<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TRANSCONTINENTAL REALTY INVESTORS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
ROBERT A. WALDMAN, SECRETARY OF TRANSCONTINENTAL REALTY
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
PRELIMINARY STATEMENT FOR THE INFORMATION OF THE SECURITIES AND
EXCHANGE COMMISSION ONLY
TRANSCONTINENTAL REALTY INVESTORS, INC.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Transcontinental Realty Investors, Inc.:
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of
Transcontinental Realty Investors, Inc. (the "Company") will be held at 11:00
a.m., Central time, on Tuesday, January [31], 1995, at 10670 North Central
Expressway, Suite 600, Dallas, Texas 75231, to consider and vote on the
following matters:
(1) the election of three Class II Directors of the Company;
(2) the renewal of the Company's current advisory agreement with Basic
Capital Management, Inc.; and
(3) the transaction of such other business as may properly come before
the annual meeting or any adjournments thereof.
Only Stockholders of record at the close of business on Monday, January
[2], 1995 will be entitled to vote at the Annual Meeting. Stockholders are
cordially invited to attend the Annual Meeting in person.
Regardless of whether you plan to be present at the Annual Meeting, please
promptly date, mark, sign, and mail the enclosed proxy ballot card to American
Stock Transfer and Trust Company in the envelope provided. Any Stockholder who
executes and delivers the enclosed proxy may revoke the authority granted
thereunder at any time prior to its use by giving written notice of such
revocation to American Stock Transfer and Trust Company, 40 Wall Street, 46th
Floor, New York, New York 10005, or by executing and delivering a proxy bearing
a later date. A Stockholder may also revoke a proxy by attending and voting at
the Annual Meeting. Your vote is important, regardless of the number of shares
you own.
The Annual Report to Stockholders for the year ended December 31, 1993, has
been mailed to all Stockholders under separate cover.
Dated: January [3], 1995
BY ORDER OF THE BOARD OF DIRECTORS
OF TRANSCONTINENTAL REALTY
INVESTORS, INC.
Robert A. Waldman
Secretary
IMPORTANT
YOU CAN HELP THE COMPANY AVOID THE NECESSITY AND EXPENSE OF SENDING
FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY
BALLOT CARD. IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, PLEASE MARK, DATE,
SIGN AND RETURN THE ENCLOSED PROXY BALLOT CARD SO THAT THE NECESSARY QUORUM MAY
BE REPRESENTED AT THE ANNUAL MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
FAILURE TO VOTE MAY SUBJECT THE COMPANY TO FURTHER EXPENSE
If your Shares are held in the name of a brokerage firm, nominee or other
institution, only it can vote your Shares. Please contact promptly the person
responsible for your account and give instructions for your Shares to be voted.
<PAGE> 3
PRELIMINARY STATEMENT FOR THE INFORMATION OF THE SECURITIES AND
EXCHANGE COMMISSION ONLY
TRANSCONTINENTAL REALTY INVESTORS, INC.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY [31], 1995
GENERAL STOCKHOLDER INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Transcontinental Realty Investors, Inc. (the
"Company") of proxies to be used at the Annual Meeting of Stockholders for
consideration of and voting upon (1) the election of three Class II Directors
for a three-year term expiring in 1996, (2) the renewal of the Company's current
advisory agreement with Basic Capital Management, Inc. ("BCM" or the "Advisor"),
and (3) the transaction of such other business as may properly come before the
meeting or any adjournments thereof. The Annual Meeting will be held at 11:00
a.m., Central time, on Tuesday, January [31], 1995, at 10670 North Central
Expressway, Suite 600, Dallas, Texas 75231. The Company's financial statements
for the year ended December 31, 1993 were audited by BDO Seidman. A
representative from BDO Seidman is expected to be present at the Annual Meeting
to respond to appropriate questions, and such representative will have an
opportunity to make a statement if such representative desires to do so. This
Proxy Statement and the accompanying proxy are first being mailed to
Stockholders on or about January [3], 1995.
STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding shares of common stock of
the Company (the "Shares") at the close of business on Monday, January [2], 1995
(the "Record Date"), are entitled to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on December 2, 1994, there were
2,674,850 Shares outstanding. Each holder is entitled to one vote for each Share
held on the Record Date.
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted thereon. As to the election of the Class II Directors
(Proposal One), Stockholders may chose to vote for all of the nominees, withhold
authority for voting for all of the nominees or withhold authority for voting
for any individual nominee. As to the renewal of the Company's current advisory
agreement with BCM (Proposal Two), Stockholders may choose to vote for, against
or abstain from voting on the proposal in its entirety.
In the absence of other instructions, the Shares represented by a properly
executed and submitted proxy will be voted in favor of the nominees for election
to the Board of Directors and in favor of Proposal Two. The Board of Directors
does not know of any other business to be brought before the Annual Meeting. If,
however, any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote such proxy in
accordance with their judgment on such matters.
EFFECTS OF AND REASONS FOR PROPOSAL TWO
In considering Proposal Two for the renewal of the Company's current
advisory agreement with BCM, Stockholders should be aware that BCM will be
entitled to receive payments of certain fees from the Company for the services
it will perform. In addition, BCM serves as advisor to other entities engaged in
real
<PAGE> 4
estate investment activities that are similar to those of the Company and which
may compete with the Company in purchasing, selling, leasing and financing real
estate and related investments.
BCM has been providing advisory services to the Company since March 1989.
The current advisory agreement was executed as of December 1, 1992 and was
approved by the Stockholders on April 26, 1993. The Articles of Incorporation of
the Company do not require Stockholder approval for renewals or modifications of
the advisory agreement. However, the Board of Directors has chosen to submit the
proposal to the Stockholders and allow them to vote upon the renewal.
The Board of Directors believes that the terms of the advisory agreement
with BCM are at least as favorable to the Company as those that would be
obtained from unaffiliated third parties.
VOTE REQUIRED FOR ELECTION OR APPROVAL
Pursuant to Section 2.07 of the By-laws of the Company, election of any
Director requires the affirmative vote of a majority of the votes cast at a
meeting of Stockholders by holders of Shares entitled to vote thereon. Section
2.06 of the By-laws of the Company provides that a majority of the outstanding
Shares entitled to vote, represented in person or by proxy, shall constitute a
quorum at any such meeting. The renewal of the Company's current advisory
agreement with BCM (Proposal Two) also requires the affirmative vote of a
majority of the votes cast at the Annual Meeting.
As of December 2, 1994, management and affiliates held 840,162 Shares
representing approximately 31.4% of the Shares outstanding. Such parties intend
to vote such Shares for each the proposals in accordance with the recommendation
of the Board of Directors.
REVOCATION OF PROXIES
A proxy is enclosed herewith. Any Stockholder who executes and delivers the
proxy may revoke the authority granted thereunder at any time prior to its use
by giving written notice of such revocation to American Stock Transfer and Trust
Company, 40 Wall Street, 46th Floor, New York, New York 10005, or by executing
and delivering a proxy bearing a later date. A Stockholder may also revoke a
proxy by attending and voting at the Annual Meeting.
FUTURE PROPOSALS OF STOCKHOLDERS (1994)
Any proposal intended to be presented by a Stockholder at the 1994 Annual
Meeting of Stockholders of the Company must be received at the principal office
of the Company not later than April 30, 1995, in order to be considered for
inclusion in the Company's proxy statement and form of proxy (as the case may
be) for that meeting.
PROPOSAL ONE:
ELECTION OF CLASS II DIRECTORS
The following persons have been nominated to serve as Class II Directors of
the Company: Harold Furst, Ph.D., John P. Parsons and Ted P. Stokely.
Each of the nominees is currently a Class II Director of the Company. One
other current Class II Director, Randall K. Gonzalez, is not standing for
reelection. Two of the nominees, Messrs. Furst and Parsons, were appointed to
the Board of Directors in December 1994 in accordance with the settlement of the
litigation described below under "Olive Litigation". Such settlement required
the appointment of three new unaffiliated members to the Company's Board of
Directors. In addition, Edward G. Zampa was also appointed to serve as a Class I
Director of the Board of Directors in December 1994 pursuant to such settlement
and Martin L. White was appointed to serve as a Class I Director of the Board of
Directors in December 1994 to fill the vacancy left by the resignation of Dan L.
Johnston.
Two other current Directors, Willie K. Davis, a Class III Director, and A.
Bob Jordan, a Class I Director, are resigning from the Board of Directors,
effective as of the date of the Annual Meeting.
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<PAGE> 5
Each of the three nominees has been nominated by the Board of Directors to
serve for an additional three-year term or until his successor shall have been
duly elected and qualified. Each nominee has consented to being named in this
Proxy Statement as a nominee and has agreed to serve as a Class II Director if
elected. When a proxy is properly executed and returned, the Shares represented
thereby will be voted in favor of the election of each of the nominees, unless
authority to vote for any such nominee is specifically withheld. There will be
no cumulative voting for the election of Class II Directors. If any nominee is
unable to serve or will not serve (an event which is not anticipated), then the
person acting pursuant to the authority granted under the proxy will cast votes
for the remaining nominees and, unless the Board of Directors takes action to
reduce the number of Class II Directors, for such other person(s) as he or she
may select in place of such nominee(s).
The three nominees for Class II Directors are listed below, together with
their ages, terms of service, all positions and offices with the Company or the
Company's advisor, BCM, other principal occupations, and offices with the
Company or the Company's advisor, BCM, other principal occupations, business
experience and directorships with other companies during the last five years or
more. The designation "Affiliated", when used below with respect to a Director,
means that the Director is an officer, director or employee of the Advisor or an
officer of the Company. The designation "Independent", when used below with
respect to a Director, means the Director is neither an officer or employee of
the Company nor a director, officer or employee of the Advisor, although the
Company may have certain business or professional relationships with such
Director as discussed below under "Certain Business Relationships and Related
Transactions".
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
----------------------------------------------------------------------------------- ---
<S> <C>
HAROLD FURST, PH.D.: Director (Class II) (Independent) (since December 1994). 78
Former Senior Vice President of Bank of America, N.T. and S.A. (retired 1972);
President (1973 to 1975) of Gerson Bakar & Associates, a property development,
ownership and management company; Independent business consultant (since 1975)
with emphasis on economic and financial matters; and Trustee (since December
1994) of Income Opportunity Realty Trust ("IORT") and Continental Mortgage and
Equity Trust ("CMET").
JOHN P. PARSONS: Director (Class II) (Independent) (since December 1994). 66
Chairman and Chief Executive Officer (since 1984) of Pierpont Corporation;
Director of Zentrum Holdings Limited (NZ) (since 1984), the Pickford Foundation
(since 1980), International Divertissments, Ltd. (since 1986), and Lifehouse
International, Ltd.(since 1990); and Trustee (since December 1994) of IORT and
CMET.
TED P. STOKELY: Director (Class II) (Independent) (since April 1990). 60
General Manager (since January 1993) of Minority and Elderly Housing Assistance
Foundation, Inc., a nonprofit corporation; Part-time unpaid consultant (since
January 1993) of Eldercare Housing Foundation, a nonprofit corporation engaged in
the acquisition of low income and elderly housing; President (since April 1992)
of PSA Group (real estate management and consulting); Executive Vice President
(1987 to 1991) of Key Companies Inc., a publicly traded company that develops,
acquires and sells water and minerals; Managing General Partner (1985 to 1987) of
RCB Houston Venture I, a Texas Partnership; Executive Vice President (1982 to
1985) of Success Properties, a Texas real estate investment company; Trustee
(since April 1990) of IORT and CMET; and Trustee (from April 1990 to August 1994)
of National Income Realty Trust ("NIRT").
