<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
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):
/X/ $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
/ / 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
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, July 27, 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 June 23,
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: June 23, 1995
BY ORDER OF THE BOARD OF TRUSTEES
OF NATIONAL INCOME REALTY TRUST
David L. Miller, Vice President - Legal & 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 July 27, 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 July 27, 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 June 26, 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. The Trustees
strongly recommend that you vote FOR the advisory agreement and FOR each of the
nominees as Trustees. The Trustees also recommend that all Shareholders vote FOR
the approval of the Share Option and Incentive Plan and FOR the approval of the
Trustee's Share Option Plan.
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
June 23, 1995 (the "Record Date"), are entitled to vote at the Annual Meeting
and at any adjournments thereof. At the close of business on June 23, 1995,
there were 3,178,267 Shares outstanding. Each holder is entitled to one vote for
each Share held on the Record Date.
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted thereon. As to the election of the 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
<PAGE> 4
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 June 23, 1995, management and affiliates held 1,051,724 Shares
representing approximately 33.1% 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.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of June 23, 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:
2
<PAGE> 5
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
-------------------------------------- ------------------ ----------
<S> <C> <C>
Lucy N. Friedman 953,339 (2)(3)(4) 30%
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 June 23,
1995.
(2) Includes 13,873 Shares owned by Lucy N. Friedman's husband, William S.
Friedman.
(3) Includes 628,064 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 200,000 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 15,883 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 June 23, 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>
William S. Friedman 953,339 (b)(c)(d) 30%
(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 1,052,894 (b)(c)(d) 33.1%
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 June 23,
1995.
(b) Mr. Friedman also owns 13,873 Shares personally.
(c) Includes 628,064 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 200,000 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 15,883 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, 1995). Messrs. Williams S. Friedman, Dan L. Johnston, Raymond V.J. Schrag and
Carl B. Weisbrod have continued as Trustees.
5
<PAGE> 8
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
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C>
Management, L.P. ("SAMLP"), which is the General Partner of National
Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"); Director
and President (March 1989 to February 1994) and Secretary (March 1989
to December 1990) of Syntek Asset Management, Inc. ("SAMI"), the
Managing General Partner of SAMLP and a corporation owned by 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.").
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 56
(Independent)
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).
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
</TABLE>
7
<PAGE> 10
<TABLE>
<S> <C>
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
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.
- -----------------------
* 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.
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<PAGE> 11
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 (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
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<PAGE> 12
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).
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<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 & 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.
12
<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
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<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 a revised Advisory Agreement with Tarragon effective April
1, 1995 which is to be submitted to the Shareholders for approval at the Annual
Meeting. The revised Advisory Agreement is 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 a broad standard governing the Advisor's liability for
losses by the Trust; and contains guidelines for the Advisor's allocation of
investment opportunities as among itself, the Trust and other entities it
advises.
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
14
<PAGE> 17
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.
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,
15
<PAGE> 18
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.
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.
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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
<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 100 97 126 136 150 152
INDEX
- -------------------------------------------------------------------------------------------------------
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 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.
17
<PAGE> 20
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 Village
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 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.
18
<PAGE> 21
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. 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.
19
<PAGE> 22
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 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.
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<PAGE> 23
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. 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, the Board of Trustees approved a
revised Advisory Agreement with Tarragon. A copy of the revised Advisory
Agreement 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.
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<PAGE> 24
The Advisory Agreement 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. If the Shareholders approve Proposal Two, the
Advisory Agreement will have a term extending through the next Annual Meeting of
Shareholders, and any renewal of the Advisory Agreement thereafter will be
subject to Shareholder approval in accordance with the provisions of Section 4.2
of the Declaration of Trust. If the 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.
THE CURRENT ADVISORY AGREEMENT WITH TARRAGON
The current Advisory Agreement with Tarragon provides that Tarragon is
to be responsible for the day-to-day operations of the Trust and to receive an
advisory compensation from the Trust based on the following:
(1) no base or fixed advisory fee is payable, but the Advisor
is to receive an incentive advisory fee equal to 16% per annum of the
Trust's "Adjusted Funds From Operations" (funds from operations plus
any loss on a property or mortgage acquired prior to January 1, 1989
and the amount of advisory fees payable to the extent such fees are
considered as current expenses in determining profit or loss) for each
Fiscal Year or portion thereof for which the Advisor provides services,
beginning March 31, 1994; the incentive fee is payable monthly in
advance based on the most recent month for which a monthly financial
statement has been prepared and is cumulative within any fiscal year to
maintain the 16% per annum rate.
(2) the Advisor or an Affiliate of the Advisor is to receive an
acquisition commission for supervising the acquisition, purchase or
long-term lease of real estate for the Trust equal to 1% of the cost of
acquisition, inclusive of commissions, if any, paid to non-affiliated
brokers, except that no fee is due for the acquisition through or from
an affiliate of the Trust or the Advisor provided that the purchase
price of each property (including acquisition commissions and all real
estate brokerage fees) may not exceed such property's appraised value
at acquisition.
(3) the Advisor or an Affiliate of the Advisor is also to
receive a mortgage brokerage and refinancing fee for obtaining loans to
the Trust or refinancing on Trust properties equal to the lesser of (i)
1% of the amount of the loan or the amount refinanced or (ii) a
brokerage or refinancing fee which is reasonable and fair under the
circumstances; provided, however, that no such fee shall be paid on
loans from the Advisor or an Affiliate of the Advisor without the
approval of the Trust's Board of Trustees. No fee shall be paid on loan
extensions.
(4) subject to the approval by the Board of Trustees, the Trust
may pay the Advisor or an Affiliate of the Advisor a real estate
brokerage commission for (i) the purchase of real property by the
Trust, or (ii) the sale of real property owned by the Trust when the
Advisor acts as the broker in such transaction in amounts which are not
to exceed customary fees charged by nationally recognized real estate
brokers for normal, similar transactions on a non-exclusive basis.
