<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 [ ]
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:
-----------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
(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 AUGUST 31, 1999
The Annual Meeting of Stockholders of Transcontinental Realty
Investors, Inc. will be held on Tuesday, August 31, 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 the 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 July
26, 1999 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, 1998, has been mailed
to all Stockholders under separate cover.
Dated: July 27, 1999
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROBERT A. WALDMAN
--------------------------------------------
Robert A. Waldman
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 AUGUST 31, 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, August 31, 1999, at 10670 North Central Expressway, Suite 600, Dallas,
Texas. The Company's financial statements for the year ended December 31, 1998
were audited by BDO Seidman, LLP. 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 July 27, 1999.
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, July 26, 1999
(the "Record Date"), are entitled to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on July , 1999, there were
3,880,014 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
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<PAGE> 4
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.
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 to 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.
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<PAGE> 5
As of July , 1999, management and affiliates held 1,811,871 Shares
representing approximately 46.7% of the Shares outstanding. Such parties intend
to vote all of such Shares for the election of the Directors and for the renewal
of the advisory agreement.
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 (2000)
Any proposal intended to be presented by a Stockholder at the 2000
Annual Meeting of Stockholders of the Company must be received at the principal
office of the Company not later than May 31, 2000, 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).
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, 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
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<PAGE> 6
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>
TED P. STOKELY: Director (Independent) 65
(since April 1990)
and 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; 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) 52
(since January 1998).
Executive Vice President (since February 1999) of the Staubach Company;
President (1991 to 1999) 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) 58
(since January 1998).
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
</TABLE>
5
<PAGE> 7
<TABLE>
<S> <C>
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) 63
(since January 1998).
Director (since November 1998) of OpTel, Inc.; 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 Corporation; Vice President and Houston Projects
Manager (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.
MURRAY SHAW Director (Independent) 67
(since February 1998).
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) 59
(since January 1995).
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) 64
(since January 1995)
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.
6
<PAGE> 8
BOARD COMMITTEES
The Company's Board of Directors held ten meetings in 1998. 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 1998.
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 1998.
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 1998.
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 (the "Olive Litigation").
On April 23, 1990, the Court granted final approval of the terms of the
settlement.
On January 27, 1997, the parties entered into an Amendment to the
settlement, effective January 9, 1997 (the "Amendment"). The Amendment provided
for the settlement of additional matters raised by plaintiffs' counsel in 1997.
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,
7
<PAGE> 9
IORI, CMET and their shareholders released the defendants from any claims
relating to the plaintiffs' allegations.
Under the Amendment, all shares of the Company owned by any affiliates
were required to 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 required that, until April 28, 1999, all shares of the Company owned by any
affiliates in excess of forty percent (40%) of the Company's outstanding shares
were to be voted in proportion to the votes cast by all non-affiliated
stockholders of the Company.
The provisions of the Settlement and the Amendment terminated on April
28, 1999.
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) 53
and Executive 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"); President (since January
1998) and Director (January 1998 to December 1998) of NRLP Management
Corp. ("NMC") the general partner of National Realty, L.P. and National
Operating, L.P. and a wholly-owned subsidiary of ART; and Vice
President (1993 to 1994) of GSSW, LP, a joint venture of Great Southern
Life and Southwestern Life.
KARL L. BLAHA Executive Vice President - 51
Commercial Asset Management
(since July 1997).
Executive Vice President - Commercial Asset Management
(since July 1997) and Executive Vice President and
</TABLE>
8
<PAGE> 10
<TABLE>
<S> <C>
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 and (since October 1998) of Garden National Realty, Inc.; Director
(since December 1998) and Executive Vice President - Commercial Asset
Management (since January 1998) of NMC; President and Director (since
1996) of First Equity; and Executive Vice President and Director of
Commercial Management (April 1992 to February 1994) of NIRT and Vinland
Property Trust ("VPT").
BRUCE A. ENDENDYK: Executive Vice President 50
(since January 1995).
President (since January 1995) of Carmel Realty; Executive Vice
President (since January 1995) of BCM, SAMI, ART, CMET and IORI, and
(since January 1998) of NMC; and Management Consultant (November 1990
to December
1994).
