other person which controls, is controlled by, or is under common
control with such person."
COMPARISON OF THE SECURITIES OF TRII NEVADA AND THE TRUST
COMMON EQUITY. TRII Nevada is authorized by its Articles of
Incorporation to issue up to 20,000,000 shares of Nevada Common Stock. By
contrast, the Trust may issue an unlimited number of Shares, and such Shares
have no par value per share. The directors of TRII Nevada decided to fix the
par value of the common stock at $0.01 per share because the filing fees
associated with organizing TRII Nevada in Nevada are considerably less
expensive than if TRII Nevada had common stock with no par value.
With respect to conversion, preemptive, dividend and, except to
the extent TRII Nevada may issue "special" or preferred stock in the future,
voting rights, the Nevada Common Stock is comparable to the Shares. For a
discussion of liquidation preferences, voting rights and other features of the
Nevada "special" or preferred stock, see the discussion on special stock below.
As with the Shares, each holder of Nevada Common Stock will be entitled to one
vote for each share on all matters submitted to the stockholders. Similarly,
there is no cumulative voting, redemption right, sinking fund provision or
right of conversion with respect to either the Nevada Common Stock or the
Shares. The holders of the Nevada Common Stock will not have preemptive rights
to acquire additional shares of Nevada Common Stock when issued, as Trust
Shareholders currently have no such preemptive rights. All outstanding shares
of TRII Nevada issued in the One-for-One Exchange will be fully paid and
nonassessable.
DISTRIBUTIONS. All shares of the common stock of TRII Nevada will
be entitled to share equally in dividends from funds legally available
therefor, when, as and if declared by the Board of Directors of TRII Nevada,
and upon liquidation or dissolution of TRII Nevada, whether voluntary or
involuntary, to share equally in the assets of TRII Nevada available for
distribution to stockholders, subject to any rights of holders of special
stock, as discussed below. Similarly, the Declaration of Trust provides that
Shareholders have no right to any dividend or distribution unless and until the
Trustees declare such dividend or distribution. The Declaration of Trust
imposes an additional requirement not contained in TRII Nevada's Articles of
Incorporation; the Trustees must furnish the Shareholders with a statement in
writing not later than 60 days after the close of each fiscal year in which a
distribution is made identifying the source of the funds distributed. The
Trustees currently intend to continue this practice after the Incorporation
Procedure. In prior years, the Trust's distribution policy provided for an
annual determination of distributions after the Trust's year end until such
time as property operations stabilized at a level producing cash flow from
property operations in excess of anticipated needs. The minimum amount of
distributions will be determined by the amount required to continue to qualify
as a REIT under the Code which is presently 95% of taxable income (excluding
any net capital gain).
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The Declaration of Trust provides that cash distributions may be
paid from any source, in the discretion of the Trustees. In contrast, under
Nevada law, TRII Nevada may pay dividends from any source, but only if (i) TRII
Nevada would continue to be able to pay its debts as they become due in the
usual course of business and (ii) TRII Nevada's total assets would continue to
equal or exceed the sum of its total liabilities plus the amount that would be
needed, if TRII Nevada were to be dissolved at the time of distribution, to
satisfy the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the distribution.
SPECIAL STOCK. Unlike the Declaration of Trust, the Articles of
Incorporation of TRII Nevada authorize the issuance of up to 10,000,000 shares
of special stock by action of the Board of Directors without stockholder
approval, which may be issued in one or more series with such preferences,
qualifications, limitations and rights as shall be determined by the Board of
Directors of TRII Nevada. The Board of Direct may fix and determine, among
other things, (i) the distinctive designation and number of shares comprising
such series; (ii) the dividend rates payable with respect to such shares of
preferred stock (including whether and in what manner such dividends shall be
accumulated); (iii) the extent of the voting rights, if any, of such shares;
(iv) whether such shares shall be redeemable and, if so, the prices, terms and
conditions of such redemption; (v) the rights and preferences given such shares
in the event of voluntary or involuntary liquidation, dissolution or
distribution of assets; (vi) the nature of any purchase, retirement or sinking
fund provisions with respect to such shares; (vii) the nature of any conversion
rights with respect to such shares; (viii) whether the issuance of additional
shares of preferred stock shall be subject to restrictions as to issuance, or
as to the powers, preferences or other rights of any other series; (ix) the
right of the shares of such series to the benefits of conditions and
restrictions upon the creation of indebtedness of TRII Nevada or any subsidiary
thereof; and (x) any other preferences, privileges and powers in relative
participating, optional or other special rights, and qualifications,
limitations or restrictions of such shares, as the Board of Directors may deem
advisable.
Although no special stock has been issued or is being issued as
part of the Incorporation Procedure, and the Board of Directors has no present
intention of issuing any special stock deemed advisable to have such shares
available for issuance (i) for possible use to raise additional equity capital
or to make acquisitions, (ii) as an acquisition safeguard to dilute the stock
ownership and voting power of a person or entity seeking to obtain control of
TRII Nevada by (a) privately placing such special stock with purchasers not
hostile to TRII Nevada's Board of Directors to oppose an unsolicited takeover
bid or (b) authorizing holders of a series of special stock to vote as a class,
either separately or with the holders of TRII Nevada Common Stock, on any
merger, sale or exchange of assets or any other extraordinary corporate
transaction involving TRII Nevada or (c) for such other uses as the Board of
Directors of TRII Nevada may deem appropriate from time to time.
In contrast, the Trust is not authorized to issue special or
preferred shares. In addition, Section 5.3 of the Declaration of Trust
prohibits the Trustees from issuing (a) equity securities of more than one
class (other than convertible obligations, warrants, rights, options) or
residual interests in REMICs; or (b) "redeemable securities," as defined in
Section 2(a) (32) of the Investment Company Act of 1940, as amended. The
Articles of Incorporation impose no such explicit prohibitions on TRII Nevada's
power to issue securities.
DISSENTERS' RIGHTS TO DISSENT AND OBTAIN PAYMENT. Under Nevada
law, TRII Nevada's stockholders will not have the right to dissent and obtain
payment with respect to any plan of merger or exchange upon which the
stockholders may be entitled to vote for so long as TRII Nevada's Common Stock
[is listed on the NASDAQ National List] or is held of record by in excess of
2,000 persons. As discussed below under "Listing," TRII Nevada will file a
listing application with the NASDAQ and expects its shares of TRII Nevada
Common Stock to be listed at the time of the effectiveness of the Merger.
Similarly, the Declaration of Trust provides that Shareholders have no
dissenters' rights. Dissenting Shareholders will, therefore, not have any
right of appraisal in connection with the Incorporation Procedure.
WARRANTS. The Trust has no outstanding warrants for the purchase
of Shares. TRII Nevada has no outstanding warrants and does not currently
anticipate issuing any warrants for the purchase of its capital stock.
LISTING. The Shares have been listed and traded on the NASDAQ
SmallCap Market. TRII Nevada intends to file a listing application with the
NASDAQ for the listing of the common stock of TRII Nevada on
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the NASDAQ National Market as a successor to the Shares if Shareholders approve
the proposed Incorporation Procedure.
NO RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK.
Neither TRII Nevada's Articles of Incorporation nor its Bylaws contain any
restriction on the transfer or percentage ownership of shares of the TRII
Nevada Common Stock. The governing documents of the Trust do not specifically
contain such restrictions, and ownership of the Shares by corporate
Shareholders in most cases will not affect the continued qualification for
taxation as a REIT under the Code.
The Code requires that no more than 50% of the value of a REIT's
outstanding stock be held by five or fewer individuals or certain organizations
at any time during the last half of each taxable year. Other provisions of the
Trust's governing documents empower the Trustees to prevent Share transfers,
redeem Shares or obtain information from Shareholders or proposed transferees
if necessary to protect the Trust's continued qualification for taxation as a
REIT under the Code. It should be noted that these provisions potentially have
anti-takeover effects.
In the Trustees' view, concentration of ownership of TRII Nevada
stock is unlikely to threaten TRII Nevada's continued qualification for
taxation as a REIT under the Code. In the opinion of the Trustees, carefully
designed acquisition safeguards built into the Articles of Incorporation and
Bylaws of TRII Nevada are sufficient to meet the needs of TRII Nevada.
Accordingly, TRII Nevada's Articles of Incorporation and Bylaws do not contain
restrictions on transfer or percentage ownership of the TRII Nevada Common
Stock nor do they grant the directors the related discretionary powers, and
certificates representing the TRII Nevada Common Stock will contain no legend
to that effect.
STOCKHOLDER MANAGEMENT RELATIONS
THE CONSENT PROVISION. The Consent Provision (Article EIGHTH of
the Articles of Incorporation) provides that stockholders of TRII Nevada may
act without a duly called annual or special meeting by written consent setting
forth the action to be taken and signed by stockholders having not less than
the minimum number of votes that would be necessary to authorize or take action
at a meeting at which all shares entitled to vote thereon were present and
voting. Under the NRS, unless otherwise provided in a corporation's articles
of incorporation, any action which is required or permitted to be taken at an
annual or special meeting of stockholders may instead be taken without a
meeting if a written consent setting forth the action to be taken is signed by
stockholders holding at least a majority of the voting power, or of such
greater proportion as is required for such action. Like the TRII Nevada
Articles of Incorporation, the Declaration of Trust permits Shareholders of the
Trust to approve certain acts by written consent without a meeting if such
consent sets forth the action so taken and is signed by holders of the majority
of the Trust's outstanding Shares.
THE STOCKHOLDER MEETING PROVISION. The Stockholder Meeting
Provision (also set forth in Article EIGHTH of the Articles of Incorporation)
provides that subject to the rights of the holders of any series of preferred
stock, special meetings of stockholders may be called only by the Board of
Directors, the Chairman of the Board or the President of TRII Nevada.
Stockholders of TRII Nevada may not by themselves call a special meeting of
stockholders. In contrast to the Stockholder Meeting Provision, the
Declaration of Trust permits Shareholders to call special meetings upon the
written request of Shareholders holding not less than 20% of the outstanding
Shares of the Trust entitled to vote in the manner provided in the Trustees'
Regulations. The Trustees' Regulations further provide that special meetings
of Shareholders may be called at any time by the President or the Trustees or
by any two or more Trustees, or by one or more Shareholders holding not less
than two-thirds of the outstanding Shares of the Trust.
The Stockholder Meeting Provision could have the effect of
inhibiting stockholder actions that require a meeting of stockholders unless
the Board of Directors, the Chairman thereof or the President of TRII Nevada
calls such a meeting. Such meetings can impose considerable expenses upon TRII
Nevada. The Trustees believe that the Board of Directors will be in the best
position to determine those issues which are properly the subject of a special
meeting of stockholders. In the view of the Board of Trustees, stockholders
would have a full
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opportunity to make proper proposals at duly convened stockholder meetings and
to request that any such proposal be presented for consideration to other
stockholders in TRII Nevada's annual proxy statement.
OTHER PROVISIONS REGARDING STOCKHOLDER-MANAGEMENT RELATIONS. TRII
Nevada's Bylaws provide, among other things, that any stockholder entitled to
vote in the election of directors of TRII Nevada's Board of Directors generally
may nominate one or more persons for election as directors at a meeting only if
such stockholder gives not fewer than 35, nor more than 60, days' prior written
notice of intent to make such nomination or nominations to the Secretary of
TRII Nevada (or, if fewer than 45 days' notice or prior public disclosure of
the meeting date is given or made to stockholders, not later than 10 days
following such notice or disclosure). Each such notice must set forth (i) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (ii) the class and number of shares of
stock held of record, owned beneficially and represented by proxy by such
stockholder as of the record date for the meeting and as of the date of such
notice; (iii) a representation that the stockholder intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice; (iv) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons pursuant to which
the nomination or nominations are to be made by the stockholder; (v) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission; and (vi) the consent of each nominee to serve as a director
of TRII Nevada if so elected. The Chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure, which is referred to herein as the "Nomination Provision."
Neither the Declaration of Trust nor the Trustees' Regulations contains any
provisions analogous to the Nomination Provision.
Although the Nomination Provision will not give TRII Nevada's
Board of Directors any power to approve or disapprove of stockholder
nominations for the election of directors, the Nomination Procedure may have
the effect of precluding a nomination for the election of directors at a
particular annual meeting if the proper procedures are not followed and may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
TRII Nevada, even if such attempt might be deemed by some stockholders to be
beneficial to TRII Nevada and its stockholders. The Board of Trustees is
currently unaware of any controlling judicial precedent addressing the validity
of the Nomination Provision and, therefore, the matter is not entirely free
from doubt. The Board of Trustees nevertheless believes that this provision is
appropriate because it requires stockholders to give adequate notice to allow
orderly and considered evaluation of nominees and fair elections.
TRII Nevada's Bylaws also provide that, in addition to any other
applicable requirements, for business not specified in the notice of meeting or
brought by or at the direction of the Board of Directors of TRII Nevada to be
properly introduced by a stockholder, the stockholder must give not fewer than
35, nor more 60, days' prior notice to the Secretary of TRII Nevada (or if
fewer than 45 days' notice or prior public disclosure of the meeting date is
given or made to stockholders, not later than 10 days following such event).
This provision (the "Stockholder Proposal Provision") does not preclude
discussion by any stockholder of business properly brought before any meeting.
Each such notice must set forth (i) a description of each item of business
proposed to be brought before the meeting; (ii) the name and address of the
stockholder proposing to bring such item of business before the meeting; (iii)
the class and number of shares of stock held of record or owned beneficially
and represented by proxy by such stockholder as of the record date for the
meeting and as of the date of such stockholder meeting notice; and (iv) all
other information that would be required to be included in a proxy statement
filed with the Commission. Neither the Declaration of Trust nor the Trustees'
Regulations contains any provisions analogous to the Stockholder Proposal
Provision.
Although the Stockholder Proposal Provision does not give TRII
Nevada's Board of Directors or the Chairman of the meeting any powers to
approve or disapprove such matters, the Stockholder Proposal Provision may have
the effect of precluding the consideration of matters at a particular meeting
if the proper procedures are not followed, even if approval of such matters may
be deemed by some stockholders to be beneficial to TRII Nevada and its
stockholders. TRII Nevada is presently unaware of any controlling judicial
precedent addressing the validity of the Stockholder Proposal Provision and,
therefore, the matter is not entirely free from doubt. As with the Nomination
Provision, the Trustees believe that the Stockholder Proposal Provision is
appropriate
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because it requires stockholders to give both management and other stockholders
adequate notice of such proposals and time to consider and respond to such
proposals.
TRII Nevada's Bylaws also provide that annual meetings of
stockholders shall be held within the first eight months of the calendar year,
or as soon as practicable thereafter, beginning in 1997. Written or printed
notice of annual and special meetings of stockholders shall be given to
stockholders entitled to vote not than 10, nor more than 60, days before the
date of such meeting, unless stockholders are to vote upon a proposed merger,
consolidation or disposition of substantially all of TRII Nevada's assets, in
which case notice shall be given no later than 20, nor more than 60, days
before the date of such meeting. The Declaration of Trust contains similar
provisions except that pursuant to the Declaration of Trust annual meetings of
stockholders are to be held within the first six months after the end of the
preceding fixed year.
A full and correct statement of the affairs of TRII Nevada is to
be prepared annually and submitted at the annual meeting. Such annual reports
will include a balance sheet and a financial statement of operations for the
preceding fiscal year. TRII Nevada will be subject to the information
requirements of the Exchange Act, as amended, and the balance sheet and
financial statement will be required by such Act to be certified by independent
certified public accountants, although the Bylaws do not impose such a
requirement. The Declaration of Trust provides that the Trustees must mail an
annual report not later than 120 days after the close of each fiscal year. The
annual report must include a statement of assets and liabilities and a
statement of income and expenses of the Trust, accompanied by the report of an
independent certified public accountant. The Trustees are also required to
send shareholders interim reports at least quarterly.
THE BUSINESS COMBINATION PROVISION. The Business Combination
Provision (Article TENTH of the Articles of Incorporation) is designed to
encourage companies interested in acquiring TRII Nevada to negotiate with the
Board of Directors and to give greater assurance to the stockholders of TRII
Nevada that they will receive fair and equitable treatment in the event of a
"Business Combination (as defined below) involving TRII Nevada or a subsidiary
thereof with, or proposed by or on behalf of "Interested Stockholder" (as
defined below) or certain related parties.
Under Article TENTH of the Articles of Incorporation, a Business
Combination with, or proposed by or on behalf of, any Interested Stockholder or
any affiliate or associate (as such terms are defined in Rule 12b-2 promulgated
under the Exchange Act, as amended) of any Interested Stockholder or any Person
who thereafter would be an affiliate or associate of any Interested Stockholder
would require approval by the affirmative vote of not less than 66 2/3% of the
votes entitled to be cast on such transaction by the holders of all shares of
voting stock of TRII Nevada then outstanding (the "Voting Stock"), voting
together as a single class, excluding shares Beneficially Owned by such
Interested Stockholders. However, the two-thirds affirmative vote of
stockholders is not required if a majority of the members of the Board of
Directors or, in the case of such Business Combination involving any affiliate
of TRII Nevada, a majority of the Board of Directors including a majority of
the members of the Board of Directors who at the time are neither officers or
employees of TRII Nevada nor directors, officers or employees of TRII Nevada's
advisor, approves the Business Combination prior to the date on which the
Interested Stockholder became the beneficial owner of 20% or more of TRII
Nevada's shares (the "Acquisition Date"). If such prior Board of Directors'
approval is obtained, the Business Combination will be subject to the
applicable voting requirement under the NRS. Presently, for most types of
Business Combination transactions on which a stockholder vote would be
required, the affirmative vote of the holders of a majority of the outstanding
shares entitled to vote on the matter (including shares beneficially owned by
the Interested Stockholder) is required. If the two-thirds vote required by
the Business Combination Provision is obtained in connection with a particular
proposed Business Combination, approval of a majority of TRII Nevada's Board of
Directors will not be necessary. Under certain circumstances a Business
Combination will be presumed to be proposed by or on behalf of an Interested
Stockholder unless a majority of the members of the Board of Directors
determines otherwise.
If, as expected, the TRII Nevada Common Stock is listed on the
NASDAQ National Market at the time of effectiveness of the Merger, then, in
addition, certain rules of the NASDAQ National Market would apply to TRII
Nevada. These rules require prior stockholder approval as a prerequisite to
the NASDAQ National Market approval of applications to list additional shares
where such shares are to be issued in any transaction
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or series of related transactions (i) as sole or partial consideration for an
acquisition of the stock or assets of another company (a) if any individual
director, officer or substantial stockholder of the listed company has a 5% or
greater interest (or such persons collectively have a 10% or greater interest),
directly or indirectly, in the company or assets to be acquired or in the
consideration to be paid in the transaction and the present or potential
issuance of common stock, or securities convertible into common stock, could
result in an increase in outstanding common shares of 5% of more; or (b) where
the present or potential issuance of common stock, or securities convertible
into common stock, could result in an increase in outstanding common shares of
20% or more; (ii) in connection with (a) the sale or issuance of common stock
(or securities convertible into common stock) at a price less than the greater
of book or market value which together with sales by officers, directors or
principal stockholders of the company equal 20% or more of presently
outstanding common stock or (b) the sale or issuance by the company of common
stock (or securities convertible into common stock) equal to 20% or more of
presently outstanding stock for less than the greater of book or market value
of the stock; or (iii) the net effect of which is that a listed company is
acquired by an unlisted company even though the listed company is the nominal
survivor.
An "Interested Stockholder" is defined in the Business Combination
Provision to include any Person who (i) is or has announced or publicly
disclosed a plan or intention to become the Beneficial Owner of 20% or more of
the Voting Stock or (ii) is an affiliate or associate of TRII Nevada and at any
time within the two-year period immediately prior to the date in question was
the Beneficial Owner of 20% or more of the Voting Stock. A person is the
"Beneficial Owner" of Voting Stock that such person and certain related
parties, directly or indirectly, own or have the right to acquire, hold, vote
or dispose of. TRII Nevada, any of its subsidiaries and certain profit-sharing
and employee-benefit plans are among the entities specifically excepted from
the definition of "Interested Stockholder." Currently TRII Nevada is not aware
of any Shareholder or group of Shareholders that would be an "Interested
Stockholder" subsequent to the Merger, except Lucy N. Friedman (see "Principal
Shareholders and Management").
A "Business Combination" includes the following transactions with,
or proposed by or on behalf of, any Interested Stockholder or certain related
parties: (i) a merger or consolidation of TRII Nevada or any subsidiary with
an Interested Stockholder or certain related parties; (ii) the sale, lease,
exchange, mortgage, pledge, transfer or other disposition by TRII Nevada or a
subsidiary of any assets or securities to an Interested Stockholder or certain
related parties, or any other arrangement with or for the benefit of an
Interested Stockholder or any such related party (including investments, loans,
advances, guarantees, extensions of credit, security interests and joint
venture participation) that (except in certain circumstances), together with
all other such arrangements (including all contemplated future events), involve
assets or securities having a value (or involving aggregate commitments) of $5
million or more or constitute more than 5% of the book value of the total
assets (in the case of transactions involving assets or commitments other than
capital stock) or 5% of the stockholders' equity (in the case of transactions
in capital stock) of the entity in question, as reflected in the most recent
fiscal year-end consolidated balance sheet of such entity existing at the time
the stockholders of TRII Nevada would be required to approve or authorize such
transaction; (iii) the adoption of any plan or proposal for the liquidation or
dissolution of TRII Nevada; (iv) any reclassification of securities
recapitalization, merger with a subsidiary or other transaction which has the
effect, directly or indirectly, of increasing an Interested Stockholder's
proportionate share of the outstanding capital stock of TRII Nevada or a
subsidiary; or (v) any agreement or arrangement providing for any one or more
of the actions specified in the foregoing clauses (i) through (iv).
By providing that the two-thirds vote requirement would not be
invoked if a majority of TRII Nevada's Board of Directors approves a Business
Combination prior to the Acquisition Date, the Business Combination Provision
is intended to encourage companies interested in acquiring TRII Nevada to
negotiate in advance with TRII Nevada's Board of Directors. The Business
Combination Provision may discourage attempts to take over TRII Nevada by a
principal stockholder. By requiring a two-thirds vote of stockholders other
than the relevant Interested Stockholder to approve a Business Combination not
approved by TRII Nevada's Board of Directors, the Business Combination
Provision may enable a minority of TRII Nevada's stockholders to prevent
consummation of a Business Combination. To the extent that the Business
Combination Provision discourages tender offers or the accumulation of TRII
Nevada Common Stock by a third party, stockholders may be deprived of higher
market prices for their stock which may result from such events.
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Article TENTH effectively allows the Board of Directors to waive
the requirement that any Business Combination with, or proposed by or on behalf
of, any Interested Stockholder requires the approval of not less than two-
thirds of the votes cast by the holders of all shares of Voting Stock
(excluding Voting Stock owned by such Interested Stockholder). If a majority
of the members of the Board of Directors or, in the case of Business
Combination involving any affiliate or TRII Nevada, a majority of the Board of
Directors including a majority of the members of the Board of Directors who at
the time are neither officers or employees of TRII Nevada nor directors,
officers or employees of TRII Nevada's advisor, approves such Business
Combination prior to the Acquisition date, such Business Combination requires
only such affirmative vote, if any, as is required by applicable law or by any
other provision of the Articles of Incorporation or Bylaws or by any agreement
with any national securities exchange.
The NRS imposes generally similar restrictions upon certain
business combinations with interested stockholders of a Nevada corporation,
but, among other differences, the NRS defines the terms "business combination"
and "interested stockholder" differently and, unlike Article TENTH of the
Articles of Incorporation, Nevada law subjects certain business combinations
with interested stockholders to a three-year moratorium unless specified
conditions are met. The NRS prohibits a Nevada corporation from engaging in a
"business combination" with an "interested stockholder" for three years
following the date that such person becomes an "interested stockholder." With
certain exceptions, an "interested stockholder" is a person or group that owns
10% or more (compared to more than 20% under Article TENTH of the Articles of
Incorporation) of such corporation's outstanding voting stock, or is an
affiliate or associate of the corporation and was the beneficial owner of 10%
or more of such voting stock at any time within the previous three years.
However, a Nevada corporation may elect not to be governed by the
Business Combination provisions of Nevada law by expressly electing not to be
governed by such statutes in the original Articles of Incorporation or an
amendment thereto. Because TRII Nevada's Board of Directors believes that the
Business Combination Provision offers sufficient protection, Article TENTH of
the Articles of Incorporation contains a provision expressly electing not to
be governed by NRS statutes governing business combinations with interested
stockholders (NRS Sections 78.411 through 78.444, inclusive) and acquisitions
of a controlling interest (NRS Sections 78.378 through 78.3793, inclusive).
California has adopted legislation that has certain anti-takeover
implications. Although the California Corporations Code does not specifically
apply to business trusts, certain of its provisions could be applied to
business trusts by analogy. If the proposed Incorporation Procedure is
adopted, such legislation will not apply to TRII Nevada.
Sections 1101 and 407 of the California General Corporation Law
require that holders of nonredeemable common stock receive nonredeemable common
stock in a merger of the corporation with the holder of more than 50% but less
than 90% of such common stock or its affiliate unless either (i) all of the
holders of such common stock consent to the transaction or (ii) the terms and
conditions of the transaction and the fairness of such terms and conditions
have been approved by the appropriate state regulatory agency. This provision
of California law may have the effect of making a "cash-out" merger by a
majority shareholder more difficult to accomplish. Nevada law has no
comparable provision. California law also requires that shareholders be
provided with a fairness opinion under certain circumstances when a tender
offer or a proposal for a reorganization or for a sale of assets is made by an
interested party. Again, Nevada law has no provision comparable to such
provision.
THE EVALUATION PROVISION. Article TWELFTH of the Articles of
Incorporation (the "Evaluation Provision") permits the Board of Directors to
take into account all factors it deems relevant in evaluating, among other
things, tender offers, proposals of business sales or combinations and
proposals for corporate liquidation or reorganizations involving TRII Nevada,
including the potential impact of any such transaction on TRII Nevada's
creditors, partners, joint venturers, other constituents or TRII Nevada and the
communities in which its' offices, other establishments or investments are
located (collectively, "Non-Stockholder Constituencies") and on TRII Nevada's
continuing status as a qualified REIT under the Code.
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The Evaluation Provision does not specify the relative weight that
the Board of Directors should give to the various factors. Under the
Evaluation Provision, the Board of Directors might, for example, take into
account whether a potential acquiror proposed to use TRII Nevada's assets to
finance an acquisition of TRII Nevada and the effect that such use of TRII
Nevada's assets might have on its Non-Stockholder Constituencies, if any, and
its REIT status. The Trustees believe that consideration of the effect of a
business combination proposal on TRII Nevada's Non- Stockholder Constituencies
and REIT status may help to maintain or improve the financial condition of TRII
Nevada and, as a result, confer related benefits upon its stockholders.
However, because the Evaluation Provision allows the Board of Directors to
consider numerous judgmental or subjective factors affecting such a proposal,
including certain non- financial matters, their consideration may lead the
Board of Directors to oppose a transaction that, as an exclusively financial
matter, may be attractive to stockholders.
The Declaration of Trust does not contain any provision similar to
the Evaluation Provision. Courts construing California law have held that the
decisions of California corporate directors in evaluating takeover bids
generally are protected by the "business judgment rule," under which a court
will not question the directors' business judgment so long as they act in
accordance with their fiduciary duties to the corporation and to all of the
stockholders. The Trustees are currently unaware of any judicial precedent
construing California law that addresses the question of whether corporate
directors (and, by analogy, trustees of unincorporated business trusts) may
consider the interests of Non-Stockholder Constituencies or whether such
consideration of such interests would be protected by the "business judgment
rule."
The NRS expressly provides that directors in evaluating
acquisition proposals may consider certain interests of Non-Stockholder
Constituencies including (i) the interests of the corporation's employees,
suppliers, creditors and customers; (ii) the economy of the state and nation;
(iii) the interests of the community and of society; and (iv) the long-term as
well as short-term interests of the corporation and its stockholders, including
the possibility that these interests may be best served by the continued
independence of the corporation.
ESTABLISHMENT OF SUBSIDIARIES
Under Section 3.5 of the Declaration of Trust, a vote of
two-thirds of the Trustees and holders of a majority of the Shares voting at a
meeting called for such purpose is required for the formation of a subsidiary
to hold all or part of the Trust's assets. Shareholders, by approving the
Incorporation Procedure, will be ratifying the actions of the Trustees in
forming the California Corporation and TRII Nevada. There exists no comparable
provision in the Articles of Incorporation.
AMENDMENT PROVISIONS
The Bylaw Amendment Provision and the Articles of Incorporation
Amendment Provision (each as defined below) generally require a super-majority
vote for changes in the governing documents of TRII Nevada submitted to
stockholders. Although those provisions may by themselves have a deterrent
effect on some potential acquisitions of TRII Nevada, they are designed
primarily to ensure that an acquiror cannot circumvent the acquisition
safeguards contained in the governing documents. The Trustees recognize that
the amendment provisions may serve to entrench current management; however, for
the same reasons the Trustees deem acquisition safeguards to be in the best
interest of TRII Nevada and its stockholders, the amendment provisions are
required to buttress those safeguards.
THE BYLAW AMENDMENT PROVISION. Article SEVENTEENTH of the
Articles of Incorporation (the "Bylaw Amendment Provision") expressly
authorizes TRII Nevada's Board of Directors to make, adopt, alter, amend,
change or repeal TRII Nevada's Bylaws. The Bylaw Amendment Provision further
states that the stockholders of TRII Nevada may not make, adopt, alter, amend,
change or repeal TRII Nevada's Bylaws except upon the affirmative vote of
holders of not less than 75% of the outstanding stock of TRII Nevada entitled
to vote thereon. The Trustees are currently unaware of any controlling
judicial precedent under the NRS addressing the validity of this aspect of the
Bylaw Amendment Provision and, therefore, the matter is not entirely free from
doubt. This super-majority voting provision could enable holders of only 26%
of the Nevada Common Stock to prevent holders of a substantial majority of the
TRII Nevada Common Stock who do not approve of certain provisions of the Bylaws
from amending or repealing such provisions. In this regard, it should be noted
that
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certain Trustees, executive officers of the Trust and persons and entities with
which they are affiliated have collective beneficial ownership of 27% of the
Shares (as of January, 1997). Nevertheless, TRII Nevada's Board of Directors
believes that the Bylaw Amendment Provision will help to ensure continuity with
respect to the management of the day-to-day operations of TRII Nevada. In
addition, the provision will prevent a purchaser who acquires a majority of the
shares of the TRII Nevada Common Stock from adopting Bylaws that are not in the
best interest of the minority stockholders or repealing Bylaws that are in such
stockholders' interest.
Section 3.3 of the Declaration of Trust vests the power to make,
adopt, amend or repeal Trustees' Regulations in the Trustees. Nevertheless,
the Trustees' Regulations (at Article VII thereof) provide that they may be
amended or repealed either by the majority vote of Shareholders or by the Board
of Trustees.
THE ARTICLES OF INCORPORATION AMENDMENT PROVISION. Article
SEVENTEENTH of the Articles of Incorporation (the "Articles of Incorporation
Amendment Provision") requires the affirmative vote of at least 75% of all of
the Voting Stock to alter, amend or repeal the Bylaw Amendment Provision,
Consent Provision, Stockholder Meeting Provision, Business Combination
Provision, Director Removal Provision, Evaluation Provision and Articles of
Incorporation Amendment Provision, unless a majority of TRII Nevada's Board of
Directors approves such alteration, amendment or repeal.
In contrast, the Declaration of Trust generally may be amended (i)
by Shareholders holding a majority of the outstanding Shares entitled to vote
thereon or (ii) by the Trustees without the vote or consent of Shareholders to
the extent they deem it necessary to cure any ambiguity or inconsistency
therein or to conform the Declaration of Trust to REIT requirements or other
applicable law, unless, in either case, the proposed amendment would change
certain rights with respect to any outstanding securities of the Trust, in
which case the Declaration of Trust requires the vote or consent of the holders
of two-thirds of the outstanding Shares entitled to vote thereon.
Although the Declaration of Trust already requires a
super-majority vote for certain proposed amendments, the Articles of
Incorporation Amendment Provision will make it more difficult for stockholders
to make changes in the Articles of Incorporation, including changes designed to
enable holders of a majority of the TRII Nevada Common Stock to obtain control
over TRII Nevada. However, the Articles of Incorporation Amendment Provision
may help protect minority stockholders from disadvantageous changes supported
by less than a substantial majority of other stockholders.
THE FOREGOING IS ONLY A SUMMARY OF THE SIMILARITIES AND
DIFFERENCES BETWEEN TRII NEVADA'S ARTICLES OF INCORPORATION AND BYLAWS, ON THE
ONE HAND, AND THE TRUST'S DECLARATION OF TRUST AND TRUSTEES' REGULATIONS, ON
THE OTHER, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXTS
OF THOSE DOCUMENTS, WHICH ARE ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS
APPENDICES C THROUGH F, RESPECTIVELY.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following is a general discussion of the anticipated
material federal income tax consequences to the Trust and Shareholders of the
Incorporation Procedure. The discussion is based on laws, regulations, rulings
and decisions now in effect, all of which are subject to change or possibly
differing interpretations.
TRII Nevada has received an opinion from Hill & Metzger, L.L.P.,
securities and tax counsel to the Trust, to the effect that (i) the
Incorporation Procedure will constitute a reorganization within the meaning of
Section 368(a)(1)(F) of the Code; (ii) upon consummation of the Incorporation
Procedure, TRII Nevada will be treated as the same taxpayer as the Trust for
federal income tax purposes; (iii) thus, the conversion of the Trust into TRII
Nevada essentially will be irrelevant for federal income tax purposes and the
operations of the Trust and TRII Nevada will be combined for purposes of
determining whether TRII Nevada qualifies as a real estate investment trust for
the taxable year in which the Incorporation Procedure is consummated; (iv) the
Incorporation Procedure will not, in and of itself, adversely affect the
ability of the Trust or TRII Nevada to qualify as a real
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estate investment trust for federal income tax purposes; and (v) the
information in this Proxy Statement/Prospectus under the caption "Material
Federal Income Tax Consequences," to the extent it constitutes matters of law
or legal conclusions, is correct in all material respects. It should be noted
that an opinion of counsel is not binding on the Internal Revenue Service or on
the courts.
CONSEQUENCES TO SHAREHOLDERS. Pursuant to the Incorporation
Procedure, (i) each Shareholder will receive one share of TRII Nevada Common
Stock for each share of beneficial interest in the Trust that it owns, and (ii)
the Shares will be canceled. No gain or loss will be recognized by
Shareholders in respect of these transactions and the tax basis to a
Shareholder of the shares of the TRII Nevada Common Stock it receives will
equal the tax basis to the Shareholder of its Shares. In addition, the holding
period of the TRII Nevada Common Stock received by a Shareholder will include
the period during which the Shareholder held its Shares, provided that the
Shares were held by the Shareholder as a capital asset at the time the
Incorporation Procedure was effected.
CONSEQUENCES TO THE TRUST AND TRII NEVADA. Pursuant to the
Incorporation Procedure, the Trust will be incorporated in California and the
California Corporation will be merged with and into TRII Nevada. No gain or
loss will be recognized by the Trust as a result of these transactions. The
tax basis of the assets received by TRII Nevada in the Merger will equal the
tax basis of those assets to the Trust immediately prior to the time the
Incorporation Procedure is effected. The holding period of the assets received
by TRII Nevada in the Merger will include the period during which such assets
were held by the Trust.
The Trust has not applied to the Internal Revenue Service for a
ruling confirming that the Incorporation Procedure will qualify as a
reorganization under the Code. The federal income tax consequences of the
Incorporation Procedure to the Trust and to Shareholders would be materially
different from those described herein if a determination were made that the
Incorporation Procedure did not constitute a reorganization under the code.
Such a determination could have adverse federal income tax consequences to the
Trust and to Shareholders.
CERTAIN FOREIGN, STATE AND LOCAL TAXES
If the Incorporation Procedure is consummated, TRII Nevada may
become subject to state franchise income taxes in addition to those which the
Trust is already obligated to pay. See the discussion of filing fees
associated with organizing TRII Nevada under "Proposed Incorporation Procedure
Comparison of the Securities of TRII Nevada and the Trust -- Common Equity"
above. Management of the Trust believes that the net effect on TRII Nevada of
any additional state franchise or income taxes will not be material.
No determination has been made as to how the proposed
Incorporation Procedure would be treated under the various foreign, state or
local tax laws that might apply to Shareholders, and Shareholders should
consult their own tax advisors as to the effect of the Incorporation Procedure
on their individual tax liability under applicable foreign, state or local
income tax laws.
MARKET PRICES OF THE SHARES; DISTRIBUTIONS
AND RELATED SHAREHOLDER MATTERS
The Board of Trustees approved a one-for-five reverse share split
of all of the Trust's shares of beneficial interest which was effective at the
close of business on December 1, 1995, on the basis of one new share (a
"Post-Split Share" or a "Share") for each five shares then outstanding (each an
"Old Share"). Each Post-Split Share, like an Old Share, continued to have no
par value, and it was not intended that any material differences exist between
an Old Share and Post-Split Share except that fewer Post-Split Shares were
outstanding. No future share splits are currently contemplated by the Board of
Trustees. The Trust's Old Shares were traded in the over-the-counter market of
the NASDAQ System under the symbol "VIPTS." The Post-Split Shares continue to
be traded in the over-the-counter market, and high and low bid quotations are
reported by the NASDAQ InterDealer Quotation system. The Post-Split Shares are
also listed on the NASDAQ SmallCap Market under the symbol "VIPTS."
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The following table sets forth the high and low bid quotations of
the Shares as reported by the NASDAQ System for the periods indicated which
consist of the last three fiscal years and the quarter ending prior to the date
of this Proxy Statement/Prospectus, all after giving retroactive effect to the
December 1995 reverse share split (over- the-counter market quotations reflect
InterDealer prices, without retail mark up, mark down, or commissions, and may
not necessarily represent actual transactions):
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
February 28, 1993 . . . . . . . . . . . . . . . . . . . . . . $ 6 1/4 $ 1 9/16
May 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 6 1/4 3 3/4
August 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 4 3/8 3 3/4
November 30, 1993 . . . . . . . . . . . . . . . . . . . . . . 3 3/4 2 13/16
February 28, 1994 . . . . . . . . . . . . . . . . . . . . . . $ 3 7/16 $ 3 1/8
May 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 3 7/16 3 7/16
August 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 5 5/16 3 7/16
November 30, 1994 . . . . . . . . . . . . . . . . . . . . . . 5 5/8 5
February 28, 1995 . . . . . . . . . . . . . . . . . . . . . . $ 5 $ 4 3/8
May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 5 5/8 5
August 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 5 5/8 5
November 30, 1995 . . . . . . . . . . . . . . . . . . . . . . 5 5/8 5
February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . $ 6 1/2 $ 5
May 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 6 1/2 5
August 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 7 7/8 5
November 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 7 1/2 7
February 28, 1997 . . . . . . . . . . . . . . . . . . . . . . 8 7
May 31, 1997 (through May 9, 1997) . . . . . . . . . . . . . . 9 8
</TABLE>
As of May 9, 1997, the closing bid price of the Shares on the NASDAQ
SmallCap Market was $9 per Share and such Shares were held by approximately
3,000 holders of record.
DISTRIBUTIONS
No cash distributions were paid on the Old Shares in 1994 or 1995. In
1993, the Trust paid a taxable distribution of $1.25 per Post-Split Share,
totaling $1.5 million and equal to the Trust's 1992 taxable income, in the form
of either the Trust's 9% Series A Convertible Subordinated Debentures (the
"Debentures") or Uncertificated Convertible Subordinated Obligations (the
"Obligations"). The Debentures and Obligations were convertible until January
13, 1994, at a price of $0.80 per share. The Trust received $470,000 in new
equity from the conversion of the Debentures and the Obligations, which
resulted in issuance of 589,361 Old Shares (117,872 Post-Split Shares). For
non- converted Debentures and Obligations, interest is payable on June 30 and
December 31 each year. The Debentures and Obligations are scheduled to mature
on June 30, 2003, and are redeemable by the Trust at any time at 100% of the
principal amount together with accrued but unpaid interest. In December 1994,
the Trust redeemed all outstanding Obligations. The principal balance of the
Debentures at May 9, 1997, totaled $928,000.
At the same time as the Trust's 1993 distribution to shareholders, the
Trust also issued share purchase rights to shareholders of record on September
15, 1993. One share purchase right was issued for each Trust Old Share held by
owners of 400 or more Old Shares. Four share purchase rights entitled the
holder to purchase one additional Old Share at a purchase price of $0.73 until
January 13, 1994. Holders of fewer than 400 Old Shares received $0.01 per
share cash payment in lieu of the share purchase rights. The Trust received
$296,100 in cash and new equity from exercise of share purchase rights which
resulted in issuance of 404,885 additional Old Shares (80,977 Post-Split
Shares).
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Future distributions to shareholders will be dependent upon the
Trust's realized income, financial condition, capital requirements, and other
factors deemed relevant by the Board of Trustees. In general, the Board of
Trustees intends to make cash distributions to shareholders only to the minimum
extent required to maintain the Trust's qualification as a REIT.
RIGHTS AGREEMENT
On March 24, 1989, the Trust distributed one share purchase right for
each outstanding Old Share pursuant to a Rights Agreement dated March 10, 1989,
as amended (the "Rights Agreement"). Under such Rights Agreement, each share
certificate also represents one "Share Purchase Right" which, under the
circumstances described therein, entitled the holder to purchase one Old Share
for $12. With effectuation of the one-for-five reverse share split, the Share
Purchase Rights have been proportionately adjusted so that each new Post-Split
Share certificate also represents one Share Purchase Right (a "Right") which
permits the holder to purchase one Post-Split Share for $60. After the Rights
become exercisable, the holders have the right to buy, for the exercise price,
Post-Split Shares with a market value of twice the exercise price. The Board
of Trustees may redeem the Rights in whole, but not in part, at a Post-Split
Share adjusted redemption price equal to $0.05 per Right. The Rights are
exercisable only after a person or group acquires (other than from the Trust or
by exercise of rights) or commences a tender or exchange offer for 30% of the
outstanding Post-Split Shares or if the Trustees declare any holder of 10% or
more of such outstanding Post-Split Shares to be an "Adverse Person" (as
defined in the Rights Agreement). The Rights expire on March 24, 1999. In any
merger or consolidation after the Rights become exercisable, each Right will be
converted into the right to purchase, for the $60 exercise price, shares or
equity interests of the surviving entity with a market value of twice the
exercise price. If Proposal Three (the Incorporation Procedure) is approved by
the Shareholders, the Board of Trustees intends to cause the Trust to redeem
the Rights and terminate the Rights Agreement.
ODD-LOT OFFER
Following the one-for-five reverse share split, on December 1, 1995,
the Trust offered to purchase all shares of its beneficial interest, no par
value, of each shareholder holding 99 or fewer Post-Split Shares (or less than
500 Old Shares) of the Trust either of record or beneficially on December 1,
1995. Under such offer, as extended on January 22, 1996, the Trust purchased
all Post-Split Shares duly tendered prior to 5:00 P.M., New York City time, on
February 29, 1996 (the "Extended Expiration Date"), at a price equal to the
next closing price of the Trust's Post-Split Shares as reported by the NASDAQ
InterDealer Quotation System on the day the Trust, through its Transfer Agent
and Registrar, received the Letter of Transmittal properly completed, signed,
and validly tendered, with certificates for Old Shares attached, at the address
listed in the Letter of Transmittal. The Trust paid all expenses in connection
with the sales pursuant to such offer, and a tendering shareholder was not
required to pay any brokerage commissions or similar charges. A total of
43,696 Post-Split Shares were validly tendered to and purchased by the Trust
through such offer.
BUSINESS AND PROPERTIES OF TRII NEVADA
TRII Nevada was formed as a Nevada corporation on April 2, 1997. It
is wholly-owned by the Trust. Prior to the Merger, TRII Nevada will have no
business, assets or liabilities of any consequence and no operating history.
The audited balance sheet of TRII Nevada is included under "Index to Financial
Statements." As a result of the Merger, TRII Nevada, by operation of law,
would succeed to all the rights and properties, and be subject to all the
obligations and liabilities, of the Trust incorporated as the California
Corporation, including, without limitation, those under the modified Advisory
Agreement described under "Business and Properties of the Trust -- The Advisory
Agreement" (if approved). The principal assets of the Trust to which TRII
Nevada would succeed as a result of the Merger are described below under
"Business and Properties of the Trust." As described more fully under
"Proposed Incorporation Procedure -- Business Activities after Incorporation
Procedure," no significant change in the nature of the Trust's business or
investment policies is currently expected as a result of the Incorporation
Procedure, though TRII Nevada would be empowered under the Articles of
Incorporation to engage in a wider range of business activities than those
currently permitted under the Declaration of Trust (including the acquisition
of properties), and TRII Nevada would be able to alter its investment policies
without obtaining stockholder approval.
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TRII NEVADA'S POLICY WITH RESPECT TO CERTAIN ACTIVITIES
The Articles of Incorporation impose no limitations on TRII Nevada's
ability to invest in equity securities of, or acquire interests in, other
persons engaged in real estate activities. Although TRII Nevada has no present
intention of purchasing securities of other issuers for the purpose of
exercising control, it reserves the right to purchase securities of other
issuers in the future. TRII Nevada does not propose to engage in underwriting
the securities of other issuers. Furthermore, to continue to qualify for
taxation as a REIT under the Code, TRII Nevada will, among other things, be
required to hold at least 75% of the value of its total assets in real estate
assets, government securities, cash and cash items at the close of each quarter
of each taxable year.
TRII Nevada has the authority to issue shares of Nevada Common Stock
(up to a total of 20,000,000) and special stock (in one or more series up to a
total of 10,000,000) on terms which the TRII Nevada's Board of Directors
believe to be in the best interests of TRII Nevada. However, the directors
currently do not intend to issue any special stock.
Subject to available financing, TRII Nevada may borrow money for its
day-to-day operations and to acquire additional assets or refinance existing
assets. Market financing terms available at the time of any borrowings and the
objective of paying dividends on the TRII Nevada Common Stock will place a
practical limit on the nature and extent of those borrowings. Borrowing may
come from banks, other institutional lenders and private lenders, including
Tarragon and other REITs of which the directors of TRII Nevada may serve as
directors, officers or trustees, subject to the limitations set forth in the
"Proposed Incorporation Procedure -- Business Activities after Incorporation
Procedure -- The Restrictions on Related-Party Transactions Provision." TRII
Nevada may also take properties subject to, or assume, existing debt and may
mortgage, pledge or otherwise obtain financing for its real properties. TRII
Nevada may also establish lines of credit with banks or other lenders. The
Declaration of Trust prohibits the aggregate secured and unsecured indebtedness
of the Trust to exceed 300% of the Trust's net asset value (defined as the book
value, in the Declaration of Trust, of all assets of the Trust minus all of its
liabilities). Although the Articles of Incorporation impose no such
limitation, the Board of Directors currently intends to continue this policy.
However, the directors of TRII Nevada may alter such policy without a vote of
the stockholders. No assurance can be given as to the availability of credit
for TRII Nevada, the amount or terms thereof or of the restrictions that may be
imposed upon TRII Nevada by lenders. TRII Nevada also has the authority to
issue notes, debentures, convertible notes and other debt securities. TRII
Nevada has the authority to repurchase or otherwise reacquire its shares of
capital stock without the consent of its stockholders, except as and unless
restricted by Nevada law. Nevada law does not presently restrict the
repurchase of capital stock by a corporation.
BUSINESS AND PROPERTIES OF THE TRUST
GENERAL
The Trust is a California business trust organized in 1973 pursuant to
a declaration of trust that has subsequently been amended. On July 29, 1987,
the Trust filed its Amended and Restated Declaration of Trust dated as of May
27, 1987 (the "Declaration of Trust"), which incorporated certain amendments
adopted by the Trust's shareholders at the May 27, 1987 annual meeting. The
Trust has elected to be treated as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. The Trust has, in the opinion of
the Trust's management, qualified for federal taxation as a REIT for each
fiscal year subsequent to November 30, 1974. The Trust's primary business and
only industry segment is investing in equity interests in real estate and
financing real estate and real estate related activities through mortgage
loans, including first, wrap-around and junior mortgage loans. The Trust's
real estate investments are located primarily in Texas, Oklahoma and Florida.