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES NAMED ABOVE.
The Class I and Class III Directors, whose terms do not expire at this
annual meeting, are listed below, together with their ages, classes, terms of
service, all positions with the Company or BCM, other principal occupations,
business experience and directorships with other companies during the last five
years or more.
3
<PAGE> 6
<TABLE>
<CAPTION>
AGE
---
<S> <C>
GEOFFREY C. ETNIRE: Director (Class III) (Independent) (since January 1993). 45
Attorney engaged in private practice of real estate law in Pleasanton, California
(since 1981); Licensed Real Estate Broker in California (since 1985); Director
(1985 to 1989) of Mission Valley Bancorp; Director (1984 to 1989) and Chairman
(1986 to 1989) of Bank of Pleasanton; Managing Partner (1981 to 1988) with Smith,
Etnire, Polson & Scott law firm; Trustee (since January 1993) of IORT and CMET;
and Trustee (from January 1993 to December 1994) of NIRT.
BENNETT B. SIMS: Director (Class III) (Independent) (since April 1990). 61
Author (since 1964); Screen and Television Writer (since 1960); Independent
Marketing Consultant (since 1980) for various companies; Professor of Dramatic
Writing (since September 1987) at Tisch School of the Arts, New York University;
Trustee (since April 1990) of IORT and CMET; and Trustee (from April 1990 to
August 1994) of NIRT and (from December 1992 to August 1994) of Vinland Property
Trust ("VPT").
MARTIN L. WHITE: Director (Class I) (Independent) (since December 1994). 55
Loan Manager (1986 to 1992) for the Development Office of the Department of
Housing of the City of San Jose, California; and Trustee (since December 1994) of
IORT and CMET.
EDWARD G. ZAMPA: Director (Class I) (Independent) (since December 1994). 60
General Partner (since 1976) of Edward G. Zampa and Company; and Trustee (since
December 1994) of IORT and CMET.
</TABLE>
LITIGATION AND CLAIMS INVOLVING MESSRS. PHILLIPS AND FRIEDMAN
Southmark Bankruptcy. Until January 1989, Gene E. Phillips, who served as a
Director of the Company until December 31, 1992, and William S. Friedman, the
President and a Director of the Company until February 1994, were executive
officers and directors of Southmark Corporation ("Southmark"). Mr. Phillips
served as Chairman of the Board and Director (since 1980) and President and
Chief Executive Officer (since 1981) and Mr. Friedman served as Vice Chairman of
the Board (since 1982), Director (since 1980) and Secretary (since 1984) of
Southmark.
Although Mr. Phillips no longer serves as an officer or director of BCM or
as a Director of the Company, he does serve as a representative of the trust
established for the benefit of his children which owns BCM and, in such
capacity, has substantial contact with management of BCM and input with respect
to its performance of advisory services for the Company. Mr. Friedman no longer
serves as an officer or director of BCM or as a Director or officer of the
Company and has had no involvement in the management of the Company since
February 1994.
As a result of a deadlock on Southmark's Board of Directors, Messrs.
Phillips and Friedman reached a series of related agreements with Southmark on
January 17, 1989 (collectively, the "Separation Agreement"), whereby Messrs.
Phillips and Friedman resigned their positions with Southmark and certain of
Southmark's subsidiaries and affiliates. The Separation Agreement was later
modified by certain agreements in another set of agreements dated as of June 30,
1989 (collectively, the "June Agreements"). Southmark filed a voluntary petition
in bankruptcy under Chapter 11 of the United States Bankruptcy Code on July 14,
1989.
San Jacinto Savings Association. On November 30, 1990, San Jacinto Savings
Association ("SJSA"), a savings institution that had been owned by Southmark
since 1983 and for which Mr. Phillips served as a director from 1987 to January
1989, was placed under conservatorship of the Resolution Trust Corporation
("RTC") by federal banking authorities. On December 14, 1990, SJSA was converted
into a Federal Association and placed in receivership. The government has
reportedly alleged that SJSA's poor financial condition was attributable in part
to "a pattern of high-risk real estate investments made after Southmark bought
it in 1983," and that it had "poor procedures for determining loss reserves and
relied excessively on deposits gathered through brokerage houses that enable[d]
it to grow rapidly." On November 26, 1993, the
4
<PAGE> 7
RTC filed lawsuits in Dallas and New York City against Mr. Phillips, six former
directors, auditors and lawyers of SJSA, alleging that the auditors and former
directors could and should have stopped SJSA's poor lending practice during the
period it was owned by Southmark and that the former directors abdicated their
responsibility for reviewing loans during the same period. The Office of Thrift
Supervision ("OTS") also conducted a formal examination of SJSA and its
affiliates.
On November 21, 1994, Mr. Phillips entered into an agreement with the RTC
and the OTS settling all claims relating to his involvement with SJSA.
Litigation Against Southmark and its Affiliates Alleging Fraud or
Mismanagement. There were several lawsuits filed against Southmark, its former
officers and directors (including Messrs. Phillips and Friedman) and others,
alleging, among other things, that such persons and entities engaged in conduct
designed to defraud and mislead the investing public by intentionally
misrepresenting the financial condition of Southmark. All such lawsuits have
been settled or dismissed without any findings or admissions of wrongdoing by
Messrs. Phillips or Friedman. THE COMPANY WAS NOT A DEFENDANT IN ANY OF THESE
LAWSUITS.
Litigation Relating to Lincoln Savings and Loan Association, F.A. In an
action filed in the United States District Court for the District of Arizona on
behalf of Lincoln Savings and Loan Association, F.A. ("Lincoln"), and captioned
RTC V. Charles H. Keating, Jr., et al., the RTC alleged that Charles H. Keating,
Jr. and other persons, including Mr. Phillips, fraudulently diverted funds from
Lincoln.
The RTC alleged that Mr. Phillips aided and abetted the insider defendants
in a scheme to defraud Lincoln and its regulators; that Southmark, its
subsidiaries and affiliates, including SJSA, facilitated and concealed the use
of Lincoln funds to finance the sale, at inflated prices, of assets of Lincoln's
parent, American Continental Corp. ("ACC"), in return for loans from Lincoln and
participations in contrived transactions; and that the insider defendants caused
Southmark to purchase ACC assets at inflated prices. The RTC alleged that
Lincoln and/or ACC engaged in three illegal transactions with Southmark or its
affiliates while Mr. Phillips was affiliated with Southmark. Neither Mr.
Friedman nor Southmark was a defendant in this action.
The RTC alleged nine separate causes of action against Mr. Phillips,
including aiding and abetting the violation of, and conspiracy to violate,
federal and state Racketeer Influenced and Corrupt Organizations Act ("RICO")
statutes, violations of Arizona felony statutes, common law fraud, civil
conspiracy and breach of fiduciary duty. The RTC sought to recover from the
defendants more than $1 billion, as well as treble damages under the federal
RICO statute, punitive damages of at least $100 million and attorneys' fees and
costs. Trial of the RTC's claims against Mr. Phillips was scheduled to begin in
June 1993. However, the case was removed from the trial docket to facilitate
settlement negotiations.
On November 21, 1994, Mr. Phillips entered into an agreement with the RTC
settling all claims relating to his involvement with Lincoln.
It has also been reported that the Justice Department and the Securities
and Exchange Commission have been asked to investigate Lincoln's possible links
to Southmark.
Southmark Partnership Litigation. One of Southmark's principal businesses
was real estate syndication and from 1981 to 1987 Southmark raised over $500
million in investments from limited partners of several hundred limited
partnerships. The following two cases relate to and involve such activities.
In an action filed in May 1992 in a Texas state court captioned HCW Pension
Real Estate Fund, et al. V. Phillips et al., the plaintiffs, fifteen former
Southmark related public limited partnerships, alleged that the defendants
violated the partnership agreements by charging certain administrative costs and
expenses to the plaintiffs. The complaint alleged claims for breach of fiduciary
duty, fraud and conspiracy to commit fraud and sought to recover actual damages
of approximately $12.6 million plus punitive damages, attorneys' fees and costs.
The defendants included, among others, Messrs. Phillips and Friedman. In October
1993, the court granted partial summary judgment in favor of Messrs. Phillips
and Friedman on the plaintiffs' breach of fiduciary duty claims. Notice of
non-suit in favor of Messrs. Phillips and Friedman was entered on March 9, 1994.
5
<PAGE> 8
In an action filed in January 1993 in a Michigan state court captioned Van
Buren Associates limited Partnership, et al., V. Friedman et al., the plaintiff,
a former Southmark sponsored limited partnership, alleged a claim for breach of
fiduciary duty in connection with the 1988 transfer of certain property by the
partnership. The plaintiff sought damages in an unspecified amount, plus costs
and attorneys' fees. The plaintiff also sought to quiet title to the property at
issue. The defendants included, among others, Messrs. Phillips and Friedman.
This lawsuit was settled in November 1994.
BOARD COMMITTEES
The Company's Board of Directors held nine meetings during 1993. For such
year, no incumbent Director attended fewer than 75% of the aggregate of (i) the
total number of meetings held by the Board during the period for which he had
been a Director and (ii) the total number of meetings held by all committees of
the Board on which he served during the periods that he served.
The Board of Directors has an Audit Committee, the function of which is to
review the Company's operating and accounting procedures. The current members of
the Audit Committee, all of whom are Independent Directors, are Messrs. Etnire
(Chairman), Davis and Gonzalez. The Audit Committee met three times during 1993.
The Company's Board of Directors does not have Nominating or Compensation
Committees.
The Company's Board of Directors has a Related Party Transaction Committee
which reviews and makes recommendations to the Board of Directors with respect
to transactions involving the Company and any other party or parties related to
or affiliated with the Company, any of its Directors or any of their affiliates,
and a Litigation Committee which reviews certain litigation involving Messrs.
Phillips and Friedman. Messrs. Davis (Chairman), Etnire, Gonzalez, Sims and
Stokely, all of whom are Independent Directors, are the members of the Related
Party Transaction Committee, while Messrs. Jordan (Chairman), Etnire, Sims and
Stokely comprise the Litigation Committee. During 1993, the Related Party
Transaction Committee met six times and the Litigation Committee met six times.
The Litigation Committee has formally requested each of Messrs. Phillips
and Friedman to furnish the Advisor's in-house counsel with copies of the
complaints filed in all pending litigation in which either is named as a
defendant. The Advisor's counsel has furnished the Litigation Committee with
summaries of the allegations contained in each such complaint as well as
summaries of developments in existing and new matters. The Litigation Committee
is represented by independent counsel, which counsel periodically reviews
certain litigation matters and reports to the Committee thereon.
The Litigation Committee evaluates the nature and quality of the
allegations made in any litigations or investigations involving Mr. Phillips
and, until February 1994, Mr. Friedman in order to assess whether BCM should
continue to act as Advisor to the Company. The Litigation Committee, while not
needing to duplicate the adjudicatory process, is also required to conduct any
investigation that is appropriate and necessary to discharge the above
obligations.
The Related Party Transaction Committee and the Litigation Committee were
formed in 1990 pursuant to the settlement of the Olive litigation discussed
below. In December 1994, the court approved a modification of the settlement
which will relieve the Company of the requirement to maintain the two
committees. Accordingly, it is anticipated that each of the committees will be
terminated.
OLIVE LITIGATION
In February 1990, the Company together with CMET, IORT and NIRT, three real
estate entities with, at the time, the same officers, directors or trustees and
advisor as the Company, entered into a settlement of a class and derivative
action entitled Olive et al. V. National Income Realty Trust et al. relating to
the operation and management of each of the entities. On April 23, 1990, the
court granted final approval of the terms of the settlement.
