<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(Amendment No. 1)
Filed by the Registrant [x]
Filed by a Party other than Registrant [ ]
CHECK THE APPROPRIATE BOX:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NATIONAL INCOME REALTY TRUST
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
NONE
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which
transaction applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid: N/A
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE> 2
31248.01000: 081495:SCM: 9
REVISED PRELIMINARY PROXY MATERIAL FOR
THE SECURITIES AND EXCHANGE
COMMISSION REVIEW ONLY
NATIONAL INCOME REALTY TRUST
280 Park Avenue
East Building, 20th Floor
New York, New York 10017
(212) 949-5000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of National Income Realty Trust:
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of National
Income Realty Trust (the "Trust") will be held at 12:00 p.m., local New York
City time, on Thursday, September 29, 1995 at 280 Park Avenue, East Building,
20th Floor, New York, New York, to consider and vote on the following matters:
(1) election of eight Trustees of the Trust;
(2) approval of the Trust's Advisory Agreement with Tarragon
Realty Advisors, Inc.;
(3) approval of the National Income Realty Trust Share Option and
Incentive Plan;
(4) approval of the National Income Realty Trust Independent
Trustee's Share Option Plan; and
(5) the transaction of such other business as may properly come
before the Annual Meeting or any adjournments thereof.
Only Shareholders of record at the close of business on Friday August
___, 1995 will be entitled to vote at the Annual Meeting. Shareholders are
cordially invited to attend the Annual Meeting in person.
Regardless of whether you plan to be present at the Annual Meeting,
please promptly date, mark, sign, and mail the enclosed proxy ballot card to
American Stock Transfer & Trust Company, in the envelope provided. Any
Shareholder who executes and delivers the enclosed proxy may revoke the
authority granted thereunder at any time prior to its use by giving written
notice of such revocation to American Stock Transfer & Trust Company, 40 Wall
Street, 46th Floor, New York, New York 10005, or by executing and delivering a
proxy bearing a later date. A SHAREHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING
AND VOTING AT THE ANNUAL MEETING. Your vote is important, regardless of the
number of shares you own.
The Annual Report to Shareholders for the year ended December 31, 1994
previously was mailed to Shareholders under separate cover.
Dated: August ___, 1995
BY ORDER OF THE BOARD OF TRUSTEES
OF NATIONAL INCOME REALTY TRUST
David L. Miller, Vice President -
Legal and Secretary
IMPORTANT
YOU CAN HELP THE TRUST AVOID THE NECESSITY AND EXPENSE OF SENDING
FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY
BALLOT CARD. IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, PLEASE MARK,
DATE, SIGN AND RETURN THE ENCLOSED PROXY BALLOT CARD SO THAT THE NECESSARY
QUORUM MAY BE REPRESENTED AT THE ANNUAL MEETING. THE ENCLOSED ENVELOPE
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
FAILURE TO VOTE MAY SUBJECT THE TRUST TO FURTHER EXPENSE
If your shares are held in the name of a brokerage firm, nominee or other
institution, only it can vote your shares. Please contact promptly the person
responsible for your account and give instructions for your shares to be voted.
<PAGE> 3
NATIONAL INCOME REALTY TRUST
280 Park Avenue
East Building, 20th Floor
New York, New York 10017
(212) 949-5000
PROXY STATEMENT
For the Annual Meeting of Shareholders
To Be Held on September 29, 1995
GENERAL SHAREHOLDER INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Trustees of National Income Realty Trust (the "Trust") of
proxies to be used at the Annual Meeting of Shareholders for consideration and
voting upon (1) the election of eight Trustees, (2) the approval of the Trust's
Advisory Agreement with Tarragon Realty Advisors, Inc. ("Tarragon" or the
"Advisor"), (3) the approval of the National Income Realty Trust Share Option
and Incentive Plan, (4) the approval of the National Income Realty Trust
Independent Trustee's Share Option Plan, and (5) the transaction of such other
business as may properly come before the Annual Meeting or any adjournments
thereof. The Annual Meeting will be held at 2:00 p.m., local New York City
time, on September 29, 1995, at 280 Park Avenue, East Building, 20th Floor,,
New York, New York. The Trust's financial statements for the year ended
December 31, 1994 were audited by Arthur Andersen, L.L.P. A representative
from Arthur Andersen, L.L.P. is expected to be present at the Annual Meeting to
respond to appropriate questions, and such representative will have an
opportunity to make a statement if such representative desires to do so. The
Trust's Annual Report for the fiscal year ended December 31, 1994, which
includes financial statements, has preceded this Proxy Statement. This Proxy
Statement and the accompanying proxy are first being mailed to Shareholders on
or about August ___, 1995.
The Trustees have approved the Trust's Advisory Agreement with
Tarragon as in the best interest of the Trust and its Shareholders because the
terms of such agreement are, in their view, as favorable to the Trust as those
that would be obtained from unaffiliated third parties for the performance of
similar services, while at the same time the agreement gives the Advisor an
incentive to improve the performance of the Trust's properties and mortgages.
See Proposal Two. The Trustees strongly recommend that you vote FOR the
advisory agreement and FOR each of the nominees as Trustees.
The Board of Trustees believes that the Trust's earnings performance
and growth is dependent upon insuring the best possible management and advice
for the Trust and that equity ownership in the Trust by Trustees, officers, key
employees and others will provide incentive and modification and will aid in
attracting and retaining high quality individuals. The Trustees recommend that
Shareholders vote FOR the approval of the Share Option and Incentive Plan
(Proposal Three) and FOR the approval of the Trustees' Share Option Plan
(Proposal Four).
SHAREHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding Shares of Beneficial
Interest, no par value, of the Trust (the "Shares") at the close of business on
August ___, 1995 (the "Record Date"), are entitled to vote at the Annual
Meeting and at any adjournments thereof. At the close of business on August
___, 1995, there were 3,178,267 Shares outstanding. Each holder is entitled to
one vote for each Share held on the Record Date.
<PAGE> 4
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted thereon. As to the election of the eight nominees as
Trustees (Proposal One), Shareholders may choose to vote for all of the
nominees, withhold authority for voting for all of the nominees or withhold
authority for voting for any individual nominee. As to the approval of each of
the Trust's Advisory Agreement with Tarragon (Proposal Two), the Share Option
and Incentive Plan (Proposal Three) and the Trustee's Share Option Plan
(Proposal Four), Shareholders may choose to vote for, against or abstain from
voting on such proposal in its entirety. In the absence of other instructions,
the Shares represented by a properly executed and submitted proxy will be voted
in favor of the eight nominees for election to the Board of Trustees and in
favor of Proposals Two, Three and Four. The Board of Trustees does not know of
any other business which may be properly brought before the Annual Meeting.
If, however, any other matters properly come before the Annual Meeting, it is
the intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their judgment on such matters.
VOTE REQUIRED FOR APPROVAL
Pursuant to Section 6.7 of the Declaration of Trust, election of any
Trustee requires the affirmative vote of a majority of the votes cast at a
meeting of Shareholders by holders of Shares entitled to vote thereon. Such
Section also provides that a majority of the issued and outstanding Shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any such meeting. The approval of the Trust's Advisory Agreement with
Tarragon (Proposal Two) also requires the affirmative vote of a majority of the
votes cast at the Annual Meeting. The approval of the Share Option and
Incentive Plan and the Trustee's Share Option Plan each require the affirmative
vote of a majority of the votes cast on each such Plan, provided that the vote
cast thereon represents over 50% in interest of all Shares entitled to vote.
Abstentions will be included in vote totals and, as such, will have
the same effect on each proposal as a negative vote. Broker non-votes, if any,
will not be included in vote totals and, as such, will have no effect on any
proposal.
As of August ___, 1995, management and affiliates held 1,033,724
Shares representing approximately 32.5% of the Shares outstanding. Management
and such affiliates all intend to vote all such Shares in favor of all of the
proposals in accordance with the recommendation of the Board of Trustees.
REVOCATION OF PROXIES
A proxy is enclosed herewith. Any Shareholder who executes and
delivers the proxy may revoke the authority granted thereunder at any time
prior to its use by giving written notice of such revocation to American Stock
Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005,
or by executing and delivering a proxy bearing a later date. A SHAREHOLDER MAY
ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE ANNUAL MEETING.
FUTURE PROPOSALS OF SHAREHOLDERS
Any proposal intended to be presented by a Shareholder at the next
Annual Meeting of Shareholders of the Trust must be received at the principal
office of the Trust not later than January 5, 1996, in order to be considered
for inclusion in the Trust's proxy statement and form of proxy (as the case may
be) for that meeting.
2
<PAGE> 5
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of August ___, 1995, according the Share transfer records of the
Trust and other information available to the Trust, the following persons were
known to be beneficial owners of more than 5% of the Shares of Beneficial
Interest of the Trust:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
-------------------------------- ------------------------ ---------
<S> <C> <C>
Lucy N. Friedman 938,339 (2)(3)(4) 29.5%
280 Park Avenue (5)(6)
East Building, 20th Floor
New York, New York 10017
</TABLE>
________________________________
(1) Percentages are based upon 3,178,267 Shares outstanding at August
___, 1995.
(2) Includes 13,873 Shares owned by Lucy N. Friedman's husband, William S.
Friedman.
(3) Includes 622, 564 Shares owned by Lucy N. Friedman. In addition,
includes 9,567 Shares and 9,684 Shares owned by Lucy N. Friedman's
minor sons, Gideon and Samuel Friedman; Lucy Friedman has control of
such Shares. Also includes 185,000 Shares owned by Beachwold
Partners, L.P. in which Lucy N. Friedman is the general partner and
her four children are the limited partners; Mrs. Friedman disclaims
beneficial ownership of such Shares.
(4) Does not include 30,883 Shares owned by Lucy N. Friedman's adult son
Ezra Friedman, and 13,094 Shares owned by Lucy N. Friedman's adult
daughter, Tanya Friedman. Mrs. Friedman disclaims beneficial
ownership of such Shares.
(5) Includes 26,336 Shares owned by a trust for the benefit of the
children and grandchildren of Samuel Friedman, deceased, William S.
Friedman's father, for which Robert A. Friedman and Gerald C.
Friedman, siblings of William S. Friedman, and Ruth Friedman, his
mother, are the trustees; Lucy N. Friedman disclaims beneficial
ownership of such Shares. Also includes 13,015 Shares held by William
S. Friedman Grantor Trust for the benefit of William S. Friedman, of
which Mrs. Friedman is the trustee; Mrs. Friedman disclaims beneficial
ownership of such Shares.
(6) Includes 36,300 Shares owned by Tarragon Capital Corporation, of which
Lucy N. Friedman and William S. Friedman are executive officers and
directors and 22,000 Shares owned by Tarragon Partners, Ltd., of which
Lucy N. Friedman and William S. Friedman are limited partners. Mr.
Friedman disclaims beneficial ownership of such Shares.
SECURITY OWNERSHIP OF MANAGEMENT
As of August ___, 1995, according to the Share transfer records of
the Trust and other information available to the Trust, the executive officers,
current Trustees and nominees for election as Trustees at the Annual Meeting
and all officers and Trustees as a group beneficially owned the following
Shares of Beneficial Interest of the Trust:
3
<PAGE> 6
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name of Beneficial Owner Ownership Class (a)
------------------------------- ------------------------- ------
<S> <C> <C> <C>
William S. Friedman 938,339 (b)(c)(d) 29.5%
(e)(f)(g)
Irving E. Cohen 453 (j) *
John A. Doyle 87,761 (h) 2.8%
Dan L. Johnston 96 (k) --
Lance Liebman 500 (m) *
Sally Hernandez-Pinero None --
Lawrence G. Schafran None --
Raymond V.J. Schrag 6,025 (i) *
Carl B. Weisbrod 220 (l) *
All Trustees and Executive Officers as a 1,033,724 (b)(c)(d) 32.5%
group (9 individuals) (e)(f)(g)
(h)(i)(j)
(k)(l)(m)
</TABLE>
________________________________
* Less than 1%
(a) Percentages are based upon 3,178,267 Shares outstanding at August
___, 1995.
(b) Mr. Friedman also owns 13,873 Shares personally.
(c) Includes 622,564 Shares owned by William S. Friedman's wife, Lucy
Friedman. Mr. Friedman disclaims beneficial ownership of such Shares.
In addition, includes 9,567 Shares and 9,684 Shares owned by William
S. Friedman's minor sons, Gideon and Samuel Friedman. Lucy Friedman
has control of such Shares. Mr. Friedman disclaims beneficial
ownership of such Shares. Also includes 185,000 Shares owned by
Beachwold Partners L.P. in which Lucy N. Friedman is the general
partner and her four children are the limited partners; Mrs. Friedman
disclaims beneficial ownership of such Shares.
(d) Does not include 30,883 Shares owned by William S. Friedman's adult
son, Ezra Friedman, and 13,094 Shares owned by William S. Friedman's
adult daughter, Tanya Friedman. Mr. Friedman disclaims beneficial
ownership of such Shares.
(e) Includes 26,336 Shares owned by a trust for the benefit of the
children and grandchildren of Samuel Friedman, deceased, William S.
Friedman's father, for which Robert A. Friedman and Gerald C.
Friedman, siblings of William S. Friedman, and Ruth Friedman, his
mother, are the trustees; Mr. Friedman disclaims beneficial ownership
of such Shares. Also includes 13,015 Shares held by William S.
Friedman Grantor Trust for the benefit of William S. Friedman, of
which Mrs. Friedman is the trustee; Mrs. Friedman disclaims beneficial
ownership of such Shares.
(f) Includes 36,300 Shares owned by Tarragon Capital Corporation, of which
Lucy N. Friedman and William S. Friedman are executive officers and
directors.
(g) Includes 22,000 Shares owned by Tarragon Partners, Ltd., of which Lucy
N. Friedman and William S. Friedman are limited partners. Mr.
Friedman disclaims beneficial ownership of such Shares.
(h) Includes 84,615 Shares which Mr. Doyle has beneficial interest as a
result of a $1 million subordinated debenture which is convertible
into 84,615 of the Trust's Shares. John A. Doyle also owns 3,146
Shares personally.
4
<PAGE> 7
(i) Includes 5,025 Shares owned by Raymond V.J. Schrag; does not include
1,000 Shares owned by Mr. Schrag's wife as custodian for his two
children as to which Mr. Schrag disclaims any beneficial ownership.
(j) Includes 453 Shares owned by Irving E. Cohen in an IRA account.
(k) Includes 96 Shares owned by Dan L. Johnson personally.
(l) Includes 220 Shares owned by Carl B. Weisbrod personally.
(m) Includes 500 Shares owned by Lance Liebman personally.
PROPOSAL ONE
ELECTION OF TRUSTEES
GENERAL
On May 4, 1994, the Trust, together with Continental Mortgage and
Equity Trust ("CMET"), Income Opportunity Realty Trust ("IORT") and
Transcontinental Realty Investors, Inc. ("TCI"), entered into a Modification of
Stipulation of Settlement dated April 27, 1994 (the "Modification"), which
settled subsequent claims of breaches of the settlement which were asserted by
plaintiffs and modified certain provisions of a 1990 settlement of the action
styled Olive, et al v. National Income Realty Trust, et al (the "Olive Case").
The original settlement, approved April 23, 1990 by the Court, related to the
operation and management of each of the entities. The Modification was
approved by the Court on December 12, 1994 and became effective January 11,
1995.
The Modification, among other things, provided for the resignation of
certain trustees, the addition of at least three new, unaffiliated members to
be appointed to the Trust's Board of Trustees, and set forth new requirements
for approval of any transactions with affiliates over the next five years.
Under the Modification, the Trust, the other entities, and their shareholders
released the defendants from any claims relating to the plaintiffs'
allegations. The Trust and other entities also agreed to waive any demand
requirement for plaintiffs to pursue claims on behalf of each of them against
certain persons or entities. The Modification also requires that any shares of
the Trust held by Mr. Friedman or his affiliates shall be voted (i) in favor
of the re-election of all current Board members that stand for re-election
during the two calendar years following January 11, 1995, the effective date of
the Modification, and (ii) in favor of all new Board members appointed pursuant
to the terms of the Modification that stand for re-election during the three
calendar years following January 11, 1995. The Modification also terminated a
number of provisions of the original Stipulation of Settlement, including the
requirement that the Trust or the other entities maintain a Related Party
Transaction Committee and a Litigation Committee of the Board (see "Board
Committees" below).
Pursuant to the requirements (and in anticipation of the
effectiveness) of the Modification, the Trust did not hold an Annual Meeting of
Shareholders in 1994, John A. Doyle (a Trustee since February 1994) resigned as
a Trustee on April 22, 1994, Ted P. Stokely (a Trustee since April 1990)
resigned as a Trustee in August 1994, A. Bob Jordan (a Trustee since October
1992) resigned as a Trustee in June 1994, Bennett B. Sims (a Trustee since
April 1990) resigned as a Trustee in August 1994, Geoffrey C. Etnire (a Trustee
since January 1993) ceased to be a Trustee on March 9, 1995, and Willie K.
Davis (a Trustee since October 1988) retired as a Trustee effective March 31,
1995. Carl B. Weisbrod (a Trustee since February 1994) was elected Chairman of
the Board on March 9, 1995, to replace William S. Friedman, who remains as
President, Chief Executive Officer and Trustee of the Trust. During the period
from May 1994 to March 9, 1995, the Board appointed four new, independent
Trustees to replace a number of those who resigned and the number of members of
the Board of Trustees was reduced from ten at December 31, 1993 to eight at
March 31, 1995. Independent Trustees appointed are Irving E. Cohen (June 2,
1994), Sally Hernandez-Pinero (May 19, 1994), Lance Liebman (March 9, 1995),
and Lawrence G. Schafran (March 9,
5
<PAGE> 8
1995). Messrs. Williams S. Friedman, Dan L. Johnston, Raymond V.J. Schrag and
Carl B. Weisbrod have continued as Trustees.
NOMINEES
The following persons have been nominated to serve as Trustees
of the Trust: Irving E. Cohen, William S. Friedman, Dan L. Johnston,
Lance Liebman, Sally Hernandez-Pinero, Lawrence G. Schafran, Raymond
V.J. Schrag, and Carl B. Weisbrod. Each of the eight nominees is
currently a Trustee of the Trust and has been nominated by the Board
of Trustees to serve for an additional term until the next Annual
Meeting of Shareholders or until his successor shall have been duly
elected and qualified. Each nominee has consented to being named in
this Proxy Statement as a nominee and has agreed to serve as a Trustee
if elected. When a proxy is properly executed and returned, the
Shares represented thereby will be voted in favor of the election of
each of the nominees, unless authority to vote for any such nominee is
specifically withheld. There will be no cumulative voting for the
election of Trustees. If any nominee is unable to serve or will not
serve (an event which is not anticipated), then the person acting
pursuant to the authority granted under the proxy will cast votes for
the remaining nominees and, unless the Board of Trustees takes action
to reduce the number of Trustees, for such other person(s) as he or
she may select in place of such nominee(s).
The eight nominees are listed below, together with their ages, terms
of service, all positions and offices with the Trust or the Trust's advisor,
Tarragon, other principal occupations, business experience and directorships
with other companies during the last five years or more. The designation
"Affiliated", when used below with respect to a Trustee, means that the Trustee
is an officer, director or employee of the Advisor or an officer of the Trust.
The designation "Independent", when used below with respect to a Trustee, means
the Trustee is neither an officer or employee of the Trust nor a director,
officer or employee of the Advisor, although the Trust may have certain
business or professional relationships with such Trustee as discussed below
under "Certain Business Relationships and Related Transactions".
<TABLE>
<CAPTION>
Name, Principal Occupations,
Business Experience and Directorships Age
------------------------------------- ---
<S> <C>
IRVING E. COHEN: Trustee since June, 1994 (Independent) 48
Managing Director (since 1994) CPR Group, a real estate consulting company; Managing Partner (from 1990
to 1994) Fuller Corporate Realty Partners, a New York City real estate asset management entity;
Director of Real Estate Consulting Services for Price Waterhouse (1989-1990); Special Adviser (1988-
1989) and Trustee (1985-1989) Mellon Participating Mortgage Trust, a mortgage REIT; and Executive Vice
President, E.F. Hutton Properties, Inc. (from 1983 to 1987).
WILLIAM S. FRIEDMAN: President since December 1988 and Trustee since 51
March 1988 (Affiliated)
Trustee (since March 1988), Chief Executive officer (since December 1993), President (since December
1988), Acting Chief Financial Officer (May 1990 to February 1991), Treasurer (August to September 1989)
and Acting Principal Financial and Accounting Officer (December 1988 to August 1989) of the Trust and
Vinland Property Trust ("VPT"); Trustee or Director (March 1988 to February 1994), Chief Executive
Officer (December 1993 to February 1994), President (December 1988 to February 1994), Acting Chief
Financial Officer (May 1990 to February 1991), Treasurer (August to September 1989) and Acting
Principal Accounting Officer (December 1988 to August 1989) of CMET, IORT and TCI; Director and Chief
Executive Officer (since December 1990) of Tarragon, the Advisor to the Trust effective April 1, 1994;
President (February 1989 to March 1993) and Director (February to December 1989) of Basic Capital
Management, Inc. ("BCM"), the Advisor to the Trust (March 1989 to March 1994); General Partner (1987 to
March 1994) of Syntek Asset Management, L.P. ("SAMLP"), which is the General Partner of National
Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"); Director and President (March 1989 to
February 1994) and Secretary (March 1989 to December 1990) of Syntek
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C>
Asset Management, Inc. ("SAMI"), the Managing General Partner of SAMLP and a corporation owned by SCM;
President (1982 to October 1990) of Syntek Investment Properties, Inc. ("SIPI"), which has invested in,
developed and syndicated real estate through its subsidiaries and other related entities since 1973; Director
and President (1982 to October 1990) of Syntek West, Inc. ("SWI"); Vice President (1984 to October 1990) of
Syntek Finance Corporation; Director (1981 to December 1992), President (July 1991 to December 1992), Vice
President and Treasurer (January 1987 to July 1991) and Acting Chief Financial officer (May 1990 to February
1991) of American Realty Trust, Inc. ("ART"); practicing Attorney (since 1971) with the Law Offices of William
S. Friedman; Director and Treasurer (November 1989 to February 1991) of Carmel Realty Services, Inc. ("CRSI");
Limited Partner (January 1991 to December 1992) of Carmel Realty Services, Ltd. ("Carmel, Ltd."). Also, see
"Litigation and Claims Involving Mr. Friedman Related to Southmark Corporation" below.
SALLY HERNANDEZ-PINERO: Trustee since May 1994 (Independent) 42
Of Counsel (since October 1994) Kalkines, Arky, Zall and Bernstein, New York City; Chairwoman (since
February 1992) New York City Housing Authority; Deputy Mayor (January 1990 to February 1992) for
Finance and Economic Development, City of New York; Commissioner/Chairwoman of the Board of Directors
(February 1988 to December 1989) Financial Services Corporation of New York City; Director (since July
1994) of Consolidated Edison; Director (since April 1994) of Dime Savings Bank; Attorney at Law (since
1978).
DAN L. JOHNSTON: Trustee April 1990 to June 1990 and since February 1991 (Independent) 56
Partner in the law firm of Johnston, Kaplan and Lombardi (since 1995), New York City; Attorney in solo
practice in New York, New York (1991 to 1994); Director (since 1992) of the Complex Drug Investigation
and Prosecution Project for the Jefferson Institute for Justice Studies; Chief Counsel, Subcommittee on
Criminal Justice, U.S. House of Representatives (June 1990 to January 1991); Executive Director (1986
to 1990) of Prosecuting Attorney's Research Council, a nationwide organization of metropolitan
prosecutors which acts to further research to improve the prosecutorial function; Consultant (February
1985 to June 1990) to the Edna McConnell Clark Foundation, which supports efforts of District Attorneys
to reduce jail and prison overcrowding; Member (October 1987 to June 1990) of the Civilian Complaint
Review Board of the New York City Police Department; Project Director (March 1985 to February 1986) and
Consultant (January 1984 to March 1985) of the Vera Institute of Justice; County Attorney (March 1977
to March 1985) of Polk County, Des Moines, Iowa; Assistant Iowa Attorney General in charge of consumer
fraud division (1965); Trustee (December 1992 to May 1995) of VPT; and Director or Trustee (April 1990
to June 1990 and from February 1991 to January 1995) of CMET, IORT and TCI.
LANCE LIEBMAN: Trustee since March 1995 (Independent) 53
Dean and Lucy G. Moses Professor of Law (since 1991) Columbia Law School, New York City; Professor of
Law (1976 to 1991) and Associate Dean (1981 to 1984) Harvard Law School; Lecturer on Law (1990) Tokyo
University Law Faculty, Japan; Director (since 1991) of Greater New York Insurance Co. (both mutual and
stock companies); author of numerous articles published in a number of legal periodicals and seven
books; Attorney at Law (since 1967).
</TABLE>
7
<PAGE> 10
<TABLE>
<S> <C>
LAWRENCE G. SCHAFRAN: Trustee since March 1995 (Independent) 57
Managing General Partner (since 1984) L. G. Schafran & Associates, a real estate investment and
development firm in New York City; Director, Publicker Industries (since 1986) an Old Greenwich,
Connecticut NYSE listed holding company that operates through subsidiaries in manufacturing services;
Director, Capsure Holdings Corp. (since 1986), a Chicago, Illinois NYSE listed property and casualty
insurer; Director, Oxigene, Inc. (since March 1993), a New York pharmaceutical developer; Director,
Glasstech, Inc.* (since January 1995), Perrysberg, Ohio manufacturer of glass bending and tempering
equipment; and Director (since December 1993) and Member (since September 1994) and Chairman (since
December 1994) of the Executive Committee of The Dart Group Corporation, a Landover, Maryland NYSE
listed holding company engaged through subsidiaries in discount automotive parts and accessories, Crown
Bookstores, discount grocery stores, beverages, real estate and financial services.
RAYMOND V.J. SCHRAG: Trustee since October 1988 (Independent) 49
Attorney, Law Offices of Raymond V. J. Schrag in New York, New York (since January 1995); attorney, Law
Offices of Paul J. Schrag, in New York, New York (since 1975); Trustee (1986 to December 1989) of
Hidden Strength Mutual Funds; and Trustee or Director (October 1988 to August 1994) of TCI, IORT and
CMET; Trustee (October 1988 to May 1995) of VPT.
