<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 19, 1996
---------------
First Equity Properties, Inc.
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(Exact name of registrant as specified in its charter)
California 0-11777 95-6799846
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(State or other (Commission (IRS Employer
jurisdiction of File Identification
incorporation) No.) Number)
10670 N. Central Expressway, Suite 501, Dallas, Texas 75231
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 750-5800
----------------
Wespac Investors Trust III
1661 Lincoln Blvd., Suite 400
Santa Monica, California 90404
Telephone (213) 392-4331
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(Former name or former address, if changed since last report)
<PAGE> 2
Item 1. CHANGES IN CONTROL OF REGISTRANT.
Greenbriar Corporation (formerly Medical Resource Company of America)
asserted a creditor claim against Wespac Investors Trust III ("Wespac" or the
"Trust") in excess of $1,085,000 in the "Bankruptcy Proceeding" described below
which Wespac disputed. Wespac and Greenbriar Corporation agreed to compromise
the creditor's claim by granting to Greenbriar Corporation an Allowed Unsecured
Claim for the sum of $800,000 which was to be paid through the issuance of "New
Common Stock" pursuant to the "Confirmed Plan" described in Item 3 below, which
New Common Stock to be issued to Greenbriar Corporation was to constitute 50%
of all issued and outstanding New Common Stock in addition to the claim
pursuant to the "Zimco" arrangements described below.
Greenbriar Corporation also claimed ownership of 5,724,692 shares of
"Old Common Stock" (the "USREA Stock") which Greenbriar Corporation acquired in
May 1995 pursuant to a Stock Purchase Agreement with S. A. Zimco Management,
PLC ("Zimco") and John T. Hall, an individual. Wespac had objected to the
Proof of Interest filed by Zimco in the Bankruptcy Proceeding with respect to
such shares and sought a judicial determination of the true ownership of such
shares in certain litigation which was ultimately settled. Pursuant to the
Confirmed Plan, Greenbriar Corporation was to reduce its claim to shares
acquired from Zimco so that such shares would total no more than 25% of the
Allowed Interest in Old Common Stock with Wespac dismissing its objection to
the Proof of Interest and recognizing Proof of Interest filed February 1996 by
Greenbriar Corporation and Nevada Sea Investments, Inc. ("Nevada Sea") as it
related to the 5,724,692 shares originally acquired by Greenbriar Corporation
from Zimco for which the holder thereof was to be entitled to receive 25% of
the issued and outstanding New Common Stock pursuant to the Confirmed Plan.
By agreement effective May 12, 1995, Greenbriar Corporation granted an
option to Nevada Sea to purchase a judgment from the California Court (the
"Judgment") against Wespac and all of Greenbriar Corporation's claim against
Wespac in the Bankruptcy Proceeding, which option was in lieu of any other
agreement among the parties written or verbal, relating to Wespac (the
"Original Option"). As a result of the various negotiations among creditors in
the Bankruptcy Proceeding, for the benefit of all future creditors and
shareholders of Wespac, Greenbriar Corporation and Nevada Sea rescinded ab
initio, as of the time of its original issuance the Original Option; Greenbriar
Corporation retained the consideration paid for the Original Option; and at the
time of execution of a Letter Agreement dated May 31, 1996, Greenbriar
Corporation conveyed to Nevada Sea an undivided 50% interest in and to the
Judgment and the Claim which resulted in an undivided interest of 25% out of an
aggregate of 50% of the "New Common Stock" of Wespac on a "when issued" basis.
As a part of such arrangement, Greenbriar Corporation covenanted and agreed
that
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it would not, without the prior written consent of Nevada Sea, sell or dispose
of any of the 25% of total Wespac Shares which Greenbriar Corporation was to
receive under the Confirmed Plan.
Pursuant to the Confirmed Plan, Class 6 consisted of the Allowed
Interest of Shareholders in "Old Common Stock" all of which was cancelled on
the Effective Date of the Confirmed Plan with one share of beneficial interest
of Wespac deemed to be exchanged for each share of Allowed Interest (other than
Greenbriar Corporation and Nevada Sea), which former "public shareholders" were
then to hold in the aggregate 25% of the new Shares of Beneficial Interest. As
a result of the Confirmed Plan, as modified by the "Modification" described
below, as of November 29, 1996 there were deemed to be 10,570,944 Shares of
Beneficial Interest, no par value, of Wespac available for issuance to
shareholders, of which 2,642,736 Shares were issuable to public shareholders
(an aggregate of 25% of such shares), 2,642,736 Shares were issuable to
Greenbriar Corporation (an aggregate of 25% of such shares), and 5,285,472
Shares were issuable to Nevada Sea (an aggregate of 50% of such Shares).
Accordingly, although no shares of beneficial interest of Wespac were actually
issued at that time pursuant to the Confirmed Plan, as of at least November 29,
1996, by virtue of Nevada Sea holding the right to receive an aggregate of 50%
of the shares of beneficial interest of Wespac, an effective change in control
of the issuer occurred.
On June 19, 1996, two individuals who are also officers of Nevada Sea or
one of its affiliates were elected as two of the members of the Board of
Trustees of Wespac to fill vacancies created by prior resignations and to
ensure that at least three members of the Board of Trustees would exist; such
individuals were also elected as the officers of Wespac and are as follows:
<TABLE>
<CAPTION>
NAME OFFICE
<S> <C>
Karl L. Blaha President
F. Terry Shumate Vice President, Secretary
and Treasurer
</TABLE>
In connection with and pursuant to the "Incorporation Procedure" described in
Items 3 and 5 below, the three individuals who were the members of the Board of
Trustees of Wespac are at all times from and after June 19, 1996 (Karl L.
Blaha, Georgie Liebelt and F. Terry Shumate) and the two individuals named
above who have been the officers of Wespac, became the corresponding members of
the Board of Directors and officers of the California Corporation, as successor
to Wespac and of First Equity Properties, Inc., the surviving corporation to
the "Merger" described below. By virtue of the one-for-one exchange of shares
of beneficial interest for ultimate Common Stock, par value $0.01 per share of
First Equity Properties, Inc., each shareholder of Wespac now holds a
proportionate interest in First Equity Properties, Inc., with the
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result being that Nevada Sea owns and holds 50% of the outstanding Shares,
Greenbriar Corporation presently owns 25% of the outstanding Shares (but has
covenanted with Nevada Sea that it would not sell or dispose of such interest
without the consent of Nevada Sea) and the "public shareholders" own and hold
an undivided 25% interest of the Shares of First Equity Properties, Inc.
Item 3. BANKRUPTCY RECEIVERSHIP.
Wespac, a California real estate investment trust which had its
principal executive offices located at 1661 Lincoln Boulevard, Suite 400, Santa
Monica, California 90404 at December 31, 1987 and subsequently during 1994
until June 19, 1996 at West 4301 Sunset Highway, Spokane, Washington 99204, was
originally formed August 22, 1993. Its last filing with the Securities and
Exchange Commission was the filing of a Form 10-K for the fiscal year ended
December 31, 1987 (the "1987 10-K"). During January 1988, four of the elected
Trustees resigned pursuant to an agreement with U.S. Real Estate Advisors, Inc.
("USREA"), a privately held California corporation, and four new trustees were
elected, all of whom were officers of USREA. Also, during January 1988 Wespac
entered into certain financing arrangements with USREA and on April 13, 1988
the Trustees who were also officers of USREA caused Wespac to file for
protection under Chapter 11 of the United States Bankruptcy Code (the "1988
Reorganization") which resulted in a plan of reorganization approved and
confirmed by the Court on March 29, 1989 with certain amendments. The 1988
Reorganization was closed by the Bankruptcy Court on August 21, 1992.
Wespac acted as a Debtor-in-Possession in the 1988 reorganization which
concluded in the Third Amended Plan of Reorganization dated January 24, 1989
(the "1989 Plan"), confirmation of which served to re-vest all assets of the
Estate of Wespac, free and clear of all liabilities except those payable under
the 1989 Plan. As provided for by that 1989 Plan, USREA exercised its warrants
by purportedly forgiving $715,586.50 which Wespac allegedly owed under an
Amended Financing Agreement. Wespac then liquidated all real estate assets
except a shopping center in Ogden, Utah (later sold) and three hotels located
in Spokane, Washington consisted of The Quality Inn-Spokane House, The Quality
Inn-Valley, and The Comfort Inn-North (all collectively the "Spokane
Properties"). The 1988 Reorganization was closed by the Court on August 21,
1992.
On January 27, 1994, Wespac again instituted a Chapter 11 bankruptcy
proceeding styled In re: Wespac Investors Trust III, Case No. 94-00228-K11,
pending in the United States Bankruptcy Court for the Eastern District of
Washington (the "Bankruptcy Proceeding"), to seek a restructuring of the assets
and
3
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liabilities of Wespac, in response to certain litigation that resulted in at
least one judgment. A plan of reorganization dated March 22, 1996 (as
modified) was confirmed by Order Confirming Plan of Reorganization dated May
15, 1996, entered May 20, 1996 (the "Confirmed Plan"). During the process of
consummation of the Confirmed Plan, and on the eve of issuance of the final
decree with respect to the Confirmed Plan, and emergence from the Bankruptcy
Proceeding, the Board of Trustees of Wespac by motion filed October 29, 1996
sought a modification of the Confirmed Plan which resulted in the entry of an
Order from the Court approving the First Modification to Plan of Reorganization
(as modified) (the "Modification").
Pursuant to the Confirmed Plan, Class 6 consisted of the Allowed
Interest of former public shareholders in "Old Common Stock," all of which was
cancelled on the Effective Date of the Confirmed Plan (June 15, 1996) with one
share of beneficial interest of Wespac deemed to be exchanged for each share of
Allowed Interest, other than Greenbriar Corporation who were then to hold in
the aggregate 25% of the New Shares of Beneficial Interest. After objections
to proofs of interest demonstrating an interest in another entity, it was
determined that the Allowed Interest of such holders were equivalent to
2,642,236 Shares of Beneficial Interest.
Also, pursuant to the Confirmed Plan, upon the Effective Date,
Greenbriar Corporation reduced its claim to the so-called "USREA Shares"
acquired from Zimco to equal 25% of the Allowed Interest (a total of 2,642,736
Shares of Beneficial Interest) and Nevada Sea Investment, Inc. ("Nevada Sea")
was deemed to exercise an option to receive all such Shares of Beneficial
Interest. In addition, in the compromise of the Wespac Creditors' Claim,
Greenbriar Corporation was to receive, pursuant to the Confirmed Plan, 50% of
the issued and outstanding Shares of Beneficial Interest, but prior to the
Effective Date of the Confirmed Plan, by agreement, Greenbriar Corporation
entered into an arrangement pursuant to which Greenbriar Corporation conveyed
to Nevada Sea an undivided 50% in and to the creditors' claim resulting in an
undivided 25% out of an aggregate of 50% of New Shares of Beneficial Interest
of Wespac to be issued, on a "when issued" basis, to Nevada Sea in
consideration of cancellation of certain indebtedness. As a result, prior to
the implementation of the procedures set forth in the Modification and as of
November 29, 1996, there were deemed to be 10,570,944 Shares of Beneficial
Interest, no par value of Wespac, available for issuance to Shareholders, of
which 2,642,736 Shares were issuable to public shareholders (an aggregate of
25% of such Shares), 2,642,736 Shares were issuable to Greenbriar Corporation
(an aggregate of 25% of such Shares) and 5,285,472 Shares of Beneficial
Interest were issuable to Nevada Sea (an aggregate of 50% of such Shares).
4
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In order to ensure that the correct number of Shares are issued to
Greenbriar Corporation and Nevada Sea, Wespac and Nevada Sea entered into that
certain Share Settlement Agreement dated as of May 31, 1996 (the "Share
Settlement Agreement") pursuant to which, in the event it is ultimately
determined for whatever reason that either too many or too few Shares have been
issued to Nevada Sea and/or Greenbriar Corporation so that either or both hold
in excess of or less than the required number of issued and outstanding Shares
of Wespac pursuant to the Confirmed Plan and such Shares are issued, Wespac
agreed to either issue additional Shares or Nevada Sea (and/or Greenbriar
Corporation) are to return to Wespac for cancellation such number of Shares as
will make the percentages work out to the required percentages pursuant to the
Confirmed Plan.
Confirmation of the Confirmed Plan (as modified) served to re-vest all
assets of the estate in Wespac free and clear of all liabilities except those
payable pursuant to the Confirmed Plan. Under the Confirmed Plan, Wespac
retained the Spokane Properties and all allowed claims have been provided for
or paid. Following completion of the Incorporation Procedure described below,
Wespac submitted to the Court a Certificate of Substantial Consummation and
requested the entry of a Final Decree on January 24, 1997 to close the
Bankruptcy Proceeding.
The effect of the Modification was to distribute to the shareholders of
Wespac a proposal to convert Wespac from a California business trust into a
Nevada corporation through the "Incorporation Procedure" described therein,
coupled with a change of the name of Wespac. Such proposal was distributed to
the shareholders of Wespac who, by November 29, 1996, approved the proposal by
a vote in excess of 84% in favor. The Incorporation Procedure was in the
process of implementation as of December 16, 1996 which was the date of
certification of the results of the balloting to the Court in the Bankruptcy
Proceeding.
A simplified explanation of the "Incorporation Procedure" is that Wespac
was incorporated in California pursuant to Section 200.5 of the California
Corporation Code under the name Wespac Property Corporation on December 16,
1996 (the "California Corporation") and the California Corporation (as
successor to Wespac) was then merged with and into a wholly-owned Nevada
subsidiary corporation (the "Merger") on December 24, 1996, with the Nevada
Corporation being the survivor to such Merger. The Board of Trustees of Wespac
caused the Nevada Corporation to be organized in Nevada under the name First
Equity Properties, Inc. by the filing on December 19, 1996 of Articles of
Incorporation. Prior to the Merger, such Nevada corporation had no significant
business, assets or liabilities of any consequence and no operating history.
Under Section 200.5 of the California Corporation Code, which governs the
process of incorporating a business trust, following the approval of the
affirmative vote
5
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of a majority of the outstanding Shares of Beneficial Interest, such existing
trust may then file articles of incorporation with a certificate attached,
signed by certain officers of that trust stating that the incorporation of the
association has been approved by the trustees and the required vote of
shareholders and upon the filing of the articles of incorporation pursuant to
that section, the resulting California Corporation succeeded automatically all
of the rights and properties of Wespac and became subject to all of Wespac's
debts and liabilities in the same manner as if the California Corporation had
itself incurred them. The current three trustees of Wespac constituted the
initial directors of the California Corporation and the Nevada corporation and
all rights of creditors and all liens upon the property of Wespac were
preserved unimpaired. Any action or proceeding pending by or against Wespac
may continue to be prosecuted at judgment, which shall bind the California
Corporation or the California Corporation may be proceeded against or
substituted in its place. Under Section 200.5(e), filing for record in the
office of the county recorder of any county in the State of California in which
any of the real property of any such trust is located and a copy of the
articles of incorporation certified by the Secretary of State is to evidence
record ownership in the California Corporation of all interests of the
association in and to the real property located in that county. Following the
incorporation of Wespac into the California Corporation, the Merger was
accomplished by Articles of Merger and a Plan of Merger filed in the States of
California and Nevada on December 24, 1996. The surviving corporation (in this
instance First Equity Properties, Inc., the Nevada Corporation) automatically,
by operation of law, succeeded to all of the assets, rights, duties,
liabilities and obligations of the California Corporation (as successor to
Wespac) upon the effectiveness of the Merger on December 24, 1996.
Item 5. OTHER EVENTS.
Following a vote of the Shareholders of Wespac in which 84% of the
issuable shares approved the Incorporation Procedure described in Item 3 above
and in the Modification, the Board of Trustees of Wespac caused the articles of
incorporation of Wespac Property Corporation (the California Corporation) to be
filed with the Secretary of State of California on December 16, 1996 and caused
the filing of articles of incorporation of First Equity Properties, Inc. in the
State of Nevada on December 19, 1996. First Equity Properties, Inc. became a
wholly-owned subsidiary of the California Corporation which, pursuant to
Section 200.5 of the California Corporation Code, is the successor to Wespac.
On December 24, 1996, Articles of Merger of Wespac Property Corporation with
and into First Equity Properties, Inc. were filed with and approved by the
Secretaries of State of Nevada and California. The surviving corporation to
the Merger is First Equity Properties, Inc. which is the ultimate successor-in-
6
<PAGE> 8
interest to Wespac. Following completion of such Merger, the Articles of
Incorporation and Bylaws of First Equity Properties, Inc. remain the Articles
of Incorporation and Bylaws of the surviving corporation. The directors and
officers of First Equity Properties, Inc. immediately prior to the effective
time of the Merger remain the directors and officers of the surviving
corporation; such directors were also the members of the Board of Trustees of
Wespac prior to the commencement of the Incorporation Procedure. Pursuant to
the Merger, each share of beneficial interest of Wespac issuable pursuant to
the Confirmed Plan, as modified, has been deemed converted into one validly
issued, fully paid and nonassessable share of First Equity Properties, Inc.
common stock.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits. The following are filed herewith as exhibits or
incorporated by reference as indicated below:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
DESIGNATION EXHIBIT
<S> <C>
*2.1 Plan of Reorganization (as modified) dated
March 22, 1996
*2.2 First Amended Disclosure Statement (as
modified) dated March 22, 1996
*2.3 Order Confirming Plan of Reorganization
dated May 15, 1996 entered May 20, 1996
*2.4 First Modification to Plan of Reorganization
(as modified) dated October 29, 1996
*2.5 Ex Parte Order Approving Modification to Plan
of Reorganization (as modified) entered
October 29, 1996
*2.6 Certificate of Substantial Consummation dated
January 21, 1997.
*2.7 Final Decree issued by the court on February
11, 1997.
</TABLE>
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* Filed herewith.
7
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
DESIGNATION EXHIBIT
<S> <C>
*3.1 Articles of Incorporation of Wespac Property
Corporation as filed with and endorsed by the
Secretary of State of California on December
16, 1996.
*3.2 Articles of Incorporation of First Equity
Properties, Inc. filed with and approved by
the Secretary of State of Nevada on December
19, 1996.
*3.3 Bylaws of First Equity Properties, Inc. as
adopted December 20, 1996.
*3.4 Agreement and Plan of Merger of Wespac
Property Corporation and First Equity
Properties, Inc. dated December 23, 1996
*3.5 Articles of Merger of Wespac Property
Corporation into First Equity Properties,
Inc. as filed with and approved by the
Secretary of State of Nevada December 24,
1996
</TABLE>
8
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated February 15th, 1997 FIRST EQUITY PROPERTIES, INC.
(Registrant)
By: /s/ F. TERRY SHUMATE
------------------------------
F. Terry Shumate,
Vice President, Secretary
and Treasurer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
DESIGNATION EXHIBIT
<S> <C>
*2.1 Plan of Reorganization (as modified) dated
March 22, 1996
*2.2 First Amended Disclosure Statement (as
modified) dated March 22, 1996
*2.3 Order Confirming Plan of Reorganization
dated May 15, 1996 entered May 20, 1996
*2.4 First Modification to Plan of Reorganization
(as modified) dated October 29, 1996
*2.5 Ex Parte Order Approving Modification to Plan
of Reorganization (as modified) entered
October 29, 1996
*2.6 Certificate of Substantial Consummation dated
January 21, 1997.
*3.1 Articles of Incorporation of Wespac Property
Corporation as filed with and endorsed by the
Secretary of State of California on December
16, 1996.
*3.2 Articles of Incorporation of First Equity
Properties, Inc. filed with and approved by
the Secretary of State of Nevada on December
19, 1996.
*3.3 Bylaws of First Equity Properties, Inc. as
adopted December 20, 1996.
*3.4 Agreement and Plan of Merger of Wespac
Property Corporation and First Equity
Properties, Inc. dated December 23, 1996
*3.5 Articles of Merger of Wespac Property
Corporation into First Equity Properties,
Inc. as filed with and approved by the
Secretary of State of Nevada December 24,
1996
</TABLE>
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* Filed herewith.
<PAGE> 1
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
BARRY W. DAVIDSON EXHIBIT 2.1
Davidson, Bailey & Medeiros
1280 Seafirst Financial Center
601 West Riverside Avenue
Spokane, Washington 99201
(509) 624-4600
Attorney for Wespac Investors Trust III
IN THE UNITED STATES BANKRUPTCY COURT
IN AND FOR THE EASTERN DISTRICT OF WASHINGTON
In Re . . . )
) NO. 94-00228-K11
WESPAC INVESTORS TRUST III, )
) IN PROCEEDINGS FOR
) A REORGANIZATION
Debtor. ) UNDER CHAPTER 11
- ----------------------------------------
PLAN OF REORGANIZATION
(As Modified)
March 22, 1996
SECTION 1. INTRODUCTION
Wespac Investors Trust III ("Wespac") filed a Petition For Relief under
Chapter 11 of the Bankruptcy Code on January 27, 1994, and has been a Debtor In
Possession since the time of filing.
This Plan of Reorganization is proposed pursuant to Chapter 11 of the
Bankruptcy Code. This Plan must receive creditors approval and the Court must
find that it meets the requirements of applicable law. If this Plan is not
accepted and approved, then the Court may allow the case to be dismissed from
the jurisdiction of the Bankruptcy Court; a party in interest may attempt to
draft another Plan; or the case may be converted to a liquidation under
Chapter 7 of the Bankruptcy Code.
Wespac has filed a Disclosure Statement pursuant to 11 USC Section 1125
and Bankruptcy Rule 3016. That Disclosure Statement has been approved by the
Court as containing adequate information upon which an informed judgment as to
the feasibility of this Plan may be made. It is recommended that the Disclosure
Statement be reviewed as an aid in evaluating this Plan of Reorganization.
PAGE 1
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 2
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
SECTION 2. DEFINITIONS
For the purposes of the Plan, the following capitalized terms shall be
defined as set forth below:
ALLOWED CLAIM: A claim (a) for which a Proof of Claim has been filed
with the Court within the Bar Date fixed by the Court, or (b) which is
scheduled in the list of creditors prepared and filed with the Court by Wespac
and is not listed as disputed, contingent or unliquidated as to amount: in
either case as to which no objection to the allowance thereof had been filed,
or as to which a final order or judgment has been entered allowing said claim.
ALLOWED INTEREST: An Interest (a) for which a Proof of Interest has
been filed with the Court within the Bar Date fixed by the Court, as to which
no objection to the allowance thereof has been filed, or as to which a final
order or judgment has been entered allowing said Interest.
ALLOWED SECURED CLAIM: An Allowed Claim secured by a lien, security
interest or other charge against or interest in property in which Wespac has an
interest.
BAR DATE: The last day to timely file a Proof of Claim, as fixed by
the Court. The Bar Date for filing a Proof of Claim herein was June 6, 1994.
The Bar Date for filing a Proof of Interest was February 29, 1996.
CLAIM: Any right to payment, or right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to payment or right to an equitable remedy is reduced to
judgment, whether liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured.
CLASS: Any class into which Allowed Claims or Allowed Interests are
classified pursuant to Section 5 of the Disclosure Statement or Section 4 of
the Plan.
CODE: The Bankruptcy Code, 11 U.S.C. 101 et seq. and any amendments
thereto.
CONFIRMATION DATE: The date upon which the Order of Confirmation is
entered by the Court.
PAGE 2
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 3
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
COURT: The United States Bankruptcy Court for the Eastern District of
Washington, in which this Chapter 11 case is pending.
DEBTOR: Wespac Investors Trust III ("Wespac") is the Debtor in this
Chapter 11 case.
EFFECTIVE DATE: The date on which the order of confirmation is no
longer subject to appeal, on which no such appeal is pending, and on which any
conditions precedent to the implementation of the Plan have been satisfied or
waived.
INTEREST: Any proprietary right of a past or present shareholder of
Wespac, by virtue of holding equity securities of Wespac.
NEW COMMON STOCK: Newly issued shares of Common stock to be issued
under the Plan.
OLD COMMON STOCK: Shares of Common stock to be canceled under the
Plan.
ORDER OF CONFIRMATION: The order entered by the Court confirming the
Plan in accordance with the provisions of Chapter 11 of the Code, which order
is no longer subject to appeal and as to which no appeal is pending.
PETITION DATES: Wespac filed its Petition For Relief on January 27,
1994.
PLAN: The Chapter 11 Plan of Reorganization, as amended in accordance
with the terms hereof or modified in accordance with the provisions of law.
PROPONENTS: The Plan is propounded by Wespac.
REORGANIZED WESPAC: Wespac Investors Trust III as it will exist
following the Effective Date of the Plan.
SECTION 3. UNCLASSIFIED OBLIGATIONS, AND SUMMARY OF TREATMENT UNDER THE PLAN
3.1 Administrative Expenses. All expenses of administration
allowed against the estate under 11 USC Section 503, including professional
fees incurred by Wespac for legal and accounting services, and other post-
petition liabilities which have an
PAGE 3
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 4
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
administrative priority, whether by Court order or operation of law, shall be
paid when due, or, when appropriate, upon allowance by the Court.
3.2 Priority Tax Claims. All priority allowed unsecured claims of
governmental units allowed against the estate under 11 USC Section 507(a)(7),
except the State of Washington Department of Revenue, shall be paid within six
years of assessment, in equal annual payments commencing one (1) year from the
date of confirmation. The State of Washington Department of Revenue shall be
paid in full within the thirty (30) days of the Effective Date of the Plan of
Reorganization. Priority tax claims shall receive interest, accruing as of the
Effective Date of the Plan, at the rate set forth by applicable federal, state
or local law. Unsecured tax claims for penalties shall be treated as general
unsecured claims, and are classified with those creditors.
3.3 Employee Benefits. All accrued employee benefits for sick pay
and vacation leave shall continue unimpaired through confirmation.
SECTION 4. CLASSIFICATION OF CLAIMS & INTERESTS, AND
SUMMARY OF TREATMENT UNDER THE PLAN
4.1 Priority Non-Tax Claims
Priority Non-Tax Claims include all priority creditors as defined by
11 U.S.C. Section 507 except unsecured claims of governmental units as set
forth in Section 507(a)(7). Priority Non-Tax Claims include claims for wages,
salaries and commissions to the extent earned within sixty days of filing, and
also include claims for unpaid contributions to employee benefit plans, or to
consumers for deposits which were made for services which have not been
delivered. No creditors are entitled to Priority Non-Tax Claims status.
4.2 U. S. Bank of Washington
Class 2 consists only of the Allowed Secured claim of U.S. Bank of
Washington, secured by a first Deed of Trust against the Spokane Properties,
together with accounts, contract rights, chattel paper, revenue, rents, general
intangibles, with an approximate balance of $3,807,000.00 plus interest. U.S.
Bank of Washington shall be paid in monthly installments of interest and
principal in the amounts set forth by the Note and related
PAGE 4
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 5
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
documents evidencing the Wespac obligation. U.S. Bank shall retain its lien
interests until fully paid. U.S. Bank is not impaired by the Plan.
4.3 Newbeach Partners
Class 3 consists only of the Allowed Claim of Newbeach Partners,
secured by furniture, fixtures, equipment, machinery, inventory, books, and
records, with an approximate balance of $114,285.94 as of March 1, 1996.
Newbeach Partners shall be paid in full, with interest at 10%, in five (5)
successive equal annual payments, with the first payment due within thirty (30)
days of the Effective Date of the Plan. Newbeach Partners is impaired under the
Plan, and shall retain its lien until fully paid.
4.4 Administrative Convenience Creditors
Class 4 consists only of holders of (1) Allowed Claims of unsecured
creditors of less than $500.00, and (2) holders of Allowed Claims who elect to
reduce their claim to $500.00. Administrative Convenience Creditors shall
receive full payment of their claims, in cash, within thirty (30) days of the
Effective Date of the Plan.
4.5 Claims of General Unsecured Creditors
a. General Provisions. Class 5 consists only of Allowed Claims of
general unsecured creditors. General Unsecured Creditors shall be paid pro-rata
in annual installments, including interest at 8%, over a period of five years,
commencing ninety days after the Effective Date of the Plan.
b. Special Provisions for Creditors Claims of Kaye Scholer,
Oppenheimer Industries and Medical Resource. Wespac intends to fund the cash
settlement option with Kaye Scholer for $100,000.00, payable within thirty (30)
days of the Effective Date of the Plan. Wespac does not intend to fund the cash
settlement with Oppenheimer Industries.
Upon the Effective Date, Wespac and Medical Resource have agreed to
compromise the creditor's claim of Medical Resource by granting Medical
Resource an Allowed Unsecured Claim for the sum of $800,000.00, which shall be
paid through the issuance of 50% of all issued and outstanding New Common Stock
to Medical Resource. On the Effective Date of the Plan, Nevada Sea shall
exercise the Medical Resource/Nevada Sea Stock Option and shall receive with
PAGE 5
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 6
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
respect to the USREA Stock, which Medical Resource purchased from Zimco, 25% of
all the issued and outstanding New Common Stock. Wespac shall dismiss the
appeal of the Medical Resource judgment, and the adversary action to avoid the
Medical Resource judgment lien.
4.6 Interests of Equity Security Holders (Shareholders)
a. General. Class 6 consists only of Allowed Interests of
shareholders in Old Common Stock. All Class 6 Interests shall be canceled on
the Effective Date of the Plan. One share of New Common Stock in the
Reorganized Debtor shall be exchanged for each share of Allowed Interest in Old
Common Stock. Holders of Allowed Interests in Old Common Stock, other than
Medical Resource, shall hold in the aggregate, 25% of the newly issued stock.
b. Special Provisions for Shareholder Interest of Medical
Resource. Upon the Effective Date, Medical Resource shall reduce its claim to
the USREA shares acquired from Zimco so such shares shall total 25% of Allowed
Interests in Old Common Stock. Nevada Sea shall exercise the Medical
Resource/Nevada Sea option, and shall receive 25% of the issued and outstanding
New Common Stock. Medical Resource shall be issued, in exchange for its
compromised creditors claim, 50% of the issued and outstanding New Common
Stock.
c. Wespac Investors Trust II. Wespac Investors Trust II (Trust
II) is a California Real Estate Investment Trust (REIT), formed at
approximately the same time as Wespac. Trust II is a separate and distinct
trust from Wespac. Trust II filed for bankruptcy in the Central District of
California the 11th day of March, 1988, under case number SA 88-01526 JR. This
case was converted from a Chapter 11 case to a case under Chapter 7 and Wespac
has been informed all assets of Trust II have been liquidated. Wespac provided
Notice of these Chapter 11 proceedings to all persons and entities which
appeared in the several shareholder records located by Wespac. Included within
these records were the names of holders of interest in Trust II. Wespac has
received Proofs Of Interest from numerous persons and entities who are the
holders of interest in Trust II. All Proofs Of Interest demonstrating an
interest in Trust II will be objected to and will be returned to the claimant
as not representing an interest in Wespac. Those persons and entities holding
an interest in Trust II shall receive no interest or distribution in or from
Wespac Investors Trust III.
PAGE 6
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 7
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
SECTION 5. EXECUTION OF PLAN
At the Effective Date, Wespac shall borrow an unsecured loan of
$250,000.00 from Nevada Sea at the Effective Date of the Plan, repayable within
two years with interest at 8% per annum, to be evidenced by a promissory note
in standard form, with 12% default interest. This loan will be used for any
proper purpose, including cash requirements under the Plan, such as payment of
administrative expenses, priority tax claims, administrative convenience
creditors, and the discounted cash payment to Kaye Scholer. Additional
financing may be desirable if necessary to perform deferred maintenance and
necessary real property repairs and improvements, such as the foundation work
at the Comfort Inn -- North.
The following expenditures are believed to be necessary, reasonable,
and prudent:
a. Comfort Inn -- North. The foundation at the Comfort
Inn - North requires rehabilitation to correct a sinking problem
affecting one wing of the building. Wespac has obtained an analysis of
the problem, and a bid for correction, which estimates can expense of
$60,000.00 to $75,000.00 for corrective measures. This work, although
unavoidable, can be deferred until the Effective Date.
b. Comfort Inn -- Valley. Wespac believes that
approximately $100,000.00 should be expended at the Comfort Inn -
Valley for upgrading and renovations.
c. Friendship Inn. Wespac believes the Friendship Inn
can be upgraded to a Rodeway Inn upon expenditure of approximately
$175,000.00 for renovations, with a significant potential for
realizing profitable operations at the location. A Rodeway Inn
Franchise has been negotiated by management, and would allow
conversion of the property at minimal cost, other than the expense of
scheduled renovations which are necessary in any event.
Also, at the Effective Date, Wespac shall perform all obligations
required under the compromises with Medical Resource and Nevada Sea,
Wespac shall offer a three year employment contract to Georgie Liebelt
at her existing level of compensation and benefits, and an
PAGE 7
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 8
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
eighteen month employment contract to David Heinen at his existing level, of
compensation and benefits. Wespac shall call an organizational meeting of
shareholders and trustees within six months of the Effective Date of the Plan
to elect trustees, directors and officers, who will thereafter serve for a
period of one (1) year, or until their successors are duly qualified and
elected.
