<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-2809
WESTERN INVESTMENT REAL ESTATE TRUST
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-6100058
- -------------------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3450 CALIFORNIA STREET, SAN FRANCISCO, CA 94118
- ------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 929-0211
------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares of Beneficial Interest, No Par Value - 17,204,313 shares as of June 30,
1998
1
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
INDEX TO 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Balance Sheets - June 30, 1998, and December 31, 1997 4
Statements of Income - Three and six months ended June 30, 1998, and 1997 5
Statements of Shareholders' Equity - Six months ended June 30, 1998, 6
and year ended December 31, 1997
Statements of Cash Flows - Six months ended June 30, 1998, and 1997 7
Notes to Financial Statements 8-12
Item 2. Management's Discussion and Analysis of Financial 13-15
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19-20
SIGNATURE 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
3
<PAGE>
BALANCE SHEETS WESTERN INVESTMENT REAL ESTATE TRUST
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, December 31,
ASSETS 1998 1997
-------------------------------------------
(In thousands, except share data)
<S> <C> <C>
Real estate investments:
Real estate properties. . . . . . . . . . . . . . . . . . . . . . . . . . $431,247 $392,470
Less accumulated depreciation and amortization. . . . . . . . . . . . . . (83,586) (77,642)
--------- ---------
347,661 314,828
Real estate properties held for sale. . . . . . . . . . . . . . . . . . . 5,382 5,382
Less accumulated depreciation and amortization. . . . . . . . . . . . . . (1,861) (1,861)
--------- ---------
3,521 3,521
Mortgage notes receivable . . . . . . . . . . . . . . . . . . . . . . . . 7,502 --
-------- ---------
Net real estate investments. . . . . . . . . . . . . . . . . . . . . . . 358,684 318,349
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . 1,220 1,463
Accounts receivable and other assets . . . . . . . . . . . . . . . . . . . . 7,970 16,636
Deferred long-term debt issuance costs, net. . . . . . . . . . . . . . . . . 1,328 1,073
-------- ---------
$369,202 $337,521
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,000 $ 19,100
Senior notes, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,780 124,766
Mortgage Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,103 --
-------- ---------
179,883 143,866
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,052 2,917
Prepaid rents and security deposits. . . . . . . . . . . . . . . . . . . . . 1,929 1,428
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,817 3,061
-------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,681 151,272
-------- ---------
Shareholders' equity:
Preferred Stock, 2,000,000 shares authorized;
No shares issued or outstanding. -- --
Shares of beneficial interest, no par value,
Unlimited share authorization.
Issued and outstanding:
June 30, 1998 - 17,204,313 shares
December 31, 1997 - 17,191,860 shares . . . . . . . . . . . . . . . . . . 241,565 242,682
Accumulated dividends in excess of net income . . . . . . . . . . . . . . . (61,044) (56,433)
--------- ---------
Commitments and contingencies (Notes: C, E and F)
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 180,521 186,249
--------- ---------
$369,202 $337,521
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
STATEMENTS OF INCOME WESTERN INVESTMENT REAL ESTATE TRUST
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
-------------------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents. . . . . . . . . . . . . . . . . . . . . . . . . $ 10,466 $ 9,562 $ 20,516 $ 18,940
Percentage rents . . . . . . . . . . . . . . . . . . . . . . . 230 160 444 327
Recoveries from tenants. . . . . . . . . . . . . . . . . . . . 2,324 2,366 3,772 3,864
Interest income. . . . . . . . . . . . . . . . . . . . . . . . 114 2 178 5
Other income . . . . . . . . . . . . . . . . . . . . . . . . . 199 214 295 309
---------- ---------- ---------- ----------
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . 13,333 12,304 25,205 23,445
---------- ---------- ---------- ----------
EXPENSES:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,324 2,861 6,273 5,677
Property operating costs . . . . . . . . . . . . . . . . . . . 2,529 2,596 4,100 4,191
Depreciation and amortization. . . . . . . . . . . . . . . . . 3,126 2,773 6,173 5,500
Other operating expenses . . . . . . . . . . . . . . . . . . . 1,027 758 2,022 1,490
General and administrative . . . . . . . . . . . . . . . . . . 668 439 1,587 921
---------- ---------- ---------- ----------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . 10,674 9,427 20,155 17,779
---------- ---------- ---------- ----------
Income before loss or gains on sales of
real estate investments. . . . . . . . . . . . . . . . . . . 2,659 2,877 5,050 5,666
---------- ---------- ---------- ----------
(Loss) gains on sales of real estate investments. . . . . . . . (30) 1,160 (30) 1,160
----------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,629 $ 4,037 $ 5,020 $ 6,826
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic and diluted earnings per share data:
Income before loss or gains on sales of
real estate investments. . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.17 $ 0.29 $ 0.33
---------- ---------- ---------- ----------
(Loss) gains on sales of real estate
investments . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 0.07 $ -- $ 0.07
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.24 $ 0.29 $ 0.40
---------- ---------- ---------- ----------
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.28 $ 0.56 $ 0.56
---------- ---------- ---------- ----------
Weighted average number of shares outstanding - Basic. . . . . . 17,204,313 17,138,432 17,199,385 17,138,432
---------- ---------- ---------- ----------
Weighted average number of shares outstanding - Diluted. . . . . 17,269,357 17,162,114 17,274,992 17,162,114
---------- ---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY WESTERN INVESTMENT REAL ESTATE TRUST
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998,
and Year Ended December 31, 1997
(In thousands, except share data)
Accumulated
Shares of Dividends Total
Beneficial Interest in Excess of Share-
------------------- Net holders'
Number Amount Income Equity
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 . . . . . . . . . . . . . . . . . . . 17,138,432 $242,054 $(50,106) $191,948
Net proceeds from issuance of shares . . . . . . . . . . . . . 53,160 622 -- 622
Debenture redemptions. . . . . . . . . . . . . . . . . . . . . 268 6 -- 6
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 12,880 12,880
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . -- -- (19,207) (19,207)
----------- --------- --------- ----------
Balance, December 31, 1997 . . . . . . . . . . . . . . . . . . 17,191,860 242,682 (56,433) 186,249
Net proceeds from issuance of shares . . . . . . . . . . . . . 12,453 182 -- 182
Loans to officers. . . . . . . . . . . . . . . . . . . . . . . -- (1,299) -- (1,299)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 5,020 5,020
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . -- -- ( 9,631) ( 9,631)
---------- --------- --------- ---------
BALANCE, JUNE 30, 1998 . . . . . . . . . . . . . . . . . . . . 17,204,313 $241,565 $(61,044) $180,521
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
STATEMENTS OF CASH FLOWS WESTERN INVESTMENT REAL ESTATE TRUST
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1998 1997
-----------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,020 $ 6,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,173 5,500
Amortization of deferred debt issuance costs . . . . . . . . . . . . . . . . . . . . . 171 195
Loss (gains) on sales of real estate investments . . . . . . . . . . . . . . . . . . . 30 (1,160)
Decrease in accounts receivable and other assets . . . . . . . . . . . . . . . . . . . 108 441
Increase in deferred rent receivable . . . . . . . . . . . . . . . . . . . . . . . . . (103) (165)
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 --
Increase (decrease) in prepaid rents,
security deposits and other liabilities. . . . . . . . . . . . . . . . . . . . . . 1,244 (157)
--------- ---------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . 12,778 11,480
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of real estate investments . . . . . . . . . . . . . . . . . . . . . 292 1,346
Investment in mortgage note receivable . . . . . . . . . . . . . . . . . . . . . . . . . (6,223) --
Acquisition of real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . (28,250) (283)
Funds released from escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,117 --
Funds escrowed pending acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,346)
Improvements of real estate investments:
Build-to-suit developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108) (212)
New leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (814) (1,150)
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (293) (83)
Recovery of investments in direct financing leases . . . . . . . . . . . . . . . . . . . 187 152
--------- --------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . (28,092) (1,576)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on bank line of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,850 16,450
Principal payments on bank line of credit. . . . . . . . . . . . . . . . . . . . . . . . (18,950) (15,950)
Principal payments on mortgage note payable. . . . . . . . . . . . . . . . . . . . . . . (61) --
Loans to officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,299) --
Redemption of convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . -- (785)
Net proceeds from issuance of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 182 --
Deferred long term debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . (20) --
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,631) (9,597)
--------- --------
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . 15,071 (9,882)
--------- --------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . (243) 22
Cash and cash equivalents, at the beginning of period. . . . . . . . . . . . . . . . . . 1,463 952
--------- ----------
Cash and cash equivalents, at the end of the period. . . . . . . . . . . . . . . . . . . $ 1,220 $ 974
--------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for interest . . . . . . . . . . . . . . . . . . . . . . . . $ 5,986 $ 5,484
--------- ----------
NON CASH FINANCING ACTIVITY:
Real estate acquisition debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,266 $ --
--------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Notes to Financial Statements
June 30, 1998
(Unaudited)
Note A: ORGANIZATION, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
(1) DESCRIPTION OF ORGANIZATION
Western Investment Real Estate Trust, is a self-administered and self-managed
real estate investment trust (REIT). As such, the Company engages in
ownership, development, construction, acquisition, leasing, marketing and
management of neighborhood and community shopping centers, commercial office
buildings and industrial properties located in the Western states. At June
30, 1998, the Company's real estate portfolio was comprised of 55 properties,
44 of which were retail properties.
(2) BASIS OF PRESENTATION AND USE OF ESTIMATES
The financial statements included in this report have been prepared by the
Company, without audit, pursuant to the rules of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules.
Interim results are not necessarily indicative of results for a full year.
The interim financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented. When necessary, reclassifications have been made
to prior period balances to conform to current period presentation.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's latest
annual report on Form 10-K.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Financial Accounting Statement No. 130 (SFAS
130), REPORTING COMPREHENSIVE INCOME. The Company has adopted SFAS 130 for
reporting total comprehensive income in the financial statements for interim
periods beginning in 1998. In June 1997, the FASB issued Financial
Accounting Standards No. 131 (SFAS 131), DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. The Company will adopt SFAS 131 in the
year-end 1998 financial statements, the effective date of SFAS 131. In
February 1998, the FASB issued Financial Accounting Statement No. 132 (SFAS
132), EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT
BENEFITS. The Company will adopt SFAS 132 in the year-end 1998 financial
statements, the effective date of SFAS 132. Management believes that the
adoption of these statements will not have a material impact on the Company's
financial statements.
8
<PAGE>
In May 1998, the Emerging Issues Task Force issued EITF 98-9 ACCOUNTING FOR
CONTINGENT RENT IN INTERIM FINANCIAL PERIODS. The estimated affect on the
second half of 1998 resulting from the adoption of EITF 98-9 will be to delay
the recognition of approximately $350,000 of percentage rent until 1999.
Note B: REAL ESTATE INVESTMENTS
At June 30, 1998, the Company owned 55 properties, totaling 5.1 million
leasable square feet. Included in this total are three properties, which
were held for sale and total 91,000 leasable square feet.
Occupancy percentages for the Company's portfolios are as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
------------- ----------------- -------------
<S> <C> <C> <C>
Shopping centers 92.7% 92.1% 93.3%
Single tenant retail 100.0% 100.0% 100.0%
Commercial 94.4% 76.2% 76.2%
Industrial 100.0% 100.0% 74.1%
Overall Occupancy 93.5% 92.2% 92.9%
</TABLE>
9
<PAGE>
Note C: CAPITAL EXPENDITURES
It is the Company's practice to capitalize certain costs, which exceed $4,000
and which are associated with the improvement and rental of real estate
investments. Capitalized costs include leasing-related costs and property
improvements. Capital expenditures for the three and six months ended June
30, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------------ ---------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
"Build to Suit" capital improvements . . . . . . . . . . . . . . $ -- $ 19 $ 108 $ 212
Capitalized costs incurred in connection . . . . . . . . . . . .
with leasing previously UNLEASED space . . . . . . . . . . . . 3 35 35 132
Capitalized costs incurred in connection
with leasing previously LEASED space . . . . . . . . . . . . . 474 637 779 1,018
Capitalized costs which relate to
improvements to common areas. . . . . . . . . . . . . . . . . 67 72 293 83
Total capitalized expenditures . . . . . . . . . . . . . . . . . $ 544 $ 763 $ 1,215 $ 1,445
Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . $ 332 $ 619 $839 $ 1,176
Leasing-related costs. . . . . . . . . . . . . . . . . . . . . . 212 144 376 269
Total capitalized expenditures . . . . . . . . . . . . . . . . . $ 544 $ 763 $ 1,215 $ 1,445
</TABLE>
During the three months ended June 30, 1998, the Company entered into leases
that obligate the Company to fund certain leasing commissions and property
improvements. These obligations relate to both new leases and lease
renewals, a portion of which was paid and capitalized during the quarter
ended June 30, 1998, and is reflected in the preceding table.