In the Trust's Annual Report for the fiscal year ended November 30,
1985, the Trust's former management had announced their intention to liquidate
the Trust's assets. Consequently, the Trust's plan of operation for a number
of years had been to liquidate its assets in an orderly manner. However,
neither the Trust's Board of Trustees nor shareholders ever adopted a formal
plan of liquidation. With the receipt of a net $4.5 million in cash from the
collection in December 1991 of the Swiss Village mortgage note receivable, the
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Trust substantially improved its financial flexibility. After review of the
Trust's portfolio of real estate and mortgage notes receivable and existing
market conditions, the Trust's Board of Trustees concluded that the continued
liquidation of the Trust's assets would not maximize long-term return to
shareholders. On January 10, 1992 the Board of Trustees authorized the Trust
to acquire additional properties. During fiscal 1992, the Trust purchased two
properties. On March 30, 1992, the Trust acquired One Turtle Creek, a
combination office building and shopping center complex, in Dallas, Texas for
$2.6 million and on April 30, 1992, the Trust acquired the Villas at Central
Park Apartments, a 288- unit apartment complex located in Orlando, Florida for
$6.2 million. The Trust may acquire additional properties and the Trust may
also continue to make selective dispositions of certain of its assets.
BUSINESS DESCRIPTION AND INVESTMENT OBJECTIVES
The Trust's principal objectives are to increase funds from operations
and maximize the value of its existing real estate portfolio through aggressive
management and a policy of consistent capital improvements. The Trust intends
to use proceeds from property sales and mortgage refinancings to expand its
portfolio through opportunistic purchases of income producing properties,
predominantly in markets where the Trust presently operates. Future
investments will be focused on older, mismanaged, or under-performing
properties, both multifamily and commercial, and will be selected based on
initial rates of return and the potential for improvement through
revenue-enhancing capital improvements and proper management. Investments may
take the form of joint ventures, mortgage participations and partnership
interests, as well as outright purchases.
EMPLOYEES
The Trust has no employees. Employees of Tarragon provide executive
and administrative services to the Trust. The officers of the Trust are also
officers of Tarragon.
COMPETITION
The Trust's plan of operation is to continue to improve the quality of
its properties through consistent capital improvements and, to the extent
surplus funds and attractive investments are available, to acquire additional
multifamily and commercial properties, primarily in locations where the rust
presently operates. Management believes that ownership of the type of
properties in which the Trust invests is highly fragmented among individuals,
partnerships, public and private corporations, and other real estate investment
trusts and that no particularly dominant entities exist in the market for such
properties. The Trust competes with numerous entities engaged in real estate
activities, many of which may have greater financial resources than the Trust.
However, the Trust has not experienced material differences in competition in
the various regions of the United States in which it invests.
Management believes that success in real estate investment is
primarily dependent upon general market conditions; geographic location; the
performance of asset and property managers in areas such as marketing,
collections, capital improvements, and the control of operating expenses; and
the maintenance and appearance of the property, rather than the activities of
the competitors. Additional competitive factors with respect to commercial
properties are the ease of access to the property, the adequacy of related
facilities, such as parking, and sensitivity in setting rental rates. With
respect to multifamily properties, management believes that there is and will
continue to be a strong demand for well maintained, affordable housing in the
markets in which it operates. However, since the success of any real estate
investment is impacted by other factors outside the control of the Trust,
including general demand for apartment housing, interest rates, operating
costs, and the ability to attract and retain qualified property managers, there
can be no assurances that the trust will be successful.
CERTAIN FACTORS ASSOCIATED WITH REAL ESTATE AND RELATED INVESTMENTS
The Trust is subject to the risks associated with the ownership,
operation, and financing of real estate. These risks include, but are not
limited to, liability for environmental hazards; changes in general or local
economic conditions; changes in interest rates and availability of permanent
mortgage financing which may
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render the acquisition, sale, or refinancing of a property difficult or
unattractive and which may make debt service burdensome; changes in real estate
and zoning laws; changes in income taxes or real estate taxes, federal or local
economic or rent controls; floods, earthquakes, and other acts of God; and
other factors beyond the control of the Trust or Tarragon. The illiquidity of
real estate investments generally may impair the ability of the Trust to
respond promptly to changing circumstances. The Trust's management believes
that some of these risks are compounded by the concentration of the Trust's
properties in Texas, Oklahoma, and Florida, and the Trust's intention to
acquire older, mismanaged, or under-performing properties.
PROPERTIES
Details of the Trust's real estate and mortgage notes receivable
portfolios at November 30, 1996, are set forth in the Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements (see
specifically Notes 2 and 3.) The following provides additional summary
information regarding these portfolios.
The Trust acquired two properties in fiscal 1996 and five properties
during fiscal 1995. At November 30, 1996, the Trust owned thirteen properties,
consisting of ten apartment complexes with 1,189 units, one shopping center,
one combination office building and shopping center, and one farm and luxury
residence. The carrying values of four of the properties (One Turtle Creek,
Aspentree Apartments, Riverside Apartments and Mission Trace Apartments) each
exceed 10% of the Trust's total consolidated assets. All Trust properties,
except three, are pledged separately to secure mortgage debt totaling $16.5
million at November 30, 1996.
In January 1996, the Trust closed the sale of the Villas at Central
Park, a 288-unit apartment complex located in Orlando, Florida which resulted
in the Trust receiving $66,000 net cash proceeds and relief of $5,360,000 in
nonrecourse indebtedness secured by the property sold.
In April 1996, the Trust consummated the acquisition of Holly House
Apartments, a 57-unit complex built in the mid-1960s and located in North
Miami, Florida, from Alan M. Kornbluh, as Trustee (who has no other
relationship to the Trust.) The Trust paid an acquisition fee of $14,500 to
Tarragon, the Trust's advisor, for services rendered in connection with the
transaction.
On May 1, 1996, the Trust purchased Mission Trace Apartments for a
purchase price of $2.8 million. This property was constructed in 1990 and
consists of twelve two-story garden style buildings with a total of 96 units.
The property was 91% occupied at the date of purchase and is located in
Tallahassee, Florida. A portion of the purchase price was financed through a
first mortgage loan in the amount of $2,220,000 and a second mortgage loan in
the amount of $290,000, both provided by First Federal Savings and Loan
Association of Osceola County, the seller (which has no other relationship to
the Trust.) The remainder of the purchase price was paid in cash from general
working capital of the Trust. For the first two years, the first and second
mortgage loans bear interest at 8.25% and 8.5%, respectively. Thereafter, the
rates are adjusted every two years to 225 basis points and 200 basis points,
respectively, over the Two Year Constant Maturity Treasury. Both loans mature
in May 2006 and are payable in monthly installments of principal and interest.
In connection with the acquisition, the Trust paid a $28,900 acquisition fee to
Tarragon.
On October 23, 1996, the Trust sold its interest in Polynesia Village
Apartments, a 448-unit complex located in Tacoma, Washington, to Pearl Street
1995, L.L.C., a Washington limited liability company not affiliated with the
Trust or any of its officers or trustees, for $9.6 million. The Trust had
recorded an in-substance foreclosure of the property on August 31, 1995,
pursuant to a settlement with a borrower on a $2.0 million mortgage note
receivable. The Trust accepted a note receivable from the purchaser of
$325,000 for a portion of the purchase price, and the purchaser agreed to
reimburse the Trust for certain capital improvements to the property totaling
approximately $99,000. Through prorations at closing, the note balance was
reduced to $192,000. The carrying value of the property, which was subject to
a $5.7 million first mortgage loan, exceeded 10% of the Trust's assets. The
Trust received net cash proceeds of $3 million, including earnest money
deposits received prior to closing, after the payoff of the first mortgage
loan, closing costs and prorated property taxes, and a selling commission to
the purchaser's real estate broker. In connection with this disposition, the
Trust paid Tarragon a brokerage commission of 2% of the total sales
consideration, or $194,000. In October 1996, the Trust recorded a gain on this
sale of $844,000.
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To continue to qualify for federal taxation as a REIT under the Code,
the Trust is required, among other things, to hold at least 75% of the value of
its assets in real estate assets, government securities, and cash and cash
equivalents at the close of each quarter of each taxable year. At November 30,
1996, 77% of the Trust's assets consisted of real estate held for investment,
3% consisted of mortgage notes and interest receivable, 5% consisted of
investments in and advances to partnerships which own real estate or mortgage
loans secured by real estate and 9%. consisted of cash and cash equivalents.
The remaining 6% of the Trust's assets consisted of restricted cash and other
assets. The percentage of the Trust's assets invested in any one category at
any particular time is subject to change, and no assurance can be given that
the composition of the Trust's assets in the future will approximate the
percentages stated above. The following tables present certain information
relating to the Trust's real estate portfolio at November 30, 1996:
58
<PAGE> 68
VINLAND PROPERTY TRUST
REAL ESTATE SUMMARY
NOVEMBER 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Average Rent Per Sq. Ft. (a) Economic Occupancy (b)
Year Ended November 30 ar ended Year ended November 30,
Number Square ------------------------------- ------------------------------
Property Location of Units Feet 1996 1995 1994 1996 1995 1994
- ----------------------------- ---------- -------- ------ ---------- ---------- -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES ACQUIRED PRIOR TO NOVEMBER 30, 1994:
Multifamily:
- -----------
Aspentree Dallas, TX 296 212,864 $7.39 $7.02 6.69 96% 96% 95%
French Villa Tulsa, OK 101 104,720 6.26 5.70 5.51 97% 91% 90%
Phoenix Tulsa, OK 254 208,726 4.63 4.03 3.83 91% 90% 93%
Southern Elms Tulsa, OK 78 65,159 6.62 6.26 6.76 93% 88% 97%
---- --------- ----- ----- ----- --- --- ---
Subtotal or weighted average (f) 729 591,469 6.13 5.65 5.48 94% 92% 94%
---- --------- ----- ----- ----- --- --- ---
Commercial:
- ----------
Briarwest Shop Ctr Houston, TX - 25,323 10.66 10.47 9.57 87% 92% 84%
One Turtle Creek Dallas, TX - 102,811 10.30 10.15 9.66 89% 90% 94%
---- --------- ----- ----- ----- --- --- ---
Subtotal or weighted average (f) - 128,134 10.37 10.21 9.64 88% 91% 92%
---- --------- ----- ----- ----- --- --- ---
Properties Acquired in 1995:
- ---------------------------
Collegewood Tallahassee, FL 60 30,000 6.93 7.36 89% 93%
Florida Towers Tallahassee, FL 54 29,700 8.51 7.99 92% 90%
Jefferson Towers Tallahassee, FL 48 24,000 7.21 7.31 91% 92%
Riverside Austin, TX 145 110,868 8.76 8.20 92% 94%
---- --------- ----- ----- --- ---
Subtotal or weighted average (f) 307 194.568 8.25 7.93 91% 93%
---- --------- ----- ----- ----- --- --- ---
Properties Acquired in 1996:
- ---------------------------
Holly House North Miami, FL 57 45,417 6.75 84%
Mission Trace Tallahassee, FL 96 104,400 4.58 71%
---- --------- ----- ---
Subtotal or weighted average (f) 153 149,817 5.24 75%
---- --------- ----- ----- ----- --- --- ---
Grand total or weighted average (f) 1189 1,063,988 $6.90 $6.77 $6.22 90% 92% 93%
==== ========= ===== ===== ===== === === ===
</TABLE>
<TABLE>
<CAPTION>
Current
Physical Per Sq. Market
Occupancy Year End Rent Per
Property Location Nov. 30, 1996(c) Nov. 30, Sq. Foot (e)
- --------------------------- ---------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
PROPERTIES ACQUIRED PRIOR TO NOVEMBER 30, 1994:
Multifamily:
- -----------
Aspentree Dallas, TX 97% $7.81 $8.33
French Villa Tulsa, OK 94% 6.55 6.72
Phoenix Tulsa, OK 93% 5.33 5.50
Southern Elms Tulsa, OK 92% 7.20 7.52
--- ------ ------
Subtotal or weighted average (f) 95% 6.64 6.96
--- ------ ------
Commercial:
- ----------
Briarwest Shop Ctr Houston, TX 86% 12.91 15.05
One Turtle Creek Dallas, TX 85% 11.70 15.50
--- ------ ------
Subtotal or weighted average (f) 85% 11.94 15.28
--- ------ ------
Properties Acquired in 1995:
- ---------------------------
Collegewood Tallahassee, FL 95% 8.60 9.00
Florida Towers Tallahassee, FL 94% 9.63 10.03
Jefferson Towers Tallahassee, FL 98% 8.53 9.00
Riverside Austin, TX 91% 9.47 9.77
--- ------ ------
Subtotal or weighted average (f) 93% 9.25 9.60
--- ------ ------
Properties Acquired in 1996:
- ---------------------------
Holly House North Miami, FL 89% 8.25 8.25
Mission Trace Tallahassee, FL 79% 7.00 7.08
--- ------ ------
Subtotal or weighted average (f) 82% 7.38 7.43
--- ------ ------
Grand total or weighted average (f) 91% $ 7.86 $ 8.51
=== ====== ======
</TABLE>
(a) Amounts represent average rental revenue per square foot on an annual
basis. Rental revenue is equal to gross potential rent after giving
effect to all rental losses including bad debts, vacancies, and
discounts and concessions. Gross potential rent equals average lease
rates on leased units and market rates on vacant units.
(b) Computed as follows: [(Annual gross potential rent less annual vacancy
losses) divided by annual gross potential rent].
(c) Represents actual physical occupancy as of the end of the last week of
the fiscal year ended November 30, 1996.
(d) Represents annualized gross potential rent for all months owned during
the period divided by square footage.
(e) Represents annualized market rate per square foot at November 30,
1995, based upon scheduled rents at such time.
(f) The weighted average rent per square foot and economic occupancy
percentages are based on the square footage in each property.
The Trust also owns Cochonour Horse Farm, a 188-acre horse farm with a 5,000
square foot luxury residential home in Carrollton, Missouri.
Management believes that its properties are adequately covered by liability and
casualty insurance, consistent with industry standards.
59
<PAGE> 69
VINLAND PROPERTY TRUST
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
NOVEMBER 30, 1996
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Stated (A) Balance
Original Balance Interest Maturity Due at
Name of Property Amount Nov 30, 1996 Rate Date Maturity`
- ---------------------- ------ ------------ ----------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Multifamily
- -----------
Aspentree . . . . . . $ 3,966 $ 3,927 8.33% 11/01/05 $ 3,390
Collegewood . . . . . 733 638 10.00% 06/01/97 638
Florida Towers . . . 1,040 905 10.00% 06/01/97 905
French Villa . . . . 1,970 1,922 8.53% 11/01/00 1,836
Jefferson Towers . . 591 514 10.00% 06/01/97 514
Mission Trace . . . . 2,220 2,147 8.25% 05/01/06 27
Mission Trace . . . . 290 281 8.50% 05/01/06 4
Riverside . . . . . . 2,885 2,826 8.50% 09/01/99 2,673
Southern Elms . . . . 1,370 1,345 9.68% 02/01/02 1,242
------- -------- ----- --------
15,065 14,505 8.74%(B) 11,229
------- -------- ------ --------
Commercial
- ----------
Briarwest . . . . . . 318 55 9.25% 11/01/97 -
One Turtle Creek . . 2,000 1,890 9.00% 02/01/05 1,504
-------- -------- ----- --------
2,318 1,945 9.01%(B) 1,504
-------- -------- ----- --------
Total $17,383 $16,450 8.77%(B) $12,733
- ----------------------------- ======= ======= ===== =======
</TABLE>
(A) For loans with variable interest rates, the rate in effect at November 30,
1996 is presented.
(B) Represents weighted average interest rate at November 30, 1996.
60
<PAGE> 70
INVESTMENT OBJECTIVES AND POLICIES
The Trust operates as a hybrid REIT which acquires, develops, owns and
manages income-producing properties and, to a much lesser extent, invests in
mortgage notes receivable. The Trust's investments in income-producing
properties are currently located predominantly in Florida, Texas and Oklahoma.
The investment objectives are to maximize funds from operations and ultimate
distributions to shareholders while providing the opportunity to realize
capital growth from appreciation in the value of the Trust's portfolio of
properties. The Trust policies with respect to these activities are largely
set forth and dictated by Article V of the Declaration of Trust, but may be
amended or revised from time to time in certain respects at the discretion of
the Board of Trustees without a vote of the Shareholders of the Trust.
While the Trust emphasizes investments in real estate, it may continue
to acquire mortgage notes receivable secured by real estate. At present, less
than 3% of the Trust's assets consist of mortgage notes and interest
receivable, but revenues from such mortgages account for less than 2% of the
Trust's total revenues.
Subject to the percentage of ownership limitations and gross income
tests necessary for continued REIT qualification, the Trust may also invest in
securities of concerns engaged in real estate activities or securities of other
issuers. The Trust does not intend to invest in the securities of any other
issuer for the purpose of exercising control; however, the Trust may in the
future acquire all or substantially all of the securities or assets of other
entities where such investments would be consistent with the Trust's investment
policies. In any event, the Trust does not intend that its investments in
securities will require it to register as an "investment company" under the
Investment Company Act of 1940 and the Trust would divest securities before any
such registration would be required. Further, the Trust does not intend to
invest in any securities which would violate the asset holding requirements for
REITs. In addition, the Declaration of Trust provides certain restrictions on
investing in or the holding of certain securities.
LENDING POLICIES
REITs may make loans secured by mortgages and real property. The
Trust considers from time to time the acquisition of mortgage loans secured by
properties owned by other entities. While the Trust may make new loans, the
present portfolio of mortgage notes receivable of the Trust consists of only
three mortgage notes with an aggregate outstanding balance of $728,000 and no
new opportunities are currently under consideration.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Trust does not presently intend to make investments other than as
previously described, although it may do so. In addition, the Trust does not
intend to underwrite the securities of other issuers. The Trust has the
authority to offer its Shares to the public or in exchange for property and to
repurchase or otherwise reacquire its Shares or any other securities and may
engage in such activities in the future if the Board of Trustees shall
determine it to be in the best interests of the Trust.
At all times, the Trust intends to make investments in such manner as
to be consistent with the Code to qualify as a REIT unless, because of
circumstances or changes in the Code or in Treasury Regulations, the Board of
Trustees determines that it is no longer in the best interests of the Trust to
qualify as a REIT. The Trust policies with respect to such activities may be
reviewed and modified from time to time by the Trust's Board of Trustees
without the vote of the shareholders.
61
<PAGE> 71
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes selected historical consolidated
financial information of the Trust for the last five years ended November 30,
1996 and the three month periods ended February 28, 1997 and February 29, 1996.
TRII Nevada is a newly-created corporation that, by operation of law,
would succeed to all the rights and properties, and be subject to all the
obligations and liabilities, of the Trust as incorporated as the California
Corporation upon consummation of the proposed Incorporation Procedure. Thus,
for accounting purposes, the assets, liabilities and stockholder's equity of
TRII Nevada would be accounted for, on a carry-over basis, as the continuing
entity which would be the successor to the Trust. The Incorporation Procedure,
if adopted, will have no effect on the book value of the assets, liabilities or
Shareholder's equity of the Trust.
The historical consolidated financial information is not necessarily
indicative of TRII Nevada's future results of operations or financial
condition. The information set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Trust's Consolidated Financial Statements and notes thereto
appearing under "Index to Financial Statements." Results for the interim
periods are not necessarily indicative of the results for a full year.
Vinland Property Trust
Selected Financial Data (Historical)
(Dollars in thousands, except per share)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the
Three
Months
Ended
Feb. 28 Feb. 29 For the Years Ended November 30,
------------------------- -------------------------------------------------------------
OPERATING DATA 1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income . . . . . . . . . . . . . . . .$ 2,182 $ 2,380 $ 9,464 $ 8,437 $ 6,846 $ 6,042 $ 4,679
Expense . . . . . . . . . . . . . . . 2,224 2,280 9,537 8,410 7,275 6,649 5,174
---------- ---------- ---------- ---------- --------- ---------- ----------
Income (loss) before minority
interest, net gain (loss) on sale
of real estate, and extraordinary
gain . . . . . . . . . . . . . . . . (42) 100 (73) 27 (429) (607) (495)
Net gain (loss) on sale of
real estate . . . . . . . . . . . . - (193) 673 - - - 1,875
Minority interest in income of
consolidated partnership . . . . . . . (9) - - - - - -
---------- ---------- ---------- ---------- --------- ---------- ----------
Income (loss) from continuing
operations . . . . . . . . . . . . . (51) (93) 600 27 (429) (607) 1,380
Extraordinary Gain . . . . . . . . . . - 253 253 - - - -
---------- ---------- ---------- ---------- --------- ---------- ----------
Net income (loss) . . . . . . . . . .$ (51) $ 160 $ 853 $ 27 $ (429) $ (607) $ 1,380
========== ========== ========== ========== ========= ========== ==========
EARNINGS PER SHARE DATA
Income (loss) from continuing $ (.04) $ (.06) $ 0.44 $ 0.02 $ (.31) $ (.51) 1.16
operations . . . . . . . . . . . . . .
Extraordinary Gain . . . . . . . . . . - 0.18 0.19 - - - -
---------- ---------- ---------- ---------- --------- ---------- ----------
Net income (loss) . . . . . . . . . .$ (.04) $ 0.12 $ 0.63 $ 0.02 $ (.31) $ (.51) 1.16
========== ========== ========== ========== ========= ========== ==========
Distributions . . . . . . . . . . . .$ - $ - $ - $ - $ - $ 1.25 $ -
Weighted average shares . . . . . . . 1,343,867 1,378,161 1,354,415 1,392,006 1,368,527 1,193,572 1,193,157
</TABLE>
<TABLE>
<CAPTION>
November 30,
February 28, ------------------------------------------------------------
BALANCE SHEET DATA 1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Real estate . . . . . . . . . . . . . $28,578 $22,489 $31,927 $20,362 $20,438 $19,931
Notes and interest receivable . . . . 128 734 737 2,658 3,486 3,633
Total assets . . . . . . . . . . . . . 32,684 28,757 36,978 22,738 23,478 22,556
Notes, debentures, and interest payable 21,684 17,516 26,491 12,442 13,058 10,006
Shareholders' equity 9,807 9,869 9,256 9,229 8,932 10,990
Book value per share(1) . . . . . . . $ 7.30 $ 7.34 $ 6.65 $ 6.63 $ 7.42 $ 9.21
</TABLE>
(1) Share and per share data have been restated to give effect to the
one-for-five reverse split effected December 1, 1995.
62
<PAGE> 72
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Trust's real estate at February 28, 1997 consisted of thirteen
properties, including nine apartment complexes, one shopping center, one
combination office building and shopping center, one combination
office/retail/medical building and one farm and luxury residence. All of the
Trust's real estate, except for Phoenix Apartments, Holly House Apartments,
and the farm and luxury residence, is pledged to secure first mortgage notes
payable.
The Trust's management continues to focus on the capital appreciation
of the Trust's existing portfolio and the search for additional investments.
Management's first priority is to invest surplus funds in needed improvements
to the current real estate portfolio. The Trust intends to use additional
funds, generated from property operations, sales, and refinancings, to make
selective acquisitions, both residential and commercial, with a preference for
properties in the same geographical regions of the United States in which the
Trust currently operates. However, because of various real estate industry
conditions, including competing entities and the overall volatility of the real
estate market, there is no assurance that the Trust will be able to increase
the size of its portfolio in the coming fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1.8 million at February 28, 1997,
as compared to $2.7 million at November 30, 1996 and $2.8 million at November
30, 1995. The Trust's principal sources of cash have been property
operations, collections of notes receivable, and refinancing proceeds.
Management believes that cash on hand along with funds to be provided by
property operations and anticipated external sources, such as property sales
and refinancings, is sufficient to fund any needed property maintenance and
capital improvements as well as meet the Trust's debt service obligations.
OPERATING ACTIVITIES
The Trust's net cash flow from property operations (rentals collected
less payments for property operations) continues to increase from $2,000,000 in
1994 to $2,800,000 in 1995 to $3,700,000 in 1996. This improvement resulted
primarily from the operations of 1995 and 1996 acquisitions. Along with the
benefit derived from the operations of these acquired properties, the Trust
incurred higher interest payments due to the associated mortgage debt secured
by these properties. In October 1996, the Trust sold Polynesia Village
Apartments ("Polynesia"), the operations of which accounted for increases in
cash flow from property operations in 1995 and 1996 of $171,000 and $530,000,
respectively.
63
<PAGE> 73
INVESTING ACTIVITIES
In December 1996, the Trust received $600,000 as payment in full of
the Swiss Village note receivable which had matured in November 1996. The
Trust expects collections of notes receivable to decline as existing mortgage
loans are paid off and does not anticipate funding additional loans in the
future except in connection with property sales.
In December 1996, the Trust acquired Tarzana Towne Plaza, a 42,000
square foot combination office/retail/ medical building located in Tarzana,
California, through the acquisition of a controlling interest in 18607 Ventura
Associates, Ltd., the partnership which owns the property. The Trust had
advanced $572,000 to the partnership during 1996. These advances were
converted to a 1% general partner interest and a 59% limited partner interest
in the partnership in December 1996.
In January 1997, the Trust purchased The Brooks Apartments, a 104-unit
property located in Addison, Texas, for $2.2 million, the cash portion of which
was $873,000.
The Trust paid $211,000 for capital improvements to its properties
during the first fiscal quarter of 1997 compared to $102,000 during the first
fiscal quarter of 1996 and anticipates an additional $800,000 will be incurred
during the remainder of 1997.
During the second quarter of fiscal 1996, the Trust purchased two
multifamily real estate properties comprising 153 apartment units for an
aggregate purchase price of $4,300,000 the cash portion of which was
$1,900,000. The remainder of the purchase price was financed through purchase
money mortgage debt on one of the properties.
During 1995, the Trust purchased three multifamily properties,
consummated the tax-free exchange for Riverside Apartments in Austin, Texas,
and recorded the in-substance foreclosure of Polynesia. Under the terms of
these three separate transactions, the portion of the acquisition price paid in
cash totaled $258,000. The remainder of the acquisition price was satisfied
through the assumption of first mortgage debt totaling $11,100,000 and, in the
case of Riverside, the conveyance of the exchange property, Westover Valley
Apartments in Fort Worth, Texas.
During 1996, the Trust sold two multifamily properties for an
aggregate gross sale price of $14,900,000. The Trust received net cash
proceeds of $3,100,000 in connection with these sales.
In December 1995, the Trust acquired a 20% general partner interest
and an effective 37% limited partner interest in Larchmont Associates Limited
Partnership and an effective 25% non-managing member interest in Kearny Wrap
LLC, both accounted for using the equity method, for cash investments of
$418,000 and $395,000, respectively.
Collections of notes receivable decreased from $642,000 during fiscal
1994 to $181,000 in fiscal 1995, primarily due to the Cochonour note
receivable, which was paid off in 1995. In relation to this note, the Trust
collected $386,000 and $110,000 during fiscal 1994 and 1995, respectively.
Also, one of the Trust's other mortgage loans in the amount of $200,000 was
paid in full in the third quarter of 1994. Collections of notes receivable
decreased further during fiscal 1996 to $3,000.
64
<PAGE> 74
The Trust expects note receivable collections to continue to decline
as existing mortgage loans are paid off and does not anticipate funding
additional loans in the future, except in connection with property sales.
However, during 1995 and pursuant to the restructured terms of the mortgage
loan secured by a second lien on Polynesia, the Trust funded an additional
$196,000 to the borrower for renovations the Trust supervised. In August 1995,
the Trust and the borrower agreed to a settlement of litigation involving the
mortgage loan whereby the Trust gained control of the property and as a result
recorded an in-substance foreclosure, as noted above.
The Trust invested $822,000 in property capital improvements during
fiscal 1996. This is compared to $534,000 of improvements during fiscal 1995
and $975,000 of improvements during fiscal 1994, including $500,000 related to
the exchange of Westover for Riverside.
In addition to capital improvements noted above, payments for property
operations in 1996, 1995 and 1994 include property replacements of $450,000,
$552,000 and $368,000, respectively. Property replacements include, but are
not limited to, such items as carpet, appliance, plumbing and heating,
ventilation, and air conditioning replacements; exterior painting; and parking
lot improvements.
FINANCING ACTIVITIES
The Trust made principal payments on notes payable of $142,000 during
the first fiscal quarter of 1997. Principal payments of $2.3 million,
including balloon payments of $2.1 million, are due during the remainder of
fiscal 1997. The Trust intends to either pay off the maturing mortgages or
extend the due dates while seeking to obtain long term refinancing. While
management is confident of its ability to acquire financing as needed, there is
no assurance that the Trust will continue to be successful in its efforts in
this regard.
In December 1995, the Trust's Board of Trustees authorized the Trust
to repurchase up to 139,200 of its shares of beneficial interest in open market
and negotiated transactions, of which 4,868 had been purchased through February
28, 1997. During the first fiscal quarter of 1997, the Trust repurchased 1,457
shares in open market transactions at a total cost of $11,000.
During fiscal 1995, the Trust obtained first mortgage financing
totaling $5,300,000 on two Trust properties, receiving net cash proceeds of
$3,600,000 after the payoff of $1,400,000 in existing debt. The balance of the
refinancing proceeds was used to fund escrows and pay the associated loan
closing costs. Additionally, the Trust made other mortgage principal payments
totaling $901,000 during fiscal 1995. During fiscal 1996, the Trust made
mortgage principal payments totaling $371,000.
The Board of Trustees approved a one-for-five reverse share split of
all of the Trust's shares of beneficial interest which was effective at the
close of business on December 1, 1995, on the basis of one new share (a
"Post-Split Share") for each five shares then outstanding (each an "Old
Share"). Following the one-for-five reverse share split, on December 1, 1995,
the Trust offered to purchase all shares of beneficial interest, no par value,
of each shareholder holding 99 or fewer Post-Split Share (or less than 500 Old
Shares) either of record or beneficially on December 1, 1995. Under such offer
(the "Odd-Lot Offer"), the Trust agreed to purchase all Post-Split Shares duly
tendered prior to February 29, 1996, at a price equal to the next closing price
of the Post-Split Shares on the day the Trust received the tendered shares.
Additionally, in December 1995, the Board authorized the Trust to repurchase up
to 139,200 Post-Split Shares in open market and negotiated transactions. During
fiscal 1996, the Trust repurchased 47,430 shares, including 43,696 shares
related to the Odd-Lot Offer, 323 shares representing fractional shares related
to the December 1995 reverse share split, and 3,411 shares representing
purchases in open market transactions, at a total cost of $240,000 or an average
of $5.06 per share.
RESULTS OF OPERATIONS
For the Three Months Ended February 28, 1997 Compared to Three Months
Ended February 29, 1996. The Trust reported a net loss of $51,000 compared to
net income of $160,000 for the corresponding period in 1996. The Trust sold
Polynesia Village Apartments in October 1996 and realized a gain of $844,000.
The loss of the operations of Polynesia caused a reduction in net operating
results for the three months ended February 28, 1997, of $70,000 as compared to
the corresponding period in 1996. This reduction was partially mitigated by
the contribution to net operating results from the properties acquired during
1996 and 1997.
The Trust's move of its principal offices from One Turtle Creek Office
Complex in October 1996 negatively impacted overall physical occupancy of the
Trust's properties held in both years. Physical occupancy for One Turtle Creek
fell from 93% at February 29, 1996, to 86% at February 28, 1997, resulting in
increased vacancy losses. The Trust's move was influenced by its perception
that a sale of One Turtle Creek would be opportune. In March 1997, prior to
placing the property on the market, the Trust received a credible, unsolicited
cash offer to purchase the property for $9.8 million, approximately $5.8
million in excess of the Trust's investment. In view of this interest in
acquiring the property, the Trust has initiated a formal marketing program to
sell this asset. The Trust intends to structure any sale as a tax free
exchange in order to retain the proceeds generated by any sale to fund future
acquisitions. There can be no assurance at this point that a sale will take
place at a price higher than the unsolicited offer or that the offer in hand
will close.
65
<PAGE> 75
The Trust's equity in loss of partnerships was $80,000 for the first
fiscal quarter of 1997 compared to equity in income of partnerships of $4,000
for the first fiscal quarter of 1996. The Trust's equity in the net loss of
Larchmont Associated Limited Partnership, which owns Larchmont West Apartments,
accounted for most of this change. Vacancy losses increased for Larchmont, as
physical occupancy dropped from 92% as of February 29, 1996, to 84% as of
February 28, 1997. Operating expenses also increased related to the
Partnership's efforts to improve the property.
During the first fiscal quarter of 1996, the Trust recorded a loss on
the sale of real estate of $193,000 and an extraordinary gain of $253,000 both
related to the sale of Villas at Central Park Apartments in January 1996.
1996 Compared to 1995. The Trust reported net income for fiscal 1996
of $853,000 as compared to a net income of $27,000 for fiscal 1995. The
primary reason for this improvement was the $844,000 gain on sale of Polynesia
in October 1996. Other underlying components of this improvement in operating
results are discussed in the following paragraphs.
Net rental income (rental revenue less property operating expenses)
increased from $2.6 million in fiscal 1995 to $3.3 million in fiscal 1996. An
increase of $729,000 is attributable to the operations of the properties added
to the Trust's multifamily portfolio during 1995 and 1996, while a decrease of
$334,000 resulted from the sale of Villas at Central Park Apartments in 1996.
$494,000 of the 1996 increase in net rental income was attributable to
Polynesia which was sold in October 1996. Properties held in both 1995 and
1996 reported an overall increase of $275,000. Higher rental rates at certain
properties and a reduction in leasing expenses contributed to this improvement.
Overall occupancy levels for multifamily properties held in both years
increased slightly, while those for commercial properties held in both years
fell slightly.
Interest expense increased from $1.4 million in fiscal 1995 to $1.9
million in fiscal 1996. Of this increase, $498,000 resulted from interest
expense associated with loans obtained or assumed in connection with the 1995
and 1996 property acquisitions. Properties held in both years reported an
overall increase of $381,000, mainly due to the refinancing of the mortgage
debt secured by Southern Elms Apartments and Aspentree Apartments during 1995,
which increased mortgage debt by a total of $3.9 million. These increases were
partially offset by a decrease of $391,000 due to the sale of the Villas at
Central Park Apartments in 1996.
Advisory fees to Tarragon totaled $146,000 in fiscal 1995 and $181,000
in fiscal 1996. Since March 1, 1994, Tarragon has provided advisory services
to the Trust pursuant to an advisory agreement. General and administrative
expenses increased from $356,000 in fiscal 1995 to $466,000 in fiscal 1996,
primarily due to increases in advisor expense reimbursements and professional
fees related to administration of the one-for-five reverse share split in
December 1995 and the Odd-Lot Offer in the first quarter of 1996.
The Trust recorded a provision for loss credit of $190,000 in August
1995 as a result of a reversal of an allowance for estimated losses of $1.0
million recorded in previous years against the Trust's note receivable secured
by a second lien mortgage on Polynesia and a $1.4 million provision for loss
due to permanent impairment of Villas at Central Park Apartments recorded in
August 1995. Also, the Trust determined that the remaining $802,000 balance of
the allowance for estimated losses was no longer required against the Trust's
mortgage note receivable portfolio, while a $241,000 allowance for estimated
losses was necessary against the carrying value of one of its properties held
for sale. As such, the Trust recorded a reversal of $561,000 in August 1995.
During fiscal 1996, the Trust recorded a loss on the sale of real
estate of $171,000 and an extraordinary gain of $253,000, both related to the
sale of Villas at Central Park Apartments in January 1996 and an $844,000 gain
on the sale of Polynesia in October 1996.
1995 Compared to 1994. The Trust reported net income for fiscal 1995
of $27,000 as compared to a net loss of $429,000 for fiscal 1994. The primary
factors contributing to the improvement in the Trust's operating results are
discussed in the following paragraphs.
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Net rental income increased from $2.1 million in fiscal 1994 to $2.6
million in fiscal 1995. The operations of the five multifamily properties
acquired during 1995 increased net rental income by $539,000, $189,000 of which
is attributable to Polynesia which was sold in October 1996. Net rental income
for properties held in both years fell by $21,000. With respect to properties
held in both years, increased common area maintenance recovery revenue and a
reduction in rental concessions, predominantly related to the Trust's
commercial proprieties, had a positive impact on net rental income.
Additionally, aggregate rental rates increased during 1995. These positive
factors were more than offset by higher operating expenses related to the
Trust's continue efforts to improve the physical appearance and marketability
of its multifamily properties. As a result, physical occupancy levels
increased slightly for multifamily properties held in both years.
Interest income decreased from $319,000 in fiscal 1994 to $131,000 in
fiscal 1995. Interest income related to the Trust's note receivable secured by
a second lien mortgage on Polynesia decreased $160,000 as a result of the
associated borrower's Plan of Reorganization (the "Plan"). In accordance with
the terms of the Plan, interest income on the Trust's note receivable ceased
August 1994, as any excess flow generated from operations of the property was
paid first under the first lien mortgage terms and then toward property repairs
and maintenance. On August 31, 1995, the Trust gained control of the property
and recorded an in-substance foreclosure of Polynesia. Also, in April 1995,
two mortgage notes receivable with principal balances totaling $176,000 were
paid in full. Interest income is expected to continue to decline as existing
notes receivable are paid off, and the Trust does not anticipate funding new
notes except in connection with and to facilitate the sale of real estate.
Interest expense increased from $1.2 million in fiscal 1994 to $1.4
million in fiscal 1995. This increase resulted from loans assumed in
connection with the 1995 property acquisitions and 1995 refinancings which
increased total mortgage debt outstanding by $3.9 million.
Advisory fees to BCM were $75,000 in fiscal 1994. Advisory fees to
Tarragon totaled $157,000 in fiscal 1994 and $146,000 in fiscal 1995. Under
the advisory agreement with BCM, the Trust paid a base advisory fee of $25,000
per month.
General and administrative expenses decreased from $567,000 in fiscal
1994 to $356,000 in fiscal 1995 primarily due to decreases in legal and
professional fees. In 1994, legal fees included amounts related to the
Polynesia note receivable. All related 1995 legal fees were added to the loan
balance pursuant to the modification. Additionally, professional fees were
higher in 1994 due to registration and exercise or conversion of share purchase
rights and debentures issued to shareholders in October 1993.
ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES
The Trust's management, on a quarterly basis, reviews the carrying
values of the Trust's mortgage loans and properties held for sale. Generally
accepted accounting principles require that the carrying value of a mortgage
loan or a property held for sale cannot exceed the lower of its cost or its
estimated fair value. In those instances in which estimates of fair value of
the Trust's mortgage loans or properties held for sale are less than the
carrying values thereof at the time of evaluation, an allowance for loss is
provided by a charge against operations. The estimates of fair value of the
mortgage loans are based on management's review and evaluation of the
collateral properties securing the mortgage loans. The review of collateral
properties and properties held for sale generally includes selective site
inspections, a review of the property's current rents compared to market rents,
a review of the property's expenses, a review of maintenance requirements,
discussions with the manager of the property, and a review of the surrounding
area. Future quarterly reviews could cause the Trust's management to adjust
current estimates of fair value.
The Trust's management also reviews the Trust's properties held for
investment for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. This review
generally consists of a review of the property's cash flow and current and
projected market conditions, as well as any changes in general and local
economic conditions. If an impairment loss exists based on the results of this
review, a loss is recognized by a charge against current earnings and a
corresponding
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<PAGE> 77
reduction in the respective asset's carrying value. The amount of this
impairment loss is equal to the amount by which the carrying value of the
property exceeds its estimated fair value.
ENVIRONMENTAL MATTERS
Under various federal, state, and local environmental laws,
ordinances, and regulations, the Trust may be potentially liable for removal or
remediation costs, as well as certain other potential costs (including
governmental fines and injuries to persons and property) relating to hazardous
or toxic substances where property-level managers have arranged for the
removal, disposal, or treatment of hazardous or toxic substances. In addition,
certain environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from the Trust for
personal injury associated with such materials.
The Trust's management is not aware of any environmental liability
relating to the above matters that would have a material adverse effect on the
Trust's business, assets, or results of operations.
LEGAL MATTERS
The validity of the shares of the Nevada Common Stock to be issued by
TRII Nevada pursuant to the Incorporation Procedure and the federal income tax
consequences of the Incorporation Procedure have been passed by Hill & Metzger,
L.L.P., Dallas, Texas. Hill & Metzger, L.L.P. will rely as to all matters of
Nevada law on Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada.
EXPERTS
The audited financial statements and schedules included in this Proxy
Statement/Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent certified public accountants, to the
extent and for the periods indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving such reports.
AVAILABLE INFORMATION
The Trust is subject to the informational requirements of the Exchange
Act, as amended, and in accordance therewith is required to file periodic
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by the Trust may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549, and the following regional offices of the Commission: Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048,
and Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can also be
obtained from the Commission at prescribed rates by addressing written requests
for such copies to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the EDGAR Database of Corporate
Information, at its worldwide web site at: http://www.sec.gov/edgarhp.htm.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission by the Trust under
the Exchange Act (File No. 1-9525), are incorporated in and made a part of this
Proxy Statement/Prospectus by reference:
The Trust's Annual Report on Form 10-K for the fiscal year ended November
30, 1996, filed with the Commission on February 28, 1997;
THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM VINLAND PROPERTY TRUST,
3100 MONTICELLO, SUITE 200, DALLAS, TEXAS 75205. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE ANNUAL MEETING, ANY REQUEST SHOULD BE
RECEIVED BY JUNE 16, 1997.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent
that a statement contained in this Proxy Statement/Prospectus, or in any other
subsequently filed document which is also, or is deemed to be, incorporated by
reference, modifies
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<PAGE> 78
or replaces such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Proxy Statement/Prospectus, except
as so modified or superseded.
TRII Nevada has filed a registration statement on Form S-4, No.
33-________ (the "Registration Statement"), pursuant to the Securities Act of
1933, as amended, with respect to the shares of Nevada Common Stock, as
hereinafter defined, to be issued in connection with the Merger. This Proxy
Statement/Prospectus constitutes the prospectus of TRII Nevada filed as part of
the Registration Statement. All information herein with respect to the Trust
and TRII Nevada has been furnished by the Trust.
SELECTION OF AUDITORS
The Board of Trustees selected Arthur Andersen, LLP to serve as the
Auditors for the Trust for the 1994, 1995 and 1996 fiscal years.
Representatives of Arthur Andersen, LLP have been invited to attend the
annual meeting.
OTHER MATTERS
By the date of this Proxy Statement, the Trustees and officers do not know
of any other matters that may properly be, or that are likely to be, brought
before the meeting. However, if any other matters are properly brought before
the meeting, the persons named in the enclosed Proxy or their substitutes will
vote in accordance with their best judgment on such matters.
INTEREST OF CERTAIN PERSONS
IN MATTERS TO BE ACTED UPON
As described above under "Certain Business Relationships," Mr. Friedman, a
Trustee, President and Chief Executive Officer of the Trust, also serves as the
Chief Executive Officer of Tarragon. Tarragon is owned by William S. and Lucy
N. Friedman, and therefore Mr. Friedman could be deemed to benefit financially
from Shareholder approval of the Trust Advisory Agreement with Tarragon
pursuant to Proposal Two. The amount of any possible financial benefit to Mr.
Friedman is not directly quantifiable at this time.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR TRII Nevada. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES
OFFERED HEREBY SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST OR TRII Nevada SINCE THE DATE
HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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<PAGE> 79
SOLICITATION OF PROXIES
THIS PROXY STATEMENT IS FURNISHED TO SHAREHOLDERS TO SOLICIT PROXIES ON
BEHALF OF THE TRUSTEES AND OFFICERS OF THE TRUST. The cost of soliciting
proxies will be borne by the Trust. In addition to the solicitation of proxies
by use of the mails, the officers and Trustees may also solicit proxies
personally or by mail, telephone, facsimile transmission or telegraph, but they
will not receive any compensation for such services.
________________________________________
COPIES OF THE TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED NOVEMBER 30,
1996 TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K ARE AVAILABLE TO
SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO VINLAND PROPERTY TRUST,
3100 MONTICELLO, SUITE 200, DALLAS, TEXAS 75205, ATTENTION: INVESTOR
RELATIONS.
BY ORDER OF THE TRUSTEES
Lawrence Hartman, Vice President
and Secretary
THE BOARD OF TRUSTEES OF THE TRUST UNANIMOUSLY RECOMMEND YOU VOTE FOR ALL
FOUR OF THE NOMINEES, THAT YOU VOTE FOR APPROVAL OF THE ADVISORY AGREEMENT BY
VOTING FOR PROPOSAL TWO ON THE ENCLOSED PROXY, AND THAT YOU VOTE FOR APPROVAL
OF THE INCORPORATION PROCEDURE BY VOTING FOR PROPOSAL THREE ON THE ENCLOSED
PROXY. REGARDLESS OF HOW YOU WISH TO VOTE YOUR SHARES, YOUR BOARD OF TRUSTEES
URGES YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY.
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<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
<S> <C>
Acquisition Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Adverse Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AMEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
BCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Carmel Realty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Carmel, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CCEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CMET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CRSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Evaluation Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
First City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
IGAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
IGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Incorporation Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
IORI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
IORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
NAREIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Nevada Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
NIRT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
NOLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
NRLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
NRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Old Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Post-Split Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
PSL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PSL Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PSL Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
REIT Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
RTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SAMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SAMLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SIPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SJSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Southmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SWI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Tarragon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
TMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TRII Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
VIPTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
VPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
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INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TARRAGON REALTY INVESTORS INC.:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
Balance Sheet at April 21, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-2
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-3
VINLAND PROPERTY TRUST
ANNUAL FINANCIAL STATEMENTS AND SCHEDULES -- AUDITED
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . FS-4
Consolidated Balance Sheets -- November 30, 1996 and 1995 . . . . . . . . . . . . . . . . . FS-5
Consolidated Statements of Operation -- Years Ended November 30, 1996, 1995 and 1994 . . . . FS-6
Consolidated Statements of Shareholders' Equity -- Years Ended November 30, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-7
Consolidated Statements of Cash Flows -- Years Ended November 30, 1996, 1995 and 1994 . . . FS-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . FS-10
Schedule III -- Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . FS-24
Schedule IV -- Mortgage Loans on Real Estate . . . . . . . . . . . . . . . . . . . . . . . . FS-26
INTERIM FINANCIAL STATEMENTS - UNAUDITED
Consolidated Balance Sheets - February 28, 1997 and November 30, 1996 . . . . . . . . . . . FS-28
Consolidated Statements of Operations - three months ended
February 28, 1997 and February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . FS-29
Consolidated Statement of Shareholders' Equity - three months ended
February 28, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-30
Consolidated Statements of Cash Flows - three months ended
February 28, 1997 and February 19, 1996 . . . . . . . . . . . . . . . . . . . . . . . . FS-31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . FS-33
</TABLE>
72
<PAGE> 82
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Tarragon Realty Investors, Inc.:
We have audited the accompanying balance sheet of Tarragon Realty Investors,
Inc., (a Nevada corporation) as of April 21, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Tarragon Realty Investors, Inc., as
of April 21, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
April 22, 1997
FS-1
<PAGE> 83
TARRAGON REALTY INVESTORS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
April 21,
1997
---------
<S> <C>
Assets
- ------
Cash................................................... $1,000
------
$1,000
======
Stockholder's equity
- --------------------
Common stock, $.01 par value; 20,000,000 authorized
shares, 1,000 shares issued and outstanding........... $ 10
Special stock, $.01 par value; 10,000,000 authorized
shares, no shares issued.............................. --
Additional paid-in capital............................. 990
------
$1,000
======
</TABLE>
The accompanying notes are an integral part of this Balance Sheet.
FS-2
<PAGE> 84
TARRAGON REALTY INVESTORS, INC.
