<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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Transcontinental Realty Investors, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PRELIMINARY STATEMENT FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
TRANSCONTINENTAL REALTY INVESTORS, INC.
DALLAS, TEXAS 75231
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 12, 1999
The Annual Meeting of Stockholders of Transcontinental Realty Investors,
Inc. will be held on Tuesday, January 12, 1999 at 11:00 a.m., at 10670 North
Central Expressway, Suite 600, Dallas, Texas.
The purposes of the Annual Meeting are:
(1) to elect Directors;
(2) to approve the renewal of our current advisory agreement with Basic
Capital Management, Inc.; and
(3) to transact any other business that may properly come before the
meeting.
You must be a stockholder of record at the close of business on November
30, 1998 to vote at the Annual Meeting.
Whether you plan to attend or not, please sign, date, and return the
enclosed proxy card in the envelope provided. You may also attend and vote at
the Annual Meeting.
The Annual Report for the year ended December 31, 1997, has been mailed to
all Stockholders under separate cover.
Dated: December 1, 1998
BY ORDER OF THE BOARD OF DIRECTORS
/s/ THOMAS A. HOLLAND
Thomas A. Holland
Secretary
<PAGE> 3
PRELIMINARY STATEMENT FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION ONLY
TRANSCONTINENTAL REALTY INVESTORS, INC.
DALLAS, TEXAS
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 12, 1999
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 seven Directors, (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 12, 1999, at 10670 North Central Expressway, Suite 600, Dallas, Texas.
The Company's financial statements for the year ended December 31, 1997 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 December 1, 1998.
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, November 30, 1998
(the "Record Date"), are entitled to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on November , 1998, there were
3,875,944 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 seven nominees as
Directors (Proposal One), Stockholders may choose to vote for all of the
nominees or withhold authority for voting for any one or all of the nominees. 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 seven 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 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.
<PAGE> 4
BCM has been providing advisory services to the Company since March 1989.
The current advisory agreement was executed as of October 15, 1998. 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.
Abstentions will be included in vote totals and, as such, will have the
same effect on each proposal as a negative vote. Broker non-votes, if any, will
not be included in vote totals and, as such, will have no effect on any
proposal.
As of November , 1998, management and affiliates held 1,776,986 Shares
representing approximately 45.9% of the Shares outstanding. Such parties intend
to vote all of such Shares for the election of the Directors and 40% of the
Shares outstanding for the renewal of the advisory agreement. The remaining 5.9%
shall be voted in proportion to the votes cast by all non-affiliated
Stockholders.
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 (1998)
Any proposal intended to be presented by a Stockholder at the 1998 Annual
Meeting of Stockholders of the Company must be received at the principal office
of the Company not later than May 31, 1999, 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 DIRECTORS
The following persons have been nominated to serve as Directors of the
Company: Ted P. Stokely, Richard W. Douglas, Larry E. Harley, R. Douglas
Leonhard, Murray Shaw, Martin L. White and Edward G. Zampa.
Each of the seven nominees is currently a Director of the Company. Each of
the nominees have been nominated by the Board of Directors to serve for an
additional term until the next Annual Meeting of Stockholders 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
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 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 such other person(s) as he or she may select in place
of such nominee(s).
2
<PAGE> 5
The seven nominees for Directors are listed below, together with their age,
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 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".
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND
DIRECTORSHIPS
<TABLE>
<CAPTION>
AGE
---
<S> <C> <C>
TED P. STOKELY Director (Independent) (since April 1990) and 65
Chairman of the Board (since January 1995)
General Manager (since January 1995) of ECF Senior Housing Corporation,
a nonprofit corporation; General Manager (since January 1993) of
Housing Assistance Foundation, Inc., a nonprofit corporation;
Part-time unpaid Consultant (since January 1993) and paid Consultant
(April 1992 to December 1992) of Eldercare Housing Foundation
("Eldercare"), a nonprofit corporation; President (April 1992 to
April 1994) of PSA Group; Executive Vice President (1987 to 1991) of
Key Companies, Inc.; Director (since April 1990) and Chairman of the
Board (since January 1995) of Income Opportunity Realty Investors,
Inc. ("IORI"); Trustee (since April 1990) and Chairman of the Board
(since January 1995) of Continental Mortgage and Equity Trust
("CMET"); and Trustee (April 1990 to August 1994) of National Income
Realty Trust ("NIRT")
RICHARD W. DOUGLAS Director (Independent) (since January 1998). 51
President (since 1991) of Dallas Chamber of Commerce; President (1988
to 1991) of North Texas Commission; President (1978 to 1981) of Las
Colinas Corporation and Southland Investment Properties, both
affiliates of Southland Financial Corporation; Trustee (since January
1998) of CMET; and Director (since January 1998) of IORI.