CARL B. WEISBROD: Chairman of the Board since March 1995 and Trustee since 50
February 1994 (Independent)
President (since 1994) Alliance for Downtown New York, Inc.; Trustee (February 1994 to May 1995) of
VPT; President and Chief Executive Officer (April 1990 to 1994) of New York City Economic Development
Corporation; President (May 1987 to April 1990) of 42nd Street Development Project, Inc. of New York
State Urban Development Corporation; Executive Director (March 1986 to May 1987) of Department of City
Planning of the City of New York; and Executive Director (July 1984 to March 1986) of City Volunteer
Corps of the City of New York.
</TABLE>
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES NAMED ABOVE.
LITIGATION AND CLAIMS INVOLVING MR. FRIEDMAN RELATED TO SOUTHMARK CORPORATION
Until January 1989, William S. Friedman, the President and a Trustee of
the Trust, was an executive officer and director of Southmark Corporation
("Southmark"), serving as Vice Chairman of the Board (since 1982), Director
(since 1980) and Secretary (since 1984) of Southmark. As a result of a deadlock
on Southmark's Board of Directors, Mr. Friedman and Gene E. Phillips, (who
served as Trustee of the Trust until December 31, 1992) reached a series of
related agreements (later modified) with Southmark on January 17, 1989
(collectively, the "Separation Agreement"), whereby Messrs. Friedman and
Phillips resigned their position with Southmark and certain of Southmark's
subsidiaries and affiliates. Southmark filed a voluntary petition in bankruptcy
under Chapter 11 of the United States Bankruptcy Code on July 14, 1989.
Subsequent to the filing of the Southmark bankruptcy, several lawsuits were
filed against Southmark, its former officers and directors (including Mr.
Friedman) and others, alleging, among other things, that such persons and
_________________________
* On May 24, 1993, Glasstech, Inc. filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. An Order confirming a plan of
reorganization became effective January 3, 1995 which is the same day Mr.
Schafran became a director of Glasstech, Inc.
8
<PAGE> 11
entities misrepresented the financial condition of Southmark. Mr. Friedman
denies all of such allegations. Those lawsuits in which Mr. Friedman was also
a defendant are summarized below. THE TRUST IS NOT A DEFENDANT IN ANY OF THESE
LAWSUITS.
In Burt v. Grant Thornton, Gene E. Phillips and William S. Friedman,
the plaintiff, a purchaser of Southmark preferred stock, alleged that the
defendants disseminated false and misleading corporate reports, financial
analysis and news releases in order to induce the public to continue investing
in Southmark. Grant Thornton served as independent certified public
accountants to Southmark and, for 1988 and 1989, to the Trust. The plaintiff
sought actual damages in the amount of less than $10,000, treble damages and
punitive damages in an unspecified amount plus attorneys' fees and costs. This
case was settled in October 1993 for a nominal payment.
Consolidated actions entitled Salsitz v. Phillips et al., purportedly
brought as class actions on behalf of purchasers of Southmark securities during
specified periods, were pending before the United States District court for the
Northern District of Texas. Mr. Friedman entered into a settlement agreement
with the plaintiffs, which was approved by the court in October 1993.
Mr. Friedman also served as a director of Pacific Standard Life
Insurance Company ("PSL"), a wholly-owned subsidiary of Southmark, from October
1984 to January 1989. In a proceeding brought by the California Insurance
commissioner, a California Superior Court appointed a conservator for PSL on
December 11, 1989. On October 12, 1990, the California Insurance Commissioner
filed suit against the former directors of PSL (including Mr. Friedman) seeking
damages of $12 million and additional punitive damages. Such lawsuit alleged,
among other things, that the defendants knowingly and willfully conspired among
themselves to breach their duties as directors of PSL to benefit Southmark.
Such suit further alleged that PSL's board of directors failed to convene
meetings and delegated to Mr. Phillips authority to make decisions regarding
loans, investments and other transfers and exchanges of PSL assets. In August
1993, five former directors of PSL, including Mr. Friedman, settled this
lawsuit without admitting any liability.
One of Southmark's principal businesses was real estate syndication
and from 1981 to 1987 Southmark raised over $500 million in investments from
limited partners of several hundred limited partnerships. Seven lawsuits were
filed by investors alleging breach of fiduciary duties on the part of Mr.
Friedman and others. Two cases were settled in July and October, 1993 for
nominal payments. In one case, all claims were dismissed by the Court and the
defendants (including Mr. Friedman) were awarded sanctions against plaintiffs'
counsel. The other four cases were voluntarily dismissed by the plaintiffs
without payment of any kind by the defendants.
San Jacinto Savings Association. On November 30, 1990, San Jacinto
Savings Association ("SJSA"), a savings institution that had been owned by
Southmark since 1983, was placed under conservatorship of the Resolution Trust
Corporation ("RTC") by federal banking authorities. The Office of Thrift
Supervision ("OTS") also conducted a formal investigation of SJSA and its
affiliates. During late November 1994, Mr. Friedman entered into certain
agreements with the RTC and OTS settling all claims relating to his involvement
with SJSA. Pursuant to such arrangements, Mr. Friedman and certain other
respondents (including Mr. Phillips) agreed to pay restitution over a 10 year
period in the amount of $20,000,000. Mr. Friedman's liability terminates when
the respondents as a group shall have paid a total of $5,000,000 out of the
total requirement. Mr. Friedman also consented to an order prohibiting him
from participating in the conduct of the affairs of an insured depository
institution without the prior written approval of the Director of OTS, and
agreed to submit certain information to the OTS on a periodic basis. Such
arrangements constitute an order limiting Mr. Friedman from engaging in a type
of business practice.
BOARD COMMITTEES AND MEETINGS
The Trust's Board of Trustees held eight meetings and acted by written
consent four times during 1994. For such year, no incumbent Trustee attended
fewer than 75% of the aggregate of (i) the total number of meetings held by the
Board of Trustees during the period for which he had been a Trustee and
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<PAGE> 12
(ii) the total number of meetings held by all committees of the Board of
Trustees on which he served during the periods that he served.
The Trust's Board of Trustees has an Audit committee, the function of
which is to review the Trust's operating and accounting procedures. The
current members of the Audit committee, all of whom are Independent Trustees,
are Messrs. Schrag (Chairman), Johnston, and Weisbrod. The Audit Committee met
one time during 1994.
In March 1995, the Board established an Advisory Review Committee to
supervise the implementation and performance of the Advisory Agreement with
particular emphasis on the allocation of investment opportunities among
entities affiliated with Tarragon. The members of the Advisory Review
Committee are Messrs. Weisbrod (Chairman) and Cohen and Ms. Hernandez-Pinero.
The Trust's Board of Trustees does not have Nominating or Compensation
Committees.
Until February, 1995, the Trust's Board of Trustees had a Related
Party Transaction Committee which reviewed and made recommendations to the
Board of Trustees with respect to transactions involving the Trust and any
other party or parties related to or affiliated with the Trust, any of its
Trustees or any of their affiliates, and a Litigation Committee which reviewed
litigation involving Messrs. Phillips and Friedman. Such committees were
disbanded in February, 1995, and their responsibilities assumed by the
Independent Trustees. Messrs. Johnston (Chairman), Davis, Etnire, Schrag, Sims
and Stokely, all of whom were Independent Trustees, were the members of the
Related Party Transaction Committee, while Messrs. Johnston (Chairman), Etnire,
Jordan, Schrag, Sims and Stokely comprised the Litigation Committee. During
1994, the Related Party Transaction Committee met three times and the
Litigation Committee met three times.
EXECUTIVE OFFICERS
The following persons currently serve as executive officers of the
Trust: William S. Friedman, President and Chief Executive Officer and John A.
Doyle, Executive Vice President, Chief Operating Officer and Chief Financial
Officer. Their positions with the Trust are not subject to a vote of
shareholders. The age, terms of service, all positions and offices with the
Trust, Tarragon or BCM, other principal occupations, business experience and
directorships with other companies during the last five years or more of Mr.
Friedman is set forth above. Corresponding information regarding Mr. Doyle is
set forth below.
JOHN A. DOYLE: Age 37, Executive Vice President and Chief Operating Officer
(since February 1994) and Chief Financial officer (since May 1995).
Trustee, Executive Vice President and Chief Operating Officer (since
February 1994) and Chief Financial Officer (since May 1995) of VPT;
Director, President, Chief Operating Officer and 50% shareholder
(since February 1994) of Tarragon; Trustee (February 1994 to April
1994) of the Trust; President and Chairman of the Board (since
December 1993) of Investors General Acquisition Corp., which owns 100%
of the shares of Investors General, Inc.; Director, President and
Chief Executive Officer (since June 1992) of Garden Capital
Incorporated; Director (since October 1993) of Home States Holdings;
Director and Chief Operating Officer (October 1990 to December 1991)
of ConCap Equities, Inc.; President, Chief Executive Officer, Chief
Operating Officer and sole Director (April 1989 to October 1990) of
Consolidated Capital Equities Corporation ("CCEC"); Director of
Restructuring, Reorganization and Insolvency Services (February 1987
to April 1989) of Arthur Young & Co., independent certified public
accountants; and Certified Public Accountant (since 1985).
10
<PAGE> 13
OTHER OFFICERS
Although not executive officers of the Trust, the following persons
currently serve as officers of the Trust: Executive John C. Stricklin, Senior
Vice President; Chris W. Clinton, Senior Vice President - Asset Management; R.
W. Lockhart, Senior Vice President - Asset Management; Todd C. Minor, Senior
Vice President - Mortgage Servicing and Financing; Katie Jackson - Vice
President - Chief Accounting Officer; David L. Miller, Vice President - Legal
& Secretary; and Ivan Roth, Treasurer. Their positions with the Trust are not
subject to a vote of shareholders. Their ages, terms of service, all positions
and offices with the Trust, BCM or Tarragon, other principal occupations,
business experience and directorships with other companies during the last five
years or more are set forth below.
JOHN C. STRICKLIN: Age 48, Executive Vice President (May 1995), Senior Vice
President - Real Estate (May 1994 to April 1995) and Vice
President-Real Estate (February 1994 to April 1994).
Executive Vice President (since May 1995), Senior Vice President -
Real Estate (May 1994 to April 1995) and Vice President-Real Estate
(February 1994 to April 1994) of VPT; Senior Vice President (since
February 1994) of Tarragon; Vice President (June 1992 to January 1994)
of Carmel Realty, Inc.; Real Estate Broker (June 1989 to May 1992)
with Carmel, Ltd.; Executive Vice President (June 1980 to May 1989) of
Windsor Financial Corporation; and Vice President (June 1975 to June
1980) of Syntek Corporation.
CHRIS W. CLINTON: Age 47, Senior Vice President - Asset Management (since May
1995) and Senior Vice President - Commercial Asset Management (March
1994 to April 1995).
Senior Vice President - Asset Management (since May 1995) and Senior
Vice President -Commercial Asset Management (March 1994 to April 1995)
of VPT; Senior Vice President (since March 1994) of Tarragon; Vice
President (October 1988 to March 1994) of ART, CMET, IORT, NIRT, TCI,
VPT and BCM.
TODD C. MINOR: Age 36, Senior Vice President - Mortgage Servicing and
Financing (since May 1995) and Senior Vice President - Finance (March
1994 to April 1995 and from July 1993 to January 1994).
Senior Vice President - Mortgage Servicing and Financing (since May
1995) and Senior Vice President - Finance (March 1994 to April 1995
and from July 1993 to January 1994) of VPT; Senior Vice President
(since March 1994) of Tarragon; Senior Vice President -Finance (from
July 1993 to March 1994) of BCM, ART, CMET, IORT and TCI; Vice
President (from January 1989 to July 1993) of BCM and (from April 1991
to July 1993) of ART, CMET, IORT, NIRT, TCI and VPT.
R. W. LOCKHART: Age 50, Senior Vice President - Asset Management (since May
1995).
Senior Vice President - Asset Management (since May 1995) of VPT;
Senior Vice President (since March 1994) of Tarragon; Independent
Consultant (March 1992 to February 1994); Senior Vice President (July
1989 to March 1992) of BCM and CRSI.
KATIE JACKSON: Age 33, Vice President - Chief Accounting Officer (since March
1994).
Vice President - Chief Accounting Officer (since March 1994) of VPT;
Vice President -Chief Accounting Officer (since March 1994) of
Tarragon; Accounting Manager for BCM (October 1990 to March 1994);
Financial Analyst of DSC Communications Corp. (August 1987 to October
1990); Certified Public Accountant (since 1988).
11
<PAGE> 14
DAVID L. MILLER: Age 30, Vice President - Legal (since May 1995 ) and
Secretary (since April 1995).
Vice President - Legal (since May 1995) & Secretary (since April 1995)
of VPT; Vice President - Legal (since July 1994) of Tarragon;
Associate (October 1991 to June 1994) Backenroth & Grossman, a New
York City law firm; Attorney at law (since 1991); prior thereto from
1988 to 1991, law student at Brooklyn Law School, Brooklyn, New York.
IVAN ROTH: Age 59, Treasurer (since February 1994) and Chief Financial Officer
(February 1994 to April 1995).
Treasurer (since February 1994) and Chief Financial Officer (February
1994 to April 1995) of VPT; Treasurer (since February 1994) of
Tarragon; Treasurer and Chief Financial Officer (1978 to 1992) of
Servico, Inc.*; Financial Controller (1970 to 1978) of New York Motel
Enterprises, Inc.; General Manager (1968 to 1970) of Affiliated
Financial Corporation; and Certified Public Accountant (since 1968).
In addition to the foregoing officers, the Trust has other officers
who are not listed herein.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Trust's Trustees,
executive officers, and any persons holding more than ten percent of the
Trust's shares of beneficial interest are required to report their ownership of
the Trust's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Trust is required to report any failure to file
by these dates during 1994. During 1994, all of these filing requirements were
satisfied by its Trustees and executive officers and ten percent holders except
as noted below. In making these statements, the Trust has relied on the
written representations of its incumbent Trustees and executive officers and
its ten percent holders and copies of the reports that they have filed with the
Commission. The following reports filed under Section 16(a) of the Securities
Exchange Act of 1934, as amended, during or with respect to the fiscal year
ended December 31, 1994 were not filed on a timely basis: Initial Forms 3 of
John A. Doyle, Ivan Roth, John C. Stricklin, Chris W. Clinton and Katie
Jackson.
THE ADVISOR
Although the Trust's Board of Trustees is directly responsible for
managing the affairs of the Trust and for setting the policies which guide it,
the day-to-day operations of the Trust are performed by a contractual advisory
firm under the supervision of the Trust's Board of Trustees. The duties of the
Advisor include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources for the Trust. The Advisor also
serves as a consultant in connection with the business plan and investment
policy decisions made by the Trust's Board of Trustees.
CCEC was the sponsor and original advisor of the Trust. CCEC was
replaced as advisor on August 1, 1988, by Consolidated Advisors, Inc. ("CAI"),
the parent of CCEC. On December 2, 1988, CCEC filed a petition seeking
reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States District Court for the Northern District of Texas. Mr. Friedman
was a director of CCEC and CAI from March 1988 through January 1989. Mr. Doyle
was President, Chief Executive Officer, Chief Operating Officer and sole
director of CCEC from 1989 through October 1990. Southmark was a controlling
shareholder of The Consolidated Companies, the parent of CAI, from March 1988
through February 1989.
_____________________________
*On September 19, 1990, Servico, Inc. filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code and was reorganized effective
August 5, 1992.
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<PAGE> 15
BCM served as the Trust's advisor from March 1989 to March 31, 1994.
Mr. Friedman served as President of BCM until May 1, 1993. BCM is beneficially
owned by a trust for the benefit of the children of Mr. Phillips, who served as
a Trustee of the Trust until December 7, 1992. At the Trust's annual meeting
of shareholders held on April 26, 1993, the Trust's shareholders approved the
renewal of the Trust's Advisory Agreement with BCM. BCM resigned as advisor to
the Trust effective March 31, 1994.
On February 10, 1994, the Trust's Board of Trustees selected Tarragon
to replace BCM as the Trust's advisor. Since April 1, 1994, Tarragon has
provided advisory services to the Trust under an advisory agreement. Mr.
Friedman serves as a director and Chief Executive Officer of Tarragon.
Tarragon is owned by Lucy N. Friedman, Mr. Friedman's wife, and Mr. Doyle, who
serves as a director, President and Chief Operating Officer of Tarragon and
Executive Vice President of the Trust. The Friedman and Doyle families
together own approximately 33% of the outstanding shares of the Trust.
The provisions of the Trust's initial Advisory Agreement dated
February 15, 1994 with Tarragon (the "Initial Advisory Agreement") were
substantially the same as to those of the BCM advisory agreement except for the
annual base advisory fee and the elimination of the net income fee. The BCM
advisory agreement provided for BCM to receive an advisory fee comprised of a
gross asset fee of .0625% per month (.75% per annum) of the average of the
gross asset value of the Trust (total assets less allowance for amortization,
depreciation or depletion and valuation reserves) and an annual net income fee
equal to 7.5% per annum of the Trust's net income. The Tarragon Initial
Advisory Agreement called for an annual base advisory fee of $100,000 (which
was paid upon execution on April 1, 1994) plus an incentive advisory fee equal
to 16% of the Trust's adjusted funds from operations before deduction of the
advisory fee. Adjusted funds from operations was defined as net income (loss)
before gains or losses from the sales of properties and debt restructurings
plus depreciation and amortization plus any loss due to the writedown or sale
of any real property or mortgage loan acquired prior to January 1, 1989. The
incentive fee was cumulative within any fiscal year to maintain the 16% per
annum rate.
The following provisions were included in both the BCM advisory
agreement and the Tarragon Initial Advisory Agreement:
(1) The Advisor or an Affiliate of the Advisor was to receive an
acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate for the Trust equal
to the lessor of (i) up to 1% of the cost of acquisition,
inclusive of commissions, if any, paid to non-affiliated
brokers or (ii) the compensation customarily charged in
arm's-length transactions by others rendering similar property
acquisition services as an ongoing public activity in the same
geographical location and for comparable property; provided
that the purchase price of each property (including
acquisition commissions and all real estate brokerage fees)
could not exceed such property's appraised value at
acquisition.
(2) The Advisor was to receive an incentive sales compensation
equal to 10% of the amount, if any, by which the aggregate
sales consideration for all real estate sold by the Trust
during such fiscal year exceeds the sum of (i) the cost of
each such property as originally recorded in the Trusts's
books for tax purposes (without deduction for depreciation,
amortization or reserve for losses), (ii) capital improvements
made to such assets during the period owned by the Trust, and
(iii) all closing costs (including real estate commissions)
incurred in the sale of such property. However, no incentive
fee was to be paid unless (a) such real estate sold in such
fiscal year, in the aggregate, had produced an 8% simple
annual return of the Trust's net investment including capital
improvements, calculated over the Trust's holding period
before depreciation and inclusive of operating income and
sales consideration and (b) the aggregate net operating income
from all real estate owned by the Trust for each of the prior
and current fiscal years was to be at least 5% higher in the
current fiscal year than in the prior fiscal year.
(3) The Advisor or An Affiliate of the Advisor was to receive a
mortgage or loan acquisition fee with respect to the
acquisition or purchase from an unaffiliated party of an
existing
13
<PAGE> 16
mortgage or loan by the Trust equal to the lesser of (i) 1% of
the amount of the mortgage or loan purchased or (ii) a
brokerage or refinancing fee which is reasonable and fair
under the circumstances. Such fee was not to be paid in
connection with the origination or funding by the Trust of any
mortgage loan.
(4) The Advisor or an Affiliate of the Advisor was also to receive
a mortgage brokerage and equity refinancing fee for obtaining
loans to the Trust or refinancing on Trust properties equal to
the lesser of (i) 1% of the amount of the loan or the amount
refinanced or (ii) a brokerage or refinancing fee which is
reasonable and fair under the circumstances; provided,
however, that no such fee was to be paid on loans from the
Advisor or an Affiliate of the Advisor without the approval of
the Trust's Board of Trustees. No fee was to be paid on loan
extensions.
(5) The Advisor or any Affiliate of the Advisor must pay to the
Trust one-half of any compensation received from third parties
with respect to the origination, placement or brokerage of any
loan made by the Trust, provided, however, that the
compensation retained by the Advisor or any Affiliate of the
Advisor shall not exceed the lesser of (i) 2% of the amount of
the loan committed by the Trust or (ii) a loan brokerage
commitment fee which is reasonable and fair under the
circumstances.
The Initial Advisory Agreement was replaced effective April 1, 1995
with the revised Advisory Agreement. At their March 9, 1995 meeting, the Board
of Trustees approved certain revisions to the Initial Advisory Agreement with
Tarragon effective April 1, 1995 which is to be submitted to the Shareholders
for approval at the Annual Meeting. Such revisions amended the Initial
Advisory Agreement and are contained in a full restatement of the Initial
Advisory Agreement. The revised Advisory Agreement is very similar to the
Initial Advisory Agreement, but eliminates the $100,000 base annual fee and
makes various technical changes designed to further clarify the
responsibilities of Tarragon. In addition, the revised Advisory Agreement
provides that real estate commissions shall be payable to Tarragon and its
affiliates only following specific approval by the Board of Trustees for each
transaction rather than pursuant to a general agreement. See "Proposal Two -
Approval of the Advisory Agreement" for a description of the compensation under
the revised Advisory Agreement.
Under the Tarragon Advisory Agreement, the Advisor is required to
formulate and submit annually for approval by the Trust's Board of Trustees a
budget and business plan for the Trust containing a twelve-month forecast of
operations and cash flow, a general plan for asset sales or acquisitions,
lending, foreclosure and borrowing activity, and other investments, and the
Advisor is required to report quarterly to the Trust's Board of Trustees on the
Trust's performance against the business plan. In addition, all transactions
or investments by the Trust shall require prior approval by the Trust's Board
of Trustees unless they are explicitly provided for in the approved business
plan or are made pursuant to authority expressly delegated to the Advisor by
the Trust's Board of Trustees.
The Tarragon Advisory Agreement also requires prior approval of the
Trust's Board of Trustees for retention of all consultants and third party
professionals, other than legal counsel. The Advisory Agreement provides that
the Advisor shall be deemed to be in a fiduciary relationship to the Trust's
shareholders; contains guidelines for the Advisor's allocation of investment
opportunities as among itself, the Trust and other entities it advises; and
contains a broad standard governing the Advisor's liability for losses by the
Trust. Under the Advisory Agreement, none of the Advisor nor any of its
shareholders, directors, officers or employees shall be liable to the Trust,
the Trustees or the holders of securities of the Trust for any losses from the
operations of the Trust if the Advisor had determined, in good faith, that the
course of conduct which caused the loss or liability was in the best interests
of the Trust and the loss or liability was not the result of negligence or
misconduct by the Advisor. In no event will the directors, officers or
employees of the Advisor be personally liable for any action or inaction unless
it was the result of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
14
<PAGE> 17
Under the Advisory Agreement (as required by the Trust's Declaration
of Trust) all or a portion of the annual advisory fee must be refunded by the
Advisor to the Trust if the Operating Expenses of the Trust (as defined in the
Trust's Declaration of Trust) exceed certain limits specified in the
Declaration of Trust based on the book value, net asset value and net income of
the Trust during such fiscal year. The operating expenses of the Trust did not
exceed such limitation in 1992, 1993 or 1994.
Also, if the Trust were to request that the Advisor render services to
the Trust other than those required by the advisory agreement, the Advisor or
an affiliate of the Advisor would be separately compensated for such additional
services on terms to be agreed upon from time to time. In the past, the Trust
had hired Carmel, Ltd., an affiliate of BCM, to provide property management
services for the Trust's properties. Since April 1, 1994, Tarragon has
provided property management services for the Trust's properties. The Trust
also engaged, on a non-exclusive basis, Carmel Realty, Inc. ("Carmel Realty"),
also an affiliate of BCM, to perform brokerage services for the Trust until
March 31, 1994.
Approval, and any renewal, of the Tarragon Advisory Agreement is
required by the Trust's shareholders.
The Advisory Agreement may only be assigned with the prior consent of
the Trust.
The directors and principal officers of Tarragon are set forth below:
WILLIAM S. FRIEDMAN: Director and Chief Executive Officer
JOHN A. DOYLE: Director, President and Chief Operating
Officer
JOHN C. STRICKLIN: Executive Vice President
CHRIS W. CLINTON: Senior Vice President
ROBERT W. LOCKHART: Senior Vice President
TODD C. MINOR: Senior Vice President
KATIE JACKSON: Vice President - Chief Accounting Officer
DAVID L. MILLER: Vice President - Legal and Secretary
IVAN ROTH Treasurer
PROPERTY MANAGEMENT
From February 1, 1990 until March 31, 1994, affiliates of BCM
provided property management services to the Trust. Carmel, Ltd. provided
property management services for a fee of 5% or less of the monthly gross rents
collected on the properties under management. In many cases, Carmel, Ltd.
subcontracted with other entities for the provision of the property-level
management services to the Trust at various rates. The general partner of
Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) SWI, of
which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a trust
for the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracted
the property-level management and leasing of eleven of the Trust's commercial
properties and the commercial properties owned by two of the real estate
partnerships in which the Trust is a partner to Carmel Realty, which is owned
by SWI. Carmel, Ltd. resigned as property manager for the Trust's properties
effective March 31, 1994.
Commencing April 1, 1994, Tarragon provides property management
services to the Trust for a fee of 4.5% of the monthly gross rents collected on
apartment properties and 1.5% to 4% of the monthly gross rents collected on
commercial properties. Tarragon intends to subcontract with other entities for
the provision of most of the property-level management services to the Trust.
15
<PAGE> 18
REAL ESTATE BROKERAGE
Prior to December 1, 1992, affiliates of BCM provided brokerage
services to the Trust and received brokerage commissions in accordance with the
advisory agreement. Effective December 1, 1992, the Trust's Board of Trustees
approved the non-exclusive engagement by the Trust of Carmel Realty to provide
brokerage services for the Trust. Such agreement terminated March 31, 1994.