10
<PAGE>
The aggregate and per-square-foot information representing all the leases the
Company executed during the quarter is as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capitalized Expenditures Associated with New Leases
---------------------------------------------------
Tenant Leasing
Property Type Improvements Commissions
- ------------- ------------------------ ----------------------
Per Per
Aggregate Square Aggregate Square
Amount Foot Amount Foot
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Shopping Centers &
Retail Properties $597,951 $10.55 $ 146,339 $1.94
</TABLE>
- --------------------------------------------------------------------------------
Capitalized Expenditures Associated with Lease Renewals
-------------------------------------------------------
<TABLE>
<CAPTION>
Tenant Leasing
Property Type Improvements Commissions
- ------------- ------------ --------------
Per Per
Aggregate Square Aggregate Square
Amount Foot Amount Foot
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Shopping Centers &
Retail Properties $16,000 $6.67 %50,110 $1.08
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note D: LOANS TO OFFICERS
The Board of Trustees approved loans totaling $1,299,000 to the Company's
Chief Executive Officer; Chief Financial Officer; Senior Vice President,
Investments and Senior Vice President, Operations. The loan proceeds were
used exclusively to purchase Company shares of beneficial interest on the
open market. The loans bear interest at a rate of 5.58%, are recourse and
are secured by a pledge of certain shares of beneficial ownership of the
Company.
The outstanding balance of these loans, which are presented as a reduction of
Shareholders' Equity, was $1,299,000 at June 30, 1998.
11
<PAGE>
Note E: MORTGAGE NOTE RECEIVABLE
During the quarter ended June 30, 1998, the Company entered into an agreement
to redevelop and to finance, by funding a $22 million participating mortgage,
a shopping center located in Walnut Creek, California. This agreement also
grants a right of first offer to the Company to purchase the property. The
redevelopment of this 99,000 square foot shopping center, is estimated to
cost approximately $22 million. The participating mortgage, secured by the
property, will earn a fixed interest rate of 9.0% plus 25% of the property's
cash flow as defined. Plans call for construction to commence in the second
quarter of 1999, with completion slated for the fourth quarter of 1999.
The outstanding balance of this loan was $6.2 million at June 30, 1998; $5
million of this balance was advanced to replace existing financing and the
remainder was advanced in connection with pre-development costs.
Note F: RECENT DEVELOPMENTS
ACQUISITION OF KIENOW'S FOOD STORES. On June 16, 1998, the Company announced
that it had signed a non-binding letter of intent to acquire all of the
issued and outstanding stock of Kienow's Food Stores, Inc. ("KFS"). KFS is a
privately held company that operates 12 grocery stores and one retail bakery
in metropolitan Portland, Oregon. The Company expects to enter into a
definitive agreement on or about August 15, 1998 for a total purchase price of
approximately $57.8 million. The Company expects an initial return on cost
of 9.5-10%. However, there can be no assurances that the Company will be able
to achieve these anticipated returns or that the transaction will be
consummated.
12
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
CAUTIONARY STATEMENTS
The discussions in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contain certain forward looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 which reflect management's current views with respect to future
events and financial performance. Such forward-looking statements are
subject to certain risks and uncertainties including, but not limited to, the
effects of future events on the Company's financial performance; the risk
that the Company may be unable to finance its planned acquisition and
development activities; risks related to the retail, commercial or industrial
businesses in which the Company's properties compete, including the potential
adverse impact of external factors such as inflation, consumer confidence,
unemployment rates and consumer tastes and preferences; risks associated with
significant tenants including the potential adverse impact should the
significant tenants experience financial difficulties; risks associated with
the Company's development activities, such as the potential for cost
overruns, delays and lack of predictability with respect to the financial
returns associated with these development activities; the risk of potential
increase in market interest rates from current rates; and risk associated
with real estate ownership, such as the potential adverse impact of
environmental contamination, uninsured risks resulting from natural disasters
or changes in the local economic climate on the revenues and the value of the
Company's properties.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash flows provided by operations and other
sources available to the Company will continue to provide adequate funds for
all current principal and interest payments as well as dividend payments in
accordance with REIT qualification requirements. Cash on hand, borrowings
under the existing bank line of credit, as well as other debt and equity
alternatives, will be used to provide the funds necessary to achieve future
growth.
The Company's agreements executed in connection with the Company's senior
notes and its bank line of credit contain certain covenants (including
minimum shareholders' equity, maximum ratio of debt to net worth and income
coverage requirements) which impose certain limitations on the incurrence of
additional debt and other restrictions on the Company.
As of June 30, 1998, the Company's aggregate outstanding indebtedness of
$179,883,000 consisted of $124,780,000 in fixed rate, long-term, unsecured
senior notes; $45,000,000 of borrowings under the Company's variable rate,
unsecured bank line; and $10,103,000 in a fixed-rate loan secured by the
Company's Windsor property.
In connection with the redevelopment of a property located in Walnut Creek,
California, the Company has obtained an irrevocable standby letter of credit
in the amount of $3,336,000 from one of the lenders with which the Company
has its line of credit. The funds available under the Company's bank line of
credit is reduced by the amount of the letter of credit. This letter of
credit expires April 30, 2006. (Please see Note E to the Financial
Statements for further discussion of this redevelopment.)
13
<PAGE>
As of June 30, 1998, the Company had $26.7 million available under its $75
million bank line of credit. This facility can be used to fund acquisitions
and other cash requirements. The interest rate under the facility is LIBOR
plus 1.22%. As of June 30, 1998, the weighted average interest rate on LIBOR
priced advances (LIBOR +1.22%) was 6.9%. The bank line of credit expires
June 30, 2000, at which time the Company intends to replace or renew it.
COMMITMENTS AND CONTINGENCIES
As of June 30, 1998, the Company had commitments under several new leases
which will result in expenditures of approximately $2.0 million for real
estate improvements and leasing commissions. Additionally, the Company has
committed to fund a $22 million redevelopment project located in Walnut
Creek, California. To date, $6.2 million has been advanced in connection with
this redevelopment.
FUNDS FROM OPERATIONS
Industry analysts and the Company consider Funds from Operations (FFO) to be
an alternate measure of an equity REIT's performance since such measure does
not recognize depreciation and amortization of real estate assets as
reductions of income from operations. Historical cost accounting for real
estate assets implicitly assumes that the value of real estate assets
diminishes predictably over time. Yet, since real estate values have
historically risen or fallen with market conditions, the Company, along with
most industry investors, considers presentation of operating results for real
estate companies that use historical cost accounting to be less than fully
informative.
The National Association of Real Estate Investment Trusts (NAREIT) defines
Funds From Operations as net income calculated in accordance with generally
accepted accounting principles (GAAP), plus depreciation and amortization of
assets uniquely significant to the real estate industry, reduced by gains and
increased by losses on (i) sales of property. and (ii) extraordinary items.
FFO does not represent cash flows from operations as defined by GAAP and
should not be considered a substitute for net income as an indicator of the
Company's operating performance, or for cash flows as a measure of liquidity.
Furthermore, FFO as disclosed by other REIT's may not be comparable to the
Company's calculation of FFO.
14
<PAGE>
The table below provides a reconciliation of net income in accordance with GAAP
to FFO as calculated in accordance with NAREIT's guidelines, for the three and
six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
(In thousands) (In thousands)
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net Income...................................... $ 2,629 $ 4,037 $ 5,020 $ 6,826
Less: Gains on sales of real estate
investments.............................. -- (1,160) -- (1,160)
Plus: Loss on sale of real estate 30 -- 30 --
Real property depreciation............... 2,715 2,446 5,384 4,891
Amortization of tenant
improvement costs...................... 299 219 561 396
Amortization of leasing-related costs......... 85 84 177 161
-------- -------- -------- --------
Funds From Operations........................... $ 5,758 $ 5,626 $ 11,172 $ 11,114
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED JUNE 30, 1998 AND 1997
Net income decreased $1,408,000 to $2,629,000 for the quarter ended June 30,
1998, a 35% decrease from $4,037,000 for the comparable period in 1997. On a
per share basis (calculated using both basic and fully diluted weighted average
shares outstanding), net income decreased from $0.24 in 1997 to $0.15 in 1998.
The single most significant factor in this decrease is the absence in 1998 of
gains on the sale of real estate. In 1997 net income included $1,160,000 of
gains from the sale of real estate. The 1998 period shows a loss of $30,000 on
the sale of a 59,000 square foot parcel of land adjacent to the Company's North
Hills Shopping Center in Reno, Nevada.
Additional significant components of this decrease are increased interest
expense, depreciation, and other operating expenses partially offset by
increased minimum rents. Interest expense increased from $2,861,000 for the
quarter ended June 30, 1997 to $3,324,000 for the comparable quarter in 1998.
This $463,000 increase substantially results from interest on the debt incurred
in connection with the Modesto and Windsor acquisitions which occurred during
the first quarter of 1998.
Depreciation expense increased from $2,773,000 for the quarter ended June 30,
1997 to $3,126,000 for the comparable quarter in 1998. This $353,000 increase
results from depreciation expense pertaining to the Modesto and Windsor
acquisitions.
15
<PAGE>
Other operating expense increased $269,000 to $1,027,000 for the quarter
ended June 30, 1998 from $758,000 for the comparable quarter in 1997. This
increase is due primarily to increased compensation costs associated with (i)
changes in senior management and (ii) increased staffing associated with the
Company's enhanced acquisition, development and property operations
capabilities.
Minimum rents increased $904,000 to $10,466,000 for the quarter ended June
30, 1998 from $9,562,000 for the comparable quarter in 1997. Percentage
rents increased $70,000 to $230,000 for the quarter ended June 30, 1998 from
$160,000 for the comparable quarter in 1997. Both minimum rents and
percentage rents were higher as a result of the recent acquisitions in
Windsor and Modesto. For an estimate of the impact on the second half of
1998 resulting from adoption of EITF 98-9, see Note A (3) to the Financial
Statements.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net income for the six months ended June 30, 1998 was $5,020,000, a decrease
of $1,806,000 from the comparable period in 1997. On a per share basis
(calculated suing both basic and fully diluted weighted average shares
outstanding), net income decreased from $0.33 per share for the six months
ended June 30, 1997 to $0.29 per share for the same period in 1998.
The single most significant factor in this decrease is the absence in 1998 of
gains on the sale of real estate. In the 1997 period, net income included
$1,160,000 of gains from the sale of real estate. The 1998 period shows a loss
of $30,000 on the sale of a Nevada parcel of land.
Additional components of this decrease are increased interest expense,
depreciation, other operating expense and general and administrative expense,
partially offset by increased minimum rents. Interest expense increased from
$5,677,000 for the six month period ended June 30, 1997 to $6,273,000 for the
comparable 1998 period. This $596,000 increase substantially results from
the increased borrowings in connection with the Modesto and Windsor
acquisitions during the first quarter of 1998.
Depreciation expense increased from $5,500,000 for the six months ended June
30, 1997 to $6,173,000 for the comparable period in 1998. This $673,000
increase results from increased depreciation expense pertaining to the
Modesto and Windsor acquisitions.
Other operating expense increased $532,000 to $2,022,000 for the six months
ended June 30, 1998 from $1,490,000 for the comparable period in 1997.
General and administrative increased $666,000 to $1,587,000 for the six
months ended June 30, 1998 from $921,000 for the comparable period in 1997.
These increases are due primarily to increased compensation costs associated
with (i) changes in senior management and (ii) increased staffing associated
with enhanced acquisitions, development and property operations capabilities.
Minimum rents increased $1,576,000 to $20,516,000 for the six months ended
June 30, 1998 from $18,940,000 for the comparable period in 1997. Percentage
rents increased $117,000 to $444,000 for the six months ended June 30, 1998
from $327,000 for the comparable period in 1997. Both minimum rents and
percentage rents were positively enhanced by the recent acquisitions in
Windsor and Modesto. For an estimate of the impact on the second half of
1998 resulting from adoption of EITF 98-9, see Note A (3) to the Financial
Statements.
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any derivative financial instruments or derivative
commodity instruments.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1 - 3 None
Item 4. Submission of Matters to a Vote of Security Holders
At the regular Annual Meeting of Shareholders of Western Investment Real
Estate Trust, held on May 14, 1998, the following matters were submitted to a
vote of security holders:
(a) The election of the following trustees to serve for a term of three years
expiring at the conclusion of the 2001 annual meeting of shareholders:
Dennis D. Ryan and Robert J. McLaughlin.
Dennis D. Ryan: Approved - 15,122,542 shares were voted in favor and
327,732 shares withheld authority to vote.
Robert J. McLaughlin Approved - 15,121,857 shares were voted in favor and
328,417 shares withheld authority to vote.
(b) Approval to adopt the 1998 Equity Incentive Plan to allow for the issuance
of up to 850,000 shares of beneficial interest, including Incentive Stock
Options, Non-statutory Stock Options, Stock Appreciation Rights and
Restricted Stock.