The Debtor is not current with SEC reporting requirements. Prior
management (pre-filing) failed to comply with SEC filing requirements. The
Reorganized Debtor will use its best efforts to obtain audited financial
statements. It is anticipated that Wespac will obtain audited financial
statements for the fiscal year ending December 31, 1996, on or about April 15,
1997. Thereafter, Wespac will prepare and file the required SEC reporting
documents to bring such reports current.
The tax attributes of Wespac include net operating loss carryforwards
of approximately 38 million dollars. Wespac has prepared and filed the 1994
income tax return utilizing a portion of that net operating loss to eliminate
income tax liability for that year. Wespac intends to continue utilizing the
net operating loss carryforward to apply against taxable earnings for future
years.
Wespac is not aware of any uncontested Proofs of Interest which
derive from a change of ownership in excess of fifty percent (50%) of issued
and outstanding Wespac Old Common Stock.
SECTION 6. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
a. General. All executory contracts and unexpired leases shall be
assumed at confirmation.
b. Spokane House Restaurant. Wespac shall offer a three year
lease of the restaurant and lounge to Georgie Liebelt, at a lease rate based
upon net profits, with forgiveness of all accrued rent liabilities.
SECTION 7. CLAIMS RESOLUTION
Wespac shall act as the disbursing agent for the purpose of making
distributions under the Plan. All objections to Claims
PAGE 8
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 9
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
shall be brought by Wespac within sixty (60) days of the Effective Date.
Allowed Claims held against Wespac are transferable in accordance with
Bankruptcy Rule 3015. Any creditor or other party in interest, including
insiders, may transfer their claim or acquire claims of other entities, for
such consideration as may be negotiated, without notice to other creditors or
parties in interest.
Except as otherwise provided by the Plan, all Claims against the
estate which arose prior to confirmation will be discharged on the Effective
Date of the Plan, whether accrued before or after the date of filing. The
discharge will be effective as to each Claim, regardless whether a proof of
claim was filed, whether the claim was allowed, or whether the holders of the
claim voted for or against acceptance of the Plan. Except to the extent
provided for by the Plan, the estate will retain and may enforce any and all
claims held against third parties, including claims for recovery of preferences
or fraudulent conveyances.
SECTION 8. MISCELLANEOUS
8.1 DISBURSING AGENT
Wespac shall act as the disbursing agent for the purpose of making all
payments and distributions under the Plan.
8.2 UNCLAIMED DISTRIBUTIONS
Unclaimed distributions, or distributions which are not deliverable to
the claimant by first class mail, shall be held in reserve in the same manner
as distributions reserved for holders of disputed claims. These unclaimed
distributions shall be held for a period of 2 years following the effective
date of the Plan, after which time all unclaimed distributions shall be
distributed to the Reorganized Wespac for redistribution to all other holders
of allowed claims.
8.3 DE MINIMIS DISTRIBUTIONS
No distribution will be made to any claimant with respect to the
projected distribution which will be less than the sum of $25.00 in cash or
securities, as the costs of making such distribution exceeds the value thereof.
Any amounts less than
PAGE 9
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 10
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
$25.00 will be added to the unpaid claims reserve and distributed in the same
manner as unclaimed distributions.
8.4 SUBSTANTIAL CONSUMMATION
The Chapter 11 case shall be deemed to be substantially consummated
pursuant to 11 U.S.C. 1101(2) upon conclusion of all adversary and contested
matters, but in no event until sixty (60) days following the Effective Date of
the Plan. Upon substantial consummation, Wespac shall certify the same to the
Court, and seek entry of a Final Decree closing this case.
8.5 UNDISPUTED CLAIMS
To the extent any disputed claim is allowed, Wespac will distribute
funds with respect to the claim in a manner as to pay the claim with other
allowed claims of the relevant Class.
8.6 PAYMENT OF QUARTERLY FEES
All quarterly fees due to the United States Trustee pursuant to 11 USC
1930(a)(6) shall be paid on or before the Effective Date of the Plan as
required by 11 USC 1129(a)(12). Wespac does not owe any quarterly fees, other
than fees for the current quarter.
SECTION 9. MODIFICATION OF THE PLAN
The Reorganized Wespac may propose amendments or modifications of this
Plan at any time prior to confirmation, with leave of the Court, upon notice to
the creditors committee. After confirmation, the Reorganized Wespac may, with
approval of the Court, and so long as it does not materially or adversely
affect the interests of creditors, remedy and defect or omissions, or reconcile
any inconsistencies in the Plan, or in the Order of Confirmation, in such
manner as may be necessary to carry out the purpose of this Plan.
If necessary by modification or otherwise, the Reorganized Wespac will
do all things required pursuant to Section 1123 of the Bankruptcy Code.
PAGE 10
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 11
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
SECTION 10. EFFECT OF CONFIRMATION
The legal effect of confirmation is established by 11 USC Section
1141. Except as otherwise provided by the Plan, all claims against the estate
which arose prior to confirmation will be discharged on the effective date of
the Plan, whether accrued before or after the date of filing. The discharge
will be effective as to each claim, regardless whether a proof of claim was
filed, whether the claim was allowed, or whether the holders of the claim voted
for or against acceptance of the Plan. Except to the extent provided for by the
Plan, the estate will retain and may enforce any and all claims held against
third parties.
SECTION 11. JURISDICTION OF THE COURT
The Court will retain jurisdiction until the Plan has been fully
consummated, including but not limited to, the following purposes:
1. The classification of the claim of any creditor and the re-
examination of the claims which have been allowed for purposes of voting, and
the determination of such objections as may be filed by the Reorganized Wespac
to creditors claims. The failure of the Reorganized Wespac to object to, or to
examine any claim for the purpose of voting, shall not be deemed to be a waiver
of the Reorganized Wespac's right to object to, or re-examine the claim in
whole or in part.
2. The determination of all questions and disputes regarding
title to the assets of the estate, and determination of all causes of action,
controversies, disputes, or conflicts, whether or not subject to action pending
as of the date of confirmation, between the Reorganized Wespac and any other
party including but not limited to any right of the Reorganized Wespac to
recover assets pursuant to the provisions of Title 11 of the United States
Code, and to maintain actions for recovery of preferential and fraudulent
transfers.
3. The correction of any defect, the curing of any omission, or
the reconciliation of any inconsistency in this Plan or the Order of
Confirmation, as may be necessary to carry out the purpose and intent of this
Plan.
PAGE 11
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 12
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
4. The consideration of any modification of this Plan after
confirmation pursuant to the Bankruptcy Rules and Title 11 of the United States
Code.
5. The enforcement and interpretation of the terms and conditions
of this Plan.
6. The determination of any avoidance actions commenced by Wespac
for the benefit of the estate/unsecured creditors.
7. The entry of any order, including injunctions, necessary to
enforce the title, rights, and powers of the Reorganized Wespac and to impose
such limitations, restrictions, terms and conditions of such title, rights and
powers as this Court may deem necessary.
8. The entry of an order concluding and terminating this case.
DATED this _____ day of March, 1996.
DAVIDSON, BAILEY & MEDEIROS
------------------------------
Barry W. Davidson
Attorney for Wespac Investors
Trust III
Approved:
Wespac Investors Trust III
- --------------------------
Georgie Liebelt
Designated Representative
PAGE 12
PLAN OF REORGANIZATION (AS MODIFIED)
<PAGE> 1
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
EXHIBIT 2.2
BARRY W. DAVIDSON
Davidson, Bailey & Medeiros
1280 Seafirst Financial Center
601 West Riverside Avenue
Spokane, Washington 99201
(509) 624-4600
Attorney for Wespac Investors Trust III
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF WASHINGTON
In Re.
) NO. 94-00228-K11
WESPAC INVESTORS TRUST III, )
)
) IN PROCEEDINGS FOR
) A REORGANIZATION
) UNDER CHAPTER 11
Debtor. )
)
- -----------------------------------------
FIRST AMENDED DISCLOSURE STATEMENT
(As Modified)
March 22, 1996
SECTION 1. INTRODUCTION
1.1 ADEQUATE INFORMATION
This First Amended Disclosure Statement, as modified, ("Disclosure
Statement") is presented with respect to the pending Chapter 11 proceedings of
Wespac Investors Trust III ("Wespac"), which filed a Petition For Relief under
Chapter 11 of the Bankruptcy Code ("Code") on January 27, 1994, and has been a
Debtor In Possession since the time of filing. This Disclosure Statement is
prepared by Wespac, is propounded on its behalf, and supersedes those revisions
to the Disclosure Statement filed by Wespac at the time of the hearing by the
Court relative to this Disclosure Statement.
This Disclosure Statement has been prepared pursuant to Section 1125
of the Code, which prohibits solicitation of acceptance or rejection of a Plan
until interested parties are provided with a written Disclosure Statement which
has been approved by the Court as containing adequate information. Such
information must be of a kind, and in sufficient detail, to enable a
hypothetical reasonable investor typical of each affected class of creditors to
make an informed judgment about the Plan. The
PAGE 1
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 2
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
Court, after allowing interested parties an opportunity to be heard, has
determined that this Disclosure Statement complies with the requirements of
Section 1125, and has found that this Disclosure Statement contains adequate
information.
This Disclosure Statement should be considered in its entirety. Other
than this Disclosure Statement, the Court has authorized no representations
concerning present or future operations of Wespac, the financial condition of
Wespac, or the analysis of benefits offered under the Plan. Any unauthorized
information which is contrary to the provisions of the Disclosure Statement
should be disregarded.
The information contained in this Disclosure Statement has not been
subject to audit, and the approval of this Disclosure Statement by the Court
does not constitute an endorsement by the Court of the Plan or a guarantee that
the information contained herein is complete or accurate, although great effort
has been made to ensure accuracy. Except for the real estate valuation, which
was established through M.A.I. appraisal, the valuations contained in this
Disclosure Statement have been determined, without the assistance of
professional appraisers, and have been based primarily upon information
supplied by Wespac. The analysis of collateral values, projected future
operations, and ability to make debt service have been prepared internally, and
represent the opinion and judgment of management. The financial presentations
and representations contained in this Disclosure Statement are not based upon
findings of the Court, and are not binding upon creditors or other parties in
interest.
1.2 DEFINITIONS
For the purposes of the Disclosure Statement and Plan, the following
capitalized terms shall be defined as set forth below:
ALLOWED CLAIM: A claim (a) for which a Proof of Claim has been filed
with the Court within the Bar Date fixed by the Court, or (b) which is
scheduled in the list of creditors prepared and filed with the Court by Wespac
and is not listed as disputed, contingent or unliquidated as to amount: in
either case as to which no objection to the allowance thereof had been filed,
or as to which a final order or judgment has been entered allowing said claim.
ALLOWED INTEREST: An Interest (a) for which a Proof of Interest has
been filed with the Court within the Bar Date fixed by
PAGE 2
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 3
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
the Court, as to which no objection to the allowance thereof has been filed, or
as to which a final order or judgment has been entered allowing said Interest.
ALLOWED SECURED CLAIM: An Allowed Claim secured by a lien, security
interest or other charge against or interest in property in which Wespac has an
interest.
BAR DATE: The last day to timely file a Proof of Claim, as fixed by
the Court. The Bar Date or filing a Proof of Claim herein was June 6, 1994. The
Bar Date for filing a Proof of Interest was February 29, 1996.
CLAIM: Any right to payment, or right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to payment or right to an equitable remedy is reduced to
judgment, whether liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured.
CLASS: Any class into which Allowed Claims or Allowed Interests are
classified pursuant to Section 5 of the Disclosure Statement or Section 4 of
the Plan.
CODE: The Bankruptcy Code, 11 U.S.C.101 et seq. and any amendments
thereto.
CONFIRMATION DATE: The date upon which the Order of Confirmation is
entered by the Court.
COURT: The United States Bankruptcy Court for the Eastern District of
Washington, in which this Chapter 11 case is pending.
DEBTOR: Wespac Investors Trust III ("Wespac") is the Debtor in this
Chapter 11 case.
EFFECTIVE TIME: The date on which the order of confirmation is no
longer subject to appeal, on which no such appeal is pending, and on which any
conditions precedent to the implementation of the Plan have been satisfied or
waived.
INTEREST: Any proprietary right of a past or present shareholder of
Wespac, by, virtue of holding equity securities of Wespac.
PAGE 3
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 4
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
NEW COMMON STOCK: Newly issued shares of Common stock to be issued
under the Plan.
OLD COMMON STOCK: Shares of Common stock to be canceled under the
Plan.
ORDER OF CONFIRMATION: The order entered by the Court confirming the
Plan in accordance with the provisions of Chapter 11 of the Code, which order
is no longer subject to appeal and as to which no appeal is pending.
PETITION DATES: Wespac filed its Petition For Relief on January 27,
1994.
PLAN: The Chapter 11 Plan of Reorganization, as amended in accordance
with the terms hereof or modified in accordance with the provisions of law.
PROPONENTS: The Plan is propounded by Wespac.
REORGANIZED WESPAC: Wespac Investors Trust III as it will exist
following the Effective Date of the Plan.
1.3 CONFIRMATION OF PLAN
Creditors holding Allowed Claims in this proceeding are entitled to
vote for or against acceptance of the Plan of Reorganization which accompanies
this Disclosure Statement. Acceptance of the Plan by creditors is important. To
gain confirmation, it is generally required that creditors holding at least
two-thirds in amount and more than one-half in number of Allowed Claims of each
Class of creditors vote for acceptance of the Plan. In the event the Plan is
not accepted by vote of the creditors, the Proponents of the Plan may still
seek confirmation in accordance with Section 1129(b) of the Bankruptcy Code. To
obtain confirmation of the Plan in the absence of acceptance, the Proponents
of the Plan will be required to demonstrate a number of factors to the
satisfaction of the Court, including showing that the Plan does not
discriminate unfairly, is in the best interests of creditors, and meets the
fair and equitable standards of Section 1129(b)(2) of the Bankruptcy Code.
Ballots have been provided to all known holders of Claims, including
Claims as to which objections have been filed, or Claims which were listed in
the bankruptcy schedules as contingent, unliquidated or disputed. A Proof of
Claim must be filed on or
PAGE 4
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 5
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
before the Bar Date as to Claims which were listed in the bankruptcy schedules
as contingent, unliquidated or disputed. Only holders of Allowed Claims, or
Claims which are deemed to be allowed for purposes of voting, are entitled to
vote on the Plan. A Claim as to which an objection has been filed is not
considered an Allowed Claim unless or until the Bankruptcy Court rules
unfavorably on that objection. Accordingly, although the holders of disputed
Claims will receive ballots, these votes will not be counted unless the
Bankruptcy Court temporarily allows that Claim for purposes of voting. The
Disclosure Statement and Plan may refer specifically to certain Claim or
Interests. Such references are not an admission by the Proponents of the Plan
of the nature, extent or allowability of such Claims.
The Bankruptcy Court is required to enter a series of findings as part
of Plan confirmation, including findings: (1) that the Plan has classified
creditor Claims and shareholder Interests as required by law; (2) that the
contents of the Plan comply with the technical requirements of Chapter 11 of
the Bankruptcy Code; (3) that the Plan has been proposed in good faith; and (4)
that all disclosures made regarding the Plan have been made as required,
and have included information regarding all payments made or promised in
connection with the Plan, as well as the identity, affiliations and
compensation of all insiders.
The Bankruptcy Court must find that the Plan provides each member of
an impaired class of claims or interests a distribution at least equal to that
which would be made if these bankruptcy estates were liquidated under Chapter 7
of the Code. If the Plan yields a recovery greater than would be available
under Chapter 7, the Plan is deemed to be in the best interests of creditors.
The Plan must be in the best interests of creditors in order for the Court to
confirm the Plan, regardless of whether creditors have voted for acceptance.
The Bankruptcy Court, in order to determine how much members of each
impaired class of unsecured creditors and equity security holders would receive
if these bankruptcy estates were liquidated, must first determine the total
value of assets which would be realized if this Chapter 11 case was converted
to a proceeding under Chapter 7, and the assets liquidated by a bankruptcy
trustee. The liquidation value of the company would be the estimate of monies
received from the sale of assets supplemented by cash on hand, collection of
accounts receivable, and projected proceeds from claims held against third
parties. The amount received upon liquidation would be reduced by the cost and
expenses of
PAGE 5
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 6
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
liquidation, and by outstanding claims for administrative expenses, and claims
of secured creditors. If the estate were liquidated under Chapter 7, costs
would be incurred for compensation of the trustee, as well as for
professionals employed by the trustee, including attorneys and accountants; for
costs of sale and disposition of assets; and by all unpaid expenses incurred by
these bankruptcy estates during the Chapter 11 proceedings (including claims
for attorneys fees, accountants, unpaid suppliers, or tax liabilities); and
other expenses arising from the operation during the Chapter 11 and Chapter 7
liquidation. It is anticipated that liquidation would give rise to additional
claims for capital gains, and claims for breach of contract. An estimate of
shareholders equity upon liquidation, without allowance for Chapter 7 Trustee's
fees and expenses, is attached hereto as Appendix "A".
A post confirmation balance sheet, without reserve for costs of
liquidation, is included with the financial information attached as Appendix
"B". The Plan is intended to provide distributions to creditors which are
believed to be in excess of what would be received by those creditors in the
event of a liquidation, considering the nature and amounts of creditors claims
and their priority with respect to each other.
Wespac bases its financial reporting upon a fiscal cycle ending in
December of each year. Monthly operating reports are generated internally for
use by management. Year end financial statements are presented on a compilation
basis by the Certified Public Accountants for Wespac. Wespac has prepared an
operating financial forecast as a part of its internal assessment of future
business operations, and for the purpose of demonstrating repayment of
outstanding debt. These projections may be helpful to creditors in determining
whether to vote for acceptance or rejection of the Plan. Nevertheless, the
projections are based upon many assumptions which are subject to uncertainties.
Certain events and circumstances may fail to materialize, while other
unanticipated events and circumstances may occur which will vary the actual
results from the projected results. The financial projections attached as
Appendix "B" include a projected Income and Expense Statement showing the
forecasted financial condition of Wespac following confirmation.
Wespac assumes that all creditors will act in good faith and avoid
protracted litigation over the Plan, and support early efforts to gain
confirmation of the Plan. Wespac believes that a delay in confirmation will
result in an erosion of creditor
PAGE 6
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 7
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
confidence in the ability of Wespac to reorganize, and will hinder efforts to
achieve profitable operations.
Wespac believes that the Plan provides a feasible means to
successfully restructure, and provides creditors with a greater dividend than
would be available through immediate liquidation of the assets of the
companies. Wespac believes that confirmation of the Plan is in the best
interests of creditors, and urges all creditors to vote for acceptance of the
Plan.
SECTION 2. BACKGROUND OF OPERATIONS
2.1 EARLY HISTORY
Wespac was formed on August 22, 1983 as a self liquidating Real Estate
Investment Trust (REIT) under California law, for the purpose of acquiring,
managing and selling income producing real estate assets. Wespac was
capitalized through a public offering of shares through NASDAQ, raising
approximately $62,000,000, of which approximately $10,000,000 was used for
offering and operational expenses, including the repurchase of shares through a
rescission offer. In separate transactions, Wespac purchased seven shopping
centers, four hotels, and two apartment buildings at a total cost of
approximately $97,000,000, with approximately $41,500,000 used for acquisition
costs. The balance of available funds were used for payment of dividends and
for funding operating losses.
Most properties were acquired with income guaranties from the seller
for periods of one to three years. The properties were unable to generate
sufficient revenues after the expiration of those guaranties, and operations
were conducted at a substantial deficit throughout the early years of the
business, creating a shortage in cash flow which rendered Wespac unable to
service obligations owing to creditors. To obtain working capital, on January
14, 1988, Wespac entered into a Financing Agreement with U.S. Real Estate
Advisors, Inc. ("USREA"), a corporation then owned by John T. Hall. Under that
Financing Agreement, USREA was to loan Wespac $3,500,000, pursuant to certain
terms and conditions. It is alleged by USREA that $900,000 was advanced to
Wespac under the Financing Agreement, secured by a lien against the Riverdale
Shopping Center, located in Ogden, Utah, and by a lien against the Rainbow
Expressway properties, located in Las Vegas, Nevada. These funds proved
insufficient to meet the operating deficit of Wespac. To preserve its assets
from foreclosure, and enable Wespac to restructure its assets and liabilities,
a reorganization proceeding
PAGE 7
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 8
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
under Chapter 11 of the Bankruptcy Code was filed in the Bankruptcy Court for
the Central District of California on April 13, 1988, under Case No. 88-02222
JR (hereinafter referred to as the "1988 Reorganization").
2.2 1988 REORGANIZATION
Wespac acted as a Debtor in Possession in the 1988 Reorganization, and
was authorized to conduct business in the ordinary course. On July 25, 1988, an
Amended Financing Agreement was approved by the court, providing for USREA to
extend a total line of credit of $1,500,000, including funds previously
advanced, repayable with interest at prime plus four percent in monthly
installments over five years. The Amended Financing Agreement also provided for
Wespac to issue warrants to enable USREA to acquire up to 5,724,692 shares of
Wespac (the "USREA Shares") at an exercise price of $.125 per share. These
warrants were exercisable either by the payment of additional monies, or by
forgiveness of debt, entitling USREA to acquire a 49% interest in Wespac.
The Third Amended Plan of Reorganization filed in the 1988
Reorganization ("1989 Plan"), dated January 24, 1989, provided for USREA to
exercise the warrants through forgiveness of debt, and for Wespac to sell all
properties. Creditors were to be paid the proceeds of sale to the extent
necessary to pay all Allowed Claims, with Wespac to reinvest any surplus in new
acquisitions. Shareholders retained their equity interests in Wespac, subject
to a 49% dilution upon exercise of the warrants by USREA. The 1989 Plan was
approved and confirmed by the court on March 29, 1989, with certain amendments.
Confirmation of the 1989 Plan served to revest all assets of the
estate in Wespac, free and clear of all liabilities except those payable under
the 1989 Plan. As provided for by the 1989 Plan, USREA exercised its warrants
by purportedly forgiving $715,586.50 which Wespac owed under the Amended
Financing Agreement. Wespac liquidated all real estate assets except (1) the
Riverdale Shopping Center located in Ogden, Utah, and (2) the Quality Inn
Hotels located in Spokane, Washington, consisting of The Quality Inn - Spokane
House, The Quality Inn - Valley, and The Comfort Inn - North (hereinafter
referred to as the "Spokane Properties"). USREA has represented that all
Allowed Claims in the 1988 reorganization were provided for or paid. The 1988
Reorganization was closed by the court on August 21, 1992.
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FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 9
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
2.3 OPPENHEIMER INDUSTRIES ACQUISITION
On April 18, 1990, Wespac and USREA entered into a Stock Purchase
Agreement and related documents with Oppenheimer Industries, Inc.
("Oppenheimer"), a Delaware corporation then traded on the American Stock
Exchange, with assets consisting primarily of real estate holdings in New
Mexico, owned under its own name and through The Armendaris Corporation, a
subsidiary. By the terms of the transaction, USREA and Wespac acquired a 51%
controlling interest in Oppenheimer. Wespac purchased 825,000 initial shares
for $825,000.00, which was paid. Additional shares of 1,175,000 were purchased
by Wespac for $1,175,000.00, payable pursuant to a Promissory Note bearing
interest at the rate of ten percent (10%) per annum, due with interest on
August 17, 1992 (the "Oppenheimer Note"). The Oppenheimer Note was secured by a
lien against the Riverdale Shopping Center.
The Oppenheimer transaction provided for Hall and his nominees to take
control of Oppenheimer management while purporting to locate and secure
additional financing for Oppenheimer business operations and development. It
is alleged that Hall instead directed the affairs of Oppenheimer for his own
personal benefit, causing the diversion of Oppenheimer assets to his own
account. Faced with mounting litigation, Oppenheimer entered Chapter 11
proceedings in November, 1990 in the Central District of California, under Case
No. LA 90-29591-RWA.
On February 25, 1992, Hall caused the Riverdale Shopping Center, still
subject to the Oppenheimer Deed of Trust, to be transferred by Wespac to USREA.
The consideration stated for the transfer was assumption of underlying debt,
and forgiveness of certain Wespac debt allegedly owed to USREA. On March 25,
1992, with no authorization of the Oppenheimer bankruptcy court, Hall directed
Oppenheimer to reconvey the Deed of Trust securing repayment of the Oppenheimer
Note. The effect of this reconveyance was to release the security Oppenheimer
held for repayment of the Wespac note of $1,175,000.00 plus interest.
In May of 1992, R. Todd Neilson was appointed trustee of Oppenheimer.
The Oppenheimer Note was not paid when due on August 17, 1992, and litigation
was initiated against USREA, John T. Hall and Wespac seeking collection of the
Oppenheimer Note, reinstatement of the Deed of Trust against the Riverdale
Shopping Center, and other relief, in adversary proceedings encaptioned:
Oppenheimer Industries, Inc., et al.; Todd Neilson, as Chapter 11 Trustee for
Oppenheimer Industries, Inc.; The Armendaris Corp., and
PAGE 9
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 10
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
Armendaris Water Development Co. v. John T. Hall; U.S. Real Estate Advisors,
Inc., and Wespac Investors Trust III, in the U.S. Bankruptcy Court in the
Central District of California under Case No. AD92-05003.
In response to the Oppenheimer litigation, USREA filed a voluntary
petition under Chapter 11 on March 4, 1993 in the Central District of
California under Case No. LA 93-17576-RWA, and has acted as a Debtor in
Possession in that proceeding. The Oppenheimer trustee also brought
adversary proceedings in the USREA reorganization, encaptioned: U.S. Real
Estate Advisors, Inc.; Todd Neilson v. U.S. Real Estate Advisors, Inc., John T.
Hall and Wespac Investors Trust III, in the U.S. Bankruptcy Court in the
Central District of California under Case No. AD93-02901-RA.
2.4 MEDICAL RESOURCE CLAIM
Against the background of the above transactions, Wespac was a cross
complaint Defendant in an action encaptioned Newbeach Partners v. Newport
Partners, et al., Kenneth Pincourt, Kurt Schlesinger and Robert Kaufman v.
Wespac Investors Trust, Wespac Investors Trust II, Wespac Investors Trust III
and Does 1 through 100, inclusive, and related cross-actions pending in the
Superior Court of the State of California, County of Orange. This litigation
was brought by the landlord of an office building located in Orange County,
California, which had been leased by Wespac and related enterprises in the
mid-eighties. Wespac had agreed to indemnify a prior tenant against liability
under the lease, on certain terms and conditions. Following trial, judgment on
a cross-complaint for indemnity was rendered in favor of Medical Resource
Companies of America ("Medical Resource") against Wespac on December 16, 1993
for $394,299.54 plus costs, plus judgment against Wespac to the extent Medical
Resource paid a related judgment to Kenneth Pincourt of $216,099.44, together
with attorneys fees, costs of suit and interest. The total owing to Medical
Resource, as of June, 1995, was $1,085,000.00, including post-petition attorney
fees and costs.
This judgment is presently on appeal. Nevertheless, collection of the
judgment was not stayed by the trial court, and the Medical Resource judgment
was registered as a foreign judgment in the Superior Court of Washington, King
County, under Case No. 94-2-00738-6 on January 10, 1994. A certified copy and
abstract of judgment was subsequently recorded with the Spokane County Auditor,
but were not filed with the Clerk of the Spokane County Superior Court. A Writ
of Garnishment issued on January 27, 1994, and was
PAGE 10
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 11
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
served upon Wespac with respect to the cash and checks on hand at the Spokane
Properties. A total of $2,035.91 was seized by the Spokane County Sheriff
pursuant to said writ. Any further proceedings directed at the collection of
this judgment have been stayed by the Chapter 11 filing. The Medical Resource
litigation claim is resolved under the proposed settlement with Wespac.
2.5 1994 REORGANIZATION
2.5.1 General Operations Under Chapter 11.
This Chapter 11 case was filed on January 27, 1994, to seek a
restructuring of the assets and liabilities of Wespac, primarily in response to
the Medical Resource execution and the Oppenheimer litigation. The filing of
these bankruptcy proceedings invoked the provisions of 11 U.S.C. 362, providing
for an automatic stay of all pending suits against Wespac, or other actions for
collection of claims arising prior to bankruptcy. Since filing for relief under
Chapter 11, Wespac has attempted to restructure its financial structure under
the supervision of the Bankruptcy Court. Wespac has conducted its affairs in
the ordinary course of business as Debtor In Possession, seeking court
authorization for certain actions only when and as required by the Code.
Hall was acting as the sole Wespac trustee, director and officer at
the time this case was filed. As the underlying Trust documents require three
trustees, Hall appointed Georgie Liebelt and David Heinen, both of whom are
involved in the day-to day operations of the Spokane Properties, as trustees.
Having disclaimed any ownership interest, Hall resigned as trustee, director,
officer, or employee of Wespac in the summer of 1994. Following Hall's
resignation, the only two trustees of Wespac are Georgie Liebelt and David
Heinen. Georgie Liebelt is, pursuant to Court Order, designated as the
representative of the Debtor in Possession.
2.5.2 Cash Collateral Issues.
During this Chapter 11 case, Wespac has operated its business using
property and funds in which U.S. Bank of Washington claims a security interest
by virtue of a Note secured by a Deed of Trust against the Spokane Properties,
and by a UCC-1 filing against accounts and other collateral. At the time of
filing, Wespac had approximately $55,000.00 on hand as proceeds from room
revenues, which are considered accounts under prevailing Ninth Circuit law. The
lien interest of U.S. Bank in those funds has been recognized
PAGE 11
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 12
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
as an interest in cash collateral, and those monies were paid to U.S. Bank for
application against the regularly scheduled note payments which became due in
February and March, 1994. The Bankruptcy Code provides that the security
interest of a lender terminates in accounts acquired by a debtor after filing
bankruptcy. Nevertheless, U.S. Bank continues to claim that the provisions of
its Deed of Trust providing for an assignment of rents are effective to
encumber the revenues of the hotels, and maintains that the room revenues are
cash collateral in which it holds a lien interest. No Court ruling has been
sought by either Wespac or U.S. Bank regarding the status of post petition room
rents as cash collateral.
The State of Washington has also asserted a position in cash
collateral by virtue of warrants issued on January 26, 1988 and November 8,
1988, totaling approximately $30,000.00 plus interest from those dates. Wespac
has disputed the effectiveness of those warrants, as neither was filed in
Spokane County. Further, both warrants precede confirmation of the 1988
Reorganization, and were obligations which were subject to treatment in that
case. The lien claim of the State of Washington has been compromised for
$18,958.15, payable within thirty (30) days after the Effective Date of the
Plan of Reorganization.
2.5.3 Significant Claims and Interests.
Resolution of the following claims has been critical to feasibility of
the Plan:
a. Kaye, Scholer, Fierman, Hays & Handler Claim. The law
firm of Kaye, Scholer, Fierman, Hays & Handler ("Kaye Scholer") was
employed by USREA and Wespac during 1990 and 1991 with respect to
possible asset acquisitions. Kaye Scholer filed a Proof of Claim in
the sum of $815,308.73, plus interest and costs, pertaining primarily
to the Oppenheimer acquisition, alleging that USREA and Wespac were
jointly and severally liable for unpaid legal fees and costs. The
claim was later increased to $1,145,283.62, to encompass the potential
of an increased account to Kaye Scholer if that firm was unsuccessful
in defending certain preference action brought by the Oppenheimer
Trustee. Wespac objected to the Proof of Claim in its entirety,
maintaining that USREA was the primary beneficiary of the legal work,
and that Wespac was without authority to incur billings for the type
of services which had been performed. Following
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FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 13
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
initial discovery, a settlement of the Kaye Scholer claim was
negotiated, whereunder Kaye Scholer was granted an Allowed Claim in
the sum of $200,000.00, payable under the Plan over a period of five
years with interest at 8% per annum. Alternatively, Wespac is entitled
to satisfy said claim for a cash payment of $100,000.00, payable
within thirty (30) days of the Effective Date of the Plan.
b. Oppenheimer Industries, Inc. Claim. The Oppenheimer
litigation brought against Wespac, Hall and USREA was compromised
among the parties, with the approval of the USREA and Wespac
bankruptcy courts. Without denying or affirming the allegations or
statements of the Oppenheimer trustee, the status of the Wespac debt
or the facts surrounding the reconveyance of the Oppenheimer Deed of
Trust, Wespac and the other defendants entered into a settlement of
plaintiffs' claims which provided for USREA to execute a Demand Deed of
Trust and Promissory Note in favor of Oppenheimer, securing the
Oppenheimer Note against the Riverdale Shopping Center, in the amount
of $1,175,000.00 with interest from July 1, 1991. In addition, John T.
Hall removed himself from any ownership, management or control of
USREA, and confessed judgment in favor of the plaintiffs in the sum of
$587,500.00, with execution stayed for a period of nine months of
USREA court approval. If the principal sum of $1,175,000.00 had been
paid to Oppenheimer within said nine month period, the Oppenheimer
Note was to be extinguished, without interest, the Deed of Trust
reconveyed, and the Hall judgment satisfied. The recourse of the
Oppenheimer trustee against Wespac was limited to a cause of action
under the Oppenheimer Note only, to the exclusion of other grounds for
relief which might otherwise have given rise to an enhanced recovery.
