<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
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 2:00 p.m., local New York
City time, on March 20, 1997 at 280 Park Avenue, East Building, 20th Floor, New
York, New York, to consider and vote on the following matters:
(1) the election of eight Trustees of the Trust;
(2) the approval of the Trust's current Advisory Agreement with
Tarragon Realty Advisors, Inc.;
(3) a proposal to amend subpart (l) of Section 3.2 of the Declaration
of Trust to clarify authorization for the Trust to own securities
of other entities and have wholly-owned subsidiaries;
(4) a proposal to amend the Trust's Declaration of Trust to
specifically authorize the acquisition of the Trust's own
securities;
(5) a proposal to repeal and delete subpart (d) of Section 5.3 of the
Trust's Declaration of Trust which restricts the Trust's issuance
of certain securities;
(6) a proposal to repeal and delete subpart (e) of Section 5.3 of the
Trust's Declaration of Trust which limits the Trust's ability to
invest in certain unimproved, non-income producing property;
(7) a proposal to repeal and delete subpart (g) of Section 5.3 of the
Trust's Declaration of Trust which limits the period of time the
Trust may hold its investments in equity securities;
(8) a proposal to repeal and delete subpart (o) of Section 5.3 of the
Trust's Declaration of Trust which prohibits the Trust from
investing any of the assets of the Trust in single-family homes;
(9) 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, February
7, 1997 will be entitled to vote at the Annual Meeting. Shareholders are
cordially invited to attend the Annual Meeting in person.
Regardless of whether you plan to be present at the Annual Meeting,
please promptly date, mark, sign, and mail the enclosed proxy ballot card to
American Stock Transfer & 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, 1995
previously was mailed to Shareholders under separate cover.
Dated: February _____, 1997
BY ORDER OF THE BOARD OF TRUSTEES
OF NATIONAL INCOME REALTY TRUST
Lawrence Hartman, Vice President
and Secretary
IMPORTANT
YOU CAN HELP THE TRUST AVOID THE NECESSITY AND EXPENSE OF SENDING
FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY
BALLOT CARD. IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, PLEASE MARK,
DATE, SIGN AND RETURN THE ENCLOSED PROXY BALLOT CARD SO THAT THE NECESSARY
QUORUM MAY BE REPRESENTED AT THE ANNUAL MEETING. THE ENCLOSED ENVELOPE REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
FAILURE TO VOTE MAY SUBJECT THE TRUST TO FURTHER EXPENSE
If your shares are held in the name of a brokerage firm, nominee or other
institution, only it can vote your shares. Please contact promptly the person
responsible for your account and give instructions for your shares to be voted.
<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 March 20, 1997
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" or "NIRT")
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) a proposal to amend subpart (l) of Section 3.2 of the
Declaration of Trust to clarify authorization for the Trust to own securities
of other entities and have wholly-owned subsidiaries, (4) a proposal to amend
the Trust's Declaration of Trust to specifically authorize the acquisition of
the Trust's own securities, (5) a proposal to repeal and delete subpart (d) of
Section 5.3 of the Trust's Declaration of Trust which restricts the Trust's
issuance of certain securities, (6) a proposal to repeal and delete subpart (e)
of Section 5.3 of the Trust's Declaration of Trust which limits the Trust's
ability to invest in certain unimproved, non-income producing property, (7) a
proposal to repeal and delete subpart (g) of Section 5.3 of the Trust's
Declaration of Trust which limits the period of time the Trust may hold
investments in equity securities, (8) a proposal to repeal and delete subpart
(o) of Section 5.3 of the Trust's Declaration of Trust which prohibits the
Trust from investing any of the assets of the Trust in single-family homes, and
(9) 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 March 20, 1997, at 280 Park Avenue,
East Building, 20th Floor, New York, New York. The Trust's financial
statements for the year ended December 31, 1995 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, 1995, which includes financial statements, has preceded this
Proxy Statement. This Proxy Statement and the accompanying proxy are first
being mailed to Shareholders on or about February _____, 1997.
Although the Board of Trustees is directly responsible for managing the
affairs of the Trust and setting the policies which guide it, the day-to-day
operations have historically been performed by a contractual Advisor. Since
April 1, 1994, Tarragon has been the Advisor under an Advisory Agreement which
delineates the duties and compensation of the Advisor. Consistent with the
terms of the Amended and Restated Declaration of Trust dated June 15, 1987, as
amended (the "Declaration of Trust"), the Advisory Agreement with Tarragon is
being submitted to Shareholders for approval (see Proposal Two). The Trustees
have approved the Trust's Advisory Agreement with Tarragon as in the best
interest of the Trust and its Shareholders because the terms of such agreement
are, in their view, as favorable to the Trust as those that would be obtained
from unaffiliated third parties for the performance of similar services, while
at the same time the agreement gives the Advisor an incentive to improve the
performance of the Trust's properties and mortgages (see Proposal Two). The
Trustees strongly recommend that you vote FOR the Advisory Agreement, FOR each
of the nominees as Trustees and FOR each of the six separate proposals to amend
the Trust's Declaration of Trust.
<PAGE> 4
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
February 7, 1997 (the "Record Date"), are entitled to vote at the Annual
Meeting and at any adjournments thereof. At the close of business on February
7, 1997, there were 3,528,697 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), and each of the
six separate proposals to amend the Declaration of Trust (Proposals Three,
Four, Five, Six, Seven and Eight) the Shareholders may choose to vote for,
against or abstain from voting on each 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, Four, Five, Six,
Seven and Eight. 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.
No change in shareholder's rights will occur if all or a significant
number of the proposed amendments to the Declaration of Trust are approved.
The Board of Trustees is seeking the approval of the six amendments to the
Declaration of Trust to provide greater investment flexibility to enhance the
Trust's return on its assets invested.
VOTE REQUIRED FOR APPROVAL
Pursuant to Section 6.7 of the Declaration of Trust, election of any
Trustee requires the affirmative vote of a majority of the votes cast at a
meeting of Shareholders by holders of Shares entitled to vote thereon. Such
Section also provides that a majority of the issued and outstanding Shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any such meeting. The approval of the Trust's current Advisory Agreement
with Tarragon (Proposal Two) also requires the affirmative vote of a majority
of the votes cast at the Annual Meeting. The approval of Proposals Three,
Four, Five, Six, Seven and Eight each requires the affirmative vote of a
majority of the outstanding Shares entitled to vote thereon.
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 February 7, 1997, management and affiliates held 1,187,120 Shares
representing approximately 34% of the Shares outstanding. Management and such
affiliates 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.
2
<PAGE> 5
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 June 1, 1997, in order to be considered for
inclusion in the Trust's proxy statement and form of proxy (as the case may be)
for that meeting.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of February 7, 1997, according to the Share transfer records of the
Trust and other information available to the Trust, the following persons were
known to be beneficial owners of more than 5% of the Shares of Beneficial
Interest of the Trust:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
--------------------------------- ------------------------ ---------
<S> <C> <C>
Lucy N. Friedman 1,141,738 (2)(3)(4) 32.4%
280 Park Avenue (5)(6)
East Building, 20th Floor
New York, New York 10017
</TABLE>
- --------------------------
(1) Percentages are based upon 3,528,697 Shares outstanding at February 7,
1997. .
(2) Includes 16,786 Shares owned by Lucy N. Friedman's husband, William S.
Friedman.
(3) Includes 731,266 Shares owned by Lucy N. Friedman, of which 48,400
Shares serve as collateral for loans from a bank. In addition, includes
12,675 Shares and 12,817 Shares owned by Lucy N. Friedman's minor sons,
Gideon and Samuel Friedman; Lucy Friedman has control of such Shares.
Also includes 242,000 Shares owned by Beachwold Partners, L.P. in which
William S. and Lucy N. Friedman are the general partners and their four
children are the limited partners.
(4) Does not include 19,218 Shares owned by Lucy N. Friedman's adult son
Ezra Friedman, and 23,003 Shares owned by Lucy N. Friedman's adult
daughter, Tanya Friedman. Mrs. Friedman disclaims beneficial ownership
of such Shares.
(5) Includes 31,865 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 15,747 Shares held by William S. Friedman Grantor Trust (of
which Mrs. Friedman is the Trustee) for the benefit of Lucy N. Friedman
and her children.
(6) Includes 43,142 Shares owned by Tarragon Capital Corporation, of which
William S. Friedman is an executive officer and Lucy N. Friedman is an
executive officer and director and 35,440 Shares owned by Tarragon
Partners, Ltd., of which Lucy N. Friedman and William S. Friedman are
limited partners.
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT
As of February 7, 1997, according to the Share transfer records of the
Trust and other information available to the Trust, the executive officers,
current Trustees and nominees for election as Trustees at the Annual Meeting
and all officers and Trustees as a group beneficially owned the following
Shares of Beneficial Interest of the Trust:
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name of Beneficial Owner Ownership Class (a)
------------------------------- ------------------------- ----------
<S> <C> <C> <C>
William S. Friedman 1,141,738 (b)(c)(d) 32.4%
(e)(f)(g)
Irving E. Cohen 5,917 (i) *
Dan L. Johnston 5,515 (j) *
Lance Liebman 6,005 (l) *
Sally Hernandez-Pinero 5,400 (m) *
Lawrence G. Schafran 5,400 (m) *
Raymond V.J. Schrag 11,479 (h) *
Carl B. Weisbrod 5,666 (l) *
All Trustees and Executive Officers as a 1,187,120 (b)(c)(d) 33.6%
group (9 individuals) (e)(f)(g)
(h)(i)(j)
(k)(l)(m)
</TABLE>
- ------------------
* Less than 1%
(a) Percentages are based upon 3,528,697 Shares outstanding at February 7,
1997.
(b) Mr. Friedman also personally owns 16,786 Shares.
(c) Includes 731,266 Shares owned by William S. Friedman's wife, Lucy
Friedman, of which 48,400 Shares serve as collateral for loans from a
bank. Mr. Friedman disclaims beneficial ownership of such Shares. In
addition, includes 12,675 Shares and 12,817 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 242,000 Shares owned by Beachwold Partners
L.P. in which William S. and Lucy N. Friedman are the general partners
and their four children are the limited partners.
(d) Does not include 19,218 Shares owned by William S. Friedman's adult son,
Ezra Friedman, and 23,003 Shares owned by William S. Friedman's adult
daughter, Tanya Friedman. Mr. Friedman disclaims beneficial ownership
of such Shares.
(e) Includes 31,865 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 15,747 Shares held by William S. Friedman Grantor Trust (of
which Mrs. Friedman is the Trustee) for the benefit of Lucy N. Friedman
and her children.
(f) Includes 43,142 Shares owned by Tarragon Capital Corporation, of which
Lucy N. Friedman and William S. Friedman are executive officers and
directors.
