TOTAL OF 252 PAGES, INCLUDING ALL EXHIBITS
As filed with the Securities and Exchange Commission on September 5, 1997
Registration No. 33-__________
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Baron Capital Trust
(Name of small business issuer in its charter)
Delaware 6798 Applied For
State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
7826 Cooper Road Gregory K. McGrath
Cincinnati, Ohio 45242 7826 Cooper Road 45242
(Address and telephone number (513) 984-5001
of principal executive offices (Name, address and telephone
and principal place of business) number of agent for service)
Copies to:
Dennis P. Spates, Esq.
Schoeman, Marsh & Updike, LLP
60 East 42nd Street, 39th Floor
New York, New York 10165
(212) 661-5030
Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each class of Dollar amount to Proposed maximum Proposed maximum Amount of
securities to be registered be registered offering price per unit aggregate offering price registration fee
Common Shares of Beneficial
Interest $25,000,000 $10.00 $25,000,000 $7,576.00
- ------------------------------- ------------------- ------------------------- -------------------------- -------------------
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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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CROSS REFERENCE SHEET
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Location or Heading in
Item Number Caption Prospectus
- ----------- ------- ----------
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Item 1. Front of Registration Statement and Outside Front Outside Front Cover
Cover of Prospectus
(Furnish the information required by Item 501 of
Regulation S-B)
Item 2. Inside Front and Outside Back Cover Pages of Inside Front Cover; Outside Back Cover,
Prospectus Additional Information; Summary of
(Furnish the information required by Item 502 of Declaration of Trust - Quarterly and
Regulation S-B) Annual Reports
Item 3. Summary Information and Risk Factors Outside Front Cover; Summary of the
(Furnish the information required by Item 503 of Offering; Summary of Risk Considerations;
Regulation S-B) Risk Considerations
Item 4. Use of Proceeds Sources and Uses of Funds; Business Plan
(Furnish the information required by Item 504 of
Regulation S-B)
Item 5. Determination of Offering Price Risk Considerations - Arbitrary Offering
(Furnish the information required by Item 505 of Price
Regulation S-B)
Item 6 Dilution Not Applicable
(Furnish the information required by Item 506 of
Regulation S-B)
Item 7 Selling Security Holders Not Applicable
(Furnish the information required by Item 507 of
Regulation S-B)
Item 8 Plan of Distribution Outside Front Cover; Terms of the Offering;
(Furnish the information required by item 508 of Sources and Uses of Funds
Regulation S-B)
Item 9 Legal Proceedings Legal Matters
(Furnish the information required by Item 103 of
Regulation S-B)
Item 10 Directors, Executive Officers, Promoters and Management
Control Persons
(Furnish the information required by Item 401 of
Regulation S-B)
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Item 11 Security Ownership of Certain Beneficial Owners and Management; Terms of the Offering
Management
(Furnish the information required by Item 403 of
Regulation S-B)
Item 12 Description of Securities Capital Stock of the Trust
(Furnish the information required by Item 202 of
Regulation S-B)
Item 13 Interest of Named Experts and Counsel Not Applicable
(Furnish the information required by Item 509 of
Regulation S-B)
Item 14 Disclosure of Commission Position on Summary of Declaration of Trust - Liability
Indemnification for Securities Act Liabilities and Indemnification; Terms of the Offering
(Furnish the information required by Item 510 of
Regulation S-B)
Item 15 Organization within Last Five Years Management - The Board of the Trust and
(Furnish the information required by Item 404 of Trustees - Independent Trustees
Regulation S-B)
Item 16 Description of Business Summary of the Offering; The Trust;
(Furnish the information required by Item 101 of Business Plan
Regulation S-B)
Item 17 Management's Discussion and Analysis or Plan of Summary of the Offering;
Operation Business Plan
(Furnish the information required by Item 303 of
Regulation S-B)
Item 18 Description of Property Summary of the Offering;
(Furnish the information required by Item 102 of Business Plan
Regulation S-B)
Item 19 Certain Relationships and Related Transactions Management - The Board of the Trust -
(Furnish the information required by Item 404 of Independent Trustees
Regulation S-B)
Item 20 Market for Common Equity and Related Stockholder Summary of the Offering - Terms of
Matters Offering; Terms of the Offering; Risk
(Furnish the information required by Item 201 of Considerations - Distributions to
Regulation S-B) Shareholders Affected by Many Factors
Item 21 Executive Compensation Management - The Board of the Trust -
(Furnish the information required by Item 402 of Independent Trustees
Regulation S-B)
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Item 22 Financial Statements Other Information - Financial Statements
(Furnish the information required by Item 310 of
Regulation S-B)
Item 23 Changes in and Disagreement with Accountants on Not Applicable
Accounting and Financial Disclosure
(Furnish the information required by Item 304 of
Regulation S-B)
Item 24 Indemnification of Directors and Officers Part II of Registration Statement
(Furnish the information required by Item 702 of
Regulation S-B)
Item 25 Other Expenses of Issuance and Distribution Part II of Registration Statement
(Furnish the information required by Item 511 of
Regulation S-B)
Item 26 Recent Sales of Unregistered Securities Not Applicable
(Furnish the information required by Item 701 of
Regulation S-B)
Item 27 Exhibits Part II of Registration Statement
(Furnish the information required by Item 601 of
Regulation S-B)
Item 28 Undertaking Part II of Registration Statement
(Furnish the information required by Item 512 of
Regulation S-B)
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PART I
INFORMATION REQUIRED IN PROSPECTUS
Date of Issuance: ________________, 1997
Subject to Completion:
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
BARON CAPITAL TRUST
a Delaware business trust
2,500,000 Common Shares of Beneficial Interest (maximum)
25,000 Common Shares of Beneficial Interest (minimum)
Baron Capital Trust (the "Trust") is a Delaware business trust that has
been organized to acquire equity interests in existing residential apartment
properties or single-family housing developments located in Florida, Kentucky or
Ohio and/or to provide or acquire debt financing secured by mortgages on such
types of property. See "BUSINESS PLAN" below. The management of the Trust has
been involved in the residential apartment business for over 10 years. The Trust
intends to make regular quarterly distributions to its Shareholders of net
operating income generated from its investments. The Trust will operate as a
real estate investment trust (a "REIT") for federal income tax purposes.
The Managing Shareholder of the Trust is Baron Advisors, Inc. ("Baron
Advisors"), a Delaware corporation. The Corporate Trustee of the Trust is Baron
Capital Properties, Inc., a Delaware corporation. The Board of the Trust, a
majority of which will be comprised of Independent Trustees, will have general
supervision authority over the activities of the Managing Shareholder and prior
approval authority in respect of certain actions of the Trust specified in the
Declaration of Trust for the Trust. See "MANAGEMENT" and "SUMMARY OF DECLARATION
OF TRUST - Control of Operations."
The Trust is offering a maximum of 2,500,000 shares of beneficial interest
("Common Shares") in the Trust (the "Offering") at a purchase price of $10 per
Common Share (minimum purchase of 200 Common Shares per Investor unless
otherwise agreed by the Managing Shareholder). Funds received will be held in
escrow until the minimum number of 25,000 Common Shares is sold. The Offering
will terminate no later than September 30, 1998 unless extended by the Managing
Shareholder. See "TERMS OF THE OFFERING."
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Common Shares* Offering Price to Public Underwriting Net Proceeds to
Commissions** the Trust***
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Per Common Share $ 10.00 $ .90 $ 9.10
- --------------------------- -------------------------- -------------------------- --------------------------
Minimum Common Shares $ 250,000 $ 22,500 $ 227,500
(25,000)
- --------------------------- -------------------------- -------------------------- --------------------------
Maximum Common Shares $ 25,000,000 $ 2,250,000 $ 22,750,000
(2,500,000)
- --------------------------- -------------------------- -------------------------- --------------------------
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* The Trust may offer additional Shares or debt securities for sale at a later
time in the event additional capital is required. See "SUMMARY OF DECLARATION OF
TRUST - Additional Offerings of Securities."
** The Trust has agreed to indemnify the Dealer Manager of the Offering against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended. The Trust has granted the Dealer Manager a four-year warrant to acquire
a number of Common Shares in an amount equal to 8.5% of the number of Common
Shares sold by it in the Offering at an exercise price of $13.00 per Common
Share. See "TERMS OF THE OFFERING."
*** Before deducting expenses of the Offering payable by the Trust estimated at
approximately $500,000, including distribution, due diligence and organizational
expenses, and legal, accounting and consulting fees, printing, filing,
recording, postage and other miscellaneous expenses associated with the
Offering.
THIS INVESTMENT IS SPECULATIVE AND NOT HIGHLY LIQUID AND INVOLVES A HIGH DEGREE
OF RISK, INCLUDING CERTAIN REAL ESTATE INVESTMENT RISKS (INCLUDING RISKS
ASSOCIATED WITH POSSIBLE INVESTMENTS IN UNRECORDED SUBORDINATED MORTGAGE LOANS),
THE RISK THAT THE TRUST MAY FAIL TO QUALIFY OR MAINTAIN ITS STATUS AS A REIT,
LEVERAGE RISKS AND THE LIKELIHOOD THAT THERE WILL BE A LIMITED MARKET FOR THE
TRANSFER OF SHARES AFTER COMPLETION OF THE OFFERING. SEE "SUMMARY OF RISK
CONSIDERATIONS" AND "RISK CONSIDERATIONS" ON PAGES 22 AND 23 AND PAGES 35
THROUGH 45, RESPECTIVELY, FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS WHICH
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN COMMON SHARES,
INCLUDING THE FOREGOING. THE OPERATION OF THE TRUST WILL INCLUDE TRANSACTIONS
BETWEEN THE TRUST AND THE MANAGING SHAREHOLDER AND AFFILIATES WHICH MAY INVOLVE
CONFLICTS OF INTEREST. SEE "POTENTIAL CONFLICTS OF INTEREST."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO THE
CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY OF
ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.
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The address and telephone and fax numbers of the Trust's principal office are:
Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
(513) 984-5001 (Telephone)
(513) 984-4550 (Fax)
The address and telephone and fax numbers of the Dealer Manager
of the Offering are:
Sigma Financial Corporation
4261 Park Road
Ann Arbor, Michigan 48103
(313) 663-1611 (Telephone)
(313) 663- 0213 (Fax)
The date of this Prospectus is ______________, 1997
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
FLORIDA DIVISION OF SECURITIES, BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
INVESTORS MAY NOT HAVE AN OPPORTUNITY TO EVALUATE THE TRUST'S PROPERTY
INVESTMENTS BECAUSE THE TRUST OWNS NO PROPERTY AS OF THE DATE OF THE
COMMENCEMENT OF THE OFFERING, HAS NOT IDENTIFIED SPECIFIC PROPERTIES IN THIS
PROSPECTUS AS PROPERTIES THE TRUST INTENDS TO ACQUIRE AND HAS NO OPERATING
HISTORY.
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TABLE OF CONTENTS
Page
----
INVESTOR SUITABILITY STANDARDS..................................... 13
SUMMARY OF THE OFFERING............................................ 15
Securities Offered............................................ 15
The Trust..................................................... 15
Business Plan................................................. 15
Management.................................................... 17
Terms of Offering............................................. 17
Compensation of the Managing Shareholder and Affiliates;
Certain Transactions.......................................... 18
Management of Trust Property.................................. 19
Distributions to Shareholders................................. 19
Leverage...................................................... 20
Accounting Method............................................. 20
Risk Considerations........................................... 20
Termination of the Trust...................................... 20
Glossary...................................................... 20
Other Matters................................................ 20
SUMMARY OF RISK CONSIDERATIONS..................................... 22
TAX STATUS OF THE TRUST............................................ 24
SOURCES AND USES OF FUNDS.......................................... 24
COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES............ 26
THE TRUST.......................................................... 28
BUSINESS PLAN...................................................... 28
General....................................................... 28
Trust Policies with Respect to Certain Activities............. 30
Investment Policies...................................... 30
Disposition Policies..................................... 31
Financing Policies....................................... 31
Conflicts of Interest Policies........................... 32
POTENTIAL CONFLICTS OF INTEREST.................................... 33
FIDUCIARY RESPONSIBILITY........................................... 35
RISK CONSIDERATIONS................................................ 35
Trust......................................................... 35
No Operating History..................................... 35
Limited Marketability of Common Shares................... 36
Arbitrary Offering Price................................. 36
Participation Rights of Shareholders in Management....... 36
Distributions to Shareholders Affected by Many Factors... 36
Liability and Indemnification of the Managing Persons.... 37
Delaware Business Trust.................................. 37
Issuance of Additional Securities........................ 37
Limits on Ownership and Transfers of Shares.............. 38
Dependency on Key Management............................. 38
Property Investments.......................................... 38
Investment Risks......................................... 38
Lack of Liquidity of Real Estate......................... 39
Capital Improvements..................................... 39
Risk of Real Estate Acquisitions......................... 40
Real Estate Financing Risks.............................. 40
Unrecorded Mortgages..................................... 40
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Operating Risks.......................................... 40
Risk of Joint Activity with Others....................... 41
Competition.............................................. 41
Uninsured Loss........................................... 41
Hazardous Substances..................................... 41
Extended and Uncertain Period for Returns................ 42
Lack of Diversification.................................. 42
Utilization of Funds for Undesignated Properties......... 42
Dispositions of Trust Property........................... 42
Changes in Laws.......................................... 42
Risk of Borrowing Leverage............................... 43
Potential Conflicts of Interest.......................... 43
Unaudited Financial Statements........................... 43
Mortgage Financing Terms................................. 43
Geographic Concentration................................. 44
Income Tax Considerations..................................... 44
Adverse Consequences of Failure to Qualify as a REIT..... 44
State and Local Taxes.................................... 45
MANAGEMENT......................................................... 45
Managing Shareholder.......................................... 45
Trust Management Agreement.................................... 47
Officers of the Trust......................................... 47
The Board of the Trust and Trustees........................... 48
The Board of the Trust................................... 48
Independent Trustees..................................... 48
Corporate Trustee........................................ 49
PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER ........... 51
FEDERAL INCOME TAX CONSIDERATIONS.................................. 58
Taxation of the Trust......................................... 58
General.................................................. 58
Stock Ownership Tests.................................... 59
Asset Tests.............................................. 59
Gross Income Tests....................................... 60
The 75% Test........................................ 60
The 95% Test........................................ 61
The 30% Test........................................ 61
Annual Distribution Requirements......................... 61
Failure to Qualify....................................... 62
Tax Aspects of the Trust's Investments in Partnerships........ 62
General.................................................. 62
Entity Classification.................................... 63
Tax Allocations with Respect to Trust Properties......... 63
Sale of Trust Properties................................. 64
Taxation of Shareholders...................................... 64
Taxation of Taxable Domestic Shareholders................ 64
Backup Withholding....................................... 64
Taxation of Tax-Exempt Shareholders...................... 65
Taxation of Foreign Shareholders......................... 65
Other Tax Considerations...................................... 66
Possible Legislative or Other Actions Affecting Tax
Consequences............................................. 66
State and Local Taxes.................................... 66
SUMMARY OF DECLARATION OF TRUST.................................... 67
Term.......................................................... 67
Control of Operations......................................... 67
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Liability and Indemnification................................. 71
Distributions................................................. 72
Quarterly and Annual Reports.................................. 72
Accounting.................................................... 73
Books and Records; Tax Information............................ 73
Governing Law................................................. 74
Amendments and Voting Rights.................................. 74
Dissolution of Trust.......................................... 74
Removal and Resignation of the Managing Shareholder........... 74
Transferability of Shareholders' Interest..................... 75
Independent Activities........................................ 75
Power of Attorney............................................. 75
Meetings and Voting Rights.................................... 75
Additional Offerings of Shares................................ 76
Temporary Investments......................................... 76
CAPITAL STOCK OF THE TRUST......................................... 76
General....................................................... 76
Transfer Agent................................................ 77
Restrictions on Ownership and Transfer........................ 77
CAPITALIZATION..................................................... 79
TERMS OF THE OFFERING.............................................. 79
OTHER INFORMATION.................................................. 82
General....................................................... 82
Authorized Sales Material..................................... 82
Financial Statements......................................... 82
LITIGATION......................................................... 83
LEGAL MATTERS...................................................... 83
ADDITIONAL INFORMATION............................................. 83
GLOSSARY........................................................... 84
EXHIBITS
A ... Declaration of Trust for the Trust
B ... Trust Management Agreement
C ... Prior Performance of Affiliates of Managing Shareholder
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INVESTMENT IN THE COMMON SHARES BEING OFFERED MAY NOT BE SUITABLE FOR INVESTORS
WHO DO NOT MEET CERTAIN NET WORTH AND OTHER REQUIREMENTS OR WHO CANNOT AFFORD
THE CONSEQUENCES OF A SPECULATIVE INVESTMENT THAT IS NOT EXPECTED TO HAVE AN
ACTIVE AFTER-MARKET WHERE THE INVESTMENT MIGHT BE SOLD. EVEN THOUGH, AS
DESCRIBED HEREIN, THE TRUST BELIEVES THAT IT WILL BE TREATED AS A REAL ESTATE
INVESTMENT TRUST ("REIT") FOR FEDERAL INCOME TAX PURPOSES, THE TRUST HAS NOT
OBTAINED, AND DOES NOT INTEND TO REQUEST, A RULING FROM THE INTERNAL REVENUE
SERVICE ("IRS") OR AN OPINION OF TAX COUNSEL OR INDEPENDENT PUBLIC ACCOUNTANTS
THAT IT WILL BE TREATED AS A REIT.
REFERENCE SHOULD BE MADE TO THE DECLARATION OF TRUST FOR THE TRUST
("DECLARATION") (ATTACHED AS EXHIBIT A), SUPPORTING DOCUMENTS AND OTHER
INFORMATION FURNISHED FOR COMPLETE INFORMATION CONCERNING THE RIGHTS AND
OBLIGATIONS OF THE PARTIES. CERTAIN PROVISIONS OF SUCH AGREEMENTS ARE SUMMARIZED
IN THIS PROSPECTUS, BUT IT SHOULD NOT BE ASSUMED THAT THE SUMMARIES ARE
COMPLETE. SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
ACTUAL DOCUMENTS ATTACHED AS EXHIBITS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO ANY PERSON WHO DOES NOT MEET THE SUITABILITY TESTS DESCRIBED HEREIN.
REPRODUCTION OF THIS PROSPECTUS OR ANY PORTION THEREOF OTHER THAN BY THE TRUST,
THE MANAGING SHAREHOLDER OR ANY AFFILIATE IS STRICTLY PROHIBITED.
THE MANAGING SHAREHOLDER HAS AGREED TO PROVIDE, DURING THE OFFERING PERIOD, TO
EACH OFFEREE OF COMMON SHARES (OR HIS REPRESENTATIVE(S) OR BOTH) THE OPPORTUNITY
TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE MANAGING SHAREHOLDER OR ANY
PERSON ACTING ON ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING
AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT IT POSSESSES SUCH
INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, NECESSARY
TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN. REQUESTS FOR FURTHER
INFORMATION SHOULD BE MADE TO THE TRUST AND SUCH INFORMATION SHOULD BE RELIED
UPON ONLY WHEN FURNISHED IN WRITTEN FORM AND SIGNED ON BEHALF OF THE TRUST.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS PROSPECTUS (OR
ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE MANAGING SHAREHOLDER, AFFILIATES
OR EMPLOYEES OR ANY PROFESSIONAL ASSOCIATED WITH THIS OFFERING) AS LEGAL OR TAX
ADVICE. EACH INVESTOR SHOULD CONSULT HIS OWN COUNSEL, ACCOUNTANT AND OTHER
ADVISERS AS TO LEGAL, TAX, ECONOMIC AND RELATED MATTERS CONCERNING THE
INVESTMENT DESCRIBED HEREIN AND ITS SUITABILITY FOR HIM.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY
STATE OR IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED.
NO BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN RESPECT OF THIS OFFERING, OTHER
THAN THOSE CONTAINED HEREIN (OR INFORMATION REQUESTED BY A PROSPECTIVE INVESTOR
AND FURNISHED TO SUCH PROSPECTIVE INVESTOR IN WRITTEN FORM, SIGNED ON BEHALF OF
THE TRUST) AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ANY OTHER PERSON. ANY
OTHER
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INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. EXCEPT AS OTHERWISE
INDICATED, THIS PROSPECTUS SPEAKS AS OF THE DATE ON THE COVER PAGE. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
INFERENCE THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST SINCE THE
RESPECTIVE DATES AT WHICH THE INFORMATION IS GIVEN HEREIN OR THE DATE HEREOF.
CERTAIN DEFINED TERMS MAY BE FOUND AT "GLOSSARY."
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. SEE "RISK CONSIDERATIONS" FOR THE RISK CONSIDERATIONS
THAT MANAGEMENT BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN
THIS OFFERING.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INVESTOR SUITABILITY STANDARDS
An investment in the Common Shares being offered under this Prospectus
involves a high degree of risk and is suitable only for persons of substantial
financial means who have no need for liquidity in their investments. See "RISK
CONSIDERATIONS." The Trust has adopted as a general investor suitability
standard the requirement that each subscriber for Common Shares represent in
writing in the Subscription Documents, among other things, that:
(a) The subscriber has received a copy of the Prospectus;
(b) The subscriber is acquiring the Common Shares for his own account and
for investment purposes only;
(c) The subscriber can bear the economic risk of losing the subscriber's
entire investment;
(d) The subscriber meets the following minimum income/net worth standards:
(i) Minimum annual gross income of $35,000 and a minimum net worth
(determined exclusive of home, home furnishings, and automobiles) of
$35,000; or
(ii) Minimum net worth of $100,000 (determined exclusive of home, home
furnishings, and automobiles);
(e) The subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to the subscriber's net worth and the
subscriber's investment in the Common Shares will not cause such overall
commitment to become excessive;
(f) The subscriber has adequate means of providing for the subscriber's
current needs and personal contingencies and has no need for liquidity in the
subscriber's investment in the Common Shares; and
(g) The objectives of the Trust are compatible with the subscriber's
investment goals.
In the case of sales to fiduciary accounts, the foregoing investor
suitability standards must be satisfied by the beneficiary, by the fiduciary
account, or by the donor or grantor who directly or indirectly provides the
funds to purchase the Common Shares (if the donor or grantor is the fiduciary).
In the event the subscriber for the Common Shares is purchasing in a fiduciary
capacity for another person or entity, the foregoing suitability standards must
be satisfied by such other person or entity on whose behalf the fiduciary is
acting.
The suitability standards referred to above represent minimum suitability
requirements for prospective Investors, and the satisfaction of such standards
by a prospective Investor does not necessarily mean that the Common Shares are a
suitable investment for such prospective Investor.
Representations made by each prospective Investor in the Subscription
Documents regarding the foregoing will be reviewed by the Managing Shareholder
and Dealer Manager to determine the suitability of such persons, and the
Managing Shareholder will have the right to refuse a prospective Investor's
subscription for Common Shares if, in its sole discretion, it believes the
offeree does not meet the applicable suitability requirements or the Common
Shares are otherwise an unsuitable investment for the offeree or for any other
reason. The acceptance of a subscription for Common Shares by the Managing
Shareholder does not, however, constitute a determination by the Managing
Shareholder that the investment is suitable for such purchaser.
The Trust and the Managing Shareholder will make every effort to furnish
each qualified
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prospective Investor with any additional information he desires which is not set
forth herein and to provide an opportunity for inquiry concerning the terms and
conditions of this Offering, including information required to verify the
accuracy of the information contained in this Prospectus. Copies of all
documents described or referred to herein are available at the offices of the
Trust located at 7826 Cooper Road, Cincinnati, Ohio 45242. The Trust's telephone
number is (513) 984-5001 and its fax number is (513) 984-4550.
IF YOU DO NOT MEET THE REQUIREMENTS DESCRIBED ABOVE, DO NOT READ FURTHER AND
IMMEDIATELY RETURN THIS PROSPECTUS TO THE DEALER MANAGER OF THE OFFERING. IN THE
EVENT YOU DO NOT MEET SUCH REQUIREMENTS, THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL COMMON SHARES TO YOU.
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SUMMARY OF THE OFFERING
The following summary of this Prospectus is for the convenience of
prospective Investors and does not fully reflect all of the terms of the
Offering. This Prospectus describes in detail the numerous aspects of the
transaction which are material to Investors, including those summarized below.
This Prospectus and accompanying Exhibits and supporting documents referred to
herein should be read in their entirety by each prospective Investor and his
advisors before purchasing any Common Shares. The following summary is qualified
in its entirety by reference to the full text of this Prospectus and the
documents referred to herein.
Securities Offered
Maximum of 2,500,000 Common Shares of beneficial interest in the Trust
($10.00 per Common Share; $25,000,000 in the aggregate; 200 Common Share minimum
per Investor unless otherwise agreed by the Managing Shareholder). Funds
received will be held in escrow until the minimum number of 25,000 Common Shares
(representing $250,000 in gross proceeds) is sold.
The Trust
The Trust was organized as a Delaware business trust on July 31, 1997 by
Baron Capital Properties, Inc., a Delaware corporation which is the Corporate
Trustee of the Trust, by the filing of a Certificate of Trust with the Delaware
Secretary of State to evidence the existence of the Trust. Baron Advisors, Inc.,
a Delaware corporation ("Baron Advisors"), is the Managing Shareholder of the
Trust.
Business Plan
The Trust has been organized to acquire equity interests in existing
residential apartment properties or single-family housing developments with
operating histories located in Florida, Kentucky or Ohio and/or to provide or
acquire debt financing secured by mortgages on such types of property. Such
investments are expected to consist primarily of: (i) the acquisition,
ownership, operation, management, improvement and disposition of equity
interests in such types of properties and/or (ii) Mortgage Loans which the Trust
provides or acquires which are secured by mortgages on such types of properties.
The Managing Shareholder expects that the Trust's proposed investments will (1)
generate current cash flow for distribution to Investors from rental payments
from the rental of residential apartment units and single-family homes which the
Trust may acquire and/or principal and interest payments in respect of Mortgage
Loans which the Trust may provide or acquire and (2) provide the opportunity for
capital appreciation through the eventual sale of all or a portion of the
Trust's investment in equity interests in residential apartment properties and
single-family homes. The Trust intends to pay regular quarterly distributions to
its Shareholders. The Trust expects to qualify as a REIT for federal income tax
purposes beginning with its taxable year ending December 31, 1997. See "TAX
STATUS OF THE TRUST" and "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the
Trust."
The management of the Trust has been involved in the residential property
business for over 10 years and believes that the residential property market in
Florida, Kentucky and Ohio has strategic advantages over other markets.
Management has extensive experience and presence in those states which have
enabled it to form key alliances and working relationships with owners of
apartment and housing development properties and financial institutions.
After the Offering, the Trust intends to acquire, own, operate, manage, and
improve residential apartment properties and single-family housing developments
for long-term ownership, and thereby to seek to maximize current and long-term
income and the value of its assets. The Trust's strategy is to pursue
acquisitions of interests in properties that (i) are available at prices below
estimated replacement cost; (ii) may provide attractive returns with significant
potential growth in cash flow from property operations; (iii) are strategically
located, of high quality and competitive in their respective markets; (iv)
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<PAGE>
have been under-managed or are otherwise capable of improved performance through
intensive management and leasing that will result in increased occupancy and
rental revenues, and (v) provide anticipated total returns that will increase
the Trust's distributions and its overall market value. The Trust may make
investments in properties directly or through one or more partnerships in which
it may hold all or a portion of its real estate assets and conduct their
operations.
The Trust's primary business objectives are to increase distributions to
Shareholders and to increase the value of the Trust's portfolio of properties it
acquires. The Trust intends to achieve these objectives by:
(i) Acquiring properties that are available at prices below estimated
replacement cost and capable of enhanced performance, both in terms of cash flow
and investment value, through application of the Trust's management ability and
strategic capital improvements;
(ii) Increasing cash flow of the Trust's properties through active leasing,
rent increases, improvement in tenant retention, expense controls, effective
property management, and regular maintenance and periodic renovations, including
additions to amenities;
(iii) Managing operating expenses through the use of affiliated leasing,
marketing, financing, accounting, legal, and data processing functions; and
(iv) Emphasizing capital improvements to enhance the Trust's competitive
advantages in its markets.
After the Trust has invested the net proceeds of the Offering, it intends
to utilize one or more sources of capital for future acquisitions and capital
improvements, which may include undistributed cash flow, borrowings, issuance of
debt or equity securities and other bank and/or institutional borrowings. There
can be no assurance, however, that the Trust will be able to obtain capital for
any such acquisitions or improvements on terms favorable to the Trust.
Among other investment policies described below at "BUSINESS PLAN - Trust
Policies with respect to Certain Activities - Investment Policy," the Trust will
not make an investment in respect of any property where the amount invested by
it (in the form of debt or equity) plus the amount of any existing indebtedness
in respect of such property exceeds 80% of the estimated replacement cost of the
property as determined by the Managing Shareholder. Repayment of any Mortgage
Loans provided or acquired by the Trust would typically be secured by a Mortgage
on the land and homes, apartment units, and other improvements financed by the
Trust and be non-recourse to the borrower. It is expected that in certain cases
the Trust will provide or acquire a Second Mortgage Loan that is subordinate to
a First Mortgage Loan provided by a lending institution. Junior Mortgages in
favor of the Trust may or may not be recorded. In certain cases, Mortgage Loans
provided or acquired by the Trust may be in the form of First Mortgage Loans.
Although the Managing Shareholder has several investment opportunities for
the Trust under review, none of such potential opportunities has developed
beyond the negotiating stage. The Trust may direct a substantial portion of the
net proceeds from the Offering to investment opportunities that have not been
designated in this Prospectus, as it may be amended or supplemented from time to
time, and the Trust may be unable to or may decline to participate in any
specific investments that may be described in this Prospectus or any amendments
or supplements thereto. Therefore, prospective Investors may not be able to
evaluate any properties in which the Trust may participate before they purchase
Common Shares. In addition, prospective Investors will not have any vote in the
selection of property investments after they purchase Common Shares.
Consequently, Investors will be relying upon the judgment of the Managing
Shareholder for such decisions.
The Trust has adopted certain policies with respect to investments,
dispositions, financings, and
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<PAGE>
conflicts of interest. These policies have been determined by the Managing
Shareholder of the Trust and may be amended or revised from time to time at the
discretion of the Board with approval of a majority in interest of the
Shareholders. In certain cases, the Trust may acquire interests in properties
from real estate programs sponsored by Affiliates of the Managing Shareholder,
subject to compliance with provisions set forth in the Declaration designed to
eliminate or minimize potential conflicts of interest. See "BUSINESS PLAN -
Trust Policies with respect to Certain Activities" and "SUMMARY OF THE
DECLARATION - Control of Operations."
At all times, the Trust intends to make investments and conduct its
operations in such a manner as to be consistent with the requirements of the
Code for the Trust to qualify as a REIT unless, because of changing
circumstances or changes in the Code (or in Treasury Regulations), the Managing
Shareholder, with the consent of a majority of the Shareholders entitled to vote
on such matter approving the Managing Shareholder's determination, determines
that it is no longer in the best interests of the Trust to qualify as a REIT.
There can be no assurance that the Trust will attain its investment
objectives. See "BUSINESS PLAN," "RISK CONSIDERATIONS" and "MANAGEMENT."
Management
Baron Advisors, Inc., the Managing Shareholder, was organized as a Delaware
corporation in July 1997. The Managing Shareholder will have full exclusive and
complete discretion in the management and control of the Trust (subject to the
general supervision and review of the Independent Trustees and the Managing
Shareholder acting together as the Board of the Trust and to prior approval of
the Board and the Independent Trustees in respect of certain activities of the
Trust).
As described in further detail at "SUMMARY OF THE DECLARATION OF TRUST -
Control of Operations," the approval of a majority of the members of the Board
and a majority of the Independent Trustees is required to approve the initial
Trust Management Agreement between the Trust and the Managing Shareholder and
certain other actions by the Trust. Independent Trustees comprise a majority of
the members of the Board. The Corporate Trustee will act on the instructions of
the Managing Shareholder, and will not take independent discretionary action on
behalf of the Trust. The principal office of the Managing Shareholder is located
at 7826 Cooper Road, Cincinnati, Ohio 45242, and its telephone number at such
address is (513) 984-5001; its fax number is (513) 984-4550. See "MANAGEMENT."
Terms of Offering
The Trust is offering a maximum of 2,500,000 Common Shares of beneficial
interest in the Trust at $10.00 per Common Share ($25,000,000 in the aggregate)
which is payable in full upon subscription. As described below, funds received
will be held in escrow until the minimum number of Common Shares (25,000) is
sold. See "CAPITALIZATION" and "TERMS OF THE OFFERING."
Each Investor will receive his beneficial interest in the Trust upon the
latest to occur of (i) acceptance of his Subscription Documents by the Managing
Shareholder, (ii) receipt and collection by the Trust of the purchase price of
the Common Shares subscribed for, and (iii) the Escrow Date (described below).
Each Investor will own a share of the beneficial interests in the Trust
represented by the Common Shares being offered hereby in proportion to his
respective ownership of Common Shares. Each Investor will be entitled to receive
any distributions to Shareholders declared by the Managing Shareholder on a pro
rata basis with all other holders of Common Shares and will have voting and
other rights as are specified in the Declaration. See "DECLARATION OF TRUST -
Exhibit A" and "SUMMARY OF DECLARATION OF TRUST."
All proceeds from the sale of Common Shares in the Offering will be
required to be deposited in
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the name of the Trust in a separate segregated interest-bearing escrow account
at a commercial bank until the Escrow Date, which is the later of the date on
which (i) the Trust accepts the subscription that results in the gross proceeds
from the sale of Common Shares in the Offering pursuant to this Prospectus to
exceed $250,000, and (ii) full cash payment for at least 25,000 Common Shares
has been collected and deposited in the escrow account. The Escrow Date may not
be later than June 30, 1998. After the Escrow Date, the Trust's funds, net of
fees described in this Prospectus, will be maintained in the name of the Trust,
in one or more separate, segregated accounts at commercial banks or in interim
investments described at "BUSINESS PLAN."
As soon as funds have been released from the escrow account, they will be
used to pay selling commissions and fees to cover offering expenses. After
payment of these commissions and fees, the remaining funds released from the
escrow account may be used to fund Trust investments or to pay Trust expenses
other than those associated with the Offering, as determined by the Trust in its
discretion.
The termination date of the Offering is scheduled to be September 30, 1998
or an earlier or later date determined by the Managing Shareholder as specified
below (the "Termination Date"). The Managing Shareholder may in its own
discretion terminate the Offering at any time before the scheduled Termination
Date or extend the scheduled Termination Date to any date or from date to date.
The Common Shares will be offered on a "best-efforts" basis by Sigma
Financial Corporation (the "Dealer Manager"), which is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. ("NASD"), and by other registered broker-dealers selected by the Dealer
Manager and the Managing Shareholder to participate. Selling commissions equal
to 9% of the gross proceeds from the sale of Common Shares ($2,250,000 if all
2,500,000 Common Shares offered are sold) will be paid to the Dealer Manager and
to participating broker-dealers for sales made. The Trust has also granted the
Dealer Manager a four-year warrant to acquire a number of Common Shares in an
amount equal to 8.5% of the number of Common Shares sold by it in the Offering
at an exercise price of $13.00 per Common Share. See "SOURCES AND USES OF
FUNDS," and "TERMS OF THE OFFERING."
The Managing Shareholder will contribute $50,000 to the Trust as an initial
investment in the Trust in exchange for which it will receive one Common Share
for each $10.00 so contributed (5,000 Common Shares). Such Common Shares will be
in addition to the 2,500,000 Common Shares which the Trust is offering for sale
in the Offering.
The Common Shares being sold in the Offering have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Trust does not
intend to register the Common Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or list them on any securities exchange
immediately after the effective date of the Trust's Security Act registration
statement, although it will investigate the possibility of such registration and
listing in the future. Although the Common Shares acquired by Investors in the
Offering will be freely tradable securities, the Trust does not anticipate that
an active trading market will be established or maintained for the Common
Shares. The Trust will be required to file periodic reports (Form 10-KSB or Form
10-K annual reports, Form 10-QSB or Form 10-Q quarterly reports and Form 8-KSB
or Form 8-K current reports) under the Exchange Act in the fiscal year in which
its Securities Act registration statement becomes effective. The Trust will not
file such periodic reports in any subsequent fiscal year unless it has more than
300 Shareholders in any such year or is otherwise required by applicable law to
do so.
Compensation of the Managing Shareholder and Affiliates; Certain Transactions
As described below in this Prospectus, the Managing Shareholder, certain of
its Affiliates, the Dealer Manager and participating brokers will receive
substantial fees and compensation from the Trust in connection with this
Offering, the operation of the Trust and the acquisition, ownership, operation,
improvement and disposition of the Trust's Property. See also "SOURCES AND USES
OF FUNDS," "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES" and "TERMS
OF
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THE OFFERING."
The Trust will enter into a Trust Management Agreement (the "Trust
Management Agreement") with the Managing Shareholder under which the Managing
Shareholder will be obligated to provide management, administrative and
investment advice services to the Trust as set forth in the form of "Trust
Management Agreement," attached hereto as Exhibit B. The services to be rendered
will include, among other things, communication with and reporting to Investors,
administration of accounts, the providing to the Trust of office space,
equipment and facilities and other services necessary for the Trust's operation,
and representing the Trust in its relations with custodians, depositories,
accountants, attorneys, brokers and dealers, corporate fiduciaries, insurers,
banks and others, as required. The Managing Shareholder will also be responsible
for determining which real estate investments and non-real estate investments
(including the temporary investment of the Trust's available funds prior to
their commitment to particular real estate investments) the Trust will make and
for making divestment decisions, subject to the provisions of the Declaration.
As compensation for the Managing Shareholder's performance under the Trust
Management Agreement, beginning ____________ 1, 1997, the Trust will pay the
Managing Shareholder an annual management fee in an amount (up to $250,000)
equal to 1% of the aggregate subscription price paid for Common Shares in the
Offering during the term of the agreement, payable on a monthly basis.. The
Trust will also reimburse the Managing Shareholder for all such Trust expenses
paid by it. The agreement has a one-year term and any renewal or replacement
requires approval by (i) a majority of the members of the Board or a Majority of
the Shareholders entitled to vote thereon (without regard to the Common Shares
owned by the Managing Shareholder) or (ii) a majority of the Independent
Trustees. By executing and delivering the Subscription Documents to the Trust,
each Investor will be deemed to have consented to the terms and conditions of
the Trust Management Agreement as set forth in Exhibit B hereto. The agreement
may be terminated at any time on 60 days' prior notice by a majority of the
Independent Trustees, a Majority of the Shareholders entitled to vote thereon or
by the Managing Shareholder. The agreement may be amended by the parties with
the approval of (i) a majority of the members of the Board or a Majority of the
Shareholders entitled to vote thereon and (ii) a majority of the Independent
Trustees.
Management of Trust Property
Brentwood Management, LLC ("Brentwood"), an Ohio limited liability company
which is an Affiliate of the Managing Shareholder, is expected to manage
properties in which the Trust may invest. For managing a residential apartment
property, Brentwood would be paid a fee equal to 5% of the collected rental
income from the property plus a bookkeeping fee of $325 per month and it may
earn a performance fee of $2.00 per residential unit per month if greater than
96% of gross potential rents are collected. Brentwood would be entitled to a
market-based fee in respect of any single-family housing developments it may
manage for the Trust.
Distributions to Shareholders
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. In order to maintain its
qualification as a REIT under the Code, the Trust must make annual distributions
to Shareholders of at least 95% of its taxable income, determined without regard
to the deduction for dividends paid and by excluding any net capital gains. For
taxable years beginning after August 5, 1997, the Taxpayer Relief Bill of 1997
(the "1997 Act") (1) expands the class of excess noncash items that are excluded
from the distribution requirement to include income from the cancellation of
indebtedness and (2) extends the treatment of original issue discount and coupon
interest as excess noncash items to REITs, like the Trust, that use an accrual
method of accounting. Under certain circumstances, the Trust may be required to
make distributions in excess of cash flow available for distribution to meet
such distribution requirements. Shareholders will receive any distributions on a
pro rata basis for each outstanding class of Shares taking into account the
relative rights of priority of each class entitled to distributions.
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The Trust is expected to adopt a distribution reinvestment program by the
end of the first quarter of 1998. Upon the adoption of the plan, the Trust will
provide material information to Shareholders regarding the plan and the effect
of reinvesting distributions from the Trust, including the tax consequences
thereof. The Trust will provide Shareholders updated information at least
annually.
Leverage
It is expected that each property in which the Trust acquires a debt or
equity interest will secure a First Mortgage Loan. The principal balance of any
such First Mortgage Loan typically would represent a substantial percentage of
the Trust's basis in any property in which it owns an equity interest. See also
"RISK CONSIDERATIONS - Property Investments - Real Estate Financing Risks"
below. The Managing Shareholder will also have the right to borrow funds on
behalf of the Trust, and use the Trust's available assets as security for any
such loan, if the Trust's cash requirements exceed its available cash.
Accounting Method
The Trust intends to use the accrual method of accounting for Federal
income tax purposes. See "TAX ASPECTS."
Risk Considerations
An investment in Common Shares is highly speculative and subject to a high
degree of risk, including without limitation, risks associated with leveraged
real estate projects (including risks associated with possible investments in
unrecorded subordinated Mortgage Loans), risks associated with investments in
Trusts, and the risk that the Trust will not qualify for or maintain its status
as a REIT for federal income tax purposes. See "RISK CONSIDERATIONS."
Termination of the Trust
The Trust will continue in effect until it is terminated upon the
occurrence of any of certain events, including the sale of all or substantially
all of its property and the consent of the Managing Shareholder and a Majority
of the Shareholders entitled to vote on such matter. See "SUMMARY OF DECLARATION
OF TRUST - Term." The Trust has no present intention to sell property which it
acquires with the net proceeds of the Offering, and no representation is made
that it will be sold.
Glossary
For the definition of certain terms used in this Prospectus, see
"GLOSSARY."
Other Matters
The Investors generally will have no liability for the debts, obligations
or losses of the Trust in excess of the subscription price they have agreed to
pay the Trust for Common Shares in the Offering. See "SUMMARY OF THE DECLARATION
OF TRUST - Liability and Indemnification."
The Trust intends to elect to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ending December 31, 1997 and believes, based upon advice
of tax counsel, that its organization and proposed method of operation will
enable it to meet the requirements for qualification as a REIT. The Trust has
not obtained and does not expect to request a letter ruling from the IRS or an
opinion of tax counsel or independent public accountants as to the
classification and treatment of the Trust for federal income tax purposes or any
other tax considerations described herein or otherwise. Prospective Investors
are advised to consult with and rely upon their own legal, tax and investment
adviser regarding how an investment in the Trust
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<PAGE>
will affect them. See "TAX STATUS OF THE TRUST" and "FEDERAL INCOME TAX
CONSIDERATIONS."
The address and telephone and fax numbers for the Trust's principal offices
are as follows:
Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
Phone: (513) 984-5001
Fax: (513) 984-4550
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<PAGE>
SUMMARY OF RISK CONSIDERATIONS
An investment in the Common Shares being offered hereby involves various
material risks. Prospective investors should carefully consider the following
risk considerations, in addition to the other information set forth in this
Prospectus, in connection with an investment in the Common Shares offered
hereby.
o Real estate investment considerations, such as the effect of economic and
other conditions on real estate values, the general lack of liquidity of
investments in real estate, the ability of tenants to pay rents, and the
possibility that rental units may not be occupied or may be occupied on
terms unfavorable to the Trust, the possibility of uninsured losses, the
ability of the Trust's property investments to generate sufficient cash
flow to meet expenses, including debt service requirements, and competition
in seeking properties for acquisition and in seeking tenants, which,
individually or in the aggregate, may negatively impact the Trust's ability
to make distributions.
o Although the Common Shares have been registered under the Securities Act of
1933, as amended, and will be freely tradable, no public market for the
Common Shares is currently expected to develop or be maintained, resulting
in lack of liquidity of the Common Shares.
o Risks associated with debt financing, including the potential inability to
refinance any mortgage indebtedness of the Trust upon maturity, and with
possible investments in loans secured by Junior Mortgages on property which
may not be recorded.
o The ability of the Trust to incur debt, thereby incurring debt service
obligations, which could adversely affect the Trust's cash flow from its
investments.
o The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance acquisitions and improvements of
property without additional debt or equity financing and may limit cash
available for distribution.
o Although the Trust has adopted certain policies designed to eliminate or
minimize their effect, potential conflicts of interest may arise among the
Trust, the Managing Shareholder, and certain Affiliates of the Managing
Shareholder, including certain Affiliates which have sponsored and may in
the future sponsor real estate investment programs which seek to acquire
interests in properties similar to those which the Trust will seek to
acquire. In addition, there will be competing demands for management
resources of the Managing Shareholder, the possibility of transactions
between the Trust and Affiliates of the Managing Shareholder, and a lack of
independent representation of Investors in structuring this Offering.
o The potential liability of the Trust for environmental matters and the
costs of compliance with certain governmental regulations, which may
negatively impact the Trust's financial condition, results of operations
and cash available for distribution.
o Dependency on key management.
o Taxation of the Trust as a corporation if it fails to qualify as a REIT for
federal income tax purposes, the Trust's liability for certain federal,
state and local income taxes in such event, and the resulting decrease in
cash available for distribution.
o Potential anti-takeover effects of provisions in the Declaration which
generally limit the actual or constructive ownership by any one person or
entity of equity securities in the Trust to 9.8% of the outstanding Shares
and other Declaration and statutory provisions that may limit the
opportunity for Shareholders to receive a premium price upon any resale by
them of Common Shares.
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o The Trust is newly formed and has no assets or operating history.
o The possible issuance by the Trust of additional Shares subsequent to the
completion of the Offering, which may result in the dilution of Investors
which acquire Common Shares in the Offering.
o Geographic concentration of potential property investments in Florida,
Kentucky and Ohio, creating a dependence on demand for residential
apartment units and single-family housing development properties in such
markets and increasing the risk that the Trust will be materially adversely
affected by general economic conditions in a single market.
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TAX STATUS OF THE TRUST
The Trust intends to elect to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ending December 31, 1997 and believes, based upon advice
of tax counsel, that its organization and proposed method of operation will
enable it to meet the requirements for qualification as a REIT. To maintain REIT
status, an entity must meet a number of organizational and operational
requirements, including a requirement that it currently distribute at least 95%
of its REIT taxable income (determined without regard to the dividends paid
deduction and by excluding net capital gains) to its Shareholders. For taxable
years beginning after August 5, 1997, the 1997 Act (1) expands the class of
excess noncash items that are excluded from the distribution requirement to
include income from the cancellation of indebtedness and (2) extends the
treatment of original issue discount and coupon interest as excess noncash items
to REITs, like the Trust, that use an accrual method of accounting. As a REIT,
the Trust generally will not be subject to federal income tax on net income it
distributes currently to its Shareholders. If the Trust fails to qualify as a
REIT in any taxable year, it will be subject to federal income tax at regular
corporate rates and may not be able to qualify as a REIT for the four subsequent
taxable years. See "RISK CONSIDERATIONS - Adverse Consequences of Failure to
Qualify as a REIT" and "FEDERAL INCOME TAX CONSIDERATIONS." Even if the Trust
qualifies for taxation as a REIT, the Trust may be subject to certain federal,
state and local taxes on its income and property.
SOURCES AND USES OF FUNDS
The Trust intends to use the Offering proceeds as set forth below. The
table below indicates the sources and uses of funds from the Offering assuming
that the Trust will receive the maximum and minimum amount of gross proceeds
from the sale of Common Shares being offered in the Offering. As described below
at "BUSINESS PLAN," after the payment of selling commissions, fees and other
items specified below, the Trust intends to apply net proceeds of the Offering
to acquire an equity interest in existing residential apartment properties
and/or single-family housing developments in Florida, Kentucky and Ohio and/or
to provide or acquire debt financing secured by mortgages on such types of
property. See also "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES,"
"BUSINESS PLAN," "CAPITALIZATION" and "TERMS OF THE OFFERING."
<TABLE>
<CAPTION>
SOURCES OF FUNDS (1): Maximum Proceeds Minimum Proceeds
<S> <C> <C> <C> <C>
OFFERING PROCEEDS $25,000,000 (100%) $ 250,000 (100%)
----------- ---- ----------- ----
TOTAL SOURCES $25,000,000 (100%) $ 250,000 (100%)
USE OF FUNDS (1):
SELLING COMMISSIONS (2) $ 2,250,000 (9%) $ 22,500 (9%)
DISTRIBUTION, DUE DILIGENCE
AND ORGANIZATIONAL FEE (2) 250,000 (1%) 2,500 (1%)
LEGAL FEE (2) 250,000 (1%) 2,500 (1%)
INVESTMENT FEE (3) 1,000,000 (4%) 10,000 (4%)
PROPERTY INVESTMENTS AND
TRUST OPERATIONS 21,250,000 (85%) 212,500 (85%)
----------- --- ------- ---
(4)
TOTAL USES $25,000,000 (100%) $ 250,000 (100%)
</TABLE>
Footnotes:
1. If fewer than all 2,500,000 Common Shares are sold, the selling commissions
and fees set forth in the table above would be reduced proportionately and the
Trust would have less proceeds to apply to its
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investment purposes. The Managing Shareholder anticipates that if the Trust does
not raise the maximum amount of gross proceeds from the Offering necessary to
make the Trust's intended investments, such shortfall would be covered by the
Managing Shareholder or by one or more investment programs sponsored by an
Affiliate of the Managing Shareholder.
2. The Trust will pay the Dealer Manager selling commissions in an amount equal
to 9% of the gross proceeds received from its sales of Common Shares in the
Offering from which it will pay any broker-dealers that the Trust or the Dealer
Manager selects to participate in the sale of Common Shares. All or a portion of
the commissions payable may be reallocated to participating broker-dealers. The
selling commissions will be due and payable promptly after the latest to occur
of (i) acceptance by the Managing Shareholder of an Investor's subscription,
(ii) the receipt and collection by the Trust of the gross purchase price of the
Common Shares acquired by such Investor, and (iii) the Escrow Date. The Trust
will pay the Managing Shareholder a non-accountable fee in an amount (up to
$250,000) equal to 1% of the gross proceeds from sales of Common Shares to cover
the distribution, due diligence and organizational expenses related to the
formation of the Trust and the Offering. The Trust will also pay the Managing
Shareholder a non-accountable fee in an amount (up to $250,000) equal to 1% of
gross Offering proceeds to cover legal, accounting, and consulting fees,
printing, filing, recording, postage and other miscellaneous expenses associated
with the Offering. The two fees described above will be payable at the same time
that commissions are payable. To the extent which the distribution, due
diligence and organizational expenses or the legal, accounting, and consulting
fees, printing, filing, recording, postage and other miscellaneous expenses
associated with the Offering exceed 1% of the gross proceeds from the Offering,
those expenses will not be reimbursed to the Managing Shareholder.
3. The Trust will pay the Managing Shareholder an investment fee in an amount
(up to $1,000,000) equal to 4% of the gross proceeds from sales of Common Shares
as compensation for the Managing Shareholder's services and expenses in
investigating and evaluating investment opportunities for the Trust and for
assisting the Trust in consummating its investments. One-half of the fee will be
payable at the same time that selling commissions are payable in connection with
the Offering, and the balance will be payable proportionately upon the
consummation of each of the Trust's real estate investments based on the amount
invested.
4. The Trust's intended types of investments are described at "BUSINESS PLAN."
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COMPENSATION OF THE MANAGING SHAREHOLDER
AND AFFILIATES
The following table describes all the material fees, compensation, and
other payments that may be received by the Managing Shareholder and Affiliates
in exchange for their respective services and expenses in connection with the
preparation of this Prospectus and the Offering, the operation of the Trust and
the acquisition and disposition of the Trust's Property. The determination of
the type and amount of such compensation was not the result of arms'-length
negotiation. See "POTENTIAL CONFLICTS OF INTEREST." In certain cases, the Trust
may acquire one or more First Mortgage Loans or Junior Mortgage Loans or
accounts receivable from existing creditors of such obligations, title to a
particular property, or an equity interest in an entity which owns title to a
particular property at a discount to the appraised value of such property or
equity interest determined at the time of such acquisition. In that event, the
Managing Shareholder or an Affiliate may be entitled to be compensated by the
seller of such debt, title or equity interest in an amount equal to up to five
percent of the amount raised in the Offering. The Trust is authorized to
contract with the Managing Shareholder and Affiliates to provide other goods and
services, but no such contract is contemplated at this time. Any such contract
would require, among other things, that such persons be previously engaged in
the business of providing such goods or services as an ongoing business and that
the compensation price or fee therefor be comparable to and competitive with
that charged by a third party rendering comparable goods and services which
could reasonably be made available to the Trust.
The Managing Shareholder and certain Affiliates are also entitled to be
reimbursed by the Trust for all reasonable direct expenses incurred on behalf of
the Trust, including but not limited to legal, accounting and consulting fees
and other expenses, to the extent those expenses were incurred by them in
carrying out responsibilities assigned to them under the Declaration and do not
constitute payment for activities for which they already receive a fee or
compensation as described herein.
OFFERING STAGE
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
Managing Shareholder (Baron Non-accountable fee to cover $250,000
Advisors) distribution, due diligence
and organizational expenses
related to the formation of
the Trust and the Offering (1%
of gross proceeds from
Offering)
Managing Shareholder Non-accountable fee to cover $250,000
legal, accounting and
consulting fees, filing,
recording, postage and other
miscellaneous expenses
associated with the Offering
(1% of gross proceeds from
Offering)
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<TABLE>
<CAPTION>
OPERATING STAGE
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder Investment fee in an amount (up to $1,000,000; the Managing
$1,000,000) equal to 4% of gross proceeds Shareholder may, in its sole
from the Offering as compensation for discretion, share all or a
investigating and evaluating investment portion of this fee with
opportunities for the Trust and assisting non-Affiliates.
in the consummation of its investments;
one-half of the fee is payable at the same
time that selling commissions are payable
in connection with the Offering, and the
balance is payable proportionately at
investment closings based on amount
invested.
Managing Shareholder Annual fee payable under the Trust $250,000 per year payable on a
Management Agreement for ongoing monthly basis during the term of
management, administrative, and investment the agreement beginning
advisory services for the Trust (in an _____________ 1, 1997.
amount equal to 1% of gross proceeds of the
Offering)
Brentwood Management, LLC Property Management Fee 5% of collected rental income
("Brentwood") from each apartment property it
manages for the Trust plus $325
monthly bookkeeping fee; it may
earn a monthly performance fee of
$2.00 per residential unit if
greater than 96% of gross
potential rents are collected;
fee for managing single-family
housing development will be
market-based.
DISPOSITION STAGE
- ------------------------------- ---------------------------------------------- -------------------------------------
Managing Shareholder or Real Estate Commission 50% of any market-based
Affiliate commission payable to an outside
broker on the sale of Trust
Property, but in no event greater
than 3% of the sales proceeds;
any real estate commission earned
may be shared with
non-Affiliates.
</TABLE>
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<PAGE>
THE TRUST
The Trust was organized on July 31, 1997 as a Delaware business trust by
Baron Capital Properties, Inc., a Delaware corporation, as Corporate Trustee, by
the filing of a Certificate of Trust with the Delaware Secretary of State. See
"MANAGEMENT." The Trust's principal office is located at 7826 Cooper Road,
Cincinnati, Ohio 45242, and its telephone number at such address is (513)
984-5001; its fax number is (513) 984-4550.
BUSINESS PLAN
General
The Trust has been organized to acquire equity interests in existing
residential apartment properties or single-family housing developments with
operating histories located in Florida, Kentucky or Ohio and/or to provide or
acquire debt financing secured by mortgages on such types of property. Such
investments are expected to consist primarily of: (i) the acquisition,
ownership, operation, management, improvement and disposition of equity
interests in such types of properties and/or (ii) Mortgage Loans which the Trust
provides or acquires which are secured by mortgages on such types of properties.
The Managing Shareholder expects that the Trust's proposed investments will (1)
generate current cash flow for distribution to Investors from rental payments
from the rental of residential apartment units and single-family homes which the
Trust may acquire and/or principal and interest payments in respect of Mortgage
Loans which the Trust may provide or acquire and (2) provide the opportunity for
capital appreciation through the eventual sale of all or a portion of the
Trust's investment in equity interests in residential apartment properties and
single-family homes. The Trust intends to pay regular quarterly distributions to
its Shareholders.
The management of the Trust has been involved in the residential property
business for over 10 years and believes that the residential property market in
Florida, Kentucky and Ohio has strategic advantages over other markets.
Management has extensive experience and presence in those states which have
enabled it to form key alliances and working relationships with owners of
apartment and housing development properties and financial institutions.
After the Offering, the Trust intends to acquire, own, operate, manage, and
improve residential apartment properties and single-family housing developments
for long-term ownership, and thereby to seek to maximize current and long-term
income and the value of its assets. The Trust's strategy is to pursue
acquisitions of interests in properties that (i) are available at prices below
estimated replacement cost; (ii) may provide attractive returns with significant
potential growth in cash flow from property operations; (iii) are strategically
located, of high quality and competitive in their respective markets; (iv) have
been under-managed or are otherwise capable of improved performance through
intensive management and leasing that will result in increased occupancy and
rental revenues, and (v) provide anticipated total returns that will increase
the Trust's distributions and its overall market value. The Trust may make
investments in properties directly or through one or more partnerships in which
it may hold all or a portion of its real estate assets and conduct their
operations.
The Trust's primary business objectives are to increase distributions to
Shareholders and to increase the value of the Trust's portfolio of properties it
acquires. The Trust intends to achieve these objectives by:
(i) Acquiring properties that are available at prices below estimated
replacement cost and capable of enhanced performance, both in terms of cash flow
and investment value, through application of the Trust's management ability and
strategic capital improvements;
(ii) Increasing cash flow of the Trust's properties through active leasing,
rent increases, improvement in tenant retention, expense controls, effective
property management, and regular maintenance and periodic renovations, including
additions to amenities;
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<PAGE>
(iii) Managing operating expenses through the use of affiliated leasing,
marketing, financing, accounting, legal, and data processing functions; and
(iv) Emphasizing capital improvements to enhance the Trust's competitive
advantages in its markets.
After the Trust has invested the net proceeds of the Offering, it intends
to utilize one or more sources of capital for future acquisitions and capital
improvements, which may include undistributed cash flow, borrowings, issuance of
debt or equity securities and other bank and/or institutional borrowings. There
can be no assurance, however, that the Trust will be able to obtain capital for
any such acquisitions or improvements on terms favorable to the Trust. The net
proceeds of the Offering are expected to satisfy the Trust's cash requirements
over the 12-month period following the completion of the Offering.
Among other investment policies described below under " - Trust Policies
with respect to Certain Activities Investment Policy," the Trust will not make
an investment in respect of any property where the amount invested by it (in the
form of debt or equity) plus the amount of any existing indebtedness in respect
of such property exceeds 80% of the estimated replacement cost of the property
as determined by the Managing Shareholder. Repayment of any Mortgage Loans
provided or acquired by the Trust would typically be secured by a Mortgage on
the land and homes, apartment units, and other improvements financed by the
Trust and be non-recourse to the borrower. It is expected that in certain cases
the Trust will provide or acquire a Second Mortgage Loan that is subordinate to
a First Mortgage Loan provided by a lending institution. In certain cases,
Mortgage Loans provided or acquired by the Trust may be in the form of First
Mortgage Loans.
