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 o
Check the appropriate box:
x Preliminary Proxy Statement o Confidential, for Use of the
o Definitive Proxy Statement Commission Only (as permitted
o Definitive Additional Materials by Rule 14a-6(e)(2))
o Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AMERICAN INDUSTRIAL PROPERTIES REIT
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
x No fee required.
o 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:
(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:
o Fee paid previously with preliminary materials.
o Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
AMERICAN INDUSTRIAL PROPERTIES REIT
_______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held May 14, 1997
_______________
TO THE SHAREHOLDERS OF AMERICAN INDUSTRIAL PROPERTIES REIT:
You are cordially invited to attend the Annual Meeting of
Shareholders of American Industrial Properties REIT to be held at
2200 Ross Avenue, 40th Floor, Dallas, Texas 75201, on Wednesday,
May 14, 1997, at 9:00 a.m. (Dallas time), for the following
purposes:
1. To consider and vote upon a plan of recapitalization
for the Trust that includes, among other things, the adoption of
a Third Amended and Restated Declaration of Trust, which contains
significant amendments, adoption of an Employee and Trust Manager
Incentive Share Plan and approval of a transaction to convert
certain debt of the Trust to equity, as discussed in detail in
the Proxy Statement and as enumerated in the Exhibits thereto;
2. To ratify the selection of Ernst & Young LLP as
independent auditors for the year ended December 31, 1996;
3. To elect five Trust Managers; and
4. To transact such other business as may properly come
before the Annual Meeting or any postponements or adjournments
thereof.
Only holders of record of Shares of Beneficial Interest
of the Trust on March 10, 1997 will be entitled to notice of, and
to vote at, the Annual Meeting or any postponements or
adjournments thereof.
A copy of the Proxy Statement relating to the Annual
Meeting accompanies this Notice of Annual Meeting of
Shareholders. Each shareholder is urged to read the Proxy
Statement in its entirety.
YOUR VOTE IS IMPORTANT
IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE ANNUAL MEETING REGARDLESS OF THE
NUMBER OF SHARES OF BENEFICIAL INTEREST YOU HOLD. YOU ARE
INVITED TO ATTEND THE ANNUAL MEETING IN PERSON BUT WHETHER OR NOT
YOU PLAN TO ATTEND, YOU MAY ENSURE YOUR REPRESENTATION BY
COMPLETING, SIGNING, DATING AND PROMPTLY RETURNING THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE. IF YOU ATTEND
THE ANNUAL MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND
VOTE YOUR SHARES IN PERSON.
By Order of the Trust Managers
Marc A. Simpson
Secretary and Chief Financial
Officer
6220 North Beltline
Suite 205
Irving, Texas 75063
(972) 550-6053
, 1997
AMERICAN INDUSTRIAL PROPERTIES REIT
6220 North Beltline
Suite 205
Irving, Texas 75063
(972) 550-6053
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 14, 1997
This Proxy Statement is
furnished in connection with the solicitation of Proxies by the
Trust Managers of American Industrial Properties REIT, a Texas
real estate investment trust (the "Trust"), for use at the Annual
Meeting of Shareholders to be held at 2200 Ross Avenue, 40th
Floor, Dallas, Texas 75201 at 9:00 a.m. Dallas time on
Wednesday, May 14, 1997. Accompanying this Proxy Statement is
the Proxy for the Annual Meeting, which you may use to indicate
your vote as to each of the proposals described in this Proxy
Statement. This Proxy Statement and the accompanying Proxy are
first being mailed to shareholders on or about
, 1997. The Annual Report outlining the Trust's operations for
the fiscal year ended December 31, 1995 (the "Annual Report") was
mailed to shareholders on or about August 5, 1996.
The close of business on March
10, 1997 has been fixed as the record date for the determination
of shareholders entitled to notice of and to vote at the Annual
Meeting. As of the record date, the Trust had outstanding
10,000,000 shares of beneficial interest, $0.10 par value, the
only outstanding security of the Trust (the "Common Shares"). A
shareholder is entitled to cast one vote for each Common Share
held on the record date on all matters to be considered at the
Annual Meeting. As described below, if the Recapitalization Plan
(as defined below) is not approved, shareholders may cumulate
their votes in the election of Trust Managers. See "PROPOSAL
TWO: Voting Procedures."
At the Annual Meeting, action
will be taken to: (i) consider and vote upon a plan of
recapitalization that includes, among other things, the adoption
of a Third Amended and Restated Declaration of Trust (the
"Amended Declaration of Trust"), which contains significant
amendments to the presently operative Declaration of Trust (the
"Current Declaration of Trust"), adoption of an Employee and
Trust Manager Incentive Share Plan and the approval of a
transaction to convert certain debt of the Trust to Common Shares
as discussed in detail below (the "Recapitalization Plan"); (ii)
ratify the selection of Ernst & Young LLP as independent auditors
for the Trust for the fiscal year ended December 31, 1996 (the
"1996 Fiscal Year"); (iii) elect five Trust Managers to hold
office until their successors, if any, are duly elected and
qualified at the next annual meeting of shareholders; and (iv) to
transact such other business as may properly come before the
Annual Meeting or any postponements or adjournments thereof.
Shareholders are urged to sign
the accompanying Proxy, and after reviewing the information
contained in this Proxy Statement and in the Annual Report, to
return the Proxy in the envelope enclosed for that purpose.
Valid Proxies will be voted at the Annual Meeting and at any
adjournments thereof in the manner specified therein. If no
direction is given, but the Proxy is validly executed, such Proxy
will be voted FOR the adoption of the Recapitalization Plan, FOR
the ratification of the selection of Ernst & Young LLP as
independent auditors for the Trust for the 1996 Fiscal Year, and
FOR the election of the nominees for Trust Manager set forth in
this Proxy Statement. In their discretion, the persons authorized
under the proxies will vote upon such other business as may
properly come before the meeting, including the adjournment of
the Annual Meeting to a later date so as to allow management
additional time to solicit proxies in favor of the proposals.
A shareholder may revoke his,
her or its Proxy at any time before it is voted either by filing
with the Secretary of the Trust at its principal executive office
a written notice of revocation, by submitting a duly executed
Proxy bearing a later date, or by attending the Annual Meeting
and expressing a desire to vote his, her or its Common Shares in
person.
The holders of a majority of
the Common Shares issued and outstanding and entitled to vote,
present in person or represented by Proxy (5,000,001 Common
Shares), shall constitute a quorum for the transaction of
business at the Annual Meeting. If such quorum should not be
present at the Annual Meeting, the Annual Meeting may be
adjourned from time to time without notice, other than
announcement at the Annual Meeting, until a quorum shall be
present.
Abstentions and broker non-
votes (where a nominee holding Common Shares for a beneficial
owner has not received voting instructions from the beneficial
owner with respect to a particular matter and such nominee does
not possess or choose to exercise discretionary authority with
respect thereto) will be included in the determination of the
number of Common Shares present at the Annual Meeting for quorum
purposes. Abstentions and broker non-votes will have the same
effect as a vote against the proposals. Failure to return the
Proxy or failure to vote at the Annual Meeting will have the same
effect as a vote against the proposals.
The Trust's principal
executive offices are located at 6220 North Beltline, Suite 205,
Irving, Texas 75063.
PROPOSAL ONE
ADOPTION OF THE RECAPITALIZATION PLAN
The Board of Trust Managers
(the "Board") has unanimously approved and recommends that the
shareholders of the Trust approve the Recapitalization Plan,
which provides for, among other things, an improved capital
structure through increasing the authorized number and classes of
shares of beneficial interest and providing for the issuance of
additional securities, thereby providing the Trust the
flexibility to raise additional equity capital through subsequent
public or private offerings and to acquire additional properties
through the issuance of securities. The Recapitalization Plan
also includes a provision that would approve the conversion into
Common Shares of certain debt which may be acquired by USAA Real
Estate Company ("USAA REALCO"), a 32% shareholder in the Trust.
The debt is currently owed by the Trust to The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
(U.S.A.), collectively the Trust's largest unsecured creditor. If
the debt is acquired by USAA REALCO and if the shareholders
approve the Recapitalization Plan, the debt will be convertible
into Common Shares in the Trust at the option of USAA REALCO and
pursuant to a prescribed formula. USAA REALCO is the real estate
acquisition and management arm of its parent company, United
Services Automobile Association, an insurance and financial
services association based in San Antonio, Texas.
BACKGROUND
As noted in the discussion
that follows, certain proposed amendments to the Current
Declaration of Trust are specifically drafted to improve the
Trust's capital structure and other proposed amendments are
drafted to comport to industry standards and corresponding
sections of the Texas Real Estate Investment Trust Act (the
"Texas REIT Act"), which was amended effective September 1, 1995.
The following discussion summarizes certain aspects of the
Recapitalization Plan. This summary is not intended to be
complete and is subject to, and qualified in its entirety by,
reference to the proposed Amended Declaration of Trust, a copy of
which is attached hereto as Exhibit A.
SHAREHOLDER VOTE
The affirmative vote of the
holders of two-thirds of the outstanding Common Shares (at least
6,666,667 Common Shares) is required to approve the
Recapitalization Plan. The Trust Managers have unanimously
approved and adopted the Recapitalization Plan, subject to the
approval of the shareholders, and intend to vote Common Shares
held by them in favor of the Recapitalization Plan. The Trust
Managers and the executive officers of the Trust own a total of
108,150 Common Shares (1.08%). Additionally, USAA REALCO owns a
total of 3,182,206 Common Shares (31.822%) and designated two of
the five current Trust Managers. USAA REALCO has expressed its
intent to vote Common Shares held by it in favor of the
Recapitalization Plan. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGERS."
FEATURES OF THIRD AMENDED AND RESTATED DECLARATION OF TRUST
Set forth below is a
discussion of the proposed material amendments to the Current
Declaration of Trust.
Elimination of 15-year Major
Capital Improvements Restriction. Article Three of the Current
Declaration of Trust is proposed to be eliminated because it is
no longer required by the Texas REIT Act. The prior Section
3.1(A)(3) of the Texas REIT Act mandated that a real estate
investment trust ("REIT") organized under the Texas REIT Act
include in its declaration of trust a provision requiring the
REIT to make major capital improvements to any real property
acquired by such REIT within 15 years of purchasing the real
property. If such major capital improvements were not made
within the 15-year period, the REIT was required to sell the
property. The Texas REIT Act also afforded a private right of
action to any citizen of Texas to enforce the 15-year major
capital improvements provision. This provision was rescinded by
the Texas legislature when the Texas REIT Act was amended
effective September 1, 1995.
Article Three of the Current
Declaration of Trust was adopted when the Trust had a finite life
and in order to comply with the former Texas REIT Act's 15-year
major capital improvements requirement. The Trust Managers
believe this provision should be removed because it unnecessarily
and unreasonably restricts the Trust's investment policy and
operations, particularly in light of the Trust's infinite life,
and potentially exposes the Trust to private rights of action
that are no longer sanctioned by the Texas REIT Act. As a
result, the Amended Declaration of Trust removes the 15-year
major capital improvements requirement in its entirety. The
general effect of the proposed provision is to allow the Trust
greater flexibility in investing in, holding, selling and
improving real property.
Vote Required to Terminate the
Trust. Article Six of the proposed Amended Declaration of Trust
has been amended to comport to the requirement of Section 19.10
of the Texas REIT Act that REITs formed pursuant to the Texas
REIT Act be dissolved only by the affirmative vote of the holders
of two-thirds of the outstanding voting shares of such REITs.
The Current Declaration of Trust contains a provision which
purports to allow the Trust to be terminated upon the affirmative
vote of a majority of the outstanding shares; however, such
provision does not comport to the requirements of Section 19.10
of the Texas REIT Act because that section does not provide for
any deviation from the two-thirds vote requirement. The proposed
provision amends the termination provision in the Current
Declaration of Trust to comport with the termination requirements
of the Texas REIT Act and has the general effect of preventing
the Trust from being dissolved by a shareholder vote less than
that required by the Texas REIT Act.
Additional Shares of
Beneficial Interest and Classification of Common Shares. In order
to afford greater flexibility with respect to the future
capitalization of the Trust, the Trust Managers have unanimously
approved proposed Article Seven to the Amended Declaration of
Trust to authorize 490,000,000 Common Shares in addition to the
Common Shares presently authorized and outstanding for a total
authorization of 500,000,000 Common Shares and 50,000,000
preferred shares of beneficial interest ("Preferred Shares").
Common Shares and Preferred Shares may be automatically deemed
"Excess Securities" under certain circumstances described below.
Common Shares. Subject to the
preferential rights of any other shares or series of shares and
to the provisions of the Amended Declaration of Trust regarding
Excess Securities, holders of Common Shares are entitled to
receive dividends on the Common Shares if, as and when authorized
and declared by the Board out of assets legally available
therefor and to share ratably in the assets of the Trust legally
available for distribution to its shareholders in the event of
its liquidation, dissolution or winding-up after payment of, or
adequate provision for payment of, all known debts and
liabilities of the Trust.
Subject to the provisions of
the Amended Declaration of Trust regarding Excess Securities,
each outstanding Common Share entitles the holder to one vote on
all matters submitted to a vote of shareholders, including the
election of Trust Managers, and, except as otherwise required by
law or except as provided with respect to any other class or
series of shares, the holders of Common Shares possess the
exclusive voting power.
Subject to the provisions of
the Amended Declaration of Trust regarding Excess Securities,
Common Shares have equal dividend, distribution, liquidation and
other rights and will have no preference, appraisal or exchange
rights. Holders of Common Shares have no conversion, sinking
fund, redemption or preemptive rights to subscribe for any
securities of the Trust.
Preferred Shares. The Amended
Declaration of Trust authorizes the Board to issue up to
50,000,000 Preferred Shares and to establish the preference and
rights of any such shares issued. Preferred Shares may be issued
from time to time, in one or more series, as authorized by the
Board. Prior to the issuance of Preferred Shares of each series,
the Board would be required by the Texas REIT Act and the Amended
Declaration of Trust to fix for each series, subject to the
provisions of the Amended Declaration of Trust regarding Excess
Securities, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of
redemption, as are permitted by the Texas REIT Act. The Board
will be able to authorize the issuance of Preferred Shares with
terms and conditions that could have the effect of discouraging a
takeover or other transaction that holders of Common Shares might
believe to be in their best interests or in which holders of
some, or a majority, of the Common Shares might receive a premium
for their Common Shares over the then-current market price of
such Common Shares. The Current Declaration of Trust does not
authorize the issuance of preferred shares.
As discussed below, if the
Recapitalization Plan is approved by the shareholders, then
certain debt of the Trust that may be acquired by USAA REALCO may
be converted to Common Shares pursuant to a letter agreement
between the Trust and USAA REALCO. See "TRANSACTION WITH USAA
REALCO TO CONVERT MLI DEBT TO COMMON SHARES." The Trust
currently has no other agreements for issuance of additional
Common Shares or Preferred Shares. Nevertheless, the Trust may,
in the future, pursue a variety of transactions that involve such
an issuance, whether in exchange for cash or real properties, on
such terms and conditions as are to be determined by the Board.
Accordingly, it is currently not possible to predict the precise
terms of any such transactions, or whether such transactions will
be consummated. No further shareholder approval would be sought
in connection with these transactions, unless shareholder
approval is required under the Texas REIT Act or by the rules of
the New York Stock Exchange ("NYSE") or any other national
securities exchange on which securities of the Trust may become
listed.
General Effect. The Trust
Managers believe it is in the best interests of the Trust and its
shareholders to adopt proposed Article Seven in order to continue
the Trust's strategy of pursuing the opportunities available in
today's real estate and capital markets. Management believes
these opportunities include the ability to acquire and develop
industrial properties at investment yields in excess of the
Trust's cost of capital, in order to achieve positive spread
investing and increased cash flow to the Trust. There can be no
assurance that such investments will be available, however, or if
available, that such investments will result in investment yields
in excess of the Trust's cost of capital. The Trust Managers
also believe that the proposed Article Seven offers several
potential benefits for the Trust and its shareholders which
outweigh the potential detriments. These potential benefits and
detriments include the following:
Improved Capital Structure.
On October 23, 1993, the shareholders of the Trust approved a
modification to the Declaration of Trust which had the effect of
converting the Trust from a finite life entity with a maximum
term of 15 years of existence into an infinite life entity with
no predetermined date of termination. The finite life status of
the Trust had limited the Trust's access to more competitively
priced sources of capital. Consistent with the removal of the
finite life limitation on the Trust, the Recapitalization Plan
provides a capital structure under the proposed Amended
Declaration of Trust which is expected to allow the Trust
improved access to the capital markets which should enable it to
adapt to changing capital market conditions while expanding and
diversifying its investment portfolio. The Current Declaration
of Trust authorizes the issuance of only 10,000,000 Common
Shares, all such Common Shares being equal in rights and
preferences. As of February 3, 1997, all 10,000,000 Common
Shares were outstanding. The Amended Declaration of Trust will
authorize the Trust to issue a total of 500,000,000 Common Shares
and 50,000,000 Preferred Shares. Among other things, this
greater number of authorized Common Shares and Preferred Shares
provides the Trust with greater flexibility to issue shares,
options or warrants to raise capital for the Trust. Also, the
Trust would not have to amend its Declaration of Trust to
increase the authorized capital stock of the Trust each time it
proposes to enter into a transaction involving the issuance of
securities. The time and expense required to obtain such
approvals would likely cause such transactions to be
impracticable.
Purchase of Property With
Securities. Under the Amended Declaration of Trust, the Trust
would have a greater number of authorized Common Shares and other
securities, which could be used by the Trust to acquire
additional properties which meet the investment objectives and
policies of the Trust. The availability of these additional
Common Shares or other securities allows for additional
flexibility in negotiating and structuring an acquisition from a
potential seller. There can be no assurance, however, that the
Trust will be able to acquire properties through the issuance of
Common Shares or other securities.