6
<PAGE> 9
On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Modification") which settles subsequent
claims of breaches of the settlement agreement which were asserted by the
plaintiffs and modifies certain provisions of the April 1990 settlement. The
Modification was preliminarily approved by the court on July 1, 1994. Final
court approval of the Modification was entered on December 12, 1994.
The Modification, among other things, provides for the addition of three
new unaffiliated members of the Company's Board of Directors and sets forth new
requirements for the approval of any transactions with affiliates over the next
five years. In addition, BCM, the Company's advisor, Gene E. Phillips and
William S. Friedman have agreed to pay a total of $1.2 million to CMET, IORT,
NIRT and the Company.
Under the Modification, the Company, CMET, IORT and NIRT and their
shareholders will release the defendants from any claims relating to the
plaintiffs' allegations. The Company, CMET, IORT and NIRT have also agreed to
waive any demand requirement for the plaintiffs to pursue claims on behalf of
each of them against certain persons or entities. The Modification also requires
that any shares of the Company held by Messrs. Phillips, Friedman or their
affiliates shall be (1) voted in favor of the reelection of all current Board
members that stand for reelection during the two calendar years following the
effective date of the Modification and (ii) voted in favor of all new Board
members appointed pursuant to the terms of the Modification that stand for
reelection during the three calendar years following the effective date of the
Modification.
The Modification also terminates a number of the provisions under the
Stipulation of Settlement, including the requirement that the Company, CMET,
IORT and NIRT maintain a Related Party Transaction Committee and a Litigation
Committee of their respective Boards. The court will retain jurisdiction to
enforce the Modification.
EXECUTIVE OFFICERS
The following persons currently serve as executive officers of the Company:
Oscar W. Cashwell, President; Karl L. Blaha, Executive Vice President and
Director of Commercial Management; Hamilton P. Schrauff, Executive Vice
President and Chief Financial Officer; and Thomas A. Holland, Senior Vice
President and Chief Accounting Officer. Their positions with the Company are not
subject to a vote of stockholders. The age, terms of service, all positions and
offices with the Company or BCM, other principal occupations, business
experience and directorships with other companies during the last five years or
more of each executive officer are set forth below.
<TABLE>
<CAPTION>
AGE
---
<S> <C>
OSCAR W. CASHWELL: President (since February 1994). 67
President (since February 1994) of IORT and CMET; President and Director of
Property and Asset Management (since January 1994) and Assistant to the
President, Real Estate Operations (July 1989 to December 1993) of BCM; President
(since February 1994) of Syntek Asset Management, Inc. ("SAMI"), the managing
general partner of Syntek Asset Management, L.P., which in turn is the general
partner of National Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"),
and a corporation owned by BCM; Assistant to the President, Real Estate
Operations (March 1982 to June 1989) of Southmark; and Director (since November
1992) of American Realty Trust, Inc. ("ART").
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
AGE
---
<S> <C>
KARL L. BLAHA: Executive Vice President and Director of Commercial Management (since 45
April 1992).
President (since October 1993) and Executive Vice President and Director of
Commercial Management (April 1992 to September 1993) of ART; Executive Vice
President and Director of Commercial Management (since April 1992) of SAMI, BCM,
IORT and CMET; Executive Vice President and Director of Commercial Management
(April 1992 to February 1994) of NIRT and VPT; Partner -- Director of National
Real Estate Operations of First Winthrop Corporation (August 1988 to March 1992);
Corporate Vice President of Southmark (April 1984 to August 1988); and President
of Southmark Commercial Management (March 1986 to August 1988).
HAMILTON P. SCHRAUFF: Executive Vice President and Chief Financial Officer (since 59
October 1991).
Executive Vice President and Chief Financial Officer (since October 1991) of
SAMI, BCM, ART, IORT and CMET; Executive Vice President and Chief Financial
Officer (October 1991 to February 1994) of NIRT and VPT; Executive Vice
President -- Finance of Partnership Investments, Hallwood Group (December 1990 to
October 1991); Vice President -- Finance and Treasurer (October 1980 to October
1990) and Vice President -- Finance (November 1976 to September 1980) of Texas
Oil & Gas Corporation; and Assistant Treasurer -- Finance Manager (February 1975
to October 1976) of Exxon U.S.A.
THOMAS A. HOLLAND: Senior Vice President and Chief Accounting Officer (since July 52
1990).
Senior Vice President and Chief Accounting Officer (since July 1990) of SAMI,
BCM, ART, IORT and CMET; Senior Vice President and Chief Accounting Officer (July
1990 to February 1994) of NIRT and VPT; Vice President and Controller of
Southmark (December 1986 to June 1990); Vice President-Finance of Diamond
Shamrock Chemical Company (January 1986 to December 1986); Assistant Controller
of Maxus Energy Corporation (formerly Diamond Shamrock Corporation) (May 1976 to
January 1986); Trustee of Arlington Realty Investors (August 1989 to June 1990);
and Certified Public Accountant (since 1970).
</TABLE>
OFFICERS
Although not executive officers of the Company, the following persons
currently serve as officers of the Company: Drew D. Potera, Treasurer, and
Robert A. Waldman, Vice President and Secretary. Their positions with the
Company are not subject to a vote of stockholders. Their ages, terms of service,
all positions and offices with the Company or BCM, other principal occupations,
business experience and directorships with other companies during the last five
years or more are set forth below.
<TABLE>
<CAPTION>
AGE
---
<S> <C>
DREW D. POTERA: Treasurer (since December 1990). 35
Treasurer (since December 1990) of IORT and CMET; Treasurer (December 1990 to
February 1994) of NIRT and VPT; Assistant Treasurer (December 1990 to August
1991) and Treasurer (since August 1991) of ART; Vice President, Treasurer and
Securities Manager (since July 1990) of BCM; and Financial Consultant with
Merrill Lynch, Pierce, Fenner & Smith Incorporated (June 1985 to June 1990).
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
AGE
---
<S> <C>
ROBERT A. WALDMAN: Vice President (since December 1990) and Secretary (since 42
December 1993).
Vice President (since December 1990) and Secretary (since December 1993) of IORT
and CMET; Vice President (December 1990 to February 1994) and Secretary (December
1993 to February 1994) of NIRT and VPT; Vice President (since January 1993) and
Secretary (since December 1989) of ART; Senior Vice President and General Counsel
(since November 1994), Vice President and Corporate Counsel (November 1989 to
November 1994), and Secretary (since November 1989) of BCM; Director (February
1987 to October 1989) of Red Eagle Resources Corporation (oil and gas); Assistant
General Counsel, Senior Staff Attorney and Staff Attorney (1981 to 1985) of Texas
International Company (oil and gas); and Staff Attorney (1979 to 1981) of Iowa
Beef Processors, Inc.
</TABLE>
In addition to the foregoing officers, the Company has several vice
presidents and assistant secretaries who are not listed herein.
COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's shares of common stock are required to report their ownership of the
Company's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to report any failure to file
by these dates during 1993. All of these filing requirements were satisfied by
its Directors and executive officers and ten percent holders. In making these
statements, the Company has relied on the written representations of its
incumbent Directors and executive officers and its ten percent holders and
copies of the reports that they have filed with the Commission.
THE ADVISOR
Although the Board of Directors is directly responsible for managing the
affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by a contractual advisor
under the supervision of the Board of Directors. The stated duties of the
advisor include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities
for the Company. The advisor also serves as a consultant in connection with the
investment policy decisions made by the Board of Directors.
BCM has served as the Company's Advisor since March 1989. BCM is a
corporation of which Messrs. Cashwell, Blaha, Schrauff, Holland and Waldman
serve as executive officers. Mr. Friedman, President and Director of the Company
until February 1994, served as President of BCM until May 1993. Prior to
December 22, 1989, Messrs. Phillips and Friedman also served as directors of
BCM, and until September 1, 1992, Mr. Phillips served as Chief Executive Officer
of BCM. BCM is beneficially owned by a trust for the benefit of the children of
Mr. Phillips. Mr. Phillips serves as a representative of his children's trust
which beneficially owns BCM and, in such capacity, has substantial contact with
the management of BCM and input with respect to its performance of advisory
services to the Company.
At the Company's annual meeting of stockholders held on April 26, 1993, the
Company's stockholders approved the Company's advisory agreement with BCM
through the next annual meeting of the Company's stockholders. Subsequent
renewals of the Advisory Agreement with BCM do not require the approval of the
Company's stockholders but do require the approval of the Company's Board of
Directors.
See "The Advisory Agreement" below for a detailed discussion of the
advisory fees payable to BCM by the Company.
9
<PAGE> 12
PROPERTY MANAGEMENT
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently Carmel Realty Services, Ltd. ("Carmel, Ltd.
") provides such property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under its management. In many
cases, Carmel, Ltd. subcontracts with other entities for the provision of the
property-level management services to the Company at various rates. The general
partner of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i)
Syntek West, Inc. ("SWI"), of which Mr. Phillips is the sole shareholder, (ii)
Mr. Phillips and, (iii) a trust for the benefit of the children of Mr. Phillips.
Carmel, Ltd. subcontracts the property-level management and leasing of nineteen
of the Company's commercial properties and the commercial properties owned by a
real estate partnership in which the Company and IORT are partners to Carmel
Realty, Inc. ("Carmel Realty") which is owned by SWI.
REAL ESTATE BROKERAGE
Prior to December 1, 1992, affiliates of BCM provided brokerage services to
the Company and received brokerage commissions in accordance with the advisory
agreement. Effective December 1, 1992, the Company's Board of Directors approved
the non-exclusive engagement of Carmel Realty to perform brokerage services for
the Company. From December 1, 1992 through February 10, 1994, Carmel Realty was
entitled to receive a real estate acquisition commission for locating and
negotiating the lease or purchase by the Company of any property equal to the
lesser of (i) up to 3% of the purchase price, inclusive of commissions, if any,
paid by the Company to other brokers; or (ii) the compensation customarily
charged in arm's-length transactions by others rendering similar property
acquisition services in the same geographical location and for comparable
property. Any commission which was paid to Carmel Realty by the seller was
credited against the commission to be paid by the Company. Carmel Realty was
also entitled to receive a real estate sales commission for the sale of each
Company property equal to the lesser of (i) 3% (inclusive of fees, if any, paid
by the Company to other brokers) of the sales price of each property or (ii) the
compensation customarily charged in arm's-length transactions by others
rendering similar services in the same geographical location for comparable
property.
On February 10, 1994, the Company's Board of Directors approved a revised
fee schedule for property acquisitions and sales that provides for the following
sliding scale of total fees to be paid by the Company: (i) maximum fee of 5% on
the first $2.0 million of any purchase or sale transaction of which no more than
4% would be paid to Carmel Realty or affiliates; (ii) maximum fee of 4% on
transaction amounts between $2.0 million to $5.0 million of which no more than
3% would be paid to Carmel Realty or affiliates; (iii) maximum fee of 3% on
transaction amounts between $5.0 million to $10.0 million of which no more than
2% would be paid to Carmel Realty or affiliates; and (iv) maximum fee of 2% on
transaction amounts in excess of $10.0 million of which no more than 1 1/2%
would be paid to Carmel Realty or affiliates.
EXECUTIVE COMPENSATION
The Company has no employees, payroll or benefit plans and pays no
compensation to the executive officers of the Company. The executive officers of
the Company who are also officers or employees of the Company's Advisor are
compensated by the Advisor. Such executive officers of the Company perform a
variety of services for the Advisor and the amount of their compensation is
determined solely by the Advisor. BCM does not allocate the cash compensation of
its officers among the various entities for which it serves as advisor.