Approved - 12,903,008 shares were voted in favor. 2,271,687 shares were
voted against, 275,579 shares withheld authority to vote and 1,754,039
shares held by Brokers remained unvoted due to failure of the beneficial
holders to give specific voting instruction.
(c) Approval to amend the Declaration of Trust to increase the maximum number
of trustees on the Board of Trustees from seven to nine.
Approved - 14,450,252 shares were voted in favor. 819,219 shares were
voted against, 180,803 shares withheld authority to vote and 1,754,039
shares held by Brokers remained unvoted due to failure of the beneficial
holders to give specific voting instruction.
(d) Approval to amend the Declaration of Trust to change the required date,
time and place of the annual meeting of shareholders.
Approved - 15,008,824 shares were voted in favor. 236,113 shares were
voted against, 205,337 shares withheld authority to vote and 1,754,039
shares held by Brokers remained unvoted due to failure of the beneficial
holders to give specific voting instruction.
18
<PAGE>
(e) Ratification of the appointment of KPMG Peat Marwick LLP, independent
certified public accounts, as the Trust's auditors for the year ending
December 31, 1998.
Approved - 15,241,309 shares were voted in favor. 96,309 shares were voted
against, and 112,656 shares abstained from voting.
Item 5. None
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
(3)** Declaration of Trust, as amended.
(4.1) Form of Indenture relating to the Senior
Notes (filed as Exhibit 4.1 to Registration
Statement on Form S-3 No. 33-71270 and
incorporated herein by reference).
(4.2) Form of Senior Notes (filed as Exhibit 4.2 to
Registration Statement on Form S-3 No. 33-71270
and incorporated herein by reference).
(4.3) Form of Supplemental Indenture relating to
the 7.1% Senior Notes (filed as Exhibit 4.5
on Form 8-K, dated September 24, 1997, and
incorporated herein by reference).
(4.4) Form of Supplemental Indenture relating to
the 7.2% Senior Notes (filed as Exhibit 4.6
on Form 8-K, dated September 24, 1997, and
incorporated herein by reference).
(4.5) Form of Supplemental Indenture relating to
the 7.3% Senior Notes (filed as Exhibit 4.7
on Form 8-K, dated September 24, 1997, and
incorporated herein by reference).
(10.1)* Company's Nonqualified Stock Option Plan
(filed as Exhibit 4.2 to Registration
Statement on Form S-8 No. 33-27016 and
incorporated herein by reference).
(10.2)* Compensation Agreement (filed as Exhibit 10.3
to Registrant's 10-K for the fiscal year
ended December 31, 1997, and incorporated
herein by reference.
19
<PAGE>
(10.3)* Management Contracts (filed as Exhibit 10.4
to Registrant's 10-Q for the quarter ended
March 31, 1998, and incorporated herein by
reference).
(10.4)+ Company's 1998 Equity Incentive Plan.
(27)** Financial Data Schedule.
----------------------------
* Management contract or compensatory plan or arrangement
** Filed with this report
+ Management contract or compensatory plan or arrangement and Filed
with this report.
(b) Reports on Form 8-K.
None
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN INVESTMENT REAL ESTATE TRUST
(Registrant)
By: s/Dennis D. Ryan
-----------------------------
Dennis D. Ryan
Executive Vice President,
Chief Financial Officer
and Trustee
Dated: August 4, 1998
-----------------------
21
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
WESTERN INVESTMENT REAL ESTATE TRUST
--
This Amended and Restated Declaration of Trust, dated as of May 14, 1998, is
made with reference to the following:
This Declaration of Trust was made May 24, 1962, by Bernard Etcheverry,
Chester R. MacPhee, Elmer Skinner and O. A. Talmage, the initial trustees of
Western Investment Real Estate Trust (the "Trust").
This Declaration of Trust was amended October 2, 1962, March 12, 1970,
October 24, 1978, March 23, 1982, February 12, 1985, May 14, 1987, May 8,
1997, and May 14, 1998.
The trustees wish to restate the amended Declaration of Trust, as set
forth below.
Now, therefore, the parties agree as follows:
ARTICLE I
Definitions
SECTION 1.1 "DECLARATION" AND "DECLARATION OF TRUST"
The terms "declaration" and "declaration of trust" shall mean this
document as it now stands and as it may from time to time be supplemented,
amended or modified pursuant to the provisions hereof.
SECTION 1.2 "PERSON"
The word "person" shall include an individual, partnership, firm, group,
association, trust, corporation, or other entity.
SECTION 1.3 "FILE FOR RECORD"
The phrase "file for record" shall mean to file for record in the office
of the county recorder for the county in which the Trust maintains its
principal office, and in the offices of the recorders for such other places
as the trustees may from time to time designate.
SECTION 1.4 "INTERNAL REVENUE CODE"
The phrase "Internal Revenue Code" shall mean the United States Internal
Revenue Code, as it now provides and as it may from time to time be amended.
SECTION 1.5 "CORPORATIONS COMMISSIONER"
The phrase "Corporations Commissioner" shall mean the Commissioner of
Corporations of the State of California or his authorized representatives.
ARTICLE II
Trustees, Shareholders and Third Parties
SECTION 2.1 TRUSTEES' GENERAL AUTHORITY
Except as in this Declaration expressly otherwise provided, the
business, affairs and assets of the Trust shall be entrusted to the exclusive
management and control of the trustees. The trustees shall exercise their
powers hereunder for the exclusive benefit of the shareholders.
<PAGE>
SECTION 2.2 SHAREHOLDER'S INTEREST IN TRUST
The interest in the Trust of each shareholder consists of his right to
enforce the performance of the Trust, including as to each class or series of
shares the right to participate in all distributions of Trust income or
principal in respect of such class or series of shares according to the
proportion which the number of shares held by him bears to the total number
of shares or such class or series outstanding. Such interest is personal
property. During the continuance of the Trust, no shareholder or his legal
representative or successor shall be entitled to a partition of Trust
property or, except as herein provided, to an accounting, nor shall the Trust
be in any manner affected by the death, insanity or bankruptcy of any
shareholder, or by the transfer of any share or shares of the Trust.
SECTION 2.3 NO PARTNERSHIP RELATIONSHIP
Nothing contained herein or in any share certificate, and no act done or
any writing or agreement made during the continuance of the Trust, shall be
construed as, or have the effect of, constituting the trustees, the
shareholders, or any of them or any other person, copartners or otherwise
members of any association.
SECTION 2.4 THIRD-PARTY RELIANCE
Any act done by the trustees or under their authority shall, as to third
parties dealing in good faith with the Trust, be conclusively deemed to be
within the purposes of this Trust and within the powers and authority of the
person or persons acting. No person shall in any event be bound to see to the
application of any money, property or thing paid or delivered to, or pursuant
to the directions of, the trustees or any authorized representative of the
trustees.
SECTION 2.5 NONLIABILITY AND INDEMNIFICATION OF SHAREHOLDERS
All persons dealing with or having any claim against the trustees or any
officer, agent or employee of the Trust shall look only to the Trust for the
payment of any debt, claim, obligation or damage, or of any money or other
thing that might become due or payable in any way, whether founded upon
contract, tort, or otherwise, and no shareholder shall be personally or
individually liable therefor. Every written contract to which the Trust is a
party shall include a provision that the shareholders not be personally
liable thereon. The trustees shall maintain such liability insurance as the
trustees in their sole discretion deem to be necessary, appropriate and
available at an acceptable cost for the protection of the Trust and those
connected therewith. Nothing in this Section shall be deemed to require the
trustees to maintain insurance against any particular risk, including the
risk of liability arising from earthquake or flood.
Each shareholder shall be entitled to pro rata indemnity from the
Trust's assets if, contrary to the provisions hereof, such shareholder is
held to any personal liability.
SECTION 2.6 RESPONSIBILITY OF TRUST AGENTS
No trustee, officer, employee or agent of the Trust shall be liable to
the Trust or to any other person for any act or omission except for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of
duty or his failure to act in good faith in the reasonable belief that his
actions are in the best interests of the Trust.
The trustees, officers, employees and agents of the Trust in incurring
any debts, liabilities or obligations, or in taking or omitting any other
action for or in connection with the Trust are, and shall be deemed to be,
acting as trustees, officers, employees or agents of the Trust and not in
their own individual capacities. Notwithstanding any provision to the
contrary, no trustee, officer, employee or agent of the Trust shall be liable
for any debt, claim, demand, judgment, decree, liability or obligation of any
kind in tort, contract or otherwise of, against or with respect to the Trust
arising out of any action taken or omitted for or on behalf of the Trust, and
the Trust shall be solely liable therefore and resort shall be had solely to
the assets of the Trust for the payment or performance thereof.
SECTION 2.7 INDEMNIFICATION
Any person made a party to any action, suit or proceeding or against
whom a claim or liability is asserted by reason of the fact that he, his
testator or intestate was or is a trustee, officer, employee or agent (as
agent is hereinafter defined) of the Trust or active in such capacity on
behalf of the Trust shall be indemnified and held harmless by the Trust
against judgments, fines, amounts paid on account thereof (whether in
settlement or otherwise) and reasonable expenses, including attorneys' fees
actually and reasonably incurred by him in connection with the defense of
such action, suit or proceeding or in connection with any appeal therein,
whether or not the same proceeds to judgment or is settled or otherwise
brought to a conclusion. Notwithstanding the above, no person shall be so
indemnified or reimbursed for any claim, obligation or liability which shall
2
<PAGE>
have been adjudicated, or, in case of settlement, which in the opinion of
counsel for the Trust would, if adjudicated, have likely been adjudicated to
have arisen out of or been based upon such person's willful misfeasance, bad
faith, gross negligence or reckless disregard of duty or for his failure to
act in good faith in the reasonable belief that his action was in the best
interests of the Trust. Any person seeking indemnification under this
provision must demonstrate to the satisfaction of the trustees that such
person gave prompt notice to the Trust of the claim, alleged liability,
action, suit or proceeding, has executed such documents, and taken such
action as to permit the Trust to conduct the defense or settlement of any
such claim, alleged liability, action, suit or proceeding. Such rights of
indemnification and reimbursement shall be satisfied only out of the assets
of the Trust.
The rights accruing to any person under these provisions shall not
exclude any other right to which he may be lawfully entitled, nor shall
anything contained herein restrict the right of the Trust to indemnify or
reimburse such person in any proper case even though not specifically
provided for herein, nor shall anything contained herein restrict such rights
of a trustee to contribution as may be available under applicable law. The
trustees may make advance payments in connection with indemnification under
this section provided that the indemnified person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently determined
that he is not entitled to such indemnification. For purposes of this
section, any investment advisor, investment manager or independent property
manager of the Trust may be considered agents of the Trust, at the discretion
of the trustees.
In order to carry out the intent and purposes of this Section, the Trust
shall have the power to enter into individual indemnification agreements with
any person or entity entitled to be indemnified under this Section, without
specific approval thereof by the shareholders of the Trust. The terms of any
such agreement need not be identical to the terms of any other such agreement
and any such agreement which has been entered into may subsequently be
amended or changed by mutual agreement of the parties thereto, without
specific approval thereof by the shareholders of the Trust, so long as at the
time such agreement is entered into or amended or changed, as the case may
be, its substantive provisions are consistent in all material respects with
the provisions of this Section.
SECTION 2.8 NOTICES TO TRUST AGENTS
No notice to the trustees or any officer of the Trust shall be effective
for any purpose unless given in writing, and until the same is received.
SECTION 2.9 NOTICES BY TRUST AGENTS
Any notice required or permitted by this Declaration or by law to be
given by the trustees or by any officer or authorized agent of the Trust,
shall be conclusively deemed to have been given when such notice is enclosed
in an envelope addressed to the proper person at the last address shown in
the records of the Trust, and such envelope is deposited in the United States
mail, postage pre-paid; and the date of mailing shall be deemed the date such
notice is given. All distributions from Trust assets may be made by mailing
the same in like manner.
SECTION 2.10 REPRESENTATIONS AND GUARANTEES
No officer, agent, representative or employee of the Trust or of the
trustees, nor anybody other than the board of trustees, has authority to make
any representations or guarantees concerning this Trust; nor shall any
trustee or officer of the Trust be responsible for or with respect to the
validity or sufficiency of this Trust or of the share certificates issued
hereunder, nor has any such officer, agent representative, employee or other
person any authority to change the terms and conditions of this Trust or any
certificate issued hereunder, or to bind the Trust or its agents by any
representation, statement, agreement or interpretation, written or oral, not
contained herein or in such certificate.
SECTION 2.11 AGREEMENT OF SHAREHOLDERS
Each of the shareholders, severally but not jointly, by becoming a
shareholder hereunder, hereby agrees with the trustees and their successors
in office that he accepts and agrees to, and shall be bound and governed by,
the provisions, terms and conditions of this Declaration in the same manner
as if he had personally executed the same.