4
<PAGE> 7
(g) Includes 35,440 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 6,079 Shares owned by Raymond V.J. Schrag directly and 5,400
shares covered by three separate presently exercisable options; does not
include 1,210 Shares owned by Mr. Schrag's wife as custodian for his two
children as to which Mr. Schrag disclaims any beneficial ownership.
(i) Includes 517 Shares owned by Irving E. Cohen directly and 5,400 shares
covered by three separate presently exercisable options.
(j) Includes 115 Shares owned by Dan L. Johnston directly and 5,400 shares
covered by three separate presently exercisable options.
(k) Includes 266 Shares owned by Carl B. Weisbrod directly and 5,400 shares
covered by three separate presently exercisable options.
(l) Includes 605 Shares owned by Lance Liebman directly and 5,400 shares
covered by three separate presently exercisable options.
(m) Includes 5,400 shares covered by three presently exercisable options.
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"), the predecessor of
Income Opportunity Realty Investors, Inc., a Nevada corporation ("IORI"), 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 elected in February 1994) resigned as a
Trustee on April 22, 1994, Ted P. Stokely (a Trustee elected in April 1990)
resigned as a Trustee in August 1994, A. Bob Jordan (a Trustee elected in
October 1992) resigned as a Trustee in June 1994, Bennett B. Sims (a Trustee
elected in April 1990) resigned as a Trustee in August 1994, Geoffrey C.
5
<PAGE> 8
Etnire (a Trustee elected in January 1993) ceased to be a Trustee on March 9,
1995, and Willie K. Davis (a Trustee elected in 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 continued
as Trustees.
The affairs of the Trust are managed and controlled by the Board of
Trustees presently consisting of eight members who have all been nominated to
serve as Trustees until the next Annual Meeting of Shareholders. Each of the
nominees is currently serving as a Trustee and each was elected to such
capacity at the Trust's last Annual Meeting of Shareholders held on November
20, 1995. The Trustees are elected at the Annual meeting of Shareholders or
appointed by the incumbent Board of Trustees and serve until the next Annual
Meeting of Shareholders or until their respective successor has been duly
elected.
NOMINEES
The following persons have been nominated to serve as Trustees of the
Trust: 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".
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
IRVING E. COHEN: Trustee since June 1994 (Independent) 50
Chief Acquisition Officer (since 1996) Dames & Moore/Brookhill, LLC, a
real estate development company; Managing Director (1994-1996) 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 real estate
investment trust (a "REIT"); and Executive Vice President, E.F. Hutton
Properties, Inc. (from 1983 to 1987).
6
<PAGE> 9
WILLIAM S. FRIEDMAN: President since December 1988 and Trustee since 52
March 1988 (Affiliated)
Trustee (since March 1988), Chief Executive Officer (since December
1993), President (since December 1988), Acting Chief Financial Officer
(May 1990 to February 1991), Treasurer (August to September 1989) and
Acting Principal Financial and Accounting Officer (December 1988 to
August 1989) of the Trust and Vinland Property Trust ("VPT"); Trustee or
Director (March 1988 to February 1994), Chief Executive Officer
(December 1993 to February 1994), President (December 1988 to February
1994), Acting Chief Financial Officer (May 1990 to February 1991),
Treasurer (August to September 1989) and Acting Principal Accounting
Officer (December 1988 to August 1989) of CMET, IORT and TCI; Director
and Chief Executive Officer (since December 1990) of Tarragon, the
Advisor to the Trust effective April 1, 1994; President (February 1989
to March 1993) and Director (February to December 1989) of Basic Capital
Management, Inc. ("BCM"), the Advisor to the Trust (March 1989 to March
1994); General Partner (1987 to March 1994) of Syntek Asset Management,
L.P. ("SAMLP"), which is the General Partner of National Realty, L.P.
("NRLP") and National Operating, L.P. ("NOLP"); Director and President
(March 1989 to February 1994) and Secretary (March 1989 to December
1990) of Syntek Asset Management, Inc. ("SAMI"), the Managing General
Partner of SAMLP and a corporation owned by BCM; President (1982 to
October 1990) of Syntek Investment Properties, Inc. ("SIPI"), which has
invested in, developed and syndicated real estate through its
subsidiaries and other related entities since 1973; Director and
President (1982 to October 1990) of Syntek West, Inc. ("SWI"); Vice
President (1984 to October 1990) of Syntek Finance Corporation; Director
(1981 to December 1992), President (July 1991 to December 1992), Vice
President and Treasurer (January 1987 to July 1991) and Acting Chief
Financial officer (May 1990 to February 1991) of American Realty Trust,
Inc. ("ART"); practicing Attorney (since 1971) with the Law Offices of
William S. Friedman; Director and Treasurer (November 1989 to February
1991) of Carmel Realty Services, Inc. ("CRSI"); Limited Partner (January
1991 to December 1992) of Carmel Realty Services, Ltd. ("Carmel, Ltd.").
Also, see "Litigation and Claims Involving Mr. Friedman Related to
Southmark Corporation" below.
SALLY HERNANDEZ-PINERO: Trustee since May 1994 (Independent) 43
Of Counsel (since October 1994) Kalkines, Arky, Zall and Bernstein, New
York City; Chairwoman (February 1992 to January 1994) New York City
Housing Authority; Deputy Mayor (January 1990 to February 1992) for
Finance and Economic Development, City of New York;
Commissioner/Chairwoman of the Board of Directors (February 1988 to
December 1989) Financial Services Corporation of New York City; Director
(since July 1994) of Consolidated Edison; Director (since April 1994) of
Dime Savings Bank; Attorney at Law (since 1978).
DAN L. JOHNSTON: Trustee April 1990 to June 1990 and since February 1991
(Independent) 57
Attorney in solo practice in New York, New York (1991 to 1994 and since
August 1995); Partner in the law firm of Johnston, Kaplan and Lombardi
(January to July 1995), New York City; 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
7
<PAGE> 10
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) 54
Lucy G. Moses Professor of Law (since 1991) Columbia School of Law, New
York City; Dean (1991-1995) Columbia School of Law, 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) 58
Managing General Partner (since 1984) L. G. Schafran & Associates, a
real estate investment and development firm in New York City; Director,
Publicker Industries (since 1986), an Old Greenwich, Connecticut NYSE
listed holding company that operates through subsidiaries in
manufacturing services; Director, Capsure Holdings Corp. (since 1986), a
Chicago, Illinois NYSE listed property and casualty insurer; Director,
Oxigene, Inc. (from March 1993 to June 1996), a U.S. and Swedish
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 company engaged with other publicly traded subsidiaries in
discount automotive parts and accessories (Trak Auto Corporation),
discount bookstores (Crown Books Corporation), discount supermarkets,
beverages and real estate; and Chairman (since January 1996) Delta-Omega
Technologies, Inc., a Broussard, Louisiana manufacturer and distributor
of environmentally safe fire foams, industrial cleaners and de-greasers.
RAYMOND V.J. SCHRAG: Trustee since October 1988 (Independent) 50
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 52
February 1994 (Independent)
Trustee (since 1996) Ford Foundation; 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
- ---------------------------
* On May 24, 1993, Glasstech, Inc. filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. An Order confirming a plan of
reorganization became effective January 3, 1995 which is the same day Mr.
Schafran became a director of Glasstech, Inc.
8
<PAGE> 11
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.
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.
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 (the "PSL Settlement"). At that time,
a judgment was entered securing certain payments agreed to be made by Mr.
Friedman and other individuals. After making two of the scheduled payments,
the payment due in November 1994 was not made. After discussions and
additional litigation, effective December 13, 1995, the Commissioner and
Messrs. Phillips and Friedman entered into a modification of the PSL Settlement
(the "PSL Modification") pursuant to which the $4,450,000 balance of the
original payments is to be paid over a ten-year period. Mr. Friedman's
liability terminates when the Commissioner has received an aggregate of $1.2
million under the PSL Modification. Tarragon has guaranteed 80% of each of Mr.
Friedman's scheduled payments under the PSL Modification. Tarragon and Mr.
Friedman have entered into an agreement that Tarragon may offset any amounts
paid under such guaranty against salary and other compensation due Mr.
Friedman.
9
<PAGE> 12
One of Southmark's principal businesses was real estate syndication and
from 1981 to 1987 Southmark raised over $500 million in investments from
limited partners of several hundred limited partnerships. Seven lawsuits were
filed by investors alleging breach of fiduciary duties on the part of Mr.
Friedman and others. Two cases were settled in July and October 1993 for
nominal payments. In one case, all claims were dismissed by the Court and the
defendants (including Mr. Friedman) were awarded sanctions against plaintiffs'
counsel. The other four cases were voluntarily dismissed by the plaintiffs
without payment of any kind by the defendants.
San Jacinto Savings Association. On November 30, 1990, San Jacinto
Savings Association ("SJSA"), a savings institution that had been owned by
Southmark since 1983, was placed under conservatorship of the Resolution Trust
Corporation ("RTC") by federal banking authorities. The Office of Thrift
Supervision ("OTS") also conducted a formal investigation of SJSA and its
affiliates. During late November 1994, Mr. Friedman entered into certain
agreements with the RTC and OTS settling all claims relating to (i) his
involvement with SJSA, and (ii) any guarantor arrangement of Mr. Friedman as to
other financial institutions taken over by the RTC. Pursuant to such
arrangements, Mr. Friedman and certain other respondents (including Mr.
Phillips) agreed to pay restitution over a 10-year period in the amount of
$20,000,000. Mr. Friedman's liability terminated in September 1996 at which
time the respondents as a group had 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 six meetings and acted by written
consent two times during 1995. 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 Independent Trustees,
are Messrs. Schrag (Chairman), Johnston, and Weisbrod. The Audit Committee met
one time during 1995.
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 Advisory Review Committee met two times in 1995.
In November 1995, the Board of Trustees formed an Option Committee for
the purpose of authorizing options under the Share Option and Incentive Plan
approved by the Shareholders at the Annual Meeting held on November 20, 1995.
The current members of the Option Committee are Messrs. Friedman and Weisbrod.
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
10
<PAGE> 13
Messrs. Johnston (Chairman), Etnire, Jordan, Schrag, Sims and Stokely comprised
the Litigation Committee. During 1995, the Related Party Transaction Committee
met two times and the Litigation Committee met two times.
EXECUTIVE OFFICERS
The only person currently serving as an executive officer of the Trust
is William S. Friedman, President and Chief Executive Officer. Mr. Friedman's
positions with the Trust are not subject to a vote of Shareholders. Mr.
Friedman's 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 is set
forth above.