The only remuneration paid by the Company is to the Directors who are not
officers or directors of BCM or its affiliated companies. The Independent
Directors (i) review the business plan of the Company to determine that it is in
the best interest of the Company's stockholders, (ii) review the Company's
contract with the advisor, (iii) supervise the performance of the Company's
advisor and review the reasonableness of the compensation which the Company pays
to its advisor in terms of the nature and quality of services performed, (iv)
review the reasonableness of the total fees and expenses of the Company and (v)
select, when necessary, a qualified independent real estate appraiser to
appraise properties acquired by the Company. The
10
<PAGE> 13
Independent Directors receive compensation in the amount of $6,000 per year,
plus reimbursement for expenses. In addition, each Independent Director receives
(i) $3,000 per year for each committee of the Board of Directors on which he
serves, (ii) $2,500 per year for each committee chairmanship and (iii) $1,000
per day for any special services rendered by him to the Company outside of his
ordinary duties as Director, plus reimbursement of expenses.
During 1994, the Board of Directors established a Screening Committee for
the purpose of interviewing candidates for nomination to the Board pursuant to
the Modification in the Olive Litigation. In connection with such services, each
member of the Screening Committee received a $5,000 fee.
During 1993, $128,291 was paid to the Independent Directors in total
Directors' fees for all services, including the annual fee for service during
the period June 1, 1993 through May 31, 1994, and 1993 special service fees as
follows: Willie K. Davis, $14,875; Geoffrey C. Etnire, $19,625; Randall K.
Gonzalez, $12,750; Dan L. Johnston, $25,250; A. Bob Jordan, $10,042; Raymond
V.J. Schrag, $17,500; Bennett B. Sims, $13,500; and Ted P. Stokely, $14,750.
Mr. Davis, a current Director of the Company who is resigning as of the
Annual Meeting, serves on the Fairness Committee of NRLP (for which he received
$4,000 in 1993) whose function is to review certain transactions between NRLP
and its general partner and affiliates of such general partner.
Since January 1, 1993, FMS, a company of which Mr. Davis serves as
Chairman, President and sole shareholder, has provided property-level management
services, as a subcontractor to Carmel, Ltd. for two properties owned by NIRT.
TMC Realty Advisors, Inc. ("TMC"), a company of which Mr. Gonzalez is the
Managing Partner and President, provided property level management services, as
a subcontractor to Carmel, Ltd. for a property owned by the Company through
August 15, 1993. Through April 1993, TMC provided such services for a property
owned by a partnership that included the Company and IORT. In 1993, TMC earned
fees of $6,321 from the partnership and $18,299 from the Company for providing
such services. Mr. Gonzalez is a current Class II Director of the Company who is
not standing for reelection. Through August 15, 1994, TMC also provided
property-level management services as subcontractor to Carmel, Ltd. for certain
properties owned by ART, CMET and NOLP and, through March 31, 1994, for NIRT.
Christon Company, a company of which Mr. Gonzalez serves as Vice President,
provides property leasing services as a subcontractor to Carmel, Ltd. to the
partnership which includes the Company and IORT. In 1993, Christon earned
property leasing commissions of $2,961 applicable to such partnership. Mr.
Gonzalez is the son of Al Gonzalez, an ART director not affiliated with BCM.
During 1993, Mr. Jordan, a current Director of the Company who is resigning
as of the Annual Meeting, performed legal services for BCM and its affiliates,
as well as for ART, CMET, NIRT and the Company. The Company paid Mr. Jordan
$23,535 in legal fees and cost reimbursements in 1993.
The Company's management believes that the fees paid to TMC, Christon and
Mr. Jordan were at least as favorable to the Company as those that would be paid
to unaffiliated third parties for the performance of similar services.
11
<PAGE> 14
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder
return on the Company's shares of Common Stock with the Standard & Poor's 500
Stock Index ("S&P 500 Index") and the National Association of Real Estate
Investment Trusts, Inc. Hybrid REIT Total Return Index ("REIT Index"). The
comparison assumes that $100 was invested on December 31, 1988 in the Company's
shares of Common Stock and in each of the indices and further assumes the
reinvestment of all dividends. Past performance is not necessarily an indicator
of future performance.
<TABLE>
<CAPTION>
Measurement Period S&P 500
(Fiscal Year Covered) The Company Index REIT Index
--------------------- ----------- ------- ----------
<S> <C> <C> <C>
1988 100 100 100
1989 67 131 88
1990 23 127 63
1991 37 166 88
1992 45 179 102
1993 90 197 124
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's Common Stock, both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be beneficial owners of more than 5% of its shares of
Common Stock as of the close of business on December 2, 1994.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS(1)
- -------------------------------- ----------------------- -----------
<S> <C> <C>
American Realty Trust, Inc. 638,847 23.9%
10670 N. Central Expressway
Suite 300 Dallas, Texas 75231
</TABLE>
- ---------------
(1) Percentages are based upon 2,674,850 shares of Common Stock outstanding at
December 2, 1994.
12
<PAGE> 15
Security Ownership of Management. The following table sets forth the
ownership of the Company's shares of Common Stock, both beneficially and of
record, both individually and in the aggregate for the Directors and executive
officers of the Company as of the close of business on December 2, 1994.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS (1)
- ------------------------------------------------ ----------------------- -----------
<S> <C> <C>
Ted P. Stokely 53,190(2)(3) 2.0%
All Directors and Executive Officers as a group
(14 individuals) 840,162(2)(3)(4) 31.4%
</TABLE>
- ---------------
(1) Percentages are based upon 2,674,850 shares of Common Stock outstanding at
December 2, 1994.
(2) Includes 53,000 shares owned by CMET of which the Company's Directors may be
deemed to be beneficial owners by virtue of their positions as trustees of
CMET.
(3) Mr. Stokely owns 190 shares personally.
(4) Includes 17,650 shares owned by SAMLP, 130,475 shares owned by BCM and
638,847 shares owned by ART, of which the executive officers of the Company
may be deemed to be beneficial owners by virtue of their positions as
executive officers or directors of SAMI, BCM and ART. The executive
officers of the Company disclaim beneficial ownership of such shares.
CERTAIN BUSINESS RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In February 1989, the Company's Board of Directors voted to retain BCM as
the Company's advisor. BCM is a corporation of which Messrs. Cashwell, Blaha,
Holland and Waldman serve as executive officers. Mr. Friedman, President and
Director of the Company until February 1994, served as President of BCM until
May 1, 1993. Messrs. Phillips and Friedman served as directors of BCM until
December 22, 1989 and Mr. Phillips served as Chief Executive Officer of BCM
until September 1, 1992. BCM is beneficially owned by a trust for the benefit of
the children of Mr. Phillips. Mr. Phillips serves as a representative of his
children's trust which beneficially owns BCM and, in such capacity, has
substantial contact with the management of BCM and input with respect to BCM's
performance of advisory services to the Company.
Since February 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel, Ltd. provides such property
management services. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) SWI, of which Mr. Phillips is the sole
shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the children
of Mr. Phillips. Carmel, Ltd. subcontracts the property-level management and
leasing of nineteen of the Company's commercial properties and the commercial
properties of a real estate partnership in which the Company is a partner to
Carmel Realty, which is owned by SWI.
Prior to December 1, 1992, affiliates of BCM provided brokerage services to
the Company and received brokerage commissions in accordance with the advisory
agreement. Since December 1, 1992, the Company has engaged, on a non-exclusive
basis, Carmel Realty to perform brokerage services for the Company.
All of the Directors and officers of the Company also serve as trustees and
officers of CMET and IORT. Messrs. Etnire and Davis serve as trustees of NIRT.
The Directors owe fiduciary duties to such entities as well as to the Company
under applicable law. CMET and IORT have the same relationship with BCM as the
Company. The Company owned approximately 22% of the outstanding shares of
beneficial interest of IORT at December 2, 1994. Mr. Phillips is a general
partner and, until March 1994, Mr. Friedman was a general partner of the general
partner, of NRLP and NOLP. BCM performs certain administrative functions for
NRLP and NOLP on a cost-reimbursement basis. BCM also serves as advisor to ART.
Messrs. Phillips and Friedman served as executive officers and directors of ART
until November 16, 1992 and December 31, 1992, respectively. In addition,
Messrs. Blaha, Schrauff and Holland are executive officers of ART and Mr.
Cashwell serves as director of ART.
13
<PAGE> 16
Mr. Davis, a current Director of the Company who is resigning as of the
Annual Meeting, serves on the Fairness Committee of NRLP whose function is to
review certain transactions between NRLP and its general partner and affiliates
of such general partner. FMS, a company of which Mr. Davis serves as chairman
and sole shareholder, provides property-level management services for two
properties owned by NIRT.
Through August 15, 1994, TMC, a company of which Mr. Gonzalez, a current
Class II Director who is not standing for reelection, is the Managing Partner
and President, provided property-level management services as a subcontractor to
Carmel, Ltd. for a property owned by the Company and certain properties owned by
ART, CMET, NIRT and NOLP. Christon, a company of which Mr. Gonzalez serves as
Vice President, provides property leasing services as a subcontractor to Carmel,
Ltd. for a property in which the Company and IORT have a partnership interest.
Mr. Gonzalez is the son of Al Gonzalez, a director of ART not affiliated with
BCM.
During 1993, Mr. Jordan, a current Director of the Company who is resigning
as of the Annual Meeting, performed legal services for BCM and its affiliates,
as well as for ART, CMET, NIRT and the Company.
From April 1992 to December 31, 1993, Mr. Stokely was employed as a Real
Estate Consultant for Eldercare, a nonprofit corporation engaged in the
acquisition of low income and elderly housing. Eldercare has a revolving loan
commitment from SWI, of which Mr. Phillips is the sole shareholder. In addition,
in November 1991, NIRT funded a $230,000 loan to Eldercare. Eldercare filed for
bankruptcy protection in October 1993.
RELATED PARTY TRANSACTIONS
Historically, the Company has engaged in and may continue to engage in
business transactions, including real estate partnerships, with related parties.
All related party transactions entered into by the Company must be approved by a
majority of the Company's Board of Directors including a majority of the
Independent Directors. In addition, the Related Party Transaction Committee of
the Company's Board of Directors must review all such transactions prior to
their submission to the Company's Board of Directors for their consideration.
The Company's management believes that all of the related party transactions
represented the best investments available at the time and were at least as
advantageous to the Company as could have been obtained from unrelated third
parties.
On December 19, 1988, the Company purchased, for $8.9 million, a first lien
mortgage loan secured by five nursing homes located in Georgia and South
Carolina. The seller was as unrelated financial institution. Subsequent to the
purchase, the loan was modified and split into two loans. The obligors on the
loans were affiliates of Southmark. The loans contained cross-default and
cross-collateral provisions with each other. The loans became delinquent in the
payment of interest in July 1989. On March 5, 1990, the Company foreclosed on
the four properties located in Georgia. The Company incurred a loss of $627,000
in connection with this foreclosure. In June 1991, the Company sold the four
nursing homes to Medical Resource Companies of America ("Medical Resource"). In
connection with the sale, the Company financed the entire purchase price of $8.7
million through the acceptance of four purchase money mortgages (the "Notes").