Payment of the Oppenheimer Note was expected to occur upon
sale of the Riverdale Shopping Center, based upon the anticipated sale
price of the property. Although an offer was received which would have
paid Oppenheimer in full, that offer failed to close, and the
Riverdale Shopping Center ultimately was sold in the fall of 1995 for
$5,200,000.00 with the approval of the USREA Court. This sale was
insufficient to relieve Wespac of the Oppenheimer obligation. Wespac
and Oppenheimer have
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FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 14
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
subsequently negotiated a settlement under which Oppenheimer shall be
granted an Allowed Unsecured Claim for $300,000.00, payable under the
Plan in monthly installments over a period of five (5) years,
including interest at 8%. Alternatively, Wespac is entitled to satisfy
said claim for a cash payment of $250,000.00, payable within thirty
(30) days of confirmation. The settlement has been approved by both
Wespac and Oppenheimer in their respective bankruptcy cases. Wespac
does not intend to fund the cash payment option under the settlement,
and will pay the Oppenheimer claim in deferred payments under the
Plan.
c. Medical Resource Creditors Claim and Shareholder
Interest. Medical Resource asserts a creditor's claim in excess of
$1,085,000.00, which Wespac has disputed. Wespac and Medical Resource
have agreed to compromise the creditor's claim of Medical Resource by
granting Medical Resource an Allowed Unsecured Claim for the sum of
$800,000.00, which shall be paid through the issuance of New Common
Stock. The New Common Stock to be issued in respect of the Medical
Resource Allowed Claim shall constitute 50% of all issued and
outstanding New Common Stock, and shall be issued to Medical Resource
in addition to the New Common Stock which Medical Resource shall be
entitled to receive in respect of the USREA Stock which Medical
Resource purchased from Zimco, as described below.
Medical Resource also claims ownership of 5,724,692 shares of
Old Common Stock ("the USREA Stock") which it acquired on June 27,
1995, pursuant to a Stock Purchase Agreement with S.A. Zimco
Management, P.L.C. and Hall for the sum of $450,000.00. Of that sum,
$250,000.00 was paid in cash, with the balance paid into escrow, to be
released upon confirmation of the Plan, or upon other agreement of the
parties. Wespac objected to the Proof of Interest filed by Zimco with
respect to these shares, and sought a judicial determination of the
true ownership of these shares in the RICO Litigation which has now
been settled between Medical Resource and Qualis as described
hereafter.
Upon the Effective Date, Medical Resource shall reduce its
claim to shares acquired from Zimco so such shares shall total no more
than 25% of Allowed Interests
PAGE 14
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 15
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
in Old Common Stock. Wespac shall dismiss the objection to the Zimco
Proof of Interest and recognize the Proof of Interest filed the 14th
day of February, 1996 by Medical Resource/Nevada Sea as relates to
the 5,724,692 shares acquired by Medical Resource from Zimco, for
which Medical Resource shall be entitled to receive 25% of the issued
and outstanding New Common Stock. Medical Resource shall be issued 50%
of the issued and outstanding New Common Stock, which Medical Resource
shall receive in exchange for its compromised creditors claim.
d. Nevada Sea Claim Option and Stock Option. Nevada Sea
Investments, Inc. ("Nevada Sea") is a corporation formed under the
laws of the State of Nevada on May 1, 1995. Nevada Sea entered into an
Option, effective May 12, 1995, under which, in summary, Nevada Sea
paid Medical Resource the sum of $1,085,000.00, plus reimbursement for
certain future expenses of Medical Resource, for an option to acquire
the creditor's claim of Medical Resource against Wespac, including any
stock, property or rights therefrom, for a period of seven years (the
"Claim Option"). The exercise price for the Claim Option is the sum of
$1,085,010.00, with the consideration paid for the Claim Option to
apply to the exercise price. Nevada Sea does not intend to exercise
the Claim Option at the Effective Date of the Plan.
Nevada Sea also entered into an Option Agreement, effective
June 27, 1995, under which, in summary, Nevada Sea acquired the right
to pay Medical Resource the sum of $450,000.00, plus reimbursement for
certain future expenses of Medical Resource, for an option for a
period of seven (7) years to acquire the stock of Wespac (the "USREA
Shares") which Medical Resource acquired from S.A. Zimco Management,
P.L.C. ("the Stock Option"). The exercise price for the Stock Option
is the sum of $450,010.00, with the consideration paid for the Stock
Option to apply to the exercise price. Nevada Sea shall exercise the
Stock Option at the Effective Date of the Plan.
Upon the Effective Date, Wespac shall dismiss the appeal of
the Medical Resource judgment, and the adversary action to avoid the
Medical Resource judgment lien.
PAGE 15
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 16
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
SECTION 3. CURRENT OPERATIONS
3.1 EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Wespac, subject to Bankruptcy Court approval, has the right to assume
or reject any executory contracts and unexpired leases entered into prior to
the date of filing. Damages resulting to the other party to such as executory
contract or unexpired lease are considered to be unsecured claims. The Plan of
Reorganization provides for all executory contracts and unexpired leases to be
assumed.
The executory contracts, and leases to be assumed and negotiated
include the following:
a. Franchise Agreement with F I Hotel Corp. for the
Friendship Inn franchise, providing for a Royalty Fee of 2% of gross
room receipts, a Marketing Fee of 2% of gross room receipts, plus
other terms and conditions.
b. Franchise Agreement plus Addenda and Terminal Support
Agreement dated December 26, 1985 with Quality Inns International, for
the Comfort Inn - North and the Comfort Inn - Valley, providing for a
Royalty Fee of 3% of gross room receipts, a Marketing Fee of 1% of
gross room receipts and $.20 times the room count, a Reservation
Services Fee of 1% of gross room receipts and $1.00 per room
reserved, plus other terms and conditions.
c. Lease between Wespac and Northwood Investment Company
for the real property located at 7111 North Division, Spokane,
Washington, upon which the Comfort Inn - North is located, at a
current lease payment of $6,591.00 per month plus water and sewer,
triple net. Said lease is current, and has been assumed by Wespac
pursuant to earlier order of the court.
d. Lease with the City of Spokane for parking lot
encroachment at the Friendship Inn, dated October 26, 1989, an annual
payment of $2,000.00 per year, subject to adjustment, for a period of
twenty years.
e. Lease for telephone equipment with Bell Atlantic
Systems.
PAGE 16
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 17
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
f. Lease for a copier, sorter and stand with Columbia
Lease and Rental, Inc., dated April 1, 1992, at a monthly payment of
$194.24, expiring March 31, 1996.
g. Service Agreement dated March 18, 1993 with G.T.
Graphics for office copier, for twelve months or 60,000 copies, at an
annual fee of $870.00.
h. Leases dated January 5, 1988 for soft drink equipment
with Pacific Coca-Cola Bottling Company, on the basis of sharing gross
profits, terminable upon thirty days notice.
i. Equipment and equipment service lease dated February
17, 1993 for pagers at Friendship Inn and Comfort Inn North with Pass
Word, at a monthly payment of $275.00.
j. Lease agreement dates October 30, 1990 with Young
Outdoor Sign Co. (YESCO) for outdoor sign, at a monthly payment of
$450.00, expiring January 1, 1996.
k. Lease of the restaurant and lounge located within the
Friendship Inn to Georgie Liebelt, doing business as the Spokane House
Restaurant. This lease has expired, and the restaurant and lounge are
presently leased on a month to month basis pending the outcome of the
reorganization. The restaurant and lounge are operated for the benefit
of the customers of the Friendship Inn, and are not profitable.
Despite negotiated reductions, an rent obligation has accrued to
Wespac in the approximate amount of ten thousand dollars. As an
incentive for continued operations, Wespac shall offer a three year
lease of the restaurant and lounge to Georgie Liebelt, at a lease rate
based upon net profits, with forgiveness of all accrued rent
liabilities.
3.2 PENDING LITIGATION
Wespac is party to a number of pending lawsuits, which are
summarized as follows:
a. Newbeach Partners v. Newport Partners, et al.,
Kenneth Pincourt, Kurt Schlesinger and Robert Kaufman v. Wespac
Investors Trust, Wespac Investors Trust II, Wespac Investors Trust III
and Does 1 through 100, inclusive,
PAGE 17
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 18
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
and related cross-actions pending in the Superior Court of the State
of California, County of Orange. Judgment was rendered in favor of
Medical Resource, with a total owing, as of June, 1995, was
$1,085,000.00, including post-petition attorney fees and costs. The
Medical Resource litigation claim is resolved under the terms of this
Plan.
b. Oppenheimer Industries, Inc., et al.; Todd Neilson,
as Chapter 11 Trustee for Oppenheimer Industries, Inc.; The Armendaris
Corp., and Armendaris Water Development Co. v. John T. Hall; U.S. Real
Estate Advisors, Inc., and Wespac Investors Trust III, in the U.S.
Bankruptcy Court in the Central District of California under Case No.
AD92-05003. This suit has been settled for $300,000.00, as set forth
above.
c. U.S. Real Estate Advisors, Inc.; Todd Neilson v. U.S.
Real Estate Advisors, Inc., John T. Hall and Wespac Investors Trust
III, in the U.S. Bankruptcy Court in the Central District of
California under Case No. AD93-02901-RA. This suit is the companion
action of the Oppenheimer litigation referred to immediately above,
and is encompassed within the Oppenheimer settlement of $300,000.00
referenced above.
d. U.S. Real Estate Advisors, Inc.; Todd Neilson as
Trustee of Oppenheimer Industries Cattle Equity Program, L.P. v. U.S.
Real Estate Advisors, Inc., John T. Hall and Wespac Investors Trust
III, in the U.S. Bankruptcy Court in the Central District of
California under Case No. AD93-03492. This suit is the companion
action of the Oppenheimer and U.S. Real Estate Advisors, Inc.
litigation referred to immediately above, and is encompassed within
the Oppenheimer settlement of $300,000.00.
e. Wespac District Court Action. Wespac is Plaintiff in
an action pending in the United States District Court for the Eastern
District of Washington, under cause no. CS-95393-FVS, against S.A.
Zimco, Ltd., Hall, Joel Ciniero, Mohamed Hadid, Daher Al-Fahoum,
Qualis Group, Inc., Qualis Group Holdings, L.P., Nautilus Fund Ltd.,
Spokane Hospitality Corp., Qualis Care L.P., Medical Resource and
Nevada Sea as Defendants. This action is brought to determine the
rightful ownership of
PAGE 18
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 19
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
the Wespac shares referred to as the "USREA Stock", and to recover
damages which Wespac incurred as a result of the wrongful conduct of
the certain Defendants in relation to that stock. The allegations of
the complaint are too voluminous to reiterate; however, the complaint
generally alleges that certain defendants fraudulently conspired to
have Zimco sell Hall's Wespac stock ("the USREA Shares") to Qualis
Care, L.P. on March 18, 1994 for the sum of $5,000.000.00, utilizing a
forged Wespac certificate. Those same shares were later sold by Zimco
to Medical Resource on June 27, 1995 for the sum of $450,000.00.
Medical Resource, in turn granted Nevada Sea an option to acquire the
USREA Stock for $450,010.00. The acts of certain defendants are
alleged to constitute racketeering, fraud, breach of fiduciary duties
and conversion, as well as various securities violations.
The Complaint seeks monetary damages against all defendants
other than Qualis Care L.P., Medical Resource and Nevada Sea; treble
damages and punitive damages against all RICO Defendants; punitive
damages against all defendants other than Qualis Care L.P., Medical
Resource, and Nevada Sea. Medical Resource/Nevada Sea and Qualis have
reached an agreement with respect to their competing interest to the
5,724,692 shares of Wespac stock (USREA Stock). Qualis has filed a
withdrawal of the Proof of Interest relating to said shares filed by
Qualis the 29th day of February, 1996 and has agreed to the entry of a
dismissal of Qualis from this litigation with prejudice, which bars
Qualis, Medical Resource, Nevada Sea, and Wespac from ever asserting
any claim against each other arising from the sale or purported sale
of Wespac stock to Qualis but reserves any claims Qualis may have
against other arising from such sale or purported sale. Wespac, with
Court approval has compromised the claim against Zimco and Mohamed
Hadid for the sum of $100,000.00. It is anticipated that Joel Ciniero
will be dismissed as a party defendant for his voluntary cooperation
in providing discovery and testimony as may be requested by Wespac
regarding the factual issues to be determined in that case. Wespac has
filed motions for orders of default as to the other defendants.
Wespac, in its discretion, may dismiss the District Court action, if
for example, it appears the cost of said litigation outweighs the
potential for recovery or collectability from any named defendant.
PAGE 19
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 20
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
3.3 OWNERSHIP
The beneficial interest of Wespac is held by its shareholders. The
initial offering of Wespac shares issued approximately 11,500,000 shares to
approximately 10,000 shareholders. Pursuant to the 1989 Plan, USREA was issued
warrants for 5,724,692 additional shares, which were allegedly exercised
through the forgiveness of debt, resulting in the acquisition by USREA of a 49%
interest in Wespac. Wespac has been advised that the interest held by USREA was
transferred to John T. Hall prior to the filing of this Chapter 11 case, and
was subsequently transferred by John T. Hall to a corporation known as S.A.
Zimco Corp.
Prior to the 1988 Reorganization, Wespac employed a transfer agent as
an independent third party for the maintenance of shareholder records. The
services of the transfer agent were discontinued in 1991. The stock records of
Wespac which are now available are outdated and are believed to be unreliable.
In an attempt to construct an accurate record of existing shareholders, Wespac
obtained appropriate orders of the Court which would require each shareholder
to file a Proof Of Interest. Notice of these Chapter 11 proceedings has been
provided to all entities which appeared on any of the several shareholder
records which have been located for Wespac, and will also be published in a
national business newspaper, all in an attempt to create an entirely reliable
and accurate record of stock ownership. Wespac intends to issue New Common
Stock to shareholders which file a Proof of Interest, and cancel all Old Common
Stock at confirmation.
3.4 MANAGEMENT AND COMPENSATION
a. Existing Management. The following individuals presently serve
in the capacities indicated for Wespac:
Georgie Liebelt. Ms. Liebelt is currently the Regional
Director for Wespac, and is responsible for all operations. Her
present compensation is $59,000.00 per year, plus $6,000.00 per year
car allowance. Ms. Liebelt was appointed Trustee in January, 1994, and
is the designated representative of Wespac, with the sole authority
within Wespac regarding the disposition of assets, the transfer of any
funds and any issues regarding administration of the bankruptcy
estate. Medical Resource and Nevada Sea shall vote to retain Ms.
Liebelt as a Trustee of the Reorganized Wespac, if she chooses to so
serve during the course of her employment
PAGE 20
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 21
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
as provided for herein, unless removed as a trustee for just cause.
David Heinen. Mr. Heinen is currently the Manager of the
Spokane Properties, and is responsible for the daily operation of
these hotels. His present compensation is $39,600.00 per year, plus
$4,800.00 per year car allowance. Mr. Heinen was appointed Trustee in
January, 1994.
b. Post-confirmation Management. Wespac shall offer a three year
employment contract to Georgie Liebelt at her existing level of compensation and
benefits, and an eighteen month employment contract to David Heinen at his
existing level of compensation and benefits. Wespac shall call an organizational
meeting of shareholders and trustees within six months of the Effective Date of
the Plan to elect trustees, directors and officers, who will thereafter serve
for a period of one (1) year, or until their successors are duly qualified and
elected. The Debtor is not current with SEC reporting requirements. Prior
management (pre-filing) failed to comply with SEC filing requirements. The
Reorganized Debtor will use its best efforts to obtain audited financial
statements. It is anticipated that Wespac will obtain audited financial
statements for the fiscal year ending December 31, 1996, on or about April 15,
1997. Thereafter, Wespac will prepare and file the required SEC reporting
documents to bring such reports current.
SECTION 4. UNCLASSIFIED OBLIGATIONS AND SUMMARY OF TREATMENT UNDER THE
PLAN
4.1 Administrative Expenses. All expenses of administration
allowed against the estate under 11 U.S.C. Section 503, including professional
fees incurred by Wespac for legal and accounting services, and other post-
petition liabilities which have an administrative priority, whether by Court
order or operation of law, shall be paid when due, or, when appropriate, upon
allowance by the Court.
4.2 Priority Tax Claims. All priority allowed unsecured claims of
governmental units allowed against the estate, except the State of Washington
Department of Revenue, under 11 U.S.C. Section 507(a)(7) shall be paid pro-rata
in annual installments, including interest at the rate required by law, over a
period of six years from assessment, commencing ninety days after the Effective
Date of
PAGE 21
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 22
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
the Plan. The State of Washington Department of Revenue shall be paid in full
within thirty (30) days of the Effective Date of the Plan of Reorganization.
The claims of disputed tax creditors shall be determined through contested
proceedings in the Bankruptcy Court. Unsecured tax claims for penalties shall
be treated as general unsecured claims, and will be classified with those
creditors. Priority Tax Claims, with disputed claims indicated by an asterisk
(*), include the following:
<TABLE>
<S> <C>
Colorado Department of Revenue: $ 15.00
Washington Department of Revenue $ 18,958.15
Florida Department of Revenue: $ 450.00
Internal Revenue Service: $ 11,500.00*
Oregon Department Of Revenue: $ 70.00
Tennessee Department Of Revenue: $ 23,965.64
Utah State Tax Commission: $ 1,157.00
</TABLE>
4.3 Employment Benefits. All accrued employee benefits for sick pay
and vacation leave shall continue unimpaired through confirmation.
SECTION 5. CLASSIFICATION OF CLAIMS & INTERESTS, AND SUMMARY OF TREATMENT
UNDER THE PLAN
Claims and interests are classified for purposes of voting on the Plan.
Creditors or equity holders within a class will be treated similarly under the
Plan.
5.1 Priority Non-Tax Claims
Priority Non-Tax Claims include all priority creditors as defined by 11
U.S.C. Section 507 except unsecured claims of governmental units as set forth
in Section 507(a)(7). Priority Non-Tax Claims include claims for wages,
salaries and commissions to the extent earned within sixty days of filing, and
also include claims for unpaid contributions to employee benefit plans, or to
consumers for deposits which were made for services which have not been
delivered. No creditors are entitled to Priority Non-Tax Claims status.
5.2 U.S. Bank of Washington
Class 2 consists only of the Allowed Secured claim of U.S. Bank of
Washington, secured by a first Deed of Trust against the Spokane Properties,
together with accounts, contract rights,
PAGE 22
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 23
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
chattel paper, revenue, rents, general intangibles, with an approximate balance
of $3,807,000.00 plus interest. U.S. Bank of Washington shall be paid in
monthly installments of interest and principal in the amounts set forth by the
Note and related documents evidencing the Wespac obligation. U.S. Bank shall
retain its lien interests until fully paid. U.S. Bank is not impaired by the
Plan.
5.3 Newbeach Partners
Class 3 consists only of the Allowed Claim of Newbeach Partners, secured
by furniture, fixtures, equipment, machinery, inventory, books, and records,
with an approximate balance of $114,285.94 as of March 1, 1996. Newbeach
Partners shall be paid in full, with interest at 10%, in five (5) successive
equal annual payments, with the first payment due within thirty (30) days of
the Effective Date of the Plan. Newbeach Partners is impaired under the Plan,
and shall retain its lien until fully paid.
5.4 Administrative Convenience Creditors
Class 4 consists only of holders of (1) Allowed Claims of unsecured
creditors of less than $500.00, and (2) holders of Allowed Claims who elect to
reduce their claim to $500.00. Administrative Convenience Creditors shall
receive full payment of their claims, in cash, within thirty (30) days of the
Effective Date of the Plan.
5.5 Claims of General Unsecured Creditors
a. General Provisions. Class 5 consists only of Allowed Claims of
general unsecured creditors. General Unsecured Creditors shall be paid pro-rata
in annual installments, including interest at 8%, over a period of five years,
commencing ninety days after the Effective Date of the Plan. General Unsecured
Creditors are impaired under the Plan. Disputed claims are indicated by an
asterisk (*).
<TABLE>
<S> <C>
A to Z Rental $ 111.84
Joe Agapay, Esq. $ 25,000.00
Allied Security $ 2,588.76
Breckenridge $ 498.86
Bunker, Vittal & Sternberg $ 1,000.00
Carr Services $ 60.86
ChemMark $ 50.22
Choice Hotels $ 54,722.48*
</TABLE>
PAGE 23
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 24
[DAVIDSON, BAILEY AND MEDEIROS LETTERHEAD]
<TABLE>
<S> <C>
City Of Spokane $ 118.00
Culligan Water Softener $ 40.50
DCT Control $ 192.24
Diamond Aire $ 367.46
Eagle Hardware $ 44.24
Farmer Brothers $ 433.84
Federal Express $ 46.50
Fuller O'Brien $ 83.16
G.E. Supply $ 408.24
Gibson, Dunn, Crutcher $ 40,194.00*
Golden Corral $ 432.05
Harolds Vacuum Center $ 87.12
Hicks Hardware $ 72.14
Inland Pool & Spa $ 4.76
Insight-Stults $ 1,095.61
Janco United-Spokane $ 74.94
Johnstone Supply $ 950.40
Kaye, Scholer $ 200,000.00
Lindsay Soft Water $ 136.08
Medical Resource $ 800,000.00
Metropolitan Outdoor $ 2,200.00
Office Depot $ 1,800.00
Oppenheimer Industries $ 300,000.00
PSC Food Service $ 85.68
Pool World, Inc. $ 29.10
Quality Press $ 43.44
S.E. Rykoff & Company $ 1,044.05
SYSCO $ 49.95
Sears Fire Extinguisher $ 83.70
Something Sweet Donut $ 485.00
Spokane Hotel and Motel $ 536.37
Sunset Florist $ 31.32
Tennessee Department of Revenue $ 3,884.15
Twirl Sewer Service $ 50.22
U.S. Elevator $ 169.56
</TABLE>
b. Special Provisions for Creditors Claims of Kaye Scholer,
Oppenheimer Industries and Medical Resource. Wespac intends to fund the cash
settlement option with Kaye Scholer for $100,000.00, payable within thirty (30)
days of the Effective Date of the Plan. Wespac does not intend to fund the cash
settlement with Oppenheimer Industries.
Upon the Effective Date, Wespac and Medical Resource have agreed to
compromise the creditor's claim of Medical Resource by granting Medical
Resource an Allowed Unsecured Claim for the sum of
PAGE 24
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 25
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
$800,000.00, which shall be paid through the issuance of 50% of all issued and
outstanding New Common Stock to Medical Resource. On the Effective Date of the
Plan, Nevada Sea shall exercise the Medical Resource/Nevada Sea Stock Option
and shall receive with respect to the USREA Stock, which Medical Resource
purchased from Zimco, 25% of all the issued and outstanding New Common Stock.
Wespac shall dismiss the appeal of the Medical Resource judgment, and the
adversary action to avoid the Medical Resource judgment lien.
5.6 Interests of Equity Security Holders (Shareholders)
a. General. Class 6 consists only of Allowed Interests of
shareholders of Old Common Stock. All Class 6 Interests shall be cancelled on
the Effective Date of the Plan. One share of New Common Stock in the
Reorganized Debtor shall be exchanged for each share of Allowed Interest in Old
Common Stock. Holders of Allowed Interests in Old Common Stock, other than
Medical Resource, shall hold in the aggregate 25%, of the newly issued stock.
b. Special Provisions for Shareholder Interest of Medical Resource.
Upon the Effective Date, Medical Resource shall reduce its claim to the USREA
shares acquired from Zimco so such shares shall total 25% of Allowed Interests
in Old Common Stock. Nevada Sea shall exercise the Medical Resource/Nevada Sea
option, and shall receive 25% of the issued and outstanding New Common Stock.
Medical Resource shall be issued, in exchange for its compromised creditors
claim, 50% of the issued and outstanding New Common Stock.
c. Wespac Investors Trust II. Wespac Investors Trust II (Trust II)
is a California Real Estate Investment Trust (REIT), formed at approximately
the same time as Wespac. Trust II is a separate and distinct trust from
Wespac. Trust II filed for bankruptcy in the Central District of California the
llth day of March, 1988, under case number SA 88-01526 JR. This case was
converted from a Chapter 11 case to a case under Chapter 7 and Wespac has been
informed all assets of Trust II have been liquidated. Wespac provided Notice of
these Chapter 11 proceedings to all persons and entities which appeared in the
several shareholder records located by Wespac. Included within these records
were the names of holders of interest in Trust II. Wespac has received Proofs
Of Interest from numerous persons and entities who are the holders of interest
in Trust II. All Proofs Of Interest demonstrating an interest in Trust II will
be objected to and will be returned to the claimant as not representing an
PAGE 25
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 26
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
interest in Wespac. Those persons and entities holding an interest in Trust II
shall receive no interest or distribution in or from Wespac Investors Trust
III.
SECTION 6. ADMINISTRATION OF THE ESTATE
6.1 EXECUTION OF PLAN
The most significant claims against Wespac, including the Medical
Resource, Oppenheimer, and Kaye, Scholer claims, were not incurred through
operations of the Spokane Properties. Nevertheless, the Spokane properties are
the only marketable assets of Wespac, and constitute the sole operating
entities which generate funds as a source of payment for these obligations.
Management has devoted substantial effort and analysis to the evaluation of
future business operations, and determining whether Wespac can reasonably
provide for payment of their creditors through ongoing operations.
Wespac believes that the Spokane properties can achieve revenues
adequate to pay creditors the moneys due under the Plan, if financial
assistance is obtained for debt service, renovation and repairs, and if
adequate time is afforded for such payments. To ensure that adequate funds are
available, Wespac shall borrow an unsecured loan of $250,000.00 from Nevada Sea
at the Effective Date of the Plan, repayable within two years with interest at
8% per annum, to be evidenced by a promissory note in standard form, with 12%
default interest. This loan is intended to supplement Wespac's cash position,
and will be used for any proper purpose, including cash requirements under the
Plan, such as payment of administrative expenses, priority tax claims,
administrative convenience creditors, and the discounted cash payment to Kaye,
Scholer. Additional financing may be desirable if necessary to perform deferred
maintenance and necessary real property repairs and improvements, such as the
foundation work at the Comfort Inn -- North.
It is anticipated that Wespac will continue to own and operate the
Spokane Properties for at least a period of two years following the Effective
Date. During this period, Wespac intends to secure audited financial
statements, if obtainable, commencing January 1, 1994, and take such actions as
are necessary to comply with all applicable Securities and Exchange
requirements to allow trading of Wespac shares.
PAGE 26
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 27
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
Management believes that extensive renovations are required to meet the
requirements of its Franchisers, and for the properties to remain competitive
in the hospitality industry. Substantial effort has been devoted to determine
how the limited funds available for renovation would be used to best advantage.
At present, the following expenditures are believed to be necessary,
reasonable, and prudent:
a. Comfort Inn -- North. The foundation at the Comfort Inn -
North requires rehabilitation to correct a sinking problem affecting one
wing of the building. Wespac has obtained an analysis of the problem,
and a bid for correction, which estimates can expense of $60,000.00 to
$75,000.00 for corrective measures. This work, although unavoidable, can
be deferred until the Effective Date.
b. Comfort Inn -- Valley. Wespac believes that approximately
$100,000.00 should be expended at the Comfort Inn - Valley for upgrading
and renovations.
C. Friendship Inn. Wespac believes the Friendship Inn can be
upgraded to a Rodeway Inn upon expenditure of approximately $175,000.00
for renovations, with a significant potential for realizing profitable
operations at the location. A Rodeway Inn Franchise has been negotiated
by management, and would allow conversion of the property at minimal
cost, other than the expense of scheduled renovations which are
necessary in any event.
Also, at the Effective Date, Wespac shall perform all obligations
required under the compromises with Medical Resource and Nevada Sea.
6.2 RESOLUTION OF CLAIMS AND INTERESTS
Wespac shall act as the disbursing agent for the purpose of making
distributions under the Plan. All objections to Claims and Interests shall be
brought by Wespac within sixty (60) days of the Effective Date.
No distribution will be made to any claimant with respect to a projected
distribution which would be less than the sum of $25.00 in cash or securities,
as the cost of making such distribution exceeds the value thereof.
PAGE 27
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 28
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
Except as otherwise provided by the Plan, all Claims and Interests which
arose prior to confirmation will be discharged on the Effective Date of the
Plan, whether accrued before or after the date of filing. The discharge will be
effective as to each Claim, regardless whether a proof of claim was filed,
whether the claim was allowed, or whether the holders of the claim voted for or
against acceptance of the Plan.
6.3 AVOIDANCE ACTIONS
Wespac, as Debtor In Possession, enjoys the rights and powers of a
bankruptcy trustee with respect to recovering transfers of property made prior
to bankruptcy. Sections 548 and 544 of the Bankruptcy Code authorize Wespac to
utilize either bankruptcy law or state law as a basis for recovering fraudulent
transfers or conveyances. Generally, fraudulent conveyances may be recovered if
they were made with actual intent to hinder, delay or defraud creditors, or if
transfers of property are made for less than a reasonably equivalent value, and
the Debtor 1) was insolvent or became insolvent as a result of the transaction;
or 2) was engaged in business or was about to engage in a business transaction
for which its remaining capital was unreasonably insufficient; or 3) intended
to incur or believed it would incur debts beyond its ability to pay.
Wespac, as Debtor In Possession, is also authorized to recover
preferential payments to creditors which were made prior to bankruptcy.
Preferences are recoverable in accordance with Section 547(b) of the Bankruptcy
Code, which allows recovery of a transfer of property to or for the benefit of
a creditor on account of an antecedent debt, made while the Debtor is
insolvent, made within ninety days before the date of filing, or one year
before the date of filing if the creditor was an insider, and resulting in the
creditor receiving more than would have been received under a liquidation
pursuant to Chapter 7 of the Bankruptcy Code. Preferences may not be recovered
to the extent that the transfer was intended to be a contemporaneous exchange
for new value, or if the payment was made in the ordinary course of business.
Wespac brought and resolved a preference action against the law firm of
Gibson, Dunn & Crutcher which sought recovery of the sum of $50,000.00 paid to
Gibson, Dunn & Crutcher within ninety (90) days of the bankruptcy filing.
Gibson, Dunn & Crutcher applied a portion of these funds to an antecedent
account for prepetition services rendered as counsel for Wespac and Hall in the
PAGE 28
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 29
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
Oppenheimer litigation. With Court approval, this preference suit was settled
for a cash payment to Wespac of $40,194.00.
Wespac is mindful of the marginal benefit to the estate which may result
from pursuing dubious avoidance claims, particularity in light of the proposed
100% repayment to unsecured creditors under the Plan of Reorganization.
Preference recipients, if compelled to disgorge the preference, become
creditors under the Plan to the extent of their Allowed Claims. Recovery of
fraudulently transferred assets would provide a net gain to the estate, but
burden the estate with additional legal fees in the short term.
The following transactions appear to be avoidable as preferences or
fraudulent transfers:
a. John T. Hall. Payments to or for the benefit of John T.
Hall.
b. Joel Ciniero. Payments to or for the benefit of Joel
Ciniero.
c. Cyrus J. Keefer, Jr. Payments of approximately $22,000.00
to or for the benefit of Cyrus J. Keefer, Jr.
d. EDS Corp. The claim against EDS Corp. has been compromised
for the sum of $10,978.00, subject to Court approval.
Except to the extent provided for by the Plan, the estate will retain
and may enforce any and all claims held against third parties, including claims
for recovery of preferences or fraudulent conveyances.
6.4 TAX ATTRIBUTES
The tax attributes of Wespac include net operating loss carryforwards of
approximately 38 million dollars. Wespac has prepared and filed the 1994 income
tax return utilizing a portion of that net operating loss to eliminate income
tax liability for that year. Wespac intends to continue utilizing the net
operating loss carryforward to apply against taxable earnings for future years.
Under Section 172(b)(1) of the Internal Revenue Code of 1954, a net
operating loss (NOL) for any taxable year shall be an NOL carryback for each
of the three (3) taxable years preceding the
PAGE 29
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 30
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
taxable year of the loss, and a NOL carryover to each of the fifteen (15)
taxable years following the taxable year of the loss, until the NOL is
absorbed. Unless an election to forego the carryback is made, a NOL is carried
back first to the earliest of these years, then to the next earliest and so on
in chronological order until it is fully utilized. Because of these rules, a
NOL which is sustained in one (1) year may be used to reduce the taxable
income, and therefore the tax due, of another year.
The Tax Reform Act of 1986, under Section 382, imposed limitations on
the use of NOL carryforwards if there is a change in ownership in excess of 50
percent within a three (3) year period. In such a case, the earnings against
which the loss carryforwards may be offset are limited to the value of the
corporation immediately before the 50 percent ownership change, multiplied by
the highest adjusted federal long-term tax-exempt rate in effect for any month
in the three (3) month period, ending with the calendar month in which the
ownership change occurs. Wespac is not aware of any uncontested Proofs of
Interest which derive from a change of ownership in excess of fifty percent
(50%) of issued and outstanding Wespac Old Common Stock.