Carmel Realty was entitled to receive a real estate acquisition commission for
locating and negotiating the lease or purchase by the Trust of any property
equal to the lesser of (i) up to 3% of the purchase price, inclusive of
commissions, if any, paid by the Trust to other brokers or (ii) the
compensation customarily charged in arm's-length transactions by others
rendering similar property acquisition services in the same geographical
location and for comparable property. Any commission paid to Carmel Realty by
the seller was to be credited against the commission to be paid by the Trust.
Carmel Realty was also entitled to receive a real estate sales commission for
the sale of each Trust property equal to the lesser of (i) 3% (inclusive of
fees, if any, paid by the Trust to other brokers) of the sales price of each
property or (ii) the compensation customarily charged in arm's-length
transactions paid by others rendering similar services in the same geographic
location for comparable property.
Since March 1, 1994, the Trust has also engaged Tarragon to
perform brokerage services for the Trust. In March 1994, the Trust purchased a
198 unit apartment complex in Fort Worth, Texas for cash subject to an existing
first mortgage and, in connection with such acquisition, paid $176,000 of real
estate brokerage and acquisition commissions, based upon the $4.4 million
purchase price of the property, to Tarragon. Tarragon is available to and may
act as a broker in both purchases and sales of Trust property with commissions
payable in amounts customarily charged in arms-length transactions by others
rendering similar property acquisition services in the same geographical
location and for comparable property.
EXECUTIVE COMPENSATION
The Trust has no employees, payroll or benefit plans and pays no
direct compensation to the officers of the Trust. The Trustees and officers of
the Trust who are also officers or employees of the Trust's Advisor are
compensated by the Advisor. Such affiliated Trustees and officers of the Trust
perform a variety of services for the Advisor and the amount of their
compensation is determined solely by the Advisor. Compensation of Trust
officers responsible for legal and accounting services is allocated among the
various entities for which Tarragon serves as advisor and none of those
individual's annual salary exceeds $100,000.
The only direct remuneration paid by the Trust is to the Trustees
who are not officers or directors of Tarragon or their affiliated companies.
The Independent Trustees (i) review the business plan of the Trust to determine
that it is in the best interest of the Trust's shareholders, (ii) review the
Trust's contract with the Advisor, (iii) supervise the performance of the
Trust's advisor and review the reasonableness of the compensation which the
Trust pays to its advisor in terms of the nature and quality of services
performed, (iv) review the reasonableness of the total fees and expenses of the
Trust and (v) select, when necessary, a qualified independent real estate
appraiser to appraise properties acquired by the Trust. Prior to March 9,
1995, the Independent Trustees received compensation in the amount of $6,000
per year, plus reimbursement for expenses and each Independent Trustee received
(i) $3,000 per year for each committee of the Board of Trustees on which he
serves, (ii) $2,500 per year for each committee chairmanship and (iii) $1,000
per day for any special services rendered by him to the Trust outside of his
ordinary duties as Trustee, plus reimbursement for expenses, provided such
services ares specifically requested by the Board.
During 1994, $42,750 was paid to the Independent Trustees in total
Trustees' fees for all services, including the $6,000 annual fee for service
and 1994 special service fees: Willie K. Davis (a Trustee from October 1986 to
March 31, 1995), $4,500; Geoffrey C. Etnire (a Trustee from January 1993 to
March 9, 1995), $7,862; Dan L. Johnston, $12,000; A. Bob Jordan (a Trustee from
October 1992 to June 1994), $3,500; Raymond V.J. Schrag, $7,250; Bennett B.
Sims (a Trustee from April 1990 to August 1994), $3,000; Ted P. Stokely (a
Trustee from April 1990 to August 1994), $3,000, and Carl Weisbrod, $7,000.
Also during 1994, Trustee's fees paid related to 1995 services totalled $12,000
and included Irving E. Cohen, $6,000, and Sally Hernandez-Pinero, $6,000.
16
<PAGE> 19
Effective March 9, 1995, the Trust will pay the Independent
Trustees (i) $15,000 annual fee, (ii) $2,000 per year for each committee of the
Board of Trustees on which he (she) serves and an additional $1,000 per year
for the Chair of each committee, (iii) $25,000 per year to the Chairman of the
Board of Trustees (Mr. Weisbrod), inclusive of any committee fees, and (iv)
$1,000 per day for any special services rendered to the Trust outside of the
ordinary duties as Trustee, plus reimbursement for expenses, provided such
services are specifically requested by the Board.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total
shareholder return on the Trust's shares of beneficial interest with the
Standard & Poor's 500 Stock Index ("S&P 500 Index") and the National
Association of Real Estate Investment Trusts, Inc. Hybrid REIT Total Return
Index ("REIT Index"). The comparison assumes that $100 was invested on
December 31, 1989 in the Trust's shares of beneficial interest and in each of
the indices and further assumes the reinvestment of all dividends. Past
performance is not necessarily an indicator of future performance.
COMPARISON OF FIVE FISCAL YEARS ENDED DECEMBER 31, 1994
COMPARATIVE TOTAL RETURN
[GRAPH]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
THE TRUST 100 106 171 113 315 334
S&P 500 STOCK INDEX 100 97 126 136 150 152
NAREIT HYBRID REIT 100 72 100 116 141 147
INDEX
</TABLE>
The data set forth in the above graph and related table was obtained from the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"). All of
the data is based upon the last closing price of the month for all tax-
qualified REITs listed on the New York Stock Exchange ("NYSE"), American Stock
Exchange ("AMEX") and the NASDAQ National Market System. The data is market
weighted. The total return
17
<PAGE> 20
calculation is based upon the weighting at the beginning of the period.
Dividends are included in the month based upon their payment date. The total
return index includes dividends reinvested on a monthly basis. At month-end
December 1994, there were 21 tax-qualified REITs in the NAREIT Hybrid REIT
Total Return Index with a total market capitalization of $3 billion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS. On February 10, 1994, the Trust's
Board of Trustees selected Tarragon to replace BCM as the Trust's advisor
effective April 1, 1994 under an advisory agreement. Mr. Friedman serves as
director and Chief Executive Officer of Tarragon. Tarragon is owned by Lucy N.
Friedman, Mr. Friedman's wife, and Mr. Doyle, who serves as President and Chief
Operating Officer of Tarragon and Trustee and Executive Vice President of the
Trust. The Friedman and Doyle families together own approximately 33% of the
outstanding shares of the Trust.
Also on February 10, 1994, VPT's Board of Trustees selected
Tarragon to replace BCM as VPT's advisor commencing March 1, 1994. Three of
the Trustees of the Trust together with John A. Doyle also presently serve as
trustees of VPT. The Trust's Trustees owe fiduciary duties to VPT as well as
to the Trust under applicable law. VPT has the same relationship with Tarragon
as the Trust.
Tarragon occupies office space at VPT's One Turtle Creek
Office/Retail Complex.
From February 1, 1990 until March 31, 1994, affiliates of BCM
provided property management services to the Trust. Carmel, Ltd. provided
property management services for a fee of 5% or less of the monthly gross rents
collected on the properties under management. In many cases, Carmel, Ltd.
subcontracted with other entities for the property-level management services
to the Trust at various rates. The general partner of Carmel, Ltd. is BCM.
The limited partners of Carmel, Ltd. are (i) SWI, of which Mr. Phillips is the
sole shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel, Ltd. subcontracted the property-level
management and leasing of eleven of the Trust's commercial properties and the
commercial properties owned by two of the real estate partnerships in which the
Trust is a partner to Carmel Realty, which is owned by SWI. Carmel, Ltd.
resigned as property manager for the Trust's properties effective March 31,
1994. Since April 1, 1994, Tarragon has provided property management services
to the Trust.
Effective December 1, 1992, the Trust engaged Carmel Realty, on a
non-exclusive basis, to provide brokerage services for the Trust. Carmel
Realty is owned by SWI. Such agreement terminated March 31, 1994. Also, see
"Real Estate Brokerage" above.
Messrs. Davis and Schrag served on the Fairness Committee of NRLP
(for which they each received $4,000 in 1993), whose function is to review
certain transactions between NRLP and its general partner and affiliates of
such general partner.
From April 1992 to December 31, 1993, Mr. Stokely (a Trustee of
the Trust from April 1990 until August 1, 1994) was employed as a Real Estate
Consultant for Eldercare, a nonprofit corporation engaged in the acquisition of
low income and elderly housing. Eldercare has a revolving loan commitment from
SWI which is owned by Mr. Phillips and affiliated with BCM. In addition, in
November 1991, the Trust funded a $230,000 loan to Eldercare. Eldercare filed
for bankruptcy protection in October 1993. At December 31, 1994, the Trust's
loan to Eldercare was in default.
TMC Realty Advisors, Inc. ("TMC"), a company of which Randall K.
Gonzalez (a Trustee of the Trust until February 18, 1994) is the Managing
Partner and President, provides property-level management services, as a sub-
contractor to Carmel, Ltd., for certain properties owned by the Trust. In 1993
and 1994, TMC earned fees of $58,000 and $19,750, respectively, for performing
such services.
TMC also provides property-level management services, as a
subcontractor to Carmel, Ltd., for properties owned by ART, CMET, NOLP and TCI
and, through April 1993, for a property owned by a
18
<PAGE> 21
partnership which includes IORT and TCI. Christon Company, ("Christon") a
company for which Mr. Gonzalez serves as Vice President, provides property
leasing services, as a subcontractor to Carmel, Ltd., to such partnership.
Randall K. Gonzalez is the son of Al Gonzalez, an ART director not affiliated
with BCM or Tarragon.
Since January 1, 1993, FMS, a company of which Mr. Davis (a
Trustee of the Trust from October 1988 to March 31, 1995) is Chairman,
President and sole shareholder, has been providing property-level management
services, as a subcontractor to Carmel, Ltd., for two properties owned by the
Trust. In 1993 and 1994, FMS earned fees of $54,000 and $55,886, respectively,
for performing such services.
During 1993, A. Bob Jordan, formerly a Trustee of the Trust from
October 1992 until June, 1994, performed legal services for BCM and its
affiliates, as well as for ART, TCI and the Trust. The Trust paid Mr. Jordan
$4,000 in legal fees and cost reimbursements in 1993 and $1,900 in legal fees
and cost reimbursements in 1994.
The Trust believes that such fees received by FMS, TMC and Mr.
Jordan were at least as favorable to the Trust as those that would be paid to
unaffiliated third parties for the performance of similar services.
RELATED PARTY TRANSACTIONS. Historically, the Trust has engaged
in and may continue to engage in business transactions, including real estate
partnerships, with related parties. Prior to January 11, 1995, all related
party transactions entered into by the Trust were to be approved by a majority
of the Trust's Board of Trustees, including a majority of the Independent
Trustees. In addition, the Related Party Transaction Committee of the Trust's
Board of Trustees was to review all such transactions prior to their submission
to the Trust's Board of Trustees for consideration. The Trust's management
believes that all of the related party transactions were at least as
advantageous to the Trust as could have been obtained from unrelated third
parties.
The Trust is a partner with CMET in the Sacramento Nine ("SAC 9")
and Income Special Associates ("ISA") partnerships. SAC 9, which currently
owns two office buildings in the Sacramento, California area, is owned 70% by
the Trust which is the non controlling partner. The SAC 9 partnership
agreement requires unanimous consent of both the Trust and CMET for any
material changes in the operations of SAC 9's properties, including sales,
refinancings and property management changes. ISA is a partnership in which
the Trust has a 40% interest and CMET holds a 60% interest. ISA in turn owns
all of Indcon, L.P. (formerly known as Adams Properties Associates) which owns
32 industrial warehouse facilities. The Indcon, L.P. partnership agreement
requires consent of both the Trust and CMET for any material changes in the
operations of the partnership properties, including sales, refinancings and
changes in property manager. Until March 9, 1995, Geoffrey C. Etnire, a
Trustee of CMET was also a Trustee of the Trust and until August 1994, Messrs.
Stokley and Sims, Trustees of CMET also served as Trustees of the Trust. Since
March 9, 1995, the Trust and CMET have no Trustee who serves on both boards.
On December 10, 1990, the Trust's Board of Trustees, based on the
recommendation of its Related Party Transaction Committee, authorized the
purchase of up to $1.0 million of the shares of beneficial interest of CMET
through negotiated or open market transactions. At December 31, 1993, the
Trust owned 54,500 shares of beneficial interest of CMET which it purchased in
1990 and 1991 through open market transactions, at a total cost to the Trust of
$250,000. In June 1994, the Trust sold 15,000 shares of beneficial interest of
CMET for $210,000 through open market transactions and as a result, recorded a
$141,000 gain on sale of investments during 1994. At December 31, 1994, the
aggregate market value of the remaining 39,500 CMET shares held by the Trust
was $592,500. During the first three months of 1995, the Trust sold the
remaining 39,500 CMET shares through open market transactions for $592,500 and,
as a result, recorded a $411,200 gain on sale of investments.
In December 1993, the Trust's Board of Trustees approved the
issuance of a $1 million convertible subordinated debenture to Mr. Doyle,
Executive Vice President of the Trust since February 1994, in exchange for his
10% participation in the profits of the Consolidated Capital Properties II
("CCP II") assets, which the Trust had acquired in November 1992. This
participation was granted as consideration for Mr.
19
<PAGE> 22
Doyle's services to the Trust in connection with the CCP II portfolio. The
debenture bears interest at a rate of 6% per annum, matures in five years and
is convertible into 84,615 the Trust shares of beneficial interest. Mr. Doyle
also serves as Director, President and Chief Operating Officer and is a 50%
shareholder of Tarragon, the Trust's advisor commencing April 1, 1994.
In 1993, the Trust paid BCM and its affiliates $1.5 million in
advisory fees, $21,000 in real estate and mortgage brokerage commissions and
$360,000 in property management fees and leasing commissions. In addition, as
provided in the advisory agreement, BCM received cost reimbursements from the
Trust of $627,000 in 1993.
In 1994, the Trust paid BCM and its affiliates $468,000 in
advisory fees, $103,000 in real estate and mortgage brokerage commissions and
$112,000 in property management fees and leasing commissions. In addition, as
provided in the advisory agreement, BCM received cost reimbursements from the
Trust of $140,000 in 1994.
In 1994, the Trust paid Tarragon $909,000 in advisory fees,
$267,000 in real estate and mortgage brokerage commissions and $285,000 in
property management fees and leasing commissions. In addition, as provided in
the advisory agreement, Tarragon received cost reimbursements from the Trust of
$999,000 in 1994.
RESTRICTIONS ON RELATED PARTY TRANSACTIONS. The Trust's
Declaration of Trust provides that:
"[t]he Trustees shall not . . . purchase, sell or lease any Real
Properties or Mortgages to or from . . . the Advisor or any of
[its] Affiliates," and that "[t]he Trustees shall not . . . make
any loan to . . . the Advisor or any of [its] Affiliates."
Moreover, the Declaration of Trust further provides that:
"[t]he Trust shall not purchase or lease, directly or indirectly,
any Real Property or purchase any Mortgage from the Advisor or any
affiliated Person, or any partnership in which any of the
foregoing may also be a general partner, and the Trust will not
sell or lease, directly or indirectly, any of its Real Property or
sell any Mortgage to any of the foregoing Persons." The
Declaration of Trust further provides that "the Trust shall not
directly or indirectly, engage in any transaction with any
Trustee, officer or employee of the Trust or any director, officer
or employee of the Advisor . . . or of any company or other
organization of which any of the foregoing is an Affiliate, except
for . . . [among other things] transactions with . . . the
Advisor or Affiliates thereof involving loans, real estate
brokerage services, real property management services, the
servicing of Mortgages, the leasing of real or personal property,
or other services, provided such transactions are on terms not
less favorable to the Trust than the terms on which nonaffiliated
parties are then making similar loans or performing similar
services for comparable entities in the same area and are not
entered into on an exclusive basis."
The Declaration of Trust defines "Affiliate" as follows:
"[A]s to any Person, any other Person who owns beneficially,
directly, or indirectly, 1% or more of the outstanding capital
stock, shares, or equity interests of such Person or of any other
Person which controls, is controlled by, or is under common
control with, such Person or is an officer, retired officer,
director, employee, partner, or trustee (excluding independent
trustees not otherwise affiliated with the entity) of such Person
or of any other Person which controls, is controlled by, or is
under common control with, such Person."
As discussed in "Related Party Transactions," above, since
September 1990, the Trust has invested in shares of CMET. As of December 31,
1994, the Trust owned 39,500 shares of CMET. CMET had the same advisor as the
Trust and certain of its Trustees were also trustees of CMET at the time such
shares
20
<PAGE> 23
were acquired. Under the terms of its Declaration of Trust, as amended, the
Trust is prohibited from holding the shares of CMET beyond July 30, 1996.
Prior to March 31, 1995, all remaining 39,500 CMET shares were sold in open
market transactions.
Prior to January 11, 1995, all related party transactions that the
Trust contemplated were to be reviewed by the Related Party Transaction
Committee of the Trust's Board of Trustees to determine whether such
transactions were (i) fair to the Trust and (ii) permitted by the Trust's
governing documents. Each of the members of the Related Party Transaction
Committee was a Trustee who is not an officer, director or employee of the
Trust's advisor, Tarragon, and is not an officer or employee of the Trust.
Such committee was disbanded in February, 1995 and its responsibilities assumed
by the Independent Trustees.
Pursuant to the terms of the Modification in the Olive case, which
became effective on January 11, 1995, any related party transaction which the
Trust may enter into prior to April 27, 1999, will require the unanimous
approval of the Trust's Board of Trustees. In addition, related party
transactions may only be entered into in exceptional circumstances and after a
determination by the Trust's Board of Trustees that the transaction is in the
best interests of the Trust and that no other opportunity exists that is as
good as the opportunity presented by such transaction.
PROPOSAL TWO
APPROVAL OF THE ADVISORY AGREEMENT
Section 4.2 of the Trust's Declaration of Trust provides that any
contract with the Advisor cannot have an initial term of more than two years
and must provide for annual renewal or extension thereafter, subject to
approval by the Shareholders of the Trust. Such provision also provides that
the Trustees shall not enter into such a contract with any person of which a
Trustee is an Affiliate unless such contract provides for renewal or extension
thereof by the affirmative vote of a majority of the Trustees who are not
Affiliates of such person. Such contract with the Advisor may be terminated
without penalty by the Advisor upon 120 days' written notice, or by action of
holders of a majority of the outstanding shares of the Trust without penalty,
or by the Trust without penalty by action of a majority of the Trustees,
including a majority of the Trustees not affiliated with the Advisor or any of
its Affiliates, upon 60 days' written notice in a manner to be set forth in the
contract with the Advisor.
In considering Proposal Two for the approval of the advisory
agreement, Shareholders should be aware that William S. Friedman, Trustee and
President of the Trust, is a director and the Chief Executive Officer of
Tarragon. Tarragon is owned by Lucy N. Friedman, Mr. Friedman's wife, and John
A. Doyle, Executive Vice President of the Trust who also serves as a director,
President and Chief Operating Officer of Tarragon. If the advisory agreement
is approved, Tarragon will be entitled to receive payments of certain fees from
the Trust for the services it will perform. In addition, Tarragon serves as
advisor to other entities engaged in real estate investment activities that are
similar to those of the Trust and which may compete with the Trust in
purchasing, selling, leasing and financing real estate and related investments.
On February 10, 1994, the Trust's Board of Trustees selected
Tarragon to replace BCM as the Trust's Advisor commencing April 1, 1994. At
such meeting, the Board of Trustees reviewed an advisory service proposal from
Tarragon which contained a copy of a proposed advisory agreement. Such
proposal disclosed the ownership of Tarragon, provided for an arrangement
similar to the prior BCM advisory agreement (except for the base fee), and
advised that Tarragon and its affiliates would undertake to inform the Board of
Trustees of all real estate investments Tarragon makes for its own account or
for the account of its principals and that Tarragon would allocate all
investment opportunities to those entities which have had uninvested funds for
the longest period of time. At that time, the Board of Trustees considered
only BCM (the then Advisor) and Tarragon; no listing of material factors (or
the weight given to each) is available; and the Board of Trustees approved the
engagement of Tarragon to replace BCM as the Trust's advisor.
21
<PAGE> 24
Since April 1, 1994, Tarragon has provided advisory services to
the Trust under an Advisory Agreement dated February 15, 1994 between the Trust
and Tarragon (the "Initial Advisory Agreement"). The provisions of the Trust's
Initial Advisory Agreement with Tarragon were substantially the same as those
of the BCM Advisory Agreement except for the annual base advisory fee and the
elimination of the net income fee. The Tarragon Initial Advisory Agreement
called for an annual base advisory fee of $100,000 plus an incentive advisory
fee equal to 16% of the Trust's Adjusted Funds From Operations before deduction
of the advisory fee. Adjusted Funds From Operations is defined as net income
(loss) before gains or losses from the sale of properties and debt
restructuring plus depreciation and amortization plus any loss due to the
write-down or sale of any real property or mortgage loan acquired prior to
January 1, 1989.
At their March 9, 1995 meeting, a majority of the Board of
Trustees approved certain revisions to the Initial Advisory Agreement with
Tarragon. Prior to March 9, 1995, a group consisting of certain of the
independent Trustees (Messrs. Weisbrod, Cohen and Johnston), as the Advisory
Agreement Review Committee, carefully reviewed the Initial Advisory Agreement,
the performance of Tarragon and the results of operations of the Trust during
the first year under the Initial Advisory Agreement. Such committee concluded
that the Trust's performance with Tarragon is satisfactory, that similarly
situated "REITs" have higher overall general and administrative costs than the
Trust, and that the cost to the Trust of internal administration would be much
greater than the cost of continuing with Tarragon. Based upon such review,
such Committee recommended to the Board of Trustees approval of the Advisory
Agreement, as amended by the modifications to be effective April 1, 1995; no
listing of material factors (or weight given to each) is available; and the
Board of Trustees, by a majority, approved the amendments to the Initial
Advisory Agreement to result in the Advisory Agreement. Mr. Schafran (who was
elected a Trustee at the March 9, 1995 meeting) voted against approval, stating
that he did not have sufficient familiarity with the materials reviewed by the
Committee; Mr. Friedman abstained from voting, and all other Trustees voted
unanimously to approve the amendments, the engagement of Tarragon as the
Advisor under the Advisory Agreement, and to recommend approval of the Advisory
Agreement to the Shareholders. A copy of the Advisory Agreement, as amended,
dated effective April 1, 1995 between the Trust and Tarragon (herein called the
"Advisory Agreement" or the "New Advisory Agreement") appears as Appendix I to
this Proxy Statement and is described below. The affirmative vote of a
majority of the votes cast at the Annual Meeting is required to approve the
Advisory Agreement.
The Advisory Agreement is an amendment and full restatement of,
and is similar to, the Initial Advisory Agreement but eliminates the $100,000
base annual fee, makes certain technical changes designed to further clarify
the responsibilities and rights of Tarragon, and provides that real estate
commissions shall be payable to Tarragon and its affiliates only following
specific approval by the Board of Trustees for each transaction rather than
pursuant to a general agreement. If the Shareholders approve Proposal Two
which is the approval of the New Advisory Agreement, Shareholders will be
deemed to have ratified the entry by the Trust into the Initial Advisory
Agreement and the amendments thereto which are reflected in the Advisory
Agreement. If the Shareholders approve Proposal Two, the Advisory Agreement,
as amended, will have a term extending through the next Annual Meeting of
Shareholders, and any renewal of the Advisory Agreement thereafter will be
subject to Shareholder approval in accordance with the provisions of Section
4.2 of the Declaration of Trust. If the Shareholders fail to approve Proposal
Two, the Board of Trustees may choose to engage a different party to serve as
Advisor under a different contract or may operate the Trust without an advisor.
The Advisory Agreement may be terminated without cause or penalty
upon 60 days' written notice by the Trust to Tarragon or 120 days' written
notice by Tarragon to the Trust. Termination requires a majority vote of the
Trustees who are not affiliated with Tarragon or a majority vote of the
Shareholders. The Board of Trustees may enter into an advisory contract with a
new advisor without Shareholder approval. Such contract could not have an
initial term of more than two years and must provide for annual renewal or
extension thereafter, subject to Shareholder approval.
22
<PAGE> 25
THE CURRENT ADVISORY AGREEMENT WITH TARRAGON
The current Advisory Agreement (which is the revised form of
Advisory Agreement attached as Appendix I) with Tarragon provides that Tarragon
is to be responsible for the day-to-day operations of the Trust and to receive
an advisory compensation from the Trust based on the following:
(1) no base or fixed advisory fee is payable, but the
Advisor is to receive an incentive advisory fee equal to 16% per
annum of the Trust's "Adjusted Funds From Operations" (funds from
operations plus any loss on a property or mortgage acquired prior
to January 1, 1989 and the amount of advisory fees payable to the
extent such fees are considered as current expenses in determining
profit or loss) for each Fiscal Year or portion thereof for which
the Advisor provides services, beginning March 31, 1994; the
incentive fee is payable monthly in advance based on the most
recent month for which a monthly financial statement has been
prepared and is cumulative within any fiscal year to maintain the
16% per annum rate.
(2) the Advisor or an Affiliate of the Advisor is to
receive an acquisition commission for supervising the acquisition,
purchase or long-term lease of real estate for the Trust equal to
1% of the cost of acquisition, inclusive of commissions, if any,
paid to non-affiliated brokers, except that no fee is due for the
acquisition through or from an affiliate of the Trust or the
Advisor provided that the purchase price of each property
(including acquisition commissions and all real estate brokerage
fees) may not exceed such property's appraised value at
acquisition.
(3) the Advisor or an Affiliate of the Advisor is
also to receive a mortgage brokerage and refinancing fee for
obtaining loans to the Trust or refinancing on Trust properties
equal to the lesser of (i) 1% of the amount of the loan or the
amount refinanced or (ii) a brokerage or refinancing fee which is
reasonable and fair under the circumstances; provided, however,
that no such fee shall be paid on loans from the Advisor or an
Affiliate of the Advisor without the approval of the Trust's Board
of Trustees. No fee shall be paid on loan extensions.