Dilution. The
Recapitalization Plan will result in a substantially greater
number of authorized shares than the Trust has under the Current
Declaration of Trust. Under the Amended Declaration of Trust,
the Trust's additional authorized Common Shares may be offered in
capital raising transactions on behalf of the Trust. Such
transactions would result in ownership dilution to then-current
shareholders. The authorized but unissued capital stock of the
Trust under the Amended Declaration of Trust may be issued for
any corporate purpose, including the purchase of additional
properties and the investment in, or acquisition of, interests in
other entities, including other corporations, REITs or limited
partnerships whose assets consist of investments suitable for the
Trust. Authorized and unissued capital stock could also be
issued in one or more transactions which would make it more
difficult, and therefore less likely, to effect a takeover of the
Trust. Any such issuance of additional Common Shares or other
capital stock could have the effect of diluting the earnings per
share, book value per share, voting power of existing Common
Shares and the ownership of persons seeking to obtain control of
the Trust.
Anti-takeover Effects. The
authorization of additional capital stock, including the
authorization of the Preferred Shares, may have the effect of
discouraging a third party from making an acquisition proposal
for the Trust and may thereby inhibit a change in control of the
Trust under circumstances that could give shareholders the
opportunity to realize a premium over the then-prevailing market
prices of Common Shares. Furthermore, the ability of the Trust's
shareholders to effect a change in management control of the
Trust would be substantially impeded by such anti-takeover
provisions.
Consideration for Trust
Shares. Article Eight of the proposed Amended Declaration of
Trust has been revised to comport to amendments made by the Texas
legislature to the Texas REIT Act providing that consideration
for shares in a REIT formed thereunder may be in forms other than
money paid or property received. The amended Texas REIT Act
provisions regarding consideration the Trust may accept in
exchange for its shares now allows the Trust to accept any
tangible or intangible benefit to the Trust, including cash,
promissory notes, services performed, contracts for services to
be performed or other securities of the Trust. The proposed
Article Eight comports with these amendments to the Texas REIT
Act. Among other things, the proposed provision will afford the
Trust greater flexibility in financing its operations and raising
capital.
Cumulative Voting Denied.
Article Twelve of the proposed Amended Declaration of Trust
denies cumulative voting, whereas the Current Declaration of
Trust provides for cumulative voting in any election of Trust
Managers on or after the date on which the Trust becomes aware
that a 30% Shareholder (as defined below) has become a 30%
Shareholder. For purposes of the Current Declaration of Trust,
"30% Shareholder" means any person who or which is the beneficial
owner, directly or indirectly, of 30% or more of the outstanding
Common Shares. The proposed amendment will reconcile any
inconsistencies between the voting requirements to elect Trust
Managers enumerated in the Trust's Bylaws consistent with the
Texas REIT Act (i.e., vote of holders of a majority of
outstanding voting shares to elect Trust Managers) and cumulative
voting (i.e., generally determined by the vote of the holders of
a plurality of voting shares voted in the election of Trust
Managers). The proposed provision will have the effect of
allowing the holders of a majority of the outstanding Common
Shares to elect all of the Trust Managers then standing for
election.
USAA REALCO currently owns
31.82% of the Trust's issued and outstanding Common Shares.
Accordingly, under the Current Declaration of Trust the Trust's
shareholders would have the right to cumulate their votes in the
election of Trust Managers. See "PROPOSAL THREE: Election of
Trust Managers -- Voting Requirements." If this Proposal One is
approved by the shareholders, shareholders will not be permitted
to cumulate their votes when voting on Proposal Three.
Business Combinations.
Article Thirteen of the proposed Amended Declaration of Trust
establishes special voting and procedural requirements designed
to deter certain partial or "two-step" tender offers. The
Current Declaration of Trust does not contain any similar
provision to afford shareholders this protection.
The Amended Declaration of
Trust will require that, except in certain circumstances, a
Business Combination (as defined below) between the Trust and a
Related Person (as defined below) be approved by the affirmative
vote of the holders of 80% of the outstanding Common Shares and
Preferred Shares, including the vote of the holders of not less
than 50% of the Common Shares and Preferred Shares not owned by
the Related Person.
The Amended Declaration of
Trust provides that a "Business Combination" is: (i) any merger
or consolidation, if and to the extent permitted by law, of the
Trust or a subsidiary with or into a Related Person; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other
disposition, of more than 35% of the book value of the total
assets of the Trust as of the end of the last fiscal year, to or
with a Related Person; (iii) the issuance or transfer by the
Trust (other than by way of a pro rata dividend to all
shareholders) of any securities of the Trust or a subsidiary to a
Related Person; (iv) any reclassification of securities
(including a reverse share split) or recapitalization by the
Trust that would increase the voting power of the Related Person;
(v) the adoption of any plan or proposal for the liquidation or
dissolution of the Trust proposed by or on behalf of a Related
Person which involves any transfer of assets or any other
transaction in which the Related Person has any direct or
indirect interest (except proportionately as a shareholder); (vi)
any series or combination of transactions having, directly or
indirectly, substantially the same effect as the foregoing; and
(vii) any agreement, contract or other arrangement providing,
directly or indirectly, for any of the foregoing.
A "Related Person" generally
is defined in the Amended Declaration of Trust to include any
individual, corporation, partnership or other person and their
affiliates and associates which individually or together is the
beneficial owner in the aggregate of more than 50% of the
outstanding shares of the Trust, except that an individual,
corporation, partnership or other person which individually or
together is the beneficial owner of in excess of 30% of the
Trust's Common Shares at the time the Amended Declaration of
Trust is adopted by the shareholders will become a Related Person
only at such time as his, her, its or their beneficial ownership
exceeds 80% of the outstanding shares of the Trust.
The voting requirements
outlined above will not apply, however, if: (i) the Board by a
vote of not less than 80% of the Trust Managers then holding
office (a) have expressly approved in advance the acquisition of
shares that caused the Related Person to become a Related Person,
or (b) have expressly approved the Business Combination prior to
the date on which the Related Person involved in the Business
Combination shall have become a Related Person; or (ii) the
Business Combination is solely between the Trust and an entity,
100% of the voting shares of which is owned directly or
indirectly by the Trust; or (iii) the Business Combination is
proposed to be consummated within one year of the consummation of
a Fair Tender Offer (as defined below) by the Related Person in
which Business Combination the cash or the Fair Market Value (as
defined below) of the property, securities or other consideration
to be received per share by all remaining holders of shares in
the Business Combination is not less than the price offered in
the Fair Tender Offer; or (iv) the Rights (as defined below)
shall have become exercisable; or (v) all of the following
conditions shall have been met: (a) the Business Combination is a
merger or consolidation, consummation of which is proposed to
take place within one year of the date of the transaction
pursuant to which such person became a Related Person and the
cash or Fair Market Value of the property, securities or other
consideration to be received per share by all remaining holders
of shares in the Business Combination is not less than the
highest per share price paid by the Related Person in acquiring
any of its holdings of shares, determined as of the date of
consummation of such Business Combination (a "Fair Price"); (b)
the consideration to be received by such holders is either cash
or, if the Related Person shall have acquired the majority of its
holdings of shares for a form of consideration other than cash,
in the same form of consideration with which the Related Person
acquired such majority; (c) after such person has become a
Related Person and prior to consummation of such Business
Combination (1) except as approved by a majority of the Trust
Managers continuing in office, there shall have been no reduction
in the annual rate of dividends, if any, paid per share on the
shares except any reduction proportionate with any decline in the
Trust's net income, and (2) such Related Person shall not have
received the benefit, directly or indirectly, of any loans,
advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by the Trust
prior to the consummation of such Business Combination (other
than in connection with financing a Fair Tender Offer); and (d) a
proxy statement that conforms in all respects with the provisions
of the Securities Exchange Act of 1934, as amended ("Exchange
Act") shall be mailed to shareholders of the Trust at least 30
days prior to the consummation of the Business Combination for
the purpose of soliciting shareholder approval of the Business
Combination.
If a person has become a
Related Person and within one year after the date (the
"Acquisition Date") of the transaction pursuant to which the
Related Person became a Related Person (x) a Business Combination
meeting all of the requirements of clause (v) above regarding the
applicability of the 80% voting requirement shall not have been
consummated, and (y) a Fair Tender Offer shall not have been
consummated, and (z) the Trust shall not have been dissolved and
liquidated, then, in such event, the beneficial owner of each
share (not including shares beneficially owned by the Related
Person) (each such beneficial owner being hereinafter referred to
as a "Holder") shall have the right (individually a "Right" and
collectively the "Rights"), which may be exercised subject to
certain conditions, commencing at the opening of business on the
one-year anniversary date of the Acquisition Date and continuing
for a period of 90 days thereafter (the "Exercise Period"), to
sell to the Trust one share upon the exercise of such Right. At
5:00 p.m., Dallas, Texas time, on the last day of the Exercise
Period, each Right not exercised shall become void, and, except
as otherwise provided in the Amended Declaration of Trust, the
certificates representing shares beneficially owned by a Holder
shall no longer represent Rights. The purchase price for a share
upon exercise of an accompanying Right generally shall be equal
to the then-applicable Fair Price paid by the Related Person
pursuant to the exercise of the Right relating thereto.
The Fair Price provision is
designed to prevent a purchaser from utilizing two-tier pricing
and similar tactics in an attempted takeover of the Trust, and it
may have the overall effect of making it more difficult to
acquire and exercise control of the Trust. The Fair Price
provision may provide the Trust Managers with enhanced ability to
block any proposed acquisition of the Trust and to retain their
positions in the event of a takeover bid. In certain situations,
the Fair Price provision may require a Related Person to pay a
higher price for shares or structure his, her or its transaction
differently than would be the case in the absence of the Fair
Price provision. For example, in order to comply with the fair
price provision's minimum price criteria, the Related Person may
be required to pay a price for shares that does not necessarily
reflect current market prices. In certain cases, the Fair Price
provision's minimum price provision, while providing objective
pricing criteria, could be arbitrary and not indicative of value.
In addition, a Related Person may be unable, as a practical
matter, to comply with all of the procedural requirements of the
Fair Price provision. In these circumstances, unless a potential
purchaser were willing to purchase 80% of the shares as the first
step in a Business Combination (or unless a potential purchaser
were assured of obtaining the affirmative votes of at least 80%
of the shares), the purchaser would be required either to
negotiate with the Board and offer terms acceptable to it or to
abandon the proposed Business Combination.
The foregoing provisions are
designed to deter partial or "two-step" tender offers. The first
step in this technique is a tender offer made by another person
or entity seeking control of the target entity at a price that
often substantially exceeds the market value of the target
entity's stock or comparable interest. After acquiring a
controlling number of shares, the acquirer will then effectuate
the second step: a business combination with the target entity
designed to eliminate the then-remaining shareholders' interest
in the target. The terms of the second step business combination
may not reflect arm's length bargaining and therefore may not
assure proper treatment of the shareholders remaining after the
first-step tender offer. Although it may, under certain
circumstances, have the effect of discouraging unilateral tender
offers or other takeover proposals, inclusion of the Business
Combination provision in the Amended Declaration of Trust may
assure, to some degree, fair treatment of all shareholders in the
event of a two-step takeover attempt.
Share Dividends. Article
Fourteen of the proposed Amended Declaration of Trust has been
revised to allow for dividends of the Trust to be paid in shares
of the Trust, cash and property, rather than only cash and
property as currently provided. The general effect of the
proposed provision is to afford the Trust greater flexibility in
the means by which it pays distributions to its shareholders.
Redemption of Trust Shares.
Article Fifteen of the proposed Amended Declaration of Trust
allows the Trust to purchase or acquire its own shares, subject
to the limitations of the Texas REIT Act. The Texas REIT Act
allows REITs formed thereunder to redeem or purchase shares
unless (i) after giving effect thereto, the Trust would be
insolvent, or (ii) the amount paid therefor exceeds the surplus
of the Trust. The term "surplus" is defined by reference to the
Texas Business Corporation Act as the excess of the net assets of
a corporation over its stated capital. Moreover, if the net
assets of the Trust are not less than the proposed distribution,
the Trust may make a distribution to purchase or redeem any of
its shares if the purchase or redemption is made, for example, to
effect the purchase or redemption of redeemable shares in
accordance with the Texas REIT Act. The proposed provision
comports with the requirement of Section 3.30(A)(2) of the Texas
REIT Act that requires rights of redemption to be enumerated by a
Texas REIT in its operative declaration of trust. The proposed
provision affords the Trust a means of distributing assets of the
Trust by acquiring outstanding shares, as well as the ability to
redeem shares in transactions in which such a redemption may be
beneficial to the Trust and its shareholders.
Indemnification. The Trust
Managers are accountable to the Trust as fiduciaries and
consequently must exercise good faith and integrity in handling
its affairs. Pursuant to the Texas REIT Act, the proposed
Amended Declaration of Trust provides that the Trust shall
indemnify every Indemnitee (as defined below) against all
judgments, penalties, fines, amounts paid in settlement and
reasonable expenses actually incurred by the Indemnitee in
connection with any Proceeding (as defined in Article Sixteen of
the Amended Declaration of Trust) in which such Indemnitee was,
is or is threatened to be named as a defendant or respondent or
called as a witness, by reason of his or her serving or having
served in various capacities for the Trust if it is determined
that the Indemnitee conducted himself or herself in good faith,
reasonably believed that his or her conduct was in the Trust's
best interests (or, in certain cases, not opposed to the Trust's
best interests) and, in the case of any criminal proceeding, had
no reasonable cause to believe that his or her conduct was
unlawful. For purposes of the Amended Declaration of Trust,
"Indemnitee" means: (i) any present or former Trust Manager or
officer of the Trust; (ii) any person who while serving in any of
the capacities referred to in clause (i) hereof served at the
Trust's request as a trust manager, director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar
functionary of another REIT or foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise; and (iii) any person nominated
or designated by (or pursuant to authority granted by) the Trust
Managers or any committee thereof to serve in any of the
capacities referred to in clauses (i) or (ii) hereof.
The substantive provisions of
proposed Article Sixteen of the Amended Declaration of Trust do
not materially differ from the indemnification provisions
contained in the Current Declaration of Trust, which provisions
also provide for indemnification to the fullest extent lawful.
The Trust Managers believe that proposed Article Sixteen better
enumerates the persons to whom the Trust's indemnification
provisions apply, as well as the terms and conditions of such
indemnification within the scope of the Texas REIT Act.
Limitations on Liability.
Pursuant to the Texas REIT Act, Article Seventeen of the proposed
Amended Declaration of Trust provides that no Trust Manager or
officer shall be liable to the Trust for any act, omission, loss,
damage or expense arising from the performance of his or her
duty, except for such Trust Manager's or officer's own willful
misfeasance or malfeasance or negligence. In addition, pursuant
to the Texas REIT Act, a Trust Manager or officer shall not be
liable for any claims or damages that may result from his or her
acts in the discharge of any duty imposed or power conferred upon
him or her by the Trust, if, in the exercise of ordinary care,
such Trust Manager or officer acted in good faith and in reliance
upon the written opinion of an attorney for the Trust. The
proposed Declaration of Trust does not limit the ability of the
Trust or its shareholders to obtain other relief, such as an
injunction or rescission. The substance of the proposed
provision does not materially differ from the limitations of
liability provision contained in the Current Declaration of Trust
and, like such provision, has the general effect of attracting
and retaining qualified persons to serve as Trust Managers and
officers.
Rescission of Majority
Independent Trust Manager Provision. The Current Declaration of
Trust contains certain provisions that require a majority of the
Trust Managers to be "Independent Trust Managers," which means a
Trust Manager who: (i) does not perform any services for the
Trust (except in the capacity as a Trust Manager) whether as an
agent, advisor, consultant, employee, property manager, or in any
other capacity whatsoever (other than as Trust Manager); and (ii)
is not an Affiliate of any person or entity that performs any
services for the Trust (other than as a Trust Manager). For
purposes of the Current Declaration of Trust, "Affiliate" means
any individual, corporation, partnership, trust, unincorporated
organization, association or other entity that, directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with any person or
entity that performs any services for the Trust (other than as a
Trust Manager).
On October 22, 1993, the
holders of over 80% of the Common Shares of the Trust voted to
adopt the Current Declaration of Trust and perpetuate the Trust's
existence beyond its original finite life. The Trust is no
longer affiliated with the organizer of the Trust and, as a
result, the Trust Managers do not believe the provision of the
Current Declaration of Trust requiring that a majority of the
Trust Managers be Independent Trust Managers serves the purpose
for which it was originally intended (i.e., to maintain a
governing body of the Trust that is independent of the organizer
of the Trust). The Trust Managers also believe that because all
Trust Managers must be elected by a majority of the outstanding
Common Shares, that the shareholders themselves are able to
determine whether any particular person nominated to serve as a
Trust Manager, regardless of whether such person would qualify as
an Independent Trust Manager or not, should serve in that
capacity. Although the NYSE requires the Trust to have two
independent Trust Managers, to the knowledge of management of the
Trust, a provision requiring a majority of independent Trust
Managers contained in the declaration of trust or articles of
incorporation is not common in the REIT industry.
Number and Term of Trust
Managers. Consistent with the Texas REIT Act, Article Eighteen
of the proposed Amended Declaration of Trust provides that the
number of Trust Managers shall be fixed by the Board as provided
in the Bylaws of the Trust. Proposed Article Eighteen also
states, in conformity with the Texas REIT Act, that each Trust
Manager serves until his or her successor is elected and
qualified or until his or her death, retirement, resignation or
removal. If a Trust Manager is serving to fill a position on the
Board created by an increase in the authorized number of Trust
Managers or if a Trust Manager is serving at a time when the
authorized number of Trust Managers is decreased, then he or she
will continue to serve until his or her death, retirement,
resignation or removal. The substantive provisions of proposed
Article Eighteen are compelled by the Texas REIT Act and the
provision allowing the Board to fix the number of Trust Managers
is identical to the comparable Bylaw provision that is presently
operative and which was adopted in accordance with the Texas REIT
Act.