22
<PAGE> 25
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 BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE ADVISORY AGREEMENT because the terms of such agreement are, in its'
view, as favorable to the Trust as those that would be obtained from
unaffiliated third parties for the performance of similar services, while at the
same time the Advisory Agreement gives Tarragon adequate incentive to improve
the performance of the Trust's properties and mortgages.
PROPOSAL THREE
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 IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PLAN WHICH IS ANNEXED AS
APPENDIX II TO THIS PROXY STATEMENT.
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<PAGE> 26
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
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<PAGE> 27
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
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<PAGE> 28
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,
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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 (i) 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 (j) 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 (k) 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 June 23, 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.
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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 June 23, 1995, was $_________.
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 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 of Trustees 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 (l)
materially increase the number of Shares issuable under the Trustee Plan (other
than pursuant to the adjustment provisions described above), (m) materially
modify the requirements as to eligibility for participation, (n) materially
increase the benefits accruing to Trustees under the Plan, or (o) 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. The aggregate number of Shares under the Trustee Plan is 60,000
(subject to
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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 June 23, 1995, was $________; accordingly, the aggregate market value
of 1,000 Shares based upon such bid quotation would be $___________.
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 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.
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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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 and Chief Operating 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 TRUSTEES
David L. Miller, Vice President - Legal & 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
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 (a) the purchase of real property by the
Trust or (b) the sale of real property owned by the Trust, for
which the Advisor or an Affiliate acts as the broker in such
transaction in amounts not to exceed customary fees charged by
nationally-recognized real estate brokers for normal similar
transactions on a non-exclusive basis. The provision of real
estate brokerage services by the Advisor or an Affiliate shall
be on terms not less favorable to the Trust than the terms on
which unaffiliated parties are then performing similar services
for entities comparable to the Trust not entered into on an
exclusive basis. The entry into the applicable real estate
brokerage arrangement between the Trust and the Advisor shall
be approved as required by the Declaration of Trust.
12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENTS FEES. The Advisor
or any of its Affiliates shall pay to the Trust, the full amount of any
compensation received by the Advisor or any such Affiliate from third parties
with respect to the origination, placement or brokerage of any loan made by the
Trust.
13. STATEMENTS. The Advisor shall furnish to the Trust not later
than the tenth day of each calendar month, beginning with the second calendar
month of the term of this Agreement, a statement showing the computation of the
fees, if any, payable in respect to the next preceding calendar month (or, in
the case of incentive compensation, for the preceding Fiscal Year, as
appropriate) under the Agreement. The final settlement of incentive compensation
for each Fiscal Year shall be subject to adjustment in accordance with, and upon
completion of, the annual audit of the Trust's financial statements; any payment
by the Trust or repayment
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by the Advisor that shall be indicated to be necessary in accordance therewith
shall be made promptly after the completion of such audit and shall be reflected
in the audited statements to be published by the Trust.
14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent
that the Trust shall request the Advisor or any director, officer, partner, or
employee of the Advisor to render services for the Trust other than those
required to be rendered by the Advisor hereunder, such additional services, if
performed, will be compensated separately on terms to be agreed upon between
such party and the Trust from time to time. In particular, but without
limitation, if the Trust shall request that the Advisor perform property
management, leasing, loan disbursement or similar functions, the Trust and the
Advisor shall enter in to a separate agreement specifying the obligations of the
parties and providing for reasonable additional compensation to the Advisor for
performing such services.
15. EXPENSES OF THE ADVISOR. Without regard to the amount of
compensation or reimbursement received hereunder by the Advisor, the Advisor
shall bear the following expenses:
(a) employment expenses of the executive officers, directors or
shareholders of the Advisor (including Trustees, officers, and
employees of the Trust who are directors, officers, or
employees of the Advisor or of any company that controls, is
controlled by, or is under common control with the Advisor),
including, but not limited to, fees, salaries, wages, payroll
taxes, travel expenses, and the cost of employee benefit plans
and temporary help expenses except for those personnel expenses
relating to employees of the Advisor principally engaged in
accounting, shareholder relations or mortgage servicing;
(b) advertising and promotional expenses incurred in seeking
investments for the Trust;
(c) rent, telephone, utilities, office furniture and furnishings,
and other office expenses of the Advisor, except as any of such
expenses relates to employees of the Advisor principally
engaged in accounting shareholder relations or mortgage
servicing; and
(d) miscellaneous administrative expenses relating to performance
by the Advisor of its functions hereunder.
In addition to the Advisory Compensation described in Section 11, the Advisor
shall be reimbursed for certain costs and expenses monthly on the basis of an
equitable allocation applied on a consistent and timely basis in accordance with
the Advisor's regular procedures. Such procedures provide for identification of
all material costs and expenses to be accounted for as a cost of particular
functions. Only costs and expenses allocable to legal, mortgage servicing,
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
<PAGE> 43
APPENDIX II
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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(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 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 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 the
Committee 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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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, however, 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 Trustee at 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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<PAGE> 66
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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<PAGE> 67
PRELIMINARY PROXY MATERIAL FOR
THE SECURITIES AND EXCHANGE
COMMISSION REVIEW ONLY
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PROXY
NATIONAL INCOME REALTY TRUST
This Proxy is Solicited on behalf of the Board of Trustees for the
Annual Meeting of Shareholders, July 27, 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:
1. ELECTION OF TRUSTEES: / / FOR all nominees listed below
(except as marked to the contrary below)
/ / WITHHOLD AUTHORITY
to vote for all nominees listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME LISTED BELOW.
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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