3
<PAGE>
ARTICLE III
INVESTMENT AND MANAGEMENT OF TRUST ASSETS
SECTION 3.1 INVESTMENT AND MANAGEMENT POLICY
It is intended that this Trust shall be a real estate investment trust'
as that term now is, or as it or substitute designations later may be,
defined by the Internal Revenue Code. The trustees shall endeavor to manage
the Trust and to invest its assets, and to make distributions to shareholders
therefrom, in such manner as to comply with all valid state and federal laws,
rules, regulations and orders pertaining to the Trust, and to take advantage
of tax benefits, whether federal, state or local, from time to time afforded
to real estate investment trusts or shareholders thereof; provided, however,
that notwithstanding the preceding provisions, the trustees shall at all
times take such action under this Trust as in their judgment will best serve
the interests of the Trust and of the shareholders.
SECTION 3.2 PERMISSIBLE INVESTMENTS
Trust assets shall consist principally of ownership interests in
income-producing real property. Such real property may be located in any
state, territory or possession of the United States (including the District
of Columbia) and Canada, and shall be comprised for the most part of office
buildings, apartment buildings, shopping centers, or other
multiple-residential, commercial or industrial properties. Secondary
investments of Trust assets may be of such nature and of such extent as the
trustees may determine, having in mind the best interests of the Trust and of
the shareholders. Other things being equal, Trust investments shall be chosen
for their best overall return on investment, including both income production
and appreciation potential, among other factors; but this principle shall be
understood to be intended only as a general guide to assist the trustees in
the exercise of their discretion. Funds may be accumulated or invested
temporarily until such times as more suitable investments are available. The
Trust may also participate in joint ventures, and may purchase or merge with
other real estate investment trusts and companies, provided the assets and
investments of said joint ventures, trusts and companies are permissible
hereunder. Undivided interests in property may be acquired for the Trust, and
encumbered property may be acquired subject to, or with assumption of the
underlying indebtedness.
SECTION 3.3 MAINTENANCE OF ASSETS
The trustees, on behalf of the Trust, shall themselves or through agents
or independent contractors, incur all expenses and make all expenditures
necessary or desirable for the protection, improvement maintenance, repair,
alteration, efficient operation, or ready marketability of any asset of the
Trust.
SECTION 3.4 DISPOSITION OR ENCUMBRANCE OF ASSETS
The trustees shall have full discretion in retaining, selling,
exchanging or encumbering any asset of the Trust, or any interest in any such
asset.
SECTION 3.5 USE OF BROKERS AND APPRAISERS
Subject to the provisions of Section 3.7 hereof, the trustees may employ
at the expense of the Trust the services of any person, including any real
estate or securities broker, for the purpose of appraising, acquiring,
encumbering or disposing of assets of the Trust.
SECTION 3.6 MANAGEMENT OF TRUST PROPERTY
The trustees shall employ an independent contractor to manage a property
of the Trust whenever the trustees consider it appropriate to do so. In all
other cases, the Trust shall manage its properties directly.
SECTION 3.7 RESTRICTIONS ON DEALINGS IN ASSETS
Except upon concurrence of all trustees then in office no asset oL the
Trust may be, directly or indirectly, acquired from or conveyed to any
trustee, employee, adviser of the Trust, or independent contractor with the
Trust, nor may any such trustee, employee, adviser or contractor receive a
commission or other remuneration in connection with the acquisition or
disposal of Trust assets. The limitations imposed by this section shall not
apply to legal services rendered by licensed attorneys at reasonable rates.
SECTION 3.8 RESTRICTION ON INVESTMENTS AND ACTIVITIES
The Trust will not engage in any of the following investment practices
or activities:
4
<PAGE>
a. Invest in commodities.
b. Invest more than 10% of its assets in any indebtedness secured by a
deed of trust or a mortgage on unimproved real property.
c. Invest in indebtedness (herein called "junior debt") secured by a
deed of trust or mortgage on real property which is subordinate
to the lien of other indebtedness (hereinafter called "senior
debt"), except where the amount of such junior debt, plus the
outstanding amount of the senior debt, does not exceed 90% of
the appraised value of such property, if after giving effect
thereto, the value of all investments of the Trust in junior
debt (as shown on the books of the Trust in accordance with
generally accepted accounting principles) would not then exceed
25% of the value of the total assets of the Trust (as shown on
the books of the Trust in accordance with generally accepted
accounting principles).
d. Invest in unrecorded contracts for the sale of real estate.
e. Engage in any short sale, or borrow, on an unsecured basis, if such
unsecured borrowing will result in an asset coverage of less
than 100%. "Asset coverage", for the purpose of this Section,
means the ratio which the total fair market value of the assets
of the Trust bears to the aggregate amount of all unsecured
borrowing, secured borrowing and other liabilities of the Trust.
f. Engage in trading, as compared with investment activities.
g. Acquire securities in any company holding investments or engaging in
activities prohibited by this Section.
h. Engage in the underwriting or the agency distribution of securities
issued by others.
ARTICLE IV
SHARES AND SHARE CERTIFICATES
SECTION 4.1 CAPITALIZATION
a. GENERAL. The shares of the Trust shall be comprised of two classes,
designated respectively "Common Shares" and "Preferred Shares."
The Common Shares and Preferred Shares shall be without par
value. The total number of Common Shares shall not be limited.
The total number of Preferred Shares shall be 2,000,000 shares.
The Preferred Shares may be issued from time to time in one or
more series. All Preferred Shares shall be of equal rank and
shall be identical, except in respect of the matters that may be
fixed by the board of trustees, as hereinafter provided, and
each share of a series shall be identical with all other shares
of such series, except as to the dates on which and the period
for which dividends may be payable. The board of trustees is
authorized to cause such Preferred Shares to be issued in one or
more series and, with respect to each such series, to determine
and fix prior to the issuance thereof (and thereafter, to the
extent provided in the clause above) the following: (i) the
designation of the series, which may be by distinguishing
number, letter or title, (ii) the authorized number of shares of
the series, which number the board of trustees may (except where
otherwise provided in the creation of the series) increase or
decrease from time to time before or after the issuance thereof
(but not below the number of shares thereof then outstanding),
(iii) the dividend rate or rates of the series, including the
means by which such rates may be established, (iv) whether or
not dividends would be cumulative and, if so, the date or dates
from which dividends would accumulate, (v) with respect to all
Preferred Shares, the dates on which and the period or periods
for which dividends, if declared, would be payable, including
the means by which such dates and periods may be established,
(vi) redemption rights and prices, if any, (vii) the terms and
amounts of the sinking fund, if any, (viii) the amounts payable
on shares of the series in the event of any voluntary or
involuntary liquidation, dissolution o winding up of the affairs
of the Trust, (ix) whether or not the shares of the series shall
be convertible into Common Shares and, if o, the conversion rate
or rates or price or prices, any adjustments thereof and all
other terms and conditions upon which such conversion may be
made, (x) restrictions on the issuance of shares of the same or
any other series, and (xi) the specific conditions upon
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which a holder of the Preferred Shares shall be entitled to
vote. All series of Preferred Shares shall rank, as to dividend
and liquidation rights, on a parity with each other series of
Preferred Shares and senior to the Common Shares.
b. DIVIDEND RIGHTS. The holders of each series of Preferred Shares
shall be entitled to receive, out of funds legally available
therefore, when and if declared by the board of trustees,
dividends in cash at the rate or rates determined for such
series and no more, payable on the dates fixed for such series,
before any dividends may be paid or any distribution made on the
Common Shares or other shares of the Trust ranking junior to the
Preferred Shares. With respect to each series of cumulative
Preferred Shares, such dividends shall be cumulative from the
dates fixed for the series. Such dividends shall accrue, in the
case of Preferred Shares of each particular series, from and
after the date or dates fixed with respect to such series;
provided, however, that if the board of trustees fails to
declare a dividend payable on a dividend payment date on any
noncumulative Preferred Shares, the holders of such
noncumulative Preferred Shares shall have no right to receive a
dividend in respect of the dividend period ending on such
dividend payment date, and the Trust shall have no obligation to
pay the dividend accrued from such period, whether or not
dividends on such noncumulative Preferred Shares are declared
payable on any future dividend payment date.
c. RESTRICTION ON DIVIDENDS TO COMMON SHARES. If and so long as there
is any arrearage in the payment of dividends on or in meeting
any sinking fund requirement of any outstanding Preferred
Shares, no dividend or distribution shall be made in respect of
Common Shares or any other shares ranking junior to the
Preferred Shares (except a dividend or distribution payable in
Common Shares or other shares ranking junior to the Preferred
Shares).
d. LIQUIDATION OR DISSOLUTION. In the event of the voluntary or
involuntary liquidation, dissolution or winding up of the Trust,
to the extent assets remain after payment to creditors in full
and before any distribution to holders of Common Shares or other
shares ranking junior to the Preferred Shares, the holders of
each series of Preferred Shares shall be entitled to receive the
applicable liquidation price fixed for their respective series,
plus an amount equal to accrued and unpaid dividends to the date
of payment (which in the case of noncumulative Preferred Shares
shall not include any accumulation in respect of unpaid
dividends for prior dividend periods), ratably in proportion to
their full preferential amounts. The merger or consolidation of
the Trust or the sale, lease or conveyance of all or
substantially all its assets shall not be deemed to be a
liquidation, dissolution or winding up for this purpose.
e. VOTING RIGHTS. The holders of Preferred Shares shall have no voting
rights except as required by law or as provided in this section:
(i) the holders of Preferred Shares may have certain rights to
vote if the Trust is in default in the payment of the dividends
on Preferred Shares; or (ii) the consent of the holders of at
least two thirds of a class of Preferred Shares will be
necessary to (1) amend the Declaration of Trust, whether in
connection with a merger or consolidation or otherwise, in a
manner adversely and materially affecting the preference or the
voting or other rights of the holders of such class of Preferred
Shares, or (2) authorize any shares, or any security convertible
into shares, in either case ranking prior to such class of
Preferred Shares. In all cases in which the holders of Preferred
Shares have the right to vote, each such holder shall be
entitled to one vote for each Preferred Share held by such
holder.
f. REDEMPTION, SINKING FUND AND PURCHASE PROVISIONS. A series of
Preferred Shares may be subject to redemption at the option of
the board of trustees or be subject to sinking fund or mandatory
redemption, to the extent provided in the terms of such series.
Preferred Shares which have been redeemed or purchased by the
Trust shall resume the status of authorized but unissued
Preferred Shares without serial designation and may be reissued
by the Trust from time to time as Preferred Shares of any
series, except as may be limited by the terms of a series. At
least 20 days prior to the date fixed for any redemption of
Preferred Shares (the "Redemption Date"), written notice shall
be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the
day on which notice is given) of the Preferred Shares to be
redeemed, at the address last shown on the records of the Trust
for such holder or given by the holder to the Trust for the
purpose of notice or if no such address appears, or is given at
the place where the principal executive office of the Trust is
located, notifying such holder of the redemption to be effected,
specifying the number of shares to be
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redeemed from such holder, the Redemption Date, the redemption
price as determined by the board of trustees, the pace at which
payment may be obtained and calling upon such holder to
surrender to the Trust, in the manner and at the place
designated, the certificate or certificates representing the
shares to be redeemed (the "Redemption Notice"). On or after the
Redemption Date, each holder of Preferred Shares to be redeemed
shall surrender to the Trust the certificate or certificates
representing such shares, in the manner and at the place
designated in the Redemption Notice, and thereupon the
redemption price of such shares shall be payable to the order of
the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
From and after the Redemption Date, unless there shall have been
a default in payment of the redemption price, all rights of the
holders of such shares as holders of Preferred Shares (except
the right to receive the redemption price without interest upon
surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be
transferred on the books of the Trust or be deemed to be
outstanding for any purpose whatsoever. All shares of Preferred
Shares not redeemed shall remain outstanding and entitled to all
the rights and preferences provided herein.
SECTION 4.2 NONASSESSABILITY OF SHARES
No assessment shall ever be made upon the shares of the Trust.
SECTION 4.3 ISSUANCE OF CERTIFICATES
Every shareholder shall be entitled to receive a share certificate in
such form as the trustees shall from time to time approve. There shall be
stated on each share certificate the certificate number, the date of its
issuance, the number of shares represented thereby, and the name of the
shareholder.
SECTION 4.4 AUTHENTICATION OF CERTIFICATES
Each certificate shall bear the signatures of the chairman of the board
of trustees and the secretary of the Trust, and if there shall be an
independent transfer agent or registrar, the counter-signature of an officer
thereof duly authorized for the purpose. The signature of the chairman of the
board, or, if there shall be an independent transfer agent or registrar, the
signatures of the chairman of the board and the secretary of the Trust, may
be facsimile reproductions. The validity of a share or certificate therefor
shall not be affected by the fact that at the time of issuance of the
certificate one or more persons whose signatures were duly authorized when
placed thereon are no longer authorized to sign the same.
SECTION 4.5 REPLACEMENT CERTIFICATES
Lost, stolen, mutilated or destroyed certificates shall be replaced
subject to such conditions of proof and indemnity as the trustees may
determine to impose.