The Plan of Reorganization will affect various creditors differently,
depending on the nature of their claim, their taxpayer status, their accounting
method, and other variables. Creditors and equity security holders should
consult with their own independent tax advisors regarding the tax impact of the
Plan of Reorganization upon their individual circumstances.
6.5 PAYMENT OF QUARTERLY FEES
All quarterly fees due to the United States Trustee pursuant to 11
U.S.C. 1930(a)(6) shall be paid on or before the Effective Date of the Plan as
required by 11 U.S.C. 1129(a)(12). Wespac does not owe any quarterly fees, other
than fees accrued for the current quarter.
6.6 SUBSTANTIAL CONSUMMATION
The Chapter 11 case shall be deemed to be substantially consummated
pursuant to 11 U.S.C. 1101(2) upon conclusion of all adversary and contested
matters, but in no event until sixty (60) days following the Effective Date of
the Plan. Upon substantial consummation, Wespac shall certify the same to the
Court, and seek entry of a Final Decree closing this case.
PAGE 30
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 31
[DAVIDSON, BAILEY & MEDEIROS LETTERHEAD]
DATED this _____ day of March, 1996.
DAVIDSON, BAILEY & MEDEIROS
---------------------------------
Barry W. Davidson
Attorney for Wespac Investors
Trust III
Approved:
WESPAC INVESTORS TRUST III
- -------------------------------
Georgie Liebelt
Designated Representative
PAGE 31
FIRST AMENDED DISCLOSURE STATEMENT
<PAGE> 32
Liquidation Analysis
<TABLE>
<S> <C>
Real Property and improvements $5,700,000
10% sales costs $570,000
U.S. Bank lien claim $3,435,000
Newbeach lien claim $114,285
Medical Resources disputed lien claim $1,085,000
Unsecured debt $639,000
Current A/P (12/31/96) $236,000
Payments due at confirmation $136,115
Real property taxes (first half 1996) $52,000
Total Liabilities $6,267,400
Shareholders' Equity on Liquidation ($567,400)
</TABLE>
(Excluding Chapter 7 Trustee's fees and expenses)
APPENDIX "A"
<PAGE> 33
WESPAC INVESTORS TRUST III
MOTEL DIVISION
Financial Statement Projections and
Accountants' Compilation Report
For the Years Ending December 31,
1995, 1996, 1997, and 1998
APPENDIX "B"
<PAGE> 34
WESPAC INVESTORS TRUST III
MOTEL DIVISION
Contents
For the Years Ending December 31,
1995, 1996, 1997, and 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
Accountants' compilation report 2
Financial projections:
Projected balance sheets under the hypothical assumptions
in note A 3-4
Statements of projected income under the hypothetical assumptions
in note A 5
Statements of projected cash flows under the hypothetical assumptions
in Note A 6
Summary of significant projection assumptions 7-9
</TABLE>
<PAGE> 35
[LEMASTER & DANIELS LETTERHEAD]
Trustees
WESPAC Investors Trust III
Motel Division
Spokane, Washington
We have compiled the accompanying projected balance sheets, statements of
income, and cash flows of WESPAC Investors Trust III - Motel Division for the
year ending December 31, 1995, and each year thereafter ending December 31,
1998, in accordance with standards established by the American Institute of
Certified Public Accountants.
The accompanying projection and this report were prepared for WESPAC Investors
Trust III - Motel Division for the purpose of aiding in the confirmation of a
proposed plan of reorganization and should not be used for any other purpose.
A compilation is limited to presenting in the form of a projection information
that is the representation of management and does not include evaluation of the
support for the assumptions underlying the projection. We have not examined the
projection and, accordingly, do not express an opinion or any other form of
assurance on the accompanying statements or assumptions. Furthermore, even if
the assumptions (listed on pages 7-9 of this report) are accurate, there will
usually be differences between the projected and actual results, because events
and circumstances frequently do not occur as expected, and those differences
may be material. We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements and projections, they might influence the
user's conclusions about the Company's financial position, results of
operations, and cash flows. Accordingly, these financial statements and
projections are not designed for those who are not informed about such matters.
WESPAC Investors Trust III is a Debtor-in-Possession in Chapter 11 proceedings
filed on January 27, 1994, in the Eastern District of Washington under Case
Number 94-00228-Kll. Pursuant to the United States Bankruptcy Code, WESPAC
Investors Trust III has filed schedules of assets and liabilities, verified
under penalty of perjury, with the United States Bankruptcy Court. Certain
assets and liabilities of WESPAC Investors Trust III are disclosed in the
schedule of assets and liabilities filed with the Court, although not set forth
by the financial statement projections attached hereto for the Motel Division.
Those schedules of assets and liabilities should be considered in conjunction
with the financial statement projections presented herewith.
/s/ LeMaster & Daniels PLLC
Spokane, Washington
December 8, 1995
-2-
<PAGE> 36
WESPAC INVESTORS TRUST III
MOTEL DIVISION
Projected Balance Sheets
<TABLE>
<Caption
December 31, December 31, December 31, December 31,
1995 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash on hand:
Valley $ 300 $ 300 $ 300 $ 300
North 1,100 1,100 1,100 1,100
Friendship 660 660 660 660
Cash-combined 126,134 199,493 255,811 415,579
Accounts receivable:
Valley 18,829 19,376 19,947 20,537
Friendship 9,394 9,667 9,952 10,246
North 15,759 16,217 16,695 17,189
Guest ledger 3,693 3,800 3,912 4,028
Guest ledger, Friendship 4,391 4,519 4,652 4,790
Guest ledger, North 7,063 7,268 7,482 7,703
Spokane House restaurant 5,110 5,258 5,413 5,573
Prepaid expenses 49,314 50,547 51,811 53,106
---------- ---------- ---------- ----------
Total current assets 241,747 318,205 377,735 540,811
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Building and improvements: 2,127,620 2,227,620 2,247,620 2,267,620
Valley 3,089,138 3,164,138 3,184,138 3,204,138
North 2,611,618 2,786,618 2,796,618 2,816,618
Friendship
Furniture and equipment:
Valley 194,521 194,521 194,521 194,521
North 215,218 215,218 215,218 215,218
Friendship 349,304 349,304 349,304 349,304
Restaurant 110,497 110,497 110,497 110,497
---------- ---------- ---------- ----------
8,697,916 9,047,916 9,097,916 9,157,916
Less accumulated depreciation (3,208,853) (3,599,402) (3,964,704) (4,312,845)
---------- ---------- ---------- ----------
Total property and equipment 5,489,063 5,448,514 5,133,212 4,845,071
---------- ---------- ---------- ----------
$5,730,810 $5,766,719 $5,510,947 $5,385,882
========== ========== ========== ==========
</TABLE>
See accompanying accountants' compilation report and
summary of significant projection assumptions.
-3-
<PAGE> 37
WESPAC INVESTORS TRUST III
MOTEL DIVISION
Projected Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31,
1995 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES
CURRENT LIABILITIES:
Accrued sales and business tax $ 41,800 $ 43,054 $ 44,350 $ 45,680
Accounts payable 19,650 20,380 21,370 22,360
Personal property taxes payable:
Valley 888 910 940 970
Friendship 638 660 680 700
North 1,065 1,100 1,130 1,160
Accrued payroll 21,852 22,510 23,190 23,890
Federal withholding payable 2,318 2,390 2,460 2,530
Labor and Industries payable 6,516 6,710 6,910 7,120
State unemployment payable 3,209 3,310 3,410 3,510
Federal unemployment payable 580 600 620 640
Current maturities of long-term debt 137,258 416,495 372,217 304,250
----------- ----------- ----------- -----------
Total current liabilities 235,774 518,119 477,277 412,810
----------- ----------- ----------- -----------
LONG-TERM DEBT:
Notes payable:
Copier 1,830 692 -- --
New Beach Partners -- 83,460 67,050 49,278
Tax claims -- 66,023 56,727 46,458
General claims -- 131,435 106,707 79,927
Kay Scholer -- 180,561 145,060 106,612
Oppenheimer -- 270,842 217,589 159,917
Nevada Sea -- 181,154 55,421 --
Mortgages payable:
Friendship Inn 971,917 913,760 849,830 779,556
Valley 1,073,846 1,041,080 1,005,061 965,468
North 1,525,264 1,478,929 1,427,996 1,372,008
----------- ----------- ----------- -----------
3,572,857 4,347,936 3,931,441 3,559,224
Less current maturities (137,258) (416,495) (372,217) (304,250)
----------- ----------- ----------- -----------
Total long-term debt 3,435,599 3,931,441 3,559,224 3,254,974
----------- ----------- ----------- -----------
Total liabilities 3,671,373 4,449,560 4,036,501 3,667,784
----------- ----------- ----------- -----------
MOTEL DIVISION EQUITY:
Retained earnings (as restated) 2,092,699 2,059,437 2,117,396 2,274,683
Prior unrecorded claims -- (800,237) (800,237) (800,237)
Current year income (loss) (33,262) 57,959 157,287 243,652
----------- ----------- ----------- -----------
Total motel division equity 2,059,437 1,317,159 1,474,446 1,718,098
----------- ----------- ----------- -----------
$ 5,730,810 $ 5,766,719 $ 5,510,947 $ 5,385,882
=========== =========== =========== ===========
</TABLE>
See accompanying accountants' compilation report and
summary of significant projection assumptions.
-4-
<PAGE> 38
WESPAC INVESTORS TRUST III
MOTEL DIVISION
Projected Income Statements
<TABLE>
<CAPTION>
Years Ending December 31,
------------------------------------------------------------
1995 1996 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 2,753,079 $ 2,833,052 $ 2,916,524 $ 3,002,836
LESS COUPONS AND DISCOUNTS 55,074 56,674 58,344 60,070
----------- ----------- ----------- -----------
NET SALES 2,698,005 2,776,378 2,858,180 2,942,766
----------- ----------- ----------- -----------
COST OF LABOR:
Salaries and wages 780,739 790,498 800,379 810,385
Taxes and benefits 132,421 134,385 136,065 137,765
----------- ----------- ----------- -----------
Total cost of labor 913,160 924,883 936,444 948,150
----------- ----------- ----------- -----------
GROSS PROFIT 1,784,845 1,851,495 1,921,736 1,994,616
----------- ----------- ----------- -----------
EXPENSES:
Controllable 717,401 731,749 746,384 761,312
Noncontrollable 608,970 621,149 633,572 646,244
----------- ----------- ----------- -----------
Total expenses 1,326,371 1,352,898 1,379,956 1,407,556
----------- ----------- ----------- -----------
INCOME FROM HOTEL OPERATIONS 458,474 498,597 541,780 587,060
----------- ----------- ----------- -----------
OTHER MANAGEMENT EXPENSES:
Interest 345,809 380,638 384,493 343,408
WESPAC reorganization expenses 145,927 60,000 -- --
----------- ----------- ----------- -----------
Total other management expenses 491,736 440,638 384,493 343,408
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (33,262) $ 57,959 $ 157,287 $ 243,652
=========== =========== =========== ===========
</TABLE>
See accompanying accountants' compilation report and
summary of significant projection assumptions.
-5-
<PAGE> 39
WESPAC INVESTORS TRUST III
MOTEL DIVISION
Projected Cash Flows
<TABLE>
<CAPTION>
Years Ending December 31,
------------------------------------------------------
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (33,262) $ 57,959 $ 157,287 $ 243,652
Noncash items:
Depreciation 360,132 390,549 365,302 348,141
Accounts receivable (23,387) (1,866) (1,948) (2,013)
Prepaids (3,415) (1,233) (1,264) (1,295)
Accounts payable (73,391) 730 990 990
Accrued liabilities 4,865 2,378 2,446 2,510
--------- --------- --------- ---------
Net cash provided by operating activities 231,542 448,517 522,813 591,985
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Building and improvements (68,915) (350,000) (50,000) (60,000)
Furniture and equipment (21,808) -- -- --
--------- --------- --------- ---------
Net cash used in investing activities (90,723) (350,000) (50,000) (60,000)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable (1,311) (1,138) (692)
Mortgages (124,866) (137,258) (150,882) (165,855)
Bankruptcy claims -- (136,762) (264,921) (206,362)
Note, Nevada Sea -- 250,000 -- --
--------- --------- --------- ---------
Net cash used in financing activities (126,177) (25,158) (416,495) (372,217)
--------- --------- --------- ---------
NET INCREASE IN CASH 14,642 73,359 56,318 159,768
CASH, BEGINNING OF YEAR 111,492 126,134 199,493 255,811
--------- --------- --------- ---------
CASH, END OF YEAR $ 126,134 $ 199,493 $ 255,811 $ 415,579
========= ========= ========= =========
</TABLE>
See accompanying accountants' compilation report and
summary of significant projection assumptions.
-6-
<PAGE> 40
WESPAC INVESTORS TRUST III - MOTEL DIVISION
Summary of Significant Projection Assumptions
For the Years Ending December 31,
1995, 1996, 1997, and 1998
The Motel Division of WESTPAC Investors Trust III owns and operates three
motels in Spokane, Washington. The three facilities are: Comfort Inn North with
96 rooms, Comfort Inn Valley with 76 rooms, and the Friendship Inn near the
airport with 89 rooms. All three facilities are expected to remain in operation
during the projected period with occupancy rates as described in Note B.
NOTE A - Nature of the Projections
The accompanying projection is based on the hypothetical assumptions regarding
sales volume, expenses, and capitalization described in Note B through Note D.
The projection presents, to the best of management's knowledge and belief,
management's expected results of operations, changes in financial position, and
cash flows for the projection period if the hypothetical assumptions occur.
The presentation is designed to provide information for management based on the
assumptions herein and should not be considered to be a presentation of
expected future results. Accordingly, the projection may not be useful for
other purposes. The assumptions disclosed herein are those that management
believes are significant to the projection. Furthermore, even if the
hypothetical assumptions occur, there will usually be differences between the
projected and actual results, because events and circumstances frequently do
not occur as expected, and those differences may be material. In addition, the
assumptions disclosed are not all-inclusive and other management decisions
during the course of the projection may materially alter the expected outcomes
as presented here.
NOTE B - Revenues
Sales are projected to increase at an annual rate of 4%, due primarily to rate
increases and expected increases in occupancy rates. Management assumes that
occupancy will remain at around 68% at the three facilities with cyclical
periods of near maximum occupancy occurring in the summer months. Currently,
the occupancy rate at the Friendship Inn facility is around 55%, but that is
expected to increase to at or near 65% due to expected capital improvements as
described below in Note D.
NOTE C - Expenses
Labor costs are expected to remain fairly flat but a conservative estimate of a
1.25% increase is expected. Labor tends to remain flat for hourly workers due
to the high turnover in housekeeping and maintenance positions.
Other expenses are expected to increase at the rate of inflation, around 2%.
-7-
<PAGE> 41
WESPAC INVESTORS TRUST III - MOTEL DIVISION
Summary of Significant Projection Assumptions (Continued)
For the Years Ending December 31,
1995, 1996, 1997, and 1998
NOTE D - Depreciation
Capital improvements are anticipated to be made during the projection period as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $350,000
1997 50,000
1998 60,000
</TABLE>
Depreciation is calculated on a straight-line basis. Building and improvements
are depreciated over 30 years and furniture and equipment over 5 to 7 years.
Depreciation expense is expected to be as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $360,132
1996 390,549
1997 365,302
1998 348,141
</TABLE>
NOTE E - Accounts Receivable
The projection assumes that the Company's accounts receivable balances will be
approximately 28% of the average monthly sales for the year. The accounts
receivable will be cyclical and follow the sales cycle with an approximate
30-day lag period.
NOTE F - Notes Payable
Notes payable of approximately $3,300,000 will be due April 1, 1998. Management
expects to renegotiate the terms of the notes at that time and have the payback
period extended. This projection assumes that the notes will be renegotiated
before their due dates in 1998.
Notes payable for prior unrecorded claims are expected to be incurred in 1996.
A note to New Beach Partners for approximately $92,000 is to be paid at 8% over
5 years. Other claims are for prior tax claims and general unsecured claims.
The total tax claims known at December 31, 1995, is approximately $68,500.
General unsecured claims total approximately $639,000 at December 31, 1995. In
addition, the Company is expected to borrow $250,000 from Nevada Sea during
1996. This note will be payable at 8% over 2 years.
-8-
<PAGE> 42
WESPAC INVESTORS TRUST III - MOTEL DIVISION
Summary of Significant Projection Assumptions (Continued)
For the Years Ending December 31,
1995, 1996, 1997, and 1998
NOTE F - Notes Payable (continued)
Interest expense related to the notes payable during the projection period are
expected to be as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $345,809
1996 333,402
1997 319,751
1998 299,255
</TABLE>
Interest expense related to the New Beach Partner note, the Nevada Sea note,
the tax claims, and general unsecured claims is expected to be as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $47,236
1997 64,742
1998 44,153
</TABLE>
NOTE G - Equity
The Company is granting Medical Resources an allowed unsecured claim for the
sum of $800,000 which shall be paid through the issuance of 50% of all issued
and outstanding new common stock upon the effective date of the plan of
reorganization.
NOTE H - Income Taxes
No income tax expense has been provided in these projections based on the
assumption that the Company has a net operating loss carryover from prior years
to offset net income. If no net operating loss or credits are available, the
approximate tax expense would be:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1995 $ --
1996 10,000
1997 47,000
1998 81,000
</TABLE>
-9-
<PAGE> 1
EXHIBIT 2.3
CLAUDE F. BAILEY
Davidson, Bailey & Medeiros
1280 Seafirst Financial Center
601 West Riverside
Spokane, Washington 99201
(509) 624-4600
Attorney for Wespac Investors Trust III
IN THE UNITED STATES BANKRUPTCY COURT
IN AND FOR THE EASTERN DISTRICT OF WASHINGTON
In re: )
) NO. 94-00228-K11
WESPAC INVESTORS TRUST III, )
) Chapter 11
Debtor. )
- -------------------------------------
ORDER CONFIRMING PLAN OF REORGANIZATION
The Plan of Reorganization (As Modified) under Chapter 11 of the
Bankruptcy Code filed by Wespac Investors Trust III ("Wespac") on April 10,
1996 ("Plan"); and
It having been determined after hearing on notice that:
1. The Plan has been accepted by the creditors and equity
security holders whose acceptance is required by law; and
2. The provisions of Chapter 11 have been complied with; the Plan
has been proposed in good faith and not by any means forbidden by law; and
3. The Plan has been accepted by at least one class of creditors
whose claims are impaired, not including acceptance by insiders, to the extent
that there are classes of claims impaired by the Plan; and
Page 1
<PAGE> 2
4. With respect to each impaired class of claims or interests (i)
each holder of a claim or interest of such class has accepted the Plan or will
received or retain under the Plan property of value, as of the effective date
of the Plan, that is not less than the amount that such holder would receive or
retain if the Debtor were liquidated under Chapter 7 of this Title on such
date, or (ii) the Plan does not discriminate unfairly, and is fair and
equitable with respect to each class of claims or interests that is impaired
under, and has not accepted the Plan; and
5. With respect to each class of claims, as described in 11 USC
1123(a)(1), or interests: (i) such class has accepted the Plan or is not
impaired under the Plan, (ii) the Plan does not discriminate unfairly, and is
fair and equitable with respect to each class of claims or interests that is
impaired under, and has not accepted the Plan; and
6. All payments made or promised by the Debtor for services or
for costs and expenses in, or in connection with, the Plan and incident to the
case, have ben fully disclosed to the Court and are reasonable or, if to be
fixed after confirmation of the Plan, will be subject to approval of the Court;
and
7. The identity, qualifications, and affiliations of the persons
who are to be the trustees and managing agents of the Debtor after confirmation
of the Plan have been fully disclosed,
Page 2
<PAGE> 3
and the appointment of such persons and their continuance therein, is
equitable, and consistent with the interests of the creditors and equity
security holders and the reorganized Debtor shall have full authority to employ
said individuals pursuant to Section 5 of the Debtor's Plan; and
8. The reorganized Debtor shall have full authority to cancel all
issued and outstanding shares of Wespac and to reissue new common stock as
provided for by Section 4.6(a) of the Plan; and
9. Confirmation of the plan is not likely to be followed by
liquidation not provided for by the Plan, or the need for further financial
reorganization of the Debtors; and
10. The Chapter 11 case shall be deemed to be substantially
consummated pursuant to 11 U.S.C.1101(2) upon conclusion of all adversary and
contested matters, but in no event until sixty (60) days following the
effective date of the Plan. Upon substantial consummation, Wespac shall certify
the same to the Court, and seek entry of a Final Decree closing this case; and
11. The effective date shall be June 14, 1996.
IT IS HEREBY ORDERED that the Plan Of Reorganization (As Modified)
filed by the Debtor in Possession on April 10, 1996, as modified herein, be and
hereby is confirmed.
Page 3
<PAGE> 4
DATED this 15th day of May 1996.
/s/ JOHN M. KLOBUCHER
------------------------------
HONORABLE JOHN M. KLOBUCHER
United States Bankruptcy Judge
Presented by:
DAVIDSON, BAILEY & MEDEIROS
/s/ CLAUDE F. BAILEY
- -----------------------------
Claude Bailey
Attorney for Wespac Investors
Trust III
Page 4
<PAGE> 1
Exhibit 2.4
Dan O'Rourke
Smith & Southwell, P.S.
960 Paulsen Building
Spokane, Washington 99204
(509) 624-0159
Attorneys for Wespac Investors Trust III
IN THE UNITED STATES BANKRUPTCY COURT
IN AND FOR THE EASTERN DISTRICT OF WASHINGTON
IN RE ... Section NO. 94-00228-K11
Section IN PROCEEDINGS FOR A
WESPAC INVESTORS TRUST III Section REORGANIZATION UNDER
Section CHAPTER 11
Debtor Section
FIRST MODIFICATION TO
PLAN OF REORGANIZATION (AS MODIFIED)
TO THE HONORABLE JOHN M. KLOBUCHER, UNITED STATES BANKRUPTCY JUDGE:
COMES NOW Wespac Investors Trust III, the Debtor in this case, and
pursuant to Section 1127(b) of the Bankruptcy Code, submits this First
Modification to Plan of Reorganization (as modified) confirmed by Order
confirming Plan of Reorganization dated May 15, 1996, and entered May 20, 1996
(the "Confirmed Plan") to modify such confirmed Plan before substantial
consummation to provide for a procedure to re-domesticate the Debtor from
California to Nevada and to incorporate the Debtor, which procedure was
inadvertently omitted in the filed plan document.
The material submitted by this First Modification does not adversely
change the treatment of the claim of any party and cannot adversely affect the
claim of any party who voted for the Confirmed Plan and such Confirmed Plan, as
so modified, will continue to meet the requirements of Section 1122 and 1123 of
the Bankruptcy Code. Pursuant to Section 1127(b) of the Bankruptcy Code, the
proponent of a plan or the reorganized debtor may modify such plan at any time
after confirmation of such plan and before substantial consummation of such
plan, but may not modify such plan so that
FIRST MODIFICATION TO PLAN - PAGE 1
<PAGE> 2
such plan as modified fails to meet the requirements of Sections 1122 and 1123
of the Bankruptcy Code.
The Debtor proposes to modify the Confirmed Plan as follows:
1. Section 4 on page 6 of the Confirmed Plan shall be amended by
adding to the end of the existing language thereof a new subpart d. to read
hereafter as follows:
"d. Incorporation Procedure. By virtue of the past
eight years of almost continuous reorganization and
recapitalization proceedings involving Wespac, the equity
interests of Wespac resulting from the confirmation of the Plan
need the opportunity for a fresh start in a more normal
corporate atmosphere with some opportunity to obtain or have
available regular financing arrangements. Following
confirmation of the Plan and determination of the ultimate
expected recipients of the New Common Stock, but before actual
issuance of certificates representing such New Common Stock,
the identified new shareholders, including Nevada Sea, Medical
Resource and the holders of Allowed Interests of shareholders
of Old Common Stock described in subparts a. and b. of this
paragraph 4.6 (collectively referred to as the 'New
Shareholders'), Wespac shall propose to such New Shareholders
to convert the Trust from a California business trust into a
Nevada corporation through the 'Incorporation Procedure'
described below. Such proposal shall be submitted to only the
New Shareholders through an information statement in the form
annexed hereto as Exhibit '1' and incorporated herein, seeking
a vote by written ballot or proxy FOR or AGAINST the
Incorporation Procedure. If the New Shareholders approve such
Incorporation Procedure by the affirmative vote of at least a
majority in interest of the holders of the New Common Stock to
be issued, the Incorporation Procedure will be deemed to be
approved and shall be implemented as a part of the Execution of
Plan pursuant to Section 5 of the Plan. The Incorporation
Procedure consists of the following principal components:
"(i) Because no explicit statutory authority
permits a California business trust to become a
Nevada corporation directly or to merge directly with
and into a Nevada corporation, the Incorporation
Procedure will be accomplished by incorporating the
Trust in California (the 'California Corporation') by
a transfer of all of the assets of Wespac to,
together with assumption of all outstanding
liabilities of Wespac (including
FIRST MODIFICATION TO PLAN - PAGE 2
<PAGE> 3
all responsibilities under the Plan) by, the
California Corporation and subsequently merging the
California Corporation (as a successor to Wespac)
with and into its wholly-owned Nevada subsidiary
corporation (the 'Merger'). The Board of Trustees
will cause the Nevada corporation to be organized in
Nevada to facilitate the Incorporation Procedure.
Prior to the Merger, the Nevada corporation will have
no significant business assets or liabilities of any
consequence and no operating history.
"(ii) Paragraph 12.3 of the First Amended
and Restated Declaration of Trust, dated November 10,
1983 (the 'Declaration of Trust'), makes provision
for transfer to a successor upon a vote of a majority
of the trustees, after receiving the affirmative vote
of a majority of the shares outstanding at any
meeting, the notice for which included a statement of
such proposed amendment, or by an instrument or
instruments in writing signed by the holders of not
less than a majority of such shares consenting
thereto without a meeting, to 'sell, convey and
transfer the Trust property to any such corporation,
association, trust or organization in exchange for
shares or securities or beneficial interests therein
and the assumption by such transferee of the
liabilities of the Trust.'
"(iii) Simultaneously with the creation of
the California Corporation, a merger agreement
between the California Corporation and the Nevada
corporation will provide for the merger of the
California Corporation with and into the Nevada
corporation so that the California Corporation would
cease to exist and the Nevada corporation would be
the surviving corporation, the Nevada corporation
would issue one share of its common stock, par value
$0.01 per share, in exchange for each share of the
California Corporation stock (which is the successor
to the New Common Stock), and all shares of the
Nevada corporation held by the California Corporation
would be cancelled. The effect shall be that the New
Shareholders of the California Corporation (which
were to be the holders of the New Common Stock of
Wespac) will become the stockholders of the Nevada
corporation without any change in percentage
ownership, the California Corporation and Wespac as a
trust would cease to exist, and the Nevada
corporation would
FIRST MODIFICATION TO PLAN - PAGE 3
<PAGE> 4
succeed to all of the rights and properties and be
subject to all of the obligations and liabilities of
Wespac including performance under the Plan.
"(iv) Finally, to effectuate the conversion
of Wespac to a Nevada corporation, Articles of Merger
will have to be filed with the Secretaries of State
of Nevada and California to effect the Merger.
"(v) Under Section 1103 of the California
Corporation Code, approval of shares under Sections
152 and 1201 which constitute a majority of the
outstanding shares (i.e. at least 50% of the New
Common Stock to be issued) is required to approve the
Incorporation Procedure. No dissenters' rights of
appraisal would be available under Section 1400 of
the California Corporation Code by virtue of this
proceeding and the implementation of the
Incorporation Procedure through the Plan.
"(vi) At the time of final consummation of
the Plan, the New Shareholders would receive
certificates representing shares of common stock, par
value $0.01 per share, of the Nevada corporation.
2. Section 5 on pages 7 and 8 of the Confirmed Plan shall be
amended by deleting the last sentence of the last paragraph on page 7 which
carries over to page 8, and replacing such language with the sentence set forth
below (old language is lined through):
(deleted language) Wespac shall call an organizational meeting
of shareholders and trustees within six months of the effective date
of the Plan to elect trustees, directors and officers, who will
thereafter serve for a period of one (1) year or until their
successors are duly qualified and elected.
(replacement language) Through the Incorporation Procedure, if
the new Shareholders approve such Incorporation Procedure, the
directors named in the Articles of Incorporation of the Nevada
corporation will serve as the directors of the resulting entity until
the first annual meeting of shareholders to be held in accordance with
the
FIRST MODIFICATION TO PLAN - PAGE 4
<PAGE> 5
requirements of the law. In the event the Incorporation Procedure is
not approved by the new Shareholders, Wespac shall call an annual
meeting of shareholders to be scheduled at such time as designated by
the trustees during 1997 as may be appropriate following Wespac
obtaining audited financial statements for the fiscal year ending
December 31, 1996, and becoming current with SEC reporting
requirements.
Except to the extent amended by the foregoing provisions, the
original text of the Confirmed Plan as previously filed remains unchanged.
DATED: October, 22 1996.
Respectfully submitted,TRUST III
WESPAC INVESTORS TRUST III
By /s/ F. TERRY SHUMATE
----------------------------------
F. Terry Shumate, Trustee
FIRST MODIFICATION TO PLAN - PAGE 5
<PAGE> 6
EXHIBIT 1
IN THE UNITED STATES BANKRUPTCY COURT
IN AND FOR THE EASTERN DISTRICT OF WASHINGTON
IN RE ... ) NO. 94-00228-K11
) IN PROCEEDINGS FOR A
WESPAC INVESTORS TRUST III ) REORGANIZATION UNDER
) CHAPTER 11
Debtor )
INFORMATION STATEMENT
TO: ALL EQUITY SECURITY HOLDERS OF
WESPAC INVESTORS TRUST III
PLEASE TAKE NOTICE that a vote of the Equity Security Holders of
Wespac Investors Trust III, a California business trust ("Wespac" or the
"Trust") will be conducted by written ballot to be delivered prior to 12:00
noon (Spokane, Washington time), on November 29, 1996, at TranSecurities
International, Inc., 2510 North Pines, Suite 202, Spokane, Washington 99206,
on a unified proposal to change the name of, and convert the Trust from a
California business trust into a Nevada corporation through the "Incorporation
Procedure" described in this Information Statement.
This Information Statement is being submitted to the Equity Security
Holders of the Trust in accordance with the requirements of the First
Modification to Plan of Reorganization (as modified) approved by Order of the
Court entered October 29, 1996, pursuant to Section 1127(b) of the Bankruptcy
Code.
The principal components of the Incorporation Procedure are:
(i) because no explicit statutory authority permits a
California business trust to become a Nevada corporation directly or
to merge directly with and into a Nevada corporation, the
Incorporation Procedure is to be accomplished by incorporating the
Trust in California (the "California Corporation") by transfer of all
of the assets of Wespac to, together with the assumption of all
outstanding liabilities of Wespac (including all responsibilities
under the "Confirmed Plan" [as defined below]) by, the California
Corporation and the Shares of the Trust to be outstanding under the
Confirmed Plan are deemed to be the shares of common stock of the
California Corporation held by the Equity Security Holders of Wespac
on a one-for-one basis;
(ii) subsequent to creation of the California Corporation as
a successor to Wespac, a merger agreement will be entered into between
the California Corporation and a newly-formed Nevada corporation to
provide for the merger of the California Corporation with and into the
Nevada corporation so that the California Corporation would cease to
exist and the Nevada corporation would be the surviving corporation,
with the Nevada corporation issuing one share of its common stock, par
value $0.01 per share, in exchange for each share of the California
Corporation's stock (which is the successor to the Wespac shares of
beneficial interest and represented by the certificates) and all
shares of the Nevada corporation held by the California Corporation
would be cancelled;
(iii) the Board of Trustees will cause the Nevada corporation
to be organized in Nevada to facilitate the Incorporation Procedure as
a wholly-owned subsidiary of the California Corporation, and prior to
such merger, the Nevada corporation will have no significant business
assets or liabilities of any consequence and no operating history;
1
<PAGE> 7
(iv) finally, to effectuate the conversion of Wespac to a
Nevada corporation, Articles of Merger of the California Corporation
with and into the Nevada corporation will have to be filed with the
Secretaries of State of Nevada and California to effect the merger.
The effect shall be that the Equity Security Holders of Wespac pursuant to
Section 4 of the Confirmed Plan will become the stockholders of the Nevada
corporation without any change in percentage ownership, the California
Corporation and Wespac, as a trust, would cease to exist, the Nevada
corporation would succeed to all of the rights and properties and be subject to
all of the obligations and liabilities of Wespac, including performance under
the Confirmed Plan and the shares of common stock of the Nevada corporation
will be distributed to the Equity Security Holders of Wespac on a one-for-one
basis.
If the Equity Security Holders of Wespac approve the proposed
Incorporation Procedure, each of the current Trustees of the Trust would serve
as a director of the Nevada corporation until such person's initial term
expires under the Nevada corporation's Articles of Incorporation or until a
successor is elected. The Nevada corporation would succeed to and assume, by
operation of law, all rights and obligations of the Trust.