(4) subject to the approval by the Board of Trustees,
the Trust may pay the Advisor or an Affiliate of the Advisor a
real estate brokerage commission for (i) the purchase of real
property by the Trust, or (ii) the sale of real property owned by
the Trust when the Advisor acts as the broker in such transaction
in amounts which are not to exceed customary fees charged by
nationally recognized real estate brokers for normal, similar
transactions on a non-exclusive basis.
The Advisor or any Affiliate of the Advisor must pay to the Trust
the full amount of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by the Trust.
Also under the Advisory Agreement, Tarragon is to receive
reimbursement of certain expenses incurred by it in the performance of the
Advisory services to the Trust. Under the Advisory Agreement (as required by
the Trust's Declaration of Trust), all or a portion of the annual Advisory fee
must be refunded by the Advisor to the Trustee if the Operating Expenses of the
Trust (as defined in the Trust's Declaration of Trust) exceeds certain limits
specified in the Declaration of Trust based on the book value, net asset value
and net income of the Trust during such fiscal year.
Additionally, if the Trust were to request Tarragon render
services to the Trust other than those required by the Advisory Agreement, the
Advisory Agreement provides that Tarragon or an Affiliate of Tarragon will be
separately compensated for such additional services on terms to be agreed upon
from time to time.
Tarragon may only assign the Advisory Agreement with the prior
consent of the Trust.
The following table sets forth the changes or alterations in
compensation payable to the Advisor under the BCM Advisory Agreement and the
Tarragon Advisory Agreement during the periods indicated:
23
<PAGE> 26
<TABLE>
<CAPTION>
BCM Advisory Tarragon Initial
Agreement dated Advisory Agreement Tarragon Advisory
December 1, 1992 dated February 15, 1994 Agreement as amended
(December 1, 1992 to (April 1, 1994 to dated April 1, 1995
March 31, 1994) March 31, 1995) (April 1, 1995 forward)
<S> <C> <C> <C>
Base fixed annual fee None $100,000 None
Gross asset fee 0.0625% per month None None
(0.75% per annum) of
the average Gross Asset
Value of the Trust
Net income fee 7.5% per annum of the None None
Trust's net income paid
on a quarterly basis
Incentive advisory fee None 16% per annum of Trust 16% per annum of Trust
for successful "Adjusted Funds from "Adjusted Funds from
investment and Operations" (as Operations" (as
management of Trust's defined) defined)
assets
For supervision of the the lesser of (i) 1% of 1% of the cost, but no 1% of the cost, but no
acquisition, purchase the cost paid to non- fee on acquisitions fee on acquisitions
or long-term lease of affiliated brokers or from affiliates from affiliates
real property of the (ii) compensation
Trust customarily charged in
arm's-length
transactions by others
in the same area;
however, a separate
agreement with an
affiliate of BCM
provided for a 3%
acquisition fee
Mortgage brokerage and the lesser of (i) 1% of the lesser of (i) 1% of the lesser of (i) 1% of
refinancing fees the amount of loan or the amount of loan or the amount of loan or
amount refinanced or amount refinanced or amount refinanced or
(ii) a fee which is (ii) a fee which is (ii) a fee which is
reasonable and fair reasonable and fair reasonable and fair
under the circumstances under the circumstances under the circumstances
Mortgage or loan the lesser of (i) 1% of the lesser of (i) 1% of None
acquisition fees the amount of the the amount of the
mortgage or loan mortgage or loan
purchased by the Trust purchased by the Trust
or (ii) a fee which is or (ii) a fee which is
reasonable and fair reasonable and fair
under the circumstances under the circumstances
Real estate brokerage the lesser of (i) 5% None--included in Subject to approval by
commissions (inclusive of fees paid "Incentive Sales Board of Trustees, may
to non-affiliated Compensation" below pay if the Advisor or
brokers) of sales price affiliate acts as the
or (ii) compensation broker in such amounts
customarily charged in not to exceed customary
arm's-length fees charged by
transactions by others nationally recognized
rendering similar real estate brokers for
services in the same normal, similar
geographic location transactions on a non-
exclusive basis
Incentive sales fee equal to 10% of the fee equal to 10% of the None
compensation amount of sales amount of sales
consideration for all consideration for all
real property sold by real property sold by
the Trust exceeds the the Trust exceeds the
results of a formula results of a formula
consisting of four consisting of four
separate parts separate parts
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
BCM Advisory Tarragon Initial
Agreement dated Advisory Agreement Tarragon Advisory
December 1, 1992 dated February 15, 1994 Agreement as amended
(December 1, 1992 to (April 1, 1994 to dated April 1, 1995
March 31, 1994) March 31, 1995) (April 1, 1995 forward)
<S> <C> <C> <C>
Third-party mortgage Advisor to pay Trust Advisor to pay Trust Advisor shall pay to
placement fees 1/2 of any compensation 1/2 of any compensation Trust all compensation
received from third received from third received from third
parties for parties for parties for
origination, placement origination, placement origination, placement
or brokerage of loan or brokerage of loan or brokerage of any
made by Trust but made by Trust but loan made by the Trust
Advisor compensation Advisor compensation
retained may not exceed retained may not exceed
lesser of (i) 2% of lesser of (i) 1% of
amount of loan amount of loan
committed or (ii) a fee committed or (ii) a fee
which is reasonable and which is reasonable and
fair under the fair under the
circumstances circumstances
Additional services If and to the extent If and to the extent If and to the extent
requested by the Trust, requested by the Trust, requested by the Trust,
separately on terms to separately on terms to separately on terms to
be agreed upon between be agreed upon between be agreed upon between
the Trust and such the Trust and such the Trust and such
party party party
</TABLE>
A MAJORITY OF THE BOARD OF TRUSTEES RECOMMEND THAT THE
SHAREHOLDERS APPROVE THE ADVISORY AGREEMENT because the terms of such agreement
are, in its' view, as favorable to the Trust as those that would be obtained
from unaffiliated third parties for the performance of similar services, while
at the same time the Advisory Agreement gives Tarragon adequate incentive to
improve the performance of the Trust's properties and mortgages.
PROPOSAL THREE
SHARE OPTION AND INCENTIVE PLAN
On June 22, 1995, the Board of Trustees of the Trust adopted the
National Income Realty Trust Share Option and Incentive Plan (the "Plan"),
subject to approval by the Shareholders of the Trust at the next meeting of
such Shareholders, whether Annual or Special, by a majority of votes cast on
such Plan, provided that the total vote cast thereon represents over 50% in
interest of all voting securities of the Trust entitled to vote thereon. The
Trust does not presently have any formal bonus, profit sharing, pension,
retirement, share option, share purchase or deferred compensation plan for any
Trustees, officers, key employees or others of or for the Trust, except for the
Plan.
The Board of Trustees believes that the Trust's earnings
performance and growth is dependent upon insuring the best possible management
and advice for the Trust. The Board of Trustees further believes the Plan will
encourage equity ownership in the Trust by Trustees, officers, key employees
and others and, in turn, provide such individuals with further incentive and
motivation to perform in the best interests of the Trust and its Shareholders
and will aid in attracting and retaining high quality individuals. The Plan
will be effective on the date the Plan is approved by the Shareholders at the
Annual Meeting. The principal features of the Plan are summarized below. THIS
SUMMARY, WHICH CONTAINS ALL THE MATERIAL FEATURES OF THE PLAN, IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PLAN WHICH IS ANNEXED AS
APPENDIX II TO THIS PROXY STATEMENT.
25
<PAGE> 28
GENERAL
The Trust believes that the frequent changes in the law and
regulations pertaining to the concept of stock options and incentive
arrangements, together with the continuing development of a wide variety of new
incentive plans involving shares, partly in response to such changes in the law
and regulations, have made it desirable for the Trust to have a plan containing
as much flexibility as possible in order to obviate the need to continually
amend a particular plan or adopt new plans and to permit the Trust to remain
competitive in the area of benefits for employees, officers and others.
The Plan generally permits the issuance of up to 300,000 Shares of
Beneficial Interest of the Trust pursuant to the grant or exercise of either
"Options" or "Awards" granted under the Plan. An "Option" under the Plan is an
option to purchase Shares and an "Award" under the Plan is broadly defined in
the Plan to include share options, alternate settlement rights, share bonus
awards, warrants, restricted shares and other arrangements under which the
shares reserved for the purposes of the Plan may be issued. The Plan permits
the grant of Options or Awards prior to the requisite approval of Shareholders
if they are conditioned upon such approval. The Shares subject to grant of
Options or Awards under the Plan are generally to be made available from the
authorized but unissued Shares or from the Treasury, as determined from time to
time by the Board of Trustees. Options may be granted by the Committee
described below as incentive share options ("ISOs") intended to qualify for
favorable tax treatment under federal tax law or as nonqualified share options
("NQSOs"). Alternate Settlement Rights may be granted with respect to any
Options granted under the Plan and may be exercised only when the underlying
Option is exercisable. An Alternate Settlement Right has the features
described below.
ADMINISTRATION
The Plan, if approved by the Shareholders, will be administered by
a Committee of the Board of Trustees (the "Committee") which will consist of at
least three persons, each of whom shall be a "Disinterested Person" within the
meaning of that phrase set forth in Rule 16b-3 under the Securities Exchange
Act of 1934 (the "Exchange Act"). None of the members of the Committee have
received an Award or Option under the Plan and may not, during their
administration. The members of the Committee are John A. Doyle, William S.
Friedman and Carl B. Weisbrod. The Committee has the sole authority to
administer and interpret the Plan. The Committee, within the terms of the
Plan, will select eligible Trustees, officers, employees and others to
participate in the Plan, determine the type, amount and duration of any
individual Award or Option and may accelerate payments, vesting and periods of
available exercise of Awards or Options.
SHARES AVAILABLE
The Plan provides that the aggregate number of Shares which may be
subject to the Plan may not exceed 300,000, subject to adjustment in certain
circumstances to prevent dilution. At the discretion of the Committee, the
Shares delivered under the Plan may be authorized and unissued shares, treasury
stock or shares purchased on the open market. Shares underlying Awards or
Options that are cancelled, expired, forfeited, or terminated shall, in most
circumstances, again be available for the grant of additional Awards or Options
within the limits provided by the Plan.
TYPES OF GRANT
There are a number of existing types of grants and other
incentives or features which could be made under the Plan. A summary of
certain of those generally recognized types of incentives, with reference to
the specific treatment accorded to such incentives by the Plan, where
applicable, is:
(a) NONQUALIFIED AND INCENTIVE SHARE OPTIONS. The
Plan permits the Committee to grant both NQSOs and ISOs and
provides that the price at which NQSOs may be granted shall not be
less than one-half (1/2) of the "Fair Market Value" (as defined in
the Plan) of the Shares on the date of grant of the Option, but
contains no limitation on the term of any such Option unless it is
26
<PAGE> 29
intended to qualify as an ISO. ISOs may only be awarded to
employees of the Trust. The price and term of each Option will be
fixed by the Committee at the time of grant. The price at which
ISOs may be granted may not be less than the Fair Market Value of
the Shares on the date of grant of the Option. The Committee
shall also determine at such time the particular conditions or
limitations to which each Option shall be subject, such as, for
example, if or to what extent an Option shall continue to be
exercisable following the termination of the person's relationship
with the Trust or following the death of such person by the
personal representative of such person, but in the event the
Committee does not fix same at the time of grant, a provision of
the Plan deals specifically with this matter.
(b) ALTERNATE SETTLEMENT RIGHTS. The Plan contains a
provision permitting the grant of "Alternate Settlement Rights"
which, in general, are rights which permit a grantee to surrender
his Option or right in exchange for cash, shares, or a combination
of cash and shares, in an amount equal to the difference between
the Fair Market Value of the Shares and the Option or Award
exercise price at the time the Option or Award is surrendered.
(c) RESTRICTED SHARES. Under a restricted share
arrangement, a Plan participant is issued shares which may be
forfeited to the Trust in the event certain conditions fail to be
met. Such conditions might include, for example, meeting
pre-determined performance criteria or remaining in the employment
of or within a relationship with the Trust for a specified period
of time. Typically, the restrictions applicable to the grant of a
restricted share arrangement would gradually lapse with the
passage of time such that a participant would become "vested" and
the shares would be issued to him in installments as the
conditions attaching thereto are satisfied.
(d) SHARE BONUS AWARDS. The Plan permits an outright
grant of shares to a participant. Such grant will represent an
award for performance in much the same fashion as a cash bonus.
(e) PYRAMIDING AND CASHLESS EXERCISE. Subject to
such rules as the Committee may impose, the exercise price of an
Option or Award may be paid in cash, in Shares already owned by
the individual, with a combination of cash and Shares, by
"pyramiding" Shares or effecting a "cashless exercise" if so
approved by the Committee or with such other consideration as
shall be approved by the Committee. "Pyramiding" is a technique
whereby an optionee requests the issuer to automatically apply a
portion of the Shares received upon exercise, in whole or in part,
of a Share Option to satisfy the exercise price of additional
Share Options, thus resulting in multiple simultaneous exercises
of Options by use of Shares as payment. A "cashless exercise" is
a technique which allows the optionee to exercise Share Options
without cash through the assistance of a broker through either a
simultaneous exercise and sale or a broker loan. Both the
"pyramiding" and "cashless exercise" techniques do not increase
the compensation that the Option provides; the individual receives
the same economic benefit as he or she would upon exercise of an
Alternate Settlement Right issued in tandem with the Option.
(f) RELOAD OPTION. The Committee may provide at the
time of any grant that an individual shall also be granted an
Option (a "Reload Option") in the event such individual exercises
all or part of an Option (an "Original Option") by surrendering
already owned Shares in full or partial payment of the exercise
price under such Original Option, subject to the availability of
Shares under the Plan at the time of exercise. Each Reload Option
shall cover a number of Shares equal to the number of Shares
surrendered in payment of the exercise price, shall have an
exercise price per Share equal to the Fair Market Value of the
Shares on the date of grant of such Reload Option and shall expire
on the stated expiration date of the Original Option. A Reload
Option shall be generally exercisable at any time and from and
after the date of grant of such Reload Option (or, as the
Committee, in its sole discretion, shall determine at the time of
grant, at such time or times as shall be specified in the Reload
Option). The first such Reload Option may provide for the grant,
when exercised, of one subsequent Reload Option to the extent and
upon such terms and
27
<PAGE> 30
conditions, as the Committee, in its sole discretion, shall
specify at or after the time of grant of such Reload Option.
(g) CHANGE IN CONTROL OF THE TRUST. In the case of a
Change in Control of the Trust (as defined in the Plan), or a
potential therefor, Options and Awards granted pursuant to the
Plan become fully exercisable as to all Shares from and after the
date of such Change in Control.
(h) RE-PURCHASE ARRANGEMENTS. The Plan contains a
re-purchase feature pursuant to which, if granted, at the election
of the person to whom such Shares have been issued under the Plan,
the Trust could purchase all or any portion of such Shares at a
price not exceeding its Fair Market Value on the date of
re-purchase. However, the Trust would not be obligated to
purchase such Shares if the capital of the Trust would become
impaired thereby or if such purchase, in the opinion of counsel
for the Trust, would be a violation of any law, rule or
regulation, any agreement to which the Trust is a party, or the
Declaration of Trust, as amended, of the Trust.
The foregoing are merely examples of some of the more commonly utilized forms
of grants and other incentive arrangements and features which the Plan
authorizes the Committee to make and grant, and the terms of the Plan are
sufficiently broad so that other types of incentive arrangements may be granted
by the Committee. Such incentive arrangements may be granted singly, in
combination or tandem, or coupled with a cash or other incentive feature, as
the Committee may determine. Under current accounting rules, some of the types
of incentive arrangements which could be granted under the Plan, as in the case
of, for example, Alternate Settlement Rights, could result in charges (or
credits) to net income for financial statement purposes.
OFFICERS AND TRUSTEES SUBJECT TO SECTION 16(B) LIABILITY
Special rules may apply to officers and Trustees subject to
liability under Section 16(b) of the Exchange Act that may prevent the
recognition of income by such individuals and the corresponding deduction by
the Trust before the date six months following the grant of an Option or
Alternate Settlement Right or the receipt of restricted Shares or other Awards
(unless the individual receives the Shares before that date and elects to be
taxed upon such receipt). In addition, the Trust's deductions may be limited
(an employee's receipt of an Award may be subject to an excise tax) to the
extent that benefits under the Plan become payable as a result of a Change in
Control of the Trust. Moreover, proposed legislation could deny the Trust a
deduction for any compensation paid to an officer or Trustee in excess of
$1,000,000 in any year; while this limitation would not apply to payments that
are linked to productivity, it is not clear whether compensation arising under
the Plan would qualify for this exception.
CONSIDERATION FOR ISSUANCE OF SHARES
Subject to the requirements of applicable law, consideration for
the issuance of Shares under the Plan may take any form, including cash, notes,
Shares or other securities, property or other performance of services under an
employment arrangement or otherwise. In addition, subject to the requirements
of applicable law, the Committee is expressly empowered to authorize a loan to
any person eligible to receive an Option or Award for the purpose of exercising
any option, warrant, right or otherwise acquiring any Shares issuable under the
Plan. No determination has been made as to the circumstances under which
consideration for issuance of Shares under the Plan would consist of notes,
Shares or other securities or property, and no determination has been made as
to whether any such loan will be authorized or would bear any specified rate of
interest or be non-interest bearing, or as to the term thereof or whether
collateral would be required therefor.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
Agreements covering Options or Awards may contain such provisions
as the Committee may determine for the adjustment of the number of Shares
subject thereto and of the Option or Award purchase prices in the event of
changes in the outstanding Shares by reason of share dividends,
recapitalizations,
28
<PAGE> 31
mergers, split-ups, combinations or exchanges of shares and the like. In
addition, each Option or Award granted under the Plan shall contain such
provisions or undertakings by the holder pertaining to the resale or
distribution of the Shares acquired pursuant thereto as the Trust shall deem
appropriate and necessary to comply with the Securities Act of 1933, as
amended, and the Exchange Act and the rules, regulations and administrative
interpretations thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The Trust has been advised by its counsel that under existing law
(so long as options in the Shares are not actively traded), a recipient of a
Nonqualified Share Option granted under the Plan will not recognize any taxable
income from the grant of such Option and the Trust will not be entitled to any
tax deductions for income tax purposes. Upon the exercise of Non-qualified
Stock Options granted under the Plan, the employee will recognize taxable
ordinary income equal to the excess of the Fair Market Value of the Shares on
the date the Option is exercised over the Option price, and the Trust will at
that time be entitled to a corresponding deduction. An individual who receives
an Incentive Share Option will not recognize any taxable income from either the
grant or the exercise of an ISO. Likewise, the trust will not be entitled to
any deduction on either the grant or the exercise of the ISO. An individual
who receives restricted Shares will not realize any taxable income at the time
of grant of the restricted Shares so long as the Shares are subject to a
substantial risk of forfeiture. When the restrictions lapse, the recipient
will recognize ordinary income equal to the Fair Market Value of the Shares at
the time of the lapse of the restrictions. The Trust is entitled to a tax
deduction at the same time in the amount taxable to the individual. With
regard to dividends paid by the Trust in cash and Shares during the time the
restrictions are in effect, the Trust will be entitled to a deduction for
compensation for the value of such dividends at the time they are paid to the
recipient and the recipient will have taxable compensation income at the time
in a corresponding amount. A Trustee or employee who is granted an Option
containing an Alternate Settlement Right under the Plan will not recognize any
taxable income upon the grant of such Option containing an Alternate Settlement
Right and the Trust will not be entitled to any tax deduction for any income
tax purposes. However, when such person exercises an Alternate Settlement
Right, the Optionee will recognize taxable income to the extent that cash or
property from the Alternate Settlement Right is received or utilized to fund
the exercise of the Option. The Trust will then be entitled to a corresponding
deduction for the taxable year in which the Alternate Settlement Right is
exercised.
The foregoing does not purport to be a complete description of all
federal tax consequences that might result to any individual and each
individual is encouraged to review the federal tax consequences applicable to
him or her with their own selection of tax experts.
AMENDMENT AND TERMINATION
The Board of Trustees may, at any time, and from time to time,
terminate, amend or modify the Plan. However, without the approval of the
Shareholders of the Trust (as may be required by Section 16 of the Exchange
Act, the Internal Revenue Code, by any national securities exchange or system
on which the Shares are then listed or reported, or by regulatory body having
jurisdiction with respect hereto), no such termination, amendment or
modification may (a) without the consent of the person to whom any Option or
Award has theretofore been granted, adversely affect the rights of such person
under such Option or Award; or (b) increase (other than by required adjustments
provided in the Plan) the maximum number of Shares which may be issued pursuant
to all Options or Awards granted under the Plan; or (c) modify the Plan or the
terms of Awards or Options in such a way that the members of the Committee lose
their status as "Disinterested Persons" under Rule 16b-3 of the Exchange Act.
As of August ___, 1995, no Options or Awards have been granted
under the Plan. There are no definite plans concerning the individuals to whom
the Options or Awards will be granted under the Plan, the types of Options or
Awards to be granted, or the number of Shares to be subject thereto, the time
or times when the same will be granted, or as to any term or condition which,
under the Plan, are all within the discretionary authority of the Committee to
fix with respect to any such Option or Award. The Plan is not limited as to
time.
29
<PAGE> 32
The Shares are traded in the over-the-counter market and have been
quoted on the National Association of Securities Dealers Automated Quotation
System. The reported closing bid quotation of the Shares as reported by
published financial sources on August ___, 1995, was $12.125.
THE BOARD OF TRUSTEES RECOMMEND THE VOTE FOR ADOPTION AND APPROVAL
OF THE NATIONAL INCOME REALTY TRUST SHARE OPTION AND INCENTIVE PLAN. UNLESS
INSTRUCTIONS ARE NOTED THEREON, THE ENCLOSED PROXY WILL BE VOTED IN FAVOR OF
APPROVAL OF THIS PROPOSAL.
PROPOSAL FOUR
INDEPENDENT TRUSTEES' SHARE OPTION PLAN
The Board of Trustees of the Trust has reviewed various
arrangements for compensation of Trustees, which do not include a program
enabling Trustees who are not also employees of the Trust to participate in the
Trust's growth through stock ownership except for purchases of Shares in the
open market. The Board of Trustees believes that a program fostering share
ownership by Trustees who are "independent" will promote the long-term
financial success of the Trust by attracting and retaining outstanding Trustees
and providing incentives to such Trustees through grants of Share Options
linked to continued improvements in the Trust's earnings.
On June 23, 1995, by unanimous written consent the Board of
Trustees of the Trust adopted the National Income Realty Trust Independent
Trustee Share Option Plan (the "Trustee Plan") subject to approval by the
Shareholders of the Trust at the next meeting of the Shareholders, whether
Annual or Special, by a majority of votes cast on such Trustee Plan, provided
that the total vote cast thereon represents over 50% in interest of all voting
securities of the Trust entitled to vote thereon. The Trust does not presently
have any formal bonus, profit sharing, pension, retirement, share option, share
purchase or deferred compensation plan for any of the Trustees except for the
Trustee Plan and the proposed Share Option and Incentive Plan.
The Trustee Plan will be effective on the date the Trustee Plan is
approved by the Shareholders at the Annual Meeting. The principal features of
the Trustee Plan are summarized below. THIS SUMMARY, WHICH CONTAINS ALL OF THE
MATERIAL FEATURES OF THE PLAN, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE TRUSTEE PLAN WHICH IS ANNEXED AS APPENDIX III TO THIS PROXY
STATEMENT.
ADMINISTRATION AND ELIGIBILITY; ADJUSTMENT, AMENDMENT AND TERMINATION
Because Options to be granted under the Trustee Plan are automatic
and non-discretionary, the Trustee Plan is largely self administered. To the
extent necessary, the Board of Trustees is authorized to administer the Plan.
In the event of a share dividend, share split, share combination or other
reduction in issued shares, merger, consolidation, recapitalization or sale or
exchange of all of the assets or dissolution of the Trust, the Board ofTrustees
is required to adjust the number and type of shares authorized by the Trustee
Plan and subject to outstanding grants of Options, as well as Option prices of
any outstanding share Options, to prevent in enlargement or dilution of rights.
No Option will be granted under the Trustee Plan after [July 27], 2005. The
Board of Trustees may suspend or terminate the Trustee Plan at any time or
amend the Trustee Plan from time to time without Shareholder approval, but no
amendment, suspension or termination shall impair the rights of any Trustee
under outstanding Options. However, without Shareholder approval (to the
extent required by law or agreement) no amendment may be made which would (d)
materially increase the number of Shares issuable under the Trustee Plan (other
than pursuant to the adjustment provisions described above), (e) materially
modify the requirements as to eligibility for participation, (f) materially
increase the benefits accruing to Trustees under the Plan, or (g) extend the
termination date of the Trustee Plan.
Eligibility for Options under the Trustee Plan is limited to
Trustees of the Trust who, at the time of grant of an Option, are not, and have
not been for at least one year, either an employee or officer of the Trust or
any of its Affiliates. As of August ___, 1995, seven of the eight Trustees are
eligible for Options
30
<PAGE> 33
under the Trustee's Plan. The aggregate number of Shares under the Trustee
Plan is 60,000 (subject to adjustments in order to prevent enlargement or
dissolution as described above). The Shares are traded in the over-the-counter
market and have been quoted on the National Association of Securities Dealers
Automated Quotation System. The reported closing bid quotation of the Shares,
as reported by published financial sources on August ___, 1995, was $12.125;
accordingly, the aggregate market value of 1,000 Shares based upon such bid
quotation would be $12,125.
The following table sets forth the benefits or amounts that will
be received by or allocated to each of the following under the Trustee Plan, if
it is approved by the Shareholders and if such benefits or amounts are
determinable:
<TABLE>
<CAPTION>
Dollar Value Number of
Name and Position ($)(1) Shares
<S> <C> <C>
William S. Friedman, President and Chief Executive Officer (2) . . . . . -0- -0-
Executive Group (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- -0-
Non-executive Trustee Group (3) . . . . . . . . . . . . . . . . . . . . . $254,625 21,000
Non-executive Officer Employee Group (4) . . . . . . . . . . . . . . . . -0- -0-
</TABLE>
_______________________
(1) Based upon $12.125 per share, the closing bid quotation for the
shares on August ___, 1995, as reported by published financial
sources.