Removal of Trust Managers and
Vacancies on the Board of Trust Managers. Consistent with the
Texas REIT Act, Article Eighteen of the proposed Amended
Declaration of Trust also provides that any Trust Manager may be
removed from office at any time, but only by the affirmative vote
of the holders of two-thirds of the then-outstanding shares
entitled to vote generally in the election of Trust Managers,
voting together as a single class. Under the Trust's Bylaws,
vacancies resulting from death, resignation, retirement, or
removal may be filled by the affirmative vote of a majority of
the Trust Managers or by the affirmative vote of the holders of
at least a majority of the outstanding Common Shares at an annual
or special meeting. The Bylaws also provide that Trust Managers
selected by the Board to fill vacancies serve until the next
annual meeting of shareholders and until their successors are
elected and qualified. The general effect of the proposed
provision is to allow for the removal of Trust Managers by
shareholders of the Trust, as well as to enumerate the provisions
governing the period during which Trust Managers are deemed to
serve under the Texas REIT Act.
Rescission of Specified
Independent Trust Manager Duties. Consistent with the
elimination of the requirement for Independent Trust Managers, as
discussed above, the proposed Amended Declaration of Trust
eliminates the enumeration of specific duties to Independent
Trust Managers. As a matter of law, all of the Trust Managers,
not only Independent Trust Managers, are accountable to the Trust
as fiduciaries and must exercise good faith and integrity in
handling its affairs. The duties enumerated in the Current
Declaration of Trust include duties to annually review the
Trust's investment policies to ensure they are followed in the
best interests of the shareholders, to ensure that an annual
report is prepared, to oversee the termination and compensation
of advisors and property managers, to approve aggregate
borrowings of the Trust to exceed an amount equal to 300% of the
Trust's net assets, and determinations as whether independent
appraisers should be utilized when acquiring a property and
whether investments in junior mortgage loans are sufficiently
secured. As with the Independent Trust Manager provision
discussed above, these provisions were originally adopted so as
to ensure that certain decisions of the Trust were made by a
governing body that was independent of the organizer of the
Trust. Because the Trust is no longer affiliated with its
organizer and all of the Trust Managers owe fiduciary obligations
with respect to all of the decisions they make and actions they
take, the enumeration of specific duties of Independent Trust
Mangers is unnecessarily limited. As a result, the Trust
Managers recommend that such provisions be eliminated.
Excess Securities Provision.
For the Trust to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), among other things, not
more than 50% in value of its outstanding shares may be owned,
directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entities) during the last half of
a taxable year, and such shares must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12
months, or during a proportionate part of a shorter taxable year.
Because the Board believes it
is essential for the Trust to continue to qualify as a REIT, the
Amended Declaration of Trust, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 9.8% (the
"Percentage Limit") of the aggregate value of any class of shares
or 9.8% of the total number of outstanding shares of any class of
shares. Any transfer of shares or change in capital structure
(such as a redemption of shares by the Trust) that would
(i) create a direct or indirect ownership of shares in excess of
the Percentage Limit, (ii) result in the shares being owned by
fewer than 100 persons, (iii) result in the Trust being "closely
held" within the meaning of Section 856(h) of the Code, (iv)
result in the Trust constructively owning 10% or more of the
ownership interests in any tenant or subtenant of the Trust's
real property within the meaning of the relevant provisions of
the Code, or (v) result in the disqualification of the Trust as a
REIT, shall be null and void, and the intended transferee will
acquire no rights to such shares. The Percentage Limit does not
apply to: (i) acquisitions of Securities (defined to include all
shares and any Trust securities that are convertible into shares)
by a person who has made a tender offer for all outstanding
Securities in conformity with federal securities laws; (ii)
acquisitions of Securities by an underwriter in connection with
the distribution of such Securities; (iii) acquisitions of
Securities pursuant to the exercise of employee share options; or
(iv) acquisitions of Securities made pursuant to an exception
granted by the Board.
The proposed Amended
Declaration of Trust provides that shares owned, or deemed to be
owned, or transferred to a shareholder in excess of the
Percentage Limit will automatically be deemed to be "Excess
Securities" and as such will be transferred, by operation of law,
to the Trust as trustee of a trust for the exclusive benefit of
the transferee(s) to whom such shares may be ultimately
transferred without violating the Percentage Limit. While the
Excess Securities are held in trust, the holder will not be
entitled to vote such Excess Securities, nor will such Excess
Securities be considered for purposes of any shareholder vote or
the determination of a quorum for such vote, and no dividends or
other distributions will be paid to the holder. Any dividend or
distribution paid to a proposed transferee of Excess Securities
prior to the discovery by the Trust that shares have been
transferred in violation of the provisions of the Trust's Amended
Declaration of Trust must be repaid to the Trust upon demand.
The Excess Securities are not treasury shares. The original
transferee-shareholder may, at any time the Excess Securities are
held by the Trust in trust, transfer the interest in the trust
representing the Excess Securities to any individual whose
ownership of the shares that have been deemed to be Excess
Securities would be permitted under the Percentage Limit, at a
price not in excess of the price paid by the original transferee-
shareholder for the shares that were exchanged into Excess
Securities. Immediately upon the transfer to the permitted
transferee, the transferee will automatically be entitled to
exercise all of the rights of shares of the class underlying such
Excess Securities. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the intended transferee-
shareholder of any Excess Securities may be deemed, at the option
of the Trust, to have acted as an agent on behalf of the Trust in
acquiring the Excess Securities and to hold the Excess Securities
on behalf of the Trust.
In addition to the foregoing
transfer restrictions, the Trust will have the right, for a
period of 90 days during the time any Excess Securities are held
by the Trust in trust, to purchase all or any portion of the
Excess Securities from the original transferee-shareholder at the
lesser of the price paid for the shares by the original
transferee-shareholder and the market price (as determined in the
manner set forth in the Amended Declaration of Trust) of the
shares on the date the Trust exercises its option to purchase.
The 90-day period begins on the later of the date of the
violative transfer or the date the Board determines that a
violative transfer has been made.
Each shareholder shall upon
demand be required to disclose to the Trust in writing any
information with respect to the direct, indirect, and
constructive ownership of beneficial interests as the Board deems
necessary to comply with the provisions of the Code applicable to
REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The Percentage Limit may have
the effect of precluding acquisition of control of the Trust
unless the Board and the shareholders determine that maintenance
of REIT status is no longer in the best interests of the Trust.
The Trust has historically
operated as a REIT and maintained its qualification as a REIT
under the Code. Although management of the Trust believes that
the Trust will continue to be organized and will operate in such
a manner, no assurance can be given that the Trust will remain
qualified as a REIT. Qualification as a REIT involves the
application of highly technical and complex Code provisions for
which there are only limited judicial or administrative
interpretations. The determination of various factual matters
and circumstances not entirely within the Trust's control may
affect the Trust's ability to qualify as a REIT. If in any
taxable year the Trust were to fail to qualify as a REIT, it
would be taxed as a corporation and distributions to shareholders
would not be deductible by the Trust in computing its taxable
income. Failure to qualify for even one taxable year will
disqualify it from taxation as a REIT for the next four taxable
years. In addition, dividends would no longer be required to be
paid. As a result, the funds available for distribution to the
Trust's shareholders would be reduced for each of the years
involved. The Excess Securities provision of proposed Article
Nineteen of the Amended Declaration of Trust are designed to
avoid the adverse consequences of a failure to qualify as a REIT
under the Code.
USAA REALCO presently
beneficially owns 31.822% of the Trust's outstanding Common
Shares. Prior to USAA REALCO acquiring its Common Shares,
counsel to the Trust advised the Board that USAA REALCO would not
be treated as an individual holder under the relevant attribution
rules of the Code and, as a result, USAA REALCO's ownership of
Common Shares would not threaten the Trust's qualification as a
REIT under the Code. Accordingly, the Board voted to waive
provisions in the currently operative Bylaws that are equivalent
to the proposed Excess Securities provisions as they relate to
USAA REALCO. For the same reasons, the proposed Excess
Securities provisions will be waived as to USAA REALCO if the
Recapitalization Plan is approved by the shareholders of the
Trust.
Protection of REIT Status.
Article Twenty of the proposed Amended Declaration of Trust
provides that the Board is to use its best efforts and take such
actions as it may deem desirable to preserve the Trust's status
as a REIT under the Code. While proposed Article Nineteen of the
Amended Declaration of Trust is believed to adequately protect
the Trust's status as a REIT under the Code, in the event that
such provisions prove insufficient, proposed Article Twenty
affords the Board the discretion that may be necessary to ensure
that the Trust and its shareholders continue to receive the
federal income tax benefits that arise from the Trust's continued
qualification as a REIT under the Code.
Special Shareholder Meetings.
Article Twenty-One of the proposed Amended Declaration of Trust
allows for the holders of 5% of the Trust's voting shares to call
a special meeting. The provisions of proposed Article Twenty-Two
were specifically adopted in light of the Trust's Excess
Securities provisions, as discussed above and set forth in
proposed Article Nineteen of the Amended Declaration of Trust,
which generally limit the ownership of Trust shares by persons to
9.8% of the Trust's outstanding shares. The Texas REIT Act
provides that holders of 10% of the shares entitled to vote may
call a special meeting of a REIT formed under the Texas REIT Act
unless the declaration of trust for such REIT provides for a
number of shares greater than or less than 10% of the shares
entitled to vote. Without the adoption of proposed Article
Twenty-Two, the Texas REIT Act might prevent special meetings
from ever being called by shareholders of the Trust in light of
the Excess Securities provision, which itself is necessary to
protect the Trust's continued qualification as a REIT.
Amendments to the Amended
Declaration of Trust. Article Twenty-Two of the proposed Amended
Declaration of Trust provides, in accordance with the Texas REIT
Act, that the affirmative vote of the holders of at least two-
thirds of the Trust's outstanding voting shares is required in
order to amend the Amended Declaration of Trust; provided,
however, that any amendment to the provisions in the Amended
Declaration of Trust relating to (i) the prohibition against
engaging in non-real estate investment trust businesses, (ii) the
restrictions on certain Business Combinations discussed above,
(iii) restrictions on certain share ownership and transfers and
(iv) the amendment of the provisions in the Amended Declaration
of Trust regarding amendments thereto shall each require the
affirmative vote of the holders of at least 80% of the
outstanding voting shares. The provisions of proposed Article
Twenty-Three ensure that the various provisions of the Amended
Declaration of Trust that require a vote in excess of a simple
majority of shares entitled to vote and represented at a
shareholder meeting are not amended except by a vote at least
equal to the voting requirement of such provisions.
Severability. Article Twenty-Three of the proposed
Amended Declaration of Trust was adopted to allow for the
severance of any provisions or application of such provisions of
the Amended Declaration of Trust that are deemed to be invalid by
any federal or state court having jurisdiction over such issues.
As a result, the remaining provisions or application of such
provisions of the Amended Declaration of Trust would continue in
effect even in the event that other provisions or the application
of such other provisions may be deemed to be invalid.
EMPLOYEE AND TRUST MANAGER INCENTIVE SHARE PLAN
In connection with the Recapitalization Plan, the Trust
also seeks to adopt an Employee and Trust Manager Incentive Share
Plan (the "Plan") to assist the Trust in recruiting, retaining
and rewarding employees, officers and Trust Managers ("Eligible
Participants") with ability and initiative by enabling such
Eligible Participants to participate in its future success and to
associate their interests with those of the Trust and its
shareholders. The summary of the Plan set forth below is
qualified in its entirety by reference to the text of the Plan, a
copy of which is attached hereto as Exhibit B.
The Board unanimously approved and adopted the Plan as
of January 27, 1997, subject to approval by the Trust's
shareholders. A total of 800,000 Common Shares have been
reserved for issuance under the Plan pursuant to the exercise of
incentive and non-qualified share options (collectively,
"Options") and the grant of restricted share awards.
Administration and Eligibility. The Plan will be
administered by a committee of Trust Managers who are not
employees of the Trust ("Non-Employee Trust Managers") appointed
by the Board (the "Committee"). The Committee will have complete
authority to interpret all provisions of the Plan, to prescribe
the form of agreements, to adopt, amend and rescind rules and
regulations pertaining to the administration of the Plan, and to
make all other determinations necessary or advisable for the
administration of the Plan. The Plan may be amended or
terminated by the Board, provided, however, that the Board may
choose to require that the Trust's shareholders approve any
amendment to this Plan in order to satisfy the requirements of
Section 422 of the Code, provisions and rules under the Exchange
Act or for any other reason. No amendment to the Plan may,
without a participant's consent, adversely affect any rights of
such participant under any outstanding award of Common Shares of
the Trust subject to forfeiture and limitations on
transferability ("Restricted Shares") or under any Option, Share
Appreciation Right ("SAR") or dividend equivalent rights
("Dividend Equivalent Rights") outstanding at the time such
amendment is made.
Under the terms of the Plan, any person who is a full-
time employee or a Trust Manager of the Trust or of an Affiliate
(as defined in the Plan) of the Trust or a person designated by
the Committee as eligible because such person performs bona fide
consulting or advisory services for the Trust or an Affiliate of
the Trust (other than services in connection with the offer or
sale of securities in a capital-raising transaction) and has a
direct and significant effect on the financial development of the
Trust or an Affiliate of the Trust, shall be eligible to receive
awards under the Plan. As of February 3, 1997, approximately 10
persons were eligible to receive benefits under the Plan.
Options. The exercise price of Common Shares covered
by Options granted under the Plan will be determined by the
Committee, but Options must have an exercise price equal to not
less than 100% of the fair market value of a Common Share on the
date of the grant. In some instances, the exercise price for
Options granted to persons who directly or indirectly own 10% or
more of the outstanding shares of the Trust may be required to be
110% of the fair market value of a Common Share on the date of
the grant. Options will not be transferable without the consent
of the Committee or other than by will or the laws of descent and
distribution or pursuant to qualified domestic relations orders,
and are exercisable only by the optionee, Committee-approved
assignees, or his or her guardian, legal representative or
similar party, or executors, administrators or beneficiaries of
the optionee.
The Committee selects the employees (and any
consultants or advisors) to whom options will be granted, the
number of shares subject to each option and the other terms and
conditions of options, but in all cases consistent with the Plan.
Each option is evidenced by an option agreement. The option
agreement specifies whether the option is intended to be an
Incentive Share Option (as defined in the Plan) or Non-Qualified
Share Option (as defined in the Plan). The Committee may provide
that options will be exercisable from time to time, in
installments or otherwise, of and for such periods (up to ten
years from the date of the grant) as the Committee may determine
in its discretion. The exercise price of options will be payable
in cash or, if the Committee permits, by issuance of a full
recourse promissory note by the optionee (other than officers and
Trust Managers) or the surrender of Common Shares owned by the
optionee.
Share Appreciation Rights. The Committee may also
grant awards of SARs to employees, consultants and advisors. A
SAR entitles the holder to receive from the Trust, in cash or (if
the Committee so permits) Common Shares, at the time of exercise,
the excess of the fair market value at the date of exercise of a
Common Share over a specified price fixed by the Committee in the
award, multiplied by the number of Common Shares as to which
holder of the right is exercising the right.
Restricted Shares. The Committee may also grant awards
of Restricted Shares to employees, consultants and advisors.
Each award of Restricted Shares will specify the number of Common
Shares to be issued to the recipient, the date of issuance, any
consideration for such Common Shares and the restrictions imposed
on the Common Shares (including the conditions of release or
lapse of such restrictions). Restricted Shares generally may not
be sold, assigned, transferred or pledged until the restrictions
have lapsed and the rights to the Common Shares have vested.
Awards to Non-Employee Trust Managers. Upon approval
of the Plan by the shareholders, the Trust will begin
automatically granting to each Non-Employee Trust Manager on an
annual basis a Non-Qualified Share Option to purchase 5,000
Common Shares. The exercise price of these options is the fair
market value of the Common Shares covered by the options on the
date of the grant. Each of these Non-Employee Trust Manager
options is fully exercisable beginning six months after the date
of the grant and generally terminates (unless sooner terminated
under the terms of the Plan) ten years after the date of the
grant. If a Non-Employee Trust Manager ceases to be a member of
the Board for any reason other than death or disability, these
options will terminate on the first anniversary of the date the
Non-Employee Trust Manager ceases to be a member of the Board.
If a Non-Employee Trust Manager dies or becomes disabled while a
member of the Board, these options will terminate on the second
anniversary of the date the Non-Employee Trust Manager dies or
becomes disabled.
The Trust also pays each Non-Employee Trust Manager an
annual retainer, which is set by the Board from time to time,
which retainer the Plan allows to be paid in Common Shares in
lieu of cash. The Non-Employee Trust Manager's annual retainer
for 1995 was $20,000 plus $1,000 for each Trust Manager or
committee meeting attended. In 1996, the Non-Employee Trust
Manager's annual retainer was increased to $40,000 plus $1,000
for each Trust Manager or committee meeting attended. See
"EXECUTIVE AND TRUST MANAGER COMPENSATION."
Dividend Equivalent Rights. The Committee may grant
Dividend Equivalent Rights under the Plan. Each right may, but
need not, be related to a specific option granted under the Plan
and may be granted simultaneously with or subsequent to the grant
of the option. A right will entitle the recipient to receive a
cash payment from the Trust equal to the dividend declared and
paid on a Common Share for a period to be determined by the
Committee at the time of grant. The payment may, if the
Committee so provides, be made in Common Shares in lieu of cash.
If the right relates to an option, the payment period shall not
extend beyond the date of exercise of the option.
With respect to Dividend Equivalent Rights which do not
relate to a specific option, there are not limits on the number
of such rights which may be granted under the Plan or on the
total amount of cash payments which may be made with respect to
such rights. The cash payment may be made as dividends on Common
Shares are paid or delayed until the occurrence of a date or
event specified by the Committee.
Terms and Conditions to Which All Awards Are Subject.
If there is a share dividend, share split, reverse share split or
reclassification of Common Shares or outstanding Common Shares
are converted into or exchanged for other securities as a result
of a merger, consolidation or sale of substantially all of the
Trust's assets, appropriate adjustments will be made in: (i) the
number and class of Common Shares subject to the Plan, each
outstanding award and the entitlements of Non-Employee Trust
Managers; and (ii) the exercise price of each outstanding award.
Each such adjustment will be determined by the Committee in its
sole discretion. Further, new awards may be substituted for
awards previously granted, or the Trust's obligations respecting
outstanding awards may be assumed by an employer entity other
than the Trust. In connection with any merger, consolidation or
sale of substantial assets in which the Trust is involved (other
than a merger, consolidation or sale in which the Trust is the
continuing entity and which does not result in any
reclassification of the Trust's shares), the Committee may decide
to pay cash to plan participants other than Non-Employee Trust
Managers and other persons then subject to Section 16(b) who hold
awards that have not been outstanding for at least six months.