Only Equity Security Holders of Wespac of record at the close of
business on Thursday, October 31, 1996, will be entitled to vote on the
Incorporation Procedure. No meeting of such Equity Security Holders is to be
held, such vote is to be conducted by written ballot delivered prior to the
specified time at the address specified below and on such ballot.
<PAGE> 8
Regardless of any other matter which involved Wespac in the past, each
Equity Security Holder receiving this Information Statement is encouraged to
promptly date, mark, sign and mail the enclosed ballot card to the transfer
agent for the Trust, TranSecurities International, Inc., 2510 North Pines,
Suite 202, Spokane, Washington 99206.
GENERAL INFORMATION
Wespac is a California business trust originally formed August 22,
1983. The original trustees apparently intended that the Trust was to be
self-liquidating, with the net proceeds derived from sales of existing
properties of the Trust (less certain reserves), if any, paid out to
shareholders rather than re-invested in other properties. During January 1988,
four of the elected trustees resigned pursuant to an agreement with US Real
Estate Advisors, Inc. ("USREA"), a privately-held California corporation, and
four new trustees were elected, all of whom were officers of USREA. Also
during January 1988, the Trust entered into certain financing arrangements with
USREA and, on April 13, 1988, the Trustees who were also officers of USREA
caused Wespac to file for protection under Chapter 11 of the United States
Bankruptcy Code (the "1988 Reorganization") which resulted in a plan of
reorganization approved and confirmed by the Court on March 29, 1989, with
certain amendments. The 1988 Reorganization was closed by the Court on August
21, 1992.
The current Chapter 11 case was filed on January 27, 1994, and styled
In re Wespac Investors Trust III, Case No. 94-00228-K11, in the United States
Bankruptcy Court in and for the Eastern District of Washington (the "Bankruptcy
Proceeding"), to seek a restructuring of the assets and liabilities of Wespac,
primarily in response to certain litigation that resulted in at least one
judgment. A plan of reorganization dated March 22, 1996 (as modified) was
confirmed by Order Confirming Plan of Reorganization dated May 15, 1996,
entered May 20, 1996 (the "Confirmed Plan").
During the past eight years, Wespac has been (i) the subject of
reorganization proceedings in the 1988 Reorganization, (ii) a party to various
items of litigation and one judgment, (iii) required to continuously reorganize
and sort out its affairs, (iv) subject of the Bankruptcy Proceeding, and (v)
confused with other entities bearing the same or similar names, including
Wespac Investors Trust II, a California real estate investment trust formed at
approximately the same time as the Trust and which has been the subject of
bankruptcy proceedings in the Central District of California. In addition, a
number of individuals who formally controlled significant portions of the
equity interest of the Trust or were officers or trustees of the Trust have
been the subject of litigation relating to and involving the Trust or such
individuals' activities with respect to the Trust.
The Board of Trustees reviewed the operational and governance history
of the Trust, its reputation, its prospects upon the eve of issuance of a Final
Decree with respect to the Confirmed Plan and emergence from the Bankruptcy
Proceeding, and has concluded that it would be appropriate to give the Trust a
fresh start by changing the name of the Trust and causing re-domestication and
incorporation of the Trust under the laws of the State of Nevada to move
forward as a regular corporation. Accordingly, the Board of Trustees is
recommending to the Equity Security Holders of the Trust pursuant to the
Confirmed Plan (the "Shareholders") implementation of the Incorporation
Procedure.
INTERESTS OF EQUITY SECURITY HOLDERS (SHAREHOLDERS)
Pursuant to the Confirmed Plan, Class 6 consisted of Allowed Interests
of Shareholders in "Old Common Stock," all of which was cancelled on the
Effective Date of the Confirmed Plan with one share of beneficial interest of
the Trust deemed to be exchanged for each share of Allowed Interest, other than
Greenbriar Corporation, who were then to hold in the aggregate 25% of the new
Shares of Beneficial Interest. After objections to proofs of interest
demonstrating an interest in Wespac Investors Trust II ("Trust II"), it was
determined that the Allowed Interests of such holders were equivalent to
2,643,498 Shares of Beneficial Interest.
Also pursuant to the Confirmed Plan, upon the Effective Date,
Greenbriar Corporation reduced its claim to the so-called "USREA Shares"
acquired from Zemco to equal 25% of the Allowed Interests (a total of 2,635,331
Shares of Beneficial Interest) and Nevada Sea was deemed to exercise its option
to receive such Shares of Beneficial Interest. In addition, in the compromise
of its creditors' claim, Greenbriar Corporation was to receive, pursuant to the
Confirmed Plan, 50% of the issued and outstanding Shares of Beneficial
Interest, but prior to the Effective Date of the Confirmed Plan, by agreement,
Greenbriar Corporation entered into an arrangement pursuant to which Greenbriar
Corporation conveyed to Nevada Sea an undivided 50% in and to the creditors'
claim resulting in an undivided 25% out of and aggregate of 50% of the new
Shares of Beneficial Interest of the Trust to be issued, on a "when issued"
basis, to Nevada Sea in consideration of cancellation of certain indebtedness.
As a result, as of the Record Date, there were deemed to be 10,573,992 Shares
of Beneficial Interest, no par value, of the Trust available for issuance to
Shareholders, of which 2,635,331 Shares are issuable to the public
shareholders, 2,643,498 Shares are issuable to Greenbriar Corporation (an
aggregate of 25% of such Shares) and 5,286,996 Shares of Beneficial Interest
are issuable to Nevada Sea (an aggregate of 50% of such Shares).
In order to insure that the correct number of Shares are issued to
Greenbriar Corporation and Nevada Sea, the Trust, Nevada Sea and Greenbriar
Corporation have entered into that certain Share Settlement Agreement dated as
of May 31, 1996 (the "Share Settlement Agreement") pursuant to which, in the
event it is determined for whatever reason either too many or too few Shares
have been issued to Nevada Sea and/or Greenbriar Corporation so that either or
both hold in excess of or less than the required number of issued and
outstanding Shares of the Trust pursuant to the Confirmed Plan when such Shares
are issued, the Trust has agreed to either issue additional Shares or Nevada
Sea and/or Greenbriar Corporation are to return to the Trust for cancellation
such number of Shares as will make the percentages work out to the required
percentages pursuant to the Confirmed Plan.
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SHAREHOLDERS ENTITLED TO VOTE
Following confirmation of the Plan, a determination was been made of
expected recipients of the new Shares of Beneficial Interest of the Trust to be
issued, who are deemed to be the holders of record of such Shares of Beneficial
Interest, no par value, of the Trust as of the close of business on October 31,
1996 (the "Record Date"), who are entitled to vote upon approval of the
Incorporation Procedure. At the Record Date, there were deemed to be
10,573,992 Shares of Beneficial Interest, no par value, of the Trust available
for issuance to such Shareholders. Each holder is entitled to one vote for
each share deemed held on the Record Date. As of such date, Nevada Sea
Investments, Inc., a Nevada corporation ("Nevada Sea"), held of record 50% of
such Shares and Greenbriar Corporation (formerly Medical Resource Companies of
America) held of record 25% of such Shares. Nevada Sea and Greenbriar
Corporation have each advised the Trustees that they intend to vote all Shares
in favor of approval of the Incorporation Procedure.
VOTING
When the enclosed ballot is properly executed and returned, the shares
represented thereby will be voted in accordance with the instructions noted
thereon. Any abstentions will be included in vote totals and, as such, will
have the same effect on the 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
the proposal. In the absence of any other instruction, the shares represented
by properly executed and submitted ballot will be voted in favor of the
Incorporation Procedure.
VOTE REQUIRED FOR APPROVAL
Pursuant to paragraph 12.3 of the Declaration of Trust, approval of
the Incorporation Procedure requires the affirmative vote of a majority of the
shares deemed outstanding and entitled to vote thereon. Such provision also
requires the vote of a majority of the Trustees to transfer to a successor
after receiving the affirmative vote of a majority of the shares deemed
outstanding. The Trustees have unanimously recommended the Incorporation
Procedure and intend to vote in favor of implementation thereof, assuming
receipt of approval from a majority of the shares deemed outstanding by a vote
in favor of the Incorporation Procedure.
REVOCATION OF BALLOT
A ballot is enclosed herewith. Any Shareholder who executes and
delivers the ballot may revoke the authority granted thereunder at any time
prior to the scheduled expiration time for receipt of such ballots by giving
written notice of such revocation to the Board of Trustees of the Trust or by
executing and delivering a ballot bearing a later date.
PROPOSED INCORPORATION PROCEDURE
GENERAL
To provide the Trust with an enhanced opportunity for long-term
planning, flexibility and long-term growth, the Board of Trustees has approved,
and recommends adoption by the Shareholders of, a proposal that the Trust be
transformed from a California business trust into a Nevada corporation that
would have perpetual duration. The alternatives considered by the Board of
Trustees included (i) continuing as a finite life business trust, holding its
properties until the Trust's termination; (ii) liquidating the assets of the
Trust; and (iii) the Incorporation Procedure. Based on the Trustees' knowledge
of the general economic and financial conditions to which the Trust and its
assets are subject, the Board of Trustees adopted the Incorporation Procedure
as the option most likely to ultimately maximize returns to Shareholders.
Because no explicit statutory authority permits a California business
trust to become a Nevada corporation directly or to merge directly with and
into a Nevada corporation, the Incorporation Procedure would be accomplished by
incorporating the Trust in California, and merging the California Corporation
(as successor to the Trust) with and into a wholly-owned Nevada subsidiary
corporation (the "Merger"). The Board of trustees will cause the Nevada
corporation to be organized in Nevada to facilitate the Incorporation
Procedure. Prior to the Merger, the Nevada corporation will have no
significant business assets or liabilities of any consequence and no operating
history. The name of the resulting entity will be First Equity Properties,
Inc. which is to be the name of the Nevada corporation at the time of its
incorporation.
The Merger will be accomplished pursuant to the terms of the proposed
agreement and plan of merger (the "Agreement and Plan of Merger"). As a result
of the Merger, (i) the California Corporation would cease to exist as a
separate entity, (ii) the Nevada corporation, by operation of law, would
succeed to all the rights and properties, and be subject to all the obligations
and liabilities of the Trust incorporated as the California Corporation
including those under the Confirmed Plan, (iii) each of the current Trustees of
the Trust would continue to serve as a director of the Nevada corporation until
his initial term expires under the Nevada corporation's Articles of
Incorporation or until a successor is elected and (iv) existing Shareholders
would automatically become stockholders of the Nevada corporation by the deemed
simultaneous exchange of all shares of the California Corporation (the
successor to the Trust) for newly issued Nevada Common Stock on a basis of a
one-for-one exchange (the "One-for-One Exchange"). The issuance of Nevada
Common Stock via the One-for-One Exchange will not affect the proportionate
security holdings of any Shareholder of the Trust, either individually or in a
group.
Shareholders will not be required to surrender any of their
certificates held representing shares of beneficial interest no par value of
the Trust (an "Old Share") in exchange for Nevada Common Stock certificates.
If the Shareholders approve the Incorporation Procedure and
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if it is implemented, Shareholders will receive a certificate representing the
number of shares of Nevada Common Stock to which they are entitled from
TranSecurities International, Inc. in Spokane, Washington (the transfer agent
for the Trust and the Nevada corporation).
SHAREHOLDERS OF THE TRUST WILL NOT HAVE ANY DISSENTERS'
RIGHTS OF APPRAISAL WITH RESPECT TO THE INCORPORATION PROCEDURE
Although the Trust has not applied to the Internal Revenue Service for
a ruling (because of the cost and time involved) to confirm that the
Incorporation Procedure will qualify as a reorganization under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"),
management has been advised that the Incorporation Procedure will qualify as a
reorganization under the Code and that the Nevada corporation will be treated
as the same taxpayer as the Trust for federal income tax purposes. The result
is that the conversion of the Trust into the Nevada corporation will be
irrelevant for federal income tax purposes, have no effect upon any loss
carryforward of the Trust and no gain or loss will be recognized by the Trust
as a result of such transaction. Since the Trust has not qualified as a "real
estate investment trust" for several years, and is subject to treatment as a
corporation for federal tax purposes, the Incorporation Procedure will have no
effect upon that status.
The discussion of the principal terms of the Merger contained herein
is qualified in its entirety by reference to the Agreement and Plan of Merger.
THE PROPOSED INCORPORATION PROCEDURE IS A SINGLE UNIFIED PROPOSAL TO BE
APPROVED OR REJECTED BY SHAREHOLDERS IN ITS ENTIRETY. If Shareholders do not
approve the Incorporation Procedure, the Trust would not incorporate in
California, the formation of the Nevada corporation as a wholly-owned
subsidiary of the Trust will not occur, and the Merger with the Nevada
corporation and the attendant One-for-One Exchange will not occur. Rather, the
Trust would continue to operate as an unincorporated California business trust,
subject to the provisions set forth in the First Amended and Restated
Declaration of Trust dated November 10, 1983 (the "Declaration of Trust").
PRINCIPAL REASONS FOR THE INCORPORATION PROCEDURE
The members of the Board of Trustees believe the Trust needs a fresh
start with a new name and that the Incorporation Procedure will afford the
Nevada corporation (i) the opportunity for enhanced long-range planning,
flexibility and long-term growth as a perpetual-life corporation as opposed to
the more limited alternatives of a business trust, (ii) certain acquisition
safeguards not available to the Trust, which safeguards are designed to (a)
discourage unsolicited, non-negotiated takeover attempts that can be unfair to
stockholders, pressure management and disrupt the operational continuity,
long-range planning and long-term growth of the business of the Nevada
corporation as successor to the Trust and (b) encourage persons who may wish to
make a bona fide offer to acquire the Nevada corporation to negotiate with the
Board of Directors in good faith and to submit a proposal that is fair and
equitable to the Nevada corporation and all its stockholders and (iii) greater
legal certainty in matters of corporate governance and indemnification as a
corporation as opposed to a business trust and hence greater predictability in
the conduct of its business as a corporation under Nevada law. Because no
substantial body of law has developed concerning the legal status, rights,
obligations and liabilities of business trusts and their trustees and
shareholders, there is a degree of uncertainty as to the legal principles
applicable to business trusts under the laws of the various states, including
California, the jurisdiction of organization of the Trust. By contrast, the
status, rights, obligations and liabilities of the stockholders, officers and
directors of a corporation are governed not only by a corporation's charter
documents, but also by comprehensive statutes and a body of case law
interpreting those statutes and their application to a corporation and its
charter documents. The Board of Trustees believes that the Articles of
Incorporation of the Nevada corporation, coupled with the existence of a
growing body of Nevada corporate law, would allow the Nevada corporation to
plan the legal aspects of its future activities with more certainty and
predictability than currently exists with respect to the Declaration of Trust
and the less well-defined provisions of law currently applicable to the
operations of a business trust.
Consummation of the Incorporation Procedure is contingent upon
Shareholder approval of the Incorporation Procedure. Pursuant to the
California General Corporation Law, the affirmative vote of the holders of a
majority of the outstanding Shares will be required to approve the
Incorporation Procedure. In addition, Section 12.3 of the Declaration of Trust
requires a vote of a majority of the Trustees and of the Shareholders to
approve the Incorporation Procedure. The Trustees have unanimously approved
the Incorporation Procedure.
The Board of Trustees may, in its discretion and without further
approval by Shareholders, abandon the proposed Incorporation Procedure, in
whole or in part, at any time before the Merger is effective if any event
occurs that, in the Board's opinion, makes consummation of any part of the
Incorporation Procedure inadvisable. The Trustees anticipate consummating the
Incorporation Procedure as promptly as practicable after approval by the
Shareholders.
GREATER LEGAL CERTAINTY
The Trustees urge Shareholders to adopt the Incorporation Procedure
because it will convert the Trust from a California business trust to the more
legally certain and predictable form of a Nevada corporation. For the purpose
of carrying on a business enterprise, the business trust is an adaptation of
the traditional common law trust. Business trusts are entities created by
agreement or under a governing document, such as the Declaration of Trust, for
which there is no prescribed form. Accordingly, the powers, rights and
obligations of the Trustees and Shareholders of the Trust are determined to a
large extent by contractual interpretation, rather than by reference to powers
or privileges under any statute.
Unlike a corporation, many basic legal issues affecting a business
trust are not determined by a body of statutory law, but must be spelled out in
the declaration of trust. Subject to overriding principles of common law, the
declaration of trust serves as a substitute for a
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corporate statute. Thus, management and shareholders of business trusts must
look to the trust instrument or common law to determine questions which would
usually be answered by a corporation statute if that form were selected. On
the other hand, state corporation statutes generally provide detailed and
comprehensive rules concerning corporate organization, the composition,
election, and duties of boards of directors and corporate officers, the form
and issuance of equity shares (including voting, dividend, and merger rights),
rules of meetings, mergers, reorganizations, dissolutions, and derivative
actions. Moreover, many matters not detailed in the statutes are usually
covered by a well developed body of case law.
Although the business trust form is regarded as legal and valid in
California, the jurisdiction of organization of the Trust, no substantial body
of law has developed concerning the legal status, rights, obligations and
liabilities of business trusts and their trustees and shareholders, and there
is a degree of uncertainty as to the legal principles applicable to business
trusts under the laws of California. For example, although the trustees of a
business trust are clearly fiduciaries owing a duty as such to the trust and
its shareholders, it might be asserted that their fiduciary duties are governed
by principles of law and equity applicable to traditional common law trusts,
rather than by the standards of care, loyalty and business judgment applied to
the directors of a corporation and by the standards defined in the governing
trust documents.
By contrast, the status, rights, obligations and liabilities of the
stockholders, officers and directors of a corporation are governed not only by
a corporation's charter documents, but also by comprehensive statutes and a
body of case law interpreting those statutes and their application to a
corporation and its charter documents. The existence of a more well-defined
body of law allows a corporation to plan the legal aspects of its future
activities with more certainty and predictability than currently exists with
respect to the Declaration of Trust and the less well-defined provisions of law
currently applicable to the operations of a business trust. Additionally,
state law governing qualification of an out-of-state business entity to
transact business is generally clearer for corporations than for business
trusts. Furthermore, corporations are far more numerous than business trusts
and are more familiar to investors or persons doing or proposing to do business
with a company.
Nevada has been selected as the proposed new governing jurisdiction
because, among other reasons, the Trustees believe that the Nevada Revised
Statutes ("NRS") set forth modern statutes that will meet the business needs of
the Trust once the Incorporation Procedure is effected. The NRS is regarded as
an extensive and modern corporate statute. In adopting the NRS, the
legislature in Nevada has demonstrated an ability and willingness to act
quickly and effectively to meet businesses' changing needs. For many years,
Nevada has followed a policy of encouraging incorporation in that state and, in
furtherance of that policy, has adopted comprehensive, modern, flexible
corporate statutes (very similar to those in effect in Delaware) that are
periodically updated and reviewed to meet changing business needs. The Trust's
Board of Trustees believes that the Incorporation Procedure will allow the
Nevada corporation to plan the continuing legal aspects of its future
activities with more certainty and predictability than presently exists with
respect to the Declaration of Trust and the less-well defined provisions of law
currently applicable to the operations of a business trust. This certainty and
predictability could be beneficial in attracting and retaining qualified
management for the Nevada corporation, in part because Nevada corporate law
provides, among other things, for a greater degree (and greater clarity) in
indemnification of directors and officers than is found with respect to
California business trusts. Incorporating in Nevada will also enable the Trust
to avoid significant annual franchise taxes assessed in certain other states of
incorporation. Further, the Nevada corporation, as a corporation incorporated
in Nevada, will not be required to pay annual franchise or income taxes. The
only annual corporate fee in Nevada which the Nevada corporation will be
required to pay is an $85 filing fee.
REPLACEMENT OF THE FIXED-LIFE TRUST WITH A PERPETUAL-LIFE CORPORATION
The Trustees urge Shareholders to adopt the Incorporation Procedure
because, among other things, it will replace the limited duration Trust with a
perpetual-life corporation that the Board of Trustees believes will have more
flexibility in holding and liquidating investments to enhance long-range
planning and long-term growth. Corporations may provide for perpetual
existence, while even non-liquidating business trusts generally have only
limited duration.
Section 12.2 of the Declaration of Trust provides that the Trust shall
continue until the expiration of twenty years after the death of the last
survivor among the initial four Trustees. Such individuals, assuming regular
mortality, could live up to another forty years or more, but no assurance can
be made that such assumption is correct. While it can conceivably be argued
that the Trust's finite term may be another 40 to 60 years (which might be
viewed by some as equivalent to perpetual existence), that termination may
occur sooner. The Trust may also be terminated by the vote or consent of
holders of a majority of all outstanding Shares. In contrast, the Nevada
corporation provides for perpetual duration, unless it is terminated by its
Board of Directors acting with stockholder consent. The finite life provisions
make it more difficult for the Trust to obtain bank credit by potentially
impairing a lender's position. Consequently, the Trust might be required in
the future to maintain much greater cash reserves if the finite life provision
is continued. The Trust will have to expend funds to maintain its properties
regardless of whether the Incorporation Procedure is adopted. Although the
amount of such expenditures might be less in the short term and is expected to
be greater over the long term if the Incorporation Procedure is adopted, it is
anticipated that the Trust may, in time, have greater access to bank credit to
the extent that its assets are not encumbered to finance future renovations and
improvements.
THE ONE-FOR-ONE EXCHANGE OF SHARES
As part of the Merger, existing Shareholders of the Trust resulting
from the Plan would automatically become stockholders of the Nevada corporation
by the deemed exchange of all shares of the California corporation for newly
issued Nevada Common Stock on the basis of the One-for-One Exchange. Each
share of Nevada Common Stock would have $0.01 par value, unlike each existing
Share of the Trust, which has no par value. The One-for-One Exchange would
result in issuance by the Nevada corporation of a number of shares of Nevada
Common Stock equal to the number of Shares of the Trust deemed to be
outstanding under the Confirmed Plan immediately before commencement of the
Incorporation Procedure. The One-for-One Exchange will not affect any
Shareholder's proportionate equity interest in the Trust. Upon
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consummation of the Incorporation Procedure, each outstanding share of Nevada
Common Stock shall be entitled to one vote at each meeting of stockholders, as
is the case with each currently outstanding Share of the Trust. Prices for the
Nevada corporation Common Stock will ultimately be determined in the
marketplace and may be influenced by many factors, including investor
perception of the changes effected through the Incorporation Procedure.
Assuming the proposed Incorporation Procedure is approved, Shareholders will be
furnished with certificates representing Nevada Common Stock and will not be
required to surrender certificates representing old shares.
COMPARISON OF PRINCIPAL DIFFERENCES BETWEEN THE TRUST AND THE NEVADA
CORPORATION.
If the proposed Incorporation Procedure is approved and consummated,
the business of the Trust will be conducted by the Nevada corporation rather
than by a business trust organized under the laws of the State of California.
The rights and powers of the Trust and its Shareholders and Trustees currently
are governed primarily by the Declaration of Trust and the Bylaws and, to a
lesser extent, by California business trust law, while those of the Nevada
corporation and its stockholders and directors would be governed by Articles of
Incorporation and Bylaws and by Nevada corporate law. Set forth below is a
comparison of principal differences between those respective rights and powers.
Although the Trustees believe that the following discussion sets forth the
material differences between the rights of Shareholders of the Trust and
stockholders of the Nevada corporation, the comparison does not purport to be a
complete statement of all differences and is qualified in its entirety by
reference to the proposed Articles of Incorporation and Bylaws of the Nevada
corporation and the Declaration of Trust and the Trustees' Regulations. The
full text of the Nevada corporation's Articles of Incorporation and Bylaws as
well as a copy of the Agreement and Plan of Merger are available to
Shareholders upon written request at no charge to Wespac Investors Trust III,
10670 North Central Expressway, Suite 501, Dallas, Texas 75231, Attention:
Secretary.
MANAGEMENT AFTER INCORPORATION PROCEDURE
CONSTITUENCY OF THE BOARD. The current Board of Trustees consists of
three members. The proposed Articles of Incorporation of the Nevada
corporation sets the number of initial directors at three. The exact number of
directors may be fixed or changed by the affirmative vote of a majority of the
entire Board of Directors, from time to time, within the limits set by the
Articles of Incorporation. By comparison, the Declaration of Trust provides
that the number of Trustees shall be no less than three nor more than fifteen
as determined by the vote of the Shareholders of the Trust or the Trustees.
Notwithstanding any limitation on the maximum number of directors in the
Articles of Incorporation, whenever the Nevada corporation issues preferred
stock and gives its holders the right to elect a director at an annual or
special meeting of stockholders, then the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Articles of Incorporation or the resolution(s) adopted by the
Board of Directors applicable thereto. Any vacancy on the Board of Directors
of the Nevada corporation will be filled by a vote of the majority of the
directors then in office or by a sole remaining director. Any director elected
to fill a vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his predecessor. The Declaration
of Trust provides for filling Board of Trustees vacancies by the remaining
Trustees or by the vote or consent of a majority of the outstanding shares
entitled to vote thereon.
The Declaration of Trust requires that a majority of Trustees be
persons who are not affiliates of the Advisor (Section 3.3). Under the
Declaration of Trust, "Affiliate" is defined "as to any person, any other
person who owns beneficially, directly, or indirectly, 5% 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 of such person or of any other person which controls, is controlled by,
or is under common control with, such person." Under the Declaration of Trust,
"Person" includes "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." By contrast, Article SIXTH of the Articles of
Incorporation does not require that any of the Nevada corporation's directors
be independent of the advisor or any other person. It should be noted,
however, that at present the Trust has no contractual advisor.
THE DIRECTOR REMOVAL PROVISION. Under Article ELEVENTH of the
Articles of Incorporation (the "Director Removal Provision"), each director of
the Board may be removed only by the affirmative vote of the holders of not
less than two-thirds of the outstanding stock of the Nevada corporation then
entitled to vote for the election of such director. By contrast, under the
Declaration of Trust, Trustees may be removed by vote or consent of the holders
of two-thirds of the outstanding Shares entitled to vote thereon, or by
two-thirds of the Trustees.
THE NEVADA CORPORATION'S ADVISOR. Article THIRTEENTH of the Articles
of Incorporation provides that the Board of Directors may authorize advisory
agreements. There is no requirement that the Board of Directors obtain
stockholder approval prior to any renewal or modification of such advisory
agreements (although the Board of Directors intends to continue this practice).
In contrast, the Declaration of Trust currently requires that all advisory
agreements have an initial term of no more than two years and provide for
annual renewal extension thereafter, subject to shareholder approval. The
Declaration of Trust also provides for termination of advisory agreements
without penalty by the Board of Trustees (by majority vote including a majority
of unaffiliated Trustees) upon 60 days' written notice. The Nevada
corporation's Articles of Incorporation leave termination provisions regarding
advisory agreements to the negotiation of the parties. Neither the Nevada
corporation's Articles of Incorporation nor the Declaration of Trust requires
shareholder approval for the selection of the advisor, per se. Transactions of
the Nevada corporation with any advisor or affiliate thereof would be governed
by the NRS and the unified related-party provisions contained in Article
FOURTEENTH of the Articles of Incorporation. Prior to entering certain related
party transactions, except certain specified contracts including an advisory
agreement, the Board of Directors would be required to agree that the
transaction is in the best interest of the corporation and that no other
opportunity exists that is as good as the opportunity presented by such
transaction. Direct contractual agreements for services, such as an advisory
agreement between the Nevada corporation and an advisor, would require the
prior approval of
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a majority of the directors. The Articles of Incorporation impose fewer
explicit restrictions on compensation of the Nevada corporation's advisor than
does the Declaration of Trust. Article THIRTEENTH of the Articles of
Incorporation provides that the compensation payable under an advisory
agreement must be approved as "fair and equitable" by the Board of Directors,
and the Restrictions on Related-Party Transactions Provision also applies to
compensation of the advisor.
LIABILITY OF CERTAIN PERSONS
THE MANAGEMENT LIABILITY PROVISION. The Incorporation Procedure will
enable the Nevada corporation to define the liability of corporate officers and
directors with greater precision. The Board of Trustees believes that limited
liability will help retain and attract the best possible officers and
directors. Currently, each of the Trustees has been offered contractual
indemnification to the fullest extent permitted by the Declaration of Trust or
to the fullest extent not prohibited under applicable law. Under the
Management Liability Provision (Article NINTH of the Articles of
Incorporation), the directors will not have personal liability to the Nevada
corporation or its stockholders for monetary damages for any breach of their
fiduciary duties as directors (including, without limitation, any liability for
gross negligence in the performance of their duties), except (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law or (ii) for the payment of dividends in violation of NRS 78.300. By
precluding personal liability for certain breaches of fiduciary duty, including
grossly negligent business decisions in evaluating takeover proposals to
acquire the Nevada corporation, the Management Liability Provision supplements
indemnification rights afforded under the Nevada corporation's Articles of
Incorporation and Bylaws which provide, in substance, that the Nevada
corporation shall indemnify its directors, officers, employees and agents to
the fullest extent permitted by the NRS and other applicable laws.
The Articles of Incorporation provide that the Nevada corporation
"shall indemnify to the fullest extent authorized or permitted by law (as now
or hereafter in effect) . . . to any person made or threatened to be made a
party or witness to any action, suit or proceeding (whether civil or criminal
or otherwise) by reason of the fact that such person is or was a director,
officer, employee or agent of the Nevada corporation . . ." Further, the Bylaws
provide that "[e]ach officer, director or employee . . . shall be indemnified
. . . to the full extent permitted under Chapter 78 of the Nevada Revised
Statutes . . . and other applicable law." Pursuant to the NRS, a corporation
may indemnify persons for expenses related to an action, suit or proceeding,
except an action by or in the right of the corporation, by reason of the fact
that such person is or was a director, officer, employee or agent, if such
person acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and with respect to
any criminal action or proceeding, if such person had no reasonable cause to
believe his conduct was unlawful. The expenses indemnified against in this
provision include attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with the action, suit
or proceeding. The NRS further provides that a corporation may indemnify
persons for attorneys' fees related to an action, suit or proceeding by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was a director, officer, employee or agent, if
such person acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation. The corporation
may also indemnify directors for amounts paid for judgments and settlements in
such a suit, but only if ordered by a court after determining that the person
is "fairly and reasonably" entitled to indemnity.
The Management Liability Provision contained in the Articles of
Incorporation is analogous to Article 5 of the Declaration of Trust. Article
5, however, explicitly exculpates Trustees, officers, employees and agents of
the Trust while the Management Liability Provision explicitly exculpates only
directors. Further, under the Declaration of Trust, a Trustee would not be
indemnified for liability arising from gross negligence or reckless disregard
of duty, whereas a director of the Nevada corporation may be indemnified for
such liability under the Articles of Incorporation.
The Management Liability Provision would not insulate directors of the
Nevada corporation from liability to the Nevada corporation or its stockholders
for (i) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law or (ii) payment of distributions in violation of NRS
78.300. The limitation of liability applies only to claims by the Nevada
corporation or its stockholders and does not preclude or limit recovery of
damages by others, such as creditors. Furthermore, the limitation of liability
applies prospectively only and would therefore not affect a Trustee's potential
liability for acts or omissions in his capacity as a Trustee prior to the
effective time of the Merger.
As herein described, directors and officers of the Nevada corporation
are indemnified against certain liabilities under provisions of the Articles of
Incorporation and Bylaws. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act") may be
permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that in the
opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
In addition, the Management Liability Provision provides, as permitted
by the NRS, that the Nevada corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the Nevada
corporation or another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against such expense, liability or loss,
whether or not the Nevada corporation would have the power to indemnify such
person against any such expense, liability or loss under the NRS. Section 7.4
of the Trust's Declaration of Trust is analogous to this portion of the
Management Liability Provision. Although the Trust has had the power to
purchase such insurance, to date the Trust has not done so.
The Trustees and officers of the Trust are indemnified under the
Declaration of Trust against judgments, fines, amounts paid on account of and
reasonable expenses (including attorneys' fees) incurred in connection with the
defense of suits or proceedings in which a claim or liability against a person
is asserted by reason of the fact that he is a Trustee or officer of the Trust,
as the case may be. Currently, each of the Trustees of the Trust has been
offered contractual indemnification to the fullest extent permitted by the
Declaration of Trust or to the fullest extent not prohibited under applicable
law.
7
<PAGE> 14
SHAREHOLDER LIABILITY. Limitations on the potential personal
liability of stockholders for the acts and obligations applicable to the Nevada
corporation under Nevada law are comparable to the limitations under California
law and the Declaration of Trust applicable to Shareholders of the Trust with
respect to the Trust's acts and obligations. Though the Articles of
Incorporation do not expressly limit stockholder liability, pursuant to Article
8, Section 3, of the Nevada constitution and Section 78.225 of the NRS,
stockholders are not personally liable for the payment of a corporation's
debts, except to the extent a stockholder has not paid the consideration for
which that stockholder's shares were authorized to be issued or which was
specified in a written subscription agreement between the corporation and the
stockholder. Similarly, the Declaration of Trust provides that Shareholders
shall not be subject to any personal liability for the acts or obligations of
the Trust and that every written undertaking made by the Trust shall contain a
provision that such undertaking is not binding on any Shareholder personally.