LARRY E. HARLEY Director (Independent) (since January 1998). 57
President (1993 to 1997) and Executive Vice President (1992 to 1993) of
U.S. Operations, Executive Vice President (1989 to 1992) and Senior
Vice President (1986 to 1989) of Distribution Operations, Director of
Marketing (1984 to 1986), and Manager of North Central Distribution
Center (1974 to 1984) of Mary Kay Cosmetics; Trustee (since January
1998) of CMET; and Director (since January 1998) of IORI.
R. DOUGLAS LEONHARD Director (Independent) (since January 1998). 62
Senior Vice President (1986 to 1997) of LaCantera Development Company,
a wholly-owned subsidiary of USAA; Senior Vice President (1980 to
1985) of the Woodlands Development Company; Vice President (1973 to
1979) of Friendswood Development Company; Manager in various
capacities (1960 to 1973) of Exxon Corp.; Trustee (since January
1998) of CMET; and Director (since January 1998) of IORI.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
AGE
---
<S> <C> <C>
MURRAY SHAW Director (Independent) (since February 1998). 66
Chairman of the Board of Regents (since 1997) of Stephen F. Austin
University; Vice President (1967 to 1996) of Tracor, Inc.; Trustee
(since February 1998) of CMET; and Director (since February 1998) of
IORI.
MARTIN L. WHITE Director (Independent) (since January 1995). 59
Chief Executive Officer (since 1995) of Builders Emporium, Inc.;
Chairman and Chief Executive Officer (since 1993) of North American
Trading Company, Ltd.; President and Chief Operating Officer (since
1992) of Community Based Developers, Inc.; Development Officer and
Loan Manager (1986 to 1992) of the City of San Jose, California; Vice
President and Director of Programs (1967 to 1986) of Arpact, Inc., a
government contractor for small business development and trade;
Director (since January 1995) of IORI; and Trustee (since January
1995) of CMET.
EDWARD G. ZAMPA Director (Independent) (since January 1995). 63
General Partner (since 1976) of Edward G. Zampa and Company; Director
(since January 1995) of IORI; and Trustee (since January 1995) of
CMET.
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINEES NAMED ABOVE.
BOARD COMMITTEES
The Company's Board of Directors held nine meetings in 1997. 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. Stokely,
Leonhard and White. The Audit Committee met twice during 1997.
The Company's Board of Directors has a Relationship with Advisor Committee
and a Board Development Committee. The current members of the Relationship with
Advisor Committee are Messrs. Stokely and Zampa. The Relationship with Advisor
Committee reviews and reports to the Company's Board of Directors on the
services provided to the Company by the Advisor and its affiliates and terms of
any engagement or compensation of the Advisor or its affiliates. The
relationship with the Advisor Committee did not meet in 1997.
The Board Development Committee reviews and reports to the Company's Board
of Directors on the membership, compensation and functions of the Board of
Directors. The current member of the Board Development Committee is Mr. White.
The Board Development Committee did not meet in 1997.
The Company's Board of Directors does not have Nominating or Compensation
Committees.
OLIVE LITIGATION
In February 1990, the Company together with CMET, IORI 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.
On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Modification"), which settled subsequent
claims of breaches of the settlement agreement which were asserted by the
plaintiffs and modified certain provisions of the April 1990 settlement. The
Modification was
4
<PAGE> 7
preliminarily approved by the court on July 1, 1994, and final court approval
was entered on December 12, 1994. The effective date of the Modification was
January 11, 1995.