NOTES TO BALANCE SHEET
NOTE 1. ORGANIZATION
Tarragon Realty Investors, Inc. (the "Company"), a Nevada corporation, was
formed on April 2, 1997, and has had no operations since that date. The
corporation is a wholly-owned subsidiary of Vinland Property Trust, a
California business trust (the "Trust").
NOTE 2. PURPOSE
The Company was formed to facilitate the incorporation of the Trust in Nevada.
It is anticipated that the Trust will be incorporated as a California
corporation, which corporation will be merged into the Company to complete this
reorganization.
NOTE 3. INCOME TAXES
The Company intends to qualify as a real estate investment trust ("REIT"), as
defined in Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended, and, as such, will not be taxed for federal income tax purposes on
that portion of its taxable income which is distributed to the stockholders,
provided that at least 95% of its REIT taxable income plus 95% of its net
income from foreclosure property is distributed.
FS-3
<PAGE> 85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees of Vinland Property Trust
We have audited the accompanying consolidated balance sheets of Vinland
Property Trust and subsidiaries as of November 30, 1996 and 1995, and the
related statements of operations, shareholders' equity, and cash flows for each
of the three years in the period ended November 30, 1996. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vinland Property Trust and
subsidiaries as of November 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedules III and IV
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
February 20, 1997
FS-4
<PAGE> 86
VINLAND PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, November 30,
------------ ------------
1996 1995
------------ ------------
(dollars in thousands)
Assets
<S> <C> <C>
Notes and interest receivable .......................................... $ 734 $ 737
Real estate held for sale (net of accumulated depreciation of
$611 in 1995) ................................................ 241 13,683
------------ ------------
.......................................................... 975 14,420
Less - allowance for estimated losses .................................. (241) (241)
------------ ------------
.......................................................... 734 14,179
Real estate held for investment (net of accumulated depreciation
of $5,575 in 1996 and $4,661 in 1995) ........................ 22,248 18,244
Investments in and advances to partnerships ............................ 1,365 --
Cash and cash equivalents .............................................. 2,684 2,847
Restricted cash ........................................................ 479 705
Other assets, net ...................................................... 1,247 1,003
------------ ------------
.......................................................... $ 28,757 $ 36,978
============ ============
Liabilities and Shareholders' Equity
Liabilities
Notes, debentures, and interest payable ................................ $ 17,516 $ 26,491
Other liabilities ...................................................... 1,372 1,231
------------ ------------
.......................................................... 18,888 27,722
Commitments and contingencies
Shareholders' equity
Shares of beneficial interest, no par value; authorized shares,
unlimited; shares issued and outstanding, 1,344,576 in 1996
and 1,392,006 in 1995 (after deducting 3,411 shares held in
treasury in 1996) ............................................ 2,239 2,318
Paid-in capital ........................................................ 43,715 43,876
Accumulated distributions in excess of accumulated earnings ............ (36,085) (36,938)
------------ ------------
9,869 9,256
------------ ------------
$ 28,757 $ 36,978
============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-5
<PAGE> 87
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended November 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Income
Rentals ...................................................... $ 9,357 $ 8,306 $ 6,527
Interest ..................................................... 127 131 319
Equity in (loss) of partnerships ............................. (20) -- --
----------- ----------- -----------
9,464 8,437 6,846
Expense
Property operations (including $235 in 1996, $83 in
1995, and $69 in 1994 to affiliates) ......................... 6,047 5,666 4,405
Interest ..................................................... 1,929 1,441 1,173
Depreciation ................................................. 914 991 898
Advisory fee to affiliate .................................... 181 146 157
Advisory fee to prior advisor ................................ -- -- 75
General and administrative (including $232 in 1996,
$165 in 1995, and $161 in 1994 to affiliates) ................ 466 356 567
Provision for losses ......................................... -- (190) --
----------- ----------- -----------
9,537 8,410 7,275
----------- ----------- -----------
Income (loss) before net gain on sale of real estate
and extraordinary gain ....................................... (73) 27 (429)
Net gain on sale of real estate ........................................ 673 -- --
----------- ----------- -----------
Income (loss) from continuing operations ............................... 600 27 (429)
Extraordinary gain ..................................................... 253 -- --
----------- ----------- -----------
Net income (loss) ...................................................... $ 853 $ 27 $ (429)
=========== =========== ===========
Earnings per share
Income (loss) from continuing operations ............................... $ .44 $ .02 $ (.31)
Extraordinary gain ..................................................... .19 .-- .--
----------- ----------- -----------
Net income (loss) ...................................................... $ .63 $ .02 $ (.31)
=========== =========== ===========
Weighted average shares of beneficial
interest used in computing earnings per share ................ 1,354,415 1,392,006 1,368,527
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-6
<PAGE> 88
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Distributions
Shares of in Excess of
Beneficial Interest Paid-in Accumulated Shareholders'
Shares Amount Capital Earnings Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1993 ...... 1,203,523 $ 2,006 $ 43,462 $ (36,536) $ 8,932
Conversion of debentures and
obligations .................... 112,216 185 262 -- 447
Exercise of share purchase rights 76,267 127 152 -- 279
Net(loss) ....................... -- -- -- (429) (429)
------------ ------------ ------------ ------------ ------------
Balance, November 30, 1994 ...... 1,392,006 2,318 43,876 (36,965) 9,229
Net income ...................... -- -- -- 27 27
------------ ------------ ------------ ------------ ------------
Balance, November 30, 1995 ...... 1,392,006 2,318 43,876 (36,938) 9,256
Share repurchases ............... (47,430) (79) (161) -- (240)
Net income ...................... -- -- -- 853 853
------------ ------------ ------------ ------------ ------------
Balance, November 30, 1996 ...... 1,344,576 $ 2,239 $ 43,715 $ (36,085) $ 9,869
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-7
<PAGE> 89
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended November 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Rentals collected .......................................... $ 9,377 $ 8,320 $ 6,448
Interest collected ......................................... 129 128 253
Interest paid .............................................. (1,752) (1,383) (1,097)
Payments for property operations (including $235 in 1996,
$83 in 1995, and $69 in 1994 to affiliates) ............. (5,723) (5,532) (4,447)
General and administrative expenses paid
(including $232 in 1996, $165 in 1995, and
$161 in 1994 to affiliates) .............................. (421) (427) (373)
Advisory fees paid to affiliate ............................ (238) (138) (104)
Advisory fees received from (paid to) prior advisor ........ -- 115 (30)
Deferred financing costs paid .............................. (6) (272) (75)
----------- ----------- -----------
Net cash provided by operating activities ................ 1,366 811 575
----------- ----------- -----------
Cash Flows from Investing Activities
Acquisition of real estate ................................. (1,863) (258) --
Proceeds from the sale of real estate ...................... 3,088 -- --
Real estate improvements ................................... (822) (534) (975)
Collections of notes receivable ............................ 3 181 642
Funding of note receivable ................................. -- (196) --
Acquisition of partnership interests ....................... (813) -- --
Advances to partnership .................................... (572) -- --
----------- ----------- -----------
Net cash (used in) investing activities .................. (979) (807) (333)
----------- ----------- -----------
Cash Flows from Financing Activities
Proceeds from borrowings ................................... -- 5,336 --
Payments of notes payable .................................. (371) (2,343) (454)
Exercise of share purchase rights .......................... -- -- 279
Redemption of uncertificated obligations ................... -- (91) --
Replacement escrow (deposits) receipts, net ................ 61 (268) 8
Share repurchases .......................................... (240) -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities ...... (550) 2,634 (167)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ........ (163) 2,638 75
Cash and cash equivalents, beginning of year ................. 2,847 209 134
----------- ----------- -----------
Cash and cash equivalents, end of year ....................... $ 2,684 $ 2,847 $ 209
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-8
<PAGE> 90
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Years Ended November 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of net income (loss) to net cash provided by operating
activities:
Net income (loss) .................................................... $ 853 $ 27 $ (429)
Extraordinary gain ................................................... (253) -- --
Net gain on sale of real estate ...................................... (673) -- --
Depreciation and amortization ........................................ 1,033 1,137 958
Provision for losses ................................................. -- (190) --
Equity in loss of partnerships ....................................... 20 -- --
Changes in other assets and liabilities, net of effects
of noncash investing and financing activities
(Increase) in interest receivable .................................. -- -- (65)
(Increase) in other assets ......................................... (117) (65) (222)
Increase (decrease) in other liabilities ........................... 396 (104) 287
Increase in interest payable ....................................... 107 6 46
----------- ----------- -----------
Net cash provided by operating activities ............................ $ 1,366 $ 811 $ 575
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in assets and liabilities in connection with the
purchase, foreclosure, or exchange of real estate
Real estate ........................................................ $ 4,344 $ 13,393 $ --
Notes and interest receivable ...................................... -- (1,935) --
Other assets ....................................................... 39 194 --
Notes and interest payable ........................................... (2,510) (11,142) --
Other liabilities .................................................. (10) (252) --
----------- ----------- -----------
Cash paid ............................................................ $ 1,863 $ 258 $ --
=========== =========== ===========
Assets disposed of and liabilities released in connection with
the sale of real estate
Real estate ........................................................ $ 13,732 $ -- $ --
Other assets ....................................................... (91) -- --
Notes and interest payable ......................................... (11,160) -- --
Other liabilities .................................................. (319) -- --
Net gain on sale ................................................... 673 -- --
Extraordinary gain ................................................. 253 -- --
----------- ----------- -----------
Cash received .................................................... $ 3,088 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-9
<PAGE> 91
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Vinland Property Trust,
subsidiaries, and the consolidated partnerships (the "Trust") have been
prepared in conformity with generally accepted accounting principles ("GAAP"),
the most significant of which are described in NOTE 1. "SIGNIFICANT ACCOUNTING
POLICIES." The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. These, along with the remainder of the Notes to
Consolidated Financial Statements, are an integral part of the Consolidated
Financial Statements. The data presented in the Notes to Consolidated Financial
Statements are as of November 30 of each year and for the fiscal year then
ended, unless otherwise indicated. Dollar amounts in tables are in thousands,
except per share amounts.
Certain balances for 1994 and 1995 have been reclassified to conform to the
1996 presentation.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Organization and Trust business. Vinland Property Trust ("VPT") is a California
business trust organized July 18, 1973. The Trust was formed to invest in real
estate, including commercial and multifamily properties, and, to a lesser
extent, finance real estate through mortgage loans.
Basis of consolidation. The Consolidated Financial Statements include the
accounts of VPT, its subsidiaries, and partnerships which it controls. All
significant intercompany transactions and balances have been eliminated.
Real estate and depreciation. Real estate held for sale is carried at the lower
of cost or estimated fair value less estimated costs to sell. Real estate held
for investment is carried at cost unless an impairment is determined to exist,
as discussed below. Impaired properties are written down to their estimated
fair values. Foreclosed real estate is initially recorded at new cost, defined
as the lower of the Trust's note receivable carrying amount or the fair value
of the collateral property less estimated costs of sale. The Trust capitalizes
property improvements and major rehabilitation projects which increase the
value of the respective property and have useful lives greater than one year,
except for individual expenditures less than $10,000 which are not part of a
planned renovation project. Under this policy, during 1996, expenditures of
$864,000 were capitalized and property replacements of $485,000 were expensed.
Property replacements include, but are not limited to, such items as carpet,
appliance, plumbing, and heating, ventilation, and air conditioning
replacements; exterior painting; and parking lot improvements. Depreciation is
provided against real estate held for investment by the straight-line method
over the estimated useful lives of the assets, which range from 5 to 40 years.
The Trust's management evaluates the Trust's properties held for investment for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. This evaluation generally
consists of a review of the properties' cash flow and current and projected
market conditions, as well as any changes in general and local economic
conditions. If an impairment loss exists based on the results of this review, a
loss is recognized by a charge against current earnings and a corresponding
reduction in the respective asset's carrying value. The amount of this
impairment loss is equal to the amount by which the carrying value of the
property exceeds the estimated fair value.
At least annually, all properties held for sale are reviewed by the Trust's
management, and a determination is made if the held for sale classification
remains appropriate. The following are among the factors considered in
determining that a change in classification to held for investment is
appropriate: (i) the property has been held for at least one year; (ii) Trust
management has no intent to dispose of the property within the next twelve
months; (iii) the property is a "qualifying asset" as defined in the Internal
Revenue Code of 1986, as amended (the "Code"); (iv) property improvements have
been funded; and (v) the Trust's financial resources are such that the property
can be held long-term.
FS-10
<PAGE> 92
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Trust adopted Statement of Financial Accounting Standards ("SFAS") No. 121
- - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" on December 1, 1995. There was no cumulative effect nor any
impact on the Trust's financial position as a result of the adoption. Pursuant
to the adoption, the Trust ceased depreciation of its properties held for sale.
Allowance for estimated losses. Valuation allowances are provided for estimated
losses on mortgage notes receivable and properties held for sale to the extent
that the investment in the notes or properties exceeds the Trust's estimate of
fair value less estimated selling costs of the collateral securing the notes or
the properties. The provisions for losses are based on estimates, and actual
losses may vary from current estimates. Such estimates are reviewed
periodically. Any additional provision determined to be necessary or the
reversal of any existing allowance no longer required is recorded by a charge
or credit to current earnings.
Notes receivable and interest income. Effective December 1, 1995, the Trust
adopted, as required, SFAS No. 114 - "Accounting by Creditors for Impairment of
a Loan" and SFAS No. 118 - "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures." There was no cumulative effect nor any
impact on the Trust's financial position as a result of the adoptions.
Interest recognition on notes receivable. Interest income is recognized on the
Trust's notes receivable according to the contractual loan terms. However,
accrued but unpaid interest income is recognized only to the extent the fair
value of the underlying collateral exceeds the carrying value of the
receivable. Notes receivable are considered nonperforming when they become 60
days or more delinquent. Interest income is recognized on these notes only to
the extent of cash received. A loan is considered impaired when, based on
current information and events, it is probable that the Trust will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Trust's policy with respect to interest income recognition on
impaired loans is determined based on whether the loan is performing or
nonperforming and the associated Trust policies with respect to these
categories.
Cash equivalents. The Trust considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash equivalents.
Restricted cash. Restricted cash represents escrow accounts, generally held by
the lenders of certain of the Trust's mortgage notes payable, for taxes,
insurance, and property repairs.
Other assets. Other assets consist primarily of tenant accounts receivable,
prepaid leasing commissions, and deferred borrowing costs. Prepaid leasing
commissions are amortized to leasing commission expense, included in property
operating expenses, on the straight-line method over the related lease terms.
Deferred borrowing costs are amortized on the straight-line method (which
approximates the effective interest method) over the related loan terms, and
such amortization is included in interest expense.
Revenue recognition on the sale of real estate. Gains on sales of real estate
are recognized when and to the extent permitted by SFAS No. 66 - "Accounting
for Sales of Real Estate."
FS-11
<PAGE> 93
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in noncontrolled partnerships. The Trust uses the equity method to
account for investments in partnerships it does not control. Under the equity
method, the Trust's initial investment is increased by the Trust's
proportionate share of the partnership's operating income and additional
advances and decreased by the Trust's proportionate share of the partnership's
operating losses and distributions received.
Earnings per share. Income (loss) per share of beneficial interest is computed
based upon the weighted average number of shares outstanding during each fiscal
year. Effective December 1, 1995, the Board of Trustees (the "Board") approved
a one-for-five reverse share split of all the Trust's shares of beneficial
interest on the basis of one new share (a "Post-Split Share") for each five
shares then outstanding (each an "Old Share"). All share and per share data
have been restated to give effect to the one-for-five reverse share split.
Fair value of financial instruments. The fair values of the Trust's notes
payable are estimated by discounting future expected cash flows using current
rates for loans with similar terms and maturities. The estimated fair values
presented do not purport to present amounts to be ultimately paid by the Trust.
The amounts ultimately paid may vary significantly from the estimated fair
values presented.
Share option plans. On December 1, 1995, the Trust adopted SFAS No. 123 -
"Accounting and Disclosure of Stock-Based Compensation," which requires
disclosures based on the fair values of share options at the date of grant.
There was no cumulative effect nor any impact on the Trust's financial position
as a result of the adoption. The Trust will continue to measure any
compensation costs associated with the issue of share options using the
guidance provided by the Accounting Principles Board's Opinion No. 25 ("APB No.
25"). Under APB No. 25, compensation costs related to share options issued
pursuant to compensatory plans are measured based on the difference between the
quoted market price of the shares at the measurement date (ordinarily the date
of grant) and the exercise price and should be charged to expense over the
periods during which the grantee performs the related services. All share
options issued to date by the Trust have exercise prices equal to the market
price of the shares at the dates of grant. See NOTE 10. "SHARE OPTIONS."
NOTE 2. NOTES AND INTEREST RECEIVABLE
Notes and interest receivable consisted of the following at November 30:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Notes receivable ........................................... $ 728 $ 731
Interest receivable ........................................ 6 6
-------- --------
Balance November 30 ........................................ $ 734 $ 737
======== ========
</TABLE>
Notes receivable at November 30, 1996, all of which are classified as
performing and unimpaired, mature from 1996 through 1999, with interest rates
ranging from 7% to 10% per annum. All notes receivable are recourse obligations
of the respective borrowers and are secured by real estate. Scheduled principal
maturities in fiscal 1997 total $603,000, including $600,000 related to a note
which matured in November 1996 and was fully collected in December 1996.
FS-12
<PAGE> 94
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. NOTES AND INTEREST RECEIVABLE (Continued)
For fiscal 1995 and 1994, unrecognized interest income on nonperforming notes
receivable totaled $187,000 and $44,000, respectively. Such unrecognized
interest income will not be ultimately collected by the Trust as the mortgage
notes to which the amounts relate have been satisfied by either full principal
payment or foreclosure of the collateral property. Interest income on
nonperforming notes receivable recorded to the extent of cash received amounted
to $160,000 during fiscal 1994. The Trust did not recognize any interest income
on nonperforming notes receivable during fiscal 1995. There were no notes
receivable classified as nonperforming during fiscal 1996.
The Trust's mortgage loan secured by the Cochonour farm and residence
("Cochonour") matured in December 1990. In September 1991, the guarantor
provided additional collateral in the form of first lien mortgages and
assignments of mortgages on condominium units located in Cook County, Illinois.
In return, the Trust extended the maturity date of the note to December 7,
1995, and all accrued but unpaid interest was added to principal, increasing
the outstanding principal balance of the note to $1.4 million. During 1993 and
1994, eighteen of the twenty condominium units securing Cochonour were sold,
and, in accordance with the modified terms of the note, the proceeds of such
sales were applied to reduce the principal balance of the note.
In September 1994, the Trust and the borrower agreed to a settlement of
Cochonour. Under the agreed-upon terms, a portion of the collateral property, a
farm and luxury residence in Carroll County, Missouri, was conveyed to the
Trust. In April 1995, the two remaining condominium units securing the note
were sold, and the net proceeds of sale were remitted to the Trust for
application against and payment in full of the principal balance of the
Cochonour Note of $110,000.
In August 1995, the Trust and the borrower agreed to a settlement of the $2.0
million note receivable secured by a second lien mortgage on Polynesia Village
Apartments ("Polynesia"), a 448-unit apartment complex located in Tacoma,
Washington, which was subject to $5.8 million senior underlying debt. In
accordance with the terms of the agreement, the Trust paid the borrower
$175,000 and gained control of the property. In August 1995, the Trust recorded
an in-substance foreclosure of Polynesia, which was classified with "Real
estate held for sale" in the accompanying November 30, 1995, Consolidated
Balance Sheet. As the estimated fair value of the property exceeded the Trust's
recorded investment in the mortgage note, a $1.0 million previously established
allowance for estimated loss was reversed with a corresponding credit to
provision for losses in August 1995. In October 1996, the Trust sold Polynesia
and recorded a gain of $844,000 on the sale. See NOTE 3. "REAL ESTATE AND
DEPRECIATION."
NOTE 3. REAL ESTATE AND DEPRECIATION
In May 1995, the Trust purchased three apartment complexes: Collegewood,
Florida Towers, and Jefferson Towers, located in Tallahassee, Florida, for $2.5
million, subject to an existing nonrecourse wrap mortgage of $2.4 million. The
Trust assumed the existing mortgage loan and paid the remaining purchase price,
along with closing costs, of $118,000 in cash from its general working capital.
Concurrently with the execution of the loan assumption, on June 5, 1995, the
Trust paid down the balance of the loan by $300,000.
The Trust purchased the above properties from Investors Florida Capitol Fund
II, Ltd., a Florida limited partnership (the "Seller"). Investors General, Inc.
("IGI"), which owns a 1% general partnership interest in the Seller, is owned
by Investors General Acquisition Corporation ("IGAC"). John A. Doyle, Trustee
and Chief Financial Officer of the Trust until September
FS-13
<PAGE> 95
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
1996, is a 62.5% stockholder of IGAC. Mr. Doyle also served as Director and
President and was 50% owner of Tarragon Realty Advisors, Inc. ("Tarragon"), the
Trust's advisor since March 1, 1994, until September 1996. Tarragon is
currently owned by William S. Friedman and Lucy N. Friedman, his wife. Mr.
Friedman serves as President, Chief Executive Officer, and Trustee of the Trust
and Director and Chief Executive Officer of Tarragon. The Friedman family owns
approximately 27% of the outstanding shares of the Trust. The purchase price of
the properties was based on their fair market values, and the entire
transaction was approved by a majority of the limited partners of the Seller as
well as the unaffiliated Trustees of the Trust. IGI and Messrs. Friedman and
Doyle abstained in the votes. Because the properties were acquired from an
affiliate, in accordance with the advisory agreement between the Trust and
Tarragon, no acquisition fee was paid to Tarragon in connection with this
transaction.
In August 1994, the Trust entered into a contract for a tax-free exchange of
Westover Valley Apartments in Fort Worth, Texas, for Riverside Apartments
("Riverside") in Austin, Texas. In August 1995, the exchange was completed. In
connection with the exchange closing, the Trust assumed the $2.9 million note
payable secured by a first lien mortgage on Riverside. The Trust recognized no
gain or loss on the exchange and paid Tarragon an acquisition fee of $24,000 in
fiscal 1994 related to this transaction. Between August 1994 and August 1995,
the Trust leased Riverside under an operating lease for $40,000 per month.
In September 1995, the Trust ceased payments on the mortgage debt secured by
the Villas at Central Park Apartments, a 288-unit complex located in Orlando,
Florida, as the Trust determined that further investment in the property could
not be justified without substantial modification of the debt, consisting of a
$2.4 million first lien and a $3.0 million second lien. In January 1996, the
property was sold to a third party for $5.3 million. Pursuant to the sale
contract, the second lien holder agreed to discount the mortgage debt assumed
by the purchaser. In connection with the sale, the Trust recorded an
extraordinary gain of $253,000 due to the debt forgiveness and a loss on the
sale of $171,000 equal to the amount by which the carrying value plus the costs
to sell the property exceeded the sales price.
On April 1, 1996, the Trust purchased Holly House Apartments, a 57-unit complex
located in North Miami, Florida, for cash of $1.5 million, including closing
costs and an acquisition fee of $14,500 to Tarragon, from its general working
capital.
On May 1, 1996, the Trust purchased Mission Trace Apartments, a 96-unit
property in Tallahassee, Florida. The $2.8 million purchase price was financed
with $2.5 million in mortgage debt provided by the seller, and the remainder
was paid in cash from the Trust's general working capital. In connection with
this acquisition, the Trust paid an acquisition fee of $28,900 to Tarragon.
In October, 1996, the Trust sold Polynesia for $9.6 million. The Trust accepted
a note receivable of $325,000 from the purchaser for a portion of the purchase
price, and the purchaser agreed to reimburse the Trust for certain capital
improvements to the property totaling approximately $99,000. Through prorations
at closing, the note balance was reduced to $192,000. The note bears interest
at 12% per annum and matures in October 2000 and is secured by a .001% interest
in the partnership which acquired the property. Once the note balance is paid
in full, the Trust's interest in the partnership terminates. The note
receivable balance is included in "Other assets" in the accompanying November
30, 1996, Consolidated Balance Sheet. The Trust received net cash proceeds of
$3.0 million, including earnest money deposits received prior to closing, after
the payoff of the first mortgage loan, closing costs and prorated property
taxes, and a selling commission to the purchaser's real estate broker. In
connection with this disposition, the Trust paid Tarragon a brokerage
commission of 2% of the total sales consideration, or $194,000. The Trust
recorded a gain on this sale of $844,000.
FS-14
<PAGE> 96
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
At November 30, 1996, all of the Trust's real estate, except the Phoenix
Apartments, Holly House Apartments, and Cochonour, was pledged as collateral on
notes payable. See NOTE 6. "NOTES, DEBENTURES, AND INTEREST PAYABLE."
NOTE 4. ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES
Activity in the allowance for estimated losses was as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Beginning balance ........................... $ 241 $ 1,802
Amounts reverse ............................. -- (1,561)
--------- ---------
Balance November 30 ......................... $ 241 $ 241
========= =========
</TABLE>
As discussed in NOTE 2. "NOTES AND INTEREST RECEIVABLE," in August 1995, the
Trust reversed a $1.0 million previously established allowance for loss related
to Polynesia.
The Trust also concluded at August 31, 1995, that the remaining $802,000
balance in the allowance for estimated losses was no longer required against
certain notes receivable. However, the Trust ascertained that a $241,000
allowance against the carrying value of Cochonour, acquired in September 1994
as partial settlement on one of the Trust's mortgage notes receivable, was
necessary to reduce its net carrying value to its estimated fair value. As a
result, a reversal of $561,000 of the allowance for estimated losses was
recorded in August 1995 as a credit to current earnings.
Additionally, the Trust determined a permanent impairment in value existed on
the Villas at Central Park, and, in August 1995, recorded a direct write-down
of $1.4 million reducing the property carrying value to its then estimated fair
value. This property was sold in January 1996. See NOTE 3. "REAL ESTATE AND
DEPRECIATION."
NOTE 5. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Investments in partnerships, accounted for under the equity method, include the
Trust's investments in a partnership and a limited liability company ("LLC"),
as described below.
In December 1995, the Trust acquired a 20% general partner and an effective 37%
limited partner interest in Larchmont Associates Limited Partnership for a cash
investment of $418,000. The partnership owns Larchmont West Apartments, a
504-unit complex in Toledo, Ohio, which collateralizes nonrecourse mortgage
debt of $5.5 million.
In consideration of a $395,000 cash capital contribution, in June 1996, the
Trust acquired an effective 25% nonmanaging member interest in Kearny Wrap LLC,
which owns a $21.7 million wraparound mortgage loan secured by a 1.0 million
square foot distribution facility net leased to the United States Postal
Service located in Kearny, New Jersey. The note bears interest at 6% per annum
and matures in 2013. The $16.9 million underlying first mortgage loan bears
interest at 6% per annum and matures in 1998.
Advances to partnerships represent $572,000 advanced during 1996 to a
partnership in which the Trust obtained an interest in December 1996. See NOTE
18. "SUBSEQUENT EVENTS."
FS-15
<PAGE> 97
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE
Notes, debentures, and interest payable consisted of the following at November
30:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Notes payable .......................... $ 16,975 $ 16,450 $ 25,930 $ 25,402
Debentures ............................. 869 928 869 929
--------- --------- --------- ---------
$ 17,844 17,378 $ 26,799 26,331
========= =========
Interest payable ....................... 138 160
--------- ---------
$ 17,516 $ 26,491
========= =========
</TABLE>
At November 30, 1996, notes payable bear interest at rates ranging from 8.25%
to 10% per annum and mature between 1997 and 2006. These notes are generally
nonrecourse and are primarily collateralized by deeds of trust on real estate
with an aggregate net carrying value of $19.1 million. Debentures bear interest
at 9% per annum, mature June 30, 2003, and are redeemable by the Trust at any
time at 100% of the principal amount together with accrued but unpaid interest.
See NOTE 9. "DISTRIBUTIONS TO SHAREHOLDERS."
In January 1995, the Trust completed the refinancing of the mortgage debt
secured by a first lien on the Southern Elms Apartments located in Tulsa,
Oklahoma. The Trust received net refinancing proceeds of $869,000 after the
payoff of the existing $451,000 mortgage loan. The remainder of the refinancing
proceeds was used to fund escrows for replacements and repairs and to pay
closing costs associated with the refinancing. The Trust paid a refinancing fee
of $13,700 to Tarragon based upon the new $1.4 million first mortgage
financing.
In October 1995, the Trust obtained a new $4.0 million first lien mortgage loan
secured by the Aspentree Apartments located in Dallas, Texas. The Trust
received net refinancing proceeds of $2.7 million after the payoff of the $1.0
million existing mortgage loan. The remainder of the refinancing proceeds was
used to fund escrows and pay the related closing costs. In connection with the
new mortgage financing, the Trust paid Tarragon a refinancing fee of $39,660.
At November 30, 1996, scheduled principal payments on notes and debentures
payable are due as follows:
<TABLE>
<S> <C> <C>
1997............................................ $ 2,451
1998............................................ 368
1999............................................ 3,058
2000............................................ 2,203
2001............................................ 375
Thereafter...................................... 8,923
--------
$ 17,378
</TABLE>
FS-16
<PAGE> 98
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7. SHARE PURCHASE RIGHTS
On October 15, 1993, the Trust issued share purchase rights to shareholders of
record on September 15, 1993. One share purchase right was issued for each
Trust Old Share held by owners of 400 or more Old Shares. Four share purchase
rights entitled the holder to purchase one additional Old Share at a price of
$0.73 until January 13, 1994. Holders of fewer than 400 Old Shares received a
$0.01 per share cash payment in lieu of share purchase rights. During fiscal
1994, the Trust received $279,000 in cash and new equity from the exercise of
the share purchase rights, which resulted in the issuance of 76,267 Post-Split
Shares.
On March 24, 1989, the Trust distributed one share purchase right for each
outstanding Old Share pursuant to a Rights Agreement dated March 10, 1989, as
amended (the "Rights Agreement"). Under such Rights Agreement, each share
certificate also represents one "Share Purchase Right" which, under the
circumstances described therein, entitled the holder to purchase one Old Share
for $12. With effectuation of the one-for-five reverse share split, the Share
Purchase Rights have been proportionately adjusted so that each new Post-Split
Share certificate also represents one Share Purchase Right (a "Right") which
permits the holder to purchase one Post-Split Share for $60. After the Rights
become exercisable, the holders have the right to buy, for the exercise price,
Post-Split Shares with a market value of twice the exercise price. The Board
may redeem the Rights in whole, but not in part, at a Post-Split Share adjusted
redemption price equal to $0.05 per Right. The Rights are exercisable only
after a person or group acquires (other than from the Trust or by exercise of
rights) or commences a tender or exchange offer for 30% of the outstanding
Post-Split Shares or if the Trustees declare any holder of 10% or more of such
outstanding Post-Split Shares to be an "Adverse Person" (as defined in the
Rights Agreement). The Rights expire on March 24,..............................
1999. In any merger or consolidation after the Rights become exercisable, each
Right will be converted into the right to purchase, for the $60 exercise price,
shares or equity interests of the surviving entity with a market value of twice
the exercise price.
NOTE 8. SHARE REPURCHASES
Following the December 1, 1995, one-for-five reverse share split, the Trust
offered to purchase all shares of beneficial interest, no par value, of each
shareholder holding 99 or fewer Post-Split Shares (or less than 500 Old Shares)
either of record or beneficially on December 1, 1995. Under such offer (the
"Odd-Lot Offer"), the Trust agreed to purchase all Post-Split Shares duly
tendered prior to February 29, 1996, at a price equal to the next closing price
of the Post-Split Shares on the day the Trust received the tendered shares.
Additionally, in December 1995, the Board authorized the Trust to repurchase up
to 139,200 Post-Split Shares in open market and negotiated transactions.
During fiscal 1996, the Trust repurchased 47,430 Post-Split Shares, which
included 43,696 shares related to the Odd-Lot Offer, 323 shares representing
fractional shares related to the December 1995 reverse share split, and 3,411
shares in open market transactions, at a total cost of $240,000.
[This space intentionally left blank.]
FS-17
<PAGE> 99
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9. DISTRIBUTIONS TO SHAREHOLDERS
In conjunction with the October 1993 share purchase rights distribution, the
Trust also paid to shareholders of record on September 15, 1993, a taxable
distribution of $1.25 per Post-Split Share, totaling $1.5 million and equal to
the Trust's 1992 taxable income, in the form of either the Trust's 9% Series A
Convertible Subordinated Debentures ("Debentures") or Uncertificated
Convertible Subordinated Obligations ("Obligations"). The Debentures and
Obligations were convertible until January 13, 1994, at a price of $0.80 per
Old Share. During fiscal 1994, the Trust received $447,000 in new equity from
the conversion of Debentures and Obligations which resulted in the issuance of
112,216 Post-Split Shares. On December 30, 1994, the Trust redeemed all the
outstanding Obligations. At November 30, 1996, the outstanding principal
balance of the Debentures totaled $928,000. See NOTE 6. "NOTES, DEBENTURES, AND
INTEREST PAYABLE."
No distributions were declared or paid in 1994, 1995, or 1996.
NOTE 10. SHARE OPTIONS
In November 1995, the Trust's shareholders approved two share option plans: the
Independent Trustee Share Option Plan (the "Trustee Plan") and the Share Option
and Incentive Plan (the "Incentive Plan"). Options granted pursuant to the
Trustee Plan are immediately exercisable and expire on the earlier of the first
anniversary of the date on which a Trustee ceases to be a Trustee of the Trust
or ten years from the date of grant. For each year an Independent Trustee
continues to serve as a Trustee, he will be awarded an option to purchase 300
shares on December 1 of each year. The Trustee Plan provides for options
covering a total of 60,000 shares.
Under the Incentive Plan options have been granted to certain Trust officers
and key employees of Tarragon. The Incentive Plan provides for options covering
a total of 100,000 shares, and all grants are determined by a committee
presently comprised of two Trustees, Mr. Friedman and Mr. Michael E. Smith.
Options granted pursuant to the Incentive Plan are exercisable beginning one
year after the date of grant and expire five years from the date of grant.
The following table summarizes share option activity:
<TABLE>
<CAPTION>
Option Price
per Share Outstanding Exercisable
------------- ----------- -----------
<S> <C> <C> <C>
November 30, 1994, balance $ -- -- --
Options granted 5 5/8 1,800 1,800
------------- -------- -------
November 30, 1995, balance 5 5/8 1,800 1,800
Options granted 5-5 5/8 27,300 900
Options forfeited 5 (8,000) --
------------- -------- -------
November 30, 1996, balance $ 5 - 5/8 21,000 2,700
============= ======== =======
</TABLE>
FS-18
<PAGE> 100
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10. SHARE OPTIONS (Continued)
The Trust applies APB No. 25 and related Interpretations in accounting for
share options granted pursuant to its plans. All share options issued to date
by the Trust have exercise prices equal to the market price of the shares at
the dates of grant. Accordingly, no compensation cost has been recognized for
its share option plans. Had compensation cost for the Trust's two share option
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, the Trust's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For the Year Ended
November 30, 1996
----------------------
As Reported Pro Forma
----------- ---------
<S> <C> <C>
Net income ............................... $ 853 $ 807
Earnings per share
Net income ............................... $ .63 $ .60
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the year ended November 30, 1996: no dividend
yield, expected volatility of 77%, risk-free interest rate of 5.4 %, expected
lives of three years, and forfeitures of 10%.
At November 30, 1996, the weighted average remaining contractual life of the
options then outstanding was 4.3 years, and the weighted average exercise price
for options then outstanding was $5.09.
Subsequent to year end, in December 1996 and January 1997, the Trust granted
options covering 12,300 shares, 900 of which were immediately exercisable,
pursuant to the Trustee Plan and the Incentive Plan. Also, an additional 14,000
of the November 30, 1996, outstanding options became exercisable in January
1997.
NOTE 11. INCOME TAXES
At November 30, 1993, the Trust recognized an aggregate deferred tax benefit of
$600,000 due to tax deductions available to it in future years. However, due
to, among other factors, the Trust's inconsistent earnings history, the Trust
was unable to conclude that the future realization of the deferred tax benefit,
which requires the generation of taxable income, was more likely than not.
Accordingly, a valuation allowance for the entire amount of the deferred tax
benefit has been recorded.
For 1996, 1995, and 1994, the Trust has elected and, in the opinion of the
Trust's management, qualified to be taxed as a Real Estate Investment Trust
("REIT"), as defined in Sections 856 through 860 of the Code and, as such, will
not be taxed for federal income tax purposes on that portion of its taxable
income which is distributed to shareholders, provided that at least 95% of its
REIT taxable income is distributed. See NOTE 9. "DISTRIBUTIONS TO
SHAREHOLDERS."
No provision has been made for federal income taxes because the Trust believes
it has qualified as a REIT and expects that it will continue to do so.
FS-19
<PAGE> 101
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12. RENTALS UNDER OPERATING LEASES
The Trust's rental operations include the leasing of a shopping center and a
combination office building and shopping center. The leases thereon expire at
various dates through 2013. The following is a schedule of minimum future
rentals on noncancelable operating leases:
<TABLE>
<S> <C> <C>
1997.......................................................... $ 1,286
1998.......................................................... 1,188
1999.......................................................... 1,001
2000.......................................................... 660
2001.......................................................... 568
Thereafter.................................................... 837
--------
$ 5,540
========
</TABLE>
NOTE 13. ADVISORY AGREEMENT
Although the Board is directly responsible for managing the affairs of the
Trust and for setting the policies which guide it, the day-to-day operations of
the Trust are performed by an advisory firm which operates under the
supervision of the Board pursuant to a written advisory agreement approved by
shareholders. The duties of the advisor include, among other things, locating,
investigating, evaluating, and recommending real estate and mortgage loan
investment and sale opportunities and financing and refinancing sources for the
Trust. The advisor also serves as a consultant in connection with the business
plan and investment policy decisions made by the Board.
On February 10, 1994, the Board selected Tarragon to replace Basic Capital
Management, Inc., ("BCM") as the Trust's advisor. Since March 1, 1994, Tarragon
has provided advisory services to the Trust under an advisory agreement
approved by the Board and ratified by the shareholders on November 20, 1995.
BCM served as the Trust's advisor from March 1989 to February 28, 1994. Mr.
Friedman was President of BCM until May 1, 1993. BCM is beneficially owned by a
trust for the benefit of the children of Mr. Gene E. Phillips, who served as a
Trustee of the Trust until December 7, 1992. BCM resigned as advisor to the
Trust effective February 28, 1994.
The provisions of the Trust's Initial Advisory Agreement ("Initial Advisory
Agreement") with Tarragon were substantially the same as those of the BCM
advisory agreement. Under the Initial Advisory Agreement, the Trust paid
Tarragon an annual base advisory fee of $50,000 plus an incentive advisory fee
equal to 16% of the Trust's adjusted funds from operations before deduction of
the advisory fee. Adjusted funds from operations is defined as funds from
operations ("FFO"), as defined by the National Association of Real Estate
Investment Trusts, plus any loss due to the write-down or sale of any real
property or mortgage loan acquired prior to January 1, 1989. FFO represents net
income (loss), computed in accordance with GAAP, excluding gains (or losses)
from the sales of properties and debt restructurings, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Additionally, Tarragon could receive commissions of 1% based upon (i)
acquisition cost of real estate, (ii) mortgage loans acquired, and (iii)
mortgage loans obtained or refinanced and a 10% incentive sales commission
based on gains from the sale of real estate.
FS-20
<PAGE> 102
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13. ADVISORY AGREEMENT (Continued)
The advisory agreement with BCM allowed for an annual base advisory fee of
$300,000. In addition, BCM could receive commissions of up to 4% based upon
acquisition cost of real estate; commissions of 1% based upon (i) mortgage
loans acquired and (ii) mortgage loans obtained or refinanced; and 5% real
estate brokerage commissions on the sale of Trust property.
At the March 1995 Board meeting, the Trustees approved a new revised advisory
agreement, effective April 1, 1995, which was approved by the shareholders at
the November 20, 1995, shareholder meeting. In addition to technical changes
designed to clarify the responsibilities and rights of Tarragon, the new
agreement eliminated the $50,000 annual base fee, the incentive sales
compensation, and mortgage loan acquisition commissions. Moreover, it provides
that real estate brokerage commissions shall be payable to Tarragon and its
affiliates only following specific Board approval for each transaction rather
than pursuant to a general agreement.
Employees of Tarragon render services to the Trust, as the Trust has no
employees. In accordance with the terms of the advisory agreements, certain
services provided by the advisor, including, but not limited to, accounting,
legal, investor relations, data processing, and the related departmental
overhead, are reimbursed directly by the Trust.
Under the advisory agreements, as required by the Declaration of Trust dated
July 18, 1973, as amended, all or a portion of the annual advisory fee must be
refunded by the advisor to the Trust if the Operating Expenses, as defined,
exceed certain limits based on the book value, net asset value, and net income
of the Trust during such fiscal year. In 1993, the operating expense limitation
required BCM to refund $146,000 of the 1993 advisory fee. In August 1994, the
Trust accepted a promissory note from BCM for the outstanding balance of 1993
advisory fees. This unsecured note accrued interest at 12% per annum, called
for monthly payments of $10,000, and all outstanding principal and interest was
paid in full on October 1, 1995.
For additional information on compensation paid to Tarragon and BCM, see ITEM
10. "TRUSTEES, EXECUTIVE OFFICERS, AND ADVISOR OF THE REGISTRANT - The
Advisor."
NOTE 14. PROPERTY MANAGEMENT
Since March 1, 1994, Tarragon has provided property management services to the
Trust for a fee of 4.5% of the monthly gross rents collected. Until April 1996,
Tarragon subcontracted with other entities for the provision of the
property-level management services for the Trust. Tarragon Management, Inc.
("TMI"), a wholly-owned subsidiary of Tarragon, currently provides
property-level management services to the Trust's multifamily properties for a
fee of 4.5% of the monthly gross rents collected, while the property-level
management services are provided by subcontractors for the Trust's commercial
properties.
From February 1, 1990, through February 28, 1994, affiliates of BCM provided,
under contracts approved by the Board, property management services to the
Trust for a fee of 5% of the monthly gross rents collected on the properties
under management. Carmel Realty Services, Ltd., ("Carmel, Ltd.") provided such
property management services. In many cases, Carmel, Ltd., subcontracted with
other entities for the provision of some of the property-level management
services to the Trust at various rates (generally 4%). The general partner of
Carmel, Ltd., is BCM. The limited partners of Carmel, Ltd., are (i) Syntek
West, Inc., of which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips,
and (iii) a trust for the benefit of the children of Mr. Phillips.
FS-21
<PAGE> 103
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
Fees and expense reimbursements to Tarragon and BCM, including affiliates of
each, for fiscal 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
Tarragon BCM
------------------------ ------
1996 1995 1994 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Fees
Advisory $ 181 $ 146 $ 157 $ 75
Acquisition 43 -- 24 --
Real estate brokerage 194 -- -- --
Equity refinancing -- 53 -- --
Property management* 235 83 51 18
------ ------ ------ ------
Total Fees $ 653 $ 282 $ 232 $ 93
====== ====== ====== ======
Expense Reimbursement $ 232 $ 165 $ 127 $ 34
====== ====== ====== ======
</TABLE>
- -------------------------
*Net of property management fees paid to third-party subcontractors.
NOTE 16. COMMITMENTS AND CONTINGENCIES
The Trust is a party to various claims and routine litigation arising in the
ordinary course of business. Management of the Trust does not believe that the
results of all claims and litigation, individually or in the aggregate, will
have a material adverse effect on its business or financial position.
NOTE 17. PRO FORMA CONDENSED FINANCIAL INFORMATION (Unaudited)
As more fully described in NOTE 3. "REAL ESTATE AND DEPRECIATION," the Trust
purchased five multifamily properties during 1995 and 1996. The acquisitions
are summarized as follows:
<TABLE>
<CAPTION>
Number Date
Property Location of Units Acquired
- ------------------------- --------------- ------- ----------
<S> <C> <C> <C>
Collegewood Tallahassee, FL 60 May 1995
Florida Towers Tallahassee, FL 54 May 1995
Jefferson Towers Tallahassee, FL 48 May 1995
Holly House North Miami, FL 57 April 1996
Mission Trace Tallahassee, FL 96 May 1996
</TABLE>
The following unaudited supplemental pro forma operating data is presented as
if each of the above acquisitions had been consummated as of the beginning of
the year in which it occurred.
FS-22
<PAGE> 104
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17. PRO FORMA CONDENSED FINANCIAL INFORMATION (Unaudited) (Continued)
<TABLE>
<CAPTION>
For the Years Ended
November 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Total revenue .......................................... $ 9,840 $ 8,724
Income from continuing operations ...................... 680 59
Net income ............................................. 933 59
Earnings per share
Net income ............................................. $ .69 $ .04
</TABLE>
The pro forma operating results combine the Trust's historical operating
results with the historical incremental rental revenue and operating expenses
associated with the acquired properties and pro forma adjustments. Pro forma
adjustments primarily represent the increase in interest costs assuming the
borrowings to finance property acquisitions had occurred at the beginning of
the year.
These pro forma amounts are not necessarily indicative of what the actual
results of operations of the Trust would have been assuming the above
acquisitions had been consummated as of the beginning of the year in which they
occurred, nor do they purport to represent the future results of operations of
the Trust.
NOTE 18. SUBSEQUENT EVENTS
In September and October 1996, the Trust advanced $572,000 to 18607 Ventura
Associates, Ltd. (the "Partnership"), which purchased Tarzana Towne Plaza (the
"Property"), a 42,000 square foot combination office/retail/medical building
located in Tarzana, California, in October 1996. This acquisition was financed
with a $3.0 million first mortgage loan. The Trust's advances to the
Partnership bore interest at 15% per annum. In December 1996, the Trust
converted its advances to a 60% interest in the Partnership. As the Trust holds
a controlling interest in the Partnership, the Trust will consolidate the
operations of the Property. In connection, with the transaction, the Trust paid
an acquisition fee of $21,630 to Tarragon.
In January 1997, the Trust purchased The Brooks Apartments, a 104-unit property
located in Addison, Texas, for $2.2 million. The Trust assumed an existing
first mortgage loan of $1.3 million and paid cash of $868,000 at closing. In
connection with this transaction, the Trust paid Tarragon an acquisition fee of
$22,000.
[This space intentionally left blank.]