Under Section 23001 of the California Corporations Code, no shareholder of a
real estate investment trust like the Trust shall be personally liable for any
liabilities, debts or obligations of, or claims against, such real estate
investment trust. Section 23002 of the California Corporations Code further
provides that Section 23001 applies to any real estate investment trust under
the laws of California with respect to liabilities, debts, obligations and
claims wherever arising. Under Section 23000 of the California Corporations
Code, the Trust is classified as a "real estate investment trust" for purposes
of the foregoing provisions of California law. Thus, it appears that the
Incorporation Procedure will not materially alter Shareholder liability in
California. It should be noted that the law regarding other states where the
Trust does business might treat Shareholders' liability in a different manner
(i.e., impose liability) if a court in such state were not to apply California
law to such issue.
BUSINESS ACTIVITIES AFTER INCORPORATION PROCEDURE
No significant change in the nature of the Trust's business is
anticipated as a result of the Incorporation Procedure, though the Nevada
corporation will be empowered under the Articles of Incorporation to engage in
a wider range of business activities in the future than those currently
permitted under the Declaration of Trust. Article THIRD of the Articles of
Incorporation states that the Nevada corporation may engage in any lawful
activity. While, unlike the Declaration of Trust, the Articles of
Incorporation neither dictate specific investment policies nor formally
restrict particular activities of the Nevada corporation, it is currently
expected that the investment policies and activities of the Nevada corporation
will be substantially similar to the existing investment policies and
activities of the Trust. Notwithstanding such expectation, the Nevada
corporation may avail itself of the greater flexibility permitted by the
Articles of Incorporation to make certain investments that the Trust is not
authorized to make. No assurance can be given that the Nevada corporation's
investment policies will not change if, in the opinion of the Board of
Directors, circumstances so require, and certain investment policies may be
changed without stockholder approval.
Section 4.3 of the Declaration of Trust prohibits or restricts the
Trust from a number of specified activities, foreign currency, commodities, or
commodity futures contracts, (ii) in contracts for sale of real estate.
Subject to the restrictions in the Declaration of Trust and the restrictions on
related-party transactions discussed below, the Trustees may change the
investment policy of the Trust without Shareholder approval if they determine
that such change would be in the best interest of the Trust. Certain of the
restrictions contained in Section 4.3 were designed to facilitate the Trust's
continuing qualification as a "REIT" under the Code; however, the Trust status
as a REIT terminated several years ago. Nevertheless, the Nevada corporation
would have substantially greater flexibility and fewer restrictions on its
investment policy than the Trust presently has.
THE RESTRICTIONS ON RELATED-PARTY TRANSACTIONS PROVISION. Article
FOURTEENTH of the Articles of Incorporation provides that the Nevada
corporation shall not, directly or indirectly, contract or engage in any
transaction with (i) any director, officer or employee of the Nevada
corporation, (ii) any director, officer or employee of the advisor, (iii) the
advisor or (iv) any affiliate or associate (as such terms are defined in Rule
12b-2 under the Exchange Act, as amended) of the Nevada corporation or any
person identified in the foregoing clauses (i) through (iii) unless (a) the
material facts as to the relationship among or financial interest of the
relevant individuals or persons and as to the contract or transaction are
disclosed to or are known by the Board of Directors or the appropriate
committee thereof and (b) the Board of Directors or committee thereof
determines that such contract or transaction is fair to the Nevada corporation
and simultaneously authorizes or ratifies such contract or transaction by the
affirmative vote of a majority of the independent directors of the Nevada
corporation entitled to vote thereon. Article FOURTEENTH defines an
"independent director" as one who is neither an officer or employee of the
Nevada corporation nor a director, officer or employee of the Nevada
corporation's advisor. Stockholders should note that Article FOURTEENTH does
not supplant Nevada law regarding related-party transactions; rather, Article
FOURTEENTH provides additional protection against the possibility of
related-party transactions unfavorable to the Nevada corporation. Under the
NRS, a contract or transaction between a corporation and one or more of its
directors or officers, or between a corporation and any corporation, firm or
association in which one or more of its directors or officers are directors or
officers or are financially interested, is not void or voidable solely for this
reason, or solely because the director or officer is present at the meeting of
the board of directors or a committee thereof which authorizes or approves the
contract or transaction, because the vote or votes of common or interested
directors are counted for that purpose, provided that one of the four
requirements below is met:
(i) The fact of the common directorship, office or financial
interest is disclosed or known to the board of directors or committee
and noted in the minutes, and the board or committee authorizes,
approves or ratifies the contract or transaction in good faith by a
vote sufficient for the purpose without counting the vote or votes of
the common or interested director or directors.
(ii) The fact of the common directorship, office or financial
interest is disclosed or known to the stockholders, and they approve
or ratify the contract or transaction in good faith by a majority vote
of stockholders holding a majority of voting power. The votes of the
common or interested directors or officers must be counted in any such
vote of stockholders.
(iii) The fact of the common directorship, office or financial
interest is not disclosed or known to the director or officer at the
time the transaction is brought before the board of directors of the
corporation for action.
8
<PAGE> 15
(iv) The contract or transaction is fair as to the corporation
at the time it is authorized or approved.
The basic restriction on transactions between the Trust and related
parties contained in the Declaration of Trust is similar to restrictions
contained in the Nevada corporation's Articles of Incorporation and the NRS.
Section 2.17 of the Declaration of Trust provides that, absent fraud and except
as otherwise prohibited by the Declaration of Trust, a contract, act or other
transaction between the Trust and any other person, or in which the Trust is
interested, shall be valid even though one or more of the Trustees or officers
of the Trust (i) are directly or indirectly interested in, or connected with,
or are trustees, partners, directors, officers or related officers of such
other person or (ii) individually or jointly with others, are parties to or
directly or indirectly interested in, or connected with, such contract, act or
transaction. Further, no Trustee or officer shall be under any disability from
or have any liability as a result of entering into any such contract, act or
transaction provided that (a) such interest or connection is disclosed or known
to the Trustees and thereafter the non-interested Trustees vote to authorize
such contract, act or other transaction: (b) such interest or connection is
disclosed or known to the Shareholders and thereafter such contract, act or
transaction is approved by the Shareholders; and (c) such contract, act or
transaction is fair and reasonable to the Trust at the time it is authorized by
the Trustees or by the Shareholders.
The Declaration of Trust also contains specific restrictions on
certain transactions between the Trust and certain other persons. Although the
standards and procedures by which such transactions are permissible under the
Nevada corporation's Articles of Incorporation and Nevada law, on the one hand,
and the Declaration of Trust, on the other, are not dissimilar in the opinion
of the Board of Trustees, the Declaration of Trust absolutely prohibits certain
transactions between the Trust and certain related parties, regardless of the
fairness of the terms of such transactions and whether such transactions are
authorized by a majority of unaffiliated Trustees or approved by the
Shareholders. Because the Nevada corporation's Articles of Incorporation
contains no analogous prohibition, the Incorporation Procedure could
potentially permit the Nevada corporation greater flexibility to engage in a
larger class of transactions with related parties than the more limited class
of transactions between the Trust and certain related parties currently
permitted by the Declaration of Trust. Nevertheless, the Board of Trustees
believes that the restrictions in the Nevada corporation's Articles of
Incorporation and the restrictions mandated by the NRS will offer adequate
protection to ensure the fairness and propriety of transactions between the
Nevada corporation and related parties.
COMPARISON OF THE SECURITIES OF THE NEVADA CORPORATION AND THE TRUST
COMMON EQUITY. The Nevada corporation is authorized by its Articles
of Incorporation to issue up to 40,000,000 shares of Nevada Common Stock. By
contrast, the Trust may issue an unlimited number of Shares, and such Shares
have no par value per share. The par value of the common stock of the Nevada
corporation has been fixed at $0.01 per share because the filing fees
associated with organizing the Nevada corporation are considerably less
expensive than if the Nevada corporation had common stock with no par value.
With respect to conversion, preemptive, dividend and (except to the
extent the Nevada corporation may issue special or preferred stock in the
future) voting rights, the Nevada Common Stock is comparable to the Shares. As
with the Shares, each holder of Nevada Common Stock will be entitled to one
vote for each share on all matters submitted to the stockholders. Similarly,
there is no cumulative voting, redemption right, sinking fund provision or
right of conversion with respect to either the Nevada Common Stock or the
Shares. The holders of the Nevada Common Stock will not have preemptive rights
to acquire additional shares of Nevada Common Stock when issued, as Trust
Shareholders currently have no such preemptive rights. All outstanding shares
of the Nevada corporation issued in the One-for-One Exchange will be fully paid
and nonassessable.
DISTRIBUTIONS. All shares of common stock of the Nevada corporation
will be entitled to share equally in dividends from funds legally available
therefor, when, as and if declared by the Board of Directors of the Nevada
corporation, and upon liquidation or dissolution of the Nevada corporation,
whether voluntary or involuntary, to share equally in the assets of the Nevada
corporation available for distribution to stockholders, subject to any rights
of holders of special stock, as discussed below. Similarly, the Declaration of
Trust provides that Shareholders have no right to any dividend or distribution
unless and until the Trustees declare such dividend or distribution. The
Declaration of Trust imposes an additional requirement not contained in the
Nevada corporation's Articles of Incorporation; the Trustees must furnish the
Shareholders with a statement in writing not later than 60 days after the close
of each fiscal year in which a distribution is made identifying the source of
the funds distributed (Section 11.3). The Trustees currently intend to
continue this practice after the Incorporation Procedure.
The Declaration of Trust provides that cash distributions may be paid
from any source, in the discretion of the Trustees (Section 11.1). In
contrast, under Nevada law, the Nevada corporation may pay dividends from any
source, but only if (i) the Nevada corporation would continue to be able to pay
its debts as they become due in the usual course of business and (ii) the
Nevada corporation's total assets would continue to equal or exceed the sum of
its total liabilities plus the amount that would be needed, if the Nevada
corporation were to be dissolved at the time of distribution, to satisfy the
preferential rights upon dissolution of stockholders whose preferential rights
are superior to those receiving the distribution.
PREFERRED STOCK. Unlike the Declaration of Trust, the Articles of
Incorporation of the Nevada corporation authorize the future issuance of up to
5,000,000 shares of preferred stock by action of the Board of Directors without
stockholder approval, which may be issued in one or more series with such
preferences, qualifications, limitations and rights as shall be determined by
the Board of Directors of the Nevada corporation. Although no preferred stock
has been issued or is being issued as part of the Incorporation Procedure, and
the Board of Directors has no present intention of issuing any special stock,
it is deemed advisable to have such shares available for issuance (i) for
possible use to raise additional equity capital or to make acquisitions, (ii)
as an acquisition safeguard to dilute the stock ownership and voting power of a
person or entity seeking to obtain control of the Nevada corporation by (a)
privately placing such preferred stock with purchasers not hostile to the
Nevada corporation's Board of Directors to oppose an unsolicited takeover bid
or (b) authorizing holders of a series of preferred stock to vote as a class,
either separately or with the holders of the Nevada Common Stock, on any
merger, sale or exchange of assets or any other extraordinary
9
<PAGE> 16
corporate transaction involving the Nevada corporation or (c) for such other
uses as the Board of Directors of the Nevada corporation may deem appropriate
from time to time. In contrast, the Trust is not authorized to issue special
or preferred shares.
WARRANTS. The Trust has no outstanding warrants, options or rights
for the purchase of Shares. The Nevada corporation has no outstanding
warrants, options or rights and does not currently anticipate issuing any
warrants, options or rights for the purchase of its capital stock.
NO RESTRICTIONS ON OWNERSHIP AND TRANSFER OF COMMON STOCK. Neither
the Nevada corporation's Articles of Incorporation nor its Bylaws contain any
restriction on the transfer or percentage ownership of shares of the Nevada
Common Stock. The governing documents of the Trust specifically contain
certain restrictions which deal with ownership of the Shares by corporate
Shareholders and others insofar as it affected the continued qualification for
taxation as a REIT under the Code. However, the REIT status was terminated in
the past.
STOCKHOLDER MANAGEMENT RELATIONS
THE CONSENT PROVISION. The Consent Provision (Article EIGHTH of the
Articles of Incorporation) provides that stockholders of the Nevada corporation
may act without a duly called annual or special meeting by written consent
setting forth the action to be taken and signed by stockholders having not less
than the minimum number of votes that would be necessary to authorize or take
action at a meeting at which all shares entitled to vote thereon were present
and voting. Under the NRS, unless otherwise provided in a corporation's
articles of incorporation, any action which is required or permitted to be
taken at an annual or special meeting of stockholders may instead be taken
without a meeting if a written consent setting forth the action to be taken is
signed by stockholders holding at least a majority of the voting power, or of
such greater proportion as is required for such action. Like the Nevada
corporation's Articles of Incorporation, the Declaration of Trust permits
Shareholders of the Trust to approve certain acts by written consent without a
meeting if such consent sets forth the action so taken, but only if it is
signed by holders of all of the Trust's outstanding Shares.
THE STOCKHOLDER MEETING PROVISION. The Stockholder Meeting Provision
(also set forth in Article EIGHTH of the Articles of Incorporation) provides
that subject to the rights of the holders of any series of preferred stock,
special meetings of stockholders may be called only by the Board of Directors,
the Chairman of the Board or the President of the Nevada corporation.
Stockholders of the Nevada corporation may not by themselves call a special
meeting of stockholders. In contrast to the Stockholder Meeting Provision, the
Declaration of Trust permits Shareholders to call special meetings upon the
written request of Shareholders holding not less than 10% of the outstanding
Shares of the Trust entitled to vote at each meeting (Section 9.1).
The Stockholder Meeting Provision could have the effect of inhibiting
stockholder actions that require a meeting of stockholders unless the Board of
Directors, the Chairman thereof or the President of the Nevada corporation
calls such a meeting. Such meetings can impose considerable expenses upon the
Nevada corporation. The Trustees believe that the Board of Directors will be
in the best position to determine those issues which are properly the subject
of a special meeting of stockholders. In the view of the Board of Trustees,
stockholders would have a full opportunity to make proper proposals at duly
convened stockholder meetings and to request that any such proposal be
presented for consideration to other stockholders in the Nevada corporation's
annual proxy statement.
OTHER PROVISIONS REGARDING STOCKHOLDER-MANAGEMENT RELATIONS. The
Nevada corporation's Bylaws provide, among other things, that any stockholder
entitled to vote in the election of directors of the Nevada corporation's Board
of Directors generally may nominate one or more persons for election as
directors at a meeting only if such stockholder gives not fewer than 35, nor
more than 60, days' prior written notice of intent to make such nomination or
nominations to the Secretary of the Nevada corporation (or, if fewer than 45
days' notice or prior public disclosure of the meeting date is given or made to
stockholders, not later than 10 days following such notice or disclosure).
Each such notice must set forth (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated;
(ii) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such stockholder as of the record date for the
meeting and as of the date of such notice; (iii) a representation that the
stockholder intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (iv) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons pursuant to which the nomination or nominations are to
be made by the stockholder; (v) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Commission; and (vi) the
consent of each nominee to serve as a director of the Nevada corporation if so
elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure, which is
referred to herein as the "Nomination Provision." Neither the Declaration of
Trust nor the Trustees' Bylaws contains any provisions analogous to the
Nomination Provision.
The Nevada corporation's Bylaws also provide that, in addition to any
other applicable requirements, for business not specified in the notice of
meeting or brought by or at the direction of the Board of Directors of the
Nevada corporation to be properly introduced by a stockholder, the stockholder
must give not fewer than 35, nor more 60, days' prior notice to the Secretary
of the Nevada corporation (or if fewer than 45 days' notice or prior public
disclosure of the meeting date is given or made to stockholders, not later than
10 days following such event). This provision (the "Stockholder Proposal
Provision") does not preclude discussion by any stockholder of business
properly brought before any meeting. Each such notice must set forth (i) a
description of each item of business proposed to be brought before the meeting;
(ii) the name and address of the stockholder proposing to bring such item of
business before the meeting; (iii) the class and number of shares of stock held
of record or owned beneficially and represented by proxy by such stockholder as
of the record date for the meeting and as of the date of such
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<PAGE> 17
stockholder meeting notice; and (iv) all other information that would be
required to be included in a proxy statement filed with the Commission.
Neither the Declaration of Trust nor the Trustees' Regulations contains any
provisions analogous to the Stockholder Proposal Provision.
The Nevada corporation's Bylaws also provide that annual meetings of
stockholders shall be held within the first eight months of the calendar year,
or as soon as practicable thereafter, beginning in 1997. Written or printed
notice of annual and special meetings of stockholders shall be given to
stockholders entitled to vote not less than 10, nor more than 60, days before
the date of such meeting, unless stockholders are to vote upon a proposed
merger, consolidation or disposition of substantially all of the Nevada
corporation's assets, in which case notice shall be given no later than 20, nor
more than 60, days before the date of such meeting. The Declaration of Trust
contains similar provisions except that pursuant to the Declaration of Trust
annual meetings of stockholders are to be held within the first six months
after the end of the preceding fixed year.
A full and correct statement of affairs of the Nevada corporation is
to be prepared annually and submitted at the annual meeting. Such annual
reports will include a balance sheet and a financial statement of operations
for the preceding fiscal year. The Nevada corporation will be subject to the
information requirements of the Exchange Act, as amended, and the balance sheet
and financial statement will be required by such Act to be certified by
independent certified public accountants, although the Bylaws do not impose
such requirement. The Declaration of Trust provides that the Trustees must
mail an annual report not later than 120 days after the close of each fiscal
year. The annual report must include a statement of assets and liabilities and
a statement of income and expenses of the Trust, accompanied by the report of
an independent certified public accountant.
AMENDMENT PROVISIONS
The Bylaw Amendment Provision and the Articles of Incorporation
Amendment Provision (each as defined below) generally require a super-majority
vote for changes in the governing documents of the Nevada corporation submitted
to stockholders. Although those provisions may by themselves have a deterrent
effect on some potential acquisitions of the Nevada corporation, they are
designed primarily to ensure that an acquiror cannot circumvent the acquisition
safeguards contained in the governing documents.
THE BYLAW AMENDMENT PROVISION. Article SEVENTEENTH of the Articles of
Incorporation (the "Bylaw Amendment Provision") expressly authorizes the Nevada
corporation's Board of Directors to make, adopt, alter, amend, change or repeal
the Nevada corporation's Bylaws. The Bylaw Amendment Provision further states
that the stockholders of the Nevada corporation may not make, adopt, alter,
amend, change or repeal the Nevada corporation's Bylaws except upon the
affirmative vote of holders of not less than 66 2/3% of the outstanding stock
of the Nevada corporation entitled to vote thereon. The Trustees are currently
unaware of any controlling judicial precedent under the NRS addressing the
validity of this aspect of the Bylaw Amendment Provision and, therefore, the
matter is not entirely free from doubt. This super-majority voting provision
could enable holders of only 34% of the Nevada Common Stock to prevent other
holders of the Nevada Common Stock who do not approve of certain provisions of
the Bylaws from amending or repealing such provisions. The provision will
prevent a purchaser who acquires a majority of the shares of the Nevada Common
Stock from adopting Bylaws that are not in the best interest of the minority
stockholders or repealing Bylaws that are in such stockholders' interest.
Section 10.8 of the Declaration of Trust vests the power to make, adopt, amend
or repeal Bylaws in the Trustees.
THE ARTICLES OF INCORPORATION AMENDMENT PROVISION. Article
SEVENTEENTH of the Articles of Incorporation (the "Articles of Incorporation
Amendment Provision") requires the affirmative vote of at least 66 2/3% of all
of the Voting Stock to alter, amend or repeal the Bylaw Amendment Provision,
Consent Provision, Stockholder Meeting Provision, Business Combination
Provision, Director Removal Provision, Evaluation Provision and Articles of
Incorporation Amendment Provision, unless a majority of the Nevada
corporation's Board of Directors approves such alteration, amendment or repeal.
In contrast, the Declaration of Trust generally may be amended by
Shareholders holding a majority of the outstanding Shares entitled to vote
thereon, unless the proposed amendment would change certain rights with respect
to any outstanding securities of the Trust, in which case the Declaration of
Trust requires the vote or consent of the holders of two-thirds of the
outstanding Shares entitled to vote thereon.
Although the Declaration of Trust already requires a super-majority
vote for certain proposed amendments, the Articles of Incorporation Amendment
Provision will make it more difficult for stockholders to make changes in the
Articles of Incorporation, including changes designed to enable holders of a
majority of the Nevada Common Stock to obtain control over the Nevada
corporation. However, the Articles of Incorporation Amendment Provision may
help protect minority stockholders from disadvantageous changes supported by
less than a substantial majority of other stockholders.
THE FOREGOING IS ONLY A SUMMARY OF THE SIMILARITIES AND DIFFERENCES
BETWEEN THE NEVADA CORPORATION'S PROPOSED ARTICLES OF INCORPORATION AND BYLAWS,
ON THE ONE HAND, AND THE TRUST'S DECLARATION OF TRUST AND BYLAWS, ON THE OTHER,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXTS OF THOSE
DOCUMENTS.
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<PAGE> 18
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The current members of the Board of Trustees of the Trust are Karl L.
Blaha, Georgie Liebelt and F. Terry Shumate. Each of such individuals has been
named as a director of the Nevada corporation in the proposed Articles of
Incorporation. If the Incorporation Procedure is approved by the Shareholders,
such individuals will serve as the directors of the resulting entity until the
first annual meeting of shareholders to be held in accordance with requirements
of the law. In the event the Incorporation Procedure is not approved by the
Shareholders, the Trust will call an annual meeting of shareholders to be
scheduled during 1997 at such time as designated by such Trustees as
appropriate, following Wespac obtaining audited financial statements for the
fiscal year ending December 31, 1996, and becoming current with reporting
requirements of the Commission. The amount of any possible benefit to any such
individual as a result of approval of the Incorporation Procedure is not
directly quantifiable at this time.
SOLICITATION OF VOTES IN FAVOR OF INCORPORATION PROCEDURE
This Information Statement is being furnished to Shareholders to
solicit a vote in favor of the Incorporation Procedure pursuant to an Order of
the Court. The cost of soliciting ballots will be borne by the Trust. In
addition to solicitation of votes by use of the mail, the Trustees may also
solicit votes personally or by mail, telephone, facsimile transmission or
otherwise, but will not receive any compensation for such services.
BY ORDER OF THE COURT
WESPAC INVESTORS TRUST III
By F. TERRY SHUMATE
-------------------------
F. Terry Shumate, Trustee
Spokane, Washington
October 29, 1996.
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<PAGE> 19
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1988 Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Articles of Incorporation Amendment Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Bankruptcy Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Bylaw Amendment Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
California Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Confirmed Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Director Removal Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Independent director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Nevada Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Nomination Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
NRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Old Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
One-for-One Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Stockholder Proposal Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
USREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Wespac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
13
<PAGE> 20
FORM OF BALLOT
- --------------------------------------------------------------------------------
BALLOT
WESPAC INVESTORS TRUST III
Ballot Reflecting Vote of Shareholder
The undersigned shareholder of WESPAC INVESTORS TRUST II hereby
appoints KARL L. BLAHA and F. TERRY SHUMATE 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 WESPAC INVESTORS TRUST III (the
"Trust") which the undersigned is entitled to vote at pursuant to an
information Statement dated October _, 1996 (the "Information Statement")
distributed pursuant to an Order of the Court in the proceeding styled IN RE
Wespac Investors Trust III, Case No. 94-00228-K11 pending in the United States
Bankruptcy Court for the Eastern District of Washington (the "Bankruptcy
Proceeding") with all powers the undersigned would possess if personally
present, as indicated below, all as set forth in the Information Statement:
1. [ ] FOR [ ] AGAINST [ ] ABSTAIN approval of the Incorporation
Procedure
(continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
(continued from other side)
THIS BALLOT WILL BE VOTED AS DIRECTED BUT IF NO DIRECTION IS INDICATED
IT WILL BE VOTED FOR THE INCORPORATION PROCEDURE.
Please -----------------------------------------
Sign -----------------------------------------
Here -----------------------------------------
Dated: ______________________ 1996
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
BALLOT 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
BALLOT CARD TO: TRANSECURITIES
INTERNATIONAL, INC., 2510 NORTH PINES,
SUITE 202, SPOKANE, WASHINGTON 99206.
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 2.5
DAN O'ROURKE
SOUTHWELL & O'ROURKE, P.S.
950 Paulsen Building
Spokane, Washington 99201
(509) 624-0159
Attorneys for Debtor
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF WASHINGTON
In re:
NO. 94-00228-K11
WESPAC INVESTORS TRUST III,
EX PARTE ORDER APPROVING
Debtor. FIRST MODIFICATION TO PLAN
OF REORGANIZATION (AS
MODIFIED)
THIS MATTER having come before the court, ex parte upon the First
Modification to Plan of Reorganization (as modified) (hereinafter "First
Modification") of debtor. The debtor's Chapter 11 plan (the "Plan") was
confirmed by Order dated May 15, 1996, entered May 20, 1996. The purpose of the
First Modification is to add material that was omitted in the Plan. The
proponent of the Plan and the First Modification is the Debtor. Notice of the
First Modification which was provided to Gary Farrell on behalf of the US
Trustee is appropriate, and the US Trustee has agreed to entry of this order by
his signature below. Notice was not provided to the master mailing list;
however, implementation of the First Modification requires a vote from the
equity security holders as described below. The First Modification does not
adversely change the treatment of the claim of any party, and will not
materially, substantially or adversely affect the claim of any creditor or
equity security
<PAGE> 2
holder. The Plan as so modified by the First Modification, meets the
requirements of Sections 1122 and 1123 of the Bankruptcy Code, and the Court
being of the opinion that notice as described above is appropriate and no
further notice pursuant to Section 1125 of the Bankruptcy Code is necessary,
now
IT IS THEREFORE, ORDERED:
1. Debtor's First Modification to the Plan, a copy of which is
attached hereto as Exhibit "A," be, and the same hereby is, approved.
2. The Plan, as so modified by the First Modification, shall be
considered the entire Plan of Reorganization for all purposes and no additional
disclosure under Section 1125 of the Bankruptcy Code shall be required by the
proponent.
3. The close of business in Spokane, Washington, on October 31,
1996, is fixed as the record date (the "Record Date") for determination of
Equity Security Holders of Debtor (the "Shareholders") entitled to vote upon
the Incorporation Procedure described in the First Modification.
4. The Debtor shall cause the Information Statement and the
Ballot (attached hereto as Exhibit "B" which is hereby approved) to be mailed
to the Shareholders of record on the Record Date on or before November 6, 1996,
with the cost of such mailing to be borne by the Debtor.
5. All Ballots must be returned by the Shareholders to the
designated recipient on or before 12:00 noon, Spokane, Washington, time on
November 29, 1996.
6. A report of the results of such vote of Shareholders shall be filed
with the Court on or before December 20, 1996, and if the Incorporation
Procedure described in the First Modification is approved by the Shareholders,
it shall be implemented as soon as
<PAGE> 3
[SOUTHWELL & O'ROURKE, P.S. LETTERHEAD]
practicable; if the Incorporation Procedure is not approved by the
Shareholders, the Debtor shall file an application for Final Decree on or
before January 15, 1997.
DATED this 29 day of October, 1996.
/s/ JOHN M. KLOBUCHER
--------------------------------
HONORABLE JOHN M. KLOBUCHER
BANKRUPTCY JUDGE
Presented by:
SOUTHWELL & O'ROURKE
By: /s/ DAN O'ROURKE
-------------------------
DAN O'ROURKE
Attorneys for Debtor
Approved as to form and content and Notice
of Presentment waived this day of
-----
October, 1996.
US TRUSTEE
By: /s/ GARY T. FARRELL
-------------------------
GARY T. FARRELL
Attorneys for US Trustee
ORDER APPROVING FINAL MODIFICATION: 3
<PAGE> 1
EXHIBIT 2.6
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF WASHINGTON
In re:
NO. 94-00228-K11
WESPAC INVESTORS TRUST M,
CERTIFICATE OF SUBSTANTIAL
Debtor. CONSUMMATION
Debtor, by and through its Trustee, Georgie Leibelt, certifies as
follows:
1. The Order Confirming Debtor's Chapter 11 plan has become
final;
2. Debtor's Plan contained a substantial consummation provision;
3. The Plan has been substantially consummated and entry of a
Final Decree at this time is appropriate;
4. The US Trustee, by and through its attorney has consented to
entry of a final decree in this matter; and
5. Debtor requests entry of a final decree in this matter.
DATED this 21st day of January, 1997.
/s/ GEORGIE LEIBELT
---------------------------
GEORGIE LEIBELT, Trustee
Approved:
US TRUSTEE
By: /s/ GARY FARRELL
---------------------------
Gary Farrell
Attorney for US Trustee
<PAGE> 1
EXHIBIT 2.7
[UNITED STATES BANKRUPTCY COURT LETTERHEAD]
IN RE CASE NO 94-00228-K11
WESPAC INVESTORS TRUST III
NA 91-1334571 CHAPTER 11
4301 WEST SUNSET HIGHWAY
SPOKANE WA 99204
FINAL DECREE
The estate of the above-named debtor having been fully administered (and if
appropriate, the deposit required by the plan having been distributed), it is
ordered:
1. (If applicable) that the duly appointed trustee(s) be discharged as
trustee(s) of the above-named debtor, and the bond be and it hereby is
cancelled;
2. that the chapter 7 (or 9 or 11 or 12 or 13) case of the above named debtor
be and it hereby is closed.
Dated: 02/11/97
BY ORDER OF THE COURT
/s/ DIANNA CUNNINGHAM
------------------------
Deputy Clerk
FILED
02/11/97
Clerk, US Bankruptcy Court
Eastern District of Washington
<PAGE> 1
EXHIBIT 3.1
SECRETARY OF STATE
I. BILL JONES, Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the corporate
record on file in this office, of which it purports to be a copy, and that
same is full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California this
DEC 18 1996
--------------------------------
/s/ BILL JONES
----------------
Secretary of State
<PAGE> 2
ARTICLES OF INCORPORATION
OF
WESPAC PROPERTY CORPORATION
The undersigned natural persons of full age, as incorporators and as
the appropriate officers pursuant to Section 200.5(c) of the General
Corporation Law of the State of California, in order to form a corporation for
the purposes hereinafter stated, under and pursuant to the provisions of the
Corporations Code of the State of California, do hereby adopt the following
Articles of Incorporation.
ARTICLE I
WESPAC Investors Trust III, an existing unincorporated association, is
being incorporated by the filing of these Articles of Incorporation pursuant to
Section 200.5 of the California General Corporation Law.
ARTICLE II
The name of this corporation is WESPAC Property Corporation.
ARTICLE III
The existence of this corporation shall be perpetual.
ARTICLE IV
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE V
The name of this corporation's initial agent for service of process in
the State of California is CT Corporation System, a Delaware corporation.
ARTICLE VI
(a) The total number of shares of all classes which the
corporation shall have authority to issue is 45,000,000 shares,
<PAGE> 3
of which 40,000,000 shares, par value $0.01 per share, shall be of a class
designated "Common Stock" and 5,000,000 shares, par value $0.01 per share,
shall be of a class designated "Preferred Stock."
(b) The Preferred Stock may be divided into such number of series
as the Board of Directors may determine. The Board of Directors is authorized
to determine and alter the rights, preferences, privileges, and restrictions
granted to and imposed upon any wholly unissued series of Preferred Stock, and
to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors,
within the limits and restrictions stated in any resolution or resolutions of
the Board of directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series subsequent to the
issue of shares of that series.
(c) Except as otherwise specifically required by law or as
specifically provided in any resolution of the Board of Directors providing for
the issuance of any particular series of Preferred Stock, the exclusive voting
power of the corporation shall be vested in the Common Stock of the
corporation. Except as otherwise provided in these Articles of Incorporation,
each share of Common Stock shall entitle the holder thereof to one vote at all
meetings of the shareholders of the corporation.
ARTICLE VII
(a) The business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
(b) Whenever the holders of any one or more series of Preferred
Stock issued by the Corporation shall have the right, voting separately or by
class or series, to elect directors at an annual or special meeting of
shareholders, the election, term of office, filling of vacancies and other
features of such directorships shall be governed by the terms of these Articles
of Incorporation or the resolution or resolutions adopted by the Board of
Directors pursuant to Article VI applicable thereto.
ARTICLE VIII
(a) The liability of directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
2
<PAGE> 4
(b) The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
Bylaw provisions, agreements with agents, vote of shareholders or disinterested
directors or, otherwise, to the fullest extent permissible under California
law.
(c) Any amendment, repeal or modification of any provision of this
Article VIII shall not adversely affect any right or protection of an agent of
this corporation existing at the time of such amendment, repeal or
modification.
IN WITNESS WHEREOF, the undersigned have executed these Articles of
Incorporation this 12th day of December, 1996 in accordance with the
provisions of Section 200.5(c) of the California General Corporation Law.