If a participant's employment with the Trust is
terminated, generally the participant will forfeit any award that
has not vested on or before the date of termination. The
Committee will establish the effect of employment termination on
vested awards when awards are granted.
Federal Income Tax Consequences of the Plan. The grant
of an option will not be a taxable event for the optionee or the
Trust. An optionee will not recognize taxable income upon
exercise of an ISO, and any gain realized upon a disposition of
shares received pursuant to the exercise of an ISO will be taxed
as long-term capital gain if the optionee holds the shares for at
least two years after the date of the grant and for one year
after the date of exercise. However, the excess of the fair
market value of shares subject to an ISO on the exercise date
over the option exercise price will be included in the optionee's
alternative minimum taxable income in the year of exercise
(except that, if the optionee is subject to certain securities
law restrictions, determination of the amount included in
alternative minimum taxable income will be deferred, unless the
optionee elects within 30 days following exercise to have income
determined without regard to such restrictions) for purposes of
the alternative minimum tax. An optionee may be entitled to a
credit against regular tax liability in future years for
alternative minimum taxes paid with respect to the exercise of
ISOs. The Trust will not be entitled to any business expense
deduction with respect to the exercise of an ISO, except as
discussed below.
For the exercise of an option to qualify for the
foregoing tax treatment, the optionee generally must be an
employee of the Trust or a subsidiary of the Trust from the date
the option is granted through the date that is three months prior
to the date of exercise of the option. In the case of an
optionee who is disabled, the three-month period for exercise
following termination of employment is extended to one year. In
the case of an employee who dies, both the time for exercising
ISOs after termination of employment and the holding period for
shares received pursuant to the exercise of the option are
waived.
If the special holding period rules mentioned above are
not met, the optionee will recognize ordinary income upon the
disposition of the shares in an amount generally equal to the
excess of the fair market value of the shares at the time the
option was exercised over the option exercise price (but not in
excess of the gain realized on the sale). The Trust will be
allowed a business expense deduction to the extent the optionee
recognizes ordinary income.
If an optionee exercises an ISO by tendering Common
Shares with a fair market value equal to part or all of the
option exercise price, the exchange of shares will be treated as
a nontaxable exchange (except that this treatment would not apply
if the optionee had acquired the shares being transferred
pursuant to the exercise of an ISO and had not satisfied the
special holding period requirements summarized above). If the
exercise is treated as a tax-free exchange, the optionee would
have no taxable income from the exchange and exercise (other than
minimum taxable income as discussed above) and the tax basis for
the shares received shall be equal to the fair market value of
the Common Shares tendered by the optionee. If the optionee used
shares received pursuant to the exercise of an ISO (or another
statutory option) as to which the optionee had not satisfied the
applicable holding period requirement, the exchange would be
treated as a taxable disqualifying disposition of the exchanged
shares.
Upon exercising a nonstatutory option or SAR, a
Participant will recognize ordinary income in an amount equal to
the difference between the exercise price and the fair market
value of the shares or cash received on the date of exercise
(except that, if the Participant is subject to certain
restrictions imposed by the securities laws, the measurement date
will be deferred, unless the Participant makes a special tax
election within 30 days after exercise to have income determined
without regard to the restrictions). If the Trust complies with
applicable reporting requirements, it will be entitled to a
business expense deduction in the same amount and at the same
time as the Participant recognizes ordinary income. Upon a
subsequent sale or exchange of shares acquired pursuant to the
exercise of a nonstatutory option, the optionee will have taxable
gain or loss, measured by the difference between the amount
realized on the disposition and the tax basis of the shares
(generally, the amount paid for the shares plus the amount
treated as ordinary income at the time the option was exercised).
If the optionee surrenders shares of Common Shares in
payment of part or all of the exercise price for nonstatutory
options, no gain or loss will be recognized with respect to the
shares surrendered and the optionee will be treated as receiving
an equivalent number of shares pursuant to the exercise of the
option in a nontaxable exchange. The basis of the shares
surrendered will be treated as the substituted tax basis for an
equivalent number of option shares received and such shares will
be treated as having been held for the same holding period as had
expired with respect to the transferred shares. The difference
between the aggregate option exercise price and the aggregate
fair market value of the shares received pursuant to the exercise
of the option will be taxed as ordinary income. The optionee's
basis in the additional shares will be equal to the amount
included in the optionee's income and the optionee's holding
period will begin upon the optionee's acquisition of such Notes.
An award of Restricted Shares will create no immediate
tax consequences for the employee or the Trust, unless the
employee makes an election pursuant to Section 83(b) of the Code.
The employee will, however, realize ordinary income when
Restricted Shares become vested, in an amount equal to the fair
market value of the underlying shares of Common Shares on the
date of vesting less any consideration paid by the employee for
such shares. If the employee makes an election pursuant to
Section 83(b) of the Code with respect to a grant of Restricted
Shares, the employee will recognize income at the time the
Restricted Shares are awarded (based upon the value of such
shares at the time of award), rather than when the Restricted
Shares, becomes vested. The Trust will be allowed a business
expense deduction for the amount of any taxable income recognized
by the employee at the time such income is recognized (assuming
the Trust complies with applicable reporting requirements).
The employee will recognize taxable income for the
amount of cash received under a Dividend Equivalent Right for the
year such amounts are paid. The Trust is permitted a
compensation deduction equal to such amount.
The foregoing provides only a general description of
the federal income tax consequences of transactions contemplated
by the Plan. Participants should consult a tax advisor as to
their individual circumstances.
TRANSACTION WITH USAA REALCO TO CONVERT MLI NOTES TO COMMON
SHARES
Background. On May 22, 1996, the Trust and certain of
its affiliates entered into a settlement agreement (the
"Settlement Agreement") to repay the Trust's 8.8% unsecured notes
(the "MLI Notes") to The Manufacturers Life Insurance Company and
The Manufacturers Life Insurance Company (U.S.A.) (collectively
referred to as "MLI") at a substantial discount in connection
with the settlement of the Trust's litigation with MLI and
Fidelity Management and Research Company and certain of its
affiliates.
Pursuant to the Settlement Agreement, the Trust was
granted the option to repay the approximately $45,239,000
principal amount of the MLI Notes for $36,800,000 (the "Option
Price"). In order to achieve this discount, the Trust was
required to pay at least $25,000,000 to MLI by November 23, 1996,
such amount to be applied pro rata to the outstanding principal
balance of the MLI Notes and dollar-for-dollar to the Option
Price. This amount was funded on November 19, 1996 through a
$26,452,500 loan from AEGON USA Realty Advisors, Inc. which was
secured by first liens on nine of the Trust's properties and the
proceeds from the sale of one of the Trust's properties. In
order to achieve the remaining discount, the Trust is required to
pay $5,449,618 (the remaining amount of the Option Price) by
March 31, 1997 (or June 30, 1997, subject to the payment of an
additional principal payment in the amount of $150,000, which
will be applied pro rata to the outstanding principal balance of
the MLI Notes, but not the Option Price).
The MLI Notes remain fully matured, due and payable,
subject to a moratorium on any collection efforts by MLI through
March 31, 1997, with possible extension through June 30, 1997 as
described above, as long as the Trust remains current in its
obligations under the Settlement Agreement. If the Trust is
unable to pay the remaining Option Price, it will be required to
pay the outstanding principal balance of the MLI Notes (currently
$9,419,213) plus the 8.8% interest thereon, net of any interest
payments paid on the Option Price as described above.
Unless USAA Real Estate Company ("USAA REALCO")
consummates the purchase of the MLI Notes as described below, the
Trust will be forced to liquidate certain of its properties to
obtain the funds necessary to satisfy the remaining Option Price.
There is no assurance that such properties can be liquidated at
the necessary prices to allow the Trust to achieve the remaining
discount or that such sales would occur prior to March 31, 1997,
or, if extended, June 30, 1997, resulting in a gain to the Trust
of approximately $2,378,000..
Description of the USAA Transaction. On December 18,
1996, the Trust executed a letter agreement with USAA REALCO (the
"Letter Agreement") wherein USAA REALCO agreed that it or one of
its affiliates will commence negotiations to purchase or repay
the MLI Notes. In the event USAA REALCO acquires the MLI Notes,
the MLI Notes will be modified to incorporate various amendments
described below (the "Modified Notes"). The aggregate principal
balance of the MLI Notes will be amended so that the resulting
aggregate principal balance of the Modified Notes will be
$7,040,721.
If the Recapitalization Plan is approved by the
shareholders by June 30, 1997, the Modified Notes will continue
to accrue interest at a non-default rate of 8.8% per annum, with
accrued interest payable monthly in arrears. If the
Recapitalization Plan is not approved by the shareholders by June
30, 1997, the interest rate applicable to the Modified Notes will
increase to 18% (but in no event to exceed the highest lawful
rate), and the Trust will be required to pay the outstanding
principal balance of the Modified Notes, plus accrued and unpaid
interest on October 31, 1997. The Modified Notes will not
contain the discounted prepayments contemplated by the Settlement
Agreement and, except for a payment of $1,591,000 to be made by
the Trust at the time USAA REALCO acquires the MLI Notes, the
Modified Notes are not prepayable. The maturity of the Modified
Notes is December 31, 2000.
If the shareholders approve the Recapitalization Plan,
the Modified Notes will be convertible (in whole or in part) at
USAA REALCO's option, at any time, into a number of Common Shares
determined as follows:
P / C = S
For this purpose: (i) "P" equals the aggregate
principal balance of the Modified Notes at the date of
conversion; and (ii) "S" equals such number of converted Common
Shares. If the conversion of the Modified Notes occurs on or
before December 31, 1997, the conversion price "C" per share will
be $2.00. If the conversion of the Modified Notes occurs after
December 31, 1997 but on or before December 31, 2000, the
conversion price "C" per share will be $2.25.
Assuming that USAA REALCO acquires the MLI Notes and
the Trust makes the $1,591,000 principal payment thereon, the
principal balance on the Modified Notes will be approximately
$5,450,000. If the shareholders approve the Recapitalization
Plan, and USAA REALCO converts the Modified Notes into Common
Shares prior to December 31, 1997 (assuming a principal balance
of $5,450,000). USAA REALCO will receive 2,725,000 Common Shares
upon conversion, or approximately 21.41% of the outstanding
Common Shares (assuming no other issuances of Common Shares).
Upon such an occurrence, USAA REALCO will own approximately
46.42% of the outstanding Common Shares.
Upon conversion of the Modified Notes into Common
Shares, the Trust shall be required to enter into a registration
rights agreement with USAA REALCO granting USAA REALCO the right
to demand that the Trust register the converted Common Shares or
if the Trust is registering Common Shares for its own account,
that the Trust also register the converted Common Shares.
Reasons for the USAA REALCO Transaction. The Trust
Managers concluded the transaction described above with USAA
REALCO was in the best interests of the Trust and its
shareholders for the following reasons:
(i) USAA REALCO's purchase of the MLI Notes would
remove the risk of the Trust's inability to pay the remaining
Option Price, the failure of which would result in a default
under the Settlement Agreement requiring the Trust to pay the
outstanding principal balance of the MLI Notes (currently
$9,419,213) plus the 8.8% interest thereon, net of any interest
payments paid on the Option Price as described above;
(ii) USAA REALCO's purchase of the MLI Notes would
remove the necessity for the Trust to liquidate certain of its
properties to pay the remaining Option Price at a time or at
prices which would not be in the best interests of the Trust and
its shareholders;
(iii) USAA REALCO's purchase of the MLI Notes would
eliminate the necessity for the Trust to pay an additional
extension fee of $150,000 to extend the time period to pay the
remaining Option Price from March 31, 1997 until June 30, 1997;
(iv) USAA REALCO's purchase of the MLI Notes would
allow the Trust to recognize an extraordinary gain of
approximately $2,378,000 or $0.24 per share; and
(v) USAA REALCO's purchase of the MLI Notes would
allow for the possibility of the conversion of the Modified Notes
to Common Shares (in the event the Recapitalization Plan is
approved by the shareholders), thus enhancing the Trust's
financial structure and affording the Trust additional
flexibility to (a) finance additional growth by taking advantage
of the lower prevailing interest rates in today's financial
markets or by raising additional equity in the capital markets
due to the Trust's improved capital structure and (b) exchange
the payment of interest by the Trust to a secured creditor for
the possible payment of dividends on the Common Shares issued
upon conversion of the Modified Notes.
VOTING PROCEDURES
The affirmative vote of the holders of at least two-
thirds (6,666,667) of the Trust outstanding Common Shares is
required to approve the Recapitalization Plan. For these
purposes, an abstention or broker non-vote will have the effect
of a vote against the proposal. The Trust Managers and officers
of the Trust intend to vote their Common Shares in favor of the
proposal. USAA REALCO has also indicated that it intends to vote
its Common Shares in favor of the proposal.
RECOMMENDATION OF THE TRUST MANAGERS
THE TRUST MANAGERS RECOMMEND THAT THE SHAREHOLDERS VOTE
FOR THE PROPOSAL.
PROPOSAL TWO
RATIFICATION OF INDEPENDENT AUDITORS
The shareholders are asked to ratify the appointment by
the Trust Managers of Ernst & Young LLP as the Trust's
independent auditors for the 1996 Fiscal Year. The selection was
based upon the recommendation of the Audit Committee.
Effective May 24, 1994, the Trust dismissed its prior
independent auditors, Kenneth Leventhal & Company and retained as
its new independent auditors, Ernst & Young LLP. Kenneth
Leventhal & Company's Independent Auditors' Report on the Trust's
financial statements for fiscal year ended December 31, 1993
("1993 Fiscal Year") did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or accounting principles. The decision
to change independent auditors was recommended by the Audit
Committee of the Trust Managers and approved by the Trust
Managers on May 24, 1994. During the 1993 Fiscal Year and
through May 24, 1994, there were no disagreements between the
Trust and Kenneth Leventhal & Company on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Kenneth Leventhal & Company, would have
caused it to make reference to the subject matter of the
disagreements in connection with the report. In May 1995,
Kenneth Leventhal & Company merged with Ernst & Young LLP.
During the 1993 Fiscal Year and through May 24, 1994,
the Trust did not consult Ernst & Young LLP regarding the
application of accounting principles to a specified transaction
or any audit opinion.
Representatives of Ernst & Young LLP will be present at
the Annual Meeting to respond to appropriate questions from
shareholders and to make a statement if they desire.
VOTING PROCEDURES
Adoption of this proposal requires approval by the
holders of a majority of the Common Shares present in person or
represented by proxy, and entitled to vote at the Annual Meeting.
RECOMMENDATION OF THE TRUST MANAGERS
THE TRUST MANAGERS RECOMMEND THAT THE SHAREHOLDERS VOTE
FOR THE PROPOSAL.
PROPOSAL THREE
ELECTION OF TRUST MANAGERS
The shareholders will be asked
to elect five Trust Managers at the Annual Meeting. Each
shareholder is entitled to cast one vote for each share held on
the record date. Each nominee is presently a Trust Manager and
was appointed from time to time as indicated below.
The Trust increased the number
of Trust Managers on the Board of Trust Managers to five, with
the additional two Trust Managers being Independent Trust
Managers, as defined in the Current Declaration of Trust. The
Trust Managers unanimously voted to appoint Edward B. Kelley and
T. Patrick Duncan to fill the vacancies created by the increase
in the number of Trust Managers pursuant to the terms of a Share
Purchase Agreement dated December 13, 1996 (the "Share Purchase
Agreement"), by and between the Trust and USAA REALCO.
The following information as
of February 3, 1997, is submitted concerning the following
nominees named for election as Trust Managers to fill the
presently existing three Trust Manager positions:
<TABLE>
<S> <C> <C>
Name Age Trust Manager Since
William H. Bricker 65 September 1985
T. Patrick Duncan 48 December 1996
Robert E. Giles 49 March 1996
Edward B. Kelley 54 December 1996
Charles W. Wolcott 44 August 1993
</TABLE>
The following information with respect to the principal
occupation or employment, other affiliations and business
experience of each nominee during the last five years has been
furnished to the Trust by each such nominee:
William H. Bricker has served as a Trust Manager of the
Trust since its inception in September 1985. Mr. Bricker has
served as President of D.S. Energy Services Incorporated and has
consulted in the energy field and on international trade since
1987. In May 1987, Mr. Bricker retired as the Chairman and Chief
Executive Officer of Diamond Shamrock Corporation where he held
various management positions from 1969 through May 1987.
Mr. Bricker is a director of the LTV Corporation. He received
his Bachelor of Science and Master of Science degrees from
Michigan State University.
T. Patrick Duncan has served as a Trust Manager since
December 1996, when he was appointed as an independent Trust
Manager at the request of USAA REALCO pursuant to the Share
Purchase Agreement. Mr. Duncan joined USAA REALCO in November
1986 as Chief Financial Officer. With over 24 years of
experience, Mr. Duncan serves as Senior Vice President of Real
Estate Operations with responsibilities which include the
direction of all acquisitions, sales, management and leasing of
real estate for USAA-affiliated companies. Mr. Duncan received
degrees from the University of Arizona in Accounting and Finance.
He is a Certified Public Accountant, Certified Commodities
Investment Manager, and holds a Texas Real Estate Broker's
License. He currently holds memberships in the Texas and Arizona
State Boards of Accounting, the Texas and Arizona State Societies
of Certified Public Accountants, the International Council of
Shopping Centers, the Urban Land Institute, the National
Association of Real Estate Investment Trusts and the Pension Real
Estate Association, and he is currently Vice-Chairman of the
Board of the Daughters of Charity, and a member of the Board of
Directors for the North San Antonio Chamber of Commerce. Mr.
Duncan is also a member of the Board of Directors of Meridian
Industrial Trust ("Meridian"), a San Francisco-based real estate
investment trust.
Robert E. Giles has served as a Trust Manager since
March 1996, when he was appointed as an independent Trust
Manager. Mr. Giles has over thirteen years of experience in the
acquisition, disposition and development of real estate assets.