STEVEN K. JOHNSON Executive Vice President - 42
Residential Asset 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; Executive Vice President - Residential Asset
Management (since August 1998) of NMC; Chief Operating Officer (January
1993 to August 1998) of Garden Capital, Inc.; and Executive Vice
President (December 1994 to August 1998) of Garden Capital Management,
Inc.
THOMAS A. HOLLAND: Executive Vice President and 56
Chief Financial Officer (since
August 1995); Secretary (February
1997 to June 1999) 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; Executive Vice
President and Chief Financial Officer (since January 1998) of NMC;
Secretary (February 1997 to June 1999) of IORI and CMET; and Senior
Vice President and Chief Accounting Officer (July 1990 to February
1994) of NIRT and VPT.
</TABLE>
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<PAGE> 11
OFFICERS
Although not executive officers of the Company, the following persons
currently serve as officers of the Company: Robert A. Waldman, Senior Vice
President, Secretary 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>
<CAPTION>
AGE
---
<S> <C>
ROBERT A. WALDMAN: Senior Vice President and 47
General Counsel (since
January 1995); Vice President
(December 1990 to January
1995) and Secretary (December
1993 to February 1997 and since June
1999).
Senior Vice President and General Counsel (since January 1995), Vice
President (December 1990 to January 1995) and Secretary (December 1993
to February 1997 and since June 1999) 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; Senior Vice President and General Counsel (since January
1995), Vice President (April 1990 to January 1995) and Secretary (since
December 1990) of SAMI; and Senior Vice President, Secretary and
General Counsel (since January 1998) of NMC.
DREW D. POTERA: Vice President (since December 40
1996) and Treasurer (since
December 1990).
Vice President (since December 1996) and Treasurer (since December
1990) of IORI and CMET; Vice President (since December 1996) Treasurer
(since August 1991), and Assistant Treasurer (December 1990 to August
1991) of ART; Vice President, Treasurer and Securities Manager (since
July 1990) of BCM; Vice President and Treasurer (since February 1992)
of SAMI; Vice President and Treasurer (since January 1998) of NMC; and
Treasurer (December 1990 to February 1994) of NIRT and VPT.
</TABLE>
10
<PAGE> 12
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 1998. 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 the Board of Directors in connection with the business plan and
investment decisions made by the Board of Directors.
BCM has served as the Company's Advisor since March 1989. BCM is a
corporation of which Messrs. Paulson, Blaha, Endendyk, Holland and Johnson 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 annual meeting of stockholders held on May 8, 1997, the
stockholders approved the renewal of the advisory agreement with BCM through the
next annual meeting of stockholders. Subsequent renewals of the Advisory
Agreement with BCM do not require the approval of the stockholders but do
require the approval of the Board of Directors.
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<PAGE> 13
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 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 29 of the Company's commercial
properties and its four hotels 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 purchases
and sales in accordance with the following sliding scale of total fees to be
paid: (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 executive officers. 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.
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<PAGE> 14
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 determine that
they are in the best interest of stockholders, (ii) review the advisory
contract, (iii) supervise the performance of the advisor and review the
reasonableness of the compensation to the 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.
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 an additional fee of $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 1998, $116,000 was paid to the Independent Directors in total
Directors' fees for all services, including the annual fee for service during
the period January 1, 1998 through December 31, 1998, and 1998 special service
fees as follows: Richard W. Douglas, $15,000; Larry E. Harley, $15,000; R.
Douglas Leonhard, $15,000; Murray Shaw, $13,750; Ted P. Stokely, $16,500; Edward
L. Tixier, $3,750; Martin L. White, $15,000; and Edward G. Zampa, $22,000.
13
<PAGE> 15
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, 1993 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. [GRAPHIC OMITTED]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
THE COMPANY 100.00 110.19 111.89 126.48 188.82 166.28
S&P 500 INDEX 100.00 101.31 139.22 171.19 228.29 293.54
REIT INDEX 100.00 104.00 127.91 165.45 183.24 120.88
</TABLE>
14
<PAGE> 16
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 the outstanding shares of
Common Stock as of the close of business on July ____ , 1999.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Owner Class(1)
------------------- ---------- -----------
<S> <C> <C>
American Realty Trust, Inc. 1,204,470 31.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Basic Capital Management, 454,157 11.7%
Inc.
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 3,880,014 shares of Common Stock outstanding at
July ___, 1999.