The Court retained jurisdiction to enforce the Modification, and during
August and September 1996, the Court held evidentiary hearings to assess
compliance with the terms of the Modification by various parties. The Court
issued no ruling or order with respect to the matters addressed at the hearings.
Separately, in 1996, legal counsel for the plaintiffs notified the
Company's Board of Directors that he intended to assert that certain actions
taken by the Board of Directors breached the terms of the Modification. On
January 27, 1997, the parties entered into an Amendment to the Modification of
Stipulation of Settlement, effective January 9, 1997 (the "Amendment"), which
was submitted to the Court for approval on January 29, 1997. The Amendment
provides for the settlement of all matters raised at the evidentiary hearings
and by plaintiffs' counsel in his notices to the Board of Directors. On May 2,
1997, a hearing was held for the Court to consider approval of the Amendment. As
a result of the hearing, the parties entered into a revised Amendment. The Court
issued an order approving the amendment on July 3, 1997.
The Amendment provided for the addition of four new unaffiliated members to
the Company's Board of Directors and set forth new requirements for the approval
of any transactions with certain affiliates until April 28, 1999. In addition,
the Company, IORI, CMET and their shareholders released the defendants from any
claims relating to the plaintiffs' allegations and matters which were the
subject of the evidentiary hearings. The plaintiffs' allegations of any breaches
of the Modification shall be settled by mutual agreement of the parties or,
lacking such agreement, by an arbitration proceeding.
Under the Amendment, all shares of the Company owned by Gene E. Phillips or
any of his affiliates shall be voted at all stockholders' meetings held until
April 28, 1999, in favor of all new Board members added under the Amendment. The
Amendment also requires that, until April 28, 1999, all shares of the Company
owned by Gene E. Phillips or his affiliates in excess of forty percent (40%) of
the Company's outstanding shares shall be voted in proportion to the votes cast
by all non-affiliated stockholders of the Company.
In accordance with the Amendment, Richard W. Douglas, Larry E. Harley and
R. Douglas Leonhard were added to the Company's Board of Directors in January
1998 and Murray Shaw was added to the Company's Board of Directors in February
1998.
EXECUTIVE OFFICERS
The following persons currently serve as executive officers of the Company:
Randall M. Paulson, President; Karl L. Blaha, Executive Vice
President -- Commercial Asset Management; Bruce A. Endendyk, Executive Vice
President; Steven K. Johnson, Executive Vice President -- Residential Asset
Management; and Thomas A. Holland, Executive Vice President and Chief Financial
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> <C>
RANDALL M. PAULSON President (since August 1995) and Executive 52
Vice President (January 1995 to August 1995).
President (since August 1995) and Executive Vice President (January 1995 to August
1995) of CMET, IORI and Syntek Asset Management, Inc. ("SAMI") and (October 1994 to
August 1995) of BCM; Director (August 1995 to November 1998) of SAMI; Executive Vice
President (since January 1995) of American Realty Trust, Inc. ("ART"); Vice
President (1993 to 1994) of GSSW, LP, a joint venture of Great Southern Life and
Southwestern Life; Vice President (1990 to 1993) of Property Company of America
Realty, Inc.; and President (1990) of Paulson Realty Group.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
AGE
---
<S> <C> <C>
KARL L. BLAHA Executive Vice President -- Commercial Asset 51
Management (since July 1997).
Executive Vice President -- Commercial Asset Management (since July 1997) and
Executive Vice President and Director of Commercial Management (April 1992 to August
1995) of BCM, IORI, CMET, and SAMI; Director (since June 1996), President (since
October 1993) and Executive Vice President and Director of Commercial Management
(April 1992 to October 1993) of ART; Executive Vice President (October 1992 to July
1997) of Carmel Realty, Inc. ("Carmel Realty"), a company owned by First Equity
Properties, Inc. ("First Equity"), which is 50% owned by BCM; Director (since
November 1998) of SAMI; President and Director (since 1996) of First Equity;
Executive Vice President and Director of Commercial Management (April 1992 to
February 1994) of NIRT and Vinland Property Trust ("VPT"); Partner -- Director of
National Real Estate Operations (August 1988 to March 1992) of First Winthrop
Corporation; and Corporate Vice President (April 1984 to August 1988) of Southmark
Corporation ("Southmark").
