SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| 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
Nooney Realty Trust, 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.
|_| 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.
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NOONEY REALTY TRUST, INC.
7701 FORSYTH BOULEVARD
ST. LOUIS, MISSOURI 63105
May __, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
to be held at 10:00 A.M. on , June __, 1997, at the Pierre Laclede Conference
Center, 7733 Forsyth Boulevard, 2nd Floor, in Clayton, Missouri. Information
regarding business to be conducted at the meeting is set forth in the
accompanying Notice of Annual Meeting and Proxy Statement.
We cannot stress enough the importance of the vote of every
shareholder, regardless of the number of shares owned. THEREFORE, EVEN IF YOU
ARE PLANNING TO ATTEND THE MEETING, WE URGE YOU TO COMPLETE AND RETURN THE
ENCLOSED PROXY TO ENSURE THAT YOUR SHARES WILL BE REPRESENTED. A postage-paid
envelope is enclosed for your convenience. Should you later decide to attend the
meeting, you may revoke your proxy at any time and vote your shares personally
at the meeting.
We look forward to seeing many shareholders at the meeting.
Sincerely,
GREGORY J. NOONEY, JR.
Chairman of the Board and
Chief Executive Officer
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NOONEY REALTY TRUST, INC.
7701 FORSYTH BOULEVARD
ST. LOUIS, MISSOURI 63105
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD _____________, JUNE __, 1997
To the Shareholders of
Nooney Realty Trust, Inc.:
You are hereby notified that the Annual Meeting of Shareholders of
Nooney Realty Trust, Inc. (the "Trust") will be held at 10:00 A.M. on , June __,
1997, at the Pierre Laclede Conference Center, 7733 Forsyth Boulevard, 2nd
floor, in Clayton, Missouri, for the following purposes:
1. To elect seven directors to hold office until the next Annual
Meeting of Shareholders and until their successors are elected and
qualify.
2. To consider and vote upon a proposal to amend, in certain respects,
the investment policy of the Trust as contained in Article VI of the
Trust's Bylaws, which amendment would, among other things, eliminate
the Trust's self liquidating policy and allow the Trust to reinvest
proceeds from the sale, financing or refinancing of its properties.
3. To consider and vote upon a proposal to amend, in certain respects,
certain restrictions contained in Article VIII of the Trust's Bylaws
relating to the ability of a person or entity to acquire shares of
the Trust representing an amount greater than 9.8% of the total
value of the issued and outstanding shares.
4. To consider and act upon such other business as may properly come
before the meeting or any adjournment thereof.
The Trust's Board of Directors has fixed the close of business on April
25, 1997, as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
PATRICIA A. NOONEY
Secretary
May __, 1997
St. Louis, Missouri
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NOONEY REALTY TRUST, INC.
7701 FORSYTH BOULEVARD
ST. LOUIS, MISSOURI 63105
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE __, 1997
The enclosed proxy is solicited on behalf of the Board of Directors of
Nooney Realty Trust, Inc., a Missouri corporation, for use at the Annual Meeting
of Shareholders to be held at 10:00 A.M. on __________, June __, 1997, at the
Pierre Laclede Conference Center, 7733 Forsyth Boulevard, 2nd Floor, in Clayton,
Missouri, or any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. This proxy statement and
the enclosed form of proxy are being first mailed to shareholders on or about
May __, 1997.
The close of business on April 25, 1997, has been fixed by the Board of
Directors as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting. On April 25, 1997, there
were issued and outstanding and entitled to vote 866,624 shares of the Trust's
common stock, par value $1.00 per share.
If a shareholder is a participant in the Trust's Dividend Reinvestment
Plan, the proxy card represents the number of full shares in the dividend
retirement plan account, as well as shares registered in the participant's name.
All proxies in the accompanying form will be voted in accordance with the
instructions given in the proxy. Shareholders are entitled to vote cumulatively
for the election of directors. Each shareholder is entitled to a number of votes
for the election of directors equal to the number of shares held by the
shareholder multiplied by the number of directors to be elected (7), and a
shareholder may cast all votes for one nominee or distribute the votes among the
nominees as preferred. If cumulative voting rights are exercised by any
shareholder, the proxies may be voted cumulatively for less than all of the
Trust's nominees in the discretion of the persons voting such proxies. On all
other matters, shareholders will be entitled to one vote per share. A
shareholder may revoke his proxy at any time before it is voted by delivering to
the Trust another proxy bearing a later date, by submitting written notice to
the Secretary of such revocation, or by appearing in person at the Annual
Meeting and casting a contrary vote.
Proposal A as described herein will be the first proposal voted on at
the Annual Meeting. The affirmative vote of 62.0% of the issued and outstanding
shares of the Trust (which represents a majority of the issued and outstanding
shares of the Trust plus an amount in excess of the 98,895 shares which may
have been purchased by PICO Holdings, Inc., or its affiliates and subsidiaries,
in violation of the Trust's Bylaws in the manner described in Proposal A below)
will be required to amend the Bylaws as described in Proposal A. Although an
amendment to the Trust's Bylaws only requires the affirmative vote of a majority
of the issued and outstanding shares of the Trust, the Board of Directors of the
Trust has elected to require the greater percentage described above with respect
to the matters described in Proposal A in order to negate the voting power of
shares which may be ineligible to vote with respect to the matters described in
Proposal A.
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The affirmative vote of a majority of the issued and outstanding shares
of the Trust is required to amend the Bylaws as described in Proposal No. II.
The affirmative vote of the holders of a majority of the shares which are
present in person or represented by proxy at the Annual Meeting is required to
elect directors and to act on any other matters properly brought before the
Meeting. Shares represented by proxies which are marked "withhold authority"
with respect to either the election of any one or more nominees for election as
directors, proxies which are marked "abstain" on the amendments of the Bylaws
and proxies which are marked to deny discretionary authority on other matters
will be counted for the purpose of determining the number of shares represented
by proxy at the Meeting. Such proxies will have the same effect as if the shares
represented thereby were voted against such nominee or nominees, against the
amendments to the Bylaws and against such other matters, respectively. Shares
not voted on proxies returned by brokers will have the same effect as shares
voted against the amendments to the Bylaws and will be treated as not
represented at the Meeting with respect to the election of directors and other
matters.
The Trust will pay all costs of preparing and soliciting proxies for
the Annual Meeting. In addition to solicitation by mail, the Trust may solicit
proxies from shareholders personally, or by telephone. The Trust will also
reimburse brokerage firms, banks and other nominees for their reasonable costs
incurred in forwarding proxy materials for shares held of record by them to the
beneficial owners of such shares.
THE TRUST WILL FURNISH TO SHAREHOLDERS A COPY OF ITS 1996 ANNUAL REPORT
ON FORM 10-K (WITHOUT CHARGE), UPON WRITTEN REQUEST ADDRESSED TO PATRICIA A.
NOONEY, SECRETARY, NOONEY REALTY TRUST, INC., 7701 FORSYTH BOULEVARD, ST. LOUIS,
MISSOURI 63105.
PROPOSAL I
ELECTION OF DIRECTORS
The Board of Directors proposes the election of the seven nominees
listed below to serve as directors of the Trust until the next Annual Meeting of
Shareholders and until their successors have been elected and qualify, or until
their earlier death, resignation or removal. If any vacancy in the list of
nominees shall occur for any reason, the Board of Directors will select a
substitute nominee to be voted upon at the Annual Meeting.