OTHER OFFICERS
Although not executive officers of the Trust, the following persons
currently serve as officers of the Trust: Bruce A. Schnitz, Chief Operating
Officer; Robert Irvine, Chief Financial Officer; Chris W. Clinton, Senior Vice
President - Asset Management; R. W. Lockhart, Senior Vice President - Asset
Management; Erin Davis, Vice President and Chief Accounting Officer; Lawrence
Hartman, Vice President and Secretary; and Todd C. Minor, Treasurer. Their
positions with the Trust are not subject to a vote of shareholders. Their
ages, terms of service, all positions and offices with the Trust, or Tarragon,
other principal occupations, business experience and directorships with other
companies during the last five years or more are set forth below.
BRUCE A. SCHNITZ: Age 47, Chief Operating Officer (since January 1996).
Chief Operating Officer (since January 1996) of the Trust, VPT, and
Tarragon; President and Chief Executive Officer (1993-1994) of McNeil
Acquisition Corporation; President, Chief Operating Officer, and
Director (1991-1993), McNeil Real Estate Management, Inc.; Executive
Vice President (1989-1991), Southmark Corporation; President and Chief
Executive Officer (1986-1991), Southmark Public Syndications; Senior
Vice President, Acquisition/Disposition (1979-1986), Robert A. McNeil
Corporation.
ROBERT C. IRVINE: Age 47, Chief Financial Officer (since September 1996).
Chief Financial Officer (since September 1995) of the Trust, NIRT and
Tarragon; Executive Vice President and Chief Financial Officer of FYI,
Inc. (February 1996 to July 1996); Executive Vice President, Secretary,
Treasurer, Chief Financial Officer and a director of McNeil Real Estate
Management, Inc. and a Vice President of McNeil Investors, an affiliated
entity (1991-1995); Executive Vice President-Chief Financial Officer of
Johnstown Management, Inc., an affiliate of Southmark (June 1989 to
February 1991); Vice President, Corporate Development, and other
financial positions with Southmark (1986-1989); Acquisition Specialist
with Mason Best, a merchant banking firm (1985 to 1986); Senior Manager,
Price Waterhouse (1973 to 1985); and Certified Public Accountant (since
1977).
CHRIS W. CLINTON: Age 48, 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.
11
<PAGE> 14
R. W. LOCKHART: Age 51, 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.
ERIN D. DAVIS: Age 34, Vice President and Chief Accounting Officer (since
September 1996).
Vice President and Chief Accounting Officer (since September 1996) of
the Trust, NIRT and Tarragon; Accounting Manager of the Trust, NIRT and
Tarragon (June 1995 to August 1996); Senior Associate, BDO Seidman
(January 1993 to June 1995); Senior Accountant and other positions with
E&Y Kenneth Leventhal Real Estate Group (formerly Kenneth Leventhal &
Company) (January 1988 to December 1992); and Certified Public
Accountant (since 1990).
LAWRENCE S. HARTMAN: Age 31, Vice President and Secretary (since June 1996).
Vice President and Secretary of the Trust and VPT (since June 1996);
Vice President of Tarragon (since May 1996); Associate (March 1994
through May 1996), Coudert Brothers; Partner (September 1990 through
March 1994), Anderson, Kill, Olick & Oshinsky.
TODD C. MINOR: Age 37, Treasurer (since December 1996); Senior Vice President
- Mortgage Servicing and Financing (May 1995 to December 1996) and
Senior Vice President - Finance (March 1994 to April 1995 and from July
1993 to January 1994).
Senior Vice President - Mortgage Servicing and Financing (May 1995 to
December 1996) 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.
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 1995. During 1995, 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, 1995 were not filed on a timely basis: Initial Forms 3 of
Messrs. Schafran and Cohen and Ms. Hernandez-Pinero and Forms 4 for Messrs.
Cohen, Johnston, Liebman, Schafran, Schrage and Weisbrod and Ms. Hernandez-
Pinero for the options received by each on November 20, 1995.
THE ADVISOR
Although the Trust's Board of Trustees is directly responsible for
managing the affairs of the Trust and for setting the policies which guide it,
the day-to-day operations of the Trust are performed by a contractual advisory
firm under the supervision of the Trust's Board of Trustees. The stated duties
of the
12
<PAGE> 15
Advisor include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources for the Trust. The Advisor also
serves as a consultant in connection with the business plan and investment
policy decisions made by the Trust's Board of Trustees.
Consolidated Capital Equities Corporation ("CCEC") was the sponsor 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. Southmark was a controlling shareholder of
The Consolidated Companies, the parent of CAI, from March 1988 through February
1989.
BCM served as the Trust's advisor from March 1989 to 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. BCM also serves as advisor to CMET, IORI
and TCI. Two of the Trustees were also Trustees of CMET and IORT (the
predecessor of IORI) and a director of TCI, but have since resigned their
positions. BCM served as advisor to VPT until February 28, 1994. Mr.
Friedman, President of the Trust also serves as President of VPT. Mr. Friedman
was a general partner of the general partner of NRLP. BCM performs certain
administrative functions for NRLP and NOLP, the operating partnership of NRLP,
on a cost-reimbursement basis. BCM also serves as advisor to ART. Messrs.
Friedman and Phillips served as executive officers and directors of ART until
November 6, 1992 and December 31, 1992, respectively. Mr. Friedman resigned
his positions with CMET, IORT and TCI in February 1994 and from his position
with NRLP in March 1994 to concentrate his attention on the Trust, VPT and
Tarragon.
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 William S. and Lucy N. Friedman. The Friedman family owns
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
13
<PAGE> 16
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 mortgage or
loan by the Trust equal to the lesser of (i) 1% of the amount of
the mortgage or loan purchased or (ii) a brokerage or refinancing
fee which is reasonable and fair under the circumstances. Such
fee was not to be paid in connection with the origination or
funding by the Trust of any mortgage loan.
(4) The Advisor or an Affiliate of the Advisor was also to receive a
mortgage brokerage and equity refinancing fee for obtaining loans
to the Trust or refinancing on Trust properties equal to the
lesser of (i) 1% of the amount of the loan or the amount
refinanced or (ii) a brokerage or refinancing fee which is
reasonable and fair under the circumstances; provided, however,
that no such fee was to be paid on loans from the Advisor or an
Affiliate of the Advisor without the approval of the Trust's
Board of Trustees. No fee was to be paid on loan extensions.
(5) The Advisor or any Affiliate of the Advisor must pay to the Trust
one-half of any compensation received from third parties with
respect to the origination, placement or brokerage of any loan
made by the Trust, provided, however, that the compensation
retained by the Advisor or any Affiliate of the Advisor shall not
exceed the lesser of (i) 2% of the amount of the loan committed
by the Trust or (ii) a loan brokerage commitment fee which is
reasonable and fair under the circumstances.
The Initial Advisory Agreement was replaced effective April 1, 1995 with
the revised Advisory Agreement. At their March 9, 1995 meeting, the Board of
Trustees approved certain revisions to the Initial Advisory Agreement with
Tarragon effective April 1, 1995 which were submitted to the Shareholders for
approval and approved at the Annual Meeting of Shareholders held on November
20, 1995. The revised Advisory Agreement is very similar to the Initial
Advisory Agreement, but 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 current Advisory Agreement" for a description of the compensation under the
current Advisory Agreement.
Under the Tarragon Advisory Agreement, the Advisor is required to
formulate and submit annually for approval by the Trust's Board of Trustees a
budget and business plan for the Trust containing a twelve-month forecast of
operations and cash flow, a general plan for asset sales or acquisitions,
lending, foreclosure
14
<PAGE> 17
and borrowing activity, and other investments, and the Advisor is required to
report quarterly to the Trust's Board of Trustees on the Trust's performance
against the business plan. In addition, all transactions or investments by the
Trust shall require prior approval by the Trust's Board of Trustees unless they
are explicitly provided for in the approved business plan or are made pursuant
to authority expressly delegated to the Advisor by the Trust's Board of
Trustees.
The Tarragon Advisory Agreement also requires prior approval of the
Trust's Board of Trustees for retention of all consultants and third party
professionals, other than legal counsel. The Advisory Agreement provides that
the Advisor shall be deemed to be in a fiduciary relationship to the Trust's
shareholders; contains guidelines for the Advisor's allocation of investment
opportunities as among itself, the Trust and other entities it advises; and
contains a broad standard governing the Advisor's liability for losses by the
Trust. Under the Advisory Agreement, neither the Advisor nor any of its
shareholders, directors, officers or employees shall be liable to the Trust,
the Trustees or the holders of securities of the Trust for any losses from the
operations of the Trust if the Advisor had determined, in good faith, that the
course of conduct which caused the loss or liability was in the best interests
of the Trust and the loss or liability was not the result of negligence or
misconduct by the Advisor. In no event will the directors, officers or
employees of the Advisor be personally liable for any action or inaction unless
it was the result of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
Also, if the Trust was to request that the Advisor render services to
the Trust other than those required by the advisory agreement, the Advisor or
an Affiliate of the Advisor would be separately compensated for such additional
services on terms to be agreed upon from time to time. In the past, the Trust
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
BRUCE A. SCHNITZ: Chief Operating Officer
ROBERT C. IRVINE: Chief Financial Officer
CHRIS W. CLINTON: Senior Vice President - Commercial Portfolio
ROBERT W. LOCKHART: Senior Vice President - Residential Portfolio
ERIN D. DAVIS: Vice President and Chief Accounting Officer
LAWRENCE HARTMAN: Vice President and Secretary
TODD C. MINOR Treasurer
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
15
<PAGE> 18
(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 has provided 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.
REAL ESTATE BROKERAGE
Prior to December 1, 1992, affiliates of BCM provided brokerage services
to the Trust and received brokerage commissions in accordance with the advisory
agreement. Effective December 1, 1992, the Trust's Board of Trustees approved
the non-exclusive engagement by the Trust of Carmel Realty to provide brokerage
services for the Trust. Such agreement terminated March 31, 1994. Carmel
Realty was entitled to receive a real estate acquisition commission for
locating and negotiating the lease or purchase by the Trust of any property
equal to the lesser of (i) up to 3% of the purchase price, inclusive of
commissions, if any, paid by the Trust to other brokers or (ii) the
compensation customarily charged in arm's-length transactions by others
rendering similar property acquisition services in the same geographical
location and for comparable property. Any commission paid to Carmel Realty by
the seller was to be credited against the commission to be paid by the Trust.
Carmel Realty was also entitled to receive a real estate sales commission for
the sale of each Trust property equal to the lesser of (i) 3% (inclusive of
fees, if any, paid by the Trust to other brokers) of the sales price of each
property or (ii) the compensation customarily charged in arm's-length
transactions paid by others rendering similar services in the same geographic
location for comparable property.
Since March 1, 1994, the Trust has also engaged Tarragon to perform
acquisition 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 real estate
brokerage and acquisition commissions of $176,000, 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.