BRUCE A. ENDENDYK Executive Vice President (since January 1995). 50
President (since January 1995) of Carmel Realty; Executive Vice President (since
January 1995) of BCM, SAMI, ART, CMET and IORI; Management Consultant (November 1990
to December 1994); Executive Vice President (January 1989 to November 1990) of
Southmark; and President and Chief Executive Officer (March 1988 to January 1989) of
Southmark Equities Corporation.
STEVEN K. JOHNSON Executive Vice President Residential Asset 41
Management (since August 1998).
Executive Vice President -- Residential Asset Management (since August 1998) and Vice
President (August 1990 to August 1991) of BCM, SAMI, ART, IORI and CMET; Chief
Operating Officer (January 1993 to August 1998) of Garden Capital, Inc.; Executive
Vice President (December 1994) to August 1998) of Garden Capital Management, Inc.;
Vice President (August 1991 to January 1993) of SHL Properties Realty Advisors, Inc.
and SHL Acquisition Corporation II and III; and Vice President (August 1990 to
August 1991) of NIRT and VPT.
THOMAS A. HOLLAND Executive Vice President and Chief Financial 56
Officer (since August 1995); Secretary (since
February 1997) and Senior Vice President and
Chief Accounting Officer (July 1990 to August
1995).
Executive Vice President and Chief Financial Officer (since August 1995) and Senior
Vice President and Chief Accounting Officer (July 1990 to August 1995) of SAMI, BCM,
ART, IORI and CMET; Secretary (since February 1997) of IORI and CMET; and Senior
Vice President and Chief Accounting Officer (July 1990 to February 1994) of NIRT and
VPT.
</TABLE>
6
<PAGE> 9
OFFICERS
Although not executive officers of the Company, the following persons
currently serve as officers of the Company: Robert A. Waldman, Senior Vice
President and General Counsel; and Drew D. Potera, Vice President and Treasurer.
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>
ROBERT A. WALDMAN Senior Vice President and General Counsel (since 46
January 1995); Vice President (December 1990 to
January 1995) and Secretary (December 1993 to
February 1997).
<S> <C> <C>
Senior Vice President and General Counsel (since January 1995), Vice President
(December 1990 to January 1995) and Secretary (December 1993 to February 1997) of
IORI and CMET; Vice President (December 1990 to February 1994) and Secretary
(December 1993 to February 1994) of NIRT and VPT; Senior Vice President and General
Counsel (since January 1995), Vice President (January 1993 to January 1995) 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; and Senior Vice President
and General Counsel (since January 1995), Vice President (April 1990 to January 1995)
and Secretary (since December 1990) of SAMI.
DREW D. POTERA Vice President (since December 1996) and 39
Treasurer (since December 1990).
Vice President (since December 1996) and Treasurer (since December 1990) of IORI and
CMET; Treasurer (December 1990 to February 1994) of NIRT and VPT; Vice President
(since December 1996) and 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; Vice President and Treasurer (since February 1992)
of SAMI; and Financial Consultant with Merrill Lynch, Pierce, Fenner & Smith
Incorporated (June 1985 to June 1990).
</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 10 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 1997. All of these filing requirements were satisfied by
its Directors and executive officers and 10 percent holders. In making these
statements, the Company has relied on the written representations of its
incumbent Directors and executive officers and its 10 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 duties of the advisor
include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities
and financing and refinancing sources to the Company. The advisor also serves as
a consultant to
7
<PAGE> 10
the Company's Board of Directors in connection with the business plan for the
Company and investment policy decisions.
BCM has served as the Company's Advisor since March 1989. BCM is a
corporation of which Messrs. Paulson, Blaha, Endendyk, Johnson and Holland serve
as executive officers. BCM is a company owned by a trust for the benefit of the
children of Gene E. Phillips. Mr. Phillips served as a director of BCM until
December 22, 1989, and as Chief Executive Officer of BCM until September 1,
1992. Mr. Phillips serves as a representative of his children's trust which 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 May 8, 1997, 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.