(2) All current executive officers, individually and as a group, are
not eligible for Options under the Trustee Plan.
(3) Group consists of Messrs. Cohen, Johnston, Liebman, Schafran,
Schrag and Weisbrod and Ms. Hernandez-Pinero, each of whom is an
independent Trustee and each of whom is eligible to receive an
Option to purchase 3,000 shares.
(4) All employees, including current officers, who are not executive
officers as a group are not eligible for Options under the Trustee
Plan.
OPTIONS
Effective at the time of approval by the Shareholders of the
Trustee Plan, each Independent Trustee will automatically be awarded an Option
to purchase 3,000 Shares. In addition, for each year such Trustee continues to
serve as a Trustee, he will be awarded an option covering 1,000 Shares on
January 1 of each year. All Options are to be granted at "fair market value"
(as defined in the Trustee Plan). All Options granted under the Trustee Plan
will be exercisable for the lesser of ten years or one year after a Trustee
ceases to serve on the Board of Trustees. In the event of a Trustee's death,
such Options will be exercisable for a period of time from the date of death.
Payment of the exercise price may be made in cash, in Shares already owned by
the Individual, with a combination of cash and Shares, by "pyramiding" Shares
or effecting a "cashless exercise" at the selection of the Optionee.
In the case of a Change in Control of the Trust (as defined in the
Plan) or a potential therefor, Options granted pursuant to the Trustee Plan may
become fully exercisable as to all Shares from and after the date of such
Change in Control.
FEDERAL INCOME TAX CONSEQUENCES
The Trust has been advised by its counsel that under existing law,
a recipient of a Share Option granted under the Plan will not realize any
taxable income from the grant of such Option and the Trust will
31
<PAGE> 34
not be entitled to any tax deductions for income tax purposes. Upon the
exercise of Options granted under the Plan, the Optionee will realize taxable
ordinary income equal to the excess of the Fair Market Value of the Shares on
the date the Option is exercised over the Option price, and the Trust will be
entitled to a corresponding deduction. The Trust is entitled to a tax
deduction at the same time in the amount taxable to the individual.
THE BOARD OF TRUSTEES RECOMMEND THE VOTE FOR ADOPTION AND APPROVAL
OF THE NATIONAL INCOME REALTY TRUST INDEPENDENT TRUSTEES' SHARE OPTION PLAN.
UNLESS INSTRUCTIONS ARE NOTED HEREON, THE ENCLOSED PROXY WILL BE VOTED IN FAVOR
OF APPROVAL OF THIS PROPOSAL.
SELECTION OF AUDITORS FOR 1994
The Board of Trustees has selected Arthur Andersen, L.L.P. to
serve as the Auditors for the Trust for the 1994 Fiscal Year. The Trust
Auditors for 1993 were BDO Seidman. A representative of BDO Seidman has been
invited to attend the annual meeting.
BDO Seidman served as the independent accountant previously
engaged as the principal accountant to audit the financial statements of the
Trust for the year ended December 31, 1993. On May 19, 1994, the Trust's Board
of Trustees selected Arthur Andersen & Co. to serve the Trust as its
independent accountant to audit the Trust's financial statements for the year
ending December 31, 1994. The failure of the Board of Trustees to select BDO
Seidman as the Trust's independent accountant to audit the financial statements
for the year ending December 31, 1994 constituted BDO Seidman being "dismissed"
(as such term is used in Item 304 of Regulation S-K).
BDO Seidman's report on the Trust's financial statements for the
year ended December 31, 1993 did not contain any adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the year BDO Seidman served as independent
accountants to audit the financial statements of the Trust for the year ended
December 31, 1993, and thereafter through the date hereof, the Trust has not
had any disagreement with BDO Seidman on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
disagreement, if not resolved to the satisfaction of BDO Seidman, would have
caused BDO Seidman to make reference to the subject matter of the disagreement
in connection with its report.
The Trust provided BDO Seidman with a copy of the foregoing
disclosures at the same time as the filing of a current report on Form 8-K with
the Commission and requested such former accountant to furnish the Trust with a
letter addressed to the Commission stating whether BDO Seidman agreed with the
statements made by the Trust and, if not, stating the respects in which it did
not agree on May 26, 1994. BDO Seidman provided such letter for attachment to
such report, which letter confirmed such statements.
OTHER MATTERS
At the date of this Proxy Statement, the Trustees and officers do
not know of any other matters that may properly be, or that are likely to be,
brought before the meeting. However, if any other matters are properly brought
before the meeting, the persons named in the enclosed Proxy or their
substitutes will vote in accordance with their best judgment on such matters.
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<PAGE> 35
INTEREST OF CERTAIN PERSONS
IN MATTERS TO BE ACTED UPON
As described above under "Certain Business Relationships," Mr.
Friedman, a Trustee, President and Chief Executive Officer of the Trust, also
serves as the Chief Executive Officer of Tarragon and Mr. Doyle, Executive Vice
President , Chief Operating Officer and Chief Financial Officer of the Trust,
also serves as President and Chief Operating Officer of Tarragon. Tarragon is
owned by Lucy N. Friedman, Mr. Friedman's wife, 50% and John A. Doyle 50% and
therefore Messrs. Friedman and Doyle could be deemed to benefit financially
from Shareholder approval of the Trust Advisory Agreement with Tarragon
pursuant to Proposal Two. The amount of any possible financial benefit to
either Messrs. Friedman or Doyle is not directly quantifiable at this time.
FINANCIAL STATEMENTS
The audited financial statements of the Trust, in comparison form
for the years ended December 31, 1994, 1993 and 1992 are contained in the 1994
Annual Report to Shareholders. Such report and the financial statements
therein are not to be considered part of this solicitation.
SOLICITATION OF PROXIES
THIS PROXY STATEMENT IS FURNISHED TO SHAREHOLDERS TO SOLICIT
PROXIES ON BEHALF OF THE TRUSTEES AND OFFICERS OF THE TRUST. The cost of
soliciting proxies will be borne by the Trust. In addition to the solicitation
of proxies by use of the mails, the officers and Trustees may also solicit
proxies personally or by mail, telephone, facsimile transmission or telegraph,
but they will not receive any compensation for such services.
________________________________________
COPIES OF THE TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994 TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K ARE
AVAILABLE TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO NATIONAL
INCOME REALTY TRUST, 3878 OAK LAWN AVENUE, SUITE 300, DALLAS, TEXAS 75219,
ATTENTION: INVESTOR RELATIONS.
BY ORDER OF THE BOARD OF TRUSTEES
David L. Miller, Vice President - Legal and Secretary
THE BOARD OF TRUSTEES OF THE TRUST UNANIMOUSLY RECOMMEND YOU VOTE
FOR ALL EIGHT OF THE NOMINEES AND THAT YOU VOTE FOR APPROVAL OF THE ADVISORY
AGREEMENT BY VOTING FOR PROPOSAL TWO ON THE ENCLOSED PROXY, THAT YOU VOTE FOR
APPROVAL OF THE NATIONAL INCOME REALTY TRUST SHARE OPTION AND INCENTIVE PLAN BY
VOTING FOR PROPOSAL THREE ON THE ENCLOSED PROXY, AND THAT YOU VOTE FOR APPROVAL
OF THE NATIONAL INCOME REALTY TRUST INDEPENDENT TRUSTEE'S SHARE OPTION AND BY
VOTING FOR PROPOSAL FOUR ON THE ENCLOSED PROXY. REGARDLESS OF HOW YOU WISH TO
VOTE YOUR SHARES, YOUR BOARD OF TRUSTEES URGES YOU TO PROMPTLY SIGN, DATE AND
MAIL THE ENCLOSED PROXY.
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APPENDIX I
31248:01000:033195:SCM:4
ADVISORY AGREEMENT
BETWEEN
NATIONAL INCOME REALTY TRUST
AND
TARRAGON REALTY ADVISORS, INC.
THIS AGREEMENT dated April 1, 1995, between National Income Realty
Trust, a California real estate investment trust (the "Trust"), and Tarragon
Realty Advisors, Inc., a New York corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS:
1. The Trust owns a complex, diversified portfolio of real
estate, mortgages and other assets, including affordable and
middle income housing complexes, shopping centers, warehouses,
office buildings and mortgages.
2. The Trust has funds available for new investment, primarily in
the acquisition of income-producing real estate.
3. The Advisor and its employees have extensive experience in the
administration of real estate assets and the origination,
structuring and evaluation of real estate and mortgage
investments.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree as follows:
1. DUTIES OF THE ADVISOR. Subject to the supervision of the
Board of Trustees, the Advisor will be responsible for the day-to-day
operations of the Trust and, subject to Section 17 hereof, shall provide such
services and activities relating to the assets, operations and business plan of
the Trust as may be appropriate, including:
(a) preparing and submitting an annual budget and business plan
for approval by the Board of the Trust (the "Business Plan");
(b) using its best efforts to present to the Trust a continuing
and suitable investment program consistent with the investment
policies and objectives of the Trust as set forth in the
Business Plan;
(c) using its best efforts to present to the Trust investment
opportunities consistent with the Business Plan and such
investment program as the Trustees may adopt from time to
time;
(d) furnishing or obtaining and supervising the performance of the
ministerial functions in connection with the administration of
the day-to-day operations of the Trust including the
investment of reserve funds and surplus cash in short-term
money market investments;
(e) serving as the Trust's investment and financial advisor and
providing research, economic, and statistical data in
connection with the Trust's investments and investment and
financial policies;
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(f) on behalf of the Trust, investigating, selecting and
conducting relations with borrowers, lenders, mortgagors,
brokers, investors, builders, developers and others;
(g) consulting with the Trustees and furnishing the Trustees with
advice and recommendations with respect to the making,
acquiring (by purchase, investment, exchange, or otherwise),
holding, and disposition (through sale, exchange, or
otherwise) of investments consistent with the Business Plan of
the Trust;
(h) obtaining for the Trustees such services as may be required in
acquiring and disposing of investments, disbursing and
collecting funds of the Trust, paying the debts and fulfilling
the obligations of the Trust, and handling, prosecuting, and
settling any claims of the Trust, including foreclosing and
otherwise enforcing mortgage and other liens securing
investments;
(i) obtaining for and at the expense of the Trust such services as
may be required for property management, loan disbursements,
and other activities relating to the investments of the Trust,
provided, however, the compensation for such services shall be
agreed to by the Trust and the service provider;
(j) advising the Trust in connection with public or private sales
of shares or other securities of the Trust, or loans to the
Trust, but in no event in such a way that the Advisor could be
deemed to be acting as a broker-dealer or underwriter;
(k) quarterly, and at any time requested by the Trustees, making
reports to the Trustees regarding the Trust's performance to
date in relation to the Trust's approved Business Plan and its
various components, as well as the Advisor's performance of
the foregoing services;
(l) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Trust;
(m) assisting in preparation of reports and other documents
necessary to satisfy the reporting and other requirements of
any governmental bodies or agencies and to maintain effective
communications with shareholders of the Trust; and
(n) doing all things necessary to ensure its ability to render the
services contemplated herein, including providing office space
and office furnishings and personnel necessary for the
performance of the foregoing services as Advisor, all at its
own expense, except as otherwise expressly provided for
herein.
2. NO PARTNERSHIP OR JOINT VENTURE. The Trust and the Advisor
are not partners or joint venturers with each other, and nothing herein shall
be construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.
3. RECORDS. At all times, the Advisor shall keep proper books of
account and records of the Trust's affairs which shall be accessible for
inspection by the Trust at any time during ordinary business hours.
4. ADDITIONAL OBLIGATIONS OF THE ADVISOR. The Advisor shall
refrain from any action (including, without limitation, furnishing or rendering
services to tenants of property or managing or operating real property) that
would (a) adversely affect the status of the Trust as a real estate investment
trust, as defined and limited in Sections 856-860 of the Internal Revenue
Code, (b) violate any law, rule, regulation, or statement of policy of any
governmental body or agency having jurisdiction over the Trust or over its
securities, (c) cause the Trust to be required to register as an investment
company under the Investment Company Act of 1940, or (d) otherwise not be
permitted by the Declaration of Trust of the Trust.
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5. BANK ACCOUNTS. The Advisor may establish and maintain one or
more bank accounts in its own name, and may collect and deposit into any such
account or accounts, and disburse from any such account or accounts, any money
on behalf of the Trust, under such terms and conditions as the Trustees may
approve, provided that no funds in any such account shall be commingled with
funds of the Advisor; and the Advisor shall from time to time render
appropriate accounting of such collections and payments to the Trustees and to
the auditors of the Trust.
6. BOND. The Advisor shall maintain a fidelity bond with a
responsible surety company in such amount as may be required by the Trustees
from time to time, covering all directors, officers, employees, and agents of
the Advisor handling funds of the Trust and any investment documents or records
pertaining to investments of the Trust. Such bond shall inure to the benefit
of the Trust in respect to losses of any such property from acts of such
directors, officers, employees and agents through theft, embezzlement, fraud,
error, or omission or otherwise, the premium for said bond to be at the expense
of the Trust.
7. INFORMATION FURNISHED ADVISOR. The Trustees shall have the
right to change the Business Plan at any time, effective upon receipt by the
Advisor of notice of such change. The Trust shall furnish the Advisor with a
certified copy of all financial statements, a signed copy of each report
prepared by independent certified public accountants, and such other
information with regard to the Trust's affairs as the Advisor may from time to
time reasonably request.
8. CONSULTATION AND ADVICE. In addition to the services
described above, the Advisor shall consult with the Trustees, and shall, at the
request of the Trustees or the officers of the Trust, furnish advice and
recommendations with respect to any aspect of the business and affairs of the
Trust, including any factors that in the Advisor's best judgment should
influence the policies of the Trust.
9. ANNUAL BUSINESS PLAN AND BUDGET. No later than January 15th
of each year, the Advisor shall submit to the Trustees a written Business Plan
for the current Fiscal Year of the Trust. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Trust. To the
extent possible, the Business Plan shall set forth the Advisor's
recommendations and the basis therefore with respect to all material
investments of the Trust. Upon approval by the Board of Trustees, the Advisor
shall be authorized to conduct the business of the Trust in accordance with the
explicit provisions of the Business Plan, specifically including the borrowing,
leasing, maintenance, capital improvements, renovations and sale of investments
set forth in the Business Plan. Any transaction or investment not explicitly
provided for in the approved Business Plan shall require the prior approval of
the Board of Trustees unless made pursuant to authority expressly delegated to
the Advisor. Within sixty (60) days of the end of each calendar quarter, the
Advisor shall provide the Board of Trustees with a report comparing the Trust's
actual performance for such quarter against the Business Plan.
10. DEFINITIONS. As used herein, the following terms shall have
the meanings set forth below:
(a) "Adjusted Funds From Operations" shall mean, for any period of
time, funds from operations (as defined by the National
Association of Real Estate Investment Trusts) for such period
of time plus (i) any loss due to the write-down or sale of any
real property or mortgage loan acquired prior to January 1,
1989 and (ii) the amount of advisory fees payable to the
Advisor under Article 11 hereof but only to the extent such
fees are considered as current expenses in determining profit
or loss.
(b) "Affiliate" shall mean, as to any Person, any other Person who
owns beneficially, directly, or indirectly, 1% or more of the
outstanding capital stock, shares or equity interests of such
Person or of any other Person which controls, is controlled
by, or is under common control with such
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Person or is an officer, retired officer, director, employee,
partner, or trustee (excluding non-interested trustees not
otherwise affiliated with the entity) of such Person or of any
other Person which controls, is controlled by, or is under
common control with, such Person.
(c) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified
appraiser who is a member in good standing of the American
Institute of Real Estate Appraisers and is duly licensed to
perform such services in accordance with the applicable state
law, or, when pertaining to Mortgage Loans, the value of the
underlying property as determined by the Advisor.
(d) "Book Value" of an asset or assets shall mean the value of
such asset or assets on the books of the Trust, before
provision for amortization, depreciation, depletion or
valuation reserves and before deducting any indebtedness or
other liability in respect thereof, except that no asset shall
be valued at more than its fair market value as determined by
the Trustees.
(e) "Business Plan" shall mean the Trust's investment policies and
objectives and the capital and operating budget based thereon,
approved by the Board as thereafter modified or amended.
(f) "Fiscal Year" shall mean any period for which an income tax
return is submitted to the Internal Revenue Service and which
is treated by the Internal Revenue Service as a reporting
period.
(g) "Mortgage Loans" shall mean notes, debentures, bonds, and
other evidences of indebtedness or obligations, whether
negotiable or non-negotiable, and which are secured or
collateralized by mortgages, including first, wraparound,
construction and development, and junior mortgages.
(h) "Net Asset Value" shall mean the Book Value of all the assets
of the Trust minus all the liabilities of the Trust.
(i) "Net Income" for any period shall mean the Net Income of the
Trust for such period computed in accordance with generally
accepted accounting principles after deduction of the Gross
Asset Fee, but before deduction of the Net Income Fee, as set
forth in Sections 11(a) and 11(b), respectively, herein, and
inclusive of gain or loss of the sale of assets.
(j) "Net Operating Income" shall mean rental income less property
operating expenses.
(k) "Person" shall mean and include individuals, corporations,
limited partnerships, general partnerships, joint stock
companies or associations, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts,
business trusts, or other entities and governments and
agencies and political subdivisions thereof.
(l) "Real Property" shall mean and include land, rights in land,
leasehold interests (including but not limited to interests of
a lessor or lessee therein), and any buildings, structures,
improvements, fixtures, and equipment located on or used in
connection with land, leasehold interests, and rights in land
or interests therein.
All calculations made pursuant to this Agreement shall be based on
statements (which may be unaudited, except as provided herein) prepared on an
accrual basis consistent with generally accepted accounting principles,
regardless of whether the Trust may also prepare statements on a different
basis. All other terms shall have the same meaning as set forth in the Trust's
Declaration of Trust and Trustees' Regulations.
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11. ADVISORY COMPENSATION.
(a) No Base Advisory Fee. The Trust shall not be required to pay
to the Advisor any Base Advisory Fee for advisory services for
the term hereof.
(b) Incentive Advisory Fee. As an incentive for successful
investment and management of the Trust's assets, the Trust
shall pay the Advisor a fee equal to 16% per annum of the
Trust's Adjusted Funds from Operation for each Fiscal Year or
portion thereof for which the Advisor provides services. The
Incentive Advisory Fee shall be payable monthly in advance
based on the Adjusted Funds from Operation for the most recent
month for which a monthly financial statement for the Trust
has been prepared. The Incentive Advisory Fee shall be
cumulative within any Fiscal Year, such that if the Trust has
negative Adjusted Funds from Operation in any month, each
subsequent payment shall be adjusted to maintain the 16% per
annum rate.
(c) Acquisition Commission. For supervising the acquisition,
purchase or long-term lease of Real Property for the Trust,
the Trust shall pay to the Advisor an Acquisition Commission
equal to 1% of the acquisition cost for each real property
acquired during the term hereof, except that no such fee shall
be due for any acquisition through or from an affiliate of the
Trust or the Advisor, inclusive of commissions, if any, paid
to nonaffiliated brokers. The aggregate of each purchase
price of each property (including the Acquisition Commissions
and all real estate brokerage fees) may not exceed such
property's Appraised Value at acquisition.
(d) Mortgage Brokerage and Refinancing Fees. For obtaining loans
to the Trust or refinancing on Trust properties, the Advisor
or an Affiliate is to receive a Mortgage Brokerage and
Refinancing Fee equal to the lesser of a) 1% of the amount of
the loan or the amount refinanced or b) a brokerage or
refinancing fee which is reasonable and fair under the
circumstances; provided, however, that no such fee shall be
paid on loans from the Advisor or an Affiliate without the
approval of the Board of Trustees. No fee shall be paid on
loan extensions.
(e) Real Estate Brokerage Commission. Subject to approval by the
Board of Trustees, the Trust may pay to the Advisor or an
Affiliate of the Advisor a Real Estate Brokerage Commission
for services rendered upon (i) the purchase of real property
by the Trust or (ii) the sale of real property owned by the
Trust, for which the Advisor or an Affiliate acts as the
broker in such transaction in amounts not to exceed customary
fees charged by nationally-recognized real estate brokers for
normal similar transactions on a non-exclusive basis. The
provision of real estate brokerage services by the Advisor or
an Affiliate shall be on terms not less favorable to the Trust
than the terms on which unaffiliated parties are then
performing similar services for entities comparable to the
Trust not entered into on an exclusive basis. The entry into
the applicable real estate brokerage arrangement between the
Trust and the Advisor shall be approved as required by the
Declaration of Trust.
12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENTS FEES. The
Advisor or any of its Affiliates shall pay to the Trust, the full amount of any
compensation received by the Advisor or any such Affiliate from third parties
with respect to the origination, placement or brokerage of any loan made by the
Trust.
13. STATEMENTS. The Advisor shall furnish to the Trust not later
than the tenth day of each calendar month, beginning with the second calendar
month of the term of this Agreement, a statement showing the computation of the
fees, if any, payable in respect to the next preceding calendar month (or, in
the case of incentive compensation, for the preceding Fiscal Year, as
appropriate) under the Agreement. The final settlement of incentive
compensation for each Fiscal Year shall be subject to adjustment in accordance
with, and upon completion of, the annual audit of the Trust's financial
statements; any payment by the Trust or repayment
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by the Advisor that shall be indicated to be necessary in accordance therewith
shall be made promptly after the completion of such audit and shall be
reflected in the audited statements to be published by the Trust.
14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent
that the Trust shall request the Advisor or any director, officer, partner, or
employee of the Advisor to render services for the Trust other than those
required to be rendered by the Advisor hereunder, such additional services, if
performed, will be compensated separately on terms to be agreed upon between
such party and the Trust from time to time. In particular, but without
limitation, if the Trust shall request that the Advisor perform property
management, leasing, loan disbursement or similar functions, the Trust and the
Advisor shall enter in to a separate agreement specifying the obligations of
the parties and providing for reasonable additional compensation to the Advisor
for performing such services.
15. EXPENSES OF THE ADVISOR. Without regard to the amount of
compensation or reimbursement received hereunder by the Advisor, the Advisor
shall bear the following expenses:
(a) employment expenses of the executive officers, directors or
shareholders of the Advisor (including Trustees, officers, and
employees of the Trust who are directors, officers, or
employees of the Advisor or of any company that controls, is
controlled by, or is under common control with the Advisor),
including, but not limited to, fees, salaries, wages, payroll
taxes, travel expenses, and the cost of employee benefit plans
and temporary help expenses except for those personnel
expenses relating to employees of the Advisor principally
engaged in accounting, shareholder relations or mortgage
servicing;
(b) advertising and promotional expenses incurred in seeking
investments for the Trust;
(c) rent, telephone, utilities, office furniture and furnishings,
and other office expenses of the Advisor, except as any of
such expenses relates to employees of the Advisor principally
engaged in accounting shareholder relations or mortgage
servicing; and
(d) miscellaneous administrative expenses relating to performance
by the Advisor of its functions hereunder.
In addition to the Advisory Compensation described in Section 11, the Advisor
shall be reimbursed for certain costs and expenses monthly on the basis of an
equitable allocation applied on a consistent and timely basis in accordance
with the Advisor's regular procedures. Such procedures provide for
identification of all material costs and expenses to be accounted for as a cost
of particular functions. Only costs and expenses allocable to legal, mortgage
servicing, training and financial departments are reimbursable as well as
certain portions of expenses not specifically identifiable to a particular
department.
16. EXPENSES OF THE TRUST. The Trust shall pay all its expenses
not assumed by the Advisor, including without limitation, the following
expenses:
(a) the cost of money borrowed by the Trust;
(b) income taxes, taxes and assessments on real property, and all
other taxes applicable to the Trust;
(c) legal, auditing, accounting, underwriting, brokerage, listing,
registration and other fees, printing, and engraving and other
expenses, and taxes incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange
listing of the Trust's securities;
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(d) fees, salaries, and expenses paid to officers, and employees
of the Trust who are not directors, officers or employees of
the Advisor, or of any company that controls, is controlled
by, or is under common control with the Advisor other than
employees of the Advisor principally engaged in accounting,
shareholder relations and mortgage servicing;
(e) expenses directly connected with the origination or purchase
of Mortgage Loans and with the acquisition, disposition, and
ownership of real estate equity interests or other property
(including the costs of foreclosure, insurance, legal,
protective, brokerage, maintenance, repair, and property
improvement services) and including all compensation,
traveling expenses, and other direct costs associated with the
Advisor's employees or other personnel engaged in (i) real
estate transaction legal services, (ii) internal auditing,
(iii) foreclosure and other mortgage finance services, (iv)
sale or solicitation for sale of mortgages, (v) engineering
and appraisal services, and (vi) transfer agent services;
(f) expenses of maintaining and managing real estate equity
interests;
(g) insurance, as required by the Trustees (including Trustees'
liability insurance);
(h) the expenses of organizing, revising, amending, converting,
modifying, or terminating the Trust;
(i) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be
made by the Trustees to holders of securities of the Trust;
(j) all expenses connected with communications to holders of
securities of the Trust and the other bookkeeping and clerical
work necessary to maintaining relations with holders of
securities, including the cost of printing and mailing
certificates for securities and proxy solicitation materials
and reports to holders of the Trust's securities;
(k) the cost of any accounting, statistical, bookkeeping or
computer equipment or computer time necessary for maintaining
the books and records of the Trust and for preparing and
filing Federal, State and Local tax returns;
(l) transfer agent's, registrar's, and indenture trustee's fees
and charges;
(m) legal, accounting, investment banking, and auditing fees and
expenses charged by independent parties performing these
services not otherwise included in clauses (c) and (e) of this
Section 16;
(n) expenses incurred by the Advisor arising from the sales of
Trust properties, including those expenses related to carrying
out foreclosure proceedings;
(o) expenses incurred by the Advisor in connection with the sale
or disposition of Trust assets, including mortgage servicing;
(p) costs and expenses connected with computer services, including
but not limited to employee or other personnel compensation,
hardware and software costs, and related development and
installation costs associated therewith;
(q) costs and expenses associated with risk management (i.e.,
insurance relating to the Trust's assets);
(r) loan refinancing compensation; and
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(s) expenses associated with special services requested by the
Trustees pursuant to Section 14 hereof.