Mr. Giles is the president of Robert E. Giles Interests, Inc., an
international real estate consulting and development firm based
in Houston, Texas. Prior to establishing his own company, Mr.
Giles served as President and Director of National Loan Bank from
1990 to 1994, and was most recently engaged in a joint venture
with Goldman, Sachs & Co. managing the marketing of approximately
$2.3 billion of real estate assets in 43 states. Mr. Giles
received his Bachelor of Arts degree from University of Texas -
Austin in 1970 and received a Master of Arts degree from
University of Texas - Arlington in 1973.
Edward B. Kelley has served as a Trust Manager since
December 1996, when he was appointed as an independent Trust
Manager at the request of USAA REALCO pursuant to the terms of
the Share Purchase Agreement. Mr. Kelley is President of USAA
REALCO. He joined USAA REALCO in April 1989 as executive vice
president and chief operating officer before assuming his new
title in August 1989. Mr. Kelley received his Bachelor of
Business Administration degree from St. Mary's University in 1964
and a Masters in Business Administration from Southern Methodist
University in 1967, and is a Member of the Appraisal Institute
(MAI). He is past Chairman of the North San Antonio Chamber of
Commerce and past board member of the Baptist Memorial Hospital
System, La Quinta Motor Inns, and the National Association of
Industrial and Office Parks. Mr. Kelley is also a member of the
board of directors and executive committee of the Alamo Area
Council of Boy Scouts of America and a member of the Board of
Trustees of St. Mary's University, where he has served as past
Chairman of the Board. Mr. Kelley is also a member of the Board
of Trustees of the Baptist Children's Home in San Antonio and he
is a member of the Rotary Club of Downtown San Antonio and the
Wednesday Civil Breakfast Club of San Antonio. He was the 1992
chairman of the Greater San Antonio Chamber of Commerce and is on
the board of directors of the San Antonio Economic Development
Foundation.
Charles W. Wolcott has served as a Trust Manager since
August 1993 and as President and Chief Executive Officer of the
Trust since May 1993. For the six months immediately prior to
his appointment as President of the Trust, Mr. Wolcott was
engaged in developing various personal business enterprises. Mr.
Wolcott was President and Chief Executive Officer of Trammell
Crow Asset Services, Inc., a real estate asset and portfolio
management affiliate of Trammell Crow Company, from 1990 to 1992.
He served as Vice President and Chief Financial and Operating
Officer of the Trust from 1988 to 1990. From 1988 to 1990, Mr.
Wolcott was a partner in Trammell Crow Ventures Operating
Partnership. Prior to joining the Trammell Crow Company in 1984,
Mr. Wolcott was President of Wolcott Corporation, a firm engaged
in the development and management of commercial real estate
properties. Mr. Wolcott graduated from the University of Texas
at Austin in 1975 with a Bachelor of Science degree and received
a Master of Business Administration degree from Harvard
University in 1977.
The Trust Managers have no reason to believe that any
of the nominees will not serve if elected, but if any of them
should become unavailable to serve as a Trust Manager, and if the
Trust Managers designate a substitute nominee, the persons named
in the accompanying Proxy will vote for the substitute nominee
designated by the Trust Managers, unless a contrary instruction
is given in the Proxy. The Trust Managers did not appoint a
nominating committee to nominate Trust Managers for election.
No family relationship exists among any of the Trust
Managers or executive officers of the Trust. The Share Purchase
Agreement is the only arrangement or understanding that exists
between any Trust Manager or executive officer or any other
person pursuant to which any Trust Manager or executive officer
was selected as a Trust Manager or executive officer of the
Trust.
Fourteen regularly scheduled or special Trust Manager
meetings were held during the fiscal year ended December 31, 1995
(the "1995 Fiscal Year"). Messrs. Bricker and Wolcott attended
100% of all 1995 Fiscal Year Trust Manager and Trust Manager
committee meetings.
VOTING PROCEDURES
If the shareholders approve the Recapitalization Plan,
the Trust intends to immediately file the Amended Declaration of
Trust and the Trust Managers will be elected pursuant to the
provisions of the Amended Declaration of Trust and the operative
Bylaws, in which case each of the Trust Managers would require
the affirmative vote of the holders of a majority of the
outstanding Common Shares (5,000,001 Common Shares) to be
elected.
If the shareholders fail to approve the
Recapitalization Plan, the Trust Managers will be elected
pursuant to the provisions of the Current Declaration of Trust
and the operative Bylaws. Article Twelve of the Current
Declaration of Trust denies cumulative voting, except that in any
election of Trust Managers on or after the date on which the
Trust becomes aware that a 30% Shareholder (as defined below) has
become a 30% Shareholder, there shall be cumulative voting for
the election of Trust Managers. For purposes of the Current
Declaration of Trust, "30% Shareholder" means any person who or
which is the beneficial owner, directly or indirectly, of 30% or
more of the outstanding Common Shares. USAA REALCO became a 30%
Shareholder on December 19, 1996. As a result, if the
shareholders fail to approve the Recapitalization Plan, there
will be cumulative voting to elect the Trust Managers. In such
event, every shareholder voting for the election of Trust
Managers may cumulate his, her or its votes and give any
candidate whose name has been placed in nomination prior to the
voting a number of votes equal to the number of Trust Managers to
be elected (five) multiplied by the number of his, her or its
Common Shares, or may distribute his, her or its votes among as
many candidates so nominated as he, she or its choose. The
nominees receiving the highest number of votes, up to the number
of Trust Managers to be elected, will be elected as Trust
Managers; provided, however, that such nominees must receive the
affirmative vote of the holders of a majority of the outstanding
Common Shares. Subject to the foregoing, unless a shareholder
indicates to the contrary, the proxy holders will vote his, her
or its Common Shares for the election as Trust Managers of the
nominees named above, all of whom are currently Trust Managers of
the Trust.
In the event there is cumulative voting in the election
of Trust Managers, Article Twelve of the Current Declaration of
Trust requires any shareholder who intends to cumulate his, her
or its votes pursuant to such provision to give written notice to
the Trust Managers of such intention on or before the day
preceding the election at which such shareholder intends to
cumulate his, her or its votes.
In any event, if the requisite vote is not obtained
with respect to the election of Messrs. Bricker and Wolcott, they
will nonetheless continue in their capacities as the existing
Trust Managers of the Trust. The Trust Managers will hold office
until their successors, if any, are duly elected and qualified at
the next annual meeting.
MANAGEMENT
Executive Officers
Set forth below is information
regarding the names and ages of the executive officers of the
Trust, all positions held with the Trust by each individual, and
a description of the business experience of each individual for
at least the past five years.
<TABLE>
<S> <C> <C>
Name Title
Age
Charles Wolcott 44 Trust Manager,
President and Chief
Executive Officer
Marc A. Simpson 42 Vice President and
Chief Financial Officer,
Secretary and Treasurer
David B. Warner 38 Vice President and
Chief Operating Officer
</TABLE>
Information regarding the business experience of Mr. Wolcott
is provided under "Proposal Three -- Election of Trust Managers."
Marc A. Simpson has served as Vice President and Chief
Financial Officer, Secretary and Treasurer of the Trust since
March 1994. From November 1989 through March 1994, Mr. Simpson
was a Manager in the Financial Advisory Services Group of Coopers
& Lybrand. Prior to that time, he served as Controller of
Pacific Realty Corp., a real estate development company. Mr.
Simpson graduated with a Bachelor of Business Administration from
Midwestern State University in 1978, and received a Masters of
Business Administration from Southern Methodist University in
1990.
David B. Warner has served as Vice President and Chief
Operating Officer of the Trust since May 1993. From 1989 through
the date he accepted a position with the Trust, Mr. Warner was
Director of the Equity Investment Group for the Prudential Realty
Group. From 1985 to 1989, he served in the Real Estate Banking
Group of NCNB Texas National Bank. Mr. Warner graduated from the
University of Texas at Austin in 1981 with a Bachelor of Business
Administration and received a Masters of Business Administration
from the same institution in 1984.
COMMITTEES OF THE TRUST MANAGERS
Audit Committee. The Audit Committee of the Trust
Managers met once during the 1995 Fiscal Year. The Audit
Committee reviews and approves the scope and results of any
outside audit of the Trust, and the fees therefor, and makes
recommendations to the Trust Managers or management concerning
auditing and accounting matters and the efficacy of the Trust's
internal control systems. The Audit Committee selects the
Trust's independent auditors. Mr. Bricker was the sole member of
the Audit Committee during the 1995 Fiscal Year. Current members
of the Audit Committee are Messrs. Bricker, Giles and Kelley.
Compensation Committee. The Compensation Committee met
three times during the 1995 Fiscal Year. The Compensation
Committee establishes guidelines for compensation and benefits of
the executive officers of the Trust based upon achievement of
objectives and other factors. The Compensation Committee is also
responsible for acting upon all matters concerning, and
exercising such authority as is delegated to it under the
provisions of, any benefit, retirement or pension plan. Mr.
Bricker was the sole member of the Compensation Committee during
the 1995 Fiscal Year. Current members of the Compensation
Committee are Messrs. Bricker, Duncan and Giles.
ELECTION OF TRUST MANAGERS AND EXECUTIVE OFFICERS
Trust Managers are elected at each annual meeting of
the shareholders of the Trust and remain in office until their
successors have been duly elected and qualified, or until their
earlier death, resignation or removal. Executive officers serve
at the discretion of the Trust Managers.
EXECUTIVE AND TRUST MANAGER COMPENSATION
The following table summarizes the compensation paid by
the Trust to the executive officers of the Trust since the
commencement of their respective employment with the Trust
through the year ended December 31, 1995:
<TABLE>
<S> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principal Fiscal
Position Year Salary Bonus Other
Charles W.
Wolcott 1995 $189,000 72,000 (5) $7,040 (7)
President 1994 180,000 62,100 (6) 7,222 (8)
and CEO 1993 115,000 (1) 50,000 4,463
Marc A. Simpson
Vice President 1995 $105,000 $40,000 (5) $6,838 (7)
and CFO, 1994 81,859 (2) 34,500 (6) 4,095 (8)
Secretary and 1993 (3) (3) (3)
Treasurer
David B. Warner
Vice President 1995 $100,000 $43,000 (5) 6,312 (7)
and COO 1994 92,000 34,500 (6) 4,429 (8)
1993 (4) (4) (4)
</TABLE>
__________
(1) Mr. Wolcott's annualized salary for 1993 was $150,000.
(2) Mr. Simpson's annualized salary for 1994 was $100,000.
(3) Mr. Simpson was not employed by the Trust in 1993.
(4) Mr. Warner's salary and bonus for 1993 did not exceed
$100,000.
(5) Represents bonus payments for 1995 paid in January
1996.
(6) Represents bonus payments for 1994 paid in February
1995.
(7) Represents the Trust's contribution to the Retirement
and Profit Sharing Plan in January 1996.
(8) Represents the Trust's contribution to the Retirement
and Profit Sharing Plan paid in February 1995.
In 1995, the Trust paid its Non-Employee Trust Managers
an annual fee of $20,000 plus $1,000 for each Trust Manager or
committee meeting attended in person. In addition, the Trust
Managers are reimbursed for their expenses incurred in connection
with their duties as Trust Managers. In addition to the annual
fee, Mr. Bricker received $17,000 in 1995 for attendance at Trust
Manager and committee meetings. Mr. Wolcott did not receive any
compensation for his services as a Trust Manager. In 1996, the
Trust paid its Non-Employee Trust Managers an annual fee of
$40,000 plus $1,000 for each Trust Manager or committee meeting
attended in person.
BYLAWS AMENDMENTS LIMITING TRUST MANAGER COMPENSATION
Section 3.9 of the Bylaws of the Trust has been amended
by the Trust Managers to limit the increase in cash compensation
paid to the Trust Managers to 20% over the prior year without the
approval of the holders of a majority of the shares cast at the
annual meeting of shareholders.
EMPLOYMENT AGREEMENTS
On March 13, 1996, the Trust entered into Bonus and
Severance Agreements with each of Messrs. Wolcott, Simpson and
Warner. These agreements formalized the Trust's policy of
providing an annual incentive bonus of up to 50% of the
employee's base salary upon the achievement of certain objectives
established by the Compensation Committee. In addition, the
agreements generally provide that if the employee is terminated
within one year after a Change in Control (as defined), the
employee will be entitled to receive an amount equal to one times
the employee's annual base salary, continuation of health and
welfare benefits for up to one year and the prorated amount of
any annual incentive bonus earned through the date of
termination. The agreements are effective through March 13,
1999.
401(K) PLAN
The Trust has adopted a Retirement and Profit Sharing
Plan (the "Profit Sharing Plan") for the benefit of employees of
the Trust. Employees who were employed by the Trust on November
1, 1993, and who have attained the age of 21 are immediately
eligible to participate in the Profit Sharing Plan. All other
employees of the Trust are eligible to participate in the Plan
after they have completed six months of service with the Trust
and attained the age of 21.
Each participant may make contributions to the Profit
Sharing Plan by means of a pre-tax salary deferral which may not
be more than 15% of the employee's compensation. The Trust will
contribute, on behalf of each non-highly compensated employee and
non-key employee who is actively employed on the last day of each
plan year, a special discretionary contribution equal to a
percentage of such employee's compensation, which will be
determined each year by the Trust. The Code limits the annual
amount of salary deferrals that may be made by any employee.
An employee's salary deferral contribution will always
be 100% vested and nonforfeitable, although such contributions
will be affected by any investment gains or losses to the Profit
Sharing Plan. In general, in the event of retirement, death or
disability, 100% of a participating employee's account would be
available for distribution to either the employee or such
employee's beneficiary, as applicable. The Trust Managers may
amend the Profit Sharing Plan at any time. In no event, however,
may any amendment (i) authorize or permit any part of the Profit
Sharing Plan assets to be used for purposes other than the
exclusive benefit of participating employees or their
beneficiaries, or (ii) cause any reduction in the amount credited
to each participating employee's account. Likewise, the Trust
Managers have the right to terminate the Profit Sharing Plan at
any time. In the event of such termination, all amounts credited
to each employee's account will continue to be 100% vested. A
complete discontinuance of contributions to the Profit Sharing
Plan by the Trust will also constitute an event of termination of
the Profit Sharing Plan.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Compensation for the executive
officers of the Trust is administered under the direction of the
Compensation Committee of the Trust Managers. The following is
the Compensation Committee's report, in its role as reviewer of
the Trust's pay programs, on 1995 compensation practices for the
executive officers of the Trust. The report and the performance
graph that appears immediately after such report shall not be
deemed to be soliciting material or to be filed with the
Securities and Exchange Commission under the Securities Act of
1933 or the Securities Exchange Act of 1934 or incorporated by
reference in any document so filed.
Base Salary. The Compensation
Committee determines base salaries for executive officers by
evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the competitive
marketplace for executive talent, including a comparison to base
salaries for comparable positions at other real estate investment
trusts, to historical levels of salary paid by the Trust, and to
recommendations of independent compensation consultants to the
Trust. Salary adjustments are based on a periodic evaluation of
the performance of the Trust and of each executive officer, and
also take into account new responsibilities as well as changes in
the competitive marketplace. Mr. Wolcott, who has served as
President and Chief Executive Officer of the Trust since the
commencement of his employment with the Trust in May received a
base salary of $189,000 for the 1995 Fiscal Year. Mr. Warner,
who has served as the Vice President and Chief Operating Officer
of the Trust since May 1993 received a base salary of $100,000.
Mr. Simpson, who has served as Secretary, Treasurer and Chief
Financial Officer of the Trust since March 1994, received a base
salary of $105,000 for the 1995 Fiscal Year. The Compensation
Committee was advised by a compensation consultant from Kenneth
Leventhal & Company (now part of Ernst & Young LLP) that base
compensation levels for the Trust for the 1995 Fiscal Year were
below the REIT industry as a whole, which was consistent with the
Trust's desire to bring its operating performance up to the
standards of the REIT industry and to focus on the incentive
portion of compensation during a period of repositioning the
Trust's operations.
Performance-Based Bonus Plan.
Each year, in order to encourage the accomplishment of the short-
term goals of the Trust, the Compensation Committee reviews and
approves a performance-based bonus plan for executive officers
and other employees of the Trust based in part on increases in
Funds From Operations ("FFO") per Share as defined by the
National Association of Real Estate Investment Trusts ("NAREIT").
The Compensation Committee believes that the most direct
measurement of the Trust's success is through its FFO. As such,
each executive officer was eligible in 1995 to receive a bonus of
up to 25% of his base salary based on specified improvements in
FFO. In addition to the FFO-related bonus, each executive
officer was eligible to receive a bonus of up to 15% of his base
salary for achievement of specific goals established by the
Compensation Committee. Each employee of the Trust is eligible to
receive a merit bonus of up to 10% of his or her base salary in
the discretion of the Compensation Committee, based strictly on
individual performance. With respect to the 1995 Fiscal Year,
the Compensation Committee awarded a $72,000 bonus to Mr.
Wolcott, a $43,000 bonus to Mr. Warner and a $40,000 bonus to Mr.
Simpson.
Other Compensation. Other
compensation payable to the executives of the Trust includes
contributions to the Employee Retirement and Profit Sharing Plan
of the Trust and insurance premiums paid by the Trust under the
Trust's medical, dental, life and long-term disability plans.
See "Management -- 401(k) Plan".
1995 Compensation Committee,
William H. Bricker
Notice of Indemnification
Pursuant to the Texas REIT
Act, the Trust hereby reports to its shareholders that the Trust
indemnified Messrs. Bricker and Wolcott in connection with
certain litigation involving Pure World, Inc., a former
shareholder of the Trust, and Robert Strougo, a shareholder of
the Trust (the "Shareholder Litigation"). The Trust previously
acquired director and officer liability insurance for its Trust
Managers, which policy reimbursed the Trust for sums in excess of
$200,000 paid by the Trust to indemnify Trust Managers for
expenses incurred in connection with actions such as the
Shareholder Litigation. In connection with the Shareholder
Litigation, the Trust paid the $200,000 retention under the
director and officer liability insurance policy.