SECTION 4.6 ONLY REGISTERED HOLDER RECOGNIZED
A register shall be kept under the direction of the trustees, which
shall contain the names and addresses of the shareholders, the number of
shares held by them respectively, the numbers of the certificates
representing the same, and a record of all transfers thereof. Only the
shareholder designated in such register as the holder of a share certificate
shall be recognized for purposes of the Trust as having any interest in such
certificate or the shares represented thereby, and neither the Trust nor any
person connected therewith shall be bound by any notice to the contrary, but
in cases of dispute the trustees may require that the certificate in question
be submitted for inspection and that the registered shareholder's title
thereto be satisfactorily established. A holder may be registered as a
fiduciary, and customary words may be employed to identify the fiduciary
relationship.
SECTION 4.7 SHAREHOLDER'S TRANSFER OF SHARES
Excepting transfers by operation of law, shares shall be transferable on
the records of the Trust only by the record holder thereof or by his agent
duly authorized in writing, upon delivery to the trustees or a transfer agent
of the Trust, if any, of the certificate or certificates therefor, properly
endorsed or accompanied by duly executed instrument or instruments of
transfer, together with such evidence of the genuineness of each such
endorsement, execution and authorization, and of other matters, as may
reasonably be required. Upon such delivery and proof, the transfer shall be
recorded upon the register of the Trust, and one or more new certificates
shall be issued to those entitled thereto by reason of such transfer. Until
the transfer is so recorded, the shareholder designated by the register as
the holder of such shares shall be deemed to be the holder thereof for
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all purposes of the Trust, and neither the trustee nor any transfer agent or
registrar, nor any officer or agent of the Trust, shall be affected by any
notice of any proposed transfer. The trustees may establish particular
procedures to govern the assignment of shares for security purposes. No
shareholder may demand that the Trust or the trustees redeem his shares.
SECTION 4.8 TRANSFERS BY OPERATION OF LAW
Any person becoming entitled to any share in consequence of the death or
bankruptcy of any shareholder, or in any other way than in Section 4.7
provided, may be entered upon the register as the holder thereof and receive
a new certificate therefor, upon delivery of the existing certificate and
such proofs as may be required to the trustees or any transfer agent of the
Trust. The transfer shall have no effect until entered upon the register, and
notice given to any person prior to such entry shall likewise be ineffective
for any purpose.
SECTION 4.9 TRUST AGENTS AS SHAREHOLDERS
Any trustee, officer, agent or employee of the Trust may, in his
individual capacity, acquire or dispose of shares of the Trust.
SECTION 4.10 RIGHT TO REFUSE TO TRANSFER SHARES
Whenever it is deemed by them to be reasonably necessary to protect the
tax status of the Trust, the trustees may require a statement or affidavit
from each proposed transferee of Trust shares setting forth the number of
shares already owned by him and any related person specified in the form
prescribed by the trustees for that purpose. If, in the opinion of the
trustees, the proposed transfer would jeopardize the qualification of the
Trust as a "real estate investment trust" under the Internal Revenue code of
1954, as now enacted or as hereafter amended, the trustees shall have the
right, but not a duty to refuse to transfer the shares to the proposed
transferee. All contracts for the sale or other transfer of shares of
beneficial interest in the Trust shall be subject to this provision.
SECTION 4.11 REDEMPTION OF SHARES
The Common Shares of the Trust shall not be redeemable.
SECTION 4.12 WARRANTS AND OPTIONS
The Trust shall not issue warrants, options or similar evidences of a
right to buy its shares, unless issued to all of its security holders
ratably, as part of a financing arrangement or as part of a stock option plan
for trustees, officers or employees of the Trust.
ARTICLE V
Dividends
SECTION 5.1 DECLARATION AND PAYMENT
The trustees shall declare dividends, and cause the same to be
distributed to the shareholders of each class or series of shares entitled to
participate in such distribution in accordance with the provisions of Section
4.1 hereof and any certificate of designation with respect to Preferred
Shares, in an amount proportionate to the number of shares of such class or
series held by each shareholder. The trustees, pursuant to Section 7.5
hereof, may fix a record date for the determination of shareholders entitled
to receive such dividend.
SECTION 5.2 STATEMENT OF SOURCE
The Trust shall provide each shareholder who receives a distribution a
statement in writing identifying the source or sources to which the
distribution is charged not later than 60 days after the close of the fiscal
year in which the distribution is made.
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ARTICLE VI
ACCOUNTING
SECTION 6.1 STANDARD
The books and records of the Trust shall be kept in conformity with
generally accepted principles of accounting.
SECTION 6.2 INSPECTION OF RECORDS
The share register or a duplicate thereof, the books of account, and
minutes of proceedings of the shareholders and the board of trustees and of
executive committees of the trustees, shall be open to inspection at any
reasonable time upon the written demand of any shareholder, made upon the
secretary or any assistant secretary of the Trust, for a purpose reasonably
related to his interests as a shareholder, and shall be exhibited at any time
when required by the demand at any shareholders meeting of ten percent of the
shares represented at the meeting. Inspection by a shareholder may be made in
person or by agent or attorney, and the right of such inspection includes the
right to make extracts. Each trustee shall have the right at all reasonable
times during his term of office to inspect the records and property of the
Trust.
SECTION 6.3 ANNUAL AUDIT
The trustees shall cause to be prepared at least annually, at the
expense of the Trust, a report of Trust operations, containing a balance
sheet and a statement of income and an opinion of an independent certified
public accountant on the financial statements. Such opinion shall be based on
an examination of the books and records of the Trust which is not materially
limited in scope and is made in accordance with generally accepted auditing
standards. Within 120 days after the close of the period covered by the
report, a signed copy of such report and opinion shall be filed with the
trustees, and a copy thereof shall be sent to each shareholder. Such report
may be considered an interim report for purposes of Section 6.4 hereof.
SECTION 6.4 INTERIM REPORTS
Interim reports, containing a current balance sheet which may be
unaudited, shall be prepared at least quarterly and shall be furnished within
a reasonable time after the close of the quarter to each shareholder.
ARTICLE VII
MEETINGS OF SHAREHOLDERS
SECTION 7.1 ANNUAL MEETING
Annual meetings of the shareholders shall be held each year on the date, and
at the time and place determined by the trustees, provided that such date
shall be after the end of the Trust's fiscal year and prior to the 16th day
of the fifth calendar month after the end of the fiscal year.
SECTION 7.2 SPECIAL MEETINGS
Special meetings of shareholders may be called at any time and place by
a majority of the trustees and the trustees shall cause a special meeting to
be called upon receipt of the written request of the holders of thirty-three
and one-third percent (33-1/3%) of the outstanding shares of the Trust
entitled to vote on any matter to be voted on at such special meeting, which
request shall specify the purpose or purposes for which such meeting is to be
called. If for any reason an annual meeting of shareholders as herein
provided for shall be omitted, a special meeting of shareholders may
subsequently be held in lieu thereof and the business of the annual meeting
may be transacted thereat.
SECTION 7.3 NOTICE
Notice of all meetings of shareholders shall be given at the direction
of the trustees by the secretary or any other officer authorized by the
trustees, and shall be mailed not less than 14 nor more than 60 days before
the day of the meeting to each shareholder at his address as given in the
register, or lacking such address, to such shareholder addressed to the
principal office of the Trust. No business shall be transacted at any special
meeting of shareholders unless notice of such business has been given in the
call for the meeting. Any adjourned meeting may be held as adjourned, without
further notice.
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SECTION 7.4 EFFECT OF ACTION
Except as otherwise expressly provided by law or this Declaration, no
action taken by the shareholders at any meeting shall in any way bind the
trustees in their management of the Trust.
SECTION 7.5 RECORD DATE
The trustees may, without closing the transfer books, fix a date not
more than 60 days prior to the date of any meeting of shareholders or
dividend payment as a record date for the determination of shareholders
entitled to vote at such meeting or any adjournment thereof, or to receive
such dividend. Any person who is a registered shareholder at the time so
fixed shall be entitled to vote at such meeting or any adjournment thereof or
to receive such dividend even though he has since that date disposed of his
shares, and no shareholder becoming such after that date shall be so entitled
to vote at such meeting or any adjournment thereof or to receive such
dividend.
SECTION 7.6 QUORUM
A majority of the outstanding shares entitled to vote on any matter to
be voted on at such meeting represented in person or by proxy shall
constitute a quorum at any such meeting. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. In the absence of a quorum, any
meeting of shareholders may be adjourned from time to time, up to and
including the 45th day following the originally notice meeting date by an
affirmative vote of a majority of the shares entitled to vote and represented
in person or by proxy at the meeting.
SECTION 7.7 VOTING OF SHARES
a. Each Common Share shall be entitled to one vote; provided, that only
holders of record as of the record date for the meeting shall be
entitled to vote at any meeting of shareholders. Whenever any
action is to be taken by the shareholders, it shall, except as
otherwise required by this Declaration which may at the time be
outstanding or by law, be authorized either by the affirmative
vote of a majority of the votes cast at a meeting of
shareholders by holders of shares entitled to vote thereon, or
by written consents setting forth the action so taken and signed
by the holders of a majority of all outstanding shares entitled
to vote thereon. At all elections of trustees, voting by
shareholders shall be conducted under the non-cumulative method.
b. Whenever the vote or written consent of shareholders is required or
permitted under this Declaration, such vote or consent may be
given either in person or by proxy. The trustees may solicit
such proxies from the shareholders or any of them in any matter
requiring or permitting the shareholders' vote or written
consent. No proxy for any meeting of shareholders shall be
effective unless such proxy shall have been received in the
office of the Trust, or such other location designated by the
trustees and indicated in the material soliciting the proxies,
for verification prior to the meeting.
c. When a share entitled to vote is held jointly by several persons, any
one of them may vote at any meeting in person or by proxy with
respect to such share, but if more than one of them shall be
present at such meeting in person or by proxy and such joint
owners or their proxies so present disagree as to any vote to be
cast, no vote shall be received with respect to such share.
Fractional shares shall not be entitled to any vote.
SECTION 7.8 ANNUAL REPORT
At each annual meeting of shareholders, the trustees shall present a
report upon the affairs of the Trust and upon its business and operations.
ARTICLE VIII
TRUSTEES AND OFFICERS
SECTION 8.1 ACTION AS BOARD
In managing the business, affairs and assets of the Trust, the trustees
shall act as a board of trustees. The initial number of trustees shall be
four. Thereafter, the number of trustees shall be such as may be fixed from
time to time by the board of trustees, but in any event, shall be not less
than three nor more than nine.
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SECTION 8.2 TERM OF TRUSTEES
a. The trustees shall be divided into three classes as nearly equal in
number as possible with the specific number for each class to be
determined by the Board. Each year the terms of office of those
trustees on one class shall expire. At the Annual Meeting of
Shareholders to be held in 1985, the trustees of Class I shall
each be elected to hold office for a term expiring at the Annual
Meeting of Shareholders in 1986; the trustees of Class II shall
each be elected to hold office for a term expiring at the Annual
Meeting of Shareholders in 1987; and the trustees of Class III
shall each be elected to hold office for a term expiring at the
Annual Meeting of Shareholders in 1988. At each subsequent
Annual Meeting of Shareholders, successors to those trustees
whose terms shall then expire shall be elected to hold office
for a term expiring at the third succeeding Annual Meeting of
Shareholders.
b. In the event the number of trustees is changed, any newly created
trusteeships shall be so apportioned among the classes as to
make all classes as nearly equal in number as possible.
Notwithstanding Section 8.5, when the number of trustees is
increased by the board of trustees and the resultant vacancies
are filled by the board of trustees, such trustees shall serve
until the next Annual Meeting of Shareholders, at which meeting
successor trustees shall be elected by the shareholders for the
remaining term, if any, of the class or classes of trusteeship
so created.
c. Trustees shall be elected by a vote of a majority of the shares
represented in person or by proxy at the Annual Meeting of
Shareholders. Each trustee so elected shall serve until his term
of office expires and until the election and qualification of
his successor. Each trustee shall qualify following his
election, whether by the shareholders or by the remaining
trustees, by filing a notice of acceptance with the board of
trustees. The secretary of the Trust, and/or the president,
and/or the chairman of the board of trustees may, from time to
time when necessary to reflect any changes, execute and file for
record an instrument which sets forth the then existing
membership of the board of trustees.
SECTION 8.3 REMOVAL OF TRUSTEES
A trustee may be removed from his office at any time by vote or written
consent of the holders of a majority of the outstanding shares of the Trust,
if such vote or consent shall be joined with a declaration by those so voting
or consenting, which sets forth their determination that the trustee so
removed has willfully violated any of the provisions of this Declaration or
that he has willfully acted contrary to the interest of the shareholders as a
whole. Such removal shall be effective in all events, and, if the trustee
concerned shall have been given notice of the charges against him, reasonable
both as to time and as to particularity, and shall have been given a fair
opportunity to be heard thereon, such vote or written consent shall be
conclusive evidence of such willful violation or contrary action, so far as
the shareholders' right of removal is concerned.