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 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
16
<PAGE> 19
day for any special services rendered by him to the Trust outside of his
ordinary duties as Trustee, plus reimbursement for expenses, provided such
services are specifically requested by the Board.
During 1994, $42,750 was paid to the Independent Trustees in total
Trustees' fees for all services, including the $6,000 annual fee for services
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 pays 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. During 1995, $146,500 was paid to the
Independent Trustees in total fees for all services, including the $15,000
annual fee as follows: Irving E. Cohen, $17,000; Sally Hernandez-Pinero,
$17,000; Dan L. Johnston, $17,000; Lance Liebman, $15,000; L. G. Schafran,
$15,000; Raymond V. J. Schrag, $18,000; Carl B. Weisbrod, $40,000; and Willie
K. Davis, $7,500.
Pursuant to approval of the Independent Trustee Share Option Plan (the
"Trustee Plan") at the November 20, 1995 shareholder meeting, the Trust issued
options to acquire 3,000 shares to each of the seven Independent Trustees on
November 20, 1995. The exercise price of the options is equal to the market
price on the grant date. The options expire on the earlier of the first
anniversary of the date on which a Trustee ceases to be a Trustee of the Trust
or November 20, 2005 (the "Termination Date"), and are exercisable at any time
between the date of grant and the Termination Date. In addition, for each year
such Trustee continues to serve as a Trustee, he (she) will be awarded an
option covering 1,000 shares on January 1 of each year. Accordingly, on
January 1, 1996, the Trust issued additional options covering 7,000 shares
(1,000 shares each) with an exercise price equal to the market price on the
date of grant and the same Termination Date as the options granted in November
1995. The Trustee Plan provides for a total of 60,000 shares.
PERFORMANCE GRAPH
Commission rules require that a line graph performance presentation be
provided comparing cumulative total stockholder return with a performance
indicator of a broad market index and either a nationally recognized industry
index or a registrant constructed peer group index over a minimum period of
five years. The following performance graph compares the cumulative total
shareholder return on the Trust's shares of beneficial interest with the
Standard & Poor's 500 Stock Index ("S&P 500 Index") and the National
Association of Real Estate Investment Trusts, Inc. Equity REIT Total Return
Index ("REIT Index"). The comparison assumes that $100 was invested on
December 31, 1990 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.
17
<PAGE> 20
COMPARISON OF FIVE FISCAL YEARS ENDED DECEMBER 31, 1995
COMPARATIVE TOTAL RETURN
<TABLE>
<CAPTION>
========================================================================================================
1990 1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THE TRUST 100 160.86 106.81 296.99 314.81 354.40
- --------------------------------------------------------------------------------------------------------
S&P 500 STOCK INDEX 100 130.55 140.56 154.60 152.83 215.25
- --------------------------------------------------------------------------------------------------------
NAREIT EQUITY REIT 100 135.70 155.49 186.06 191.95 221.26
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 National Association of Securities Dealers, Inc.
("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 1995, there were 179 tax-qualified REITs in the NAREIT Equity REIT
Total Return Index with a total market capitalization of $46.881 billion.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS. On February 10, 1994, the Trust's Board
of Trustees selected Tarragon to replace BCM as the Trust's advisor effective
April 1, 1994 under an advisory agreement. Mr. Friedman serves as director and
Chief Executive Officer of Tarragon. Tarragon is owned by William S. and Lucy
N. Friedman. The Friedman family owns approximately 33% of the outstanding
shares of the Trust.
18
<PAGE> 21
Also on February 10, 1994, VPT's Board of Trustees selected Tarragon to
replace BCM as VPT's advisor commencing March 1, 1994. Messrs. Johnston,
Schrag and Weisbrod, each a Trustee of the Trust, resigned from VPT's board on
May 17, 1995. William S. Friedman also presently serves as President and a
Trustee of VPT. Mr. Friedman owes fiduciary duties to VPT as well as to the
Trust under applicable law. VPT has the same relationship with Tarragon as the
Trust.
Tarragon occupied office space at VPT's One Turtle Creek Office/Retail
Complex until October 1, 1996.
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.
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 for up to three properties owned by the Trust. In 1994 and 1995,
FMS earned fees of $55,886 and $66,940, respectively, for performing such
services. The management of the Trust believes that such fees 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 had no Trustee who serves on both boards.
19
<PAGE> 22
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 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 (Chief Operating
Officer of the Trust from February 1994 until August 1996) 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 bore interest at
a rate of 6% per annum, matured in five years and was convertible into 84,615
of the Trust's shares of beneficial interest. In July 1996, Mr. Doyle
converted such debenture into 84,615 shares of beneficial interest.
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, 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 1995, the Trust paid Tarragon $1 million in advisory fees, $445,000
in real estate and mortgage brokerage commissions, and $330,000 in property
management fees. In addition, the Trust paid Tarragon $960,000 in cost
reimbursements.
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:
"[t]he 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
20
<PAGE> 23
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, from September 1990
until March 1995, the Trust 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 then 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 was prohibited from holding the shares of CMET beyond July
30, 1996. Prior to March 31, 1995, all remaining 39,500 CMET shares were sold
in open market transactions.
Prior to January 11, 1995, all related party transactions that the Trust
contemplated were to be reviewed by the Related Party Transaction Committee of
the Trust's Board of Trustees to determine whether such transactions were (i)
fair to the Trust and (ii) permitted by the Trust's governing documents. Each
of the members of the Related Party Transaction Committee was a Trustee who is
not an officer, director or employee of the Trust's advisor, Tarragon, and is
not an officer or employee of the Trust. Such committee was disbanded in
February 1995 and its responsibilities assumed by the Independent Trustees.
Pursuant to the terms of the Modification in the Olive case, which
became effective January 11, 1995, any related-party transaction which the
Trust may enter into prior to April 27, 1999, with two categories of
exceptions, will require the unanimous approval of the Trust's Board of
Trustees. In addition, except for the categories noted below, certain defined
related-party transactions may only be entered into in exceptional
circumstances and after 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. Two
categories of exception are:
(i) direct contractual agreements for services between the Trust
and the Advisor or one of its affiliates (i.e., the Advisory Agreement,
property management contracts, etc.) which require prior approval by
two-thirds of the Trustees of the Trust and, if required, approval by a
majority of the Shareholders;
(ii) joint ventures among the Trust and another party to the
Modification in the Olive case or any of their affiliates or
subsidiaries and a third party having no prior or intended future
business or financial relationship with specified persons, or any
affiliate of such persons, may be entered into on the affirmative vote
of a majority of the Trustees of the Trust.
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
21
<PAGE> 24
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 William S. and Lucy N. Friedman. If the current advisory agreement
is approved, Tarragon will be entitled to receive payments of certain fees from
the Trust for the services it will perform. In addition, Tarragon serves as
advisor to other entities engaged in real estate investment activities that are
similar to those of the Trust and which may compete with the Trust in
purchasing, selling, leasing and financing real estate and related investments.
At the Trust's annual meeting held on April 26, 1993, the Trust's
Shareholders approved a revised advisory agreement dated December 1, 1992
between the Trust and BCM. At that time, BCM and its affiliates (other than
William S. Friedman) held a substantial ownership interest in the shares of the
Trust (approximately 16.6%). During 1993, BCM and its affiliates divested
themselves of such ownership interest and by the first quarter of 1994 did not
own any direct or indirect significant interest in the Trust. At the time of
such event, BCM desired to be replaced as the Trust's Advisor. At the same
time, the Trustees desired to (i) reduce the cost of the advisory relationship
and make an advisory compensation arrangement primarily incentive based, (ii)
have an advisor which had a substantial ownership interest in the Trust, either
directly or through affiliates of such advisor, and (iii) have an advisor with
a significant presence in the New York City area where a majority of the
Trustees were located. During early February 1994, the Related Party
Transaction Committee met and considered these factors and a preliminary
advisory service proposal from Tarragon. The members of the Related Party
Transaction Committee (Messrs. Johnston, as Chairman, Davis, Etnire, Schrag,
Sims and Stokely) recommended to the Board of Trustees, on February 10, 1994,
the replacement of BCM with Tarragon. No listing of the various factors (or
weight given to each) is available. However, such Committee (and ultimately
the whole Board) considered only BCM and Tarragon because the Trustees felt
that due to the complexity of the operations and governance of the Trust,
continuity was essential.
On February 10, 1994, the Trust's Board of Trustees selected Tarragon to
replace BCM as the Trust's Advisor commencing April 1, 1994. At such meeting,
the Board of Trustees reviewed an advisory service proposal from Tarragon which
contained a copy of a proposed advisory agreement. At that time Mr. Friedman
advised the Board that such proposal was in line with his belief that the
advisor should have substantial ownership interest in the Trust which would
align it with the interest of the other shareholders of the Trust. Such
proposal disclosed the ownership of Tarragon, provided for an arrangement
similar to the prior BCM advisory agreement (except for the base fee), and
advised that Tarragon and its affiliates would undertake to inform the Board of
Trustees of all real estate investments Tarragon makes for its own account or
for the account of its principals and that Tarragon would allocate all
investment opportunities to those entities which have had uninvested funds for
the longest period of time. At that time, the Board of Trustees considered
only continuation of BCM (the then Advisor) and/or selection of Tarragon; no
listing of material factors (or the weight given to each) is available; and the
Board of Trustees approved the engagement of Tarragon to replace BCM as the
Trust's advisor.
Since 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.
22
<PAGE> 25
At their March 9, 1995 meeting, a majority of the Board of Trustees
approved certain revisions to the Initial Advisory Agreement with Tarragon.
Prior to March 9, 1995, a group consisting of certain of the independent
Trustees (Messrs. Weisbrod, Cohen and Johnston), as the Advisory Agreement
Review Committee, carefully reviewed the Initial Advisory Agreement, the
performance of Tarragon and the results of operations of the Trust during the
first year under the Initial Advisory Agreement. Such committee concluded that
the Trust's performance with Tarragon was satisfactory, that similarly situated
"REITs" had higher overall general and administrative costs than the Trust, and
that the cost to the Trust of internal administration would be much greater
than the cost of continuing with Tarragon. Based upon such review, such
Committee recommended to the Board of Trustees approval of the Advisory
Agreement, as amended by the modifications to be effective April 1, 1995; no
listing of material factors (or weight given to each) is available; and the
Board of Trustees, by a majority, approved the amendments to the Initial
Advisory Agreement to result in the Advisory Agreement. Mr. Schafran (who was
elected a Trustee at the March 9, 1995 meeting) voted against approval, stating
that he did not then have sufficient familiarity with the materials reviewed by
the Committee; Mr. Friedman abstained from voting, and all other Trustees voted
unanimously to approve the amendments, the engagement of Tarragon as the
Advisor under the Advisory Agreement, and to recommend approval of the Advisory
Agreement to the Shareholders. The Advisory Agreement is an amendment and full
restatement of, and is similar to, the Initial Advisory Agreement but
eliminated the $100,000 base annual fee, made certain technical changes
designed to further clarify the responsibilities and rights of Tarragon, and
provided that real estate commissions shall be payable to Tarragon and its
affiliates only following specific approval by the Board of Trustees for each
transaction rather than pursuant to a general agreement.