Junior Mortgages securing Junior Mortgage Loans to be provided or acquired
by the Trust may or may not be recorded. If any Junior Mortgage in favor of the
Trust is not recorded, the Trust's security interest in the Mortgage would be
unperfected and the Trust would be pari passu (i.e., on an equal basis) with all
other unsecured creditors of the borrower, provided, however, the security
instruments that will be entered into in connection with Mortgage Loans to be
provided or acquired by the Trust will typically restrict the borrower's ability
to enter into a subsequent loan arrangement with third parties which would be
senior to or pari passu with (i.e., equal to) the Mortgage held by the Trust.
Non-payment of any Junior Mortgage Loan that may be made or acquired by the
Trust may constitute an event of default by the borrower under the underlying
Senior Mortgage Loan, and such Senior Mortgage Loan may have to be repaid by the
borrower before Shareholders in the Trust will receive any return on their
Capital Contributions.
Brentwood Management, LLC ("Brentwood"), an Ohio limited liability company
which is an Affiliate of the Managing Shareholder, is expected to manage
properties in which the Trust may invest. For managing a residential apartment
property, Brentwood would be paid a fee equal to 5% of the collected rental
income from the property plus a bookkeeping fee of $325 per month and it may
earn a performance fee of $2.00 per residential unit per month if greater than
96% of gross potential rents are collected. Brentwood would be entitled to a
market-based fee in respect of any single-family housing developments it may
manage for the Trust.
The Trust will obtain and maintain insurance coverage on property in which
it acquires an equity interest (and, prior to providing or acquiring any
Mortgage Loan in respect of a property, will be listed as an additional insured
or loss payee in respect of such property), protecting against casualty loss up
to replacement cost (with a $1,000 deductible per loss), and against public
liability in an amount that is reasonable taking into account the market value
of the property at the time insurance is obtained. There can be no assurance,
however, that the Trust's Property would not sustain losses in excess of its
applicable insurance coverage, and it could sustain losses as a result of risks
which are uninsurable. There are certain types of losses (generally of a
catastrophic nature, such as earthquakes, floods and wars) which may be either
uninsurable or not economically insurable. Should such a loss occur, the Trust
could lose
29
<PAGE>
its invested capital in the property. In that case, the Shareholders could
suffer a complete loss of their investment in the Trust.
Although the Managing Shareholder has several investment opportunities for
the Trust under review, none of such potential opportunities has developed
beyond the negotiating stage. The Trust may direct a substantial portion of the
net proceeds from the Offering to investment opportunities that have not been
designated in this Prospectus, as it may be amended or supplemented from time to
time, and the Trust may be unable to or may decline to participate in any
specific investments that may be described in this Prospectus or any amendments
or supplements thereto. Therefore, prospective Investors may not be able to
evaluate any properties in which the Trust may participate before they purchase
Common Shares. In addition, prospective Investors will not have any vote in the
selection of property investments after they purchase Common Shares.
Consequently, Investors will be relying upon the judgment of the Managing
Shareholder for such decisions. In certain cases, the Trust may acquire
interests in properties from real estate programs sponsored by Affiliates of the
Managing Shareholder, subject to compliance with provisions set forth in the
Declaration designed to eliminate or minimize potential conflicts of interest.
See "SUMMARY OF THE DECLARATION - Control of Operations." There can be no
assurance that the Trust will attain its investment objectives. See "BUSINESS
PLAN," "RISK CONSIDERATIONS" and "MANAGEMENT."
The Trust expects to qualify as a REIT for federal income tax purposes
beginning with its taxable year ending December 31, 1997. See "TAX STATUS OF THE
TRUST" and "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust."
Trust Policies with Respect to Certain Activities
The following is a discussion of the Trust's policies with respect to
investments, dispositions, financings, and conflicts of interest. These policies
have been determined by the Managing Shareholder of the Trust and may be amended
or revised from time to time at the discretion of the Board with approval of a
majority in interest of the Shareholders entitled to vote on such matters.
At all times, the Trust intends to make investments and conduct its
operations in such a manner as to be consistent with the requirements of the
Code for the Trust to qualify as a REIT unless, because of changing
circumstances or changes in the Code (or in Treasury Regulations), the Managing
Shareholder, with the consent of a majority of the Shareholders entitled to vote
on such matter approving the Managing Shareholder's determination, determines
that it is no longer in the best interests of the Trust to qualify as a REIT. No
assurance can be given that the Trust's objectives will be attained.
Investment Policies
The Trust's investment objective is to provide quarterly cash distributions
and achieve long-term appreciation through increases in cash flows and the value
of its properties. The Trust intends to pursue these objectives by acquiring
equity interests in one or more existing residential apartment properties or
single-family housing developments located in Florida, Kentucky or Ohio and/or
making or investing in Mortgage Loans and other real estate interests related to
such types of properties consistent with its qualification as a REIT. The Trust
may invest in First Mortgage Loans or Junior Mortgage Loans and participating or
convertible mortgages if it concludes that it may benefit from the cash flow or
any appreciation in the value of the subject property. Such mortgages are
similar to equity participation. The Trust may also retain a purchase money
mortgage for a portion of the sale price in connection with the disposition of
properties from time to time.
Subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, the Trust also may invest in securities of
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. See "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust." The Trust may acquire all or
30
<PAGE>
substantially all of the securities or assets of other REITs or similar entities
where such investments would be consistent with the Trust's investment policies.
Real estate investment programs previously sponsored by and which may in
the future be sponsored by Affiliates of the Managing Shareholder may seek to
acquire interests in properties similar to those which the Trust will seek to
acquire. The following method of allocation of the acquisition of such
properties between the Trust and such other programs will generally be followed
by the Trust in such cases. Except in unusual circumstances, the Trust will not
invest its net offering proceeds in property investments until such similar
programs sponsored prior to the Offering have specified for investment or
committed to invest at least 50% of their investment funds in respect of
particular properties, and no such similar program sponsored subsequent to the
Offering will invest in respect of a particular property until the Trust has
specified for investment or committed to invest at least 50% of its net offering
proceeds in respect of particular properties. The Board and the Independent
Trustees are responsible for overseeing the allocation of the acquisition of
properties under the circumstances described above to insure that the foregoing
allocation method is applied fairly to the Trust.
Pending the commitment of Trust funds for the purposes described in this
Prospectus, for distributions to Shareholders or for application of reserve
funds to their purposes, the Managing Shareholder has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest.
The Trust intends to make investments in such a way that it will not be
treated as an investment company under the Investment Company Act of 1940.
Disposition Policies
The Managing Shareholder will periodically review the portfolio of assets
which the Trust acquires. The Trust has no current intention to dispose of any
property interests it may acquire, although it reserves the right to do so.
Disposition decisions relating to a particular property will be made based on
(but not limited to) the following factors: (i) potential to continue to
increase cash flow and value; (ii) the sale price; (iii) strategic fit of the
property with the rest of the Trust's portfolio; (iv) potential for, or the
existence of, any environmental or regulatory problems; (v) alternative uses of
capital; and (vi) maintaining qualification as a REIT. Any decision to dispose
of a property will be made by the Managing Shareholder.
Financing Policies
Generally, it is expected that each property in which the Trust invests in
an equity or debt interest will secure a First Mortgage Loan. The principal
balance of any such First Mortgage Loan typically would represent a substantial
percentage of the Trust's basis in any property in which the Trust owns an
equity interest. The Trust does not intend to make an investment in respect of
any property where the amount invested by it (in the form of equity or debt)
plus the amount of any existing indebtedness in respect of such property exceeds
80% of the estimated replacement cost of the property as determined by the
Managing Shareholder. The Trust will have the right to borrow funds, and use the
Trust's available assets as security for any such loan, if the Trust's cash
requirements exceed its available cash. The Trust may from time to time
re-evaluate and modify its borrowing policies in light of then current economic
conditions, relative costs of equity and debt capital, market values of
properties, growth and acquisition opportunities and other relevant factors. The
Declaration of the Trust does not impose a limit on the amount of the Trust's
use of leverage.
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<PAGE>
To the extent that the Managing Shareholder desires that the Trust obtain
additional capital, the Trust may raise such capital through additional public
and private equity offerings, debt financing, retention of cash flow (subject to
satisfying the Trust's distribution requirements under the REIT rules) or a
combination of these methods. The Trust may determine to issue securities senior
to the Common Shares, including Preferred Shares and debt securities (either of
which may be convertible into Common Shares or be accompanied by warrants to
purchase Common Shares). The Trust may also finance acquisitions of properties
or interests in properties through the exchange of properties, the issuance of
Shares, or the issuance of limited partner interests in any Operating
Partnership it may form or acquire an equity interest in to conduct all or a
portion of its real estate operations.
The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
any applicable Operating Partnership, to refinance existing indebtedness or to
finance acquisitions or capital improvements of new properties.
Conflict of Interest Policies
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest, as described below. However, there can be no
assurance that these policies always will be successful in eliminating the
influences of such conflicts, and if they are not successful, decisions could be
made that might fail to reflect the interests of all Shareholders.
The Managing Shareholder will have discretion in management and control of
the affairs of the Trust, subject to (i) general supervision and review of the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and (ii) prior approval authority of a majority of the Board and/or
of a majority of the Independent Trustees in respect of certain actions of the
Trust. The Declaration of the Trust requires that a majority of the Board of the
Trust be comprised of Independent Trustees not affiliated with the Managing
Shareholder or its Affiliates.
Actions of the Trust requiring approval of the Board and/or the Independent
Trustees include, without limitation, the payment of compensation to the
Managing Shareholder, a Trustee, any other member of the Board of the Trust or
any of their respective Affiliates in amounts in excess of certain specified
limits for services performed for the Trust and the acquisition of properties
from or the sale of properties to any such parties. For example, the Trust may
not purchase property from the Managing Shareholder, a Trustee, any other member
of the Board or any of their respective Affiliates unless a majority of the
members of the Board and a majority of the Independent Trustees who have no
other interest in the particular proposed transaction (beyond their role on the
Board or as Independent Trustees) review the proposed transaction and determine
that it is fair and reasonable to the Trust and that the purchase price to the
Trust for such property is no greater than the cost of the property to such
proposed seller, or if the purchase price to the Trust is in excess of such
cost, that substantial justification for such excess exists and such excess is
reasonable, provided, however, in no event may the purchase price for the
property exceed its current appraised value.
For a more detailed description of Trust actions requiring approval of the
Board and/or the Independent Trustees, see "SUMMARY OF DECLARATION OF TRUST -
Control of Operations."
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POTENTIAL CONFLICTS OF INTEREST
The Managing Shareholder will use its best efforts to conduct Trust affairs
for the benefit of the Shareholders. However, the Trust is subject to various
potential conflicts of interest arising out of its relationship with the
Managing Shareholder, Affiliates of the Managing Shareholder, and the
Shareholders, including but not limited to those described below.
The Managing Shareholder was formed for the sole purpose of serving as the
Managing Shareholder of the Trust. Certain Affiliates of the Managing
Shareholder, however, have formed, manage or participate in other partnerships
or entities which engage in real estate activities and may acquire and/or
develop real estate for their own accounts. Affiliates of the Managing
Shareholder are general partners of 43 other Delaware or Florida real estate
limited partnerships that were previously organized to invest in separate
residential apartment properties and single-family housing and retail projects
located in southeastern and mid-western portions of the United States.
Generally, each such program has a separate general partner and involves
separate projects or phases of projects which have been separately financed and
operated on a "stand-alone" basis. See "MANAGEMENT" and "PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER." It is expected that Affiliates of the
Managing Shareholder will organize similar programs in the future.
Certain Affiliates of the Managing Shareholder have sponsored or may
sponsor real estate investment programs which may seek to acquire interests in
properties similar to those which the Trust may seek to acquire. Furthermore, in
certain cases, the Trust may acquire interests in properties from real estate
programs sponsored by Affiliates of the Managing Shareholder. In order to
eliminate or minimize potential conflicts of interest among the Trust and such
Affiliates which may arise in such situations, the Trust has adopted provisions
in the Declaration which require that at least a majority of the members of the
Board be Independent Trustees and that a majority of the Board, and, in certain
cases, a majority of the Independent Trustees, approve transactions between the
Trust and the Managing Shareholder, a Trustee, any other member of the Board or
any of their respective Affiliates. See "SUMMARY OF DECLARATION OF TRUST Control
of Operations." In addition, the Trust has adopted the following method of
allocation of the acquisition of properties between the Trust and such other
programs seeking similar properties. Except in unusual circumstances, the Trust
will not invest its net proceeds in property investments until such similar
programs sponsored prior to the Offering have specified for investment or
committed to invest at least 50% of their investment funds in respect of
particular properties, and no such similar program sponsored subsequent to the
Offering will invest in respect of a particular property until the Trust has
specified for investment or committed to invest at least 50% of its net offering
proceeds in respect of particular properties. The Board and the Independent
Trustees are responsible for overseeing the allocation of the acquisition of
properties under the circumstances described above to insure that the foregoing
allocation method is applied fairly to the Trust. However, there can be no
assurance that these policies will always be successful in eliminating the
influence of such potential conflicts, and, if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
Shareholders.
In most cases, the management of the Managing Shareholder and its
Affiliates is identical. For example, the President, sole stockholder and sole
director of the Managing Shareholder is Gregory K. McGrath, who is also the
President, sole director and sole shareholder of each of the corporate general
partners of the investment programs referred to in the second paragraph of this
section. See "MANAGEMENT." As a result, the activities of other investment
programs organized by Affiliates of the Managing Shareholder may also result in
conflicting demands upon the time and effort of the management of the Managing
Shareholder in the performance of its duties to the Trust. However, the Managing
Shareholder will devote as much attention to the Trust's activities as is
reasonably necessary to manage the Trust.
In the event that any dispute arises in which the interests of the Trust
and any other programs sponsored by the Affiliates of the Managing Shareholder
diverge, the Trust, if necessary, intends to retain
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<PAGE>
separate counsel for each party with an adverse interest.
The Managing Shareholder and certain Affiliates are entitled under the
Declaration to receive certain fees and other compensation, payments and
reimbursements discussed in this Prospectus. Such fees and other compensation
generally were not determined through a process of arm's length bargaining. The
prices payable and terms of such transactions may not necessarily be determined
by reference to costs to the Managing Shareholder or such Affiliates,
independent appraisals or comparable third party transactions. As a result, the
fees, compensation, prices or terms may not reflect the fair market value of the
services to be rendered to the Trust by the Managing Shareholder or Affiliates
or the value of the property acquired or disposed of.
In addition, the level of compensation payable to the Managing Shareholder
or its Affiliates in connection with the organization and operation of the Trust
may be greater or less than that payable in connection with the organization and
operation of the other investment programs sponsored by such Affiliates.
The interests of the Shareholders may be inconsistent in some respects with
the interests of the Managing Shareholder. The Managing Shareholder and certain
of its Affiliates, by reasons of their interests in the Trust and their receipt
of compensation and fees from the Trust, have and will have potential conflicts
of interest in connection with their performance of certain activities. For
example, a transaction such as a sale of the Trust's Property may produce an
economic benefit for the Managing Shareholder and/or an Affiliate but adverse
tax consequences for the Shareholders. Also, circumstances may arise where
termination of business by the Trust may be advantageous to the Managing
Shareholder and/or Affiliates, while continuation of the Trust might be
advantageous to the Shareholders.
The Declaration provides that the Trust will indemnify the Managing
Shareholder, Independent Trustees, other members of the Board and each of their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees against certain liabilities, and the availability
of such indemnification could affect the actions of such indemnified parties.
See "SUMMARY OF DECLARATION OF TRUST - Liability and Indemnification."
The Managing Shareholder intends to utilize the services of certain
suppliers of goods and services for the Trust that have previously provided
goods or services to prior investment programs organized by Affiliates of the
Managing Shareholder. While such providers of goods and services are
unaffiliated with the Managing Shareholder, the existence of previous business
relationships may affect the ability of the Managing Shareholder to
independently represent the interests of the Trust with respect to such
providers of goods and services in light of such other business relationships.
While the Managing Shareholder believes that it has represented and will
continue to represent the interests of the Trust and believes that there are
benefits to utilizing the services of parties with whom the Managing Shareholder
has previous experience, prospective Investors who are concerned about such
potential conflicts are advised to request further information from the Managing
Shareholder and to independently evaluate such relationships.
The Managing Shareholder has provided no independent representation of
prospective Investors in connection with this Offering, and each prospective
Investor should seek independent advice and counsel before making an investment
in the Trust.
While potential conflicts of interest, including those described herein,
may not be entirely eliminated, the Trust believes that any actual conflicts
that may arise will not materially affect the obligation of the Managing
Shareholder, the Independent Trustees, and any other members of the Board to act
in the best interests of the Shareholders and the Trust. See "FIDUCIARY
RESPONSIBILITY" and "RISK CONSIDERATIONS."
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FIDUCIARY RESPONSIBILITY
The Managing Shareholder, Independent Trustees and other members of the
Board are accountable to the Trust as fiduciaries, and consequently must
exercise good faith and integrity in handling Trust affairs. Where the question
has arisen, courts have held that a limited partner may institute legal action
on behalf of himself and all other similarly situated limited partners (i.e.,
class action) to recover damages for a breach by a general partner of its
fiduciary duty, or on behalf of the partnership (i.e., partnership derivative
action) to recover damages from third parties. Certain recent cases decided by
the Federal courts may also be construed to support the right of a limited
partner to bring such actions under Rule 10b-5 issued under the Securities Act
of 1933, as amended, for the recovery of damages (including losses incurred in
connection with the purchase or sale of a partnership interest) resulting from a
breach by a Managing Shareholder of its fiduciary duty.
The foregoing summary is based on statutes, rules and decisions as of the
date of this Prospectus and involves a rapidly developing and changing area of
the law. Investors who believe that a breach of fiduciary duty by the Managing
Shareholder, an Independent Trustee or any other member of the Board has
occurred or who have questions concerning the duties of such persons should
consult with their own counsel.
The Declaration provides that the Trust will indemnify the Managing
Shareholder, the Independent Trustees, other members of the Board and their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees against liability arising out of the management
of the Trust within the scope of the Declaration, unless negligence or
misconduct is involved. As a result of these indemnification arrangements,
purchasers of Common Shares may have more limited rights of action than they
would have absent the limitations in the Declaration. The exculpatory provisions
do not include indemnification for liabilities arising under the Securities Act
of 1933, as amended (except in certain circumstances enumerated in the
Declaration), or liabilities arising from or out of intentional or criminal
wrongdoing. The Managing Shareholder is not permitted to commingle any funds of
the Trust with its own funds or the funds of any other person. The Trust is
expressly prohibited from making any loans to the Managing Shareholder. The
Trust may borrow money from the Managing Shareholder, but only on terms which
are competitive with those offered by unrelated lending institutions.
RISK CONSIDERATIONS
The purchase of Common Shares offered hereby involves certain substantial
risks and other factors, in addition to the general risks inherent in any
investment. The listing of certain risk considerations below does not imply that
there are no other risks related to an investment in the Common Shares or that
any such other risks may not be substantial. Prospective purchasers should
consider, among other things, the following risks.
Trust
No Operating History
Common Shares offered hereby must be considered speculative investments,
and there can be no assurance that the Trust will fulfill its investment
objectives. The Trust and the Managing Shareholder have no operating history. In
addition, the Trust will have no substantial assets other than debt or equity
investments it may make in respect of particular properties and thus will be
totally dependent upon the successful operation of such properties. Management
of the Managing Shareholder and Affiliates, however, has substantial prior
experience in and knowledge of the residential apartment property and
single-family housing development market and its financing, and has experience
in the management of investment programs.
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Limited Marketability of Common Shares
Although Common Shares issued in connection with the Offering have been
registered under the Securities Act of 1933, as amended, and will be freely
transferable, the Common Shares will not be registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or listed on a stock
exchange immediately following the effective date of such Securities Act
registration. The Trust does not expect that a public market for the Common
Shares will immediately develop or be maintained after the completion of the
Offering. Thus there can be no assurance that an active trading market will
develop after the Offering. Accordingly, an Investor should purchase Common
Shares only as a long-term investment and should be prepared to remain a
Shareholder indefinitely. The Managing Shareholder will investigate registering
Shares of the Trust under the Exchange Act and listing such Shares on a national
exchange in the future.
Arbitrary Offering Price
The offering price of $10.00 per Common Share has been arbitrarily
established by the Trust, and does not necessarily represent a price at which
the Common Shares could be resold, if at all. See "RISK CONSIDERATIONS - Limited
Marketability of Common Shares."
Participation Rights of Shareholders in Management
Management of the Trust is vested in the Managing Shareholder (subject to
the general supervision and review of the Independent Trustees and the Managing
Shareholder acting together as the Board of the Trust and to prior approval of
the Board and the Independent Trustees in respect of certain activities of the
Trust). Shareholders will generally not have the right to participate in the
management of the Trust's Property or in the decisions of the Managing
Shareholder relating to the Trust's investments.
Distributions to Shareholders Affected by Many Factors
Distributions by the Trust to Shareholders will be based principally on
cash available for distributions from properties in which it invests. Increases
in rents under leases of properties acquired by the Trust will increase the
Trust's cash available for distribution to Shareholders. In contrast, the amount
available to make distributions may decrease if rental rates are lowered or if
properties acquired yield lower than expected returns.
The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance future acquisitions and capital
improvements of properties without additional debt or equity financing. If the
Trust incurs indebtedness in the future, it will require additional funds to
service such indebtedness and, as a result, amounts available to make
distributions may decrease. Distributions by the Trust will also be dependent on
a number of other factors, including the Trust's financial condition, any
decision to reinvest funds rather than to distribute such funds, capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code, and such other factors as the Trust deems relevant. In addition, the
Trust may issue from time to time additional Common Shares, Preferred Shares or
debt securities in connection with the acquisition of properties or in certain
other circumstances. No prediction can be made as to the number of such Common
Shares, Preferred Shares or debt securities which may be issued, if any, and, if
issued, the effect on cash available for distribution, on a per Share basis, to
Shareholders. Such issuances, if any, would have a dilutive effect on cash
available for distribution on a per Share basis to Shareholders.
To obtain the favorable tax treatment associated with REITs, the Trust
generally will be required to distribute to its Shareholders at least 95% of its
taxable income (determined without regard to the
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dividends paid deduction and by excluding net capital gains) each year. For
taxable years beginning after August 5, 1997, the 1997 Act (1) expands the class
of excess noncash items that are excluded from the distribution requirement to
include income from the cancellation of indebtedness and (2) extends the
treatment of original issue discount and coupon interest as excess noncash items
to REITs, like the Trust, that use an accrual method of accounting. In addition,
the Trust will be subject to tax at regular corporate rates to the extent that
it distributes less than 100% of its taxable income (including net capital
gains). The Trust will also be subject to a 4% non-deductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year, are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income, and 100% of its undistributed income from prior years.
The Trust intends to make distributions to its Shareholders to comply with
the distribution requirements of the Code and to reduce exposure to federal
income taxes and the non-deductible excise tax. Differences in the timing
between the receipt of income and the payment of expenses in arriving at taxable
income and the effect of required debt amortization payments, could require the
Trust to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT.
Liability and Indemnification of the Managing Persons
Although the Managing Shareholder, Independent Trustees and other members
of the Board will be accountable to the Trust as fiduciaries and, consequently,
will be required to exercise good faith and integrity in handling the Trust's
assets and affairs, the Declaration provides that such persons and their
respective officers, directors, shareholders, partners, agents and employees
will not be liable to the Trust or to any of the Shareholders for errors in
judgment or for actions or omissions taken without negligence or bad faith,
provided they acted within the scope of the Declaration. Moreover, the
Declaration provides that the Trust will indemnify the Managing Shareholder,
Independent Trustees, other members of the Board and such other persons against
all liabilities, costs and expenses (including legal fees and expenses) incurred
by the Managing Shareholder or any such persons arising out of or incidental to
this Offering or the business of the Trust on certain conditions. As a result,
the Shareholders may have more limited rights against the Managing Shareholder
and such persons than they would have absent the limitations in the Declaration.
See "FIDUCIARY RESPONSIBILITY" and "SUMMARY OF DECLARATION OF TRUST - Liability
and Indemnification."
Delaware Business Trust
The Trust has been organized as a Delaware business trust having limited
liability of the Shareholders of the Trust. Two of the three states in which the
Trust is expected to conduct business have enacted legislation recognizing the
limited liability provisions of the Delaware business trust. The third state has
not enacted such legislation, although it is expected (although not assured)
that such state will also recognize the limited liability of the Shareholders.
Accordingly, there is a risk that Shareholders will not have limited liability
for activities of the Trust in that state or in any other state in which the
Trust may conduct activities which does not recognize the limited liability of
beneficiaries of a Delaware business trust. Such risk is substantially, if not
entirely, mitigated by the Trust conducting its activities and holding its
interest in properties in such states through limited liability entities such as
limited partnerships or limited liability companies.
Issuance of Additional Securities
The Trust has authority to offer its authorized but unissued Shares (which
may be comprised of Common Shares and/or Preferred Shares in the discretion of
the Trust) or debt securities in exchange for property or otherwise.
Shareholders who acquire Common Shares in the Offering will have no preemptive
rights to acquire any such Shares or debt securities, and any such issuance of
Shares or debt securities could result in dilution of a Shareholder's investment
in the Trust.
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Limits on Ownership and Transfers of Shares
In order for the Trust to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which the election to be treated as a REIT has been made). Furthermore,
after the first taxable year for which a REIT election is made, the Trust's
Shares must be held by a minimum of 100 persons for at least 335 days of a
12-month taxable year (or a proportionate part of a short tax year). In
addition, if the Trust, or an owner of 10% or more of the Trust, actually or
constructively, owns 10% or more of a tenant of the Trust (or a tenant of any
partnership in which the Trust is a partner), the rent received by the Trust
(either directly or indirectly through any such partnership) from such tenant
will not be qualifying income for purposes of the REIT gross income tests of the
Code. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust." In order
to protect the Trust against the risk of losing REIT status due to a
concentration of ownership among its Shareholders, the Declaration of the Trust
limits actual or constructive ownership of the outstanding Shares by any single
Shareholder to 9.8% (the "Limit") of the then outstanding Shares. See "CAPITAL
STOCK OF THE TRUST - Restrictions on Ownership and Transfer." The Managing
Shareholder will consider waiving the Limit with respect to a particular
Shareholder if it is satisfied, based upon the advise of tax counsel or
otherwise, that ownership by such Shareholder in excess of the Limit would not
jeopardize the Trust's status as a REIT and the Managing Shareholder otherwise
decided that such action would be in the best interests of the Trust.
Actual or constructive ownership of Shares in excess of the Limit, or with
the consent of the Managing Shareholder, such other limit, will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of Shares in excess of the Limit, or, with the consent
of the Managing Shareholder, such other limit, as applicable. Such purported
transferee or owner would have no right to vote such Shares or be entitled to
dividends or other distributions with respect to such Shares. See "CAPITAL STOCK
OF THE TRUST - Restrictions on Ownership and Transfer" for additional
information regarding the Limit.
Dependency on Key Management
The Trust will be dependent upon the efforts of the Managing Shareholder
(primarily Gregory K. McGrath, President) and other members of management
(including, without limitation, the Independent Trustees and any other members
of the Board). While the Trust believes that it could find replacements for such
management, the loss of their services could have an adverse effect on the
operations of the Trust.
Property Investments
Investment Risks
The results of the Trust's operations will depend, among other things, upon
the quality of opportunities available for investment. It is possible that the
properties in which the Trust invests will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. The performance of an
investment in the Trust will depend on many factors over which the Trust may
have no control, including without limitation the continuation of certain
advantageous provisions of federal tax laws, adverse changes in national and
local economic conditions, increases in operating costs, adverse local
conditions such as decreases in employment or changes in real estate zoning laws
and other characteristics of the geographical location of the Trust's
investments, which may reduce the desirability of real estate in the area,
excessive building, changes in interest rates, the availability of long-term
mortgage funds, changes in federal, state or local government laws, regulations,
or policies, changes in tax laws, various uninsurable risks, liabilities in tort
(which may exceed insurance coverage), acts of God and other catastrophes,
hazardous substances and other environmental problems in respect of the Trust's
investments, the availability of financing for operating or capital needs and
the management capabilities of the Managing Shareholder, Affiliates,
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developers, borrowers and property managers.
The above factors may also adversely affect the ability of a borrower to
meet its repayment obligations to the Trust in connection with Mortgage Loans
that may be provided or acquired by the Trust. In the event of a default under
such an obligation, the Trust may experience substantial delays in enforcing its
rights as mortgagee and may incur substantial costs associated with protecting
its investment. The Trust may be required to acquire title to a property and
thereafter to make substantial improvements or repairs in order to maximize the
property's investment potential. In such circumstances, the Trust may be
required to attempt to borrow or raise additional funds and may not be able
ultimately to recover its investment.
The Trust may provide or acquire Mortgage Loans which provide for the
repayment of principal, in whole or in part, in lump-sum "balloon" payments. The
borrower's ability to make such payments may depend upon its ability to sell a
particular property securing such property or obtain refinancing. There is no
assurance that either a sale or replacement financing can be obtained by the
borrower. The borrower's ability to sell or refinance its property will depend
on general economic conditions, the value of the property and, in the case of a
refinancing, upon the financial strength of the borrower. In the event the
borrower fails to make any necessary payment upon maturity or scheduled payments
as they become due, the Trust may be compelled to institute foreclosure
proceedings.
The Trust expects that Mortgage Loans it provides or acquires which are
secured by residential apartment properties or single-family housing units would
generally be made on a non-recourse basis under which the other participants in
respect of the property would not be responsible for the debt and the Trust
would be able to look only to the unencumbered assets of the property for
repayment. In many cases, the Trust is expected to be secured by a Second
Mortgage that is subordinated to a First Mortgage. In the event of a default on
a Senior Mortgage, the Trust may find it necessary to make payments to prevent
foreclosure on the Senior Mortgage, without necessarily improving the Trust's
position with respect to the underlying real property. Failure to make such
payments could result in foreclosure on the Senior Mortgage and the
extinguishment of the Trust's Junior Mortgage. In such event, the Trust's entire
investment in the property could be lost. In addition, non-payment of any
subordinated Mortgage Loan that may be made or acquired by the Trust may
constitute an event of default to a borrower under the underlying Senior
Mortgage Loan(s), and such Senior Mortgage Loan(s) may have to be repaid by the
borrower before Shareholders in the Trust will receive any return on their
investment in Common Shares. Furthermore, generally, Mortgage Loans will not be
personal obligations of the borrower and will not be insured or guaranteed by
governmental agencies or otherwise.
If the Trust owns real property directly, it may be on a pari passu basis
with other investors. In the event of a default under such an investment, the
Trust remedies may be limited by the size of the Trust's investment relative to
that of other participants.
Lack of Liquidity of Real Estate
Real estate investments are relatively illiquid, and, therefore, the Trust
will have limited ability to vary its portfolio quickly in response to changes
in economic or other conditions. In addition, the prohibitions in the Code and
related regulations on a REIT holding property for sale may affect the Trust's
ability to sell properties without adversely affecting distributions to the
Trust's Shareholders.
Capital Improvements
Properties in which the Trust may invest will vary in age and require
capital improvements regularly. If the costs of improvement, whether required to
attract and maintain tenants or to comply with governmental requirements,
substantially increases, cash available for distribution to Shareholders could
be reduced.
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Risks of Real Estate Acquisitions
The Trust intends to actively seek to acquire interests in residential
apartment properties and single-family housing developments to the extent they
can be acquired on advantageous terms and meet the Trust's investment criteria.
Acquisitions in respect of such properties entail risks that investments will
fail to perform in accordance with expectations. Estimates of the costs of
improvements to bring acquired property up to standards established for the
market position intended for that property may prove inaccurate. In addition,
there are general investment risks associated with any new real estate
investment.
Real Estate Financing Risks
The Trust will be subject to the risks normally associated with debt
financing, including the risks that the Trust's cash flow will be insufficient
to meet required payments of principal and interest on any indebtedness of the
Trust, the risk that indebtedness on the properties will not be refinanced at
maturity or that the terms of such refinancing will not be as favorable as the
terms of such indebtedness. If the Trust were unable to refinance its
indebtedness on acceptable terms, if at all, the Trust might be forced to
dispose of one or more of its properties upon disadvantageous terms, which might
result in losses to the Trust and might adversely affect the cash available for
distribution. If prevailing interest rates or other factors at the time of the
refinancing result in higher interest rates on refinancings, the Trust's
interest expense would increase, which would adversely affect the Trust's cash
flow and its ability to pay distributions to Shareholders. Further, if a
property is mortgaged to secure payment of indebtedness, and the Trust is not
able to meet mortgage payments, or is in default under the related mortgage or
deed of trust, such property could be transferred to the mortgagee, the
mortgagee could foreclose upon the property, appoint a receiver and receive an
assignment of rents and leases, or pursue other remedies, all with the
consequence of loss of income and asset value to the Trust. Foreclosures could
also create taxable income without accompanying cash proceeds, thereby hindering
the Trust's ability to meet the REIT distribution requirements of the Code.
Unrecorded Mortgages
Any subordinated Mortgage Loan the Trust may make or acquire using net
proceeds of the Offering may or may not be recorded. If the Trust's Mortgage is
not recorded, the Trust's security interest in such Mortgage would not be
perfected and the Trust would be pari passu (i.e., on an equal basis) with all
other unsecured creditors of the borrower, provided, however, the security
instrument which will be entered into in connection with any Mortgage Loan
proposed to be made or acquired by the Trust will generally restrict the
borrower's ability to enter into a subsequent loan arrangement with third
parties which would (i) be senior to or pari passu with the Mortgage to be held
by the Trust or (ii) dilute the Trust's equity interest in the real property
involved.
Operating Risks
There can be no assurance that the Trust will be able to avoid operating
losses in the future in respect of properties in which it acquires an equity
interest or that an Investor's investment in the Trust will be recovered. In
order for the Trust to make cash distributions on residential rental properties,
certain occupancy percentages and rental rates will need to be achieved and
expense levels maintained. No assurance can be given that these percentages,
rates or expenses can be achieved or maintained. If the properties do not
achieve and maintain such occupancy percentages at such rates, the Trust's
ability to make cash distributions may be eliminated. No assurance can be given
that rental increases can be instituted while maintaining acceptable occupancy
levels. If the Trust fails to generate sufficient gross income, it may find it
necessary to attempt to borrow funds for operating capital or other purposes.
The availability of additional financing to the Trust is partially dependent
upon general economic conditions, the value of the property and the financial
strength of the Trust.
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Risk of Joint Activity with Others
It is anticipated that the Trust will provide or acquire financing in
respect of existing residential apartment properties and single-family housing
developments and thus will jointly participate with one or more other entities,
including without limitation developers and First Mortgage lenders and other
financing sources. If any such other participants fail to fulfill their
obligations or have divergent interests or are in a position to take action
contrary to the policies or objectives of the Trust, the Trust's interest in
such project may be adversely affected. Although the Trust will remain closely
involved in all aspects of the Trust's activities, the Trust will rely upon
others as to the operation of any property in which it participates. It will
monitor or take part in those activities to the extent it deems appropriate. The
successful operation of each property in which the Trust participates will, to a
large extent, be determined by the quality and performance of its managers.
Competition
The Trust will be competing for suitable investments with other financial
institutions such as banks, insurance companies, savings and loan associations,
mortgage bankers, pension funds, real estate investment trusts and other real
estate developers, managers, owners, and investment vehicles, which may have
investment objectives similar to those of the Trust. See "BUSINESS PLAN." Many
of these competitors will have greater resources than the Trust and some may
have, or may have access to, more extensive real estate and financial experience
than does the Managing Shareholder.
Properties in which the Trust may invest will also compete for tenants
against comparable residential units in their geographical areas and there can
be no assurance that such properties will be able to compete effectively with
such other properties.
Uninsured Loss
Properties in which the Trust invests are expected to be covered by
adequate comprehensive liability and all-risk insurance provided by reputable
companies and with commercially reasonable deductibles, limits and policy
specifications customarily carried for similar properties. Certain types of
losses, however, may be either uninsurable or not economically insurable, such
as losses due to earthquakes, floods, riots or acts of war, or may be insured
subject to certain limitations including large deductibles or co-payments.
Should an uninsured loss or a loss in excess of insured limits occur, the Trust
could lose its investment in and anticipated profit and cash flow from a
property and would continue to be obligated on any mortgage indebtedness or
other obligations related to such properties. Any such loss would adversely
affect the Trust and its ability to make distributions.
Hazardous Substances
Federal law imposes liability on a landowner for the presence on the
premises of improperly disposed hazardous substances. This liability is without
regard to fault for, or knowledge of, the presence of such substances and may be
imposed jointly or severally upon all succeeding landowners from the date of the
first improper disposal. While state law is less onerous, the practical
consequences may be the same. In order to address these issues, the Managing
Shareholder expects to require a Phase I environmental report indicating the
favorable status of any property in which it intends to make an investment prior
to such investment. Phase I assessments are intended to discover information
regarding, and to evaluate the environmental condition of, the surveyed property
and surrounding properties. Phase I assessments generally include an historical
review, a public records review, an investigation of the surveyed site and
surrounding properties, and preparation and issuance of a written report, but do
not include soil sampling or subsurface investigations. Thus, a Phase I report
is not comprehensive or exhaustive and will not identify all possible hazardous
substances. If it is ever determined that hazardous substances
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are present, the Trust could be required to pay all costs of any necessary
clean-up work, although under certain circumstances claims against other
responsible parties could be made by the Trust.
Extended and Uncertain Period for Returns
The investment of the net proceeds of this Offering to acquire interests in
one or more existing residential properties may occur over an extended period
during which the Trust will face risks of changes in interest rates and adverse
changes in the real estate market. Similarly, during periods in which proceeds
are invested in interim investments prior to such application, the Trust may be
affected by changes in prevailing interest rate levels. Such interim investments
would be expected to earn rates of return which are lower than those earned on
the Trust's real estate investments.
Lack of Diversification
Although the Trust is expected to participate in more than one residential
property, the number of properties in which the Trust ultimately invests may be
insufficient to afford adequate diversification against the risk that its
investments will not be profitable or return the Trust's invested capital. There
can be no assurance that the Trust's properties will earn a return or that the
returns on its properties will be sufficient to permit distributions to
Investors.
Utilization of Funds for Undesignated Properties
The Managing Shareholder expects the Trust to acquire equity interests in
and/or provide or acquire debt financing secured by Mortgages on one or more
existing residential properties. The actual number of properties will depend
upon the amount of net proceeds from the Offering the Trust has available to
invest, the number of suitable investment opportunities available and the amount
of funds required for each investment opportunity. Although the Managing
Shareholder has several investment opportunities for the Trust under review,
none of such potential opportunities has developed beyond the negotiating stage.
The Trust may direct a substantial portion of the net proceeds from the Offering
to properties that have not been designated in this Prospectus, as it may be
amended or supplemented from time to time, and the Trust may be unable to or may
decline to participate in any specific investments that may be described in this
Prospectus or any amendments or supplements thereto. Therefore, prospective
Investors may not be able to evaluate any properties in which the Trust
participates before they purchase Common Shares; nor will prospective Investors
have any vote in the selection of property investments after they purchase
Common Shares. Consequently, Investors will be relying upon the judgment of the
management of the Trust for such decisions. See "BUSINESS PLAN," "RISK
CONSIDERATIONS" and "MANAGEMENT."
Dispositions of Trust Property
The Trust will periodically review the portfolio of assets which the Trust
may acquire. It has no current intention to dispose of any interest in
properties it may acquire, although it reserves the right to do so. There is no
assurance as to the timing of any sales of property or that if the Trust
determines to attempt to sell a particular property it will be able to do so on
favorable terms, if at all. A successful sale of any property will depend upon,
among other things, the operating history of the property and prospects for the
property, the number of potential purchasers, the economics of any bids made by
such potential purchasers and the state of the market for residential properties
of the type sought to be sold. The management of the Trust will have full
discretion to determine whether the properties should be sold and the timing,
price and other terms of any such sales.
Changes in Laws
Costs resulting from changes in real estate taxes or other governmental
requirements generally are not directly passed through to tenants and therefore
may adversely affect the Trust; attempts to pass
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through any substantial increases may affect tenants' ability to pay the rents,
causing increased delinquency and vacancy. Increases in income, service or
transfer taxes generally are not passed through to tenants and may adversely
affect the Trust's ability to make distributions to Shareholders. Changes in
laws increasing potential liability for environmental conditions or increasing
the restrictions on discharges or other conditions may result in significant
unanticipated expenditures, which would adversely affect the Trust's ability to
make distributions to Shareholders.
Risk of Borrowing Leverage
It is expected that any property in which the Trust acquires an equity
interest will secure a First Mortgage Loan (and possibly one or more Junior
Mortgages Loans), which typically would represent a substantial percentage of
the Trust's basis in such property. There would be fixed repayment obligations
due monthly on such debt in addition to other operating costs. The Managing
Shareholder is also entitled to borrow funds on behalf of the Trust, and use the
Trust's assets (where possible) as security therefor if the Trust's cash
requirements exceed its available funds. There can be no assurance that the
future income of the Trust will be sufficient to meet such obligations. If the
cash flow of the Trust is insufficient at any time to meet these obligations as
they become due, and the Managing Shareholder and its Affiliates fail to provide
funds to satisfy them, cash distributions to the Shareholders could be adversely
affected, the Trust's equity in its property could be reduced or eliminated
through foreclosure, and the Shareholders would incur tax liability on any
resulting gain. See "BUSINESS PLAN."
Potential Conflicts of Interest
The Trust is subject to potential conflicts of interest arising out of its
relationship to the Managing Shareholder, Affiliates of the Managing
Shareholder, and the Shareholders. For example, certain Affiliates of the
Managing Shareholder have sponsored or may sponsor real estate investment
programs which may seek to acquire interests in properties similar to those
which the Trust may seek to acquire. In addition, the Trust may attempt to
acquire from investment programs sponsored by Affiliates of the Managing
Shareholder interests in properties or in entities that own title to one or more
properties. The Trust has adopted certain policies designed to eliminate or
minimize potential conflicts of interest. These policies include provisions in
the Declaration which require that (i) at least a majority of the members of the
Board be Independent Trustees and (ii) a majority of the Board, and, in certain
cases, a majority of the Independent Trustees, approve transactions between the
Trust and the Managing Shareholder, a Trustee, and any of their respective
Affiliates. See "BUSINESS PLAN - Trust Policies with Respect to Certain
Activities - Conflict of Interest Policies." However, there can be no assurance
that these policies will always be successful in eliminating the influence of
such potential conflicts, and, if they are not successful, decisions could be
made that might fail to reflect fully the interests of all Shareholders. While
the potential conflicts of interest cannot be eliminated, the Trust believes
that any actual conflicts will not materially affect the obligation of the
Managing Shareholder and the Board to act in the best interests of the
Shareholders and the Trust. See "POTENTIAL CONFLICTS OF INTEREST."
Unaudited Financial Statements
In making an investment decision in respect of any given property, the
Trust may rely on financial statements covering the operations of the property
which may have been prepared by the current owner or property manager of the
property and which may have not been compiled, reviewed or audited by
independent public accountants or reviewed by counsel to the Managing
Shareholder or the Trust. In any such case, therefore, there will not have been
any independent assessment of any of such financial statements and accordingly
the Trust would be subject to the risk that such financial statements do not
properly reflect the prior operation of the property.
Mortgage Financing Terms
In connection with the Trust's acquisition of an equity interest in a given
property, the Trust may
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assume the seller's obligations under any underlying First Mortgage Loan or
obtain First Mortgage financing in connection with the acquisition. Any such
loan would be secured by the property acquired and may require a "balloon"
payment upon the maturity of its term. The ability of the Trust to repay such
obligation may be dependent on its ability to sell the property or obtain
adequate refinancing at or prior to the maturity date. There is no assurance
that either a sale or replacement financing could be obtained; the Investors
could suffer a complete loss of their investment if neither a sale nor such
replacement financing could be obtained. The ability to obtain refinancing will
be dependent upon general economic conditions, the value of the property and the
financial strength of the Trust. There is no assurance that any such property
would be refinanced upon the maturity of any replacement debt. Failure to obtain
the refinancing necessary to make the foregoing payment when due, or to make any
scheduled payments due with respect to any obligation secured in whole or in
part by the property, could result in a foreclosure and loss of the property,
and the Investors could suffer a complete loss of their investment. See
"BUSINESS PLAN."
Geographic Concentration
The Trust will seek to acquire interests in existing residential properties
located in Florida, Kentucky and Ohio, creating a dependence on demand for
residential apartment units and single-family housing properties in such markets
and increasing the risk that the Trust will be materially adversely affected by
general economic conditions in a single market.
Income Tax Considerations
Unfavorable resolution of any of a number of tax issues could adversely
affect Shareholders. The following is a summary of the principal tax risks of an
investment in the Trust. For a more detailed summary of the Federal income tax
consequences and the tax-related risks of an investment in the Trust, see
"FEDERAL INCOME TAX CONSIDERATIONS." The Trust has not obtained and does not
expect to request a letter ruling from the IRS or an opinion of tax or other
counsel or independent public accountants as to the classification and treatment
of the Trust for federal tax considerations described herein, or any other tax
matters. Prospective Shareholders are advised to consult with and rely upon
their own legal, tax and investment advisor regarding how an investment in the
Trust will affect them.
Adverse Consequences of Failure to Qualify as a REIT
The Trust intends to operate so as to qualify as a REIT under the Code,
commencing with its taxable year ending December 31, 1997. Although the Managing
Shareholder believes that the Trust will be organized and will operate in such a
manner, no assurance can be given that the Trust will be organized or will be
able to operate in a manner so as to qualify or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and others on a quarterly basis) established under highly technical
and complex Code provisions of which there are only limited judicial and
administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Trust's control. For
example, in order to qualify as a REIT, at least 95% of the Trust's gross income
in any year must be derived from qualifying sources and the Trust must pay
distributions to Shareholders aggregating annually at least 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains). The complexity of these provisions and the
applicable Treasury Regulations that have been promulgated under the Code is
greater in the case of a REIT that holds its assets in partnership form (as the
Trust may do if appropriate). No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as REIT or the
federal income tax consequences of such qualification. The Trust has been
advised by tax counsel regarding various issues affecting the Trust's ability to
qualify, and continue to qualify, as a REIT. See "FEDERAL INCOME TAX
CONSIDERATIONS - Taxation of the Trust" and "LEGAL MATTERS." No assurance can be
given that actual operating results will meet the REIT requirements.
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If the Trust were to fail to qualify as a REIT in any taxable year, the
Trust would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its Shareholders. Moreover, unless entitled to relief under
certain statutory provisions, the Trust also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the Trust
available for investment or distribution to Shareholders because of the
additional tax liability to the Trust for the years involved. In addition,
distributions to Shareholders would no longer be required to be made. "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust."
State and Local Taxes
Each Investor may also be liable for state and local income taxes payable
in the state or locality in which the Investor is a resident or doing business
or in a state or locality in which the Trust conducts or is deemed to conduct
business. Thus each Investor may be required to file multiple state income tax
returns as a result of his investment in the Trust. Each prospective Investor is
urged and expected to consult with his personal tax advisor with respect to the
tax consequences connected with an investment in the Trust.
MANAGEMENT
As Managing Shareholder of the Trust, Baron Advisors, Inc. ("Baron
Advisors") will have direct and exclusive discretion in management and control
of the affairs of the Trust, subject to general supervision and review of the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and to prior approval authority of a majority of the Board and a
majority of the Independent Trustees in respect of certain specified actions.
The Corporate Trustee, Baron Properties (an Affiliate of the Managing
Shareholder) will act on the instructions of the Managing Shareholder, and will
not take independent discretionary action on behalf of the Trust.
The Board of the Trust and the Independent Trustees will act only where
their consent and participation is required under the Declaration of the Trust.
See "SUMMARY OF DECLARATION OF TRUST - Control of Operations." The members of
the Board and the Independent Trustees are under a fiduciary duty similar to
that of corporation directors to act in the Trust' best interests and may compel
action by the Managing Shareholder to carry out that duty if necessary, but
ordinarily they have no duty to manage or direct the management of the Trust
outside their enumerated duties.
Although the Managing Shareholder will be in control of the Trust (subject
to the powers and obligations of the Board and the Independent Trustees), it
will have no liability to the Trust or the Investors for losses or liabilities
except in cases of its negligence, misconduct or breach of the Declaration. See
"FIDUCIARY RESPONSIBILITY."
The Trust has no employees and is managed by the Managing Shareholder. The
President, sole director and sole shareholder of the Managing Shareholder and
its employees are compensated by an Affiliate of the Managing Shareholder, and
do not receive compensation directly from the Trust.
Managing Shareholder
Baron Advisors, Inc., the Managing Shareholder of the Trust, was
incorporated in July 1997 as a Delaware corporation. The management of Baron
Advisors has substantial prior experience in and knowledge of the residential
apartment property and single-family housing market and its financing and
experience in the management of investment programs and in directing their
operations. The President, sole director and sole shareholder of Baron Advisors
is Gregory K. McGrath. The Managing Shareholder will be compensated for its
services under the Trust Management Agreement. See " - Trust Management
Agreement." Set forth below is certain information concerning Mr. McGrath and
the other principal
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officer of Baron Capital, Inc. (an Affiliate of the Managing Shareholder) who
may provide services to the Managing Shareholder.
Gregory K. McGrath, age 36, is the President, sole director and sole
shareholder of Baron Advisors and President of the Trust. Mr. McGrath has over
10 years experience in all aspects of the real estate industry, including site
selection and acquisition, arrangement and closing of mortgage financing, and
property acquisition and management. Between January 1993 and June 1994, Mr.
McGrath served as Senior Vice President of Realty Capital, Inc., a Florida
corporation which sponsored real estate limited partnerships. Mr. McGrath is
also the President, sole director and sole shareholder of Baron Real Estate
Services, Inc. ("Baron"), an Ohio corporation headquartered in Cincinnati, Ohio,
which he co-founded in 1989. Under Mr. McGrath's leadership, Baron grew from the
property manager of a single site in Ohio to managing over 40 residential
apartment properties containing over 3,000 units which have a current value in
excess of $100 million, and commercial space. In January 1997, substantially all
of Baron's property management operations were sold to Affirmative Management,
Inc., an Affiliate of Affirmative Equities Company, L.P., a New York City-based
owner, operator and manager of multi-family residential apartment properties.
Mr. McGrath is the President, sole director and sole shareholder of Brentwood
Management, LLP, an Ohio limited liability company which is expected to provide
property management services in respect of properties in which the Trust may
invest. Mr. McGrath is also a principal of TBO Inc., an Ohio corporation which
manages an approximately $100 million real estate portfolio. In addition to the
affiliations described below, Mr. McGrath is also a principal in a number of
other related business entities which are involved in various aspects of the
real estate industry. Mr. McGrath attended Miami University.
Mr. McGrath is also the President, sole director and sole shareholder of
each of 19 Delaware or Florida corporations which is the sole general partner of
one of 19 separate real estate investment limited partnerships organized in
Delaware or Florida since 1994 to invest in real estate located in the
mid-western and southeastern portions of the United States. The name of each
such corporation and the limited partnership sponsored by it are listed on the
last page of Exhibit C hereto. Each of these limited partnerships is currently
offering limited partner interests in private securities offerings and/or has
not commenced operations yet. One of a group of 20 separate Affiliates of the
Managing Shareholder identified below in "PRIOR PERFORMANCE OF AFFILIATES OF
MANAGING SHAREHOLDER" (and in Table I at the beginning of Exhibit C hereto ) is
also the sole general partner of one of 24 additional real estate investment
limited partnerships formed in Florida which have commenced operations. Mr.
McGrath is the President, sole director and sole shareholder of each of such
affiliated corporations. These partnerships have provided financing in respect
of residential apartment properties located in the mid-western and southeastern
portions of the United States. Each of the partnerships has terminated its
private placement offering and invested the net proceeds thereof. Attached
hereto at the beginning of Exhibit C are six tables which summarize certain
information about such offerings, compensation paid to the general partners of
such programs and their Affiliates in connection therewith, operating results of
such programs, the application of net offering proceeds to real estate
investments, and sales of properties.
Michael A. Freeman, age 40, is the Executive Vice President of Baron
Capital, Inc., an Affiliate of the Managing Shareholder. He is responsible for
directing the marketing efforts and all communications to broker-dealers and
investors for Baron Capital, Inc. and its Affiliates. Mr. Freeman served as
Executive Vice President and National Marketing Manager of Realty Capital, Inc.
between 1989 and June 1994. Between 1985 and 1989, Mr. Freeman served as a
regional Vice President of Integrated Resources, Inc. in New York City, where he
was responsible for coordinating the sales and marketing in Florida of real
estate, equipment leasing and venture capital limited partnerships. Prior to
that, Mr. Freeman served as Vice President of IRE Financial Corporation in Coral
Gables, Florida where he was responsible for marketing real estate limited
partnerships in the southeast, mid-west and western portions of the United
States. Mr. Freeman received a Bachelor of Science degree in Business
Administration from the University of Florida.
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The Managing Shareholder will contribute $50,000 to the Trust as an initial
investment in the Trust in exchange for which it will receive one Common Share
for each $10.00 so contributed (5,000 Common Shares). Such Common Shares will be
in addition to the 2,500,000 Common Shares which the Trust is offering for sale
in the Offering.
Trust Management Agreement
The Trust will enter into a Trust Management Agreement with the Managing
Shareholder under which the Managing Shareholder will be obligated to provide
management, administrative and investment advisory services to the Trust from
the commencement of the Offering as set forth in the form of "Trust Management
Agreement," attached hereto as Exhibit B. The services to be rendered will
include, among other things, communicating with and reporting to Investors,
administering accounts, providing to the Trust of office space, equipment and
facilities and other services necessary for the Trust's operation, and
representing the Trust in its relations with custodians, depositories,
accountants, attorneys, brokers and dealers, corporate fiduciaries, insurers,
banks and others, as required. The Managing Shareholder will also be responsible
for determining which real estate investments and non-real estate investments
(including the temporary investment of the Trust's available funds prior to
their commitment to particular real estate investments) the Trust will make and
for making divestment decisions, subject to the provisions of the Declaration.
The Managing Shareholder will be obligated to compensate the personnel and
pay all administrative and service expenses necessary to perform the foregoing
obligations. The Trust will pay all other expenses of the Trust, including
transaction expenses, appraisal costs, expenses of preparing and printing
periodic reports for Investors, the Commission and securities commissions of
applicable states, postage for Trust mailings, Commission and state securities
commission fees, interest, taxes, legal, accounting and consulting fees,
litigation expenses, and other expenses properly payable by the Trust. The Trust
will reimburse the Managing Shareholder for all such Trust expenses paid by it.
As compensation for the Managing Shareholder's performance under the Trust
Management Agreement, beginning ____________ 1, 1997, the Trust will pay the
Managing Shareholder an annual management fee in an amount equal to 1% of the
aggregate subscription price paid for Common Shares in the Offering during the
term of the agreement, payable on a monthly basis.
The Trust Management Agreement has an initial term of one year and may be
extended on a year-to-year basis on approval of (i) the Board or a Majority of
the Shareholders entitled to vote on such matter or (ii) a majority of the
Independent Trustees. By executing and delivering to the Trust the Subscription
Agreement, each Investor will be deemed to have consented to the terms and
conditions of the Trust Management Agreement as set forth in Exhibit B hereto.
The Independent Trustees have responsibility for determining that compensation
payable to the Managing Shareholder under the Trust Management Agreement is
reasonable. The agreement may be terminated without cause or penalty at any time
on 60 days' prior notice by a majority of the Independent Trustees, by a
Majority of the Shareholders entitled to vote on such matter or by the Managing
Shareholder. The agreement may be amended by the parties with the approval (i) a
majority of the Trustees or a Majority of the Shareholders entitled to vote on
such matter and (ii) a majority of the Independent Trustees.
Officers of the Trust
The Declaration provides that the Managing Shareholder will appoint
officers of the Trust who may act on behalf of the Trust and sign documents on
behalf of the Trust as authorized by the Managing Shareholder and who will have
the duties and powers usually applicable to similar officers of a Delaware
corporation in carrying out Trust business. Officers act under the supervision
and control of the Managing Shareholder, which can remove any officer at any
time for any or no reason. Unless otherwise specified by the Managing
Shareholder, the President of the Trust will have full power to act on behalf of
the Trust. Mr. McGrath has been named the President of the Trust. The Managing
Shareholder is expected to appoint a Secretary and Treasurer for the Trust.
Officers of the Trust and officers of the
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Managing Shareholder will be not be paid any compensation by the Trust, but will
be compensated through Affiliates of the Managing Shareholders.
The Board of the Trust and Trustees
As Managing Shareholder of the Trust, Baron Advisors will have direct and
exclusive discretion in management and control of the affairs of the Trust,
subject to general supervision and review of the Independent Trustees and the
Managing Shareholder acting together as the Board of the Trust and to prior
approval authority of the Board and the Independent Trustees in respect of
certain actions specified in the Declaration and described at "SUMMARY OF THE
DECLARATION - Control of Operations."
The Board of the Trust
As described above, the Board of the Trust has general supervisory
authority over the activities of the Managing Shareholder and prior approval
authority in respect of certain actions under the Declaration. A majority of the
members of the Board must be Independent Trustees. The initial Board of the
Trust will be comprised of the Managing Shareholder and two individuals
described below who have agreed to serve as the initial Independent Trustees
upon the completion of the Offering. Each member of the Board must have adequate
experience in the residential real estate industry. The term of each member of
the Board is one year. Each member of the Board (other than one who is elected
to fill the unexpired term of another member no longer serving) must be elected
by vote of the Shareholders entitled to vote on such matter at the annual
meeting of Shareholders. Mid-term vacancies may be filled by a majority of the
remaining members of the Board. Each member may serve an unlimited number of
terms. The Board may establish such committees as it deems appropriate,
provided, the majority of the members of any such committee are Independent
Trustees.
The Board will meet at least annually, and, except to the extent
conflicting with the Delaware Act or the Declaration, the law of Delaware
governing meetings of directors of corporations shall govern such meetings,
voting and consents by the members of the Board. The Board may review the
compensation payable to the Independent Trustees and other members of the Board
(other than the Managing Shareholder, which will not be compensated for serving
on the Board) annually and may increase or decrease it as the Board deems
reasonable. Without prior Board approval, the Trust may not pay compensation to
any Independent Trustee or other member of the Board for consulting services
provided to the Trust. Any member of the Board may resign by giving notice to
the Trust, and may be removed (i) for cause by the action of at least two-thirds
of the remaining members of the Board or (ii) with or without cause by action of
the holders of at least two-thirds of the Shares entitled to vote thereon.
Independent Trustees
The Trust is required to have at least two Independent Trustees, and such
Independent Trustees must constitute a majority of the Board. To qualify to
serve the Trust as an Independent Trustee, a person may not be associated or
have been associated within the last two years with the Managing Shareholder (or
any successor advisor to the Trust). A person is deemed to be associated with
the Managing Shareholder if he (i) owns an interest in, is employed by, or is an
officer, director or trustee of the Managing Shareholder or any of its
Affiliates; (ii) performs services, other than as an Independent Trustee, for
the Trust; (iii) is a trustee for more than three REITs organized or advised by
the Managing Shareholder; or (iv) has any material business or professional
relationship with the Managing Shareholder or any of its Affiliates.