SECTION 8.4 RESIGNATION OF TRUSTEES
Any trustee may resign his office by an instrument in writing signed by
him and delivered to the board of trustees, which resignation shall take
effect after such delivery and on the date indicated in such instrument,
provided, that such resignation shall not become effective until a copy of
such instrument shall have been duly filed for record by such resigning
trustee.
SECTION 8.5 ACTION BY TRUSTEES
A majority of the trustees in office at any one time, but not less than
two trustees, shall constitute a quorum at any meeting of the board of
trustees. Meetings of the trustees shall be held from time to time upon the
call of the chairman of the board or any two trustees. Notice of any meeting
shall be given at least 3 days before the meeting, but such notice may be
waived by any trustee either before or after the meeting. The trustees shall
act pursuant to the vote or written consent, with or without a meeting, of
more than half of their number in office at any one time, except that if only
two trustees are in office they must act unanimously. No action of the board
shall be effective without a meeting unless all trustees then in office shall
sign, before or after such action is taken, a written consent to such action
and waiver of meeting; provided, however, that the lack of such consent and
waiver shall not be raised to defeat the rights of any third party who has in
good faith relied upon such action. In case of the death or resignation of
one or more trustees, or vacancies occurring in the board of trustees for any
reason, the vacancies so created may be filled by the trustee or trustees
remaining in office at the time, and each new trustee shall serve for the
unexpired term of his predecessor and until the election and qualification of
his successor. No vacancy in the board of trustees shall operate to diminish
the powers of the trustee or trustees remaining in office.
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SECTION 8.6 BY-LAWS
The trustees may adopt from time to time amend or repeal by-laws for the
conduct of their business, and in such by-laws may define the duties of their
officers, agents, employees and representatives.
SECTION 8.7 APPOINTMENTS
The trustees may appoint one or more committees from their number and
delegate to such committees any of the powers and authority of the board of
trustees in the management of the business, affairs and assets of the Trust,
except the power to declare dividends and initiate amendments to this
Declaration. The trustees shall appoint, and from time to time fix the
compensation and duties of a chairman of the board of trustees, who shall be
a trustee, and a secretary of the Trust, who may but need not be a trustee,
each of whom shall hold his office at the pleasure of the board of trustees.
The trustees may appoint such other officers and employ or otherwise contract
with such other persons as the trustees in the exercise of their discretion
may deem necessary or desirable to achieve the purposes of the Trust.
SECTION 8.8 COMPENSATION
The trustees, the secretary, and every other person appointed, employed
or otherwise engaged to assist in the execution of the Trust, shall receive
such compensation from the assets of the Trust for their respective services
to the Trust as shall be fixed from time to time by the board of Trustees.
SECTION 8.9 USE AND EFFECT OF TRUST SEAL
The secretary shall have custody of the seal of the Trust. As to any
person relying thereon in good faith, the impression of the seal of the Trust
upon a document or writing bearing the handwritten signature of the
secretary, or of any assistant secretary, shall conclusively evidence that
such document or writing was duly executed pursuant to authority granted by
the board of trustees and this Declaration.
SECTION 8.10 POWERS OF TRUSTEES
The trustees shall have full and absolute power, control and authority over
all Trust assets held by or for them hereunder, and over the business and
affairs of the Trust, to the same extent as if they were the sole owners of such
assets and such business in their own right, subject only to the limitations
herein expressly stated. Without limitation of the generality of the foregoing,
the trustees shall have power-
a. To design and adopt a seal of the Trust, and to change the same from
time to time; to locate and relocate the principal office of the
Trust; and from time to time to change the name of the Trust, and
under such name to make and execute contracts and all kinds of
instruments, conduct business, acquire and convey real or personal
property, and sue or be sued;
b. To solicit proxies of the shareholders; to declare and effect stock
dividends and splits; and when good reason appears therefor, to
require that outstanding certificates be handed in to the Trust in
exchange for new certificates;
c. To issue from time to time, without the necessity of a prior offering
thereof to existing shareholders, shares of the Trust in addition to
any then outstanding, issuing the same to such party or parties, for
such property or consideration, at such time or times, and on such
terms as the trustees deem best, and in so doing, to allow or
eliminate fractional shares, in their discretion;
d. To acquire and dispose of assets, and otherwise conduct the business
of the Trust, in any part of the United States of America and any of
the territories or possessions thereof and in Canada; and to cause to
be organized or assist in organizing, under the laws of any
jurisdiction, such corporations, trusts, associations, or
organizations having such rights, powers and discretion as they deem
desirable for Trust purposes;
e. To take out policies of insurance at the expense of the Trust,
including, without limitation of the foregoing, liability, life, fire
and casualty insurance, covering such persons, property and
contingencies and in such amounts as they deem proper;
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f. To lease to or from others for a term extending beyond the possible
termination of the Trust; to acquire and deal absolutely with
property of any description, real or personal; and to lend and
borrow money and incur indebtedness for the purposes of the
Trust, and cause to be executed and delivered therefor
promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and
securities therefor;
g. To exercise all rights, powers and privileges relating to the
ownership of any stock, bonds or other securities forming part of
Trust assets;
h. To delegate from time to time, to one or more of their number or to
others, such powers, responsibilities and acts as they deem
desirable; and to employ such assistance, at such compensation,
as they deem expedient in the transaction of the business of the
Trust;
i. To determine in their discretion whether any moneys, securities or
other properties of the Trust are to be considered as principal or
income, and in what manner any expenses or disbursements are to be
charged as between principal and income, or as between earnings,
surplus and capital, as the case may be;
j. To determine the fiscal year and the accounting procedures of the
Trust, and to change the same from time to time;
k. To compromise or settle claims of or against the Trust; and to take
such action, legal or otherwise, as appears to them necessary or
desirable in the interests of the Trust or the shareholders, and
in so doing to pay the expenses thereby incurred in good faith,
including counsel fees, from the funds of the Trust;
l. To determine conclusively the proper interpretation of any provision
of this Declaration;
m. To do all acts and undertake all things which in their judgment are
necessary, convenient or appropriate to promote the purposes of
the Trust, although such acts or things are not specifically
mentioned in this Declaration.
ARTICLE IX
DURATION OF TRUST
SECTION 9.1 DURATION
This Trust shall continue for the lives of the following named children
and grandchildren of the initial trustees, living on the day of execution of
this Declaration, to wit: Mary K. Etcheverry, Annette L. Etcheverry, Paul F.
Etcheverry, Philip Russell, James R. Collins, Jr., Chester R. MacPhee III,
Carolyn Collett Crew, Robert Randall Reyff, Susan Rae Straight, William A.
Talmage and Susan Ann Talmage, and for 20 years after the death of the last
survivor of them, and shall thereupon cease.
SECTION 9.2 EARLY TERMINATION
This Trust shall be irrevocable, but it may be terminated upon unanimous
vote of the trustees then in office, or upon the vote or written assent of
shareholders holding a majority of the outstanding shares.
SECTION 9.3 PROCEDURE UPON TERMINATION
Upon termination of the Trust the trustees shall cause such liquidation
of Trust assets as they deem desirable, shall pay or make adequate provision
for all liabilities of the Trust, whether present or contingent, and shall
distribute the remaining Trust assets, either in kind or in money or both, to
the shareholders or each class or series of shares entitled to participate in
such distribution in accordance with provisions of Section 4.1 and any
certificate of designation with respect to Preferred Shares, in proportion to
their shareholdings of such class or series.
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ARTICLE X
INTERPRETATION AND AMENDMENT
SECTION 10.1 CALIFORNIA LAWS GOVERN
This Declaration of Trust is executed and delivered in the State of
California, and its provisions and all rights, powers, privileges, trusts,
duties and obligations hereunder and under all share certificates shall be
governed by the laws of the State of California and of the United States of
America.
SECTION 10.2 HEADINGS
The use of headings in this Declaration of Trust is solely for
convenience, and all such headings shall be disregarded in the construction
of its provisions.
SECTION 10.3 AMENDMENTS
Amendments to this Declaration of Trust shall be initiated solely by the
board of trustees. Any such amendment shall be in writing and shall require
the affirmative vote or written consent of a majority of the trustees then in
office; provided, however, that no change shall be made in this Declaration
or other instruments forming the Trust, without the consent, given by vote or
in writing, of the holders of a majority of the shares of the Trust then
outstanding; and provided further that no amendment which would change any
rights with respect to any outstanding securities of the Trust, by reducing
the amount payable thereon upon liquidation of the Trust, or by diminishing
or eliminating any voting rights pertaining thereto, may be made unless also
approved by the vote or written consent of the holders of two-thirds of the
outstanding securities so affected.
SECTION 10.4 CHANGES REQUIRED BY LAW
Each shareholder agrees that in the event the federal or any state
government, or any officer, commission or agency thereof, passes any law, rule,
regulation or order substantially prohibiting the trustees or any person
connected with the Trust from performance of any act provided herein to be done,
or requiring the modification or elimination of any provision herein contained,
the trustees may thereupon by majority vote or written consent adopt an
amendment to this Declaration embodying the requirements of such law, rule,
regulation, or order, and such amendment shall become immediately effective and
binding upon the shareholders and all other persons without the consent of any
shareholder.
SECTION 10.5 RECORDING AMENDMENTS
Following the adoption of any amendment hereto, the secretary of the
Trust and the chairman of the board of trustees, shall execute and file for
record an instrument which sets forth such amendment.
IN WITNESS WHEREOF, the individuals hereinafter named, comprising the
present trustees of the Trust, have hereunto set their hands as of the 14th
day of May, 1998.
BRADLEY N. BLAKE CHESTER R. MacPHEE JR.
- ------------------------------------- -------------------------------------
Bradley N. Blake Chester R. MacPhee Jr.
ROBERT J. McLAUGHLIN REGINALD B. OLIVER
- ------------------------------------- -------------------------------------
Robert J. McLaughlin Reginald B. Oliver
DENNIS D. RYAN JAMES L. STELL
- ------------------------------------- -------------------------------------
Dennis D. Ryan James L. Stell
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EXHIBIT 10.4
WESTERN INVESTMENT REAL ESTATE TRUST
1998 EQUITY INCENTIVE PLAN
1. Purpose
The purpose of the Western Investment Real Estate Trust 1998 Equity
Incentive Plan (the "Plan") is to advance the interests of Western Investment
Real Estate Trust ("Western" or the "Company"), a California real estate
investment trust, and its Affiliates (as defined below) by providing share
ownership opportunities to employees, officers and trustees of Western and
its Affiliates who contribute significantly to the performance of Western.
In addition, the Plan is intended to enhance the ability of Western and its
Affiliates to attract and retain individuals of superior ability and to
motivate such people to exert their best efforts toward the future progress
and profitability of Western.
For purposes of the Plan, an Affiliate shall be any corporation in which
Western has a direct or indirect ownership interest of 50% or more of the
total combined voting power of all classes of stock of such corporation.
2. Administration and Interpretation
a. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") consisting of not less than three members of the Board of
Trustees (the "Board") of Western appointed by and serving at the pleasure of
the Trustees. All members of the Committee shall be "disinterested persons"
within the meaning of Rule 16b-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended. The Board may from time to
time remove and appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however
caused, in the Committee. The Committee may prescribe, amend and rescind
rules and regulations for administration of the Plan and shall have full
power and authority to construe and interpret the Plan. A majority of the
members of the Committee shall constitute a quorum, and the acts of a
majority of the members present at a meeting or the acts of a majority of the
members evidenced in writing shall be the acts of the Committee. The
Committee may correct any defect or any omission or reconcile any
inconsistency in the Plan or in any award or grant made hereunder in the
manner and to the extent it shall deem desirable.
The Committee shall have the full and exclusive right to grant all share
options ("Options"), share appreciation rights ("SARs") and share awards,
which may be awards of unrestricted shares or restricted shares of beneficial
interest ("Restricted Shares") under the Plan. The Options, SARs and share
awards are collectively referred to as "Awards." In granting Awards, the
Committee shall take into consideration the contribution the participant has
made or may make to the success of Western or its Affiliates and such other
factors as the Committee shall determine. The Committee shall also have the
authority to consult with and receive recommendations from trustees, officers
and other employees of Western and its Affiliates with regard to these
matters. In no event shall any
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participant, his or her legal representatives, heirs, legatees, distributees,
or successors have any right to participate in the Plan except to such
extent, if any, as the Committee shall determine.
The Committee may from time to time in granting Awards under the Plan
prescribe such other terms and conditions concerning such Awards as it deems
appropriate, including, without limitation, the achievement of specific goals
established by the Committee, provided that such terms and conditions are not
more favorable to a recipient than those expressly set forth in the Plan.