On December 31, 1991, Medical Resource sold the four nursing homes to a
nonprofit corporation. In conjunction with this sale, the Notes were exchanged
for four tax-free notes (the "Tax-free Notes") issued by the State of Georgia in
the same aggregate amount. On March 31, 1992, the Company sold the Tax-free
Notes to Medical Resource for $4.0 million in cash and a $5.0 million promissory
note secured by a pledge of the Tax-free Notes to the Company. The Company, as a
result of the cash payment by Medical Resource, recognized a gain of $955,000
which had previously been deferred. In December 1992, the Company received
$500,000 principal paydown from Medical Resource and on March 25, 1993 Medical
Resource paid the remaining principal balance ($4.5 million) and accrued but
unpaid interest. The remaining loan in the amount of $1.7 million was
restructured on September 28, 1990 and was secured solely by a nursing home
located in Edgefield, South Carolina. The Company received full payment of the
outstanding balance of this loan in February 1992.
In 1990, the Company began funding under a revolving loan commitment in the
amount of $1.0 million issued in November 1989 to Tri-City Limited Partnership,
a limited partnership in which the Company and IORT are the general partners and
the Company is the sole limited partner, to fund tenant improvements on
14
<PAGE> 17
certain properties owned by the partnership. The note bore interest at a rate
equal to 1.0% over the prime rate and was payable on demand by the Company. At
December 31, 1993, no advances were outstanding under the loan and the agreement
was terminated. In November 1992, the Company acquired for $7.0 million (i) a
40.1% limited interest in the partnership, (ii) 140,656 shares of Common Stock
of the Company and, (iii) 170,750 shares of beneficial interest of IORT.
In 1993, the Company paid BCM and its affiliates $1.5 million in advisory
fees, $273,000 in property acquisition fees, $819,000 in real estate brokerage
commissions, $63,000 in mortgage equity and refinancing fees and $646,000 in
property management and leasing commissions. In addition, as provided in the
Advisory Agreement, BCM received cost reimbursements from the Company of
$647,000 in 1993.
RESTRICTIONS ON RELATED PARTY TRANSACTIONS
Article FOURTEENTH of the Company's Articles of Incorporation provides that
the Company shall not, directly or indirectly, contract or engage in any
transaction with (i) any director, officer or employee of the Company, (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
Securities Exchange Act of 1934, as amended) of any of the aforementioned
persons, 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 Company and
simultaneously authorizes or ratifies such contract or transaction by the
affirmative vote of a majority of independent directors of the Company entitled
to vote thereon.
Article FOURTEENTH defines an "independent director" as one who is neither
an officer or employee of the Company nor a director, officer or employee of the
Company's advisor.
All related party transactions are reviewed by the Related Party
Transaction Committee of the Company's Board of Directors to determine whether
such transactions are: (i) fair to the Company and (ii) are permitted by the
Company's Articles of Incorporation. Such Articles of Incorporation generally
permits related party transactions if approved by a majority of the Independent
Directors. Each of the members of the Related Party Transaction Committee is an
Independent Director, who is not an officer, director or employee of the Advisor
and is not an officer or employee of the Company.
PROPOSAL TWO:
THE RENEWAL OF THE ADVISORY AGREEMENT
The Board of Directors unanimously recommends that Stockholders approve the
renewal for an additional year of the current advisory agreement described below
between the Company and BCM. A copy of the Advisory Agreement appears as
Appendix A to this Proxy Statement and is described below under "The Advisory
Agreement." The affirmative vote of a majority of the votes cast at the Annual
Meeting is required to approve the renewal of the Advisory Agreement.
If Stockholders approve this Proposal Two, the Advisory Agreement will have
a term extending through the next annual meeting of Stockholders, and any
renewal of the Advisory Agreement thereafter will be subject to approval of the
Board of Directors in accordance with the provisions of the Articles of
Incorporation.
THE ADVISORY AGREEMENT
BCM has served as advisor to the Company since March 28, 1989. Mr.
Friedman, President and a Director of the Company until February 1994, served as
the President of BCM until May 1, 1993. BCM is beneficially owned by a trust for
the benefit of the children of Mr. Phillips. Mr. Phillips served as a Director
of the Company until December 31, 1992. Messrs. Phillips and Friedman served as
directors of BCM until December 22, 1989 and Mr. Phillips served as Chief
Executive Officer of BCM until September 1, 1992. Mr. Phillips serves as a
representative of his children's trust which beneficially owns BCM and, in such
15
<PAGE> 18
capacity, has substantial contact with the management of BCM and input with
respect to its performance of advisory services to the Company.
At the Company's annual meeting of stockholders held on April 26, 1993, the
renewal of the Company's advisory agreement with BCM was approved.
Under the Advisory Agreement, the Advisor is required to formulate and
submit annually for approval by the Company's Board of Directors a budget and
business plan for the Company containing a twelve-month forecast of operations
and cash flow, a general plan for asset sales or acquisitions, lending,
foreclosure and borrowing activity, and other investments, and the Advisor is
required to report quarterly to the Company's Board of Directors on the
Company's performance against the business plan. In addition, all transactions
or investments by the Company shall require prior approval by the Company's
Board of Directors unless they are explicitly provided for in the approved
business plan or are made pursuant to authority expressly delegated to the
Advisor by the Company's Board of Directors.
The Advisory Agreement also requires prior approval of the Company's Board
of Directors for the retention of all consultants and third party professionals,
other than legal counsel. The Advisory Agreement provides that the Advisor shall
be deemed to be in a fiduciary relationship to the Company's stockholders;
contains a broad standard governing the Advisor's liability for losses by the
Company; and contains guidelines for the Advisor's allocation of investment
opportunities as among itself, the Company and other entities it advises.
The Advisory Agreement provides for BCM to be responsible for the
day-to-day operations of the Company and to receive an advisory fee comprised of
a gross asset fee of .0625% per month (.75% per annum) of the average of the
gross asset value of the Company (total assets less allowance for amortization,
depreciation or depletion and valuation reserves) and an annual net income fee
equal to 7.5% per annum of the Company's net income.
The Advisory Agreement also provides for BCM to receive an annual incentive
sales fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all real estate sold by the Company during such fiscal year
exceeds the sum of: (i) the cost of each such property as originally recorded in
the Company's books for tax purposes (without deduction for depreciation,
amortization or reserve for losses), (ii) capital improvements made to such
assets during the period owned by the Company, and (iii) all closing costs,
(including real estate commissions) incurred in the sale of such property;
provided, however, no incentive fee shall be paid unless (i) such real estate
sold in such fiscal year, in the aggregate, has produced an 8% simple annual
return on the Company's net investment including capital improvements,
calculated over the Company's holding period before depreciation and inclusive
of operating income and sales consideration and (ii) the aggregate net operating
income from all real estate owned by the Company for each of the prior and
current fiscal years shall be at least 5% higher in the current fiscal year than
in the prior fiscal year.
Additionally, pursuant to the Advisory Agreement BCM or an affiliate of BCM
is to receive an acquisition commission for supervising the acquisition,
purchase or long term lease of real estate for the Company equal to the lesser
of (i) up to 1% of the cost of acquisition, inclusive of commissions, if any,
paid to nonaffiliated brokers or (ii) the compensation customarily charged in
arm's-length transactions by others rendering similar property acquisition
services as an ongoing public activity in the same geographical location and for
comparable property; provided that the purchase price of each property
(including acquisition commissions and all real estate brokerage fees) may not
exceed such property's appraised value at acquisition.
The Advisory Agreement requires BCM or any affiliate of BCM to pay the
Company one-half of any compensation received from third parties with respect to
the origination, placement or brokerage of any loan made by the Company;
provided, however, that the compensation retained by BCM or any affiliate of BCM
shall not exceed the lesser of (i) 2% of the amount of the loan committed by the
Company or (ii) a loan brokerage and commitment fee which is reasonable and fair
under the circumstances.
The Advisory Agreement also provides that BCM or an affiliate of BCM is to
receive a mortgage or loan acquisition fee with respect to the acquisition or
purchase of any existing mortgage loan by the Company equal
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<PAGE> 19
to the lesser of (i) 1% of the amount of the loan purchased or (ii) a loan
brokerage or commitment fee which is reasonable and fair under the
circumstances. Such fee will not be paid in connection with the origination or
funding by the Company of any mortgage loan.
Under the Advisory Agreement, BCM or an affiliate of BCM is also to receive
a mortgage brokerage and equity refinancing fee for obtaining loans to the
Company or refinancing on Company properties equal to the lesser of (i) 1% of
the amount of the loan or the amount refinanced or (ii) a brokerage or
refinancing fee which is reasonable and fair under the circumstances; provided,
however, that no such fee shall be paid on loans from BCM or an affiliate of BCM
without the approval of the Company's Board of Directors. No fee shall be paid
on loan extensions.
Under the Advisory Agreement, BCM is to receive reimbursement of certain
expenses incurred by it in the performance of advisory services to the Company.
Under the Advisory Agreement, all or a portion of the annual advisory fee
must be refunded by the Advisor to the Company if the Operating Expenses of the
Company (as defined in the Advisory Agreement) exceed certain limits specified
in the Advisory Agreement based on the book value, net asset value and net
income of the Company during such fiscal year. The operating expenses of the
Company in 1993, 1992 or 1991 did not exceed such limitation.
Additionally, if the Company were to request that BCM render services to
the Company other than those required by the Advisory Agreement, BCM or an
affiliate of BCM will be separately compensated for such additional services on
terms to be agreed upon from time to time. The Company has hired Carmel Realty
Services, Ltd. ("Carmel, Ltd."), an affiliate of BCM, to perform property
management for the Company's properties and has engaged, on a non-exclusive
basis, Carmel Realty, Inc. ("Carmel Realty"), also an affiliate of BCM, to
perform brokerage services for the Company.
The directors and principal officers of BCM are set forth below.
<TABLE>
<S> <C>
MICKEY NED PHILLIPS: Director
RYAN T. PHILLIPS: Director
OSCAR W. CASHWELL: President and Director of Property and Asset Management
KARL L. BLAHA: Executive Vice President and Director of Commercial
Management
HAMILTON P. SCHRAUFF: Executive Vice President and Chief Financial Officer
CLIFFORD C. TOWNS, JR.: Executive Vice President, Finance
STEPHEN R. YOUNG: Executive Vice President and Director of Acquisitions
RANDALL M. PAULSON: Executive Vice President
THOMAS A. HOLLAND: Senior Vice President and Chief Accounting Officer
ROBERT A. WALDMAN: Senior Vice President, General Counsel and Secretary
DREW D. POTERA: Vice President, Treasurer and Securities Manager
</TABLE>
Mickey Ned Phillips is Gene E. Phillips' brother and Ryan T. Phillips is
Gene E. Phillips' son. Gene E. Phillips serves as a representative of the trust
established for the benefit of his children which owns BCM and, in such
capacity, Mr. Phillips has substantial contact with the management of BCM and
input with respect to its performance of advisory services to the Company.
The Board of Directors unanimously recommends that Stockholders approve the
renewal of the Company's current Advisory Agreement with BCM because the terms
of such agreement are, in its view, as favorable to the Company as those that
would be obtained from unaffiliated third parties for the performance of similar
services, while at the same time the Advisory Agreement gives BCM adequate
incentive to improve the performance of the Company's properties and mortgages.
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<PAGE> 20
SELECTION OF AUDITORS FOR 1994
The Board of Directors has selected BDO Seidman to serve as the auditors
for the Company for the 1994 fiscal year. The Company's auditors for the 1993
fiscal year were BDO Seidman. A representative of BDO Seidman is expected to
attend the annual meeting.