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 July ____, 1999.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Owner Class(1)
------------------- ---------- -----------
<S> <C> <C>
All Directors and Executive 1,766,370(2)(3) 45.6%
Officers as a group (12
individuals)
</TABLE>
15
<PAGE> 17
- -------------------------
(1) Percentages are based upon 3,880,014 shares of Common Stock outstanding at
July, 1999.
(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, 454,157 shares owned by BCM and
1,204,470 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 Board of Directors approved a repurchase program.
The Board of Directors authorized the repurchase of a total of 687,000 shares of
the Company's Common Stock pursuant to such program. Through December 31, 1998,
a total of 409,765 shares had been repurchased at a cost of $3.3 million, 21,950
of such shares having been purchased in 1998, at a cost of $330,000.
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, Holland and Johnson 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 substantial contact with the management of BCM
and input with respect to BCM's performance of advisory services to the Company.
Since February 1, 1991, 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 29 of the Company's
commercial properties and its four hotels 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. Carmel Realty is a company
owned by First Equity.
The Directors and officers of the Company also serve as trustees or directors
and officers of CMET and IORI. The Directors owe fiduciary duties to such
entities as well as to the Company under applicable law.
16
<PAGE> 18
CMET and IORI have the same relationship with BCM as the Company. The Company
owned approximately 22.7% of the outstanding shares of common stock of IORI at
December 31, 1998. BCM performs certain administrative functions for NRLP and
NOLP on a cost-reimbursement basis. BCM also serves as advisor to ART. In
addition, Messrs. Paulson, Blaha, Endendyk, Holland and Johnson are executive
officers of ART and NMC.
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 345,728 shares of common stock of IORI, an
approximate 22.7% interest.
In 1998, the Company paid BCM and its affiliates $4.1 million in advisory
fees and net income fees, $341,000 in mortgage brokerage and equity refinancing
fees, $3.5 million in property acquisition fees, $767,000 in real estate
brokerage commissions and $2.8 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 $1.1
million in 1998.
RESTRICTIONS ON RELATED PARTY TRANSACTIONS. Article FOURTEENTH of the Company's
Articles of Incorporation provides that the Company shall not, directly or
indirectly, contract or engage in any transaction with (i) any director, officer
or employee of the Company, (ii) any director, officer or employee of the
advisor, (iii) the advisor or (iv) any affiliate or associate (as such terms are
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of
any of the aforementioned persons, unless (a) the material facts as to the
relationship among or financial interest of the relevant individuals or persons
and as to the contract or transaction are disclosed to or are known by the Board
of Directors or the appropriate committee thereof and (b) the Board of Directors
or committee thereof determines that such contract or transaction is fair to the
Company and simultaneously authorizes or ratifies such contract or transaction
by the affirmative vote of a majority of independent directors of the Company
entitled to vote thereon.
17
<PAGE> 19
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.
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
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.
18
<PAGE> 20
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 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.
19
<PAGE> 21
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 $664,000 of the annual advisory fee for 1998.
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, Ltd., an
affiliate of BCM, to perform property management for the Company's properties
and has engaged, on a non-exclusive basis, 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 Division
JAMES D. CANON III: Senior Vice President - Portfolio Manager
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
20
<PAGE> 22
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.
SELECTION OF AUDITORS FOR 1999
The Board of Directors has selected BDO Seidman, LLP to serve as the auditors
for the Company for the 1999 fiscal year. The Company's auditors for the 1998
fiscal year were BDO Seidman, LLP. 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, 1998, 1997 and 1996, are contained in the 1998 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 Georgeson Shareholder Communications, Inc.
("GSC") to assist in the solicitation of proxies. An agreement with GSC provides
that it will distribute materials relating to the solicitation of proxies,
contact Stockholders to confirm receipt of materials and answer questions
21
<PAGE> 23
relating thereto. GSC 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.
-----------------------------------------------------
COPIES OF THE COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998, 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.
22
<PAGE> 24
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:
A-1
<PAGE> 25
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;
A-2
<PAGE> 26
(f) on behalf of the Company, investigating, selecting and
conducting relations with borrowers, lenders, mortgagors, brokers, investors,
builders, developers and others; provided however, that the Advisor shall not
retain on the Company's behalf any consultants or third party professionals,
other than legal counsel, without prior Board approval;
(g) consulting with the Directors and furnishing the Directors
with advice and recommendations with respect to the making, acquiring (by
purchase, investment, exchange, or otherwise), holding, and 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
A-3
<PAGE> 27
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.