PERFORMANCE GRAPH
The rules and regulations of
the Securities and Exchange Commission require the presentation
of a line graph comparing, over a period of five years, the
cumulative total shareholder return to a performance indicator of
a broad equity market index and either a nationally recognized
industry index or a peer group index constructed by the Trust.
The chart below compares the performance of the Common Shares
with the performance of the Standard & Poors 500 Index and the
NAREIT Equity REIT Index. The comparison assumes $100 was
invested on December 31, 1990 in the Common Shares and in each of
the foregoing indices and assumes reinvestment of dividends.
A PERFORMANCE GRAPH APPEARS HERE
(Graph points have been included in table below)
<TABLE>
<C> <C> <C> <C>
NAREIT Equity
S&P 500 without AIP REIT
Index Healthcare
Index
Dec-90 100.00 100.00 100.00
Dec-91 130.55 129.42 86.31
Dec-92 140.56 156.16 101.56
Dec-93 154.60 185.37 122.29
Dec-94 156.63 190.91 74.73
Dec-95 215.25 218.04 110.75
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth
certain information regarding the beneficial ownership of Common
Shares by (i) each Trust Manager and each nominee for Trust
Manager, (ii) the Trust's Chief Executive Officer and each
executive officer of the Trust, and (iii) all Trust Managers and
executive officers of the Trust as a group, and, to the Trust's
knowledge, by any person owning beneficially more than 5% of the
outstanding shares of such class, in each case at February 3,
1997. Each person named in the table has sole voting and
investment power with respect to all Common Shares shown as
beneficially owned by such person.
<TABLE>
<S> <C> <C>
Beneficial Owner Amount and
Nature Percentage
of of Class
Beneficial
Ownership
William H. Bricker 2,000 *
T. Patrick Duncan 3,000 *
Robert E. Giles 3,750 *
Edward B. Kelley 5,000 *
Charles W. Wolcott 73,900 *
Marc A. Simpson 14,500 *
David B. Warner 6,000 *
USAA Real Estate Company
8000 Robert F. McDermott Freeway
IH-10 West, Suite 600
San Antonio, Texas 78230-3884 3,182,206 31.822%(1)
All Trust Managers and executive
officers as a group (four persons) 108,150 1.082%
</TABLE>
______________
* Ownership is less than 1% of outstanding Common Shares.
(1) This information was obtained from the Schedule 13D
filed by USAA REALCO with the Securities and Exchange Commission
on December 19, 1996.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon a review of
Forms 3, 4 and 5 furnished to the Trust with respect to the 1995
Fiscal Year, no person failed to disclose on a timely basis, as
disclosed in such forms, reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended.
PROPOSALS BY SHAREHOLDERS
A proper proposal submitted by
a shareholder for presentation at the Trust's 1997 Annual Meeting
and received at the Trust's principal executive office no later
than August 1, 1997 will be included in the Proxy Statement and
Proxy related to the 1997 Annual Meeting.
OTHER MATTERS
The Trust Managers are aware
of no other matter that will be presented for action at the
Annual Meeting. If such proposals or any other matters requiring
a vote of the shareholders properly comes before the Annual
Meeting, the persons authorized under the Proxies will vote and
act according to their best judgment.
EXPENSES
The expense of preparing,
printing and mailing proxy materials to the Trust's shareholders
will be borne by the Trust. The Trust has engaged the firms of
Corporate Investor Communications, Inc. and Proveaux, Stephen &
Spencer, Inc. to assist in the solicitation of proxies from
shareholders. Proxies on the TRUST'S WHITE PROXY CARD are being
solicited by the Trust Managers of the Trust. Proxies may also
be solicited personally or by telephone by officers and employees
of the Trust, none of whom will receive additional compensation
therefor. In addition to mailing this material to Trust
shareholders, the Trust has asked banks and brokers to forward
copies to persons for whom they hold shares of the Trust and to
request authority for execution of the proxies. The Trust will
reimburse the banks and brokers for their reasonable out-of-
pocket expenses in doing so. The expense of preparing, printing
and mailing the Proxy Statement and all supplemental materials,
as well as the cost of the solicitors and attorneys, anticipated
to be approximately $275,000, will be borne by the Trust. Of
these expenses, the estimated fees for Corporate Investor
Communications, Inc. are $10,000 and for Proveaux, Stephen &
Spencer, Inc. are $10,000. Both parties will be reimbursed for
reasonable out-of-pocket expenses. To date, the Trust has not
spent any amount of the anticipated expenses.
ANNUAL REPORT TO SHAREHOLDERS
The Trust's Annual Report
(which does not form a part of the proxy solicitation material)
containing audited financial statements was mailed on or about
August 5, 1996 to all shareholders of record as of August 1,
1996. A copy of the Trust's Annual Report on Form 10-K, as filed
with the Securities and Exchange Commission, will be furnished to
shareholders, without exhibits and without charge, upon written
request to: Investor Relations, American Industrial Properties
REIT, 6220 N. Beltline Road, Suite 205, Irving, Texas 75063.
EXHIBIT A
THIRD AMENDED AND RESTATED
DECLARATION OF TRUST
OF
AMERICAN INDUSTRIAL PROPERTIES REIT
The undersigned, acting as the Trust Managers of a real
estate investment trust under the Texas Real Estate Investment
Trust Act (the "Texas REIT Act"), hereby adopt the following
Third Amended and Restated Declaration of Trust for such trust,
which replaces in its entirety the previously enacted Second
Amended and Restated, which Third Amended and Restated
Declaration of Trust was adopted by the Shareholders of the Trust
on May 14, 1997 pursuant to the affirmative vote of the holders
of at least two-thirds of the outstanding Shares of the Trust.
ARTICLE ONE
The name of the trust (the "Trust") is "American Industrial
Properties REIT." An assumed name certificate setting forth such
name has been filed in the manner prescribed by law.
ARTICLE TWO
The Trust is formed pursuant to the Texas REIT Act and has
the following as its purpose:
To purchase, hold, lease, manage, sell, exchange,
develop, subdivide and improve real property and interests in
real property, and in general, to carry on any other business and
do any other acts in connection with the foregoing and to have
and exercise all powers conferred by the laws of the State of
Texas upon real estate investment trusts formed under the Texas
REIT Act, and to do any or all of the things hereinafter set
forth to the same extent as natural persons might or could do.
The term "real property" and the term "interests in real
property" for the purposes stated herein shall not include
severed mineral, oil or gas royalty interests.
ARTICLE THREE
The address of the Trust's principal office and place of
business is 6220 North Beltline, Suite 205, Irving, Texas 75063.
ARTICLE FOUR
The street address of the Trust's registered office is 6220
North Beltline, Suite 205, Irving, Texas 75063. The name of the
Trust's registered agent at that address is Marc A. Simpson.
ARTICLE FIVE
The names and business addresses of the Trust Managers
approving and adopting this Declaration of Trust are as follows:
<TABLE>
<S> <C>
Name Mailing Address
William H. Bricker 16475 Dallas Parkway, Suite 350
Dallas, Texas 75248
T. Patrick Duncan 8000 Robert F. McDermott Frwy.,
Suite 600
San Antonio, Texas 78230
Robert E. Giles 3040 Post Oak Blvd., Suite 315
Houston, Texas 77056
Edward B. Kelley 8000 Robert F. McDermott Frwy.,
Suite 600
San Antonio, Texas 78230
Charles W. Wolcott 6220 North Beltline, Suite 205
Irving, Texas 75063
</TABLE>
ARTICLE SIX
The period of the Trust's duration is perpetual. The Trust
may be sooner terminated by the vote of the holders of at least
two-thirds of the outstanding voting Shares.
ARTICLE SEVEN
The aggregate number of shares of beneficial interest which
the Trust shall have authority to issue is five hundred million
common shares, par value $0.10 per share ("Common Shares"), and
fifty million preferred shares, par value $0.10 per share
("Preferred Shares"). All of the Common Shares shall be equal in
all respects to every other such Common Share, and shall have no
preference, conversion, exchange or preemptive rights.
Unless otherwise specified, the term "Shares" in this
Declaration of Trust shall be deemed to refer to the Common
Shares and, solely to the extent specifically required by law or
as specifically provided in any resolution or resolutions of the
Trust Managers providing for the issue of any particular series
of Preferred Shares, to the Preferred Shares. For purposes of
Articles Ten and Nineteen (other than Article Nineteen (j)) of
this Declaration of Trust, the term Shares shall be deemed to
refer to both the Common Shares and the Preferred Shares and, for
purposes of such Articles Ten and Nineteen (other than Article
Nineteen (j)), the number of outstanding Shares shall be deemed
to be equal to the value of the Trust's outstanding Shares as
determined from time to time by resolution of the Trust Managers,
such determination to include an allocation of relative value
among the Common Shares and any outstanding series of Preferred
Shares.
The Trust may issue one or more series of Preferred Shares,
each such series to consist of such number of shares as shall be
determined by resolution of the Trust Managers creating such
series. The Preferred Shares of each such series shall have such
designations, preferences, conversion, exchange or other rights,
participations, voting powers, options, restrictions,
limitations, special rights or relations, limitations as to
dividends, qualifications or terms, or conditions of redemption
thereof, as shall be stated and expressed by the Trust Managers
in the resolution or resolutions providing for the issuance of
such series of Preferred Shares pursuant to the authority to do
so which is hereby expressly vested in the Trust Managers.
Except as otherwise specifically provided in any resolution
or resolutions of the Trust Managers providing for the issue of
any particular series of Preferred Shares, the number of shares
of any such series so set forth in such resolution or resolutions
may be increased or decreased (but not below the number of shares
of such series then outstanding) by a resolution or resolutions
likewise adopted by the Trust Managers.
Except as otherwise specifically provided in any resolution
or resolutions of the Trust Managers providing for the issue of
any particular series of Preferred Shares, Preferred Shares
redeemed or otherwise acquired by the Trust shall assume the
status of authorized but unissued Preferred Shares and shall be
unclassified as to series and may thereafter, subject to the
provisions of this Article Seven and to any restrictions
contained in any resolution or resolutions of the Trust Managers
providing for the issuance of any such series of Preferred
Shares, be reissued in the same manner as other authorized but
unissued Preferred Shares.
Except as otherwise specifically provided in any resolution
or resolutions of the Trust Managers providing for the issue of
any particular series of Preferred Shares, holders of Preferred
Shares shall have no preemptive rights.
Except as otherwise specifically required by law or this
Declaration of Trust or as specifically provided in any
resolution or resolutions of the Trust Managers providing for the
issuance of any particular series of Preferred Shares, the
exclusive voting power of the Trust shall be vested in the Common
Shares of the Trust. Each Common Share entitles the holder
thereof to one vote at all meetings of the shareholders of the
Trust.
ARTICLE EIGHT
The Trust shall issue Shares for consideration consisting of
any tangible or intangible benefit to the Trust, including cash,
promissory notes, services performed, contracts for services to
be performed, or other securities of the Trust, such
consideration to be determined by the Trust Managers.
ARTICLE NINE
The Trust Managers shall manage all money and/or property
received for the issuance of Shares for the benefit of the
shareholders of the Trust.
ARTICLE TEN
The Trust will not commence business until it has received
for the issuance of Shares consideration of at least $1,000
value.
ARTICLE ELEVEN
The Trust shall not engage in any activities beyond the
scope of the purpose of a real estate investment trust formed
pursuant to the Texas REIT Act, as such purpose is set forth in
Article Two hereof.
ARTICLE TWELVE
Cumulative voting for the election of Trust Managers is
prohibited.
ARTICLE THIRTEEN
(a) The affirmative vote of the holders of not less than
80% of the outstanding Shares of the Trust, including the
affirmative vote of the holders of not less than 50% of the
outstanding Shares not owned, directly or indirectly, by any
"Related Person" (as hereinafter defined), shall be required for
the approval or authorization of any "Business Combination" (as
hereinafter defined); provided, however, that the 50% voting
requirement referred to above shall not be applicable if the
Business Combination is approved by the affirmative vote of the
holders of not less than 90% of the outstanding Shares; provided
further, that neither the 80% voting requirement nor the 50%
voting requirement referred to above shall be applicable if:
(i) The Trust Managers of the Trust by a vote of not less
than 80% of the Trust Managers then holding office (A) have
expressly approved in advance the acquisition of Shares of the
Trust that caused the Related Person to become a Related Person
or (B) have expressly approved the Business Combination prior to
the date on which the Related Person involved in the Business
Combination shall have become a Related Person; or
(ii) The Business Combination is solely between the Trust
and another entity, 100% of the voting stock, shares or
comparable interests of which is owned directly or indirectly by
the Trust; or
(iii) The Business Combination is proposed to be consummated
within one year of the consummation of a Fair Tender Offer (as
hereinafter defined) by the Related Person in which Business
Combination the cash or Fair Market Value (as hereinafter
defined) of the property, securities or other consideration to be
received per Share by all remaining holders of Shares of the
Trust in the Business Combination is not less than the price
offered in the Fair Tender Offer; or
(iv) All of conditions (A) through (D) of this
subparagraph (iv) shall have been met: (A) if and to the extent
permitted by law, the Business Combination is a merger or
consolidation, consummation of which is proposed to take place
within one year of the date of the transaction pursuant to which
such person became a Related Person and the cash or Fair Market
Value of the property, securities or other consideration to be
received per share by all remaining holders of Shares of the
Trust in the Business Combination is not less than the Fair Price
(as hereinafter defined); (B) the consideration to be received by
such holders is either cash or, if the Related Person shall have
acquired the majority of its holdings of the Trust's Shares for a
form of consideration other than cash, in the same form of
consideration with which the Related Person acquired such
majority; (C) after such person has become a Related Person and
prior to consummation of such Business Combination: (1) there
shall have been no reduction in the annual rate of dividends, if
any, paid per share on the Trust's Shares (adjusted as
appropriate for recapitalizations and for Share splits, reverse
Share splits and Share dividends) except any reduction in such
rate that is made proportionately with any decline in the Trust's
net income for the period for which such dividends are declared
and except as approved by a majority of the Continuing Trust
Managers (as hereinafter defined), and (2) such Related Person
shall not have received the benefit, directly or indirectly
(except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by the Trust
prior to the consummation of such Business Combination (other
than in connection with financing a Fair Tender Offer); and (D) a
proxy statement that conforms in all respects with the provisions
of the Securities Exchange Act of 1934 (the "Exchange Act") and
the rules and regulations thereunder (or any subsequent
provisions replacing the Exchange Act or the rules or regulations
thereunder) shall be mailed to holders of the Trust's Shares at
least 45 days prior to the consummation of the Business
Combination for the purpose of soliciting shareholder approval of
the Business Combination; or
(v) The "Rights" (as defined in paragraph (b) of this
Article Thirteen) shall have become exercisable.
(b) If a person has become a Related Person and within one
year after the date (the "Acquisition Date") of the transaction
pursuant to which the Related Person become a Related Person (x)
a Business Combination meeting all of the requirements of
subparagraph (iv) of the proviso to paragraph (a) of this Article
Thirteen regarding the applicability of the 80% voting
requirement shall not have been consummated and (y) a Fair Tender
Offer shall not have been consummated and (z) the Trust shall not
have been dissolved and liquidated, then, in such event the
beneficial owner of each Share (not including Shares beneficially
owned by the Related Person) (each such beneficial owner being
hereinafter referred to as a "Holder") shall have the right
(individually a "Right" and collectively the "Rights"), which may
be exercised subject to the provisions of paragraph (d) of this
Article Thirteen, commencing at the opening of business on the
one-year anniversary date of the Acquisition Date and continuing
for a period of 90 days thereafter, subject to extensions as
provided in paragraph (d) of this Article Thirteen (the "Exercise
Period"), to sell to the Trust on the terms set forth herein one
Share upon exercise of such Right. Within five business days
after the commencement of the Exercise Period the Trust shall
notify the Holders of the commencement of the Exercise Period,
specifying therein the terms and conditions for exercise of the
Rights. During the Exercise Period, each certificate
representing Shares beneficially owned by a Holder (a
"Certificate") shall also represent the number of Rights equal to
the number of Shares represented thereby and the surrender for
transfer of any Certificate shall also constitute the transfer of
the Rights represented by such Shares. At 5:00 P.M., Dallas,
Texas time, on the last day of the Exercise Period, each Right
not exercised shall become void, all rights in respect thereof
shall cease as of such time and the Certificates shall no longer
represent Rights.
(c) The purchase price for a Share upon exercise of an
accompanying Right shall be equal to the then-applicable Fair
Price paid by the Related Person (plus, as an allowance for
interest, an amount equal to the prime rate of interest as
published in the Wall Street Journal and as in effect from time
to time from the Acquisition Date until the date of the payment
for such Share but less the amount of any cash and the Fair
Market Value of any property or securities distributed with
respect to such Shares as dividends or otherwise during such time
period), pursuant to the exercise of the Right relating thereto.
In the event the Related Person shall have acquired any of its
holdings of the Trust's Shares for a form of consideration other
than cash, the value of such other consideration shall be the
Fair Market Value thereof.
(d) Notwithstanding the foregoing in paragraph (b) of this
Article Thirteen, the Exercise Period will be deferred in the
event (a "Deferral Event") that the Trust is otherwise prohibited
under applicable law from repurchasing Shares pursuant to the
Rights. In the event the Exercise Period is deferred, or if at
any time the Trust reasonably anticipates that a Deferral Event
will exist, the Trust will, as soon as practicable, notify the
Holders. If at the end of any fiscal quarter the Deferral Event
ceases to exist, notice shall be given to the Holders of the
commencement of the deferred Exercise Period, which Exercise
Period shall commence no sooner than 15 days nor more than 45
days from the date of such notice and which shall continue in
effect for a period of time equal in duration to the previously
unexpired portion of the Exercise Period. Notwithstanding any
other provision of this Declaration of Trust to the contrary,
during the Exercise Period (including during the existence of any
Deferral Event), neither the Trust nor any subsidiary may declare
or pay any dividend or make any distribution on its shares or to
its shareholders (other than dividends or distributions payable
in its Shares or, in the case of any subsidiary, dividends
payable to the Trust) or purchase, redeem or otherwise acquire or
retire for value, or permit any subsidiary to purchase or
otherwise acquire for value, any Shares of the Trust if, upon
giving effect to such dividend, distribution, purchase,
redemption, or other acquisition or retirement, the aggregate
amount expended for all such purposes (the amount expended for
such purposes, if other than in cash, to be determined by a
majority of the Continuing Trust Managers, whose determination
shall be conclusive) would prejudice the ability of the Trust to
satisfy its maximum obligation to purchase Shares upon exercise
of the Rights.