The day-to-day administration of the Plan may be carried out by such
officers and employees of Western or its Affiliates as shall be designated
from time to time by the Committee.
b. INTERPRETATION. The interpretation and construction by the
Committee of any provisions of the Plan or of any grant under the Plan and
any determination by the Committee under any provision of the Plan or any
such grant shall be final and conclusive for all purposes.
c. LIMITATION ON LIABILITY. Neither the Committee nor any member
thereof shall be liable for any act, omission, interpretation, construction
or determination made in connection with the Plan in good faith, and the
members of the Committee shall be entitled to indemnification and
reimbursement by Western in respect of any claim, loss, damage or expense
(including counsel fees) arising therefrom to the full extent permitted by
law. The members of the Committee shall be named as insureds under any
directors and officers (or similar) liability insurance coverage which
Western may have in effect from time to time.
3. Shares Subject to Grants Under the Plan
a. LIMITATION ON NUMBER OF SHARES. The shares subject to grants of
Awards shall be authorized but unissued common shares of beneficial interest
in Western ("Shares"). Subject to adjustment as hereinafter provided, the
aggregate number of Shares as to which Awards may be granted under the Plan
shall not exceed 850,000. Shares ceasing to be subject to an Award because
of the exercise of an Option or SAR or the vesting of an Award shall no
longer be subject to any further grant under the Plan. However, if any
outstanding Option or SAR, in whole or in part, expires or terminates
unexercised or is cancelled or any Award, in whole or in part, expires or is
terminated or forfeited, for any reason prior to February 5, 2008, the Shares
allocable to the unexercised, terminated, cancelled or forfeited portion of
such Award may again be made the subject of grants under the Plan; provided,
however, that if the participant receives the benefits of ownership of any
Shares (which includes the receipt of dividends, but does not include the
right to vote such Shares), such Shares may not again be made the subject of
grants under the Plan.
b. ADJUSTMENTS OF AGGREGATE NUMBER OF SHARES. The aggregate number of
Shares stated in Section 3.a. shall be subject to appropriate adjustment,
from time to time, in accordance with the provisions of Section 7 hereof.
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4. Eligibility
The individuals who shall be eligible to receive Awards under the Plan
shall be such employees, officers or trustees of Western or any Affiliate
(each, a "participant") as the Committee from time to time shall determine.
5. Options and SARs
a. GRANTS OF OPTIONS. Options granted under the Plan may be either
incentive stock options ("ISOs") or nonqualified stock options. The term ISO
shall mean an option which is intended to qualify as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). With respect to an Option that is intended to be an ISO, the
aggregate market value (determined at the date such Option was granted) of
the Shares with respect to which such ISO is exercisable for the first time
by the optionee during any calendar year (under all such plans of Western and
its parent and subsidiary corporations, if any) shall not exceed $100,000.
No ISO shall be granted to any person who, at the time of the grant,
owns Shares possessing more than 10% of the total combined voting power of
Western or any parent or subsidiary of Western, unless (i) on the date such
ISO is granted the option price is at least 110% of the Market Value Per
Share (as hereinafter defined) of the Shares subject to the ISO and (ii) such
ISO by its terms is not exercisable after the expiration of five years from
the date such ISO is granted.
Options granted under the Plan shall be of such type (i.e., a
nonqualified stock option or an ISO), for such number of Shares, and be
subject to such terms and conditions, which may include, without limitation,
the achievement of specific goals, as the Committee shall designate. Options
may be granted by the Committee to any individual eligible to receive the
same at any time and from time to time.
b. GRANTS OF SARS. The term SAR shall mean the right to receive from
Western an amount equal to (i) the Market Value Per Share on the exercise
date, over (ii) the Market Value Per Share on the date of grant (i.e., the
"spread"), multiplied by the total number of Shares for which the SAR is
exercised. The amount payable by Western upon the exercise of a SAR may be
paid in cash or in Shares or in any combination thereof as the Committee in
its sole discretion shall determine; however, no fractional Shares shall be
issuable pursuant to any SAR.
SARs may be granted by the Committee to any individual eligible to
receive the same at any time and from time to time before February 5, 2008.
A SAR may, but need not, relate to a specific Option granted under this Plan.
If a SAR relates to a specific Option, it may be granted either concurrently
with the Option or, if a nonqualified stock option, at any time prior to the
exercise, termination, cancellation or expiration of such Option.
The Committee may fix such waiting periods, exercise dates or other
limitations as it shall deem appropriate with respect to SARs granted under
the Plan including, without limitation, the achievement of specific goals;
provided, however, that each SAR granted hereunder shall be
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exercisable only upon consent of the Committee; and provided further, that a
SAR that relates to a specific Option shall be exercisable only when and to
the extent that the Option to which it relates is exercisable and if such
Option is an ISO, only at such times that there is a positive spread.
c. TERMS OF OPTIONS AND SARS. Options and SARs granted pursuant to
this Plan shall be evidenced by written agreements (separate agreements shall
be used with respect to grants of nonqualified stock options and grants of
ISOs) which shall comply with and be subject to the following terms and
conditions and may contain such other provisions, consistent with the terms
of this Plan, as the Committee shall deem advisable. SARs that relate to a
specific Option may be evidenced by and form a part of the Option agreement
to which the SAR relates. References herein to agreements shall include, to
the extent applicable, any amendments to such agreements.
(1) PAYMENT OF OPTION EXERCISE PRICE. Upon exercise of an Option,
the full option purchase price for the Shares with respect to which the
Option is being exercised shall be payable to Western (i) in cash or by check
payable and acceptable to Western or (ii) subject to the approval of the
Committee, by tendering to Western Shares owned by the optionee having an
aggregate Market Value Per Share as of the date of exercise and tender
respect to which the Option is being exercised and by paying the remainder
which is not greater than the full option purchase price for the Shares with
of the option purchase price as provided in (i) above; however, the Committee
may, upon confirming that the optionee owns the number of additional Shares
being tendered, authorize the issuance of a new certificate for the number of
Shares being acquired pursuant to the exercise of the Option less the number
of Shares being tendered upon the exercise and return to the optionee (or not
require surrender of) the certificate for the Shares being tendered upon the
exercise. Payment instructions will be received subject to collection. If
permitted by applicable law, the Committee may provide that the Company may
make loans to recipients of Options in order to pay the Option exercise
price. Such loans may be subject to such terms and conditions as determined
by the Committee.
(2) NUMBER OF SHARES. Each agreement shall state the total number
of Shares which are subject to the Option and/or SAR.
(3) EXERCISE PRICE. The exercise price for each ISO and SAR shall
be fixed by the Committee at the date of grant, but in no event may such
exercise price per Share be less than the Market Value Per Share on the date
of the grant of the ISO or SAR. The exercise price for each nonqualified
stock option shall be fixed by the Committee at the date of grant. Such
option price may be less than the Market Value Per Share on the date of the
grant of the nonqualified stock option.
(4) MARKET VALUE PER SHARE. The Market Value Per Share as of any
particular date shall mean the average of the daily high and low sales prices
of the Company's Shares reported on the principal stock exchange upon which
such shares are listed on the date the Option or SAR is granted. If there is
no regular public trading market for such Shares, the Market Value Per Share
shall be determined by any fair and reasonable means determined by the
Committee.
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(5) TERM. The term of each Option and SAR shall be determined by
the Committee at the date of grant; provided, however, that each Option that
is an ISO shall, notwithstanding anything in the Plan or an agreement to the
contrary, expire not more than ten years from the date the Option is granted
(except as provided in Section 5.a.) or, if earlier, the date specified in
the agreement at the date of grant of such Option. An Option that is a
nonqualified stock option shall expire not more than ten years from the date
the Option is granted, or if earlier, the date specified in the agreement at
the date of grant of such Option. A SAR not granted in tandem with an Option
shall expire not more than ten years from the date the SAR is granted or, if
earlier, the date specified in the SAR agreement; however, a SAR granted in
tandem with an Option shall terminate whenever the Option to which it relates
terminates.
(6) DATE OF EXERCISE. Each agreement may, in the discretion of
the Committee, state that the Option or SAR granted therein may not be
exercised in whole or in part for a period or periods of time specified in
such agreement and except as so specified therein, any Option or SAR may be
exercised in whole at any time or in part from time to time during its term.
The Committee may, in its discretion, accelerate the exercisability of all or
part of an individual's Options or SARs.
(7) TERMINATION OF EMPLOYMENT. In the event that an individual's
employment with Western and its Affiliates shall terminate, for reasons other
than (i) retirement pursuant to a retirement plan or policy of Western or one
of its Affiliates ("retirement"), (ii) permanent disability as determined by
the Committee based on the opinion of a physician selected or approved by the
Committee ("permanent disability") or (iii) death, the individual's Options
and SARs shall be exercisable by him or her, subject to subsections (5) and
(6) above, only within ninety days (90) after such termination, but only to
the extent the Option or SAR was exercisable immediately prior to such
termination of employment.
If, however, any termination of employment is due to retirement or
permanent disability, the individual shall have the right, subject to the
provisions of subsections (5) and (6) above, to exercise his or her Option
and SARs at any time within the 12-month period commencing on the day next
following after such termination of employment to the extent that the
individual was entitled to exercise the same on the day immediately prior to
such termination. Whether any termination of employment is due to retirement
or permanent disability and whether an authorized leave of absence or absence
on military or government service or for other reasons shall constitute a
termination of employment for the purposes of the Plan shall be determined by
the Committee.
If an individual shall die while entitled to exercise an Option or SAR,
the individual's estate, personal representative or beneficiary, as the case
may be, shall have the right, subject to the provisions of subsections (5)
and (6) above, to exercise the Option at any time within 12 months from the
date of the optionee's death, to the extent that the optionee was entitled to
exercise the same on the day immediately prior to the optionee's death.
d. OPTIONS GRANTED BY OTHER CORPORATIONS. Options may be granted under
the Plan from time to time in substitution for stock options held by
employees of corporations who
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become key employees of Western or of any Affiliate as a result of any
"corporate transaction" as defined in the Treasury Regulations promulgated
under Section 424 of the Code.
e. AMENDMENT. The Committee may, with the consent of the person or
persons entitled to exercise any outstanding Option, amend such Option. The
Committee, in its absolute discretion, may grant to holders of outstanding
Options, in exchange for the surrender and cancellation of such Options, new
Options having exercise prices lower (or higher) than the exercise price
provided in the Options so surrendered and canceled and containing such other
terms and conditions as the Committee may deem appropriate.
6. Share Awards
a. AWARDS OF SHARES. Shares may be awarded by the Committee to any
individual eligible to receive the same, at any time and from time to time
before February 5, 2008. An award may be a (i) a grant of Shares, (ii)
contingent award of Shares to be issued such individual in the future after
the individual has met the terms and conditions of the contingent award set
by the Committee at the time of the contingent award or (iii) a Restricted
Share Award.
b. DESCRIPTION OF SHARE AWARDS. A Restricted Share is a share that
may not be sold, exchanged, pledged, transferred, assigned or otherwise
encumbered or disposed of until the terms and conditions set by the Committee
at the time of the award of the Restricted Shares have been satisfied. A
Share award shall be subject to such restrictions, terms and conditions as
the Committee may establish, which may include, without limitation, "lapse"
and "non-lapse" restrictions (as such terms are defined in regulations
promulgated under Section 83 of the Code) and the achievement of specific
goals. The Committee may entitle the participant to receive a Share award at
no cost or for a purchase price determined by the Committee. A participant
who is granted a Share award shall have no rights with respect to such Award
unless the participant shall have accepted the Award within 60 days (or such
date as the Committee may specify) following the award date by making payment
to the Company, if required, by certified or bank check or other instrument
or form of payment acceptable to the Committee in an amount equal to the
specified purchase price, if any, of the Shares covered by the award and by
executing and delivery to the Company a written instrument setting forth the
terms and conditions of the Restricted Share award in such form as the
Committee shall determine.
If a participant receives a Share award (whether or not escrowed as
provided below), the participant shall be the record owner of such Shares and
shall have all the rights of a shareholder with respect to such Shares
(unless the agreement specifically provides otherwise), including the right
to vote and the right to receive dividends or other distributions made or
paid with respect to such Shares. Any certificate or certificates
representing a Share award which is a contingent award or a Restricted Share
award shall bear a legend similar to the following:
"The shares represented by this certificate have been issued pursuant to
the terms of the Western Investment Real Estate Trust 1998 Equity Incentive
Plan and may not be sold,
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pledged, transferred, assigned or otherwise encumbered in any manner
except as is set forth in the terms of such award dated."
In order to enforce the restrictions, terms and conditions that may be
applicable to a participant's Share award, the Committee may require the
participant, upon the receipt of a certificate or certificates representing
such shares, or at any time thereafter, to deposit such certificate or
certificates, together with stock powers and other instruments of transfer,
appropriately endorsed in blank, with Western or an escrow agent designated
by Western under an escrow agreement, which may be a part of a Restricted
Share agreement, in such form as shall be determined by the Committee.