The term of each Independent Trustee is one year, and each Independent
Trustee (other than one who has been elected to fill the unexpired term of
another Independent Trustee who no longer serves in such capacity) must be
elected by a vote of the Shareholders. Mid-term vacancies may be filled by a
majority of the remaining members of the Board. Any person may serve an
unlimited number of terms. An Independent Trustee may resign by giving notice to
the Trust, and may be removed (i) for cause by the
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action of at least two-thirds of the remaining members of the Board or (ii) with
or without cause by action of the holders of at least two-thirds of the Shares
entitled to vote thereon. The Independent Trustees are not obligated to persons
other than Shareholders for the obligations of the Trust. See "SUMMARY OF
DECLARATION OF TRUST - Liability and Indemnification."
Described below are James H. Bownas and Robert S. Geiger, who have agreed
to serve as the initial Independent Trustees of the Trust upon the completion of
the Offering. Set forth below is certain information concerning these
individuals, who are not otherwise affiliated with the Trust, the Managing
Shareholder or any of their respective Affiliates. In performing their
responsibilities to the Trust, the Independent Trustees are under a fiduciary
duty and obligation to act in the best interests of the Trust. In interpreting
the scope of this obligation, the Independent Trustees will have the
responsibilities of, and will be entitled to, the defenses of directors of a
Delaware corporation. The Trust intends to pay the initial Independent Trustees
annual compensation of $5,000 for their services and reimburse them for expenses
incurred in attending Board meetings.
James H. Bownas, age 49, is a principal in Gamble Hartshorn Alden Co. LPA,
a Columbus, Ohio law firm with a general practice. Mr. Bownas's practice is
concentrated in securities, real estate, taxation, corporate and estate
planning. Between 1989 and January 1996, Mr. Bownas served as General Counsel,
Vice President and Secretary of Cardinal Realty Services, Inc. ("Cardinal")
(formerly known as Cardinal Industries, Inc.), a publicly traded company
headquartered in Reynoldsburg, Ohio which has sponsored numerous real estate
investment limited partnerships. At Cardinal, Mr. Bownas developed significant
experience in the syndication of real estate investment limited partnerships,
negotiated the resolution of over $2 billion of creditors' claims in connection
with the bankruptcy reorganization of Cardinal Industries, Inc., and coordinated
the transition of Cardinal Industries, Inc. from a bankruptcy creditor to a
successful publicly traded company. Since 1995, Cardinal has engaged in several
arms-length transactions (none of which represented a material portion of
Cardinal's assets, liabilities, revenues or expenditures) with Affiliates of the
Managing Shareholder pursuant to which multi-family real estate was sold to,
purchased from and managed by and for such entities. Prior to 1989, Mr. Bownas
served as General Counsel and Vice President of Alliance Corporate Resources,
Inc., Dublin, Ohio, a third party equipment lessor, and practiced law at private
law firms. Mr. Bownas is a member of the American Bar Association, the Ohio
State Bar Association and the Columbus Bar Association. Mr. Bownas earned a law
degree from Harvard University in 1971 and a Bachelor of Science degree from
Xavier University in 1968. He resides in Columbus, Ohio.
Since 1986, Robert S. Geiger, age 46, has been managing director of the law
firm of Geiger Kasdin Heller Kuperstein Chames & Weil, P.A., a Miami, Florida
law firm with a general practice, and its predecessor firms. Mr. Geiger's
practice is concentrated in complex commercial and real property litigation,
insolvency law, business reorganizations and banking law. He serves as general
counsel for national, regional and local corporations engaged in a wide range of
business activities, including regulated industry matters. Mr. Geiger's firm has
performed and is expected to continue to perform legal services for Affiliates
of the Managing Shareholder and may perform legal services for the Trust in
connection with the purchase and sale of real estate assets and other related
activities. Compensation received by the firm for such services has not
represented a material portion of the firm's revenues. Prior to 1986, Mr. Geiger
practiced law at private law firms. Mr. Geiger is a member of the Panel of
Arbitrators, American Arbitration Association, Dade County and American Bar
Associations, The Florida Bar (member, Corporation, Business and Banking Law),
and the International Bar Association. Mr. Geiger earned a law degree from the
University of Florida in 1974 and a Bachelor of Arts degree from Hobart College
in 1972.
Corporate Trustee
The Corporate Trustee of the Trust is Baron Capital Properties, Inc.
("Baron Properties"), a Delaware corporation formed in July 1997 and an
Affiliate of the Managing Shareholder. Legal title to Trust Property will be in
the name of the Trust if possible or Baron Properties as trustee. Baron
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Properties, as Corporate Trustee of the Trust, will act on the instructions of
the Managing Shareholder, and will not take independent discretionary action on
behalf of the Trust. The Corporate Trustee will not be compensated for its
services, but will be reimbursed for its out-of-pocket expenses in serving in
such capacity. Baron Properties is expected to be a trustee of other similar
entities that may organized by the Managing Shareholder, Baron Capital, Inc.,
and any of their Affiliates. The President, sole director and sole stockholder
of Baron Properties is Gregory K. McGrath. See " - Managing Shareholder." The
principal office of Baron Properties is at 1105 North Market Street, Suite 1300,
Wilmington, Delaware 19899. The Corporate Trustee is not obligated to persons
other Shareholders for the obligations of the Trust. See "SUMMARY OF THE
DECLARATION."
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PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER
This section provides certain historical information regarding 43 private
limited partnerships sponsored by Affiliates of the Managing Shareholder.
Prospective Investors should be aware that: (i) the inclusion of the following
information and information set forth in the tables which comprise Exhibit C
hereto does not imply that the Trust will experience results similar to those
reflected below and in the tables or that Investors who acquire Common Shares in
this Offering will receive returns, if any, comparable to those experienced by
investors in such limited partnerships; (ii) Investors who acquire Common Shares
in this Offering will not acquire any ownership interest in any of the prior
limited partnerships; and (iii) the following information and information set
forth in such tables is given solely to enable prospective Investors to evaluate
the experience of the Managing Shareholder and its Affiliates.
Gregory K. McGrath, the President, sole director and sole stockholder of
the Managing Shareholder, has substantial experience in the real estate
industry. See "MANAGEMENT." Since 1994, Affiliates of the Managing Shareholder
and of Mr. McGrath have sponsored 43 prior real estate investment limited
partnership offerings with investment objectives similar to those of the Trust.
The limited partner interests in these prior partnerships were offered without
registration under the Securities Act of 1933, as amended, in reliance upon the
non-public offering exemption from registration. As of July 15, 1997, the prior
partnerships had raised aggregate capital contributions of approximately
$29,105,000 from approximately 1,181 investors (including investors who have
invested in two or more programs).
In September 1994, Baron Capital I, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,050 units of limited partner
interest in Tampa Capital Income Fund, Ltd., a Florida limited partnership, at a
purchase price of $1,000 per unit (maximum gross proceeds of $1,050,000). The
offering was fully subscribed and closed in August 1995. The partnership
invested the net proceeds of its offering to acquire title to an 83-unit
residential apartment community located in Brandon, Florida. The partnership
sold the property in February 1997 in exchange for cash and a purchase money
mortgage taken back by the partnership.
In November 1994, Baron Capital II, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,614 units of limited partner
interest in Florida Capital Income Fund, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $807,000). The
offering was fully subscribed and closed in April 1995. The partnership invested
the net proceeds of its offering to acquire title to a 77-unit residential
apartment community located in Port Orange, Florida.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Appreciation Fund I, Ltd.,
a Florida limited partnership, which in the first half of 1994 sold 205 units of
limited partnership interest in the partnership (gross proceeds of $205,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to an eight-unit residential apartment community located
in Daytona Beach, Florida.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Advantage Fund I, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 940 units of
limited partnership interest in the partnership (gross proceeds of $940,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 26-unit residential apartment community located in
Daytona Beach, Florida.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Realty Opportunity Income Fund VIII,
Ltd., a Florida limited partnership, which in the first half of 1994 sold 944
units of limited partnership interest in the partnership (gross proceeds of
$944,000) and invested the net proceeds of its offering to acquire a beneficial
interest in a land trust owning title to a 30-unit residential apartment
community located in Daytona Beach, Florida.
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In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Capital Income Fund II, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 1,840 units of
limited partnership interest in the partnership (gross proceeds of $920,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 52-unit residential apartment community located in
Daytona Beach, Florida.
In April 1995, Baron Capital VI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 626 units of limited partner
interest in Florida Tax Credit Fund, Ltd., a Florida limited partnership, at a
purchase price of $1,000 per unit (maximum gross proceeds of $626,000). The
offering was fully subscribed and closed in May 1996. The partnership invested
the net proceeds of its offering to acquire an equity interest in a limited
partnership that owns title to a 78-unit residential apartment community located
in Tampa, Florida.
In May 1995, Baron Capital III, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 800 units of limited partner
interest in Florida Opportunity Income Partners, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
60-unit residential apartment community located in Daytona Beach, Florida.
In June 1995, Baron Capital VII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Florida Capital Income Fund III, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
48-unit residential apartment community located in Jacksonville, Florida.
In June 1995, Baron Capital VIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Homebuyer Mortgage Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in May 1996. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of approximately 200 single-family home sites
located in Louisville, Kentucky.
In August 1995, Baron Capital V, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 3,640 units of limited partner
interest in Florida Capital Income Fund IV, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,820,000). The
offering was fully subscribed and closed in June 1996. The partnership invested
the net proceeds of its offering to acquire title to a 144-unit residential
apartment community located in St. Petersburg, Florida.
In September 1995, Baron Capital X, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in GSU Stadium Student Apartments, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in February 1996. The partnership
invested the net proceeds of its offering to acquire title to a 60-unit student
residential apartment community located in Statesboro, Georgia.
In November 1995, Baron Capital XI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,300 units of limited partner
interest in Florida Income Growth Fund V, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,150,000). The
offering was fully subscribed and closed in February 1997. The partnership
invested the net proceeds of its offering to acquire title to a 70-unit
residential apartment community located in Orlando, Florida.
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In December 1995, Baron Capital XII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 575 units of limited partner
interest in Brevard Mortgage, Ltd., a Florida limited partnership, at a purchase
price of $1,000 per unit (maximum gross proceeds of $575,000). The offering was
fully subscribed and closed in April 1996. The partnership invested the net
proceeds of its offering to acquire a second mortgage loan which is secured by a
64-unit residential apartment community located in Melbourne, Florida.
In December 1995, Baron Capital XV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund II, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in July
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of 39 single-family home sites
located in Louisville, Kentucky.
In January 1996, Baron Capital XVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,500 units of limited partner
interest in Clearwater First Time Home Buyer Program, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$750,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to provide subordinated
mortgage financing to a developer for the acquisition of 8.2 acres of land
located in Clearwater, Florida for a 195-unit residential condominium
development.
In March 1996, Baron Capital IX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 700 units of limited partner
interest in Lamplight Court of Bellefontaine Apartments, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to acquire debt and equity
interests in a limited partnership that owns title to an 80-unit residential
apartment community located in Bellefontaine, Ohio.
In April 1996, Baron Capital XXVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,800 units of limited partner
interest in Baron Strategic Vulture Fund I, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $900,000). The
offering was fully subscribed and closed in October 1996. The partnership
invested the net proceeds of its offering to acquire notes receivable associated
with an 81-unit residential apartment community located in Tampa, Florida.
In April 1996, Baron Capital XXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund III, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in September
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of approximately 100 condominium
units located in Independence, Kentucky.
In May 1996, Baron Capital XXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund IV, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in November
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of approximately 82 single-family
homes in Louisville, Kentucky.
In May 1996, Baron Capital XXIX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund V, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in September 1996. The
partnership invested
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the net proceeds of its offering to make a subordinated mortgage loan to the
developer of the second phase of an 84-unit residential condominium development
in Independence, Kentucky.
In May 1996, Baron Capital XXXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Strategic Investment Fund II, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in October 1996. The
partnership invested the net proceeds of its offering to acquire an equity
interest in a 72-unit residential apartment community located in Anderson,
Indiana.
In May 1996, Baron Capital XXXII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in December 1996. The
partnership invested the net proceeds of its offering to acquire notes
receivable associated with a 68-unit residential apartment community located in
Orlando, Florida.
In June 1996, Baron Capital XXIX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,500 units of limited partner
interest in Baron Income Property Mortgage Fund VI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$750,000). The offering was fully subscribed and closed in July 1997. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of a 150-unit apartment community located in
Independence, Kentucky.
In July 1996, Baron Capital XXXIV, an Affiliate of the Managing
Shareholder, sponsored an offering of up to 620 units of limited partner
interest in Florida Tax Credit Fund II, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $310,000). The
offering has raised $222,250 as of July 15, 1997 and continues in progress. The
partnership intends to invest the net proceeds of its offering to acquire title
to a 47-unit residential apartment community located in Bartow, Florida.
In October 1996, Baron Capital XVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Strategic Investment Fund IV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $528,000 as of July 15, 1997 and continues
in progress. The partnership intends to invest the net proceeds of its offering
to make a subordinated mortgage loan secured by a 73-unit residential apartment
community located in Tampa, Florida.
In October 1996, Baron Capital XXXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,400 units of limited partner
interest in Baron Mortgage Development Fund VII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in July 1997. The
partnership invested the net proceeds of its offering to make a second mortgage
loan to the developer of an 88-unit residential apartment community in
Alexandria, Kentucky.
In October 1996, Baron Capital XXXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,300 units of limited partner
interest in Baron Mortgage Development Fund VIII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$650,000). The offering has raised $259,000 as of July 15, 1997 and continues in
progress. The partnership intends to invest the net proceeds of its offering to
make a second mortgage loan to the developer of a 114-unit residential apartment
community located in Louisville, Kentucky.
In October 1996, Baron Capital XL, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund V, Ltd., a
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Florida limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $1,200,000). The offering was fully subscribed and closed in June
1997. The partnership invested the net proceeds of its offering to purchase
receivables associated with a 60-unit residential apartment community located in
Titusville, Florida.
In November 1996, Baron Capital XXXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund VI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in April 1997. The
partnership has made a temporary advance of funds to two affiliated programs and
intends to apply repayment proceeds to acquire an equity interest in a 91-unit
residential apartment community in Orlando, Florida.
In November 1996, Baron Capital XLI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 3,800 units of limited partner
interest in Baron Strategic Investment Fund VII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,900,000). The offering has raised $1,686,800 as of July 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to purchase receivables associated with a 36-unit residential apartment
community located in Cocoa Beach, Florida.
In November 1996, Baron Capital XLIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering has raised $739,500 as of July 15, 1997 and continues in
progress. The partnership intends to invest the net proceeds of its offering to
make a subordinated mortgage loan to the developer of approximately 200
condominium units in Cincinnati, Ohio.
In December 1996, Baron Capital XLII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Development Fund IX, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $800,000). The
offering has raised $799,724 as of July 15, 1997 and continues in progress. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of a 310 single-family home site located in
Louisville, Kentucky.
In February 1997, Baron Capital XXXIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund XI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering has raised $795,800 as of July 15, 1997 and continues in
progress. The partnership intends to invest the net proceeds of its offering to
make a subordinated mortgage loan to the developer of 152 affordable
single-family home sites in Cincinnati, Ohio.
In February 1997, Baron Capital XLIV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund VIII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering has raised $797,991 as of July 15, 1997 and continues
in progress. The partnership intends to invest the net proceeds of its offering
to acquire notes receivable associated with a 58-unit residential apartment
community located in Cocoa, Florida.
In March 1997, Baron Capital XLVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XIV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000. The offering has raised $594,750 as of July 15, 1997 and continues
in progress. The partnership intends to invest the net proceeds of its offering
to make a subordinated mortgage loan to the developer of a 396-unit luxury
residential apartment community in Cincinnati, Ohio.
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In April 1997, Baron Capital XLVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering had not raised any funds as of July 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a subordinated mortgage loan to the developer of a 111,000
square-foot shopping center located in Burlington, Kentucky.
In May 1997, Baron Capital XLVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,400 units of limited partner
interest in Baron Mortgage Development Fund XV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$700,000). The offering has raised $35,000 as of July 15, 1997 and continues in
progress. The partnership intends to invest the net proceeds of its offering to
make a subordinated mortgage loan to the developer of an 88-unit residential
apartment community located in Alexandria, Kentucky.
In May 1997, Baron Capital LX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron First Mortgage Development Fund XVI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering had not raised any funds as of July 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a first mortgage loan to the developer of approximately 200
entry-level single-family homes in Independence, Kentucky.
In May 1997, Baron Capital LXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron First Mortgage Development Fund XVII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has not raised any funds as of July 15, 1997 and
continues in progress. The partnership intends to invest the net proceeds of its
offering to make a first mortgage loan to the developer of approximately 200
entry-level single-family homes in Clermont County, Ohio.
In June 1997, Baron Capital LXII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund IX, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering has raised $81,500 as of July 15, 1997 and continues
in progress. The partnership has not yet identified for investment or committed
to invest any net offering proceeds.
In June 1997, Baron Capital LXIV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering has raised $146,000 as of July 15, 1997 and continues
in progress. The partnership has not yet identified for investment or committed
to invest any net offering proceeds.
In July 1997, Baron Capital LXV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund XVIII, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering has raised $81,750 as of July 15, 1997 and continues in
progress. The partnership intends to invest the net proceeds of its offering to
make a subordinated mortgage loan to the developer of a 150-unit residential
apartment community in Independence, Kentucky.
There have been no major adverse business developments or conditions
experienced to date by any of the prior limited partnerships that would be
material to prospective Investors in the Trust. Prospective Investors should
note that certain of the prior limited partnerships described above and in the
tables comprising Exhibit C hereto were only recently organized, that certain
partnerships have only recently commenced operations, and that others are still
in the development stage. Accordingly, it would be premature to draw conclusions
based upon the current stages of operations or development of certain of the
prior limited partnerships.
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Exhibit C sets forth certain historical information relating to the
offerings of 24 of such prior limited partnerships, compensation paid to the
general partners of such partnerships and their Affiliates in connection
therewith, operating results of such partnerships, the application of net
offering proceeds to real estate investments, sales of properties and results of
completed programs. Exhibit C is comprised of the following tables:
Table I Managing Shareholder and Affiliates Experience in Raising and
Investing Funds
Table II Compensation to Managing Shareholder Affiliates from Prior Funds
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Table VI Acquisition of Properties by Programs
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FEDERAL INCOME TAX CONSIDERATIONS
The Trust intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the Code.
No assurance can be given, however, that such requirements will be met. The
following is a summary of the Federal income tax considerations for the Trust
and its Shareholders with respect to the treatment of the Trust as a REIT. Since
these provisions are highly technical and complex, each prospective purchaser of
the Trust's Common Shares is urged to consult his own tax advisor with respect
to the Federal, state, local, foreign and other tax consequences of the
purchase, ownership and disposition of the Common Shares.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Trust, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to Shareholders. This treatment
substantially eliminates the "double taxation" (i.e., at both the corporate and
Shareholder levels) that generally results from the use of corporations.
If the Trust fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and its
Shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Trust could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its Shareholders would be reduced or eliminated.
The Managing Shareholder of the Trust currently expects that the Trust will
operate in a manner that permits it to elect, and that it will elect, REIT
status for the taxable year ending December 31, 1997, and in each taxable year
thereafter. There can be no assurance, however, that this expectation will be
fulfilled, since qualification as a REIT depends on the Trust continuing to
satisfy numerous asset, income and distribution tests described below, which in
turn will be dependent in part on the Trust's operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of Federal income taxation that may be relevant to a prospective
Shareholder in light of his particular circumstances or to certain types of
Shareholders (including insurance companies, tax-exempt entities, financial
institutions, broker-dealers, foreign corporations and person who are not
citizens or residents of the United States) subject to special treatment under
the Federal income tax laws.
Taxation of the Trust
General. In any year in which the Trust qualifies as a REIT, in general it
will not be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to Shareholders. The Trust may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualification as a REIT, the Trust may also be subject
to taxation in certain other circumstances. If the Trust should fail to satisfy
either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Trust fails either the 75% or the 95% test, multiplied by a
fraction intended to reflect the Trust's profitability. The Trust will also be
subject to a tax of 100% on net income from any "prohibited transaction" as
described below, and if the Trust has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure
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property at the highest corporate rate. In addition, if the Trust should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior years, the
Trust would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. For taxable years beginning
after August 5, 1997, the 1997 Act permits a REIT to elect to retain and pay
income tax on net long-term capital gains it received during the tax year. Thus,
if the Trust made this election, the Shareholders would include in their income
as long-term capital gains their proportionate share of the undistributed
long-term capital gains as designated by the Trust. Each Shareholder would be
deemed to have paid such Shareholder's share of the tax, which would be credited
or refunded to the Shareholder. The Trust may also be subject to the corporate
alternative minimum tax, as well as tax in certain situations not presently
contemplated. The Trust will use the calendar year both for Federal income tax
purposes, as is required of a newly organized REIT, and for financial reporting
purposes.
In order to qualify as a REIT, the Trust must meet, among others, the
following requirements:
Stock Ownership Tests. The Trust's Shares must be held by a minimum of 100
persons for at least 335 days in each taxable year (or a proportional number of
days in any short taxable year). In addition, at all times during the second
half of each taxable year, no more than 50% in value of the Shares of the Trust
may be owned, directly or indirectly and by applying certain constructive
ownership rules, by five or fewer individuals, which for this purpose includes
certain tax-exempt entities. For purposes of this test, any Shares held by a
qualified domestic pension or other retirement trust will be treated as held
directly by its beneficiaries in proportion to their actuarial interest in such
trust rather than by such trust. Under the 1997 Act, for taxable years beginning
after August 5, 1997, if the Trust complies with the Treasury regulations for
ascertaining its ownership and did not know, or have reason to know, that more
than 50% in value of its outstanding Shares were held, actually or
constructively, by five or fewer individuals, then the Trust will be treated as
meeting such requirement. These stock ownership requirements need not be met
until the second taxable year of the Trust for which a REIT election is made.
In order to ensure compliance with the foregoing stock ownership tests, the
Trust has placed certain restrictions on the transfer of its Shares to prevent
additional concentration of share ownership. Moreover, to evidence compliance
with these requirements, under Treasury regulations the Trust must maintain
records which disclose the actual ownership of its outstanding Shares. In
fulfilling its obligations to maintain records, the Trust must and will demand
written statements each year from the record holders of designated percentages
of its Shares disclosing the actual owners of such Shares (as prescribed by
Treasury regulations). A list of those persons failing or refusing to comply
with such demand must be maintained as a part of the Trust's records. A
Shareholder failing or refusing to comply with the Trust's written demand must
submit with his tax return a similar statement disclosing the actual ownership
of Shares and certain other information. In addition, the Declaration of Trust
for the Trust provides restrictions regarding the transfer of its Shares that
are intended to assist the Trust in continuing to satisfy the stock ownership
requirements. See "CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and
Transfer."
Asset Tests. At the close of each quarter of the Trust's taxable year, the
Trust must satisfy two tests relating to the nature of its assets (determined in
accordance with generally accepted accounting principles). First, at least 75%
of the value of the Trust's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, government securities and qualified temporary investments.
Second, although the remaining 25% of the Trust's assets generally may be
invested without restriction, securities in this class may not exceed (i) in the
case of securities of any one non-government issuer, 5% of the value of the
Trust's total assets or (ii) 10% of the outstanding voting securities of any one
such issuer. Where the Trust forms or acquires an equity interest in one or more
partnerships ("Operating Partnerships") in which all or a portion of its real
estate assets might be held and its operations might be conducted, it will be
deemed to own a proportionate share of the
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partnership's assets. See "FEDERAL INCOME TAX CONSIDERATIONS - Tax Aspects of
the Trust's Investments in Partnerships General." Accordingly, the Trust's
investment in any properties through its interest in one or more Operating
Partnerships would be intended to constitute an investment in qualified assets
for purposes of the 75% asset test.
Gross Income Tests. There are currently three separate percentage tests
relating to the sources of the Trust's gross income which must be satisfied for
each taxable year. For purposes of these tests, if the Trust invests in one or
more Operating Partnerships, the Trust will be treated as receiving its share of
the income and loss of such partnerships, and the gross income of the
partnerships will retain the same character in the hands of the Trust as it has
in the hands of the respective partnerships. See "FEDERAL INCOME TAX
CONSIDERATIONS - Tax Aspects of the Trust's Investments in Partnerships -
General" below. The three tests are as follows:
1. The 75% Test. At least 75% of the Trust's gross income for the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (except as modified below); (ii)
interest on obligations secured by mortgages on, or interests in, real
property; (iii) gains from the sale or other disposition of interests in
real property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Trust's trade
or business ("dealer property"); (iv) dividends or other distributions on
shares in other REITs, as well as gain from the sale of such shares; (v)
abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure
property"); and (vii) commitment fees received for agreeing to make loans
secured by mortgages on real property or to purchase or lease real
property.
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test
described below) if the Trust, or an owner of 10% or more of the Trust,
directly or constructively owns 10% or more of such tenant. In addition, if
rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will
not qualify as rents from real property. Moreover, an amount received or
accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based
in whole or in part on the income or profits of any person, although an
amount received or accrued generally will not be excluded from "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the Trust generally must not operate or manage
the property or furnish or render services to tenants, other than through
an "independent contractor" from whom the Trust derives no income, except
that the "independent contractor" requirement does not apply to the extent
that the services provided by the Trust are "usually or customarily
rendered" in connection with the rental of space for occupancy only, or are
not otherwise considered "rendered to the occupant for his convenience."
For taxable years beginning after August 5, 1997, a REIT is permitted to
render a de minimis amount of impermissible services to tenants, or in
connection with the management of property, and still treat amounts
received with respect to that property as rent. The value of the
impermissible services may not exceed one percent of the gross income from
the property.
Brentwood Management, LLC ("Brentwood"), an Affiliate of the Managing
Shareholder which is wholly owned by the sole stockholder of the Managing
Shareholder (which is expected to satisfy the independent contractor
standard), is expected to perform property management services in respect
of properties in which the Trust acquires an interest. The Trust believes
that the services to be provided by Brentwood on such properties will be of
the type usually or customarily rendered in connection with the rental of
space for occupancy only, and therefore, that the provision of such
services will not cause the rents received with respect to such properties
to fail to qualify as rents from real property for purposes of the 75% and
the 95% gross income
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tests. The Trust intends to monitor the services provided by Brentwood as
property management agent as well as those provided by managers on other
properties in which it owns an interest.
2. The 95% Test. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Trust's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest, or gains from the sale or other disposition of
Shares or other securities that are not dealer property. Dividends and
interest on any obligations not collateralized by an interest in real
property are included for purposes of the 95% test, but not for purposes of
the 75% test.
For purposes of determining whether the Trust complies with the 75%
and 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a
sale of property if such property is held by the Trust for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made thereto)
are satisfied. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the
Trust - General" and " - Tax Aspects of the Trust's Investments in
Partnerships - Sale of Trust Properties."
The Trust believes that, for purposes of both the 75% and 95% gross
income tests, its investment in properties directly or through one or more
Operating Partnerships will in major part give rise to qualifying income in
the form of rents, and that gains on sales of properties, or of the Trust's
interest in an Operating Partnership, generally will also constitute
qualifying income. The Trust intends to closely monitor its non-qualifying
income and anticipates that any non-qualifying income on its investments
and activities will not result in the Trust failing either the 75% or 95%
gross income test.
Even if the Trust fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if: (i) the Trust's
failure to comply was due to reasonable cause and not to willful neglect;
(ii) the Trust reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and (iii)
any incorrect information on this schedule is not due to fraud with intent
to evade tax. If these relief provisions apply, however, the Trust will
nonetheless be subject to a 100% tax on the greater of the amount by which
it fails either the 75% or 95% gross income test, multiplied by a fraction
intended to reflect the Trust's profitability.
3. The 30% Test. The Trust must derive less than 30% of its gross
income for each taxable year from the sale or other disposition of (i) real
property held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities (including an interest
rate swap or cap agreement) held for less than one year; and (iii) property
in a prohibited transaction. The Trust does not anticipate that it will
have difficulty in complying with this test. The 30% test has been repealed
for taxable years beginning after August 5, 1997.
Annual Distribution Requirements. In order to qualify as a REIT, the Trust
is required to distribute dividends (other than capital gain dividends) to its
Shareholders each year in an amount at least equal to (A) the sum of (i) 95% of
the Trust's REIT taxable income (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before the Trust
timely files its tax return for such year and if paid on or before the first
regular dividend payment after such declaration. To the extent that the Trust
does not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its REIT taxable income, as adjusted, it will be subject to
tax on the undistributed amount at regular capital gains or ordinary corporate
tax rates, as
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the case may be. For taxable years beginning after August 5, 1997, the 1997 Act
permits a REIT to elect to retain and pay income tax on net long-term capital
gains it received during the tax year. Thus, if the Trust made this election,
the Shareholders would include in their income as long-term capital gains their
proportionate share of the undistributed long-term capital gains as designated
by the Trust. Each Shareholder would be deemed to have paid such Shareholder's
share of the tax, which would be credited or refunded to the Shareholder.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Declaration authorizes the Managing
Shareholder of the Trust to take such steps as may be necessary to cause any
Operating Partnerships in which the Trust may own an interest to distribute to
its partners an amount sufficient to permit the Trust to meet these distribution
requirements. It is possible that the Trust may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement, due to timing
differences between the actual receipt of income and actual payment of expenses,
on the one hand, and the inclusion of such income and deduction of such expenses
in computing the Trust's REIT taxable income, on the other hand; due to an
Operating Partnership's inability to control cash distributions with respect to
those properties as to which it does not have decision making control; or for
other reasons. To avoid any problem with the 95% distribution requirement, the
Trust will closely monitor the relationship between its REIT taxable income and
cash flow and, if necessary, intends to borrow funds (or cause any applicable
Operating Partnerships or other Affiliates to borrow funds) in order to satisfy
the distribution requirement. However, there can be no assurance that such
borrowing would be available at such time.
If the Trust fails to meet the 95% distribution requirement as a result of
an adjustment to the Trust's tax return by the Internal Revenue Service (the
"Service"), the Trust may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
Failure to Qualify. If the Trust fails to qualify for taxation as a
REIT in any taxable year and the relief provisions do not apply, the Trust will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to Shareholders in any
year in which the Trust fails to qualify as a REIT will not be deductible by the
Trust, nor generally will they be required to be made under the Code. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to Shareholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Trust also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
Tax Aspects of the Trust's Investments in Partnerships
General. The Trust may hold an interest in one or more Operating
Partnerships in which all or a portion of its real estate assets might be held
and its real estate operations might be conducted. See "BUSINESS PLAN." In
general, a partnership is a "pass-through" entity which is not subject to
Federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. If the Trust does hold an interest
in one or more Operating Partnerships, it will include its proportionate share
of the foregoing partnership items for such partnerships for purposes of the
various REIT gross income tests and in the computation of its REIT taxable
income. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust -
General" and " - Gross Income Tests."
Accordingly, any resultant increase in the Trust's REIT taxable income from
its interest in an Operating Partnership (whether or not a corresponding cash
distribution is also received from the Operating Partnership) will increase its
distribution requirements (see "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of
the Trust - Annual Distribution Requirements"), but will not be subject
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to Federal income tax in the hands of the Trust provided that an amount equal to
such income is distributed by the Trust to its Shareholders. Moreover, for
purposes of the REIT asset tests (see "FEDERAL INCOME TAX CONSIDERATIONS -
Taxation of the Trust - Asset Tests"), the Trust will include its proportionate
share of assets held by any Operating Partnerships.
Entity Classification. If the Trust holds an interest in one or more
Operating Partnerships, special tax considerations will arise, including the
possibility of a challenge by the Service of the status of a particular
Operating Partnership as a partnership (as opposed to an association taxable as
a corporation for Federal income tax purposes). If an Operating Partnership were
to be treated as an association, it would be taxable as a corporation and
therefore subject to an entity-level tax on its income. In such a situation, the
character of the Trust's assets and items of gross income would change, which
would preclude the Trust from satisfying the REIT asset tests and the REIT gross
income tests (see "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust -
Asset Tests" and " - Gross Income Tests"), which in turn would prevent the Trust
from qualifying as a REIT. (See "FEDERAL INCOME TAX CONSIDERATIONS Taxation of
the Trust - Failure to Qualify" above, for a discussion of the effect of the
Trust's failure to meet such tests.)
Tax Allocations with Respect to Trust Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic arrangements among the partners. The
utilization of an Operating Partnership by the Trust for its real estate
operations may include contributions of appreciated property by the seller of
the property in exchange for a limited partner interest in the partnership.
Consequently, in such cases, the partnership agreement that would govern the
relationship between the Trust (which would serve as the general partner) and
the limited partner would require certain allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, in such cases, the seller as a contributor of one or more
properties or interests therein would be allocated lower amounts of depreciation
deductions for tax purposes and increased taxable income and gain on sale by the
particular Operating Partnership on the contributed properties. This would tend
to eliminate the Book-Tax Difference over the life of the Operating Partnership.
However, the special allocation rules of Section 704(c) do not always entirely
rectify the Book-Tax Difference on an annual basis or with respect to a specific
taxable transaction such as a sale, and accordingly variations from normal
Section 704(c) principles could arise.
Treasury regulations under Section 704(c) of the Code were recently issued
in proposed form by the Service. The proposed regulations, if ultimately adopted
in their present form, would provide partnerships with a choice of several
methods of accounting for Book-Tax Differences, including retention of the
method under current law. The rules of the proposed regulations, in their
current form, would apply only to contributions of property to a partnership
after the adoption and publication of the regulations in final form. It is
uncertain whether, and in what form, the regulations under Section 704(c) will
ultimately be adopted, or what the effective date of such regulations will be.
Accordingly, it is uncertain what impact, if any, the proposed regulations would
have on the Trust and any Operating Partnership it may form in connection with
the acquisition of an interest in a property.
With respect to any property purchased by an Operating Partnership
subsequent to the admission of the Trust to the Operating Partnership, in
general, such property would initially have a tax basis equal to its fair market
value and Section 704(c) of the Code will not apply.
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Sale of Trust Properties. The Trust's share of any gain realized by an
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust -
General" and " - Gross Income Tests - The 95% Test." Under existing law, whether
property is dealer property is a question of fact that depends on all the facts
and circumstances with respect to the particular transaction. Any Operating
Partnership utilized by the Trust for its real estate operations would be
expected to hold properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, owning, operating and
developing the properties, and to make such occasional sales of the properties
as are consistent with the Trust's investment objectives. Based upon the Trust's
investment objectives, the Trust believes that overall, properties acquired by
it or an Operating Partnership utilized by it should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
would not be material.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Trust qualifies
as a REIT, distributions made to the Trust's taxable domestic Shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Trust's actual net
capital gain for the taxable year) without regard to the period from which the
Shareholder has held its Common Shares. However, corporate Shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. To the extent that the Trust makes distributions in excess of current
and accumulated earnings and profits, these distributions are treated first as a
tax-free return of capital to the Shareholders, reducing the tax basis of a
Shareholder's Common Shares by the amount of such excess distribution (but not
below zero), with distributions in excess of the Shareholder's tax basis being
taxed as capital gains (if the Common Shares is held as a capital asset). In
addition, any dividend declared by the Trust in October, November or December of
any year and payable to a Shareholder of record on a specific date in any such
month shall be treated as both paid by the Trust and received by the Shareholder
on December 31 of such year, provided that the dividend is actually paid by the
Trust during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Trust. Federal income tax rules may also require that
certain minimum tax adjustments and preferences be apportioned to Shareholders.
In general, any loss upon a sale or exchange of Common Shares by a
Shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Trust required to be treated by such
Shareholder as long-term capital gains.
Backup Withholding. The Trust will report to its domestic Shareholders and
to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a Shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such Shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact; or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
Shareholder that does not provide the Trust with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
Shareholder's income tax liability. In addition, the Trust may be required to
withhold a portion of capital gain distributions made to any Shareholders who
fail to certify their non-foreign status to the Trust. See "Taxation of Foreign
Shareholders" below.
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Taxation of Tax-Exempt Shareholders. The Service has issued a revenue
ruling in which it held that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based
upon such ruling and the statutory framework of the Code, distributions by the
Trust to a Shareholder that is a tax-exempt entity should also not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its Common Shares with "acquisition indebtedness" within the meaning of the
Code, that the Common Shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity, and that the Trust, consistent with its
present intent, does not hold a residual interest in a "real estate mortgage
investment conduit" ("REMIC").
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
Taxation of Foreign Shareholders. The rules governing United States Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign Shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of Federal, state, local and foreign income tax
laws with regard to an investment in Common Shares, including any reporting
requirements. The Trust will qualify as a "domestically-controlled REIT" so long
as less than 50% in value of its Shares is held by foreign persons (i.e.,
non-resident aliens, and foreign corporations, partnerships, trusts and
estates). The Trust currently anticipates that it will qualify as a
domestically-controlled REIT. Under these circumstances, gain from the sale of
Common Shares by a foreign person should not be subject to United States
taxation, unless such gain is effectively connected with such person's United
States business or, in the case of an individual foreign person, such person is
present within the United States for more than 182 days during the taxable year.
However, notwithstanding the Trust's current anticipation that the Trust will
qualify as a domestically controlled REIT, because the Common Shares will be
freely tradable by Shareholders, no assurance can be given that the Trust will
continue to so qualify.
Distributions of cash generated by the Trust's real estate operations (but
not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign Shareholder
files with the Trust the required form evidencing such lower rate, or (ii) the
foreign Shareholder files an IRS Form 4224 with the Trust claiming that the
distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United
States real property interests of the Trust are subject to income and
withholding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), and may be subject to branch profits tax in the hands of a
Shareholder which is a foreign corporation if it is not entitled to treaty
relief for exemption. The Trust is required by applicable Treasury Regulations
to withhold 35% of any distribution to a foreign person that could be designated
by the Trust as a capital gain dividend; this amount is creditable against the
foreign Shareholder's FIRPTA tax liability.
The Federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in the Trust should consult their own tax
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advisors regarding the income and withholding tax considerations with respect to
their investments in the Trust.
Other Tax Considerations
Possible Legislative or Other Actions Affecting Tax Consequences.
Prospective Shareholders should recognize that the present Federal income tax
treatment of investment in the Trust may be modified by legislative, judicial or
administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with Federal
income taxation are constantly under review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in Federal tax laws and interpretations thereof could
adversely affect the tax consequences of investment in the Trust.
State and Local Taxes. The Trust and its Shareholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the Trust
and its Shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective Shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in Common Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
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SUMMARY OF DECLARATION OF TRUST
In connection with this Offering, Investors who acquire Common Shares in
the Offering will have the rights and obligations of Investors under the
Declaration of Trust for the Trust (the "Declaration"), attached hereto as
Exhibit A. A prospective Investor should read and familiarize himself with it.
The following briefly summarizes certain provisions of the Declaration not
described elsewhere in this Prospectus and is qualified in its entirety by
express reference to the provisions of the agreement.
Term
The term of the Trust commenced on July 31, 1997 and will end on the
earliest to occur of (a) the determination of the holders of at least a majority
of the Shares then outstanding to dissolve the Trust; (b) the sale of all or
substantially all of the Trust's Property, (c) the withdrawal of the Offering by
the Managing Shareholder prior to the Termination Date of the Offering, and (d)
the occurrence of any other event which, by law, would require the Trust to
terminate. Upon dissolution, the Managing Shareholder or a liquidity receiver or
trustee selected by the Managing Shareholder or the Investors will liquidate the
Trust's assets.
Control of Operations
The Managing Shareholder will manage and control the affairs of the Trust,
subject to general supervision and review of the Independent Trustees and the
Managing Shareholder acting together as the Board of the Trust and to prior
approval authority of the Board and/or the Independent Trustees in respect of
certain actions. The Declaration requires that a majority of the Board of the
Trust be comprised of Independent Trustees not affiliated with the Managing
Shareholder or its Affiliates. The Managing Shareholder will be obligated to
devote to the Trust such time as may be reasonably necessary to conduct the
Trust's business. The Investors will have no participation in or control over
the management of the Trust. The Managing Shareholder is obligated to manage the
Trust in the best interest of its Partners. See "FIDUCIARY RESPONSIBILITY."
The following discussion describes certain actions of the Trust which
require approval and/or supervision of the Board and/or the Independent Trustees
and certain other provisions, restrictions and limitations affecting the
operations of the Trust.
o At, or prior to, the initial meeting of the Board of the Trust, the
Declaration must be reviewed and ratified by a majority vote of the Board
and of the Independent Trustees.
o The Board must establish written policies on investments and any borrowing
to be made by the Trust and monitor the administrative procedures,
investment operations and performance of the Trust and the Managing
Shareholder to ensure that such policies are being carried out.
o The Board must evaluate the performance of the Managing Shareholder (and
any successor advisor of the Trust) prior to entering into or renewing a
management agreement relating to the administration and management of the
Trust (other than the initial term of the Trust Management Agreement which
is described in this Prospectus (see "MANAGEMENT -- Trust Management
Agreement"), which is deemed to have been approved by Investors who acquire
Common Shares in the Offering, by a majority of the Board and a majority of
the Independent Trustees). Any such management agreement may not have a
term of more than one year and must be terminable by a majority of the
Independent Trustees or the Managing Shareholder (or any successor advisor,
as the case may be) on at least 60 days prior written notice without cause
or penalty. The Board must determine that any successor to the Managing
Shareholder (or any successor advisor) possesses sufficient qualifications
to perform the advisory function for the Trust and justify the compensation
provided for in the applicable management agreement.
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o The Independent Trustees must determine, at least annually, that the total
fees and expenses of the Trust are reasonable in light of the investment
performance of the Trust, its net assets, its net income, and the fees and
expenses of other comparable unaffiliated REITs.
o The Independent Trustees must determine that organizational and offering
expenses payable by the Trust in connection with the formation of the Trust
and any offering of Shares is reasonable and in no event exceeds an amount
equal to 15% of the gross proceeds of the particular offering.
o The Independent Trustees must determine that the total amount of any
acquisition fee and expenses payable by the Trust in connection with
acquiring its investments are reasonable and in no event exceed an amount
equal to 6% of the purchase price of the subject property, or in the case
of a mortgage loan made or acquired by the Trust, 6% of the funds advanced,
unless a majority of the disinterested members of the Board and a majority
of the disinterested Independent Trustees approve payment of an acquisition
fee in excess of such amounts based upon their determination that such
excess fee is commercially competitive, fair and reasonable to the Trust.
o The Independent Trustees have the fiduciary responsibility of limiting the
total operating expenses (less certain items described below) of the Trust
in any fiscal year to the greater of (i) 2% of the aggregate book value of
the Trust's investments or (ii) 25% of the net income of the Trust for such
year unless the Independent Trustees make a finding that, based on such
unusual and non-recurring factors which they deem sufficient, a higher
level of such operating expenses is justified for such year. Within 60 days
after the end of each fiscal year of the Trust for which the Trust incurs
operating expenses in excess of such amount, the Trust must send to the
Shareholders written disclosure of such fact, together with an explanation
of the factors the Independent Trustees considered in arriving at their
finding that such higher operating expenses were justified. If the
Independent Trustees do not determine such excess expenses are justified,
the Managing Shareholder must reimburse the Trust at the end of such fiscal
year the amount by which the total operating expenses paid or incurred by
the Trust exceed the limitations herein provided. For purposes of
determining "total operating expenses" the following items are excluded:
(i) the expenses of raising capital, including without limitation
organizational and offering expenses, legal, audit, accounting,
underwriting, brokerage, listing, registration and other fees, printing and
other such expenses, and tax incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange listing, if any,
of the Trust's Shares; (ii) interest payments; (iii) taxes; (iv) non-cash
expenditures such as depreciation, amortization and bad debt reserves; (v)
incentive compensation paid which is based on the gain from the sale of
Trust assets; and (e) acquisition fees and expenses, real estate
commissions on resale of property and other expenses connected with the
acquisition, disposition, and ownership of real estate interests, mortgage
loans, or other property.
o A majority of the Independent Trustees must determine that any real estate
commission paid to the Managing Shareholder, a Trustee, any other member of
the Board or any of their respective Affiliates in connection with the
resale of any Trust asset is reasonable, customary and competitive in light
of the size, type and location of such property and in no event exceeds 3%
of the sale price, and that the amount of such commissions payable when
added to the commissions payable to unaffiliated real estate brokers does
not exceed the lesser of such competitive real estate commission or an
amount equal to 6% of the sale price.
o The Independent Trustees must determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder
(or any successor advisor) is reasonable in relation to the nature and
quality of services performed and that such compensation is within the
limits prescribed in item 4 above in this section. The Independent Trustees
must also supervise the performance of the Managing Shareholder (and any
successor advisor) and the compensation payable to it by the Trust to
determine that the terms and conditions of the contract are being carried
out.
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o The Trust may not purchase property or any equity interest in any entity
owning one or more properties from the Managing Shareholder, a Trustee, any
other member of the Board, or any of their respective Affiliates unless a
majority of the disinterested members of the Board and a majority of the
disinterested Independent Trustees review the proposed transaction and
determine that it is fair and reasonable to the Trust and that the purchase
price to the Trust for such property or equity interest is no greater than
the cost of the property or equity interest to such proposed seller, or if
the purchase price to the Trust is in excess of such cost, that substantial
justification for such excess exists and such excess is reasonable,
provided, however, in no event may the purchase price for the property
exceed its current appraised value.
o Neither the Managing Shareholder, any Trustee, any other member of the
Board nor any of their respective Affiliates may acquire or lease any
assets from the Trust unless a majority of the disinterested members of the
Board and a majority of the disinterested Independent Trustees determine
that the proposed transaction is fair and reasonable to the Trust.
o No loans may be made by the Trust to the Managing Shareholder, a Trustee,
any other member of the Board or any of their respective Affiliates except
as provided below or to any wholly owned subsidiary of the Trust.
o The Trust may not borrow money from or invest in joint ventures with the
Managing Shareholder, a Trustee, any other member of the Board or any of
their respective Affiliates unless a majority of the disinterested members
of the Board and a majority of the disinterested Independent Trustees
determine that such proposed transaction is fair, competitive, and
commercially reasonable and no less favorable to the Trust than such
transactions between unaffiliated parties under the same circumstances.
o The Trust may not invest in equity securities unless a majority of the
disinterested members of the Board and a majority of the disinterested
Independent Trustees determine that such proposed transaction is fair,
competitive, and commercially reasonable.
o The Independent Trustees must review the investment policies of the Trust
at least annually to determine that the policies being followed by the
Trust at any time are in the best interests of the Shareholders.
o In the event that the Trust and one or more other investment programs
sponsored by the Managing Shareholder or an Affiliate of the Managing
Shareholder seek to acquire similar types of properties, the Board
(including the Independent Trustees) must review the method described in
"BUSINESS PLAN - Trust Policies with Respect to Certain Activities -
Investment Policies" for allocating the acquisition of properties among the
Trust and such other programs in order to determine that such method is
applied fairly to the Trust.
o Any other transaction not described in this section between the Trust and
the Managing Shareholder, a Trustee, any other member of the Board or any
of their respective Affiliates requires the determination of a majority of
the disinterested members of the Board and a majority of the disinterested
Independent Trustees that the proposed transaction is fair and reasonable
to the Trust and on terms and conditions no less favorable to the Trust
than those available from unaffiliated parties.
o The purchase price payable for property to be acquired by the Trust must be
based on the fair market value of the property as determined by a majority
of the members of the Board, provided, however, in cases in which a
majority of the Independent Trustees in their sole discretion determine,
and in all cases in which the Trust proposes to acquire property from the
Managing Shareholder, a Trustee, any
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other member of the Board or any of their respective Affiliates, such fair
market value must be determined by a qualified independent appraiser
selected by the Independent Trustees.
o In connection with a proposed Roll-up (as defined below) involving the
Trust's assets, an appraisal of all the Trust's assets must be obtained
from a qualified independent appraiser and delivered to the Shareholders in
connection with the proposed transaction. The sponsor of the transaction
must offer to Shareholders who vote against the proposal the choice of: (i)
accepting the securities of the Roll-up entity (i.e., the entity surviving
the Roll-up) or (ii) either (x) remaining as Shareholders in the Trust and
preserving their interests therein on the same terms and conditions as
existed previously or (y) receiving cash in an amount equal to the
Shareholder's pro rata share of the appraised value of the net assets of
the Trust. The Trust is prohibited from participating in certain types of
Roll-ups specified in the Declaration. Generally, a "Roll-up" is a
transaction involving the acquisition, merger, conversion, or consolidation
either directly or indirectly of the Trust and the issuance of securities
of a Roll-up entity.
o The aggregate borrowings of the Trust, secured and unsecured, must be
reasonable in relation to the net assets of the Trust and must be reviewed
at least quarterly by the Board. The maximum amount of such borrowings in
relation to such net assets may not exceed 300%, in the absence of a
satisfactory showing that higher level of borrowing is appropriate. Any
borrowing in excess of such amount requires the approval of a majority of
the Independent Trustees and must be disclosed to Shareholders in the next
quarterly report of the Trust, along with an explanation of the
justification of such excess.
o The Trust may not invest more than 10% of its total assets in unimproved
real property or mortgage loans on such type of property.
o The Trust may not invest in commodities or commodity future contracts,
excluding future contracts used solely for hedging purposes in connection
with the Trust's ordinary business of investing in real estate assets and
mortgages.
o The Trust may not invest in or make mortgage loans (other than loans
insured or guaranteed by a government or government agency) unless an
appraisal is obtained concerning the underlying property. In cases in which
a majority of the Independent Trustees in their sole discretion determine,
and in all cases in which the proposed transaction is with the Managing
Shareholder, a Trustee, any other member of the Board or any of their
respective Affiliates, the appraisal must be obtained from a qualified
independent appraiser. The appraisal must be maintained in the Trust's
records for at least five years, and must be available for inspection and
duplication by any Shareholder at the Shareholder's own expense. In
addition to the appraisal, the Trust must also obtain a mortgagee's or
owner's title insurance policy or commitment as to the priority of the
mortgage or the condition of the title. The Trust is prohibited from (i)
investing in real estate contracts of sale (i.e., land sale contracts),
unless such contracts are in recordable form and appropriately recorded in
the chain of title; (ii) investing in or making any mortgage loans on any
one property if the aggregate amount of all mortgage loans outstanding on
the property, including the loans of the Trust, would exceed an amount
equal to 85% of the appraised value of the property as determined by
appraisal unless substantial justification exists; and (iii) making or
investing in any mortgage loans that are subordinate to any mortgage or
equity interest of the Managing Shareholder, Trustees, any other members of
the Board or any of their respective Affiliates.
o The Trust may not issue options or warrants to purchase Shares to the
Managing Shareholder, the Trustees, any other member of the Board or any of
their respective Affiliates except on the same terms as such options or
warrants are sold to the general public. The Trust may issue options or
warrants to persons not so connected with the Trust but not at exercise
prices less than the fair market value of such securities on the date of
grant and for consideration (which may include services) that in the
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judgment of the Independent Trustees has a market value less than the value
of such option on the date of grant. Options or warrants issuable to the
Managing Shareholder, the Trustees, any other member of the Board or any of
their respective Affiliates must not exceed an amount equal to 10% of the
outstanding Common Shares or other securities of the Trust on the date of
grant of any options or warrants.
o The payment by the Trust of an interest in the gain from the sale of assets
of the Trust, for which full consideration is not paid in cash or property
of equivalent value, is allowed provided the amount or percentage of such
interest is reasonable. Such an interest is considered reasonable if it
does not exceed 15% of the balance of such net proceeds remaining after
payment to Shareholders, in the aggregate, of an amount equal to 100% of
the original issue price of their Shares, plus an amount equal to 6% of the
original issue price of their Shares, per annum cumulative. For purposes of
this calculation, the original issue price of Shares may be reduced by
prior cash distributions to Shareholders.
Liability and Indemnification
Neither the Managing Shareholder, the Trustees, any other members of the
Board nor any of their respective Affiliates are liable to the Trust or to any
Shareholder for any loss suffered by the Trust which arises out of any action or
inaction of such person, if such person, in good faith, determines that such
course of conduct was in the Trust's best interest and such course of conduct
was within the scope of the Declaration and did not constitute negligence or
misconduct in the case of a person who is not an Independent Trustee, or gross
negligence or willful misconduct, in the case of any such person who is an
Independent Trustee.
The Trust will indemnify the Managing Shareholder, the Independent
Trustees, any other member of the Board and each of its Affiliates and each of
their respective officers, directors, shareholders, partners, agents and
employees (provided such persons act within the scope of the Declaration)
against any loss, liability or damage (including costs of litigation and
attorneys' fees) incurred by such person arising out of or incidental to the
Offering and the management of the Trust's affairs within the scope of the
Declaration, unless such person's negligence or intentional or criminal
wrongdoing is involved; provided, however, such indemnification will not be made
with respect to any liability imposed by judgment (or costs associated
therewith, including attorneys' fees) arising from or out of a violation of
Federal or state securities laws associated with the Offering (except in certain
circumstances enumerated at Section 3.7(b) of the Declaration). It is the
position of the Securities and Exchange Commission and certain state securities
administrators that any attempt to limit the liability of a Managing Shareholder
or persons controlling an issuer under the federal securities laws or state
securities laws is contrary to public policy and, therefore, is unenforceable.
Assuming compliance with the Declaration and applicable formative and
qualifying requirements in Delaware and any other jurisdiction in which the
Trust conducts its business, a Shareholder will not be personally liable under
Delaware law for any obligations of the Trust, except to the extent of any
unpaid subscription price in connection with the purchase of Shares from the
Trust and except for indemnification liabilities arising from any
misrepresentation made by him in the Investor Subscription Documents submitted
to the Trust. The Trust will, to the extent practicable, endeavor to limit the
liability of the Investors in each jurisdiction in which the Trust operates.
The law governing whether a jurisdiction other than Delaware will honor the
limitation of liability extended under Delaware law to the Investors is
uncertain. Two of the three states in which the Trust may conduct business have
enacted legislation recognizing the limited liability provisions of the Delaware
business trust. In other states, including the third state in which the Trust
may conduct operations, there has been no authoritative legislative or judicial
determination as to whether the limitation of liability would be honored. If
necessary to protect Investors from exposure to liability for the
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Trust's activities in such third state, the Trust intends to make all equity
investments in properties in the state through limited liability entities, such
as limited partnerships or limited liability companies, that afford their owners
limited liability in that state. Therefore, regardless of the local treatment of
business trusts, the Trust believes that the Investors will not be subject to
personal liability for property liabilities and that with regard to the
operation of the Trust itself the limitation of Investors' liability under
Delaware law will govern.
Under certain federal and state environmental laws of general application,
entities that own or operate properties contaminated with hazardous substances
may be liable for cleanup liabilities regardless of other limitations of
liability. The Trust is not aware of any case where such environmental
liabilities were imposed on non-management participants in a business trust.
The Delaware Act does not contain any provision imposing liability on an
Investor for participation in the control of the Trust, although no Investor has
any rights to do so except through the rights to propose and vote on matters
described above. The Delaware Act does not require an Investor who receives
distributions that are made when the Trust is or would be rendered insolvent to
return those distributions under equitable principles enforced by courts. Under
Delaware decisions, a trust beneficiary who receives overpayments from a trust
is obligated to return those payments, with interest, subject to equitable
defenses. The application of these cases to beneficiaries of a business trust is
uncertain. The Declaration has been signed by the Corporate Trustee as of the
date of this Memorandum and the Managing Shareholder is the initial beneficiary.
BY SIGNING THE SUBSCRIPTION DOCUMENTS (EITHER IN PERSON OR BY THEIR
REPRESENTATIVES) AND OBLIGATING THEMSELVES TO PAY THE PRICE OF COMMON SHARES,
THE INVESTORS BECOME BOUND BY THE PROVISIONS OF THE DECLARATION AT THE TIMES
THEIR SUBSCRIPTIONS ARE ACCEPTED BY THE TRUST, EVEN THOUGH THEY DO NOT SIGN THE
DECLARATION.
Distributions
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. In order to maintain its
qualification as a REIT under the Code, the Trust must make annual distributions
to Shareholders of at least 95% of its taxable income, determined without regard
to the deduction for dividends paid and by excluding any net capital gains. For
taxable years beginning after August 5, 1997, the 1997 Act (1) expands the class
of excess noncash items that are excluded from the distribution requirement to
include income from the cancellation of indebtedness and (2) extends the
treatment of original issue discount and coupon interest as excess noncash items
to REITs, like the Trust, that use an accrual method of accounting. Under
certain circumstances, the Trust may be required to make distributions in excess
of cash flow available for distribution to meet such distribution requirements.
Shareholders will be entitled to receive any distributions declared on a pro
rata basis for each outstanding class of Shares taking into account the relative
rights of priority of each class entitled to distributions.
The Trust is expected to adopt a distribution reinvestment program by the
end of the first quarter of 1998. Upon the adoption of the plan, the Trust will
provide material information to Shareholders regarding the plan and the effect
of reinvesting distributions from the Trust, including the tax consequences
thereof. The Trust will provide Shareholders updated information at least
annually.
Quarterly and Annual Reports
The Trust will keep each Investor currently advised as to activities of the
Trust by reports furnished at least quarterly. Each quarterly report will
contain a condensed statement of "cash flow from operations" for the year to
date as determined by the Managing Shareholder in conformity with generally
accepted accounting principles on a basis consistent with that of the annual
financial statements and showing its derivation from net income.
Within 120 days after the end of each fiscal year following the completion
of the Offering, the
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Trust is required to prepare and mail to each Shareholder as of a record date
determined by the Managing Shareholder, an annual report which includes the
following:
(1) Financial statements prepared in accordance with generally accepted
accounting principles which are audited and reported on by the Trust's
independent certified public accountants;
(2) The ratio of the costs of raising capital during the period to the
capital raised;
(3) The aggregate amount of advisory fees and the aggregate amount of other
fees paid to the Managing Shareholder and any of its Affiliates during the
period by the Trust and including fees or charges paid to them by third parties
doing business with the Trust;
(4) The total operating expenses (as defined in Section 1.9(i) of the
Declaration), stated as a percentage of the book amount of the Trust's
investments and as a percentage of its net income;
(5) A report from the Independent Trustees that the policies being followed
by Trust are in the best interests of its Shareholders and the basis for such
determination; and
(6) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving the Trust, the Managing
Shareholder, the Trustees, any other members of the Board and any of their
respective Affiliates occurring in the year for which the annual report is made.
The Common Shares being sold in the Offering have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Trust does not
intend to register the Common Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") or list them on any securities exchange
immediately after the effective date of the Trust's Securities Act registration
statement, although it will investigate such registration and listing in the
future. Although the Common Shares acquired by Investors in the Offering will be
freely tradable securities, the Trust does not anticipate that an active trading
market will be established or maintained for the Common Shares. The Trust will
be required to file periodic reports (Form 10-KSB or Form 10-K annual reports,
Form 10-QSB or Form 10-Q quarterly reports and Form 8-KSB or Form 8-K current
reports) under the Exchange Act in the fiscal year in which its Securities Act
registration statement becomes effective. The Trust will not file such periodic
reports in any subsequent fiscal year unless it has more than 300 Shareholders
in any such year or it is otherwise required by applicable law to do so.
Accounting
The accounting period of the Trust will end on December 31 of each year.
The Trust will utilize the accrual method of accounting for the Trust's
operations on the basis used in preparing the Trust's federal income tax returns
with such adjustments as may be in the Trust's best interest.
Books and Records; Tax Information
The Trust will keep appropriate records relating to its activities. All
books, records and files of the Trust will be kept at its principal offices at
Cincinnati, Ohio or Wilmington, Delaware. An independent certified public
accounting firm will prepare the Trust's federal income tax returns as soon as
practicable after the conclusion of each year. The Trust will use its reasonable
best efforts to obtain the information for those returns as soon as possible and
to cause the resulting accounting and tax information to be transmitted to the
Shareholders as soon as possible after receipt from the accounting firm.