A-4
<PAGE> 28
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-5
<PAGE> 29
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.
A-6
<PAGE> 30
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-7
<PAGE> 31
(a) "Affiliate" shall mean, as to any Person, any other Person
who owns beneficially, directly, or indirectly, 1% or more of the outstanding
capital stock, shares or equity interests of such Person or of any other Person
which controls, is controlled by, or is under common control with such Person or
is an officer, retired officer, director, employee, partner, or trustee
(excluding noninterested trustees not otherwise affiliated with the entity) of
such Person or of any other Person which controls, is controlled by, or is under
common control with, such Person.
(b) "Appraised Value" shall mean the value of a Real Property
according to an appraisal made by an independent qualified appraiser who is a
member in good standing of the American Institute of Real Estate Appraisers and
is duly licensed to perform such services in accordance with the applicable
state law, or, when pertaining to Mortgage Loans, the value of the underlying
property as determined by the Advisor.
(c) "Book Value" of an asset or assets shall mean the value of
such asset or assets on the books of the Company, before provision for
amortization, depreciation, depletion or valuation reserves and before deducting
any indebtedness or other liability in respect thereof, except that no asset
shall be valued at more than its fair market value as determined by the
Directors.
(d) "Book Value of Invested Assets" shall mean the Book Value
of the Company's total assets (without deduction of any liabilities), but
excluding (i) goodwill and other intangible
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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.
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(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
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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;
(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
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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
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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.
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(c) Acquisition Commission. For supervising the acquisition,
purchase or long term lease of Real Property for the Company, the Advisor is to
receive an Acquisition Commission equal to the lesser of (i) up to 1% of the
cost of acquisition, inclusive of commissions, if any, paid to nonaffiliated
brokers; or (ii) the compensation customarily charged in arm's-length
transactions by others rendering similar property acquisition services as an
ongoing public activity in the same geographical location and for comparable
property. The aggregate of each purchase price of each property (including the
Acquisition Commissions and all real estate brokerage fees) may not exceed such
property's Appraised Value at acquisition.
(d) Incentive Sales Compensation. To encourage periodic sales
of appreciated Real Property at optimum value and to reward the Advisor for
improved performance of the Company's Real Property, the Company shall pay the
Advisor, on or before the 45th day after the close of each Fiscal Year, an
incentive fee equal to 10% of the amount, if any, by which the aggregate sales
consideration for all Real Property sold by the Company during such Fiscal Year
exceeds the sum of: (i) the cost of each such Real Property as originally
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
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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
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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.
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14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent that the
Company shall request the Advisor or any director, officer, partner, or employee
of the Advisor to render services for the Company other than those required to
be rendered by the Advisor hereunder, such additional services, if performed,
will be compensated separately on terms to be agreed upon between such party and
the Company from time to time. In particular, but without limitation, if the
Company shall request that the Advisor perform property management, leasing,
loan disbursement or similar functions, the Company and the Advisor shall enter
into a separate agreement specifying the obligations of the parties and
providing for reasonable additional compensation to the Advisor for performing
such services.
15. EXPENSES OF THE ADVISOR. Without regard to the amount of
compensation or reimbursement received hereunder by the Advisor, the Advisor
shall bear the following expenses:
(a) employment expenses of the personnel employed by the
Advisor (including Directors, officers, and employees of the Company who are
directors, officers, or employees of the Advisor or of any company that
controls, is controlled by, or is under common control with the Advisor),
including, but not 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;
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(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,
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and ownership of real estate equity interests or other property (including the
costs of foreclosure, insurance, legal, protective, brokerage, maintenance,
repair, and property improvement services) and including all compensation,
traveling expenses, and other direct costs associated with the Advisor's
employees or other personnel engaged in (i) real estate transaction legal
services, (ii) internal auditing, (iii) foreclosure and other mortgage finance
services, (iv) sale or solicitation for sale of mortgages, (v) engineering and
appraisal services, and (vi) transfer agent services;
(f) expenses of maintaining and managing real estate equity
interests;
(g) insurance, as required by the Directors (including
directors' liability insurance);
(h) the expenses of organizing, revising, amending,
converting, modifying, or terminating the Company;
(i) expenses connected with payments of dividends or interest
or distributions in cash or any other form made or caused to be made by the
Directors to holders of securities of the Company;
(j) all expenses connected with communications to holders of
securities of the Company and the other bookkeeping and clerical work necessary
in maintaining relations with holders of securities, including the cost of
printing and mailing certificates for securities and proxy solicitation
materials and reports to holders of the Company's securities;
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(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.