FS-23
<PAGE> 105
SCHEDULE III
VINLAND PROPERTY TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
November 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Carrying Amounts
Initial Cost to Trust Acquisition at End of Year
--------------------- ----------------------- ---------------------------------
Buildings and Buildings and
Description Encumbrances Land Improvements Improvements Other Land Improvements Total(1)
------------ ------------ ---- ------------- ------------- ------ ----- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Apartments
Aspentree Apartments
Dallas, TX $3,927 $666 $3,445 $1,019 - $666 $4,464 $5,130
Collegewood Apartments
Tallahassee, FL 638 173 692 - - 173 692 865
Florida Towers Apartments
Tallahassee, FL 905 181 721 49 - 181 770 951
French Villa Apartments
Tulsa, OK 1,922 126 1,021 41 - 126 1,062 1,188
Holly House Apartments
North Miami, FL - 295 1,182 214 - 295 1,396 1,691
Jefferson Towers Apartments
Tallahassee, FL 514 146 583 - - 146 583 729
Mission Trace Apartments
Tallahassee, FL 2,428 574 2,294 64 - 574 2,358 2,932
19Phoenix Apartments
Tulsa, OK - 464 1,873 1,106 (719)2 464 2,260 2,724
--- ----- -----
Riverside Apartments
Austin, Texas 2,826 723 2,894 43 - 723 2,937 3,660
Southern Elms Apartments
Tulsa, OK 1,345 61 816 35 - 61 851 912
Commercial
One Turtle Creek
Office Complex
Dallas, TX 1,890 548 2,261 2,692 - 548 4,953 5,501
Briarwest Shopping Center
Houston, Texas 55 269 1.077 194 - 269 1,271 1,540
------- ------ ------- ------ ---- ------ ------- -------
16,450 4,226 18,859 5,457 (719) 4,226 23,597 27,823
Properties Held For Sale
Cochonour Farm/Residence
Carroll County, MO - 150 91 - - 150 91 241
------- ------ ------- ------ ---- ------ ------- -------
- 150 91 - - 150 91 241
------- ------ ------- ------ ---- ------ ------- -------
Total $16,450 $4,376 $18,950 $5,457 (719) $4,376 $23,688 $28,064
======= ====== ======= ====== ==== ====== ======= =======
<CAPTION>
Life on
Which
Depreciation
in Latest
Statement
Accumulated Date of Date of Operations
Description Depreciation Construction Acquired is Computed
------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Apartments
Aspentree Apartments
Dallas, TX $1,786 1974 01/01/88 5 - 40 years
Collegewood Apartments
Tallahassee, FL 27 1973 05/01/95 40 years
Florida Towers Apartments
Tallahassee, FL 35 1968 05/01/95 5 - 40 years
French Villa Apartments
Tulsa, OK 332 1971 11/17/88 5 - 40 years
Holly House Apartments
North Miami, FL 20 1968 04/01/96 5 - 40 years
Jefferson Towers Apartments
Tallahassee, FL 23 1967 05/01/95 40 years
Mission Trace Apartments
Tallahassee, FL 36 1989 05/01/96 5 - 40 years
19Phoenix Apartments
Tulsa, OK 1,296 1971 01/31/86 5 - 40 years
----- ---- -------- ------------
Riverside Apartments
Austin, Texas 99 1991 08/18/95 5 - 40 years
Southern Elms Apartments
Tulsa, OK 266 1968 11/17/88 5 - 40 years
Commercial
One Turtle Creek
Office Complex
Dallas, TX 1,389 1969 03/31/92 5 - 40 years
Briarwest Shopping Center
Houston, Texas 266 1971 11/30/90 5 - 40 years
------
5,575
Properties Held For Sale
Cochonour Farm/Residence
Carroll County, MO - 1982 09/30/94 -
------
-
------
Total $5,575
======
</TABLE>
- ----------------
(1) The aggregate cost for federal income tax purposes if $29,004.
(2) Write-down of property due to permanent impairment.
FS-24
<PAGE> 106
SCHEDULE III
(Continued)
VINLAND PROPERTY TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of real estate
Beginning balance ............................ $ 37,199 $ 24,375 $ 23,821
Additions:
Acquisitions and improvements ............... 5,208 6,136(3) 787
Foreclosures ................................ -- 8,058 241
Deductions:
Write-downs ................................. -- (1,370)(1) (474)(2)
Sales ....................................... (14,343) -- --
Balance as November 30 ....................... $ 28,064 $ 37,199 $ 24,375(3)
========= ========= =========
Reconciliation of accumulated depreciation
Beginning balance ............................ $ 5,272 $ 4,281 $ 3,383
Additions:
Depreciation ................................ 914 991 898
Deductions:
Sales ....................................... (611) -- --
--------- --------- ---------
Balance at November 30 ....................... $ 5,575 $ 5,272 $ 4,281
========= ========= =========
</TABLE>
- ------------------
(1) Write-down of Villas at Central Park due to permanent impairment.
(2) Write-down of Westover Valley Apartments due to reclassification of
demolition reserve.
(3) Total 1994 real estate does include amounts expended on the Riverside
lease during 1994 as they related to leased, rather than owned, real estate.
These costs are included in 1995 additions pursuant to the exchange
consummation in August 1995. See NOTE 3. "REAL ESTATE AND DEPRECIATION."
FS-25
<PAGE> 107
SCHEDULE IV
VINLAND PROPERTY TRUST
MORTGAGE LOANS ON REAL ESTATE
NOVEMBER 30, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Interest Maturity
Description Rate Date Periodic Payment Terms
------------ ----- ----- -----------------------
<S> <C> <C> <C>
FIRST MORTGAGE LOANS
J. W. English et al. 10.00% 11/96 Monthly payments of
Secured by restaurant and land interest only until
located in Houston, Texas, personal maturity.
guarantees of J. W. English and
three corporations controlled by J.
W. English, and a pledge of
partnership interest by a J. W.
English partner.
N. Barakat (2) 12/98 Monthly payments of
Secured by condominium unit located principal and interest
in Cook Cty., Illinois based on 25 year
amortization.
Brian E. Smith (3) 07/99 Monthly payments of
Secured by condominium unit located principal and interest
in Cook Cty., Illinois based on 25 year
amortization.
Interest receivable
<CAPTION>
Principal Amount of
Carrying Loans Subject to
Prior Face Amount Amount Delinquent Principal
Description Liens of Mortgage of Mortgage(1) or Interest
------------ ------ ------------ --------------- -----------
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
J. W. English et al. $ - $ 600 $ 600 $ 600(4)
Secured by restaurant and land
located in Houston, Texas, personal
guarantees of J. W. English and
three corporations controlled by J.
W. English, and a pledge of
partnership interest by a J. W.
English partner.
N. Barakat - 68 66 -
Secured by condominium unit located
in Cook Cty., Illinois
Brian E. Smith - 63 62 -
Secured by condominium unit located
in Cook Cty., Illinois
$ - $ 731 $ 728 $ 600
========= ====== ======
6
------
Interest receivable $ 734
======
</TABLE>
- ----------------
(1) The aggregate cost for federal income tax purposes is $428.
(2) Interest rate is 6.00% through November 1995 and 8.00% thereafter.
(3) Interest rate is 7.00% through June 1996 and 9.00% thereafter.
(4) This note was fully collected in December 1996.
FS-26
<PAGE> 108
SCHEDULE IV
(Continued)
VINLAND PROPERTY TRUST
MORTGAGE LOANS ON REAL ESTATE
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Beginning balance ............. $ 731 $ 2,670 $ 3,480
Additions:
New mortgage loans ........... -- 196 66
Deferred interest ............ -- -- 84
Deductions:
Collection of principal ..... (3) (181) (642)
Other ........................ -- (1,954)(1) (318)(2)
Balance at November 30 ........ $ 728 $ 731 $ 2,670
========= ========= =========
</TABLE>
- ----------------------
(1) In-substance foreclosure of Polynesia Village Apartments.
(2) Conveyance of Cochonour farm and luxury residence and financing of
Cochonour condominium.
FS-27
<PAGE> 109
VINLAND PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
February 28, November 30,
1997 1996
--------- ---------
Assets (unaudited) (audited)
<S> <C> <C>
Notes and interest receivable ................................................. $ 128 $ 734
Real estate held for sale ..................................................... 241 241
--------- ---------
369 975
Less-allowance for estimated losses ........................................... (241) (241)
128 734
Real estate held for investment (net of accumulated depreciation
of $5,833 in 1997 and $5,575 in 1996) ......................................... 28,337 22,248
Investments in and advances to partnerships ................................... 825 1,365
Cash and cash equivalents ..................................................... 1,848 2,684
Restricted cash ............................................................... 401 479
Other assets, net ............................................................. 1,145 1,247
--------- ---------
$ 32,684 $ 28,757
========= =========
Liabilities and Shareholders' Equity
Liabilities
Notes, debentures and interest payable ........................................ $ 21,684 $ 17,516
Other liabilities ............................................................. 776 1,372
--------- ---------
22,460 18,888
Commitments and contingencies
Minority interest ............................................................. 417 --
Shareholders' equity
Shares of beneficial interest, no par value; authorized shares, unlimited;
shares issued and outstanding, 1,343,119 in 1997 and 1,344,576 in 1996 (after
deducting 4,868 in 1997 and 3,411 in 1996
held in treasury) ............................................................. 2,237 2,239
Paid-in capital ............................................................... 43,706 43,715
Accumulated distributions in excess of accumulated earnings ................... (36,136) (36,085)
--------- ---------
9,807 9,869
--------- ---------
$ 32,684 $ 28,757
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-28
<PAGE> 110
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
February 28, February 29,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue
Rentals ......................................................... $ 2,187 $ 2,329
Interest ........................................................ 75 47
Equity in income (loss) of partnerships ......................... (80) 4
----------- -----------
2,182 2,380
Expenses
Property operations ............................................. 1,277 1,426
Interest ........................................................ 481 461
Depreciation .................................................... 258 209
Advisory fee to affiliate ....................................... 53 60
General and administrative ...................................... 155 124
----------- -----------
2,224 2,280
----------- -----------
Income (loss) before minority interest,
(loss) on sale of real estate, and extraordinary gain ............ (42) 100
Minority interest in income of consolidated partnership .......... (9) --
(Loss) on sale of real estate .................................... -- (193)
----------- -----------
(Loss) from continuing operations ................................ (51) (93)
Extraordinary gain ............................................... -- 253
----------- -----------
Net income (loss) ................................................ $ (51) $ 160
=========== ===========
Earnings per share
(Loss) from continuing operations ................................ $ (.04) $ (.06)
Extraordinary gain ............................................... -- .18
=========== ===========
Net income (loss) ................................................ $ (.04) $ .12
=========== ===========
Weighted average share of beneficial interest used in computing
earnings per share ............................................... 1,343,867 1,378,161
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-29
<PAGE> 111
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Shares of Accumulated
Beneficial Interest Distributions
in Excess of
Paid-in Accumulated Shareholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, November 30,
1996 (audited) ............................. 1,344,576 $ 2,239 $ 43,715 $ (36,085) $ 9,869
Share repurchases ........................... (1,457) (2) (9) -- (11)
Net (loss) .................................. -- -- -- (51) (51)
---------- ---------- ---------- ---------- ----------
Balance, February 28,
1997 (unaudited) ........................... 1,343,119 $ 2,237 $ 43,706 $ (36,136) $ 9,807
==========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-30
<PAGE> 112
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
February 28, February 29,
--------- ---------
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Rentals collected ..................................... $ 2,137 $ 2,277
Interest collected .................................... 81 48
Interest paid ......................................... (474) (410)
Payments for property operations ...................... (1,535) (1,659)
General and administrative expenses paid .............. (207) (128)
Advisory fees paid to affiliate ....................... (7) (33)
Deferred financing costs paid ......................... (19) --
--------- ---------
Net cash provided by (used in) operating activities .. (24) 95
Cash Flows from Investing Activities
Collections of notes receivable ....................... 601 1
Acquisition of partnership interest ................... -- (411)
Net contributions to partnerships ..................... (111) --
Acquisition of real estate ............................ (895) --
Earnest money deposit paid ............................ (100) --
Contribution from minority partner of consolidated
partnership ........................................... 25 --
Proceeds from sale of real estate ..................... 85 44
Real estate improvements .............................. (211) (102)
--------- ---------
Net cash (used in) investing activities .............. (606) (468)
Cash Flows from Financing Activities
Payments of notes payable ............................. (142) (72)
Replacement reserve (deposits) receipts, net .......... (53) 15
Share repurchases ..................................... (11) (151)
--------- ---------
Net cash (used in) financing activities .............. (206) (208)
--------- ---------
Net (decrease) in cash and cash equivalents ........... (836) (581)
Cash and cash equivalents, beginning of period ........ 2,684 2,847
--------- ---------
Cash and cash equivalents, end of period .............. $ 1,848 $ 2,266
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-31
<PAGE> 113
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------
February 28, February 29,
--------- ---------
1997 1996
--------- ---------
<S> <C> <C>
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities
Net income (loss) ......................................................... $ (51) $ 160
Extraordinary gain ........................................................ -- (253)
Loss on sale of real estate ............................................... -- 193
Minority interest in income of consolidated
partnership ............................................................ 9 --
Depreciation and amortization ............................................. 288 238
Equity in (income) loss of partnership .................................... 80 (4)
Changes in other assets and liabilities net of non-cash
investing and financing activities
Decrease in other assets ............................................... 197 145
(Decrease) in other liabilities ........................................ (541) (147)
Decrease in interest receivable......................................... 5 --
Increase (decrease) in interest payable ................................ (11) 33
--------- ---------
Net cash provided by (used in) operating
activities ............................................................ $ (24) $ 95
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Changes in assets and liabilities in connection with the
purchase of real estate:
Real estate ............................................................. $ 6,189 $ --
Advances to partnership ................................................. (572) --
Other assets ............................................................ (18) --
Notes and interest payable .............................................. (4,321) --
Minority interest ....................................................... (383) --
--------- ---------
Cash paid.......................................................... $ 895 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
FS-32
<PAGE> 114
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Operating results for the three-month period ended February 28, 1997, are not
necessarily indicative of the results that may be expected for the fiscal year
ending November 30, 1997. For further information, refer to the Consolidated
Financial Statements and Notes thereto for the fiscal year ended November 30,
1996.
Earnings per share have been computed based on the weighted average number of
shares of beneficial interest outstanding for the three-month periods ended
February 28, 1997, and February 29, 1996.
NOTE 2. REAL ESTATE AND DEPRECIATION
........
In September and October 1996, the Trust advanced $572,000 to 18607 Ventura
Associates, Ltd. (the "Partnership"), which purchased Tarzana Towne Plaza (the
"Property"), a 42,000 square foot combination office/retail/medical building
located in Tarzana, California, in October 1996. This acquisition was financed
with a $3.0 million first mortgage loan. In December 1996, the Trust converted
its advances to a 1% general partner interest and a 59% limited partner
interest in the Partnership. As the Trust holds a controlling interest in the
Partnership, the operations of the Property have been consolidated. In
connection with the transaction, the Trust paid an acquisition fee of $21,630
to Tarragon Realty Advisors, Inc. ("Tarragon"), the Trust's advisor since March
1, 1994. Minority interest in the accompanying February 28, 1997, consolidated
balance sheet represents the minority partner's interest in the underlying net
assets of the Partnership.
In January 1997, the Trust purchased The Brooks Apartments, a 104-unit property
located in Addison, Texas, for $2.2 million. The Trust assumed an existing
mortgage loan of $1.3 million and paid cash of $851,000 at closing. In
connection with this transaction, the Trust paid Tarragon an acquisition fee of
$22,000.
NOTE 3. NOTES AND INTEREST RECEIVABLE
In December 1996, the Trust received $600,000 as payment in full of the Swiss
Village note receivable which had matured in November 1996.
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Investments in partnerships, accounted for under the equity method, include the
Trust's investments in a partnership and a limited liability company ("LLC"),
as described below.
In December 1995, the Trust acquired a 20% general partner interest and an
effective 37% limited partner interest in Larchmont Associates Limited
Partnership for a cash investment of $418,000. The partnership owns Larchmont
West Apartments, a 504-unit complex in Toledo, Ohio, which collateralizes
nonrecourse mortgage debt of $5.5 million.
In consideration of a $395,000 cash capital contribution, in June 1996, the
Trust acquired an effective 25% nonmanaging member interest in Kearny Wrap LLC,
which owns a $21.7 million wraparound mortgage loan secured by a 1 million
square foot distribution facility net leased to the United States Postal
Service located in Kearny, New Jersey. The note bears interest at 6% per annum
and matures in 2013. The $16.9 million underlying first mortgage loan bears
interest at 6% per annum and matures in 1998.
Advances to partnerships included in the accompanying November 30, 1996,
consolidated balance sheet represent $572,000 advanced during 1996 to 18607
Ventura Associates, Ltd., in which the Trust acquired a 60% interest in
December 1996. See NOTE 2. "REAL ESTATE AND DEPRECIATION."
FS-33
<PAGE> 115
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 5. INCOME TAXES
No provision has been made for federal income taxes because the Trust's
management believes the Trust has qualified as a Real Estate Investment Trust,
as defined in Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended, and expects that it will continue to do so.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Trust is a party to various claims and routine litigation arising in the
ordinary course of business. Management of the Trust does not believe that the
results of these claims and litigation, individually or in the aggregate, will
have a material adverse effect on its business or financial position.
FS-34
<PAGE> 116
APPENDIX A
ADVISORY AGREEMENT
BETWEEN
VINLAND PROPERTY TRUST
AND
TARRAGON REALTY ADVISORS, INC.
THIS AGREEMENT dated April 1, 1995, between Vinland Property Trust, a
California real estate investment trust (the "Trust"), and Tarragon Realty
Advisors, Inc., a New York corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS:
1. The Trust owns a complex, diversified portfolio of real
estate, mortgages and other assets, including affordable and
middle income housing complexes, shopping centers, warehouses,
office buildings and mortgages.
2. The Trust has funds available for new investment, primarily in
the acquisition of income-producing real estate.
3. The Advisor and its employees have extensive experience in the
administration of real estate assets and the origination,
structuring and evaluation of real estate and mortgage
investments.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree as follows:
1. DUTIES OF THE ADVISOR. Subject to the supervision of the
Board of Trustees, the Advisor will be responsible for the day-to-day
operations of the Trust and, subject to Section 17 hereof, shall provide such
services and activities relating to the assets, operations and business plan of
the Trust as may be appropriate, including:
(a) preparing and submitting an annual budget and business plan
for approval by the Board of the Trust (the "Business Plan");
(b) using its best efforts to present to the Trust a continuing
and suitable investment program consistent with the investment
policies and objectives of the Trust as set forth in the
Business Plan;
(c) using its best efforts to present to the Trust investment
opportunities consistent with the Business Plan and such
investment program as the Trustees may adopt from time to
time;
(d) furnishing or obtaining and supervising the performance of the
ministerial functions in connection with the administration of
the day-to-day operations of the Trust including the
investment of reserve funds and surplus cash in short-term
money market investments;
(e) serving as the Trust's investment and financial advisor and
providing research, economic, and statistical data in
connection with the Trust's investments and investment and
financial policies;
(f) on behalf of the Trust, investigating, selecting and
conducting relations with borrowers, lenders, mortgagors,
brokers, investors, builders, developers and others;
<PAGE> 117
(g) consulting with the Trustees and furnishing the Trustees with
advice and recommendations with respect to the making,
acquiring (by purchase, investment, exchange, or otherwise),
holding, and disposition (through sale, exchange, or
otherwise) of investments consistent with the Business Plan of
the Trust;
(h) obtaining for the Trustees such services as may be required in
acquiring and disposing of investments, disbursing and
collecting funds of the Trust, paying the debts and fulfilling
the obligations of the Trust, and handling, prosecuting, and
settling any claims of the Trust, including foreclosing and
otherwise enforcing mortgage and other liens securing
investments;
(i) obtaining for and at the expense of the Trust such services as
may be required for property management, loan disbursements,
and other activities relating to the investments of the Trust,
provided, however, the compensation for such services shall be
agreed to by the Trust and the service provider;
(j) advising the Trust in connection with public or private sales
of shares or other securities of the Trust, or loans to the
Trust, but in no event in such a way that the Advisor could be
deemed to be acting as a broker-dealer or underwriter;
(k) quarterly, and at any time requested by the Trustees, making
reports to the Trustees regarding the Trust's performance to
date in relation to the Trust's approved Business Plan and its
various components, as well as the Advisor's performance of
the foregoing services;
(l) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Trust;
(m) assisting in preparation of reports and other documents
necessary to satisfy the reporting and other requirements of
any governmental bodies or agencies and to maintain effective
communications with shareholders of the Trust; and
(n) doing all things necessary to ensure its ability to render the
services contemplated herein, including providing office space
and office furnishings and personnel necessary for the
performance of the foregoing services as Advisor, all at its
own expense, except as otherwise expressly provided for
herein.
2. NO PARTNERSHIP OR JOINT VENTURE. The Trust and the Advisor
are not partners or joint venturers with each other, and nothing herein shall
be construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.
3. RECORDS. At all times, the Advisor shall keep proper books of
account and records of the Trust's affairs which shall be accessible for
inspection by the Trust at any time during ordinary business hours.
4. ADDITIONAL OBLIGATIONS OF THE ADVISOR. The Advisor shall
refrain from any action (including, without limitation, furnishing or rendering
services to tenants of property or managing or operating real property) that
would (a) adversely affect the status of the Trust as a real estate investment
trust, as defined and limited in Sections 856- 860 of the Internal Revenue
Code, (b) violate any law, rule, regulation, or statement of policy of any
governmental body or agency having jurisdiction over the Trust or over its
securities, (c) cause the Trust to be required to register as an investment
company under the Investment Company Act of 1940, or (d) otherwise not be
permitted by the Declaration of Trust of the Trust.
5. BANK ACCOUNTS. The Advisor may establish and maintain one or
more bank accounts in its own name, and may collect and deposit into any such
account or
A-2
<PAGE> 118
accounts, and disburse from any such account or accounts, any money on behalf
of the Trust, under such terms and conditions as the Trustees may approve,
provided that no funds in any such account shall be commingled with funds of
the Advisor; and the Advisor shall from time to time render appropriate
accounting of such collections and payments to the Trustees and to the auditors
of the Trust.
6. Bond. The Advisor shall maintain a fidelity bond with a
responsible surety company in such amount as may be required by the Trustees
from time to time, covering all directors, officers, employees, and agents of
the Advisor handling funds of the Trust and any investment documents or records
pertaining to investments of the Trust. Such bond shall inure to the benefit of
the Trust in respect to losses of any such property from acts of such
directors, officers, employees and agents through theft, embezzlement, fraud,
error, or omission or otherwise, the premium for said bond to be at the expense
of the Trust.
7. INFORMATION FURNISHED ADVISOR. The Trustees shall have the
right to change the Business Plan at any time, effective upon receipt by the
Advisor of notice of such change. The Trust shall furnish the Advisor with a
certified copy of all financial statements, a signed copy of each report
prepared by independent certified public accountants, and such other
information with regard to the Trust's affairs as the Advisor may from time to
time reasonably request.
8. CONSULTATION AND ADVICE. In addition to the services
described above, the Advisor shall consult with the Trustees, and shall, at the
request of the Trustees or the officers of the Trust, furnish advice and
recommendations with respect to any aspect of the business and affairs of the
Trust, including any factors that in the Advisor's best judgment should
influence the policies of the Trust.
9. ANNUAL BUSINESS PLAN AND BUDGET. No later than January 15th
of each year, the Advisor shall submit to the Trustees a written Business Plan
for the current Fiscal Year of the Trust. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Trust. To the
extent possible, the Business Plan shall set forth the Advisor's
recommendations and the basis therefore with respect to all material
investments of the Trust. Upon approval by the Board of Trustees, the Advisor
shall be authorized to conduct the business of the Trust in accordance with the
explicit provisions of the Business Plan, specifically including the borrowing,
leasing, maintenance, capital improvements, renovations and sale of investments
set forth in the Business Plan. Any transaction or investment not explicitly
provided for in the approved Business Plan shall require the prior approval of
the Board of Trustees unless made pursuant to authority expressly delegated to
the Advisor. Within sixty (60) days of the end of each calendar quarter, the
Advisor shall provide the Board of Trustees with a report comparing the Trust's
actual performance for such quarter against the Business Plan.
10. DEFINITIONS. As used herein, the following terms shall have
the meanings set forth below:
(a) "Adjusted Funds From Operations" shall mean, for any period of
time, funds from operations (as defined by the National
Association of Real Estate Investment Trusts) for such period
of time plus (i) any loss due to the write-down or sale of any
real property or mortgage loan acquired prior to January 1,
1989 and (ii) the amount of advisory fees payable to the
Advisor under Article 11 hereof but only to the extent such
fees are considered as current expenses in determining profit
or loss.
(b) "Affiliate" shall mean, as to any Person, any other Person who
owns beneficially, directly, or indirectly, 1% or more of the
outstanding capital stock, shares or equity interests of such
Person or of any other Person which controls, is controlled
by, or is under common control with such Person or is an
officer, retired officer, director, employee, partner, or
trustee (excluding non-
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interested trustees not otherwise affiliated with the entity)
of such Person or of any other Person which controls, is
controlled by, or is under common control with, such Person.
(c) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified
appraiser who is a member in good standing of the American
Institute of Real Estate Appraisers and is duly licensed to
perform such services in accordance with the applicable state
law, or, when pertaining to Mortgage Loans, the value of the
underlying property as determined by the Advisor.
(d) "Book Value" of an asset or assets shall mean the value of
such asset or assets on the books of the Trust, before
provision for amortization, depreciation, depletion or
valuation reserves and before deducting any indebtedness or
other liability in respect thereof, except that no asset shall
be valued at more than its fair market value as determined by
the Trustees.
(e) "Business Plan" shall mean the Trust's investment policies and
objectives and the capital and operating budget based thereon,
approved by the Board as thereafter modified or amended.
(f) "Fiscal Year" shall mean any period for which an income tax
return is submitted to the Internal Revenue Service and which
is treated by the Internal Revenue Service as a reporting
period.
(g) "Mortgage Loans" shall mean notes, debentures, bonds, and
other evidences of indebtedness or obligations, whether
negotiable or non-negotiable, and which are secured or
collateralized by mortgages, including first, wraparound,
construction and development, and junior mortgages.
(h) "Net Asset Value" shall mean the Book Value of all the assets
of the Trust minus all the liabilities of the Trust.
(i) "Net Income" for any period shall mean the Net Income of the
Trust for such period computed in accordance with generally
accepted accounting principles after deduction of the Gross
Asset Fee, but before deduction of the Net Income Fee, as set
forth in Sections 11(a) and 11(b), respectively, herein, and
inclusive of gain or loss of the sale of assets.
(j) "Net Operating Income" shall mean rental income less property
operating expenses.
(k) "Person" shall mean and include individuals, corporations,
limited partnerships, general partnerships, joint stock
companies or associations, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts,
business trusts, or other entities and governments and
agencies and political subdivisions thereof.
(l) "Real Property" shall mean and include land, rights in land,
leasehold interests (including but not limited to interests of
a lessor or lessee therein), and any buildings, structures,
improvements, fixtures, and equipment located on or used in
connection with land, leasehold interests, and rights in land
or interests therein.
All calculations made pursuant to this Agreement shall be based on
statements (which may be unaudited, except as provided herein) prepared on an
accrual basis consistent with generally accepted accounting principles,
regardless of whether the Trust may also prepare statements on a different
basis. All other terms shall have the same meaning as set forth in the Trust's
Declaration of Trust and Trustees' Regulations.
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11. ADVISORY COMPENSATION.
(a) No Base Advisory Fee. The Trust shall not be required to pay
to the Advisor any Base Advisory Fee for advisory services for
the term hereof.
(b) Incentive Advisory Fee. As an incentive for successful
investment and management of the Trust's assets, the Trust
shall pay the Advisor a fee equal to 16% per annum of the
Trust's Adjusted Funds from Operation for each Fiscal Year or
portion thereof for which the Advisor provides services. The
Incentive Advisory Fee shall be payable monthly in advance
based on the Adjusted Funds from Operation for the most recent
month for which a monthly financial statement for the Trust
has been prepared. The Incentive Advisory Fee shall be
cumulative within any Fiscal Year, such that if the Trust has
negative Adjusted Funds from Operation in any month, each
subsequent payment shall be adjusted to maintain the 16% per
annum rate.
(c) Acquisition Commission. For supervising the acquisition,
purchase or long-term lease of Real Property for the Trust,
the Trust shall pay to the Advisor an Acquisition Commission
equal to 1% of the acquisition cost for each real property
acquired during the term hereof, except that no such fee shall
be due for any acquisition through or from an affiliate of the
Trust or the Advisor, inclusive of commissions, if any, paid
to nonaffiliated brokers. The aggregate of each purchase
price of each property (including the Acquisition Commissions
and all real estate brokerage fees) may not exceed such
property's Appraised Value at acquisition.
(d) Mortgage Brokerage and Refinancing Fees. For obtaining loans
to the Trust or refinancing on Trust properties, the Advisor
or an Affiliate is to receive a Mortgage Brokerage and
Refinancing Fee equal to the lesser of a) 1% of the amount of
the loan or the amount refinanced or b) a brokerage or
refinancing fee which is reasonable and fair under the
circumstances; provided, however, that no such fee shall be
paid on loans from the Advisor or an Affiliate without the
approval of the Board of Trustees. No fee shall be paid on
loan extensions.
(e) Real Estate Brokerage Commission. Subject to approval by the
Board of Trustees, the Trust may pay to the Advisor or an
Affiliate of the Advisor a Real Estate Brokerage Commission
for services rendered upon (i) the purchase of real property
by the Trust or (b) the sale of real property owned by the
Trust, for which the Advisor or an Affiliate acts as the
broker in such transaction in amounts not to exceed customary
fees charged by nationally recognized real estate brokers for
normal similar transactions on a non-exclusive basis. The
provision of real estate brokerage services by the Advisor or
an Affiliate shall be on terms not less favorable to the Trust
than the terms on which unaffiliated parties are then
performing similar services for entities comparable to the
Trust not entered into on an exclusive basis. The entry into
the applicable real estate brokerage arrangement between the
Trust and the Advisor shall be approved as required by the
Declaration of Trust.
12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENTS FEES. The
Advisor or any of its Affiliates shall pay to the Trust, the full amount of any
compensation received by the Advisor or any such Affiliate from third parties
with respect to the origination, placement or brokerage of any loan made by the
Trust.
13. STATEMENTS. The Advisor shall furnish to the Trust not later
than the tenth day of each calendar month, beginning with the second calendar
month of the term of this Agreement, a statement showing the computation of the
fees, if any, payable in respect to the next preceding calendar month (or, in
the case of incentive compensation, for the preceding Fiscal Year, as
appropriate) under the Agreement. The final settlement of incentive
compensation for each Fiscal Year shall be subject to adjustment in accordance
with, and upon completion of, the annual audit of the Trust's financial
statements; any payment by the Trust or repayment
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by the Advisor that shall be indicated to be necessary in accordance therewith
shall be made promptly after the completion of such audit and shall be
reflected in the audited statements to be published by the Trust.
14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent
that the Trust shall request the Advisor or any director, officer, partner, or
employee of the Advisor to render services for the Trust other than those
required to be rendered by the Advisor hereunder, such additional services, if
performed, will be compensated separately on terms to be agreed upon between
such party and the Trust from time to time. In particular, but without
limitation, if the Trust shall request that the Advisor perform property
management, leasing, loan disbursement or similar functions, the Trust and the
Advisor shall enter in to a separate agreement specifying the obligations of
the parties and providing for reasonable additional compensation to the Advisor
for performing such services.
15. EXPENSES OF THE ADVISOR. Without regard to the amount of
compensation or reimbursement received hereunder by the Advisor, the Advisor
shall bear the following expenses:
(a) employment expenses of the executive officers, directors or
shareholders of the Advisor (including Trustees, officers, and
employees of the Trust who are directors, officers, or
employees of the Advisor or of any company that controls, is
controlled by, or is under common control with the Advisor),
including, but not limited to, fees, salaries, wages, payroll
taxes, travel expenses, and the cost of employee benefit plans
and temporary help expenses except for those personnel
expenses relating to employees of the Advisor principally
engaged in accounting, shareholder relations or mortgage
servicing;
(b) advertising and promotional expenses incurred in seeking
investments for the Trust;
(c) rent, telephone, utilities, office furniture and furnishings,
and other office expenses of the Advisor, except as any of
such expenses relates to employees of the Advisor principally
engaged in accounting, shareholder relations or mortgage
servicing; and
(d) miscellaneous administrative expenses relating to performance
by the Advisor of its functions hereunder.
In addition to the Advisory Compensation described in Section 11, the
Advisor shall be reimbursed for certain costs and expenses monthly on the basis
of an equitable allocation applied on a consistent and timely basis in
accordance with the Advisor's regular procedures. Such procedures provide for
identification of all material costs and expenses to be accounted for as a cost
of particular functions. Only costs and expenses allocable to legal, mortgage
servicing, treasury and financial departments are reimbursable as well as
certain portions of expenses not specifically identifiable to a particular
department.
16. EXPENSES OF THE TRUST. The Trust shall pay all its expenses
not assumed by the Advisor, including without limitation, the following
expenses:
(a) the cost of money borrowed by the Trust;
(b) income taxes, taxes and assessments on real property, and all
other taxes applicable to the Trust;
(c) legal, auditing, accounting, underwriting, brokerage, listing,
registration and other fees, printing, and engraving and other
expenses, and taxes incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange
listing of the Trust's securities;
(d) fees, salaries, and expenses paid to officers, and employees
of the Trust who are not directors, officers or employees of
the Advisor, or of any company that controls, is controlled
by, or is under
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common control with the Advisor other than employees of the
Advisor principally engaged in accounting, shareholder
relations and mortgage servicing;
(e) expenses directly connected with the origination or purchase
of Mortgage Loans and with the acquisition, disposition, and
ownership of real estate equity interests or other property
(including the costs of foreclosure, insurance, legal,
protective, brokerage, maintenance, repair, and property
improvement services) and including all compensation,
traveling expenses, and other direct costs associated with the
Advisor's employees or other personnel engaged in (i) real
estate transaction legal services, (ii) internal auditing,
(iii) foreclosure and other mortgage finance services, (iv)
sale or solicitation for sale of mortgages, (v) engineering
and appraisal services, and (vi) transfer agent services;
(f) expenses of maintaining and managing real estate equity
interests;
(g) insurance, as required by the Trustees (including Trustees'
liability insurance);
(h) the expenses of organizing, revising, amending, converting,
modifying, or terminating the Trust;
(i) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be
made by the Trustees to holders of securities of the Trust;
(j) all expenses connected with communications to holders of
securities of the Trust and the other bookkeeping and clerical
work necessary to maintaining relations with holders of
securities, including the cost of printing and mailing
certificates for securities and proxy solicitation materials
and reports to holders of the Trust's securities;
(k) the cost of any accounting, statistical, bookkeeping or
computer equipment or computer time necessary for maintaining
the books and records of the Trust and for preparing and
filing Federal, State and Local tax returns;
(l) transfer agent's, registrar's, and indenture trustee's fees
and charges;
(m) legal, accounting, investment banking, and auditing fees and
expenses charged by independent parties performing these
services not otherwise included in clauses (c) and (e) of this
Section 16;
(n) expenses incurred by the Advisor arising from the sales of
Trust properties, including those expenses related to carrying
out foreclosure proceedings;
(o) expenses incurred by the Advisor in connection with the sale
or disposition of Trust assets, including mortgage servicing;
(p) costs and expenses connected with computer services, including
but not limited to employee or other personnel compensation,
hardware and software costs, and related development and
installation costs associated therewith;
(q) costs and expenses associated with risk management (i.e.,
insurance relating to the Trust's assets);
(r) loan refinancing compensation; and
(s) expenses associated with special services requested by the
Trustees pursuant to Section 14 hereof.
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17. OTHER ACTIVITIES OF ADVISOR. The Advisor, its officers,
directors, or employees or any of its Affiliates may engage in other business
activities related to real estate investments or act as advisor to any other
person or entity (including another real estate investment trust), including
those with investment policies similar to the Trust, and the Advisor and its
officers, directors, or employees and any of its Affiliates shall be free from
any obligation to present to the Trust any particular investment opportunity
that comes to the Advisor or such persons, regardless of whether such
opportunity is in accordance with the Trust's Business Plan. However, to
minimize any possible conflict, the Advisor shall consider the respective
investment objectives of, and the appropriateness of a particular investment to
each such entity in determining to which entity a particular investment
opportunity should be presented. If appropriate to more than one entity, the
Advisor shall present the investment opportunity to the entity that has had
sufficient uninvested funds for the longest period of time. The Advisor shall
promptly inform the Trust of each real estate acquisition made by the Advisor
or any Affiliate.
18. LIMITATION ON OPERATING EXPENSES. To the extent that the
operating expenses of the Trust for any Fiscal Year exceeds the limitation set
forth in the Trust's Declaration of Trust, as amended from time to time, or any
similar limitation (if contained) in a successor Declaration of Trust or
Certificate of Incorporation, the Advisor shall refund to the Trust such
portion of its fees payable hereunder as may be required by such Section.
19. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue
in force for a period of one year, and, thereafter, it may be renewed from year
to year, subject to any required approval of the Shareholders of the Trust, and
if any Trustee is an Affiliate of the Advisor, the approval of a majority of
the Trustees who are not so affiliated. Notice of renewal shall be given in
writing by the Trustees to the Advisor not less than 60 days before the
expiration of this Agreement or of any extension thereof. This Agreement may
be terminated for any reason without penalty upon 60 days' written notice by
the Trust to the Advisor or 120 days' written notice by the Advisor to the
Trust, in the former case by the vote of a majority of the Trustees who are not
Affiliates of the Advisor or by the vote of holders of a majority of the
outstanding shares of the Trust. Notwithstanding the foregoing, however, in
the event of any material change in the ownership, control or management of the
Advisor, the Trust may terminate this Agreement without penalty and without
advance notice to the Advisor.
20. AMENDMENTS. This Agreement shall not be changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise as provided herein.
21. ASSIGNMENT. This Agreement shall not be assigned by the
Advisor without the prior consent of the Trust. The Trust may terminate this
Agreement in the event of its assignment by the Advisor without the prior
consent of the Trust. Such an assignment or any other assignment of this
Agreement by the Advisor shall bind the assignee hereunder in the same manner
as the Advisor is bound hereunder. This Agreement shall not be assignable by
the Trust without the consent of the Advisor, except in the case of assignment
by the Trust to a corporation, association, trust, or other organization that
is a successor to the Trust. Such successor shall be bound hereunder and by
the terms of said assignment in the same manner as the Trust is bound
hereunder.
22. DEFAULT, BANKRUPTCY, ETC. At the option solely of the
Trustees, this Agreement shall be and become terminated immediately upon
written notice of termination from the Trustees to the Advisor if any of the
following events shall occur:
(a) If the Advisor shall violate any provision of this Agreement,
and after notice of such violation shall not cure such default
within 30 days; or
(b) If the Advisor shall be adjudged bankrupt or insolvent by a
court of competent jurisdiction, or an order shall be made by
a court of competent jurisdiction for the appointment of a
receiver, liquidator, or trustee of the Advisor or of all or
substantially all of its property by reason of the
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foregoing, or approving any petition filed against the Advisor
for its reorganization, and such adjudication or order shall
remain in force or unstayed for a period of 30 days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization
under the Federal bankruptcy laws, or for relief under any law
for the relief of debtors, or shall consent to the appointment
of a receiver of itself or of all or substantially all its
property, or shall made a general assignment for the benefit
of its creditors, or shall admit in writing its inability to
pay its debts generally, as they become due.
The Advisor agrees that if any of the events specified in subsections
(b) and (c) of this Section 22 shall occur, it will give written notice thereof
to the Trustees within seven days after the occurrence of such event.
23. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further services hereunder
but shall be paid all compensation accruing to the date of termination. The
Advisor shall forthwith upon such termination:
(a) pay over to the Trust all monies collected and held for the
account of the Trust pursuant to this Agreement;
(b) deliver to the Trustees a full accounting, including a
statement showing all payments collected by it and a statement
of any monies held by it, covering the period following the
date of the last accounting furnished to the Trustees; and
(c) deliver to the Trustees all property and documents of the
Trust then in the custody of the Advisor.
24. MISCELLANEOUS. The Advisor shall be deemed to be in a
fiduciary relationship to the shareholders of the Trust. The Advisor assumes
no responsibility under this Agreement other than to render the services called
for hereunder in good faith, and shall not be responsible for any action of the
Trustees in following or declining to follow any advise or recommendations of
the Advisor. Neither the Advisor nor any of its shareholders, directors,
officers, or employees shall be liable to the Trust, the Trustees, the holders
of securities of the Trust or to any successor or assign of the Trust for any
losses arising from the operation of the Trust if the Advisor had determined,
in good faith, that the course of conduct which caused the loss or liability
was in the best interests of the Trust and the liability or loss was not the
result of negligence or misconduct by the Advisor. However, in no event will
the directors, officers or employees of the Advisor be personally liable for
any act or failure to act unless it was the result of such person's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
25. NOTICES. Any notice, report, or other communication required
or permitted to be given hereunder shall be in writing unless some other method
of giving such notice, report, or other communication is accepted by the party
to whom it is given, and shall be given by being delivered at the following
address of the parties hereto:
The Trustees and/or the Trust:
Vinland Property Trust
One Turtle Creek Village
3878 Oak Lawn Avenue
Suite 300
Dallas, Texas 75219
Attention: President
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The Advisor:
Tarragon Realty Advisors, Inc.
280 Park Avenue
East Building, 20th Floor
New York, New York 10017
Attention: Executive Vice President and Chief Financial
Officer
Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 25.
26. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.
27. GOVERNING LAW. This Agreement has been prepared, negotiated
and executed in the State of New York. The provisions of this Agreement shall
be construed and interpreted in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely in the State of
New York.
28. EXECUTION. This instrument is executed and made on behalf of
the Trust by a Trustee of the Trust, not individually but solely as a Trustee
under the Declaration of the Trust, and the obligations under this Agreement
are not binding upon, nor shall resort be had to the private property of, any
of the Trustees, shareholders, officers, employees, or agents of the Trust
personally, but bind only the Trust property.
IN WITNESS WHEREOF, VINLAND PROPERTY TRUST AND TARRAGON REALTY
ADVISORS, INC., by their duly authorized officers, have signed these presents
all as of the day and year first above written.
VINLAND PROPERTY TRUST
BY: /S/ WILLIAM S. FRIEDMAN
-----------------------------------
William S. Friedman
President and Trustee
TARRAGON REALTY ADVISORS, INC.
BY: /S/ JOHN A. DOYLE
-----------------------------------
John A. Doyle
President
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APPENDIX B
AGREEMENT AND PLAN OF MERGER
OF
VINLAND PROPERTY CORPORATION
(a California corporation)
AND
TARRAGON REALTY INVESTORS, INC.
(a Nevada corporation)
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of____________________, 1997, is by and between Vinland Property Corporation, a
California corporation ("VPT California"), and Tarragon Realty Investors, Inc.,
a Nevada corporation ("TRII Nevada").
WHEREAS, VPT California is a California corporation with its resident
agent therein located at CT Corporation System, 818 West Seventh Street, Los
Angeles, California 90017; and
WHEREAS, the shares of stock that VPT California has authority to
issue are 30,000,000 shares, of which 20,000,000 shares, par value $0.01 per
share, are designated Common Stock (the "California Common Stock") and
10,000,000 shares, par value $0.01 per share, are designated Special Stock; and
WHEREAS, TRII Nevada is a Nevada corporation with its registered
office therein located at CT Corporation System, One East First Street, Reno,
Nevada 89501; and
WHEREAS, the total number of shares of stock which TRII Nevada has
authority to issue is 30,000,000 shares, of which 20,000,000 shares, par value
$0.01 per share, are designated Common Stock ("Nevada Common Stock"), and
5,000,000 shares, par value $0.01 per share, are designated Special Stock; and
WHEREAS, the General Corporation Law of the State of Nevada permits
the merger of one or more foreign corporations with one or more domestic
corporations into a single corporation; and
WHEREAS, VPT California and TRII Nevada and the respective Boards of
Directors thereof deem it advisable and to the advantage, welfare, and best
interests of said corporations and their respective stockholders to merge VPT
California with and into TRII Nevada pursuant to the provisions of the Nevada
Law upon the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE MERGER. Upon the terms and subject to the conditions
hereof, the Merger shall be consummated in accordance with the General
Corporation Law of Nevada (the "Nevada Law") and the General Corporation Law of
California (the "California Law") on _________________, 1997, or as soon
thereafter as is reasonably practicable. At the Effective Time (as hereinafter
defined) and subject to and upon the terms and conditions of this Agreement,
the Nevada Law and the California Law, VPT California shall be merged with and
into TRII Nevada (the "Merger"), the separate corporate existence of VPT
California shall cease, and TRII Nevada shall continue as the surviving
corporation.
2. EFFECTIVE TIME. On _________________, 1997, or as soon
thereafter as is reasonably practicable, the parties hereto shall cause the
Merger to be consummated by filing articles of merger with the Secretary of
State of Nevada and the documents required by Section 1108 of the California
Law with the Secretary of State
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of California, in such form as required by, and executed in accordance with,
the relevant provisions of the Nevada Law and the California Law. The Merger
shall become effective upon the filing of such articles of merger with the
Secretary of State of Nevada (the "Effective Time").
3. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in Section 78.459 of the Nevada Law.
4. ARTICLES OF INCORPORATION. At the Effective Time, the
Articles of Incorporation of TRII Nevada, as in effect immediately prior to the
Effective Time, shall remain the Articles of Incorporation of TRII Nevada as
the surviving corporation until thereafter further amended as provided by law.
5. BYLAWS. The Bylaws of TRII Nevada, as in effect immediately
prior to the Effective Time, shall remain the Bylaws of TRII Nevada as the
surviving corporation until thereafter amended as provided by law.
6. DIRECTORS. The directors of TRII Nevada immediately prior to
the Effective Time shall remain the directors of TRII Nevada and will hold
office from the Effective Time until their successors are duly elected or
appointed and qualified in the manner provided in the Articles of Incorporation
and the Bylaws of TRII Nevada, or as otherwise provided by law.
7. OFFICERS. The officers of TRII Nevada immediately prior to
the Effective Time shall remain the officers of TRII Nevada and will hold
office from the Effective Time until their successors are duly elected or
appointed and qualified in the manner provided in the Articles of Incorporation
and the Bylaws of TRII Nevada, or as otherwise provided by law.
8. ADDITIONAL ACTIONS. If, at any time after the Effective Time,
TRII Nevada shall consider or be advised that any deeds, bills of sale,
assignments, assurances, or any other actions or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in TRII Nevada
its right, title or interest in, to or under any of the rights, properties or
assets of VPT California acquired or to be acquired by TRII Nevada as a result
of, or in connection with, the Merger or otherwise to carry out this Agreement,
the officers and directors of TRII Nevada shall be authorized to execute and
deliver, in the name and on behalf of VPT California, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of VPT California, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in TRII Nevada or otherwise to
carry out this Agreement.
9. CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of TRII Nevada, VPT California or
the holder of any of the following securities
(a) each of the shares of VPT California Common Stock
issued and outstanding immediately prior to the Effective Time, other
than any shares of VPT California Common Stock to be cancelled
pursuant to Section 9(b) hereof, shall be converted into one validly
issued, fully paid and nonassessable share of TRII Nevada Common
stock, upon surrender of the certificate representing such share;
(b) each share of VPT California Common Stock held in the
treasury of VPT California immediately prior to the Effective Time
shall be cancelled and extinguished and no payment or other
consideration shall be made with respect thereto;
(c) each share of TRII Nevada Common Stock issued and
outstanding immediately prior to the Effective Time shall be
cancelled; and
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(d) from and after the Effective Time, holders of
certificates formerly evidencing shares of VPT California Common Stock
shall have rights as stockholders of TRII Nevada (and not VPT
California) in accordance with applicable law.
10. SURRENDER OF SHARES; STOCK TRANSFER BOOKS. Each holder of a
certificate or certificates formerly representing any shares of VPT California
Common Stock converted in the Merger pursuant to Section 9(a) shall surrender
such certificate or certificates to TRII Nevada as promptly as practicable.
Upon surrender by such holder to TRII Nevada of a certificate, together with
such other instruments and acknowledgments as TRII Nevada may require, the
holder of such certificate shall be entitled to receive in exchange therefor an
equal number of shares of Nevada Common Stock represented by such certificate,
and such former certificate shall forthwith be cancelled. At the Effective
Time, the stock transfer books of VPT California shall be closed and there
shall be no further registration of transfers of shares of VPT California
Common Stock on the records of VPT California. No interest shall accrue or be
paid on any cash payable upon the surrender of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares of
VPT California Common Stock.
11. CERTAIN CHANGES. The Boards of Directors of TRII Nevada and
VPT California may amend this Agreement at any time prior to the filing of the
articles of merger with the Secretary of State of Nevada, provided that an
amendment made subsequent to the adoption of the Merger by the stockholders of
TRII Nevada and VPT California shall not (1) alter or change the amount of
consideration to be received in exchange for or on conversion of the shares of
any class or series thereof of VPT California, (2) further alter or change any
term of the Articles of Incorporation of TRII Nevada, or (3) alter or change
any of the terms and conditions of this Agreement if such alteration or change
would adversely affect the holders of the shares of any class or series of TRII
Nevada or VPT California.
12. TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the filing of the articles of merger with the
Secretary of State of Nevada, notwithstanding approval hereof by the
stockholders of TRII Nevada or VPT California or by the Board of Directors of
TRII Nevada or VPT California.