Investors have the right under the terms of the Declaration to obtain other
information about the Trust and may, at their expense, obtain a list of the
names and addresses of the Investors for proper Trust purposes.
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Governing Law
All provisions of the Declaration will be construed according to the laws
of the State of Delaware except as may otherwise be required by law in any other
state.
Amendments and Voting Rights
The Managing Shareholder may amend the Declaration without notice to or
approval of the Investors for the following purposes: to cure ambiguities or
errors; to conform the Declaration to the description in this Prospectus; to
equitably resolve issues arising under the Declaration so long as similarly
situated Investors are not treated materially differently; to make other changes
that will not materially and adversely affect any Investor's interest; to
maintain the federal income tax status of the Trust as a REIT (unless the
Managing Shareholder believes that it is in the best interests of the
Shareholders to disqualify the Trust's REIT status); or to comply with law.
Other amendments to the Declaration may be proposed either by the Managing
Shareholder or holders of at least 10% of the Common Shares, either by calling a
meeting of the Shareholders or by soliciting written consents. The procedure for
such meetings or solicitations is found at Section 6.5 of the Declaration. Such
proposed amendments require the approval of a majority in interest of the
Shareholders entitled to vote given at a meeting of Shareholders or by written
consents. Other voting rights of Shareholders are described below at " - Meeting
and Voting Rights."
Dissolution of Trust
The Trust will have perpetual existence unless any of the following events
occurs, in which case it will be dissolved except as noted below: (a) the sale
of all or substantially all of the Trust Property, (b) the vote of the Managing
Shareholder and a majority in interest of the Shareholders or (c) any other
event requiring dissolution by law. The Trust will wind up its business after
dissolution unless (i) any remaining Managing Shareholder and a majority in
interest of the Shareholders (calculated without regard to Common Shares held by
the Managing Shareholder) or (ii) if there is no remaining Managing Shareholder
or its Affiliates, a majority in interest of the Shareholders, elects to
continue the Trust. The Managing Shareholder (or in the absence thereof, a
liquidating trustee chosen by the Investors) will liquidate the Trust's assets
if it is not continued.
Removal and Resignation of the Managing Shareholder
The holders of at least 10% of the Common Shares may propose the removal of
the Managing Shareholder, either by calling a meeting or soliciting consents in
accordance with the terms of the Declaration. Removal of the Managing
Shareholder requires either the affirmative vote of a majority of the Common
Shares (excluding Common Shares held by the Managing Shareholder which is the
subject of the vote or by its Affiliates) or the affirmative vote of a majority
of the Independent Trustees. The Shareholders entitled to vote thereon may
replace a removed Managing Shareholder or fill a vacancy by vote of a majority
in interest of such Shareholders.
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. Upon the termination of the Trust Management
Agreement, the Managing Shareholder must cooperate with the Trust and take all
reasonable steps requested to assist the Board in making an orderly transition
of the management, administrative and advisory function.
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Transferability of Shareholders' Interests
The Common Shares are freely transferable by the Shareholders, subject to
certain restrictions on transfer which the Managing Shareholder deems necessary
to comply with the REIT provisions of the Code. Such limitations are described
at "CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and Transfer."
Independent Activities
Provided that they comply with any fiduciary obligation to the Trust, the
Managing Shareholder and each Shareholder may engage in whatever activities they
choose, whether or not such activities are competitive with the Trust, without
any obligation to offer any interest in such activities to the Trust or to any
other Shareholders.
Power of Attorney
In the Declaration, the Shareholders acknowledge that the Managing
Shareholder has been granted an irrevocable power of attorney to execute and
file (i) all amendments, alterations or changes in the Declaration of the Trust
which comply with the terms of the Declaration; (ii) all other instruments which
the Managing Shareholder believes to be in the best interest of the Trust to
file; (iii) all certificates or other instruments necessary to qualify or
maintain the Trust as a REIT or as a business trust in which the Shareholders
have limited liability in the jurisdictions where the Trust may conduct
business; and (iv) all instruments necessary to effect a dissolution,
termination, liquidation or continuation of the Trust when such dissolution,
termination, liquidation, cancellation or continuation is called for under the
Declaration.
Meetings and Voting Rights
The Trust will conduct an annual meeting of Shareholders at which all
members of the Board (including all Independent Trustees) (except where the
Managing Shareholder and a Majority of the Shareholders entitled to vote on such
matter approve staggered elections for such positions, in which case only the
class up for election) will be elected or reelected and any other proper
business may be conducted. Each Common Share entitles the holder to one vote on
all matters requiring a vote of Shareholders, including the election of members
of the Board. The Shareholders meeting will be held upon reasonable notice and
within 30 days after the delivery of the Trust's annual report to Shareholders,
but in any event no later than the end of the sixth month following the end of
the prior full fiscal year. Special meetings of the Shareholders may be called
at any time, either by the Managing Shareholder, a majority of the Independent
Trustees, any officer of the Trust, or Shareholders who hold 10% or more of the
Common Shares then outstanding, for any matter on which such Shareholders may
vote. The Trust may not take any of the following actions without approval of
the holders of at least a majority of the Shares entitled to vote:
(1) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of the Trust's assets if not in the ordinary course of
operation of Trust Property or in connection with liquidation and dissolution.
(2) Merge or otherwise reorganize the Trust.
(3) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(4) Amend the Declaration; provided, however, the Declaration may be
amended by the Managing Shareholder without notice or approval of the
Shareholders for the following purposes: (i) to cure ambiguities or errors; (ii)
to conform the Declaration to the description in this Prospectus; (iii) to
equitably resolve issues arising under the Declaration so long as similarly
situated Shareholders are not
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treated differently; (iv) to make other changes that will not materially and
adversely affect any Shareholder's interest; (v) to maintain the federal income
tax status of the Trust (unless the Managing Shareholder determines (with the
concurrence of a Majority of the Shareholders entitled to vote on such matter)
that it is in the best interest of Shareholders to change the Trust's tax
status); and (vi) to comply with law.
In addition to any other actions of the Trust requiring the approval of
Shareholders under the Declaration, a Majority of the Shareholders present in
person or by proxy at an annual meeting at which a quorum is present, may,
without the necessity for concurrence by the Board, vote to amend the
Declaration, terminate the Trust, and elect and/or remove one or more members of
the Board.
Additional Offerings of Shares
There will be no mandatory assessments of Shareholders in respect of the
Common Shares or any additional Shares the Trust may issue in the future. To the
extent that the Board desires to obtain additional capital, the Trust may raise
such capital through additional public and private equity offerings, debt
financing, retention of cash flow (subject to satisfying the Trust's
distribution requirements under the REIT rules) or a combination of these
methods. The Trust may determine to issue securities senior to the Common
Shares, including Preferred Shares and debt securities (either of which may be
convertible into Common Shares or be accompanied by warrants to purchase Common
Shares). The Trust may also finance acquisitions of properties or interests in
properties through the exchange of properties or through the issuance of Shares
or debt securities or the issuance of limited partner interests in any Operating
Partnership it may form or acquire in which it may conduct all or a portion of
its real estate operations.
The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
any Operating Partnership it may form, to refinance existing indebtedness or to
finance acquisitions or capital improvements of new properties.
Temporary Investments
Pending the commitment of Trust funds for the purposes described in this
Prospectus, for distributions to Shareholders or for application of reserve
funds to their purposes, the Managing Shareholder has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest.
CAPITAL STOCK OF THE TRUST
General
The Declaration authorizes the Trust to issue up to 25,000,000 Shares of
beneficial interest, no par value per Share, consisting of Common Shares and of
Preferred Shares of such classes with such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing Shareholder
may create and authorize from time to time in accordance with Delaware law and
the Declaration. Prior to the Offering there were no Shares outstanding. The
Trust is offering for sale up to 2,500,000 Common Shares in the Offering. Each
Common Share is equal in all respects to every other Common Share.
The following description sets forth certain general terms and provisions
of the Common Shares. The statements below describing the Common Shares are in
all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Declaration and the Trust's Bylaws.
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The Common Shares when paid for and issued will be fully paid and, except
for unpaid subscription amounts, are non-assessable. Each Common Share entitles
the holder to one vote on all matters requiring a vote of Shareholders,
including the election of members of the Board. Holders of Common Shares do not
have the right to cumulate their votes in the election of members of the Board,
which means that the holders of a majority of the outstanding Common Shares can
elect all of the nominees for Board positions then standing for election.
Shareholders are entitled to such distributions as may be declared from time to
time by the Managing Shareholder out of funds legally available therefor.
Shareholders will be entitled to receive any distributions declared by the
Managing Shareholder on a pro rata basis for each outstanding class of Shares
taking into account the relative rights of priority of each class entitled to
distributions. Holders of Common Shares have no conversion, redemption,
preemptive or exchange rights to subscribe to any securities issued by the Trust
in the future. In the event of a liquidation, dissolution or winding up of the
affairs of the Trust, the Shareholders are entitled to share ratably in the
assets of the Trust remaining after provision for payment of all liabilities to
creditors and payment of liquidation preferences and accrued dividends, if any,
on any series of Preferred Shares that may have been issued.
Transfer Agent
The transfer agent and registrar for the Common Shares will be [Liberty
Transfer Company, Huntington, New York]. The Common Shares being sold in the
Offering have been registered under the Securities Act of 1933, as amended (the
"Securities Act"). The Trust has no current intention to register under the
Securities Exchange Act of 1934, as amended, any Common Shares that are acquired
by Investors in connection with the Offering, unless required by applicable law,
or to list such Common Shares on any securities exchange immediately following
the effective date of the Trust's Security Act registration statement.
Therefore, immediately after the Offering, there is not expected to be an active
trading market for the Common Shares. The Managing Shareholder will investigate
such Exchange Act registration and listing of the Common Shares in the future.
See "TERMS OF THE OFFERING."
Restrictions on Ownership and Transfer
The Trust's Declaration contains certain restrictions on the number of
Shares of the Trust that individual Shareholders may own. For the Trust to
qualify as a REIT under the Code, no more than 50% in value of its Shares may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a shorter taxable year. The
Shares must also be beneficially owned (other than during the first taxable
year) by 100 or more persons during at least 335 days of each taxable year or
during a proportionate part of a shorter taxable year. Because the Trust expects
to qualify as a REIT, the Declaration of the Trust contains restrictions on the
acquisition of Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration, no Shareholder
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 9.8% (the "Ownership Limit") of the Trust's Shares. The Managing
Shareholder, upon receipt of a ruling from the Internal Revenue Service (the
"Service"), an opinion of counsel or other evidence satisfactory to the Managing
Shareholder and upon such other conditions as the Managing Shareholder may
direct, may also exempt a proposed transferee from the Ownership Limit. As a
condition of such exemption, the intended transferee must give written notice to
the Trust of the proposed transfer no later than the fifteenth day prior to any
transfer which, if consummated, would result in the intended transferee owning
Shares in excess of the Ownership Limit. The Managing Shareholder of the Trust
may require such opinions of counsel, affidavits, undertakings or agreements as
it may deem necessary or advisable in order to determine or ensure the Trust's
status as a REIT. Any transfer of the Shares that would (i) create a direct or
indirect ownership of the Shares in excess of the Ownership Limit, (ii) result
in the Shares being owned by fewer than 100 persons or (iii) result in the Trust
being "closely held" within the meaning of Section 856(h) of the Code, shall be
null and void, and the intended transferee will acquire no rights to the Shares.
The foregoing
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restrictions on transferability and ownership will not apply if the Managing
Shareholder determines, which determination must be approved by the
Shareholders, that it is no longer in the best interests of the Trust to attempt
to qualify, or to continue to qualify, as a REIT.
Any purported transfer of Shares that would result in a person owning
Shares in excess of the Ownership Limit or cause the Trust to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"), which will be
transferred by operation of law to the Trust as trustee for the exclusive
benefit of the person or persons to whom the Excess Shares are ultimately
transferred, until such time as the intended transferee retransfers the Excess
Shares. While these Excess Shares are held in trust, they will not be entitled
to vote or to share in any dividends or other distributions. Subject to the
Ownership Limit, the Excess Shares may be transferred by the intended transferee
to any person (if the Excess Shares would not be Excess Shares in the hands of
such person) at a price not to exceed the price paid by the intended transferee
(or, if no consideration was paid, fair market value), at which point the Excess
Shares will automatically be exchanged for the Shares to which the Excess Shares
are attributable. In addition, such Excess Shares held in trust are subject to
purchase by the Trust at a purchase price equal to the lesser of the price paid
for the Shares by the intended transferee (or, if no consideration was paid,
fair market value) as reflected in the last reported sales price reported on the
New York Stock Exchange ("NYSE") on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales price
of such Shares on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which such Shares may be
traded, or if not then traded over any exchange or quotation system, then the
market price of such Shares on the relevant date as determined in good faith by
the Managing Shareholder of the Trust.
From and after the intended transfer to the intended transferee of the
Excess Shares, the intended transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to such Shares
except the right to payment of the purchase price of the Shares on the
retransfer of Shares as provided above. Any dividend or distribution paid to a
proposed transferee on Excess Shares prior to the discovery by the Trust that
such Shares have been transferred in violation of the provisions of the Trust's
Declaration shall be repaid to the Trust upon demand. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Trust, to have acted as an
agent on behalf of the Trust in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Trust.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding Shares of the Trust must give a written notice to
the Trust by January 31 of each year. In addition, each Shareholder shall upon
demand be required to disclose to the Trust in writing such information with
respect to the direct, indirect and constructive ownership of Shares as the
Managing Shareholder deems reasonably necessary to comply with the provisions of
the Code applicable to a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
Shares might receive a premium for their Shares over the then prevailing market
price or which such holders might believe to be otherwise in their best
interest.
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CAPITALIZATION
The capitalization of the Trust, assuming the completion of the sale of all
2,500,000 Common Shares being offered, will be $25,000,000. The subscription
price for each Common Share being offered in the Offering is $10.00, and is
payable in full in cash upon subscription. For purposes of determining
capitalization, such amount has been calculated before deducting commissions,
fees, expenses and other costs of the Offering, estimated to be approximately
$1.10 per each Common Share, as set forth under "SOURCES AND USES OF FUNDS," to
be paid out of the proceeds of this Offering.
TERMS OF THE OFFERING
The Trust is offering a maximum of 2,500,000 Common Shares of beneficial
interest in the Trust at $10.00 per Common Share ($25,000,000 in the aggregate)
which is payable in full upon subscription. See "CAPITAL STOCK OF THE TRUST" and
"CAPITALIZATION." As described below, funds received will be held in escrow
until the minimum number of Common Shares (25,000) is sold. Upon the completion
of the Offering and assuming all Common Shares being offered are sold, the Trust
would have outstanding 2,500,000 Common Shares and no other classes of Shares
outstanding. All of the Common Shares to be issued or sold by the Trust in the
Offering will be tradable without restriction under the Securities Act, but will
be subject to certain restrictions designed to permit the Trust to qualify and
maintain its REIT status under the Code for federal income tax purposes.
Each Investor will receive his beneficial interest in the Trust upon the
latest to occur of (i) acceptance of his Subscription Documents by the Managing
Shareholder, (ii) receipt and collection by the Trust of the purchase price of
the Common Shares subscribed for, and (iii) the Escrow Date (described below).
Each Investor will own a share of beneficial interests in the Trust attributable
to Common Shares in proportion to his respective ownership of Common Shares.
All proceeds from the sale of Common Shares in the Offering will be
required to be deposited in the name of the Trust in a separate segregated
interest-bearing escrow account at a commercial bank until the Escrow Date,
which is the later of the date on which (i) the Trust accepts the subscription
that results in the gross proceeds from the sale of Common Shares in the
Offering to exceed $250,000, and (ii) full cash payment for at least 25,000
Common Shares has been collected and deposited in the escrow account. The Escrow
Date may not be later than June 30, 1998. After the Escrow Date, the Trust's
funds, net of fees described in this Prospectus, will be maintained in the name
of the Trust, in one or more separate, segregated accounts at commercial banks
or in interim investments described at "BUSINESS PLAN."
As soon as funds have been released from the escrow account, they will be
used to pay selling commissions and fees to cover offering expenses. After
payment of these commissions and fees, the remaining funds released from the
escrow account may be used to fund Trust investments or to pay Trust expenses
other than those associated with the Offering, as determined by the Trust in its
discretion.
The Common Shares will be offered and sold on a non-exclusive best efforts
basis through Sigma Financial Corporation (the "Dealer Manager"), a Michigan
corporation which is a member of the National Association of Securities Dealers,
Inc. ("NASD") and registered as a broker-dealer with the Securities and Exchange
Commission and with the appropriate authority of each state where offers of the
Common Shares will be made. Sigma Financial Corporation, which is not affiliated
with the Managing Shareholder or any of its Affiliates, has acted as dealer
manager for certain private offerings of limited partner interests in real
estate investment limited partnerships sponsored by Affiliates of the Managing
Shareholder and is expected to act as dealer manager in certain future programs
sponsored by Affiliates of the Managing Shareholder. The Dealer Manager may
select other NASD member firms as co-manager or selected broker-dealers to
participate in the Offering.
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The Dealer Manager and participating broker-dealers will enter into a Best
Efforts Selling Agreement with the Trust pursuant to Appendix F of the Rules of
Fair Practice of the NASD. The Dealer Manager and participating broker-dealers
will receive selling commissions in an amount equal to 9% of the subscription
price for all Common Shares sold by them. See "SOURCES AND USES OF FUNDS." The
Dealer Manager may reallocate a portion or all of its commission. The selling
commissions will be due and payable promptly after the latest to occur of (i)
acceptance by the Managing Shareholder of an Investor's subscription, (ii) the
receipt and collection by the Trust of the gross purchase price of the Common
Shares in question, and (iii) the Escrow Date. In addition, the Dealer Manager
will be entitled to receive a warrant ("Warrant") to acquire a number of Common
Shares in an amount equal to 8.5% of the number of Common Shares sold in the
Offering by it or participating broker-dealers selected by it, at a purchase
price equal to $13.00 per Common Share. The Warrant will be exercisable for a
period of four years following the first anniversary of the grant of the
Warrant. For a period of six years following the grant of the Warrant, any
registered holder of the Warrant or Common Shares issued upon exercise of the
Warrant may request that the Trust include such securities as well as any Common
Shares underlying any unexercised portion of the Warrant in any registration
statement that the Trust determines to file under the Securities Act. Such
registration would be at the Trust's expense, excluding underwriter's
compensation and expense allowance relating to the requesting holder's
securities to be registered and fees and expenses of such holder's counsel.
Pursuant to the Best Efforts Selling Agreement, the Dealer Manager and
participating broker-dealers will not be obligated to purchase any Common
Shares, but will only be required to use their best efforts to sell Common
Shares to suitable offerees. The agreement may be terminated by either party in
certain circumstances. The Trust and the Dealer Manager have agreed to indemnify
each other against or to contribute to losses arising out of certain
liabilities, including liabilities arising under the Security Act. The Trust has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. Nevertheless, the parties may seek to enforce such
indemnification and rights to contribution which are expressly provided under
the agreement.
Under the agreement, the Manager Shareholder, the Dealer Manager and each
participating broker-dealer are required to make every reasonable effort to
determine that the purchase of Common Shares is a suitable and appropriate
investment for each Investor, based on information provided by the Investor
regarding the Investor's financial situation and investment objectives. The
Trust intends to exercise any legal remedies available to it, including a suit
for damages against an Investor, in the event any of the representations made by
the Investor in the Subscription Documents are inaccurate, and such inaccuracies
result in damages to the Trust or the Managing Shareholder or any Affiliates.
The Trust will pay to the Managing Shareholder a non-accountable fee in an
amount equal to 1% of the aggregate subscription price paid for Common Shares in
the Offering to cover distribution, due diligence and organizational expenses
related to the formation of the Trust and the Offering. To the extent the
distribution, due diligence and organizational expenses exceed 1% of gross
proceeds of the Offering, those expenses will not be reimbursed. The Trust will
pay the Managing Shareholder a non-accountable fee in an amount equal to 1% of
the aggregate subscription price paid for Common Shares in the Offering to cover
legal, accounting and consulting fees, printing, filing, recording, postage and
other miscellaneous expenses associated with the Offering. Any such expenses of
the Managing Shareholder in excess of the fee will be paid by the Managing
Shareholder. The fees described above will be payable at the same time that
selling commissions are payable. See "SOURCES AND USES OF FUNDS."
The Trust will also pay the Managing Shareholder a non-accountable
investment fee in an amount (up to $1,000,000) equal to 4% of the aggregate
subscription price paid for Common Shares in the Offering for its services and
expenses in investigating and evaluating investment opportunities for the Trust
and assisting the Trust in effecting its investments. Half of the investment fee
will be payable at the same time that selling commissions are payable and the
balance will be payable proportionately upon the consummation of each of the
Trust's investments based on the amount invested.
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The Common Shares will be sold only to persons who represent in the
Subscription Documents at the time of purchase that they meet the suitability
standards described herein under the caption "INVESTOR SUITABILITY STANDARDS."
In order to subscribe for Common Shares, a purchaser must complete and execute a
Subscription Document, including an Investor Questionnaire and a Subscription
Agreement. A minimum purchase of 200 Common Shares is required for each
prospective Investor; however, the minimum purchase may be reduced at the sole
discretion of the Managing Shareholder.
The Managing Shareholder has the right to reject subscriptions in whole or
in part for any reason or no reason. In the event this Offering is
over-subscribed or for any other reason, the Managing Shareholder may reduce on
an arbitrary basis the number of Common Shares for which any Investors have
subscribed. Prior to the Escrow Date, payments for the subscription price should
be made by check payable to the order of "___________________, Escrow Agent for
Baron Capital Trust." After the Escrow Date has occurred, payments for the
subscription price should be made by check payable to the order of "Baron
Capital Trust." Payments received for rejected subscription offers will be
refunded promptly with any interest earned thereon. Each Investor has the right
to rescind his purchase and have all funds paid returned in full, upon written
notification to the Managing Shareholder received no later than five days from
the date the Investor subscribed to purchase Common Shares.
The termination date of the Offering is scheduled to be September 30, 1998
or an earlier or later date determined by the Managing Shareholder as specified
below (the "Termination Date"). The Managing Shareholder may in its sole
discretion terminate the Offering at any time before the scheduled Termination
Date or extend the scheduled Termination Date to any date or from date to date
which is no later than the date by which all 2,500,000 Common Shares being
offered have been sold provided that the Escrow Date has occurred prior to such
rescheduled termination date.
The Managing Shareholder will have the right to withdraw the Offering of
Common Shares at any time prior to the Termination Date, in which case the Trust
will be immediately dissolved at the expense of the Managing Shareholder and all
subscription funds will be returned promptly to the subscribers. If the Managing
Shareholder withdraws the Offering, any person that has received fees or other
payments from the proceeds of the Offering will be required to return such fees
or payments to the Trust upon the demand of the Managing Shareholder.
The Managing Shareholder will contribute $50,000 to the Trust as an initial
investment in the Trust in exchange for which it will receive one Common Share
for each $10.00 so contributed (5,000 Common Shares). Such Common Shares will be
in addition to the 2,500,000 Common Shares which the Trust is offering for sale
in the Offering.
The Common Shares being sold in the Offering have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Trust does not
intend to register the Common Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or list them on any securities exchange
immediately after the effective date of the Trust's Securities Act registration
statement, although it will investigate such registration and listing in the
future. Although the Common Shares acquired by Investors in the Offering will be
freely tradable securities, the Trust does not anticipate that an active trading
market will be established or maintained for the Common Shares. The Trust will
be required to file periodic reports (Form 10-KSB or Form 10-K annual reports,
Form 10-QSB or Form 10-Q quarterly reports and Form 8-KSB or Form 8-K current
reports) under the Exchange Act in the fiscal year in which its Securities Act
registration statement becomes effective. The Trust will not file such periodic
reports in any subsequent fiscal year unless it has more than 300 Shareholders
in any such year or it is required to do so under applicable law.
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OTHER INFORMATION
General
The Trust undertakes to make available to each prospective Investor or his
representative, or both, during the course of the Offering and prior to the
Investor's purchase of Common Shares, the opportunity to ask questions of and
receive answers from the Trust or any person acting on its behalf relating to
the terms and conditions of the Offering and to obtain any additional
information necessary to verify the accuracy of information made available to
such purchaser.
Prior to making an investment decision respecting the Common Shares, a
prospective Investor should carefully review and consider this entire Prospectus
and the Exhibits hereto including without limitation the Declaration.
Prospective Investors are urged to make arrangements with the Trust to inspect
any books, records, contracts, or instruments referred to in this Prospectus and
other data relating thereto. The Trust is available to discuss with prospective
Investors any matter set forth in this Prospectus or any other matter relating
to the Common Shares, so that Investors and their advisors, if any, may have
available to them all information, financial and otherwise, necessary to
formulate a well-informed investment decision.
Authorized Sales Material
Sales material may be used in connection with the Offering of the Common
Shares only when accompanied or preceded by the delivery of this Prospectus.
Only sales material that indicates that it is distributed by the Trust or the
Dealer Manager may be distributed to prospective Investors. Currently, the Trust
and the Dealer Manager intend to distribute to prospective Investors (i) a sales
brochure or other written or graphic communications depicting certain
information regarding the Managing Shareholder, the Trust and the residential
real estate industry, and (ii) summaries of material aspects of properties which
become probable investments for the Trust during the offering period. In
addition, the Trust or the Dealer Manager may distribute a summary of the
Offering containing highlights or other summary information concerning the
Offering, information regarding the Managing Shareholder, the Trust or other
programs sponsored by the Managing Shareholder, or information regarding the
residential real estate industry. All such additional sales material will be
signed by or otherwise identified as authorized by the Trust. Any other sales
material or information has not been authorized for use by the Trust or the
Dealer Manager and must be disregarded by Investors.
In certain jurisdictions, some or all of this sales material may not be
distributed pursuant to securities law requirements, and in all jurisdictions,
this Offering is made only by this Prospectus.
All authorized sales material will be consistent with this Prospectus, as
supplemented. Nevertheless, sales material by its nature does not purport to be
a complete description of this Offering and Investors must review this
Prospectus and supplements carefully for a complete description of the Offering.
Authorized sales material should not be considered to be the basis for the
Offering of Shares or an Investor's decision to purchase Common Shares. Sales
material is not a part of this Prospectus and is not incorporated by reference
into this Prospectus unless expressly stated in this Prospectus or supplements
hereto.
Financial Statements
Since the Trust and the Managing Shareholder are newly formed and, to date,
have acquired no assets and incurred no liabilities, no financial statements are
included for the Trust or the Managing Shareholder.
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LITIGATION
There are no pending legal proceedings to which the Trust or the Managing
Shareholder is a party which are material to the operations of the Trust, and
the Managing Shareholder has no knowledge that any such legal proceedings are
contemplated or threatened by any third party.
LEGAL MATTERS
The authority of the Trust to issue the Common Shares offered hereby is
being passed upon for the Managing Shareholder by Schoeman, Marsh & Updike, LLP,
New York, New York, counsel to the Managing Shareholder. Copies of the draft
opinion letter of counsel as to the Trust 's authority to issue the Common
Shares may be obtained by writing to the Managing Shareholder. The Trust has
been advised by Mayer, Brown & Platt, Chicago, Illinois, as to certain tax items
specifically referred to it. Counsel to the Managing Shareholder will not
represent or advise the Trust or any prospective Investor in connection with the
Offering. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD CONSULT THE INVESTOR'S OWN
LEGAL, TAX AND INVESTMENT COUNSEL.
The representation of counsel to the Managing Shareholder has been limited
to matters specifically addressed to it. No Investor should assume that counsel
to the Managing Shareholder has in any manner investigated the merits of an
investment in the Common Shares, or undertaken any role other than assisting in,
and reviewing items specifically referred to it with regard to, the preparation
of this Prospectus and the issuance of the opinion referred to above. In
assisting in the preparation of this Prospectus, counsel to the Managing
Shareholder has relied upon the representations and statements of the Managing
Shareholder as to facts regarding the Managing Shareholder, the Trust and their
respective Affiliates and the proposed activities and has not independently
verified such representations and statements.
ADDITIONAL INFORMATION
The Trust is not a reporting company under the Securities Exchange Act of
1934, as amended. The Trust has filed with the Commission a Registration
Statement (of which this Prospectus is a part) on Form SB-2 under the Securities
Act with respect to the Common Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules hereto. For
further information regarding the Trust and the Common Shares offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules.
The Registration Statement, the exhibits and schedules forming a part
thereof filed by the Trust with the Commission can be inspected and copies
obtained from the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Trust will furnish its Shareholders with annual reports containing
financial statements audited by its independent certified public accountants and
with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.
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GLOSSARY
Whenever used in this Prospectus, the following terms shall have the
meanings set forth below, unless the context indicates otherwise. The singular
shall include the plural and the masculine gender shall include the feminine,
and vice versa, as the context requires. In addition, the term "person" and its
pronouns "he," "she," "him," and "her" as used in this Prospectus shall include
natural persons of the masculine and feminine gender and entities, including,
without limitation, corporations, partnerships, limited liability companies and
trusts, unless the context indicates otherwise.
"Admission Date" means the date that an Investor is admitted as an Investor
into the Trust. Unless a subscription is rejected, the Managing Shareholder will
admit a prospective Investor into the Trust on the later of the date on which
the Managing Shareholder of the Offering has received from the Investor (i)
payment in cash and (ii) properly executed and dated Subscription Documents.
"Affiliate" An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) Any person directly or indirectly owning, controlling or holding, with
power to vote 10% or more of the outstanding voting securities of such other
person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive officer,
director, trustee or general partner.
"Baron Advisors" means Baron Advisors, Inc., a Delaware corporation which
is the initial Managing Shareholder of the Trust.
"Baron Properties" means Baron Capital Properties, Inc., a Delaware
corporation which is the initial Corporate Trustee of the Trust, with its
principal place of business located at 1105 North Market Street, Wilmington,
Delaware 19899.
"Board" refers to the Managing Shareholder and the Independent Trustees,
acting together as the Board of the Trust in accordance with the terms of the
Declaration.
"Brentwood" means Brentwood Management, LLC, an Ohio limited liability
company affiliated with the Managing Shareholder which is expected to manage
properties in which the Trust may invest. See "MANAGEMENT."
"Certificate" means the Certificate of Trust of the Trust, as amended from
time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
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"Common Share" means a beneficial interest in the Trust designated as a
Common Share by the Trust in accordance with Sections 1.6 and 2.1 of the
Declaration.
"Corporate Trustee" means Baron Capital Properties, Inc., a Delaware
corporation which is the trustee of the Trust under the Declaration, and its
successors. The Corporate Trustee acts as legal holder of the Trust Property,
subject to the terms of the Declaration. Its address is 1105 North Market
Street, Wilmington, Delaware 19899.
"Dealer Manager" refers to Sigma Financial Corporation, a Michigan
corporation which is the broker-dealer selected by the Managing Shareholder to
be the dealer manager of the Offering.
"Declaration" means the Declaration of Trust for the Trust made as of
August 31, 1997 by the Corporate Trustee that establishes the Trust and the
rights and obligations of the Managing Shareholder, the Trustees, other members
of the Board of the Trust and the Shareholders (attached to this Prospectus as
Exhibit A).
"Delaware Act" means the Delaware Business Trust Act, as amended, currently
codified as Chapter 38 of Title 12, Delaware Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Date" means the later to occur of the date on which the Trust (i)
accepts the subscription that results in the gross proceeds from Common Shares
sold in the Offering pursuant to this Prospectus to exceed $250,000, or (ii) has
deposited at least $250,000 in collected funds from the Offering in escrow under
the Declaration, provided, however, the Escrow Date may not be later than June
30, 1998.
"Exchange Act" refers to the Securities Exchange Act of 1934, as amended,
and any rules and regulations promulgated thereunder.
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"Fiscal Period" means a quarter ending on March 31, June 30, September 30
or December 31 of each Fiscal Year.
"Fiscal Year" means a year ending on December 31. The Trust's first Fiscal
Year may begin after January 1 and consequently have a duration of less than 12
months. The Trust's last Fiscal Year may end before December 31 and consequently
have a duration of less than 12 months.
"Independent Trustee" means a Trustee of the Trust who meets certain
qualifications described herein at "MANAGEMENT - The Board of the Trust and
Trustees - Independent Trustees" who becomes an Independent Trustee of the Trust
under the terms of the Declaration. See Section 7.5 of Declaration of Trust -
Exhibit A hereto.
"Investors" means purchasers of Common Shares (which will include the
Managing Shareholder to the extent that it may acquire Common Shares in the
Offering for its own account) or of any other Shares which the Trust may issue
subsequent to the completion of the Offering.
"IRAs" means individual retirement accounts.
"IRS" or "Service" means the Internal Revenue Service.
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"Junior Mortgage" refers to a Mortgage which (i) 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
Mortgages and (ii) must be satisfied before such other charges or liens (other
than prior Mortgages) are entitled to participate in the proceeds of any sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
"Managing Shareholder" refers to Baron Advisors, Inc. or such substitute or
different Managing Shareholder as may subsequently be admitted to the Trust
pursuant to the terms of the Declaration, which will have all of the powers and
obligations of the Managing Shareholder to operate the Trust as described in
this Prospectus.
"Managing Person" means any of the following: (a) Trust officers, agents,
or Affiliates, the Managing Shareholder, a Trustee, any other member of the
Board, Affiliates of the Managing Shareholder, a Trustee and any other member of
the Board and (b) any directors, officers or agents of any organizations named
in (a) above when acting for the Managing Shareholder, a Trustee, any other
member of the Board or any of their respective Affiliates on behalf of the
Trust.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"Mortgage Loan" refers to a note, bond or other evidence of indebtedness or
obligation which is secured or collateralized by a Mortgage.
"NASD" refers to the National Association of Securities Dealers, Inc.
"1997 Act" refers to the Taxpayer Relief Bill of 1997.
"Offering" means the offering of Common Shares of beneficial interest in
the Trust pursuant to and as described in this Prospectus.
"Operating Partnership" means any of one or more partnerships which the
Trust may form or acquire an equity interest in through which the Trust's
interests in certain properties may be held and real estate activities may be
conducted.
"Person" refers to any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"Plans" means employee benefit plans and IRAs.
"Preferred Share" refers to a share of beneficial interest with such
preferences and rights (in relation to other Shares authorized and issued by the
Trust) as the Managing Shareholder may designate under Section 2.1(c) of the
Declaration for sale or issuance subsequent to completion of the Offering.
"Property" means all real or personal property owned or acquired by the
Trust, which is expected to include but not be limited to (i) the land,
buildings and improvements comprising one or more existing residential apartment
properties and/or single-family housing developments in which the Trust may make
an equity investment, and (ii) its rights in connection with Mortgage Loans it
may make or acquire which are secured by Mortgages on the land, buildings and
improvements comprising residential apartment properties and/or single-family
housing developments. See "BUSINESS PLAN."
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"Prospectus" means this Prospectus of the Trust dated _______________,
1997, as the same may be amended or supplemented from time to time.
"Regulations" means the applicable Treasury Regulations promulgated or
proposed under the Code.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"Second Mortgage" means a Mortgage which (i) 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 a First Mortgage
and (ii) must be satisfied before such other charges or encumbrances (other than
the First Mortgage) are entitled to participate in the proceeds of any sale.
"Second Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Second Mortgage.
"Securities Act" means the Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.
"Senior Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"Senior Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Senior Mortgage.
"Service" or "IRS" means the Internal Revenue Service.
"Share" means a beneficial interest in the Trust which is either a Common
Share or a Preferred Share authorized for issuance and designated as such by the
Managing Shareholder in accordance with the Declaration.
"Shareholder" means an owner of Shares in the Trust (which will include the
Managing Shareholder to the extent it acquires Shares).
"Subscription Documents" means the subscription documents which each
prospective Investor must fully complete, date and sign in order to subscribe
for Common Shares in the Offering. The Subscription Documents are comprised of
an Investor Questionnaire and Subscription Agreement.
"Termination Date" means the date upon which the Trust terminates the
Offering of Common Shares. The Termination Date is scheduled to be September 30,
1998 but may be an earlier date or later date determined by the Managing
Shareholder in accordance with the Declaration which is no later than the date
by which all 2,500,000 Common Shares being offered have been sold provided that
the Escrow Date has occurred by such earlier or later termination date.
"Trust" means the issuer of the Common Shares being offered under this
Prospectus, Baron Capital Trust., a Delaware business trust created by the
Corporate Trustee and having a principal office at 7826 Cooper Road, Cincinnati,
Ohio 45242.
"Trustee" and "Trustees" "Trustee" means a person serving as a Corporate
Trustee or an Independent Trustee of the Trust; the term "Trustees" refers to
the Corporate Trustee and the Independent Trustees collectively.
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"Trust Management Agreement" means the Trust Management Agreement dated as
of _______________, 1997 between the Trust and the Managing Shareholder, under
which the Managing Shareholder will perform certain management, administrative
services and investment advisory services for the Trust.
"Trust Property" means all property owned or acquired by the Trust or on
its behalf as part of the trust estate established under the Declaration.
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EXHIBIT A
DECLARATION OF TRUST
FOR
BARON CAPITAL TRUST
<PAGE>
DECLARATION OF TRUST
FOR
BARON CAPITAL TRUST
This DECLARATION OF TRUST (the "Declaration") is made as of August 31,
1997, by BARON CAPITAL PROPERTIES, INC., a Delaware corporation ("Baron
Properties"), which, with its successors as trustees under this Declaration, is
referred to as the "Corporate Trustee," for the benefit of those persons who are
accepted as holders of shares of beneficial interest under this Declaration.
WHEREAS, the Corporate Trustee wishes to organize the BARON CAPITAL TRUST
(the "Trust") as a business trust under the Delaware Business Trust Act, to
provide for the management of the Trust by Baron Advisors, Inc., a Delaware
corporation ("Baron Advisors," or "Managing Shareholder" when acting hereunder
in such capacity), and to provide for the sale of beneficial interests in the
Trust, the operation of the Trust and the rights of the Corporate Trustee, other
persons acting as trustees (together with the Corporate Trustee, the "Trustees")
and owners of beneficial interests;
WHEREAS, a Certificate of Trust (the "Certificate") was filed by the
Corporate Trustee on July 31, 1997 with the Secretary of State of Delaware to
evidence the existence of the Trust; and
WHEREAS, the Corporate Trustee and the Managing Shareholder desire that the
Trust qualify as a "real estate investment trust" ("REIT") under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, the Corporate Trustee declares that it constitutes and
appoints itself trustee of the sum of $10.00 owned by it, together with all
other property that it acquires under this Declaration as trustee, together with
the proceeds thereof, to hold, IN TRUST, to manage and dispose of for the
benefit of the holders, from time to time, of beneficial interests in the Trust,
subject to the provisions of this Declaration as follows. Capitalized terms used
in this Declaration shall have the respective meanings ascribed to them in
Article 10 hereof, and, in the absence of any such definition, shall have the
respective meanings ascribed to them in the Prospectus (as defined in Article
10) if defined therein, unless the context indicates otherwise. All references
to section numbers herein shall refer to section numbers of this Declaration
unless otherwise stated herein.
ARTICLE I
ORGANIZATION AND POWERS
1.1 Trust Estate; Name. The Trust, comprised of the Trust estate created
under this Declaration and the business conducted hereunder, shall be designated
as "Baron Capital Trust," which name shall refer to the trust estate and to the
Corporate Trustee in its capacity as trustee of the trust estate but not in any
other capacity and which shall not refer to the officers, agents, other trustees
or beneficial owners of the Trust. To the extent possible, the Trustees shall
conduct all business and execute all documents relating to the Trust in the name
of the Trust and not as trustees. The Trustees may conduct the business of the
Trust or hold its property under other names as necessary to comply with law or
to further the affairs of the Trust as it deems advisable in their sole
discretion. This Declaration, the Certificate and any other documents, and any
amendments of any of the foregoing, required by law or appropriate, shall be
recorded in all offices or jurisdictions where the Trust shall determine such
recording to be necessary or advisable for the conduct of the business of the
Trust.
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1.2 Purpose. (a) The purpose of the Trust is to acquire equity interests in
and/or provide or acquire mortgage loans (including without limitation Junior
Mortgage Loans and First Mortgage Loans) secured by mortgages on existing
residential apartment properties or single-family housing developments located
in Florida, Kentucky or Ohio, and the acquisition, ownership, management,
operation, acquire by leasing, leasing to others, improvement, administration
and disposition of such types of real property or any interest therein (the
"Property") as the Trust may designate. The Trust may invest its funds or
participate in entities organized for the purpose of acquiring, owning,
managing, operating, acquire by leasing, leasing to others, improving,
administering or disposing of properties described in the preceding sentence.
The Trust shall have the power to perform any and all acts and activities with
respect to this general purpose that are customary or incidental thereto
including by way of illustration the acquisition, ownership, management,
operation, leasing, improvement, administration and disposition of such
properties or any interest therein as the Trust shall designate. Pending the
commitment of Trust funds to investments in such types of property, distribution
of Trust funds to Shareholders (as defined in Article 10) or application of
reserve funds to their purposes, the Trust shall have full authority and
discretion to utilize Trust funds as provided in Section 5.5. The Trust shall
have all the powers granted to real estate investment trusts generally by the
Code or any successor statute and shall have any other and further powers as are
not inconsistent with and are appropriate to promote and attain the purposes of
the Trust as set forth in this Declaration.
(b) The Trust may engage in real estate operations with others when, in the
judgment of the Trust, it is prudent and desirable under the circumstances. In
any such operations, the Trust may acquire, own, hold, manage, operate, acquire
by lease, lease to others, improve, administer and dispose of the types of
property described in the preceding paragraph, either as principal, agent,
partner, syndicate member, associate, joint venturer or otherwise and may invest
funds in any such business, and may do any and all things necessary or
incidental to the conduct of any such activities. Without limiting the
foregoing, the Trust may supply security for debt of properties or enter into
lease transactions or acquire goods and services for the benefit of a property.
1.3 Relationship among Shareholders; No Partnership. As among the Trust,
the Managing Shareholder, the Trustees, the Shareholders and the officers and
agents of the Trust, a trust and not a partnership is created by this
Declaration irrespective of whether any different status may be held to exist as
far as others are concerned for tax purposes or in any other respect. The
Shareholders hold only the relationship of trust beneficiaries to the Trustees
with only such rights as are conferred on them by this Declaration.
1.4 Organization Certificates. The parties hereto shall cause to be
executed and filed (a) the Certificate, (b) such certificates as may be required
by so-called "assumed name" laws in each jurisdiction in which the Trust has a
place of business, (c) all such other certificates, notices, statements or other
instruments required by law or appropriate for the formation and operation of a
Delaware business trust in all jurisdictions where the Trust may elect to do
business, and (d) any amendments of any of the foregoing required by law or
appropriate.
1.5 Principal Place of Business. The principal place of business of the
Trust shall be 7826 Cooper Road, Cincinnati, Ohio 45242 or such other place as
the Trust may from time to time designate by notice to all Shareholders. The
Trust's office in the State of Delaware and the principal place of business of
Baron Properties, the Corporate Trustee, are located at 1105 North Market
Street, Wilmington, Delaware 19899, or such other place as the Trust may
designate from time to time by notice to all Shareholders. The Trust may
maintain such other offices at such other places as the Trust may determine to
be in the best interests of the Trust.
1.6 Admission of Shareholders. (a) The Trust is authorized to offer for
sale in a public offering (the "Initial Offering") pursuant to the prospectus
(the "Prospectus") dated _____________, 1997, as it may be supplemented or
amended from time to time, at a purchase price of $10 per Share, up to 2,500,000
of the Shares authorized for issuance under Article 2 of this Declaration, and
such Shares sold shall be designated as Common Shares. The Trust shall have the
unrestricted right at all times prior to the Termination Date (as defined in
Article 10) of the Initial Offering to admit to the Trust such Shareholders as
it may deem advisable, provided the aggregate subscriptions received for the
purchase of Common Shares (as defined in Article 10) of the Shareholders and
accepted by the Trust do not exceed $25,000,000 immediately following the
admission of such Shareholders. After
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the Termination Date of the Initial Offering, any sale of Shares (including
Common Shares and Preferred Shares) by the Trust shall be governed by Section 2.
(b) Each Shareholder who acquires Common Shares in the Initial Offering
shall execute Subscription Documents (as defined in Article 10) and pay the
purchase therefor to the Trust as subscribed by the Shareholder. Subject to the
acceptance thereof by the Trust, each Shareholder who executes Subscription
Documents shall be admitted to the Trust as an Shareholder. All funds received
from such subscriptions will be deposited in the Trust's name in an
interest-bearing escrow account at a commercial bank until the Escrow Date (as
defined in Article 10).
(c) If, by the close of business on June 30, 1998, at least 25,000 Common
Shares (representing $250,000 of gross Initial Offering proceeds) have not been
sold or if the Trust withdraws the Initial Offering of Common Shares in
accordance with the terms of this Declaration, the Trust shall be immediately
dissolved at the expense of the Managing Shareholder and all subscription funds
shall be forthwith returned to the respective subscribers together with any
interest earned thereon. As soon after the Termination Date as practicable, the
Trust shall advise each Shareholder of the Termination Date and the aggregate
amount of proceeds raised by the Trust in the Initial Offering.
(d) The full cash price for Shares must be paid to the Trust at the time of
subscription.
(e) Shareholders who acquire Common Shares from the Trust in the Initial
Offering shall meet the following suitability standards prior to consummating
such acquisition:
(i) Minimum annual gross income of $35,000 and a minimum net worth
(determined exclusive of home, home furnishings, and automobiles) of
$35,000; or
(ii) Minimum net worth of $100,000 (determined exclusive of home, home
furnishings, and automobiles).
The Managing Shareholder and each participating broker-dealer selling Common
Shares in connection with the Initial Offering shall make every reasonable
effort to determine that the acquisition of Common Shares in the Initial
Offering is a suitable and appropriate investment for each Shareholder by
ascertaining that the prospective Shareholder meets the following
qualifications:
(i) Meets the minimum income and net worth standards set forth in this
Section 1.6;
(ii) Can reasonably benefit from the Trust based on the prospective
Shareholder's overall investment objectives and portfolio structure;
(iii) Is able to bear the economic risk of the investment based on the
prospective Shareholder's overall financial situation;
(iv) Has apparent understanding of the fundamental risks of the
investment; of the risk that the Shareholder may lose the entire
investment; of the lack of liquidity of Common Shares; of the restrictions
on transferability of Common Shares as a result of the Trust's status as a
REIT for federal income tax purposes; of the background and qualifications
of the Managing Shareholder; and of the tax consequences of the investment.
Such suitability determination will be made on the basis of all information
obtained from a prospective Shareholder, including at least the age, investment
objectives, net worth, financial situation and other investments of the
prospective Shareholder, and other pertinent factors. The Managing Shareholder
or the participating broker-dealer who sells the particular Common Shares shall
maintain records of the information used to make the suitability determination
for at least six years from the date of sale. The securities administrator of
any state in
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which the Trust may sell Common Shares in connection with the Initial Offering
may require minimum initial and subsequent cash investment amounts.
1.7 Duration of the Trust. Subject to possible earlier termination in
accordance with the provisions of Sections 6.6(b) and 8.1, the duration of the
Trust shall be perpetual. For all purposes, this Declaration, as it may be
amended or restated from time to time in accordance with its terms, shall be
effective until the Trust is terminated in accordance with Section 8.1.
1.8 Powers of the Trust. Without limiting any powers granted to the Trust
under this Declaration or applicable law, the Trust shall have the following
additional powers, subject to applicable law:
(a) To borrow money or to loan money and to pledge or mortgage any and all
Trust Property and to execute conveyances, mortgages, security agreements,
assignments and any other contract or agreement deemed proper and in furtherance
of the Trust's purposes and affecting it or any Trust Property (including
without limitation the Trust Management Agreement (as defined in Article 10));
provided, however, that the Trust shall not loan money to the Managing
Shareholder, the Trustees or any other Managing Person except as provided in
Section 1.9(z) below or to any wholly owned subsidiary of the Trust;
(b) To pay all indebtedness, taxes and assessments due or to be due with
regard to Trust Property and to give or receive notices, reports or other
communications arising out of or in connection with the Trust's business or
Trust Property;
(c) To collect all moneys due the Trust;
(d) To establish, maintain and supervise the deposit of funds or Trust
Property into, and the withdrawals of the same from, Trust bank accounts or
securities accounts;
(e) To employ accountants to prepare required tax returns and provide other
professional services and to pay their fees as a Trust expense;
(f) To make election to be treated as a REIT for federal income tax
purposes under Section 856 through 860 of the Code;
(g) To employ legal counsel for Trust purposes and to pay their fees and
expenses as a Trust expense; and
(h) To conduct the affairs of the Trust with the general objective of
achieving capital appreciation and distributable income from the Trust Property.
1.9 Provisions, Restrictions and Prohibitions regarding Trust Operations.
Notwithstanding anything to the contrary set forth in this Declaration, the
Trust, Managing Shareholder and Trustees, as the case may be, shall conform to
the following provisions, restrictions and prohibitions in the operations of the
Trust:
(a) A majority of the Independent Trustees shall confirm that prior to the
completion of the Initial Offering the Managing Shareholder or an Affiliate has
contributed to the Trust as an initial investment in the Trust cash or property
with a value in the amount of $50,000. In exchange for such initial contribution
the Managing Shareholder shall be entitled to receive one Common Share for each
$10 so contributed. Such Common Shares shall be in addition to the 2,500,000
Common Shares which the Trust is offering for sale in the Initial Offering. The
Managing Shareholder may dispose of all or a portion of such Common Shares at
any time after the first anniversary of the completion of the Initial Offering
in the same manner in which other Shareholders may dispose of their Common
Shares.
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(b) At, or prior to, the initial meeting of the Board of the Trust, this
Declaration shall be reviewed and ratified by a majority vote of the Board and
of the Independent Trustees.
(c) The Board shall establish written policies on investments and any
borrowing to be made by the Trust and monitor the administrative procedures,
investment operations and performance of the Trust and the Managing Shareholder
to ensure that such policies are being carried out.
(d) The Board shall evaluate the performance of the Managing Shareholder
(and any successor Advisor of the Trust) prior to entering into or renewing a
management agreement (including without limitation the Trust Management
Agreement which is described in the Prospectus) relating to the administration
and management of the Trust (other than the initial term of the Trust Management
Agreement, which shall be deemed to have been approved by Shareholders who
acquire Common Shares in the Offering and by a majority of the Board and a
majority of the Independent Trustees). The criteria used in such evaluation
shall be reflected in the minutes of such Board meeting. Any such management
agreement shall not have a term of more than one year and shall be terminable by
a majority of the Independent Trustees or the Managing Shareholder (or any
successor Advisor, as the case may be) on at least 60 days prior written notice
without cause or penalty. Upon the termination of the Trust Management Agreement
or any other management agreement that may be entered into by the Trust and the
Managing Shareholder (or any successor Advisor), the Managing Shareholder or
other Advisor, as the case may be, shall cooperate with the Trust and take all
reasonable steps requested to assist the Board in making an orderly transition
of the advisory function. The Board shall determine that any successor to the
Managing Shareholder (or any successor Advisor) possesses sufficient
qualifications to perform the management, administrative and investment advisory
function for the Trust and justify the compensation provided for in the
applicable management agreement.
(e) A majority of the Board and a majority of the Independent Trustees
shall determine whether the conditions set forth in Section 3.7 have been fully
satisfied for indemnification or for advancement of Trust funds for legal
expenses and other costs incurred as a result of any legal action for which
indemnification is being sought in respect of the Managing Shareholder, any
Trustee, a broker-dealer, or any Affiliate of the Managing Shareholder or a
Trustee, provided, however, any party seeking indemnification under Section 3.7
which is the Managing Shareholder, a Trustee or an Affiliate of the Managing
Shareholder or a Trustee shall not be eligible to participate in making any such
determination.
(f) The Independent Trustees shall determine, at least annually, that the
total fees and expenses of the Trust are reasonable in light of the investment
performance of the Trust, its net assets, its net income, and the fees and
expenses of other comparable unaffiliated REITs. Each such determination shall
be reflected in the minutes of the meeting of the Board.
(g) The Independent Trustees shall determine that the Organization and
Offering Expenses (as defined below) (including the distribution, due diligence
and organizational fee specified in Section 4.2 of this Declaration) payable by
the Trust in connection with the formation of the Trust and any offering of
Shares is reasonable and in no event exceeds an amount equal to 15% of the gross
proceeds of the particular offering. For purposes of this Declaration, the term
"Organization and Offering Expenses" means all expenses incurred by and to be
paid from the assets of the Trust in connection with and in preparing the Trust
for registration and subsequently offering and distributing Shares to the
public, including, but not limited to, total underwriting and brokerage
discounts and commissions (including any fees of the underwriters' attorneys
payable by the Trust), expenses for printing, engraving, mailing, salaries of
employees while engaged in sales activity, charges of transfer agents,
registrars, trustees, escrow holders, depositaries, experts, expenses of
qualification of the sale of the securities under Federal and State laws,
including taxes and fees, accountants' and attorneys' fees.
(h) The Independent Trustees shall determine that the total amount of any
Acquisition Fee (including the investment fee specified in Section 4.3 of this
Declaration) and Acquisition Expenses (as such terms are defined below) payable
by the Trust is reasonable and in no event exceeds an amount equal to six
percent of the purchase price of the subject property, or in the case of a
mortgage loan made or acquired by the Trust, six percent of the funds advanced,
unless a majority of the "disinterested" members of the Board and a majority of
the
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"disinterested" Independent Trustees approve payment of an Acquisition Fee in
excess of such amounts based upon their determination that such excess fee is
commercially competitive, fair and reasonable to the Trust. For purposes of this
Declaration, the term "Acquisition Fee" means the total of all fees and
commissions paid by any party to any other party in connection with making or
investing in Mortgage Loans or the purchase, development or construction of
property by the Trust, including any real estate commission, selection fee,
development fee, construction fee, non-recurring management fee, loan fees or
points or any fee of a similar nature, however designated, but excluding
development fees and construction fees paid to persons not affiliated with the
Managing Shareholder in connection with the actual development and construction
of a project. For purposes of this Declaration, the term "Acquisition Expenses"
means all expenses related to the selection and acquisition of properties,
whether or not acquired, including, but not limited to legal fees and expenses,
travel and communications expenses, costs of appraisals, nonrefundable option
payment on property not acquired, accounting fees and miscellaneous expenses.
For purposes of this Declaration, disinterested members of the Board and
disinterested Independent Trustees with respect to a particular transaction or
matter concerning the Trust's operations shall include those persons who have no
other interest in any such transaction or matter beyond their role on the Board
or as Independent Trustees.
(i) The Independent Trustees shall have the fiduciary responsibility of
limiting the Total Operating Expenses (as defined below) of the Trust in any
fiscal year to the greater of (i) two percent of the Trust's Average Invested
Assets (as defined below) and (ii) twenty-five percent of the Net Income (as
defined below) of the Trust for such year unless the Independent Trustees make a
finding that, based on such unusual and non-recurring factors which they deem
sufficient, a higher level of such operating expenses is justified for such
year. Any such finding and the reasons in support thereof shall be reflected in
the minutes of the meeting of the Board. Within 60 days after the end of each
fiscal year of the Trust for which the Trust incurs operating expenses in excess
of such amount, the Trust shall send to the Shareholders written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees do not determine such excess expenses are
justified, the Managing Shareholder shall reimburse the Trust at the end of such
fiscal year the amount by which the Total Operating Expenses paid or incurred by
the Trust exceed the limitations herein provided.
For purposes of this Declaration, "Total Operating Expenses" means the
aggregate expenses of every character paid or incurred by the Trust as
determined under generally accepted accounting principles, including the
Managing Shareholder's (and any successor Advisor's) fees, but excluding the
following: (a) the expenses of raising capital such as Organization and Initial
Offering Expenses (defined above), legal, audit, accounting, underwriting,
brokerage, listing, registration and other fees, printing and other such
expenses, and tax incurred in connection with the issuance, distribution,
transfer, registration, and stock exchange listing, if any, of the Trust's
Shares; (b) interest payments; (c) taxes; (d) non-cash expenditures such as
depreciation, amortization and bad debt reserves; (e) incentive fees paid in
compliance with subsection (ee) below; (e) Acquisition Fees and Acquisition
Expenses (defined above), real estate commissions on resale of property and
other expenses connected with the acquisition, disposition, and ownership of
real estate interests, mortgage loans, or other property (such as the costs of
foreclosure, insurance premiums, legal services, maintenance, repair, and
improvement of property).
For purposes of this Declaration, "Average Invested Assets" means, for any
period, the average of the aggregate book value of the assets of the Trust
invested, directly or indirectly, in equity interests in and loans secured by
real estate, before reserves for depreciation or bad debts or other similar
non-cash reserves computed by taking the average of such values at the end of
each month during such period.
For purposes of this Declaration, "Net Income" means, for any period, total
revenues applicable to such period, less the expenses applicable to such period
other than additions to reserves for depreciation or bad debts or other similar
non-cash reserves. If the Managing Shareholder receives an incentive fee paid in
compliance with subsection (ee) below, Net Income, for purposes of calculating
Total Operating Expenses in this subsection, shall exclude the gain from the
sale of the Trust's assets.
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(j) A majority of the Independent Trustees shall determine that the
conditions set forth in Section 4.5(b) for payment to the Managing Shareholder,
a Trustee, or any of their respective Affiliates of real estate commissions on
purchase or sale of a Trust Property have been fully satisfied, that any such
commission payable does not exceed a real estate commission which is reasonable,
customary and competitive in light of the size, type and location of such
property and in no event exceeds three percent of the sale price, and that the
amount of such commissions payable when added to the commissions payable to
unaffiliated real estate brokers does not exceed the lesser of such competitive
real estate commission or an amount equal to six percent of the sale price.
(k) The Independent Trustees shall determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder (or
any successor Advisor) is reasonable in relation to the nature and quality of
services performed and that such compensation is within the limits prescribed in
subsection (f) above. The Independent Trustees shall also supervise the
performance of the Managing Shareholder (and any successor Advisor) and the
compensation payable to it by the Trust to determine that the terms and
conditions of the contract are being carried out. Each such determination shall
be based on the factors set forth below and all other factors the Independent
Trustees may deem relevant. The findings of the Independent Trustees on each of
such factors shall be recorded in the minutes of the meetings of the Board.
(i) The size of the management fee in relation to the size,
composition and profitability of the Trust's portfolio.
(ii) The success of the Managing Shareholder in generating
opportunities that meet the investment objectives of the Trust.
(iii) The rates charged to other REITs and to investors other than
REITs by Advisors performing similar services.
(iv) Additional revenues realized by the Managing Shareholder and any
Affiliates through their relationship with the Trust, including loan
administration, underwriting or broker commissions, servicing, engineering,
inspection and other fees, whether paid by the Trust or by others with whom
the Trust does business.
(v) The quality and extent of service and advice furnished by the
Managing Shareholder.
(vi) The performance of the investment portfolio of the Trust,
including income, conservation or appreciation of capital, frequency of
problem investments, and competence in dealing with distress situations.
(vii) The quality of the portfolio of the Trust in relationship to the
investments generated by the Managing Shareholder for its own account.
(l) The Trust shall not purchase property or any equity interest in any
entity which owns title to one or more properties from the Managing Shareholder,
a Trustee, or any of their respective Affiliates unless a majority of the
disinterested members of the Board and a majority of the disinterested
Independent Trustees review the proposed transaction and determine that it is
fair and reasonable to the Trust and that the purchase price to the Trust for
such property or equity interest is no greater than the cost of the property or
equity interest to such proposed seller, or if the purchase price to the Trust
is in excess of such cost, that substantial justification for such excess exists
and such excess is reasonable, provided, however, in no event may the purchase
price for the property or equity interest exceed its current appraised value.