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. 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) First Equity
Properties, Inc. ("First Equity") which is 50% owned by BCM, (ii) Gene E.
Phillips and, (iii) a trust for the benefit of the children of Mr. Phillips.
Carmel, Ltd. subcontracts the property-level management and leasing of 26 of the
Company's commercial properties and its hotel and the commercial properties
owned by a real estate partnership in which the Company and IORI are partners to
Carmel Realty, which is a company owned by First Equity. Carmel Realty is
entitled to receive property and construction management fees and leasing
commissions in accordance with the terms of its property-level management
agreement with Carmel, Ltd.
REAL ESTATE BROKERAGE
Since December 1, 1992, Carmel Realty has been engaged on a non-exclusive
basis to provide brokerage services for the Company. Carmel Realty is entitled
to receive a real estate commission for property acquisitions and sales by the
Company in accordance with 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 investment policies of the Company to
8
<PAGE> 11
determine that they are 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 purchased by the Company.
Each Independent Director receives compensation in the amount of $15,000
per year plus reimbursement for expenses, and the Chairman of the Board receives
an additional fee of $1,500 per year for serving in such position. In addition,
each Independent Director receives $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 1997, $78,250 was paid to the Independent Directors in total
Directors' fees for all services, including the annual fee for service, during
the period January 1, 1997, through December 31, 1997, and 1997 special service
fees as follows: Ted P. Stokely, $16,500; Edward L. Tixier, $15,000; Martin L.
White, $15,000; and Edward G. Zampa, $31,750.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
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, 1992, in the Company's
shares of Common Stock and in each of the indices and further assumes the
reinvestment of all distributions. Past performance is not necessarily an
indicator of future performance.
COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
Measurement Period The S&P 500
(Fiscal Year Covered) Company Index REIT Index
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 200.00 109.99 121.18
1994 220.38 111.43 126.03
1995 223.78 153.13 155.01
1996 252.97 188.29 200.51
1997 377.65 251.13 222.07
</TABLE>
9
<PAGE> 12
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 November , 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS(1)
- ------------------- ------------------- ----------
<S> <C> <C>
American Realty Trust, Inc............................... 1,201,131 31.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Basic Capital Management, Inc............................ 421,611 10.9%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Maurice A. Halperin...................................... 326,450 8.4%
2500 North Military Trail
Suite 225
Boca Raton, Florida 33431
</TABLE>
- ---------------
(1) Percentages are based upon 3,875,944 shares of Common Stock outstanding at
November , 1998.
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 November , 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS(1)
------------------------ ------------------- ----------
<S> <C> <C>
All Directors and Executive Officers as a group (12
individuals)....................................... 1,730,485(2)(3) 44.6%
</TABLE>
- ---------------
(1) Percentages are based upon 3,875,944 shares of Common Stock outstanding at
November , 1998.
(2) Includes 80,268 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. Also included 1,000 shares owned directly by Ted P. Stokely.
(3) Includes 26,475 shares owned by SAMLP, 421,611 shares owned by BCM and
1,201,131 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.
On December 5, 1989, the Company's Board of Directors approved a program
for the Company to repurchase its shares of Common Stock. The Company's Board of
Directors has authorized the Company to repurchase a total of 687,000 shares of
its Common Stock pursuant to such program. As of December 31, 1997, the Company
had repurchased 387,815 shares pursuant to such program at a cost to the Company
of $3.0 million. In 1997, the Company repurchased 37,227 shares at a cost of
$445,000.
CERTAIN BUSINESS RELATIONSHIPS
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. Paulson, Blaha,
Endendyk, Johnson and Holland serve as executive officers. Gene E. Phillips
served as a director of BCM until December 22, 1989 and as Chief Executive
Officer of BCM until September 1, 1992. BCM is 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 owns BCM and, in such capacity, has
10
<PAGE> 13
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) First Equity, (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 26 of the Company's commercial
properties and its hotel and the commercial properties owned by a real estate
partnership in which the Company and IORI are partners to Carmel Realty, which
is a company owned by First Equity.
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. Carmel
Realty is a company owned by First Equity.