13. TAX EFFECT. The parties hereby agree to treat the Merger for
federal income tax purposes as a reorganization within the meaning of Section
368(a)(1)(f) of the Internal Revenue Code, with no gain or loss recognized by
TRII Nevada or its stockholders or by VPT California or its shareholders.
14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which, collectively, shall constitute one and the same instrument representing
this Agreement among the parties hereto, and it shall not be necessary for the
proof of this Agreement that any party produce or account for more than one
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Merger to be executed by their respective officers as of the _____ day of
___________________, 1997.
ATTEST: VINLAND PROPERTY CORPORATION
By:
- ---------------------------------- ---------------------------------
Secretary Name:
----------------------------
Title:
---------------------------
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ATTEST: TARRAGON REALTY INVESTORS, INC.
By:
- ---------------------------------- ---------------------------------
Secretary Name:
----------------------------
Title:
---------------------------
The undersigned, being the President of Vinland Property Corporation,
does hereby certify that (a) the holders of 100% of the outstanding stock of
said corporation were entitled to vote on the foregoing Agreement and Plan of
Merger, (b) the principal terms of the agreement in the form attached were
approved by ________% of the outstanding shares and (c) such vote exceeded the
majority vote required to approve the foregoing Agreement and Plan of Merger.
-------------------------------------
William S. Friedman, President
VINLAND PROPERTY CORPORATION
The undersigned, being the President of Tarragon Realty Investors,
Inc., does hereby certify that the holder of all of the outstanding stock of
said corporation dispensed with a meeting and vote of stockholders, and such
sole stockholder consented in writing, pursuant to the provisions of Section
78.320 of the General Corporation Law of the State of Nevada, to the adoption
of the foregoing Agreement and Plan of Merger.
-------------------------------------
William S. Friedman, President
TARRAGON REALTY INVESTORS, INC.
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<PAGE> 130
STATE OF )
)
COUNTY OF _______________ )
This instrument was acknowledged before me on the _________________
day of 1997 by William S. Friedman, President of Vinland Property Corporation.
----------------------------------------------
Notary Public in and for said County and State
STATE OF )
)
COUNTY OF _______________ )
This instrument was acknowledged before me on the _________________
day of 1997 by William S. Friedman, President of Tarragon Realty Investors,
Inc.
----------------------------------------------
Notary Public in and for said County and State
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<PAGE> 131
FILED ARTICLES OF INCORPORATION
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE OF
STATE OF NEVADA
APRIL 02, 1997 TARRAGON REALTY INVESTORS, INC.
C7046-97
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of Chapter 78 of the
Nevada Revised Statutes (the "NRS"), do hereby certify as follows:
FIRST: The name of the Corporation is Tarragon Realty Investors, Inc.
(hereinafter the "Corporation").
SECOND: The address of the principal office of the Corporation in the
State of Nevada is c/o CT Corporation System, One East First Street, County of
Washoe, Reno, Nevada 89501. The name of the registered agent of the
Corporation at such address is CT Corporation System.
THIRD: The Corporation may engage in any lawful activity.
FOURTH: A. The total number of shares of all classes which the
Corporation shall have authority to issue is 30,000,000 shares, of which
20,000,000 shares, par value $0.01 per share, shall be of a class designated
"Common Stock" and 10,000,000 shares, par value $0.01 per share, shall be of a
class designated "Special Stock".
B.1. The Board of Directors of the Corporation (the "Board
of Directors") is authorized, subject to applicable law and the
provisions of this Article FOURTH, to provide for the issuance from
time to time in one or more series of any number of shares of Special
Stock, and, by filing a certificate pursuant to the NRS, to establish
the number of shares to be included in each such series, and to fix
the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the
Board of Directors with respect to each series shall include, but not
be limited to, determination of the following:
(a) the distinctive designation and number of
shares comprising such series, which number may (except where
otherwise provided by the Board of Directors in creating such
series) be increased or decreased (but not below the number of
shares then outstanding) from time to time by like action of
the Board of Directors;
(b) the dividend rate or rates on the shares of
such series and the preferences, if any, over any other series
(or of any other series over such series) with respect to
dividends, the terms and conditions upon which and the periods
in respect of which dividends shall be payable, whether and
upon what conditions such dividends shall be cumulative and,
if cumulative, the date or dates from which dividends shall
accumulate;
(c) the voting powers, full or limited, if any,
of shares of such series, and under what conditions, if any,
the shares of such series (alone or together with the shares
of one or more other series having similar provisions) shall
be entitled to vote separately as a class for the election of
one or more directors of the Corporation in case of dividend
arrearages or other specified events or upon other matters;
(d) whether the shares of such series shall be
redeemable, the limitations and restrictions with respect to
such redemptions, the time or times when, the price or prices
at which and the manner in which such shares shall be
redeemable including, but not limited to, the manner of
selecting shares of such series for redemption if less than
all shares are to be redeemed;
<PAGE> 132
(e) the rights to which the holders of shares of
such series shall be entitled, and the preferences, if any,
over any other series (or of any other series over such
series), upon the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the
Corporation, which rights may vary depending on whether such
liquidation, dissolution, distribution or winding up is
voluntary or involuntary, and, if voluntary, may vary at
different dates;
(f) whether the shares of such series shall be
subject to the operation of a purchase, retirement or sinking
fund, and, if so, whether and upon what conditions such
purchase, retirement or sinking fund shall be cumulative or
noncumulative, the extent to which and the manner in which
such fund shall be applied to the purchase or redemption of
the shares of such series, including, but not limited to, the
price or prices at which the shares may be purchased or
redeemed, or to other corporate purposes and the terms and
provisions relative to the operation thereof;
(g) whether the shares of such series shall be
convertible into or exchangeable for shares of stock of any
other class or classes, or of any other series of the same
class, and, if so convertible or exchangeable, the price or
prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and
conditions of such conversion or exchange;
(h) whether the issuance of additional shares of
Special Stock shall be subject to restrictions as to issuance,
or as to the powers, preferences or other rights of any other
series;
(i) the right of the shares of such series to the
benefit of conditions and restrictions upon the creation of
indebtedness of the Corporation or any subsidiary, upon the
issue of any additional stock (including additional shares of
such series or any other series) and upon the payment of
dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Corporation
or any subsidiary of, any outstanding stock of the
Corporation; and
(j) any other preferences, privileges and powers,
and relative participating, optional or other special rights,
and qualifications, limitations or restrictions of such
series, as the Board of Directors may deem advisable and as
shall not be inconsistent with applicable law or the
provisions of these Articles of Incorporation, as amended from
time to time.
2. Shares of Special Stock which have been issued and
reacquired in any manner by the Corporation (excluding until the
Corporation elects to retire them, shares which are held as treasury
shares, but including shares redeemed, shares purchased and retired
and shares which have been converted into shares of Common Stock)
shall have the status of authorized but unissued shares of Special
Stock and may be reissued as a part of the series of which they were
originally a part or may be reissued as a part of another series of
Special Stock, all subject to the conditions or restrictions on
issuance set forth in the resolution or resolutions adopted by the
Board of Directors providing for the issuance of any series of Special
Stock.
3. Except as otherwise provided by the resolution or
resolutions providing for the issuance of any series of Special Stock,
after payment shall have been made to the holders of Special Stock of
the full amount of dividends to which they shall be entitled pursuant
to the resolution or resolutions providing for the issuance of any
series of Special Stock, the holders of Common Stock shall be
entitled, to the exclusion of the holders of Special Stock of any and
all series, to receive such dividends as from time to time may be
declared by the Board of Directors.
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4. Except as otherwise provided by the resolution or
resolutions providing for the issuance of any series of Special Stock
in the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment shall
have been made to the holders of Special Stock of the full amounts to
which they shall be entitled pursuant to such resolution or
resolutions, the holders of Common Stock shall be entitled, to the
exclusion of the holders of Special Stock of any and all series, to
share, ratably according to the number of shares of Common Stock held
by them, in all remaining assets of the Corporation available for
distribution to its stockholders.
5. The holders of Special Stock shall not have any
preemptive rights except to the extent such rights shall be
specifically provided for in the resolution or resolutions providing
for the issuance thereof adopted by the Board of Directors.
C. Except as otherwise specifically required by law or as
specifically provided in any resolution of the Board of Directors providing for
the issuance of any particular series of Special Stock, the exclusive voting
power of the Corporation shall be vested in the Common Stock of the
Corporation. Except as otherwise provided in these Articles of Incorporation,
each share of Common Stock shall entitle the holder thereof to one vote at all
meetings of the stockholders of the Corporation.
D. The capital stock of the Corporation, after the amount of the
subscription price has been paid in money, property or services as the Board of
Directors shall determine, shall not be subject to assessment to pay the debts
of the Corporation, nor for any other purpose, and no stock issued as fully
paid up shall ever be assessable or assessed, and these Articles of
Incorporation shall not be amended in this particular.
FIFTH: The name and address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
William S. Friedman 280 Park Avenue
East Building, 20th Floor
New York, New York 10017
</TABLE>
SIXTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors, which shall consist of not
fewer than three (3), nor more than fifteen (15), directors, the exact number
of directors to be determined from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors. Initially,
the number of directors of the Corporation shall be four (4), and their names
shall be as follows:
Chester Beck
Willie K. Davis
William S. Friedman
Michael E. Smith
Each of the above directors can be reached c/o the Corporation at 280 Park
Avenue, East Building, 20th Floor, New York, New York 10017. Such directors
are hereby elected for a term to expire at the first annual meeting of
stockholders. At each succeeding annual meeting of stockholders beginning with
the first, successors to directors shall be elected. A director shall hold
office until the annual meeting for the year in which such director's term
expires and until such director's successor shall be elected, subject, however,
to prior death, resignation, retirement or removal from office. Except as
provided by applicable law, any vacancy in the Board of Directors shall be
filled by a majority of the directors then in office or by a sole remaining
director. Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term as that
of such director's predecessor.
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Whenever the holders of any one or more series of Special Stock issued
by the Corporation shall have the right, voting separately or by class or
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of these Articles of Incorporation
or the resolution or resolutions adopted by the Board of Directors pursuant to
Article FOURTH applicable thereto.
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation. The stockholders
of the Corporation may not make, adopt, alter, amend, change or repeal the
Bylaws of the Corporation except upon the affirmative vote of not less than
seventy-five percent (75%) of the outstanding stock of the Corporation entitled
to vote thereon; provided, however, that the power of the stockholders to make,
adopt, alter, amend, change or repeal the Bylaws of the Corporation is further
subject to the provisions of Article TENTH of these Articles of Incorporation.
In addition to the powers and authority expressly conferred upon them herein or
by statute, the directors of the Corporation are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to applicable provisions of the
statutes of Nevada, these Articles of Incorporation and any Bylaws adopted by
the stockholders; provided, however, that no Bylaws hereafter adopted by the
stockholders or otherwise shall invalidate any prior act of the directors which
would have been valid if such Bylaws had not been adopted.
EIGHTH: Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws of the Corporation to the contrary, any action
required to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken by written consent without such a
meeting, without prior notice and without a vote if consents in writing shall
have been signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or to take action
at a meeting at which all shares entitled to vote thereon were present and
voted; provided, however, that prompt notice of the taking of the action
without a meeting shall be given to those stockholders of the Corporation who
have not consented in writing. Subject to the rights of the holders of any
series of Special Stock, special meetings of stockholders of the Corporation
may be called only by the Board of Directors, the Chairman of the Board or the
President of the Corporation and not by any other person or persons.
NINTH: A. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except that this part A of Article
NINTH shall not eliminate or limit a director's liability (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (ii) for the payment of dividends in violation of NRS 78.300. If the
NRS is amended after the date these Articles of Incorporation became effective
under the NRS to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the NRS, as so amended from time to time.
Any repeal or modification of this part A of Article NINTH shall not
increase the personal liability of any director of the Corporation for any act
or occurrence taking place prior to such repeal or modification, or otherwise
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
The provisions of this part A of Article NINTH shall not be deemed to
limit or preclude indemnification of a director by the Corporation for any
liability of a director which has not been eliminated by the provisions of this
part A of Article NINTH.
B. The Corporation shall indemnify to the fullest extent
authorized or permitted by law (as now or hereafter in effect) and shall
advance expenses, to the fullest extent authorized or permitted by law (as now
or hereinafter in effect), to any person made or threatened to be made a party
or witness to any action, suit or proceeding (whether civil or criminal or
otherwise) by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or by reason of the fact that
such person, at the request of the
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<PAGE> 135
Corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, in any capacity.
Nothing contained herein shall affect any rights to indemnification to which
employees other than directors and officers may be entitled by law. No
amendment to or repeal of this part B of Article NINTH shall apply to or have
any effect on any right to indemnification provided hereunder with respect to
any acts or omissions occurring prior to such amendment or repeal.
C. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise against any such expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the NRS. The Board of Directors, without
the approval of the stockholders of the Corporation, may also create a trust
fund, grant a security interest or use other means (including, but not limited
to, letters of credit, surety bonds or other similar arrangements), as well as
enter into contracts providing indemnification to the fullest extent authorized
or permitted by law and including as part thereof provisions with respect to
any or all of the foregoing, to ensure the payment of such amounts as may
become necessary to effect indemnification as provided therein, or elsewhere.
TENTH: A. The Corporation expressly elects not to be governed
by the Nevada "Combinations with Interested Stockholders" statutes contained in
NRS 78.411 to 78.444 and the Nevada "Acquisition of Controlling Interest"
statutes contained in NRS 78.378 to 78.3793.
B. In addition to any affirmative vote required by law, these
Articles of Incorporation or the Bylaws of the Corporation, and except as
otherwise expressly provided in part C of this Article TENTH, a "Business
Combination" (as hereinafter defined) with, or proposed by or on behalf of, any
"Interested Stockholder" (as hereinafter defined) or any "Affiliate" or
"Associate" (as such terms are hereinafter defined) of any Interested
Stockholder or any "Person" (as hereinafter defined) who thereafter would be an
Affiliate or Associate of an Interested Stockholder shall require the
affirmative vote of not less than sixty-six and two-thirds percent (66-2/3%) of
the votes entitled to be cast by the holders of all the shares of "Voting
Stock" (as hereinafter defined) then outstanding, voting together as a single
class, excluding Voting Stock "Beneficially Owned" (as hereinafter defined) by
such Interested Stockholder. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by applicable law or in any
agreement with any national securities exchange or otherwise.
C. The provisions of part B of this Article TENTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required by
applicable law or by any other provision of these Articles of Incorporation or
the Bylaws of the Corporation, or any agreement with any national securities
exchange, if such Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority of the Board of Directors or, in the case of such a
Business Combination involving any Person that is an Affiliate of the
Corporation, by a majority of the Board of Directors including a majority of
the members of the Board of Directors who at the time are neither officers or
employees of the Corporation nor directors, officers or employees of any
Advisor (as defined in Article THIRTEENTH), prior to the "Acquisition Date" (as
hereinafter defined) with respect to any Person involved in such Business
Combination.
D. The following definitions shall apply with respect to this
Article TENTH and, when noted therein, to Articles TWELFTH, FOURTEENTH and
SEVENTEENTH:
1. The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date these Articles of Incorporation became
effective under the NRS (the term "registrant" in such Rule meaning in
this case the Corporation).
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2. The term "Acquisition Date," with respect to any
Person, shall mean the date on which such Person becomes the
Beneficial Owner of Voting Stock representing twenty percent (20%) or
more of the votes entitled to be cast by the holders of all the shares
of Voting Stock then outstanding.
3. A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "Beneficially Own," shares of Capital Stock:
(a) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the sole
or shared right to vote or dispose of or has beneficial
ownership of (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act or pursuant to any successor provision
including, but not limited to, pursuant to any agreement,
arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to Beneficially Own, any security
under this clause (a) as a result of an agreement, arrangement
or understanding to vote such security that both (i) arises
solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the rules and
regulations under the Exchange Act and (ii) is not reportable
by such person on Schedule 13D under the Exchange Act (or any
comparable or successor report or schedule) without giving
effect to any applicable waiting period: or
(b) which are Beneficially Owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding, whether or not in writing, for the purpose of
acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to clause [a] above) or
disposing of any shares of Capital Stock; provided, however,
that (i) no director or officer of the Corporation (nor any
Affiliate or Associate of any such director or officer) shall,
solely by reason of any or all of such directors or officers
acting in their capacities as such, be deemed the Beneficial
Owner of or to Beneficially Own any shares of Capital Stock
that are Beneficially Owned by any other such director or
officer; and (ii) no Person shall be deemed the Beneficial
Owner of or to Beneficially Own any shares of Voting Stock
held in any voting trust, any employee stock ownership plan or
any similar plan or trust if such Person does not possess the
right to vote, to direct the voting of or to be consulted with
respect to the voting of such shares.
4. The term "Business Combination" shall mean:
(a) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter defined) with
(i) any Interested Stockholder or (ii) any other company
(whether or not itself an Interested Stockholder) which is or
after such merger or consolidation would be an Affiliate or
Associate of an Interested Stockholder;
(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to purchase,
agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a
series of transactions) with or for the benefit of any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder involving the Corporation or any
Subsidiary and any assets, securities or commitments of the
Corporation, any Subsidiary or any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder that
(except for any arrangement, whether as employee, consultant
or otherwise, other than as a director, pursuant to which any
Interested Stockholder or any Affiliate or Associate thereof
shall, directly or indirectly, have any control over or
responsibility for the management of any aspect of the
business or affairs of the Corporation, with respect to which
arrangements the value tests set forth below shall not apply),
together with all other such arrangements (including all
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contemplated future events), has an aggregate fair market
value or involves aggregate commitments of $5,000,000 or more
or constitutes more than five percent (5%) of the book value
of the total assets (in the case of transactions involving
assets or commitments other than shares of Capital Stock) or
five percent (5%) of the stockholders' equity (in the case of
transactions in shares of Capital Stock) of the entity in
question (a "Substantial Part"), as reflected in the most
recent fiscal year-end consolidated balance sheet of such
entity existing at the time the stockholders of the
Corporation would be required to approve or authorize the
Business Combination involving the assets, securities or
commitments constituting any Substantial Part;
(c) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation;
(d) any reclassification of securities of the
Corporation (including any reverse stock split), or
recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries
or any other transaction (whether or not with or otherwise
involving an Interested Stockholder) that has the effect,
directly or indirectly, of increasing the proportionate share
of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of
any Subsidiary, that is Beneficially Owned by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(e) any agreement, contract or other arrangement
providing for any one or more of the actions specified in the
foregoing clauses (a) through (d).
5. The term "Capital Stock" shall mean all capital stock
of the Corporation authorized to be issued from time to time under
Article FOURTH of these Articles of Incorporation, and, with respect
to any particular Business Combination, the term "Voting Stock" shall
mean all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation generally or which by its
terms may be voted on such Business Combination.
6. The term "Interested Stockholder" shall mean any
Person (other than the Corporation or any Subsidiary and other than
any profit-sharing, employee stock ownership or other employee plan of
the Corporation or any Subsidiary or any trustee of or fiduciary with
respect to any such plan when acting in such capacity and other than
Vinland Property Trust, a California business trust, or any successor
thereof, which remains the record owner of all the outstanding shares
of Common Stock) who (a) is or has announced or publicly disclosed a
plan or intention to become the Beneficial Owner of Common Stock
representing twenty percent (20%) or more of the votes entitled to be
cast by the holders of all then outstanding shares of Common Stock or
(b) is an Affiliate or Associate of the Corporation and at any time
within the two-year period immediately prior to the date in question
was the Beneficial Owner of Common Stock representing twenty percent
(20%) or more of the votes entitled to be cast by the holders of all
shares of Common Stock then outstanding.
7. The term "Person" shall mean any individual, firm,
corporation, partnership or other entity and shall include any group
comprised of any Person and any other Person with whom such Person or
any Affiliate or Associate of such Person has any agreement,
arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of shares of Capital Stock.
8. The term "Subsidiary" means any entity of which a
majority of any class of equity security is beneficially owned by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in sub-part 6 of this
part D, the term Subsidiary shall mean only a company of which a
majority of each class of equity securities is Beneficially Owned by
the Corporation.
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E. 1. A majority of the Board of Directors shall have the
power to determine all questions arising under this Article TENTH,
including, without limitation, (a) whether a Person is an Interested
Stockholder, (b) the number of shares of Capital Stock or other
securities Beneficially Owned by any Person, (c) whether a Person is
an Affiliate or Associate of another, (d) whether a Business
Combination is with, or proposed by, or on behalf of an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder,
(e) whether the assets that are the subject of any Business
Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any
Business Combination has, an aggregate fair market value of $5,000,000
or more or constitutes more than five percent (5%) of the book value
of the total assets or five percent (5%) of the stockholders' equity
of the entity in question, (f) whether the assets or securities that
are the subject of any Business Combination constitute a Substantial
Part, (g) the date on which an Interested Stockholder became an
Interested Stockholder, (h) the occurrence and time of any Acquisition
Date and (i) any other matter relating to the applicability or effect
of this Article TENTH. Any such determination shall be binding and
conclusive on all parties.
2. The Board of Directors shall have the right to demand
that any Person who it believes is or may be an Interested Stockholder
(or who holds of record shares of Capital Stock that are Beneficially
Owned by any Person that the Board of Directors believes is or may be
an Interested Stockholder) supply the Corporation with complete
information as to (a) the record holders of all shares of Capital
Stock that are Beneficially Owned by such Person, (b) the number of
shares of each class or series of Capital Stock that are Beneficially
Owned by such Person and held of record by each such record holder and
the numbers of the stock certificates evidencing such shares and (c)
any other matter relating to the applicability or effect of this
Article TENTH as the Board of Directors may reasonably request. Each
such Person shall furnish such information within ten (10) days after
the receipt of such demand.
F. Nothing contained in this Article TENTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law
or to be in derogation of any action, past or future, which has been or may be
taken by the Board of Directors or the stockholders with respect to the subject
matter contained herein.
G. For the purposes of this Article TENTH, a Business Combination
is presumed to have been proposed by, or on behalf of, an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder or a
Person who thereafter would become such if such Interested Stockholder,
Affiliate, Associate or Person votes or consents to the adoption of any such
Business Combination, unless as to such Interested Stockholder, Affiliate,
Associate or Person a majority of the Board of Directors makes a determination
that such Business Combination is not proposed by or on behalf of such
Interested Stockholder, Affiliate, Associate or Person.
ELEVENTH: Any director of the Corporation may be removed from office
at any time by the vote of stockholders representing not less than two-thirds
of the voting power of the issued and outstanding stock entitled to voting
power.
TWELFTH: The Board of Directors, when evaluating any (a) tender offer
or invitation for tenders, or proposal to make a tender offer or request or
invitation for tenders, by another party, for any equity security of the
Corporation or (b) proposal or offer by another party to (i) merge or
consolidate the Corporation or any Subsidiary (as defined in part C of Article
TENTH) with another corporation, (ii) purchase or otherwise acquire all or a
substantial portion of the properties or assets of the Corporation or any
Subsidiary, or sell or otherwise dispose of to the Corporation or any
Subsidiary all or a substantial portion of the properties or assets of such
other party or (iii) liquidate, dissolve, reclassify the securities of, declare
an extraordinary dividend of, recapitalize or reorganize the Corporation, shall
take into account all factors which the Board of Directors deems relevant
including, without limitation, to the extent so deemed relevant, the continuing
status of the Corporation as a "real estate investment trust," as defined in
Section 856 of the Internal Revenue Code of 1986, as amended, the
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potential impact on creditors, partners, joint venturers and other constituents
of the Corporation and the communities in which the Corporation's offices,
other establishments or investments are located.
THIRTEENTH: Subject to Article FOURTEENTH and applicable law, the
Board of Directors may authorize the Corporation to enter into and perform one
or more agreements with any person whereby, subject to the supervision and
control of the Board of Directors, any such person shall render or make
available to the Corporation managerial, investment, advisory or related
services, office space and other services and facilities, including, if deemed
advisable by the Board of Directors, the management or supervision of the
investments or the day-to-day operations of the Corporation (any such person
being referred to herein as an "Advisor"), upon such terms and conditions as
may be provided in such agreement or agreements including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder by the
Corporation.
FOURTEENTH: The Corporation shall not, directly or indirectly,
contract or engage in any transaction with (a) any director, officer or
employee of the Corporation, (b) any director, officer or employee of any
Advisor, (c) any Advisor or (d) any Affiliate or Associate (as such terms are
defined in part D of Article TENTH) of the Corporation or of any person
identified in the foregoing clauses (a) through (c) unless the material facts
as to the relationship among or financial interest of the relevant individuals
or persons and as to the contract or transaction are disclosed or are known to
the Board of Directors or committee thereof, as the case may be, and the Board
of Directors or committee thereof, as the case may be, determines that such
contract or transaction is fair as to the Corporation and simultaneously
authorizes or ratifies such contract or transaction by the affirmative vote of
a majority of independent directors (as hereinafter defined) entitled to vote
thereon. For purposes of this Article FOURTEENTH, a director of the
Corporation shall be deemed "independent" if such director is neither an
officer nor employee of the Corporation nor a director, officer or employee of
any Advisor.
FIFTEENTH: Meetings of stockholders may be held within or without the
State of Nevada, as the Bylaws of the Corporation may provide. The books of
the Corporation may be kept (subject to any provision contained in the NRS)
outside the State of Nevada at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
SIXTEENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Nevada may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of NRS 78.635 or on the application of trustees in dissolution
or of any receiver or receivers appointed for this Corporation under the
provisions of NRS 78.600 order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence
of such compromise or arrangement, the said compromise or arrangement and said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
SEVENTEENTH: A. Notwithstanding any other provision of these Articles
of Incorporation or the Bylaws of the Corporation, any agreement with any
national securities exchange or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock (as defined in
part D of Article TENTH) required by any other provision of these Articles of
Incorporation, any agreement with any national securities exchange or any
provision of law, the affirmative vote of the holders of record of shares of
Voting Stock representing at least seventy-five percent (75%) of the votes cast
by such holders voting thereon shall be required to alter, amend or repeal
Article SIXTH, Article SEVENTH, Article EIGHTH, Article TENTH, Article
ELEVENTH, Article TWELFTH or
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this Article SEVENTEENTH or to adopt any provision inconsistent therewith;
provided, however, that this part A shall not apply to, and such seventy-five
percent (75%) vote shall not be required for, any alteration, amendment, repeal
or adoption recommended by more than fifty percent (50%) of the entire Board of
Directors.
B. Except as provided in part D of Article FOURTH the Corporation
reserves the right to amend, alter, change or repeal any provision contained in
these Articles of Incorporation, or any amendment hereof, in the manner now or
hereafter prescribed by the laws of the State of Nevada and these Articles of
Incorporation, and all rights and powers conferred herein on stockholders,
directors and officers are subject to such reservation.
If any provision of these Articles of Incorporation is determined to
be invalid, void, illegal or unenforceable, the remaining provisions of these
Articles of Incorporation shall continue to be valid and enforceable and shall
in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
this 3rd day of March, 1997.
/s/ William S. Friedman
---------------------------------
William S. Friedman, Incorporator
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me on March 3, 1997
by William S. Friedman as incorporator of Tarragon Realty Investors, Inc.
/s/ Lawrence S. Hartman
Notary Public, State of New York
No. 02HA5062161
Qualified Kings County
Commission expires June 24, 1998
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APPENDIX D
BYLAWS OF
TARRAGON REALTY INVESTORS, INC.
(AS ADOPTED APRIL 3, 1997)
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE IN NEVADA. The registered office of
Tarragon Realty Investors, Inc. (the "Corporation") in the State of Nevada
shall be in the City of Carson City, or such other place as the Board of
Directors may from time to time authorize by resolution.
SECTION 1.2 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation is located at 3100 Monticello
Avenue, Suite 200, Dallas, Texas 75205. The Board of Directors of the
Corporation (the "Board of Directors") is hereby granted full power and
authority to change the location of the principal office.
SECTION 1.3 OTHER OFFICES. The Corporation may also have offices
at such other places inside or outside the State of Nevada as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 ANNUAL MEETINGS. Annual meetings of stockholders
shall be held within the first eight months of each calendar year, or as soon
as practicable thereafter, commencing with the calendar year 1998.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the
stockholders of the Corporation may be called by resolution of the Board of
Directors, or the Chief Executive Officer, or the Chairman of the Board, or the
President.
SECTION 2.3 TIME AND PLACE OF MEETINGS. Each meeting of
stockholders shall be held at such place within the United States, and at such
hour on such date, as shall be designated by the Board of Directors and stated
in the notice of meeting delivered pursuant to Section 2.4.
SECTION 2.4 NOTICE OF MEETINGS. Except as otherwise provided by
law, written or printed notice of each meeting of stockholders, whether annual
or special, shall be given not less than 10 nor more than 60 days before the
date of such meeting to each stockholder entitled to vote at such meeting or,
in the event that the stockholders are to vote upon any proposal to merge or
consolidate the Corporation or to sell, lease or exchange all or substantially
all of its property and assets, not less than 20 nor more than 60 days before
the date of such meeting. Such notice shall be delivered either personally or
by mail or at the direction of the Chairman of the Board, the President or the
Secretary. Each notice of meeting shall state the place, date and hour of the
meeting.
SECTION 2.5 NATURE OF BUSINESS. At any meeting of stockholders,
only such business shall be conducted as shall have been brought before such
meeting by or at the direction of the Board of Directors, the Chief Executive
Officer, or the Chairman of the Board, or the President, as applicable, or by
any stockholder who complies with the procedures set forth in this Section 2.5.
Except as otherwise provided by Section 3.6 of these Bylaws or by law, the only
business which shall be conducted at any meeting of stockholders shall (i)(a)
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have been specified in the written notice of meeting (or any supplement
thereto) given as provided in Section 2.4, (ii) be brought before the meeting
at the direction of the Board of Directors or the chairman of the meeting or
(iii) have been specified in a written notice (a "Stockholder Meeting Notice")
given to the Corporation, in accordance with all of the following requirements,
by or on behalf of any stockholder who shall have been a stockholder of record
on the record date for such meeting and who shall continue to be entitled to
vote at such meeting. Each Stockholder Meeting Notice must be delivered
personally to, or be mailed to and received by, the Secretary at the principal
office of the Corporation not less than 35 days nor more than 60 days prior to
such meeting; provided, however, that in the event that less than 45 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Each Stockholder Meeting Notice shall set forth (a) a description of
each item of business proposed to be brought before the meeting, (b) the name
and address of the stockholder proposing to bring such item of business before
the meeting, (c) the class and number of shares of stock held of record, owned
beneficially and represented by proxy by such stockholder as of the record date
for the meeting (if such date shall then have been made publicly available) and
as of the date of such Stockholder Meeting Notice, and (d) all other
information which would be required to be included in a proxy statement filed
with the Securities and Exchange Commission (the "Commission") if, with respect
to any such item of business, such stockholder here a participant in a
solicitation subject to Section 14 of the Securities Exchange Act of 1934. No
business shall be brought before any meeting of stockholders otherwise than as
provided in this Section 2.5 or in Section 3.6. When a meeting is adjourned to
another time or place, notice of the adjourned meeting need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken, unless the adjournment is for more than 30 days, or unless after the
adjournment a new record date is fixed for the adjourned meeting, in which case
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting. At the adjourned meeting, any
business may be transacted that might have been transacted at the original
meeting.
SECTION 2.6 QUORUM. Subject to the provisions of the Articles
of Incorporation of the Corporation (the "Articles) and any applicable statute,
the presence in person or by proxy of holders of a majority of the outstanding
shares of the Corporation's voting stock shall constitute a quorum.
SECTION 2.7 VOTING. Subject to the provisions of the Articles and
any applicable statute, a majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon any matter which may properly come before the
meeting, unless more than a majority of the votes cast is required by law or by
the Articles. Subject to the Articles and any applicable statute, each
stockholder of record shall be entitled to one vote for each share registered
in such stockholder's name as of the record date determined pursuant to Section
6.5 below or applicable law. A stockholder entitled to vote may do so either
in person or by proxy executed in writing by such stockholder or by such
stockholder's duly authorized attorney-in-fact. No proxy shall be valid after
eleven months from its date, unless otherwise provided in the proxy. At all
meetings of stockholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of
the meeting.
SECTION 2.8 ORGANIZATION AND ORDER OF BUSINESS. At each meeting
of stockholders, the Chairman of the Board or, if the Chairman of the Board is
absent or unable to act, the Chief Executive Officer or, if the Chief Executive
Officer is also absent or unable to act, the President or, in the absence or
inability to act of all of the Chairman of the Board, the Chief Executive
Officer and the President, the Treasurer shall act as chairman of the meeting.
The Secretary or, if the Secretary is absent or unable to act, any other person
appointed by the chairman of the meeting shall act as secretary of the meeting
and keep the minutes thereof. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
SECTION 2.9 INSPECTORS OF ELECTION. The Board of Directors may,
in advance of any meeting of stockholders, appoint one or more inspectors to
act at such meeting or any adjournment thereof. If the inspectors shall not be
so appointed or if any of them shall fail to appear or act, the chairman of the
meeting
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may, and on the request of any stockholder entitled to vote at such meeting
shall, appoint inspectors. The number of inspectors shall be either one or
three. The inspectors shall determine the number of shares represented at the
meeting, the existence of a quorum and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request
of the chairman of the meeting or any stockholder entitled to vote at such
meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as inspector of an election of directors. Inspectors need not be
stockholders.
SECTION 2.10 ACTION WITHOUT MEETING. Except as otherwise
provided by statute or the Articles, any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth such action, is signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
to take such action at a meeting at which all shares entitled to vote thereon
were present and voted, and such consent and waiver shall be delivered to the
registered office of the Corporation in the State of Nevada, its principal
office or an officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Every consent or waiver shall bear
the date of signature of each stockholder who signs such consent or waiver.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 NUMBER, ELECTION AND TERM OF DIRECTORS. The
Board of Directors shall consist of not fewer than 3 nor more than 15
directors. Subject to the foregoing limits, the Board of Directors may
increase or decrease the number of directors from time to time by resolution
adopted by the affirmative vote of a majority of the entire Board of Directors;
provided, however, that the tenure of office of an incumbent director shall not
be affected by any such increase or decrease. Initially, the names of the
directors shall be as specified in the Articles. A director shall hold office
until the annual meeting of stockholders for the year in which such director's
term expires and until such director's successor shall be elected, subject,
however, to prior death, resignation, retirement or removal from office in
accordance with the Articles and these Bylaws. Any director elected to fill a
vacancy not resulting from an increase in the number of directors shall have
the same remaining term as that of such director's predecessor.
Notwithstanding the foregoing, whenever the holder of any one or more series of
Preferred Stock shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of stockholders, the election
and term of office of such directorships shall be governed by the terms of the
Articles. Directors need not be stockholders.
SECTION 3.2 POWERS. The business and affairs of the
Corporation shall be managed in accordance with the Articles by its Board of
Directors, which may exercise all of the powers of the Corporation, except such
as are by law, the Articles or these Bylaws conferred upon or reserved to the
stockholders. As provided in the Articles, the Board of Directors may delegate
certain duties, including the duty of management of the Corporation's
day-to-day operations or investments, to one or more persons.
SECTION 3.3 VACANCIES. Except as provided by applicable law,
any vacancy in the Board of Directors shall be filled by a majority of the
directors then in office or by a sole remaining director.
SECTION 3.4 RESIGNATION OF DIRECTORS. Any director or member
of a committee may resign at any time. Such resignation shall be made
in writing and shall take effect at the time specified therein or, if no time
is specified, at the time of receipt thereof by the Chairman of the Board, the
President or the Secretary. The acceptance of a resignation, unless otherwise
stated therein, shall not be necessary to make it effective.
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SECTION 3.5 REMOVAL OF DIRECTORS. Any director of the
Corporation may be removed from office at any time by the vote of stockholders
representing not less than two-thirds of the voting power of the issued and
outstanding stock entitled to voting power.
SECTION 3.6 NOMINATION OF DIRECTORS. Except as otherwise
fixed pursuant to Article FOURTH of the Articles relating to the rights of the
holders of any one or more classes or series of Preferred Stock, acting
separately by class or series, to elect, under specified circumstances,
directors at a meeting of stockholders, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been delivered personally to, or been
mailed to and received by the Secretary at, the principal office of the
Corporation not less than 35 days nor more than 60 days prior to the meeting;
provided, however, that, in the event that less than 45 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made. Each
such notice shall set forth (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated,
(ii) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such stockholder as of the record date for the
meeting (if such date shall then have been made publicly available) and as of
the date of such notice, (iii) a representation that the stockholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice, (iv) a description of all arrangements or
understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder, (v) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Commission and (vi) the consent of each nominee to serve as a director of the
Corporation if so elected. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
SECTION 3.7 COMMITTEES. The Board of Directors shall appoint
from among its members an Audit Committee and may appoint other committees,
each to be composed of three or more directors. None of the members of the
Audit Committee shall be employees of the Corporation or any Advisor (as
defined in Article THIRTEENTH of the Articles). Subject to any provisions of
the Articles calling for action by the entire Board of Directors, the Board of
Directors may delegate to any committee any of the powers of the Board of
Directors except the power to determine the number of directors constituting
the Board of Directors, to fill vacancies in the Board of Directors, to take
any action pursuant to Articles TENTH and SEVENTEENTH of the Articles, to
declare dividends or distributions on stock, to recommend to the stockholders
any action which requires stockholder approval, to amend the Bylaws, to approve
any merger or share exchange which does not require stockholder approval and to
issue stock. Notice of committee meetings shall be given in the same manner as
notice for special meetings of the Board of Directors. One-third, but not less
than two, of the members of any committee shall be present in person or by
telephone at any meeting of such committee in order to constitute a quorum for
the transaction of business at such meeting, and the act of a majority present
shall be the act of such committee. The Board of Directors may designate a
chairman of any committee and such chairman or any two members of any committee
may fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. In the absence or disqualification of any member of any
such committee, the members thereof present at any meeting and not disqualified
from voting, whether or not they constitute a quorum, may unanimously appoint
another director to act at the meeting in the place of the absent or
disqualified member. The committees shall keep minutes of their proceedings
and shall report the same to the Board of Directors at the meeting next
succeeding, and any action by the committees shall be subject to revision and
alteration by the Board of Directors, provided that no rights of third persons
shall be affected by any such revision or alteration. The Board of Directors
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members to replace any absent or
disqualified member or to dissolve any such committee.
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SECTION 3.8 MEETINGS. The first meeting of each newly
elected Board of Directors shall he held as soon as practicable after each
annual meeting of stockholders. The meeting may be held at such time and place
as shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written
waiver as provided in Section 4.1 except that no notice or waiver shall be
necessary if such meeting is held immediately after the adjournment, and at the
site, of the annual meeting of stockholders. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be designated by the Board of Directors. Special meetings of the Board
of Directors may be called at any time by two or more directors, or in writing
by a majority of the members of the Executive Committee, if one is constituted,
or by the Chairman of the Board or the President. Special meetings may be held
at such place or places inside or outside the State of Nevada as may be
designated from time to time by the Board of Directors; in the absence of such
designation, such meetings shall be held at such places as may be designated in
the notice of meeting. Notice of the place and time of every special meeting
of the Board of Directors shall be delivered by the Secretary to each director
either personally or by telephone, facsimile, telegram or telegraph, or by
leaving the same at his residence or usual place of business at least
twenty-four hours before the time at which such meeting is to be held, or by
first-class mail, at least four days before the day on which such meeting is to
be held. If mailed, such notice shall be deemed to be given when deposited in
the United States mail addressed to the director at his post office address as
it appears on the records of the Corporation, with postage thereon prepaid.
SECTION 3.9 QUORUM AND VOTING. At any meeting of the
Board, a majority of directors shall constitute a quorum for the transaction of
business and the action of a majority of the directors present at any meeting
at which a quorum is present shall be the action of the Board of Directors,
unless the concurrence of a greater proportion is required for such action by
law, the Articles or these Bylaws. If a quorum shall not be present at any
meeting of directors, the directors present at such meeting may, by a majority
vote, adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 3.10 ORGANIZATION. At each meeting of the Board
of Directors, the Chairman of the Board or, if the Chairman of the Board is
absent or unable to act, the President or, in the absence or inability to act
of both the Chairman of the board and the President, another director chosen by
a majority of the directors present shall act as chairman of and preside at the
meeting. The Secretary or, if the Secretary is absent or unable to act, any
person appointed by the chairman of the meeting shall act as secretary of the
meeting and keep the minutes thereof.
SECTION 3.11 MEETING BY CONFERENCE TELEPHONE. Members of
the Board of Directors may participate in a meeting of the Board of Directors
or any committee thereof by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 3.12 ELECTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board or of such committee, as the case
may be, and such written consent is filed with the minutes of proceedings of
the Board of Directors or such committee.
SECTION 3.13 COMPENSATION OF DIRECTORS. Directors, as
such, shall not receive any stated salary for their services. Directors deemed
"independent" pursuant to the terms of Article FOURTEENTH of the Articles shall
receive compensation of (i) $6,000 per year plus expenses for serving on the
Board of Directors, (ii)$3,000 per year for each committee of the Board of
Trustees on which he serves, (iii) $2,500 per year for each committee
chairmanship and (iv) up to $1,000 per day for any special services rendered by
such director to the Corporation outside of ordinary duties as director, plus
reimbursement for expenses. The Chairman of the Board shall receive additional
compensation of $1,000 per year. By resolution, the Board of Directors may
change or eliminate such compensation or eliminate reimbursement for expenses.
Nothing contained herein shall
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be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
WAIVERS OF NOTICE
SECTION 4.1 WAIVERS OF NOTICE. Notice of the time, place
or purpose of any meeting of stockholders, directors or committee required to
be given under law or under the provisions of the Articles or these Bylaws need
not be given to a person who shall have signed a written waiver, whether before
or after the relevant meeting, or who shall attend such meeting in person (or,
in the case of a meeting of stockholders, in person or by proxy). All such
waivers shall be filed with the records of the relevant meeting.
ARTICLE V
OFFICERS
SECTION 5.1 OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors and shall consist of a
President, one or more Vice Presidents, a Secretary and a Treasurer. The Board
of Directors may from time to time choose other officers or agents of the
Corporation, including in its discretion a Chairman of the Board and/or one or
more Assistant Secretaries or Assistant Treasurers. The directors shall
determine whether the Chairman of the Board, the Vice Chairman of the Board or
the President shall be the Chief Executive Officer. Two or more offices,
except those of (i) President and Vice President, (ii) Secretary and Assistant
Secretary and (iii) Treasurer and Assistant Treasurer, may be held by the same
person, but no officer shall execute, acknowledge or verify an instrument in
more than one capacity if such instrument is required by law, the Articles or
these Bylaws to be executed, acknowledged or verified by two or more officers.
No officer or agent of the Corporation need be a shareholder, a director or a
resident of the State of Nevada.
SECTION 5.2 COMPENSATION. The salaries of all officers and
agents of the Corporation shall be fixed from time to time by the Board of
Directors.
SECTION 5.3 TERM; REMOVAL; RESIGNATION. An officer of the
Corporation shall hold office until the first meeting of the Board of Directors
to occur after the next succeeding annual meeting of stockholders and until
such officer's successor is chosen and qualifies, subject, however, to prior
death, resignation, retirement or removal from office in accordance with these
Bylaws. Any officer or agent may be removed by the Board of Directors
whenever, in its judgment, the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contractual rights,
if any, of the person so removed. Any officer may resign at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein or, if no such time is specified, at the time of receipt
thereof by the Chairman of the Board, the President or the Secretary. The
acceptance of a resignation, unless otherwise stated therein, shall not be
necessary to make it effective. If any office becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.
SECTION 5.4 CHAIRMAN OF THE BOARD; PRESIDENT; VICE CHAIRMAN OF
THE BOARD; CHIEF EXECUTIVE OFFICER. The Chairman of the Board, if any, and
Vice Chairman of the Board, if any, shall each have and perform such duties as
from time to time may be assigned to him by the Board of Directors. The Chief
Executive officer shall, unless otherwise provided by the directors, preside at
all meetings of the Board of Directors and of the shareholders. He shall
exercise the powers and perform the duties usual to a chief executive officer
and, subject to the control of the Board of Directors, shall have general
management and control of the affairs, finances and the business of the
Corporation; he shall appoint and discharge employees and agents of the
Corporation; and he shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall have the general power to execute
bonds, deeds, contracts, conveyances and other instruments in the name of the
Corporation and to affix the Corporate Seal, to appoint all employees and
agents of the Corporation whose appointment is not otherwise provided for and
to fix their compensation subject to the provisions of these
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Bylaws and subject to the approval of the Board of Directors, to remove or
suspend any employee or agent who shall not have been appointed by the Board of
Directors and to suspend for cause, pending final action by the Board of
Directors, any employee or agent who shall have been appointed by the Board of
Directors and he shall exercise and perform such other powers and duties as are
specified in these Bylaws and as may from time to time be prescribed by the
Board of Directors. In the case where the President is not the Chief Executive
Officer, the President, subject to the control of the Chief Executive Officer,
shall have and perform such duties as from time to time may be assigned to him
by the Board of Directors and shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.
SECTION 5.5 VICE PRESIDENT. The Vice President, if one
shall be elected, or, if there shall he more than one, the Vice Presidents in
the order specified by the Board of Directors shall in the absence or
disability of the President perform the duties and exercise the powers of the
President, and shall exercise and perform such other powers and duties as are
specified in these Bylaws and as may from time to time be prescribed by the
Board of Directors.
SECTION 5.6 SECRETARY. The Secretary shall keep a minute
book of all meetings of stockholders and of the Board of Directors. The
Secretary shall keep in safe custody the Corporate Seal and, when authorized by
the Board of Directors, affix the same to any instrument requiring it and shall
exercise and perform such other powers and duties as are specified in these
Bylaws and as may from time to time be prescribed by the Board of Directors.
SECTION 5.7 TREASURER. The Treasurer shall have the
custody of corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Treasurer. The Treasurer shall disburse the funds of the Corporation as
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions and of the financial condition of the Corporation. If
required by the Board of Directors, the Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of that
office and for the restoration to the Corporation, in case of the death,
resignation, retirement or removal of the Treasurer from office, of all books,
papers, vouchers, money and other property of whatever kind in the possession
or under the control of the Treasurer and belonging to the Corporation. The
Treasurer shall exercise and perform such other powers and duties as are
specified in these Bylaws and as may from time to time be prescribed by the
Board of Directors.
SECTION 5.8 DELEGATION OF DUTIES. In the case of the
absence of any officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board of Directors may confer for
the time being the powers or duties, or any of them, of such officer upon any
director.
SECTION 5.9 INDEMNIFICATION. Each officer, director or
employee of the Corporation shall be indemnified by the Corporation to the full
extent permitted under Chapter 78 of the Nevada Revised Statutes and other
applicable law.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 6.1 CERTIFICATES. Records shall be kept by or on
behalf of the Corporation which shall contain the names and addresses of
stockholders, the number and class
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of shares held by them respectively and the number of certificates, if any,
representing the shares, and in which there shall be recorded all transfers of
shares. Each stockholder shall be entitled to a certificate or certificates
which shall certify the number and class of shares owned by such stockholder in
the corporation. Each certificate shall be signed by the Chairman of the
Board, the President or a Vice President and countersigned by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer and may be sealed
with the Corporate Seal; provided, however, that such signatures may be either
manual or facsimile signatures and the Corporate Seal may be either a facsimile
or any other form of Corporate Seal. In case any officer who has signed any
certificate ceases to hold the office in question before such certificate is
issued, such certificate may nevertheless be issued by the Corporation with the
same effect as if the officer had not ceased to hold such office as of the date
of its issue. Each stock certificate shall include on its face the name of the
Corporation, the name of the stockholder and the class of stock and number of
shares represented by the certificate. If the Corporation has authority to
issue stock of more than one class, each stock certificate shall contain on its
face or back a full statement or summary of the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the stock of each class of which the Corporation is authorized to
issue and, if the Corporation is authorized to issue any preferred or special
class in series, the differences in the relative rights and preferences between
the shares of each series to the extent they have been set and the authority of
the Board of Directors to set the relative rights and preferences of subsequent
series. In lieu of such full statement or summary, there may be set forth upon
the face or back of the certificate a statement that the Corporation will
furnish to any stockholder upon request and without charge a full statement of
such information. A summary of such information included in a registration
statement permitted to become effective under the federal Securities Act of
1933, as now or hereafter amended, shall be an acceptable summary for the
purposes of this Section 6.1. Every stock certificate representing shares of
stock which are restricted as to transferability by the Corporation shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restriction to the stockholder on request and
without charge. A stock certificate may not be issued until the stock
represented by it is fully paid, except in the case of stock purchased under an
option plan as permitted by law.