On May 22, 1996, the Advisory Review Committee met to review and discuss
renewing the Advisory Agreement. After careful consideration of the Trust's
current needs and goals, the Committee unanimously recommended approval of the
renewal of the Advisory Agreement to the Board of Trustees at the meeting held
June 4, 1996. The Board of Trustees overwhelmingly approved of renewing the
Advisory Agreement with all Trustees voting in favor of the proposal except Mr.
Schafran who was absent and Mr. Friedman who abstained.
The Board of Trustees recommends that Shareholders approve the renewal
through the next annual meeting of Shareholders of the current advisory
agreement described below between the Trust and Tarragon. A copy of the
Advisory Agreement appears as Appendix A to this Proxy Statement and is
described below. If the Shareholders approve Proposal Two, the current
Advisory Agreement will have a term extending through the next Annual Meeting
of Shareholders, and any renewal of the Advisory Agreement thereafter will be
subject to Shareholder approval in accordance with the provisions of Section
4.2 of the Declaration of Trust. If the Shareholders fail to approve Proposal
Two, the Board of Trustees may choose to engage a different party to serve as
Advisor under a different contract or may operate the Trust without an advisor.
The affirmative vote of a majority of the votes cast at the Annual meeting is
required to approve the Advisory Agreement.
The Advisory Agreement may be terminated without cause or penalty upon
60 days' written notice by the Trust to Tarragon or 120 days' written notice by
Tarragon to the Trust. Termination requires a majority vote of the Trustees
who are not affiliated with Tarragon or a majority vote of the Shareholders.
The Board of Trustees may enter into an advisory contract with a new advisor
without Shareholder approval. Such contract could not have an initial term of
more than two years and must provide for annual renewal or extension
thereafter, subject to Shareholder approval.
THE CURRENT ADVISORY AGREEMENT WITH TARRAGON
The current Advisory Agreement with Tarragon provides that Tarragon is
to be responsible for the day-to-day operations of the Trust and to receive an
advisory compensation from the Trust based on the following:
(1) no base or fixed advisory fee is payable, but the Advisor
is to receive an incentive advisory fee equal to 16% per annum of the
Trust's "Adjusted Funds From Operations" (funds from
23
<PAGE> 26
operations plus any loss on a property or mortgage acquired prior to
January 1, 1989 and the amount of advisory fees payable to the extent
such fees are considered as current expenses in determining profit or
loss) for each Fiscal Year or portion thereof for which the Advisor
provides services, beginning March 31, 1994; the incentive fee is
payable monthly in advance based on the most recent month for which a
monthly financial statement has been prepared and is cumulative within
any fiscal year to maintain the 16% per annum rate.
(2) the Advisor or an Affiliate of the Advisor is to receive
an acquisition commission for supervising the acquisition, purchase or
long-term lease of real estate for the Trust equal to 1% of the cost of
acquisition, inclusive of commissions, if any, paid to non-affiliated
brokers, except that no fee is due for the acquisition through or from
an affiliate of the Trust or the Advisor provided that the purchase
price of each property (including acquisition commissions and all real
estate brokerage fees) may not exceed such property's appraised value at
acquisition.
(3) the Advisor or an Affiliate of the Advisor is also to
receive a mortgage brokerage and refinancing fee for obtaining loans to
the Trust or refinancing on Trust properties equal to the lesser of (i)
1% of the amount of the loan or the amount refinanced or (ii) a
brokerage or refinancing fee which is reasonable and fair under the
circumstances; provided, however, that no such fee shall be paid on
loans from the Advisor or an Affiliate of the Advisor without the
approval of the Trust's Board of Trustees. No fee shall be paid on loan
extensions.
(4) subject to the approval by the Board of Trustees, the
Trust may pay the Advisor or an Affiliate of the Advisor a real estate
brokerage commission for (i) the purchase of real property by the Trust,
or (ii) the sale of real property owned by the Trust when the Advisor
acts as the broker in such transaction in amounts which are not to
exceed customary fees charged by nationally recognized real estate
brokers for normal, similar transactions on a non-exclusive basis.
The Advisor or any Affiliate of the Advisor must pay to the Trust the
full amount of any compensation received from third parties with respect to the
origination, placement or brokerage of any loan made by the Trust.
Also under the Advisory Agreement, Tarragon is to receive reimbursement
of certain expenses incurred by it in the performance of the Advisory services
to the Trust. Under the Advisory Agreement (as required by the Trust's
Declaration of Trust), all or a portion of the annual Advisory fee must be
refunded by the Advisor to the Trustee if the Operating Expenses of the Trust
(as defined in the Trust's Declaration of Trust) exceeds certain limits
specified in the Declaration of Trust based on the book value, net asset value
and net income of the Trust during such fiscal year.
Additionally, if the Trust were to request Tarragon render services to
the Trust other than those required by the Advisory Agreement, the Advisory
Agreement provides that Tarragon or an Affiliate of Tarragon will be separately
compensated for such additional services on terms to be agreed upon from time
to time.
Tarragon may only assign the Advisory Agreement with the prior consent
of the Trust.
24
<PAGE> 27
The following table sets forth the changes or alterations in
compensation payable to the Advisor under the BCM Advisory Agreement and the
Tarragon Advisory Agreement during the periods indicated:
<TABLE>
<CAPTION>
BCM ADVISORY TARRAGON INITIAL
AGREEMENT DATED ADVISORY AGREEMENT TARRAGON ADVISORY
DECEMBER 1, 1992 DATED FEBRUARY 15, 1994 AGREEMENT AS AMENDED
(DECEMBER 1, 1992 TO (APRIL 1, 1994 TO DATED APRIL 1, 1995
MARCH 31, 1994) MARCH 31, 1995) (APRIL 1, 1995 FORWARD)
<S> <C> <C> <C>
Base fixed annual fee None $100,000 None
Gross asset fee 0.0625% per month None None
(0.75% per annum) of
the average Gross Asset
Value of the Trust
Net income fee 7.5% per annum of the None None
Trust's net income paid
on a quarterly basis
Incentive advisory fee None 16% per annum of Trust 16% per annum of Trust
for successful "Adjusted Funds from "Adjusted Funds from
investment and Operations" (as Operations" (as
management of Trust's defined) defined)
assets
For supervision of the the lesser of (i) 1% of 1% of the cost, but no 1% of the cost, but no
acquisition, purchase the cost paid to non- fee on acquisitions fee on acquisitions
or long-term lease of affiliated brokers or from affiliates from affiliates
real property of the (ii) compensation
Trust customarily charged in
arm's-length
transactions by others
in the same area;
however, a separate
agreement with an
affiliate of BCM
provided for a 3%
acquisition fee
Mortgage brokerage and the lesser of (i) 1% of the lesser of (i) 1% of the lesser of (i) 1% of
refinancing fees the amount of loan or the amount of loan or the amount of loan or
amount refinanced or amount refinanced or amount refinanced or
(ii) a fee which is (ii) a fee which is (ii) a fee which is
reasonable and fair reasonable and fair reasonable and fair
under the circumstances under the circumstances under the circumstances
Mortgage or loan the lesser of (i) 1% of the lesser of (i) 1% of None
acquisition fees the amount of the the amount of the
mortgage or loan mortgage or loan
purchased by the Trust purchased by the Trust
or (ii) a fee which is or (ii) a fee which is
reasonable and fair reasonable and fair
under the circumstances under the circumstances
Real estate brokerage the lesser of (i) 5% None--included in Subject to approval by
commissions (inclusive of fees paid "Incentive Sales Board of Trustees, may
to non-affiliated Compensation" below pay if the Advisor or
brokers) of sales price affiliate acts as the
or (ii) compensation broker in such amounts
customarily charged in not to exceed customary
arm's-length fees charged by
transactions by others nationally recognized
rendering similar real estate brokers for
services in the same normal, similar
geographic location transactions on a non-
exclusive basis
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
BCM ADVISORY TARRAGON INITIAL
AGREEMENT DATED ADVISORY AGREEMENT TARRAGON ADVISORY
DECEMBER 1, 1992 DATED FEBRUARY 15, 1994 AGREEMENT AS AMENDED
(DECEMBER 1, 1992 TO (APRIL 1, 1994 TO DATED APRIL 1, 1995
MARCH 31, 1994) MARCH 31, 1995) (APRIL 1, 1995 FORWARD)
<S> <C> <C> <C>
Incentive sales fee equal to 10% of the fee equal to 10% of the None
compensation amount of sales amount of sales
consideration for all consideration for all
real property sold by real property sold by
the Trust exceeds the the Trust exceeds the
results of a formula results of a formula
consisting of four consisting of four
separate parts separate parts
Third-party mortgage Advisor to pay Trust Advisor to pay Trust Advisor shall pay to
placement fees 1/2 of any compensation 1/2 of any compensation Trust all compensation
received from third received from third received from third
parties for parties for parties for
origination, placement origination, placement origination, placement
or brokerage of loan or brokerage of loan or brokerage of any
made by Trust but made by Trust but loan made by the Trust
Advisor compensation Advisor compensation
retained may not exceed retained may not exceed
lesser of (i) 2% of lesser of (i) 1% of
amount of loan amount of loan
committed or (ii) a fee committed or (ii) a fee
which is reasonable and which is reasonable and
fair under the fair under the
circumstances circumstances
Additional services If and to the extent If and to the extent If and to the extent
requested by the Trust, requested by the Trust, requested by the Trust,
separately on terms to separately on terms to separately on terms to
be agreed upon between be agreed upon between be agreed upon between
the Trust and such the Trust and such the Trust and such
party party party
</TABLE>
In 1993, the Trust paid BCM and its affiliates $1,537,000 in advisory
fees, $21,000 in real estate and mortgage brokerage commissions, and $360,000
in property management fees and leasing commissions. Also, as provided in the
advisory agreement with BCM, in 1993 BCM received cost reimbursements from the
Trust of $627,000.
In 1994, when BCM was replaced as the Trust's Advisor on April 1, 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; BCM also received cost reimbursements from the Trust of $140,000 during
such period. Assuming BCM had continued as the Trust's Advisor for the full
calendar year 1994, and assuming the occurrence of the same events for the
Trust on the same basis, it is estimated that BCM would have received
$1,543,000 in advisory fees, at least $370,000 in real estate and mortgage
brokerage commissions, and at least $504,000 in property management fees, and
$1,139,000 in cost reimbursements.