The Directors and officers of the Company also serve as trustees and
officers of CMET and IORI. The Directors owe fiduciary duties to such entities
as well as to the Company under applicable law. CMET and IORI have the same
relationship with BCM as the Company. The Company owned approximately 22.5% of
the outstanding shares of common stock of IORI at December 31, 1997. Mr.
Phillips is 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. Mr. Phillips served
as Chairman of the Board and director of ART until November 16, 1992. In
addition, Messrs. Paulson, Blaha, Endendyk, Johnson and Holland are executive
officers of ART.
From April 1992 to December 31, 1992, Mr. Stokely was employed as a paid
Consultant and since January 1, 1993, as a part-time unpaid Consultant for
Eldercare, a nonprofit corporation engaged in the acquisition of low income and
elderly housing. Eldercare has a revolving loan commitment from Syntek West,
Inc., of which Mr. Phillips is the sole shareholder. Eldercare filed for
bankruptcy protection in May 1995, and was reorganized in bankruptcy in February
1996, and has since paid all debts as directed by the Court.
RELATED PARTY TRANSACTIONS
Historically the Company has engaged in and may continue to engage in
business transactions, including real estate partnerships, with related parties.
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.
The Company owns a combined 63.7% general and limited partner interest in
Tri-City Limited Partnership, a limited partnership in which IORI is a 36.3%
general partner. The Company owns 341,500 shares of common stock of IORI, an
approximate 22.5% interest.
In 1997, the Company paid BCM and its affiliates $2.8 million in advisory
fees and net income fees, $517,000 in mortgage brokerage and equity refinancing
fees, $3.0 million in property acquisition fees, $738,000 in real estate
brokerage commissions and $2.3 million in property and construction management
fees and leasing commissions, net of property management fees paid to
subcontractors, other than Carmel Realty. In addition, as provided in the
Advisory Agreement, BCM received cost reimbursements from the Company of $1.2
million in 1997.
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
11
<PAGE> 14
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.
Pursuant to the terms of the Modification of Stipulation of Settlement in
the Olive litigation, which became effective on January 11, 1995, certain
related party transactions which the Company may enter into prior to April 28,
1999, require the unanimous approval of the Company's Board of Directors. In
addition, such related party transactions are to be discouraged and may only be
entered into in exceptional circumstances and after a determination by the
Company's Board of Directors that the transaction is in the best interests of
the Company and that no other opportunity exists that is as good as the
opportunity presented by such transaction.
The Modification requirements for related party transactions do not apply
to direct contractual agreements for services between the Company and the
Advisor or one of its affiliates (including the Advisory Agreement, the
Brokerage Agreement and the property management contracts). These agreements,
pursuant to the specific terms of the Modification, require the prior approval
by two-thirds of the Directors of the Company, and if required, approval by a
majority of the Company's stockholders. The Modification requirements for
related party transactions also do not apply to joint ventures between or among
the Company and IORI, NIRT or CMET or any of their affiliates or subsidiaries
and a third party having no prior or intended future business or financial
relationship with Gene E. Phillips, William S. Friedman, the Advisor or any
affiliate of such parties. Such joint ventures may be entered into on the
affirmative vote of a majority of the Directors of the Company.
An Amendment to the Modification (the "Amendment") was approved by the
Court on July 3, 1997. The Amendment requires that additional requirements be
met for certain transactions with affiliates ("Affiliated Transaction").
Independent counsel to the Board must review, advise and report to the Company's
Board of Directors on any Affiliated Transaction prior to its consideration and
approval by the Company's Board of Directors and the Company's Board of
Directors must unanimously approve the transaction after receiving independent
counsel's advice and report. In addition, a notice must be given to the
plaintiffs' counsel at least 10 days prior to the closing of the transaction and
during such 10-day period plaintiffs' counsel is entitled to seek a court order
prohibiting consummation of the transaction. Neither BCM nor any of its
affiliates may receive any fees or commissions in connection with an Affiliated
Transaction.
PROPOSAL TWO:
THE RENEWAL OF THE ADVISORY AGREEMENT
The Board of Directors recommends that Stockholders approve the renewal
through the next Annual Meeting of Stockholders 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, 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. The current
Advisory Agreement was entered into effective October 15, 1998.