(e) Rights may be exercised upon surrender to the Trust's
principal transfer agent (the "Transfer Agent") at its principal
office of the Certificate or Certificates evidencing the Shares
to be tendered for purchase by the Trust, together with the form
on the reverse thereof completed and duly signed in accordance
with the instructions thereon. In the event that a Holder shall
tender a Certificate which represents greater than the number of
Shares which the Holder elects to require the Trust to purchase
upon exercise of the Rights, the Holder shall designate on the
reverse side of such Certificate the number of Shares to be sold
from such Certificate. The Transfer Agent shall thereupon issue
a new Certificate or Certificates for the balance of the number
of Shares not sold to the Trust, which new Certificate or
Certificates shall also represent Rights for an equivalent number
of Shares.
(f) For the purposes of this Article:
(i) The term "Business Combination" shall mean (A) any
merger or consolidation, if and to the extent permitted by law,
of the Trust or a subsidiary, with or into a Related Person, (B)
any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, of all or any Substantial Part (as hereinafter
defined) of the assets of the Trust and its subsidiaries (taken
as a whole) (including, without limitation, any voting securities
of a subsidiary) to or with a Related Person, (C) the issuance or
transfer by the Trust or a subsidiary (other than by way of a pro
rata distribution to all shareholders) of any securities of the
Trust or a subsidiary of the Trust to a Related Person, (D) any
reclassification of securities (including any reverse Share
split) or recapitalization by the Trust, the effect of which
would be to increase the voting power (whether or not currently
exercisable) of the Related Person, (E) the adoption of any plan
or proposal for the liquidation or dissolution of the Trust
proposed by or on behalf of a Related Person which involves any
transfer of assets, or any other transaction, in which the
Related Person has any direct or indirect interest (except
proportionately as a shareholder), (F) any series or combination
of transactions having, directly or indirectly, the same or
substantially the same effect as any of the foregoing, and (G)
any agreement, contract or other arrangement providing, directly
or indirectly, for any of the foregoing.
(ii) The term "Continuing Trust Manager' shall mean (x) any
Trust Manager of the Trust who is not affiliated with a Related
Person and who was a Trust Manager immediately prior to the time
that the Related Person became a Related Person, and (y) any
other Trust Manager who is not affiliated with the Related Person
and is recommended either by a majority of the persons described
in clause (x) of this subparagraph (ii) or by persons described
in this clause (y) who are then Trust Managers of the Trust to
succeed a person described in either the said clause (x) or
clause (y) as a Trust Manager of the Trust.
(iii) The term "Fair Market Value" shall mean: (A) in the
case of securities, the highest closing sale price during the 30-
day period immediately preceding the date in question of such
security on the Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such security is not quoted on the Composite Tape
on the New York Stock Exchange, or, if such security is not
listed on such Exchange, on the principal United States
securities exchange registered under the Exchange Act on which
such security is listed, or, if such security is not listed on
any such exchange, the highest closing bid quotation with respect
to such security during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc.
Automated Quotation System or any system then in use, or if no
such quotations are available, the fair market value on the date
in question of such security as reasonably determined by an
independent appraiser selected by a majority of the Continuing
Trust Managers (or, if there are no Continuing Trust Managers, by
the investment banking firm most recently retained by the Trust)
in good faith; and (B) in the case of property other than cash or
stock, the fair market value of such property on the date in
question as reasonably determined by an independent appraiser
selected by a majority of the Continuing Trust Managers (or, if
there are no Continuing Trust Managers, by the investment banking
firm most recently retained by the Trust) in good faith. In each
case hereunder in which an independent appraiser is to be
selected to determine Fair Market Value, (1) in the event (x)
there are no Continuing Trust Managers, and (y) the investment
banking firm most recently retained by the Trust is unable or
elects not to serve as such appraiser, or (2) in the event there
are Continuing Trust Managers that do not select an independent
appraiser within 10 days of a request for such appointment made
by a Related Person, such independent appraiser may be selected
by such Related Person.
(iv) The term "Fair Price" shall mean the highest per-
Share price (which, to the extent not paid in cash, shall equal
the Fair Market Value of any other consideration paid), with
appropriate adjustments for recapitalizations and for Share
splits, reverse Share splits and Share dividends, paid by the
Related Person in acquiring any of its holdings of the Trust's
Shares.
(v) The term "Fair Tender Offer" shall mean a bona fide
tender offer for all of the Trust's Shares outstanding (and owned
by persons other than a Related Person if the tender offer is
made by the Related Person), whether or not such offer is
conditional upon any minimum number of Shares being tendered, in
which the aggregate amount of cash or the Fair Market Value of
any securities or other property to be received by all holders
who tender their Shares for each Share so tendered shall be at
least equal to the then applicable Fair Price paid by a Related
Person or paid by the person making the tender offer if such
person is not a Related Person. In the event that at the time
such tender offer is commenced the terms and conduct thereof are
not directly regulated by Section 14(d) or 13(e) of the Exchange
Act and the general rules and regulations promulgated thereunder,
then the terms of such tender offer regarding the time such offer
is held open and regarding withdrawal rights shall conform in all
respects with such terms applicable to tender offers regulated by
either of such Sections of the Exchange Act. A Fair Tender Offer
shall not be deemed to be "consummated" until Shares are
purchased and payment in full has been made for all duly tendered
Shares.
(vi) The term "Related Person" shall mean and include any
individual, corporation, partnership or other "person" (as
defined in Section 13(d)(3) of the Exchange Act), and the
"Affiliates" and "Associates" (as defined in Rule 12b-2 of the
Exchange Act) of any such individual, corporation, partnership or
other person) which individually or together is the "Beneficial
Owner" (as defined in Rule 13d-3 of the Exchange Act) in the
aggregate of more than 50% of the outstanding Shares of the
Trust, other than the Trust or any employee benefit plan(s)
sponsored by the Trust, except that an individual, corporation,
partnership or other person which individually or together
Beneficially Owns in excess of 30% of the outstanding Shares at
the time this provision is adopted by vote of the Trust's
shareholders shall only be considered a Related Person at such
time as he, she, it or they acquire in the aggregate Beneficial
Ownership of more than 80% of the outstanding Shares.
(vii) The term "Substantial Part" shall mean more than 35% of
the book value of the total assets of the Trust and its
subsidiaries (taken as a whole) as of the end of the fiscal year
ending prior to the time the determination is being made.
(viii) Any person (as such term is defined in subsection
(vi) of this paragraph (f)) that has the right to acquire any
Shares of the Trust pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise,
shall be deemed a Beneficial Owner of such Shares for purposes of
determining whether such person, individually or together with
its Affiliates and Associates, is a Related Person.
(ix) For purposes of subparagraph (iii) of paragraph
(a) of this Article Thirteen, the term "other consideration to be
received" shall include, without limitation, Shares of the Trust
retained by its existing public shareholders in the event of a
Business Combination in which the Trust is the surviving entity.
(g) The affirmative vote of the holders of not less than
80% of the outstanding Shares of the Trust, including the
affirmative vote of the holders of not less than 50% of the
outstanding Shares not owned, directly or indirectly, by any
Related Person (such 50% voting requirement shall not be
applicable if such amendment, alteration, change, repeal or
rescission is approved by the affirmative vote of not less than
90% of the outstanding Shares) shall be required to amend, alter,
change, repeal or rescind, or adopt any provisions inconsistent
with, this Article Thirteen.
(h) The provisions of this Article Thirteen shall be
subject to all valid and applicable laws, including, without
limitation, the Texas REIT Act, and, in the event this Article
Thirteen or any of the provisions hereof are found to be
inconsistent with or contrary to any such valid laws, such laws
shall be deemed to control and this Article Thirteen shall be
regarded as modified accordingly, and, as so modified, to
continue in full force and effect.
ARTICLE FOURTEEN
The Trust Managers may from
time to time declare, and the Trust may pay, dividends on its
outstanding Shares in cash, in property or in its Shares, except
that no dividend shall be declared or paid when the Trust is
unable to pay its debts as they become due in the usual course of
its business, or when the payment of such dividend would result
in the Trust being unable to pay its debts as they become due in
the usual course of business.
ARTICLE FIFTEEN
Upon resolution adopted by the
Trust Managers, the Trust shall be entitled to purchase or
redeem, directly or indirectly, its own Shares, subject to any
limitations of the Texas REIT Act.
ARTICLE SIXTEEN
(a) In this Article:
(i) "Indemnitee" means (A) any present or former Trust
Manager or officer of the Trust, (B) any person who while serving
in any of the capacities referred to in clause (A) hereof served
at the Trust's request as a trust manager, director, officer,
partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another real estate investment trust or
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise
and (C) any person nominated or designated by (or pursuant to
authority granted by) the Trust Managers or any committee thereof
to serve in any of the capacities referred to in clauses (A) or
(B) hereof.
(ii) "Official Capacity" means (A) when used with respect to
a Trust Manager, the office of Trust Manager of the Trust and (B)
when used with respect to a person other than a Trust Manager,
the elective or appointive office of the Trust held by such
person or the employment or agency relationship undertaken by
such person on behalf of the Trust, but in each case does not
include service for any other real estate investment trust or
foreign or domestic corporation or any partnership, joint
venture, sole proprietorship, trust, employee benefit plan or
other enterprise.
(iii) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such
an action, suit or proceeding, and any inquiry or investigation
that could lead to such an action, suit or proceeding.
(b) The Trust shall indemnify every Indemnitee against all
judgments, penalties (including excise and similar taxes), fines,
amounts paid in settlement and reasonable expenses actually
incurred by the Indemnitee in connection with any Proceeding in
which he or she was, is or is threatened to be named defendant or
respondent, or in which he or she was or is a witness without
being named a defendant or respondent, by reason, in whole or in
part, of his or her serving or having served, or having been
nominated or designated to serve, in any of the capacities
referred to in paragraph (a)(i) of this Article Sixteen, to the
fullest extent that indemnification is permitted by Texas law in
accordance with the Bylaws of the Trust. An Indemnitee shall be
deemed to have been found liable in respect of any claim, issue
or matter only after the Indemnitee shall have been so adjudged
by a court of competent jurisdiction after exhaustion of all
appeals therefrom. Reasonable expenses shall include, without
limitation, all court costs and all fees and disbursements of
attorneys for the Indemnitee.
(c) Without limitation of paragraph (b) of this Article
Sixteen and in addition to the indemnification provided for in
paragraph (b) of this Article Sixteen, the Trust shall indemnify
every Indemnitee against reasonable expenses incurred by such
person in connection with any proceeding in which he or she is a
witness or a named defendant or respondent because he or she
served in any of the capacities referred to in paragraph (a)(i)
of this Article Sixteen.
(d) Reasonable expenses (including court costs and
attorneys' fees) incurred by an Indemnitee who was or is a
witness or was, is or is threatened to be made a named defendant
or respondent in a Proceeding shall be paid or reimbursed by the
Trust at reasonable intervals in advance of the final disposition
of such Proceeding after receipt by the Trust of a written
undertaking by or on behalf of such Indemnitee to repay the
amount paid or reimbursed by the Trust if it shall ultimately be
determined that he or she is not entitled to be indemnified by
the Trust as authorized in this Article Sixteen. Such written
undertaking shall be an unlimited obligation of the Indemnitee
but need not be secured and it may be accepted without reference
to financial ability to make repayment. Notwithstanding any
other provision of this Article Sixteen, the Trust may pay or
reimburse expenses incurred by an Indemnitee in connection with
his or her appearance as a witness or other participation in a
Proceeding at a time when he or she is not named a defendant or
respondent in the Proceeding.
(e) The indemnification provided by this Article Sixteen
shall (i) not be deemed exclusive of, or to preclude, any other
rights to which those seeking indemnification may at any time be
entitled under the Trust's Bylaws, any law, agreement or vote of
shareholders or disinterested Trust Managers, or otherwise, or
under any policy or policies of insurance purchased and
maintained by the Trust on behalf of any Indemnitee, both as to
action in his or her Official Capacity and as to action in any
other capacity, (ii) continue as to a person who has ceased to be
in the capacity by reason of which he or she was an Indemnitee
with respect to matters arising during the period he or she was
in such capacity, and (iii) inure to the benefit of the heirs,
executors and administrators of such a person.
(f) The provisions of this Article Sixteen (i) are for the
benefit of, and may be enforced by, each Indemnitee of the Trust,
the same as if set forth in their entirety in a written
instrument duly executed and delivered by the Trust and such
Indemnitee and (ii) constitute a continuing offer to all present
and future Indemnitees. The Trust, by its adoption of this
Declaration of Trust, (x) acknowledges and agrees that each
Indemnitee of the Trust has relied upon and will continue to rely
upon the provisions of this Article Sixteen in becoming, and
serving in any of the capacities referred to in paragraph (a)(i)
of this Article Sixteen, (y) waives reliance upon, and all notice
of acceptance of, such provisions by such Indemnitees and (z)
acknowledges and agrees that no present or future Indemnitee
shall be prejudiced in his or her right to enforce the provisions
of this Article Sixteen in accordance with their terms by any act
or failure to act on the part of the Trust.
(g) No amendment, modification or repeal of this Article
Sixteen or any provision of this Article Sixteen shall in any
manner terminate, reduce or impair the right of any past, present
or future Indemnitees to be indemnified by the Trust, nor the
obligation of the Trust to indemnify any such Indemnitees, under
and in accordance with the provisions of this Article Sixteen as
in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters
occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may be
asserted.
(h) If the indemnification provided in this Article Sixteen
is either (i) insufficient to cover all costs and expenses
incurred by any Indemnitee as a result of such Indemnitee being
made or threatened to be made a defendant or respondent in a
Proceeding by reason of his or her holding or having held a
position named in paragraph (a)(i) of this Article Sixteen or
(ii) not permitted by Texas law, the Trust shall indemnify, to
the fullest extent that indemnification is permitted by Texas
law, every Indemnitee with respect to all costs and expenses
incurred by such Indemnitee as a result of such Indemnitee being
made or threatened to be made a defendant or respondent in a
Proceeding by reason of his or her holding or having held a
position named in paragraph (a)(i) of this Article Sixteen.
(i) The indemnification provided by this Article Sixteen
shall be subject to all valid and applicable laws, including,
without limitation, the Texas REIT Act, and, in the event this
Article Sixteen or any of the provisions hereof or the
indemnification contemplated hereby are found to be inconsistent
with or contrary to any such valid laws, such laws shall be
deemed to control and this Article Sixteen shall be regarded as
modified accordingly, and, as so modified, to continue in full
force and effect.
ARTICLE SEVENTEEN
No Trust Manager or officer of
the Trust shall be liable to the Trust for any act, omission,
loss, damage, or expense arising from the performance of his or
her duties under the Trust save only for his or her own willful
misfeasance or malfeasance or negligence. In discharging their
duties to the Trust, Trust Managers and officers of the Trust
shall be entitled to rely upon experts and other matters as
provided in the Texas REIT Act and the Trust's Bylaws.
ARTICLE EIGHTEEN
The number of Trust Managers
may be increased from time to time by the affirmative vote of the
majority of the Trust Managers or decreased by the unanimous vote
of the Trust Managers. Each Trust Manager shall serve until his
or her successor is elected and qualified or until his or her
death, retirement, resignation or removal.
A Trust Manager may be removed
by the vote of the holders of two-thirds of the outstanding
Shares at a special meeting of the shareholders called for such
purpose pursuant to the Trust's Bylaws.
ARTICLE NINETEEN
(a) No Person may own Shares of any class with an aggregate
value in excess of 9.8% of the aggregate value of all outstanding
Shares of such class of Shares or more than 9.8% of the number of
outstanding Shares of any class of Shares (the limitation on the
ownership of outstanding Shares is referred to in this Article
Nineteen as the "Ownership Limit" and the 9.8% threshold is
referred to in this Article Nineteen as the "Percentage Limit"),
and no Securities (as hereinafter defined) shall be accepted,
purchased, or in any manner acquired by any Person if such
issuance or transfer would result in that Person's ownership of
Shares exceeding the Percentage Limit. For purposes of
determining if the Ownership Limit is exceeded by a Person,
Convertible Securities (as hereinafter defined) owned by such
Person shall be treated as if the Convertible Securities owned by
such Person had been converted into Shares if the effect of such
treatment would be to increase the ownership percentage of such
Person in the Trust. The Ownership Limit shall not apply (i) to
acquisitions of Securities by any Person that has made a tender
offer for all outstanding Shares of the Trust (including
Convertible Securities) in conformity with applicable federal
securities laws, (ii) to the acquisition of Securities of the
Trust by an underwriter in a public offering of Securities of the
Trust, or in any transaction involving the issuance of Securities
by the Trust, in which a majority of the Trust Managers
determines that the underwriter or other Person or party
initially acquiring such Securities will timely distribute such
Securities to or among others so that, following such
distribution, none of such Securities will be Excess Securities
(as hereinafter defined), (iii) to the acquisition of Securities
pursuant to the exercise of employee share options, or (iv) to
the acquisition of Securities pursuant to an exception made
pursuant to paragraph (h) hereof.
(b) Nothing in this Article Nineteen shall preclude the
settlement of any transaction in Securities entered into through
the facilities of the New York Stock Exchange. If any Securities
are accepted, purchased, or in any manner acquired by any Person
resulting in a violation of paragraph (a) or (e) hereof, such
issuance or transfer shall be valid only with respect to such
amount of Securities issued or transferred as does not result in
a violation of paragraph (a) or (e) hereof, and such acceptance,
purchase or acquisition shall be void ab initio with respect to
the amount of Securities that results in a violation of paragraph
(a) or (e) hereof (the "Excess Securities"), and the intended
transferee of such Excess Securities shall acquire no rights in
such Excess Securities except as set forth in subsection (d)
below.