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 1995, the Trust paid Tarragon $1 million in advisory fees, $45,000 in
real estate and mortgage brokerage commissions, and $330,000 in property
management fees. In addition, the Trust paid Tarragon $960,000 in cost
reimbursements.
THE BOARD OF TRUSTEES 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.
26
<PAGE> 29
DECLARATION OF TRUST AMENDMENT PROPOSALS
At the Annual Meeting, six proposed amendments to the Declaration of
Trust will be presented to shareholders. The proposed amendments (Proposals
Three, Four, Five, Six, Seven and Eight) are intended to either clarify the
authority of the Trust and the Trustees to make certain classes of investments
(Proposals Three and Four) or remove restrictions upon the Trust and the
Trustees from making certain types of investments or issuing certain securities
(Proposals Five, Six, Seven and Eight). The Board of Trustees has reviewed the
Declaration of Trust and evaluated the types of investments the Trust may
consider in the future in light of current available investment vehicles, many
of which were not available (or even contemplated by the public) in 1978 at the
inception of the Trust and the creation of the original declaration of trust
entered into on October 31, 1978. Based upon that review, the Board of
Trustees wishes to have the maximum flexibility that is permitted for REITs
under the Internal Revenue Code of 1986, as amended, and has recommended the
shareholders approve each of the six amendments to the Declaration of Trust.
PROPOSAL THREE
AMENDMENT OF THE TRUST'S DECLARATION OF TRUST
TO CLARIFY AUTHORIZATION FOR THE TRUST TO OWN
SECURITIES OF OTHER ENTITIES OR HAVE
WHOLLY-OWNED SUBSIDIARIES IN ANY STATE
Section 3.2 of the Declaration of Trust provides for certain specific
powers and authorization for the Board of Trustees. Subpart (l) of Section 3.2
of the Declaration of Trust currently authorizes the Trustees to enter into
joint ventures, general or limited partnerships, and any other lawful
combinations or associations. However, it is not absolutely clear from such
authorization that the Trust may hold or own securities of other entities or
own subsidiaries in any other state.
The Board of Trustees proposes to amend subpart (l) of Section 3.2 of
the Declaration of Trust to add certain language for clarification purposes.
The proposed amendment would add the following language to subpart (l) of
Section 3.2 (new language underlined):
"(l) to enter into joint ventures, general or limited
partnerships and any other lawful combinations or associations, create,
acquire or invest in any business entity (including a corporation
whether or not a wholly-owned subsidiary or REMIC) and to purchase,
receive, subscribe for, or otherwise acquire, own, hold, vote, use,
employ, mortgage, lend, pledge, sell or otherwise dispose of, and
otherwise use and deal in and with, securities, shares or other
interests in, or obligations of, domestic or foreign corporations,
associations, partnerships, limited liability companies, other real
estate investment trusts, or individuals, or direct or indirect
obligations of the United States or of any other government state,
territory, government district, or municipality, or any instrumentality
thereof, and to be an organizer, partner, member, associate, equity
owner, equity participant or manager of any partnership, joint venture,
limited liability company or other enterprise, and to the extent
permitted in any other jurisdiction, to be an incorporator of any other
corporation of any type or kind."
The purpose of the proposed amendment is to increase the flexibility of the
Trust and ability to specifically invest in various types of securities of
other entities, including wholly-owned subsidiaries or a REMIC, which would
include joint ventures and secured loans with an option to acquire an equity
interest in property serving as security. Such transactions generally involve
other investors who may be seeking other types of benefits in real estate and
may require the Trust to be an incorporator or organizer of other entities.
Under the current terms of the Declaration of Trust, it is not clear, without
some interpolation, that the Trust can invest in certain types of business
entities, including limited liability companies. While there is no prevention
under most state laws from the Trust becoming a "member" of a limited liability
company or a participant in any other enterprise, it is not clear that the
Trust is authorized to do so under the Declaration of Trust. The Trustees are
currently studying the possibility of such transactions in principle only, and
no specific investment or property is presently under consideration.
27
<PAGE> 30
Pursuant to Section 8.3(a) of the Declaration of Trust, as amended, the
proposal to amend subpart (l) of Section 3.2 of the Declaration of Trust must
be approved by a vote of Shareholders holding a majority of the outstanding
Shares entitled to vote thereon which constitutes the requirement for an
affirmative vote of 1,764,349 Shares. As of February 7, 1997, management and
affiliates held 1,187,120 Shares representing approximately 34% of the Shares
outstanding. Management intends to vote all of such Shares for Proposal Three
in accordance with the recommendation below of the Board of Trustees.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL THREE
PROPOSAL FOUR
AMENDMENT OF THE TRUST'S DECLARATION OF TRUST
TO SPECIFICALLY AUTHORIZE PURCHASE OR ACQUISITION
OF ITS OWN SECURITIES
Section 6.1 of the Declaration of Trust currently provides that "shares
reacquired by the Trust shall no longer be deemed outstanding and shall have no
voting or other rights unless and until re-issued . . ." By implication, it is
assumed that such language indirectly permits the Trust to purchase or
otherwise acquire its own shares or securities, but the Declaration of Trust in
the enabling language of the Trustee's Powers under Article III do not
specifically provide an authorization for the Trust to purchase or otherwise
acquire its own securities. Accordingly, the Board of Trustees proposes that
the Declaration of Trust be amended by adding a new provision (w) to Section
3.2 of the Declaration of Trust and to re-number the current (w) as described
below. In addition, to insure that the Trust is permitted to engage in any and
all activities authorized or permitted by the Internal Revenue Code of 1986, as
amended, the Board of Trustees proposes the addition of another provision to
Section 3.2 to authorize such activities.
Specifically, the proposed amendment would add the following provisions
to Section 3.2, beginning as (w), and to re-number the current (w) as described
below (new language underlined):
"(w) to purchase or otherwise acquire its own bonds,
debentures, certificates, or other evidences of indebtedness or
obligations for its own Shares and hold those acquired Shares as
Treasury Shares or cancel or otherwise dispose of those acquired Shares
and to redeem or purchase Shares made redeemable by the provisions of
this Declaration, if any.
"(x) to engage in any and all activities that are mandated,
authorized or permitted by sections of the Internal Revenue Code of
1986, as amended, or any successor statute, that relate to or govern
real estate investment trusts or the regulations adopted under that law.
"(y) whether included in the foregoing or not, to have and
exercise all powers necessary or appropriate to effect any or all of the
purposes for which this Trust is organized.
(z) (renumbered from [w]) to do all other such acts and
things as are incident to the foregoing, and to exercise all powers
which are necessary or useful to carry on the business of the Trust; to
promote any of the purposes for which the Trust is formed, and to carry
out the provisions of this Declaration."
REASONS FOR THE AMENDMENT
Other provisions of the Declaration of Trust permit the Trustees,
without any action or consent by the Shareholders, to issue bonds, debentures,
notes, or other evidences of indebtedness which may be secured or unsecured and
may be convertible into Shares and which include options, warrants and rights
to subscribe to, purchase or acquire any of such securities (see Section
3.2[d]). While it should be implicit that if securities may be issued, the
issuer may also have the ability to purchase or otherwise re-acquire such
28
<PAGE> 31
securities, it would be more appropriate to specifically state in the governing
instrument that such authority does exist.
Pursuant to Section 8.3(a) of the Declaration of Trust, as amended, the
proposal to amend Section 3.2 of the Declaration of Trust to add new subparts
(w) through (y) and to re-number existing (w) to (z) must be approved by a vote
of Shareholders holding a majority of the outstanding Shares entitled to vote
thereon which constitutes the requirement for an affirmative vote of 1,764,349
Shares. As of February 7, 1997, management and affiliates held 1,187,120
Shares representing approximately 34% of the Shares outstanding. Management
intends to vote all of such Shares for Proposal Four in accordance with the
recommendation below of the Board of Trustees.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL FOUR
PROPOSAL FIVE
THE REPEAL OF SUBPART (d) OF SECTION 5.3
OF THE TRUST'S DECLARATION OF TRUST
The Board of Trustees recommends that Shareholders approve the repeal
and deletion of subpart (d) of Section 5.3 of the Trust's Declaration of Trust
which prohibits the Trustees from issuing warrants, options or rights to buy
Shares except as a part of (i) a ratable issue or distribution to Shareholders,
(ii) a public offering or (iii) a financial arrangement with parties other than
the Advisor, directors, Trustees, officers or employees of the Trust or its
Advisor. Subpart (d) of Section 5.3 currently provides as follows:
"5.3 Restrictions. The Trustees shall not: . . .
(d) issue warrants, options or rights to buy shares,
except as part of a ratable issue to Shareholders or as part of a
public offering or as part of a financial arrangement with
parties other than the Advisor or directors, trustees, officers
or employees of the Trust or the Advisor or as part of a ratable
distribution to Shareholders; . . ."
The proposed repeal and deletion would replace the existing language with the
following:
"(d) deleted;"
BACKGROUND AND REASONS FOR REPEAL OF SUBPART (d)
The Trust's Declaration of Trust sets forth certain restrictions on the
ability of the Board of Trustees to invest the Trust's assets and/or maximize
the investments of the Trust through use of various forms of securities
(specifically, warrants, options or rights to purchase or acquire Shares)
except in certain limited instances. Such provision has been included in the
Declaration of Trust since its inception.
The Board of Trustees believes that this provision unnecessarily
restricts the possible scope of the Trust's investment activities and use of
alternate securities. The use of warrants, options or rights is, today, an
acceptable currency in connection with various transactions involving the
issuance of other securities and/or acquisition of assets. Even the current
Statement of Policy Regarding Real Estate Investment Trusts, as last revised
and adopted by the North American Securities Administrators Association, Inc.
("NASAA"), provides as a standard investment restriction that a "REIT may issue
options or warrants to persons not so connected with the REIT but not at
exercise prices less than fair market value of such securities on the date of
grant and for consideration (which may include services) that in the judgment
of the INDEPENDENT TRUSTEES, has a market value less than the value of such
option on the date of grant." [NASAA Statement of Policy Regarding Real Estate
Investment Trusts III.K.6.]
Subpart (d) of Section 3.2 of the Declaration of Trust specifically
authorizes the Trustees to issue options, warrants and rights to subscribe,
purchase or acquire Shares and other securities issued by the Trust,
29
<PAGE> 32
without any action by the Shareholders, for such consideration as the Trustees
deem advisable. However, present subpart (d) of Section 5.3 limits that
authorization to prevent the issuance of such type of securities in normal
commercial real estate and mortgage loan transactions.
The Trust has no outstanding warrants or rights for the purchase of
Shares and no transaction is under consideration in which any such issuance of
securities by the Trust is contemplated.