(m) Neither the Managing Shareholder, any Trustee, nor any of their
respective Affiliates shall acquire or lease any assets from the Trust unless a
majority of the disinterested members of the Board and a majority of the
disinterested Independent Trustees determine that the proposed transaction is
fair and reasonable to the Trust.
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(n) No loans may be made by the Trust to the Managing Shareholder, a
Trustee or any of their respective Affiliates except as provided in subsection
(z) below or to any wholly owned subsidiary of the Trust.
(o) The Trust may not borrow money from the Managing Shareholder, a
Trustee, or any of their respective Affiliates unless a majority of the
disinterested members of the Board and a majority of the disinterested
Independent Trustees determine that such proposed transaction is fair,
competitive, and commercially reasonable and no less favorable to the Trust than
loans between unaffiliated parties under the same circumstances.
(p) The Trust shall not invest in joint ventures with the Managing
Shareholder, a Trustee, or any of their respective Affiliates unless a majority
of the disinterested members of the Board and a majority of the disinterested
Independent Trustees determine that such proposed transaction is fair and
reasonable to the Trust and on substantially the same terms and conditions as
those received by other joint venturers.
(q) The Trust shall not invest in equity securities unless a majority of
the disinterested members of the Board and a majority of the disinterested
Independent Trustees determine that such proposed transaction is fair,
competitive, and commercially reasonable.
(r) The Independent Trustees shall review the investment policies of the
Trust at least annually to determine that the policies being followed by the
Trust at any time are in the best interests of the Shareholders. Each such
determination and the basis therefor shall be reflected in the minutes of
meetings of the Board.
(s) In the event that the Trust and one or more other investment programs
sponsored by the Managing Shareholder or an Affiliate of the Managing
Shareholder seek to acquire similar properties, the Board (including the
Independent Trustees) shall review the method described in the Prospectus for
allocating the acquisition of properties among the Trust and such other programs
in order to determine that such method is applied fairly to the Trust.
(t) Any other transaction not described in this Section 1.9 between the
Trust and the Managing Shareholder, a Trustee, or any of their respective
Affiliates shall require the determination of a majority of the disinterested
members of the Board and a majority of the disinterested Independent Trustees
that the proposed transaction is fair and reasonable to the Trust and on terms
and conditions no less favorable to the Trust than those available from
unaffiliated parties.
(u) The consideration that the Trust pays for any property or for any
equity interest in any entity owning title to one or more properties shall be
based on the fair market value of such property or equity interest as determined
by a majority of the Board, provided, however, in cases in which a majority of
the Independent Trustees in their sole discretion determine, and in all cases in
which the Trust proposes to acquire any property or equity interest in any
entity owning title to one or more properties from the Managing Shareholder, a
Trustee, or any of their respective Affiliates, such fair market value shall be
determined by a qualified independent appraiser selected by the Independent
Trustees.
(v) In connection with a proposed Roll-up (as defined below) involving the
Trust's assets, an appraisal of all the Trust's assets shall be obtained from a
qualified independent appraiser. If the appraisal will be included in a
prospectus to be used to offer the securities of a Roll-up Entity (as defined
below), the appraisal shall be filed with the Commission and applicable states
as an exhibit to the registration statement for the offering. The appraisal
shall be based on an evaluation of all relevant information, shall indicate the
value of the Trust's assets as of a date immediately prior to the announcement
of the proposed transaction, and shall assume an orderly liquidation of the
Trust's assets over a 12-month period. The terms of the engagement of the
independent appraiser shall clearly state that the engagement is for the benefit
of the Trust and the Shareholders. A summary of the appraisal, indicating all
material assumptions underlying the appraisal, shall be included in a report to
the Shareholders in connection with the proposed transaction.
In connection with a proposed Roll-up transaction involving the Trust's
assets, the sponsor of the transaction shall offer to Shareholders who vote
against the proposal the choice of:
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(i) Accepting the securities of the Roll-up Entity offered in the proposed
transaction, or
(ii) One of the following:
(1) Remaining as Shareholders in the Trust and preserving their
interests therein on the same terms and conditions as existed
previously; or
(2) Receiving cash in an amount equal to the Shareholder's pro rata
share of the appraised value of the Net Assets (as defined below) of
the Trust.
The Trust shall not participate in any proposed Roll-up transaction:
(i) which would result in the Shareholders having rights in the Roll-up
Entity that are less favorable than those provided for Shareholders under this
Declaration;
(ii) which includes provisions which would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the securities of the
Roll-up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-up Entity);
(iii) which would limit the ability of a Shareholder to exercise the voting
rights of its securities of the Roll-up Entity on the basis of the number of the
Trust's Shares held by such Shareholder.
(iv) in which Shareholders' rights of access to the records of the Roll-up
Entity will be less favorable than those provided for under this Declaration; or
(v) in which any of the costs of the transaction would be borne by the
Trust if the Roll-up transaction is not approved by the Shareholders.
For purposes of this Declaration, "Roll-up" means a transaction involving
the acquisition, merger, conversion, or consolidation either directly or
indirectly of the Trust and the issuance of securities of a Roll-up Entity. Such
term does not include the following: (a) a transaction involving securities of
the Trust that have been for at least 12 months listed on a national securities
exchange or traded through the National Association of Securities Dealers
Automated Quotation National Market System; or (b) a transaction involving the
conversion to corporate, trust, or association form of only the Trust if, as a
consequence of the transaction there will be no significant adverse change in
any of the following: (i) Shareholders' voting rights; (ii) the term of
existence of the Trust; (iii) compensation payable to the sponsor or advisor of
the Roll-up transaction; or (iv) the Trust's investment objectives. For purposes
of this Declaration, "Roll-Up Entity" means a partnership, real estate
investment trust, corporation, trust, or other entity that would be created or
would survive after the successful completion of a proposed Roll-up transaction.
For purposes of this Declaration, "Net Assets" means the total assets (other
than intangibles) at cost before deducting depreciation or other non-cash
reserves less total liabilities, calculated at least quarterly on a basis
consistently applied.
(w) The aggregate borrowings of the Trust, secured and unsecured, shall be
reasonable in relation to the Net Assets (defined above) of the Trust and shall
be reviewed at least quarterly by the Board. The maximum amount of such
borrowings in relation to such Net Assets shall not exceed 300%, in the absence
of a satisfactory showing that higher level of borrowing is appropriate. Any
borrowing in excess of such amount shall require the approval of a majority of
the Independent Trustees and be disclosed to Shareholders in the next quarterly
report of the Trust, along with an explanation of the justification of such
excess.
(x) The Trust may not invest more than 10% of its total assets in
Unimproved Real Property (as defined below) or mortgage loans on such type of
property. For purposes of this Declaration, "Unimproved Real Property" means the
real property which has the following three characteristics: (a) an equity
interest in real property which was not acquired for the purpose of producing
rental or other operating income; (b) has no
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development or construction in process on such land; and (c) no development or
construction on such land is planned in good faith to commence on such land
within one year.
(y) The Trust may not invest in commodities or commodity future contracts,
excluding future contracts used solely for hedging purposes in connection with
the Trust's ordinary business of investing in real estate assets and mortgages.
(z) The Trust may not invest in or make mortgage loans (other than loans
insured or guaranteed by a government or government agency) unless an appraisal
is obtained concerning the underlying properties. In cases in which a majority
of the Independent Trustees in their sole discretion determine, and in all cases
in which the proposed transaction is with the Managing Shareholder, a Trustee,
or any of their respective Affiliates, the appraisal must be obtained from a
qualified independent appraiser. The appraisal shall be maintained in the
Trust's records for at least five years, and shall be available for inspection
and duplication by any Shareholder at the Shareholder's own expense. In addition
to the appraisal, the Trust must also obtain a mortgagee's or owner's title
insurance policy or commitment as to the priority of the mortgage or the
condition of the title. In addition, the Managing Shareholder and the Board
shall observe the following policies in connection with investing in or making
mortgage loans:
(i) The Trust shall not invest in real estate contracts of sale,
otherwise known as land sale contracts, unless such contracts are in
recordable form and appropriately recorded in the chain of title.
(ii) The Trust shall not invest in or make any mortgage loans,
including construction loans, on any properties if the aggregate amount of
all mortgage loans outstanding on the properties, including the loans of
the Trust, would exceed an amount equal to 85% of the appraised value of
the properties as determined by appraisal unless substantial justification
exists because of the presence of other underwriting criteria (such as the
net worth of the borrower, the credit rating of the borrower based on
historical financial performance, or collateral adequate to justify waiver
from application of the foregoing restriction) or of other factors
(including without limitation, the availability of loan insurance or
guarantees from a government or government agency, the existence of
security for the loan in the form of a pledge or assignment of other real
estate or another real estate mortgage, or the existence of an assignment
of rents under leases where tenants have demonstrated the ability to
satisfy the terms of the leases). In applying such restriction, the
aggregate amount of all outstanding mortgage loans shall include all
interest (other than contingent participation in income and/or appreciation
in value of the mortgaged property) the current payment of which may be
deferred under the terms of such loans, to the extent that deferred
interest on each loan exceeds five percent per annum of the principal
balance of the loan.
(iii) The Trust shall not make or invest in any mortgage loans that
are subordinate to any mortgage or equity interest of the Managing
Shareholder, Trustees or any of their respective Affiliates.
(aa) Except as otherwise permitted by this Declaration, the Trust may not
issue redeemable equity securities.
(bb) The Trust may not issue debt securities unless the historical debt
service coverage (in the most recently completed fiscal year) as adjusted for
known changes is sufficient to properly service such higher level of debt.
(cc) The Trust may not issue options or warrants to purchase Shares to the
Managing Shareholder, the Trustees or any of their respective Affiliates except
on the same terms as such options or warrants are sold to the general public.
The Trust may issue options or warrants to persons not so connected with the
Trust but not at exercise prices less than the fair market value of such Shares
on the date of grant and for consideration (which may include services) that in
the judgment of the Independent Trustees has a market value less than the value
of such option on the date of grant. Options or warrants issuable to the
Managing Shareholder, the Trustees or any of their respective Affiliates shall
not exceed an amount equal to 10% of the outstanding Shares on the date of grant
of any options or warrants.
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(dd) The Trust may not issue Shares on a deferred payment basis or other
similar arrangement.
(ee) The payment by the Trust of an interest in the gain from the sale of
assets of the Trust, for which full consideration is not paid in cash or
property of equivalent value, shall be allowed provided the amount or percentage
of such interest is reasonable. Such an interest in gain from the sale of Trust
assets shall be considered presumptively reasonable if it does not exceed
fifteen percent of the balance of such net proceeds remaining after payment to
Shareholders, in the aggregate, of an amount equal to the original issue price
of Shares, plus an amount equal to six percent of the original issue price of
Shares, per annum cumulative. For purposes of this subsection, the calculation
of the original issue price of Shares may be reduced by prior cash distributions
to Shareholders. In the case of multiple Trust Advisors (including the Managing
Shareholder), such Advisors and any of their respective Affiliates shall be
allowed incentive fees provided such fees are distributed by a proportional
method reasonably designed to reflect the value added to Trust assets by each
respective Advisor or any Affiliate.
(ff) The Managing Shareholder shall use its reasonable best efforts to
cause the Trust to qualify for federal income tax treatment as a REIT under
Sections 856 - 860 of the Code. In furtherance of the foregoing, the Managing
Shareholder shall use its reasonable best efforts to take such actions from time
to time as are necessary, and is authorized to take such actions as in its sole
judgment and discretion are desirable, to preserve the status of the Trust as a
REIT; provided, however, that if the Managing Shareholder determines, with the
affirmative vote of a Majority of Shareholders entitled to vote on such matter
approving the Managing Shareholder's determination, that it is no longer in the
best interests of the Trust to continue to have the Trust qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
ARTICLE 2
SHARES
2.1 Shares, Certificates of Beneficial Interest. (a) The units into which
the beneficial interest in the Trust shall be divided shall be designated as
Shares, with no par value per Share. Ownership of Shares shall be evidenced by
certificates in such form as shall be determined by the Managing Shareholder
from time to time in accordance with the law of the State of Delaware. The
owners of such Shares, who are the beneficiaries of the Trust, shall be
designated as Shareholders. The certificates shall be negotiable and title
thereto shall be transferred by assignment or delivery in all respects as a
stock certificate of a Delaware corporation. The Trust shall have authority to
issue an aggregate of 25,000,000 Shares. As specified in Section 1.6 of this
Declaration, the Trust will offer for sale in the Initial Offering up to
2,500,000 Shares designated as Common Shares at a purchase price per share of
$10. The consideration payable for the issuance of Shares other than those
offered in the Initial Offering shall be determined by the Managing Shareholder
and shall consist of money paid or property actually received. Shares shall not
be issued until the full amount of the consideration has been received by the
Trust. The Managing Shareholder may authorize Share dividends or Share splits.
All Shares issued hereunder shall be, when issued, fully paid, and no assessment
shall ever be made upon the Shareholders.
(b) The Shareholders shall have no legal title or interest in the property
of the Trust and no right to a partition thereof or to an accounting during the
continuance of the Trust but only to the rights expressly provided in this
Declaration.
(c) The Managing Shareholder may classify or reclassify any unissued Shares
from time to time by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the Shares in accordance
with any applicable law of the State of Delaware. The Managing Shareholder is
authorized to issue from the authorized but unissued Shares of the Trust,
additional Common Shares as well as Preferred Shares in one or more series and
to establish from time to time the number of Preferred Shares to be included in
each such series and to fix 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 shares of each
series. Except for Preferred Shares so classified or
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reclassified and issued hereunder, all other Shares shall be designated as
Common Shares, each of which Common Shares shall be equal in all respects to
every other Common Share. Each Common Share shall entitle the holder to one vote
on all matters requiring a vote of Shareholders, including the election of
members of the Board of the Trust. The authority of the Managing Shareholder
with respect to each unissued series of Preferred Shares shall include, but not
be limited to, determination of the following:
(i) The number of Shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the Shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on Shares of that
series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, if any, and, if so, the terms of such voting
rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board shall
determine;
(v) Whether or not the Shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
Share payable in case of redemption, which amount may vary under different
conditions and at different redemption rates; provided however, that any
proposed issuance of Shares which are redeemable at the option of the
holder shall be approved by Shareholders holding a majority of the Trust's
outstanding Shares of all classes;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of Shares of that series, and, if so, the terms and amount of
such sinking fund;
(vii) The rights of the Shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Trust, and the relative rights of priority, if any, of payment of Shares of
that series;
(viii) Any other relative rights, preferences and limitations of that
series.
2.2 Sale of Shares. The Managing Shareholder, in its discretion, may from
time to time cause the Trust to issue or sell or contract to issue or sell
Shares, including Shares held in the treasury, to such party or parties and for
money or property actually received, as allowed by the laws of the State of
Delaware, at such time or times, and on such terms as the Managing Shareholder
may deem appropriate, subject to any prior approval of the Board and/or the
Independent Trustees whenever required under Section 1.9 of this Declaration. In
connection with any sale or issuance of Shares, the Managing Shareholder, in its
discretion, may provide for the sale or issuance of fractional Shares or may
provide for the sale or issuance of scrip for fractions of Shares and determine
the terms of such scrip including, without limiting the generality of the
foregoing, the time within which any such scrip must be surrendered in exchange
for Shares and the right, if any, of holders of scrip upon the expiration of the
time so fixed, the right, if any, to receive proportional distributions, and the
right, if any, to redeem scrip for cash, or the Managing Shareholder may, in its
discretion, or if it sees fit at the option of each holder, provide in lieu of
scrip for the adjustment of fractions in cash. The Shareholders shall have no
preemptive rights of any kind whatsoever (preemptive rights hereby defined as
including, but not limited to, the right to purchase or subscribe for or
otherwise acquire any Shares of the Trust of any class, whether now or hereafter
authorized, or any securities or obligations convertible into or exchangeable
for, or any right, warrant or option to purchase such Sharers whether or not
such Shares are issued and/or disposed of for cash, property, or other
consideration of any kind). Options or warrants issued by the Trust to purchase
Shares shall not be exercisable later than five years from the date of issuance
thereof.
2.3 Offering of Shares. The Managing Shareholder is authorized to cause to
be made from time to time offerings of the Shares of the Trust to the public at
public offering prices deemed appropriate. For this purpose, the Managing
Shareholder is authorized to enter into a contract with an underwriter or
distributing company (hereinafter referred to as the "Distributor"), which shall
be granted such commissions for its services as
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may be agreed upon by the parties. Any such contract shall be for an initial
term of not more than two years, and thereafter terminable at will by the
Managing Shareholder upon 60 days written notice to the Distributor. Such
contract shall not be assignable by the Distributor, without the written consent
of the Trust.
2.4 Treasury Shares. The Trust may repurchase or otherwise acquire its own
Shares at the prevailing market price and for this purpose the Trust may create
and maintain such reserves as are deemed necessary and proper. Shares issued
hereunder and purchased or otherwise acquired for the account of the Trust shall
not, so long as they belong to the Trust, either receive distributions (except
that they shall be entitled to receive distributions payable in Shares of the
Trust) or be voted at any meeting of the Shareholders. Such Shares may, in the
discretion of the Managing Shareholder, be held in the treasury and be disposed
of by the Managing Shareholder at such time or times, to such party or parties,
and for such consideration, as it may deem appropriate.
2.5 Transferability of Shares. (a) Except as otherwise provided in Article
2A and elsewhere in this Declaration, Shares in the Trust shall be transferable
in accordance with the procedure prescribed from time to time in the Trust
Bylaws. The persons in whose name the Shares are registered on the books of the
Trust shall be deemed the absolute owners thereof and, until a transfer is
effected on the books of the Trust, the Managing Shareholder shall not be
affected by any notice, actual or constructive, of any transfer. In the sole
discretion of the Trust, any person acquiring Shares pursuant to any of the
provisions of this Section 2.5 may be required to bear all costs and expenses
necessary to effect a transfer of such Shares. No sale or assignment of Shares
shall release the transferor from those liabilities to the Trust which survive
such assignment or sale as a matter of law or that are imposed under Section
3.4. No transfer of Shares, whether voluntary, involuntary or by operation of
law, shall entitle the transferor to demand or obtain immediate valuation,
accounting or payment of the transferred Shares.
(b) Any sale, issuance, redemption or transfer of Shares which would
operate to disqualify the Trust as a real estate investment trust for purposes
of Federal income tax, is null and void (unless the Managing Shareholder with
the concurrence of a Majority of the Shareholders, prior to such acquisition,
shall have determined that the disqualification of the Trust is advantageous to
Shareholders), and such transaction will be canceled when so determined in good
faith by the Managing Shareholder.
2.6 Effect of Transfer of Shares or Death, Insolvency or Incapacity of
Shareholders. Neither the transfer of Shares nor the death, insolvency or
incapacity of any Shareholder shall operate to dissolve or terminate the Trust,
nor shall it entitle any transferee, legal representative or other person to a
partition of the property of the Trust or to any accounting.
2.7 Repurchase of Shares. The Trust is not obligated to repurchase any
issued Shares unless it specifically agrees to do so in writing. The Trust may
elect to repurchase Shares if such repurchase does not impair the capital or
operations of the Trust and is effected in compliance with any applicable
federal or state securities laws or other applicable laws. The Managing
Shareholder (and any successor Advisor of the Trust), the Trustees, and any of
their respective Affiliates may not receive a fee in connection with any such
repurchase.
2.8 Distribution Reinvestment Plan. Any distribution reinvestment plan that
the Trust may adopt shall, at a minimum, provide that: (i) all material
information regarding the distribution to the Shareholders and the effect of
reinvesting such distribution, including the tax consequences thereof, shall be
provided to the Shareholders at least annually, and (ii) each participating
Shareholder shall have a reasonable opportunity to withdraw from the plan at
least annually after the receipt of such information.
ARTICLE 2A
RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES
2A.1 Definitions. For the purposes of this Article 2A, the following terms
shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Equity Shares by a Person
who would be treated as an
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owner of such Equity Shares under Section 542(a)(2) of the Code either directly
or constructively through the application of Section 544 of the Code, as
modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns," "Beneficially Own" and "Beneficially Owned" shall have the
correlative meanings.
"Beneficiary" shall mean the beneficiary of the Excess Share Trust as
determined pursuant to Section 2A.18.
"Debt" shall mean indebtedness of (a) the Trust or (b) any partnership
formed or acquired by the Trust in which all or a portion of its real estate
assets might be held and its operations might be conducted.
"Equity Shares" shall mean Shares that are either Common Shares or
Preferred Shares.
"Excess Share Trust" shall mean the trust created pursuant to Section
2A.15.
"Existing Holder" shall mean (a) any Person who is, or would be upon the
exchange of Units, Debt or any other security of the Trust, the Beneficial Owner
of Common Shares and/or Preferred Shares in excess of the Ownership Limit both
upon and immediately after the closing of the Initial Public Offering, so long
as, but only so long as, such Person Beneficially Owns or would, upon exchange
of Units, Debt or any other security of the Trust, Beneficially Own Common
Shares and/or Preferred Shares in excess of the Ownership Limit and (b) any
Person to whom an Existing Holder Transfers, subject to the limitations provided
in this Article 2A, Beneficial Ownership of Common Shares and/or Preferred
Shares causing such transferee to Beneficially Own Common Shares and/or
Preferred Shares in excess of the Ownership Limit.
"Existing Holder Limit" (a) for any Existing Holder who is an Existing
Holder by virtue of clause (a) of the definition thereof, shall mean, initially,
the percentage of the outstanding Equity Shares Beneficially Owned, or which
would be Beneficially Owned upon the exchange of Units, Debt or any other
security of the Trust, by such Existing Holder upon and immediately after the
date of the closing of the Initial Public Offering, and, after any adjustment
pursuant to Section 2A.9, shall mean such percentage of the outstanding Equity
Shares as so adjusted, and (b) for any Existing Holder who becomes an Existing
Holder by virtue of clause (b) of the definition thereof, shall mean, initially,
the percentage of the outstanding Equity Shares Beneficially Owned by such
Existing Holder at the time that such Existing Holder becomes an Existing
Holder, but in no event shall such percentage be greater than the Existing
Holder Limit for the Existing Holder who Transferred Beneficial Ownership of the
Common Shares and/or Preferred Shares or, in the case of more than one
transferor, in no event shall such percentage be greater than the smallest
Existing Holder Limit of any transferring Existing Holder, and, after any
adjustment pursuant to Section 2A.9, shall mean such percentage of the
outstanding Equity Shares as so adjusted. From the date of the Initial Public
Offering and until the Restriction Termination Date, the Trust shall maintain
and, upon request, make available to each Existing Holder, a schedule which sets
forth the then current Existing Holder Limits for each Existing Holder.
"Initial Public Offering" shall mean the sale of Common Shares pursuant to
the Trust's first effective registration statement for such Common Shares filed
under the Securities Act of 1933, as amended.
"Market Price" shall mean the last reported sales price reported on the New
York Stock Exchange of Common Shares or Preferred Shares, as the case may be, on
the trading day immediately preceding the relevant date, or if not then traded
on the New York Stock Exchange, the last reported sales price of the Common
Shares or Preferred Shares, as the case may be, on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system over
or through which the Common Shares or Preferred Shares, as the case may be, may
be traded, or if not then traded over or through any exchange or quotation
system, then the market price of the Common Shares and/or Preferred Shares, as
the case may be, on the relevant date as determined in good faith by the
Managing Shareholder of the Trust.
"Ownership Limit" shall initially mean 9.8%, in number of shares or value,
of the outstanding Equity Shares of the Trust, and after any adjustment as set
forth in Section 2A.10, shall mean such greater percentage of
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the outstanding Equity Shares as so adjusted. The number and value of the
outstanding Equity Shares of the Trust shall be determined by the Managing
Shareholder in good faith, which determination shall be conclusive for all
purposes hereof.
"Person" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code),
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity; but does not include an underwriter which participated in a
public offering of the Common Shares and/or Preferred Shares for a period of 25
days following the purchase by such underwriter of the Common Shares and/or
Preferred Shares.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer which results in Excess Shares as defined below in Section 2A.3, the
purported beneficial transferee for whom the Purported Record Transferee would
have acquired shares of Equity Shares, if such Transfer had been valid under
Section 2A.2.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Shares, the record holder of the Equity Shares
if such Transfer had been valid under Section 2A.2.
"Restriction Termination Date" shall mean the first day after the date of
the Initial Public Offering on which the Managing Shareholder determines, which
determination must be approved by the Shareholders, that it is no longer in the
best interests of the Trust to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Equity Shares (including (a) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Equity Shares, but
excluding the exchange of Units, Debt or any other security of the Trust for
Equity Shares and (c) any transfer or other disposition of any interest in
Equity Shares as a result of a change in the marital status of the holder
thereof), whether voluntary or involuntary, whether of record or beneficially
and whether by operation of law or otherwise. The terms "Transfers" and
"Transferred" shall have the correlative meanings.
"Units" shall mean units of limited partnership of any partnership formed
or acquired by the Trust in which all or a portion of the Trust's real estate
assets might be held and its operations might be conducted.
2A.2 Ownership Limitation.
(a) Except as provided in Section 2A.12, from the date of the Initial
Public Offering and until the Restriction Termination Date, no Person (other
than an Existing Holder) shall Beneficially Own Common Shares and/or Preferred
Shares in excess of the Ownership Limit and no Existing Holder shall
Beneficially Own Common Shares and/or Preferred Shares in excess of the Existing
Holder Limit for such Existing Holder.
(b) Except as provided in Sections 2A.9 and 2A.12, from the date of the
Initial Public Offering and until the Restriction Termination Date, any Transfer
that, if effective, would result in any Person (other than an Existing Holder)
Beneficially Owning Common Shares and/or Preferred Shares in excess of the
Ownership Limit shall be void ab initio as to the Transfer of such Common Shares
and/or Preferred Shares which would be otherwise Beneficially Owned by such
Person in excess of the Ownership Limit; and the intended transferee shall
acquire no rights in such Common Shares and/or Preferred Shares.
(c) Except as provided in Sections 2A.9 and 2A.12, from the date of the
Initial Public Offering and until the Restriction Termination Date, any Transfer
that, if effective, would result in any Existing Holder Beneficially Owning
Common Shares and/or Preferred Shares in excess of the applicable Existing
Holder Limit shall be void ab initio as to the Transfer of such Common Shares
and/or Preferred Shares which would be
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otherwise Beneficially Owned by such Existing Holder in excess of the applicable
Existing Holder Limit; and such Existing Holder shall acquire no rights in such
Common Shares and/or Preferred Shares.
(d) Except as provided in Section 2A.12, from the date of the Initial
Public Offering and until the Restriction Termination Date, any Transfer that,
if effective, would result in the Common Shares and/or Preferred Shares being
beneficially owned (as provided in Section 856(a) of the Code) by less than 100
Persons (determined without reference to any rules of attribution) shall be void
ab initio as to the Transfer of such Common Shares and/or Preferred Shares which
would be otherwise beneficially owned (as provided in Section 856(a) of the
Code) by the transferee; and the intended transferee shall acquire no rights in
such Common Shares and/or Preferred Shares.
(e) From the date of the Initial Public Offering and until the Restriction
Termination Date, any Transfer that, if effective, would result in the Trust
being "closely held" within the meaning of Section 856(h) of the Code shall be
void ab initio as to the Transfer of the Common Shares and/or Preferred Shares
which would cause the Trust to be "closely held" within the meaning of Section
856(h) of the Code; and the intended transferee shall acquire no rights in such
Common Shares and/or Preferred Shares.
(f) Nothing contained in this Article 2A shall impair the settlement of
transactions entered into on the facilities of the New York Stock Exchange.
2A.3 Excess Shares.
(a) If, notwithstanding the other provisions contained in this Article 2A,
at any time after the date of the Initial Public Offering and until the
Restriction Termination Date, there is a purported Transfer or other change in
the capital structure of the Trust (except for a change resulting from the
exchange of Units for Equity Shares) such that any Person would Beneficially Own
Common Shares and/or Preferred Shares in excess of the applicable Ownership
Limit or Existing Holder Limit, then, except as otherwise provided in Sections
2A.9 and 2A.12, such Common Shares and/or Preferred Shares in excess of such
Ownership Limit or Existing Holder Limit (rounded up to the nearest whole share)
shall constitute "Excess Shares" and be treated as provided in this Article 2A.
Such designation and treatment shall be effective as of the close of business on
the business day prior to the date of the purported Transfer or change in
capital structure (except for a change resulting from the exchange of Units for
Equity Shares).
(b) If, notwithstanding the other provisions contained in this Article 2A,
at any time after the date of the Initial Public Offering and until the
Restriction Termination Date, there is a purported Transfer or other change in
the capital structure of the Trust (except for a change resulting from the
exchange of Units for Equity Shares) which, if effective, would cause the Trust
to become "closely held" within the meaning of Section 856(h) of the Code, then
the Common Shares and/or Preferred Shares being Transferred which would cause
the Trust to be "closely held" within the meaning of Section 856(h) of the Code
(rounded up to the nearest whole share) shall constitute Excess Shares and be
treated as provided in this Article 2A. Such designation and treatment shall be
effective as of the close of business on the business day prior to the date of
the purported Transfer or change in capital structure (except for a change
resulting from the exchange of Units for Equity Shares).
2A.4 Prevention of Transfer. If the Managing Shareholder or its designee
shall at any time determine in good faith that a Transfer has taken place in
violation of Section 2A.2 or that a Person intends to acquire or has attempted
to acquire beneficial ownership (determined without reference to any rules of
attribution) or Beneficial Ownership of any Shares of the Trust in violation of
Section 2A.2, the Managing Shareholder or its designee shall take such action as
it deems advisable to refuse to give effect to or to prevent such transfer,
including, but not limited to, refusing to give effect to such Transfer on the
books of the Trust or instituting proceedings to enjoin such Transfer; provided,
however, that any Transfers or attempted Transfers in violation of Sections
2A.2(b), 2(c), 2(d) and 2(e) shall automatically result in the designation and
treatment described in Section 2A.3, irrespective of any action (or non-action)
by the Managing Shareholder.
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2A.5 Notice to Trust. Any Person who acquires or attempts to acquire Equity
Shares in violation of Section 2A.2, or any Person who is a transferee such that
Excess Shares results under Section 2A.3, shall immediately give written notice
or, in the event of a proposed or attempted Transfer, give at least 15 days
prior written notice to the Trust of such event and shall provide to the Trust
such other information as the Trust may request in order to determine the
effect, if any, of such Transfer or attempted Transfer on the Trust's status as
a REIT.
2A.6 Information for Trust. From the date of the Initial Public Offering
and until the Restriction Termination Date:
(a) every Beneficial Owner of more than 5.0% (or such other percentage,
between 1/2 of 1% and 5.0%, as provided in the income tax regulations
promulgated under the Code) of the number or value of outstanding Equity Shares
of the Trust shall, within 30 days after January 1 of each year, give written
notice to the Trust stating the name and address of such Beneficial Owner, the
number of Shares Beneficially Owned, and a description of how such Shares are
held. Each such Beneficial Owner shall provide to the Trust such additional
information as the Trust may reasonably request in order to determine the
effect, if any, of such Beneficial Ownership on the Trust's status as a REIT.
(b) each Person who is a Beneficial Owner of Common Shares and/or Preferred
Shares and each Person (including the Shareholder of record) who is holding
Common Shares and/or Preferred Shares for a Beneficial Owner shall provide to
the Trust in writing such information with respect to direct, indirect and
constructive ownership of Shares as the Managing Shareholder deems reasonably
necessary to comply with the provisions of the Code applicable to a REIT, to
determine the Trust's status as a REIT, to comply with the requirements of any
taxing authority or governmental agency or to determine any such compliance.
2A.7 Other Action by Board. Subject to clause (f) of Section 2A.2, nothing
contained in this Article 2A shall limit the authority of the Managing
Shareholder to take such other action as it deems necessary or advisable to
protect the Trust and the interests of its Shareholders by preservation of the
Trust's status as a REIT.
2A.8 Ambiguities. In the case of an ambiguity in the application of any of
the provisions of this Article 2A, including any definition contained in Section
2A.1, the Managing Shareholder shall have the power to determine the application
of the provisions of this Article 2A with respect to any situation based on the
facts known to it.
2A.9 Modification of Existing Holder Limits. The Existing Holder Limits may
be modified as follows:
(a) Subject to the limitations provided in Section 2A.11, the Managing
Shareholder of the Trust may grant options which result in Beneficial Ownership
of Common Shares and/or Preferred Shares by an Existing Holder pursuant to an
option plan approved by the Managing Shareholder, the Board of the Trust and/or
the Shareholders of the Trust. Any such grant shall increase the Existing Holder
Limit for the affected Existing Holder to the maximum extent possible under
Section 2A.11 to permit the Beneficial Ownership of the Common Shares and/or
Preferred Shares issuable upon the exercise of such option.
(b) Subject to the limitations provided in Section 2A.11, an Existing
Holder may elect to participate in a dividend reinvestment plan approved by the
Managing Shareholder or the Board of the Trust which results in Beneficial
Ownership of Common Shares and/or Preferred Shares by such participating
Existing Holder and any comparable reinvestment plan of any partnership formed
or acquired by the Trust in which all or a portion of its real estate assets
might be held and its operations might be conducted, wherein those Existing
Holders holding Units are entitled to purchase additional Units. Any such
participation shall increase the Existing Holder Limit for the affected Existing
Holder to the maximum extent possible under Section 2A.11 to permit Beneficial
Ownership of the Common Shares and/or Preferred Shares acquired as a result of
such participation.
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(c) The Managing Shareholder will reduce the Existing Holder Limit for
any Existing Holder after any Transfer permitted in this Article 2A by such
Existing Holder by the percentage of the outstanding Equity Shares so
Transferred or after the lapse (without exercise) of an option described in
Section 2A.9(a) by the percentage of the Equity Shares that the option, if
exercised, would have represented, but in either case no Existing Holder Limit
shall be reduced to a percentage which is less than the Ownership Limit.
2A.10 Increase or Decrease in Ownership Limit. Subject to the limitations
provided in Section 1.2 or Section 2A.11, the Managing Shareholder may from time
to time increase or decrease the Ownership Limit; provided, however, that any
decrease may only be made prospectively as to subsequent holders (other than a
decrease as a result of a retroactive change in existing law, in which case such
decrease shall be effective immediately).
2A.11 Limitations on Changes in Existing Holder and Ownership Limits.
(a) Neither the Ownership Limit nor any Existing Holder Limit may be
increased (nor may any additional Existing Holder Limit be created) if, after
giving effect to such increase (or creation), five Beneficial Owners of Common
Shares (including all of the then Existing Holders) could Beneficially Own, in
the aggregate, more than 50% in number or value of the outstanding Equity
Shares.
(b) Prior to the modification of any Ownership Limit or Existing Holder
Limit pursuant to Sections 2A.9 or 2A.10, the Managing Shareholder may require
such opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT.
(c) No Existing Holder Limit shall be reduced to a percentage which is less
than the Ownership Limit.
2A.12 Waivers by Managing Shareholder. The Managing Shareholder, upon
receipt of a ruling from the Internal Revenue Service or an opinion of counsel
or other evidence satisfactory to the Managing Shareholder and upon at least 15
days written notice from a transferee prior to the proposed Transfer which, if
consummated, would result in the intended transferee owning shares in excess of
Ownership Limit or Existing Holder Limit, as the case may be, and upon such
other conditions as the Managing Shareholder may direct, may waive the Ownership
Limit or the Existing Holder Limit, as the case may be, with respect to such
transferee.
2A.13 Legend. Each certificate for Common Shares and/or Preferred Shares
shall bear substantially the following legend:
The securities represented by this certificate are subject to
restrictions on transfer for the purpose of the Trust's maintenance of
its status as a real estate investment trust under the Internal
Revenue Code of 1986, as amended. Except as otherwise provided
pursuant to the Declaration of Trust for the Trust, no Person may
Beneficially Own Shares of Common Shares and/or Preferred Shares in
excess of 9.8% (or such greater percentage as may be determined by the
Managing Shareholder of the Trust) of the number or value of the
outstanding Equity Shares of the Trust (unless such Person is an
Existing Holder). Any Person who attempts or proposes to Beneficially
Own Common Shares and/or Preferred Shares in excess of the above
limitations must notify the Trust in writing at least 15 days prior to
such proposed or attempted Transfer. All capitalized terms in this
legend have the meanings defined in the Declaration of Trust for the
Trust, a copy of which, including the restrictions on transfer, will
be sent without charge to each Shareholder who so requests. If the
restrictions on transfer are violated, the securities represented
hereby will be designated and treated as Excess Shares which will be
held in trust by the Trust.
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2A.14 Severability. If any provision of this Article 2A or any application
of any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of the
remaining provisions shall be affected only to the extent necessary to comply
with the determination of such court.
2A.15 Trust for Excess Shares. Upon any purported Transfer that results in
Excess Shares pursuant to Section 2A.3, such Excess Shares shall be deemed to
have been transferred to the Trust, as trustee of an "Excess Share Trust" for
the benefit of such Beneficiary or Beneficiaries to whom an interest in such
Excess Shares may later be transferred pursuant to Section 2A.18. Excess Shares
so held in trust shall be issued and outstanding Shares of the Trust. The
Purported Record Transferee shall have no rights in such Excess Shares except
the right to designate a Beneficiary of an interest in the Excess Share Trust
(representing the number of shares of Excess Shares held by the Trust
attributable to a purported Transfer that resulted in the Excess Shares) upon
the terms specified in Section 2A.18. The Purported Beneficial Transferee shall
have no rights in such Excess Shares except as provided in Section 2A.18.
2A.16 No Distributions for Excess Shares. Excess Shares shall not be
entitled to any distributions (whether as dividends or as distributions upon
liquidation, dissolution or winding up). Any dividend or distribution paid prior
to the discovery by the Trust that the Common Shares and/or Preferred Shares
have been Transferred so as to be deemed Excess Shares shall be repaid to the
Trust upon demand.
2A.17 No Voting Rights for Excess Shares. The holders of Excess Shares
shall not be entitled to vote on any matter.
2A.18 Non-Transferability of Excess Shares. Excess Shares in the Excess
Share Trust shall not be transferable. The Purported Record Transferee may
freely designate a Beneficiary of an interest in the Excess Share Trust
(representing the number of Excess Shares held by the Trust attributable to a
purported Transfer that resulted in the Excess Shares), if (a) the Excess Shares
held in the Excess Share Trust would not be Excess Shares in the hands of such
Beneficiary and (b) the Purported Beneficial Transferee does not receive a price
for designating such Beneficiary that reflects a price per share for such Excess
Shares that exceeds (i) the price per share such Purported Beneficial Transferee
paid for the Common Shares and/or Preferred Shares, as the case may be, in the
purported Transfer that resulted in the Excess Shares, or (ii) if the Purported
Beneficial Transferee did not give value for such Excess Shares (through a gift,
devise or other transaction), a price per share equal to the Market Price for
the Excess Shares on the date of the purported Transfer that resulted in the
Excess Shares. Upon such transfer of an interest in the Excess Share Trust, the
corresponding Excess Shares in the Excess Share Trust shall be automatically
exchanged for an equal number of Common Shares and/or Preferred Shares, as
applicable, and such Common Shares and/or Preferred Shares, as applicable, shall
be transferred of record to the transferee of the interest in the Excess Share
Trust if such Common Shares and/or Preferred Shares, as applicable, would not be
Excess Shares in the hands of such transferee. Prior to any transfer of any
interest in the Excess Share Trust, the Purported Record Transferee must give
advance notice to the Trust of the intended transfer and the Trust must have
waived in writing its purchase rights under Section 2A.19.
Notwithstanding the foregoing, if a Purported Beneficial Transferee
receives a price for designating a Beneficiary of an interest in the Excess
Share Trust that exceeds the amounts allowable under this Section 2A.18, such
Purported Beneficial Transferee shall pay, or cause such Beneficiary to pay,
such excess to the Trust.
If any of the foregoing restrictions on transfer of Excess Shares are
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Trust, to have acted as an agent of the Trust in acquiring such Excess
Shares and to hold such Excess Shares on behalf of the Trust.
2A.19 Call by Trust on Excess Shares. Excess Shares shall be deemed to have
been offered for sale to the Trust, or its designee, at a price per share equal
to the lesser of (a) the price per share in the transaction that
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created such Excess Shares (or, in the case of a devise, gift or other
transaction in which no value was given for such Excess Shares, the Market Price
at the time of such devise, gift or other transaction) and (b) the Market Price
of the Common Shares and/or Preferred Shares to which such Excess Shares relates
on the date the Trust, or its designee, accepts such offer. The Trust shall have
the right to accept such offer for a period of 90 days after the later of (x)
the date of the Transfer which resulted in such Excess Shares and (y) the date
the Managing Shareholder determines in good faith that a Transfer resulting in
Excess Shares has occurred, if the Trust does not receive a notice of such
Transfer pursuant to Section 2A.5 but in no event later than a permitted
Transfer pursuant to and in compliance with the terms of Section 2A.18.
ARTICLE 3
LIABILITIES
3.1 Liability and Obligations of Corporate Trustee. (a) To the fullest
extent permitted by the Delaware Act, the Corporate Trustee in its capacity as a
trustee of the Trust shall not be personally liable to any person other than the
Trust and its Shareholders for any act or omission of the Trustees or the Trust,
or any obligation of the Trust or the Trustees. The trust estate shall be
directly liable for the payment or satisfaction of all obligations and
liabilities of the Trust incurred by the Trustees and the officers and agents of
the Trust within their authority.
(b) The Corporate Trustee, as trustee, may be made party to any action,
suit or proceeding to enforce any obligation, liability or right of the Trust,
but it shall not solely on account thereof be liable separate from the Trust and
it shall be a party in that case only insofar as may be necessary to enable such
obligation or liability to be enforced against the trust estate. The Corporate
Trustee shall not exercise any management or administrative powers in respect of
the Trust except at the direction of the Managing Shareholder or the Board.
3.2 Liability and Obligations of Managing Shareholder, Independent
Trustees, and other Members of the Board in General. (a) As permitted by Section
3808 of the Delaware Act, the Managing Shareholder, Independent Trustees and any
other members of the Board shall not hold title to or have any legal or
possessory interest in any Trust Property. It shall not be necessary or
effective for any of the Managing Shareholders, Independent Trustees or any
other member of the Board to be made a party to any action, suit or proceeding
to enforce any obligation, liability or right of the Trust.
(b) In performing their responsibilities under this Declaration, the
Managing Shareholder, Independent Trustees and any other members of the Board of
the Trust shall be under a fiduciary duty and obligation to act in the best
interests of the Trust, including the safekeeping and use of all Trust funds and
assets for which they are responsible under this Declaration. In interpreting
the scope of this obligation, the Managing Shareholder, Independent Trustees and
other members of the Board will have the responsibilities of and will be
entitled to the defenses of directors of a Delaware corporation.
3.3 Liability of Managing Shareholder, Independent Trustees and other
Members of the Board to Third Parties. The Managing Shareholder, Independent
Trustees and any other members of the Board of the Trust shall have no rights of
indemnity or exoneration against any Shareholder individually with regard to any
liability or obligation of the Trust; but, as hereinafter provided, the Managing
Shareholder, Independent Trustees and any other members of the Board may satisfy
any claims they have against the Trust out of the Trust assets. Neither the
Managing Shareholder, Independent Trustees nor any other members of the Board
shall be liable for any act or neglect of any person or firm with respect to the
performance of any duty, service or act which has been delegated to such person
or firm by the Managing Shareholder, Independent Trustees or any other members
of the Board, as the case may be, pursuant to authority contained in this
Declaration; the Managing Shareholder, Independent Trustees and any other member
of the Board shall, however, use good faith in selecting and appointing agents
or representatives to whom authority to act on behalf of the Trust is delegated.
Neither the Managing Shareholder, Independent Trustees nor any other member of
the Board shall be individually liable for
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any obligation or liability incurred by or on behalf of the Trust or by the
Managing Shareholder, Independent Trustees or any other member of the Board for
the benefit and on behalf of the Trust.
3.4 Liability of Shareholders in General. No Shareholder in his capacity as
an Shareholder shall have any liability for the debts and obligations of the
Trust in any amount beyond the unpaid amount, if any, of the subscriptions for
the purchase of Shares made by him in the Initial Offering or any subsequent
offerings of the Trust. Each Shareholder shall have the same limitation on his
liability for the Trust's debts and obligations as a stockholder of a Delaware
corporation has for debts and obligations of the corporation. Each written
contract to which the Trust is a party shall include a provision that the
Shareholders shall not be personally liable thereon.
3.5 Liability of Shareholders to the Trust, Managing Shareholder, Trustees,
Members of the Board and Other Shareholders. No Shareholder in his capacity as a
Shareholder shall be liable, responsible or accountable in damages or otherwise
to the Trust, the Managing Shareholder, the Trustees, any other members of the
Board or any other Shareholders for any claim, demand, liability, cost, damage
and cause of action of any nature whatsoever that arises out of or that is
incidental to the management of the Trust's affairs.
3.6 Liability of Managing Persons to Trust and Shareholders. (a) No
Managing Person (as defined in Section 10) shall have liability to the Trust or
to any other Shareholder for any loss suffered by the Trust that arises out of
any action or inaction of the Managing Person if the Managing Person, in good
faith, determined that such course of conduct was in the Trust's best interest
and such course of conduct was within the scope of this Declaration and did not
constitute (i) negligence or misconduct in the case of any Managing Person who
is a Trustee (excluding the Independent Trustees), Managing Shareholder or an
Affiliate of such Trustee or Managing Shareholder or (ii) gross negligence or
willful misconduct in the case of any Managing Person who is an Independent
Trustee.
(b) No act of the Trust shall be affected or invalidated by the fact that a
Managing Person may be a party to or has an interest in any contract or
transaction of the Trust if the interest of the Managing Person has been
disclosed or is known to the Shareholders or such contract or transaction is at
prevailing rates or is on terms at least as favorable to the Trust as those
available from persons who are not Managing Persons.
3.7 Indemnification of Managing Persons. (a) Each Managing Person shall be
indemnified out of the Trust Property against any losses, liabilities,
judgments, expenses and amounts paid in settlement of any claims sustained by
him in connection with the Trust or claims by the Trust, in right of the Trust
or by or in right of any Shareholders, if the Managing Person would not be
liable under the standards of Section 3.6 and, in the case of Managing Persons
other than the Managing Shareholder, Trustees and other members of the Board,
the indemnitees were acting within the scope of authority validly delegated to
them by the Managing Shareholder, Trustees or any other members of the Board.
The termination of any action, suit or proceeding by judgment, order or
settlement shall not, of itself, create a presumption that the Managing Person
charged did not act in good faith and in a manner that he reasonably believed
was in the Trust's best interests. To the extent that any Managing Person is
successful on the merits or otherwise in defense of any action, suit or
proceeding or in defense of any claim, issue or matter therein, the Trust shall
indemnify that Managing Person against the expenses, including attorneys' fees,
actually and reasonably incurred by him in connection therewith.
(b) Notwithstanding the foregoing, no Managing Person nor any broker-dealer
shall be indemnified, nor shall expenses be advanced on its behalf, for any
losses, liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws, unless (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee, or (ii) those claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee or (iii) a court of competent jurisdiction approves
a settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In any
claim for federal or state securities law violations, the party seeking
indemnification shall place before the court the positions of the Securities and
Exchange Commission and of securities administrators of states in which
securities of the Trust were offered or sold to the extent required by them with
respect to the issue of indemnification for securities law violations.
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(c) The Trust shall not incur the cost of that portion of any insurance,
other than public liability insurance, that insures any person against any
liability for which indemnification hereunder is prohibited.
3.8 General Provisions. The following provisions shall apply to all rights
of indemnification and advances of expenses under this Declaration and all
liabilities described in this Article 3:
(a) Expenses, including attorneys' fees, incurred by a Managing Person in
defending any action, suit or proceeding may be paid by the Trust in advance of
the final disposition of the action, suit or proceeding only if all of the
following conditions are satisfied:
(i) The action, suit or proceeding relates to acts or omissions with
respect to the performance of duties or services on behalf of the Trust;
(ii) The action, suit or proceeding is initiated by a third party who
is not a Shareholder or it is initiated by a Shareholder acting in its
capacity as such and a court of competent jurisdiction specifically
approves such advancement; and
(iii) The Managing Person seeking advancement of expenses undertakes
to repay such amount, together with the applicable legal rate of interest
thereon, if it shall ultimately be determined that the Managing Person is
not entitled to be indemnified by the Trust under this Declaration or
otherwise and if at least one of the following conditions is satisfied:
(1) The Managing Person provides appropriate security for the
undertaking;
(2) The Managing Person is insured against losses or expenses of
defense or settlement so that the advances may be recovered or
(3) Either a majority of the Independent Trustees who are not
parties to the action, suit or proceeding, or independent legal
counsel in a written opinion, determines, based upon a review of the
then readily available facts, that there is reason to believe that the
Managing Person will be found to be entitled to indemnification under
Section 3.7. In so doing, it shall not be necessary to employ hearing
or trial-like procedures.
(b) Rights to indemnification and advances of expenses under this
Declaration are not exclusive of any other rights to indemnification or advances
to which a Managing Person may be entitled, both as to action in a
representative capacity or as to action in another capacity taken while
representing another.
(c) Each Managing Person shall be entitled to rely upon the opinion or
advice of or any statement or computation by any counsel, engineer, accountant,
investment banker or other person retained by such Managing Person or the Trust
which he believes to be within such person's professional or expert competence.
In so doing, he will be deemed to be acting in good faith and with the requisite
degree of care unless he has actual knowledge concerning the matter in question
that would cause such reliance to be unwarranted.
3.9 Dealings with Trust. With regard to all rights of the Trust and all
actions to be taken on its behalf, the Trust and not the Trustees, nor the
Managing Shareholder, the Board or its members, the Trust's officers and agents,
or the Shareholders shall be the principal and the Trust shall be entitled as
such to the extent permitted by law to enforce the same, collect damages and
take all other action. All agreements, obligations and actions of the Trust
shall be executed or taken in the name of the Trust, by an appropriate nominee,
or by the Corporate Trustee as trustee but not in its individual capacity. Money
may be paid and property delivered to any duly authorized officer or agent of
the Trust who may receipt therefor in the name of the Trust and no person
dealing in good faith thereby shall be bound to see to the application of any
moneys so paid or property so delivered. No entity whose securities are held by
the Trust shall be affected by notice of such fact or be bound to
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see to the execution of the Trust or to ascertain whether any transfer of its
securities by or to the Trust or the Corporate Trustee is authorized.
ARTICLE 4
PAYMENT OF TRUST EXPENSES
4.1 Selling Commissions. The Trust shall be authorized to pay out of Trust
Property to the Dealer Manager (as defined in Section 10)or to any broker-dealer
selected by the Trust or the Dealer Manager who effects the sale of one or more
whole or fractional Shares (including Common Shares in the Initial Offering),
cash selling commissions in an aggregate amount equal to up to nine percent of
the gross proceeds from the sale of Share as determined by the Managing
Shareholder. Such commissions payable in respect of sales of Common Shares in
the Initial Offering shall be due and payable promptly after the later to occur
of (i) acceptance by the Trust of an Shareholder's subscription, (ii) the Escrow
Date or (iii) the receipt by the Trust of the gross purchase price for the
Shares. Such commissions in respect of additional sales of Shares by the Trust
subsequent to completion of the Initial Offering shall be due and payable upon
the later of such date on which purchase proceeds are accepted and collected by
the Trust or the fulfillment of any applicable escrow conditions.
4.2 Organization and Offering Expenses. (a) The Trust shall be authorized
to pay a fee to the Managing Shareholder to cover Organization and Offering
Expenses (as defined in Section 1.9(g)) which conform with Section 1.9(g) in
connection with any offering of Shares.
(b) The Trust shall be authorized to pay to the Managing Shareholder out of
Trust Property a non-accountable fee in an amount equal to one percent of gross
proceeds from the sale of Common Shares in the Initial Offering to cover
distribution, due diligence and organizational expenses relating to formation of
the Trust and the Initial Offering and a non-accountable fee in an amount equal
to one percent of gross proceeds from the sale of Common Shares in the Initial
Offering to cover legal, accounting, consulting and recording fees, printing,
filing, postage and other miscellaneous costs associated with the Offering.
These fees shall be payable at the same time that selling commissions are
payable. To the extent that the amount of the expenses covered by the respective
fee exceeds the amount payable, those expenses will be payable by the Managing
Shareholder.
4.3 Investment Fee. The Trust shall be authorized to pay to the Managing
Shareholder out of Trust Property an investment fee in an amount equal to four
percent of the gross proceeds from the sale of Common Shares in the Initial
Offering and from each subsequent offering of Shares. The investment fee payable
in respect of sales of Common Shares in the Initial Offering in 1997 is to
compensate for the services of the Managing Shareholder in investigating and
evaluating real estate investment opportunities and effecting transactions for
investing the net sale proceeds of the Initial Offering through 1997, and the
investment fee payable in a later year is for those services rendered in that
year. One-half of the investment fee payable in respect of investment of net
proceeds from the Initial Offering shall be payable on the Escrow Date as to
Common Shares purchased through that date and on each date thereafter on which
the Trust receives and collects full payment for additional accepted
subscriptions for Common Shares in connection with the Offering, and the balance
of the fee shall be payable proportionately upon the consummation of each of the
Trust's real estate investments based on the amount invested. In addition, the
Trust shall be authorized to pay to the Managing Shareholder an investment fee
in an amount equal to four percent of gross proceeds received by the Trust in
connection with offers and sales of Shares pursuant to Article 2.2 or 2.3, for
similar services rendered by the Managing Shareholder during the year in which
such funds are received by the Trust. One-half of the fee in respect of services
performed by the Managing Shareholder during any year in which such additional
funds are received by the Trust shall be payable upon the later of each date on
which payment is accepted and collected by the Trust or the fulfillment of any
applicable escrow conditions, and the balance shall be payable proportionately
upon the consummation of each of the Trust's real estate investments based on
the amount of such funds invested.
4.4 Property Management Fee. The Trust shall be authorized to pay to
Brentwood Management,
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LLC ("Brentwood"), an Affiliate of the Managing Shareholder, a fee in an amount
equal to five percent of collected rental income from residential apartment
property for which Brentwood performs management services plus a monthly
bookkeeping fee of $325. Brentwood may also earn an additional performance fee
of $2.00 per residential unit per month if greater than 96% of gross potential
rents are collected. The Trust shall be authorized to pay Brentwood a
market-based fee for its management services in respect of any single-family
housing developments it may manage for the Trust.
4.5 Other Expenses. (a) The Trust shall be authorized to reimburse the
Managing Shareholder for all other actual and necessary direct expenses paid or
incurred in connection with the operation of the Trust, including but not
limited to accounting, legal and consulting fees, to the extent that those
expenses were incurred by the Managing Shareholder in carrying out
responsibilities assigned to it by this Declaration, were consistent with this
Declaration and do not constitute payment of expenses covered by other fees
payable under this Declaration. The Trust shall reimburse the Corporate Trustee
for all actual and necessary expenses paid or incurred in connection with the
operation of the Trust, including the Trust's allocable share of the Corporate
Trustee's overhead.
(b) In respect of the acquisition or disposition of all or a portion of the
investments that the Trust may make in properties, the Trust may be required to
or may find it most advantageous to engage a broker or similar adviser and to
pay a brokerage fee to the broker or other persons responsible for bringing the
acquisition or disposition opportunity to the Trust's attention or for
investigating, evaluating or negotiating the acquisition or disposition of the
Trust's interest therein. Where permitted, if the Managing Shareholder or an
Affiliate performs those services in respect of an investment acquisition or
disposition opportunity for the Trust relating to a particular property, the
Managing Shareholder or Affiliate so providing those services shall be entitled
to receive a brokerage fee from the Trust which conforms with the limitations
set forth in Section 1.9(j) of this Declaration. In certain cases, the Trust may
acquire one or more First Mortgage Loans or Junior Mortgage Loans or accounts
receivable from existing creditors of such obligations or title to a particular
property or an equity interest in the entity which owns title to a particular
property at a discount to the appraised value of such property or equity
interest determined at the time of such acquisition. In that event, the Managing
Shareholder or an Affiliate shall be authorized to receive compensation, if
available, from the seller of such debt, title or equity interest in an amount
which does not exceed in the aggregate in all such cases, five percent of the
gross proceeds raised in the Offering.
(c) As compensation for the Managing Shareholder's performance under the
Trust Management Agreement, the Trust shall pay the Managing Shareholder a
management fee, pay expenses of the Trust and reimburse the Managing Shareholder
for Trust expenses paid by the Managing Shareholder, all in accordance with the
terms of the agreement.
4.6 Payment and Recoupment of Fees. As soon as proceeds from the Initial
Offering have been released to the Trust from the escrow account referred to in
Section 1.6, they may be used to pay the fees and expenses referred to in
Sections 4.1, 4.2, 4.3, and 4.4 then due. If the Managing Shareholder withdraws
the Initial Offering under the terms of this Declaration, any person that has
received payments from the proceeds of the Initial Offering shall return such
payments to the Trust upon demand by the Managing Shareholder.
ARTICLE 5
ACCOUNTING AND REPORTS
5.1 Elections. The Trust shall elect the calendar year as its fiscal year.
The Trust shall adopt the accrual method of accounting or such other method of
accounting as the Trust shall determine. The Trust shall elect to be taxed as a
REIT, unless the Board determines that it is in the best interest of the
Shareholders as a group that the Trust terminate its status as a REIT and a
Majority of the Shareholders entitled to vote, at a Shareholders' meeting duly
convened under the terms and conditions of this Declaration, votes to cause the
Trust to terminate its
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REIT status.
5.2 Books and Records. The Trust's books and records shall be kept at the
principal place of business of the Trust and shall be maintained on the basis
utilized in preparing the Trust's federal income tax return with such
adjustments in accounting as the Trust determines would be in the best interests
of the Trust.
5.3 Reports.
(a) Quarterly. The Trust will keep each Shareholder currently advised as to
activities of the Trust by reports furnished at least quarterly. Each quarterly
report will contain a condensed statement of "cash flow from operations" for the
year to date as determined by the Managing Shareholder in conformity with
generally accepted accounting principles on a basis consistent with that of the
annual financial statements and showing its derivation from net income.
(b) Annual. Within 120 days after the end of each fiscal year following the
completion of the Initial Offering, the Trust shall cause to be prepared and
mailed or delivered to each Shareholder as of a record date determined by the
Managing Shareholder, an annual report which shall include the following:
(i) Financial statements prepared in accordance with generally
accepted accounting principles which are audited and reported on by
independent certified public accountants selected by the Trust;
(ii) The ratio of the costs of raising capital during the period to
the capital raised;
(iii) The aggregate amount of management fees and the aggregate amount
of other fees paid to the Managing Shareholder and any of its Affiliates
during the period by the Trust and including fees or charges paid to them
by third parties doing business with the Trust;
(iv) The Total Operating Expenses (as defined in Section 1.9(i)) of
the Trust, stated as a percentage of Average Invested Assets (as defined in
Section 1.9(i)) and as a percentage of its Net Income (as defined in
Section 1.9(i));
(v) A report from the Independent Trustees that the policies being
followed by the Trust are in the best interests of its Shareholders and the
basis for such determination; and
(vi) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving the Trust, Managing
Shareholder, Trustees, any other members of the Board and any of their
respective Affiliates occurring in the year for which the annual report is
made.