Positions or Offices
Name Age with the Trust
- --------------------------- --- ----------------------------------------------
Gregory J. Nooney, Jr...... 66 Chairman of the Board, Chief Executive
Officer and Director
Patricia A. Nooney......... 40 President, Secretary, Treasurer and Director
Robert E. Kresko........... 62 Director
Gene K. Beare ............. 81 Director*
Bruce P. Hayden............ 81 Director*
James P. Ingram............ 56 Director*
Richard H. Sharpe.......... 41 Nominee for Director*
- ----------
* Independent Director as defined in the Trust's Bylaws.
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Mr. Nooney, Mr. Kresko, Mr. Beare, Mr. Hayden and Mr. Ingram have
served as directors of the Trust since its formation in June 1984. Ms. Nooney
has served as a director since August 1992. John R. Hart, 37, a current
director of the Trust whose term as a director will terminate on the day his
successor is elected and qualified (which is expected to be the day of the
Annual Meeting), is not a nominee for director this year. Mr. Hart is the
President and Chief Executive Officer of PICO Holdings, Inc., an insurance
holding company ("PICO Holdings"). See Proposal A below for a detailed
discussion of the relationship of PICO Holdings to the Trust.
The following is a brief summary of the business experience during the
past five years of each of the nominees for election as directors of the Trust,
including, where applicable, information regarding other directorships held by
each nominee:
Gregory J. Nooney, Jr. has served as Chairman of the Board and Chief
Executive Officer of Nooney Company since May 1983. Mr. Nooney joined Nooney
Company in 1954 and served as President from 1969 to May 1983. Nooney Company,
which was founded in 1945, is a diversified real estate investment management
company.
During 1993 Lindbergh Boulevard Partners, L.P. filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code. Gregory J.
Nooney, Jr. is the general partner of Nooney Ltd. II, L.P., which in turn is the
general partner of Nooney Development Partners, L.P., which in turn is the
general partner of Nooney-Hazelwood Associates, L.P. which is the general
partner of Lindbergh Boulevard Partners, L.P. Lindbergh Boulevard Partners, L.P.
emerged from bankruptcy on May 17, 1994 when its Plan of Reorganization was
confirmed.
Patricia A. Nooney is Senior Vice President and Chief Financial Officer
of Nooney Krombach Company, a wholly-owned subsidiary of Nooney Company, and has
served as an executive officer for more than five years.
Robert E. Kresko is a private investor. Mr. Kresko is a member of the
Management Board of Trammel Crow Company, Dallas, Texas, a national real estate
development firm where he was employed until December 31, 1989.
Gene K. Beare is a corporate consultant. Mr. Beare served as a director
of American Maize- Products Company, Stamford, Connecticut until May 1992. Mr.
Beare also served as a director of Emerson Electric Co., St. Louis, Missouri,
from 1972 until 1987, and of Westvaco Corporation, New York, New York, from 1968
until 1988.
Bruce P. Hayden is Chairman of Hayden Associates, Inc., Bloomfield,
Connecticut, a real estate investment advisory, counseling and brokerage firm
founded by Mr. Hayden in 1972. Mr. Hayden was a Trustee and a member of the
Investment Company of Corporate Property Investors, a real estate investment
trust, from 1972 to March 1992.
James P. Ingram is President of Cambridge Savings Bank, Cambridge,
Massachusetts. From 1986 through 1987 Mr. Ingram was a partner in McManus,
Wakeman & Ingram, Inc., Boston, Massachusetts, a real estate consulting and
development firm. From 1965 until December 1985, Mr. Ingram was employed by R.
M. Bradley & Co., Inc., Boston, Massachusetts, a full service commercial
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real estate investment and management company, most recently as Senior Vice
President. While with R. M. Bradley & Co., Inc., Mr. Ingram was primarily
involved in management of the Bradley Real Estate Trust, a real estate
investment trust, and in office, retail and commercial brokerage.
Richard H. Sharpe is Chief Operating Officer of PICO Holdings. He also
serves in various capacities with subsidiaries and affiliate corporations,
including Physicians Insurance Company of Ohio, Chief Operating Officer;
American Physicians Life Insurance Company, President, Chief Executive Officer
and Director; and Sequoia Insurance Company and Citation Insurance Company,
Director. He joined the PICO group in 1977. Mr. Sharpe is also the current
President of the Association of Ohio Life Insurance Companies. See Proposal A
below for a detailed discussion of the relationship of PICO Holdings to the
Trust.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE NOMINEES FOR DIRECTORS OF
THE TRUST.
COMMITTEES OF THE BOARD
The Board of Directors of the Trust met five times during 1996, four
times at regularly scheduled meetings and one time at a special meeting via
telephone conference. All of the directors attended at least seventy-five
percent of the meetings of the Board of Directors and meetings held by those
committees of the Board on which they served except Mr. Kresko who was unable to
attend two regularly scheduled meetings of the Board of Directors.
Among the standing committees of the Board of Directors are the
Executive Committee and the Audit Committee. The Trust does not have standing
nominating or compensation committees.
The Executive Committee is comprised of Gregory J. Nooney, Jr., Gene K.
Beare and James P. Ingram. The Executive Committee is empowered to exercise,
between regular meetings of the Board of Directors, all of the authority of the
Board of Directors in the management of the Trust. The Executive Committee did
not meet during 1996.
The Audit Committee is comprised of James P. Ingram, Gene K. Beare and
Bruce P. Hayden. The functions of the Audit Committee are to recommend to the
Board of Directors the accounting firm to serve as the independent auditor of
the Trust, to monitor and review with the independent auditor the Trust's
financial reporting and accounting procedures and policies, to supervise the
adequacy of the Trust's financial, accounting and operating controls and to
review the scope of any audits conducted by the independent auditor. The Audit
Committee met two times during 1996.
CERTAIN BUSINESS RELATIONSHIPS
Gregory J. Nooney, Jr. serves as a general partner of Nooney Advisors
Ltd., L.P., the Advisor to the Trust. Nooney Advisors Ltd., L.P. is entitled to
receive regular monthly compensation from the Trust for rendering advisory
services to the Trust. During 1996 the Trust paid advisory fees of $117,864 to
Nooney Advisors Ltd., L.P. The Board of Directors has renewed the Advisory
Agreement between the Trust and Nooney Advisors Ltd., L.P. for the period
April 1, 1997 to March 31, 1998.
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Gregory J. Nooney, Jr. and Patricia A. Nooney, who are father and
daughter, are directors of Nooney Krombach Company, a wholly-owned subsidiary of
Nooney Company, which serves as manager of the Trust's properties. Nooney
Krombach Company is entitled to receive monthly compensation from the Trust for
property management and leasing services, plus reimbursement of expenses. During
1996 the Trust paid property management and leasing fees of $148,728 to Nooney
Krombach Company.
Robert E. Kresko is a director of Nooney Krombach Company.
See Proposal A below for a detailed discussion of the relationship of
PICO Holdings to the Trust.
EXECUTIVE COMPENSATION
The officers of the Trust do not receive any direct compensation from
the Trust for their services as officers of the Trust.
DIRECTORS' COMPENSATION
Pursuant to the Trust's Bylaws, Gregory J. Nooney, Jr. and Patricia A.
Nooney do not receive any direct compensation from the Trust for their services
as directors of the Trust. (See the section above entitled "Certain Business
Relationships.")
The other directors were entitled to receive the following fees during
1996: (a) $500 for each meeting attended in person, (b) $250 for each meeting
conducted by telephone conference at which a vote was taken and (c) an annual
fee of $1,000. In the case of Robert E. Kresko, who is not an Independent
Director, as defined in the Trust's Bylaws, such fees were paid by Nooney
Company. In addition, the Independent Directors were reimbursed by the Trust for
their travel expenses and other out-of-pocket expenses incurred in connection
with attending meetings of the Trust and carrying on the business of the Trust.