Pursuant to Section 8.3(a) of the Declaration of Trust, as amended, the
proposal to amend Section 5.3 of the Declaration of Trust to repeal subpart (d)
must be approved by a vote of Shareholders holding a majority of the
outstanding Shares entitled to vote thereon which constitutes the requirement
for an affirmative vote of 1,764,349 Shares. As of February 7, 1997,
management and affiliates held 1,187,120 Shares representing approximately 34%
of the Shares outstanding. Management intends to vote all of such Shares for
Proposal Five in accordance with the recommendation below of the Board of
Trustees.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL FIVE
PROPOSAL SIX
THE REPEAL OF SUBPART (e) OF SECTION 5.3
OF THE TRUST'S DECLARATION OF TRUST
The Board of Trustees recommends that Shareholders approve the repeal
and deletion of subpart (e) of Section 5.3 of the Trust's Declaration of Trust
which limits the Trust's ability to invest in certain unimproved, non-income-
producing property. Subpart (e) of Section 5.3 currently provides as follows:
"5.3 Restrictions. The Trustees shall not: . . .
"(e) invest any of the Assets of the Trust Estate in
unimproved, non-income-producing Real Property, or in
participations in the ownership of or Mortgage Loans on
unimproved, non-income-producing Real Property, except that it
shall be permissible to obtain a lien interest on unimproved,
non-income-producing or partially developed Real Property when
given by a borrower as additional security on a permitted type of
Mortgage Loan."
The proposed repeal and deletion would replace the existing language with the
following:
"(e) deleted;"
BACKGROUND AND REASONS FOR REPEAL OF SUBPART (e)
The Trust's Declaration of Trust sets forth certain restrictions on the
ability of the Board of Trustees to invest the Trust's assets. One restriction
is the limitation set forth in subpart (e) of Section 5.3 which limits the
Trust's ability to invest in certain unimproved, non-income-producing property.
The Board of Trustees believes this provision unnecessarily restricts
the possible scope of the Trust's investment activities. In the event that the
Trust has an opportunity to invest in unimproved property which could result in
a substantial return to the Trust, the Trust should not be restricted from
entering into such a transaction. The Board of Trustees has not identified any
specific unimproved property for possible acquisition by the Trust at this
time.
Pursuant to Section 8.3(a) of the Declaration of Trust, as amended, the
proposal to amend Section 5.3 of the Declaration of Trust to repeal subpart (e)
must be approved by a vote of Shareholders holding a majority of the
outstanding Shares entitled to vote thereon which constitutes the requirement
for an affirmative vote of 1,764,349 Shares. As of February 7, 1997,
management and affiliates held 1,187,120
30
<PAGE> 33
Shares representing approximately 34% of the Shares outstanding. Management
intends to vote all of such Shares for Proposal Six in accordance with the
recommendation below of the Board of Trustees.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL SIX
PROPOSAL SEVEN
THE REPEAL OF SUBPART (g) OF SECTION 5.3
OF THE TRUST'S DECLARATION OF TRUST
The Board of Trustees recommends that Shareholders approve the repeal
and deletion of subpart (g) of Section 5.3 of the Trust's Declaration of Trust
which limits the time which the Trust may hold investments in equity
securities. This subpart originally provided that the Trust shall not invest
in any equity security, including shares of other real estate investment trusts
for a period in excess of 18 months except for shares of a qualified real
estate investment trust ("REIT") subsidiary as defined in Section 856(i) of the
Internal Revenue Code, and regular or residual interests in REMICs. In May
1992, the Shareholders approved an amendment to subpart (g) which provided for
an exception to allow the Trust to hold its then current investments in the
equity securities of one entity until July 30, 1996. Subpart (g) of Section
5.3 currently provides as follows (language added by the May 1992 amendment is
underlined):
"5.3 Restrictions. The Trustees shall not: . . .
"(g) invest in any equity Security including the Shares of other
REITS for a period in excess of 18 months, except for shares of a
qualified REIT subsidiary, as defined in Section 856(i) of the Internal
Revenue Code, and regular or residual interests in REMICs and except for
the Shares of Continental Mortgage and Equity Trust owned as of February
18, 1992, which investment may be held until July 30, 1996."
The proposed repeal and deletion would replace the existing language with the
following:
"(g) deleted;"
BACKGROUND AND REASONS FOR REPEAL OF SUBPART (g)
On December 10, 1990, the Board of Trustees authorized the purchase of
up to $1 million of shares of beneficial interest of CMET through negotiated or
open market transactions. As of February 18, 1992, the Trust had purchased
54,500 shares of beneficial interest of CMET, representing approximately 1.6%
of CMET's outstanding shares on such date. All such shares were purchased on
the open market at prices ranging from $4 to $5-1/8 per share. CMET had the
same officers and trustees as the Trust and at that time, the same adviser.
Prior to March 31, 1995, all of such shares of CMET were sold in open market
transactions, which may have limited the ultimate return to the Trust on its
investment in such shares. CMET shares were the subject of a 3-for-2 forward
share split effected February 15, 1996. On February 7, 1997, the closing bid
price of CMET shares on the NASDAQ interdealer quotation system was $_______
per share.
As noted above, under the terms of the Declaration of Trust, the Trust
is prohibited from holding any equity securities for more than 18 months. The
Trust is seeking Shareholder approval of an amendment to the Declaration of
Trust to permit the Trust to own any equity securities for whatever period of
time the Board of Trustees may determine to be appropriate. Management
believes that the required disposition of equity securities within such time
frame may not be beneficial to the Trust and that holding the shares as a
longer-term investment may allow the Trust to realize a greater profit on its
investment. The Board of Trustees has not identified any specific equity
securities investments that it currently intends on holding for longer than
eighteen months.
Pursuant to Section 8.3(a) of the Declaration of Trust, as amended, the
proposal to amend Section 5.3 of the Declaration of Trust to repeal subpart (g)
must be approved by a vote of Shareholders holding
31
<PAGE> 34
a majority of the outstanding Shares entitled to vote thereon which constitutes
the requirement for an affirmative vote of 1,764,349 Shares. As of February 7,
1997, management and affiliates held 1,187,120 Shares representing
approximately 34% of the Shares outstanding. Management intends to vote all of
such Shares for Proposal Seven in accordance with the recommendation below of
the Board of Trustees.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL SEVEN
PROPOSAL EIGHT
THE REPEAL OF SUBPART (o) OF SECTION 5.3
OF THE TRUST'S DECLARATION OF TRUST
The Board of Trustees recommends that Shareholders approve the repeal
and deletion of subpart (o) of Section 5.3 of the Trust's Declaration of Trust
which prohibits the Trust from investing any of the assets of the Trust in
single-family homes. Subpart (o) of Section 5.3 currently provides as follows:
"5.3 Restrictions. The Trustees shall not: . . .
"(o) Invest any of the assets of the Trust Estate in single-
family homes; . . ."
The proposed repeal and deletion would replace the existing language with the
following:
"(o) deleted;"
BACKGROUND AND REASONS FOR REPEAL OF SUBPART (o)
The Trust's Declaration of Trust sets forth certain restrictions on the
ability of the Board of Trustees to invest the Trust's assets. One restriction
is the limitation set forth in subpart (o) of Section 5.3 which prohibits the
Trust from investing in single-family homes.
The Board of Trustees believes this provision unnecessarily restricts
the possible scope of the Trust's investment activities. In the event the
Trust has an opportunity to invest in the construction, development, and/or
sale of single-family homes which could result in a substantial return to the
Trust, the Trust should not be prohibited from entering into such transactions.
In the past, the Trust has acquired mortgages secured by single-family homes or
residential properties which appear appropriate to be only a single-family
home. In each instance, the Trust has disposed of such mortgage rather than
entering into any attempt to foreclose on such mortgage due to the prohibition
contained in subpart (o) of Section 5.3. Such prohibition has limited the
potential return on the investment in such mortgages by the Trust. The Board
of Trustees has not identified any specific single-family home or project
containing single-family homes for possible investment or acquisition by the
Trust at this time.
Pursuant to Section 8.3(a) of the Declaration of Trust, as amended, the
proposal to amend Section 5.3 of the Declaration of Trust to repeal subpart (o)
must be approved by a vote of Shareholders holding a majority of the
outstanding Shares entitled to vote thereon which constitutes the requirement
for an affirmative vote of 1,764,349 Shares. As of February 7, 1997,
management and affiliates held 1,187,120 Shares representing approximately 34%
of the Shares outstanding. Management intends to vote all of such Shares for
Proposal Eight in accordance with the recommendation below of the Board of
Trustees.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSAL EIGHT
32
<PAGE> 35
SELECTION OF AUDITORS
The Board of Trustees has selected Arthur Andersen, L.L.P. to serve as
the Auditors for the Trust for the 1995 fiscal year and for the 1996 fiscal
year. The Trust Auditors for 1994 were Arthur Andersen, L.L.P. The Trust
Auditors for 1993 were BDO Seidman. Representatives of Arthur Andersen, L.L.P.
have been invited to attend the annual meeting.
BDO Seidman served as the independent accountant previously engaged as
the principal accountant to audit the financial statements of the Trust for the
year ended December 31, 1993. On May 19, 1994, the Trust's Board of Trustees
selected Arthur Andersen & Co. to serve the Trust as its independent accountant
to audit the Trust's financial statements for the year ending December 31,
1994. The failure of the Board of Trustees to select BDO Seidman as the
Trust's independent accountant to audit the financial statements for the year
ending December 31, 1994 constituted BDO Seidman being "dismissed" (as such
term is used in Item 304 of Regulation S-K).
BDO Seidman's report on the Trust's financial statements for the year
ended December 31, 1993 did not contain any adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the year BDO Seidman served as independent
accountants to audit the financial statements of the Trust for the year ended
December 31, 1993, and thereafter through the date hereof, the Trust has not
had any disagreement with BDO Seidman on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
disagreement, if not resolved to the satisfaction of BDO Seidman, would have
caused BDO Seidman to make reference to the subject matter of the disagreement
in connection with its report.
The Trust provided BDO Seidman with a copy of the foregoing disclosures
at the same time as the filing of a current report on Form 8-K with the
Commission and requested such former accountant to furnish the Trust with a
letter addressed to the Commission stating whether BDO Seidman agreed with the
statements made by the Trust and, if not, stating the respects in which it did
not agree on May 26, 1994. BDO Seidman provided such letter for attachment to
such report, which letter confirmed such statements.
OTHER MATTERS
At the date of this Proxy Statement, the Trustees and officers do not
know of any other matters that may properly be, or that are likely to be,
brought before the meeting. However, if any other matters are properly brought
before the meeting, the persons named in the enclosed Proxy or their
substitutes will vote in accordance with their best judgment on such matters.