17. OTHER ACTIVITIES OF ADVISOR. The Advisor, its officers,
directors, or employees or any of its Affiliates may engage in other business
activities related to real estate investments or act as advisor to any other
person or entity (including another real estate investment trust), including
those with investment policies similar to the Trust, and the Advisor and its
officers, directors, or employees and any of its Affiliates shall be free from
any obligation to present to the Trust any particular investment opportunity
that comes to the Advisor or such persons, regardless of whether such
opportunity is in accordance with the Trust's Business Plan. However, to
minimize any possible conflict, the Advisor shall consider the respective
investment objectives of, and the appropriateness of a particular investment to
each such entity in determining to which entity a particular investment
opportunity should be presented. If appropriate to more than one entity, the
Advisor shall present the investment opportunity to the entity that has had
sufficient uninvested funds for the longest period of time. The Advisor shall
promptly inform the Trust of each real estate acquisition made by the Advisor
or any Affiliate.
18. LIMITATION ON OPERATING EXPENSES. To the extent that the
operating expenses of the Trust for any Fiscal Year exceeds the limitation set
forth in the Trust's Declaration of Trust, as amended from time to time, or any
similar limitation (if contained) in a successor Declaration of Trust or
Certificate of Incorporation, the Advisor shall refund to the Trust such
portion of its fees payable hereunder as may be required by such Section.
19. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue
in force for a period of one year, and, thereafter, it may be renewed from year
to year, subject to any required approval of the Shareholders of the Trust, and
if any Trustee is an Affiliate of the Advisor, the approval of a majority of
the Trustees who are not so affiliated. Notice of renewal shall be given in
writing by the Trustees to the Advisor not less than 60 days before the
expiration of this Agreement or of any extension thereof. This Agreement may
be terminated for any reason without penalty upon 60 days' written notice by
the Trust to the Advisor or 120 days' written notice by the Advisor to the
Trust, in the former case by the vote of a majority of the Trustees who are not
Affiliates of the Advisor or by the vote of holders of a majority of the
outstanding shares of the Trust. Notwithstanding the foregoing, however, in
the event of any material change in the ownership, control or management of the
Advisor, the Trust may terminate this Agreement without penalty and without
advance notice to the Advisor.
20. AMENDMENTS. This Agreement shall not be changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by both parties hereto, or their respective successors or assigns, or
otherwise as provided herein.
21. ASSIGNMENT. This Agreement shall not be assigned by the
Advisor without the prior consent of the Trust. The Trust may terminate this
Agreement in the event of its assignment by the Advisor without the prior
consent of the Trust. Such an assignment or any other assignment of this
Agreement by the Advisor shall bind the assignee hereunder in the same manner
as the Advisor is bound hereunder. This Agreement shall not be assignable by
the Trust without the consent of the Advisor, except in the case of assignment
by the Trust to a corporation, association, trust, or other organization that
is a successor to the Trust. Such successor shall be bound hereunder and by
the terms of said assignment in the same manner as the Trust is bound
hereunder.
22. DEFAULT, BANKRUPTCY, ETC. At the option solely of the
Trustees, this Agreement shall be and become terminated immediately upon
written notice of termination from the Trustees to the Advisor if any of the
following events shall occur:
(a) If the Advisor shall violate any provision of this Agreement,
and after notice of such violation shall not cure such default
within 30 days; or
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(b) If the Advisor shall be adjudged bankrupt or insolvent by a
court of competent jurisdiction, or an order shall be made by
a court of competent jurisdiction for the appointment of a
receiver, liquidator, or trustee of the Advisor or of all or
substantially all of its property by reason of the foregoing,
or approving any petition filed against the Advisor for its
reorganization, and such adjudication or order shall remain in
force or unstayed for a period of 30 days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization
under the Federal bankruptcy laws, or for relief under any law
for the relief of debtors, or shall consent to the appointment
of a receiver of itself or of all or substantially all its
property, or shall made a general assignment for the benefit
of its creditors, or shall admit in writing its inability to
pay its debts generally, as they become due.
The Advisor agrees that if any of the events specified in subsections
(b) and (c) of this Section 22 shall occur, it will give written notice thereof
to the Trustees within seven days after the occurrence of such event.
23. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further services hereunder
but shall be paid all compensation accruing to the date of termination. The
Advisor shall forthwith upon such termination:
(a) pay over to the Trust all monies collected and held for the
account of the Trust pursuant to this Agreement;
(b) deliver to the Trustees a full accounting, including a
statement showing all payments collected by it and a statement
of any monies held by it, covering the period following the
date of the last accounting furnished to the Trustees; and
(c) deliver to the Trustees all property and documents of the
Trust then in the custody of the Advisor.
24. MISCELLANEOUS. The Advisor shall be deemed to be in a
fiduciary relationship to the shareholders of the Trust. The Advisor assumes
no responsibility under this Agreement other than to render the services called
for hereunder in good faith, and shall not be responsible for any action of the
Trustees in following or declining to follow any advise or recommendations of
the Advisor. Neither the Advisor nor any of its shareholders, directors,
officers, or employees shall be liable to the Trust, the Trustees, the holders
of securities of the Trust or to any successor or assign of the Trust for any
losses arising from the operation of the Trust if the Advisor had determined,
in good faith, that the course of conduct which caused the loss or liability
was in the best interests of the Trust and the liability or loss was not the
result of negligence or misconduct by the Advisor. However, in no event will
the directors, officers or employees of the Advisor be personally liable for
any act or failure to act unless it was the result of such person's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
25. NOTICES. Any notice, report, or other communication required
or permitted to be given hereunder shall be in writing unless some other method
of giving such notice, report, or other communication is accepted by the party
to whom it is given, and shall be given by being delivered at the following
address of the parties hereto:
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The Trustees and/or the Trust:
National Income Realty Trust
280 Park Avenue East Bldg.
20th Floor
New York, New York 10017
Attention: President
The Advisor:
Tarragon Realty Advisors, Inc.
280 Park Avenue East Bldg.
20th Floor
New York, New York 10017
Attention: Executive Vice President and Chief Financial Officer
Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 25.
26. HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.
27. GOVERNING LAW. This Agreement has been prepared, negotiated
and executed in the State of New York. The provisions of this Agreement shall
be construed and interpreted in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely in the State of
New York.
28. EXECUTION. This instrument is executed and made on behalf of
the Trust by a Trustee of the Trust, not individually but solely as a Trustee
under the Declaration of the Trust, and the obligations under this Agreement
are not binding upon, nor shall resort be had to the private property of, any
of the Trustees, shareholders, officers, employees, or agents of the Trust
personally, but bind only the Trust property.
IN WITNESS WHEREOF, NATIONAL INCOME REALTY TRUST AND TARRAGON REALTY
ADVISORS, INC., by their duly authorized officers, have signed these presents
all as of the day and year first above written.
NATIONAL INCOME REALTY TRUST
BY: /s/ William S. Friedman
------------------------------
William S. Friedman
President and Trustee
TARRAGON REALTY ADVISORS, INC.
BY: /s/ John A. Doyle
------------------------------
John A. Doyle
President
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APPENDIX II
31458.01000:051995:SCM:4
NATIONAL INCOME REALTY TRUST
SHARE OPTION AND INCENTIVE PLAN
(As adopted [ ], 1995)
ARTICLE I
ESTABLISHMENT, PURPOSE AND DURATION
1.01 ESTABLISHMENT OF THE PLAN. National Income Realty
Trust, a California real estate investment trust (herein called the "Trust"),
hereby establishes a share option and incentive plan to be known as the
"National Income Realty Trust Share Option and Incentive Plan" (hereinafter
referred to as the "Plan"), as set forth in this document. The Plan permits
the granting of Nonqualified Share Options, Incentive Share Options, Alternate
Settlement Rights, Restricted Shares and Share Bonuses or other incentives.
1.02 PURPOSE. The purpose of the Plan is to promote the
success, enhance the value, and advance the interests of the Trust and its
Shareholders by attempting to secure for the Trust and its Shareholders the
benefits of the incentive inherent in the ownership of the Trust's Shares by
officers, key employees, trustees, and others of or with respect to the Trust
and its Subsidiaries and by other persons who contribute to the future growth
and continued success of the Trust and its Subsidiaries. The Plan is further
intended to provide flexibility to the Trust in its ability to motivate,
attract, and retain the services of officers, key employees and trustees upon
whose judgment, interest and special effort the successful conduct of its
operation is largely dependent. It is generally recognized that incentive
plans aid in retaining and encouraging competent executives and furnish a means
of attracting executives of exception ability to the Trust and its Subsidiaries
because of the opportunity to acquire proprietary interest in the business.
1.03 EFFECTIVE DATE. The Plan shall become effective upon
its approval by the Board of Trustees of the Trust (the "Adoption Date"),
subject to ratification by an affirmative vote of the holders of a majority of
votes cast on such proposal of Shares present and entitled to vote at a meeting
of Shareholders at which a quorum is present, which vote shall represent over
50% in interest of all voting securities of the Trust entitled to vote therein,
and the date of such approval by such Shareholders shall be determined and
deemed to be the "Effective Date," but notwithstanding the actual Effective
Date as defined herein, any and all Options or Awards granted pursuant to
written agreements entered into between the Trust and any Optionee or Grantee
after the Adoption Date and prior to the Effective Date shall be deemed to have
been ratified effective as of the date of such written Option Agreement. In
the case of Options granted prior to the Effective Date, the grant of such
Options is conditioned on Shareholder approval of the Plan. If the Plan is not
approved by the Shareholders within twelve months of its adoption by the Board
of Trustees, the Plan shall not become effective.
1.04 DURATION OF THE PLAN. Subject to approval by the
Board of Trustees and ratification by the Shareholders of the Trust, the Plan
shall commence on the Effective Date and shall remain in effect, subject to the
right of the Board of Trustees to terminate the Plan at any time pursuant to
Section 8.01 herein, until all Shares then subject to it shall have been
purchased or acquired according to the Plan's provisions; provided, however,
that in no event may an Award or Option be granted under the Plan on or after
the tenth anniversary of the earlier of the date of grant of the Option or the
Plan's Effective Date. Notwithstanding the foregoing, the terms of the Plan
may be amended in accordance with the provisions of Section 8.02.
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ARTICLE II
DEFINITIONS
2.01 DEFINED TERMS. For the purposes hereof and as used
herein, the following terms set forth below shall have the meanings set forth
below unless the context clearly indicates to the contrary:
(a) "Acceleration Event" means any event which in the
opinion of the Board of Trustees is likely to lead to a "Change in
Control" of Share ownership of the Trust, whether or not such "Change
in Control" actually occurs.
(b) "Adoption Date" shall mean the date the Plan is
approved by the Board of Trustees.
(c) "Affiliate" and "Associate" shall have the respective
meaning ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
(d) "Alternate Settlement Right" shall have the meaning
assigned in Section 6.05.
(e) "Award" shall mean any incentive feature granted
under the Plan including, but not limited to, any Option, warrant or
alternate settlement right, Share bonus, restricted Share grant or
other incentive, whether similar or dissimilar to the foregoing and
whether singly, in combination or tandem, or coupled with a cash or
other incentive feature.
(f) "Board" or "Board of Trustees" shall mean the Board
of Trustees of the Trust.
(g) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State
of Texas are authorized or obligated by law or executive order to
close.
(h) "Change in Control" shall be deemed to occur (i) upon
the approval by the Board (or if approval of the Board is not required
as a matter of law, the Shareholders of the Trust) of (A) any
consolidation or merger of the Trust in which the Trust is not the
continuing or surviving entity or pursuant to which the Shares would
be converted into cash, securities or other property other than a
merger in which the holders of the Shares immediately prior to the
merger will have the same proportionate ownership of the Shares of the
surviving entity immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions of all or substantially all the assets of the Trust, or
(C) adoption of any plan or proposal for the liquidation or
dissolution of the Trust, (ii) when any "person" (as defined in
Section 13(d) of the Exchange Act), other than the Trust or any
Subsidiary or employee benefit plan or trust maintained by the Trust,
shall become the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, or more than 20% of the
Shares outstanding at the time, without the prior approval of the
Board, or (iii) at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the Board
shall cease for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Shareholders
of each new Trustee during such two-year period was approved by a vote
of at least two-thirds of the Trustees then still in office who were
Trustees at the beginning of such two-year period.
(i) "Code" means the Internal Revenue Code of 1986, as
amended.
(j) "Committee" shall mean the group of individuals
designated by the Board pursuant to Sections 3.01 and 3.02.
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<PAGE> 48
(k) "Disinterested" shall mean disinterested within the
meaning of applicable regulatory requirements, including those
promulgated under Section 16 of the Exchange Act.
(l) "Effective Date" shall have the meaning assigned in
Section 1.03.
(m) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(n) "Exercise Price" shall mean, with respect to each
Share subject to (i) a Nonqualified Share Option (other than a Reload
Option), the price fixed by the Committee at which such Share may be
purchased from the Trust pursuant to the exercise of such Option,
which price at no time may be less than 50% of the Fair Market Value
of the Shares on the date the NQSO is granted or (ii) an Incentive
Share Option (other than a Reload Option), the price fixed by the
Committee at which such Share may be purchased from the Trust pursuant
to the exercise of such Option, which price at no time may be less
than 100% of the Fair Market Value of the Shares (110% of the Fair
Market Value of the Shares in the case of a 10% Shareholder) on the
date the ISO is granted, or (iii) a Reload Option, the price of which
is as fixed pursuant to Section 6.12 of the Plan.
(o) "Fair Market Value" shall mean (i) the simple average
for the five trading days immediately preceding the day and time such
value is to be determined (which may include the day of determination)
of the mean between the high "bid" and low "asked" trading prices of
the Shares, or if no such prices are available for the full five day
period, any prices within such time frame, as reported and/or
published by the National Association of Securities Dealers Automatic
Quotation System ("NASDAQ") or other national quotation service, or
(ii) if the Shares are listed and registered on a national securities
exchange such as the New York Stock Exchange or the American Stock
Exchange, the simple average of the highest and lowest quoted selling
prices of the Shares on such exchange as reported or published by such
exchange or as listed in the Wall Street Journal or other recognized
financial publication, for the five trading days immediately preceding
the day and time such value is to be determined (which may include the
day of determination), or, if no such sales were made during such
period on such exchange, then by such other method as the Committee,
in its sole discretion, shall determine to be appropriate, or (iii) if
the Shares are not listed and registered on any national securities
exchange, the simple average of the bid and ask prices per Share in
the over-the-counter market at the end of each trading day for the
five trading days preceding the day and time such value is to be
determined (which may include the day of determination) or, (iv) if
for any reason no such quotations are available, then by such other
method as the Committee, in its sole discretion in good faith, shall
determine to be appropriate; provided, however, in the case of grants
of ISO's, the Committee shall determine whether the foregoing
methodology yields an accurate fair market value of the Shares on the
date of the grant within the meaning of Code Section 422; and, if the
Committee concludes it does not, the Committee shall use such other
methodology as it deems appropriate to in good faith determine the
fair market value of the Shares on the date of the grant.
(p) "Grantee" shall mean a person to whom an Award has
been granted pursuant to the Plan.
(q) "Incentive Share Option" or "ISO" means an option to
purchase Shares, granted under Article VI herein, which is designated
as an Incentive Stock Option and is intended to meet the requirements
of Section 422 of the Code or any successor provision.
(r) "Insider" shall mean an individual who is, at the
time an Award is made under this Plan, an officer, Trustee, or holder
of more than 10 percent of the Shares, as defined in Section 16(a) of
the Exchange Act.
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(s) "Nonqualified Share Option" or "NQSO" means an Option
to purchase Shares, granted pursuant to this Plan which is not
intended to be, or does not qualify as, an Incentive Stock Option.
(t) "Option" shall mean an option to purchase Shares
granted pursuant to the provisions of the Plan.
(u) "Option Agreement" shall mean the agreement between
the Trust and the Optionee or Grantee under which the Optionee or
Grantee may purchase or receive or acquire Shares hereunder.
(v) "Optionee" shall mean a person to whom an Option has
been granted pursuant to the Plan.
(w) "Original Option" shall mean an option as defined in
subsection (D) of Section 6.12 of the Plan.
(x) "Period of Restriction" means the period during which
the transfer of Shares of Restricted Stock is limited in some way
(based on the passage of time, the achievement of performance goals,
or upon the occurrence of other events as determined by the Committee,
at its discretion), and the Shares are subject to a substantial risk
of forfeiture, as provided in Section 6.06.
(y) "Plan" shall mean the National Income Realty Trust
Share Option and Incentive Plan, the terms of which are set forth
herein.
(z) "Reload Option" shall mean an Option granted pursuant
to Section 6.12.
(aa) "Rule 16b-3" means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act.
(bb) "Section 16(b) Optionee" shall mean an individual who
is subject to Section 16(b) of the Exchange Act.
(cc) "Securities Act" shall mean the Securities Act of
1933, as amended.
(dd) "Share Payment" means a payment in Shares at a
specified value to replace all or any portion of a payment that would
otherwise be payable solely in cash.
(ee) "Shares" shall mean the Trust's authorized Shares of
Beneficial Interest, no par value, or, in the event that the
outstanding Shares are hereafter changed into or exchanged for other
shares of a different class or securities of the Trust or some other
entity, such other shares or class or securities.
(ff) "Subsidiary" shall mean an entity, in which the Trust
owns directly, or indirectly, through subsidiaries, at least 50
percent of the total combined voting power of all classes of equity,
or any other entity (including, but not limited to, partnerships and
joint ventures) in which the Trust owns at least 50 percent of the
combined equity thereof. In the event that applicable law permits the
ownership of less than 50 percent of the total combined voting power
of all classes of equity to constitute a "Subsidiary," then the
requirement of 50 percent ownership in this definition shall be
lowered to the lowest level permitted under applicable law;provided,
however, in no event shall "Subsidiary" mean any entity which is not a
"Subsidiary" within the meaning of Code Section 424(f).
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(gg) "10% Shareholder" means an individual who, at the
time the ISO is granted, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Trust or
any subsidiary of the Trust.
(hh) "Trust" shall mean National Income Realty Trust, a
California real estate investment trust.
2.02 OTHER DEFINITIONAL PROVISIONS. All terms defined in
this Plan shall have the meanings set forth in Section 2.01 above when used in
any Option Agreement or other document made or delivered pursuant to this Plan,
unless the context therein shall otherwise require or unless re-defined
therein. Defined terms used herein in the singular shall import the plural and
vice versa. The words "hereof," "herein," "hereunder" and similar terms when
used in this Plan shall refer to this Plan as a whole and not to any particular
provision of the Plan.
ARTICLE III
ADMINISTRATION
3.01 DUTIES AND POWERS OF THE COMMITTEE. The Plan shall
be administered by a committee designated by the Board (the "Committee").
Subject to express provisions of the Plan, the Committee shall have plenary
authority, in its discretion, to determine the individuals to whom, and the
time or times at which, Options or Awards may or shall be granted, the types of
Options or Awards to be granted, and the number of Shares to be subject
thereto. In making such determinations, the Committee may take into account
the nature of the services rendered by the respective individuals, their
present potential contributions to the Trust's success, and such other factors
as the Committee, in its sole discretion, shall deem relevant. Subject to the
express provisions of the Plan, the Committee shall also have the complete
plenary authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it, to determine and to amend, subject to the
concurrence of the holder of any Option or Award, if required, the terms and
provisions of the respective Option Agreement or any other agreement and to
make all other determinations necessary or advisable for the administration of
the Plan. The Committee's determinations on the matters referred to herein
shall be conclusive for all purposes.
3.02 THE COMMITTEE. The Committee shall consist of three
or more members, each of whom shall be a "Disinterested" person within the
meaning of that phrase set forth in Rule 16b-3 under the Exchange Act. The
Committee shall be appointed by the Board of Trustees, which may, from time to
time, appoint members of the Committee in substitution for members previously
appointed and may fill vacancies, however caused, in the Committee. No person
who is (or, within one year prior to his or her appointment as a member of the
Committee, was) eligible to participate in the Plan shall be a member of the
Committee. The Committee shall select one of its members as its chairman, and
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by a majority of the members shall
be fully as effective as if it had been made by a majority vote at a meeting
duly called and held. The Committee may appoint a secretary, shall keep
minutes of its meetings, and shall make such rules and regulations for the
conduct of its business as it shall deem advisable.
3.03 TRUST ASSISTANCE. The Trust shall supply full and
timely information to the Committee on all matters relating to eligible
individuals, their employment, death, retirement, disability or other
termination of employment, and such other pertinent facts as the Committee may
require or request. The Trust shall furnish the Committee with such clerical
or other assistance as is necessary in the performance of the Committee's
duties.
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3.04 ABSENCE OF A COMMITTEE. In the absence of the
appointment of members of the Board to serve on the Committee, and until such
time as at least three Board members have been appointed to serve as the
Committee, the Board of Trustees of the Trust may (as a whole) perform the
functions of the Committee.
3.05 EXPENSES OF PLAN. The expenses of administering the
Plan shall be borne by the Trust and its Subsidiaries.
3.06 RELIANCE ON REPORTS. Each member of the Committee
and each member of the Board of Trustees shall be fully justified in relying or
acting in good faith upon any report made by the independent public accountants
of the Trust and its Subsidiaries and upon any other information furnished in
connection with the Plan by any person or persons other than himself. In no
event shall any person who is or shall have been a member of the Committee or
of the Board of Trustees be liable for any determination made or other action
taken or any omission to act in reliance upon any such report or information or
for any action, including the furnishing of information, taken or failure to
act, if in good faith.
3.07 INDEMNIFICATION. Each person who is or shall have
been a member of the Committee or of the Board of Trustees shall be indemnified
and held harmless by the Trust against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him in connection
with or resulting from any claim, action, suit or proceeding to which he may be
a party or in which he may be involved by reason of any action taken or
failureto act under the Plan and against and from any and all amounts paid by
him in settlement thereof, with the Trust s approval, or paid by him in
satisfaction of judgment in any such action, suit, or proceeding against him,
provided he shall give the Trust an opportunity, at its own expense, to handle
and defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such person may be entitled under the
Trust s Declaration of Trust, as amended, or Trustee's Regulations, as amended,
as a matter of law, or otherwise, or any power that the Trust may have to
indemnify them or hold them harmless.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.01 LIMITATIONS. Subject to adjustment pursuant to the
provisions of Section 4.02, a total of 300,000 authorized but unissued Shares
shall be reserved for issuance under the Plan, provided, however, that any
Shares held, from time to time, as treasury Shares may be issued or reserved
for issuance in lieu of authorized but unissued Shares, as determined from time
to time by the Board of Trustees, in which event the number of authorized but
unissued Shares so reserved shall be correspondingly reduced. Shares may be
issued pursuant to the exercise of any Option or Award. In the event any such
Option or Award shall expire or terminate for any reason without having been
exercised in full, or in the event any condition or contingency pertaining to
the issuance or vesting of any Shares under the Plan shall fail to be met,
then, subject to the provisions of the Plan, such Shares subject to such Option
or Award subject to any such condition or contingency shall again become
available for the purposes of the Plan.
4.02 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provision of the Plan, any Option Agreement or other
agreement covering an Option or Award may contain such provisions as the
Committee shall determine to be appropriate for the adjustment of the number
and class of Shares subject thereto and of the purchase or acquisition prices
thereof in the event of changes in the outstanding Shares by reason of stock
dividends, recapitalizations, mergers, consolidations, split-ups, combinations
or exchanges of Shares and the like; and, in the event of any such change in
the Shares, the aggregate number and class of Shares available under the Plan
shall be adjusted in such manner as the Committee shall in its sole discretion
determine to be equitable and consistent for the purpose of the Plan and the
applicable provisions of law and such determination shall be conclusive for all
purposes of the Plan and of each Option Agreement or
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other agreement, whether theretofore or thereafter executed. In addition, the
Committee's determination with respect to any adjustment may provide for the
elimination of fractional share interests, if applicable, and the payment for
same in cash.
ARTICLE V
ELIGIBILITY
Options and Awards may be granted only to Trustees, officers
or key employees (future as well as present) of the Trust or any present or
future Subsidiary of the Trust and to other persons who the Committee
determines are making, or will make, a significant contribution to the growth
and success of the Trust and its Subsidiaries. Options and Awards may also be
granted to non-employee Trustees of the Trust. The Committee may grant Options
or Awards or both to any of those eligible in accordance with such
determinations as the Committee from time to time in its sole discretion shall
make; provided, however, no Incentive Share Options shall be granted to persons
who are not "employees" of the Trust or its subsidiaries. For purposes of this
Plan, "employees" shall include only those persons who are classified as
employees within the meaning of Code Section 422.
ARTICLE VI
OPTIONS AND AWARDS
6.01 GRANT AND AGREEMENT. Each Option or Award granted
pursuant to the terms of the Plan shall be evidenced by minutes of the meeting
or the written consent of the Committee and by a written Option Agreement or
other agreement dated as of the date of grant and executed on behalf of the
Trust and the Optionee or Grantee, as the case may be, which agreement shall
set forth such terms and conditions as may be determined by the Committee
consistent with the Plan.
6.02 CONSIDERATION FOR ISSUANCE. The Committee shall
determine the consideration to be received in connection with the issuance of
Shares pursuant to an Option and the rights granted pursuant to an Award
pursuant to the grant, exercise, lapsing of restrictions, or other attribute of
any Option or Award made under the Plan, provided, however, that with respect
to an Option such consideration per Share must equal not less than one-half
(1/2) of the Fair Market Value per Share of the Trust's Shares on the date of
grant in the case of an NQSO and not less than 100% of the Fair Market Value
(110% in the case of an 10% Shareholder) on the date of the grant in the case
of an ISO. Additionally, each Optionee or Grantee must agree to use or
continue to use his best lawful efforts for the benefit of the Trust and its
Subsidiaries during the term of the Option or Award so granted. Nothing
contained in this Plan or in any agreement executed pursuant to this Plan shall
be deemed to limit the right of the Trust or any Subsidiary to terminate any
Optionee's or Grantee's employment or relationship with the Trust or any
subsidiary at any time for or without cause. Subject to the applicable
provisions of law, any such consideration may take any form, including, without
limitation, cash, notes, Shares, a Share Payment or other securities, property,
or other performance of services under an employment agreement or otherwise.