Except as stated above, the directors of the Trust did not receive any
fees from the Trust pursuant to any other plans of compensation.
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PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
returns (change in stock price plus reinvested dividends) for Nooney Realty
Trust, Inc. ("N.R. Trust"), the NASDAQ Stock Market Total Return Index
("NASDAQ") and the National Association of Real Estate Investment Trusts
("NAREIT") Total Return Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
NOONEY REALTY TRUST, NASDAQ STOCK MARKET TOTAL RETURN INDEX
AND NAREIT TOTAL RETURN INDEX
[PERFORMANCE GRAPH OMITTED]
Assumes $100 invested on December 31, 1991 in Nooney Realty Trust, Inc.
Common Stock, NASDAQ Stock Market Index and NAREIT Index
December 31,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
NASDAQ............................. $186.87 $214.51 $209.69 $296.30 $364.71
NAREIT............................. $152.20 $180.43 $181.88 $215.18 $292.12
N.R. Trust......................... $ 60.96 $ 65.57 $ 95.09 $116.11 $161.26
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PROPOSAL II
PROPOSAL TO APPROVE AN AMENDMENT TO ARTICLE VI OF THE TRUST'S BYLAWS
The Investment Policy of the Trust as contained in its Bylaws contains
a so called "self-liquidating" provision, which states that the net proceeds of
the sale, financing or refinancing of the Trust's investment properties will not
be reinvested, but will either be distributed to the shareholders or applied to
such capital improvements to, or the payment of indebtedness with respect to,
existing properties of the Trust or the payment of any other expenses or the
establishment of any reserves, all as may be deemed necessary and appropriate by
the Board of Directors of the Trust. In accordance with the Bylaws, these
proceeds may also be used to purchase the land underlying any of the Trust's
investment properties in cases where the Trust is not already the owner. This
self-liquidating policy essentially precludes the Trust from reinvesting the
proceeds from the disposition, financing or refinancing of its properties into
new assets, including other real property investments.
The Investment Policy of the Trust also restricts the ability of the
Trust to take certain actions, including, among other things, investing in the
equity of any other real estate investment trusts or exchanging its own common
stock for any real estate investments.
The Board of Directors proposes to adopt an amendment to the Trust's
Bylaws that would:
(i) eliminate the Company's self-liquidating policy;
(ii) eliminate the restriction relating to the Trust's ability to
invest in the equity of other real estate investment trusts; and
(iii) eliminate the restriction relating to the Trust's ability to
exchange common stock in the Company for any real estate investments.
The Board of Directors believes that providing management of the Trust
with the flexibility to reinvest property sale, financing or refinancing
proceeds in one or more new investment opportunities, including new properties,
to purchase the equity securities of other real estate investment trusts, and/or
to use its own common stock in connection with new real estate investment
opportunities will help achieve the Trust's goal of increasing the Trust's value
and maximizing the return to shareholders. In addition, if new common shares are
issued, then there should be an increase in the number of shareholders and
related trading activity. At this time, the Trust has no plans to sell, finance
or refinance any of its properties or purchase any new properties, to purchase
the equity securities of other real estate investment trusts, or to exchange its
common stock for other real estate investments. Moreover, there can be no
assurance that the Trust will pursue any of these courses of action should the
amendment to the Bylaws as described in this Proxy Statement be adopted.
The Trust's self-liquidating policy is contained in Article VI, Section
6.1 of the Trust's Bylaws. The relevant portion of the text is as follows:
"The Trust is intended to be "self-liquidating." Accordingly,
it is the policy of the Trustees that the net proceeds of the sale,
financing or refinancing of each investment property, except as
provided below, will not be reinvested, but will either be distributed
to the Shareholders or applied to such capital improvements to, or the
payment of indebtedness with respect to, existing properties of the
Trust or the payment of any other expenses or the establishment of any
reserves, all as the Trustees deem necessary and appropriate. In
addition,
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the Trust may utilize the net proceeds of any sale, financing or
refinancing of an investment property to purchase the land underlying
any of the Trust's investment properties in cases where the Trust is
not already the owner. Also, if, within five (5) years from the
effective date of the Trust's registration statement in connection with
its initial public offering of Shares, the Trust sells, finances or
refinances an investment property, the Trust may reinvest, during such
time period, the proceeds of such sale, financing or refinancing. The
disposition of a property back to the original seller or an Affiliate
thereof, whether in the form of a recission, exchange or resale or
pursuant to an option or similar arrangement entered into at or prior
to the time of taking title to such property, shall not be deemed a
sale, financing or refinancing for the purposes of the self-liquidating
aspect to the investment policy of the Trustees."
The Board of Directors believes it would be in the best interest of the
shareholders to amend the Trust's self-liquidating policy to allow for the
reinvestment of proceeds from the sale, financing or refinancing of its
properties. As a result, the Board of Directors has proposed that Article VI,
Section 6.1 of the Trust's Bylaws be amended to delete the foregoing paragraph
in its entirety.
The restriction relating to the ability of the Trust to invest in the
equity securities of other real estate investment trusts is contained in Article
VI, Section 6.2 (d). The relevant portion of the text is as follows:
"The Trust shall not:...
(d) Invest in any equity Security, including the shares of
other REITs;...."
The Board of Directors believes it would be in the best interests of
the shareholders to amend the Bylaws to permit the Trust to invest in the equity
securities of other real estate investment trusts. As a result, the Board of
Directors has proposed that Article VI, Section 6.2(d) of the Trust's Bylaws be
amended to delete the foregoing paragraph (d) in its entirety and replace it
with the following:
"(d) Invest in any equity Security other than the shares of
other REITs...."
The restriction relating to the ability of the Trust to exchange its
own common stock for any real estate investment is contained in Article VI,
Section 6.2(i). The relevant portion of the text is as follows:
"The Trust shall not:...
(i) Exchange Shares for any real estate investment;...."
The Board of Directors believes it would be in the best interests of
the shareholders to amend the Trust's Bylaws to permit the Trust to exchange its
own common stock in connection with real estate investment opportunities.
Therefore, the Board of Directors has proposed that Article VI, Section 6.2(i)
of the Trust's Bylaws be amended to delete the foregoing paragraph (i) in its
entirety and replace it with the following:
"(i) [Reserved];..."
The Trust has no current plans to (i) sell, finance or refinance or
purchase any real property, (ii) purchase the equity securities of any other
real estate investment trust or (iii) exchange its common stock for any real
estate investment upon the approval of the amendment to the Trust's Bylaws as
described in this Proxy Statement. The Trust intends to take any one or more of
the foregoing actions only when any
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such action is believed to be in the best interest of the shareholders and in
order to achieve the Trust's goal of maximizing the Trust's value and the return
to shareholders. The Trust does not believe that this amendment to the Bylaws
will impact the Trust's current dividend policy or REIT status.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ABOVE DESCRIBED AMENDMENT TO
THE TRUST'S BYLAWS.
PROPOSAL A
PROPOSAL TO APPROVE AN AMENDMENT TO ARTICLE VIII
OF THE TRUST'S BYLAWS
The Internal Revenue Code of 1986, as amended (the "Code") contains
several ownership tests which an entity must meet in order to qualify as a "real
estate investment trust" or "REIT" for federal income tax purposes. Pursuant to
one of those ownership tests, at all times during the second half of the Trust's
taxable year, no more than 50% in value of the Trust's shares may be owned,
directly or indirectly, by five or fewer individuals (the so-called "closely
held test"). If the closely held test is violated, the Trust would lose its REIT
status for five years (including the year of violation).