INTEREST OF CERTAIN PERSONS
IN MATTERS TO BE ACTED UPON
As described above under "Certain Business Relationships," Mr. Friedman,
a Trustee, President and Chief Executive Officer of the Trust, also serves as
the Chief Executive Officer of Tarragon. Tarragon is owned by William S. and
Lucy N. Friedman, and therefore Mr. Friedman could be deemed to benefit
financially from Shareholder approval of the Trust Advisory Agreement with
Tarragon pursuant to Proposal Two. The amount of any possible financial
benefit to Mr. Friedman is not directly quantifiable at this time.
FINANCIAL STATEMENTS
The audited financial statements of the Trust, in comparison form for
the years ended December 31, 1995, 1994 and 1993 are contained in the 1995
Annual Report to Shareholders. Such report and the financial statements
therein are not to be considered part of this solicitation.
33
<PAGE> 36
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, 1995 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 624, DALLAS, TEXAS 75219, ATTENTION:
INVESTOR RELATIONS.
BY ORDER OF THE BOARD OF TRUSTEES
Lawrence Hartman, Vice President and
Secretary
THE BOARD OF TRUSTEES OF THE TRUST 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 ALL OF
PROPOSALS THREE, FOUR, FIVE, SIX, SEVEN AND EIGHT TO AMEND THE DECLARATION OF
TRUST 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.
34
<PAGE> 37
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
AMEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
BCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CAI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Carmel Realty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Carmel, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CCEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CCP II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CMET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
CRSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Independent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Initial Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 13
IORI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
IORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
NAREIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
NASAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
NIRT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
NOLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
NRLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
NYSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Olive Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PSL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PSL Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PSL Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
REIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
REIT Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
RTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SAC 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SAMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SAMLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Separation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SIPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SJSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Southmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SWI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Tarragon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trustee Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
VPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
35
<PAGE> 38
APPENDIX A
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;
A-1
<PAGE> 39
(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.
A-2
<PAGE> 40
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
A-3
<PAGE> 41
Person or of any other Person which controls, is controlled by,
or is under common control with such Person or is an officer,
retired officer, director, employee, partner, or trustee
(excluding non-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 any "Gross
Asset Fee," but before deduction of any "Net Income Fee" or
"Incentive Advisory 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.
A-4
<PAGE> 42
11. ADVISORY COMPENSATION.
(a) No Base Advisory Fee. The Trust shall not be required to pay to
the Advisor any Base Advisory Fee for advisory services for the
term hereof.
(b) Incentive Advisory Fee. As an incentive for successful
investment and management of the Trust's assets, the Trust shall
pay the Advisor a fee equal to 16% per annum of the Trust's
Adjusted Funds from Operation for each Fiscal Year or portion
thereof for which the Advisor provides services. The Incentive
Advisory Fee shall be payable monthly in advance based on the
Adjusted Funds from Operation for the most recent month for which
a monthly financial statement for the Trust has been prepared.
The Incentive Advisory Fee shall be cumulative within any Fiscal
Year, such that if the Trust has negative Adjusted Funds from
Operation in any month, each subsequent payment shall be adjusted
to maintain the 16% per annum rate.
(c) Acquisition Commission. For supervising the acquisition,
purchase or long-term lease of Real Property for the Trust, the
Trust shall pay to the Advisor an Acquisition Commission equal to
1% of the acquisition cost for each real property acquired during
the term hereof, except that no such fee shall be due for any
acquisition through or from an affiliate of the Trust or the
Advisor, inclusive of commissions, if any, paid to nonaffiliated
brokers. The aggregate of each purchase price of each property
(including the Acquisition Commissions and all real estate
brokerage fees) may not exceed such property's Appraised Value at
acquisition.
(d) Mortgage Brokerage and Refinancing Fees. For obtaining loans to
the Trust or refinancing on Trust properties, the Advisor or an
Affiliate is to receive a Mortgage Brokerage and Refinancing Fee
equal to the lesser of a) 1% of the amount of the loan or the
amount refinanced or b) a brokerage or refinancing fee which is
reasonable and fair under the circumstances; provided, however,
that no such fee shall be paid on loans from the Advisor or an
Affiliate without the approval of the Board of Trustees. No fee
shall be paid on loan extensions.
(e) Real Estate Brokerage Commission. Subject to approval by the
Board of Trustees, the Trust may pay to the Advisor or an
Affiliate of the Advisor a Real Estate Brokerage Commission for
services rendered upon (i) the purchase of real property by the
Trust or (ii) the sale of real property owned by the Trust, for
which the Advisor or an Affiliate acts as the broker in such
transaction in amounts not to exceed customary fees charged by
nationally-recognized real estate brokers for normal similar
transactions on a non-exclusive basis. The provision of real
estate brokerage services by the Advisor or an Affiliate shall be
on terms not less favorable to the Trust than the terms on which
unaffiliated parties are then performing similar services for
entities comparable to the Trust not entered into on an exclusive
basis. The entry into the applicable real estate brokerage
arrangement between the Trust and the Advisor shall be approved
as required by the Declaration of Trust.
12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENTS FEES. The Advisor
or any of its Affiliates shall pay to the Trust, the full amount of any
compensation received by the Advisor or any such Affiliate from third parties
with respect to the origination, placement or brokerage of any loan made by the
Trust.
13. STATEMENTS. The Advisor shall furnish to the Trust not later
than the tenth day of each calendar month, beginning with the second calendar
month of the term of this Agreement, a statement showing the computation of the
fees, if any, payable in respect to the next preceding calendar month (or, in
the case of incentive compensation, for the preceding Fiscal Year, as
appropriate) under the Agreement. The final settlement of incentive
compensation for each Fiscal Year shall be subject to adjustment in accordance
with, and upon completion of, the annual audit of the Trust's financial
statements; any payment by the Trust or repayment
A-5
<PAGE> 43
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;
A-6
<PAGE> 44
(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
A-7
<PAGE> 45
(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
A-8
<PAGE> 46
(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:
A-9
<PAGE> 47
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
A-10
<PAGE> 48
- --------------------------------------------------------------------------------
PROXY
NATIONAL INCOME REALTY TRUST
This Proxy is Solicited on behalf of the Board of Trustees for the
Annual Meeting of Shareholders, March 20, 1997.
The undersigned shareholder of NATIONAL INCOME REALTY TRUST hereby
appoints WILLIAM S. FRIEDMAN and Carl B. Weisbrod, 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 March 20, 1997 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 February __, 1997 Proxy
Statement for said meeting:
1. ELECTION OF TRUSTEES: [ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed below to vote for all
(except as marked to nominees listed
the contrary below) 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 current
Advisory Agreement with Tarragon Realty Advisors, Inc.
3. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the amendment to
subpart (l) of Section 3.2 of the Declaration of Trust to clarify
authorization for the Trust to own securities of other entities
and have wholly-owned subsidiaries.
4. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the amendment to the
Declaration of Trust to specifically authorize the acquisition of
the Trust's own securities.
5. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the proposal to repeal
and delete subpart (d) of Section 5.3 of the Declaration of Trust
which restricts the issuance of certain securities.
6. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the proposal to repeal
and delete subpart (e) of Section 5.3 of the Declaration of
Trust which limits the Trust's ability to invest in certain
unimproved, non-income producing property.
7. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the proposal to repeal
and delete subpart (g) of Section 5.3 of the Declaration of Trust
which limits the period of time the Trust may hold its
investments in equity securities.
8. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the proposal to repeal
and delete subpart (o) of Section 5.3 of the Declaration of Trust
which prohibits the Trust from investing any of the assets of the
Trust in single-family homes;
9. 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 CURRENT ADVISORY AGREEMENT WITH TARRAGON
REALTY ADVISORS, INC. DESCRIBED IN PROPOSAL (2), FOR THE PROPOSAL TO APPROVE
THE AMENDMENT TO SUBPART (l) OF SECTION 3.2 OF THE DECLARATION OF TRUST TO
CLARIFY AUTHORIZATION FOR THE TRUST TO OWN SECURITIES OF OTHER ENTITIES AND
HAVE WHOLLY-OWNED SUBSIDIARIES DESCRIBED IN PROPOSAL (3), FOR THE PROPOSAL TO
APPROVE THE AMENDMENT TO THE DECLARATION OF TRUST TO AUTHORIZE ACQUISITION OF
THE TRUST'S OWN SECURITIES DESCRIBED IN PROPOSAL (4), FOR THE PROPOSAL TO
REPEAL AND DELETE SUBPART (d) OF SECTION 5.3 OF THE DECLARATION OF TRUST WHICH
RESTRICTS THE ISSUANCE OF CERTAIN SECURITIES DESCRIBED IN PROPOSAL (5), FOR THE
PROPOSAL TO REPEAL AND DELETE SUBPART (e) OF SECTION 5.3 OF THE DECLARATION OF
TRUST WHICH LIMITS THE TRUST'S ABILITY TO INVEST IN CERTAIN UNIMPROVED,
NON-INCOME PRODUCING PROPERTY DESCRIBED IN PROPOSAL (6), FOR THE PROPOSAL TO
REPEAL AND DELETE SUBPART (g) OF SECTION 5.3 OF THE DECLARATION OF TRUST WHICH
LIMITS THE PERIOD OF TIME THE TRUST MAY HOLD ITS INVESTMENTS IN EQUITY
SECURITIES DESCRIBED IN PROPOSAL (7), AND FOR THE PROPOSAL TO REPEAL AND DELETE
SUBPART (o) OF SECTION 5.3 OF THE DECLARATION OF TRUST WHICH PROHIBITS THE
TRUST FROM INVESTING ANY OF THE ASSETS OF THE TRUST IN SINGLE-FAMILY HOMES,
DESCRIBED IN PROPOSAL (8). ON OTHER MATTERS THAT MAY COME BEFORE SAID MEETING,
THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE ABOVE-NAMED PERSONS.
PLEASE
Sign -------------------------------------------
Here
-------------------------------------------
Dated: ___________________, 1997
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR
NAMES APPEAR HEREON. WHEN THERE IS MORE
THAN ONE OWNER, EACH MUST SIGN. WHEN
SIGNING AS AN AGENT, ATTORNEY,
ADMINISTRATOR, EXECUTOR, GUARDIAN, OR
TRUSTEE, PLEASE INDICATE YOUR TITLE AS
SUCH. IF EXECUTED BY A CORPORATION, THE
PROXY SHOULD BE SIGNED BY A DULY
AUTHORIZED OFFICER WHO SHOULD INDICATE
HIS TITLE. IF A PARTNERSHIP, PLEASE SIGN
IN PARTNERSHIP NAME BY AN AUTHORIZED
PERSON. PLEASE DATE, SIGN AND MAIL THIS
PROXY CARD IN THE ENCLOSED ENVELOPE FOR
WHICH NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
- --------------------------------------------------------------------------------