After the satisfaction of the terms and conditions set by the Committee
at the time of a Share award to a participant, which award is not subject to
a non-lapse feature, a new certificate, without the legend set forth above,
for the number of shares that are no longer subject to such restrictions,
terms and conditions shall be delivered to the participant. If such terms
and conditions are satisfied as to a portion, but fewer than all, such
Shares, the remaining shares issued with respect to such award shall either
be reacquired by Western or, if appropriate under the terms of the award
applicable to such shares, shall continue to be subject to the restrictions,
terms and conditions set by the Committee at the time of award.
c. PAYMENT OF SHARE AWARDS. The satisfaction of the terms and
conditions set by the Committee at the time of an award and the delivery of a
certificate, without the legend set forth above, for the portion of such
award that is no longer subject to such restrictions, terms and conditions is
hereinafter referred to as the "payment" of such portion of the award.
Subject to the provisions above, each award shall be paid at the time and in
the manner specified by the Committee at the time of the award.
d. PAYMENT IN THE EVENT OF TERMINATION OF EMPLOYMENT. If the
employment with Western and its Affiliates of an employee to whom a Share
award has been made is terminated for any reason before satisfaction of the
terms and conditions for the payment of all or a portion of the award, then
only such portion of the award, if any, that is payable pursuant to its terms
and conditions as of the date of the employee's termination shall be paid,
and the remaining portion of such award shall be reacquired by Western and
forfeited; provided, however, if the termination is due to the employee's
death, permanent disability or retirement, the Committee may, in its sole
discretion, deem that the terms and conditions have been met for all or part
of such remaining portion. If Shares issued shall be reacquired by Western
and forfeited as provided above, the employee, or in the event of the
employee's death his or her personal representative, shall forthwith deliver
to the Secretary of Western the certificates for the Shares awarded pursuant
to the Plan to the employee, accompanied by such instrument of transfer, if
any, as may reasonably be required by the Secretary of Western. If an
employee to whom Shares have been awarded dies after satisfaction of the
terms and conditions for the payment of all or a portion of the award but
prior to the actual payment of all or such portion thereof, such payment
shall be made to the employee's estate, personal representative or
beneficiary or beneficiaries at the time and in the same manner that such
payment would have been made to the employee.
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7. Recapitalization
The aggregate number of Shares stated in Section 3.a., the number of
Shares to which each outstanding Award relates, the exercise price in respect
of each Option or SAR and the number of Shares subject to an Award, may be
proportionately adjusted in an equitable manner determined by the Committee,
in its sole discretion and without liability to any person, for any increase
or decrease in the number of issued Shares resulting from the payment of a
Share dividend, a Share split or any transaction which is a "corporation
transaction" (as defined in the Treasury Regulations promulgated under
Section 424 (formerly Section 425) of the Code).
8. Merger or Consolidation
Except as otherwise provided in Section 9 below, after a merger of one or
more entities into the Company in which the Company shall survive, or after a
consolidation of the Company and one or more entities, in which the resulting
entity remains as an independent, publicly-owned entity, a participant shall,
at the same cost, be entitled upon the exercise of an Option or SAR or the
settlement of an Award or the settlement of an Award to receive (subject to
any required action by shareholders and the discretion of the Committee as to
the payment of cash with respect to a SAR) such stock, cash and/or securities
of the surviving or resulting entity as the board of directors of such
entity, in its sole discretion and without liability to any person, shall
determine to be equivalent, as nearly as practicable, to the nearest whole
number and class of Shares or other securities that were then subject to such
Award and such shares of stock or other securities shall, after such merger
or consolidation, be deemed to be Shares for all purposes of the Plan and any
agreement.
9. Change in Control
In the event of a Change in Control (as defined below), then, notwithstanding
any other term of this Plan (except as set forth in any agreement to the
contrary), any and all outstanding Awards not fully vested shall
automatically vest in full and all Options and SARs shall be immediately
exercisable. The date on which such accelerated vesting and immediate
exercisability shall occur (the "Acceleration Date") shall be the date of the
occurrence of the Change in Control.
A "Change in Control" shall be deemed to have occurred if:
(a) any "person," as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of shares of the Company) together with its
"Affiliates" and "Associates," as such terms are defined in Rule 12b-2 of the
Exchange Act, makes a tender or exchange offer for or is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of, securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities;
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(b) during any period of two consecutive years (not including any
period prior to the effective date of this Plan), individuals who at the
beginning of such period constitute the Board, and any new trustee (other
than a trustee designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (a), (c) or (d) of
this definition) whose election by the Board or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of
the trustees then still in office who either were trustees at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other company other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding immediately
after such merger or consolidation or (ii) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more than 25% of the
combined voting power of the Company's then outstanding securities; or
(d) the shareholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the sale, exchange or
disposition by the Company of all or a significant portion of the Company's
assets. For purposes of this clause (d), the term "the sale, exchange or
disposition by the Company of all or a significant portion of the Company's
assets" shall mean a sale or other disposition transaction or series of
related transactions involving assets of the Company or any subsidiary of the
Company (including the stock of any subsidiary of the Company) in which the
value of the assets or stock being sold or otherwise disposed of (as measured
by the purchase price being paid therefore or by such other method as the
Board determines is appropriate in a case where there is no readily
ascertainable purchase price) constitutes more than 50% of the fair market
value of the Company (as hereinafter defined). For purposes of the preceding
sentence, the "fair market value of the Company" shall be the aggregate
market value of the outstanding Shares of the Company (on a fully diluted
basis) plus the aggregate market value of the Company's other outstanding
equity securities. The aggregate market value of the Shares of the Company
shall be determined by multiplying the number of Shares (on a fully diluted
basis) outstanding on the date of the execution and delivery of a definitive
agreement with respect to the transaction or series of related transactions
(the "Transaction Date") by the average closing price of the Shares of the
Company for the ten trading days immediately preceding the Transaction Date.
The aggregate market value of any other equity securities of the Company
shall be determined in a manner similar to that prescribed in the immediately
preceding sentence for determining the aggregate market value of the Shares
of the Company or by such other method as the Board shall determine is
appropriate.
Notwithstanding the foregoing however, (except as stated otherwise in an
Award agreement) a Change in Control shall not be deemed to have occurred if,
prior to the time a Change in Control would otherwise be deemed to have
occurred pursuant to the above provisions, the Board determines otherwise.
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10. Recipient's Agreement
If, at the time of the exercise of any Option or SAR or the making or
vesting of an Award, in the opinion of counsel for Western, it is necessary
or desirable, in order to comply with any then applicable laws or regulations
relating to the sale of securities, that the individual exercising the Option
or SAR or receiving the Award shall agree to hold any Shares issued to the
individual for investment and without any present intention to resell or
distribute the same and that the individual will dispose of such Shares only
in compliance with such laws and regulations, the individual will, upon the
request of Western, execute and deliver to Western a further agreement to
such effect.
11. Withholding for Taxes
No Option or SAR may be exercised or distribution of Shares be made
under the Plan until appropriate arrangements have been made by the
individual with the Company for the payment of any amounts that the Company
may be required to withhold with respect thereto, which arrangements may
include, if set forth in the agreement relating to such Award, the tender of
owned Shares or the withholding of Shares issuable pursuant to such Award.
12. Termination of Authority to Make Grant
No Awards will be granted pursuant to this Plan after February 5, 2008.
13. Amendment and Termination
The Board may from time to time and at any time alter, amend, suspend,
discontinue or terminate this Plan and any grants or awards hereunder;
provided, however, that no such action of the Board may, without the approval
of the shareholders of Western, alter the provisions of the Plan so as to (i)
increase the maximum number of Shares which may be subject to awards and
grants and distributed in the payment of awards and exercises under the Plan
(except as provided in Section 3.b.); (ii) extend beyond ten years the
maximum terms of options granted under the Plan or extend the term of the
Plan; or (iii) change the class of employees eligible to receive awards and
grants under the Plan. The Committee may, in its discretion, accelerate the
vesting of all or part of an Award. The Committee may, in its discretion,
provide for events causing the acceleration of vesting of all or part of an
Award in the agreement relating to such Award.
14. Preemption by Applicable Laws and Regulations
Anything in the Plan or any agreement entered into pursuant to the Plan
to the contrary notwithstanding, if, at any time specified herein or therein
for the making of any determination or payment of the issue or other
distribution of Shares, any law, regulation or requirement of any
governmental authority having jurisdiction in the premises shall require
either Western or the participant (or the participant's beneficiary), as the
case may be, to take any action in connection with any such determination,
payment, issuance or distribution, the issue or distribution of such Shares
34
<PAGE>
or the making of such determination or payment, as the case may be, shall be
deferred until such action shall have been taken.
15. Change in Control Limitation
Notwithstanding any other provision in the Plan, to the extent that the
acceleration of exercisability or payment of an Award under this Plan
following a Change in Control (a "Penalized Benefit"), when aggregated with
other payments or benefits to the participant, whether or not payable
pursuant to this Plan, would, as determined by a tax counsel selected by the
Company, result in "excess parachute payments" (as defined in Section 280G of
the Code), such Penalized Benefit shall be reduced to the extent necessary so
that no portion thereof shall be subject to the excise tax imposed by Section
4999 of the Code, but only if, and to the extent that, by reason of such
reduction, the participant's net after tax benefit shall exceed the net after
tax benefit if such reduction were not made. "Net after tax benefit" shall
mean the sum of (i) all payments and benefits which a participant receives or
is then entitled to receive that would constitute a "parachute payment"
within the meaning of Section 280G of the Code, less (ii) the amount of
federal income taxes payable with respect to the payments and benefits
described in (i) above calculated at the maximum marginal income tax rate for
the year in which such payments and benefits shall be paid to the participant
(based upon the rate for such year as set forth in the Code at the time of
the first payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i) above by
Section 4999 of the Code.
16. Miscellaneous
a. NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall be
construed as conferring upon any employee the right to continue in the employ
of Western or any Affiliate.
b. EMPLOYMENT WITH AFFILIATES. Employment by Western for the purpose
of this Plan shall be deemed to include employment by, and to continue during
any period in which an employee is in the employment of, any Affiliate.
c. NO RIGHTS AS A SHAREHOLDER. A participant shall have no rights as
a shareholder with respect to Shares covered by the participant's Award until
the date of the issuance of such Shares to the participant pursuant thereto.
No adjustment will be made for dividends or other distributions or rights for
which the record date is prior to the date of such issuance.
d. NO RIGHT TO TRUST ASSETS. Nothing contained in the Plan shall be
construed as giving a participant, the participant's estate, personal
representative or beneficiaries or any other person any equity or interest of
any kind in any assets of Western or an Affiliate or as creating a trust of
any kind or a fiduciary relationship of any kind between Western or an
Affiliate and any such person.
e. NO RESTRICTION ON TRUST ACTION. Nothing contained in the Plan
shall be construed to prevent Western or any Affiliate from taking any action
that is deemed by Western or
35
<PAGE>
such Affiliate to be appropriate or in its best interest, whether or not such
action would have an adverse effect on the Plan or any grant made under the
Plan. No participant, beneficiary or other person shall have any claim
against Western or any Affiliate as a result of any such action.
NONASSIGNABILITY. Neither a participant nor a participant's estate,
personal representative or beneficiary shall have the power or right to sell,
exchange, pledge, transfer, assign or otherwise encumber or dispose of such
participant's estate's, personal representative's or beneficiary's interest
arising under the Plan otherwise than by will or the laws of descent and
distribution. Any Award granted under this Plan shall be exercisable, during
the lifetime of the participant, only by such participant.
g. APPLICATION OF FUNDS. The proceeds received by Western from the
sale of Shares pursuant to the Plan will be used for its general business
purposes.
GOVERNING LAW; CONSTRUCTION. All rights and obligations under the Plan
shall be governed by, and the Plan shall be construed in accordance with, the
laws of the State of California without regard to the principles of conflicts
of laws. Titles and headings to Sections herein are for purposes of
reference only, and shall in no way limit, define or otherwise affect the
meaning or interpretation of any provisions of the Plan.
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
BALANCE SHEET AT JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,220
<SECURITIES> 0
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 431,247
<DEPRECIATION> 83,586
<TOTAL-ASSETS> 369,202
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 179,883
0
0
<COMMON> 241,565
<OTHER-SE> (61,044)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 369,202
<SALES> 0
<TOTAL-REVENUES> 25,205
<CGS> 0
<TOTAL-COSTS> 6,122<F4>
<OTHER-EXPENSES> 7,760<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,273
<INCOME-PRETAX> 5,020
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,020
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<FN>
<F1>AMOUNT INSIGNIFICANT.
<F2>BALANCE SHEET IS NOT CLASSIFIED.
<F3>AMOUNT REPRESENTS ACCUMULATED DIVIDENDS IN EXCESS OF NET INCOME.
<F4>AMOUNT COMPRISED OF PROPERTY OPERATING COSTS (4,100) AND OTHER OPERATING
EXPENSES (2,022).
<F5>AMOUNT COMPRISED OF DEPRECIATION EXPENSE (6,173) AND GENERAL AND ADMINISTRATIVE
EXPENSE (1,587).
</FN>
</TABLE>