In addition, there are various income tests which an entity must meet
in order to qualify as a REIT. As a practical matter, under those income tests,
the Trust must not, among other things, derive more than 5% of its income from
the rents paid by one or more tenants in which the Trust owns, directly or
indirectly, a 10% or greater interest (the so called "tenant owned test"). Under
the tenant owned test, the Trust will be deemed to own an interest in a tenant
owned by any shareholder of the Trust who owns, directly or indirectly, 10% or
more of the value of the outstanding shares of the Trust. A violation of the
tenant owned test does not necessarily result in loss of REIT tax status since
there are several relief provisions which may (or may not) be applicable. Such
relief provisions, however, could cause tax to be payable by the Trust.
The Trust's Bylaws place certain restrictions on the accumulation of
shares by the Trust's shareholders in order to guard against the concentration
of ownership of shares to an extent which is contrary to the closely held test
and tenant owned test. Specifically, Section 8.8(a) of the Bylaws provides that
no person may acquire, directly or indirectly, in excess of 9.8% of the
outstanding shares of the Trust.
Section 8.8(b) of the Trust's Bylaws provides that any acquisition of
shares in excess of 9.8% shall be null and void with respect to the shares that
are acquired in excess of the 9.8% limitation. Section 8.8(b) further provides
that any such excess shares (i) shall be considered to have been acquired by and
held on behalf of the Trust, (ii) shall not be considered outstanding for quorum
or voting purposes and (iii) shall not be entitled to receive dividends,
interest or any other distribution.
Section 8.8 of the Bylaws is set forth below in its entirety:
"(a) In order to guard against the concentration of ownership
of Shares and warrants or similar rights to purchase Shares to an
extent which is contrary to the requirements of the REIT Provisions of
the Internal Revenue Code, no Person may at any time subsequent to the
Trust's commencement of business operations acquire ownership of or
own, directly or indirectly, as determined pursuant to both (i) Section
318 and (ii) Sections 542(a) and 544 of the Internal Revenue Code, (A)
a number of Shares in excess of 9.8% of the outstanding Shares of the
Trust, or (B) an aggregate number of Shares and warrants and similar
rights to purchase
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Shares in excess of 9.8% of the aggregate number of outstanding Shares
and warrants and similar rights to purchase Shares. In addition, no
Shares shall be transferred (or issued, for example, upon the exercise
of warrants) and no warrants shall be transferred to any Person if,
following such transfer, such Person's direct or indirect ownership of
Shares and warrants and similar rights to purchase Shares would exceed
these limits.
(b) If Shares or warrants or similar rights to purchase Shares
are acquired by any Person in violation of this Section 8.8, such
acquisition shall be valid only to the extent it does not result in a
violation of this Section 8.8, and such acquisition shall be null and
void with respect to the excess ("Excess Shares" and/or "Excess
Warrants"). Excess Shares shall be deemed to have been acquired and to
be held on behalf of the Trust, and, as the equivalent of treasury
shares for such purpose, shall not be considered to be outstanding for
quorum or voting purposes, and shall not be entitled to receive
dividends, interest or any other distribution. Excess warrants shall be
deemed to be void.
(c) The Trust shall, if deemed necessary or desirable to
implement the provisions of this Section 8.8, include on the face or
back of each Share or warrant certificate issued by the Trust an
appropriate legend referring the holder of such certificate to the
restrictions contained in this Section 8.8 and stating that the
complete text of this Section 8.8 is on file with the Secretary of the
Trust at the Trust's registered office.
(d) Nothing herein contained shall limit the ability of the
Trustees to impose or to seek judicial or other imposition of
additional restrictions if deemed necessary or advisable to protect the
Trust and the interests of its Shareholders by preservation of the
Trust's status as a qualified REIT under the Internal Revenue Code.
(e) If any provision of this Section 8.8 or any application of
any such provision is determined to be invalid by any federal or state
court having jurisdiction over the issue, the validity of the remaining
provisions shall not be affected and the other applications of such
provisions shall be affected only to the extent necessary to comply
with the determination of such court."
For the reasons described below, the Board of Directors proposes to
adopt an amendment to Article VIII of the Trust's Bylaws that would:
(i) clarify that the calculation of the 9.8% ownership threshold is to
be made in conformity with the provisions of the Code related to real estate
investment trusts;
(ii) suspend application and enforcement of Section 8.8(b) of the
Bylaws for all periods on or prior to April 23, 1997;
(iii) enable the Independent Directors to waive or modify periodically
any provisions of Section 8.8 of the Bylaws with respect to any shares acquired
in excess of the 9.8% ownership threshold, provided that such Independent
Directors are satisfied that (aa) any such acquisition will not result in the
disqualification of the Trust as a real estate investment trust or otherwise
subject the Trust to tax and (bb) that the waiver is in the best interest of the
Trust;
(iv) clarify that neither the Trust nor the officers and directors of
the
10
<PAGE>
Trust are responsible for making determinations with respect to the number of
shares that any person shall be deemed to own for purposes of Section 8.8;
(v) provide that the Bylaws may be amended by a vote of a majority of
the Independent Directors if the Independent Directors determine that such
amendment is necessary or advisable to protect the status of the Trust as a real
estate investment trust or otherwise minimize the risk that the Trust may become
subject to federal income tax payable by the Trust; and
(v) eliminate certain references in Section 8.8 of the Bylaws to
warrants to purchase additional Trust shares.
Section 8.8, if amended in the foregoing manner, would read in its
entirety as follows:
(a) Except as otherwise provided in this Section 8.8, in order
to guard against the concentration of ownership of Shares to an extent
which is contrary to the requirements of the REIT Provisions of the
Internal Revenue Code (including, but not limited to, Sections
856(a)(6) and 856(d)(2)(B), or successor provisions, of the Internal
Revenue Code), no Person may at any time subsequent to the Trust's
commencement of business operations acquire ownership of or own
directly or indirectly by application of the pertinent indirect
ownership rules of the Internal Revenue Code (including, but not
limited to, Sections 318, 542(a), 544, 856(d)(5) and 856(h), or
successor provisions, of the Internal Revenue Code) in excess of 9.8%
of the value of the outstanding Shares of the Trust (the "9.8% Limit").
In addition, no Shares shall be transferred (or issued) to any Person
if, following such transfer (or issuance), such Person's direct or
indirect ownership of Shares would exceed the 9.8% Limit. If Shares
are acquired by any Person in violation of the 9.8% Limit, such
acquisition shall be valid only to the extent it does not result in a
violation of the 9.8% Limit, and such acquisition shall be null and
void with respect to the excess ("Excess Shares"). Excess Shares shall
be deemed to have been acquired by, and to be held on behalf of, the
Trust, and, as the equivalent of treasury shares for such purpose,
shall not be considered to be outstanding for quorum or voting
purposes, and shall not be entitled to receive dividends, interest or
any other distribution. Notwithstanding anything to the contrary
contained in these By-laws, the Trust shall not be required to make any
payment to any Person in respect of Excess Shares, such Excess Shares
shall be forfeited to the Trust without compensation, and the Trust
shall automatically become the record and beneficial owner of the
Excess Shares.