OTHER MATTERS
Management knows of no other matters that may properly be, or that are
likely to be, brought before the meeting. However, if any other matters are
properly brought before the meeting, the persons named in the enclosed proxy or
their substitutes will vote in accordance with their best judgment on such
matters.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED ON
As described herein, the executive officers of the Company also serve as
executive officers of, and are employed by, BCM. Such executive officers could
therefore be deemed to benefit financially from stockholder approval of the
renewal of the Company's Advisory Agreement with BCM pursuant to Proposal Two.
FINANCIAL STATEMENTS
The audited financial statements of the Company, in comparative form for
the years ended December 31, 1993, 1992 and 1991 are contained in the 1993
Annual Report to Stockholders. However, such report and the financial statements
contained therein are not to be considered part of this solicitation.
SOLICITATION OF PROXIES
THIS PROXY STATEMENT IS FURNISHED TO STOCKHOLDERS TO SOLICIT PROXIES ON
BEHALF OF THE DIRECTORS OF THE COMPANY. The cost of soliciting proxies will be
borne by the Company. Directors and officers of the Company may, without
additional compensation, solicit by mail, in person or by telecommunication. In
addition, the Company has retained Beacon Hill Partners ("Beacon Hill") to
assist in the solicitation of proxies. An agreement with Beacon Hill provides
that it will distribute materials relating to the solicitation of proxies,
contact Stockholders to confirm receipt of materials and answer questions
relating thereto. Beacon Hill is to be paid a base fee of $2,000 plus
out-of-pocket expenses and is to be indemnified against all liability incurred
as a result of any material omission or misstatement in any of the materials so
distributed.
------------------------
COPIES OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER
31, 1993 TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K ARE AVAILABLE TO
STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO TRANSCONTINENTAL REALTY
INVESTORS, INC., 10670 NORTH CENTRAL EXPRESSWAY, SUITE 300, DALLAS, TEXAS 75231,
ATTENTION: DIRECTOR OF INVESTOR RELATIONS.
By Order of the Board of Directors
------------------------------------
Oscar W. Cashwell,
President
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR ALL THREE OF THE NOMINEES AND THAT YOU VOTE FOR THE APPROVAL OF THE RENEWAL
OF THE CURRENT ADVISORY AGREEMENT BY VOTING FOR PROPOSAL 2 ON THE ENCLOSED
PROXY. REGARDLESS OF HOW YOU WISH TO VOTE YOUR SHARES, YOUR BOARD OF DIRECTORS
URGES YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY.
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<PAGE> 21
APPENDIX A
ADVISORY AGREEMENT
BETWEEN
TRANSCONTINENTAL REALTY INVESTORS, INC.
AND
BASIC CAPITAL MANAGEMENT, INC.
THIS AGREEMENT dated as of December 1, 1992, between Transcontinental
Realty Investors, Inc., a Nevada corporation (the "Company") and Basic Capital
Management, Inc., a Nevada corporation (the "Advisor")
W I T N E S S E T H:
WHEREAS:
1. The Company owns a complex, diversified portfolio of real estate,
mortgages and other assets, including many non-performing or troubled assets.
2. The Company is an active real estate investment trust with funds
available for investment primarily in the acquisition of income-producing real
estate and to a lesser extent in short and medium term mortgages.
3. The Advisor and its employees have extensive experience in the
administration of real estate assets and the origination, structuring and
evaluation of real estate and mortgage investments.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties agree as follows:
1. Duties of the Advisor. Subject to the supervision of the Board of
Directors, the Advisor will be responsible for the day-to-day operations of the
Company and, subject to Section 17 hereof, shall provide such services and
activities relating to the assets, operations and business plan of the Company
as may be appropriate, including:
(a) preparing and submitting an annual budget and business plan for
approval by the Board of the Company (the "Business Plan");
(b) using its best efforts to present to the Company a continuing and
suitable investment program consistent with the investment policies and
objectives of the Company as set forth in the Business Plan;
(c) using its best efforts to present to the Company investment
opportunities consistent with the Business Plan and such investment program
as the Directors may adopt from time to time;
(d) furnishing or obtaining and supervising the performance of the
ministerial functions in connection with the administration of the
day-to-day operations of the Company, including the investment of reserve
funds and surplus cash in short-term money market investments;
(e) serving as the Company's investment and financial advisor and
providing research, economic, and statistical data in connection with the
Company's investments and investment and financial policies;
(f) on behalf of the Company, investigating, selecting and conducting
relations with borrowers, lenders, mortgagors, brokers, investors,
builders, developers and others; provided however, that the Advisor shall
not retain on the Company's behalf any consultants or third party
professionals, other than legal counsel, without prior Board approval;
(g) consulting with the Directors and furnishing the Directors with
advice and recommendations with respect to the making, acquiring (by
purchase, investment, exchange, or otherwise), holding, and
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disposition (through sale, exchange, or otherwise) of investments
consistent with the Business Plan of the Company;
(h) obtaining for the Directors such services as may be required in
acquiring and disposing of investments, disbursing and collecting the funds
of the Company, paying the debts and fulfilling the obligations of the
Company, and handling, prosecuting, and settling any claims of the Company,
including foreclosing and otherwise enforcing mortgage and other liens
securing investments;
(i) obtaining for and at the expense of the Company such services as
may be required for property management, loan disbursements, and other
activities relating to the investments of the Company, provided, however,
the compensation for such services shall be agreed to by the Company and
the service provider;
(j) advising the Company in connection with public or private sales of
shares or other securities of the Company, or loans to the Company, but in
no event in such a way that the Advisor could be deemed to be acting as a
broker dealer or underwriter;
(k) quarterly and at any other time requested by the Directors, making
reports to the Directors regarding the Company's performance to date in
relation to the Company's approved Business Plan and its various
components, as well as the Advisor's performance of the foregoing services;
(l) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Company;
(m) assisting in preparation of reports and other documents necessary
to satisfy the reporting and other requirements of any governmental bodies
or agencies and to maintain effective communications with stockholders of
the Company; and
(n) doing all things necessary to ensure its ability to render the
services contemplated herein, including providing office space and office
furnishings and personnel necessary for the performance of the foregoing
services as Advisor, all at its own expense, except as otherwise expressly
provided for herein.
2. No Partnership or Joint Venture. The Company and the Advisor are not
partners or joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose any
liability as such on either of them.
3. Records. At all times, the Advisor shall keep proper books of account
and records of the Company's affairs which shall be accessible for inspection by
the Company at any time during ordinary business hours.
4. Additional Obligations of the Advisor. The Advisor shall refrain from
any action (including, without limitation, furnishing or rendering services to
tenants of property or managing or operating real property) that would (a)
adversely affect the status of the Company as a real estate investment trust, as
defined and limited in Sections 856-860 of the Internal Revenue Code, (b)
violate any law, rule, regulation, or statement of policy of any governmental
body or agency having jurisdiction over the Company or over its securities, (c)
cause the Company to be required to register as an investment company under the
Investment Company Act of 1940, or (d) otherwise not be permitted by the
Articles of Incorporation of the Company.
5. Bank Accounts. The Advisor may establish and maintain one or more bank
accounts in its own name, and may collect and deposit into any such account or
accounts, and disburse from any such account or accounts, any money on behalf of
the Company, under such terms and conditions as the Directors may approve,
provided that no funds in any such account shall be commingled with funds of the
Advisor; and the Advisor shall from time to time render appropriate accounting
of such collections and payments to the Directors and to the auditors of the
Company.
6. Bond. The Advisor shall maintain a fidelity bond with a responsible
surety company in such amount as may be required by the Directors from time to
time, covering all directors, officers, employees, and agents of the Advisor
handling funds of the Company and any investment documents or records pertaining
to investments of the Company. Such bond shall inure to the benefit of the
Company in respect to losses of any
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such property from acts of such directors, officers, employees, and agents
through theft, embezzlement, fraud, negligence, error, or omission or otherwise,
the premium for said bond to be at the expense of the Company.
7. Information Furnished Advisor. The Directors shall have the right to
change the Business Plan at any time, effective upon receipt by the Advisor of
notice of such change. The Company shall furnish the Advisor with a certified
copy of all financial statements, a signed copy of each report prepared by
independent certified public accountants, and such other information with regard
to the Company's affairs as the Advisor may from time to time reasonably
request.
8. Consultation and Advice. In addition to the services described above,
the Advisor shall consult with the Directors, and shall, at the request of the
Directors or the officers of the Company, furnish advice and recommendations
with respect to any aspect of the business and affairs of the Company, including
any factors that in the Advisor's best judgment should influence the policies of
the Company.
9. Annual Business Plan and Budget. No later than January 15th of each
year, the Advisor shall submit to the Directors a written Business Plan for the
current Fiscal Year of the Company. Such Business Plan shall include a
twelve-month forecast of operations and cash flow with explicit assumptions and
a general plan for asset sales or acquisitions, lending, foreclosure and
borrowing activity, other investments or ventures and proposed securities
offerings or repurchases or any proposed restructuring of the Company. To the
extent possible, the Business Plan shall set forth the Advisor's recommendations
and the basis therefor with respect to all material investments of the Company.
Upon approval by the Board of Directors, the Advisor shall be authorized to
conduct the business of the Company in accordance with the explicit provisions
of the Business Plan, specifically including the borrowing, leasing,
maintenance, capital improvements, renovations and sale of investments set forth
in the Business Plan. Any transaction or investment not explicitly provided for
in the approved Business Plan shall require the prior approval of the Board of
Directors unless made pursuant to authority expressly delegated to the Advisor.
Within sixty (60) days of the end of each calendar quarter, the Advisor shall
provide the Board of Directors with a report comparing the Company's actual
performance for such quarter against the Business Plan.
10. Definitions. As used herein, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean, as to any Person, any other Person who
owns beneficially, directly, or indirectly, 1% or more of the outstanding
capital stock, shares or equity interests of such Person or of any other
Person which controls, is controlled by, or is under common control with
such Person or is an officer, retired officer, director, employee, partner,
or trustee (excluding noninterested trustees not otherwise affiliated with
the entity) of such Person or of any other Person which controls, is
controlled by, or is under common control with, such Person.
(b) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified appraiser who is
a member in good standing of the American Institute of Real Estate
Appraisers and is duly licensed to perform such services in accordance with
the applicable state law, or, when pertaining to Mortgage Loans, the value
of the underlying property as determined by the Advisor.
(c) "Book Value" of an asset or assets shall mean the value of such
asset or assets on the books of the Company, before provision for
amortization, depreciation, depletion or valuation reserves and before
deducting any indebtedness or other liability in respect thereof, except
that no asset shall be valued at more than its fair market value as
determined by the Directors.
(d) "Book Value of Invested Assets" shall mean the Book Value of the
Company's total assets (without deduction of any liabilities), but
excluding (i) goodwill and other intangible assets, (ii) cash, and (iii)
cash equivalent investments with terms which mature in one year or less.
(e) "Business Plan" shall mean the Company's investment policies and
objectives and the capital and operating budget based thereon, approved by
the Board as thereafter modified or amended.
(f) "Fiscal Year" shall mean any period for which an income tax return
is submitted to the Internal Revenue Service and which is treated by the
Internal Revenue Service as a reporting period.
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(g) "Gross Asset Value" shall mean the total assets of the Company
after deduction of allowance for amortization, depreciation or depletion
and valuation reserves.
(h) "Mortgage Loans" shall mean notes, debentures, bonds, and other
evidences of indebtedness or obligations, whether negotiable or
non-negotiable, and which are secured or collateralized by mortgages,
including first, wraparound, construction and development, and junior
mortgages.
(i) "Net Asset Value" shall mean the Book Value of all the assets of
the Company minus all the liabilities of the Company.