SECTION 6.2 LOST CERTIFICATES. In case any certificate for
shares of the Corporation shall be lost, stolen, mutilated or destroyed,
the Board of Directors, in its discretion, or any transfer agent thereunto duly
authorized by the Board, may authorize the issue of a substitute certificate in
place of the certificate so lost, stolen, mutilated or destroyed, and may cause
such substitute certificate to be countersigned by the appropriate transfer
agent (if any); provided, however, that in each such case the applicant for a
substitute certificate shall furnish to the Corporation and to such of its
transfer agents and registrars as may require the same, evidence to their
satisfaction, in their discretion, of the loss, theft, mutilation or
destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may by them be required. The Board of Directors may
adopt such other provisions and restrictions with reference to lost, stolen,
mutilated or destroyed certificates, not inconsistent with applicable law, as
it shall in its discretion deem appropriate.
SECTION 6.3 TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may in its discretion appoint one or more banks or trust companies in
such city or cities as the Board of Directors may deem advisable, from time to
time, to act as transfer agents or registrars of the Corporation's shares, and
upon such appointments being made, no certificate representing shares shall be
valid until countersigned by one of such transfer agents (if any) and
registered by one of such registrars (if any).
SECTION 6.4 TRANSFER OF STOCK. Subject to the restrictions
contained in the Articles, upon surrender to the Corporation or its transfer
agent of a stock certificate duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 6.5 FIXING OF RECORD DATES; CLOSING OF TRANSFER BOOKS.
The Board of Directors may fix in advance a date as the record date for
the purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or in order to make
a determination of stockholders for any other proper purpose. Such date, in
any case, shall not be more than sixty (60) days, and in case of meeting of
stockholders not less than ten (10) days, prior to the date on which the
particular action requiring such determination of stockholders
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is to be taken. In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period not
to exceed, in any case, twenty (20) days. If the stock transfer books are
closed for the purpose of determining stockholders entitled to notice of or to
vote at a meeting of stockholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting.
SECTION 6.6 REGISTERED STOCKHOLDERS. The Corporation shall
be entitled to recognize the exclusive right of a person registered on
its books as the owner of shares to receive dividends and to vote as such
owner, and to hold liable for calls and assessments, if any, a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
SECTION 6.7 REGULATIONS. The Board of Directors may make
such additional rules and regulations, not inconsistent with these Bylaws, as
it may deem expedient concerning the issue, transfer and registration of
certificates for the Corporation's shares.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 DIVIDENDS. Dividends, if any, upon the
capital stock of the Corporation, subject to the provisions of the Articles,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to applicable law. Dividends may be paid in cash, property or the
Corporation's shares, subject to the provisions of applicable law and of the
Articles. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sums as the directors
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, for equalizing dividends or for repairing or maintaining
any property of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
SECTION 7.2 ANNUAL REPORT. The Chairman of the Board,
the President, a Vice President or the Treasurer shall prepare or cause to be
prepared annually a full and correct statement of the affairs of the
Corporation, including a balance sheet and a financial statement of operations
for the preceding fiscal year. Such balance sheet and financial statement may
be, but are not required by these Bylaws to be, certified by independent
certified public accountants. Such report shall also be submitted at the annual
meeting and shall be filed within twenty (20) days thereafter at the principal
office of the Corporation.
SECTION 7.3 CHECKS. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness issued in the
name of the Corporation shall be signed by the President or the Treasurer or by
such officer or officers as the Board of Directors may from time to time
designate.
SECTION 7.4 DEPOSITORIES AND CUSTODIANS. The funds of the
Corporation shall be deposited with such banks or other depositories as the
Treasurer may from time to time designate. All securities and other
investments shall be deposited in the safekeeping of such banks or other
companies as the Board of Directors may from time to time designate.
SECTION 7.5 BOOKS OF ACCOUNT AND RECORDS. The Corporation
shall maintain at its principal office correct and complete books and records
of account of all the business and transactions of the Corporation. Upon
request of any stockholder, there shall be made available in accordance with
the provisions of Nevada law a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
SECTION 7.6 INFORMATION FOR INSPECTION. Any stockholder of
the Corporation, or any agent thereof, may inspect and copy during usual
business hours these Bylaws, minutes of the proceedings of meetings of
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
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SECTION 7.7 FISCAL YEAR. The fiscal year of the Corporation
shall be the calendar year.
SECTION 7.8 CORPORATE SEAL. The Corporate Seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Nevada." The Corporate Seal may be used by causing
it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE VIII
AMENDMENTS
SECTION 8.1 DIRECTORS. In furtherance and not in limitation of
the powers conferred by statute, the Board of Directors is expressly authorized
to make, adopt, alter, amend, change or repeal the Bylaws of the Corporation.
SECTION 8.2 STOCKHOLDERS. The stockholders of the Corporation
may not make, adopt, alter, amend, change or repeal the Bylaws of the
Corporation except upon the affirmative vote of not less than seventy-five
percent (75%) of the outstanding stock of the Corporation entitled to vote
thereon; provided, however, that the power of the stockholders to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation is further subject
to the provisions of the Articles of Incorporation.
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APPENDIX E
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
CONSOLIDATED CAPITAL REALTY INVESTORS
This Amended and Restated Declaration of Trust is made and entered
into as of May 27, 1987, and will be recorded in Alameda County, California, as
soon as reasonably possible after execution. The original Declaration of Trust
was entered on July 18, 1973, and was amended on October 19, 1973, and March
27, 1974. This Amended and Restated Declaration of Trust supersedes and
overrides all prior Declarations of Trust of Consolidated Capital Realty
Investors (the "Trust") and incorporates changes approved by the Shareholders
at the Trust's Annual Meeting of Shareholders held May 27, 1987.
Fred H. Field, Albert H. Schaaf, Douglas H. Temple, Thomas J. Fitzmeyers, David
V. John, and Betty Hood-Gibson do hereby agree to hold in trust, as Trustees,
any and all property, real, personal, or otherwise, tangible or intangible, of
every type and description, which is transferred, conveyed, or paid to them as
such Trustees, and all rents, income, profits, and gains therefrom for the
benefit of the Shareholders hereunder, subject to the terms and conditions and
for the uses and purposes hereinafter set forth.
ARTICLE I
The Trust: Definitions
1.1. Name. The name of the Trust shall be "Consolidated Capital
Realty Investors." As far as practicable and except as otherwise provided in
this Declaration, the Trustees shall conduct the Trust's activities, execute
all documents, and sue or be sued in the name of Consolidated Capital Realty
Investors, or in their names as Trustees of Consolidated Capital Realty
Investors. If the Trustees determine that the use of such name is not
practicable, legal, or convenient, they may use such other designation or may
adopt another name under which the Trust holds property or conducts its
activities.
If Consolidated Capital Equities Corporation, a Colorado corporation,
or any parent, subsidiary, affiliate, or successor of such corporation shall
cease, for any reason, to render to the Trust the services of Advisor (as
defined in Section 1.4 hereof) pursuant to the contract referred to in Article
IV hereof and any renewal or extension of such contract, then the Trustees
shall, upon request of Consolidated Capital Equities Corporation or its
successors, and without any vote or consent of the Shareholders of this Trust
being required, promptly amend this Declaration of Trust to change the name of
the Trust to one which does not include any reference to "Consolidated Capital"
or "Johnstown/Consolidated" or any approximation thereof.
1.2. Place of Business. The principal office of the Trust shall be
2000 Powell Street in the City of Emeryville, California. However, the
Trustees may, from time to time, change such location and maintain other
offices or places of business.
1.3. Nature of Trust. The Trust is a real estate investment trust
(also known as a business trust for real estate purposes) organized under the
laws of the State of California. It is intended that the Trust shall carry on
business as a "real estate investment trust" (hereinafter called "REIT") as
described in the REIT Provisions of the Internal Revenue Code. The Trust is
not a general partnership, limited partnership, joint venture, corporation, or
joint stock company or association (but nothing herein shall preclude the Trust
from being taxed as an association under the REIT Provisions of the Internal
Revenue Code), nor shall the Trustees or Shareholders or any of them for any
purpose be, nor be deemed to be, nor treated in any way whatsoever to be,
liable or responsible hereunder as partners or joint venturers. The
relationship of the Shareholders to the
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Trustees shall be solely that of beneficiaries of the Trust, and their rights
shall be limited to those conferred upon them by this Declaration.
1.4. Definitions. The terms defined in this Section 1.4, whenever
used in this declaration, shall, unless the context otherwise requires, have
the respective meanings hereinafter specified in this Section 1.4. In this
Declaration, words in the singular number include the plural, and words in the
plural number include the singular.
(a) Advisor. "Advisor" shall mean any Person appointed,
employed, or contracted with by the Trustees under the provisions of
Article IV hereof.
(b) Affiliate. "Affiliate" shall mean, as to any Person,
any other Person who owns beneficially, directly, or indirectly, 1% or
more of the outstanding capital stock, shares, or equity interests of
such Person or of any other Person which controls, is controlled by,
or is under common control with, such Person or is an officer, retired
officer, director, employee, partner, or trustee of such Person or of
any other Person which controls, is controlled by, or is under common
control with, such Person.
(c) Annual Meeting of Shareholders. "Annual Meeting of
Shareholders" shall have the meaning set forth in the first sentence
of Section 6.7.
(d) Annual Report. "Annual Report" shall have the
meaning set forth in Section 6.9.
(e) Appraisal. "Appraisal" shall mean the value as of
the date of the appraisal of Real Property in its existing state or in
a state to be created as determined by the Trustees, the Advisor, or
by a disinterested person having no economic interest in the Real
Property who is a member in good standing of the American Institute of
Real Estate Appraisers (M.A.I.) or who in the sole judgment of the
Trustees is properly qualified to make such determination. The
Trustees may in good faith rely on a previous Appraisal made on behalf
of other Persons, provided it meets the aforesaid standards and was
made in connection with an investment in which the Trust acquires an
entire or participating interest or which was prepared not earlier
than two years prior to the acquisition by the Trust of its interest
in the Real Property or Mortgage Loan. In appraising such properties,
appraisers may take into consideration each of the specific terms and
conditions of a purchase, including any leaseback or other guarantee
arrangement contained therein. Such appraisal may not necessarily
represent the cash value of the property, but may consider the value
of the income stream from such property plus the discounted value of
the fee interest and other terms of the purchase.
(f) Book Value. "Book Value" of an asset or assets shall
mean the value of such asset or assets on the books of the Trust,
before provision for amortization, depreciation or depletion and
before deducting any indebtedness or other liability in respect
thereof, except that no asset shall be valued at more than its fair
market value as determined by the Trustees.
(g) Book Value of Invested Assets. "Book Value of
Invested Assets" shall mean the Book Value of the Trust's total
assets, but excluding good will and other intangible assets, cash,
cash items and obligations of municipal, state and federal governments
and governmental agencies (other than obligations secured by a lien on
real property owned, or to be acquired, by such governments or
governmental agencies, and securities of the Federal Housing
Administration, the Federal National Mortgage Association and other
governmental agencies issuing securities backed by a pool of
mortgages).
(h) Construction Loans. "Construction Loans" shall mean
Mortgage Loans made to finance all or part of the cost of acquiring
land (including leaseholds therein) and the construction of buildings
or other improvements thereon.
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(i) Declaration. "Declaration" shall mean this
Declaration of Trust and all amendments, restatements, or
modifications thereof. References in this Declaration to "herein,"
"hereof," and "hereunder" shall be deemed to refer to this Declaration
and shall not be limited to the particular text, article, or section
in which such words appear.
(j) Development Loans. "Development Loans" shall mean
Mortgage Loans made to finance all or part of the cost of the
acquisition of land (including leaseholds therein) and the development
of such land into finished sites, including the installation of
utilities, drainage, sewage, road systems and other improvements prior
to commencement of construction.
(k) First Mortgage. "First Mortgage" shall mean a
Mortgage which takes priority or precedence over all other charges or
liens upon the same Real Property, other than a lessee's interest
therein, and which must be satisfied before such other charges are
entitled to participate in the proceeds of any sale. Such mortgage
may be upon a lessee's interest in Real Property. Such priority shall
not be deemed as abrogated by liens for taxes, assessments which are
not delinquent or remain payable without penalty, contracts (other
than contracts for repayment of borrowed monies), or leases,
mechanic's and materialman's liens for work performed and materials
furnished which are not in default or are in good faith being
contested and other claims normally deemed in the same local
jurisdiction not to abrogate the priority of a First Mortgage.
(l) First Mortgage Loans. "First Mortgage Loans" shall
mean Mortgage Loans secured or collateralized by First Mortgages.
(m) Junior Mortgage. "Junior Mortgage" shall mean a
Mortgage which (1) has the same priority or precedence over charges or
encumbrances upon Real Property as that required for a First Mortgage
except that it is subject to the priority of one or more other
Mortgages, and (2) which must be satisfied before such other charges
or liens (other than prior Mortgages) are entitled to participate in
the proceeds of any sale.
(n) Junior Mortgage Loans. "Junior Mortgage Loans" shall
mean Mortgage Loans secured or collateralized by Junior Mortgages.
(o) Mortgage Loans. "Mortgage Loans" shall mean notes,
debentures, bonds and other evidence of indebtedness or obligation
which are negotiable or nonnegotiable and which are secured or
collateralized by Mortgages.
(p) Mortgages. "Mortgages" shall mean mortgages, deeds
of trust, or other security deeds on Real Property or rights or
interests in Real Property.
(q) Net Asset Value. "Net Asset Value" shall mean the
Book Value of all the assets of the Trust minus all the liabilities of
the Trust.
(r) Net Income. "Net Income" for any period shall mean
the net income of the Trust for such period computed on the basis of
its results of operations for such period, after deduction of all
expenses other than the regular and incentive compensation payable to
the Advisor and other than extraordinary items, gains, and losses from
the disposition of assets of the Trust and amortization, and
depreciation or depletion of the assets of the Trust.
(s) Operating Expenses. "Operating Expenses" shall mean
the aggregate annual expenses of every character regarded as operating
expenses in accordance with generally accepted accounting principles,
as determined by independent accountants selected by the Trustees,
including regular and incentive compensation (other than incentive
compensation fees in respect of the Trust's net realized capital
gains) payable to the Advisor, excluding, however, the following: the
cost of money borrowed
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by the Trust; taxes on income and taxes and assessments on real
property and all other taxes applicable to the Trust; legal, auditing,
accounting, underwriting, brokerage listing, registration and other
fees, and printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration and
stock exchange listing of the Trust's securities; fees and expenses
paid to independent contractors, mortgage servicers, consultants,
managers, and other agents retained by or on behalf of the Trust;
expenses directly connected with the acquisition, disposition and
ownership of real estate interests or mortgage loans or other property
(including the costs of foreclosure, insurance premiums, legal
services, brokerage and sales commissions, maintenance, repair, and
improvement of property), other than expenses with respect thereto
(with the exception of legal services) of employees of the Advisor;
expenses of maintaining and managing real estate equity interests and
processing and servicing mortgage, development, construction and other
loans; expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by
the Trustees to holders of securities of the Trust; all expenses
connected with communications to holders of securities of the Trust
and the other bookkeeping and clerical work necessary in maintaining
relations with holders of securities, including the cost of printing
and mailing certificates for securities and proxy solicitation
materials and reports to such holders; transfer agent's, registrar's
and indenture trustee's fees and charges; and exclusive of reserves
for depletion, depreciation and amortization and losses and provisions
for losses.
(t) Person. "Person" shall mean and include individuals,
corporations, limited partnerships, general partnerships, joint stock
companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other
entities and governments and agencies and political subdivisions
thereof.
(u) Real Property. "Real Property" shall mean and include
land, rights in land, leasehold interests (including, but not limited
to, interests of a lessor or lessee therein), and any buildings,
structures, improvements, fixtures, and equipment located on or used
in connection with land, leasehold interests, and rights in land or
interests therein, but does not include Mortgages, Mortgage Loans, or
interests therein.
(v) REIT Provisions of the Internal Revenue Code. "REIT
Provisions of the Internal Revenue Code" shall mean Part II,
Subchapter M of Chapter 1, of the Internal Revenue Code of 1954, as
now enacted or hereafter amended, or successor statutes, and
regulations and rulings promulgated thereunder.
(w) Securities. "Securities" shall mean any stock,
shares, voting trust certificates, bonds, debentures, notes, or other
evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly
known as "securities," or any certificates of interest, shares or
participations in temporary or interim certificates for, receipts for,
guarantees of, or warrants, options, or rights to subscribe to,
purchase, or acquire any of the foregoing.
(x) Shares. "Shares" shall mean the shares of beneficial
interest of the Trust as described in Section 6.1.
(y) Shareholders. "Shareholders" shall mean, as of any
particular time, all holders of record of outstanding Shares at such
time.
(z) Total Assets of the Trust Estate. "Total Assets of
the Trust Estate" shall mean the value of all the assets of the Trust
Estate as shown on the books of the Trust.
(aa) Trustees. "Trustees" shall mean, as of any
particular time, Trustees holding office under this Declaration at
such time, whether they be the Trustees named herein or additional or
successor Trustees, and shall not include the officers,
representatives or agents of the Trust, or the
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Shareholders, but nothing herein shall be deemed to preclude the
Trustees from also serving as officers, representatives, or agents of
the Trust, or from owning Shares.
(bb) Trust Estate. "Trust Estate" shall mean, as of any
particular time, any and all property, real, personal, or otherwise,
tangible or intangible, which is owned or held by the Trust or the
Trustees, including, but not limited to, property which is
transferred, conveyed, or paid to the Trust or Trustees, and all
rents, income, profits, and gains therefrom.
(cc) Trustees' Regulations. "Trustees' Regulations" shall
have the meaning set forth in Section 3.3.
(dd) Wrap-around Loan. "Wrap-around Loan" shall mean a
Junior Mortgage Loan in an amount equal to the balance due under an
existing First Mortgage Loan plus an additional amount advanced by the
lender holding the Junior Mortgage, where the existing First Mortgage
Loan will not be retired.
ARTICLE II
Trustees
2.1. Number, Term of Office and Qualifications of Trustees. There
shall be no less than three (3) nor more than fifteen (15) Trustees. The
current Trustees are the six signatories hereto. Within the limits set forth
in this Section 2.1, the number of Trustees may be increased or decreased from
time to time by the Trustees or by the Shareholders. Subject to the provisions
of Section 2.3, each Trustee shall hold office until the expiration of his term
and until the election and qualification of his successor. The term of the
Trustees executing this Declaration, or of any successor or successors to them,
duly elected hereunder prior to the Annual Meeting of the Shareholders to be
held following the close of the Trust's fiscal year in 1975, shall expire at
such Annual Meeting of the Shareholders. Thereafter, the term of each Trustee
shall expire at the Annual Meeting of the Shareholders following the election
of such Trustee. Trustees may be reelected. A Trustee shall be an individual
at least twenty-one (21) years of age who is not under legal disability. No
person shall be eligible for election, reelection or appointment as Trustee
after having obtained the age of seventy (70) years. A Trustee shall qualify
as such when he has either signed this Declaration or agreed in writing to be
bound by it. Unless otherwise required by law or by action of the Trustees, no
Trustee shall be required to give bond, surety or security in any jurisdiction
for the performance of any duties or obligations hereunder. The Trustees, in
their capacity as trustees, shall not be required to devote their entire time
to the business and affairs of the Trust. A majority of the Trustees shall at
all times be persons who are not Affiliates of Consolidated Capital Equities
Corporation; provided, however, that upon a failure to comply with this
requirement because of the death, resignation, or removal of a Trustee who is
not such an Affiliate, such requirement shall not be applicable for a period of
sixty (60) days.
2.2. Compensation and Other Remuneration. The Trustees shall be
entitled to receive such reasonable compensation for their services as Trustees
as they may determine from time to time; provided, however, that Trustees and
officers of the Trust who are affiliated with the Advisor or any of its
Affiliates shall not receive compensation from the Trust for their services as
Trustees or officers of the Trust. The Trustees, either directly or
indirectly, shall also be entitled to receive remuneration for services
rendered to the Trust in any other capacity. Such services may include,
without limitation, services as an officer of the Trust, legal, accounting, or
other professional services, or services as a broker, transfer agent, or
underwriter, whether performed by a Trustee or by any person affiliated with a
Trustee.
2.3. Resignation, Removal and Death of Trustees. The term of
office of a Trustee shall terminate and a vacancy shall occur in the event of
the death, resignation, bankruptcy, adjudicated incompetence or other
incapacity to exercise the duties of the office, or removal of a Trustee. A
Trustee may resign at any time by giving written notice in recordable form to
the remaining Trustees at the principal office of the Trust. Such resignation
shall take effect on the date such notice is given, or at any later time
specified in the notice, without need for prior
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or subsequent accounting. A Trustee may be removed at any time, with or
without cause, by vote or consent of holders of a majority of the outstanding
Shares entitled to vote thereon, or by a majority of the remaining Trustees. A
Trustee judged incompetent or bankrupt or for whom a guardian or conservator
has been appointed, shall be deemed to have resigned as of the date of such
adjudication or appointment. Upon the resignation or removal of any Trustee, or
upon his otherwise ceasing to be a Trustee, he shall execute and deliver such
documents as the remaining Trustees shall require for the conveyance of any
Trust property held in his name, and shall account to the remaining Trustee or
Trustees, as they require, for all property which he holds as Trustee and shall
thereupon be discharged as Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall perform the acts set forth in the
preceding sentence, and the discharge mentioned therein shall run to such legal
representative and to the incapacitated Trustee or the estate of the deceased
Trustee, as the case may be.
2.4. Vacancies. If any or all of the Trustees cease to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death, or
otherwise, such event shall not terminate the Trust or affect its continuity.
Until vacancies are filled, the remaining Trustee or Trustees (even though
fewer than three [3]) may exercise the powers of the Trustees hereunder.
Vacancies (including vacancies created by increases in number) may be filled by
the remaining Trustee or Trustees, or by the vote or consent of holders of a
majority of the outstanding shares entitled to vote thereon. If at any time
there shall be no Trustees in office, successor Trustees shall be elected by
the Shareholders as provided in Section 6.7.
2.5. Successor and Additional Trustees. The right, title, and
interest of the Trustees in and to the Trust Estate shall also vest in
successor and additional Trustees upon their qualification, and they shall
thereupon have all the rights and obligations of Trustees hereunder. Such
right, title, and interest shall vest in the Trustees, whether or not
conveyance documents have been executed and delivered pursuant to Section 2.3
or otherwise.
2.6. Actions by Trustees. A quorum for all meetings of the
Trustees shall be a majority of the Trustees. Common, interested, or
affiliated Trustees may be counted in determining the presence of a quorum at a
meeting of the Trustees. Unless specifically provided otherwise in this
Declaration, the Trustees may act by a vote or resolution at a meeting at which
a quorum is present, or without a meeting by a written vote, resolution, or
other writing consenting to said action, signed by a majority of the Trustees.
Every act or decision done or made by a majority of the Trustees present at a
meeting duly held at which a quorum is present is the act of the Trustees. Any
agreement, deed, mortgage, lease, or other instrument or writing executed by
one or more of the Trustees, or by any authorized person, shall be valid and
binding upon the Trustees and upon the Trust when ratified by action of the
Trustees.
2.7 Executive Committee. The Trustees may appoint from among
their own number an executive committee of three or more persons to whom they
may delegate from time to time such of the powers herein given to the Trustees
as they may deem advisable. A majority of the Executive Committee shall at all
times be Trustees who are not Affiliates of Consolidated Capital Equities
Corporation; provided, however, that upon a failure to comply with this
requirement because of the death, resignation, or removal of a Trustee who is
not such an Affiliate, such requirement shall not be applicable for a period of
sixty (60) days.
ARTICLE III
Trustees' Powers
3.1. Power and Authority of Trustees. The Trustees, subject only
to the specific limitations contained in this Declaration, shall have, without
further or other authorization, and free from any power or control on the part
of the Shareholders, full, absolute, and exclusive power, control, and
authority over the Trust Estate and over the business and affairs of the Trust
to the same extent as if the Trustees were the sole owners thereof in their own
right, and may do all such acts and things as in their sole judgment and
discretion are necessary for or incidental to or desirable for the carrying out
of any of the purposes of the Trust or the conducting of the business of the
Trust. Any determination made in good faith by the Trustees of the purposes of
the Trust or the existence of any power or authority hereunder shall be
conclusive. In construing the provisions of this Declaration,
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presumption shall be in favor of the grant of powers and authority to the
Trustees. The enumeration of any specific power or authority herein shall not
be construed as limiting the general powers or authority or any other specified
power or authority conferred herein upon the Trustees.
3.2. Specific Powers and Authorities. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule or law, the Trustees, without
any action or consent by the Shareholders, shall have and may exercise at any
time and from time to time the following powers and authorities which may or
may not be exercised by them in their sole judgment and discretion and in such
manner and upon such terms and conditions as they may from time to time deem
proper:
(a) To retain, invest, and reinvest the capital or other
funds of the Trust in real or personal property of any kind, all
without regard to whether any such property is authorized by law for
the investment of Trust funds or whether any investments may mature
before the possible termination of the Trust, and to possess and
exercise all the rights, powers, and privileges appertaining to the
ownership of the Trust Estate and to increase the capital of the Trust
at any time by the issuance of additional Shares for such
consideration as they deem appropriate.
(b) For such consideration as they deem proper, to invest
in, purchase, or otherwise acquire for cash or other property or
through the issuance of Shares or through the issuance of notes,
debentures, bonds, or other obligations of the Trust and hold for
investment real, personal or mixed, tangible or intangible, property
of any kind wherever located in the world, including, without
limitation, (a) the entire or any participating interest in rents,
lease payments, or other income from, or the entire or any
participating interest in the profits from or the entire or any
participating interest in the equity or ownership of, Real Property;
(b) the entire or any participating interest in notes, bonds, or other
obligations which are secured by Mortgages; (c) in connection with any
such investment, purchase, or acquisition, a share of rents, lease
payments, or other gross income from or a share of the profits from or
a share in the equity or ownership of Real Property, either directly
or through joint venture general or limited partnership or other
lawful combinations or associations; (d) loans secured by the pledge
or transfer of Mortgages; and (e) Securities of every nature, whether
or not secured by Mortgage Loans. The Trustees shall also have the
power to develop, operate, pool, unitize, grant production payments
out of, or lease or otherwise dispose of mineral, oil, and gas
properties and rights.
(c) To sell, rent, lease, hire, exchange, release,
partition, assign, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer, or otherwise
dispose of any and all of the Trust Estate by deeds, trust deeds,
assignments, bills of sale, transfers, leases, mortgages, financing
statements, security agreements, and other instruments for any of such
purposes executed and delivered for and on behalf of the Trust or the
Trustees by one or more of the Trustees or by a duly authorized
officer, employee, agent, or any nominee of the Trust.
(d) To issue Shares, bonds, debentures, notes or other
evidences of indebtedness which may be secured or unsecured and may be
subordinated to any indebtedness of the Trust and may be convertible
into Shares and which may include options, warrants, and rights to
subscribe to, purchase, or acquire any of the foregoing, all without
vote of or other action by the Shareholders to such Persons for such
cash, property, or other consideration (including Securities issued or
created by, or interests in any Person) at such time or times and on
such terms as the Trustees may deem advisable and to list any of the
foregoing Securities issued by the Trust on any securities exchange
and to purchase or otherwise acquire, hold, cancel, reissue, sell and
transfer any of such Securities.
(e) To enter into leases, contracts, obligations, and
other agreements for a term extending beyond the term of office of the
Trustees and beyond the possible termination of the Trust or for a
lesser term.
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(f) To borrow money and give negotiable or non-negotiable
instruments therefor; to guarantee, indemnify, or act as surety with
respect to payment or performance of obligations of third parties; to
enter into other obligations on behalf of the Trust; and to assign,
convey, transfer, mortgage, subordinate, pledge, grant security
interests in, encumber or hypothecate the Trust Estate to secure any
of the foregoing; provided that, upon and after giving effect to any
proposed borrowing, the amount of outstanding indebtedness of the
Trust for money borrowed from or guaranteed to others would not exceed
300% of the Net Asset Value of the Trust. Any excess in borrowing
over such 300% level shall be approved by a majority of the Trustees
who are not Affiliates of the Advisor or any of its Affiliates, and
disclosed to the Shareholders in the next quarterly report of the
Trust, along with justification for such excess; provided that such
authority can only be exercised to permit the issuance of
collateralized mortgage obligations ("CMOs"), regular or residual
interests in real estate mortgage investment conduits ("REMICs"), or
any other mortgage-backed security.
(g) To lend money, whether secured or unsecured.
(h) To create reserve funds for any purpose.
(i) To incur and pay out of the Trust Estate any charges
or expenses, and disburse any funds of the Trust, which charges,
expenses, or disbursements are, in the opinion of the Trustees,
necessary for or incidental to or desirable for the carrying out of
any of the purposes of the Trust or the conducting of the business of
the Trust, including, without limitation, taxes and other governmental
levies, charges and assessments of whatever kind or nature, imposed
upon or against the Trustees in connection with the Trust or the Trust
Estate or upon or against the Trust Estate or any part thereof, and
for any of the purposes herein.
(j) To deposit funds or Securities held by the Trust in
banks, trust companies, savings and loan associations and other
depositories, whether or not such deposits will draw interest, the
same to be subject to withdrawal on such terms and in such manner and
by such Person or Persons (including any one or more Trustees,
officers, agents, or representatives) as the Trustees may determine.
(k) To possess and exercise all the rights, powers, and
privileges appertaining to the ownership of all or any interests in,
or Mortgages or Securities issued or created by, any Person, forming
part of the Trust Estate, to the same extent that an individual might
and, without limiting the generality of the foregoing, to vote or give
any consent, request, or notice, or waive any notice, either in person
or by proxy or power of attorney, with or without power of
substitution, to one or more Persons, which proxies and powers of
attorney may be for meetings or action generally, or for any
particular meeting or action, and may include the exercise of
discretionary powers.
(l) To enter into joint ventures, general or limited
partnerships and any other lawful combinations or associations.
(m) To elect, appoint, engage, or employ such officers
for the Trust as the Trustees may determine, who may be removed or
discharged at the discretion of the Trustees, such officers to have
such powers and duties, and to serve such terms and at such
compensation, as may be prescribed by the Trustees or by the Trustees'
Regulations; to engage or employ any Persons (including, subject to
the provisions of Sections 7.5 and 7.6, any Trustee or officer and any
Person with which any Trustee or officer is directly or indirectly
connected) as agents, representatives, employees, or independent
contractors (including, without limitation, real estate advisors,
investment advisors, transfer agents, registrars, underwriters,
accountants, attorneys at law, real estate agents, managers,
appraisers, brokers, architects, engineers, construction managers,
general contractors or otherwise) in one or more capacities, and to
pay compensation from the Trust for services in as many capacities as
such Person may be so engaged or employed, and, except as prohibited
by law, to delegate any of the powers and duties of the Trustees to
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any one or more Trustees, agents, representatives, officers,
employees, independent contractors, or other Persons.
(n) To determine whether monies, securities, or other
assets received by the Trust shall be charged or credited to income or
capital or allocated between income and capital, including the power
to amortize or fail to amortize any part or all of any premium or
discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a
discount, as income or capital or to apportion the same between income
and capital, to apportion the sale price of any asset between income
and capital, and to determine in what manner any expenses or
disbursements are to be borne as between income and capital, whether
or not in the absence of the power and authority conferred by this
subsection such monies, Securities, or other assets would be regarded
as income or as capital or such expense or disbursement would be
charged to income or to capital; to treat any dividend or other
distribution on any investment as income or capital or apportion the
same between income and capital; to provide or fail to provide
reserves for depreciation, amortization, or obsolescence in respect of
all or any part of the Trust Estate subject to depreciation,
amortization, or obsolescence in such amounts and by such methods as
they shall determine; to allocate to the share of beneficial interest
account less than all of the consideration received for Shares and to
allocate the balance thereof to paid-in capital; and to determine the
method or form in which the accounts and records of the Trust shall be
kept and to change from time to time such method or form.
(o) To determine from time to time the value of all or
any part of the Trust Estate and of any services, Securities, assets,
or other consideration to be furnished to or acquired by the Trust,
and from time to time to revalue all or any part of the Trust Estate
in accordance with such appraisals or other information as are, in the
Trustees' sole judgment, necessary and/or satisfactory.
(p) To collect, sue for, and receive all sums of money or
other assets coming due to the Trust, and to engage in, intervene in,
prosecute, join, defend, compound, compromise, abandon or adjust, by
arbitration or otherwise any actions, suits, proceedings, disputes,
claims, controversies, demands or other litigation relating to the
Trust, the Trust Estate or the Trust's affairs; to enter into
agreements therefor, whether or not any suit is commenced or claim
accrued or asserted and, in advance of any controversy, to enter into
agreements regarding arbitration, adjudication, or settlement thereof.
(q) To renew, modify, release, compromise, extend,
consolidate, or cancel, in whole or in part, any obligation to or of
the Trust.
(r) To purchase and pay for out of the Trust Estate
insurance contracts and policies insuring the Trust Estate against any
and all risks and insuring the Trust and/or any or all of the
Trustees, the Shareholders, officers, employees, agents, investment
advisors, or independent contractors of the Trust against any and all
claims and liabilities of every nature asserted by any Person arising
by reason of any action alleged to have been taken or omitted by the
Trust or by any such Person as Trustee, Shareholder, officer,
employee, agent, investment advisor or independent contractor, whether
or not the Trust would have the power to indemnify such Person against
such liability.
(s) To cause legal title to any of the Trust Estate to be
held by and/or in the name of the Trustees, or except as prohibited by
law, by and/or in the name of the Trust or one or more of the Trustees
or any other Person, on such terms, in such manner, with such powers
in such Person as the Trustees may determine, and with or without
disclosure that the Trust or Trustees are interested therein.
(t) To adopt a fiscal year for the Trust, and from time
to time to change such fiscal year.
(u) To adopt and use a seal (but the use of a seal shall
not be required for the execution of instruments or obligations of the
Trust).
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(v) To make, perform, and carry out, or cancel and
rescind, contracts of every kind for any lawful purpose without limit
as to amount, with any Person, firm, trust, association, corporation,
municipality, county, parish, state, territory, government, or other
municipal or governmental subdivision. These contracts shall be for
such duration and upon such terms as the Trustees in their sole
discretion shall determine.
(w) To do all other such acts and things as are
incidental to the foregoing, and to exercise all powers which are
necessary or useful to carry on the business of the Trust, to promote
any of the purposes for which the Trust is formed, and to carry out
the provisions of this Declaration.
3.3. Trustees' Regulations. The Trustees may make, adopt, amend,
or repeal regulations (the "Trustees' Regulations") containing provisions
relating to the business of the Trust, the conduct of its affairs, its rights
or powers and the rights or powers of its Shareholders, Trustees, or officers
not inconsistent with law or with this Declaration.
3.4. Additional Powers. The Trustees shall additionally have and
exercise all the powers conferred by the laws of California upon business
trusts or real estate investment trusts formed under such laws, insofar as such
laws are not in conflict with the provisions of this Declaration.
3.5. Incorporation. Upon a vote of two-thirds (2/3) of the
Trustees, and with the approval of the holders of a majority of the Shares, the
Trustees shall have the power to cause to be organized or to assist in
organizing a corporation or corporations under the laws of any jurisdiction or
any other trust, partnership, association, or other organization to take over
the Trust Estate or any part or parts thereof or to carry on any business in
which the Trust shall directly or indirectly have any interest, and to sell,
convey, and transfer the Trust Estate or any part or parts thereof to any such
corporation, trust, partnership, association, or organization in exchange for
the shares or securities thereof or otherwise, and to lend money to, subscribe
for the shares or securities of, and enter into any contracts with any such
corporation, trust, association, or organization, or any corporation, trust,
partnership, association, or organization in which the Trust holds or is about
to acquire shares or any other interest. The Trustees may also cause a merger
or consolidation between the Trust or any successor thereto and any such
corporation if and to the extent permitted by law, provided that under the law
then in effect, the federal income tax benefits available to qualified Real
Estate Investment Trusts and their Shareholders, or substantially similar
benefits, are also available to such corporation, trust, association, or
organization and its stockholders or members, and provided that the resulting
investment would be substantially equal in quality and substantially the same
in type as an investment in the Shares.
ARTICLE IV
Advisor: Limitation on Operating Expenses
4.1. Employment of Advisor. The Trustees are responsible
for the general policies of the Trust and for such general supervision of the
business of the Trust conducted by all officers, agents, employees, advisors,
managers, or independent contractors of the Trust as may be necessary to ensure
that such business conforms to the provisions of this Declaration. However,
the Trustees shall not be required personally to conduct all the business of
the Trust, and consistent with their ultimate responsibility as stated above,
the Trustees shall have the power to appoint, employ, or contract with any
Person (including one or more of themselves or any corporation, partnership, or
trust in which one or more of them may be directors, officers, stockholders,
partners, or trustees) as the Trustees may deem necessary or proper for the
transaction of the business of the Trust. The Trustees may therefore employ or
contract with such Person (herein referred to as the "Advisor"), and the
Trustees may grant or delegate such authority to the Advisor as the Trustees
may In their sole discretion deem necessary or desirable without regard to
whether such authority is normally granted or delegated by Trustees.
The Trustees (subject to the provisions of Sections 4.2 and 4.4) shall
have the power to determine the terms and compensation of the Advisor or any
other Person whom they may
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employ or with whom they may contract; provided, however, that any
determination to employ or contract with any Trustee or any Person of which a
Trustee is an Affiliate, shall be valid only if made, approved, or ratified by
a majority of the Trustees who are not Affiliates of such Person. The Trustees
may exercise broad discretion in allowing the Advisor to administer and
regulate the operations of the Trust, to act as agent for the Trust, to execute
documents on behalf of the Trustees, and to make executive decisions which
conform to general policies and general principles previously established by
the Trustees.
4.2. Term. The Trustees shall not enter into any contract with the
Advisor unless such contract has an initial term of no more than two (2) years
and provides for annual renewal or extension thereafter, subject to approval by
the Shareholders of the Trust. The Trustees shall not enter into such a
contract with any Person of which a Trustee is an Affiliate unless such
contract provides for renewal or extension thereof by the affirmative vote of a
majority of the Trustees who are not Affiliates of such Person. The contract
with the Advisor may be terminated without penalty by the Advisor upon 120
days' written notice or by the Trust without penalty by action of a majority of
the Trustees who are not Affiliates of the Advisor or by action of a majority
of the Shareholders of the Trust upon 60 days' written notice, in a manner to
be set forth in the contract with the Advisor.
4.3. Other Activities of Advisor. The Advisor shall not be
required to administer the investment activities of the Trust as its sole and
exclusive function and may have other business interests and may engage in
other activities similar or in addition to those relating to the Trust,
including the rendering of services and advice to other Persons (including
other real estate investment trusts) and the management of other investments
(including Investments of the Advisor and its Affiliates). The Trustees may
request the Advisor to engage in other activities which complement the Trust's
investments and to provide services requested by the borrowers or prospective
borrowers from the Trust, and the Advisor may receive compensation or
commissions therefor from the Trust or other Persons.
The Advisor shall be required to use its best efforts to present to
the Trust a continuing and suitable investment program which is consistent with
the investment policies and objectives of the Trust, but neither the Advisor
nor any Affiliate of the Advisor (subject to any applicable provisions of
Section 7.6) shall be obligated to present any particular investment
opportunity to the Trust even if such opportunity is of a character which, if
presented to the Trust, could be taken by the Trust, and, subject to the
foregoing, shall be protected in taking for its own account or recommending to
others any such particular investment opportunity.
Upon request of any Trustee, the Advisor and any Person who controls,
is controlled by, or is under common control with the Advisor, shall from time
to time promptly furnish the Trustees with information on a confidential basis
as to any investments within the Trust's investment policies made by the
Advisor or such other Person for its own account.
4.4. Limitation on Operating Expenses. The Operating Expenses of
the Trust for any fiscal year shall not exceed the lesser of (a) 1-1/2% of the
average of the Book Values of Invested Assets of the Trust at the end of each
calendar month of such fiscal year, or (b) the greater of 1-1/2% of the average
of the Net Asset Value of the Trust at the end of each calendar month of such
fiscal year or 25% of the Trust's Net Income, and each contract made with the
Advisor shall specifically provide for a refund to the Trust of the amount, if
any, by which the Operating Expenses so exceed the applicable amount.
ARTICLE V
Investment Policy
5.1. General Statement of Policy. The Trustees intend initially to
invest the Trust Estate in short-term government securities, certificates of
deposit and banks deposits. Thereafter, while the Trustees are authorized
pursuant to Article II hereof to invest the Trust Estate in a wide variety of
investments, the Trustees intend to invest the major portion of the Trust
Estate in ownership or other interests in Real Property or in Persons involved
in owning, operating, leasing, developing, financing or dealing in Real
Property (which investments shall ordinarily
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be made in connection with properties having income-producing capabilities and
which may but need not be related to the making of Mortgage Loans by the Trust)
and in long-term real estate loans (including, without limitation, conventional
Mortgage Loans and Mortgage Loans made in connection with both
purchase-leaseback transactions and net lease financings. The Trustees may
invest the assets of the Trust in short-term Mortgage Loans (including
Construction Loans and Development Loans), intermediate-term Mortgage Loans,
warehouse loans, Wrap-around Loans, installment contracts in Junior Mortgage
Loans, collateralized mortgage obligations ("CMOs"), regular or residual
interests in real estate mortgage investment conduits ("REMICs"), and any other
mortgage-backed security, and/or may make commitments to make investments
consistent with the foregoing policies. The Trustees may also participate in
the investments with other investors, including investors having investment
policies similar to those of the Trust, on the same or different terms, and the
Advisor may act as advisor to such other investors, including investors who
have the same investment policies. To the extent such funds are not fully
invested as described above, the Trustees may invest such funds in Government
Securities, Securities of Government agencies, bankers' acceptances and other
short-term investment securities and certificates of deposit and deposits in
commercial banks.
The Trustees presently intend to invest not more than 15% of the Total
Assets of the Trust Estate or $2,000,000, whichever amount is larger, in any
one transaction.
Subject to the investment restrictions in Section 5.3, the Trustees
may alter any or all of the above-described investment policies if they should
determine such change to be in the best interest of the Trust. Subject to the
preceding sentence, the Trustees shall endeavor to invest the Trust's assets in
accordance with the investment policies set forth in this Article V, but the
failure so to invest its assets shall not affect the validity of any investment
made or action taken by the Trustees.
The general purpose of the Trust is to seek income which qualifies
under the REIT Provisions of the Internal Revenue Code. The Trustees intend to
make investments in such a manner as to comply with the requirements of the
REIT Provisions of the Internal Revenue Code with respect to the composition of
the Trust's investments and the derivation of its income; provided, however,
that no Trustee, officer, employee, agent, investment advisor, or independent
contractor of the Trust shall be liable for any act or omission resulting in
the loss of tax benefits under the Internal Revenue Code, except for that
arising from his own bad faith, willful misconduct, gross negligence or
reckless disregard of his duties; and provided, further, that for a period of
time as the portfolio of equity investments and long-term investments is
developed, the Trust's assets may be invested in investments with income which
does not qualify under the REIT Provisions of the Internal Revenue Code.
5.2 Uninvested Assets. To the extent that the Trust has assets
not otherwise invested in accordance with Section 5.1, the Trustees may invest
such assets in:
(a) obligations of, or guaranteed by, the United States
Government or any agencies or political subdivisions thereof;
(b) obligations of, or guaranteed by, any state,
territory or possession of the United States of America or any
agencies or political subdivisions thereof;
(c) evidences of deposits in, or obligations of, banking
institutes, state and federal savings and loan associations, and
savings institutions which are members of the Federal Deposit
Insurance Corporation or of the Federal Home Loan Bank System; and
(d) shares of other REITs, to the extent permitted by the
REIT Provisions of the Internal Revenue Code, which do not, to the
actual knowledge of the Trustees, hold investments or engage in
activities prohibited to the Trustees under Section 5.3.
5.3. Restrictions. The Trustees shall not:
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(a) invest in commodities, foreign currencies, bullion or
chattels, except as required in the day- to-day business of the Trust
or in connection with its investments;
(b) invest in contracts for the sale of real estate in
excess of a value of 1% of the Total Assets of the Trust Estate;
provided, however, that nothing in this Section 5.3 shall prevent the
holding of contracts of sale as security for loans made by the Trust
and the ownership of such contracts of sale upon foreclosure of, or
realization upon, such security interests, and contracts of sale so
held or owned shall be excluded from the computation required by this
Section 5.3 (b);
(c) engage in any short sale;
(d) issue equity securities of more than one class (other
than convertible obligations, warrants, rights, options, and regular
or residual interests in REMICs);
(e) issue warrants, options or rights to buy Shares,
except as part of a ratable issue to Shareholders or as part of a
public offering or as part of a financial arrangement with parties
other than the Advisor or directors, Trustees, officers or employees
of the Trust or the Advisor;
(f) issue "redeemable securities," as defined in Section
2(a)(32) of the Investment Company Act of 1940;
(g) hold securities in any REIT for a period in excess of
18 months, except for shares of a qualified REIT subsidiary, as
defined in Section 856(i) of the Internal Revenue Code, and regular or
residual interests in REMICs.
(h) engage in trading as compared with investment
activities, or engage in the business of underwriting or agency
distribution of securities issued by others, but this prohibition
shall not prevent the Trust from selling participations in Mortgage
Loans or interests in Real Property or from selling or pledging a pool
of notes receivable from property sales or selling interests in REMICs
or CMOs.
(i) hold property primarily for sale to customers in the
ordinary course of the trade or business of the Trust, but this
prohibition shall not be construed to deprive the Trust of the power
to sell any property which it owns at any time;
(j) invest more than 10% of the Total Assets of the Trust
Estate in the ownership of, or participations in the ownership of, or
in First Mortgage Loans on, unimproved non-income-producing Real
Property, except for First Mortgage Development Loans; or
(k) invest more than 10% of the Total Assets of the Trust
Estate in Junior Mortgage Loans, other than Wrap-around Loans.
ARTICLE VI
The Shares and Shareholders
6.1. Shares. The units into which the beneficial interest in the
Trust will be divided shall be designated as Shares, which Shares shall be all
of one class and shall have equal non-cumulative voting, distribution,
liquidation and other rights and shall be without par value. The certificates
evidencing the Shares shall be in such form and signed (manually or by
facsimile) on behalf of the Trust in such manner as the Trustees may from time
to time prescribe or as may be prescribed in the Trustees' Regulations. The
certificates shall be negotiable, and title thereto and to the Shares presented
thereby shall be transferred by assignment and delivery thereof to the same
extent and in all respects as a share certificate of a California corporation.
There shall be no limit upon the number of Shares to be issued. The Shares may
be issued for such consideration as the Trustees shall determine
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or by way of share dividend or share split in the discretion of the Trustees.
Shares reacquired by the Trust shall no longer be deemed outstanding and shall
have no voting or other rights unless and until reissued. Shares reacquired by
the Trust may be cancelled and restored to the status of authorized and
unissued Shares by action of the Trustees. All Shares shall be fully paid and
non-assessable by or on behalf of the Trust upon receipt of full consideration
for which they have been issued or without additional consideration if issued
by way of share dividend or share split. The Shares shall not entitle the
holder to preference, preemptive, appraisal, conversion, or exchange rights of
any kind.
6.2. Legal Ownership of Trust Estate. The legal ownership of the
Trust Estate and the right to conduct the business of the Trust are vested
exclusively in the Trustees, and the Shareholders shall have no interest
therein other than beneficial interest in the Trust conferred by their Shares
issued hereunder, and they shall have no right to compel any partition,
division, dividend or distribution of the Trust or of the Trust Estate.