(b) The provisions of Section 8.8(a) shall not (before or
after April 23, 1997) be applicable with respect to any Excess Shares
acquired by any Person on or prior to April 23, 1997 (the "Exempt
Shares") provided, however, that any person who owns or owned any
Exempt Shares on or prior to April 23, 1997 shall not acquire ownership
of or own, directly or indirectly, any additional Shares subsequent
to such date if all Shares owned, directly or indirectly, by such
Person after such acquisition exceeds the 9.8% Limit and, if such new
Shares are in fact acquired, such new Shares shall be treated as Excess
Shares.
(c) The Trust shall, if deemed necessary or advisable to
implement the provisions of this Section 8.8, include on the face or
back of each Share certificate issued by the Trust an appropriate
legend referring the holder of such certificate to the restrictions
contained in this Section 8.8 and stating that the complete text of
this Section 8.8 is on file with the Secretary of the Trust at the
Trust's registered office.
11
<PAGE>
(d) Nothing herein contained shall limit the ability of the
Trustees to impose or to seek judicial or other imposition of
additional restrictions if deemed necessary or advisable to protect the
Trust and the interests of its Shareholders by preservation of the
Trust's status as a REIT under the Internal Revenue Code or otherwise
minimize the risk that the Trust may become subject to federal income
tax payable by the Trust.
(e) If any provision of this Section 8.8 or any application of
any such provision is determined to be invalid by any federal or state
court having jurisdiction over the issue, the validity of the remaining
provisions shall not be affected and the other applications of such
provisions shall be affected only to the extent necessary to comply
with the determination of such court.
(f) Notwithstanding anything to the contrary contained in
Article XI, the Independent Directors may waive or modify any
provisions of this Section 8.8, subject to such conditions as the
Independent Directors may impose in their sole and absolute discretion,
with respect to any Excess Shares owned, directly or indirectly, by
any Person after April 23, 1997, if the Independent Directors shall
have received an opinion of counsel, satisfactory to the Independent
Directors, from the Person owning, directly or indirectly, the
Excess Shares that the ownership of such Excess Shares would not cause
the Trust to be in violation of the REIT Provisions of the Internal
Revenue Code or otherwise subject the Trust to federal income tax.
(g) Except as expressly required by the REIT Provisions of the
Internal Revenue Code, nothing contained in these By-laws shall in any
manner be read or understood to obligate or make the Trust, the
Trustees or the officers of the Trust, responsible for making
determinations relating to the number of Shares deemed to be owned by
any Person for purposes of this Section 8.8.
(h) Notwithstanding anything to the contrary contained in
Article XI, these Bylaws may be amended from time to time upon a vote
of the majority of the Independent Directors, and without the approval
of the Shareholders, if said majority of the Independent Directors
determine that an amendment is necessary or advisable to protect the
status of the Trust as a REIT under the REIT Provisions of the Code or
otherwise minimize the federal income tax payable by the Trust.
The following version of Section 8.8 shows the proposed additions to
Section 8.8 as underlined and the proposed deletions as struck through:*
[(a) In](a) Except as otherwise provided in this Section 8.8,
-----------------------------------------------------
in order to guard against the concentration of ownership of Shares [and
--
warrants or similar rights to purchase Shares] to an extent which is
contrary to the requirements of the REIT Provisions of the Internal
Revenue Code (including, but not limited to, Sections 856(a)(6) and
------------------------------------------------------
856(d)(2)(B), or successor provisions, of the Internal Revenue Code),
--------------------------------------------------------------------
no Person may at any time subsequent to the Trust's commencement of
business operations acquire ownership of or own,[ directly or
indirectly, as determined pursuant to both (i) Section 318 and (ii)
Sections 542(a) and 544] directly or indirectly by application of
----------------------------------------
the pertinent indirect ownership rules of the Internal Revenue
--------------------------------------
Code[, (A) a number of Shares] (including, but not limited to, Sections
----------------------------------------
318, 542(a), 544, 856(d)(5) and 856(h), or successor provisions, of the
-----------------------------------------------------------------------
Internal Revenue Code) in excess of 9.8% of the value of the
---------------------- ------------
outstanding Shares of the Trust[, or (B) an aggregate number of Shares
and]
- ---------------
* For purposes of electronically filing this Preliminary Proxy Statement with
the Securities and Exchange Commission EDGAR System, it was necessary to
indicate the proposed deletions as bracketed ([ ]) text. The Proxy Statement
that will be distributed to Shareholders will indicate the proposed deletions as
struck through text.
12
<PAGE>
[warrants and similar rights to purchase Shares in excess of 9.8% of
the aggregate number of outstanding Shares and warrants and similar
rights to purchase Shares] (the "9.8% Limit"). In addition, no Shares
------------------
shall be transferred (or issued[, for example, upon the exercise of
warrants) and no warrants shall be transferred)] to any Person if,
following such transfer (or issuance), such Person's direct or
-------------
[indirect] indirect ownership of Shares would exceed the 9.8%
-------- ---------------------
Limit. If [and warrants and similar rights to purchase Shares would
---------
exceed these limits.]
[(b) If Shares or warrants or similar rights to purchase]
Shares are acquired by any Person in violation of [this Section 8.8]
the 9.8% Limit, such acquisition shall be valid only to the extent it
--------------
does not result in a violation of [this Section 8.8] the 9.8% Limit,
--------------
and such acquisition shall be null and void with respect to the excess
("Excess Shares" [and/or "Excess Warrants")]). Excess Shares shall be
deemed to have been acquired by, and to be held on behalf of, the
--- -
Trust, and, as the equivalent of treasury shares for such purpose,
shall not be considered to be outstanding for quorum or voting
purposes, and shall not be entitled to receive dividends, interest or
any other distribution. [Excess warrants shall be deemed to be void]
Notwithstanding anything to the contrary contained in these By-laws,
--------------------------------------------------------------------
the Trust shall not be required to make any payment to any Person in
--------------------------------------------------------------------
respect of Excess Shares, such Excess Shares shall be forfeited to the
----------------------------------------------------------------------
Trust without compensation, and the Trust shall automatically become
--------------------------------------------------------------------
the record and beneficial owner of the Excess Shares.
-----------------------------------------------------
(b) The provisions of Section 8.8(a) shall not (before or
---------------------------------------------------------
after April 23, 1997) be applicable with respect to any Excess Shares
---------------------------------------------------------------------
acquired by any Person on or prior to April 23, 1997 (the "Exempt
-----------------------------------------------------------------
Shares") provided, however, that any person who owns or owned any
-----------------------------------------------------------------
Exempt Shares on or prior to April 23, 1997 shall not acquire ownership
-----------------------------------------------------------------------
of or own, directly or indirectly, any additional Shares subsequent
-------------------------------------------------------------------
to such date if all Shares owned, directly or indirectly, by such
-----------------------------------------------------------------
Person after such acquisition exceeds the 9.8% Limit and, if such new
---------------------------------------------------------------------
Shares are in fact acquired, such new Shares shall be treated as Excess
-----------------------------------------------------------------------
Shares.
-------
(c) The Trust shall, if deemed necessary or [desirable]
advisable to implement the provisions of this Section 8.8, include on
---------
the face or back of each Share [or warrant] certificate issued by the
Trust an appropriate legend referring the holder of such certificate to
the restrictions contained in this Section 8.8 and stating that the
complete text of this Section 8.8 is on file with the Secretary of the
Trust at the Trust's registered office.
(d) Nothing herein contained shall limit the ability of the
Trustees to impose or to seek judicial or other imposition of
additional restrictions if deemed necessary or advisable to protect the
Trust and the interests of its Shareholders by preservation of the
Trust's status as a [qualified] REIT under the Internal Revenue Code or
--
otherwise minimize the risk that the Trust may become subject to
----------------------------------------------------------------
federal income tax payable by the Trust.