/s/ KARL L. BLAHA
--------------------------------
Karl L. Blaha, President, WESPAC
Investors Trust III and
Incorporator of WESPAC Property
Corporation
/s/ F. TERRY SHUMATE
--------------------------------
F. Terry Shumate, Secretary,
WESPAC Investors Trust III and
Incorporator of WESPAC Property
Corporation
3
<PAGE> 5
DECLARATION
Under penalty of perjury, the undersigned officers of WESPAC Investors
Trust III (the "Trust") hereby verify that the incorporation of the Trust has
been approved by the trustees of the Trust and has been approved by the
affirmative vote of a majority of the outstanding voting shares of beneficial
interest, in accordance with the provisions of Section 200.5(a) of the
California General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Declaration as
of December 12th, 1996 in Dallas, Texas.
/s/ KARL L. BLAHA
--------------------------------
Karl L. Blaha, President, WESPAC
Investors Trust III and
Incorporator of WESPAC Property
Corporation
/s/ F. TERRY SHUMATE
--------------------------------
F. Terry Shumate, Secretary,
WESPAC Investors Trust III and
Incorporator of WESPAC Property
Corporation
4
<PAGE> 1
Exhibit 3.2
[STATE OF NEVADA SEAL]
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that FIRST EQUITY PROPERTIES, INC. did on DECEMBER 19, 1996, file
in this office the original Articles of Incorporation; that said Articles are
now on file and of record in the office of the Secretary of State of the State
of Nevada, and further, that said Articles contain all the provisions required
by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand and
affixed the Great Seal of State, at my office, in
Carson City, Nevada, on DECEMBER 20, 1996.
/s/ DEAN HELLER
[STATE OF
NEVADA SEAL] Secretary of State
By /s/ DEBORAH JENNINGS
Certification Clerk
<PAGE> 2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
DEC 19 1996
NO. C26187-96
/S/ DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
FIRST EQUITY PROPERTIES, INC.
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of Chapter 78 of the
Nevada Revised Statutes (the "NRS"), do hereby certify as follows:
FIRST: The name of the corporation is First Equity Properties, Inc.
hereinafter the "Corporation").
SECOND: The address of the Resident Agent and the Registered Office of
the Corporation in the State of Nevada is c/o The Corporation Trust Company of
Nevada, One East First Street, County of Washoe, Reno, Nevada 89501. The name
of the registered agent of the Corporation at such address is The Corporation
Trust Company of Nevada.
THIRD: The Corporation may engage in any lawful activity.
FOURTH: A. The total number of shares of all classes which the
Corporation shall have authority to issue is 45,000,000 shares, of which
40,000,000 shares, par value $0.01 per share, shall be of a class designated
"Common Stock" and 5,000,000 shares, par value $0.01 per share. Shall be of a
class designated "Preferred Stock".
B.1. The Board of Directors of the Corporation (the "Board of
Directors") is authorized, subject to applicable law and the provisions of this
Article FOURTH, to provide for the issuance from time to time in one or more
series of any number of shares of Preferred Stock, and, by filing a certificate
pursuant to the NRS, to establish the number of shares to be included in each
such series, and to fix the designation, relative rights, preferences,
qualifications and limitations of the shares of each such series. The authority
of the Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) the distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the Board of Directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by like action of the Board of
Directors;
(b) the dividend rate or rates on the shares of such series
and the preferences, if any, over any other series (or of any other
series over such series) with respect to dividends, the terms and
conditions upon which and the periods in respect of which dividends
shall be
1
<PAGE> 3
payable, whether and upon what conditions such dividends shall be
cumulative and, if cumulative, the date or dates from which dividends
shall accumulate;
(c) the voting powers, full or limited, if any, of shares of
such series, and under what conditions, if any, the shares of such
series (alone or together with the shares of one or more other series
having similar provisions) shall be entitled to vote separately as a
class for the election of one or more directors of the Corporation in
case of dividend arrearages or other specified events or upon other
matters;
(d) whether the shares of such series shall be redeemable,
the limitations and restrictions with respect to such redemptions, the
time or times when, the price or prices at which and the manner in
which such shares shall be redeemable including, but not limited to,
the manner of selecting shares of such series for redemption if less
than all shares are to be redeemed;
(e) the rights to which the holders of shares of such series
shall be entitled, and the preferences, if any, over any other series
(or of any other series over such series), upon the voluntary or
involuntary liquidation, dissolution, distribution of assets or
winding up of the Corporation, which rights may vary depending on
whether such liquidation, dissolution, distribution or winding up is
voluntary or involuntary, and, if voluntary, may vary at different
dates;
(f) Whether the shares of such series shall be subject to the
operation of a purchase, retirement or sinking fund, and, if so,
whether and upon what conditions such purchase, retirement or sinking
fund shall be cumulative or noncumulative, the extent to which and the
manner in which such fund shall be applied to the purchase or
redemption of the shares of such series, including, but not limited
to, the price or prices at which the shares may be purchased or
redeemed, or to other corporate purposes and the terms and provisions
relative to the operation thereof;
(g) whether the shares of such series shall be convertible
into or exchangeable for shares of stock of any other class or
classes, or of any other series of the same class, and, if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of such conversion or
exchange;
2
<PAGE> 4
(h) whether the issuance of additional shares of Preferred
Stock shall be subject to restrictions as to issuance, or as to the
powers, preferences or other rights of any other series;
(i) the right of the shares of such series to the benefit of
conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any additional stock
(including additional shares of such series or any other series) and
upon the payment of dividends or the making of other distributions on,
and the purchase, redemption or other acquisition by the Corporation
or any subsidiary of, any outstanding stock of the Corporation: and
(j) any other preferences, privileges and powers, and
relative participating, optional or other special rights, and
qualifications, limitations or restrictions of such series, as the
Board of Directors may deem advisable and as shall not be inconsistent
with applicable law or the provisions of these Articles of
Incorporation, as amended from time to time.
2. Shares of Preferred Stock which have been issued and
reacquired in any manner by the Corporation (excluding until the
Corporation elects to retire them, shares which are held as treasury
shares, but including shares redeemed, shares purchased and retired
and shares which have been converted into shares of Common Stock)
shall have the status of authorized but unissued shares of Preferred
Stock and may be reissued as a part of the series of which they were
originally a part or may be reissued as a part of another series of
Preferred Stock, all subject to the conditions or restrictions on
issuance set forth in the resolution or resolutions adopted by the
Board of Directors providing for the issuance of any series of
Preferred Stock.
3. Except as otherwise provided by the resolution or
resolutions providing for the issuance of any series of Preferred
Stock, after payment shall have been made to the holders of Preferred
Stock of the full amount of dividends to which they shall be entitled
pursuant to the resolution or resolutions providing for the issuance
of any series of Preferred Stock, the holders of Common Stock shall be
entitled, to the exclusion of the holders of Preferred Stock of any
and all series, to receive such dividends as from time to time may be
declared by the Board of Directors.
4. Except as otherwise provided by the resolution or
resolutions providing for the issuance of any series
3
<PAGE> 5
of Preferred Stock in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after
payment shall have been made to the holders of Preferred Stock of the
full amounts to which they shall he entitled pursuant to such
resolution or resolutions, the holders of Common Stock shall be
entitled, to the exclusion of the holders of Preferred Stock of any
and all series, to share, ratably according to the number of shares of
Common Stock held by them, in all remaining assets of the Corporation
available for distribution to its stockholders.
5. The holders of Preferred Stock shall not have any
preemptive rights except to the extent such rights shall be
specifically provided for in the resolution or resolutions providing
for the issuance thereof adopted by the Board of Directors.
C. Except as otherwise specifically required by law or as
specifically provided in any resolution of the Board of Directors providing for
the issuance of any particular series of Preferred Stock, the exclusive voting
power of the Corporation shall be vested in the Common Stock of the
Corporation. Except as otherwise provided in these Articles of Incorporation,
each share of Common Stock shall entitle the holder thereof to one vote at all
meetings of the stockholders of the Corporation.
D. The capital stock of the Corporation, after the amount of the
subscription price has been paid in money, property or services as the Board of
Directors shall determine, shall not be subject to assessment to pay the debts
of the Corporation, nor for any other purpose, and no stock issued as fully
paid up shall ever be assessable or assessed, and these Articles of
Incorporation shall not be amended in this particular.
FIFTH: The name and address of the incorporator is as follows:
Name Address
F. Terry Shumate 10670 North Central Expressway
Suite 501
Dallas, Texas 75231
SIXTH: The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors, which shall consist of not
fewer than one (1), nor more than fifteen (15), directors, the exact number of
directors to be determined from time to time by resolution adopted by the
affirmative vote of a majority of the entire
4
<PAGE> 6
Board of Directors. Initially, the number of directors of the Corporation shall
be three (3), and their names shall be as follows:
F. Terry Shumate
Karl L. Blaha
Georgie Liebelt
Each of the above directors can be reached c/o the Corporation at 10670 North
Central Expressway, Suite 501, Dallas, Texas 75231. Such directors are hereby
elected for a term to expire at the first annual meeting of stockholders. At
each succeeding annual meeting of stockholders beginning with the first,
successors to directors shall be elected. A director shall hold office until
the annual meeting for the year in which such director's term expires and until
such director's successor shall be elected, subject, however, to prior death,
resignation, retirement or removal from office. Except as provided by
applicable law, any vacancy in the Board of Directors shall be filled by a
majority of the directors then in office or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of such director's
predecessor.
Whenever the holders of any one or more series of Preferred Stock
issued by the Corporation shall have the right, voting separately or by class
or series, to elect directors at an annual or special meeting of stockholders,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of these Articles of Incorporation
or the resolution or resolutions adopted by the Board of Directors pursuant to
Article FOURTH applicable thereto.
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, adopt,
alter, amend, change or repeal the Bylaws of the Corporation. The stockholders
of the Corporation may not make, adopt, alter, amend, change or repeal the
Bylaws of the Corporation except upon the affirmative vote of not less than
fifty-one percent (51%) of the outstanding stock of the Corporation entitled to
vote thereon; provided, however, that the power of the stockholders to make,
adopt, alter, amend, change or repeal the Bylaws of the Corporation is further
subject to the provisions of Article TENTH of these Articles of Incorporation.
In addition to the powers and authority expressly conferred upon them herein or
by statute, the directors of the Corporation are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to applicable provisions
5
<PAGE> 7
of the statutes of Nevada, these Articles of Incorporation and any Bylaws
adopted by the stockholders; provided, however, that no Bylaws hereafter
adopted by the stockholders or otherwise shall invalidate any prior act of the
directors which would have been valid if such Bylaws had not been adopted.
EIGHTH: Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws of the Corporation to the contrary, any action
required to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken by written consent without such a
meeting, without prior notice and without a vote if consents in writing shall
have been signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or to take action
at a meeting at which all shares entitled to vote thereon were present and
voted; provided, however, that prompt notice of the taking of the action
without a meeting shall be given to those stockholders of the Corporation who
have not consented in writing. Subject to the rights of the holders of any
series of Preferred Stock, special meetings of stockholders of the Corporation
may be called only by the Board of Directors, the Chairman of the Board or the
President of the Corporation and not by any other person or persons.
NINTH: A. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except that this part A of Article NINTH shall
not eliminate or limit a director's liability (i) for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law, or (ii)
for the payment of dividends in violation of NRS 78.300. If the NRS is amended
after the date these Articles of Incorporation became effective under the NRS
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the NRS, as
so amended from time to time.
Any repeal or modification of this part A of Article NINTH shall not
increase the personal liability of any director of the Corporation for any act
or occurrence taking place prior to such repeal or modification, or otherwise
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
The provisions of this part A of Article NINTH shall not be deemed to
limit or preclude indemnification of a director by the Corporation for any
liability of a director which has
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<PAGE> 8
not been eliminated by the provisions of this part A of Article NINTH.
B. The Corporation shall indemnify to the fullest extent
authorized or permitted by law (as now or hereafter in effect) and shall
advance expenses, to the fullest extent authorized or permitted by law (as now
or hereafter in effect), to any person made or threatened to be made a party or
witness to any action, suit or proceeding (whether civil or criminal or
otherwise) by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or by reason of the fact that
such person, at the request of the Corporation, is or was serving any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, in any capacity. Nothing contained herein shall affect any rights
to indemnification to which employees other than directors and officers may be
entitled by law. No amendment to or repeal of this part B of Article NINTH
shall apply to or have any effect on any right to indemnification provided
hereunder with respect to any acts or omissions occurring prior to such
amendment or repeal.
C. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise against any such expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the NRS. The Board of Directors, without
the approval of the stockholders of the Corporation, may also create a trust
fund, grant a security interest or use other means (including, but not limited
to, letters of credit, surety bonds or other similar arrangements), as well as
enter into contracts providing indemnification to the fullest extent authorized
or permitted by law and including as part thereof provisions with respect to
any or all of the foregoing, to ensure the payment of such amounts as may
become necessary to effect indemnification as provided therein, or elsewhere.
TENTH: A. The Corporation expressly elects not to be governed by the
Nevada "Combinations with Interested Stockholders" statutes contained in NRS
78.411 to 78.444 and the Nevada "Acquisition of Controlling Interest" statutes
contained in NRS 78.378 to 78.3793.
B. In addition to any affirmative vote required by law, these
Articles of Incorporation or the Bylaws of the Corporation, and except as
otherwise expressly provided in part C of this Article TENTH, a "Business
Combination" (as hereinafter defined) with, or proposed by or on behalf of, any
"Interested Stockholder" (as hereinafter defined) or any
7
<PAGE> 9
"Affiliate" or "Associate" (as such terms are hereinafter defined) of any
Interested Stockholder or any "Person" (as hereinafter defined) who thereafter
would be an Affiliate or Associate of an Interested Stockholder shall require
the affirmative vote of not less than fifty-one percent (51%) of the votes
entitled to be cast by the holders of all the shares of "Voting Stock" (as
hereinafter defined) then outstanding, voting together as a single class,
excluding Voting Stock "Beneficially Owned" (as hereinafter defined) by such
Interested Stockholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or separate
class vote may be specified, by applicable law or in any agreement with any
national securities exchange or otherwise.
C. The provisions of part 3 of this Article TENTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is required by
applicable law or by any other provision of these Articles of Incorporation or
the Bylaws of the Corporation, or any agreement with any national securities
exchange, if such Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority of the Board of Directors or, in the case of such a
Business Combination involving any Person that is an Affiliate of the
Corporation, by a majority of the Board of Directors including a majority of
the members of the Board of Directors who at the time are neither officers or
employees of the Corporation nor directors, officers or employees of any
Advisor (as defined in Article THIRTEENTH), prior to the "Acquisition Date" (as
hereinafter defined) with respect to any Person involved in such Business
Combination.
D. The following definitions shall apply with respect to this
Article TENTH and, when noted therein, to Articles TWELFTH, FOURTEENTH and
SEVENTEENTH:
1. The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date these Articles of Incorporation became
effective under the NRS (the term "registrant" in such Rule meaning in
this case the Corporation).
2. The term "Acquisition Date," with respect to any
Person, shall mean the date on which such Person becomes the
Beneficial Owner of Voting Stock representing twenty percent (20%) or
more of the votes entitled to be cast by the holders of all the shares
of Voting Stock
8
<PAGE> 10
3. A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "Beneficially Own," shares of Capital Stock:
(a) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the sole
or shared right to vote or dispose or of which has beneficial
ownership (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act or pursuant to any successor provision)
including, but not limited to, pursuant to any agreement,
arrangement or understanding, whether or not in writing;
PROVIDED, HOWEVER, that a Person shall not be deemed the
Beneficial Owner of, or to Beneficially Own, any security
under this clause [a] as a result of an agreement, arrangement
or understanding to vote such security that both (i) arises
solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the rules and
regulations under the Exchange Act and (ii) is not reportable
by such person on Schedule 13D under the Exchange Act (or any
comparable or successor report or schedule) without giving
effect to any applicable waiting period; or
(b) which are Beneficially Owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding, whether or not in writing, for the purpose of
acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to clause [a] above) or
disposing of any shares of Capital Stock; provided, however,
that (i) no director or officer of the Corporation (nor any
Affiliate or Associate of any such director or officer) shall,
solely by reason of any or all of such directors or officers
acting in their capacities as such, be deemed the Beneficial
Owner of or to Beneficially Own any shares of Capital Stock
that are Beneficially Owned by any other such director or
officer; and (ii) no Person shall be deemed the Beneficial
owner of or to Beneficially Own any shares of Voting Stock
held in any voting trust, any employee stock ownership plan or
any similar plan or trust if such Person does not possess the
right to vote, to direct the voting of or to be consulted with
respect to the voting of such shares.
4. The term "Business Combination" shall mean:
(a) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter defined) with
(i) any
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<PAGE> 11
Interested Stockholder or (ii) any other company (whether or
not itself an interested Stockholder) which is or after such
merger or consolidation would be an Affiliate or Associate of
an interested Stockholder;
(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to purchase,
agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a
series of transactions) with or for the benefit of any
Interested Stockholder or any Affiliate or Associate of any
interested Stockholder involving the Corporation or any
Subsidiary and any assets, securities or commitments of the
Corporation, any Subsidiary or any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder that
(except for any arrangement, whether as employee, consultant
or otherwise, other than as a director, pursuant to which any
Interested Stockholder or any Affiliate or Associate thereof
shall, directly or indirectly, have any control over or
responsibility for the management of any aspect of the
business or affairs of the Corporation, with respect to which
arrangements the value tests set forth below shall not apply),
together with all other such arrangements (including all
contemplated future events), has an aggregate fair market
value or involves aggregate commitments of $5,000,000 or more
or constitutes more than five percent (5%) of the book value
of the total assets (in the case of transactions involving
assets or commitments other than shares of Capital Stock) or
five percent (5%) of the stockholders' equity (in the case of
transactions in shares of Capital Stock) of the entity in
question (a "Substantial Part"), as reflected in the most
recent fiscal year-end consolidated balance sheet of such
entity existing at the time the stockholders of the
Corporation would be required to approve or authorize the
Business Combination involving the assets, securities or
commitments constituting any Substantial Part;
(c) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation;
(d) any reclassification of securities of the
Corporation (including any reverse stock split), or
recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries
or any other transaction (whether or not with or otherwise
involving an Interested Stockholder) that has the effect,
directly or indirectly, of increasing the proportionate share
of any class or series of Capital Stock, or any securities
convertible into
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<PAGE> 12
Capital Stock or into equity securities of any Subsidiary, that is
Beneficially Owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or
(e) any agreement, contract or other arrangement
providing for any one or more of the actions specified in the
foregoing clauses (a) through (d).
5. The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article FOURTH of
these Articles of Incorporation, and, with respect to any particular Business
Combination, the term "Voting Stock" shall mean all Capital Stock which by its
terms may be voted on all matters submitted to stockholders of the Corporation
generally or which by its terms may be voted on such Business Combination.
6. The term "Interested Stockholder" shall mean any Person (other
than the Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee plan of the Corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity and other than Vinland Property Trust, a California
business trust, or any successor thereof, which remains the record owner of all
the outstanding shares of Common Stock) who (a) is or has announced or publicly
disclosed a plan or intention to become the Beneficial Owner of Common Stock
representing twenty percent (20%) or more of the votes entitled to be cast by
the holders of all then outstanding shares of Common Stock or (b) is an
Affiliate or Associate of the Corporation and at any time within the two-year
period immediately prior to the date in question was the Beneficial Owner of
Common Stock representing twenty percent (20%) or more of the votes entitled to
be cast by the holders of all shares of Common Stock then outstanding.
7. The term "Person" shall mean any individual, firm,
corporation, partnership or other entity and shall include any group comprised
of any Person and any other Person with whom such Person or any Affiliate or
Associate of such Person has any agreement, arrangement or understanding,
directly or indirectly, for the purpose of acquiring, holding, voting or
disposing of shares of Capital Stock.
8. The term "Subsidiary" means any entity of which a majority of
any class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in subpart 6 of this part D, the term Subsidiary shall
mean only a company of which a majority of each class of equity securities is
Beneficially Owned by the Corporation.
11
<PAGE> 13
E. 1. A majority of the Board of Directors shall have the power to
determine all questions arising under this Article TENTH, including, without
limitation, (a) whether a Person is an Interested Stockholder, (b) the number
of shares of Capital Stock or other securities Beneficially Owned by any
Person, (c) whether a Person is an Affiliate or Associate of another, (d)
whether a Business Combination is with, or proposed by, or on behalf of an
Interested Stockholder or an Affiliate or Associate of an Interested
Stockholder, (e) whether the assets that are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate fair market value of $5,000,000 or more or
constitutes more than five percent (5%) of the book value of the total assets
or five percent (5%) of the stockholders' equity of the entity in question, (f)
whether the assets or securities that are the subject of any Business
Combination constitute a Substantial Part, (g) the date on which an Interested
Stockholder became an Interested Stockholder, (h) the occurrence and time of
any Acquisition Date and (i) any other matter relating to the applicability or
effect of this Article TENTH. Any such determination shall be binding and
conclusive on all parties.
2. The Board of Directors shall have the right to demand that any
Person who it believes is or may be an Interested Stockholder (or who holds of
record shares of Capital Stock that are Beneficially Owned by any Person that
the Board of Directors believes is or may be an Interested Stockholder) supply
the Corporation with complete information as to (a) the record holders of all
shares of Capital Stock that are Beneficially Owned by such Person, (b) the
number of shares of each class or series of Capital Stock that are Beneficially
Owned by such Person and held of record by each such record holder and the
numbers of the stock certificates evidencing such shares and (c) any other
matter relating to the applicability or effect of this Article TENTH as the
Board of Directors may reasonably request. Each such Person shall furnish such
information within ten (10) days after the receipt of such demand.
F. Nothing contained in this Article TENTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law
or to be in derogation of any action, past or future, which has been or may be
taken by the Board of Directors or the stockholders with respect to the subject
matter contained herein.
G. For the purposes of this Article TENTH, a Business Combination
is presumed to have been proposed by, or on behalf of, an Interested
Stockholder or an Affiliate or Associate of an Interested Stockholder or a
Person who thereafter would
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<PAGE> 14
become such if such Interested Stockholder, Affiliate, Associate or Person
votes or consents to the adoption of any such Business Combination, unless as
to such Interested Stockholder, Affiliate, Associate or Person a majority of
the Board of Directors makes a determination that such Business Combination is
not proposed by or on behalf of such Interested Stockholder, Affiliate,
Associate or Person.
ELEVENTH: Any director of the Corporation may be removed from office
at any time by the vote of stockholders representing not less than two-thirds
of the voting power of the issued and outstanding stock entitled to voting
power.
TWELFTH: The Board of Directors, when evaluating any (a) tender offer
or invitation for tenders, or proposal to make a tender offer or request or
invitation for tenders, by another party, for any equity security or the
Corporation or (b) proposal or offer by another party to (i) merge or
consolidate the Corporation or any Subsidiary (as defined in part C of Article
TENTH) with another corporation, (ii) purchase or otherwise acquire all or
substantial portion of the properties or assets of the Corporation or any
Subsidiary, or sell or otherwise dispose of to the Corporation or any Subsidiary
all or a substantial portion of the properties or assets of such other party or
(iii) liquidate, dissolve, reclassify the securities of, declare an
extraordinary dividend of, recapitalize or reorganize the Corporation, shall
take into account all factors which the Board of Directors deems relevant
including, without limitation, to the extent so deemed revelant, the
continuing status of the Corporation as a "real estate investment trust," as
defined in Section 856 of the Internal Revenue Code of 1986, as amended, the
potential impact on creditors, partners, joint venturers and other constituents
of the Corporation and the communities in which the Corporation's
offices, other establishments or investments are located.
THIRTEENTH: Subject to Article FOURTEENTH and applicable law, the Board
of Directors may authorize the Corporation to enter into and perform one or
more agreements with any person whereby, subject to the supervision and control
of the Board of Directors, any such person shall render or make available to
the Corporation managerial, investment, advisory or related services, office
space and other services and facilities, including, if deemed advisable by the
Board of Directors, the management or supervision of the investments or the
day-to-day operations of the Corporation (any such person being referred to
herein as an "Advisor"), upon such terms and conditions as may be provided in
such agreement or agreements including, if deemed fair and equitable by the
Board of Directors, the compensation payable thereunder by the Corporation.
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<PAGE> 15
FOURTEENTH: The (Corporation shall not, directly or) indirectly,
contract or engage in any transaction with (a) any director, officer or
employee of the Corporation, (b) any director, officer or employee of any
Advisor, (c) any Advisor or (d) any Affiliate or Associate (as such terms are
defined in part D of Article TENTH) of the Corporation or of any person
identified in the foregoing clauses (a) through (c) unless the material facts
as to the relationship among or financial interest of the relevant individuals
or persons and as to the contract or transaction are disclosed or are known to
the Board of Directors or committee thereof, as the case may be, and the Board
of Directors or committee thereof, as the case may be, determines that such
contract or transaction is fair as to the Corporation and simultaneously
authorizes or ratifies such contract or transaction by the affirmative vote of
a majority of independent directors (as hereinafter defined) entitled to vote
thereon. For purposes of this Article FOURTEENTH, a director of the Corporation
shall be deemed "independent" if such director is neither an officer nor
employee of the Corporation nor a director, officer or employee of any Advisor.
FIFTEENTH: Meetings of stockholders may be held within or without the
State of Nevada, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the NRS) outside
the State of Nevada at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of the Corporation.
SIXTEENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Nevada may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of NRS 78.635 or on the application of trustees in dissolution
or of any receiver or receivers appointed for this Corporation under the
provisions of NRS 78.600 order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence
of such compromise or arrangement, the said compromise or arrangement and said
reorganization shall, if sanctioned by the court to which the said application
has been
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<PAGE> 16
made, he binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may he,
and also on this Corporation.
SEVENTEENTH: A. Notwithstanding any other provision of these Articles
of Incorporation or the Bylaws of the Corporation, any agreement with any
national securities exchange or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock (as defined in
part D of Article TENTH) required by any other provision of these Articles of
Incorporation, any agreement with any national securities exchange or any
provision of law, the affirmative vote of the holders of record of shares of
Voting Stock representing at least sixty-six and two-thirds percent (66-2/3%) of
the votes cast by such holders voting thereon shall be required to alter, amend
or repeal Article SIXTH, Article SEVENTH, Article EIGHTH, Article TENTH,
Article ELEVENTH, Article TWELFTH or this Article SEVENTEENTH or to adopt any
provision inconsistent therewith; provided, however, that this part A shall not
apply to, and such sixty-six and two-thirds percent (66-2/3%) vote shall not be
required for, any alteration, amendment, repeal or adoption recommended by more
than fifty percent (50%) of the entire Board of Directors.
B. Except as provided in part D of Article FOURTH the Corporation
reserves the right to amend, alter, change or repeal any provision contained in
these Articles of Incorporation, or any amendment hereof, in the manner now or
hereafter prescribed by the laws of the State of Nevada and these Articles of
Incorporation, and all rights and powers conferred herein on stockholders,
directors and officers are subject to such reservation.
If any provision of these Articles of Incorporation is determined to
be invalid, void, illegal or unenforceable, the remaining provisions of these
Articles of Incorporation shall continue to be valid and enforceable and shall
in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
this 12th day of December, 1996.
/s/ F. TERRY SHUMATE
-----------------------------------
F. Terry Shumate, Incorporator
15
<PAGE> 1
EXHIBIT 3.3
BYLAWS OF
FIRST EQUITY PROPERTIES, INC.
(as adopted December 20, 1996)
ARTICLE I
OFFICES
SECTION 1.1 Registered Office in Nevada. The registered office of
First Equity Properties, Inc. (the "Corporation") in the State of Nevada shall
be in the City of Carson City, or such other place as the Board of Directors
may from time to time authorize by resolution.
SECTION 1.2 Principal office. The principal office for the
transaction of the business of the Corporation is located at Suite 501, 10670
North Central Expressway, Dallas, Texas 75231. The Board of Directors of the
Corporation (the "Board of Directors") is hereby granted full power and
authority to change the location of the principal office.
SECTION 1.3 Other Offices. The Corporation may also have offices
at such other places inside or outside the State of Nevada as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Annual Meetings. Annual meetings of stockholders
shall be held within the first eight months of each calendar year, or as soon
as practicable thereafter, commencing with the calendar year 1997.
SECTION 2.2 Special Meetings. Special meetings of the
stockholders of the Corporation may be called by resolution of the Board of
Directors, or the Chief Executive Officer, or the Chairman of the Board, or the
President.
SECTION 2.3 Time and Place of Meetings. Each meeting of
stockholders shall be held at such place within the United States, and at such
hour on such date, as shall be designated by the Board of Directors and stated
in the notice of meeting delivered pursuant to Section 2.4.
SECTION 2.4 Notice of Meetings. Except as otherwise provided by
law, written or printed notice of each meeting of stockholders, whether annual
or special, shall be given not less than 10 nor more than 60 days before the
date of such meeting to each stockholder entitled to vote at such meeting or,
in the event
<PAGE> 2
that the stockholders are to vote upon any proposal to merge or consolidate the
Corporation or to sell, lease or exchange all or substantially all of its
property and assets, not less than 20 nor more than 60 days before the date of
such meeting. Such notice shall be delivered either personally or by mail or
at the direction of the Chairman of the Board, the President or the Secretary.
Each notice of meeting shall state the place, date and hour of the meeting.
SECTION 2.5 Nature of Business. At any meeting of
stockholders, only such business shall be conducted as shall have been brought
before such meeting by or at the direction of the Board of Directors, the Chief
Executive Officer, or the Chairman of the Board, or the President, as
applicable, or by any stockholder who complies with the procedures set forth in
this Section 2.5. Except as otherwise provided by Section 3.6 of these Bylaws
or by law, the only business which shall be conducted at any meeting of
stockholders shall (i) (a) have been specified in the written notice of meeting
(or any supplement thereto) given as provided in Section 2.4, (ii) be brought
before the meeting at the direction of the Board of Directors or the chairman
of the meeting or (iii) have been specified in a written notice (a "Stockholder
Meeting Notice") given to the Corporation, in accordance with all of the
following requirements, by or on behalf of any stockholder who shall have been
a stockholder of record on the record date for such meeting and who shall
continue to be entitled to vote at such meeting. Each Stockholder Meeting
Notice must be delivered personally to, or be mailed to and received by, the
Secretary at the principal office of the Corporation not less than 35 days nor
more than 60 days prior to such meeting; provided, however, that in the event
that less than 45 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Each Stockholder Meeting Notice shall set
forth (a) a description of each item of business proposed to be brought before
the meeting, (b) the name and address of the stockholder proposing to bring
such item of business before the meeting, (c) the class and number of shares of
stock held of record, owned beneficially and represented by proxy by such
stockholder as of the record date for the meeting (if such date shall then have
been made publicly available) and as of the date of such Stockholder Meeting
Notice, and (d) all other information which would be required to be included in
a proxy statement filed with the Securities and Exchange Commission (the
"Commission") if, with respect to any such item of business, such stockholder
here a participant in a solicitation subject to Section 14 of the Securities
Exchange Act of 1934. No business shall be brought before any meeting of
stockholders otherwise than as provided in this Section 2.5 or in Section 3.6.
When a meeting is adjourned to another time or place, notice of the adjourned
meeting need not be given if the time and place thereof are announced at the
meeting at which the adjournment
2
<PAGE> 3
is taken, unless the adjournment is for more than 30 days, or unless after the
adjournment a new record date is fixed for the adjourned meeting, in which case
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting. At the adjourned meeting, any
business may be transacted that might have been transacted at the original
meeting.
SECTION 2.6 QUORUM. Subject to the provisions of the Articles
of Incorporation of the Corporation (the "Articles) and any applicable
statute, the presence in person or by proxy of holders of a majority of the
outstanding shares of the Corporation's voting stock shall constitute a quorum.
SECTION 2.7 VOTING. Subject to the provisions of the Articles
and any applicable statute, a majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be sufficient
to take or authorize action upon any matter which may properly come before the
meeting, unless more than a majority of the votes cast is required by law or by
the Articles. Subject to the Articles and any applicable statute, each
stockholder of record shall be entitled to one vote for each share registered
in such stockholder's name as of the record date determined pursuant to Section
6.5 below or applicable law. A stockholder entitled to vote may do so either
in person or by proxy executed in writing by such stockholder or by such
stockholder's duly authorized attorney-in-fact. No proxy shall be valid after
eleven months from its date, unless otherwise provided in the proxy. At all
meetings of stockholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the chairman of
the meeting.
SECTION 2.8 ORGANIZATION AND ORDER OF BUSINESS. At each meeting
of stockholders, the Chairman of the Board or , if the Chairman of the
Board is absent or unable to act, the Chief Executive Officer or, if the Chief
Executive Officer is also absent or unable to act, the President or, in the
absence or inability to act of all of the Chairman of the Board, the Chief
Executive officer and the President, the Treasurer shall act as chairman of the
meeting. The Secretary or, if the Secretary is absent or unable to act, any
other person appointed by the chairman of the meeting shall act as secretary of
the meeting and keep the minutes thereof. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
SECTION 2.9 INSPECTORS OF ELECTION. The Board of Directors may, in
advance of any meeting of stockholders, appoint one or more inspectors to act
at such meeting or any adjournment thereof. If the inspectors shall not be so
appointed or if any of them shall fail to appear or act, the chairman of the
meeting may, and on the request of any stockholder entitled to vote at such
meeting shall,
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appoint inspectors. The number of inspectors shall be either one or three. The
inspectors shall determine the number of shares represented at the meeting, the
existence of a quorum and the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote at such
meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as inspector of an election of directors. Inspectors need not be
stockholders.