(j) "Net Income" for any period shall mean the Net Income of the
Company for such period computed in accordance with generally accepted
accounting principles after deduction of the Gross Asset Fee, but before
deduction of the Net Income Fee, as set forth in Sections 11 (a) and 11(b),
respectively, herein, and inclusive of gain or loss of the sale of assets.
(k) "Net Operating Income" shall mean rental income less property
operations expenses.
(l) "Operating Expenses" shall mean the aggregate annual expenses
regarded as operating expenses in accordance with generally accepted
accounting principles, as determined by the independent auditors selected
by the Directors and including the Gross Asset Fee payable to the Advisor
and the fees and expenses paid to the Directors who are not employees or
Affiliates of the Advisor. The operating expenses shall exclude, however,
the following:
(i) the cost of money borrowed by the Company;
(ii) income taxes, taxes and assessments on real property and all
other taxes applicable to the Company;
(iii) expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange listing of the
Company's securities (including legal, auditing, accounting,
underwriting, brokerage, printing, engraving and other fees);
(iv) fees and expenses paid to independent mortgage servicers,
contractors, consultants, managers, and other agents retained by or on
behalf of the Company;
(v) expenses directly connected with the purchase, origination,
ownership, and disposition of Real Properties or Mortgage Loans
(including the costs of foreclosure, insurance, legal, protective,
brokerage, maintenance, repair, and property improvement services) other
than expenses with respect thereto of employees of the Advisor, except
legal, internal auditing, foreclosure and transfer agent services
performed by employees of the Advisor;
(vi) expenses of maintaining and managing real estate equity
interests and processing and servicing mortgage and other loans;
(vii) expenses connected with payments of dividends, interest or
distributions by the Company to shareholders;
(viii) expenses connected with communications to shareholders and
bookkeeping and clerical expenses for maintaining shareholder relations,
including the cost of printing and mailing share certificates, proxy
solicitation materials and reports; and
(ix) transfer agent's registrar's and indenture trustee's fees and
charges;
(x) the cost of any accounting, statistical, bookkeeping or
computer equipment necessary for the maintenance of books and records of
the Company.
Additionally, the following expenses of the Advisor shall be excluded:
(i) employment expenses of the Advisor's personnel (including
Directors, officers, and employees of the Company who are directors,
officers, or employees of the Advisor or its Affiliates), other than the
expenses of those employee services listed at (v) above;
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(ii) rent, telephone, utilities, and office furnishings and other
office expenses of the Advisor (except those relating to a separate
office, if any, maintained by the Company); and
(iii) the Advisor's overhead directly related to performance of its
functions under this Agreement.
(m) "Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies,
land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof.
(n) "Real Property" shall mean and include land, rights in land,
leasehold interests (including but not limited to interests of a lessor or
lessee therein), and any buildings, structures, improvements, fixtures, and
equipment located on or used in connection with land, leasehold interests,
and rights in land or interests therein.
All calculations made pursuant to this Agreement shall be based on
statements (which may be unaudited, except as provided herein) prepared on
an accrual basis consistent with generally accepted accounting principles,
regardless of whether the Company may also prepare statements on a
different basis. All other terms shall have the same meaning as set forth
in the Company's Articles of Incorporation and Bylaws.
11. Advisory Compensation.
(a) Gross Asset Fee. On or before the twenty-eighth day of each month
during the term hereof, commencing as of November 28, 1992, the Company shall
pay to the Advisor, as compensation for the basic management and advisory
services rendered to the Company hereunder, a fee at the rate of .0625% per
month of the average of the Gross Asset Value of the Company at the beginning
and at the end of the next preceding calendar month. Without negating the
provisions of Sections 18, 19, 22 and 23 hereof, the annual rate of the Gross
Asset Fee shall be .75% per annum.
(b) Net Income Fee. As an incentive for successful investment and
management of the Company's assets, the Advisor will be entitled to receive a
fee equal to 7.5% per annum of the Company's Net Income for each Fiscal Year or
portion thereof for which the Advisor provides services. To the extent the
Company has Net Income in a quarter, the 7.5% Net Income Fee is to be paid
quarterly on or after the third business day following the filing of the report
on Form 10-Q with the Securities and Exchange Commission, except for the payment
for the fourth quarter, ended December 31, which is to be paid on or after the
third business day following the filing of the report on Form 10-K with the
Securities and Exchange Commission. The 7.5% Net Income Fee is to be cumulative
within any Fiscal Year, such that if the Company has a loss in any quarter
during the Fiscal Year, each subsequent quarter's payment during such Fiscal
Year shall be adjusted to maintain the 7.5% per annum rate, with final
settlement being made with the fourth quarter payment and in accordance with
audited results for the Fiscal Year. The 7.5% Net Income Fee is not cumulative
from year to year.
(c) Acquisition Commission. For supervising the acquisition, purchase or
long term lease of Real Property for the Company, the Advisor is to receive an
Acquisition Commission equal to the lesser of (i) up to 1% of the cost of
acquisition, inclusive of commissions, if any, paid to nonaffiliated brokers; or
(ii) the compensation customarily charged in arm's-length transactions by others
rendering similar property acquisition services as an ongoing public activity in
the same geographical location and for comparable property. The aggregate of
each purchase price of each property (including the Acquisition Commissions and
all real estate brokerage fees) may not exceed such property's Appraised Value
at acquisition.
(d) Incentive Sales Compensation. To encourage periodic sales of
appreciated Real Property at optimum value and to reward the Advisor for
improved performance of the Company's Real Property, the Company shall pay the
Advisor, on or before the 45th day after the close of each Fiscal Year, an
incentive fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all Real Property sold by the Company during such Fiscal Year
exceeds the sum of: (i) the cost of each such Real Property as originally
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recorded in the Company's books for tax purposes (without deduction for
depreciation, amortization or reserve for losses), (ii) capital improvements
made to such assets during the period owned by the Company and (iii) all closing
costs (including real estate commissions) incurred in the sale of such Real
Property; provided, however, no incentive fee shall be paid unless (a) such Real
Property sold in such Fiscal Year, in the aggregate, has produced an 8% simple
annual return on the Company's net investment including capital improvements,
calculated over the Company's holding period, before depreciation and inclusive
of operating income and sales consideration and (b) the aggregate Net Operating
Income from all Real Property owned by the Company for all of the prior Fiscal
Year and the current Fiscal Year shall be at least 5% higher in the current
Fiscal Year than in the prior Fiscal Year.
(e) Mortgage or Loan Acquisition Fees. For the acquisition or purchase from
an unaffiliated party of any existing mortgage or loan by the Company, the
Advisor or an Affiliate is to receive a Mortgage or Loan Acquisition Fee equal
to the lesser of (a) 1% of the amount of the mortgage or loan purchased by the
Company or (b) a brokerage or commitment fee which is reasonable and fair under
the circumstances. Such fee will not be paid in connection with the origination
or funding by the Company of any mortgage loan.
(f) Mortgage Brokerage and Equity Refinancing Fees. For obtaining loans to
the Company or refinancing on Company properties, the Advisor or an Affiliate is
to receive a Mortgage Brokerage and Equity Refinancing Fee equal to the lesser
of (a) 1% of the amount of the loan or the amount refinanced or (b) a brokerage
or refinancing fee which is reasonable and fair under the circumstances;
provided, however that no such fee shall be paid on loans from the Advisor or an
Affiliate without the approval of the Board of Directors. No fee shall be paid
on loan extensions.
12. Limitation on Third Party Mortgage Placement Fees. The Advisor or any
of its Affiliates shall pay to the Company, one-half of any compensation
received by the Advisor or any such Affiliate from third parties with respect to
the origination, placement or brokerage of any loan made by the Company,
provided, however, the compensation retained by the Advisor or Affiliate shall
not exceed the lesser of (a) 2% of the amount of the loan committed by the
Company or (b) a loan brokerage and commitment fee which is reasonable and fair
under the circumstances.
13. Statements. The Advisor shall furnish to the Company not later than the
tenth day of each calendar month, beginning with the second calendar month of
the term of this Agreement, a statement showing the computation of the fees, if
any, payable in respect to the next preceding calendar month (or, in the case of
incentive compensation, for the preceding Fiscal Year, as appropriate) under the
Agreement. The final settlement of incentive compensation for each Fiscal Year
shall be subject to adjustment in accordance with, and upon completion of, the
annual audit of the Company's financial statements; any payment by the Company
or repayment by the Advisor that shall be indicated to be necessary in
accordance therewith shall be made promptly after the completion of such audit
and shall be reflected in the audited statements to be published by the Company.
14. Compensation for Additional Services. If and to the extent that the
Company shall request the Advisor or any director, officer, partner, or employee
of the Advisor to render services for the Company other than those required to
be rendered by the Advisor hereunder, such additional services, if performed,
will be compensated separately on terms to be agreed upon between such party and
the Company from time to time. In particular, but without limitation, if the
Company shall request that the Advisor perform property management, leasing,
loan disbursement or similar functions, the Company and the Advisor shall enter
into a separate agreement specifying the obligations of the parties and
providing for reasonable additional compensation to the Advisor for performing
such services.
15. Expenses of the Advisor. Without regard to the amount of compensation
or reimbursement received hereunder by the Advisor, the Advisor shall bear the
following expenses:
(a) employment expenses of the personnel employed by the Advisor
(including Directors, officers, and employees of the Company who are
directors, officers, or employees of the Advisor or of any company that
controls, is controlled by, or is under common control with the Advisor),
including, but not
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limited to, fees, salaries, wages, payroll taxes, travel expenses, and the
cost of employee benefit plans and temporary help expenses except for those
personnel expenses described in Sections 16(e) and (p);
(b) advertising and promotional expenses incurred in seeking
investments for the Company;
(c) rent, telephone, utilities, office furniture and furnishings, and
other office expenses of the Advisor and the Company, except as any of such
expenses relates to an office maintained by the Company separate from the
office of the Advisor; and
(d) miscellaneous administrative expenses relating to performance by
the Advisor of its functions hereunder.
16. Expenses of the Company. The Company shall pay all of its expenses not
assumed by the Advisor, including without limitation, the following expenses:
(a) the cost of money borrowed by the Company;
(b) income taxes, taxes and assessments on real property, and all
other taxes applicable to the Company;
(c) legal, auditing, accounting, underwriting, brokerage, listing,
registration and other fees, printing, and engraving and other expenses,
and taxes incurred in connection with the issuance, distribution, transfer,
registration, and stock exchange listing of the Company's securities;
(d) fees, salaries, and expenses paid to officers and employees of the
Company who are not directors, officers or employees of the Advisor, or of
any company that controls, is controlled by, or is under common control
with the Advisor;
(e) expenses directly connected with the origination or purchase of
Mortgage Loans and with the acquisition, disposition, and ownership of real
estate equity interests or other property (including the costs of
foreclosure, insurance, legal, protective, brokerage, maintenance, repair,
and property improvement services) and including all compensation,
traveling expenses, and other direct costs associated with the Advisor's
employees or other personnel engaged in (i) real estate transaction legal
services, (ii) internal auditing, (iii) foreclosure and other mortgage
finance services, (iv) sale or solicitation for sale of mortgages, (v)
engineering and appraisal services, and (vi) transfer agent services;
(f) expenses of maintaining and managing real estate equity interests;
(g) insurance, as required by the Directors (including directors'
liability insurance);
(h) the expenses of organizing, revising, amending, converting,
modifying, or terminating the Company;
(i) expenses connected with payments of dividends or interest or
distributions in cash or any other form made or caused to be made by the
Directors to holders of securities of the Company;
(j) all expenses connected with communications to holders of
securities of the Company and the other bookkeeping and clerical work
necessary in maintaining relations with holders of securities, including
the cost of printing and mailing certificates for securities and proxy
solicitation materials and reports to holders of the Company's securities;
(k) the cost of any accounting, statistical, bookkeeping or computer
equipment or computer time necessary for maintaining the books and records
of the Company and for preparing and filing Federal, State and Local tax
returns;
(l) transfer agent's, registrar's, and indenture trustee's fees and
charges;
(m) legal, accounting, investment banking, and auditing fees and
expenses charged by independent parties performing these services not
otherwise included in clauses (c) and (e) of this Section 16;
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(n) expenses incurred by the Advisor, arising from the sales of
Company properties, including those expenses related to carrying out
foreclosure proceedings;
(o) commercially reasonable fees paid to the Advisor for efforts to
liquidate mortgages before maturity, such as the solicitation of offers and
negotiation of terms of sale;
(p) costs and expenses connected with computer services, including but
not limited to employee or other personnel compensation, hardware and
software costs, and related development and installation costs associated
therewith;
(q) costs and expenses associated with risk management (i.e. insurance
relating to the Company's assets);
(r) loan refinancing compensation; and
(s) expenses associated with special services requested by the
Directors pursuant to Section 14 hereof.