---------------------------------------
(e) If any provision of this Section 8.8 or any application of
any such provision is determined to be invalid by any federal or state
court having jurisdiction over the issue, the validity of the remaining
provisions shall not be affected and the other applications of such
provisions shall be affected only to the extent necessary to comply
with the determination of such court.
13
<PAGE>
(f) Notwithstanding anything to the contrary contained in
------------------------------------------------------------------
Article XI, the Independent Directors may waive or modify any
-------------------------------------------------------------
provisions of this Section 8.8, subject to such conditions as the
-----------------------------------------------------------------
Independent Directors may impose in their sole and absolute discretion,
-----------------------------------------------------------------------
with respect to any Excess Shares owned, directly or indirectly, by
-------------------------------------------------------------------
any Person after April 23, 1997, if the Independent Directors shall
-------------------------------------------------------------------
have received an opinion of counsel, satisfactory to the Independent
--------------------------------------------------------------------
Directors, from the Person owning, directly or indirectly, the
--------------------------------------------------------------
Excess Shares that the ownership of such Excess Shares would not cause
----------------------------------------------------------------------
the Trust to be in violation of the REIT Provisions of the Internal
-------------------------------------------------------------------
Revenue Code or otherwise subject the Trust to federal income tax.
------------------------------------------------------------------
(g) Except as expressly required by the REIT Provisions of the
--------------------------------------------------------------
Internal Revenue Code, nothing contained in these By-laws shall in any
----------------------------------------------------------------------
manner be read or understood to obligate or make the Trust, the
---------------------------------------------------------------
Trustees or the officers of the Trust, responsible for making
-------------------------------------------------------------
determinations relating to the number of Shares deemed to be owned by
---------------------------------------------------------------------
any Person for purposes of this Section 8.8.
--------------------------------------------
(h) Notwithstanding anything to the contrary contained in
---------------------------------------------------------
Article XI, these Bylaws may be amended from time to time upon a vote
---------------------------------------------------------------------
of the majority of the Independent Directors, and without the approval
----------------------------------------------------------------------
of the Shareholders, if said majority of the Independent Directors
------------------------------------------------------------------
determine that an amendment is necessary or advisable to protect the
--------------------------------------------------------------------
status of the Trust as a REIT under the REIT Provisions of the Code or
----------------------------------------------------------------------
otherwise minimize the federal income tax payable by the Trust.
---------------------------------------------------------------
As of December 31, 1995, Physicians Insurance Company of Ohio, Inc. , a
subsidiary of PICO Holdings ("PICO", and together with PICO Holdings and their
affiliates and subsidiaries, the "PICO Group") reported direct ownership of
9.11% of the Trust shares. This information was contained in Amendment No. 1 to
Schedule 13G dated as of December 31, 1995, as filed by PICO with the Securities
and Exchange Commission ("SEC"). The Trust relies on such statements filed with
the SEC for information relating to the PICO Group's stock ownership positions
in the Trust since all of the PICO Group's stock holdings in the Trust are held
through Cede & Co., a nominee of Depository Trust Co., a depository for
securities held in brokerage accounts. Many of the Trust's other shareholders
also hold their shares through this nominee. As of [March 17, 1997], [433,938]
shares (approximately [50]% of the issued and outstanding shares) of the Trust
were held of record by Cede & Co. Moreover, for purposes of Section 8.8 of the
Trust's Bylaws, a person "owns" not only the shares that person directly owns,
but also those shares that person is deemed to own by application of highly
technical attribution rules imposed by the REIT Provisions of the Code.
Therefore, from a practical standpoint, it is virtually impossible for the Trust
to determine the direct and indirect ownership of any person in its shares
at any given time, without attempting to obtain such information directly from
any such shareholder. Moreover, because of these highly technical attribution
rules imposed by the Code, shareholders in the Trust may or may not be able to
determine exactly how many shares they are deemed to own indirectly for
purposes of Section 8.8.
In May, 1996, the Trust received a letter from PICO dated May 1, 1996,
advising the Trust that the PICO Group beneficially owned directly 14.29% of the
Trust's outstanding shares. On June 17, 1996, the Trust sent PICO a letter
advising that, as a result of the increase in the PICO Group's direct ownership
position in the Trust from 9.11% to 14.29%, the PICO Group's direct share
ownership exceeded the 9.8% level permitted by the Trust's Bylaws. The Trust
also suggested in its letter that PICO seek legal counsel with respect to this
matter.
14
<PAGE>
In December, 1996, the Trust learned of a further increase in the PICO
Group's ownership position in the Trust upon the filing of a Form 3 with the SEC
by John R. Hart, President and Chief Executive Officer of PICO Holdings,
following Mr. Hart's election to the Board of Directors of the Trust to fill a
vacancy created by the death of R. Michael O'Brien, Jr. in September, 1996. Mr.
Hart's Form 3 disclosed that PICO owned 20.75% of the Trust's shares as of
November 15, 1996. In February, 1997, the Trust received a copy of Amendment No.
2 to Schedule 13G filed with the SEC by PICO Holdings disclosing that the PICO
Group beneficially owned 202,061 (approximately 23.3%) of the Trust's shares as
of December 31, 1996. According to this Amendment No. 2 to Schedule 13G, of
these 202,061 shares, 18,200 shares (approximately 2.1% of the Trust shares)
were beneficially owned by Summit Global Management, Inc., a wholly owned
subsidiary of PICO ("Summit"). PICO has represented that Summit is an investment
manager of numerous investment advisory accounts that own Trust shares and that
Summit merely holds dispositive power over any Trust shares owned by these
accounts. The PICO Group has informed the Trust that the beneficiaries of the
accounts retain the right to vote the shares, the right to receive dividends on
the shares, and the benefits (and risk) of any increase (or decrease) in the
value of the shares. Accordingly, counsel to the PICO Group has advised the
Trust that the beneficiaries of the accounts, and not Summit, should be deemed
to own these shares for purposes of Section 8.8 of the Bylaws.
It should be noted that Schedule 13G is filed pursuant to Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Form
3 is filed pursuant to Section 16(a) of the Exchange Act. The rules and forms
under these sections have different reporting thresholds and different
definitions of "beneficial owner." For purposes of Section 13(d), a beneficial
owner of securities is a person who has or shares voting power and/or investment
(or dispositive) power, i.e., the power to vote or direct the voting and/or the
power to dispose or direct the disposition of such securities, while for
purposes of Section 16(a) a beneficial owner of securities is a person who has
or shares a pecuniary interest in such securities, i.e., the opportunity to
profit from a transaction in such securities. Shares beneficially owned as
reported pursuant to Section 13(d) are not necessarily the same as shares
beneficially owned as reported pursuant to Section 16(a). Moreover, the REIT
Provisions of the Code use different, and sometimes broader rules, to determine
who is deemed to be the indirect owner of shares.
On March 11, 1997, the Trust began receiving correspondence from a
shareholder in the Trust making certain allegations and demands regarding the
PICO Group's ownership position in the Trust. Among other things, this
shareholder demanded that the Board of Directors of the Trust enforce the
provisions of the Bylaws and treat any shares owned by the PICO Group in excess
of 9.8% in the manner provided in Section 8.8(b) of Article VIII of the Bylaws.