SECTION 2.10 ACTION WITHOUT MEETING. Except as otherwise
provided by statute or the Articles, any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth such action, is signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
to take such action at a meeting at which all shares entitled to vote thereon
were present and voted, and such consent and waiver shall be delivered to the
registered office of the Corporation in the State of Nevada, its principal
office or an officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Every consent or waiver shall bear
the date of signature of each stockholder who signs such consent or waiver.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 NUMBER, ELECTION AND TERM OF DIRECTORS. The Board
of Directors shall consist of not fewer than 3 nor more than 15 directors.
Subject to the foregoing limits, the Board of Directors may increase or
decrease the number of directors from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board of Directors; provided,
however, that the tenure of office of an incumbent director shall not be
affected by any such increase or decrease. Initially, the names of the
directors shall be as specified in the Articles. A director shall hold office
until the annual meeting of stockholders for the year in which such director's
term expires and until such director's successor shall be elected, subject,
however, to prior death, resignation, retirement or removal from office in
accordance with the Articles and these Bylaws. Any director elected to fill a
vacancy not resulting from an increase in the number of directors
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shall have the same remaining term as that of such director's predecessor.
Notwithstanding the foregoing, whenever the holder of any one or more series of
Preferred Stock shall have the right, voting separately by class or series, to
elect directors at an annual or special meeting of stockholders, the election
and term of office of such directorships shall be governed by the terms of the
Articles. Directors need not be stockholders.
SECTION 3.2 POWERS. The business and affairs of the Corporation
shall be managed in accordance with the Articles by its Board of Directors,
which may exercise all of the powers of the Corporation, except such as are by
law, the Articles or these Bylaws conferred upon or reserved to the
stockholders. As provided in the Articles, the Board of Directors may delegate
certain duties, including the duty of management of the Corporation's
day-to-day operations or investments, to one or more persons.
SECTION 3.3 VACANCIES. Except as provided by applicable law,
any vacancy in the Board of Directors shall be filled by a majority of the
directors then in office or by a sole remaining director.
SECTION 3.4 RESIGNATION OF DIRECTORS. Any director or
member of a committee may resign at any time. Such resignation shall be made
in writing and shall take effect at the time specified therein or, if no time
is specified, at the time of receipt thereof by the Chairman of the Board, the
President or the Secretary. The acceptance of a resignation, unless otherwise
stated therein, shall not be necessary to make it effective.
SECTION 3.5 REMOVAL OF DIRECTORS. Any director of the Corporation
may be removed from office at any time by the vote of stockholders representing
not less than two-thirds of the voting power of the issued and outstanding
stock entitled to voting power.
SECTION 3.6 NOMINATION OF DIRECTORS. Except as otherwise fixed
pursuant to Article FOURTH of the Articles relating to the rights of the
holders of any one or more classes or series of Preferred Stock, acting
separately by class or series, to elect, under specified circumstances,
directors at a meeting of stockholders, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been delivered personally to, or been
mailed to and received by the Secretary at, the principal office of the
Corporation not less than 35 days nor more than 60 days prior to the meeting;
provided, however, that, in the event that less than 45 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders
notice by the stockholder
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to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Each such notice shall set forth (i)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated, (ii) the class and number of shares
of stock held of record, owned beneficially and represented by proxy by such
stockholder as of the record date for the meeting (if such date shall then have
been made publicly available) and as of the date of such notice, (iii) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice, (iv) a
description of ail arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant -to which the nomination or nominations are to be made by such
stockholder, (v) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission and (vi) the consent of each
nominee to serve as a director of the Corporation if so elected. The chairman
of the meeting may refuse to acknowledge the nomination of any person not made
in compliance with the foregoing procedure.
SECTION 3.7 COMMITTEES. The Board of Directors shall appoint
from among its members an Audit Committee and may appoint other committees,
each to be composed of three or more directors. None of the members of the
Audit Committee shall be employees of the Corporation or any Advisor (as
defined in Article THIRTEENTH of the Articles). Subject to any provisions of
the Articles calling for action by the entire Board of Directors, the Board of
Directors may delegate to any committee any of the powers of the Board of
Directors except the power to determine the number of directors constituting
the Board of Directors, to fill vacancies in the Board of Directors, to take
any action pursuant to Articles TENTH and SEVENTEENTH of the Articles, to
declare dividends or distributions on stock, to recommend to the stockholders
any action which requires stockholder approval, to amend the Bylaws, to approve
any merger or share exchange which does not require stockholder approval and to
issue stock. Notice of committee meetings shall be given in the same manner as
notice for special meetings of the Board of Directors. One-third, but not
less than two, of the members of any committee shall be present in person or by
telephone at any meeting of such committee in order to constitute a quorum for
the transaction of business at such meeting, and the act of a majority present
shall be the act of such committee. The Board of Directors may designate a
chairman of any committee and such chairman or any two members of any committee
may fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint
another director to
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act at the meeting in the place absent or disqualified member. The committees
shall keep minutes of their proceedings and shall report the same to the Board
of Directors at the meeting next succeeding, and any action by the committees
shall be subject to revision and alteration by the Board of Directors, provided
that no rights of third persons shall be affected by any such revision or
alteration. The Board of Directors shall have the power at any time to change
the membership of any committee, to fill all vacancies, to designate alternate
members to replace any absent or disqualified member or to dissolve any such
committee.
SECTION 3.8 MEETINGS. The first meeting of each newly elected
Board of Directors shall he held as soon as practicable after each annual
meeting of stockholders. The meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written
waiver as provided in Section 4.1 except that no notice or waiver shall be
necessary if such meeting is held immediately after the adjournment, and at
the site, of the annual meeting of stockholders. Regular meetings of the Board
of Directors may be held without notice at such time and place as shall from
time to time be designated by the Board of Directors. Special meetings of the
Board of Directors may be called at any time by two or more directors, or in
writing by a majority of the members of' the Executive Committee, if one is
constituted, or by the Chairman of the Board or the President. Special meetings
may be held at such place or places inside or outside the State of Nevada as
may be designated from time to time by the Board of Directors; in the absence
of such designation, such meetings shall be held at such places as may be
designated in the notice of meeting. Notice of the place and time of every
special meeting of the Board of Directors shall be delivered by the Secretary
to each director either personally or by telephone, facsimile, telegram or
telegraph, or by leaving the same at his residence or usual place of' business
at least twenty-four hours before the time at which such meeting is to be held,
or by first-class mail, at least four days before the day on which such meeting
is to be held. If mailed, such notice shall be deemed to be given when
deposited in the United States mail addressed to the director at his post
office address as it appears on the records of the Corporation, with postage
thereon prepaid.
SECTION 3.9 QUORUM AND VOTING. At any meeting of the Board,
a majority of directors shall constitute a quorum for the transaction of
business and the action of a majority of the directors present at any meeting
at which a quorum is present shall be the action of the Board of Directors,
unless the concurrence of a greater proportion is required for such action by
law, the Articles or these Bylaws. If a quorum shall not be present at any
meeting of directors, the directors present at such meeting may, by a majority
vote, adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
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SECTION 3.10 ORGANIZATION. At each meeting of the Board of
Directors, the Chairman of the Board or, if the Chairman of the Board is absent
or unable to act, the President or, in the absence or inability to act of both
the Chairman of the board and the President, another director chosen by a
majority of the directors present shall act as chairman of and preside at the
meeting. The Secretary or, if the Secretary is absent or unable to act, any
person appointed by the chairman of the meeting shall act as secretary of the
meeting and keep the minutes thereof.
SECTION 3.11 MEETING BY CONFERENCE TELEPHONE. Members of the
Board of Directors may participate in a meeting of the Board of Directors or
any committee thereof by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 3.12 ELECTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a written consent to such
action is signed by all members of the Board or of such committee, as the case
may be, and such written consent is filed with the minutes of proceedings of
the Board of Directors or such committee.
SECTION 3.13 COMPENSATION OF DIRECTORS. Directors, as such, shall
not receive any stated salary for their services. Directors deemed
"independent" pursuant to the terms of Article FOURTEENTH of the Articles shall
receive such reasonable compensation as may be approved by the Board of
Directors which may include, but is not limited to, (i) an annual fee per year
plus expenses for serving on the Board of Directors, (ii) an annual fee per
year for each committee of the Board of Trustees on which he serves, (iii) an
annual fee per year for each committee chairmanship and (iv) up to a specified
sum per day for any special services rendered by such director to the
Corporation outside of ordinary duties as director, plus reimbursement for
expenses. The Chairman of the Board shall receive additional compensation per
year. By resolution, the Board of Directors may change or eliminate such
compensation or eliminate reimbursement for expenses. Nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
WAIVERS OF NOTICE
SECTION 4.1 WAIVERS OF NOTICE. Notice of the time, place or
purpose of any meeting of stockholders, directors or committee required to be
given under law or under the provisions of the Articles or these Bylaws need
not be given to a person who shall have signed a written waiver, whether before
or after the relevant
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meeting, or who shall attend such meeting in person (or, in the case of a
meeting of stockholders, in person or by proxy). All such waivers shall be
filed with the records of the relevant meeting.
ARTICLE V
OFFICERS
SECTION 5.1 OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors and shall consist of a
President, one or more Vice Presidents, a Secretary and a Treasurer. The Board
of Directors may from time to time choose other officers or agents of the
Corporation, including in its discretion a Chairman of the Board and/or one or
more Assistant Secretaries or Assistant Treasurers. The directors shall
determine whether the Chairman of the Board, the Vice Chairman of the Board or
the President shall be the Chief Executive Officer. Two or more offices, except
those of (i) President and Vice President, (ii) Secretary and Assistant
Secretary and Treasurer and Assistant Treasurer, may be held by the same
person, but no officer shall execute, acknowledge or verify an instrument in
more than one capacity if such instrument is required by law, the Articles or
these Bylaws to be executed, acknowledged or verified by two or more officers.
No officer or agent of the Corporation need be a shareholder, a director or a
resident of the State of Nevada.
SECTION 5.2 COMPENSATION. The salaries of all officers and agents
of the Corporation shall be fixed from time to time by the Board of Directors.
SECTION 5.3 TERM; REMOVAL; RESIGNATION. An officer of the
Corporation shall hold office until the first meeting of the Board of Directors
to occur after the next succeeding annual meeting of stockholders and until
such officer's successor is chosen and qualifies, subject, however, to prior
death, resignation, retirement or removal from office in accordance with
these Bylaws. Any officer or agent may be removed by the Board of Directors
whenever, in its judgment, the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contractual rights,
if any, of the person so removed. Any officer may resign at any time. Such
resignation shall be made in writing and shall take effect at the time
specified therein or, if no such time is specified at the time of receipt
thereof by the Chairman of the Board, the President or the Secretary.
The acceptance of a resignation, unless otherwise stated therein, shall not be
necessary to make it effective. If any office becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.
SECTION 5.4 CHAIRMAN OF THE BOARD; PRESIDENT; VICE CHAIRMAN OF
THE BOARD; CHIEF EXECUTIVE OFFICER. The Chairman of the Board, if any, shall
each have and
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perform such duties as from time to time may be assigned to him by the Board
of Directors. The Chief Executive officer shall, unless otherwise provided by
the directors, preside at all meetings of the Board of Directors and of the
shareholders. He shall exercise the powers and perform the duties usual to a
chief executive officer and, subject to the control of the Board of Directors,
shall have general management and control of the affairs, finances and the
business of the Corporation; he shall appoint and discharge employees and
agents of the Corporation; and he shall see that all orders and resolutions of
the Board of Directors are carried into effect. He shall have the general power
to execute bonds, deeds, contracts, conveyances and other instruments in the
name of the Corporation and to affix the Corporate Seal, to appoint all
employees and agents of the Corporation whose appointment is not otherwise
provided for and to fix their compensation subject to the provisions of these
Bylaws and subject to the approval of the Board of Directors, to remove or
suspend any employee or agent who shall not have been appointed by the Board of
Directors and to suspend for cause, pending final action by the Board of
Directors, any employee or agent who shall have been appointed by the Board of
Directors and he shall exercise and perform such other powers and duties as are
specified in these Bylaws and as may from time to time be prescribed by the
Board of Directors. In the case where the President is not the Chief Executive
officer, the President, subject to the control of the Chief Executive Officer,
shall have and perform such duties as from time to time may be assigned to him
by the Board of Directors and shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.
SECTION 5.5 VICE PRESIDENT. The Vice President, if one shall be
elected, or, if here shall he more than one, the Vice Presidents in the order
specified by the Board of Directors shall in the absence or disability of the
President perform the duties and exercise the powers of the President, and
shall exercise and perform such other powers and duties as are specified in
these Bylaws and as may from time to time be prescribed by the Board of
Directors.
SECTION 5.6 SECRETARY. The Secretary shall keep a minute book of
all meetings of stockholders and of the Board of Directors. The Secretary shall
keep in safe custody the Corporate Seal and, when authorized by the Board of
Directors, affix the same to any instrument requiring it and shall exercise and
perform such other powers and duties as are specified in these Bylaws and as
may from time to time be prescribed by the Board of Directors.
SECTION 5.7 TREASURER. The Treasurer shall have the custody of
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such
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depositories as may be designated by the Treasurer. The Treasurer shall
disburse the funds of the Corporation as ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the
President and the Board of Directors at its regular meetings, or when the Board
of Directors so requires, an account of all transactions and of the financial
condition of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of that office and for the restoration to the
Corporation, in case of the death, resignation, retirement or removal of the
Treasurer from office, of all books, papers, vouchers, money and other property
of whatever kind in the possession or under the control of the Treasurer and
belonging to the Corporation. The Treasurer shall exercise and perform such
other powers and duties as are specified in these Bylaws and as may from time
to time be prescribed by the Board of Directors.
SECTION 5.8 DELEGATION OF DUTIES. In the case of the absence of
any officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors may confer for the time
being the powers or duties, or any of them, of such officer upon any director.
SECTION 5.9 INDEMNIFICATION. Each officer, director or employee
of the Corporation shall be indemnified by the Corporation to the full extent
permitted under Chapter 78 of the Nevada Revised Statutes and other applicable
law.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 6.1 CERTIFICATES. Records shall be kept by or on behalf
of the Corporation which shall contain the names and addresses of stockholders,
the number and class of shares held by them respectively and the number of
certificates, if any, representing the shares, and in which there shall be
recorded all transfers of shares. Each stockholder shall be entitled to a
certificate or certificates which shall certify the number and class of
shares owned by such stockholder in the corporation. Each certificate shall be
signed by the Chairman of the Board, the President or a Vice President and
countersigned by the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer and may be sealed with the Corporate Seal; provided,
however, that such signatures may be either manual or facsimile signatures and
the Corporate Seal may be either a facsimile or any other form of Corporate
Seal. In case any officer who has signed any certificate ceases to hold the
office in question before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as if the
officer had not ceased to hold such office as of the date of its issue. Each
stock certificate shall include on its face the name of the Corporation,
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the name of the stockholder and the class of stock and number of shares
represented by the certificate. If the Corporation has authority to issue
stock of more than one class, each stock certificate shall contain on its face
or back a full statement or summary of the designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the stock
of each class of which the Corporation is authorized to issue and, if the
Corporation is authorized to issue any preferred or special class in series,
the differences in the relative rights and preferences between the shares of
each series to the extent they have been set and the authority of the Board of
Directors to set the relative rights and preferences of subsequent series. In
lieu of such full statement or summary, there may be set forth upon the face
or back of the certificate a statement that the Corporation will furnish to
any stockholder upon request and without charge a full statement of such
information. A summary of such information included in a registration statement
permitted to become effective under the federal Securities Act of 1933, as now
or hereafter amended, shall be an acceptable summary for the purposes of this
Section 6.1. Every stock certificate representing shares of stock which are
restricted as to transferability by the Corporation shall contain a full
statement of the restriction or state that the Corporation will furnish
information about the restriction to the stockholder on request and without
charge. A stock certificate may not be issued until the stock represented by it
is fully paid, except in the case of stock purchased under an option plan as
permitted by law.
SECTION 6.2 LOST CERTIFICATES. In case any certificate for shares
of the Corporation shall be lost, stolen, mutilated or destroyed, the Board of
Directors, in its discretion, or any transfer agent thereunto duly authorized
by the Board, may authorize the issue of a substitute certificate in place of
the certificate so lost, stolen, mutilated or destroyed, and may cause such
substitute certificate to be countersigned by the appropriate transfer agent
(if any); provided, however, that in each such case the applicant for a
substitute certificate shall furnish to the Corporation and to such of its
transfer agents and registrars as may require the same, evidence to their
satisfaction, in their discretion, of the loss, theft, mutilation or
destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may by them be required. The Board of Directors may
adopt such other provisions and restrictions with reference to lost, stolen,
mutilated or destroyed certificates, not inconsistent with applicable law, as
it shall in its discretion deem appropriate.
SECTION 6.3 TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may in its discretion appoint one or more banks or trust companies in
such city or cities as the Board of Directors may deem advisable, from time to
time, to act as transfer agents or registrars of the Corporation's shares, and
upon such appointments
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being made, no certificate representing shares shall be valid until
countersigned by one of such transfer agents (if any) and registered by one of
such registrars (if any).
SECTION 6.4 TRANSFER OF STOCK. Subject to the restrictions
contained in the Articles, upon surrender to the Corporation or its transfer
agent of a stock certificate duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 6.5 FIXING OF RECORD DATES; CLOSING OF TRANSFER BOOKS.
The Board of Directors may fix in advance a date as the record date for the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or in order to make
a determination of stockholders for any other proper purpose. Such date, in
any case, shall not be more than sixty (60) days, and in case of meeting of
stockholders not less than ten (10) days, prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
In lieu of fixing a record date, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period not to exceed, in any
case, twenty (20) days. If the stock transfer books are closed for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
SECTION 6.6 REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends and to vote as such owner, and to
hold liable for calls and assessments, if any, a person registered on its books
as the owner of shares, and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
SECTION 6.7 REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these Bylaws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for the Corporation's shares.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 DIVIDENDS. Dividends, if any, upon the capital stock
of the Corporation, subject to the provisions of the Articles, may be declared
by the Board of Directors at any regular
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or special meeting, pursuant to applicable law. Dividends may be paid in cash,
property or the Corporation's shares, subject to the provisions of applicable
law and of the Articles. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sums as
the directors from time to time, in their absolute discretion, think proper as
a reserve fund to meet contingencies, for equalizing dividends or for repairing
or maintain any property of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
SECTION 7.2 ANNUAL REPORT. The Chairman of the Board, the
President, a Vice President or the Treasurer shall prepare or cause to be
prepared annually a full and correct statement of the affairs of the
Corporation. including a balance sheet and a financial statement of operations
for the preceding fiscal year. Such balance sheet and financial statement may
be, but are not required by these Bylaws to be, certified by independent
certified public accountants. Such report shall also be submitted at the annual
meeting and shall he filed within twenty (20) days thereafter at the principal
office of the Corporation.
SECTION 7.3 CHECKS. All checks, drafts and orders for the payment
of money, notes and other evidences of indebtedness issued in the name of the
Corporation shall be signed by the President or the Treasurer or by such
officer or officers as the Board of Directors may from time to time designate.
SECTION 7.4 DEPOSITORIES AND CUSTODIANS. The funds of the
Corporation shall be deposited with such banks or other depositories as the
Treasurer may from time to time designate. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors may from time to time designate.
SECTION 7.5 BOOKS OF ACCOUNT AND RECORDS. The Corporation shall
maintain at its principal office correct and complete books and records of
account of all the business and transactions of the Corporation. Upon request
of any stockholder, there shall be made available in accordance with the
provisions of Nevada law a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
SECTION 7.6 INFORMATION FOR INSPECTION. Any stockholder of the
Corporation, or any agent thereof, may inspect and copy during usual business
hours these Bylaws, minutes of the proceedings of meetings of stockholders,
annual statements of its affairs and voting trust agreements on file at its
principal office.
SECTION 7.7 FISCAL YEAR. The fiscal year of the Corporation
shall be the calendar year.
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SECTION 7.8 CORPORATE SEAL. The Corporate Seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Nevada." The Corporate Seal may be used by causing
it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE VIII
AMENDMENTS
SECTION 8.1 DIRECTORS. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized to
make, adopt, alter, amend, change or repeal the Bylaws of the Corporation.
SECTION 8.2 STOCKHOLDERS. The stockholders of the Corporation
may not make, adopt, alter, amend, change or repeal the Bylaws of the
Corporation except upon the affirmative vote of not less than sixty-six and
two-thirds percent (66-2/3%) of the outstanding stock of the Corporation
entitled to, vote thereon; provided, however, that the power of the stockholders
to make, adopt, alter, amend, change or repeal the Bylaws of the Corporation is
further subject to the provisions of the Articles of Incorporation.
Adopted this 20th day of December, 1996.
F. Terry Shumate, Secretary
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EXHIBIT 3.4
AGREEMENT AND PLAN OF MERGER
OF
WESPAC PROPERTY CORPORATION
(a California corporation)
AND
FIRST EQUITY PROPERTIES, INC.
(a Nevada corporation)
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
December 20, 1996, is by and between WESPAC Property Corporation, a California
corporation ("WESPAC California"), and First Equity Properties, Inc., a Nevada
corporation ("FEPI Nevada").
WHEREAS, WESPAC California is a California corporation with its resident
agent therein located at CT Corporation System, 818 West Seventh Street, Los
Angeles, California 90017; and
WHEREAS, the shares of stock that WESPAC California has authority to
issue are 45,000,000 shares, of which 40,000,000 shares, par value $0.01 per
share, are designated Common Stock (the "California Common Stock") and
5,000,000 shares, par value $0.01 per share, are designated Preferred Stock;
and
WHEREAS, FEPI Nevada is a Nevada corporation with its registered office
therein located at CT Corporation System, One East First Street, Reno, Nevada
89501; and
WHEREAS, the total number of shares of stock which FEPI Nevada has
authority to issue is 45,000,000 shares, of which 40,000,000 shares, par value
$0.01 per share, are designated Common Stock ("Nevada Common Stock"), and
5,000,000 shares, par value $0.01 per share, are designated Preferred Stock;
and
WHEREAS, the General Corporation Law of the State of Nevada permits the
merger of one or more foreign corporations with one or more domestic
corporations into a single corporation; and
WHEREAS, WESPAC California and FEPI Nevada and the respective Boards of
Directors thereof deem it advisable and to the advantage, welfare, and best
interests of said corporations and their respective stockholders to merge
WESPAC California with and into FEPI Nevada pursuant to the provisions of the
Nevada Law upon the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of
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which are hereby acknowledged, the parties hereto agree as follows:
1. THE MERGER. Upon the terms and subject to the conditions hereof,
the Merger shall be consummated in accordance with the General Corporation Law
of Nevada (the "Nevada Law") and the General Corporation Law of California (the
"California Law") on December 23, 1996, or as soon thereafter as is reasonably
practicable. At the Effective Time (as hereinafter defined) and subject to and
upon the terms and conditions of this Agreement, the Nevada Law and the
California Law, WESPAC California shall be merged with and into FEPI Nevada
(the "Merger"), the separate corporate existence of WESPAC California shall
cease, and FEPI Nevada shall continue as the surviving corporation.
2. EFFECTIVE TIME. On December 23, 1996, or as soon thereafter as
is reasonably practicable, the parties hereto shall cause the Merger to be
consummated by filing articles of merger with the Secretary of State of Nevada
and the documents required by Section 1108 of the California Law with the
Secretary of State of California, in such form as required by, and executed in
accordance with, the relevant provisions of the Nevada Law and the California
Law. The Merger shall become effective upon the filing of such articles of
merger with the Secretary of State of Nevada (the "Effective Time").
3. EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in Section 78.459 of the Nevada Law.
4. ARTICLES OF INCORPORATION. At the Effective Time, the Articles
of Incorporation of FEPI Nevada, as in effect immediately prior to the
Effective Time, shall remain the Articles of Incorporation of FEPI Nevada as
the surviving corporation until thereafter further amended as provided by law.
5. BYLAWS. The Bylaws of FEPI Nevada, as in effect immediately
prior to the Effective Time, shall remain the Bylaws of FEPI Nevada as the
surviving corporation until thereafter amended as provided by law.
6. DIRECTORS. The directors of FEPI Nevada immediately prior to the
Effective Time shall remain the directors of FEPI Nevada and will hold office
from the Effective Time until their successors are duly elected or appointed
and qualified in the manner provided in the Articles of Incorporation and the
Bylaws of FEPI Nevada, or as otherwise provided by law.
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<PAGE> 3
7. OFFICERS. The officers of FEPI Nevada immediately prior to the
Effective Time shall remain the officers of FEPI Nevada and will hold office
from the Effective Time until their successors are duly elected or appointed
and qualified in the manner provided in the Articles of Incorporation and the
Bylaws of FEPI Nevada, or as otherwise provided by law.
8. ADDITIONAL ACTIONS. If, at any time after the Effective Time,
FEPI Nevada shall consider or be advised that any deeds, bills of sale,
assignments, assurances, or any other actions or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in FEPI Nevada
its right, title or interest in, to or under any of the rights, properties or
assets of WESPAC California acquired or to be acquired by FEPI Nevada as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of FEPI Nevada shall be authorized to
execute and deliver, in the name and on behalf of WESPAC California, all such
deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of WESPAC California, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in FEPI
Nevada or otherwise to carry out this Agreement.
9. CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of FEPI Nevada, WESPAC California
or the holder of any of the following securities
(a) each of the shares of WESPAC California Common Stock
issued and outstanding immediately prior to the Effective Time, other
than any shares of WESPAC California Common Stock to be cancelled
pursuant to Section 9(b) hereof, shall be converted into one validly
issued, fully paid and nonassessable share of FEPI Nevada Common stock,
upon surrender of the certificate representing such share;
(b) each share of WESPAC California Common Stock held in the
treasury of WESPAC California immediately prior to the Effective Time
shall be cancelled and extinguished and no payment or other
consideration shall be made with respect thereto;
(c) each share of FEPI Nevada Common Stock issued and
outstanding immediately prior to the Effective Time shall be cancelled;
and
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(d) from and after the Effective Time, holders of certificates
formerly evidencing shares of WESPAC California Common Stock shall have
rights as stockholders of FEPI Nevada (and not WESPAC California) in
accordance with applicable law.
10. SURRENDER OF SHARES; STOCK TRANSFER BOOKS. Each holder of a
certificate or certificates formerly representing any shares of WESPAC
California Common Stock converted in the Merger pursuant to Section 9(a) shall
surrender such certificate or certificates to FEPI Nevada as promptly as
practicable. Upon surrender by such holder to FEPI Nevada of a certificate,
together with such other instruments and acknowledgments as FEPI Nevada may
require, the holder of such certificate shall be entitled to receive in
exchange therefor an equal number of shares of Nevada Common Stock represented
by such certificate, and such former certificate shall forthwith be cancelled.
At the Effective Time, the stock transfer books of WESPAC California shall be
closed and there shall be no further registration of transfers of shares of
WESPAC California Common Stock on the records of WESPAC California. No
interest shall accrue or be paid on any cash payable upon the surrender of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of WESPAC California Common Stock.
11. CERTAIN CHANGES. The Boards of Directors of FEPI Nevada and
WESPAC California may amend this Agreement at any time prior to the filing of
the articles of merger with the Secretary of State of Nevada, provided that an
amendment made subsequent to the adoption of the Merger by the stockholders of
FEPI Nevada and WESPAC California shall not (1) alter or change the amount of
consideration to be received in exchange for or on conversion of the shares of
any class or series thereof of WESPAC California, (2) further alter or change
any term of the Articles of Incorporation of FEPI Nevada, or (3) alter or
change any of the terms and conditions of this Agreement if such alteration or
change would adversely affect the holders of the shares of any class or series
of FEPI Nevada or WESPAC California.
12. TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the filing of the articles of merger with the
Secretary of State of Nevada, notwithstanding approval hereof by the
stockholders of FEPI Nevada or WESPAC California or by the Board of Directors
of FEPI Nevada or WESPAC California.
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13. TAX EFFECT. The parties hereby agree to treat the Merger for
federal income tax purposes as a reorganization within the meaning of Section
368(a)(1)(f) of the Internal Revenue Code, with no gain or loss recognized by
FEPI Nevada or its stockholders or by WESPAC California or its shareholders.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nevada.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which, collectively, shall constitute one and the same instrument representing
this Agreement among the parties hereto, and it shall not be necessary for the
proof of this Agreement that any party produce or account for more than one
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Merger to be executed by their respective officers as of the 23 day of
December, 1996.
ATTEST: WESPAC PROPERTY CORPORATION
/s/ F. TERRY SHUMATE By: /s/ KARL L. BLAHA
- --------------------------------- -------------------------------------
F. Terry Shumate, Secretary Karl L. Blaha, President
ATTEST: FIRST EQUITY PROPERTIES, INC.
/s/ F. TERRY SHUMATE By: /s/ KARL L. BLAHA
- --------------------------------- -------------------------------------
F. Terry Shumate, Secretary Karl L. Blaha, President
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<PAGE> 6
The undersigned, being the President of WESPAC Property Corporation,
does hereby certify that (a) the holders of 100% of the outstanding stock of
said corporation were entitled to vote on the foregoing Agreement and Plan of
Merger, (b) the principal terms of the agreement in the form attached were
approved by 84% of the outstanding shares and (c) such vote exceeded the
majority vote required to approve the foregoing Agreement and Plan of Merger.
/s/ KARL L. BLAHA
-------------------------------------
Karl L. Blaha, President
WESPAC PROPERTY CORPORATION
The undersigned, being the President of First Equity Properties, Inc.,
does hereby certify that the holder of all of the outstanding stock of said
corporation dispensed with a meeting and vote of stockholders, and such sole
stockholder consented in writing, pursuant to the provisions of Section 78.320
of the General Corporation Law of the State of Nevada, to the adoption of the
foregoing Agreement and Plan of Merger.
/s/ KARL L. BLAHA
-------------------------------------
Karl L. Blaha, President
FIRST EQUITY PROPERTIES, INC.
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<PAGE> 1
EXHIBIT 3.5
ARTICLES OF MERGER
OF
WESPAC PROPERTY CORPORATION
a California corporation
INTO
FIRST EQUITY PROPERTIES, INC.
a Nevada corporation
First Equity Properties, Inc, a Nevada corporation ("FEPI Nevada"),
hereby certifies as follows:
1. WESPAC Property Corporation ("WESPAC California") was
incorporated on December 16, 1996 under the laws of the State of California.
2. FEPI Nevada was incorporated on December 19, 1996 under the
laws of the State of Nevada.
3. The name of the surviving corporation is First Equity
Properties, Inc.
4. An Agreement and Plan of Merger (the "Plan") between FEPI
Nevada and WESPAC California has been approved, adopted, certified, executed
and acknowledged by the vote of the Board of Directors of both FEPI Nevada and
WESPAC California in accordance with the requirements of Section 78.451 of the
Nevada Revised Statutes.
5. The Plan was approved by the unanimous written consent of the
sole stockholder of FEPI Nevada pursuant to Section 78.453 of the Nevada
Revised Statutes.
6. The Plan was submitted to the shareholders of WESPAC
California by its board of directors. There were 10,568,944 shares of common
stock outstanding and entitled to one vote each with respect to the Plan.
There were 9,021,490 votes cast for the Plan and 168,585 votes cast against the
Plan. The number of votes cast for the Plan was sufficient for approval of the
Plan by the stockholders pursuant to Section 78.453 of the Nevada Revised
Statutes.
7. The Articles of Incorporation of FEPI Nevada shall be the
articles of incorporation of the surviving corporation.
8. The effective date of the merger shall be the date when the
Secretary of State of the State of Nevada shall have issued a Certificate of
Merger or other similar document relating to such merger.
9. The complete and executed Agreement and Plan of Merger is on
file at the principal place of business of FEPI Nevada,
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the address of which is 10670 North Central Expressway, Suite 300, Dallas,
Texas 75231.
10. A copy of the Plan will be furnished by FEPI Nevada on request
and without cost to any stockholder of any corporation that is a party to the
merger.
DATED as of December 23, 1996.
FIRST EQUITY PROPERTIES, INC.
By: /s/ KARL L. BLAHA
------------------------------
Karl L. Blaha, President
FIRST EQUITY PROPERTIES, INC.
By: /s/ F. TERRY SHUMATE
------------------------------
F. Terry Shumate, Secretary
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on the 23 day of
December, 1996 by Karl L. Blaha, President of First Equity Properties, Inc.
/s/ PAMELA D. BENSON
[SEAL] ------------------------------------------------
Notary Public in and for said County and State
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on the 23 day of
December, 1996 by F. Terry Shumate, Secretary of First Equity Properties, Inc.
/s/ PAMELA D. BENSON
[SEAL] ------------------------------------------------
Notary Public in and for said County and State
2