Independent Trustees shall examine and comment in the report on the fairness of
the transactions referred to in item (iv) above. The Board, including the
Independent Trustees, shall be required to take reasonable steps to insure that
the requirements set forth in this Section 5.3 are met.
(c) Tax. An independent certified public accounting firm selected by the
Trust will prepare the Trust's federal income tax return as soon as practicable
after the conclusion of each year and each Shareholder will be furnished, at
that time, with the necessary accounting information for each Shareholder to
take into account and report separately such Shareholder's distributive share of
the income and deductions of the Trust. The Trust will use its reasonable best
efforts to obtain the information necessary for the accounting firm as soon as
practicable and to transmit the resulting accounting and tax information to the
Shareholders as soon as possible after receipt from the accounting firm.
5.4 Bank Accounts. The Trust shall maintain separate segregated accounts in
its name at one or more commercial banks, and the cash funds of the Trust shall
be kept in any of those accounts as determined by
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the Trust.
5.5 Interim Assets. The Trust may purchase, to the extent the Trust's funds
are not otherwise committed to real estate transactions or required for other
purposes, either or both of the following:
(a) Obligations of banks or savings and loan associations that either (i)
have assets in excess of $5 billion or (ii) are insured in their entirety by
agencies of the United States government; and
(b) Obligations of or guaranteed by the United States government or its
agencies.
ARTICLE 6
RIGHTS AND OBLIGATIONS OF SHAREHOLDERS
6.1 Participation in Management. No Shareholder (other than the Managing
Shareholder, a Trustee or any other member of the Board acting in his or its
management capacity) shall have the right, power, authority or responsibility to
participate in the ordinary and routine management of the Trust's affairs or to
bind the Trust in any manner.
6.2 Rights to Engage in Other Ventures. No Shareholder or any officer,
director, shareholder, member or other person holding a legal or beneficial
interest in any Shareholder shall, by virtue of his ownership of a direct or
indirect interest in the Trust, be in any way prohibited from or restricted in
engaging in, or possessing an interest in, any other business venture of a like
or similar nature including any venture involving the residential real estate
industry.
6.3 Transferability of Shares. Shares in the Trust shall be transferable in
accordance with Section 2.5, subject to certain limitations set forth in Article
2A.
6.4 Information. Each Shareholder's rights to obtain information from the
Trust from time to time are set forth in this Section.
(a) In addition to information provided under Section 5.3, each Shareholder
shall be provided on request with the following:
(1) True and full information regarding the status of the Trust's
business and financial condition;
(2) Promptly after becoming available, a copy of the Trust's federal,
state and local income tax returns or information returns for the preceding
year and prior years to the extent reasonably available;
(3) A copy of the Certificate and this Declaration and all amendments
thereto and restatements thereof;
(4) True and full information regarding the amount of cash and a
description and statement of the agreed value of any other property or
services contributed by each Shareholder and which any Shareholder has
agreed to contribute in the future, and the date on which each current
Shareholder acquired his Shares; and
(5) Such other information regarding the Trust's affairs as is just
and reasonable.
(b) Upon prior written demand stating a proper Trust purpose, any
Shareholder and any representative thereof specifically designated as such in
writing shall be permitted reasonable access to records of
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the Trust at all reasonable times, and may inspect and copy any of them.
Inspection of the Trust's books and records by the securities administrator of
any state in which the Trust offers and sells Shares shall be provided upon
reasonable notice and during normal business hours.
(c) The Trust shall maintain as part of the books and records of the Trust
an alphabetical list of the names, addresses, and telephone numbers of the
Shareholders along with the number of Shares held by each of them (the
"Shareholder List") and, upon receipt of prior written demand stating a proper
Trust purpose, make it reasonably available for inspection at the home office of
the Trust by any Shareholder or his representative specifically designated as
such in writing. The Trust shall update the Shareholder List at least quarterly
to reflect changes in the information contained therein. Alternatively, the
Trust may mail a copy of the Shareholder List to any Shareholder requesting it
for a proper Trust purpose specified in writing. The Trust may charge a
reasonable fee for such copy.
(d) The Trust shall establish reasonable standards governing without
limitation the information and documents to be furnished and the time and the
location, if appropriate, of furnishing that information and documents. Costs of
providing information and documents shall be borne by the requesting Shareholder
except for de minimis amounts consistent with the Trust's ordinary practices.
The Trust shall be entitled to reimbursement for its direct, out-of-pocket
expenses incurred in declining unreasonable requests (in whole or in part) for
information.
(e) The Trust may keep confidential from Shareholders for such period of
time as it deems reasonable any information that it reasonably believes to be in
the nature of trade secrets or other information that the Trust in good faith
believes would not be in the best interests of the Trust to disclose or that
could damage the Trust or its business or that the Trust is required by law or
by agreement with a third party to keep confidential.
(f) The Trust may keep its records in other than written form if capable of
conversion into written form within a reasonable time.
(g) All demands or requests for information under this Section shall be
solely for a proper Trust purpose reasonably related to the Shareholder's
interest in the Trust. All requests or demands for information under this
Section shall be in writing and shall state the purpose of the demand; the
Trust's acceptance of oral requests shall not waive or limit the scope of this
provision. Any action to enforce rights under this Section may be brought in the
Delaware Court of Chancery, subject to Section 9.4.
6.5 Shareholders' Meetings. (a) There shall be an annual meeting of the
Shareholders at such time and place, either within or without the State of
Delaware, as the Managing Shareholder shall prescribe, at which all members of
the Board (including all Independent Trustees) (except in the case of staggered
elections which have been approved by the Managing Shareholder and a Majority of
the Shareholders entitled to vote, in which case, only the class up for election
or reelection) shall be elected or reelected and any other proper business may
be conducted. The annual meeting of Shareholders shall be held upon reasonable
notice and within a reasonable period (not less than 30 days) following delivery
of the annual report specified in Section 5.3(b), but in any event such meeting
must be held within six months after the end of each full fiscal year. Special
meetings of Shareholders may be called by the Managing Shareholder, a majority
of the members of the Board, a majority of the Independent Trustees, or by any
officer of the Trust, and shall be called upon the written request of
Shareholders holding in the aggregate not less than ten percent of the
outstanding Shares of the Trust entitled to vote at such meeting in the manner
provided in the Bylaws. Unless requested by the Shareholders entitled to cast a
majority of all votes entitled to be cast at such meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any special meeting of the Shareholders held during the
preceding 12 months. If there shall be no Managing Shareholder and no remaining
members of the Board, the officers of the Trust shall promptly call a special
meeting of the Shareholders for the election of successor members of the Board.
Written or printed notice stating the place, date and hour of the Shareholders'
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than 10 nor more than 60 days
before the day of the meeting either personally or by mail, by or at the
direction of the
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Managing Shareholder or any officer or person calling the meeting, to each
Shareholder of record entitled to vote at such meeting. No other business than
that which is stated in the call for a special meeting shall be considered at
such meeting.
(b) 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 authorized by law or this Declaration or the Bylaws, be authorized by
a majority of the votes cast at a meeting of Shareholders by holders of Shares
entitled to vote thereon.
(c) At the discretion of the Managing Shareholder or Shareholders holding
ten percent or more of the outstanding Shares entitled to vote on a particular
matter, as the case may be, any consent required by this Declaration or any vote
or action by the Shareholders or any subgroup thereof may be effected without a
meeting by a consent or consents in writing signed by the persons required to
give such consent, to vote or to take action. The Managing Shareholder may
solicit consents or Shareholders holding ten percent or more of the outstanding
Shares entitled to vote on the matter may demand a solicitation of consents by
giving notice to the Trust stating the purpose of the consent and including a
form of consent. The Trust shall effect a solicitation of consents by giving all
Shareholders entitled to vote a notice of solicitation stating the purpose of
the consent, a form of consent and the date on which the consents are to be
tabulated, which shall be not less than 15 days nor more than 45 days after the
Trust transmits the notice of solicitation for consents. If Shareholders holding
ten percent or more of the outstanding Shares entitled to vote on the matter
demand a solicitation, the Trust shall transmit the notice of solicitation not
later than 20 days after receipt of the demand.
(d) To the extent not inconsistent with this Declaration, Delaware law
governing stockholders' meetings, proxies and consents for corporations shall
apply as to the procedure, validity and use of meetings, proxies and consents.
Any Shareholder may waive notice of or attendance at any meeting or notice of
any consent, whether before or after any action is taken. The date on which the
Trust transmits the notice of meeting or notice soliciting consents shall be the
record date for determining the right to vote or consent.
6.6 Voting. (a) At each meeting of the Shareholders, each Shareholder
entitled to vote shall have the right to vote, in person or by proxy, the number
of Shares of the Trust owned by him upon each matter upon which the vote of the
Shareholders is taken. In any election in which more than one vacancy on the
Board is to be filled, each Shareholder may vote the number of Shares of the
Trust owned by him for each such vacancy to be filled. There shall be no right
of cumulative voting. Each outstanding Common Share shall be entitled to one
vote on each matter submitted to a vote at a meeting of Shareholders except (a)
to the extent that this Declaration (to the extent permitted by Delaware law)
limits or denies voting rights to the holders of the Shares of any class or
series, or (b) as otherwise provided by Delaware law. Preferred Shares shall
have such voting rights as the Managing Shareholder may designate in accordance
with Section 2.1(c).
(b) In addition to any other actions of the Trust requiring the approval of
Shareholders under this Declaration (including without limitation Section
7.3(b), a Majority of the Shareholders present in person or by proxy at an
annual meeting at which a quorum is present, may, without the necessity for
concurrence by the Board, vote to amend this Declaration, terminate the Trust,
and elect and/or remove one or more members of the Board.
6.7 Distributions. (a) The Managing Shareholder may from time to time
declare and pay to Shareholders such dividends or distributions in cash,
property or other assets of the Trust or in Shares or from any other source as
the Managing Shareholder in its discretion shall determine. Any such dividends
and distributions shall be made to Shareholders on a pro rata basis for each
class of Shares taking into account the relative rights of priority of each
class of Shares entitled thereto. The Managing Shareholder shall endeavor to
declare and pay such dividends and distributions as shall be necessary for the
Trust to qualify as a REIT under the Code (so long as such qualification, in the
opinion of the Managing Shareholder, is in the best interests of the
Shareholders); however, Shareholders shall have no right to any dividend or
distribution unless and until declared by the Managing Shareholder. The exercise
of the powers and rights of the Managing Shareholder pursuant to this Section
shall be subject to the provisions of any class or series of Shares at the time
outstanding. The receipt by any person in
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whose name any Shares are registered on the records of the Trust or by his duly
authorized agent 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.
(b) Distributions in Kind. (i) The Trust may make distributions in kind of
any asset of the Trust only if the distribution in kind is comprised of (1)
readily marketable securities, (2) beneficial interests in a liquidating trust
established for the dissolution of the Trust and the liquidation of its assets
in accordance with the terms and conditions of this Declaration, or (3) other
property, in which case the Managing Shareholder must advise each Shareholder of
the risks associated with direct ownership of such other property; offer each
Shareholder the election of receiving the property; and distribute the property
only to those Shareholders who accept the Managing Shareholder's offer.
(ii) If the Trust elects to make distribution in kind of any of its assets,
the Managing Shareholder shall give notice of the Trust's election to each
Shareholder, specifying the nature and value of all such assets to be
distributed in kind, the deadline for giving notice of refusal to accept a
distribution in kind and to the extent advisable, the estimated time necessary
for the Trust to liquidate assets if those assets are not distributed and other
information as required. In making such election, the Trust shall not
arbitrarily value assets to be distributed in kind nor shall it specify assets
to be distributed in kind in such a manner as to unreasonably advantage or
disadvantage any Shareholder. A Shareholder may refuse to accept a distribution
in kind by giving written notice to the Trust not later than 30 days after the
effective date of the Trust's notice of distribution. If a Shareholder refuses
distribution in kind, the Trust shall retain in the Trust's name the portion of
the assets which were to be distributed in kind and which were to be allocated
to the refusing Shareholder (the "Retained Assets") and shall liquidate the
Retained Assets in accordance with this Declaration. Upon liquidation of the
Retained Assets, the sum realized shall be distributed to the Shareholder
refusing distribution in kind in full discharge of the Trust's obligation to
distribute the Retained Assets.
6.8 Notice of Non-liability. The Managing Shareholder shall use every
reasonable means to assure that all persons having dealings with the Trust shall
be informed that the private property of the Shareholders, the Managing
Shareholder, the Trustees, and any other members of the Board shall not be
subject to claims against and obligations of the Trust to any extent whatever.
The Trustee shall cause to be inserted in every written agreement, undertaking
or obligation made or issued on behalf of the Trust, an appropriate provision to
the effect that the Shareholders, the Managing Shareholder, the Trustees and any
other members of the Board shall not be personally liable thereunder, and that
all parties concerned shall look solely to the Trust Property for the
satisfaction of any claim thereunder, and appropriate reference shall be made to
this Declaration. The omission of such a provision from any such agreement,
undertaking or obligation, or the failure to use any other means of giving such
notice, shall not, however, render the Shareholders, the Managing Shareholder,
the Trustees or any other members of the Board personally liable.
ARTICLE 7
POWERS, DUTIES AND LIMITATIONS ON MANAGING SHAREHOLDER, BOARD
AND INDEPENDENT TRUSTEES
7.1 Management of the Trust. The Managing Shareholder shall have full,
exclusive and complete discretion in the management and control of the Trust,
except as otherwise provided herein. The Managing Shareholder agrees to manage
and control the affairs of the Trust to the best of its ability and to conduct
the operations contemplated under this Declaration in a careful and prudent
manner and in accordance with good industry practice. The Managing Shareholder
may bind the Trust.
7.2 Acceptance of Subscriptions. The Managing Shareholder shall not cause
the Trust to accept any subscription for Common Shares in connection with the
Initial Offering except as provided Section 1.6.
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7.3 Specific Limitations. (a) The Managing Shareholder shall not take any
of the following actions:
(1) Any act in contravention of this Declaration or the Certificate;
(2) Any act that would make it impossible to carry on the Trust's
ordinary business;
(3) Effecting a confession of judgment against the Trust in an amount
exceeding 10% of the aggregate Capital Contributions;
(4) Causing the dissolution or termination of the Trust prior to the
expiration of its term, except as provided under Article 8;
(5) Possessing Trust Property or assigning rights in specific Trust
Property for other than a Trust purpose; or
(6) Constituting any other person as a Managing Shareholder, except as
provided in Article 8.
(b) The Managing Shareholder shall not cause the Trust to take any of the
following actions without the approval of a Majority of the Shareholders given
at a duly convened Shareholders' meeting at which a quorum is present or by
written consent:
(i) Amend this Declaration except as otherwise specified in this
Declaration and except for amendments which do not adversely affect the
rights, preferences and privileges of Shareholders, including amendments to
provisions relating to qualifications of the Trustees and members of the
Board, fiduciary duty, liability and indemnification, conflicts of
interest, investment policies or investment restrictions.
(ii) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of the Trust's assets if not in the ordinary course of
operation of Trust Property or in connection with liquidation and
dissolution.
(iii) Merge or otherwise reorganize the Trust.
(iv) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(c) Neither the Trustees, the Trust nor the Trust's agents shall not take
any action that is prohibited to the Managing Shareholder by this or any other
provision of this Declaration and shall take all actions necessary or advisable
to carry out actions specified in this Section that are approved as specified
herein.
(d) The Managing Shareholder (or any successor Advisor of the Trust) or a
majority of the Independent Trustees may terminate the Trust Management
Agreement (or subsequent management, administrative and investment advisory
agreement) and the Managing Shareholder (or any successor Advisor) may resign as
Managing Shareholder (or Advisor) of the Trust in accordance with the terms and
conditions of Section 1.9(d) and, if not inconsistent with the Section 1.9(d),
the terms and conditions of the Trust Management Agreement (or any subsequent
agreement) entered into by the Managing Shareholder (or any successor Advisor)
and the Trust.
7.4 Powers of Managing Shareholder. The Managing Shareholder shall have all
the powers necessary, convenient or appropriate to effectuate the purposes of
the Trust and may take any action which it deems necessary or desirable and
proper to carry out such purposes, except as otherwise provided in this
Declaration. Any determination of the purposes of the Trust made by the Managing
Shareholder in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of the grant of
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powers to the Managing Shareholder. In addition to the powers and duties
otherwise provided in this Declaration, the Managing Shareholder has the
following powers and duties, subject to (i) the supervision and review of the
Board under Section 7.5; (ii) the obligations and prior approval rights of the
Board and/or Independent Trustees set forth in Section 1.9 and elsewhere in this
Declaration; and (iii) any other limitations, restrictions or other provisions
set forth herein:
(a) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, and to acquire, sell, mortgage, own,
acquire on lease, hold, manage, operate, lease to others, improve, option,
exchange, release, and partition real estate interests of every nature,
including freehold, leasehold, mortgage, ground rent and other interests
therein, and to erect, construct, alter, repair, demolish or otherwise change
buildings and structures of every nature.
(b) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, option, sell and exchange stocks, bonds,
notes, certificates of indebtedness and securities of every nature.
(c) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, acquire, sell, mortgage, own, acquire on
lease, hold, manage, improve, lease to others, option and exchange personal
property of every nature.
(d) To hold legal title to Trust Property in the name of the Trust, or in
the name of one or more of the Trustees for the Trust, or of any other person as
nominee for the Trust, without disclosure of the interest of the Trust therein.
(e) To borrow money for the purposes of the Trust and to give notes or
other negotiable or nonnegotiable instruments of the Trust therefor; to enter
into other obligations or guarantee the obligations of others on behalf of and
for the purposes of the Trust; and to mortgage or pledge or cause to be
mortgaged or pledged real and personal property of the Trust to secure such
notes, debentures, bonds, instruments or other obligations.
(f) To lend money on behalf of the Trust and to invest the funds of the
Trust.
(g) To create reserve funds for such purposes as it deems advisable.
(h) To deposit funds of the Trust in banks and other depositories without
regard to whether such accounts will draw interest.
(i) To pay taxes and assessments imposed upon or chargeable against the
Trust, the Managing Shareholder or the Trustees by virtue of or arising out of
the existence, property, business or activities of the Trust.
(j) To purchase, issue, sell or exchange Shares of the Trust as provided in
Article 2 hereof.
(k) To exercise with respect to Trust Property, all options, privileges and
rights, whether to vote, assent, subscribe or convert, or of any other nature;
to grant proxies; and to participate in and accept securities issued under any
voting trust agreement.
(l) To participate in any reorganization, readjustment, consolidation,
merger, dissolution, sale or purchase of assets, lease, or similar proceedings
of any corporation, partnership or other organization in which the Trust shall
have an interest and in connection therewith to delegate discretionary powers to
any reorganization, protective or similar committee and to pay assessments and
other expenses in connection therewith.
(m) To engage or employ agents, representatives and employees of any
nature, or independent contractors, including, without limiting the generality
of the foregoing, transfer agents for the transfer of Shares in the Trust,
registrars, underwriters for the sale of Shares in the Trust, independent
certified public accountants,
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attorneys at law, appraisers, and real estate agents and brokers; and to
delegate to one or more Trustees, agents, representatives, employees,
independent contractors or other persons such powers and duties as the Managing
Shareholder deems appropriate.
(n) To determine conclusively the allocation between capital and income of
the receipts, holdings, expenses and disbursements of the Trust, regardless of
the allocation which might be considered appropriate in the absence of this
provision.
(o) To determine conclusively the value from time to time and to re-value
the real estate, securities and other property of the Trust by means of
independent appraisals.
(p) To compromise or settle claims, questions, disputes and controversies
by, against or affecting the Trust.
(q) To solicit proxies of the Shareholders.
(r) To adopt a fiscal year for the Trust and to change such fiscal year.
(s) To adopt and use a seal.
(t) To merge the Trust with or into any other trust or corporation in
accordance with the laws of the State of Delaware and any other applicable law.
(u) To deal with the Trust Property in every way, including joint ventures,
partnerships and any other combinations or associations, that it would be lawful
for an individual to deal with the same, whether similar to or different from
the ways herein and hereinabove specified.
(v) To determine whether or not, at any time or from time to time, to
attempt to cause the Trust to qualify for taxation as a REIT.
(w) To make, adopt, amend or repeal Bylaws containing provisions relating
to the business of the Trust, the conduct of its affairs, its rights or powers
and the rights or powers of the Managing Shareholder and the Trust's
Shareholders, Trustees or officers not inconsistent with applicable law or this
Declaration.
(x) To direct or supervise the Corporate Trustee, the Trust and the
Trust's agents in the exercise of any action relating to the Trust's affairs,
including without limitation the powers described in Section 1.8.
(y) To take the actions specified in Section 7.3 if the approvals specified
therein are obtained.
(z) To amend this Declaration as specified in Section 9.8(a) or other
provisions of this Declaration.
(aa) To lend money to the Trust in accordance with Section 1.9(o).
(bb) To terminate the Initial Offering at any time prior to the Termination
Date, provided that the Escrow Date has occurred.
(cc) To withdraw the Initial Offering at any time as provided in Section
1.6.
(dd) To acquire on behalf of the Trust such assets or properties, real or
personal, as the Managing Shareholder in its sole discretion deems necessary or
appropriate for the conduct of the Trust's business and to sell, exchange,
distribute to Shareholders in kind or otherwise dispose of any part of the Trust
Property in the ordinary course of the operation of the Trust Property.
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(ee) To take such steps as may be necessary to cause any Operating
Partnerships in which the Trust may own an interest to distribute to its
partners an amount sufficient to permit the Trust to meet the annual
distribution requirements of the REIT provisions of the Code.
(ff) To do all such other acts and things as are incident to any of 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 of the Trust, and to
carry out the provisions of this Declaration.
7.5 Independent Trustees. (a) There shall be at least two Independent
Trustees of the Trust at all times. The Independent Trustees shall have such
responsibilities and rights as are prescribed in this Declaration. The number of
Independent Trustees may be increased (but to not more than five) or decreased
(but to not fewer than two) from time to time by action of a majority of the
Managing Shareholder and the Independent Trustees, acting together
(collectively, the "Board").
(b) To qualify to serve the Trust as an Independent Trustee, a person may
not be "associated" (as such term is defined below) or have been "associated"
within the last two years, directly or indirectly, with the Managing Shareholder
(or any successor Advisor to the Trust). A person is deemed to be associated
with the Managing Shareholder if he (i) owns an interest in, is employed by, or
is an officer, director or trustee of the Managing Shareholder or any of its
Affiliates; (ii) performs services, other than as a Trustee, for the Trust;
(iii) is a Trustee for more than three REITs organized or advised by the
Managing Shareholder; or (iv) has any "material business or professional
relationship" with the Managing Shareholder or any of its Affiliates. For
purposes of determining whether there exists such a material business or
professional relationship, the gross revenue derived by the prospective
Independent Trustee from the Managing Shareholder and its Affiliates is deemed
to be material per se if it exceeds five percent of the prospective Independent
Trustee's (i) annual gross revenue, derived from all sources, during either of
the last two years, or (ii) net worth, on a fair market value basis. For
purposes of determining the qualification of a person to serve the Trust as an
Independent Trustee, an indirect relationship shall include circumstances in
which any spouse, parent, child, sibling, mother- or father-in-law, son- or
daughter-in-law, or brother- or sister-in-law of a prospective Independent
Trustee is or has been associated with the Trust, the Managing Shareholder (or
any successor Advisor of the Trust) or any of the Managing Shareholder's (or
successor Advisor's) Affiliates.
(c) The term of each Independent Trustee shall be one year (subject to a
shorter term in the case of an Independent Trustee who resigns, dies or is
incapacitated or removed prior to the end of the term or was elected to replace
a vacancy). Each Independent Trustee (other than one who is elected to fill the
unexpired term of another Independent Trustee) shall be elected by a vote of the
Shareholders. Any person may serve an unlimited number of terms. Vacancies
created in the authorized number of Independent Trustees prior to the end of a
term shall be filled by a majority of the remaining Board members. If, in such
case, no member of the Board remains, the Managing Shareholder shall call a
special meeting of Shareholders for the purpose of electing Independent Trustees
to fill such vacancy within 90 days after the last vacancy occurs. The
Independent Trustees shall nominate replacements for vacancies created in the
authorized number of Independent Trustees prior to the end of a term.
(d) The Independent Trustees shall supervise and review, in accordance with
the terms and conditions of this Declaration, the actions of the Managing
Shareholder in managing the Trust and shall have the right to require action by
the Managing Shareholder to the extent necessary to carry out the fiduciary
duties of the Independent Trustees. Except as expressly authorized by this
Declaration, the Independent Trustees shall not have any management,
administrative or investment advisory powers over the Trust or the Trust
Property. The Independent Trustees shall not take any action except at a meeting
of the Board or by unanimous written consent of the Independent Trustees and the
Managing Shareholder.
(e) Any Independent Trustee may resign if he gives notice to the Trust of
his intent to resign and cooperates fully with any successor Independent Trustee
appointed under this Section 7.5. Such resignation shall be effective on the
designation of the successor Independent Trustee.
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(f) Any Independent Trustee may be removed (x) for cause by the action of
at least two-thirds of the remaining members of the Board or (y) by action of
the holders of at least two-thirds of the Common Shares. Removal of an
Independent Trustee shall not affect the validity of any actions taken prior to
the date of removal.
7.6 Board of the Trust. (a) The Trust shall have a Board of the Trust which
shall have such responsibilities and rights as shall be prescribed in this
Declaration. There shall be at least three members of the Board at all times.
The number of members of the Board may be increased (but to not more than nine)
or decreased (but to not fewer than three) from time to time by action of a
majority of the members of the Board. At all times a majority of the members of
the Board shall be Independent Trustees. No person shall qualify as a member of
the Board until he shall have agreed in writing to be bound by this Declaration.
Each member of the Board shall have had at least three years of relevant
experience demonstrating the knowledge and experience required to successfully
acquire and manage the type of assets to be acquired by the Trust. At least one
of the Independent Trustees must have at least three years of relevant real
estate experience. The term of each member of the Board shall be one year
(subject to a shorter term in the case of a member who resigns, dies, is
incapacitated or removed prior to the end of the term, or was elected to replace
a vacancy). Each member of the Board (other than one who is elected to fill the
unexpired term of another member) shall be elected by a vote of the
Shareholders. Each member of the Board may serve an unlimited number of terms.
Vacancies created in the authorized number of Board members prior to the end of
a term shall be filled by a majority of the remaining Board members. If, in such
case, no member of the Board remains, the Managing Shareholder shall call a
special meeting of Shareholders for the purpose of electing members to fill such
vacancies within 90 days after the last vacancy occurs. The Independent Trustees
shall nominate replacements for vacancies created in the authorized number of
members of the Board prior to the end of a term.
(b) The Board shall supervise and review, in accordance with the terms and
conditions of this Declaration, the actions of the Managing Shareholder in
managing the Trust and shall have the right to require action by the Managing
Shareholder to the extent necessary to carry out the fiduciary duties of the
Board's members. The Board may establish such committees they deem appropriate,
provided, the majority of the members of any such committee are Independent
Trustees.
(c) The Board shall meet at least annually on the call of the Managing
Shareholder and at such other times as determined by the Board. Except to the
extent conflicting with the Delaware Act or this Declaration, the law of
Delaware governing meetings of directors of corporations shall govern meetings,
voting and consents by the members of the Board. The Managing Shareholder may be
represented for any purpose by any of its officers.
(d) As compensation for services rendered to the Trust, each Independent
Trustee and each other member of the Board who is not affiliated or associated
with the Trust or the Managing Shareholder or any of its Affiliates shall be
paid by the Trust the sum of $5,000 annually in quarterly installments and shall
be reimbursed for all reasonable out-of-pocket expenses relating to attendance
at meetings or otherwise performing his duties hereunder. The Board may review
annually the compensation payable to the Independent Trustees and such other
members of the Board and may increase or decrease it as the Board sees
reasonable. No compensation for consulting services shall be paid to Independent
Trustees or such other members of the Board without prior Board approval. No
compensation shall be payable by the Trust to other Managing Persons for their
services except as specified by this Declaration, under a management agreement
or other agreement approved under the terms and conditions of this Declaration
or indirectly as an officer, director, stockholder or employee of the Managing
Shareholder or other Managing Person otherwise entitled to receive compensation
hereunder.
(e) Any member of the Board may resign if he gives notice to the Trust of
his intent to resign and cooperates fully with any successor member appointed
under this Section 7.5. Any such resignation shall be effective on the
designation of the successor member.
(f) Any member of the Board may be removed (x) for cause by the action of
at least two-thirds of the remaining members of the Board or (y) by action of
the holders of at least two-thirds of the Common Shares.
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Removal of any member shall not affect the validity of any actions of the Board
taken prior to the date of removal.
7.7 Officers of Trust. (a) The Managing Shareholder shall appoint a
President, one or more Vice Presidents as designated by the Managing
Shareholder, a Secretary and such other officers and agents as the Managing
Shareholder may from time to time consider appropriate, none of whom need be a
Shareholder. Except as otherwise prescribed by the Managing Shareholder or in
this Declaration or the Bylaws of the Trust, each officer shall have the powers
and duties usually appertaining to a similar officer of a Delaware corporation
under the direction of the Managing Shareholder and shall hold office during the
pleasure of the Managing Shareholder. Any two or more offices may be held by the
same person. Any officer may resign by delivering a written resignation to the
Managing Shareholder and such resignation shall take effect upon delivery or as
specified therein.
(b) All conveyances of real property or any interest therein by the Trust
may be made by the Corporate Trustee, which shall execute on behalf of the Trust
any instruments necessary to effect the conveyance. A certificate of the
Secretary of the Trust stating compliance with this Section 7.7(b) shall be
conclusive in favor of any person relying thereon.
(c) All other documents, agreements, instruments and certificates that are
to be made, executed or endorsed on behalf of the Trust shall be made, executed
or endorsed by such officers or persons as the Managing Shareholder shall from
time to time authorize and such authority may be general or confined to specific
instances. In the absence of other provisions, the President is authorized to
execute any document, to take any action on behalf of the Trust under this
Section 7.7(c), and to authorize other officers to execute confirmatory
documents or certificates.
7.8 Presumption of Power. The execution by the Corporate Trustee, the
Managing Shareholder or the officers on behalf of the Trust of leases,
assignments, conveyances, contracts or agreements of any kind whatsoever shall
be sufficient to bind the Trust. No person dealing with the Managing Shareholder
or the Trust's officers shall be required to determine their authority to make
or execute any undertaking on behalf of the Trust, nor to determine any fact or
circumstances bearing upon the existence of their authority nor to see the
application or distributions of revenues or proceeds derived therefrom, unless
and until such person has received written notice to the contrary.
7.9 Obligations Not Exclusive. The Managing Shareholder, Trustees and any
other members of the Board shall be required to devote only such part of their
time as is reasonably needed to manage the business of the Trust, it being
understood that they have and shall have other business interests and therefore
shall not be required to devote their time exclusively to the Trust. The
Managing Shareholder, Trustees and any other members of the Board shall in no
way be prohibited from or restricted in engaging in, or possessing an interest
in, any other business venture of a like or similar nature including any venture
involving the residential real estate industry. Nothing in this Section 7.9
shall relieve the Managing Shareholder, Trustees or any other members of the
Board of other fiduciary obligations to the Shareholders, except as limited in
Article 3. Notwithstanding anything to the contrary contained in this Article or
elsewhere in this Declaration, the Managing Shareholder shall have no duty to
take any affirmative action with respect to management of the Trust business or
the Trust Property which might require the expenditure of moneys by the Trust or
the Managing Shareholder unless the Trust is then possessed of such moneys
available for the proposed expenditure. Under no circumstances shall the
Managing Shareholder be required to expend its own funds in connection with the
day to day operation of Trust business.
7.10 Right to Deal with Affiliates. No act of the Trust shall be affected
or invalidated by the fact that a Managing Person may be a party to or have an
interest in any contract or transaction of the Trust, provided that (i) such
arrangement involving the Managing Person conforms with any applicable
provisions of Section 1.9, and (ii) the fact of the Managing Person's interest
shall be disclosed or shall have been known to the Shareholders or the contract
or transaction is at prevailing rates or on terms at least as favorable to the
Trust as those available from persons who are not Managing Persons.
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7.11 Removal of Managing Shareholder. The holders of at least ten percent
of the Common Shares may propose the removal of the Managing Shareholder (or any
successor Advisor of the Trust), either by calling a meeting or soliciting
consents in accordance with the terms of this Declaration. On the affirmative
vote of a Majority of the Shareholders entitled to vote (excluding Common Shares
held by the Managing Shareholder that is the subject of the vote or by its
Affiliates), such Managing Shareholder shall be removed. A majority of the
Independent Trustees may also remove the Managing Shareholder. In the event of
any such removal or the death, dissolution, resignation, insolvency, bankruptcy
or other legal incapacity of the Managing Shareholder or any other event which
would legally disqualify the Managing Shareholder from acting hereunder, the
former Managing Shareholder shall not be entitled to any uncollected fees
specified in Article 4 to the extent not accrued before the date of such removal
or other incapacity.
ARTICLE 8
DISSOLUTION, TERMINATION AND LIQUIDATION
8.1 Dissolution. The Trust shall be dissolved promptly if prior to the
Termination Date of the Initial Offering the Managing Shareholder decides to
withdraw the Initial Offering in accordance with Section 7.4(cc). On or after
the Termination Date, the Trust shall be dissolved and its business shall be
wound up upon the earliest to occur of the following events, unless the
provisions of Section 8.2 are elected:
(a) The sale of all or substantially all of the Trust Property in one
transaction or in a series of related transactions;
(b) The vote of a Majority of Shareholders; or
(c) The occurrence of any other event which, by law, would require the
Trust to be dissolved.
8.2 Continuation of the Trust. Upon the occurrence of any event of
dissolution described in Sections 8.1(a) through (c), the Trust shall be
dissolved and wound up unless (i) the Managing Shareholder and a Majority of the
Shareholders (calculated without regard to Common Shares owned by the Managing
Shareholder or its Affiliates) within 90 days after the occurrence of any such
event of dissolution elect to continue the Trust or, (ii) if there is no
remaining Managing Shareholder, within 90 days after the occurrence of any such
event of dissolution, a Majority of the Shareholders shall elect, in writing,
that the Trust shall be continued on the terms and conditions herein contained
and shall designate one or more persons willing to be substituted as a Managing
Shareholder or Managing Shareholders. In the event there is no remaining
Managing Shareholder and a Majority of the Shareholders elect to continue the
Trust, it shall be continued with the new Managing Shareholder or Managing
Shareholders who shall succeed to and assume all of the powers, privileges and
obligations of the previous Managing Shareholder or Managing Shareholders
hereunder.
8.3 Obligations on Dissolution. The dissolution of the Trust shall not
release any of the parties hereto from their contractual obligations under this
Declaration.
8.4 Liquidation Procedure. Upon dissolution of the Trust for any reason:
(a) A reasonable time shall be allowed for the orderly liquidation of the
assets of the Trust and the discharge of liabilities to creditors so as to
enable the Trust to minimize the losses normally attendant to a liquidation;
(b) The Shareholders shall continue to receive dividends or distributions
as may be declared by the Managing Shareholder; and
(c) The Managing Shareholder (or in its absence, any other liquidating
trustee appointed under
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Section 8.5) shall proceed to liquidate the Trust Properties to the extent that
they have not already been reduced to cash unless the Managing Shareholder (or
other liquidating trustee) elects to make distributions in kind to the extent
and in the manner provided herein, and such net cash proceeds, if any, and
property in kind, shall be applied and distributed to the Shareholders on a pro
rata basis for each class of Shares taking into account the relative rights of
priority of each class.
8.5 Liquidating Trustee. (a) If the dissolution of the Trust is caused by
circumstances under which no Managing Shareholder shall be acting as a Managing
Shareholder or if all liquidating Managing Shareholders are unable or refuse to
act, a majority of the Board shall appoint a liquidating trustee who shall
proceed to wind up the business affairs of the Trust. The liquidating trustee
shall have no liability to the Trust or to any Shareholder for any loss suffered
by the Trust which arises out of any action or inaction of the liquidating
trustee if the liquidating trustee, in good faith, determined that such course
of conduct was in the best interests of the Shareholders and such course of
conduct did not constitute negligence or misconduct of the liquidating trustee.
The liquidating trustee shall be indemnified by the Trust against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with the Trust, provided that the same were not
the result of negligence or misconduct of the liquidating trustee.
(b) Notwithstanding the above, the liquidating trustee shall not be
indemnified and no expenses shall be advanced on its behalf for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws, unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (3) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee.
(c) In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission and of any applicable state
securities administrators, if required, with respect to the issue of
indemnification for securities law violations.
(d) The Trust shall not incur the cost of that portion of any insurance,
other than public liability insurance, which insures any party against any
liability the indemnification of which is herein prohibited.
8.6 Death, Insanity, Dissolution or Insolvency of Managing Shareholder, a
Trustee or a Shareholder. The death, insanity, dissolution, winding up,
insolvency, bankruptcy, receivership or other legal termination of the Managing
Shareholder, a Trustee, a member of the Board or a Shareholder shall have no
effect on the life of the Trust and the Trust shall not be dissolved thereby.
8.7 Withdrawal of Offering. Dissolution of the Trust resulting from
withdrawal of the Initial Offering is governed by Section 1.6(c) and Section
7.4(cc).
ARTICLE 9
MISCELLANEOUS
9.1 Notices. Notices or instruments of any kind which may be or are
required to be given hereunder by any person to another shall be in writing and
deposited in the United States Mail, first class, certified or registered or
overnight mail by a nationally recognized mail service, postage prepaid,
addressed to the respective person at the address appearing in the records of
the Trust. Any Shareholder may change his address by giving notice in writing,
stating his new address, to the Trust. Any notice shall be deemed to have been
given effective as of 72 hours, excluding Saturdays, Sundays and holidays, after
the depositing of such notice in an official United States Mail receptacle and
as of the next business day after depositing of such notice with any such
overnight mail service. Notice to the Trust may be addressed to its principal
office.
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9.2 Delaware Laws Govern. This Declaration shall be governed and construed
in accordance with the laws of the State of Delaware, and venue for any
litigation between or against any of the parties hereto may be maintained in New
Castle County, Delaware.
9.3 Power of Attorney. Each Shareholder irrevocably constitutes and
appoints the Managing Shareholder as his true and lawful attorney-in-fact and
agent to effectuate and to act in his name, place and stead, in effectuating the
purposes of the Trust including the execution, verification, acknowledgment,
delivery, filing and recording of this Declaration as well as all authorized
amendments thereto and hereto, all assumed name and doing business certificates,
documents, bills of sale, assignments and other instruments of conveyances,
leases, contracts, loan documents and counterparts thereof; and all other
documents which may be required to effect a continuation of the Trust and which
the Trust deems necessary or reasonably appropriate, including documents
required to be executed in order to correct typographical errors in documents
previously executed by such Shareholder and all conveyances and other
instruments or other certificates necessary or appropriate to effect an
authorized dissolution and liquidation of the Trust. The power of attorney
granted herein shall be deemed to be coupled with an interest, shall be
irrevocable and shall survive the death, incompetency or legal disability of an
Shareholder.
9.4 Disclaimer. In forming this Trust, all Shareholders recognize that the
residential real estate business is highly speculative and that neither the
Trust nor the Managing Shareholder, any Trustee, any other member of the Board,
or any other Managing Person makes any guaranty or representation to any
Shareholder as to the probability or amount of gain or loss from the conduct of
Trust business.
9.5 Corporate Trustee Resignation and Replacement. The Managing Shareholder
may increase or decrease the number of Corporate Trustees so long as there is at
least one Corporate Trustee which meets the requirements of Section 3807 of the
Delaware Act. A Corporate Trustee may resign by delivering a written resignation
to the Managing Shareholder not less than 60 days prior to the effective date of
the resignation. The Managing Shareholder may remove a Corporate Trustee at any
time, provided that if there is no incumbent, at least one new Corporate Trustee
is concurrently appointed. In the event of the absence, death, resignation,
removal, dissolution, insolvency, bankruptcy or legal incapacity of a Corporate
Trustee or if an additional Corporate Trustee is to be appointed, the Managing
Shareholder shall appoint the Corporate Trustee in writing and shall
subsequently give notice to the Shareholders, although such notice is not
necessary to the validity of the appointment. A Corporate Trustee so appointed
shall qualify by filing his written acceptance at the Trust's principal place of
business. If there are multiple Corporate Trustees, each is vested with an
undivided interest in the trust estate and may exercise all powers vested in the
Corporate Trustee as directed by the Managing Shareholder.
9.6 Amendment and Construction of Declaration. (a) This Declaration may be
amended by the Managing Shareholder, without notice to or the approval of the
Shareholders, from time to time for the following purposes: (1) to cure any
ambiguity, formal defect or omission or to correct or supplement any provision
herein that may be inconsistent with any other provision contained herein or in
the Prospectus or to effect any amendment without notice to or approval by
Shareholders as specified in other provisions of this Declaration; (2) to make
such other changes or provisions in regard to matters or questions arising under
this Declaration that will not materially and adversely affect the interest of
any Shareholder; (3) to otherwise equitably resolve issues arising under the
Prospectus or this Declaration so long as similarly situated Shareholders are
not treated materially differently; (4) to maintain the federal tax status of
the Trust (unless the Managing Shareholder determines that it is in the best
interests of Shareholders to change the Trust's tax status and a Majority of the
Shareholders concur); and (5) to comply with law.
(b) Other amendments to this Declaration may be proposed by either the
Managing Shareholder or Shareholders owning 10% or more of the outstanding
Shares entitled to vote, in each case by calling a meeting of Shareholders or
requesting consents under Section 9.2(b) and specifying the text of the
amendment and the reasons therefor. Unless otherwise provided herein, all
amendments must be approved by the holders of a Majority of the outstanding
Shares entitled to vote (calculated without regard to Shares owned by the
Managing Shareholder
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and its Affiliates), and, if the terms of a series of Shares so require, by the
vote of the holders of such class, series or group specified therein.
(c) The Managing Shareholder has power to construe this Declaration and to
act upon any such construction. Its construction of the same and any action
taken pursuant thereto by the Trust or a Managing Person in good faith shall be
final and conclusive.
9.7 Bonds and Accounting. The Trustees and other Managing Persons shall not
be required to give bond or otherwise post security for the performance of their
duties and the Trust waives all provisions of law requiring or permitting the
same. No person shall be entitled at any time to require the Trust, Managing
Shareholder, Trustees, any other member of the Board or any Shareholder to
submit to a judicial or other accounting or otherwise elect any judicial,
administrative or executive supervisory proceeding applicable to non-business
trusts.
9.8 Binding Effect. This Declaration shall be binding upon and shall inure
to the benefit of the Shareholders (and their spouses if the Shares of such
Shareholders shall be community property) as well as their respective heirs,
legal representatives, successors and assigns. This Declaration constitutes the
entire agreement among the Trust, the Trustees and the Shareholders with respect
to the formation and operation of the Trust, other than the Subscription
Agreement entered into between the Trust and each Shareholder and the Trust
Management Agreement.
9.9 Headings. Headings of Articles and Sections used herein are for
descriptive purposes only and shall not control or alter the meaning of this
Declaration as set forth in the text.
9.10 Bylaws. The Bylaws of the Trust may be altered, amended or repealed,
and new Bylaws may be adopted, at any meeting of the Board by a majority of the
Board, subject to repeal or change by action of the Shareholders entitled to
vote thereon.
9.11 Severability. If any provision of this Declaration shall be 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 the Declaration shall be carried
out, if possible, as if such invalid or unenforceable provision were not
contained therein.
ARTICLE 10
DEFINITIONS
The following terms, whenever used herein, shall have the meanings assigned
to them in this Article 10 unless the context indicates otherwise. References to
sections and articles without further qualification denote sections and articles
of this Declaration. The singular shall include the plural and the masculine
gender shall include the feminine, and vice versa, as the context requires, and
the terms "person" and "he" and their derivations whenever used herein shall
include natural persons and entities, including, without limitation,
corporations, partnerships and trusts, unless the context indicates otherwise.
"Advisor" - Any Person (including the Managing Shareholder) responsible for
directing or performing the day-to-day business affairs of a real estate
investment trust.
"Affiliate" - An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
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(b) Any person directly or indirectly owning, controlling or holding, with
power to vote 10% or more of the outstanding voting securities of such other
person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive officer,
director, trustee or general partner.
"Baron Advisors" - Baron Advisors, Inc., a Delaware corporation which is
the initial Managing Shareholder of the Trust.
"Baron Properties" - Baron Capital Properties, Inc., a Delaware corporation
having its principal office at 1105 North Market Street, Wilmington, Delaware
19899, which is the initial Corporate Trustee.
"Board" - The Managing Shareholder and the Independent Trustees, acting
together as the Board of the Trust in accordance with the terms hereof.
"Brentwood" means Brentwood Management, LLC, an Ohio limited liability
company affiliated with the Managing Shareholder which is expected to manage
properties in which the Trust may invest.
"Certificate" - The Certificate of Trust for the Trust, as amended from
time to time.
"Code" - The Internal Revenue Code of 1986, as amended from time to time,
and any rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Share" - A share of beneficial interest in the Trust designated as
a Common Share by the Trust in accordance with Section 2.1 of this Declaration.
"Corporate Trustee"- Baron Properties or its successors as Corporate
Trustee, which acts as legal title holder of the Trust Property, subject to the
terms of this Declaration.
"Dealer Manager" - Sigma Financial Corporation, a Michigan corporation,
with its principal place of business at 4261 Park Road, Ann Arbor, Michigan
48103.
"Declaration" - This Declaration of Trust, as amended from time to time.
"Delaware Act" - The Delaware Business Trust Act, as amended from time to
time (currently codified as title 12, chapter 38 of the Delaware Code).
"Escrow Date" - The later to occur of the dates on which the Trust (i)
accepts the subscription that results in the gross proceeds from the Initial
Offering to exceed $250,000, and (ii) deposits at least $250,000 in collected
funds in escrow under Section 1.6(b), provided, however, the Escrow Date shall
not be later than June 30, 1998.
"Exchange Act" refers to the federal Securities Exchange Act of 1934, as
amended.
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
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"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"Independent Trustee" - Any individual meeting certain qualifications under
Section 7.5(b) who becomes an Independent Trustee of the Trust under the terms
of this Declaration.
"Initial Offering" - the initial public offering and sale of up to
2,500,000 Common Shares by the Trust pursuant to the Prospectus dated
_______________, 1997, as supplemented and amended from time to time.
"Junior Mortgage" refers to a Mortgage which (i) 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
Mortgages and (ii) must be satisfied before such other charges or liens (other
than prior Mortgages) are entitled to participate in the proceeds of any sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
"Majority" - Unless otherwise specified herein, when used with respect to
any consent to be given or decision to be made or action to be taken by the
Shareholders or group of Shareholders entitled to vote on a particular matter, a
majority in interest of all the then current Shareholders or members of the
group entitled to vote.
"Managing Person" - Any of the following: (a) Trust officers, agents, or
Affiliates, the Managing Shareholder, the Trustees, any other members of the
Board, Affiliates of the Managing Shareholder, a Trustee, or any other member of
the Board, and (b) any directors, officers or agents of any organizations named
in (a) above when acting for a Trustee, the Managing Shareholder, any other
member of the Board or any of their Affiliates on behalf of the Trust.
"Managing Shareholder" - Baron Advisors and any substitute or different
Managing Shareholder as may subsequently be created under the terms of this
Declaration.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"Mortgage Loan" refers to a note, bond or other evidence of indebtedness or
obligation which is secured or collateralized by a Mortgage.
"Person" - Any natural person, partnership, corporation, association,
trust, limited liability company or other legal entity.
"Preferred Share" - A share of beneficial interest with such preferences
and rights (in relation to other Shares authorized and issued by the Trust) as
the Managing Shareholder may designate under Section 2.1(c) of this Declaration
for sale or issuance subsequent to completion of the Initial Offering.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"Second Mortgage" means a Mortgage which (i) 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 a First Mortgage
and (ii) must be satisfied before such other charges or encumbrances (other than
the First Mortgage) are entitled to participate in the proceeds of any sale.
"Second Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Second Mortgage.
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"Securities Act" - The federal Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.
"Share" - A share of beneficial interest in the Trust which is either a
Common Share or a Preferred Share authorized for issuance and designated as such
by the Managing Shareholder in accordance with Section 2.1(c) of this
Declaration.
"Shareholder" - An owner of Shares (which will include the Managing
Shareholder to the extent it acquires Shares).
"Subscription Documents" - The form of subscription documents which each
prospective Shareholder must execute in order to subscribe for Common Shares in
the Initial Offer.
"Termination Date" - The date the Initial Offering terminates, which date
shall be June 30, 1998, or an earlier or later date determined by the Trust in
its discretion as follows:
(a) The Trust may designate any date prior to June 30, 1998 as the
Termination Date if the Escrow Date has occurred prior to such date;
(b) The Trust from time to time may designate any date after June 30, 1998
as the Termination Date if the Escrow Date has occurred prior to the extension
of the Termination Date; and
(c) If the Trust elects to withdraw the Initial Offering of Shares under
this Declaration, the Termination Date shall be the date of that election.
"Trust" - Baron Capital Trust, a Delaware business trust which is the
issuer of Shares of the Trust.
"Trustee" and "Trustees"- "Trustee" means a person serving as a Corporate
Trustee or an Independent Trustee of the Trust under this Declaration; the term
"Trustees" refers to the Corporate Trustee and the Independent Trustees
collectively.
"Trust Management Agreement" - The Trust Management Agreement dated as of
_____________ __, 1997 between the Trust and the Managing Shareholder under
which the Managing Shareholder will perform certain management, administrative
and investment advisory services for the Trust as described in the Prospectus.
"Trust Property" - All real and personal property owned or acquired by the
Corporate Trustee as part of the trust estate under this Declaration, which is
expected to include but not be limited to (i) the land, buildings and
improvements comprising one or more existing residential apartment properties
and/or single-family housing developments in which the Trust may make an equity
investment, and (ii) its rights in connection with Mortgage Loans it may acquire
or make which are secured by Mortgages on the land, buildings and improvements
comprising residential apartment properties and/or single-family housing
developments.
[Continued on next page]
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IN WITNESS WHEREOF, the undersigned have signed this Declaration as of the
date first above written.
BARON CAPITAL PROPERTIES, INC.,
Grantor and Corporate Trustee
By: /s/ Gregory K. McGrath
--------------------------------
Gregory K. McGrath, President
BARON ADVISORS, INC.,
Managing Shareholder
By: /s/ Gregory K. McGrath
--------------------------------
Gregory K. McGrath, President
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EXHIBIT A
Shareholder Name Address Number of Shares
---------------- ------- ----------------
Owned and Class
---------------
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EXHIBIT B
TRUST MANAGEMENT AGREEMENT
<PAGE>
FORM OF
TRUST MANAGEMENT AGREEMENT
AGREEMENT made as of the ______ day of ______________, 1997 by and between
BARON CAPITAL TRUST, a Delaware business trust (the "Trust"), and BARON
ADVISORS, INC., a Delaware corporation (hereinafter referred to as the
"Management Company").
W I T N E S S E T H:
WHEREAS, the Trust is a business trust organized under the Delaware
Business Trust Act, as amended, which intends to elect to be taxed as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, the Management Company is the managing shareholder of the Trust
and will engage principally in rendering management, administrative and
investment advisory services to the Trust; and
WHEREAS, the Trust desires to retain the Management Company to render
management, administrative and certain investment advisory services to the Trust
in the manner and on the terms hereinafter set forth; and
WHEREAS, the Management Company is willing to provide management,
administrative and investment advisory services to the Trust on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Trust and the Management Company hereby agree as
follows:
ARTICLE I
Duties of the Management Company
The Trust hereby employs the Management Company to furnish, or arrange for
Affiliates (defined in Article VIII) of the Management Company to furnish, the
management, administrative and investment advisory services described below for
the period and on the terms and conditions set forth in this Agreement, subject
to the general supervision and review of the Board of the Trust and/or a
majority of the Independent Trustees of the Trust and the prior approval of the
Board and/or a majority of the Independent Trustees in respect of certain
actions of the Trust as set forth in the Declaration of Trust ("the
Declaration") for the Trust dated as of August 31, 1997. The Board of the Trust
consists of the Management Company and two Independent Trustees appointed
pursuant to the terms and conditions of the Declaration. The Management Company
hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein.
-1-
<PAGE>
(a) Management and Administrative Services. The Management Company shall
perform (or arrange for the performance of) the management and administrative
services necessary for the operation of the Trust, including providing
managerial assistance to companies owned directly or indirectly by the Trust
through which the Trust may conduct its real estate operations and such other
services related to residential apartment properties in which the Trust may
invest (as specified in the Declaration), as shall be necessary for the
operation of the Trust. The Management Company shall also perform services
related to administering the accounts and handling relations with all holders of
beneficial interests in the Trust. The Management Company shall provide the
Trust with office space, equipment and facilities and such other services as the
Management Company shall from time to time determine to be necessary or useful
to perform its obligations under this Agreement. The Management Company shall
also, on behalf of the Trust, conduct relations with custodians, depositories,
transfer agents, other shareholder service agents, accountants, attorneys,
underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable. The Management Company shall report to the Board as to its
performance of obligations hereunder and shall furnish advice and
recommendations with respect to such other aspects of the business and affairs
of the Trust as the Management Company shall determine to be desirable.
(b) Investment Advisory Services. Pursuant to the Declaration, the
Management Company in its capacity as the managing shareholder of the Trust is
responsible for providing investment advisory services in connection with real
estate investments the Trust may make and in connection with the money market
securities or other non-real estate investments held by the Trust (such
investments being referred to herein collectively as the "Investments"). The
Management Company shall also provide the Trust with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the Investments, and shall advise the Board of the
investment program for the Investments and shall determine from time to time
which Investments shall be purchased, sold or exchanged and what portion of the
Trust's assets shall be held in the various money market securities or cash,
subject always to any provisions, restrictions and limitations set forth in the
Declaration, as amended from time to time, the provisions of the Code relating
to REITs, and the Trust's investment objectives, investment policies and
investment restrictions. The Management Company shall also make determinations
with respect to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Trust's Investments
shall be exercised, subject to the restrictions set forth in the immediately
preceding sentence. The Management Company shall take, on behalf of the Trust,
all actions which it deems necessary to implement its investment policies.
Subject to applicable law, the Management Company may select brokers or dealers
which are its Affiliates to effect the purchase or sale of Investments. The
Management Company, in its sole discretion, may engage professionals,
consultants and other persons whose expertise or qualifications may assist the
Management Company or the Trust in connection with the Trust's business and may
treat the costs and expenses so incurred as a Trust expense.
-2-
<PAGE>
ARTICLE II
Allocation of Charges and Expenses
(a) The Management Company. The Management Company assumes and shall pay
the expense for maintaining the staff and personnel necessary to perform its
obligations under this Agreement and shall at its own expense, provide the Trust
with office space, facilities, equipment and personnel necessary to carry out
its obligations hereunder. The Management Company will bear the administrative
and service expenses associated with the management services it is to provide
for the Investments of the Trust pursuant to the terms of this Agreement.
(b) The Trust. The Trust assumes and shall pay or cause to be paid all
other expenses of the Trust not expressly assumed by the Management Company
under this Agreement, including, without limitation: expenses of all
transactions involving the Trust, including without limitation, transactions
relating to the acquisition, leasing and disposition of properties, whether
consummated or not; valuation costs; expenses of printing reports and other
documents distributed to the Securities and Exchange Commission and holders of
beneficial interests, fees payable to the Securities and Exchange Commission,
state securities regulatory agencies and other regulatory agencies; interest;
taxes; fees and actual out-of-pocket expenses of the Independent Trustees; fees
for legal, auditing and consulting services; litigation expenses; costs of
printing proxies and other expenses related to meetings of holders of beneficial
interest; postage and other expenses properly payable by the Trust.
ARTICLE III
Compensation of the Management Company
(a) Management Fee. For the services rendered, the facilities furnished and
the expenses assumed by the Management Company under this Agreement, the Trust
shall pay to the Management Company annual compensation in an amount equal to 1%
of the gross proceeds from the sale by the Trust of Common Shares in the Trust's
initial offering ("Initial Offering") pursuant to the Prospectus dated
_____________, 1997, payable in equal monthly payments in advance. To the extent
that the Trust does not have funds in an amount sufficient to pay the management
fee, the Trust will accrue such fee as a liability and pay the accrued fee at
such time as it has sufficient funds available to it. Interest on the amount of
the accrued fee will be assessed at the annual rate of 10%.
(b) Other Fees. In connection with the Initial Offering, the Management
Company shall be entitled to receive the fees provided for in Section 4.2 of the
Declaration. In connection with any offering of shares of beneficial interest in
the Trust ("Shares") other than the Initial Offering, the Management Company
shall be entitled to receive market-based fees based on the amount of gross
proceeds received by the Trust in connection with such offerings to defray
organizational, distribution and offering expenses incurred in the offer and
sale of the Shares and
-3-
<PAGE>
to cover legal, accounting, consulting and recording fees, printing, filing,
postage and other miscellaneous costs associated with such offering. The
Management Company is also entitled to receive an investment fee in an amount
equal to 4% of the aggregate subscription price received by the Trust for Shares
purchased in connection with the Initial Offering and any subsequent offerings
for the Management Company's services in investigating and evaluating investment
opportunities and assisting the Trust in consummating its investments. If the
Management Company or an Affiliate performs brokerage services in connection
with the acquisition or disposition of Trust investments in properties, the
entity providing those services will be entitled to a brokerage fee or
commission in an amount which is reasonable, customary and competitive in light
of the size, type and location of such property and does not exceed 3% of the
gross sales price, and which, when added to fees and commissions payable to
unaffiliated brokers, does not exceed the lesser of such competitive commission
or an amount equal to 6% of the sale price. The Trust will reimburse Baron
Capital Properties, Inc., the corporate trustee of the Trust, for all actual and
necessary expenses paid or incurred in connection with the operation of the
Trust, including the Trust's allocable share of the corporate trustee's
overhead. The foregoing fees and expenses are to be paid pursuant to the
provisions of the Declaration and are subject to any provisions, restrictions or
limitations set forth therein.
(c) Expense Limitations. In the event the operating expenses of the Trust,
including amounts payable to the Management Company pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed any expense limitations applicable to the Trust imposed by the
Declaration or applicable state securities laws or regulations, as such
limitations may be raised or lowered from time to time, the Management Company
shall reduce its management fee hereunder by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse the Trust in
the amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
portfolio transaction costs and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Trust. Whenever the
expenses of the Trust exceed a pro rata portion of the applicable annual expense
limitations, the estimated amount of reimbursement under such limitations shall
be applicable as an offset against the monthly payment of the fee due to the
Management Company. Should two or more such expense limitations be applicable as
at the end of the last business day of the month, that expense limitation which
results in the largest reduction in the Management Company's management fee
shall be applicable.
ARTICLE IV
Limitation of Liability of the Management Company
(a) As more fully described in Article 3.7 of the Declaration, the
Management Company shall not be liable for any loss suffered by the Trust that
arises out of any action or inaction of the Trust, any Trust officers, agents or
Affiliates, the Management Company, the Trustees of the Trust (comprised of the
Independent Trustees and the corporate trustee), any other members of the Board
of the Trust or any Affiliate of the Management Company, a Trustee, any other
-4-
<PAGE>
member of the Board or any director, officer or agent of those entities
(collectively, "Managing Persons" and individually, a "Managing Person") or out
of any error of judgment or mistake of law, if the Managing Person responsible,
in good faith, determined that such course of conduct was in the Trust's best
interest and such course of conduct was within the scope of this Management
Agreement or the Declaration and did not constitute negligence or misconduct of
the Managing Persons involved.