The Trust advised the PICO Group of the shareholder's demands. The PICO Group
subsequently informed the Trust that as of March 19, 1997, the PICO Group had
sold its interest in 98,895 shares, 11.4% of the Trust's shares, to numerous
investment advisory accounts managed by Summit. Therefore, according to the PICO
Group, the investment advisory accounts managed by Summit should be deemed to
own a total of 117,095 Trust shares (98,895 shares plus the 18,200 shares
described above as previously owned by Summit), or approximately 13.5% of the
Trust shares, for purposes of Section 8.8 of the Bylaws. Moreover, according to
the PICO Group, as of March 19, 1997, the PICO Group directly owned 9.8% of the
Trust's shares for purposes of Section 8.8 of the Bylaws and was in compliance
with that section (assuming that said 9.8% direct ownership is not increased by
any additional shares the PICO Group is deemed to own indirectly on account of
the attribution rules of the Code). The information provided to the Trust by the
PICO Group in regards to its sale of the 98,895 shares to Summit is consistent
with the information contained in Amendment No. 3 to Schedule 13G filed by PICO
Holdings as of March 19, 1997. For more detailed information regarding Amendment
No. 3 to Schedule 13G, please see the discussion under the heading "Security
Ownership of Certain Beneficial Owners and Management" on page 18.
In response to the demands of the shareholder described above, the
Trust called a special meeting of the Board of Directors to discuss the matters
raised by the shareholder and wrote to the shareholder to advise it of such
meeting and of the fact that the PICO Group had informed the Trust that
15
<PAGE>
it had disposed of its interest in 11.4% of the Trust's shares. However, despite
the disposition of 11.4% of the Trust's shares by the PICO Group, this
shareholder has continued to demand, among other things, that the Trust treat
any shares that are or were owned at any time by the PICO Group in excess of
9.8% of the Trust's issued and outstanding shares (the "Excess Shares") as null
and void. Moreover, this shareholder has suggested that it may bring a lawsuit
against the Board of Directors for a breach of fiduciary duty if the Board of
Directors fails to take action to enforce the Bylaws in the manner requested by
the shareholder and/or seek to bring a lawsuit against the PICO Group in the
name of, and on behalf of, the Trust for certain relief in connection with the
Excess Shares. In addition, the PICO Group has informed the Trust that this
shareholder has made a written offer to the PICO Group to buy some or all of the
PICO Group's shares in the Trust.
The Trust believes that this shareholder would like the Trust to (i)
refuse to pay dividends on the Excess Shares, (ii) refuse to allow the Excess
Shares to vote, and (iii) file a lawsuit to cancel the Excess Shares, recover,
if applicable, the proceeds of the PICO Group's sale of shares and recover any
dividends already paid on the Excess Shares. The last sale price for the Trust's
shares as reported for May 13, 1997, was $10 per share. Therefore, assuming that
the PICO Group exceeded the 9.8% limitation in the Trust's Bylaws by 98,895
shares, the Trust may have a claim against the PICO Group for (i) the
cancellation of all such Excess Shares, which cancellation may result in the
return to the Trust's treasury of shares valued at approximately $988,950 (based
on the May 13, 1997 last sale price described above) and (ii) the recovery of
the amount of dividends that have been paid to the PICO Group with respect to
the Excess Shares. Dividends were paid on all shares in all four quarters of
1996 and in the first quarter of 1997. At the request of the Trust, the PICO
Group has estimated that approximately $56,000 in dividends have been paid to
the PICO Group with respect to the Excess Shares.
The Board of Directors held its special meeting on April 23, 1997 to
consider, among other things, the appropriate response to the demands of the
shareholder that are described above. After review of the facts and in
consideration of the factors described below, the Board concluded in the
exercise of its business judgment that, to the extent the shareholder was
demanding litigation against the PICO Group, such action would not be in the
best interests of the Trust and its shareholders.
In connection with its decision not to pursue litigation against the
PICO Group, the Board also decided to seek shareholder approval of the above
described amendment to Article VIII of the Trust's Bylaws. As stated above, this
amendment would, among other things, suspend application and enforcement of
Section 8.8(b) of the Trust's Bylaws with respect to any ownership of shares in
excess of 9.8% on or prior to April 23, 1997 (including that of the PICO Group).
The Board of Directors unanimously voted in favor of not pursuing litigation
against the PICO Group and in favor of recommending that the shareholders
approve the proposed amendment to Section 8.8 of the Trust's Bylaws. Mr. Hart
was absent from the deliberations and voting with respect to these proposals
because of his relationship with PICO Holdings, and Mr. Kresko did not vote on
these matters because he was required to leave the meeting early as a result of
a prior engagement.
These Board decisions were based on consideration of several factors:
(i) the language of Section 8.8(b) of the Bylaws does not provide a specific
mechanism or procedure for enforcement of the provisions of that section with
respect to the PICO Group, particularly in light of the fact that the PICO Group
has transferred the economic interest of all shares in excess of 9.8% to the
investment accounts of third parties not known to the Trust; (ii) the primary
purpose of the Bylaws is to protect the Trust's status as a real estate
investment trust and the Trust believes that such status has not been impaired
as a result of the PICO Group's share ownership (such belief is based, in part,
on an opinion of the PICO Group's counsel as described below); (iii) the
principles of equity and other provisions of the Bylaws may require
16
<PAGE>
that the Trust pay the PICO Group or other third parties, as applicable, for the
fair market value of any Trust shares currently owned by such parties that are
deemed Excess Shares by the Trust; (iv) in light of the foregoing and other
factors, the enforcement of Section 8.8(b) would involve extensive and costly
litigation that may or may not be successful in recovering the amounts set forth
above; (v) any such litigation would likely cast a cloud of uncertainty over the
marketability of Trust shares in light of the fact that third parties may not be
able to determine whether shares they are proposing to purchase may once have
been Excess Shares that have been canceled; and (vi) the potential disruption of
the Trust's business as a result of the time and effort that management and the
Directors of the Trust would be required to devote to such litigation.
The Board of Directors of the Trust has received an opinion letter from
counsel to the PICO Group, subject to various assumptions and qualifications, to
the effect that the ownership by the PICO Group of Trust shares in excess of the
9.8% limitation did not at any time cause the Trust to violate either the
closely held test or the tenant owned test.
The Board of Directors believes that the amendment to the Bylaws as
described above is in the best interests of the shareholders. The Board believes
that a more desirable degree of certainty would result from an amendment to the
Bylaws that clarifies that the calculation of the 9.8% ownership threshold is to
be in conformity with the provisions of the Code related to REITs. The Board
also believes that suspending application and enforcement of Section 8.8(b) for
all periods on or prior to April 23, 1997 would remove possible doubt as to the
marketability of any of the Trust's shares and would enable management of the
Trust to devote more of its attention to the real estate business of the Trust.
Furthermore, enabling the Independent Directors to waive or modify any
provisions of Section 8.8 of the Bylaws with respect to the 9.8% ownership
threshold in the future under certain conditions would permit management a
certain degree of flexibility in its strategic planning for the Trust. In light
of the administrative complexities that are involved in determining how many
Trust shares are owned by any given person for purposes of Section 8.8 of the
Bylaws, which complexities are largely the result of the nominee ownership
system, the Board believes that it is proper to clarify that neither the Trust,
nor the Board nor the officers of the Trust are responsible for making such
determinations. Next, the Board of Directors believes that providing the
Independent Directors with a right to amend, without shareholder approval, the
Bylaws to protect the Trust's REIT status or otherwise minimize the Trust's
federal income tax is consistent with the discretion and flexibility otherwise
provided to the Independent Directors with respect to issues related to Section
8.8 of the Trust's Bylaws. Finally, the references in Section 8.8 to warrants to
purchase additional Trust shares are no longer necessary since all warrants
previously outstanding have expired.