Subject to the requirements of applicable law, the Committee may authorize (but
shall not be required to do so) a loan by the Trust on such terms as it shall
deem fit to any person eligible to receive an Option or Award for the purpose
of exercising any Option or Award granted under the Plan or of otherwise
acquiring any Shares issuable under the Plan, or for the purpose of paying any
taxes to the Trust due hereunder; provided, however, all loans made to fund the
exercise of an ISO must be with full recourse against Optionee.
6.03 TERM AND EXERCISE. The term of each Option or Award
granted under the Plan shall be fixed by the Committee. Every Incentive Stock
Option shall provide for a fixed expiration date of not later than ten years
from the date such Incentive Stock Option is granted (5 years in the case of a
10% Shareholder).
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Any ISO must be exercised not later than three (3) months following the
Optionee's termination of employment with the Trust or any Subsidiary of the
Trust; such three (3) month period is extended to one (1) year if the Optionee
is disabled within the meaning of Code Section 22(e)(3). The Exercise Price
of Shares issued pursuant to each Option (other than a Reload Option) shall be
fixed by the Committee at the time of the granting of the Option; provided,
however, that such Exercise Price of each Incentive Stock Option shall in no
event be less than 100% of the Fair Market Value of the Shares on the date such
Option is granted (110% in the case of a 10% Shareholder). The Shares subject
to each Option or Award may become exercisable in full or in installments of
equal or unequal amount at such times as shall be determined by the Committee.
The Committee shall have the discretion to amend, at any time or from time to
time, any Option or Award granted under the Plan in order to accelerate the
exercisability thereof, or any installment or part thereof. Unless otherwise
provided in the applicable Option Agreement or other agreement, the Shares
comprising each Option or Award or installment thereof may be purchased in
whole at any time or in part from time to time, after such Option or Award or
any installment thereof, as the case may be, becomes exercisable; provided,
however, that no Option (other than a Reload Option) shall be exercisable prior
to the first anniversary of the date of its grant, except as provided in the
Option Agreement or as the Committee otherwise determines in accordance with
the Plan, and in no case may an Option be exercised at any time for fewer than
100 Shares (or the total remaining shares covered by the Option if fewer than
100 Shares) during the term of the Option. The specified number of shares will
be issued upon receipt by the Trust of (i) notice from the Optionee of exercise
of an Option, and (ii) either payment to the Trust, of the "Exercise Price" for
the number of Shares with respect to which the Option is exercised, or with
approval of the Committee, a secured promissory note as hereinafter provided.
Each such notice and payment shall be delivered or mailed by first class
postage prepaid mail, addressed to the Treasurer of the Trust at such place as
the Trust may designate from time to time. Separate certificates shall be
issued by the Trust for those Shares acquired pursuant to the exercise of an
ISO and for those shares acquired pursuant to a NQSO. Options or Awards
granted under the Plan may also provide for their termination upon the
occurrence of such events as theCommittee shall determine and shall be
incorporated in the respective Option Agreement or other agreements, which need
not be identical, and which shall be subject to all such other conditions and
restrictions as the Committee shall approve. No Optionee or Grantee shall have
any of the rights of a Shareholder with respect to any Shares subject to any
Option or Award until such Shares shall be issued to him upon the exercise or
completion of any contingencies contained in the grant of any Option or Award.
6.04 NON-TRANSFERABILITY OF OPTIONS AND AWARDS. No Option
or Award granted under the Plan shall be transferable other than by will or the
laws of descent and distribution, and an Option or Award may be exercised,
during the lifetime of the Optionee or Grantee, only by the Optionee or Grantee
or, if Optionee or Grantee is legally incapacitated, by his or her respective
guardian or legal representative, regardless of any community property
interests therein of any Optionee's or Grantee's spouse or such spouse's
successors in interest; provided, however, that in the event Rule 16b-3 under
the Exchange Act is further amended so as to eliminate therefrom the holding
period requirement of nontransferability, then Options or Awards granted under
the Plan may be made transferable on such terms as the Committee shall
determine consistent with the requirements of Code Section 422 in the case of
Incentive Share Options.
6.05 ALTERNATE SETTLEMENT RIGHTS. The Committee may, in
its sole discretion, grant an "Alternate Settlement Right" in respect of any
Options or Awards heretofore or hereafter granted under the Plan. An
"Alternate Settlement Right" shall be subject to such terms and conditions and
evidenced by Option Agreements or other agreements in such form as shall be
determined from time to time by the Committee, and shall in any event by
subject to the following provisions:
(a) NATURE OF ALTERNATE SETTLEMENT RIGHT. An Alternate
Settlement Right shall entitle an Optionee or Grantee to receive from
the Trust, in exchange for the surrender of any Option or Award or any
portion thereof which is exercisable on the date of exercise of such
Alternate Settlement Right, Shares, cash, or a combination thereof,
having an aggregate Fair Market Value which is equal to the excess of
the Fair Market Value as of the date of exercise of one Share over the
purchase or acquisition
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price of one such Share specified in such Option or Award multiplied
by the number of Shares covered by such Option or Award or portion
thereof which is so surrendered.
(b) EXERCISE. The exercise of an Alternate Settlement
Right shall be subject to all of the terms and conditions (other than
payment of the applicable Option or Award price) applicable to the
exercise of an Option or Award granted under the Plan in addition to
such other terms and conditions as may be imposed by the Committee or
required by applicable law.
Upon the exercise of an Alternate Settlement Right, the number of Shares
reserved for issuance under the Plan shall be reduced by the number of Shares,
if any, received by the Optionee or Grantee upon surrender of the Option or
Award in respect of which such Shares were issued.
6.06 RESTRICTED SHARES, SHARE BONUS, ETC. The Committee
may authorize the issuance of Shares pursuant to an Option (other than an ISO)
or Award to those persons eligible for purchase at a discount or without
requiring any payment therefor and upon such conditions or subject to such
restrictions, if any, as shall be determined by the Committee. All such
conditions or restrictions shall be evidenced by written agreement between the
Trust and the holder of such Shares in form approved by the Committee.
6.07 PURCHASE FOR INVESTMENT. Each Optionee and Grantee
receiving an Option or Award pursuant to the Plan must represent, and agree to
give such further representation as may be reasonably required by the Trust
upon the exercise of such Option or Award or any part thereof, that any Shares
purchased pursuant to such Option or Award will be, or are, acquired for his
own account for investment and not with a view to, or for offer or sale in
connection with, the distribution thereof, unless in the opinion of counsel
satisfactory to the Trust that same is not necessary at such time.
6.08 PURCHASE OF OPTION OR AWARD BY THE TRUST. To the
extent the Committee shall determine that it is desirable and in the best
interests of the Trust, the Committee may grant Options or Awards providing
that the Trust shall purchase for cash, at the election of the applicable
Optionee or Grantee, all or a portion of the Shares previously issued to such
Optionee or Grantee pursuant to an Option or Award at a price not exceeding the
Fair Market Value of the Shares utilizing the date of such purchase in place of
the date of exercise of such Option or Award. In the event of any such
purchase, such Shares shall again become available for the grant of Options or
Awards under the Plan. The Trust shall have no obligation to purchase Shares
pursuant to any such Options or Awards (and the agreements relating thereto
shall so state) if (a) the capital of the Trust would become impaired thereby
in the opinion of the Committee, or (b) in the opinion of counsel for the
Trust, such purchase would at the time be a violation of any law or any rule or
regulation thereunder or the Declaration of Trust, as amended of the Trust, or
any agreement to which the Trust or any Subsidiary is a party.
6.09 EFFECT OF DEATH OR OTHER TERMINATION OF RELATIONSHIP
WITH THE TRUST. Unless otherwise approved by the Committee at the time of
granting any Option or Award and specifying same in the particular Option
Agreement or other agreement, subject to the other provisions of the Plan, in
the event that an Optionee or Grantee:
(a) has his relationship with the Trust or any Subsidiary
terminated for any reason other than death (including discharge by the
Trust) an Option or Award granted pursuant to the terms of the Plan,
to the extent not exercised or exercisable at the time of such
termination in accordance with its terms, shall terminate and be
without further force or effect.
(b) dies during the term of such Option or Award, such
Option or Award, to the extent not exercisable in accordance with its
terms, shall terminate and be without further force or effect and to
the extent such Option or Award is exercisable on the date of death,
it may, within six months after the date of death be exercised by such
Optionee's or Grantee's legal representatives or by the person
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or persons to whom such Option or Award has been transferred by will
or the applicable laws of descent and distribution; provided, however,
that such six-month period shall be subject to the provisions of the
particular Option Agreement or other agreement with respect to the
final expiration of such Option or Award and such Option or Award, to
the extent not exercised within said six-month period (or such shorter
period as may be required by the terms of such Option Agreement or
other agreement) shall in all events terminate upon the expiration of
such six-month period (or such shorter period); and provided further,
that no transfer of an Option or Award by the Optionee or Grantee by
will or by the laws of descent and distribution shall be effective to
bind the Trust unless the Trust shall have been furnished with written
notice thereof and an authenticated copy of the will and/or such other
evidence as the Committee may deem necessary to establish the validity
of the transfer and the acceptance by the transferee or transferees of
the terms and conditions of such Option or Award.
6.10 OPTIONS LIMITATION AS TO VALUE. The aggregate Fair
Market Value, determined as of the time any Option is granted under this Plan
which is intended to qualify as an "Incentive Stock Option" (herein so called)
under Section 422 of the Code, of the Shares for which any "individual" may be
granted an Incentive Stock Option pursuant to the terms of the Plan in any
calendar year under all such plans of the Trust and its Subsidiaries, shall not
exceed $100,000.
6.11 PAYMENT FOR SHARES. Except as otherwise provided in
the Plan or the Option Agreement, the Exercise Price for the Shares shall be
paid in full when the Option is exercised. Subject to such rules as the
Committee may impose, the Exercise Price may be paid in whole or in part in (i)
cash, (ii) whole Shares owned by the individual six months or longer and
evidenced by negotiable certificates, valued at their Fair Market Value on the
date of exercise, (iii) by a combination of such methods of payment or (iv)
such other consideration as shall constitute lawful consideration for the
issuance of Shares and be approved by the Committee (including without
limitation, assurance satisfactory to the Committee from a broker registered
under the Exchange Act, of the delivery of the proceeds of an imminent sale of
the Shares to be issued pursuant to the exercise of such option, such sale to
be made at the direction of the individual). If certificates representing
Shares are used to pay all or part of the Exercise Price of an Option, separate
certificates shall be delivered by the Trust representing the same number of
Shares as each certificate so used and an additional certificate shall be
delivered representing any additional Shares to which the individual is
entitled as a result of exercise of the Option. Moreover, if so provided in
the Option Agreement, and subject to such restrictions, terms and conditions as
the Committee may impose, an individual may request the Trust to "pyramid" his
or her shares; that is, to automatically apply the Shares which he or she is
entitled to receive on the exercise of a portion of an Option to satisfy the
exercise for additional portions of the Option, thus resulting in multiple
simultaneous exercises of an Option by use of whole Shares as payment.
However, in the case of an ISO, such pyramiding may result in a disqualifying
disposition under Code Section 424. The Committee may, in its discretion,
authorize payment of all or any part of the Exercise Price over a period of not
more than five years from the date the Option is exercised. In such instance
any unpaid balance of the Exercise Price shall be evidenced by the individual's
full recourse promissory note payable to the order of the Trust which shall be
secured by such collateral and shall bear interest at such rate or rates as
determined from time to time by the Committee.
6.12 RELOAD OPTIONS. The Committee shall have the
authority (but shall not be obligated or required) to specify at the time of
grant that an individual shall be granted another Option (a "Reload Option") in
the event such individual exercises all or part of an Option (an "Original
Option") by surrendering in accordance with Section 6.11 above already owned
Shares in full or partial payment of the Exercise Price under such Original
Option, subject to the availability of Shares under the Plan at the time of
exercise. Each Reload Option shall cover a number of Shares equal to the
number of Shares surrendered in payment of the Exercise Price, shall have an
Exercise Price per Share equal to the Fair Market Value of the Shares (110% of
the Fair Market Value in the case of a 10% Shareholder) on the date of grant of
such Reload Option and shall expire on the stated expiration date of the
Original Option. A Reload Option shall be exercisable at any time and from
time to time from and after the date of grant of such Reload Option (or, as the
Committee, in its sole discretion, shall determine at the time of grant, at
such time or times as shall be specified in the Reload Option);
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provided, however, that a Reload Option granted to a Section 16(b) Optionee
shall not be exercisable during the first six months from the date of grant of
such Reload Option. The first such Reload Option may provide for the grant,
when exercised, of one subsequent Reload Option to the extent and upon such
terms and conditions, consistent with this Section 6.12 as the Committee, in
its sole discretion, shall specify at or after the time of grant of such Reload
Option. A Reload Option shall contain such other terms and conditions which
may include a restriction on the transferability of the number of Shares
received upon exercise of the Original Option reduced by a number of shares
equal in value to the tax liability incurred upon exercise as the Committee, in
its sole discretion, may deem desirable which may be set forth in the Agreement
evidencing the Reload Option. The Committee may, in its sole discretion,
structure any Reload Option as an ISO by complying with the provisions of Code
Sections 421, 422 and 424.
ARTICLE VII
COMPLIANCE WITH LAW AND ISSUANCE
OF CERTIFICATES OR PAYMENT OF FUNDS
7.01 COMPLIANCE WITH THE SECURITIES ACT. Each Option or
Award granted under the Plan shall contain such provisions or undertakings by
the Optionee or Grantee pertaining to the re-sale or distribution of any Shares
acquired pursuant to such Award or Option as the Trust shall deem appropriate
and necessary to comply with the Securities Act, and the rules, regulations and
administrative interpretations thereunder; provided that the Trust may waive
any such provisions or undertakings if the Trust shall determine that same are
no longer required under said Securities Act, rules, regulations or
interpretations, or are otherwise unnecessary.
7.02 GOVERNMENTAL APPROVAL. Each Option or Award shall be
subject to the requirement that if at any time the Board of Trustees shall
determine, in its sole discretion, that the listing, registration or
qualification of the Shares covered thereby upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of or in connection
with the granting of such Option or Award or the issuance or acquisition of
Shares thereunder, no such Award or Option shall be effective unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Trustees.
7.03 ISSUANCE OF CERTIFICATES AND PAYMENT OF FUNDS. The
Trust shall not be required to issue or deliver any certificate for Shares to
be purchased or issued, or any funds required to be paid by the Trust upon the
exercise of any Option or Award granted under the Plan or any portion thereof,
pursuant to any Option Agreement or any other agreement relating to the Plan
prior to the fulfillment of all of the following conditions:
(a) compliance with any requirements under Section 7.01
above;
(b) compliance with any applicable requirements under
Section 7.02 above;
(c) the lapse of such reasonable period of time following
the exercise of the Option or Award as the Committee, from time to
time, may establish for reasons of administrative convenience; and
(d) if pursuant to any applicable statute or regulation,
as then in effect, if such issuance or delivery would be in violation
of any statute, law, rule or regulation, whether federal or state.
7.04 TAX WITHHOLDING. The Trust or a Subsidiary, as
appropriate, shall have the right to deduct from all cash payments to be made
to any Optionee or Grantee any federal, state or local taxes required
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by law to be withheld with respect to such cash payments and, in the case of
any Alternate Settlement Right redeemed in Shares, the Optionee or Grantee
receiving such Shares may be required to pay to the Trust or a Subsidiary, as
appropriate, the amount of any such taxes which the Trust or Subsidiary is
required to withhold with respect to such Shares. In the event the cash
portion of any Alternate Settlement Right is insufficient to cover the required
withholding, the Optionee or Grantee may be required to pay to the Trust the
amount of such taxes.
7.05 SHARE WITHHOLDING. Wherever the Trust or Subsidiary,
as appropriate, proposes or is required to issue or transfer Shares under the
Plan, the Trust or Subsidiary shall have the right to require the Grantee to
remit to the Company an amount sufficient to satisfy any federal, state and/or
local withholding tax requirements prior to the delivery of any certificate for
such Shares. Alternatively, with respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted Shares, or
upon any other taxable event hereunder, individuals may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by having the Trust withhold Shares having a Fair Market Value, on the
date the tax is to be determined, equal to the minimum marginal tax which could
be imposed on the transaction. Share withholding upon the exercise of an
Option will be done if the individual makes a signed, written election and one
of the following occurs:
(a) The Option exercise occurs during a "window period"
and the election to use Share withholding is made at any time prior to
exercise. For this purpose, "window period" means the period
beginning on the third (3rd) Business Day following the date of public
release of the Trust's quarterly financial information and ending on
the twelfth (12th) Business Day following such date. An earlier
election can be revoked up until the exercise of the Option during the
window period; or
(b) An election to withhold Shares is made at least six
months before the Option is exercised. If this election is made, then
the Option can be exercised outside of the window period.
Share withholding upon the vesting of Restricted Shares will be done if the
individual makes a signed, written election and one of the following occurs:
(a) The election occurs during a window period, and the
Restricted Share Award is subject to vesting according to a fixed
schedule established by the Committee at the time of grant; or
(b) An election to use Share withholding is made at least
six (6) months before vesting occurs.
ARTICLE VIII
TERMINATION, AMENDMENT AND
MODIFICATION OF THE PLAN
8.01 TERMINATION OF PLAN. The Plan may be terminated at
any time by the Board of Trustees except with respect to Options or Awards then
outstanding under the Plan for which there exist written Option Agreements or
other written agreements relating to each such Option or Award. No termination
of the Plan may, without the consent of the person to whom any Option or Award
shall theretofore been granted, adversely affect the rights of such person
under such Option or Award.
8.02 AMENDMENT. The Board of Trustees may, at any time
and from time to time, alter, amend, suspend or discontinue the Plan and the
rules for its administration; provided, however, that the Board of Trustees may
not, without further approval by a majority of votes cast on such proposal
provided the total votes cast thereon represents over 50% in interest of the
holders of the then outstanding voting securities of the
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Trust entitled to vote thereon, (i) increase (other than by adjustments
provided for by Section 4.02) the maximum number of Shares which may be issued
pursuant to all Options or Awards granted under the Plan, or (ii) change the
class of employees eligible to receive ISO's, and, provided further, that no
such amendment or modification of the Plan may, without the consent of the
person to whom any Option or Award shall theretofore have been granted,
adversely affect the rights of such person under such Option or Award.
8.03 AMENDMENT OF PRIOR AND OTHER OPTIONS. In addition to
administering the Plan, the Committee may, in its discretion with the consent
of each such person affected, amend any or all Options to purchase the Shares
which are outstanding on the date of the vote of the Trust's Shareholders
approving the Plan, to the extent not exercised at the time of any such
amendment, so as to add, modify, or delete any provision thereof which would
have been permissible to so add, modify, or delete, if such Option had been
granted under the Plan as now in effect.
8.04 CHANGE IN CONTROL. In the event of a Change in
Control of the Trust all Awards, Alternate Settlement Rights and Options
granted under this Plan that are still outstanding and not yet exercisable
shall become immediately exercisable as of the date of the Change in Control
and shall remain exercisable for their term. Further, all restrictions placed
on Restricted Share Awards shall lapse in the event of a Change in Control.
The Board has final authority to determine the exact date on which a Change in
Control has been deemed to have occurred. Notwithstanding the foregoing, the
Board may deem that an Acceleration Event has occurred, specifying the date
thereof, which determination, if made, shall have the same effect as a Change
in Control.
ARTICLE IX
MISCELLANEOUS
9.01 CLAIM TO OPTION OR AWARD, OWNERSHIP, OR EMPLOYMENT
RIGHTS. No person shall have any claim or right to be granted any Option or
Award under this Plan. No Optionee or Grantee, prior to the issuance of
Shares, shall be entitled to voting rights, dividends or other rights of
Shareholders with respect to any Shares covered by such Option or Award.
Neither this Plan nor any action taken hereunder shall be construed as giving
any person any right to be retained in the employ of or otherwise by the Trust
or a Subsidiary or an Affiliate or Associate.
9.02 UNSECURED OBLIGATION. Optionees and Grantees under
this Plan shall not have any interest in any fund or specific asset of the
Trust by reason of this Plan. No trust fund shall be created in connection
with this Plan or any Option or Award thereunder and there shall be no required
funding of amounts which may become payable to any Optionee or Grantee.
9.03 OTHER COMPENSATION PLANS. The adoption of the Plan
shall not affect any other Option or incentive or other compensation plans,
practices or arrangements in effect for the Trust or any Subsidiary, nor shall
the Plan preclude the Trust from establishing any other forms of incentive or
other compensation for employees of or persons retained by the Trust or any
Subsidiary.
9.04 PLAN BINDING ON SUCCESSORS. The Plan shall be
binding upon the successors and assigns of the Trust.
9.05 REQUIREMENTS OF LAW. The granting of Awards and
Options and the issuance of Shares under the Plan shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
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9.06 GOVERNING LAW. To the extent not preempted by laws
of the United States of America, the Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of New
York.
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APPENDIX III
31458.01000:051995:SCM:4
NATIONAL INCOME REALTY TRUST
INDEPENDENT TRUSTEE SHARE OPTION PLAN
(As adopted [ ], 1995)
ARTICLE I
ESTABLISHMENT, PURPOSE AND DURATION
1.01 ESTABLISHMENT OF THE PLAN. National Income Realty
Trust, a California real estate investment trust (herein called the "Trust"),
hereby establishes a share option plan to be known as the "National Income
Realty Trust Independent Trustee Share Option Plan" (hereinafter referred to as
the "Plan"), as set forth in this document. The Plan permits the granting of
Nondiscretionary Options or other incentives.
1.02 PURPOSE. The purpose of the Plan is to foster and
promote the long term financial success, enhance the value, and advance the
interests of the Trust and its Shareholders by attracting and retaining
outstanding nonemployee Trustees for the Trust and its Shareholders by enabling
them to participate in the Trust's growth through automatic, nondiscretionary
awards of Options. It is generally recognized that incentive plans aid in
retaining and encouraging competent executives and furnish a means of
attracting executives of exception ability to the Trust and its Subsidiaries
because of the opportunity to acquire proprietary interest in the business.
1.03 PARTICIPATION. Only Trustees of the Trust who, at
the time an Option is granted, meet the following criteria shall receive
Options under the Plan. A Trustee must be an "Independent" Trustee (which
means that the Trustee is neither an officer or employee of the Trust nor a
trustee, director, officer or employee of the Advisor, but the Trust may have
certain business or professional relationships with such Trustee) and such
Trustee is not, and has not been for at least one year, an employee or officer
of the Trust or any Subsidiary and the Trustee is a "disinterested" person, as
such term is defined in Rule 16b-3 promulgated under the "Exchange Act" or any
similar rule which may subsequently be in effect.
1.04 EFFECTIVE DATE. The Plan shall become effective upon
its approval by the Board of Trustees of the Trust (the "Adoption Date"),
subject to ratification by an affirmative vote of the holders of a majority of
votes cast on such proposal of Shares present and entitled to vote at a meeting
of Shareholders at which a quorum is present, which vote shall represent over
50% in interest of all voting securities of the Trust entitled to vote therein,
and the date of such approval by such Shareholders shall be determined and
deemed to be the "Effective Date," but notwithstanding the actual Effective
Date as defined herein, any and all Options granted pursuant to written
agreements entered into between the Trust and any Optionee after the Adoption
Date and prior to the Effective Date shall be deemed to have been ratified
effective as of the date of such written Option Agreement. In the case of
Options granted prior to the Effective Date, the grant of such Options is
conditioned upon Shareholder approval of the Plan. If the Plan is not approved
by the Shareholders within twelve months of its adoption by the Board of
Trustees, the Plan shall not become effective.
1.05 DURATION OF THE PLAN. Subject to approval by the
Board of Trustees and ratification by the Shareholders of the Trust, the Plan
shall commence on the Effective Date and shall remain in effect, subject to the
right of the Board of Trustees to terminate the Plan at any time pursuant to
Section 8.01 herein, until all Shares then subject to it shall have been
purchased or acquired according to the Plan's provisions;
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provided, however, that in no event may an Option be granted under the Plan on
or after the tenth anniversary of the earlier of the date of the grant of the
Option or the Plan's Effective Date. Notwithstanding the foregoing, the terms
of the Plan may be amended in accordance with the provisions of Section 8.02.
ARTICLE II
DEFINITIONS
2.01 DEFINED TERMS. For the purposes hereof and as used
herein, the following terms set forth below shall have the meanings set forth
below unless the context clearly indicates to the contrary:
(a) "Acceleration Event" means any event which in the
opinion of the Board of Trustees is likely to lead to a "Change in
Control" of Share ownership of the Trust, whether or not such "Change
in Control" actually occurs.
(b) "Adoption Date" shall mean the date the Plan is
approved by the Board of Trustees.
(c) "Affiliate" and "Associate" shall have the respective
meaning ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
(d) "Board" or "Board of Trustees" shall mean the Board
of Trustees of the Trust.
(e) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State
of Texas are authorized or obligated by law or executive order to
close.
(f) "Change in Control" shall be deemed to occur (i) upon
the approval by the Board (or if approval of the Board is not required
as a matter of law, the Shareholders of the Trust) of (A) any
consolidation or merger of the Trust in which the Trust is not the
continuing or surviving entity or pursuant to which the Shares would
be converted into cash, securities or other property other than a
merger in which the holders of the Shares immediately prior to the
merger will have the same proportionate ownership of the Shares of the
surviving entity immediately after the merger, (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions of all or substantially all the assets of the Trust, or
(C) adoption of any plan or proposal for the liquidation or
dissolution of the Trust, (ii) when any "person" (as defined in
Section 13(d) of the Exchange Act), other than the Trust or any
Subsidiary or employee benefit plan or trust maintained by the Trust,
shall become the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, or more than 20% of the
Shares outstanding at the time, without the prior approval of the
Board, or (iii) at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the Board
shall cease for any reason to constitute at least a majority thereof,
unless the election or the nomination for election by the Shareholders
of each new Trustee during such two-year period was approved by a vote
of at least two-thirds of the Trustees then still in office who were
Trustees at the beginning of such two-year period.