(b) Indemnification. The provisions of Section 3.7 of the Declaration are
hereby incorporated by reference into this Management Agreement and are
expressly approved by the Board of the Trust. The Management Company shall be
entitled to indemnification hereunder in each instance where the "Managing
Shareholder" is entitled to indemnification under said Section 3.7.
ARTICLE V
Activities of the Management Company
The services of the Management Company of the Trust to be performed under
this Management Agreement are not deemed to be exclusive, the Management Company
being free to render services to others. It is understood that Trustees, other
members of the Board, Affiliates of the Trust (other than the Independent
Trustees) and holders of beneficial interest of the Trust are or may become
interested in the Management Company as directors, officers, employees or
shareholders of the Management Company or otherwise and that the Management
Company or its directors, officers, employees or shareholders are or may become
interested in the Trust as Trustees (other than as an Independent Trustee),
holders of beneficial interests or otherwise.
ARTICLE VI
Duration and Termination of this Contract
This Agreement shall become effective as of the date first above written
and shall remain in force until the first anniversary thereof, and thereafter,
but only so long as such continuance is specifically approved at least annually
by (i) the Board of the Trust or the vote of a majority of the outstanding
voting securities of the Trust and (ii) a majority of the Independent Trustees
of the Trust who are not parties to this Agreement or interested persons of any
such party, by a vote cast in person at a meeting called for the purpose of
voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Trustees of the Trust, by vote
of a majority of the outstanding voting securities of the Trust, or by the
Management Company, on at least 60 days' prior written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
-5-
<PAGE>
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Board of the Trust or the vote of a majority of
the holders of outstanding voting securities of the Trust and (ii) a majority of
the Independent Trustees of the Trust, by a vote cast in person at a meeting
called for the purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities,"
"Affiliate" and "affiliated person" when used in this Agreement, shall have the
respective meanings specified in the Securities Act of 1933, as amended, and the
rules thereunder.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with the laws of the State
of New York without regard to the conflicts of law provisions thereof.
ARTICLE X
Notice of Non-liability
Under the Delaware Business Trust Act and Sections 3.3 and 3.4 of the
Declaration, neither the Shareholders the Trustees nor any other members of the
Board of the Trust shall be personally liable hereunder, and the Management
Company shall look solely to the Trust property for the satisfaction of any
claim hereunder against the Trust.
[continued on next page]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
BARON CAPITAL TRUST
By: ____________________
Gregory K. McGrath
President
BARON ADVISORS, INC.
By: ____________________
Gregory K. McGrath
President
-7-
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE
OF
AFFILIATES OF MANAGING SHAREHOLDER
<PAGE>
Table 1: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
The following table summarizes the experience of Affiliates of the General
Partner of the Partnership in organizing eighteen investment programs whose
offerings closed in the most recent three years. The eighteen programs had
investment objectives similar to those of the Partnership in that the programs
provided financing in respect of residential properties.
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund VIII, Appreciation
I, Ltd. Ltd. (Baron Capital Fund I, Ltd.
(Baron Capital IV, IV, Inc., general (Baron Capital
Inc., general partner and IV, Inc., general
partner and sponsor) partner and
sponsor) sponsor)
---------------- ------------------ -----------------
<S> <C> <C> <C>
Dollar amount offered: $940,000 $1,020,000 $840,000
Dollar amount raised:
(percentage relative to
amount offered): 940,000 1,020,000 205,000
(100%) (100%) (24%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 94,000 94,400 20,500
(10%) (9%) (10%)
Amount raised available for
investment (percentage): 846,000 849,600 184,500
(90%) (91%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to redeem
limited partner interests
of existing limited partners: 846,000 849,600 184,500
(100%) (100%) (100%)
Date offering began: 2/94 3/94 4/94
Length of offering (in months): 3 3 2
Months required to invest
90% of the amount
available for investment
measured from beginning
of offering): 3 3 2
</TABLE>
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THIS OFFERING WILL EXPERIENCE
RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE TABLES ABOVE AND BELOW. INVESTORS SHOULD NOTE THAT
THE INVESTMENT OBJECTIVES OF ALL OF THE PARTNERSHIPS DESCRIBED IN THE FOLLOWING
TABLES DIFFERED AT LEAST IN PART FROM THE INVESTMENT OBJECTIVES OF THE
PARTNERSHIP AND THAT INVESTORS WILL NOT HAVE ANY INTEREST IN ANY OF THE
PARTNERSHIPS AS A RESULT OF THE ACQUISITION OF UNITS IN THE PARTNERSHIP.
- ----------
The attached tables have been prepared by the General Partner and the
information contained therein has not been reviewed or audited by any
independent accounting firm or counsel to the General Partner or Partnership or
any other counsel.
<PAGE>
Table 1 Continued: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund, Ltd. Income Fund, Income Fund II,
(Baron Capital II, Ltd. (Baron Ltd.
Inc., general Capital I, Inc., (Baron Capital
partner and general partner IV, Inc., general
sponsor) and sponsor) partner and
sponsor)
---------------- ------------------ -----------------
<S> <C> <C> <C>
Dollar amount offered: $807,000 $1,050,000 $920,000
Dollar amount raised
(percentage relative to
amount offered): 807,000 1,050,000 920,000
(100%) (100%) (100%)
Less offering expenses
(percent relative to amount raised):
Selling commissions, legal and
due diligence expenses
paid to sponsor/affiliate: 90,700 115,000 102,000
(11%) (11%) (11%)
Amount raised available for
investment (percentage relative
to amount raised): 716,300 935,000 818,000
(89%) (89%) (89%)
Acquisition costs (percent relative
to amount available for investment):
Cash payments to acquire interest in
investment property or to redeem
limited partner interest of
existing limited partners: 656,300 589,500 548,000
(92%) (63%) (67%)
Cash reserve accounts: 0 165,500 199,000
(0%) (18%) (24%)
Investment fee: 60,000 180,000 71,000
(8%) (19%) (9%)
Date offering began: 11/94 12/94 1/95
Length of offering (in months): 6 8 6
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 7 4
</TABLE>
<PAGE>
Table 1 Continued: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital Florida Tax Credit
Income Partners, Ltd. Income Fund III, Fund,Ltd.
(Baron Capital III, Ltd. (Baron Capital (Baron Capital
Inc., general partner VII, Inc., general VI, Inc., general
and sponsor) partner and sponsor) partner and
sponsor)
--------------------- -------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $800,000 $626,000
Dollar amount raised
(percentage relative to
amount offered): 800,000 800,000 626,000
(100%) (100%) (100%)
Less offering expenses
(percent relative to amount raised):
Selling commissions, legal and
due diligence expenses
paid to sponsor/affiliate: 90,000 90,000 80,000
(11%) (11%) (13%)
Amount raised available for
investment (percentage relative
to amount raised): 710,000 710,000 546,000
(89%) (89%) (87%)
Acquisition costs (percent relative
to amount available for investment):
Cash payments acquire interest in
investment property or to redeem
limited partner interests of
existing limited partners: 543,000 549,000 546,000
(76%) (77%) (100%)
Cash reserve accounts: 143,000 121,000 --
(20%) (17%)
Investment fee: 24,000 40,000 --
(4%) (6%)
Date offering began: 8/95 6/95 6/95
Length of offering (in months): 3 5 11
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 4 9
</TABLE>
<PAGE>
Table 1 Continued: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
GSU Stadium Student Florida Capital Brevard Mortgage
Apartments, Ltd. Income Fund IV, Program, Ltd.
(Baron Capital X, Inc., Ltd. (Baron Capital (Baron Capital
general partner and V, Inc., general XII, Inc., general
sponsor) partner and sponsor) partner and
sponsor)
--------------------- -------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,000,000 $1,820.000 $575,000
Dollar amount raised
(percentage relative to
amount offered): 1,000,000 1,820,000 575,000
(100%) (100%) (100%)
Less offering expenses
(percent relative to amount raised):
Selling commissions, legal and
due diligence expenses
paid to sponsor/affiliate: 110,000 202,000 67,500
(11%) (11%) (12%)
Amount raised available for
investment (percentage relative
to amount raised): 690,000 1,212,800 450,000
(69%) (67%) (78%)
Acquisition costs (percent relative
to amount available for investment):
Cash payments to acquire interest in
investment property or to redeem
limited partner interests of
existing limited partners: 690,000 1,212,800 450,000
(100%) (100%) (100%)
Cash reserve accounts: 100,000 305,200 57,500
(14%) (25%) (13%)
Investment fee: 100,000 100,000 --
(14%) (8%)
Date offering began: 11/95 1/95 1/96
Length of offering (in months): 4 16 4
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 10 3
</TABLE>
<PAGE>
Table 1 Continued: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
Baron First Time Home Baron First Time Baron First Time
Buyer Mortgage Fund Home Buyer Home Buyer
II, Ltd.(Baron Capital XV, Mortgage Fund III, Mortgage Fund,
Ltd., general partner Ltd.( Baron XXVII, Ltd. (Baron Capital
and sponsor) Ltd., general partner VIII, Inc., general
and sponsor) partner and
sponsor)
--------------------- -------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 $500,000
Dollar amount raised
(percentage relative to
amount offered): 500,000 500,000 500,000
(100%) (100%) (100%)
Less offering expenses
(percent relative to amount raised):
Selling commissions, legal and
due diligence expenses
paid to sponsor/affiliate: 45,000 50,000 50,000
(9%) (10%) (10%)
Amount raised available for
investment (percentage relative
to amount raised): 455,000 450,000 450,000
(91%) (90%) (90%)
Acquisition costs (percent relative
to amount available for investment):
Cash payments to acquire interest
in investment property or to redeem
limited partner interests of
existing limited partners: 455,000 450,000 450,000
(100%) (100%) (100%)
Cash reserve accounts: -- -- --
Investment fee: -- -- --
Date offering began: 2/96 5/96 1/96
Length of offering (in months): 6 4 4
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 4 3 3
</TABLE>
<PAGE>
Table 1 Continued: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
Baron First Time Home Baron First Time Clearwater First
Buyer Mortgage Fund V, HomeBuyer Time HomeBuyer
Ltd. (Baron Capital XXIX, Mortgage Fund Program, Ltd., (Baron
Inc., general partner IV, Ltd.(Baron Capital XVI, Inc.,
and sponsor) Capital XXVIII, general partner
partner and and sponsor)
sponsor)
--------------------- -------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 $750,000
Dollar amount raised
(percentage relative to
amount offered): 500,000 500,000 750,000
(100%) (100%) (100%)
Less offering expenses
(percent relative to amount raised):
Selling commissions, legal and
due diligence expenses
paid to sponsor/affiliate: 50,000 45,000 77,500
(10%) (9%) (10%)
Amount raised available for
investment (percentage relative
to amount raised): 425,000 430,000 672,500
(85%) (86%) (90%)
Acquisition costs (percent relative
to amount available for investment):
Cash payments to redeem
limited partner interests
of existing limited partners: 425,000 430,000 672,500
(100%) (100%) (100%)
Cash reserve accounts: 25,000 -- --
(6%)
Investment fee: -- 25,000 --
(6%)
Date offering began: 1/96 6/96 3/96
Length of offering (in months): 4 5 7
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 4 6
</TABLE>
<PAGE>
Table 1 Continued: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
Florida Income Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture
Ltd. (Baron Capital Apartments, Ltd. Fund I,
XI, Inc., general Baron Capital IX, Ltd. (Baron Capital
partner and Inc.,general partner XXVI, Inc., general
sponsor) and sponsor) partner and
sponsor)
--------------------- -------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,150,000 $700,000 $900,000
Dollar amount raised
(percentage relative to
amount offered): 1,150,000 700,000 900,000
(100%) (100%) (100%)
Less offering expenses
(percent relative to amount raised):
Selling commissions, legal and
due diligence expenses
paid to sponsor/affiliate: 125,000 80,000 119,000
(11%) (11%) (13%)
Amount raised available for
investment (percentage relative
to amount raised): 1,025,000 620,000 781,000
(89%) (89%) (87%)
Acquisition costs (percent relative
to amount available for investment):
Cash payments to acquire interest in
investment property or to redeem
limited partner interest of
existing limited partners: 825,500 580,000 601,000
(72%) (83%) (67%)
Cash reserve accounts: 142,000 0 90,000
(12%) (0%) (10%)
Investment fee: 57,500 40,000 90,000
(5%) (6%) (10%)
Date offering began: 10/95 4/96 5/96
Length of offering (in months): 16 6 5
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 6 4 4
</TABLE>
<PAGE>
Table 1 Continued: BARON CAPITAL AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund, Investment Fund Investment
Ltd. (Baron Capital II, Ltd. Fund VI,
XXXIII, Inc., general Baron Capital XXI, Ltd. (Baron Capital
partner and Inc.,general partner XXXI, Inc., general
sponsor) and sponsor) partner and
sponsor)
--------------------- -------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,200,000 $800,000 $1,200,000
Dollar amount raised
(percentage relative to
amount offered): 1,200,000 800,000 1,200,000
(100%) (100%) (100%)
Less offering expenses
(percent relative to amount raised):
Selling commissions, legal and
due diligence expenses
paid to sponsor/affiliate: 140,000 100,000 130,000
(12%) (13%) (11%)
Amount raised available for
investment (percentage relative
to amount raised): 1,060,000 700,000 1,070,000
(88%) (87%) (89%)
Acquisition costs (percent relative
to amount available for investment):
Cash payments to acquire interest in
investment property or to redeem
limited partner interest of
existing limited partners: 796,000 524,000 806,000
(66%) (66%) (67%)
Cash reserve accounts: 120,000 80,000 120,000
(0%) (10%) (10%)
Investment fee: 144,000 96,000 144,000
(12%) (12%) (12%)
Date offering began: 6/96 7/96 11/96
Length of offering (in months): 6 3 5
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 5 2 4
</TABLE>
<PAGE>
Table 2: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
The following table summarizes the payments made to Affiliates of the
General Partner of the Partnership ("Baron Capital") by eighteen real estate
investment programs sponsored by Affiliates of Baron Capital from their
inception through March 31, 1997.
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund VIII, Appreciation
I, Ltd. Ltd. Fund I, Ltd.
-------------- ------------------ --------------
<S> <C> <C> <C>
Date offering began: 2/94 3/94 4/94
Dollar amount raised: $940,000 $944,000 $205,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission and
due diligence expenses: 94,000 94,400 20,500
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through March 31, 1997 before
deducting payments to Baron Capital
Affiliates: 62,679 51,594 (3,545)
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 28,085 34,209 12,223
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 2 Continued: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund Income Fund, Income
Ltd. Ltd. Fund II, Ltd.
-------------- ------------------ --------------
<S> <C> <C> <C>
Date offering began: 11/94 9/94 1/95
Dollar amount raised: $807,000 $1,050,000 $920,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission, legal and
due diligence expenses: 90,700 115,000 102,000
Acquisition fees: 60,000 180,000 71,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through 3/31/97
before deducting
payments to Baron Capital
Affiliates: 73,679 147,696 103,693
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 44,773 47,729 36,059
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 2 Continued: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital
Income Partners, Income Fund III, FloridaTax
Ltd. Ltd. Credit Fund, Ltd.
------------------- ---------------- -----------------
<S> <C> <C> <C>
Date offering began: 8/95 6/95 6/95
Dollar amount raised: $800,000 $800,000 $626,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission, legal and
due diligence expenses: 90,000 90,000 80,000
Acquisition fees: 24,000 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through 3\31\97
before deducting
payments to Baron Capital
Affiliates: 103,261 82,570 (19,591)
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 27,010 19,276 30,107
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 2 Continued: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
<TABLE>
<CAPTION>
Baron First Time Florida Capital GSU Stadium Student
HomeBuyer Mortgage Income Fund IV, Apartments, Ltd.
Fund, Ltd. Ltd.
------------------ --------------- -------------------
<S> <C> <C> <C>
Date offering began: 1/96 1/95 11/95
Dollar amount raised: $500,000 $1,820,000 $1,000,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission, legal and
due diligence expenses: 50,000 202,000 110,000
Acquisition fees: 0 0 100,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through 3/31/97
before deducting
payments to Baron Capital
Affiliates: 61,248 (30,229) 97,500
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 0 63,115 35,980
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 2 Continued: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
<TABLE>
<CAPTION>
Brevard Mortgage Baron First Time Clearwater First Time
Program, Ltd. Home Buyer Home Buyer Program
Mortgage Fund II, Ltd.
Ltd.
---------------- ----------------- ---------------------
<S> <C> <C> <C>
Date offering began: 1/96 2/96 3/96
Dollar amount raised: $575,000 $500,000 750,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission, legal and
due diligence expenses: 67,500 45,000 77,500
Acquisition fees: 0 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through 3\31\97
before deducting
payments to Baron Capital
Affiliates: 72,617 56,108 69,370
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 2 Continued: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
<TABLE>
<CAPTION>
Baron First Time Baron First Time Baron First Time
Home Buyer Home Buyer Home Buyer Mortgage
Mortgage Fund III, Mortgage Fund V, Mortgage Fund IV,
Ltd. Ltd. Ltd.
------------------ ---------------- --------------------
<S> <C> <C> <C>
Date offering began: 5/96 1/96 6/96
Dollar amount raised: $500,000 $500,000 $500,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission, legal and
due diligence expenses: 50,500 50,000 45,000
Acquisition fees: 0 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through 3\31\97
before deducting
payments to Baron Capital
Affiliates: 43,564 40,925 29,112
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 2 Continued: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
<TABLE>
<CAPTION>
Florida Income Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture
Ltd. Apartments, Ltd. Fund I, Ltd.
-------------- ---------------- ----------------
<S> <C> <C> <C>
Date offering began: 10/95 4/96 5/96
Dollar amount raised: $1,150,000 $700,000 $900,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission, legal and
due diligence expenses: 125,500 80,000 119,000
Acquisition fees: 57,500 40,000 90,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through 3/31/97
before deducting
payments to Baron Capital
Affiliates: 29,242 1,579 4,365
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 24,687 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 2 Continued: COMPENSATION OF BARON CAPITAL AFFILIATES
FROM PRIOR FUNDS
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund Investment Fund II, Investment
Ltd. Ltd. Fund VI, Ltd.
--------------- ------------------- ----------------
<S> <C> <C> <C>
Date offering began: 6/96 7/96 11/96
Dollar amount raised: $1,200,000 $800,000 $1,200,000
Amount paid to Baron Capital
Affiliates from proceeds
of offering:
Selling commission, legal and
due diligence expenses: 140,000 100,000 130,000
Acquisition fees: 144,000 96,000 144,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception
through 3/31/97
before deducting
payments to Baron Capital
Affiliates: 3,379 1,825 2,618
Dollar amount paid Baron
Capital Affiliates from
operations:
Property Management
and Administrative
Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Capital Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
<PAGE>
Table 3: OPERATING RESULTS OF PRIOR PROGRAMS
The following tables include operating results
of twenty-four programs sponsored by Baron
Capital Affiliates which closed in the most
recent five years.
FLORIDA CAPITAL INCOME FUND, LTD.
---------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $98,122 $380,488 $377,296
Other: 0 0 3,670
Less:
Operating Expenses: (36,892) (178,791) (201,404)
Interest Expenses: (36,417) (159,163) (128,897)
Depreciation and Amortization: (19,003) (76,013) (69,441)
Other: Major Maintenance: 0 0 (40,663)
Net Income (Loss) - Tax Basis: 5,810 (33,479) (59,439)
Cash generated from operations: 24,813 42,534 6,332
Less: Cash distributions: 20,175 80,700 56,059
Cash generated after cash distributions: 4,638 (38,166) (49,727)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 7 41 (73)
Cash distributions to investors: 25 100 69
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a protion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
TAMPA CAPITAL INCOME FUND, LTD.
-------------------------------
<TABLE>
<CAPTION>
1/1/96-12/31/96 1995
--------------- ----
<S> <C> <C>
Gross Revenues: $409,146 $404,384
Other: 0 0
Less:
Operating Expenses: (207,313) (213,327)
Interest Expenses: (131,405) (88,632)
Depreciation and Amortization: (77,185) (69,040)
Other: Major Maintenance: 0 (25,157)
Net Income (Loss) - Tax Basis: (6,757) 8,228
Cash generated from operations: 70,428 77,268
Less: Cash distributions: 105,000 58,328
Cash generated after cash distributions: (34,572) 18,940
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 6 8
Cash distributions to investors: 100 56
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
In January, 1997 the partnership sold the asset acquired by it with the net
proceeds of its offering.
<PAGE>
Table 3-continued
FLORIDA OPPORTUNITY INCOME PARTNERS, LTD.
-----------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $57,680 $311,719 $207,207
Other: 0 0 9,634
Less:
Operating Expenses: (34,225) (149,572) (100,163)
Interest Expenses: (27,784) (78,273) (47,679)
Depreciation and Amortization: (11,843) (47,371) (24,532)
Other: Major Maintenance: 0 0 (8,649)
Net Income (Loss) - Tax Basis: (16,172) 36,503 35,818
Cash generated from operations: (4,329) 83,874 50,716
Less: Cash distributions: 20,000 77,441 3,390
Cash generated after cash distributions: (24,329) 6,433 47,326
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 20 46 56
Cash distributions to investors: 25 97 4
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3-continued
FLORIDA CAPITAL INCOME FUND III, LTD.
-------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $56,159 $236,335 $106,625
Other: 0 0 0
Less:
Operating Expenses: (27,582) (125,245) (54,323)
Interest Expenses: (17,493) (75,821) (12,597)
Depreciation and Amortization: (9,495) (37,979) (18,548)
Other: Major Maintenance: 0 0 (3,488)
Net Income (Loss) - Tax Basis: 1,589 (2,710) 17,669
Cash generated from operations: 11,084 35,269 36,217
Less: Cash distributions: 20,000 79,867 22,482
Cash generated after cash distributions: (8,916) (44,598) 13,735
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 2 3 22
Cash distributions to investors: 25 100 28
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
FLORIDA INCOME ADVANTAGE FUND I, LTD.
-------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96 - 12/31/96 1995
-------------- ----------------- ----
<S> <C> <C> <C>
Gross Revenues: $45,075 $186,269 $165,493
Other: 0 0 47,756
Less:
Operating Expenses: (25,118) (75,227) (89,479)
Interest Expenses: (12,174) (49,964) (29,185)
Depreciation and Amortization: (12,611) (50,446) (49,641)
Major Maintenance Expense 0 0 (28,185)
Net Income (Loss) - Tax Basis: (4,828) 10,632 16,759
Cash generated from operations: 7,783 61,078 18,644
Less: Cash distributions: 0 82,500 94,000
Cash generated after cash distributions: 7,783 (21,422) (75,356)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (5) 11 17
Cash distributions to investors: 0 88 100
Annualized cash on cash yield
to investors: 0% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
REALTY OPPORTUNITY INCOME FUND VIII, LTD.
-----------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $40,257 $200,396 $216,535
Other: 0 0 37,068
Less:
Operating Expenses: (28,277) (89,343) (98,705)
Interest Expenses: (14,388) (59,048) (38,897)
Depreciation and Amortization: (13,985) (55,941) (55,265)
Other: Major Maintenance: 0 0 (23,632)
Net Income (Loss) - Tax Basis: (16,393) (3,936) 37,104
Cash generated from operations: (2,408) 52,005 55,301
Less: Cash distributions: 0 80,800 94,400
Cash generated after cash distributions: (2,408) (28,795) (39,099)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 16 4 39
Cash distributions to investors: 0 79 100
Annualized cash on cash yield
to investors: 0% 8% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
FLORIDA INCOME APPRECIATION FUND I, LTD.
----------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $13,297 $59,913 $69,986
Other: 0 0 8,944
Less:
Operating Expenses: (7,710) (26,417) (36,080)
Interest Expenses: (3,874) (15,898) (13,692)
Depreciation and Amortization: (4,043) (16,172) (10,878)
Other: Major Maintenance: 0 0 (9,754)
Net Income (Loss) - Tax Basis: (2,330) 1,426 8,526
Cash generated from operations: 1,713 17,598 10,460
Less: Cash distributions: 0 19,375 20,500
Cash generated after cash distributions: 1,713 (1,777) (10,040)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 11 7 41
Cash distributions to investors: 0 95 100
Annualized cash on cash yield
to investors: 0% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3-continued
FLORIDA CAPITAL INCOME FUND II, LTD.
------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $85,140 $336,046 $355,612
Other: 0 0 3,084
Less:
Operating Expenses: (48,857) (163,389) (195,088)
Interest Expenses: (24,902) (130,820) (66,611)
Depreciation and Amortization: (19,626) (78,505) (76,341)
Other: Major Maintenance: 0 0 (43,168)
Net Income (Loss) - Tax Basis: (8,245) (36,668) (22,512)
Cash generated from operations: 11,381 41,837 50,745
Less: Cash distributions: 0 92,000 52,468
Cash generated after cash distributions: 11,381 (50,163) (1,723)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 9 40 24
Cash distributions to investors: 0 100 57
Annualized cash on cash yield
to investors: 0 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3: OPERATING RESULTS OF PRIOR PROGRAMS
Continued
FLORIDA TAX CREDIT FUND, LTD.
-----------------------------
<TABLE>
<CAPTION>
1/1/97 - 3/31/97 1/1/96 - 12/31/96 1995
---------------- ----------------- ----
<S> <C> <C> <C>
Gross Revenues: $70,773 $266,240 $274,862
Other: 0 0 0
Less:
Operating Expenses: (36,462) (172,489) (194,953)
Interest Expenses (21,268) (69,122) (99,684)
Depreciation and Amortization: (11,691) (47,236) (25,740)
Major Maintenance Expense (4,272) (20,067) (13,149)
Net Income (Loss) - Tax Basis: (2,920) (42,674) (58,664)
Cash generated from operations: 8,771 4,562 (32,924)
Less: Cash distributions: 0 25,194 0
Cash generated after cash distributions: 8,771 (20,632) (32,924)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 5 (68) (53)
Cash distributions to investors: 0 40 0
Annualized cash on cash yield
to investors: 0% 4% 2%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
BARON STRATEGIC INVESTMENT FUND, LTD.
<TABLE>
<CAPTION>
1/1/97-3/31/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: 31,190 2,479
Other: 0 0
Less:
Operating Expenses: (41) (403)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 31,149 2,076
Cash generated from operations: 31,149 2,076
Less: Cash distributions: 22,664 8,884
Cash generated after cash distributions: 8,485 (6,808)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): $3 $3
Cash distributions to investors: 28 11
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
BARON FIRST TIME HOMEBUYER MORTGAGE FUND, LTD.
----------------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $15,000 $46,970
Other: 0 0
Less:
Operating Expenses: (48) (674)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 14,952 46,296
Cash generated from operations: 14,952 46,296
Less: Cash distributions: 15,000 45,536
Cash generated after cash distributions: (48) 760
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 93
Cash distributions to investors: 30 91
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
BREVARD MORTGAGE PROGRAM, LTD.
------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $16,421 $73,267
Other: 0 0
Less:
Operating Expenses: 97 (874)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 16,324 72,393
Cash generated from operations: 16,324 72,393
Less: Cash distributions: 14,375 34,572
Cash generated after cash distributions: 1,949 37,821
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 3 126
Cash distributions to investors: 7 60
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
FLORIDA CAPITAL INCOME FUND IV, LTD.
------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $228,537 $756,939 $422,209
Other: 0 0 9,640
Less:
Operating Expenses: (131,494) (441,760) (301,870)
Interest Expenses: (74,625) (312,704) (173,711)
Depreciation and Amortization: (34,329) (137,316) (120,000)
Other: Major Maintenance: 0 0 (1,750)
Net Income (Loss) - Tax Basis: (11,911) (134,841) (165,482)
Cash generated from operations: 22,418 2,475 (55,122)
Less: Cash distributions: 43,833 149,240 676
Cash generated after cash distributions: (21,415) (146,765) (55,798)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 6 67 (9)
Cash distributions to investors: 22 75 3
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
GSU STADIUM STUDENT APARTMENTS, LTD.
------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96 1995
-------------- --------------- ----
<S> <C> <C> <C>
Gross Revenues: $134,107 $449,730 $200,668
Other: 0 0
Less:
Operating Expenses: (52,576) (219,322) (106,361)
Interest Expenses: (31,468) (122,433) (50,645)
Depreciation and Amortization: (16,708) (66,830) (66,999)
Other: Major Maintenance: (3,811) (54,112) (46,277)
Net Income (Loss) - Tax Basis: 29,544 (12,967) (69,614)
Cash generated from operations: 46,252 53,863 (2,615)
Less: Cash distributions: 25,776 84,961 25,000
Cash generated after cash distributions: 20,476 (31,098) (27,615)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 12 (1)
Cash distributions to investors: 26 8 3
Annualized cash on cash yield
to investors: 10% 10% 0
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 1
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3-continued
BARON FIRST TIME HOMEBUYER MORTGAGE FUND II, LTD.
-------------------------------------------------
<TABLE>
<CAPTION>
1/1/976-3/31/97 1/1/96-12/31/96
--------------- ---------------
<S> <C> <C>
Gross Revenues: $15,019 $41,748
Other: 0 0
Less:
Operating Expenses: (48) (611)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 14,971 41,137
Cash generated from operations: 14,971 41,137
Less: Cash distributions: 15,000 42,619
Cash generated after cash distributions: (29) (1,482)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 82
Cash distributions to investors: 30 85
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3-continued
CLEARWATER FIRST TIME HOMEBUYER PROGRAM, LTD.
---------------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $22,500 $46,999
Other: 0 0
Less:
Operating Expenses: (36) (93)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 22,464 46,906
Cash generated from operations: 22,464 46,906
Less: Cash distributions: 22,500 43,377
Cash generated after cash distributions: (36) 3,529
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 62
Cash distributions to investors: 30 58
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3-continued
BARON FIRST TIME HOMEBUYER MORTGAGE FUND III, LTD.
--------------------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $15,007 $29,006
Other: 0 0
Less:
Operating Expenses: (41) (408)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 14,966 28,598
Cash generated from operations: 14,966 28,598
Less: Cash distributions: 15,000 27,846
Cash generated after cash distributions: (34) 752
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 57
Cash distributions to investors: 30 56
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3-continued
BARON FIRST TIME HOMEBUYER MORTGAGE FUND V, LTD.
------------------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $15,000 $26,198
Other: 0 0
Less:
Operating Expenses: (28) (245)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 14,972 25,953
Cash generated from operations: 14,972 25,953
Less: Cash distributions: 15,000 25,140
Cash generated after cash distributions: (28) 813
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 52
Cash distributions to investors: 30 50
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out net proceeds of the program's offering.
<PAGE>
Table 3-continued
BARON FIRST TIME HOMEBUYER MORTGAGE FUND IV, LTD.
-------------------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1/1/96-12/31/96
-------------- ---------------
<S> <C> <C>
Gross Revenues: $15,005 $14,529
Other: 0 0
Less:
Operating Expenses: (45) (377)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 14,960 14,152
Cash generated from operations: 14,960 14,152
Less: Cash distributions: 15,000 13,900
Cash generated after cash distributions: (40) 252
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 28
Cash distributions to investors: 30 28
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3: Continued
FLORIDA INCOME GROWTH FUND V, LTD.
----------------------------------
<TABLE>
<CAPTION>
1/1/97 - 3/31/97 1996
---------------- ----
<S> <C> <C>
Gross Revenues: 71,920 305,289
Other: 0 0
Less:
Operating Expenses: (40,168) (187,679)
Interest Expenses: (26,521) (79,488)
Depreciation and Amortization: (14,095) (56,381)
Major Maintenance Expense 0 (27,704)
Net Income (Loss) - Tax Basis: (8,864) (45,963)
Cash generated from operations: 5,231 10,418
Less: Cash distributions: 28,750 77,039
Cash generated after cash distributions: (23,519) (66,621)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): $8 $40
Cash distributions to investors: 25 67
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
-------------------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: 4,846 733
Other: 0 0
Less:
Operating Expenses: (37) (230)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 4,809 503
Cash generated from operations: 4,809 503
Less: Cash distributions: 17,125 16,593
Cash generated after cash distributions: (12,316) (16,090)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): $6 $7
Cash distributions to investors: 19 100
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, " cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
BARON STRATEGIC VULTURE FUND I, LTD.
------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: 27,634 3,731
Other: 0 0
Less:
Operating Expenses: (153) (464)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 27,481 3,267
Cash generated from operations: 27,481 3,267
Less: Cash distributions: 22,312 14,044
Cash generated after cash distributions: 5,169 (10,777)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): $3 $4
Cash distributions to investors: 32 100
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3- continued
BARON STRATEGIC INVESTMENT FUND II, LTD.
----------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: 159 1,666
Other: 0 0
Less:
Operating Expenses: (36) (364)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 123 1,302
Cash generated from operations: 123 1,302
Less: Cash distributions: 16,601 2,942
Cash generated after cash distributions: (16,478) (1,640)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): $1 $2
Cash distributions to investors: 21 36
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 3-continued
BARON STRATEGIC INVESTMENT FUND VI, LTD.
----------------------------------------
<TABLE>
<CAPTION>
1/1/97-3/31/97 1996
-------------- ----
<S> <C> <C>
Gross Revenues: 10,268 400
Other: $0 0
Less:
Operating Expenses: (1,681) (218)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 11,949 182
Cash generated from operations: 11,949 182
Less: Cash distributions: 2,845 0
Cash generated after cash distributions: 9,104 182
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): $9 $3
Cash distributions to investors: 2 0
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
This table includes certain information concerning properties financed by
eighteen prior programs sponsored by Affiliates of the General Partner of the
Partnership in the most recent three years.
Florida Income Advantage Fund I, Ltd.
-------------------------------------
Name, location, type of
property: Phase III
Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment
Community
Number of units and total
square feet of units: 26 Units
30,654 total square feet
Date investment made: February, 1994
Principal amount of mortgage
financing existing at date of
investment: $625,000
Contract Investment Price (1): $846,000
Cash Reserve Account: $0
Acquisition Fee: $0
Total Investment Cost: $846,000
Realty Opportunity Income Fund VIII, Ltd.
-----------------------------------------
Name, location, type of
property: Phase II
Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment
Community
Number of units and total
square feet of units: 30 Units
36,802 total square feet
Date investment made: March, 1994
Principal amount of mortgage
financing existing at date of
investment: $784,000
Contract Investment Price (1): $849,600
Cash Reserve Account: $0
Acquisition Fee: $0
Total Investment Cost: $849,600
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Florida Income Appreciation Fund I, Ltd.
----------------------------------------
Name, location, type of
property: Phase IV
Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment
Community
Number of units and total
square feet of units: 8 Units
9,800 total square feet
Date investment made: April, 1994
Principal amount of mortgage
financing existing at date of
investment: $173,000
Contract Investment Price (1): $184,500
Cash Reserve Account: $0
Acquisition Fee: $0
Total Investment Cost: $184,500
Florida Capital Income Fund, Ltd.
---------------------------------
Name, location, type of
property: Eagle Lake Apartments
Port Orange, Florida
Residential Apartment
Community
Number of units and total
square feet of units: 77 Units
45,504 total square feet
Date investment made: November, 1994
Principal amount of mortgage
financing existing at date of
investment: $1,443,000
Contract Investment Price (1): $ 656,300
Cash Reserve Account: $ 0
Acquisition Fee: $ 60,000
Total Investment Cost: $ 716,300
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Tampa Capital Income Fund, Ltd.
-------------------------------
Name, location, type of
property: Lakewood Apartments
Brandon, Florida
Residential Apartment
Community
Number of units and total
square feet of units: 83 Units
44,928 total square feet
Date investment made: December, 1994
Principal amount of mortgage
financing existing at date
of investment: $1,500,000
Contract Investment Price (1): $ 589,500
Cash Reserve Account: $ 165,500
Acquisition Fee: $ 180,000
Total Investment Cost: $ 935,000
Florida Capital Income Fund II, Ltd.
------------------------------------
Name, location, type of
property: Phase I
Forest Glen Apartments
Residential Apartment
Community
Number of units and total
square feet of units: 52 Units
62,696 total square feet
Date investment made: January, 1995
Principal amount of mortgage
financing existing at date
of investment: $1,343,000
Contract Investment Price (1): $ 548,000
Cash Reserve Accounts: $ 199,000
Acquisition Fee: $ 71,000
Total Investment Cost: $ 818,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Florida Opportunity Income Partners, Ltd.
-----------------------------------------
Name, location, type of
property: Camellia Court Apartments
Daytona Beach, Florida
Residential Apartment
Community
Number of units and total
square feet of units: 60 Units
34,848 total square feet
Date investment made: March, 1995
Principal amount of mortgage
financing existing at date
of investment: $ 900,000
Contract Investment Price (1): $ 543,000
Cash Reserve Account: $ 143,000
Acquisition Fee: $ 24,000
Total Investment Cost: $ 710,000
Florida Capital Income Fund III, Ltd.
-------------------------------------
Name, location, type of
property: Bridgepoint Apartments
Jacksonville, Florida
Residential Apartment
Community
Number of units and total
square feet of units: 48 Units
27,360 total square feet
Date investment made: July, 1995
Principal amount of mortgage
financing existing at date
of investment: $ 700,000
Contract Investment Price (1): $ 549,000
Cash Reserve Accounts: $ 121,000
Acquisition Fee: $ 40,000
Total Investment Cost: $ 710,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Florida Tax Credit Fund, Ltd.
-----------------------------
Name, location, type of Spring Glade Apartments
property: Tampa, Florida
Residential Apartment Community
Number of units and total 78 Units
square feet of units: 42,912 total square feet
Date investment made: 6/95
Principal amount of mortgage $564,000
financing existing at date of
investment:
Contract Investment Price (1): $564,000
Cash Reserve Account: $0
Acquisition Fee: $0
Total Investment Cost: $546,000
Baron First Time Homebuyer Mortgage Fund, Ltd.
----------------------------------------------
Name, location, type of Pleasant Grove
property: Louisville, Kentucky
Residential Community
Number of units and total 39 Units
square feet of units: 54,600 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve Account: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Florida Capital Income Fund IV, Ltd.
Name, location, type of Glen Lake Apartments
property: St. Petersburg, Florida
Residential Apartment Community
Number of units and total 144 Units
square feet of units: 79,200 total square feet
Date investment made:
Principal amount of mortgage $2,812,500
financing existing at date of
investment:
Contract Investment Price (1): $1,820,000
Cash Reserve Account: $ 305,200
Acquisition Fee: $ 100,100
Total Investment Cost: $1,414,700
GSU Stadium Student Apartments, Ltd.
------------------------------------
Name, location, type of Stadium Club Apartments
property: Statesboro, Georgia
Student Residential Apartment Community
Number of units and total 60 Units
square feet of units: 51,624 total square feet
Date investment made: 11/22/95
Principal amount of mortgage
financing existing at date of
investment: $1,372,000
Contract Investment Price (1): $ 800,000
Cash Reserve Account: $ 100,000
Acquisition Fee: $ 100,000
Total Investment Cost: $1,000,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Brevard Mortgage Program, Ltd.
------------------------------
Name, location, type of Meadowdale Apartments
property: Melbourne, Florida
Residential Apartment Community
Number of units and total 64 Units
square feet of units: 39,168 total square feet
Date investment made: 12/8/95
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $575,000
Cash Reserve Account: $ 57,500
Acquisition Fee: --
Total Investment Cost: $517,500
Baron First Time Home Buyer Mortgage Fund II, Ltd.
--------------------------------------------------
Name, location, type of East Bay Village
property: Louisville, Kentucky
Residential Community
Number of units and total 54 Units
square feet of units: 75,600 total square feet
Date investment made: 2/96
Principal amount of mortgage $500,000
financing existing at date of
investment:
Contract Investment Price (1): $500,000
Cash Reserve Account: -0-
Acquisition Fee: -0-
Total Investment Cost: $500,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Clearwater First Time Homebuyer Program, Ltd.
---------------------------------------------
Name, location, type of Palm Bay Condominiums
property: Seminole, Florida
Residential Condominium Community
Number of units and total 195 Units
square feet of units: 165,750 total square feet
Date investment made: 3/96
Principal amount of mortgage $672,500
financing existing at date of
investment:
Contract Investment Price (1): $672,500
Cash Reserve Account: -0-
Acquisition Fee: -0-
Total Investment Cost: $672,500
Baron First Time Homebuyer Mortgage Fund III, Ltd.
--------------------------------------------------
Name, location, type of Independence Condominiums
property: Independence, Kentucky
Residential Condominium Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 5/96
Principal amount of mortgage $500,000
financing existing at date of
investment:
Contract Investment Price (1): $500,000
Cash Reserve Account: -0-
Acquisition Fee: -0-
Total Investment Cost: $500,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron First Time Home Buyer Mortgage Fund V, Ltd.
-------------------------------------------------
Name, location, type of Independence Condominiums
property: Independence, Kentucky
Residential Condominium Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve Account: $ 25,000
Acquisition Fee: -0-
Total Investment Cost: $500,000
Baron First Time Homebuyer Mortgage Fund IV, Ltd.
-------------------------------------------------
Name, location, type of Villas at Meadowview
property: Louisville, Kenutcky
Residential Community
Number of units and total 84 Units
square feet of units: 88,200 total square feet
Date investment made: 6/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve Account: -0-
Acquisition Fee: -0-
Total Investment Cost: $500,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem Limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Florida Income Growth Fund V, Ltd.
----------------------------------
Name, location, type of Blossom Corners Apartments
property: Orlando, Florida
Residential Apartment Community
Number of units and total 70 Units
square feet of units: 37,728 total square feet
Date investment made: 4/96
Principal amount of mortgage $1,050,000
financing existing at date of
investment:
Contract Investment Price (1): $ 825,500
Cash Reserve Account: $ 142,000
Acquisition Fee: $ 57,500
Total Investment Cost: $1,875,500
Lamplight Court of Bellefontaine Apartments, Ltd.
-------------------------------------------------
Name, location, type of Lamplight Court Apartments
property: Bellefontaine, Ohio
Residential Apartment Community
Number of units and total 80 Units
square feet of units: 46,944 total square feet
Date investment made: 7/96
Principal amount of mortgage
financing existing at date of
investment: $1,400,000
Contract Investment Price (1): $ 580,000
Cash Reserve Account: $ 0
Acquisition Fee: $ 40,000
Total Investment Cost: $1,980,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Baron Strategic Vulture Fund I, Ltd.
------------------------------------
Name, location, type of Curiosity Creek Apartments
property: Tampa, Florida
Residential Apartment Community
Number of units and total 81 Units
square feet of units: 44,064 total square feet
Date investment made:
Principal amount of mortgage $1,200,000
financing existing at date of
investment:
Contract Investment Price (1): $ 601,000
Cash Reserve Account: $ 90,000
Acquisition Fee: $ 90,000
Total Investment Cost: $1,801,000
Baron Strategic Investment Fund, Ltd.
-------------------------------------
Name, location, type of Blossom Corners II Apartments
property: Orlando, Florida
Residential Apartment Community
Number of units and total 68 Units
square feet of units: 36,576 total square feet
Date investment made: 10/96
Principal amount of mortgage
financing existing at date of
investment: $1,000,000
Contract Investment Price (1): $ 796,000
Cash Reserve Account: $ 120,000
Acquisition Fee: $ 144,000
Total Investment Cost: $1,796,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior partners.
<PAGE>
Table 4: ACQUISITION OF PROPERTIES BY PROGRAM
(Continued)
Baron Strategic Investment Fund II, Ltd.
----------------------------------------
Name, location, type of Gaslight Apartments
property: Anderson, Indiana
Residential Apartment Community
Number of units and total 72 Units
square feet of units: 42,720 total square feet
Date investment made: 11/96
Principal amount of mortgage
financing existing at date of
investment: $1,254,307
Contract Investment Price (1): $ 524,000
Cash Reserve Account: $ 80,000
Acquisition Fee: $ 96,000
Total Investment Cost: $1,778,307
Baron Strategic Investment Fund VI, Ltd.
----------------------------------------
Name, location, type of East Bay Village
property: Louisville, Kentucky
Residential Community
Number of units and total 50 Units
square feet of units: Approx. 50,000 total square feet
Date investment made: 3/96
Principal amount of mortgage $n\a
financing existing at date of
investment:
Contract Investment Price (1): $ 806,000
Cash Reserve Account: $ 120,000
Acquisition Fee: $ 144,000
Total Investment Cost: $ 806,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
<PAGE>
Table V- Results of Completed Programs
The following table includes results of completed programs sponsored by Baron
Capital Affiliates in the most recent five years.
TAMPA CAPITAL INCOME FUND, LTD.
Dollar Amount Raised: $1,050,000
Number of Properties Purchased: one
Date of Closing of Offering: 7/95
Date of Acquisition of Property: 12/94
Date of Sale of Property: 2/97
Tax and Distribution Data Per $1,000 Investment Through Property Sale:
Federal Income Tax Results:
Ordinary Income (loss):
from operations: 171 (est.)
from recapture: Not applicable
Capital Gain 138
Deferred Gain
Capital 138
Ordinary Not applicable
Cash Distribution to Investors 10%
Source (on GAAP basis)
Investment Income $180,000 (est.)
Return of capital $900,000
Source (on cash basis)
Sale $900,000
Refinancing Not applicable
Operations $180,000
Other Not applicable
Receivable on Net Purchase Money Financing $295,000(1)
- ----------
(1) Portion of purchase price paid with promissory note amortizing over 36
equal monthly payments including 9% annual interest rate.
<PAGE>
Table VI- Sales or Disposal of Properties
The following table includes certain information concerning sales of property in
most recent three years by programs sponsored by Baron Capital Affiliates.
TAMPA CAPITAL INCOME FUND, LTD.
Property: Lakewood Apartments
Date Acquired: 12/94
Date of Sale: 2/97
Selling Price, Net of Closing Costs and GAAP Adjustments: $2,795,000
Cash Received net of closing costs: $900,000
Mortgage Balance at time of sale: $1,500,000
Purchase money mortgage taken back by program: $295,000(1)
Adjustments resulting from application of GAAP: Not applicable
Total $2,695,000(2)
Cost of Properties Including Closing and Soft Costs:
Original Mortgage Financing: $1,500,000
Total acquisition cost, capital improvements,
closing and soft costs: $1,050,000(3)
Total $2,550,000
Excess of Property Operating Cash Receipts
Over Cash Expenditures: $180,000 (est.)
================================================================================
(1) Portion of purchase price paid with promissory note amortizing over 36
equal monthly payments including 9% annual interest rate.
(2) The entire gain ($145,000) will be treated as a capital gain for tax
purposes.
(3) Does not include original offering costs.
<PAGE>
OTHER PROGRAMS SPONSORED BY
AFFILIATES OF MANAGING SHAREHOLDER
<TABLE>
<CAPTION>
MAXIMUM
DATE CAPITAL
FORMED RAISE PARTNERSHIP NAME GENERAL PARTNER
- ------ ----- ---------------- ---------------
<S> <C> <C> <C>
10/22/96 1,000,000 Baron Strategic Investment Fund IV, Ltd. Baron Capital XVII, Inc.
06/25/96 750,000 Baron Income Property Mortgage Fund VI, Ltd. Baron Capital XXIX, Inc.
02/24/97 800,000 Baron Mortgage Development Fund XI, Ltd. Baron Capital XXXIII,
Inc.
07/22/96 310,000 Florida Tax Credit Fund II, Ltd. Baron Capital XXXIV, Inc.
10/18/96 700,000 Baron Mortgage Development Fund VII, Ltd. Baron Capital XXXVII,
Inc.
10/22/96 650,000 Baron Mortgage Development Fund VIII, Ltd. Baron Capital XXXVIII,
Inc.
10/23/96 1,200,000 Baron Strategic Investment Fund V, Ltd. Baron Capital XL, Inc.
11/19/96 1,900,000 Baron Strategic Investment Fund VII, Ltd. Baron Capital XLI, Inc.
12/17/96 800,000 Baron Development Fund IX, Ltd. Baron Capital XLII, Inc.
11/19/96 800,000 Baron Mortgage Development Fund X, Ltd. Baron Capital XLIII, Inc.
02/26/97 1,200,000 Baron Strategic Investment Fund VIII, Ltd. Baron Capital XLIV, Inc.
04/02/97 1,000,000 Baron Mortgage Development Fund XII, Ltd. Baron Capital XLVI, Inc.
03/31/97 1,000,000 Baron Mortgage Development Fund XIV, Ltd. Baron Capital XLVII, Inc.
05/23/97 700,000 Baron Mortgage Development Fund XV, Ltd. Baron Capital XLVIII,
Inc.
05/20/97 1,000,000 Baron First Mortgage Development Fund XVI, Ltd. Baron Capital LX, Inc.
05/22/97 1,000,000 Baron First Mortgage Development Fund XVII, Baron Capital LXI, Inc.
Ltd.
06/03/97 1,200,000 Baron Strategic Investment Fund IX, Ltd. Baron Capital LXII, Inc.
06/26/97 1,200,000 Baron Strategic Investment Fund X, Ltd. Baron Capital LXIV, Inc.
07/10/97 800,000 Baron Mortgage Development Fund XVIII, L.P. Baron Capital LXV, Inc.
</TABLE>
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Trust or the Dealer Manager. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Shares in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Trust since the date hereof.
SUMMARY OF TABLE OF CONTENTS
Page
----
Investor Suitability Standards ............................................ 13
Summary of the Offering ................................................... 15
Summary of Risk Considerations ............................................ 22
Tax Status of the Trust ................................................... 24
Sources and Uses of Funds ................................................ 24
Compensation of the Managing Shareholder and Affiliates ................... 26
The Trust ................................................................. 28
Business Plan ............................................................. 28
Potential Conflicts of Interest ........................................... 33
Fiduciary Responsibility .................................................. 35
Risk Considerations ....................................................... 35
Management ................................................................ 45
Prior Performance of Affiliates of Managing Shareholder ................... 51
Federal Income Tax Considerations ......................................... 58
Summary of Declaration of Trust ........................................... 67
Capital Stock of the Trust ................................................ 76
Capitalization ............................................................ 79
Terms of the Offering ..................................................... 79
Other Information ......................................................... 82
Litigation ................................................................ 83
Legal Matters ............................................................. 83
Additional Information .................................................... 83
Glossary .................................................................. 84
Until _______, 1998 (90 days after the commencement of the Offering),
all dealers effecting transactions in the Common Shares, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
2,500,000 Common Shares
BARON CAPITAL TRUST
PROSPECTUS
Sigma Financial Corporation
_______________ , 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under Section 3817 of the Delaware Business Trust Act, subject to such
standards and restrictions, if any, as are set forth in the governing instrument
of a Delaware business trust, a business trust shall have the power to indemnify
and hold harmless any trustee or beneficial owner or other person from and
against any and all claims and demands whatsoever, and the absence of such a
provision shall not be construed to deprive any trustee or beneficial owner or
other person of any right to indemnity which is otherwise available to such
person under the laws of Delaware.
Under Sections 3.7 and 3.8 of the Declaration of Trust for the Trust
("Registrant"), each of the Registrant's officers, agents, and Affiliates, the
Managing Shareholder, the Trustees, any other members of the Board of the Trust,
each Affiliate of the Managing Shareholder, a Trustee, other member of the
Board, and any directors, officers or agents of any of the foregoing when acting
for the Managing Shareholder, a Trustee, any other member of the Board or any of
their respective Affiliates on behalf of the Registrant (collectively, "Managing
Persons," and individually a "Managing Person") shall be indemnified out of the
assets of the Registrant against any losses, liabilities, judgments, expenses
and amounts paid in settlement of any claims sustained by him in connection with
the Registrant or claims by the Registrant, in right of the Registrant or by or
in right of any Shareholders of the Registrant, if the Managing Person, in good
faith, determined that its course of conduct was in the Registrant's best
interest, within the scope of the Declaration and did not constitute negligence
or misconduct in the case of any Managing Person who is not an Independent
Trustee and did not constitute gross negligence or willful misconduct in the
case of any Managing Person who is an Independent Trustee, and in addition, in
the case of Managing Persons other than the Managing Shareholder, Trustees and
other members of the Board, the indemnitees were acting within the scope of
authority validly delegated to them by the Managing Shareholder, Trustees or any
other members of the Board. In no case, however, will a Managing Person or any
broker-dealer be indemnified, or be advanced expenses for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws, unless (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (ii) those claims have been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the particular
indemnitee or (iii) a court of competent jurisdiction approves a settlement of
the claims against the particular indemnitee and finds that indemnification of
the settlement and the related costs should be made. In any claim for federal or
state securities law violations, the party seeking indemnification shall place
before the court the positions of the Securities and Exchange Commission and of
securities administrators of states in which securities of the Registrant were
offered or sold to the extent required by them with respect to the issue of
indemnification for securities law violations.
The following provisions apply to all rights of indemnification and
advances of expenses under the Declaration:
(a) Expenses, including attorneys' fees, incurred by a Managing Person in
defending any action, suit or proceeding may be paid by the Registrant in
advance of the final disposition of the action, suit or proceeding only if all
of the following conditions are satisfied:
(i) The action, suit or proceeding relates to acts or omissions with
respect to the performance of duties or services on behalf of the
Registrant;
II-1
<PAGE>
(ii) The action, suit or proceeding is initiated by a third party who
is not a Shareholder or it is initiated by a Shareholder acting in its
capacity as such and a court of competent jurisdiction specifically
approves such advancement; and
(iii) The Managing Person seeking advancement of expenses undertakes
to repay such amount, together with the applicable legal rate of interest
thereon, if it shall ultimately be determined that the Managing Person is
not entitled to be indemnified by the Registrant under the Declaration or
otherwise and if at least one of the following conditions is satisfied:
(1) The Managing Person provides appropriate security for the
undertaking;
(2) The Managing Person is insured against losses or expenses of
defense or settlement so that the advances may be recovered or
(3) Either a majority of the Independent Trustees who are not
parties to the action, suit or proceeding, or independent legal
counsel in a written opinion, determines, based upon a review of the
then readily available facts, that there is reason to believe that the
Managing Person will be found to be entitled to indemnification under
the terms and conditions of the Declaration.
The Best Efforts Selling Agreement filed as Exhibit 1.1 to this
Registration Statement provides for the reciprocal indemnification by the
underwriter of the Registrant, and its directors, officers and controlling
persons, and by the Registrant of the underwriter, and its directors, officers
and controlling persons, against certain liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The following table itemizes the expenses incurred by the Registrant
(excluding underwriting discounts and commissions) in connection with the
offering of the Common Shares being registered. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee and the
NASD fee.
II-2
<PAGE>
Item Amount
- ---- ------
SEC Registration Fee ............................................. $ 7,576
NASD Fee ......................................................... 1,500
Transfer Agent's and Registrar's Fee ............................. 2,500
Printing and Engraving Fees ...................................... 50,000
Legal Fees and Expenses (other than Blue Sky) .................... 100,000
Accounting Fees and Expenses ..................................... 30,000
Blue Sky Fees and Expenses (including fees of counsel) .......... 60,000
Insurance Premium for Officers'/Directors' Liability ............. 20,000
Independent Trustee Fees ......................................... 10,000
Sales Expenses (including presentations) ......................... 100,000
Miscellaneous Expenses ........................................... 100,000
--------
Total ............................. $481,576
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits.
A list of exhibits included as part of this Registration Statement is set
forth in the Index to Exhibits which immediately precedes such exhibits.
Item 28. Undertakings.
The Trust undertakes to do the following:
1. If the Trust is registering the securities under Rule 415 of the
Securities Act of 1933, as amended (the "Securities Act"), the Trust
will:
(a) File, during the period in which it offers or sell
securities, a post-effective amendment to this Registration
Statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the Registration
Statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(b) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide
offering.
II-3
<PAGE>
(c) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
2. The Trust will provide to the underwriter of the offering at the
closings specified in the underwriting agreement, certificates in
such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
3. If the Registrant requests acceleration of the effective date of
the registration statement under Rule 461 under the Securities
Act:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification is against public
policy as expressed in the Act and will be governed by the
final adjudication of such issue.
4. If the Registrant relies on Rule 430A under the Securities Act,
the Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of
the time the Commission declared it effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment
that contains a form of prospectus 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.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Cincinnati, State of Ohio on August 31, 1997.
BARON CAPITAL TRUST
By: Baron Advisors, Inc.,
Managing Shareholder
By: /s/ Gregory K. McGrath
---------------------------------
Gregory K. McGrath, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following person in the capacity and on
the date stated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Gregory K. McGrath President of Baron Advisors, Inc., August 31, 1997
- --------------------------- Managing Shareholder of Registrant
Gregory K. McGrath
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Document Description Page No.
- ------ -------------------- --------
<S> <C> <C>
1.1* Form of Best Efforts Selling Agreement, dated as of ________, 1997, --
between Sigma Financial Corporation and the Registrant
3.1 Certificate of Business Trust Registration of the Registrant 206
3.2 Declaration of Trust for the Registrant made as of August 31, 1997 89
(incorporated herein and made a part hereof by reference to Exhibit A to
the Prospectus of the Registrant contained in Part I of this Registration
Statement)
3.3* Form of By-laws of the Registrant --
4.1* Form of Common Share Certificate --
5.1 Form of Opinion of Schoeman, Marsh & Updike, LLP as to legality of 212
securities being registered
10.1 Form of Trust Management Agreement, dated as of _________, 1997, between 134
the Registrant and Baron Advisors, Inc. (incorporated herein and made a
part hereof by reference to Exhibit B to the Prospectus of the Registrant
contained in Part I of this Registration Statement)
10.2 Form of Escrow Agreement, dated as of ___________________, 1997, between 216
the Registrant and Sigma Financial Corporation
10.3 Form of Indemnification Agreement among the Registrant, Baron Advisors, --
Inc., and the Registrant's Independent Trustees and officers (included in
Sections 3.6 and 3.7 of the Declaration of Trust incorporated herein and
made a part hereof by reference to Exhibit A to the Prospectus of the
Registrant contained in Part I of this Registration Statement)
10.4 Form of Warrant Purchase Agreement, dated as of ____________, 1997, 223
between the Registrant and Sigma Financial Corporation
10.5 Form of Subscription Documents 232
23.1 Consent of Schoeman, Marsh & Updike, LLP (included in the opinion filed as --
Exhibit 5.1 to this Registration Statement)
99.1 Consent of James H. Bownas to being named as prospective Independent 249
Trustee of the Registrant
99.2 Consent of Robert S. Geiger to being named as prospective Independent 251
Trustee of the Registrant
</TABLE>
- --------
* To be filed by Amendment
EXHIBIT 1.1
FORM OF BEST EFFORTS SELLING AGREEMENT,
DATED AS OF ________, 1997,
BETWEEN SIGMA FINANCIAL CORPORATION
AND THE REGISTRANT
(TO BE FILED AS AN AMENDMENT)
EXHIBIT 3.1
CERTIFICATE OF BUSINESS TRUST REGISTRATION
OF THE REGISTRANT
<PAGE>
State of Delaware
Office of the Secretary of State
--------------------------------
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF BUSINESS
TRUST REGISTRATION OF "BARON CAPITAL TRUST", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF JULY, A.D. 1997, AT 9 O'CLOCK A.M.
[SEAL] /s/ Edward J. Freel
----------------------------------
Edward J. Freel, Secretary of State
2781776 8100 AUTHENTICATION: 8592364
971256405 DATE: 08-05-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/31/1997
971256405 - 2781776
CERTIFICATE OF TRUST
OF
BARON CAPITAL TRUST
(UNDER THE DELAWARE BUSINESS TRUST ACT)
FIRST: The name of the business is BARON CAPITAL TRUST (the "Trust").