6.3. Shares Deemed Personal Property. The Shares shall be deemed
personal property and shall confer upon the holders thereof only the interest
and rights specifically set forth in this Declaration. The death, insolvency
or incapacity of a Shareholder shall not dissolve or terminate the Trust or
affect its continuity nor give his legal representative any rights whatsoever,
whether against or in respect of other Shareholders, the Trustees or the Trust
Estate or otherwise except the sole right to demand and, subject to the
provisions of this Declaration, the Trustees' Regulations and any requirements
of law, to receive a new certificate for Shares registered in the name of such
legal representative, in exchange for the certificate held by such Shareholder.
6.4. Share Record; Issuance and Transferability of Shares. Records
shall be kept by or on behalf of and under the direction of the Trustees, which
records shall contain the names and addresses of the Shareholders, the number
of Shares held by them, respectively, and the numbers of the certificates
representing the Shares, and in which there shall be recorded all transfers of
Shares. Certificates shall be issued, listed and transferred in accordance
with the Trustees' Regulations. The Persons in whose names certificates are
registered on the records of the Trust shall be deemed the absolute owners of
the shares represented thereby for all purposes of this Trust; but nothing
herein shall be deemed to preclude the Trustees or officers, or their agents or
representatives, from inquiring as to the actual ownership of Shares. Until a
transfer is duly effected on the records of the Trust, the Trustees shall not
be affected by any notice of such transfer, either actual or constructive. The
receipt by the Person in whose name any Shares are registered on the records of
the Trust or of the duly authorized agent of such Person, or if such Shares are
so registered in the names of more than one Person, the receipt of any one of
such Persons, or of the duly authorized agent of such Persons, shall be a
sufficient discharge for all dividends or distributions payable or deliverable
in respect of such Shares and from all liability to see to the application
thereof.
Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing upon
delivery to the Trustees or a transfer agent of the certificate or certificates
therefor, properly endorsed or accompanied by duly executed instruments of
transfer and accompanied by all necessary documentary stamps together with such
evidence of the genuineness of each such endorsement, execution, or
authorization and of other matters as may reasonably be required by the
Trustees or such transfer agent. Upon such delivery, the transfer shall be
recorded in the records of the Trust and a new certificate for the Shares so
transferred shall be issued to the transferee, and, in case of a transfer of
only a part of the Shares represented by any certificate, a new certificate for
the balance shall be issued to the transferor. Any Person becoming entitled to
any Shares in consequence of the death of a Shareholder or otherwise by
operation of law shall be recorded as the holder of such Shares and shall
receive a new certificate therefor, but only upon delivery to the Trustees or a
transfer agent of instruments and other evidence required by the Trustees or
the transfer agent to demonstrate such entitlement, the existing certificate
for such Shares and such necessary releases from applicable governmental
authorities. In case of the loss, mutilation, or destruction of any
certificates for Shares, the Trustees may issue or cause to be issued a
replacement certificate on such terms and subject to such rules and regulations
as the Trustees may from time to tine prescribe. Nothing in this Declaration
shall impose upon the Trustee or a transfer agent a duty or limit their rights
to inquire into adverse claims.
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6.5. Dividends or Distributions to Shareholders. The Trustees may
from time to time declare and pay to Shareholders such dividends or
distributions in cash or other form, out of current or accumulated income,
capital, capital gains, principal, surplus, proceeds from the increase or
refinancing of Trust obligations, or from the sale of portions of the Trust
Estate or from any other source as the Trustees in their discretion shall
determine. Share- holders shall have no right to any dividend or distribution
unless and until declared by the Trustees. The Trustees shall furnish the
Shareholders at the time of each such distribution with a statement in writing
advising as to the source of the funds so distributed or, if the source thereof
has not then been determined, the communication shall so state and in such
event the statement as to such source shall be sent to the Shareholders not
later than 60 days after the close of the fiscal year in which the distribution
was made.
6.6. Transfer Agent, Dividend Disbursing Agent and Registrar. The
Trustees shall have power to employ one or more transfer agents, dividend
disbursing agents and registrars and to authorize them on behalf of the Trust
to keep records, to hold and disburse any dividends and distributions and to
have and perform, in respect to all original issues and transfers of Shares,
dividends and distributions and reports and communications to Shareholders, the
powers and duties usually had and performed by transfer agents, dividend
disbursing agents and registrars of a California corporation.
6.7. Shareholders' Meetings. There shall be an annual meeting of
the Shareholders at such time and place as the Trustees' Regulations shall
prescribe, at which the Trustees shall be elected and any other proper business
may be conducted. The Annual Meeting of Shareholders shall be held after
delivery to the Shareholders of the Annual Report and within six (6) months
after the end of each fiscal year commencing with the 1974 fiscal year.
Special meetings of Shareholders may be called upon the written request of
Shareholders holding not less than twenty percent (2O%) of the outstanding
Shares of the Trust entitled to vote in the manner provided in the Trustees'
Regulations. If there shall be no Trustees, the officers of the Trust shall
promptly call a special meeting of the Shareholders for the election of
successor Trustees. Notice of any special meeting shall state the purposes of
the meeting. A majority of the outstanding Shares entitled to vote at any
meeting represented in person or by proxy shall constitute a quorum at any such
meeting. Whenever any action is to be taken by the Shareholders, it shall,
except as otherwise required by this Declaration or by law, be authorized by a
majority of the votes cast at a meeting of Shareholders by holders of Shares
entitled to vote thereon, which shares are not entitled to cumulative voting.
The affirmative vote at a meeting of Shareholders of the holders of a majority
of all outstanding Shares shall be required to approve the principal terms of
the transaction and the nature and amount of the consideration involving any
sale, lease, exchange or other disposition of 50% or more of the Trust Estate.
Whenever Shareholders are required or permitted to take any action, such action
may be taken without a meeting on written consent setting forth the action so
taken, signed by the holders of a majority of all outstanding Shares entitled
to vote thereon, or such larger proportion thereof as would be required for a
vote of Shareholders at a meeting. The vote or consent of Shareholders shall
not be required for the pledging, hypothecating, granting security interests
in, mortgaging, or encumbering of all or any of the Trust Estate, or for the
sale, lease, exchange or other disposition of less than 50% of the Trust
Estate.
6.8. Proxies. Whenever the vote or consent of Shareholders is
required or permitted under this Declaration, such vote or consent may be given
either directly by the Shareholders or to proxies in the form prescribed in the
Trustees' Regulations. The Trustees may solicit such proxies from the
Shareholders or any of them in any matter requiring or permitting the
Shareholders' vote or consent.
6.9 Reports to Shareholders.
(a) Not later than one hundred twenty (120) days after
the close of each fiscal year of the Trust, the Trustees shall mail a
report of the business and operation of the Trust during such fiscal
year to the Shareholders, which report shall constitute the accounting
of the Trustees for such fiscal year. The report (hereinafter "Annual
Report") shall be in such form and have such content as the Trustees
deem proper. The Annual Report shall include a statement of assets
and liabilities and a statement of income and expenses of the Trust.
Such financial statements shall be accompanied by the report of an
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independent certified public accountant thereon. A manually signed
copy of the accountant's report shall be filed with the Trustees.
(b) At least quarterly the Trustees shall send to the
Shareholders interim reports having such form and content as the
Trustees deem proper.
6.10. Fixing Record Date. The Trustees' Regulations may provide for
fixing, or, in the absence of such provision, the Trustees may fix, in advance,
a date as the record date for determining the Shareholders entitled to notice
of or to vote at any meeting of Shareholders or to express consent to any
proposal without a meeting, or for the purpose of determining Shareholders
entitled to receive payment of any dividend or distribution (whether before or
after termination of the Trust) or any Annual Report or other communication
from the Trustees, or for any other purpose. The record date so fixed shall be
not less than five (5) days nor more than fifty (50) days prior to the date of
the meeting or event for purposes for which it is fixed.
6.11. Notice to Shareholders. Any notice of meeting or other
notice, communication or report to any Shareholder shall be deemed duly
delivered to such Shareholder when such notice, communication, or report is
deposited, with postage thereon prepaid, in the United States mail, addressed
to such Shareholder at his address as it appears on the records of the Trust or
is delivered in person to such Shareholder.
6.12. Shareholders' Disclosures; Redemption of Shares. The
Shareholders shall, upon demand, disclose to the Trustees in writing such
information with respect to direct and indirect ownership of the Shares as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code and the regulations thereunder, as the same shall be from time to time
amended, or to comply with the requirements of any other taxing authority. If
the Trustees shall at any time and in good faith be of the opinion that direct
or indirect ownership of Shares of the Trust has or may become concentrated to
an extent which would prevent the Trust from qualifying as a REIT under the
REIT Provisions of the Internal Revenue Code, the Trustees shall have the power
by lot or other means deemed equitable by them to prevent the transfer of
and/or call for redemption a number of such Shares sufficient in the opinion of
the Trustees to maintain or bring the direct or indirect ownership of Shares of
the Trust into conformity with the requirements for such a REIT. The
redemption price shall be (i) the last reported sale price of the Shares on the
last business day prior to the redemption date on the principal national
securities exchange on which the Shares are listed or admitted to trading; or
(ii) if the Shares are not so listed or admitted to trading, the average of the
highest bid and lowest asked prices on such last business day as reported by
the National Quotation Bureau Incorporated or a similar organization selected
by the Trust for such purpose; or (iii) if not determined as aforesaid, as
determined in good faith by the Trustees. From and after the date fixed for
redemption by the Trustees, the holder of any Shares so called for redemption
shall cease to be entitled to dividends, distributions, voting rights and other
benefits with respect to such Shares, excepting only to the right to payment of
the redemption price fixed as aforesaid. For the purpose of this Section 6.12,
the term "individual" shall be construed as provided in Section 542 (a) (2) of
the Internal Revenue Code or any successor provision, and "ownership" of Shares
shall be determined as provided in Section 544 of the Internal Revenue Code or
any successor provision.
6.13. Right to Refuse to Transfer Shares. Whenever it is deemed by
them to be reasonably necessary to protect the tax status of the Trust, the
Trustees may require a statement or affidavit from each Shareholder or proposed
transferee of Shares setting forth the number of Shares already owned by him
and any related person specified in the form prescribed by the Trustees for
that purpose. If, in the opinion of the Trustees, which shall be conclusive
upon any proposed transferor or proposed transferee of Shares, any proposed
transfer would jeopardize the status of the Trust as a REIT under the Code, as
now enacted or as hereafter amended, the Trustees may refuse to permit such
transfer. Any attempted transfer for which the Trustees have refused their
permission shall be void and of no effect to transfer any legal or beneficial
interest in the Shares. All contracts for the sale or other transfer of Shares
shall be subject to this provision.
6.14 Issuance of Shares. Notwithstanding any other provision of
this Declaration, the Trust may issue Shares from time to time. Any Security
issued in any such Share shall have the same characteristics and entitle
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the registered holder thereof to the same rights as any identical Securities of
the same class or series issued separately by the Trust.
ARTICLE VII
Liability of Trustees, Shareholders
and Officers, and Other Matters
7.1. Exculpation of Trustees, Officers, and Others. No Trustee,
officer, employee, or agent of the Trust shall be liable for obligations or
contracts of the Trust or liable in tort or otherwise in connection with the
affairs of this Trust, to the Trust, or to any Shareholder, Trustee, officer,
employee, or agent of the Trust or to any other Person for any action or
failure to act (including, without limitation, the failure to compel in any way
any former or acting Trustee to redress any breach of trust), except only that
arising from his own willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty.
7.2. Limitation of Liability of Shareholders, Trustees, and
Officers. The Trustees, officers, employees, and agents of the Trust, in
incurring any debts, liabilities, or obligations or in taking or omitting any
other actions for or in connection with the Trust are, and shall be deemed to
be, acting as Trustees, officers, employees or agents of the Trust and not in
their own individual capacities. Except to the extent provided in Section 7.1,
no Trustee, officer, employee or agent shall, nor shall any Shareholder, be
liable for any debt, claim, demand, judgment, decree, liability or obligation
of any kind, against or with respect to the Trust, arising out of any action
taken or fitted for or on behalf of the Trust, and the Trust shall be solely
liable therefor, and resort shall be had solely to the Trust Estate for the
payment or performance thereof. Each Shareholder shall be entitled to pro rata
indemnity from the Trust Estate if, contrary to the provisions hereof, such
Shareholder shall be held to any personal liability.
7.3. Express Exculpatory Clauses and Instruments. In all
agreements, obligations, instruments, and actions in regard to the affairs of
this Trust, this Trust and not the Shareholders, officers, employees, or agents
shall be the principal and entitled as such to enforce the same, collect
damages, and take all other action. All such agreements, obligations,
instruments, and actions shall be made, executed, incurred, or taken by or in
the name and on behalf of this Trust or by the Trustees as Trustees hereunder,
but not personally. All such agreements, obligations, and instruments shall
acknowledge notice of this paragraph or shall refer to this Declaration and
contain a statement to the effect that the name of this Trust refers to the
Trustees as Trustees but not personally, and that no Trustee, Shareholder,
officer, employee, or agent shall be held to any personal liability thereunder;
and neither the Trustees nor any officer, employee, or agent shall have any
power or authority to make, execute, incur, or take any agreement, obligation,
instrument, or action unless the requirements of this paragraph are met;
however, the omission of such provisions from any such instrument shall not
render the Shareholders or any Trustee or any officer, employee, or agent
liable, nor shall the Trustees or any officer, employee, or agent of the Trust
be liable to anyone for such omission.
7.4. Indemnification and Reimbursement of Trustees and Officers.
Any Person made a party to any action, suit, or proceeding or against whom a
claim or liability is asserted by reason of the fact that he, his testator, or
intestate was or is a Trustee or officer, employee, or agent or active in such
capacity on behalf of the Trust shall be indemnified and held harmless by the
Trust against judgments, fines, amounts paid on account thereof (whether in
settlement or otherwise) and reasonable expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense of such
action, suit, proceeding, claim, or alleged liability or in connection with any
appeal therein, whether or not the same proceeds to judgment or is settled or
otherwise brought to a conclusion; provided, however, that no such Person shall
be so indemnified or reimbursed for any claim, obligation, or liability which
arose out of such Person's willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty; and provided, further, that such Person gives
prompt notice thereof, executes such documents, and takes such action as will
permit the Trust to conduct the defense or settlement thereof and cooperates
therein. In the event of a settlement approved by the Trustees of any such
claim, alleged liability, action, suit, or proceeding, indemnification and
reimbursement shall be provided except as to such matters covered by the
settlement which
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the Trust is advised by its counsel arose from such Person's willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty.
Expenses incurred in defending a civil or criminal action, suit or proceeding
may be paid by the Trust in advance of the final disposition of such action,
suit or proceeding as authorized by the Trust in the specific action upon
receipt of an undertaking by or on behalf of a Person indemnified to pay over
such amount, unless it shall ultimately be determined he is entitled to be
indemnified by the Trust as authorized herein. Such rights of indemnification
and reimbursement shall be satisfied only out of the Trust Estate. The rights
accruing to any Person under these provisions shall not exclude any other right
to which he may be lawfully entitled nor shall anything contained herein
restrict the right of the Trust to indemnify or reimburse such Person in any
proper case even though not specifically provided for herein, nor shall
anything contained herein restrict such Person's right to contribution as may
be available under applicable law. The Trust shall have power to purchase and
maintain insurance on behalf of any Person entitled to indemnity hereunder
against any liability asserted against him and incurred by him in a capacity
mentioned above, or arising out of his status as such, whether or not the Trust
would have the power to indemnify him against such liability under the
provisions hereof.
7.5. Right of Trustees, Officers, and Others to Own Shares or Other
Property and to Engage in Other Business. Any Trustee, officer, employee, or
agent of the Trust may acquire, own, hold, and dispose of Shares in the Trust,
for his individual account, and may exercise all rights of a Shareholder to the
same extent and in the same manner as if he were not a Trustee, officer,
employee, or agent of the Trust. Any Trustee, officer, employee, or agent of
the Trust may have personal business interests and may engage in personal
business activities, which interests and activities may include the
acquisition, syndication, holding, management, operation, or disposition, for
his own account or for the account of others, of interests in Mortgages,
interests in Real Property or interests in Persons engaged in real estate
business. Subject to the provisions of Article IV, any Trustee, officer,
employee, or agent may be interested as trustee, officer, director,
stockholder, partner, member, advisor or employee, or otherwise have a direct
or indirect interest in any Person who may be engaged to render advice or
services to the Trust, and may receive compensation from such Person as well as
compensation as Trustee, officer, or otherwise hereunder. None of these
activities shall be deemed to conflict with his duties and powers as Trustee or
officer.
7.6. Transactions Between the Trust and Affiliated Persons. Except
as prohibited by this Declaration, and in the absence of fraud, a contract,
act, or other transaction between the Trust and any other Person, or in which
the Trust is interested, shall be valid even though (i) one or more of the
Trustees or officers are directly or indirectly interested in, or connected
with, or are trustees, partners, directors, officers, or retired officers of
such other Person; or (ii) one or more of the Trustees or officers of the
Trust, individually or jointly with others, is a party or are parties to or
directly or indirectly interested in, or connected with, such contract, act, or
transaction. No Trustee or officer shall be under any disability from or have
any liability as a result of entering into any such contract, act, or
transaction, provided that (a) such interest or connection is disclosed or
known to the Trustees and thereafter the Trustees authorize such contract, act,
or other transaction by vote sufficient for such purpose by an affirmative vote
of the Trustees not so interested; (b) such interest or connection is disclosed
or known to the Shareholders, and thereafter such contract, act, or transaction
is approved by the Shareholders; or (c) such contract, act, or transaction is
fair and reasonable as to the Trust at the time it is authorized by the
Trustees or by the Shareholders.
The Trust shall not purchase or lease, directly or indirectly, any
Real Property from the Advisor or any affiliated Person, or from any
partnership in which any of the foregoing may also be a general partner, and
the Trust will not sell, directly or indirectly, any of its Real Property to
any of the foregoing Persons.
Notwithstanding any other provisions of this Declaration, the Trust
shall not, directly or indirectly, engage in any transaction with any Trustee,
officer, or employee of the Trust or any director, officer, or employee of the
Advisor of Consolidated Capital Equities Corporation, or of any company or
other organization of which any of the foregoing is an Affiliate, except for
(i) the execution and performance of the agreements contemplated by Article IV
hereof, (ii) transactions involving the purchase of Securities of the Trust on
the same terms on which such Securities are then being offered to all holders
of any class of Securities of the Trust or to the public, (iii) transactions
with Consolidated Capital Equities Corporation or the Advisor or Affiliates
thereof involving loans, real estate brokerage services, mortgage brokerage
services, real property management services, the servicing of
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Mortgages, the leasing of personal property, or other services, provided such
transactions are on terms not less favorable to the Trust than the terms on
which unaffiliated parties are then making similar loans or performing similar
services for comparable entities in the same area and are not entered into on
an exclusive basis with such Person; provided, however, that any transaction
referred to in clause (iii) may be entered into only after a showing that such
transaction is fair and reasonable to the Shareholders and upon approval by
affirmative vote of a majority of the Trustees who are not, other than as
Trustees, interested in or Affiliates of any Person who is interested in the
transaction; and, provided, further, that for providing real estate brokerage
services such affiliates of the Advisor may receive a real estate brokerage
commission of up to and including 6% of the Expenses of Acquisition of each
real property investment acquired by the Trust on sales by third parties which
are handled by such affiliate. Such real estate brokerage commissions may be
paid by the seller of the property or the Trust, and the aggregate of the
purchase price of the investment property and such real estate brokerage
commission shall not exceed the appraised value of such property. The
simultaneous acquisition by the Trust and the Advisor or any Affiliate of the
Advisor of participations in a loan or other investment shall not be deemed to
constitute the purchase or sale of property by one of them to the other. This
Section 7.6 shall not prevent the payment to any Person of commissions or fees
for the so-called "private placement" of such Securities with investors. The
Trustees are not restricted by this Section 7.6 from forming a corporation,
partnership, trust, or other business association owned by the Trustees or by
their nominees for the purpose of holding title to property of the Trust,
provided the Trustees' motive for the formation of such business association is
not for their own enrichment.
7.7 Restriction of Duties and Liabilities. To the extent that the
nature of this Trust (that is a business trust) will permit, the duties and
liabilities of Shareholders, Trustees, and officers shall in no event be
greater than the duties and liabilities of shareholders, directors, and
officers of a California corporation. The Shareholders, Trustees, and officers
shall in no event have any greater duties or liabilities than those imposed by
applicable law as shall be in effect from time to time.
7.8. Persons Dealing with Trustees or Officers. Any act of the
Trustees or officers purporting to be done in their capacity as such shall, as
to any Persons dealing in good faith with such Trustees or officers, be
conclusively deemed to be within the purposes of this Trust and within the
powers of the Trustees and officers.
The Trustees may authorize any officer or officers or agent or agents
to enter into any contract or execute any instrument in the name and on behalf
of the Trust and/or Trustees.
No Person dealing in good faith with the Trustees or any of them or
with the authorized officers, employees, agents, or representatives of the
Trust shall be bound to see to the application of any funds or property passing
into their hands or control. The receipt of the Trustees or any of them, or of
authorized officers, employees, agents, or representatives of the Trust for
monies or other consideration, shall be binding upon the Trust.
7.9. Reliance. The Trustees and officers may consult with counsel,
and the advice or opinion of such counsel shall be full and complete personal
protection to all of the Trustees and officers in respect to any action taken
or suffered by them in good faith and in reliance on and in accordance with
such advice or opinion. In discharging their duties, Trustees and officers,
when acting in good faith, may rely upon financial statements of the Trust
represented to them to be correct by the Chairman or the officer of the Trust
having charge of its books of account, or stated in a written report by an
independent certified public accountant fairly to present the financial
position of the Trust. The Trustees may rely, and shall be personally
protected in acting, upon any instrument or other document believed by them to
be genuine.
7.10. Income Tax Status. Anything to the contrary herein
notwithstanding and without limitation of any rights of indemnification or
non-liability of the Trustees herein, said Trustees by this Declaration make no
commitment or representation that the Trust will qualify for the dividends paid
deduction permitted by the Internal Revenue Code and by the Rules and
Regulations thereunder pertaining to Real Estate Investments Trusts in any
given year. The failure of the Trust to qualify as a Real Estate Investment
Trust under the Internal Revenue Code
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shall not render the Trustees liable to the Shareholders or to any other person
or in any manner operate to annul the Trust.
ARTICLE VIII
Duration, Amendment, Termination,
and Qualification of Trust
8.1. Duration of Trust. Unless the Trust is sooner terminated as
otherwise provided herein, the Trust shall continue in such manner that the
Trustees shall have all the powers and discretions, express and implied,
conferred upon them by law or by this Declaration, until the expiration of
twenty (20) years after the death of the last survivor of the following
persons:
<TABLE>
<CAPTION>
Date of
Name Birth Parents and Present Residence
- ---- -------- -----------------------------
<S> <C> <C>
Anna Louise Carlson 1/16/66 Mr. & Mrs. Don W. Carlson
85 Oakmont Avenue
Piedmont, California
Anthony Chase Swartz 3/15/66 Mr. & Mrs. Thomas B. Swartz
6 King Avenue
Piedmont, California
Claire E. Levin 4/20/60 Mr. Marvin T. Levin
228 Filbert Street
San Francisco, California
Mrs. Helen T. Levin
43 Craig Avenue
Piedmont, California
Ilya Jo Lie-Nielsen 2/11/62 Mr. & Mrs. John Lie-Nielsen
5614 Balboa Drive
Oakland, California
Philip J. Sammet 10/21/62 Mr. & Mrs. James L. Sammet
80 Sutherland Drive
Atherton, California
</TABLE>
8.2. Termination of Trust.
(a) The Trust may be terminated by the affirmative vote
of the holders of a majority of all outstanding Shares entitled to
vote thereon, at any meeting of Shareholders; provided, however, that
if the Commissioner of Corporations of California has suspended for
more than thirty (30) days, or revoked a permit issued by him under
the California Corporations Code finding that the Trust is a Real
Estate Investment Trust, this Trust may be terminated by the holders
of ten percent (10%) or more of all outstanding Shares. Upon
termination of the Trust:
(i) The Trust shall carry on no business except
for the purpose of winding up its affairs.
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(ii) The Trustees shall proceed to wind up the
affairs of the Trust, and all of the powers of the Trustees
under this Declaration shall continue until the affairs of the
Trust shall have been wound up, including the power to fulfill
or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer, or otherwise dispose
of all or any part of the remaining Trust Estate to one or
more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities, or other
property of any kind, discharge or pay its liabilities, and do
all other acts appropriate to liquidate its business; provided
that any sale, conveyance, assignment, exchange, transfer, or
other disposition of fifty percent (50%) or more of the Trust
Estate shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by
vote or consent of the holders of a majority of all the
outstanding Shares entitled to vote thereon.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities, or refunding agreements as they deem necessary
for their protection, the Trustees may distribute the
remaining Trust Estate, in cash or in kind, or partly in each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to
the Shareholders as herein provided, the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting
forth the facts of such termination, and the Trustees shall thereupon
be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders shall thereupon cease.
8.3. Amendment Procedure.
(a) This Declaration may be amended by Shareholders
holding a majority of the outstanding Shares entitled to vote thereon.
The Trustees may also amend this Declaration without the vote or
consent of Shareholders to the extent they deem it necessary to
conform this Declaration to the requirements of the REIT Provisions of
the Internal Revenue Code or to other applicable federal laws,
rulings, or regulations, but the Trustees shall not be liable for
failing to do so.
(b) No amendment may be made, under Section 8.3(a) above,
which would change any rights with respect to any outstanding
Securities of the Trust by reducing the amount payable thereon upon
liquidation of the Trust, or by diminishing or eliminating any voting
rights pertaining thereto, except with the vote or consent of the
holders of two-thirds (2/3) of the outstanding Shares entitled to vote
thereon.
(c) A certification, in recordable form, signed by a
majority of the Trustees, setting forth an amendment and reciting that
it was duly adopted by the Shareholders or by the Trustees as
aforesaid, or a copy of the Declaration, as amended, in recordable
form, and executed by a majority of the Trustees, shall be conclusive
evidence of such amendment when lodged among the records of the Trust.
(d) Nothing contained in this Declaration shall permit
the amendment of this Declaration to impair the exception from
personal liability of the Shareholders, Trustees, officers, employees
and agents of this Trust.
8.4. Qualification Under the REIT Provisions of the Internal
Revenue Code. It is intended that the Trust shall qualify as a "real estate
investment trust" under the REIT Provisions of the Internal Revenue Code during
such period as the Trustees shall deem it advisable so to qualify the Trust.
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ARTICLE IX
Miscellaneous
9.1 Applicable Law. This Declaration is executed and acknowledged
by the Trustees in the State of California and with reference to the statutes
and laws thereof and the rights of all parties and the construction and effect
of every provision hereof shall be subject to and construed according to
statutes and laws of said state.
9.2. Index and Headings for Reference Only. The index and headings
preceding the text, articles and sections hereof have been inserted for
convenience and reference only and shall not be construed to affect the
meaning, construction, or effect of this Declaration.
9.3. Successors in Interest. This Declaration and the Trustees'
Regulations shall be binding upon and inure to the benefit of the undersigned
Trustees and their successors, assigns, heirs, distributees, and legal
representatives and every Shareholder and his successors, assigns, heirs,
distributees, and legal representatives.
9.4 Inspection of Records. Trust records shall be available for
inspection by Shareholders at the same time and in the same manner and to the
extent that comparable records of a California corporation would be available
for inspection by shareholders under the laws of the State of California.
Except as specifically provided for in this Declaration, Shareholders shall
have no greater right than shareholders of a California corporation to require
financial or other information from the Trust, Trustees, or officers. Any
federal or state securities administration or other similar authority shall
have the right, at reasonable times during business hours and for proper
purposes, to inspect the books and records of the Trust.
9.5. Counterparts. This Declaration may be simultaneously executed
in several counterparts, each of which when so executed shall be deemed to be
an original, and such counterparts together shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
9.6. Provisions of the Trust in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable, and
if the Trustees shall determine, with the advice of counsel, that any
one or more of such provisions (the "Conflicting Provisions") are in
conflict with the REIT Provisions of the Internal Revenue Code, or
with other applicable laws or regulations, the Conflicting Provisions
shall be deemed never to have constituted a part of the Declaration;
provided, however, that such determination by the Trustees shall not
affect or impair any of the remaining provisions of this Declaration
or render invalid or improper any action taken or omitted (including,
but not limited to, the election of Trustees) prior to such
determination. A certification in recordable form signed by a
majority of the Trustees setting forth any such determination and
reciting that it was duly adopted by the Trustees, or a copy of this
Declaration, with the Conflicting Provisions removed pursuant to such
determination, in recordable form, signed by a majority of the
Trustees, shall be conclusive evidence of such determination when
lodged in the records of the Trust. The Trustees shall not be liable
for failure to make any determination under this Section 9.6(a).
Nothing in this Section 9.6(a) shall in any way limit or affect the
right of the Trustees to amend this declaration as provided in Section
8.3(a).
(b) If any provisions of this Declaration shall be held
invalid or unenforceable, such invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or
render invalid or unenforceable any other provision of this
Declaration, and this Declaration shall be carried out as if any such
invalid or unenforceable provision were not contained herein.
9.7. Certifications. The following certifications shall be final
and conclusive as to any persons dealing with the Trust:
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(a) A certification of a vacancy among the Trustees by
reason of resignation, removal, increase in the number of Trustees,
incapacity, death or otherwise, when made in writing by a majority of
the remaining Trustees;
(b) A certification as to the persons holding office as
Trustees or officers at any particular time, when made in writing by
the Secretary of the Trust or by any Trustee;
(c) A certification that a copy of this Declaration or of
the Trustees' Regulations is a true and correct copy thereof as then
in force when made in writing by the Secretary of the Trust or by any
Trustee;
(d) The certifications referred to in Sections 8.3(c)
and 9.6(a) hereof; and
(e) A certification as to any actions by Trustees, other
than the above, when made in writing by the Secretary of the Trust, or
by any Trustee.
9.8. Recording and Filing. A copy of this Declaration and any
amendments shall be recorded in the office of the County Recorder of the County
of Alameda, California, and in the office of the County Recorder or its
equivalent in every county where the Trust is or the Trustees are the record
owner of Real Property; provided, however, that provision is made in such
county for such recording, and further provided that this Declaration is
accepted for recording. This Declaration and any amendments may also be filed
or recorded in such other places as the Trustees deem appropriate.
IN WITNESS WHEREOF, the undersigned have executed this Declaration of
Trust effective as of the date first hereinabove set forth.
/s/ David V. John /s/ Betty L. Hood-Gibson
- ------------------------------- ------------------------------
David V. John Betty L. Hood-Gibson
/s/ Thomas J. Fitzmyers /s/ Fred H. Field
- ------------------------------- ------------------------------
Thomas J. Fitzmyers Fred H. Field
/s/ Albert H. Schaaf /s/ Douglas Temple
- ------------------------------- ------------------------------
Albert H. Schaaf Douglas Temple
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<PAGE> 174
State of California )
) ss.
County of Alameda )
On this 24th day of July, 1987, before me, R. Scott, a Notary Public
for the State of California, duly commissioned and sworn, personally appeared
David V. John, Betty L. Hood-Gibson, Thomas J. Fitzmyers, Fred H. Field, Albert
H. Schaaf and Douglas Temple, known to me to be the persons whose names are
subscribed to the within instrument, and acknowledged to me that they executed
the same.
IN WITNESS WHEREOF, I have hereunto set hand and affixed my official
seal in the County of Alameda, State of California, the day and year in this
certificate first above written.
R. Scott
----------------------------------
Notary Public, State of California
(Seal)
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89188236
TRUSTEES' CERTIFICATE
The undersigned, being a majority of the members of the Board of
Trustees of Consolidated Capital Realty Investors (the "Trust"), hereby certify
that, pursuant to the authorization granted in Section 1.1 of the Trust's
Amended and Restated Declaration of Trust (the "Declaration"), the Board of
Trustees of the Trust, at a meeting held on April 13, 1989, approved Amendment
No. 1 to the Declaration, a copy of which amendment is attached hereto as
Exhibit A.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 22nd day of June, 1989.
/s/ William S. Friedman
---------------------------------
William S. Friedman
89-188236 /s/ Gene E. Phillips
---------------------------------
RECORDED IN OFFICIAL RECORDS OF Gene E. Phillips
ALAMEDA COUNTY, CALIF.
RENE C. DAVIDSON, CO. RECORDER
/s/ Richard N. Lapp
---------------------------------
'89 JUL 13 PM 4 19 Richard N. Lapp
/s/ Michael E. Smith
---------------------------------
Michael E. Smith
/s/ William K. Davis
---------------------------------
William K. Davis
---------------------------------
Raymond V. J. Schrag
/s/ Randall K. Gonzalez
---------------------------------
Randall K. Gonzalez
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<PAGE> 176
89188236
On this 22nd day of June, 1989 before me, Rhonda Grimshaw, a Notary
Public, for the State of Texas duly commissioned and sworn, personally appeared
William S. Friedman, Gene E. Phillips, Richard N. Lapp, Michael E. Smith,
Willie K. Davis, Randall K. Gonzalez and James W. Hammond, Jr., known to me to
be the persons whose names are subscribed to the within instrument, and
acknowledged to me that they executed the same.
IN WITNESS WHEREOF I have hereunto set by [sic] hand and affixed my
official seal in the County of Dallas, State of Texas, the day and year in this
certificate first above written.
/s/ Rhonda Grimshaw Notary Public,
-----------------------------------
State of Texas
(Seal) 5/12/92
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<PAGE> 177
89188236
EXHIBIT A
AMENDMENT NO. 1 TO THE AMENDED
AND RESTATED DECLARATION OF TRUST
OF CONSOLIDATED CAPITAL REALTY INVESTORS
The Amended and Restated Declaration of Trust is hereby amended as
follows:
(a) Section 1.1 shall be deleted and replaced with the following:
1.1 Name. The name of the Trust shall be "Vinland Property
Trust." As far as practicable and except as otherwise provided in
this Declaration, the Trustees shall conduct the Trust's activities,
execute all documents, and sue or be sued in the name of Vinland
Property Trust or in their names as Trustees of Vinland Property
Trust. If the Trustees determine that the use of such name is not
practicable, legal or convenient, they may use such other designation
or may adopt another name under which the Trust may hold property or
conduct its activities.
(b) The phrase "Consolidated Capital Realty Investors," wherever
it appears on the Amended and Restated Declaration of Trust of Consolidated
Capital Realty Investors, shall be deleted and replaced with the phrase
"Vinland Property Trust."
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<PAGE> 178
RECORDING REQUESTED BY
AND MAIL BACK TO:
AMENDMENT NO. 2
TO THE
AMENDED AND RESTATED DECLARATION OF TRUST
OF
VINLAND PROPERTY TRUST
(FORMERLY CONSOLIDATED CAPITAL REALTY INVESTORS)
===============
The Amended and Restated Declaration of Trust dated May 27, 1987 for
VINLAND PROPERTY TRUST (formerly Consolidated Capital Realty Investors),
recorded on July 29, 1987 as Instrument No. 87212436 in the Alameda County
Records, as amended by Amendment No. 1 effective April 13, 1989, recorded on
July 13, 1989 as Instrument No. 89188236 in the Alameda County Records
(collectively the "Declaration of Trust") is hereby amended as follows, such
amendment having been approved by Shareholders holding a majority of the
outstanding Shares of Beneficial Interest entitled to vote thereon at a meeting
held on November 20, 1995:
The following language shall be added to Section 6.1 of the
Declaration of Trust following the existing language of such Section 6.1:
"The Trustees shall also have the power, in their sole
discretion, to effect reverse share splits on a pro-rata basis
and to redeem for cash any fractional shares outstanding as a
result thereof."
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IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2
as of November 20, 1995.
/s/ William S. Friedman
-------------------------------------
WILLIAM S. FRIEDMAN, Trustee
/s/ John A. Doyle
-------------------------------------
JOHN A. DOYLE, Trustee
-------------------------------------
Michael E. Smith, Trustee
/s/ Willie K. Davis
-------------------------------------
WILLIE K. DAVIS, Trustee
/s/ Chester Beck
-------------------------------------
CHESTER BECK, Trustee
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 22nd day of November, 1995, before me, the undersigned Notary
Public in and for the County and State of New York, duly commissioned and
sworn, personally appeared JOHN A. DOYLE and WILLIAM S. FRIEDMAN, each known to
me to be the persons whose names are subscribed to the foregoing written
instrument, and acknowledged to me that they each executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State of New York, the day and year above
written.
/s/ David E. Miller
---------------------------------------------
Notary Public in and for the State
of New York
My Commission Expires:
------------------------
David E. Miller
Notary Public, State of New York
No. 4989963
Qualified in New York County
Commission Expires Aug. 2, 1996
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<PAGE> 180
STATE OF FLORIDA )
) ss.:
COUNTY OF PALM BEACH )
On this 29th day of November, 1995, before me, the undersigned Notary
Public in and for the County and State of Palm Beach FL., duly commissioned and
sworn, personally appeared MICHAEL E. SMITH, known to me to be the person whose
name is subscribed to the foregoing written instrument, and acknowledged to me
that he executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State of Palm Beach FL., the day and year above
written.
/s/ James Moriarty
----------------------------------------
Notary Public in and for the State of
James Moriarty
----------------------------------------
My Commission Expires: 11/15/99
-----------------
STATE OF TENNESSEE )
) ss.:
COUNTY OF DAVIDSON )
On this 29th day of November, 1995, before me, the undersigned Notary
Public in and for the County and State of Tennessee, duly commissioned and
sworn, personally appeared WILLIE K. DAVIS, known to me to be the person whose
name is subscribed to the foregoing written instrument, and acknowledged to me
that he executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State of Tennessee, the day and year above
written.
/s/ Carrie Moss
----------------------------------------
Notary Public in and for the State of
Tennessee
----------------------------------------
My Commission Expires:
-------------------
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APPENDIX F
RESTATED TRUSTEES' REGULATIONS
OF VINLAND PROPERTY TRUST
(formerly Consolidated Capital Realty Investors)
ARTICLE I
Officers
Section 1. Enumeration. The officers of the Trust shall be a
President, one or more Vice Presidents, a Secretary, a Treasurer, and such
other officers as are elected by the Trustees, including in their discretion a
Chairman of the Board. Officers shall be elected by, and shall hold office at
the pleasure of, the Trustees. When the duties do not conflict, any two or
more offices, except those of President and Secretary, or President and
Assistant Secretary, may be held by the same person.
Section 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board, if there shall be such an officer, shall, if present,
preside at all meetings of the Trustees and exercise and perform such other
powers and duties as may be from time to time assigned to him by the Trustees.
Section 3. Powers and Duties of the President. Subject to such
supervisory powers, if any, as may be given by the Trustees to the Chairman of
the Board, if there be such an officer, the President shall be the chief
executive officer of the Trust, and, subject to the control of the Trustees,
shall have general supervision, direction and control of the business of the
Trust and its employees and shall exercise such general powers of management as
are usually vested in the office of president of a corporation. He shall
preside at all meetings of the Shareholders and in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Trustees. He shall
be, ex officio, a member of all standing committees.
Section 4. Powers and Duties of the Vice President. In the absence
or disability of the President, the Vice Presidents in order of their rank as
fixed by the Trustees or, if not ranked, the Vice President designated by the
Trustees, shall perform all of the duties of the President and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other powers and perform such
other duties as are prescribed for them from time to time by the Trustees.
Section 5. Duties of the Secretary. The Secretary shall:
(a) Minutes. Keep full and complete minutes of the
meetings of the Trustees and of the meetings of the Shareholders and
give notice, as required, of all such meetings;
(b) Trust Seal. Keep the seal of the Trust, and affix
the same to all instruments executed by the Trust which requires it;
(c) Books and Other Records. Maintain custody of and
keep the books of account and other records of the Trust except such
as are in the custody of the Treasurer;
(d) Share Register. Keep at the principal office of the
Trust a share register, or duplicate share register if a transfer
agent is employed to keep the original share register, showing the
ownership and transfers of ownership of all Shares;
(e) Receipt, Deposit, and Disbursement of Funds. Receive,
deposit, and disburse funds belonging to the Trust; and
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(f) General Duties. Generally, perform all duties which
pertain to his office and which are required by the Trustees.
Section 6. Duties of the Treasurer. The Treasurer shall perform all
duties which pertain to his office and which are required by the Trustees.
ARTICLE II
Trustees
Section 1. Number. Until changed by amendment of this Section 1
adopted by the Trustees or the Shareholders, the authorized number of Trustees
shall be five (5).
Section 2. Qualifying Shares Not Required. Trustees need not be
Shareholders
of the Trust.
Section 3. Quorum. A majority of the Trustees shall constitute a
quorum.
Section 4. Election. Trustees shall be elected at each Annual
Meeting of Shareholders and shall continue in office until the election of
their successors. If Trustees are not elected at an annual meeting or if such
meeting is not held, Trustees may be elected at a special meeting of
Shareholders.
Section 5. Vacancies. Vacancies occurring among the Trustees (except
in case of the removal of one or more Trustees under provisions of Section 2.3
of the Declaration) shall be filled by a majority of the remaining Trustees,
though less than a quorum, or by a sole remaining Trustee, and the person so
appointed shall hold office until his successor is elected at an annual,
regular, or special meeting of the Shareholders.
Section 6. Place of Meeting. Meetings of the Trustees shall be held
at the principal office of the Trust or at such place within or without the
State of California as is fixed from time to time by resolution of the Trustees
or by written consent of all Trustees. Whenever a place other than the
principal office is fixed by resolution as the place at which future meetings
are to be held, written notice thereof shall be sent not later than the
following business day to all Trustees who are absent from the meeting at which
the resolution was adopted.
Section 7. Organized Meeting. Immediately following each Annual
Meeting of Shareholders, a regular meeting of the Trustees shall be held for
the purposes of organizing, electing officers, and transacting other business.
Notice of such meetings need not be given.
Section 8. Regular Meetings. Regular meetings of the Trustees shall
be held at the principal office of the Trust or at any other place within the
State of California which has been designated by the Trustees' Regulations or
from time to time by resolution of the Trustees or by written consent of all of
the Trustees on the third Monday of each calendar month at 6:00 pm., and notice
of such regular meetings of the Trustees is hereby dispensed with.
Section 9. Special Meetings. Special meetings of the Trustees may be
called at any time by the President and the President shall call a special
meeting at any time upon the written request of two (2) Trustees. A copy of
written notice of the time and place of a special meeting shall be given to
each Trustee, either personally or by sending a copy thereof by mail or by
telegraph, charges prepaid, to his address appearing on the books of the Trust
or theretofore given by him to the Trust for the purpose of notice. In case of
personal service, such notice shall be so delivered at least twenty-four (24)
hours prior to the time fixed for the meeting. If telegraphed, it shall be
delivered to the telegraph company at least forty-eight (48) hours prior to the
time fixed for the holding of the meeting. If notice is not so given by the
Secretary, it may be given by the President, or the Trustees requesting the
meeting may issue the call and give the notice.
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Section 10. Adjourned Meetings. A quorum of the Trustees may adjourn
any Trustees' meeting to meet again at a stated day and hour. In the absence
of a quorum, a majority of the Trustees present may adjourn from time to time
to meet again at a stated day and hour prior to the time fixed for the next
regular meeting of the Trustees. The motion for adjournment shall be lodged
with the records of the Trust. Notice of the time and place of an adjourned
meeting need not be given to any Trustee if the time and place is fixed at the
meeting adjourned.
Section 11. Waiver of Notice. The transactions of any meeting of the
Trustees, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present, and if either before or after the meeting each of the Trustees not
present signs a written waiver of notice or a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be lodged with the Trust records or made a part of the minutes
of the meetings.
Section 12. Action Without Meeting. Any action required or permitted
to be taken by the Trustees may be taken by the Trustees without a meeting, if
a majority of the Trustees shall individually or collectively consent in
writing to such action. Such written consent or consents shall be lodged with
the records of the Trust. Such action by written consent shall have the same
force and effect as a unanimous vote of such Trustees.
Section 13. Powers and Duties. The powers and duties of the
Trustees, in addition to the powers and duties set forth in the Declaration,
are:
(a) Selection and Removal of Officers, Agents, and
Employees. To select all other officers, agents, and employees of the
Trust, to remove them at pleasure, either with or without cause, to
prescribe for them duties consistent with the Declaration and the
Trustees' Regulations, and to fix their compensation.
(b) Authorization of Signatures. From time to time to
designate the person or persons authorized to sign or endorse checks,
drafts, or other orders for the payment of money, issued in the name
of or payable to the Trust.
(c) Fixing Principal Office and Place of Meetings. From
time to time to change the location of the principal office of the
Trust and from time to time to designate any place within or without
the State of California as the place at which meetings of the Trustees
or of the Shareholders shall be held.
(d) Committees. To appoint an executive committee and
other committees, and to delegate to the executive committee any of
the powers and authority of the trustees over the business and affairs
of the Trustees, except the power to declare dividends and to adopt,
amend, or repeal Trustees' Regulations. The Trustees shall have the
power to prescribe the manner in which proceedings of the executive
committee and other committees shall be conducted. The executive
committee and the audit committee shall be composed of three (3) or
more Trustees.
(e) General Powers. Generally to exercise such other
powers as are usually vested in directors of corporations organized
under the laws of the State of California.
Section 14. Trustees' Compensation. Trustees who are not officers of
the Trust shall receive compensation for their services as determined by the
Trustees from time to time, subject to the limitation that the amount of such
compensation for each meeting shall not exceed the sum of $250 for each
Trustee. Trustees who are not officers of the Trust shall, in addition, be
reimbursed for expenses incurred in attending meetings of the Trustees.
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ARTICLE III
Advisory Trustees
Section 1. Appointment. The Trustees may at their option appoint not
more than fifteen (15) individuals to serve as Advisory Trustees for the Trust
whose duties will be to review the Trust's operations, investments, and
policies and make recommendations in connection therewith to the Trustees. The
Trustees, however, shall not be bound by the recommendations of the Advisory
Trustees, and the Advisory Trustees shall have no power or authority to, and no
action taken by them shall, bind or restrict the Trustees of the Trust.
Section 2. Election and Term of Office. The Advisory Trustees shall
be elected annually by the Trustees at their organization meeting. Each
Advisory Trustee shall hold office until his death, resignation, removal, or
until his successor shall be elected and qualified.
Section 3. Compensation to Advisory Trustees. The amount of
compensation to be paid to Advisory Trustees shall be fixed from time to time
by the Trustees provided that such compensation shall not exceed the sum of
$250 for each meeting attended by an Advisory Trustee. In addition to the
foregoing, the Trustees may authorize the payment of expenses incurred by any
Advisory Trustee to attend any meeting and may also authorize the payment of
additional compensation to an Advisory Trustee for services actually rendered
the Trust in addition to attending meetings.
Section 4. Limitation of Liability. No Advisory Trustee shall be
liable to the Trust, the Trustees hereunder, or the Shareholders in any amount
except for disclosure or use of confidential information obtained by such
Advisory Trustee in connection with his duties as an Advisory Trustee.
ARTICLE IV
Shareholders
Section 1. Quorum. The presence in person or by proxy of persons
entitled to vote a majority of the voting shares at any meeting of Shareholders
shall constitute a quorum. The Shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough Shareholders to leave less
than a quorum.
Section 2. Place of Meeting. Meetings of the Shareholders shall be
held at the principal office of the Trust or at such place within or without
the State of California as is designated by the Trustees or by the written
consent of all Shareholders entitled to vote thereat, given either before or
after the meeting and filed with the Secretary of the Trust.
Section 3. Annual Meeting. A regular annual meeting of the
Shareholders shall be held on the first Tuesday of June in each calendar year
commencing with end of the 1975 fiscal year at the hour of 10:30 a.m. If the
day so designated is a legal holiday the meeting shall be held at the same hour
on the next succeeding business day.