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 12-month forecast of operations and
cash flow, a general plan for asset sales or acquisitions, lending, foreclosure
and
12
<PAGE> 15
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 (a) 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 (b) 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 aggregate 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 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
13
<PAGE> 16
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 effect of the limitation was
to require that BCM refund $206,000 of the annual advisory fee for 1997.
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. BCM may only assign the Advisory
Agreement with the prior consent of the Company.
The directors and principal officers of BCM are set forth below.
<TABLE>
<S> <C>
MICKEY N. PHILLIPS: Director
RYAN T. PHILLIPS: Director
RANDALL M. PAULSON: President
KARL L. BLAHA: Executive Vice President -- Commercial
Asset Management
BRUCE A. ENDENDYK: Executive Vice President
STEVEN K. JOHNSON: Executive Vice President -- Residential
Asset Management
THOMAS A. HOLLAND: Executive Vice President and Chief
Financial Officer
COOPER B. STUART: Executive Vice President
CLIFFORD C. TOWNS, JR: Executive Vice President -- Finance
DAN S. ALLRED: Senior Vice President -- Land Development
ROBERT A. WALDMAN: Senior Vice President, Secretary and
General Counsel
DREW D. POTERA: Vice President, Treasurer and Securities
Manager
</TABLE>
Mickey N. 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 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.
14
<PAGE> 17
SELECTION OF AUDITORS FOR 1998
The Board of Directors has selected BDO Seidman to serve as the auditors
for the Company for the 1998 fiscal year. The Company's auditors for the 1997
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, 1997, 1996 and 1995, are contained in the 1997
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 Shareholder Communications Corporation
("SCC") to assist in the solicitation of proxies. An agreement with SCC provides
that it will distribute materials relating to the solicitation of proxies,
contact Stockholders to confirm receipt of materials and answer questions
relating thereto. SCC is to be paid a base fee of $2,000 plus out-of-pocket
expenses and is to be indemnified against certain liability incurred as a result
of the provision of such services.
---------------------
15
<PAGE> 18
COPIES OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER
31, 1997, 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
/s/ RANDALL M. PAULSON
Randall M. Paulson
President
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE FOR THE
SEVEN NOMINEES AND THAT YOU VOTE FOR THE APPROVAL OF THE RENEWAL OF THE CURRENT
ADVISORY AGREEMENT BY VOTING FOR PROPOSAL TWO 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.
16
<PAGE> 19
APPENDIX A
ADVISORY AGREEMENT
BETWEEN
TRANSCONTINENTAL REALTY INVESTORS, INC.
AND
BASIC CAPITAL MANAGEMENT, INC.
THIS AGREEMENT dated as of October 15, 1998, 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;
A-1
<PAGE> 20
(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 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.
A-2
<PAGE> 21
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 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.
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(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.
(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;
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(ix) transfer agent's registrar's and indenture trustee's fees
and charges; and
(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;
(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, 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
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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 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
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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 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 and, without limiting the generality of the
foregoing, it is specifically agreed that the following expenses of the
Company shall be paid by the Company and shall not be paid by the Advisor:
(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;
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(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;
(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.
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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 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;
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(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.
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.
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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/ RANDALL M. PAULSON
----------------------------------
Randall M. Paulson
President
BASIC CAPITAL MANAGEMENT, INC.
By: /s/ THOMAS A. HOLLAND
----------------------------------
Thomas A. Holland
Executive Vice President
and Chief Financial Officer
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PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 12, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TRANSCONTINENTAL
REALTY INVESTORS, INC.
The undersigned hereby appoints THOMAS A. HOLLAND 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 12, 1999, 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 DIRECTORS:
Ted P. Stokely
Richard W. Douglas
Larry E. Harley
R. Douglas Leonhard
Murray Shaw
Martin L. White
Edward G. Zampa
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 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 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> 31
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 THE SEVEN 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 THE SEVEN 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 THE SEVEN 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)
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY
<PAGE> 32
[reverse]
(continued from other side)
Dated: , 1999
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x
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Signature
x
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Signature (if held jointly)
x
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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.