SECOND: The name and business address of the Corporate Trustee of the Trust,
which has a principal place of business in Delaware, are:
Baron Capital Properties, Inc.
1105 North Market Street
Suite 1300
Wilmington, Delaware 19899
THIRD: The Certificate shall become effective upon its filing by the
Secretary of State of the State of Delaware.
THE UNDERSIGNED, on behalf of Baron Capital Properties, Inc., for the
purpose of evidencing the organization of the Trust as a business trust under
the laws of the State of Delaware, does make, file and record this Certificate
of Trust and certify that the facts herein stated are true, and accordingly, has
hereto set my hand this 31st day of July, 1997.
BARON CAPITAL PROPERTIES, INC.,
Corporate Trustee of Baron Capital Trust
By: /s/ Gregory K. McGrath
-------------------------------------
Gregory K. McGrath, President
EXHIBIT 3.2
DECLARATION OF TRUST FOR THE REGISTRANT
MADE AS OF AUGUST 31, 1997
(INCORPORATED HEREIN AND MADE A PART
HEREOF BY REFERENCE TO EXHIBIT A TO
THE PROSPECTUS OF THE REGISTRANT
CONTAINED IN PART I OF THIS
REGISTRATION STATEMENT)
EXHIBIT 3.3
FORM OF BY-LAWS OF THE REGISTRANT
(TO BE FILED BY AMENDMENT)
EXHIBIT 4.1
FORM OF COMMON SHARE CERTIFICATE
(TO BE FILED AS AN AMENDMENT)
EXHIBIT 5.1
FORM OF OPINION OF SCHOEMAN, MARSH & UPDIKE, LLP
AS TO LEGALITY OF SECURITIES BEING REGISTERED
<PAGE>
[SMU LETTERHEAD]
DRAFT
[This opinion letter will be dated and signed as of the commencement
of the Offering and is subject to any changes in the documents or the
laws concerned, which may occur before such date]
_______________, 1997
Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
Ladies and Gentlemen:
We have acted as securities counsel to Baron Capital Trust, a Delaware
business trust (the "Trust"), in connection with the proposed offering and sale
by the Trust of up to 2,500,000 Common Shares (the "Common Shares") of
beneficial interest, without par value, in the Trust pursuant to a Prospectus
dated ______________, 1997 (the "Prospectus"). Capitalized terms used and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Prospectus.
We have examined and relied upon originals or copies certified or otherwise
identified to our satisfaction of such agreements, documents, certificates and
other statements of government officials of the State of Delaware, corporate
officers, and representatives of the Trust, and such other documents as we have
deemed necessary or advisable for the purpose of rendering this opinion,
including without limitation, the Certificate of Trust for the Trust; the
Declaration of Trust for the Trust and the Bylaws adopted by the Trust in effect
on the date hereof; the specimen stock certificate for the Common Shares; the
Best Efforts Selling Agreement (the "Selling Agreement") dated _______________,
1997 between the Trust and Sigma Financial Corporation ("Sigma"); and the
Prospectus and all Exhibits and Schedules thereto. As to various questions of
fact, material to our opinion, we have relied upon the representations made in
the Selling Agreement and upon certificates of officers of the Trust and Baron
Advisors, Inc., the managing shareholder of the Trust.
In our examination of the aforesaid agreements, instruments, certificates
and other documents, we have assumed that:
(i) The statements made therein are accurate and complete, except where we
have actual knowledge to the contrary;
(ii) The signatures on documents and instruments submitted to us as
originals are authentic;
<PAGE>
(iii) The documents submitted to us as copies conform with the originals;
(iv) Sigma has complied with all of its obligations and agreements arising
under the Selling Agreement and any other agreements, instruments and other
documents to which it is a party which are relevant to this opinion; and
(v) Sigma has full corporate power and authority (by virtue of having taken
all requisite corporate action) to execute and deliver and to perform its
obligations under said agreements and to engage in the transactions contemplated
thereby.
We have made such inquiry of the Trust and have examined the Certificate of
Business Trust of the Trust and other records, documents, agreements and
instruments, certificates of officers of the Trust and of public officials and
have made such investigations as to matters of fact and law as we have deemed
necessary or relevant in connection with the opinions hereinafter set forth. In
making such investigation, 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 copies,
whether certified or not, as well as the legal capacity of natural persons.
The opinion set forth herein is based on the laws of the State of Delaware,
and no opinion is expressed as to the laws of any other jurisdiction.
The opinion hereinafter expressed is subject to the following additional
qualifications:
(a) We express no opinion herein with respect to the availability of
equitable remedies, including specific performance or injunctive relief; and
(b) We express no opinion herein as to compliance or non-compliance with
the antifraud provisions of any state or federal securities law, rule or
regulation.
Based on the foregoing and in reliance thereon, and upon consideration of
such matters of law as we have deemed appropriate, and with the foregoing
qualifications, we are of the opinion that the Common Shares will, when sold, be
legally issued, fully paid and non-assessable.
We hereby consent to the reference made to us under the heading "Legal
Matters" in the Prospectus.
This opinion is rendered only to you and is solely for your benefit and may
not be relied upon any party other than you.
Very truly yours,
SCHOEMAN, MARSH & UPDIKE, LLP
2
EXHIBIT 10.1
FORM OF TRUST MANAGEMENT AGREEMENT,
DATED AS OF _________, 1997, BETWEEN
THE REGISTRANT AND BARON ADVISORS, INC.
(INCORPORATED HEREIN AND MADE A PART
HEREOF BY REFERENCE TO EXHIBIT B TO
THE PROSPECTUS OF THE REGISTRANT
CONTAINED IN PART I OF THIS
REGISTRATION STATEMENT)
EXHIBIT 10.2
FORM OF ESCROW AGREEMENT, DATED AS OF ___________________, 1997,
BETWEEN THE REGISTRANT AND SIGMA FINANCIAL CORPORATION
<PAGE>
Baron Capital Trust
FORM OF
ESCROW AGREEMENT
This Agreement is made and entered into as of _____________, 1997 by and
among ______________________ (the "Escrow Agent"), Baron Advisors, Inc., a
Delaware corporation ("Baron"), Sigma Financial Corporation, a Michigan
corporation ("Sigma"), and Baron Capital Trust, a Delaware business trust (the
"Issuer").
The Issuer proposes to offer for sale to investors through one or more
Broker-Dealers (defined below) up to 2,500,000 Common Shares of beneficial
interest (the "Shares") at a price of $10 per Share (the "Proceeds").
Sigma intends to sell the Shares as the Issuer's agent on a non-exclusive
best-efforts part-or-none basis for 25,000 Shares and on a best-efforts basis
for the remaining Shares in a public offering (the "Offering").
The Issuer and Sigma desire to establish an escrow account in which funds
received from subscribers will be deposited pending completion of the Escrow
Period (as defined below). _________________ agrees to serve as Escrow Agent in
accordance with the terms and conditions set forth herein.
The term Broker-Dealer as used herein shall include Sigma and other
co-underwriters and/or other broker-dealers as part of the selling group. All
Broker-Dealers shall be bound by this Agreement. However, for purposes of
communications and directives, the Escrow Agent shall only accept those signed
by Sigma.
Now therefore, in consideration of the foregoing, it is hereby agreed as
follows:
1. Establishment of Escrow Account. On or prior to the date of the
commencement of the Offering, the parties shall establish an interest bearing
escrow account with the Escrow Agent, which escrow account shall be entitled
"Baron Capital Trust Escrow Account" (the "Escrow Account"). Each Broker-Dealer
will instruct subscribers to make checks for subscriptions payable to the order
of "_________________, Escrow Agent for Baron Capital Trust." The Escrow Agent
shall only accept such checks from Sigma and will return all checks sent to
Escrow Account by another party promptly after receipt.
2. Escrow Period. The escrow period ("Escrow Period") shall begin with the
commencement of the Offering and shall terminate upon the earliest to occur of
the following dates:
<PAGE>
(a) The date upon which the Escrow Agent confirms that it has received
in the Escrow Account gross proceeds of $250,000 in collected funds
(the "Minimum");
(b) June 30, 1998; or
(c) The date upon which a determination is made by the Issuer to
terminate the Offering prior to the sale of the Minimum.
Upon determination by the Escrow Agent (after receipt of written notice
from Sigma and the Issuer thereof) that the Escrow Account contains at least
$250,000 in funds that have been collected in full, the Escrow Agent shall (as
specified in such notice) wire transfer to an account specified by Baron, an
amount equal to the deposited funds then held in the Escrow Account by the
Escrow Agent together with interest earned on such funds from the date of
investment until the date of such transfer.
The Issuer is aware and understands that during the Escrow Period, it is
not entitled to any funds received into the Escrow Account and no amounts
deposited in the Escrow Account shall become the property of the Issuer or any
other entity, or be subject to the debts of the Issuer or any other entity.
The Escrow Agent may resign at any time and be discharged from its duties
as Escrow Agent hereunder by giving the other parties hereto at least 30 days'
prior notice thereof. As soon as practicable after its resignation, the Escrow
Agent shall turn over to the successor escrow agent as shall be appointed by the
mutual agreement of Baron, Sigma, the Issuer and such successor escrow agent,
all moneys and property held hereunder (less such amount as the Escrow Agent is
entitled to retain pursuant to Section 7) upon presentation of the document
appointing the new escrow agent and the new escrow agent's agreement to act in
such capacity. If no new escrow agent is so appointed within the 60-day period
following such notice of resignation, the Escrow Agent may deposit the aforesaid
moneys and property with any court it deems appropriate.
3. Deposits into the Escrow Account. Each Broker-Dealer agrees that it
shall promptly deliver all moneys received from subscribers for the payment of
the Shares to Sigma, which upon acceptance of a subscription shall promptly
transmit those moneys to the Escrow Agent for deposit in the Escrow Account
together with a written account of each sale, which account shall set forth,
among other things, the subscriber's name and address, the number of Shares
purchased, the amount paid therefor, and whether the consideration received was
in the form of a check, draft, or money order. All moneys so deposited in the
Escrow Account are hereinafter referred to as the "Escrow Amount."
4. Disbursements from the Escrow Account. In the event the Escrow Agent
does not receive the Minimum deposits (irrespective of collection) totaling
$250,000 prior to the
2
<PAGE>
termination of the Escrow Period, at the direction of Sigma, the Escrow Agent
shall refund to each subscriber, at the address provided by the Broker-Dealer
pursuant to paragraph 3 above, the amount received from the subscriber together
with any interest earned thereon, without deduction, penalty, or expense to the
subscriber, and the Escrow Agent shall notify the Issuer and Sigma of its
distribution of the funds. The purchase money returned to each subscriber shall
be free and clear of any and all claims of the Issuer or any of its creditors.
In the event the Escrow Agent does receive the Minimum prior to termination
of the Escrow Period, in no event will the Escrow Amount be released to the
Issuer until such amount is received by the Escrow Agent in collected funds. For
purposes of this Agreement, the parties hereby agree that the term "collected
funds" shall mean only those funds which are attributable to checks or other
instruments deposited into the Escrow Account at least five (5) business days
prior to the date of determination and have cleared normal banking channels.
5. Collection Procedure. The Escrow Agent is hereby authorized to forward
each check for collection and, upon collection of the proceeds of each check,
deposit the collected proceeds in the Escrow Account. As an alternative, the
Escrow Agent may telephone the bank on which the check is drawn to confirm that
the check has been paid.
Any check returned unpaid to the Escrow Agent shall be returned to the
Broker-Dealer that submitted the check. In such cases, the Escrow Agent will
promptly notify the Issuer of such return.
If the Issuer rejects any subscription for which the Escrow Agent has
already collected funds, the Escrow Agent shall, upon the written direction of
Sigma and the Issuer, promptly issue a refund check in the amount received by
the Escrow Agent from the subscriber that has been rejected, and all interest
earned on such amount. If the Issuer rejects any subscription for which the
Escrow Agent has not yet collected funds but has submitted the subscriber's
check for collection, the Escrow Agent shall promptly issue a check in the
amount of the subscriber's check to the rejected subscriber after the Escrow
Agent has received collected funds for such check. If the Escrow Agent has not
yet submitted a rejected subscriber's check for collection, the Escrow Agent
shall promptly remit the subscriber's check directly to the subscriber.
6. Investment of Escrow Amount. The Escrow Agent may invest the Escrow
Amount only in such accounts or investments as the Issuer may specify by written
notice. The Issuer may only specify investment in (1) obligations of banks or
savings and loan associations that either (i) have assets in excess of $5
billion or (ii) are insured in their entirety by agencies of the United States
government; and (2) obligations of or guaranteed by the United States government
or its agencies.
7. Compensation of Escrow Agent. A $_______ annual fee payable in advance
shall be charged to the Issuer by the Escrow Agent for the performance of Escrow
Agent's services hereunder. If it is necessary for the Escrow Agent to return
funds to the subscribers of the Shares, the Issuer shall pay to the Escrow Agent
an additional amount sufficient to reimburse it
3
<PAGE>
for its actual cost in disbursing such funds. However, no such fee,
reimbursement for costs and expenses, indemnification provided for hereunder for
any damages incurred by the Escrow Agent, or any moneys whatsoever shall be paid
out of or chargeable to the funds on deposit in the Escrow Account.
8. Indemnification of Escrow Agent. The Issuer hereby consents and agrees
to indemnify and hold Escrow Agent harmless from and against any and all claims,
judgments, liabilities, costs and expenses of any nature whatsoever arising
directly or indirectly out of or incidental to this Agreement and/or the Escrow
Agent's performance or non-performance hereunder. This indemnity shall exclude
only gross negligence or intentional misconduct on the part of the Escrow Agent.
9. Tax Reporting. The Escrow Agent agrees to file with the Internal Revenue
Service ("IRS") promptly after the end of each calendar year in which this
Agreement is in effect, a Form 1099 which reports all interest earned in respect
of the Escrow Account for each such calendar year. Baron agrees to file the
requisite Form 1099's with the IRS in respect of each such year for each
subscriber to interests in the Issuer.
10. Notices. All notices, requests, demands and other communications
provided for herein shall be in writing, shall be delivered by facsimile
transmission, hand or first-class mail, shall be deemed given when received and
shall be addressed to the parties hereto at their respective addresses listed
below or to such other persons or addresses as the relevant party shall
designate as to itself from time to time in writing delivered in like manner:
if to Escrow Agent:
____________________
____________________
____________________
____________________
if to Baron: Baron Advisors, Inc.
7826 Cooper Road
Cincinnati, Ohio 45242
Attention: Gregory K. McGrath, President
if to Sigma: Sigma Financial Corporation
4261 Park Road
Ann Arbor, Michigan 48103
Attention: Jerome S. Rydell, President
4
<PAGE>
if to Issuer: Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
Attention: Gregory K. McGrath
11. Certification of Offering Compliance. The Issuer hereby represents that
the Offering will be made in accordance with the registration requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and will be in
compliance with all applicable State and Federal securities laws.
12. Integration. This Agreement integrates all of the terms and conditions
mentioned herein or supersedes all other negotiations and prior writings in
respect of the matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE ESCROW AGENT:
_________________________________
By: _____________________________
Title: __________________________
BARON ADVISORS, INC.
_________________________________
By: Gregory K. McGrath, President
SIGMA FINANCIAL CORPORATION
_________________________________
By: Jerome S. Rydell, President
THE ISSUER:
BARON CAPITAL TRUST
_________________________________
By: Gregory K. McGrath, President
5
EXHIBIT 10.3
FORM OF INDEMNIFICATION AGREEMENT
AMONG THE REGISTRANT, BARON ADVISORS, INC.,
AND THE REGISTRANT'S INDEPENDENT TRUSTEES
AND OFFICERS
(INCLUDED IN SECTIONS 3.6 AND 3.7 OF THE
DECLARATION OF TRUST INCORPORATED HEREIN
AND MADE A PART HEREOF BY REFERENCE
TO EXHIBIT A TO THE PROSPECTUS
OF THE REGISTRANT CONTAINED IN PART I
OF THIS REGISTRATION STATEMENT)
EXHIBIT 10.4
FORM OF WARRANT PURCHASE AGREEMENT,
DATED AS OF ____________, 1997,
BETWEEN THE REGISTRANT AND
SIGMA FINANCIAL CORPORATION
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT MADE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE ACT.
Void after 5:30 P.M., New York Time, on _________, 200_
FORM OF WARRANT TO PURCHASE SHARES OF BENEFICIAL INTEREST
This Is to Certify That, FOR VALUE RECEIVED, SIGMA FINANCIAL CORPORATION
("Sigma") or registered assigns (the "Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from Baron Capital Trust, a Delaware business
trust (the "Company"), at any time on or after ________________, 199__ [first
anniversary of the execution date] and not later than 5:30 P.M., New York time
on ____________, 200__ [fifth anniversary of the execution date], a number of
Common Shares of beneficial interest in the Company, having no par value (such
shares being of the same class as shares of beneficial interest to be offered
for sale in the Company's initial public offering referred to below)("Shares"),
in an amount equal to 8.5% of the number of Shares that may be sold in the
Company's public offering of up to 2,500,000 Shares (the "Offering"), on a best
efforts basis, by Sigma and participating broker-dealers to be selected by Sigma
and the Company, at a purchase price per Share underlying this Warrant of
$13.00; provided, however, this Warrant shall not become effective unless and
until the terms and conditions of any escrow arrangements in connection with the
Offering have been fully satisfied. The number of Shares to be received upon the
exercise of this Warrant and the price to be paid for a Share may be adjusted
from time to time as hereinafter set forth. The Shares deliverable upon such
exercise, and as adjusted from time to time, are hereinafter referred to as
"Warrant Shares" and the exercise price of a Share in effect at any time and as
adjusted from time to time is hereinafter referred to as the "Exercise Price."
(a) Exercise of Warrant. Subject to the provisions of Section (k) hereof,
this Warrant may be exercised in whole or in part at any time or from time to
time on or after _____________, 199__ [first anniversary of the execution date],
but not later than 5:30 P.M., New York Time, on _______________, 200__ [fifth
anniversary of the execution date], or if __________, 200_, is a day on which
banking institutions are authorized by law to close, then on the next succeeding
day which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of Shares specified in such form, together with all federal
and state taxes applicable upon such exercise. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Shares purchasable hereunder. Upon receipt
by the Company of this Warrant at the office of the Company or the stock
transfer agent, in proper form for exercise, the Holder shall be
<PAGE>
deemed to be the holder of record of the Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Shares shall not then be actually
delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Shares as shall be required for issuance or delivery upon
exercise of this Warrant.
(c) Fractional Shares. No fractional Shares or scrip representing
fractional Shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional Share, determined as
follows:
(1) If Shares are listed on a national securities exchange or admitted to
unlisted trading privileges on such exchange, the current value shall be the
last reported sale price of such Shares on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average closing bid and asked prices for such day on such
exchange; or
(2) If Shares are not so listed or admitted to unlisted trading privileges,
the current value shall be the mean of the last reported bid and asked prices
reported by the National Association of Securities Dealers Quotation System
("NASDAQ") (or, if not so quoted on NASDAQ, by the National Quotation Bureau,
Inc.) on the last business day prior to the date of the exercise of this
Warrant; or
(3) If Shares are not so listed or admitted to unlisted trading privileges
and bid and asked prices are not so reported, the current market value shall be
an amount, not less than book value, determined in such reasonable manner as may
be prescribed by the Board of the Company, such determination to be final and
binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the holder thereof to
purchase in the aggregate the same number of Share purchasable hereunder. This
Warrant may not be sold, transferred, assigned, or hypothecated until
_______________, 199__ [first anniversary of the execution date], except that
after the completion of the Offering it may be (i) assigned in whole or in part
to or among the officers of Sigma, any broker-dealer which sells Shares in the
Offering, or any of such broker-dealer's officers; (ii) transferred by operation
of law as a result of the death of any assignee or transferee of this Warrant;
and (iii) transferred to any successor to the business of Sigma or of any such
broker-dealer. Any assignment of the Warrant in whole or in part shall be made
by surrender of this Warrant to the Company or at the office of its stock
transfer agent, if any, with the Assignment Form annexed hereto duly executed
and
2
<PAGE>
funds sufficient to pay any transfer tax; whereupon the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be canceled. This
Warrant may be divided or combined with other Warrants, if any, which carry the
same rights upon presentation hereof at the office of the Company or at the
office of its stock transfer agent, if any, together with a written notice
specifying the names and denominations in which new Warrants are to be issued
and signed by the Holder hereof. The term "Warrant" as used herein includes any
Warrants issued in substitution for or replacement of this Warrant, or into
which this Warrant may be divided or exchanged. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Anti-Dilution Provisions.
(1) Adjustment of Exercise Price. If the Company at any time issues
Shares or any shares or other securities convertible into or exchangeable
for Shares ("Convertible Securities") by way of dividend or other
distribution on any securities of the Company (including without limitation
Shares and Convertible Securities) or subdivides or combines the
outstanding Shares, the Exercise Price shall be proportionately decreased
in the case of such issuance (on the day following the date fixed for
determining Shareholders entitled to receive such dividend or other
distribution), proportionately decreased in the case of such subdivision,
and proportionately increased in the case of such combination (on the date
that such subdivision or combination shall become effective.)
(2) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one percent, but when
the cumulative net effect of more than one adjustment so determined shall
be to change the actual Exercise Price by at least one percent, such change
in the Exercise Price shall thereupon be given effect.
(3) Number of Shares Adjusted. Upon any adjustment of the Exercise
Price hereunder, the holder of this Warrant shall thereafter (until another
such adjustment) be entitled to purchase, at the new Exercise Price, the
number of Shares, calculated to the nearest full Share, obtained by
multiplying the number of Shares initially issuable upon exercise of this
Warrant by the Exercise Price in effect on the date hereof and dividing the
3
<PAGE>
product so obtained by the new Exercise Price.
(4) Shares Defined. Whenever reference is made in this Section (f) to
the issue or sale of Shares, the term "Shares" shall mean the shares of
beneficial interest in the Company authorized as of the date hereof which
are of the same class as shares issued in connection with the Offering and
any other class of securities of the Company ranking on a parity with such
Shares. However, subject to the provisions of Section (i) hereof, Shares
issuable upon exercise of this Warant shall include only shares of the
class designated as shares of beneficial interest in the Company as of the
date hereof.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall promptly
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price and adjusted number of Shares issuable under
this Warrant determined as herein provided and setting forth in reasonable
detail the facts requiring such adjustments. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder,
and the Company shall, promptly after each such adjustment, deliver a copy of
such certificate to the Holder. Such certificate shall be conclusive as to the
correctness of such adjustment.
(h) Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised, (i) if the Company shall pay any dividend or make
any distribution upon the Shares, (ii) if the Company shall offer to the holders
of Shares for subscription or purchase by them any shares of securities of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Shares of record shall be entitled to
exchange their Shares or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Shares
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of an issuance of Shares by way of
dividend or other distribution or of a subdivision or combination), in case of
any consolidation or merger of the Company with or into a third party (other
than a merger with a subsidiary of the Company in which merger the Company
4
<PAGE>
is the continuing entity and which does not result in any reclassification,
capital reorganization or other change of outstanding Shares) or in case of any
sale or conveyance to a third party of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of Shares and
to successive consolidations, mergers, sales or conveyances.
(j) Spin-Offs. In the event the Company spins-off a subsidiary by
distributing to the shareholders of the Company as a dividend or otherwise the
stock of the subsidiary, the Company shall reserve for the life of the Warrant
shares of the subsidiary to be delivered to the Holders of the Warrants upon
exercise to the same extent as if they were owners of record of the Warrant
Shares on the record date for payment of the shares of the subsidiary.
(k) Registration under the Securities Act of 1933.
(1) Subject to the terms and conditions of this Agreement, in the
event that, subsequent to the completion of the Offering and prior to the
expiration of the entire unexercised portion of this Warrant, the Company
files a registration statement (defined herein to include a Form 1-A
Offering Statement under Regulation A under the Act (defined below) and the
Offering Circular included therein) under the Securities Act of 1933, as
amended (the "Act"), which relates to a current offering of securities of
the Company (except in connection with an offering solely to employees),
such registration statement and the prospectus included therein shall also,
at the written request to the Company by the registered owners of any
outstanding portion of this Warrant or Warrant Shares acquired upon
exercise of any portion of this Warrant, include and relate to, and meet
the requirements of the Act with respect to, the public offering of any
outstanding portion of this Warrant, any outstanding Warrant Shares and
Warrant Shares issuable upon exercise of the outstanding Warrants
(collectively, "Registrable Shares") so as to permit the public sale
thereof in compliance with the Act. The Company shall give written notice
to the Holders of its intention to file a registration statement under the
Act relating to a current offering of the aforesaid securities of the
Company, 30 or more days prior to the filing of such registration
statement, and the written request provided for in the first sentence of
this subsection shall be made by the owners of Registrable Securities 15 or
more days prior to the date specified in the notice as the date on which it
is intended to file such registration statement. Neither the delivery of
such notice by the Company nor of such request by such owners shall in any
way obligate the Company to file such registration statement and
notwithstanding the filing of such registration statement, the Company may,
at any time prior to the effective date thereof, determine not to offer the
securities to which such registration statement relates, without liability
to such owners, except that the Company
5
<PAGE>
shall pay such expenses as are contemplated to be paid by it under
subsection (3) of this Section. The registration rights set forth in this
Section (k) shall expire upon the sixth anniversary of the execution date
of this Warrant and (ii) continue during such period regardless of the
exercise or surrender of this Warrant.
(2) In each instance in which pursuant to subsection (1) of this
Section the Company shall take any action to permit a public offering or
sale or other distribution of the Warrant or Warrant Shares, the Company
shall:
(A) Supply to Sigma as representative of the Holders intending to
make a public distribution of their Warrant or Warrant Shares (the
Holder by his receipt of this Warrant hereby acknowledging his
appointment of Sigma as his representative for purposes of this
Warrant), two executed copies of each registration statement and a
reasonable number of copies of the preliminary, final and other
prospectus or offering circular in conformity with requirements of the
Act and the rules and regulations promulgated thereunder and such
other documents as Sigma shall reasonably request;
(B) Cooperate in taking such action as may be necessary to
register or qualify the Registrable Securities under such other
securities acts or blue sky laws of such states as Sigma shall
reasonably request and to do any and all other acts and things which
may be necessary or advisable to enable the holders of such
Registrable Securities to consummate such proposed sale or other
disposition of such Registrable Securities in any such state;
provided, however, that in no event shall the Company be obligated, in
connection therewith, to qualify to do business or to file a general
consent to service of process in any state where it shall not then be
qualified;
(C) Keep effective for a period of not less than 90 days after
the initial effectiveness thereof all such registrations under the Act
and cooperate in taking such action as may be necessary to keep
effective such other state registrations and qualifications, and do
any and all other acts and things for such period, not to exceed 12
months, as may be necessary to permit the public sale or other
disposition of such Registrable Securities by such Holders.
(D) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Registrable Securities, from and against
any and all losses, claims, damages, and liabilities (including, but
not limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim) arising
from (i) any untrue statement of a material fact contained in any
registration statement or any amendment to any registration statement
or in any prospectus or offering circular included therein furnished
pursuant to clause (A) of this subsection or (ii) any omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading (unless such
untrue statement or omission was based upon information furnished or
required to be furnished in writing to the Company by such Holder
6
<PAGE>
or underwriter expressly for use therein), which indemnification shall
include each person, if any, who controls any such Holder or
underwriter within the meaning of the Act; provided, however, that the
Company shall not be so obligated to indemnify any such Holder or
underwriter or controlling person unless such Holder, underwriter or
controlling person, as the case may be, shall at the same time
indemnify the Company, Baron Advisors, Inc. (the managing shareholder
of the Company), members of the Board and officers of the Company and
each person, if any, who controls the Company within the meaning of
the Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (x) any untrue statement of a
material fact contained in any registration statement or any amendment
to any registration statement or prospectus or offering circular
furnished pursuant to Clause (A) of this subsection, or (y) any
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
but the indemnity of such holder, underwriter or controlling person
shall be limited to liability based upon information furnished, or
required to be furnished, in writing to the Company by such holder,
underwriter or controlling person expressly for use therein. The
indemnity agreement of the Company herein shall not inure to the
benefit of any such underwriter (or to the benefit of any person who
controls such underwriter) on account of any losses, claims, damages,
liabilities (or actions or proceedings in respect thereof) arising
from the sale of any of such Registrable Securities by such
underwriter to any person if such underwriter failed to send or give a
copy of the prospectus or offering circular furnished pursuant to
Clause (A) of this subsection, as the same may then be supplemented or
amended (if such supplement or amendment shall have been furnished to
Sigma pursuant to said Clause (A)), to such person with or prior to
the written confirmation of the sale involved.
(3) The Company shall comply with the requirements of subsection (1)
and (2) at its own expense, provided, however, it shall not be obligated to
pay underwriting commissions, transfer taxes, fees and expenses of Holders=
counsel or any underwriter's expense allowance in respect of the
Registrable Securities to be registered at the request of Holders.
(4) The Company's obligation under said subsection (1) shall be
conditioned as to each such public offering, upon a timely receipt by the
Company in writing of such information as the Company may reasonably
require from such Holders, or any underwriter for any of them, for
inclusion in such registration statement or post-effective amendment.
(5) Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered hereunder if in writing
and delivered personally or sent by certified mail, to the Holder,
addressed to him in care of Sigma Financial Corporation, 4251 Park Road,
Ann Arbor, Michigan 48103, Attention: Jerome S. Rydell or, if the Holder
has designated, by notice in writing to the Company, any other address, to
such other address, and, if to the Company, addressed to Baron Capital
Trust, 7826 Cooper Road, Cincinnati, Ohio 45242. The Company may change its
address by
7
<PAGE>
written notice to Sigma (and any such designees) and Sigma may change its
address by written notice to the Company.
(l) Transfers to Comply with the Securities Act of 1933.
(1) This Warrant or the Warrant Shares or any other security issued or
issuable upon exercise of this Warrant may not be offered or sold except in
conformity with the Act, and then only against receipt of an agreement of
such person to whom such offer or sale is made to comply with the
provisions of this Section (1) with respect to any resale or other
disposition of such securities.
(2) The Company may cause the following legend to be set forth on each
Warrant and certificate representing Warrant Shares or any other security
issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the
public pursuant to Section (k) hereof, unless counsel for the Company is of
the opinion as to any such certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered
for sale, sold or otherwise transferred except pursuant to an
effective registration statement made under the Securities Act of
1933 (the "Act"), or pursuant to an exemption from registration
under the Act.
(m) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
Delaware laws governing conflicts of law.
(n) Notice of Non-liability. Under the Delaware Business Trust Act and
Sections 3.3 and 3.4 of the Declaration of Trust for the Company made as of
August 31, 1997, neither the Shareholders of the Company, Baron Advisors, Inc.
(the Managing Shareholder of the Company), the Trustees of the Company, nor any
other members of the Board of the Company shall be personally liable hereunder,
and the Holder shall look solely to the Company property for the satisfaction of
any claim hereunder against the Company.
BARON CAPITAL TRUST
By ______________________________
Gregory K. McGrath, President
Date: ______________, 199_
Attest:
_______________________
8
EXHIBIT 10.5
FORM OF SUBSCRIPTION DOCUMENTS
<PAGE>
SUBSCRIPTION DOCUMENTS
BARON CAPITAL TRUST
This is Copy No. __________ of the Prospectus dated _______________, 1997.
Complete the Subscription Documents by filling in all appropriate spaces in the
Investor Questionnaire and the Subscription Agreement. Incomplete documents can
delay or prevent acceptance. The subscription date used in the Subscription
Agreement and check date must agree. Terms used herein shall have their
respective meanings assigned to them in the Prospectus of the Trust dated
_____________, 1997 (the "Prospectus").
<TABLE>
<CAPTION>
Broker/Dealer Data Subscriber Data
- ------------------ ---------------
<S> <C>
____________________________________ _____________________________________
Name of Broker/Dealer Name (Print/Type Full Name)
____________________________________ _____________________________________
Main Office Address Name of Joint Subscriber
(Print/Type Full Name)
____________________________________ _____________________________________
City, State, Zip Subscriber Address
(____ ______________________________ _____________________________________
Branch Office Telephone Number City, State, Zip
___________________ $___________________
Representative Data No. of Common Shares Total Investment for
- ------------------- Common Shares
Purchased
____________________________________ _____________________________________
Representative's Name Subscription Date
____________________________________ _____________________________________
Representative's Branch Dealer Manager
Contact Person
PRIOR TO THE ESCROW DATE, THE SUBSCRIPTION CHECK MUST BE PAYABLE
__________________________________ TO "_________________, ESCROW AGENT FOR BARON CAPITAL TRUST,"
Office & Dealer Code AND ON AND AFTER THE ESCROW DATE, IT MUST BE PAYABLE TO "BARON
CAPITAL TRUST" 0R IT CAN NOT BE ACCEPTED. THE COMPLETED
__________________________________ SUBSCRIPTION DOCUMENTS AND CHECK SHOULD BE TRANSMITTED TO BARON
City, State & Zip ADVISORS, INC., 7826 COOPER ROAD, CINCINNATI, OHIO 45242.
__________________________________
Branch Office Telephone Number
</TABLE>
<PAGE>
BACKGROUND
Information and Offeree Suitability
The information required in the Investor Questionnaire and the Subscription
Agreement is intended to document that each purchaser meets the certain investor
suitability standards described in the "Investor Suitability Standards" section
of the Prospectus. Consequently, prior to the purchase of any Common Shares by
potential purchasers, the Investor Questionnaire and the Subscription Agreement
must be completed, dated and signed by each potential purchaser.
You will note that Item A of the Investor Questionnaire must be completed
by each individual investor and each individual responsible for an investment
decision on behalf of an entity that invests (i.e., partnership, corporation,
trust, limited liability company, pension plan, 401 K plan, profit sharing plan
and other entities). Living Trusts should complete the Investor Questionnaire in
the same manner as individual Investors. Item B must be completed by each entity
that invests. The balance of the Investor Questionnaire beginning at Item C must
be completed by all investors. If an entity is purchasing Common Shares, a copy
of the entity's articles of incorporation and by-laws or partnership, trust or
operating agreement and resolutions and covenants evidencing authority to
execute and deliver the Subscription Documents must be supplied.
2
<PAGE>
SECTION ONE: INVESTOR QUESTIONNAIRE
PLEASE INDICATE HOW COMMON SHARES ARE TO BE OWNED (CHECK ONE):
( ) Individual ( ) Partnership*
( ) Tenants in Common ( ) Corporation*
( ) Custodian for ___________________ ( ) Trust*
( ) Joints tenants w/rights of survivorship ( ) Limited Liability Company*
( ) Tenants by the entirety ( ) Other_______________________
( ) Community property ______________________
* If the prospective purchaser(s) is (are) a partnership, corporation, trust or
limited liability company, please attach hereto copies of the partnership
agreement, articles of incorporation and by-laws, trust agreement or operating
agreement and such resolutions and consents as may be necessary to evidence
authority to execute and deliver subscription documents.
A. EACH INDIVIDUAL INVESTOR AND EACH INDIVIDUAL RESPONSIBLE FOR MAKING AN
INVESTMENT DECISION ON BEHALF OF AN ENTITY MUST COMPLETE THIS ITEM A
1. Name (Subscriber): Name (Joint Subscriber):
___________________________________ _____________________________
2. Birth Date:
___________________________________ _____________________________
3. Social Security Number:
___________________________________ _____________________________
4. Home Address:
___________________________________ _____________________________
___________________________________ _____________________________
5. Home Telephone:
___________________________________ _____________________________
6. Employed By:
___________________________________ _____________________________
7. Occupation:
___________________________________ _____________________________
8. Employer Address:
___________________________________ _____________________________
___________________________________ _____________________________
3
<PAGE>
9. Business Phone:
___________________________________ _____________________________
10. State your employment, positions or occupations during the past five
years:
Employment/Occupation Nature of Duties From/To
______________________ _____________________ __________________
______________________ _____________________ __________________
______________________ _____________________ __________________
11. State your education, degrees and years earned:
___________________________________ _____________________________
___________________________________ _____________________________
12. Net Worth, Excluding Home, Home Furnishings and Automobiles:
$_________________________
13. Gross Income for 1996 was $_________________________
Anticipated Gross Income for 1997 is $__________________
14. Name of Bank: ___________________ Savings Acct.: $________________
Other Liquid Assets: $______________ Stocks/Bonds: $________________
15. List Tax-Advantaged & Real Estate Investments and Amounts Invested:
_______________________________________________________________________
16. Investment Objectives: ________________________________________________
_______________________________________________________________________
B. EACH PARTNERSHIP, CORPORATION, TRUST, LIMITED LIABILITY COMPANY, PENSION
PLAN, 401 K PLAN, PROFIT SHARING PLAN AND OTHER ENTITY MUST COMPLETE THIS
ITEM B. EACH PERSON RESPONSIBLE FOR AN INVESTMENT DECISION ON BEHALF OF
AN ENTITY MUST ALSO COMPLETE ITEM A ABOVE.
1. Entity Name:____________________________________________
2. Entity Taxpayer Federal Identification Number:
_______________________________________________
3. Address Information:
(a) Address of Principal Office:
_________________________________________
4
<PAGE>
_________________________________________
4. Mail Distribution Checks to (check one only):
___ Principal Office Address shown above
___ Other addresses (such as bank)
_______________________________________________
_______________________________________________
Account Number: _______________________________
5. Name and Title of Officer executing Questionnaire:
_______________________________________________
_______________________________________________
6. Telephone Number: (_____) ________________________________
7. Date and State of Formation of Entity: ______________________________
______________________________
8. Suitability:
(a) Please indicate the entity's net worth (check one):
___ less than $300,000
___ $300,001 - $500,000
___ $500,001 - $1,000,000
___ $1,000,001 - $5,000,000
___ Over $5,000,000
(b) Please indicate what percentage of the entity's total assets the
investment in Common Shares will comprise (check one):
___ less than 5%
___ 5.1% to 10%
___ 10.01% to 25%
___ greater than 25%
(c) Please identify the person(s) responsible for the entity's
investment decision:
5
<PAGE>
Name Title Relation to Entity
---- ----- ------------------
_______________________________________________________________________
_______________________________________________________________________
9. PLEASE COMPLETE APPLICABLE SECTION:
(a) TRUSTS ONLY:
(i) Is the trustee or the party making the investment decision a
bank, savings and loan institution, insurance company, or
registered investment advisor?
___ Yes
___ No
(ii) Are the total assets of the trust in excess of $5,000,000?
___ Yes
___ No
(b) TAX-DEFERRED PLANS ONLY: (Profit Sharing, Pension Plans, Defined
Benefit Plans, Defined Contribution Plans, 401 K Plans)
(i) Is the plan's investment decision being made by a plan
fiduciary that is a bank, savings and loan institution,
insurance company, or registered investment advisor?
___ Yes
___ No
(ii) Are the individuals making the decision to invest in the
Trust:
___ investing for their own separate accounts in the plan?
___ the only beneficiaries of the plan?
___ None of the above
Name of each participant:
____________________________________________________________
____________________________________________________________
(iii) Are they all Accredited Investors (as defined in the
Securities Act of 1933 and regulations thereunder)?
___ Yes
___ No
If No, how many are not Accredited Investors? __________
(iv) Are the total assets of the plan in excess of $5,000,000 and
is the plan an employee benefit plan?
6
<PAGE>
___ Yes
___ No
(c) PARTNERSHIPS, CORPORATIONS AND LIMITED LIABILITY COMPANIES ONLY:
(i) Was the entity organized for the specific purpose of
acquiring Common Shares?
___ Yes
___ No
(ii) Does the entity have total assets in excess of $5,000,000?
___ Yes
___ No
(iii) Is the entity a bank, savings and loan institution,
broker/dealer, insurance company (mutual funds), business
development company under the Investment Company Act of
1940, or a small business investment company?
___ Yes
___ No
(iv) Are all corporate stockholders of the corporation, all
partners of the partnership, or all members of the limited
liability company, as the case may be, Accredited Investors?
___ Yes
___ No
C. ALL INVESTORS MUST COMPLETE THE BALANCE OF THIS INVESTOR QUESTIONNAIRE
By signing below the undersigned represents that:
1. The undersigned falls within one of the following classifications
(initial applicable items):
___ (a) Annual gross income of at least $35,000 and a net worth
(exclusive of home, home furnishings and automobiles) of at
least $35,000, OR
___ (b) Net worth (exclusive of home, home furnishings and
automobiles) of at least $100,000.
2. Considering the foregoing and all other factors in the
undersigned's financial and personal circumstances (including,
but not limited to, requirements of health, family and current
income), the undersigned is able to bear the economic risk of the
undersigned's proposed investment in the Common Shares and has no
need in the foreseeable future for liquidity in an investment in
the Common Shares.
3. Any Common Shares the undersigned may purchase will be for
investment purposes only and for his own account.
4. The undersigned has received the Prospectus regarding this
Offering and has been advised that the undersigned may visit the
offices and properties of the Trust, inspect its records and
discuss its
7
<PAGE>
affairs and this Offering with its officers prior to making an
investment in the Trust.
5. The undersigned knows of no pending or threatened litigation the
outcome of which could adversely affect the answer to any
question contained herein.
6. The undersigned acknowledges that there is not expected to be an
active trading market for the Common Shares upon completion of
the Offering and therefore the Common Shares would lack
liquidity.
The undersigned represents and warrants that the foregoing
statements contained in this Investor Questionnaire are true and
accurate to the best of the undersigned's knowledge and that, if
the undersigned is signing on behalf of an entity, the
undersigned is an officer of the entity authorized to sign on
behalf of the entity.
The undersigned also covenants that the representations and
warranties contained in this Investor Questionnaire will be true
and accurate as of the date of delivery of payment to the Trust
for the Common Shares subscribed for and will survive such
delivery and that if in any respect such representations and
warranties will not be true and accurate prior to the termination
date of the Offering, the undersigned will give written notice of
such fact to the Managing Shareholder, specifying which
representations and warranties are not true and accurate and the
reasons therefor.
INDIVIDUAL INVESTORS:
_____________________________ ________________________________
Subscriber Signature Type/Print Full Name
_____________________________ ________________________________
Subscriber Signature Type/Print Full Name
(If Joint)
PERSONS EXECUTING ON BEHALF OF ENTITY:
_____________________________ ________________________________
Signature of Person Executing Type/Print Name of Entity
on Behalf of Entity
________________________________
Type or Print Name of Person
Executing and Title
Date: __________________________
8
<PAGE>
SECTION TWO
BARON CAPITAL TRUST
SUBSCRIPTION AGREEMENT
To: Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
Gentlemen:
You have informed the undersigned that Baron Capital Trust is a Delaware
business trust (the "Trust") of which Baron Advisors, Inc., a Delaware
corporation, is the Managing Shareholder; the Trust is to be operated in
accordance with the Declaration of Trust for the Trust (the "Declaration")
attached as an exhibit to the Trust's Prospectus dated ________________, 1997
(the "Prospectus") and furnished to the undersigned herewith; the Trust has been
formed to acquire an equity interest in and/or provide or acquire debt financing
secured by mortgages on one or more existing residential apartment properties or
single-family housing developments located in Florida, Kentucky or Ohio (the
"Property"), all as is more fully set forth in the Declaration and the
Prospectus; and the shares of beneficial interest in the Trust to be offered
pursuant to the Prospectus are to be divided into 2,500,000 shares ("Common
Shares") of $10 each, as described in the Prospectus. Terms used herein shall
have their respective meanings assigned to them in the Prospectus.
1. Subscription
Subject to the terms and conditions hereof, the undersigned hereby tenders
this Subscription Agreement for the total amount of DOLLARS ($___________)
for _______________ (______) Common Shares in the Trust and the undersigned
hereby tenders payment in full, in the form of a check or bank draft made
payable to "_____________, Escrow Agent for Baron Capital Trust" as to
subscriptions made prior to the Escrow Date, and to "Baron Capital Trust"
on and after the Escrow Date.
The undersigned, desiring to become a beneficial interest owner in the
Trust pursuant to the Declaration, hereby agrees to be bound by all the
terms and conditions of the Declaration. The undersigned is delivering to
the Trust the aforesaid funds and an executed copy of a signature page of
this Subscription Agreement (containing a limited power of attorney). The
Trust (or the bank serving as escrow agent prior to the Escrow Date) will
hold the funds and such signature for the benefit of the undersigned,
subject to Section 2 below.
2. Acceptance of Agreement: Delivery of Declaration
It is understood and agreed that the Managing Shareholder will have the
right to accept or reject this subscription, in whole or in part, for any
reason whatsoever and that the subscription will be deemed accepted when
and only when this Subscription Agreement has been signed by a duly
authorized officer of the Managing Shareholder and the full subscription
price has been delivered. It is understood and agreed, subject to Section 9
of this Subscription Agreement, that if this subscription is accepted and
if all the undersigned's Common Shares are subscribed and paid for by the
close of the subscription period, the funds tendered herewith shall be
considered Trust assets in payment of the Common Shares set forth above or
such lesser number as may be allocated to the undersigned. In the event
this Offering is over-subscribed or for any other reason, the Managing
Shareholder may reduce the number of Common Shares for which the
undersigned has subscribed by indicating on the signature page hereto its
acceptance of less than all of the Common Shares subscribed for. The
undersigned hereby grants authority to the Managing Shareholder to so amend
and alter the acceptance to indicate the reduced number of Common Shares so
accepted. In that case if the undersigned has paid the full purchase price
of the Common Shares subscribed for, the Trust will remit to the
undersigned the balance of the full subscription amount paid for the number
of Common Shares subscribed for but not accepted, with any interest earned
on such amount, within 30 days after such partial acceptance of this
subscription.
9
<PAGE>
3. Representations and Warranties of the Undersigned
The undersigned hereby represents and warrants, covenants or acknowledges,
as the case may be, to the Managing Shareholder, the Trust and any
broker/dealer offering the Common Shares on behalf of the Trust as follows
and acknowledges that the Trust and the Managing Shareholder will rely upon
the statements made herein in determining whether to accept this offer and
in complying with their obligations under applicable federal and state
securities statutes and regulations:
(a) The undersigned represents and warrants that (i) the undersigned has
adequate means of providing for the undersigned's current needs and
possible personal contingencies, and the undersigned has no need for
liquidity of the undersigned's investment in the Trust; (ii) the
undersigned has (x) a gross annual income of $35,000 and has a net
worth (exclusive of home, home furnishings and automobiles) of at
least $35,000 or (y) a net worth (exclusive of home, home furnishings
and automobiles) of at least $100,000, (iii) the undersigned will
continue to meet such income/net worth standards; (iv) the
undersigned's overall commitment to investments which are not readily
marketable is not disproportionate to the undersigned's net worth, and
the undersigned's investment in the Common Shares will not cause such
overall commitment to become excessive; (v) the undersigned can bear
the economic risk of losing the undersigned's entire investment
herein; and (vi) the objectives of the Trust are compatible with the
undersigned's investment goals.
(b) Each undersigned that is a natural person represents that the address
set forth in the Investor Questionnaire is the undersigned's true and
correct residence, and the undersigned has no present intention of
becoming a resident of any other state or jurisdiction; each
undersigned that is an entity represents and warrants that the
business address set forth in the Investor Questionnaire is the true
and correct address and it has no present intention of changing its
principal office to any other state or jurisdiction.
(c) The undersigned represents and warrants that the undersigned received
the Declaration, the Prospectus, the Investor Questionnaire, and this
Subscription Agreement at least five days prior to subscribing for
Common Shares, and the undersigned confirms that all documents,
records and books pertaining to the investment in the Trust and
requested by the undersigned or the undersigned's representative, if
any, have been made available or delivered to the undersigned or such
representative.
(d) The undersigned represents and warrants that the undersigned and the
undersigned's representative, if any, have had an opportunity to ask
questions of and receive answers from the Managing Shareholder, or a
person or persons acting on its behalf, concerning the terms and
conditions of this investment and that all such questions have been
answered to the undersigned's full satisfaction.
(e) The undersigned acknowledges (i) that although the Common Shares have
been registered under the Securities Act of 1933, as amended, the
Common Shares will not immediately, if ever, be registered under the
Securities Exchange Act of 1934, as amended, and listed for trading on
a national exchange, and therefore the Common Shares will lack
liquidity after the Offering.
(f) The undersigned understands the undersigned is purchasing an interest
in the Trust without being furnished any offering literature or
prospectus other than the Prospectus (including the Exhibits thereto).
(g) The undersigned represents and warrants that the Common Shares for
which the undersigned hereby subscribes are being acquired solely for
the undersigned's own account and for investment purposes only.
(h) The undersigned acknowledges and is aware of each of the following:
(i) That the Trust has no operating history; and that the
acquisition, ownership, operation and disposition of property to
be acquired by the Trust (as described in the Prospectus) is the
Trust's sole venture and the Common Shares are speculative
investments which involve a
10
<PAGE>
(ii) high degree of risk of loss by the undersigned of the
undersigned's entire investment in the Trust.
(iii)That there are certain restrictions on the transferability of
the Common Shares which are designed to permit the Trust to
maintain its status as a REIT for federal income tax purposes.
(iv) That the tax effects which may be expected by the Trust are not
susceptible to absolute prediction, and new developments or
rulings of the IRS, audit adjustments, court decisions or
legislative changes may have an adverse effect on one or more of
the expected tax consequences of an investment in the Trust.
(v) That the Managing Shareholder and Affiliates will receive
substantial fees and compensation in connection with the offer
and sale of the Common Shares and operation of the Trust.
(vi) That there has been no guarantee or warranty to the undersigned
by any representative of the Trust, the Managing Shareholder,
their respective Affiliates, agents or employees, or any
broker/dealer offering the Common Shares on behalf of the Trust,
or its agents or employees, or any other person, expressly or by
implication, as to any of the following:
(a) The approximate or exact length of time that the undersigned
will be required to remain an owner of the undersigned's
Common Shares.
(b) The amount of profit and/or amount of or type of
consideration, profit or loss (including tax benefits) to be
realized, if any, as a result of this venture.
(c) The past performance or experience on the part of the
Managing Shareholder or any of its Affiliates, any
securities broker or finder, their partners, salesmen,
associates, agents, or employees or of any other person,
except as set forth in the Prospectus, that will in any way
indicate the predictable results of the ownership of the
Common Shares or of the overall Trust venture.
(i) The undersigned understands that the Prospectus was prepared by the
Managing Shareholder only for the use of qualified investors and
agrees not to reproduce, copy or otherwise distribute or make the
Prospectus or information contained therein available to any other
person (other than the undersigned's representatives and legal and tax
advisors, if any).
(j) In the event the undersigned does not participate, the undersigned
agrees to promptly return to the Managing Partner the Prospectus and
all other written information provided to the undersigned in
connection with the Offering.
(k) The undersigned represents that the funds to be tendered for the
purchase of Common Shares subscribed for will not represent funds
borrowed by the undersigned from any person or lending institution
except to the extent that the undersigned has a source of repaying
such funds other than from the sale of the Common Shares or any
distributions of revenue that may be generated from the investment
(and such Common Shares will not have been pledged or otherwise
hypothecated for any such borrowing).
(l) The undersigned is aware that the Managing Shareholder and affiliated
persons or organizations may presently and in the future be engaged in
businesses or activities which are competitive with the proposed
activities of the Trust referred to in the Prospectus and agree and
consent to such businesses and activities, even though there are or
may be conflicts of interest inherent therein.
(m) The undersigned represents and warrants that the undersigned has full
power and authority to enter into the transactions contemplated by the
Prospectus and each natural person signing below on behalf of an
entity herein represents and warrants that he or she has full power
and authority to so act on behalf of such entity.
11
<PAGE>
(n) The undersigned represents and warrants that all information provided
by the undersigned to the Managing Shareholder or the Trust is true
and correct as of the date hereof and, if there is any material change
before this subscription is accepted, the undersigned will immediately
inform the Managing Shareholder of such change.
(o) The undersigned acknowledges and agrees that the undersigned's
obligations under this Subscription Agreement are severable and the
invalidity of any provision hereof shall not affect any of the
undersigned's other obligations to the Trust, either under this
Subscription Agreement or otherwise.
The representations and warranties contained in this Subscription Agreement
are true and accurate as of the date hereof and will be true and accurate
as of the date of delivery of payment to the Trust and will survive such
delivery. If in any respect such representations and warranties will not be
true and accurate prior to the Termination Date of the Offering, the
undersigned will give written notice of such fact to the Managing
Shareholder specifying which representations and warranties are not true
and accurate and the reasons therefor.
4. Indemnification
The undersigned acknowledges that the undersigned understands the meaning
and legal consequences of the representations and warranties and covenants
contained herein, and the undersigned hereby agrees to indemnify and hold
harmless the Trust and each Shareholder thereof (including the Managing
Shareholder and Investors in the Offering, their agents and Affiliates,
from and against any and all loss, damage or liability due to or arising
out of a breach of any representation or warranty or covenant of the
undersigned contained in this Subscription Agreement.
5. No Waiver
Notwithstanding any of the representations, warranties, acknowledgments or
agreements made herein by the undersigned, the undersigned does not hereby
or in any other manner waive any rights granted to the undersigned under
Federal or state securities laws.
6. Transferability
The undersigned agrees that the assignment and transfer of the Common
Shares acquired pursuant hereto may be made only in accordance with the
Declaration.
7. Revocation
The undersigned agrees that the undersigned will not cancel, terminate or
revoke this Subscription Agreement or any agreement of the undersigned made
hereunder, except as provided below in Section 9, and that this
Subscription Agreement will survive the death or disability of the
undersigned.
8. Waiver
The undersigned or the undersigned's representative, if any, on the
undersigned's behalf, may waive the conditions set forth in Section 9
hereof.
9. Right of Rescission
The undersigned has the right to rescind this Subscription Agreement and
have the subscription price and executed signature page of this
Subscription Agreement delivered by the undersigned to the Managing
Shareholder and the Managing Shareholder's acceptance of this subscription
returned in full to the undersigned upon notification to the Managing
Shareholder at Baron Advisors, Inc., 7826 Cooper Road, Cincinnati, Ohio
45242, which notification must be made by certified or registered mail,
return receipt requested, or overnight delivery, in each case postage
prepaid, received by the Managing Shareholder no later than five days from
the date this Subscription Agreement is executed by the undersigned.
12
<PAGE>
10. Miscellaneous
(a) All notices or other communications given or made hereunder by the
undersigned to the Trust or to the Managing Shareholder shall be in
writing and shall be delivered or mailed by registered or certified
mail, return receipt requested, or overnight delivery, in each case
postage prepaid, to the Trust at 7826 Cooper Road, Cincinnati, Ohio
45242. All notices or other communications given or made hereunder by
the Trust or the Managing Shareholder to the undersigned (including,
without limitation, notice of acceptance of the subscription) shall be
in writing and shall be delivered or mailed by first class mail,
registered or certified mail, return receipt requested, or overnight
delivery, in each case postage prepaid, to the undersigned's mailing
address set forth in the Investor Questionnaire. The Trust, the
Managing Shareholder or the undersigned may change his or its address
set forth above by giving written notice to the other parties of such
new address.
(b) Notwithstanding the physical location where this Subscription
Agreement may be executed by any of the parties hereto, the parties
expressly agree that all the terms and provisions hereof will be
construed in accordance with and governed by the laws of the State of
Delaware, other than provisions governing conflicts of law.
(c) This Subscription Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and may
be amended only by a writing executed by all parties.
13
<PAGE>
SIGNATURE PAGE FOR THE SUBSCRIPTION AGREEMENT
The undersigned hereby authorizes the Managing Shareholder to act singly as
a true and lawful attorney-in-fact to (i) execute, acknowledge, swear to,
verify, deliver, file and publish, if necessary, the Declaration, and all
certificates or other instruments necessary to qualify or maintain the Trust as
a business trust and (ii) to take certain actions on the undersigned's behalf as
specified herein and in the Declaration.
IN WITNESS WHEREOF the parties have executed this Subscription
Agreement and Power of Attorney this ______ day of _________________________,
199___.
Common Shares Subscribed to: Amount Received:
____________________________________ $________________________________
A. INDIVIDUAL INVESTORS:
____________________________________ _________________________________
Subscriber Signature Type/Print Full Name
____________________________________ _________________________________
Subscriber Signature (If Joint) Type/Print Full Name (If Joint)
B. PERSONS EXECUTING ON BEHALF OF ENTITY
____________________________________ _________________________________
Signature of Person Executing Type\Print Name of Entity
on Behalf of Entity
_________________________________
Type\Print Name of Person Executing
and Title
____________________________________
Date
ACCEPTANCE
The foregoing Subscription Agreement is hereby accepted as to the Common
Shares subscribed for unless the Managing Shareholder indicates below a reduced
number of Common Shares accepted:
BARON ADVISORS, INC.,
Managing Shareholder
A reduced number of _________ Common Shares
accepted
Date:___________________________________ By:_____________________________
Name:___________________________
Title:__________________________
14
<PAGE>
BARON CAPITAL TRUST
ATTN: DISTRIBUTION DEPARTMENT
DELIVERY INSTRUCTIONS:
ACCOUNT NAME: _________________________________________________
ADDRESS: _________________________________________________
_________________________________________________
_________________________________________________
INVESTOR NUMBER: ________________ (___) TO BE ESTABLISHED
SOCIAL SECURITY #: _________________________________________________
I hereby request and direct that __________________ disbursements made for the
benefit of my Account from the Baron Capital Trust be forwarded to:
ACCOUNT NAME: _________________________________________________
ADDRESS: _________________________________________________
_________________________________________________
_________________________________________________
ACCOUNT NUMBER: _________________________________________________
(____) YET TO BE ESTABLISHED
(____) WILL FORWARD INFORMATION UPON RECEIPT
In addition, I authorize my registered representative to contact you directly,
and handle all matters for my benefit. If any processes will be expedited for my
benefit by having my registered representative act on my behalf, I then
authorize my registered representative to so act.
_________________________________________ DATE:______________________
SIGNED
_________________________________________
PRINT NAME
(If joint)_______________________________
SIGNED DATE:______________________
_________________________________________
PRINT NAME
15
EXHIBIT 23.1
CONSENT OF SCHOEMAN, MARSH & UPDIKE, LLP
(INCLUDED IN THE OPINION FILED AS EXHIBIT 5.1
TO THIS REGISTRATION STATEMENT)
EXHIBIT 99.1
CONSENT OF JAMES H. BOWNAS TO BEING NAMED
AS PROSPECTIVE INDEPENDENT TRUSTEE OF THE REGISTRANT
<PAGE>
August 31, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: Baron Capital Trust SB-2 Registration
Consent of Inclusion in Registration
Statement of Independent Trustee Reference
------------------------------------------
Dear Sir or Madame:
I hereby consent to the use of my name in the above-referenced matter and
to all references to me included in or made a part of the Prospectus and
Registration Statement for the sale of up to 2,500,000 shares of the beneficial
interest in the Trust.
Very truly yours,
/s/ James H. Bownas
-----------------------------
James H. Bownas
EXHIBIT 99.2
CONSENT OF ROBERT S. GEIGER TO BEING NAMED AS
PROSPECTIVE INDEPENDENT TRUSTEE OF THE REGISTRANT
<PAGE>
August 31, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: Baron Capital Trust SB-2 Registration
Consent of Inclusion in Registration
Statement of Independent Trustee Reference
------------------------------------------
Dear Sir or Madame:
I hereby consent to the use of my name in the above-referenced matter and
to all references to me included in or made a part of the Prospectus and
Registration Statement for the sale of up to 2,500,000 shares of the beneficial
interest in the Trust.
Very truly yours,
/s/ Robert S. Geiger
-----------------------------
Robert S. Geiger