Section 4. Special Meetings. Special meetings of the Shareholders
may be held at any time for any purpose or purposes. Such special meetings may
be called at any time by the President or by the Trustees or by any two or more
Trustees, or by one or more Shareholders holding not less than 66-2/3% of the
outstanding Shares of the Trust.
Section 5. Adjourned Meetings. Any meetings of Shareholders, whether
or not a quorum is present, may be adjourned from day to day or from time to
time by the vote of a majority of the Shares, the holders of which are either
present at the meeting or represented by proxy. The motion for adjournment
shall be lodged with the records of the Trust.
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Section 6. Notice of Regular or Special Meetings. Written notice
specifying the place, day, and hour of any regular or special meeting, the
general nature of the business to be transacted thereat, and all other matters
required by law, shall be given to each Shareholder of record entitled to vote,
either personally or by sending a copy thereof by mail or telegraph, charges
prepaid, to his address appearing on the books of the Trust or theretofore
given by him to the Trust for the purpose of notice or, if no address appears
or has been given, addressed to the place where the principal office of the
Trust is situated. It shall be the duty of the Secretary to give notice of
each Annual Meeting of the Shareholders at least ten (10) days and not more
than sixty (60) days before the date on which it is to be held. If notice is
not so given by the Secretary, it may be given not less than seven (7) days
before such date by another officer. Whenever an officer has been duly
requested to call a special meeting of Shareholders, it shall be his duty to
fix the date and the hour thereof, which date shall be not less than ten (10)
days and not more than sixty (60) days after the receipt of such request, if
the request has been delivered in person, or after the date of mailing the
request, as the case may be, and to give notice of such special meeting not
less than seven (7) days before the date on which the meeting is to be held.
If the date of such special meeting is not so fixed and notice thereof given
within seven (7) days after the date of delivery or the date of mailing the
request, the date and hour of such meeting may be fixed by the person or
persons calling or requesting the meeting and notice thereof shall be given by
such person or persons not less than seven (7) days nor more than sixty (60)
days before the date on which the meeting is to be held.
Section 7. Notice of Adjourned Meetings. It shall not be necessary
to give any notice of the time and place of any adjourned meeting or of the
business to be transacted thereat other than by announcement at the meeting at
which such adjournment is taken, except that when a meeting is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting.
Section 8. Proxies. The appointment of a proxy or proxies shall be
made by an instrument in writing executed by the Shareholder or his duly
authorized agent and filed with Secretary of the Trust. No proxy shall be
valid after the expiration of eleven (11) months from the date of its execution
unless the Shareholder executing it specified therein the length of time for
which it was to continue in force, which in no case shall exceed seven (7)
years from the date of its execution. At a meeting of Shareholders all
questions concerning the qualification of voters, the validity of proxies, and
the acceptance or rejection of votes shall be decided by the Secretary of the
meeting unless inspectors of election are appointed pursuant to Section 11 of
this Article IV, in which event such inspectors shall pass upon all questions
and shall have all other duties specified in said section.
Section 9. Consents of Absentees. The transactions of any meeting of
Shareholders, either annual, special, or adjourned, however called and noticed,
shall be as valid as though conducted at a meeting duly held after the regular
call and notice if a quorum is present and, if either before or after the
meeting each Shareholder entitled to vote, not present in person or by proxy,
signs a written waiver of notice of a consent to the holding of such meeting or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be lodged with the Trust records or made a part of the minutes of the
meeting.
Section 10. Voting Rights. If no future date is fixed for the
determination of the Shareholders entitled to vote at any meeting of
Shareholders, only persons in whose names Shares entitled to vote stand on the
stock records of the Trust on the day of any meeting of Shareholders shall be
entitled to vote at such meeting.
Section 11. Inspectors of Election. In advance of any meeting of
Shareholders the Trustees may appoint inspectors of election to act at the
meeting or any adjournment thereof. If inspectors of election are not so
appointed, the Chairman of any meeting of Shareholders may and, on the request
of any Shareholder or his proxy, shall appoint inspectors of election at the
meeting. The number of inspectors shall be either one or three. If appointed
at the meeting on the request of one or more Shareholders or proxies, a
majority of Shares present shall determine whether one or three inspectors are
to be appointed. In case any person appointed as inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of convening the meeting or at the meeting by the Person
acting as Chairman. The inspectors of election shall determine the number of
Shares outstanding, the Shares represented at the meeting, the existence
F-5
<PAGE> 186
of a quorum, the authenticity, validity, and effect of proxies, receive votes,
ballots, or consents, hear and determine all challenges and questions in any
way arising in connection with the right to vote, count, and tabulate all votes
or consents, determine the results, and do such acts as may be proper to
conduct the election or vote with fairness to all Shareholders. If there are
three inspectors of election, the decision, act, or certificate of a majority
is effective in all respects as the decision, act, or certificate of all. On
request of the Chairman of the meeting or of any Shareholder or his proxy, the
inspector shall make a report in writing of any challenge or question or matter
determined by them and execute a certificate of any facts found by them.
Section 12. Excess Shares. No person shall at any time be or become
the owner of more than 9.8% of the outstanding shares of the Trust. Any shares
held in excess of this limit shall be "Excess Shares" which shall not be
entitled to voting rights or dividends (until they cease to become Excess
Shares) and are subject to redemption by the Trustees. This provision can be
waived or suspended at any time by the formal action of the Trustees acting in
accordance with these Regulations.
Section 13. Action Without Meeting.
(a) Action by Written Consent. Any action which is
required to be or may be taken at any annual or special meeting of
Shareholders of the Trust may be taken without a meeting, without
prior notice and without a vote, if consents in writing, setting forth
the action so taken, shall have been signed by the holders of
outstanding Shares having not less than the minimum number of votes
that would be necessary to authorize or to take such action at a
meeting at which all Shares entitled to vote thereon were present and
voted; provided, however, that prompt notice of the taking of the
action without a meeting and by less than unanimous written consent
shall be given to those Shareholders who have not consented in
writing.
(b) Record Date. The record date for determining
Shareholders entitled to express consent to action in writing without
a meeting shall be fixed by the Board of Trustees of the Trust (the
"Board"). Any Shareholder seeking to have the Shareholders authorize
or take action by written consent without a meeting shall, by written
notice, request the Board to fix a record date. The Board shall, upon
receipt of such a request, fix the record date as the fifteenth day
following receipt of the request or such later date as may be
specified by such Shareholder. If the record date falls on a
Saturday, Sunday or legal holiday, the record date shall be the day
next following which is not a Saturday, Sunday or legal holiday.
(c) Date of Consent. The date for determining if an
action has been consented to by the holder or holders of Shares having
the requisite voting power to authorize or take the action specified
therein (the "Consent Date") shall be the close of business on the
thirty-first day after the later of (x) the record date pursuant to
paragraph (b) of this Section 13 and (y) the date on which materials
soliciting consents are mailed to Shareholders if such materials are
required to be mailed under applicable law. If the Consent Date falls
on a Saturday, Sunday or legal holiday, the Consent Date shall be the
day next following which is not a Saturday, Sunday or legal holiday.
On or prior to the Consent Date, consents may be revoked by written
notice (i) to the Trust, (ii) to the Shareholder or Shareholders
soliciting consents or soliciting revocations in opposition to action
by consent proposed by the Trust (the "Soliciting Shareholders"), or
(iii) to a proxy solicitor or other agent designated by the Trust or
the Soliciting Shareholder(s).
(d) Procedures. In the event of delivery to the Trust of
a written consent or consents purporting to authorize or take action
and/or related revocations (each such written consent and related
revocation being referred to in this Section 13 as a "Consent"), the
Secretary of the Trust shall provide for the safekeeping of such
Consent and, as soon as practicable after the Consent Date, shall
conduct such reasonable investigation as he deems necessary or
appropriate for the purpose of ascertaining the validity of such
Consent and all matters incident thereto, including, without
limitation, whether the holders of Shares having the requisite voting
power to authorize or take the action specified in the Consent have
given consent; provided, however, that if the action to which the
Consent relates is the
F-6
<PAGE> 187
removal or replacement of one or more members of the Board, the
Secretary of the Trust shall designate two persons, who may not be
members of the Board or otherwise affiliated with the Trust, or a firm
of nationally recognized independent inspectors of election, to serve
as Inspectors with respect to such Consent and such Inspectors shall
discharge the functions of the Secretary of the Trust under this
paragraph (d). If after such investigation the Secretary or the
Inspectors (as the case may be) shall determine that the Consent is
valid, that fact shall be certified on the records of the Trust kept
for the purpose of recording the proceedings of meeting of
Shareholders, and the Consent shall become effective as Shareholder
action as of the fifth business day following such certification.
ARTICLE V
Section 1. Record Dates and Closing of Transfer Books. From time to
time the Trustees may fix a future date, not exceeding fifty (50) days
preceding the date of any meeting of Shareholders or the date fixed for the
payment of any dividend or distribution or for allotment of rights or when any
change or conversion or exchange of Shares is to go into effect, as the record
date for the determination of the Shareholders entitled to notice of and to
vote at any such meeting or to receive any such dividend or distribution or any
allotment of rights or to exercise the rights with respect to any such change,
conversion or exchange of Shares. If a time is so fixed, only Shareholders of
record on the date so fixed shall be entitled to notice of and to vote at such
meeting or to receive such dividend or distribution or allotment of rights or
to exercise such rights, as the case may be, notwithstanding any transfer of
Shares on the books of the Trust after the record date so fixed. The Trustees
may close the books of the Trust against transfers of Shares during the whole
or any part of the period between the record date and the date so fixed for the
meeting, payment, distribution, allotment, change, or exercise of rights.
Section 2. Inspection of Trust Records. The share register or
duplicate share register, the books of account, and the minutes of the
proceedings of the Shareholders and Trustees shall be open to inspection upon
the written demand of any Shareholder at any reasonable time and for a purpose
reasonably related to his interests as a Shareholder and shall be exhibited at
any time when required by the demand of ten percent (10%) or more of the Shares
represented at any Shareholders' meeting. Such inspection may be made in
person or by an agent or attorney and shall include the right to make extracts.
Demand of inspection other than at a Shareholders' meeting shall be made in
writing to the President, Secretary, or Assistant Secretary of the Trust.
Section 3. Inspection of Trustees' Regulations. The Trustees shall
keep at the principal office for the transaction of business of the Trust the
original or a copy of the Trustees' Regulations as amended or otherwise altered
to date, certified by the Secretary, which Regulations shall be open to
inspection by the Shareholders at all reasonable times during office hours.
Section 4. Representation of Shares of Corporations. The President
or any Vice President and the Secretary or Assistant Secretary of the Trust,
acting either in person or by a proxy or proxies designated in a written
instrument duly executed by said officers, are authorized to vote, represent,
and exercise on behalf of the Trust all rights incident to any shares of any
corporation standing in the name of the Trust.
ARTICLE VI
Seal
The Trust may elect to have a seal containing the words: "VINLAND
PROPERTY TRUST, A CALIFORNIA REAL ESTATE INVESTMENT TRUST, ORGANIZED JULY 10,
1973, CALIFORNIA."
F-7
<PAGE> 188
ARTICLE VII
Amendments
Section 1. By Shareholders. Except for any change for which a larger
number is required, these Trustees' Regulations may be amended or repealed, or
new or additional Trustees' Regulations may be adopted by the vote or written
consent of Shareholders entitled to exercise a majority of the voting power of
the Trust.
Section 2. By Trustees. These Trustees' Regulations may be amended
or repealed, or new or additional Trustees' Regulations may be adopted by the
vote or written consent of the Trustees, but the Trustees may not decrease the
authorized number of Trustees below three or increase the authorized number of
Trustees above fifteen without the vote or written consent of Shareholders
entitled to exercise a majority of the voting power of the Trust. The power
hereby delegated may be revoked by the vote or written consent of Shareholders
entitled to exercise a majority of the voting power of the Trust.
ARTICLE VIII
Definitions
All terms defined in the Declaration of Trust dated July 18, 1973, as
amended to date, shall have the same meaning when used in these Trustees'
Regulations.
F-8
<PAGE> 189
================================================================================
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given
or made, such information or representation should not be relied upon as having
been authorized. This Proxy Statement/Prospectus constitutes neither an offer
to sell, nor a solicitation of an offer to purchase, the securities offered by
this Proxy Statement/Prospectus, nor the solicitation of a proxy, in any
jurisdiction to or from any person to or from whom it is unlawful to make such
offer or solicitation of an offer or proxy solicitation in such jurisdiction.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
GENERAL SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . 1
PRINCIPAL SHAREHOLDERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . 3
PROPOSAL ONE-ELECTION OF TRUSTEES . . . . . . . . . . . . . . . . . . . . 4
PROPOSAL TWO-APPROVAL OF THE CURRENT
ADVISORY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PROPOSAL THREE-PROPOSED INCORPORATION
PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SHAREHOLDERS OF THE TRUST WILL NOT
HAVE ANY DISSENTERS' RIGHTS OF APPRAISAL
WITH RESPECT TO THE INCORPORATION
PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
MARKET PRICES OF THE SHARES;
DISTRIBUTIONS AND RELATED SHAREHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
BUSINESS AND PROPERTIES OF TRII NEVADA . . . . . . . . . . . . . . . . 54
BUSINESS AND PROPERTIES OF THE TRUST . . . . . . . . . . . . . . . . . 55
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 62
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 68
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SELECTION OF AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . 69
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
INTEREST OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
SOLICITATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . 70
INDEX OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . 71
INDEX TO FINANCIAL STATEMENTS AND
SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
During the 25-day period following the effective time of the Merger, all
dealers effecting transactions in the shares of Common Stock of TRII Nevada,
whether or not participating in this distribution, may be required to deliver a
copy of this Proxy Statement/Prospectus.
================================================================================
================================================================================
VINLAND PROPERTY TRUST
-------------------------
PROXY STATEMENT
-------------------------
TARRAGON REALTY
INVESTORS, INC.
-------------------------
PROSPECTUS
-------------------------
[ ] SHARES
OF COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
[ ], 1997
================================================================================
<PAGE> 190
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Trust's Restated Declaration of Trust provides that Trustees shall
not be personally liable for any obligation or liability incurred by or on
behalf of the Trust or by the Trustees for the benefit and on behalf of the
Trust. Under the Restated Declaration of Trust and California law respecting
real estate investment trusts, Trustees are not liable to the Trust or the
shareholders for any act or omission except for acts or omissions which
constitute bad faith, willful misfeasance, gross negligence or reckless
disregard of duties to the Trust and the shareholders.
The "Incorporation Procedure" will enable TRII Nevada to define the
liability of corporate officers and directors with greater precision. Under
the Management Liability Provision (Article NINTH of the Articles of
Incorporation), the directors will not have personal liability to TRII Nevada
or its stockholders for monetary damages for any breach of their fiduciary
duties as directors (including, without limitation, any liability for gross
negligence in the performance of their duties), except (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (ii) for the payment of dividends in violation of NRS 78.300. By
precluding personal liability for certain breaches of fiduciary duty, including
grossly negligent business decisions in evaluating takeover proposals to
acquire TRII Nevada, the Management Liability Provision supplements
indemnification rights afforded under TRII Nevada's Articles of Incorporation
and Bylaws which provide, in substance, that TRII Nevada shall indemnify its
directors, officers, employees and agents to the fullest extent permitted by
the NRS and other applicable laws.
The Articles of Incorporation provide that "TRII Nevada shall
indemnify to the fullest extent authorized or permitted by law (as now or
hereafter in effect) . . . to any person made or threatened to be made a party
or witness to any action, suit or proceeding (whether civil or criminal
otherwise) by reason of the fact that such person is or was a director,
officer, employee or agent of TRII Nevada . . . ." Further, the Bylaws provide
that "[e]ach officer, director or employee . . . shall be indemnified . . . to
the full extent permitted under Chapter 78 of the Nevada Revised Statutes . . .
and other applicable law." Pursuant to the NRS, a corporation may indemnify
persons for expenses related to an action, suit or proceeding, except an action
by or in the right of the corporation, by reason of the fact that such person
is or was a director, officer, employee or agent, if such person acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, if such person had no reasonable cause to believe his conduct
was unlawful. The expenses indemnified against in this provision include
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with the action, suit or proceeding. The NRS
further provides that a corporation may indemnify persons for attorneys' fees
related to an action, suit or proceeding by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that such person is or
was a director, officer, employee or agent, if such person acted in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation. The corporation may also indemnify
directors for amounts paid in judgments and settlements in such a suit, but
only if ordered by a court after determining that the person is "fairly and
reasonably" entitled to indemnity.
The Management Liability Provision contained in the Articles of
Incorporation is analogous to Article VII of the Declaration of Trust. Article
VII, however, explicitly exculpates Trustees, officers, employees and agents of
the Trust while the Management Liability Provision explicitly exculpates only
directors. Further, under the Declaration of Trust, a Trustee would not be
indemnified for liability arising from gross negligence or reckless disregard
of duty, whereas a director of TRII Nevada may be indemnified for such
liability under the Articles of Incorporation.
See also "Liability of Certain Persons" in the Prospectus to which
incorporation by reference is hereby made.
II-1
<PAGE> 191
See also "Liability of Certain Persons" in the Prospectus to which
incorporation by reference is hereby made.
ITEM 21. EXHIBITS.
(i) The following exhibits are filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <S>
3.1 Declaration of Trust (amended and restated)
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated August 14, 1987)
3.2 Amendment No. 2 to Amended and Restated Declaration
of Trust recorded December 1, 1995 as Instrument No.
95-280172 in the Alameda County Records (incorporated
by reference to Registrant's Current Report on Form
8-K dated November 20, 1995)
3.3 Restated Trustees' Regulations (incorporated by
reference to the Registrant's Current Report on Form
8-K dated April 21, 1989)
3.4 Restated Trustees' Regulations dated as of September
12, 1990 (incorporated by reference to Exhibit No.
3.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended August 31, 1990)
3.5 Articles of Incorporation of Tarragon Realty
Investors, Inc. (included as Appendix C to the Proxy
Statement/Prospectus)
3.6 Bylaws of Tarragon Realty Investors, Inc. (included
as Appendix D to the Proxy Statement/Prospectus)
3.7 Agreement and Plan of Merger dated as of
________________, 1997, between Tarragon Realty
Corporation, a California corporation, and Tarragon
Realty Investors, Inc., a Nevada corporation
(included as Appendix B to the Proxy
Statement/Prospectus
4.1 Rights Agreement dated March 10, 1989 between Vinland
Property Trust and American Stock Transfer and Trust
Company (incorporated by reference to the
Registrant's Registration Statement on Form 8-A dated
March 10, 1989)
4.2 Amendment No. 1 to Rights Agreement dated March 10,
1989 between Vinland Property Trust and American
Stock Transfer and Trust Company (incorporated by
reference to Exhibit No. 2 of Form 8 Amendment to the
Registration Statement on Form 8-A dated August 2,
1991)
</TABLE>
- -------------------------
* Filed herewith
** Amended Exhibit
+ Previously filed
++ To be filed by Amendment
II-2
<PAGE> 192
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <S>
4.3 Amendment No. 2 to Rights Agreement dated March 10,
1989 between Vinland Property Trust and American
Stock Transfer and Trust Company (incorporated by
reference to Exhibit No. 3 of Amendment No. 2 to the
Registrant's Registration Statement on Form 8-A dated
January 31, 1994)
4.4 Amendment No. 3 to Rights Agreement dated March 10,
1989 between Vinland Property Trust and American
Stock Transfer and Trust Company (incorporated by
reference to Exhibit 4.4 to the Registrant's Form
10-K for the fiscal year ended November 30, 1994)
4.5 Indenture Agreement dated September 15, 1993 between
Vinland Property Trust and American Stock Transfer
and Trust Company (incorporated by referenced to
Exhibit No. 4.7 to the Registrant's Registration
Statement No. 33-66294 on Form S-11)
*5.1 Form of opinion of Hill & Metzger, L.L.P. as to the
legality of the securities
*5.2 Form of opinion of Kummer, Kaempfer, Bonner & Renshaw
as to the legality of the securities.
*8.1 Form of opinion of Hill & Metzger, L.L.P. as to tax
matters 10.1 Advisory Agreement dated April 1, 1995
between Vinland Property Trust and Tarragon Realty
Advisors, Inc. (incorporated by referenced to Exhibit
10.1 to the Registrant's Current Report on Form 8-K
dated April 1, 1995; also included as Appendix A to
the Proxy Statement/Prospectus)
20.1 Notice Letter dated December 1, 1995 addressed to the
Shareholders of Vinland Property Trust advising of
one-for-five reverse share split and related matters
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated November 20, 1995)
20.2 Form Letter of Transmittal for use in surrender of
Old Shares for replacement by certificates
representing Post-Split Shares and payment of
fractional interests (incorporated by reference to
the Registrant's Current Report on Form 8-K dated
November 20, 1995)
20.3 Offer by Vinland Property Trust to purchase its
shares of beneficial interest, no par value
(Post-Split) made only to Shareholders with 99 or
fewer Shares (incorporated by reference to the
Registrant's Current Report on Form 8-K dated
November 20, 1995)
20.4 Form Letter of Transmittal for use in "Odd Lot" Offer
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated November 20, 1995)
</TABLE>
- -------------------------
* Filed herewith
** Amended Exhibit
+ Previously filed
++ To be filed by Amendment
II-3
<PAGE> 193
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
20.5 Notice of Extension of and Supplement to Offer by
Vinland Property Trust to purchase shares of its
beneficial interest, no par value (Post-Split), made
only to shareholders with 99 or fewer Shares
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated January 11, 1996)
*23.1 Consent of Hill & Metzger, L.L.P. (included in
Exhibit 5.1) *23.2 Consent of Kummer, Kaempfer,
Bonner & Renshaw (included in Exhibit 5.2)
*23.3 Consent of Arthur Andersen LLP
24.1 Power of Attorney (set forth on page II-5)
*27.0 Financial Data Schedule
*99.1 Form of Proxy Card
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes: to deliver or cause to
be delivered with the prospectus to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 (Section 239.415 of this
chapter), will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
ITEM 23. FINANCIAL STATEMENTS.
Financial statements, including an index thereto, are included in the
Proxy Statement/Prospectus.
- -------------------------
* Filed herewith
** Amended Exhibit
+ Previously filed
++ To be filed by Amendment
II-4
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on April 23, 1997.
TARRAGON REALTY INVESTORS, INC.
By /s/ WILLIAM S. FRIEDMAN
--------------------------------------
William S. Friedman
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears below on this registration statement constitutes and appoints each of
William S. Friedman and Robert C. Irvine his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacities (until revoked in writing)
to sign any and all amendments (including post-effective amendments thereto) to
this Form S-4 Registration Statement of Tarragon Realty Investors, Inc. and to
file same, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, granting unto each said
attorney- in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President, Chief Executive Officer April 23, 1997
/s/ WILLIAM S. FRIEDMAN and Director (Principal Executive
--------------------------------- Officer)
William S. Friedman
Executive Vice President, Chief April 23, 1997
/s/ ROBERT C. IRVINE Financial Officer (Principal
--------------------------------- Financial Officer)
Robert C. Irvine
Vice President and Chief Accounting April 23, 1997
/s/ ERIN D. DAVIS Officer (Principal Accounting
--------------------------------- Officer)
Erin D. Davis
/s/ WILLIE K. DAVIS Director April 23, 1997
---------------------------------
Willie K. Davis
/s/ CHESTER BECK Director April 10, 1997
---------------------------------
Chester Beck
/s/ MICHAEL E. SMITH Director April 14, 1997
---------------------------------
Michael E. Smith
</TABLE>
II-5
<PAGE> 195
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <S>
3.1 Declaration of Trust (amended and restated)
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated August 14, 1987)
3.2 Amendment No. 2 to Amended and Restated Declaration
of Trust recorded December 1, 1995 as Instrument No.
95-280172 in the Alameda County Records (incorporated
by reference to Registrant's Current Report on Form
8-K dated November 20, 1995)
3.3 Restated Trustees' Regulations (incorporated by
reference to the Registrant's Current Report on Form
8-K dated April 21, 1989)
3.4 Restated Trustees' Regulations dated as of September
12, 1990 (incorporated by reference to Exhibit No.
3.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended August 31, 1990)
3.5 Articles of Incorporation of Tarragon Realty
Investors, Inc. (included as Appendix C to the Proxy
Statement/Prospectus)
3.6 Bylaws of Tarragon Realty Investors, Inc. (included
as Appendix D to the Proxy Statement/Prospectus)
3.7 Agreement and Plan of Merger dated as of
________________, 1997, between Tarragon Realty
Corporation, a California corporation, and Tarragon
Realty Investors, Inc., a Nevada corporation
(included as Appendix B to the Proxy
Statement/Prospectus
4.1 Rights Agreement dated March 10, 1989 between Vinland
Property Trust and American Stock Transfer and Trust
Company (incorporated by reference to the
Registrant's Registration Statement on Form 8-A dated
March 10, 1989)
4.2 Amendment No. 1 to Rights Agreement dated March 10,
1989 between Vinland Property Trust and American
Stock Transfer and Trust Company (incorporated by
reference to Exhibit No. 2 of Form 8 Amendment to the
Registration Statement on Form 8-A dated August 2,
1991)
</TABLE>
- -------------------------
* Filed herewith
** Amended Exhibit
+ Previously filed
++ To be filed by Amendment
<PAGE> 196
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <S>
4.3 Amendment No. 2 to Rights Agreement dated March 10,
1989 between Vinland Property Trust and American
Stock Transfer and Trust Company (incorporated by
reference to Exhibit No. 3 of Amendment No. 2 to the
Registrant's Registration Statement on Form 8-A dated
January 31, 1994)
4.4 Amendment No. 3 to Rights Agreement dated March 10,
1989 between Vinland Property Trust and American
Stock Transfer and Trust Company (incorporated by
reference to Exhibit 4.4 to the Registrant's Form
10-K for the fiscal year ended November 30, 1994)
4.5 Indenture Agreement dated September 15, 1993 between
Vinland Property Trust and American Stock Transfer
and Trust Company (incorporated by referenced to
Exhibit No. 4.7 to the Registrant's Registration
Statement No. 33-66294 on Form S-11)
*5.1 Form of opinion of Hill & Metzger, L.L.P. as to the
legality of the securities
*5.2 Form of opinion of Kummer, Kaempfer, Bonner & Renshaw
as to the legality of the securities.
*8.1 Form of opinion of Hill & Metzger, L.L.P. as to tax
matters 10.1 Advisory Agreement dated April 1, 1995
between Vinland Property Trust and Tarragon Realty
Advisors, Inc. (incorporated by referenced to Exhibit
10.1 to the Registrant's Current Report on Form 8-K
dated April 1, 1995; also included as Appendix A to
the Proxy Statement/Prospectus)
20.1 Notice Letter dated December 1, 1995 addressed to the
Shareholders of Vinland Property Trust advising of
one-for-five reverse share split and related matters
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated November 20, 1995)
20.2 Form Letter of Transmittal for use in surrender of
Old Shares for replacement by certificates
representing Post-Split Shares and payment of
fractional interests (incorporated by reference to
the Registrant's Current Report on Form 8-K dated
November 20, 1995)
20.3 Offer by Vinland Property Trust to purchase its
shares of beneficial interest, no par value
(Post-Split) made only to Shareholders with 99 or
fewer Shares (incorporated by reference to the
Registrant's Current Report on Form 8-K dated
November 20, 1995)
20.4 Form Letter of Transmittal for use in "Odd Lot" Offer
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated November 20, 1995)
20.5 Notice of Extension of and Supplement to Offer by
Vinland Property Trust to purchase shares of its
beneficial interest, no par value (Post-Split), made
only to shareholders with 99 or fewer Shares
(incorporated by reference to the Registrant's
Current Report on Form 8-K dated January 11, 1996)
*23.1 Consent of Hill & Metzger, L.L.P. (included in
Exhibit 5.1) *23.2 Consent of Kummer, Kaempfer,
Bonner & Renshaw (included in Exhibit 5.2)
*23.3 Consent of Arthur Andersen LLP
24.1 Power of Attorney (set forth on page II-5)
*27.0 Financial Data Schedule
*99.1 Form of Proxy Card
</TABLE>
- -------------------------
* Filed herewith
** Amended Exhibit
+ Previously filed
++ To be filed by Amendment
<PAGE> 1
EXHIBIT 5.1
[HILL & METZGER, L.L.P. LETTERHEAD]
April 18, 1997
Tarragon Realty Investors, Inc.
3100 Monticello Avenue, Suite 200
Dallas, Texas 75205
Re: Tarragon Realty Investors, Inc. original issuance
of 1,343,359 shares of Common Stock, par value
$0.01 per share
Gentlemen:
We have acted as counsel for Tarragon Realty Investors, Inc., a Nevada
corporation (the "Company"), in connection with preparation by the Company of a
Registration Statement on Form S-4 (Registration No. _________) and the
pre-effective amendments thereto (collectively, the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended. The Registration Statement relates to 1,343,359 shares of
Common Stock, par value $0.01 per share (the "Common Stock") to be offered and
issued in connection with a proposed merger (the "Merger") of Vinland Property
Corporation, a California corporation (the "California Corporation") which is
the successor in interest to Vinland Property Trust, a California real estate
investment trust (the "Trust"), with and into the Company. Capitalized terms
not otherwise defined herein shall have the same meaning ascribed to them in
the Registration Statement.
As counsel rendering the opinions hereinafter expressed, we have been
furnished with and examined originals or copies, certified or otherwise
identified to our satisfaction, of the following documents and have made no
independent verification of the factual matters set forth in such documents:
<PAGE> 2
Page 2
Tarragon Realty Investors, Inc.
April 18, 1997
A. Amended and Restated Declaration of Trust dated May 27,
1987 of the Trust, together with Amendment No. 1 thereto effective June
22, 1989 and Amendment No. 2 thereto effective November 20, 1995.
B. Restated Trustees Regulations of the Trust adopted as
of April 21, 1989.
C. Trustees' Certificate certifying to the matters stated
therein.
D. Articles of Incorporation of the California
Corporation.
E. Bylaws of the California Corporation.
F. The Registration Statement and any and all exhibits
thereto, including the following:
(i) Articles of Incorporation of the
Company,
(ii) Bylaws of the Company,
(iii) Agreement and Plan of Merger dated as of
____________________, 1997 between the California Corporation and the
Company.
G. Such other documents as we have deemed necessary for
the expression of the opinions contained herein.
In making the foregoing examinations, we have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies. As to various questions of fact
material to this opinion, where such facts have not been independently
established, we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of trustees, officers or employees or other
authorized representatives of the Trust and the Company, public officials and
others. In addition, we have assumed that the Agreement and Plan of Merger to
be entered into between the California Corporation and the Company in
connection with the Merger (the "Merger Agreement") will become effective
substantially in the form included in the Registration Statement (with all
blanks appropriately completed) and that the Merger will be consummated as
described in the Registration Statement pursuant to and in accordance with the
Merger Agreement.
<PAGE> 3
Page 3
Tarragon Realty Investors, Inc.
April 18, 1997
Based upon the foregoing and having due regard for such legal
considerations as we have deemed relevant, we are of the opinion that the
1,343,359 shares of Common Stock have been duly and validly authorized and
reserved for issuance and, when issued pursuant to the terms of the Merger
Agreement as contemplated in the Registration Statement, will be validly issued
and outstanding, fully paid and non-assessable with no personal liability
attaching to the ownership thereof.
Members of this firm are admitted to practice only in the State of
Texas and are not licensed to practice law in the States of California or
Nevada. Our opinions expressed herein may address certain matters of
California law and Nevada law. With respect to the opinions involving or based
upon an interpretation of the laws of the State of California, we have relied
upon the latest unofficial compilation of The Corporation Code of California
(which we believe to be current and effective with respect to the relevant
provisions of California law) and case law of the State of California available
to us.
With respect to any opinions involving or based upon an interpretation
of the laws of the State of Nevada, we have relied solely upon, and our opinion
is subject to, the limitations and assumptions set forth in the opinion of
Kummer, Kaempfer, Bonner & Renshaw dated April 23, 1997, and addressed to the
Company and our firm and upon which we are authorized to rely (and which will
be filed as Exhibit 5.2 to the Registration Statement). We have made no
independent examination of the laws of the State of Nevada.
This opinion has been furnished to the Company at its request, is
rendered solely for its use and may not be relied upon by any other person or
for any other purpose without our prior written consent, and is rendered as of
the date hereof. We do not undertake, and hereby disclaim, any obligation to
advise anyone of any changes in or new developments which might affect any
matters or opinions set forth herein. No member of this firm is an officer or
trustee of the Trust or an officer or director of the California Corporation or
the Company.
We hereby consent to the filing of this opinion and our opinion as tax
counsel as an exhibit to the Registration Statement and the references to this
firm under the captions "TAX CONSIDERATION" and "LEGAL MATTERS" in the
prospectus forming a part of such Registration Statement. By giving such
consent, we do not thereby admit that we are experts with respect to any part
of the Registration Statement, including this exhibit, within the
<PAGE> 4
Page 4
Tarragon Realty Investors, Inc.
April 18, 1997
meaning of the term "expert" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission issued
thereunder.
Very truly yours,
HILL & METZGER, L.L.P.
By /s/ STEVEN C. METZGER
---------------------------------
Steven C. Metzger, Partner
SCM/gb
<PAGE> 1
EXHIBIT 5.2
[KUMMER KAEMPFER BONNER & RENSHAW LETTERHEAD]
April 23, 1997
Tarragon Realty Investors, Inc.
3100 Monticello
Suite 200
Dallas, Texas 75205
Re: Tarragon Realty Investors, Inc.
Registration Statement on Form S-4
1,343,119 Shares of Common Stock, Par Value $.Ol Per Share
Ladies and Gentlemen:
You have requested our opinion as a special Nevada counsel for
Tarragon Realty Investors, Inc. (the "Company"), a Nevada corporation in
connection with the proposed merger (the "Merger") of Vinland Property
Corporation, a California corporation ("Vinland") (successor in interest to
Vinland Property Trust, a California business trust) into the Company pursuant
to an Agreement and Plan of Merger to be entered into by and among Vinland and
the Company ("Merger Agreement"). As consideration for the Merger, each
shareholder of Vinland will receive for each share of Vinland common stock
owned as of the effective time of the Merger, one share of common stock of the
Company. We are rendering this opinion in connection with this transaction and
the registration by the Company of 1,343,119 shares of its common stock (the
"Common Stock"), and the proposed issuance and sale thereof under the
Registration Statement, as defined below. Any opinions expressed herein shall
be limited to the extent that we have been retained as special Nevada counsel.
In connection with this opinion letter, we have reviewed the following
documents ("Documents"):
1. A draft Form S-4 Registration Statement of the Company anticipated
to be filed with the U.S. Securities and Exchange Commission on April 23, 1997
(the "Registration Statement").
2. An unexecuted copy of the Merger Agreement filed as Appendix B to
the Registration Statement.
<PAGE> 2
Tarragon Realty Investors. Inc
April 23,1997
Page 2
3. Articles of Incorporation of the Company as filed with the Nevada
Secretary of State on April 2. 1997.
4. Bylaws of the Company certified by the Company to be currently in
force and effect.
5. Unanimous Written Consent of the Board of Directors of the Company
in lieu of organizational meeting dated April 3, 1997.
6. Certificate of Secretary of the Company dated as of April 22, 1997.
In our examination, we have assumed that each Document will be duly
completed (where blanks appear), duly executed and duly delivered by each party
as of this date. We further assume the genuineness of all signatures, and
the legal capacity of natural persons who signed or who will sign the
Documents. We assume the Documents are the only material documents governing
the affairs of the Company in relation to the above-described transaction. In
our examination, we also have assumed the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
Documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. We assume that each
party other than the Company has the power and authority to execute and deliver
the Documents and that such other parties have duly authorized such execution
and delivery. We further assume that the Documents are legal, valid, binding
and enforceable obligations of any party other than the Company. We assume that
the Documents have not been rescinded, modified or altered in any manner
whatsoever as of the date hereof As to various questions of fact material to our
opinion, we have relied upon statements and certificates of officers of the
Company and Vinland, public officials and others. Moreover, we have assumed that
the Merger Agreement to be entered into between the Company and Vinland will
become effective substantially in the form included in the Registration
Statement, and that the Merger will be consummated as described in the
Registration Statement and pursuant to and in accordance with the Merger
Agreement. Furthermore, we have not independently verified any of the factual
matters set forth in any certificate or other document upon which we have
relied.
Matters of which we have knowledge are those matters which are known
to us in the course of our representation of the Company, without any
independent investigation by us of any such matters.
We are admitted to the Bar of the State of Nevada. In rendering our
opinions hereinafter stated, we have relied upon the applicable laws of the
State of Nevada as those laws presently exist and as they have been applied and
interpreted by courts having jurisdiction within the State of Nevada. We
express no opinion as to the laws of any other Jurisdiction or of the United
States of America.
Based upon the foregoing and in reliance thereon and subject to the
assumptions, exceptions, qualifications, and limitations set forth herein, we
are of the opinion that the Common Stock has been duly and validly authorized
and reserved for issuance, and, when issued pursuant to the
<PAGE> 3
Tarragon Realty Investors, Inc.
April 23, 1997
Page 3
terms of the Merger Agreement as contemplated in the Registration Statement,
will be validly issued and outstanding, fully paid and non-assessable.
In rendering the foregoing opinion, we have made no independent
examination of the laws of the State of California nor have we analyzed any
issues which may relate thereto. We express no opinion as to the laws of any
jurisdiction other than the applicable laws of the State of Nevada, and we
assume no responsibility as to the applicability thereto, or effect thereon, of
the laws of any other jurisdiction.
This opinion is effective as of the date hereof and we disclaim any
responsibility to update this opinion at any time following the date hereof. No
extensions of our opinion may be made by implication or otherwise. We express
no opinion other than as herein expressly set forth. This opinion is solely for
the benefit of the addressee hereof, and, without our prior written consent,
may not be quoted in whole or in part or otherwise referred to in any legal
opinion, document or other report, and may not be furnished to any person or
entity (except that Hill & Metzger, L.L.P. may rely on this opinion as if it
was addressed to Hill & Metzger, L.L.P. for purposes of such firms opinion to
be filed as Exhibit 5.2 to the Registration Statement). We hereby consent to
the filing of this opinion letter as an exhibit to the Registration Statement
and to the reference to our firm name under the caption "Legal Matters" in the
Registration Statement and in the Prospectus contained therein. By giving such
consent, we do not hereby admit that we are an expert with respect to any part
of the Registration Statement, including this exhibit, within the meaning of
the term "expert" as used in the Securities Act of 1933, as amended.
Sincerely,
KUMMER KAEMPFER BONNER & RENSHAW
<PAGE> 1
EXHIBIT 8.1
[HILL & METZGER, L.L.P. LETTERHEAD]
April 18, 1997
Tarragon Realty Investors, Inc.
3100 Monticello Avenue, Suite 200
Dallas, Texas 75205
Re: TAX OPINION - Tarragon Realty Investors, Inc.
original issuance of 1,343,359 shares of Common Stock,
par value $0.01 per share
Gentlemen:
We have acted as counsel for Tarragon Realty Investors, Inc., a Nevada
corporation (the "Company"), in connection with preparation by the Company of a
Registration Statement on Form S-4 (Registration No. _________) and the
pre-effective amendments thereto (collectively, the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended. The Registration Statement relates to 1,343,359 shares of
Common Stock, par value $0.01 per share (the "Common Stock") to be offered and
issued in connection with a proposed merger (the "Merger") of Vinland Property
Corporation, a California corporation (the "California Corporation") which is
the successor in interest to Vinland Property Trust, a California real estate
investment trust (the "Trust"), with and into the Company. Capitalized terms
not otherwise defined herein shall have the same meaning ascribed to them in
the Registration Statement.
As counsel rendering the opinions hereinafter expressed, we have been
furnished with and examined originals or copies, certified or otherwise
identified to our satisfaction, of the following documents and have made no
independent verification of the factual matters set forth in such documents:
<PAGE> 2
Page 2
Tarragon Realty Investors, Inc.
April 18, 1997
A. Amended and Restated Declaration of Trust dated May 27,
1987 of the Trust, together with Amendment No. 1 thereto effective June
22, 1989 and Amendment No. 2 thereto effective November 20, 1995.
B. Restated Trustees Regulations of the Trust adopted as
of April 21, 1989.
C. Trustees' Certificate certifying to the matters stated
therein.
D. Articles of Incorporation of the California
Corporation.
E. Bylaws of the California Corporation.
F. The Registration Statement and any and all exhibits
thereto, including the following:
(i) Articles of Incorporation of the Company,
(ii) Bylaws of the Company,
(iii) Agreement and Plan of Merger dated as of
____________________, 1997 between the California Corporation
and the Company.
G. Such other documents as we have deemed necessary for
the expression of the opinions contained herein.
In making the foregoing examinations, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies. As to various questions of fact
material to this opinion, where such facts have not been independently
established, we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of trustees, officers or employees or other
authorized representatives of the Trust and the Company, public officials and
others. In addition, we have assumed that the Agreement and Plan of Merger to
be entered into between the California Corporation and the Company in
connection with the Merger (the "Merger Agreement") will become effective
substantially in the form included in the Registration Statement (with all
blanks appropriately completed) and that the Merger will be consummated as
described in the Registration Statement pursuant to and in accordance with the
Merger Agreement.
<PAGE> 3
Page 3
Tarragon Realty Investors, Inc.
April 18, 1997
Based upon the foregoing and having due regard for such legal
considerations as we have deemed relevant, we are of the opinion that:
(i) for federal income tax purposes, the Incorporation
Procedure described in the Registration Statement will constitute a
reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) the information contained in the Registration Statement
under the caption "Material Federal Income Tax Consequences," to the
extent it constitutes matters of law or legal conclusions, is correct
in all material respects.
Upon consummation of the Incorporation Procedure, as described in the
Registration Statement, the Company should be treated as the same taxpayer as
the Trust for federal income tax purposes. Thus, the conversion of the Trust
into the Company essentially will be irrelevant for federal income tax purposes
and the operations of the Trust and the Company will be combined for purposes
of determining whether the Company qualifies as a real estate investment trust
for the taxable year in which the Incorporation Procedure is consummated. The
Incorporation Procedure will not, in and of itself, adversely affect the
ability of the Trust or the Company to qualify as a real estate investment
trust for federal income tax purposes.
The opinions expressed herein are based upon our interpretation of
current law, including existing final and temporary regulations which may be
subject to change, both prospectively and retroactively, upon existing court
authority and upon the facts and assumptions set forth herein.
This opinion does not purport to cover the laws of any jurisdiction
except the State of Texas, the United States of America, and certain matters of
California law. With respect to opinions involving or based upon an
interpretation of the laws of the State of California, we have relied upon the
latest unofficial compilation of The Corporation Code of California (which we
believe to be current and effective with respect to the relevant provisions of
California law) and case law of the State of California available to us.
This opinion has been furnished to the Company at its request, is
rendered solely for its use and may not be relied upon by any other person or
for any other purpose without the prior written consent of this firm, and is
rendered as of the date hereof. We do not undertake, and hereby disclaim, any
obligation
<PAGE> 4
Page 4
Tarragon Realty Investors, Inc.
April 18, 1997
to advise anyone of any changes in or new developments which might affect any
matters or opinions set forth herein. No member of this firm is an officer or
trustee of the Trust or an officer or director of the California Corporation or
the Company.
Our opinions set forth above are based on the assumption that the
matter, if litigated, will be properly presented to the applicable court.
Further, our opinions are not binding on the Internal Revenue Service or a
court and we must advise that our opinion represents merely our best legal
judgment on the matters presented, but others may disagree with our
conclusions. There can be no assurance that the Internal Revenue Service will
not take contrary positions or that a court would agree with our opinion, if
litigated. In the event any one of the statements, representations or
assumptions upon which we have relied to issue these opinions is incorrect, our
opinion might be adversely affected and may not be relied upon.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to this firm under the captions "Tax
Consideration" and "LEGAL MATTERS" in the prospectus forming a part of such
Registration Statement. By giving such consent, we do not thereby admit that
we are experts with respect to any part of the Registration Statement,
including this exhibit, within the meaning of the term "expert" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission issued thereunder.
Very truly yours,
HILL & METZGER, L.L.P.
By /s/ STEVEN C. METZGER
------------------------------
Steven C. Metzger, Partner
SCM/gb
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 2,684
<SECURITIES> 0
<RECEIVABLES> 734
<ALLOWANCES> (241)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,064
<DEPRECIATION> (5,575)
<TOTAL-ASSETS> 28,757
<CURRENT-LIABILITIES> 0
<BONDS> 17,516
0
0
<COMMON> 0
<OTHER-SE> 9,869
<TOTAL-LIABILITY-AND-EQUITY> 28,757
<SALES> 0
<TOTAL-REVENUES> 9,464
<CGS> 0
<TOTAL-COSTS> 6,047
<OTHER-EXPENSES> 1,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,929
<INCOME-PRETAX> 600
<INCOME-TAX> 0
<INCOME-CONTINUING> 600
<DISCONTINUED> 0
<EXTRAORDINARY> 253
<CHANGES> 0
<NET-INCOME> 853
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
PROXY
VINLAND PROPERTY TRUST
This Proxy is Solicited on behalf of the Board of Trustees for the
Annual Meeting of Shareholders, June 24, 1997.
The undersigned shareholder of VINLAND PROPERTY TRUST hereby appoints
WILLIAM S. FRIEDMAN and CHESTER BECK, each with full power of substitution, as
attorneys and proxies to vote all of the Shares of the Beneficial Interest, no
par value per share, of VINLAND PROPERTY TRUST (the "Trust") which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of said
Trust to be held on June 24, 1997 at 2:00 p.m., local [New York City] time, at
280 Park Avenue, East Building, 20th Floor, New York, New York 10017, or any
adjournment(s) thereof, with all powers the undersigned would possess if
personally present, as indicated below, and for the transaction of such other
business as may properly come before said meeting or any adjournment(s)
thereof, all as set forth in the May 20, 1997 Proxy Statement/Prospectus for
said meeting:
1. ELECTION OF TRUSTEES: [ ] FOR all nominees listed below
(except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY
to vote for all nominees listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME LISTED BELOW.
Chester Beck Willie K. Davis William S. Friedman Michael E. Smith
2. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the Trust's current
Advisory Agreement with Tarragon Realty Advisors, Inc.
3. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of a proposal to convert
the Trust from a California business trust to a Nevada corporation through the
"Incorporation Procedure" as described in the Proxy Statement/Prospectus dated
May _____, 1997.
4. In their discretion on any other matters which may properly come
before the meeting or any adjournment(s) thereof.
(continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
(continued from other side)
This proxy will be voted as directed but if no direction is indicated
it will be voted FOR the election of the nominees named in proposal (1), and
FOR the proposal to approve the Trust's Advisory Agreement with Tarragon Realty
Advisors, Inc. described in proposal (2), and FOR the proposal to approve the
conversion of the Trust from a California business trust into a Nevada
corporation through the "Incorporation Procedure" described in the Proxy
Statement/Prospectus dated May _____, 1997. On other matters that may come
before said meeting, this proxy will be voted in the discretion of the
above-named persons.
Please
-----------------------------------------
Sign
-----------------------------------------
Here
-----------------------------------------
Dated: ,1997
--------------------
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
OR NAMES APPEAR HEREON. WHEN THERE IS
MORE THAN ONE OWNER, EACH MUST SIGN.
WHEN SIGNING AS AN AGENT, ATTORNEY,
ADMINISTRATOR, EXECUTOR, GUARDIAN, OR
TRUSTEE, PLEASE INDICATE YOUR TITLE AS
SUCH. IF EXECUTED BY A CORPORATION, THE
PROXY SHOULD BE SIGNED BY A DULY
AUTHORIZED OFFICER WHO SHOULD INDICATE
HIS TITLE. IF A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY AN
AUTHORIZED PERSON. PLEASE DATE, SIGN
AND MAIL THIS PROXY CARD IN THE ENCLOSED
ENVELOPE FOR WHICH NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