(g) "Code" means the Internal Revenue Code of 1986, as
amended.
(h) "Disinterested" shall mean disinterested within the
meaning of applicable regulatory requirements, including those
promulgated under Section 16 of the Exchange Act.
(i) "Effective Date" shall have the meaning assigned in
Section 1.03 of the Plan.
(j) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
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(k) "Exercise Price" shall mean, with respect to each
Share subject to a Nonqualified Share Option, the price at which such
Share may be purchased from the Trust pursuant to the exercise of such
NQSO.
(l) "Fair Market Value" shall mean (i) the simple average
for the five trading days immediately preceding the day and time such
value is to be determined (which may include the day of determination)
of the mean between the high "bid" and low "asked" trading prices of
the Shares, or if no such prices are available for the full five day
period, any prices within such time frame, as reported and/or
published by the National Association of Securities Dealers Automatic
Quotation System ("NASDAQ") or other national quotation service, or
(ii) if the Shares are listed and registered on a national securities
exchange such as the New York Stock Exchange or the American Stock
Exchange, the simple average of the highest and lowest quoted selling
prices of the Shares on such exchange as reported or published by such
exchange or as listed in the Wall Street Journal or other recognized
financial publication, for the five trading days immediately preceding
the day and time such value is to be determined (which may include the
day of determination), or, if no such sales were made during such
period on such exchange, then by such other method as the Board, in
its sole discretion, shall determine to be appropriate, or (iii) if
the Shares are not listed and registered on any national securities
exchange, the simple average of the bid and ask prices per Share in
the over-the-counter market at the end of each trading day for the
five trading days preceding the day and time such value is to be
determined (which may include the day of determination) or, (iv) if
for any reason no such quotations are available, then by such other
method as the Board, in its sole discretion in good faith, shall
determine to be appropriate; provided, howeve, in the case of all
grants of Options, the Committee shall determine whether the foregoing
methodology yields an accurate fair market value of the Shares on the
date of the grant within the meaning of Code Section
422; and if the Committee concludes it does not, the Committee shall
use such other methodology as it deems appropriate to in good faith
determine the fair market value of the Shares on the date of the
grant.
(m) "Incentive Share Option" or "ISO" means an option to
purchase Shares (which are not available for grant under Article VI
herein) which is designated as an Incentive Stock Option and is
intended to meet the requirements of Section 422 of the Code or any
successor provision.
(n) "Independent Trustee" shall have the meaning assigned
in Section 1.03 of the Plan.
(o) "Insider" shall mean an individual who is, at the
time an Award is made under this Plan, an officer, Trustee, or holder
of more than 10 percent of the Shares, as defined in Section 16(a) of
the Exchange Act.
(p) "Nonqualified Share Option" or "NQSO" means an Option
to purchase Shares, granted pursuant to this Plan which is not
intended to be, or does not qualify as, an Incentive Stock Option.
(q) "Option" shall mean an option to purchase Shares
granted pursuant to the provisions of the Plan.
(r) "Option Agreement" shall mean the agreement between
the Trust and the Optionee under which the Optionee may purchase or
receive or acquire Shares hereunder.
(s) "Optionee" shall mean a person to whom an Option has
been granted pursuant to the Plan.
(t) "Plan" shall mean the National Income Realty Trust
Independent Trustee Share Option Plan, the terms of which are set
forth herein.
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(u) "Rule 16b-3" means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act.
(v) "Section 16(b) Optionee" shall mean an individual who
is subject to Section 16(b) of the Exchange Act.
(w) "Securities Act" shall mean the Securities Act of
1933, as amended.
(x) "Share Payment" means a payment in Shares at a
specified value to replace all or any portion of a payment that would
otherwise be payable solely in cash.
(y) "Shares" shall mean the Trust's authorized Shares of
Beneficial Interest, no par value, or, in the event that the
outstanding Shares are hereafter changed into or exchanged for other
shares of a different class or securities of the Trust or some other
entity, such other shares or class or securities.
(z) "Subsidiary" shall mean an entity, in which the Trust
owns directly, or indirectly, through subsidiaries, at least 50
percent of the total combined voting power of all classes of equity,
or any other entity (including, but not limited to, partnerships and
joint ventures) in which the Trust owns at least 50 percent of the
combined equity thereof. In the event that applicable law permits the
ownership of less than 50 percent of the total combined voting power
of all classes of equity to constitute a "Subsidiary," then the
requirement of 50 percent ownership in this definition shall be
lowered to the lowest level permitted under applicable law;provided,
however, in no event shall "Subsidiary" mean any entity which is not a
"Subsidiary" within the meaning of Code Section 424(f).
(aa) "10% Shareholder" means an individual who, at the
time the Option is granted, own shares possessing more than 10% of the
total combined voting power of all classes of Shares of the Trust or
any subsidiary of the Trust.
(bb) "Trust" shall mean National Income Realty Trust, a
California real estate investment trust.
2.02 OTHER DEFINITIONAL PROVISIONS. All terms defined in
this Plan shall have the meanings set forth in Section 2.01 above when used in
any Option Agreement or other document made or delivered pursuant to this Plan,
unless the context therein shall otherwise require or unless re-defined
therein. Defined terms used herein in the singular shall import the plural and
vice versa. The words "hereof," "herein," "hereunder" and similar terms when
used in this Plan shall refer to this Plan as a whole and not to any particular
provision of the Plan.
ARTICLE III
ADMINISTRATION
3.01 DUTIES AND POWERS OF THE BOARD. The Plan shall be
administered by the Board. Subject to express provisions of the Plan, the
Board shall have plenary authority, in its discretion, to interpret all matters
involving the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine and to amend, subject to the concurrence of the
holder of any Option, if required, the terms and provisions of the respective
Option Agreement or any other agreement and to make all other determinations
necessary or advisable for the administration of the Plan. The Board's
determinations on the matters referred to herein shall be conclusive for all
purposes.
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3.02 EXPENSES OF PLAN. The expenses of administering the
Plan shall be borne by the Trust and its Subsidiaries.
3.03 RELIANCE ON REPORTS. Each member of the Board of
Trustees shall be fully justified in relying or acting in good faith upon any
report made by the independent public accountants of the Trust and its
Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than himself. In no event shall any person
who is or shall have been a member of the Board of Trustees be liable for any
determination made or other action taken or any omission to act in reliance
upon any such report or information or for any action, including the furnishing
of information, taken or failure to act, if in good faith.
3.04 INDEMNIFICATION. Each person who is or shall have
been a member of the Board of Trustees shall be indemnified and held harmless
by the Trust against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof,
with the Trust s approval, or paid by him in satisfaction of judgment in any
such action, suit, or proceeding against him, provided he shall give the Trust
an opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such person may be entitled under the Trust's Declaration of Trust, as
amended, or Trustee's Regulations, as amended, as a matter of law, or
otherwise, or any power that the Trust may have to indemnify them or hold them
harmless.
ARTICLE IV
SHARES SUBJECT TO THE PLAN
4.01 LIMITATIONS. Subject to adjustment pursuant to the
provisions of Section 4.02, a total of 60,000 authorized but unissued Shares
shall be reserved for issuance under the Plan, provided, however, that any
Shares held, from time to time, as treasury Shares may be issued or reserved
for issuance in lieu of authorized but unissued Shares, as determined from time
to time by the Board of Trustees, in which event the number of authorized but
unissued Shares so reserved shall be correspondingly reduced. Shares may be
issued pursuant to the exercise of any Option. In the event any such Option
shall expire or terminate for any reason without having been exercised in full,
or in the event any condition or contingency pertaining to the issuance or
vesting of any Shares under the Plan shall fail to be met, then, subject to the
provisions of the Plan, such Shares subject to such Option subject to any such
condition or contingency shall again become available for the purposes of the
Plan.
4.02 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Notwithstanding any other provision of the Plan, any Option Agreement or other
agreement covering an Option may contain such provisions as the Board shall
determine to be appropriate for the adjustment of the number and class of
Shares subject thereto and of the purchase or acquisition prices thereof in the
event of changes in the outstanding Shares by reason of stock dividends,
recapitalizations, mergers, consolidations, split-ups, combinations or
exchanges of Shares and the like; and, in the event of any such change in the
Shares, the aggregate number and class of Shares available under the Plan shall
be adjusted in such manner as the Board shall in its sole discretion determine
to be equitable and consistent for the purpose of the Plan and the applicable
provisions of law and such determination shall be conclusive for all purposes
of the Plan and of each Option Agreement or other agreement, whether
theretofore or thereafter executed. In addition, the Board's determination
with respect to any adjustment may provide for the elimination of fractional
share interests, if applicable, and the payment for same in cash.
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ARTICLE V
ELIGIBILITY
Eligibility in this Plan shall be limited to members of the
Board of Trustees of the Trust or an Affiliate of the Trust who, at the time
the Option is made, is not an employee or officer of the Trust or an Affiliate
of the Trust.
ARTICLE VI
GRANT OF OPTIONS
6.01 GRANT AND AGREEMENT. Each Option granted pursuant to
the terms of the Plan shall be evidenced by minutes of the meeting or the
written consent of the Board and by a written Option Agreement or other
agreement dated as of the date of grant and executed on behalf of the Trust and
the Optionee, as the case may be, which agreement shall set forth such terms
and conditions as may be determined by the Board consistent with the Plan.
6.02 ISSUANCE OF OPTION. Effective on the Effective Date
(as that term is defined in Section 1.04 as being the date of the meeting of
the Shareholders at which the Plan is ratified and approved), each Independent
Trustee then in office will automatically be awarded an Option under the Plan
to purchase 3,000 Shares (subject to adjustment pursuant to Section 4.02).
None of the Options are intended to qualify as "Incentive Share Options"
pursuant to Section 422(b) of the Code. After the Effective Date, each
Independent Trustee shall also be granted an Option on the first day of each
fiscal year of the Trust commencing with January 1, 1996 for 1,000 Shares
(subject to adjustment pursuant to Section 4.02) if such Independent Trustee is
a Trustee of the Trust on such date. A former Trustee who is not a Trusteeat
such date shall not receive a grant of any subsequent Option. The term and
exercise of each such Option shall be as set forth in Section 6.03 below.
Nothing contained in this Plan or any agreement executed pursuant to this Plan
shall be deemed to limit or confer upon any Trustee any right to serve as a
Trustee for any period of time or to continue at any rate of compensation.
6.03 TERM AND EXERCISE. The term of each Option granted
under the Plan shall be for a fixed expiration date of the first to occur of
(i) not later than ten years from the date such Option is granted or (ii) the
first anniversary of the date the Trustee ceases to be a Trustee, provided,
that to the extent required to comply with Rule 16b-3, no Option shall be
exercisable within the first six months of its term, unless death or disability
of the Trustee occurs during such period. The Exercise Price of Shares issued
pursuant to each Option shall be 100% of the Fair Market Value of the Shares on
the date such Option is granted. The Shares subject to each Option may become
exercisable in full or in installments of equal or unequal amount at such times
as shall be determined by the Optionee. The Shares comprising each Option or
installment thereof may be purchased in whole at any time or in part from time
to time, after such Option or any installment thereof, as the case may be,
becomes exercisable; provided, however, that no Option shall be exercised at
any time for fewer than 100 Shares (or the total remaining shares covered by
the Option if fewer than 100 Shares) during the term of the Option. The
specified number of shares will be issued upon receipt by the Trust of (i)
notice from the Optionee of exercise of an Option, and (ii) either payment to
the Trust, of the "Exercise Price" for the number of Shares with respect to
which the Option is exercised, or with approval of the Board, a secured
promissory note as hereinafter provided. Each such notice and payment shall be
delivered or mailed by first class postage prepaid mail, addressed to the
Treasurer of the Trust at such place as the Trust may designate from time to
time. Certificates shall be issued by the Trust for those Shares acquired
pursuant to the exercise of an Option. No Optionee shall have any of the
rights of a Shareholder with respect to any Shares subject to any Option until
such Shares shall be issued to him upon the exercise of the Option.
6.04 NON-TRANSFERABILITY OF OPTIONS. No Option granted
under the Plan shall be transferable other than by will or the laws of descent
and distribution, and an Option may be exercised, during the lifetime
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of the Optionee, only by the Optionee or, if the Optionee is legally
incapacitated, by his or her respective guardian or legal representative,
regardless of any community property interests therein of any Optionee's spouse
or such spouse's successors in interest; provided, however, that in the event
Rule 16b-3 under the Exchange Act is further amended so as to eliminate
therefrom the holding period requirement of nontransferability, then Options
granted under the Plan may be made transferable on such terms as the Board
shall determine consistent with the requirements of Code Section 422 in the
case of an Incentive Share Option.
6.05 PURCHASE FOR INVESTMENT. Each Optionee receiving an
Option pursuant to the Plan must represent, and agree to give such further
representation as may be reasonably required by the Trust upon the exercise of
such Option or any part thereof, that any Shares purchased pursuant to such
Option will be, or are, acquired for his own account for investment and not
with a view to, or for offer or sale in connection with, the distribution
thereof, unless in the opinion of counsel satisfactory to the Trust that same
is not necessary at such time.
6.06 EFFECT OF DEATH OR OTHER TERMINATION OF RELATIONSHIP
WITH THE TRUST. Subject to the other provisions of the Plan, in the event that
an Optionee:
(a) has his relationship with the Trust or any Subsidiary
terminated for any reason other than death (including discharge by the
Trust) an Option granted pursuant to the terms of the Plan, to the
extent not exercisable at the time of such termination in accordance
with its terms, shall terminate and be without further force or
effect.
(b) dies during the term of such Option, such Option, to
the extent not exercisable in accordance with its terms, shall
terminate and be without further force or effect and to the extent
such Option is exercisable on the date of death, it may, within six
months after the date of death be exercised by such Optionee's legal
representatives or by the person or persons to whom such Option has
been transferred by will or the applicable laws of descent and
distribution; provided, however, that such six-month period shall be
subject to the provisions of the particular Option Agreement or other
agreement with respect to the final expiration of such Option and such
Option, to the extent not exercised within said six-month period (or
such shorter period as may be required by the terms of such Option
Agreement or other agreement) shall in all events terminate upon the
expiration of such six-month period (or such shorter period); and
provided further, that no transfer of an Option by the Optionee by
will or by the laws of descent and distribution shall be effective to
bind the Trust unless the Trust shall have been furnished with written
notice thereof and an authenticated copy of the will and/or such other
evidence as counsel for the Board may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of such Option.
6.07 PAYMENT FOR SHARES. Except as otherwise provided in
the Plan or the Option Agreement, the Exercise Price for the Shares shall be
paid in full when the Option is exercised. The Exercise Price may be paid in
whole or in part in (i) cash, (ii) whole Shares owned by the individual six
months or longer and evidenced by negotiable certificates, valued at their Fair
Market Value on the date of exercise, (iii) by a combination of such methods of
payment or (iv) such other consideration as shall constitute lawful
consideration for the issuance of Shares and be approved by the Board
(including without limitation, assurance satisfactory to the Board from a
broker registered under the Exchange Act, of the delivery of the proceeds of an
imminent sale of the Shares to be issued pursuant to the exercise of such
Option, such sale to be made at the direction of the individual). If
certificates representing Shares are used to pay all or part of the Exercise
Price of an Option, separate certificates shall be delivered by the Trust
representing the same number of Shares as each certificate so used and an
additional certificate shall be delivered representing any additional Shares to
which the individual is entitled as a result of exercise of the Option.
Moreover, an individual may request the Trust to "pyramid" his or her Shares;
that is, to automatically apply the Shares which he or she is entitled to
receive on the exercise of a portion of an Option to satisfy the exercise for
additional portions of the Option, thus resulting in multiple simultaneous
exercises of an Option by use of whole Shares as payment. The Optionee may, in
its discretion,
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make payment of all or any part of the Exercise Price over a period of not more
than five years from the date the Option is exercised. In such instance any
unpaid balance of the Exercise Price shall be evidenced by the individual's
promissory note payable to the order of the Trust which shall be secured by
such collateral and shall bear interest at such rate or rates as determined
from time to time by the Board.
ARTICLE VII
COMPLIANCE WITH LAW AND ISSUANCE
OF CERTIFICATES OR PAYMENT OF FUNDS
7.01 COMPLIANCE WITH THE SECURITIES ACT. Each Option
granted under the Plan shall contain such provisions or undertakings by the
Optionee pertaining to the re-sale or distribution of any Shares acquired
pursuant to such Option as the Trust shall deem appropriate and necessary to
comply with the Securities Act, and the rules, regulations and administrative
interpretations thereunder; provided that the Trust may waive any such
provisions or undertakings if the Trust shall determine that same are no longer
required under said Securities Act, rules, regulations or interpretations, or
are otherwise unnecessary.
7.02 GOVERNMENTAL APPROVAL. Each Option shall be subject
to the requirement that if at any time the Board of Trustees shall determine,
in its sole discretion, that the listing, registration or qualification of the
Shares covered thereby upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of or in connection with the granting of
such Option or the issuance or acquisition of Shares thereunder, no such Option
shall be effective unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Board of Trustees.
7.03 ISSUANCE OF CERTIFICATES AND PAYMENT OF FUNDS. The
Trust shall not be required to issue or deliver any certificate for Shares to
be purchased or issued, or any funds required to be paid by the Trust upon the
exercise of any Option granted under the Plan or any portion thereof, pursuant
to any Option Agreement or any other agreement relating to the Plan prior to
the fulfillment of all of the following conditions:
(a) compliance with any requirements under Section 7.01
above;
(b) compliance with any applicable requirements under
Section 7.02 above;
(c) the lapse of such reasonable period of time following
the exercise of the Option as the Board, from time to time, may
establish for reasons of administrative convenience; and
(d) if pursuant to any applicable statute or regulation,
as then in effect, if such issuance or delivery would be in violation
of any statute, law, rule or regulation, whether federal or state.
7.04 TAX WITHHOLDING. The Trust or a Subsidiary, as
appropriate, shall have the right to deduct from all cash payments to be made
to any Optionee any federal, state or local taxes required by law to be
withheld with respect to such cash payments.
7.05 SHARE WITHHOLDING. Wherever the Trust or Subsidiary,
as appropriate, proposes or is required to issue or transfer Shares under the
Plan, the Trust or Subsidiary shall have the right to require the Grantee to
remit to the Company an amount sufficient to satisfy any federal, state and/or
local withholding tax requirements prior to the delivery of any certificate for
such Shares. Alternatively, with respect to withholding required upon the
exercise of Options, or upon any other taxable event hereunder, individuals may
elect, subject to the approval of the Board, to satisfy the withholding
requirement, in whole or in part, by having the Trust withhold Shares having a
Fair Market Value, on the date the tax is to be determined, equal to the
minimum
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marginal tax which could be imposed on the transaction. Share withholding upon
the exercise of an Option will be done if the individual makes a signed,
written election and one of the following occurs:
(a) The Option exercise occurs during a "window period"
and the election to use Share withholding is made at any time prior to
exercise. For this purpose, "window period" means the period
beginning on the third (3rd) Business Day following the date of public
release of the Trust's quarterly financial information and ending on
the twelfth (12th) Business Day following such date. An earlier
election can be revoked up until the exercise of the Option during the
window period; or
(b) An election to withhold Shares is made at least six
months before the Option is exercised. If this election is made, then
the Option can be exercised outside of the window period.
ARTICLE VIII
TERMINATION, AMENDMENT AND
MODIFICATION OF THE PLAN
8.01 TERMINATION OF PLAN. The Plan may be terminated at
any time by the Board of Trustees except with respect to Options then
outstanding under the Plan for which there exist written Option Agreements or
other written agreements relating to each such Option. No termination of the
Plan may, without the consent of the person to whom any Option shall
theretofore been granted, adversely affect the rights of such person under such
Option.
8.02 AMENDMENT. The Board of Trustees may, at any time
and from time to time, alter, amend, suspend or discontinue the Plan and the
rules for its administration as the Board of Trustees may deem advisable in
order that any Options thereunder shall conform to or otherwise reflect any
change in applicable laws or regulations or to permit the Trust or the
Independent Trustees to enjoy the benefits of any change in applicable laws or
regulations, or in any other respect the Board of Trustees may deem to be in
the best interests of the Trust; provided, however, that the Board of Trustees
may not, without further approval by a majority of votes cast on such proposal
provided the total votes cast thereon represents over 50% in interest of the
holders of the then outstanding voting securities of the Trust entitled to vote
thereon,
(a) increase (other than by adjustments provided for by
Section 4.02) the maximum number of Shares which may be issued
pursuant to all Options granted under the Plan,
(b) materially modify the requirements as to eligibility
for participation in the Plan,
(c) materially increase the benefits accruing to Trustees
under the Plan, or
(d) extend the termination date of the Plan, and,
provided further, that no such amendment or modification of the Plan may,
without the consent of the person to whom any Option shall theretofore have
been granted, adversely affect the rights of such person under such Option.
8.03 CHANGE IN CONTROL. In the event of a Change in
Control of the Trust all Options granted under this Plan that are still
outstanding and not yet exercisable shall become immediately exercisable as of
the date of the Change in Control and shall remain exercisable for their term.
The Board has final authority to determine the exact date on which a Change in
Control has been deemed to have occurred. Notwithstanding the foregoing, the
Board may deem that an Acceleration Event has occurred, specifying the date
thereof, which determination, if made, shall have the same effect as a Change
in Control.
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ARTICLE IX
MISCELLANEOUS
9.01 UNSECURED OBLIGATION. Optionees under this Plan
shall not have any interest in any fund or specific asset of the Trust by
reason of this Plan. No trust fund shall be created in connection with this
Plan or any Option thereunder and there shall be no required funding of amounts
which may become payable to any Optionee.
9.02 OTHER COMPENSATION PLANS. The adoption of the Plan
shall not affect any other Option or incentive or other compensation plans,
practices or arrangements in effect for the Trust or any Subsidiary, nor shall
the Plan preclude the Trust from establishing any other forms of incentive or
other compensation for employees of or persons retained by the Trust or any
Subsidiary.
9.03 PLAN BINDING ON SUCCESSORS. The Plan shall be
binding upon the successors and assigns of the Trust.
9.04 REQUIREMENTS OF LAW. The granting and Options and
the issuance of Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
9.05 GOVERNING LAW. To the extent not preempted by laws
of the United States of America, the Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of New
York.
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REVISED PRELIMINARY PROXY MATERIAL FOR
THE SECURITIES AND EXCHANGE
COMMISSION REVIEW ONLY
--------------------------------------------------------------------------------
PROXY
NATIONAL INCOME REALTY TRUST
This Proxy is Solicited on behalf of the Board of Trustees for the
Annual Meeting of Shareholders, September 29, 1995.
The undersigned shareholder of NATIONAL INCOME REALTY TRUST hereby
appoints WILLIAM S. FRIEDMAN and JOHN A. DOYLE each with full power of
substitution, as attorneys and proxies to vote all of the Shares of the
Beneficial Interest, no par value per share, of NATIONAL INCOME REALTY TRUST
(the "Trust") which the undersigned is entitled to vote at the Annual Meeting
of Shareholders of said Trust to be held on July 27, 1995 at 2:00 p.m., local
New York City time, at 280 Park Avenue, East Building, 20th Floor, New York,
New York, or any adjournment(s) thereof, with all powers the undersigned would
possess if personally present, as indicated below, and for the transaction of
such other business as may properly come before said meeting or any
adjournment(s) thereof, all as set forth in the June 23, 1995 Proxy Statement
for said meeting:
<TABLE>
<S> <C> <C>
1. ELECTION OF TRUSTEES: [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME LISTED BELOW.
Irving E. Cohen William S. Friedman Sally Hernandez-Pinero
Dan Johnston Lance Liebman Lawrence G. Schafran
Raymond V. J. Schrag Carl Weisbrod
2. [ ] FOR [ ] AGAINST [ ] ABSTAIN
approval of the Trust's Advisory Agreement with Tarragon Realty
Advisors, Inc.
3. [ ] FOR [ ] AGAINST [ ] ABSTAIN
approval of the National Income Realty Trust Share Option and Incentive
Plan.
4. [ ] FOR [ ] AGAINST [ ] ABSTAIN
approval of the National Income Realty Trust Independent Trustee's Share
Option Plan.
5. In their discretion on any other matters which may properly come before
the meeting or any adjournment(s) thereof.
(continued and to be signed on reverse side)
--------------------------------------------------------------------------------
(continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED BUT IF NO DIRECTION IS INDICATED IT
WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL (1) AND FOR
THE PROPOSAL TO APPROVE THE TRUST'S ADVISORY AGREEMENT WITH TARRAGON REALTY
ADVISORS, INC. DESCRIBED IN PROPOSAL (2), FOR THE PROPOSAL TO APPROVE THE
NATIONAL INCOME REALTY TRUST SHARE OPTION AND INCENTIVE PLAN, DESCRIBED IN
PROPOSAL (3), AND FOR THE PROPOSAL TO APPROVE THE NATIONAL INCOME REALTY TRUST
INDEPENDENT TRUSTEE SHARE OPTION PLAN DESCRIBED IN PROPOSAL (4). ON OTHER
MATTERS THAT MAY COME BEFORE SAID MEETING, THIS PROXY WILL BE VOTED IN THE
DISCRETION OF THE ABOVE-NAMED PERSONS.
PLEASE _______________________________________
Sign
Here _______________________________________
Dated: ________________________________, 1995
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR
HEREON. WHEN THERE IS MORE THAN ONE OWNER, EACH
MUST SIGN. WHEN SIGNING AS AN AGENT, ATTORNEY,
ADMINISTRATOR, EXECUTOR, GUARDIAN, OR TRUSTEE, PLEASE
INDICATE YOUR TITLE AS SUCH. IF EXECUTED BY A
CORPORATION, THE PROXY SHOULD BE SIGNED BY A DULY
AUTHORIZED OFFICER WHO SHOULD INDICATE HIS TITLE. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN
AUTHORIZED PERSON. PLEASE DATE, SIGN AND MAIL THIS
PROXY CARD IN THE ENCLOSED ENVELOPE FOR WHICH NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
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