17. Other Activities of Advisor. The Advisor, its officers, directors, or
employees or any of its Affiliates may engage in other business activities
related to real estate investments or act as advisor to any other person or
entity (including another real estate investment trust), including those with
investment policies similar to the Company, and the Advisor and its officers,
directors, or employees and any of its Affiliates shall be free from any
obligation to present to the Company any particular investment opportunity that
comes to the Advisor or such persons, regardless of whether such opportunity is
in accordance with the Company's Business Plan. However, to minimize any
possible conflict, the Advisor shall consider the respective investment
objectives of, and the appropriateness of a particular investment to each such
entity in determining to which entity a particular investment opportunity should
be presented. If appropriate to more than one entity, the Advisor shall present
the investment opportunity to the entity that has had sufficient uninvested
funds for the longest period of time.
18. Limitation on Operating Expenses. To the extent that the Operating
Expenses of the Company for any fiscal year exceed the lesser of (a) 1.5% of the
average of the Book Values of Invested Assets of the Company at the end of each
calendar month of such fiscal year, or (b) the greater of 1.5% of the average of
the Net Asset Value of the Company at the end of each calendar month of such
fiscal year or 25% of the Company's Net Income, the Advisor shall a refund to
the Company from the fees paid to the Advisor the amount if any, by which the
Operating Expenses so exceed the applicable amount; provided, however, that the
Advisor shall not be required to refund to the Company, with respect to any
fiscal year, any amount which exceeds the aggregate of the Gross Asset Fees paid
to the Advisor under this Agreement with respect to such fiscal year.
19. Term; Termination of Agreement. This Agreement shall continue in force
until the next Annual Meeting of Stockholders of the Company, and, thereafter,
it may be renewed from year to year, subject to any required approval of the
Stockholders of the Company and, if any Director is an Affiliate of the Advisor,
the approval of a majority of the Directors who are not so affiliated. Notice of
renewal shall be given in writing by the Directors to the Advisor not less than
60 days before the expiration of this Agreement or of any extension thereof.
This Agreement may be terminated for any reason without penalty upon 60 days'
written notice by the Company to the Advisor or 120 days' written notice by the
Advisor to the Company, in the former case by the vote of a majority of the
Directors who are not Affiliates of the Advisor or by the vote of holders of a
majority of the outstanding shares of the Company. Notwithstanding the
foregoing, however, in the event of any material change in the ownership,
control, or management of the Advisor, the Company may terminate this Agreement
without penalty and without advance notice to the Advisor.
20. Amendments. This Agreement shall not be changed, modified, terminated
or discharged in whole or in part except by an instrument in writing signed by
both parties hereto, or their respective successors or assigns, or otherwise as
provided herein.
21. Assignment. This Agreement shall not be assigned by the Advisor without
the prior consent of the Company. The Company may terminate this Agreement in
the event of its assignment by the Advisor without
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<PAGE> 29
the prior consent of the Company. Such an assignment or any other assignment of
this Agreement shall bind the assignee hereunder in the same manner as the
Advisor is bound hereunder. This Agreement shall not be assignable by the
Company without the consent of the Advisor, except in the case of assignment by
the Company to a corporation, association, trust, or other organization that is
a successor to the Company. Such successor shall be bound hereunder and by the
terms of said assignment in the same manner as the Company is bound hereunder.
22. Default, Bankruptcy, etc. At the option solely of the Directors, this
Agreement shall be and become terminated immediately upon written notice of
termination from the Directors to the Advisor if any of the following events
shall occur:
(a) If the Advisor shall violate any provision of this Agreement, and
after notice of such violation shall not cure such default within 30 days;
or
(b) If the Advisor shall be adjudged bankrupt or insolvent by a court
of competent jurisdiction, or an order shall be made by a court of
competent jurisdiction for the appointment of a receiver, liquidator, or
trustee of the Advisor or of all or substantially all of its property by
reason of the foregoing, or approving any petition filed against the
Advisor for its reorganization, and such adjudication or order shall remain
in force or unstayed for a period of 30 days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization under the
Federal bankruptcy laws, or for relief under any law for the relief of
debtors, or shall consent to the appointment of a receiver of itself or of
all or substantially all its property, or shall make a general assignment
for the benefit of its creditors, or shall admit in writing its inability
to pay its debts generally, as they become due.
The Advisor agrees that if any of the events specified in subsections (b)
and (c) of this Section 22 shall occur, it will give written notice thereof to
the Directors within seven days after the occurrence of such event.
23. Action Upon Termination. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further services hereunder but
shall be paid all compensation accruing to the date of termination. The Advisor
shall forthwith upon such termination:
(a) pay over to the Company all monies collected and held for the
account of the Company pursuant to this Agreement;
(b) deliver to the Directors a full accounting, including a statement
showing all payments collected by it and a statement of any monies held by
it, covering the period following the date of the last accounting furnished
to the Directors; and
(c) deliver to the Directors all property and documents of the Company
then in the custody of the Advisor.
24. Miscellaneous. The Advisor shall be deemed to be in a fiduciary
relationship to the shareholders of the Company. The Advisor assumes no
responsibility under this Agreement other than to render the services called for
hereunder in good faith, and shall not be responsible for any action of the
Directors in following or declining to follow any advice or recommendations of
the Advisor. Neither the Advisor nor any of its shareholders, directors,
officers, or employees shall be liable to the Company, the Directors, the
holders of securities of the Company or to any successor or assign of the
Company for any losses arising from the operation of the Company if the Advisor
had determined, in good faith, that the course of conduct which caused the loss
or liability was in the best interests of the Company and the liability or loss
was not the result of negligence or misconduct by the Advisor. However, in no
event will the directors, officers or employees of the Advisor be personally
liable for any act or failure to act unless it was the result of such person's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
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25. Notices. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report, or other communication is accepted by the party to
whom it is given, and shall be given by being delivered at the following
addresses of the parties hereto:
The Directors and/or the Company:
Transcontinental Realty Investors, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President
The Advisor:
Basic Capital Management, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Executive Vice President and Chief Financial Officer
Either party may at any time give notice in writing to the other party of a
change of its address for the purpose of this Section 25.
26. Headings. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction, or effect of this Agreement.
27. Governing Law. This Agreement has been prepared, negotiated and
executed in the State of Texas. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely in the State of
Texas.
28. Execution. This instrument is executed and made on behalf of the
Company by an officer of the Company, not individually but solely as an officer,
and the obligations under this Agreement are not binding upon, nor shall resort
be had to the private property of, any of the Directors, stockholders, officers,
employees, or agents of the Company personally, but bind only the Company
property.
IN WITNESS WHEREOF, TRANSCONTINENTAL REALTY INVESTORS, INC. and BASIC
CAPITAL MANAGEMENT, INC., by their duly authorized officers, have signed these
presents all as of the day and year first above written.
TRANSCONTINENTAL REALTY INVESTORS, INC.
By: /s/ WILLIAM S. FRIEDMAN
William S. Friedman
President
BASIC CAPITAL MANAGEMENT, INC.
By: /s/ HAMILTON P. SCHRAUFF
Hamilton P. Schrauff
Executive Vice President
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<PAGE> 31
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY [31], 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TRANSCONTINENTAL REALTY INVESTORS, INC.
The undersigned hereby appoints HAMILTON P. SCHRAUFF and
ROBERT A. WALDMAN, and each of them, Proxies, with full power of
substitution in each of them, in the name, place and stead of the
undersigned, to be at the Annual Meeting of Stockholders of
TRANSCONTINENTAL REALTY INVESTORS, INC., to be held on Tuesday,
January 31, 1995, at 11:00 a.m., or at any adjournments thereof,
according to the number of votes that the undersigned would be
entitled to vote if personally present, upon the following matters:
1. ELECTION OF CLASS II DIRECTORS:
FOR all nominees WITHHOLD AUTHORITY TO
(except as marked to the vote for all nominees
contrary below) / / listed below / /
Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below. When a proxy card is properly
executed and returned, the Shares represented thereby will be voted in
favor of the election for each of the nominees, unless authority to vote
for any such nominee is specifically withheld. There will be no cumulative
voting for the election of Class II Directors. If any nominee is unable to
serve or will not serve (an event which is not anticipated), then the
person acting pursuant to the authority granted under the proxy will cast
votes for the remaining nominees and, unless the Board of Directors takes
action to reduce the number of Class II Directors, for such other
persons(s) as he or she may select in place of such nominees.
----------------------------------------------------------------------
2. APPROVAL OF THE RENEWAL OF THE CURRENT ADVISORY AGREEMENT BETWEEN THE
COMPANY AND BASIC CAPITAL MANAGEMENT, INC.:
FOR / / AGAINST / / ABSTAIN / /
<PAGE> 32
3. OTHER BUSINESS:
I AUTHORIZE the aforementioned
proxies in their discretion
FOR / / AGAINST / / ABSTAIN / /
to vote upon such other business as may properly come before the Annual
Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS OF TRANSCONTINENTAL REALTY INVESTORS, INC. RECOMMENDS A
VOTE FOR ALL THREE NOMINEES AND FOR THE APPROVAL OF THE RENEWAL OF THE CURRENT
ADVISORY AGREEMENT.
YOUR PROXY IS IMPORTANT. PLEASE INDICATE YOUR SUPPORT FOR THE BOARD OF
DIRECTORS BY MARKING THE BOXES FOR ELECTION OF CLASS II DIRECTORS AND FOR THE
APPROVAL OF THE RENEWAL OF THE CURRENT ADVISORY AGREEMENT. PLEASE SIGN, DATE
AND MAIL THIS CARD TODAY IN THE ENCLOSED ENVELOPE. IF NOT OTHERWISE MARKED
ABOVE, YOUR PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES AND FOR THE
APPROVAL OF THE RENEWAL OF THE CURRENT ADVISORY AGREEMENT. THIS PROXY REVOKES
ALL PREVIOUS PROXIES.
(continued and to be signed and dated on the other side)
<PAGE> 33
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY
[reverse]
(continued from other side)
Dated: ________________, 1995
x ___________________________
Signature
x ___________________________
Signature (if held jointly)
x ___________________________
Title
Please sign exactly as name appears herein. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. When
signing for corporation, please sign full corporate name by an authorized
officer. When signing for a partnership, please sign partnership name by an
authorized person. If shares are held in more than one capacity, this proxy
shall be deemed valid for all shares held in all capacities.