THE BOARD OF DIRECTORS RECEMMENDS A VOTE FOR THE ABOVE DESCRIBED AMENDMENT TO
THE TRUST'S BYLAWS.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The Board of Directors has made certain forward-looking statements in
this Proxy Statement that are subject to risks and uncertainties.
Forward-looking statements include those statements preceded by, followed by or
that include the words "believes," "expects," "anticipates" or similar
expressions. For those statements, the Board of Directors claims the protection
of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On or about March 19, 1997, an Amendment No. 3 to Schedule 13G setting
forth the following information was filed with the SEC by PICO Holdings, its
wholly owned subsidiary, PICO, and various of their other subsidiaries. The
Amendment No. 3 to Schedule 13G indicates that PICO Holdings and its
subsidiaries are collectively the beneficial owners of 202,061 shares of the
Trust's common stock, or 23.3% of the total outstanding shares, have sole
dispositive power with respect to all of such shares, sole voting power with
respect to 84,966 of the shares and no voting power with respect to 117,095
shares. The principal business address of PICO Holdings is 875 Prospect Street,
Suite 301, La Jolla, California 92037. Refer to the discussion of Proposal A for
additional information with respect to the ownership of the Trust's shares by
the PICO Group.
No other person or group is known by the Trust to be the beneficial
owner of more than 5% of the outstanding shares of the Trust's common stock.
The table below sets forth information as of April 1, 1997, regarding
the number of shares of the Trust beneficially owned by each of the directors,
nominees for director and executive officers of the Trust and by all directors,
nominees and officers as a group:
NAME OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED (2) CLASS (4)
- -------------------------------------------- ---------------------- ----------
Gregory J. Nooney, Jr....................... 7,900 (3) *
Patricia A. Nooney.......................... 4,957 *
Robert E. Kresko............................ 100 *
Gene K. Beare (1)........................... 6,750 *
Bruce P. Hayden (1)......................... 100 *
James P. Ingram (1)......................... 50 *
John R. Hart (1)(5) ........................ 0 *
Richard H. Sharpe (1)(5).................... 0 *
Directors and officers as a group........... 19,857 2.3%
- ----------
(1) Independent Director as defined in the Trust's Bylaws.
(2) Under the rules of the Securities and Exchange Commission, persons who have
power to vote or dispose of securities, either alone or jointly with
others, are deemed to be the beneficial owners of such securities.
Accordingly, shares owned separately by spouses or other family members are
not included. Except as described in the footnotes below, the nominee has
both sole voting power and sole investment power with respect to the shares
set forth in the table.
(3) Includes 2,909 shares owned by Nooney Company, of which Gregory J. Nooney,
Jr. is a director and shareholder. Includes 3,535 shares held as co-trustee
of a trust, as to which Mr. Nooney shares voting and investment power.
(4) An asterisk indicates that the number of shares beneficially owned does not
exceed one percent of the Trust's common stock issued and outstanding.
(5) Mr. Hart and Mr. Sharpe each disclaim any beneficial ownership interest in
the shares owned by PICO Holdings, Inc. as described above.
18
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Trust's officers and
directors, and persons who own more than ten percent of the Trust's common
stock, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Trust with copies of all Section 16(a) forms they
file.
Based primarily on its review of the copies of such reports received by
it, or written representations from certain reporting persons that no Forms 5
were required for those persons, the Trust believes that, during fiscal 1996,
all filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with, except that the PICO Group, a
greater than ten-percent beneficial owner of the Trust, filed late its initial
report on (a) Form 3 and filed late a report on Form 4 with respect to fifteen
transactions which should have been previously reported on six separate reports
on Form 4, [and (b) John Hart, a director of the Trust and an officer, director
and shareholder of various entities in the PICO Group, while disclaiming any and
all beneficial ownership of the Trust's equity securities, filed late a report
on Form 4 with respect to six transactions which should have been previously
filed on three separate reports were Mr. Hart to be deemed a beneficial owner of
such securities].
OTHER MATTERS
INDEPENDENT AUDITORS
The public accounting firm of Deloitte & Touche LLP served as the
independent auditor of the Trust for the fiscal year ended December 31, 1996. At
the recommendation of the Audit Committee, the Board of Directors has selected
Deloitte & Touche LLP to serve as independent auditor of the Trust for the
fiscal year ending December 31, 1997. Representatives of Deloitte & Touche LLP
will be present at the Annual Meeting, will have an opportunity to make a
statement if they desire to do so, and will be available to answer questions for
the Shareholders.
OTHER BUSINESS
Other than those items set forth herein, the Board of Directors knows
of no other business to be presented for consideration at the Annual Meeting.
Should any other matters properly come before the Annual Meeting or any
adjournment thereof, it is the intention of the persons named in the proxies to
vote such proxies in accordance with their best judgment on such matters.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS
In accordance with Rule 14a-8 under the Exchange Act, shareholder
proposals intended to be presented at the 1998 Annual Meeting of Shareholders of
Nooney Realty Trust, Inc. must be received by the Trust for inclusion in the
proxy statement and form of proxy relating to such meeting by no later than
December _____, 1997. Shareholder proposals should be submitted to the Secretary
of the Trust at the Trust's principal executive offices, 7701 Forsyth Boulevard,
St. Louis, Missouri 63105.
BY ORDER OF THE BOARD OF DIRECTORS
PATRICIA A. NOONEY
Secretary
May ____, 1997
St. Louis, Missouri
19
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ANNEX
FORM OF PROXY
[FRONT]
PROXY
NOONEY REALTY TRUST, INC.
This Proxy is solicited on behalf of the Board of Directors
The undersigned does hereby appoint Gregory J. Nooney, Jr., Patricia A.
Nooney and Gene K. Beare and each of them, the true and lawful attorneys-in-fact
and proxies of the undersigned (acting by a majority hereunder), with full power
of substitution, to vote all common shares of the undersigned in Nooney Realty
Trust, Inc. at the Annual Meeting of Shareholders to be held on _______________,
June ____, 1997, commencing at 10:00 A.M. at the Pierre Laclede Conference
Center, 7733 Forsyth Boulevard, 2nd floor, in Clayton, Missouri, and at any
adjournment thereof, upon all matters described in the Proxy Statement furnished
herewith, subject to any directions indicated on the reverse side of this proxy.
---------------------------------------------------
Date
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Signature
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Signature if held jointly
<PAGE>
[BACK]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING:
A. AMENDMENT TO ARTICLE VIII OF THE BYLAWS
FOR THE AMENDMENT WITHHOLD AUTHORITY to vote
TO ARTICLE VIII / / for the Amendment to Article VIII / /
1. ELECTION OF DIRECTORS
FOR ALL NOMINEES LISTED BELOW WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees
contrary below) / / listed below / /
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name on the line below.)
Gregory J. Nooney, Jr.; Patricia A. Nooney; Robert E. Kresko;
Gene K. Beare; James P. Ingram; Bruce P. Hayden; Richard H. Sharpe
- --------------------------------------------------------------------------------
2. AMENDMENT TO ARTICLE VI OF THE TRUST'S BYLAWS
FOR THE AMENDMENT WITHHOLD AUTHORITY to vote
TO ARTICLE VI / / for the Amendment to Article VI / /
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS A, 1, 2 AND 3.
IT IS IMPORTANT THAT YOU VOTE, SIGN AND RETURN
THE ENCLOSED PROXY AS SOON AS POSSIBLE. BY
DOING SO, YOU MAY SAVE THE TRUST THE
EXPENSE OF ADDITIONAL SOLICITATION.