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<PAGE> 44
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
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amount if any, by which the Operating Expenses so exceed the applicable amount;
provided, however, that the Advisor shall not be required to refund to the
Company, with respect to any fiscal year, any amount which exceeds the aggregate
of the Gross Asset Fees paid to the Advisor under this Agreement with respect to
such fiscal year.
19. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in
force until the next Annual Meeting of Stockholders of the Company, and,
thereafter, it may be renewed from year to year, subject to any required
approval of the Stockholders of the Company and, if any Director is an Affiliate
of the Advisor, the approval of a majority of the Directors who are not so
affiliated. Notice of renewal shall be given in writing by the Directors to the
Advisor not less than 60 days before the expiration of this Agreement or of any
extension thereof. This Agreement may be terminated for any reason without
penalty upon 60 days' written notice by the Company to the Advisor or 120 days'
written notice by the Advisor to the Company, in the former case by the vote of
a majority of the Directors who are not Affiliates of the Advisor or by the vote
of holders of a majority of the outstanding shares of the Company.
Notwithstanding the foregoing, however, in the event of any material change in
the ownership, control, or management of the Advisor, the Company may terminate
this Agreement without penalty and without advance notice to the Advisor.
20. AMENDMENTS. This Agreement shall not be changed, modified,
terminated or discharged in whole or in part except by an
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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
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approving any petition filed against the Advisor for its reorganization, and
such adjudication or order shall remain in force or unstayed for a period of 30
days; or
(c) If the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization under the Federal
bankruptcy laws, or for relief under any law for the relief of debtors, or shall
consent to the appointment of a receiver of itself or of all or substantially
all its property, or shall make a general assignment for the benefit of its
creditors, or shall admit in writing its inability to pay its debts generally,
as they become due.
The Advisor agrees that if any of the events specified in subsections
(b) and (c) of this Section 22 shall occur, it will give written notice thereof
to the Directors within seven days after the occurrence of such event.
23. ACTION UPON TERMINATION. From and after the effective date of
termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the
Advisor shall not be entitled to compensation for further services hereunder but
shall be paid all compensation accruing to the date of termination. The Advisor
shall forthwith upon such termination:
(a) pay over to the Company all monies collected and held for
the account of the Company pursuant to this Agreement;
(b) deliver to the Directors a full accounting, including a
statement showing all payments collected by it and a statement of
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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
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<PAGE> 49
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
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not binding upon, nor shall resort be had to the private property of, any of the
Directors, stockholders, officers, employees, or agents of the Company
personally, but bind only the Company property.
IN WITNESS WHEREOF, TRANSCONTINENTAL REALTY INVESTORS, INC. and BASIC
CAPITAL MANAGEMENT, INC., by their duly authorized officers, have signed these
presents all as of the day and year first above written.
TRANSCONTINENTAL REALTY INVESTORS, INC.
By: /s/ Randall M. Paulson
-----------------------------------------------
Randall M. Paulson
President
BASIC CAPITAL MANAGEMENT, INC.
By: /s/ Thomas A. Holland
------------------------------------------------
Thomas A. Holland
Executive Vice President
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<PAGE> 51
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 31, 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,
August 31, 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
[ ] [ ] [ ]
3. OTHER BUSINESS:
I AUTHORIZE the aforementioned
proxies in their discretion
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<PAGE> 52
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)
<PAGE> 53
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY
[reverse]
(continued from other side)
Dated:_______________, 1999
x___________________________
Signature
x___________________________
Signature (if held jointly)
x___________________________
Title
Please sign exactly as name appears herein. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
When signing for corporation, please sign full corporate name by an
authorized officer. When signing for a partnership, please sign
partnership name by an authorized person. If shares are held in more
than one capacity, this proxy shall be deemed valid for all shares held
in all capacities.