(c) Each shareholder shall, within ten days of demand by
the Trust, disclose to the Trust in writing such information with
respect to his, her or its ownership of shares as the Trust
Managers in their discretion deem necessary or appropriate in
order that the Trust may fully comply with all provisions of the
Internal Revenue Code of 1986, as amended, and any successor
statute (the "Code") relating to REITs and all regulations,
rulings and cases promulgated or decided thereunder (the "REIT
Provisions") and to comply with the requirements of any taxing
authority or governmental agency. All Persons who own Shares of
any class with an aggregate value in excess of 9.8% of the
aggregate value of such class of Shares or 9.8% of the number of
outstanding Shares of any class must disclose in writing such
ownership information to the Trust no later than January 31 of
each year. Failure to provide such information, upon reasonable
request, shall result in the Securities so owned being treated as
Excess Securities pursuant to paragraph (b) hereof for so long as
such failure continues.
(d) The Excess Securities, and the owners thereof, shall
have the following characteristics, rights and powers:
(i) Upon any purported purchase, sale, exchange,
acquisition, disposition or other transfer or upon any change in
the capital structure of the Trust (including any redemption of
Securities) that results in Excess Securities pursuant to
paragraphs (a) or (e) of this Article Nineteen, such Excess
Securities shall be deemed to have been transferred to the Trust,
as trustee of a trust for the exclusive benefit of such
beneficiary or beneficiaries to whom an interest in such Excess
Securities may later be transferred pursuant to subparagraph (v)
of this subsection (d) ("Beneficial Trust"). Any such Excess
Securities so held in the Beneficial Trust shall be issued and
outstanding shares of the Trust. The purported transferee shall
have no rights in such Excess Securities except as provided in
subparagraph (v) of this subsection (d).
(ii) The holder of Excess Securities shall not be entitled
to receive any dividends, interest payments or other
distributions. Any dividend or distribution paid prior to the
discovery by the Trust that the Securities have become Excess
Securities shall be repaid to the Trust upon demand.
(iii) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of
the assets of, the Trust, each holder of Excess Securities shall
be entitled to receive, ratably with each other holder of
Securities and Excess Securities, that portion of the assets of
the Trust available for distribution to its shareholders. The
Trust as holder of all Excess Securities in the Beneficial Trust
or if the Trust shall have been dissolved, any trustee of such
Beneficial Trust appointed by the Trust prior to its dissolution,
shall distribute ratably to the beneficiaries of such Beneficial
Trust any such assets received in respect of the Excess
Securities in any liquidation, dissolution or winding up of, or
any distribution of the assets of, the Trust.
(iv) The holders of shares of Excess Securities shall
not be entitled to vote on any matters (except as required by
law).
(v) Except as otherwise provided in this Article Nineteen,
Excess Securities shall not be transferable. The purported
transferee may freely designate a beneficiary of an interest in
the Beneficial Trust (representing the number of shares of Excess
Securities that have not been acquired by the Trust pursuant to
subparagraph (vi) of this subsection (d) that are held by the
Beneficial Trust attributable to a purported transfer that
resulted in the Excess Securities), if (A) the shares of Excess
Securities held in the Beneficial Trust would not be Excess
Securities in the hands of such beneficiary and (B) the purported
transferee does not receive a price from such beneficiary that
reflects a price per share for such Excess Securities that
exceeds (x) the price per share such purported transferee paid
for the Securities in the purported transfer that resulted in the
Excess Securities, or (y) if the purported transferee did not
give value for such Excess Securities (through a gift, devise or
other transaction), a price per share equal to the Market Price
on the date of the purported transfer that resulted in the Excess
Securities. Upon such transfer of an interest in the Beneficial
Trust, the corresponding shares of Excess Securities in the
Beneficial Trust shall be automatically exchanged for an equal
number of shares of the applicable Securities and such Securities
shall be transferred of record to the transferee of the interest
in the Beneficial Trust if such Securities would not be Excess
Securities in the hands of such transferee. Prior to any
transfer of any interest in the Beneficial Trust, the purported
transferee must give advance notice to the Trust of the intended
transfer and the Trust must have waived in writing its purchase
rights under subparagraph (vi) of this subsection (d).
Notwithstanding the foregoing, if a purported transferee receives
a price for designating a beneficiary of an interest in the
Beneficial Trust that exceeds the amounts allowable under the
foregoing provisions of this subparagraph (v), such purported
transferee shall pay, or cause such beneficiary to pay, such
excess to the Trust immediately upon demand.
(vi) Excess Securities shall be deemed to have been offered
for sale to the Trust, or its designee, at a price per share
equal to the lesser of (A) the price per share in the transaction
that created such Excess Securities (or, in the case of a devise
or gift, the Market Price at the time of such devise or gift) and
(B) the Market Price on the date the Trust, or its designee,
accepts such offer. The Trust shall have the right to accept
such offer for a period of 90 days after the later of (x) the
date of the transfer which resulted in such Excess Securities and
(y) the date the Trust Managers determine in good faith that a
transfer resulting in Excess Securities has occurred.
(e) Any sale, transfer, gift, assignment, devise or other
disposition of Shares (a "transfer") that, if effective, would
result in (i) the Shares of the Trust being owned by less than
100 persons (determined without reference to any rules of
attribution) shall be void ab initio as to the Shares which would
otherwise be beneficially owned by the transferee, (ii) the Trust
being "closely held" within the meaning of Section 856(h) of the
Code, shall be void ab initio as to the transfer of the Shares
that would cause the Trust to be "closely held" within the
meaning of Section 856(h) of the Code, (iii) the Trust owning,
directly or indirectly, 10% or more of the ownership interest in
any tenant or subtenant of the Trust's real property within the
meaning of Section 856(d)(2)(B) of the Code and the Treasury
Regulations thereunder, shall be void ab initio, or (iv) the
disqualification of the Trust as a REIT shall be void ab initio
as to the transfer of the Shares that would cause the Trust to be
disqualified as a REIT, and, in the case of each of clauses (i),
(ii), (iii) and (iv) of this paragraph (e), the intended
transferee shall acquire no rights in such Shares except as set
forth in subsection (d) above.
(f) For purposes of this Article Nineteen:
(i) The term "Convertible Securities" means any securities
of the Trust that are convertible into Shares.
(ii) The term "individual" shall mean any natural person as
well as those organizations treated as natural persons under
Section 542(a) of the Code.
(iii) The term "Market Price" means the average of the last
reported sales price of Common Shares reported on the New York
Stock Exchange on the five trading days immediately preceding the
relevant date, or if the Common Shares are not then traded on the
New York Stock Exchange, the last reported sales price of the
Common Shares on the five trading days immediately preceding the
relevant date as reported on any exchange or quotation system
over which the Common Shares may be traded, or if the Common
Shares are not then traded over any exchange or quotation system,
then the market price of the Common Shares on the relevant date
as determined in good faith by the Trust Managers.
(iv) The term "ownership" (including "own" or "owns")
of Shares means beneficial ownership. Beneficial ownership, for
this purpose shall be defined to include actual ownership by a
Person as well as constructive ownership by such Person after
application of principles in accordance with or by reference to
Sections 856 or 544 of the Code.
(v) The term "Person" includes an individual, corporation,
partnership, association, joint stock company, limited liability
company, trust, unincorporated association or other entity and
also includes a "group" as that term is defined in Section
13(d)(3) of the Exchange Act.
(vi) The term "REIT" means a "real estate investment trust"
as defined in Section 856 of the Code and applicable Treasury
Regulations.
(vii) The term "Securities" means Shares and Convertible
Securities.
(g) If any of the restrictions on transfer set forth in
this Article Nineteen are determined to be void, invalid or
unenforceable by virtue of any legal decision, statute, rule or
regulation, then the intended transferee of any Excess Securities
may be deemed, at the option of the Trust, to have acted as an
agent on behalf of the Trust in acquiring the Excess Securities
and to hold the Excess Securities on behalf of the Trust.
(h) The Percentage Limit set forth in paragraph (a) hereof
shall not apply to Securities which the Trust Managers in their
sole discretion may exempt from the Percentage Limit while owned
by a Person who has provided the Trust with evidence and
assurances acceptable to the Trust Managers that the
qualification of the Trust as a REIT would not be jeopardized
thereby. The Trust Managers, in their sole discretion, may at
any time revoke any exception pursuant to this paragraph (h) in
the case of any Person, and upon such revocation, the provisions
of paragraph (a) hereof shall immediately become applicable to
such Person and all Securities which such Person may own. A
decision to exempt or refuse to exempt from the Percentage Limit
the ownership of certain designated Securities, or to revoke an
exemption previously granted, shall be made by the Trust Managers
in their sole discretion, based on any reason whatsoever,
including, but not limited to, the preservation of the Trust's
qualification as a REIT.
(i) Subject to the provisions of the first sentence of
paragraph (b) hereof, nothing herein contained shall limit the
ability of the Trust 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 security
holders by preservation of the Trust's status as a qualified REIT
under the Code.
(j) All Persons who own 5% or more of the Trust's
outstanding Shares during any taxable year of the Trust shall
file with the Trust an affidavit setting forth the number of
Shares during such taxable year (i) owned directly (held of
record by such Person or by a nominee or nominees of such Person)
and (ii) constructively owned (within the meaning of Section 544
of the Code or for purposes of Rule 13(d) of the Exchange Act) by
the Person filing the affidavit. The affidavit to be filed with
the Trust shall set forth all the information required to be
reported (i) in returns of shareholders under Section 1.857-9 of
the Treasury Regulations or similar provisions of any successor
Treasury Regulations and (ii) in reports to be filed under
Section 13(d) of the Exchange Act. The affidavit or an amendment
to a previously filed affidavit shall be filed with the Trust
annually within 60 days after the close of the Trust's taxable
year. A Person shall have satisfied the requirements of this
paragraph (j) if the person furnishes to the Trust the
information in such person's possession after such person has
made a good faith effort to determine the Shares it owns and to
acquire the information required by income tax regulation 1.857-9
or similar provisions of any successor regulation.
ARTICLE TWENTY
The Board of Trust Managers
shall use its best efforts to cause the Trust and its
shareholders to qualify for U.S. federal income tax treatment in
accordance with the provisions of the Code applicable to REITs.
In furtherance of the foregoing, the Board of Trust Managers
shall use its best efforts to take such actions as are necessary,
and may take such actions as it deems desirable (in its sole
discretion) to preserve the status of the Trust as a REIT.
ARTICLE TWENTY-ONE
Special meetings of the
shareholders for any purpose or purposes, unless otherwise
prescribed by law or by the Declaration of Trust, may be called
by the Trust Managers, any officer of the Trust or the holders of
at least five percent (5%) of all of the shares entitled to vote
at such meeting.
ARTICLE TWENTY-TWO
This Declaration of Trust may
be amended from time to time by the affirmative vote of the
holders of at least two-thirds of the outstanding voting Shares,
except that (i) Article Eleven hereof (relating to the
prohibition against engaging in non-real estate investment trust
businesses); (ii) Article Thirteen hereof (relating to the
approval of Business Combinations); (iii) Article Eighteen hereof
(relating to the number and removal of Trust Managers); (iv)
Article Nineteen hereof (relating to Share ownership
requirements); and (v) this Article Twenty-Two may not be amended
or repealed, and provisions inconsistent therewith and herewith
may not be adopted, except by the affirmative vote of the holders
of at least 80% of the outstanding voting Shares.
ARTICLE TWENTY-THREE
If any provision of this
Declaration of Trust 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 other applications of such
provision shall be affected only to the extent necessary to
comply with the determination of such court. In lieu of such
illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Declaration of Trust, a legal,
valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible,
and the parties hereto request the court or any arbitrator to
whom disputes relating to this Declaration of Trust are submitted
to reform the otherwise illegal, invalid or unenforceable
provision in accordance with this Article Twenty-Three.
IN WITNESS WHEREOF, the
undersigned Trust Managers do hereby execute this Third Amended
and Restated Declaration of Trust as of the 14th day of May,
1997.
WILLIAM H. BRICKER
T. PATRICK DUNCAN
ROBERT E. GILES
EDWARD B. KELLEY
CHARLES W. WOLCOTT
STATE OF TEXAS
COUNTY OF
BEFORE ME, the undersigned
Notary Public, duly commissioned and qualified within and for the
State and County aforesaid, personally came and appeared William
H. Bricker, in his capacity as Trust Manager of American
Industrial Properties REIT, and acknowledged to me, Notary, in
the presence of
and
, the undersigned competent witnesses, that he executed the
foregoing instrument in the presence of the undersigned witnesses
on behalf of the said American Industrial Properties REIT, as his
own free and voluntary act and deed, for the uses, purposes and
considerations therein expressed.
IN WITNESS WHEREOF, said
Appearer has executed these presents together with me, Notary,
and the undersigned competent witnesses, at my office in the
County and State aforesaid, on the day of
, 1997.
My commission expires:
STATE OF TEXAS
COUNTY OF
BEFORE ME, the undersigned
Notary Public, duly commissioned and qualified within and for the
State and County aforesaid, personally came and appeared T.
Patrick Duncan, in his capacity as Trust Manager of American
Industrial Properties REIT, and acknowledged to me, Notary, in
the presence of
and
, the undersigned competent witnesses, that he executed the
foregoing instrument in the presence of the undersigned witnesses
on behalf of the said American Industrial Properties REIT, as his
own free and voluntary act and deed, for the uses, purposes and
considerations therein expressed.
IN WITNESS WHEREOF, said
Appearer has executed these presents together with me, Notary,
and the undersigned competent witnesses, at my office in the
County and State aforesaid, on the day of
, 1997.
My commission expires:
STATE OF TEXAS
COUNTY OF
BEFORE ME, the undersigned
Notary Public, duly commissioned and qualified within and for the
State and County aforesaid, personally came and appeared Robert
E. Giles, in his capacity as Trust Manager of American Industrial
Properties REIT, and acknowledged to me, Notary, in the presence
of
and
, the undersigned competent witnesses, that he executed the
foregoing instrument in the presence of the undersigned witnesses
on behalf of the said American Industrial Properties REIT, as his
own free and voluntary act and deed, for the uses, purposes and
considerations therein expressed.
IN WITNESS WHEREOF, said
Appearer has executed these presents together with me, Notary,
and the undersigned competent witnesses, at my office in the
County and State aforesaid, on the day of
, 1997.
My commission expires:
STATE OF TEXAS
COUNTY OF
BEFORE ME, the undersigned
Notary Public, duly commissioned and qualified within and for the
State and County aforesaid, personally came and appeared Edward
B. Kelley, in his capacity as Trust Manager of American
Industrial Properties REIT, and acknowledged to me, Notary, in
the presence of
and
, the undersigned competent witnesses, that he executed the
foregoing instrument in the presence of the undersigned witnesses
on behalf of the said American Industrial Properties REIT, as his
own free and voluntary act and deed, for the uses, purposes and
considerations therein expressed.
IN WITNESS WHEREOF, said
Appearer has executed these presents together with me, Notary,
and the undersigned competent witnesses, at my office in the
County and State aforesaid, on the day of
, 1997.
My commission expires:
STATE OF TEXAS
COUNTY OF
BEFORE ME, the undersigned
Notary Public, duly commissioned and qualified within and for the
State and County aforesaid, personally came and appeared Charles
W. Wolcott, in his capacity as Trust Manager of American
Industrial Properties REIT, and acknowledged to me, Notary, in
the presence of
and
, the undersigned competent witnesses, that he executed the
foregoing instrument in the presence of the undersigned witnesses
on behalf of the said American Industrial Properties REIT, as his
own free and voluntary act and deed, for the uses, purposes and
considerations therein expressed.
IN WITNESS WHEREOF, said
Appearer has executed these presents together with me, Notary,
and the undersigned competent witnesses, at my office in the
County and State aforesaid, on the day of
, 1997.
My commission expires:
EXHIBIT B
EMPLOYEE AND TRUST MANAGER INCENTIVE
SHARE PLAN
OF
AMERICAN INDUSTRIAL PROPERTIES REIT
1. PURPOSE OF THE PLAN AND DEFINITIONS
1.1 Purpose. The purposes of this Employee and Trust
Manager Incentive Share Plan (the "Plan") of American Industrial
Properties REIT (the "Trust") are to:
(a) furnish incentive to individuals chosen to receive
share-based awards because they are considered capable of
responding by improving operations and increasing profits;
(b) encourage selected persons to accept or continue
employment with the Trust; and
(c) increase the interest of Trust Managers in the Trust's
welfare through their participation in the growth in value of the
Trust's Shares.
To accomplish these purposes, this Plan provides a means whereby
Employees, Trust Managers and other enumerated persons may
receive Awards.
1.2 Definitions. For purposes of this Plan, the following
terms have the following meanings:
"Affiliate" means a parent or subsidiary entity, to be
interpreted in accordance with the comparable terms "parent" and
"subsidiary" corporation in the applicable provisions (currently
Section 424) of the Code at the time this definition is being
applied.
"Award" means any award under this Plan, including any
grant of Options, Restricted Shares, Share Appreciation Rights,
Dividend Equivalent Rights or Trust Manager Shares.
"Award Agreement" means, with respect to each Award,
the written agreement executed by the Trust and the Participant
or other written document approved by the Committee setting forth
the terms and conditions of the Award.
"Board" means the Board of Trust Managers of the Trust.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.
"Commission" means the Securities and Exchange
Commission and any successor agency.
"Committee" has the meaning given it in Section 4.1.
"Common Shares" or "Shares" means common shares of
beneficial interest of the Trust, par value $0.10 per share.
"Declaration of Trust" means the then operative
declaration of trust adopted by the shareholders of the Trust.
"Dividend Equivalent Right" means an Award of rights
pursuant to Section 9.
"Effective Date" has the meaning given it in Section
19.
"Employee" has the meaning ascribed to it for purposes
of Section 3401(c) of the Code and the Treasury Regulations
adopted under that Section. It includes an officer or a Trust
Manager who is also an employee of the Trust.
"Employment Termination" means that a Participant has
ceased, for any reason and with or without cause, to be an
Employee or Trust Manager of, or a consultant to, the Trust or
any Affiliate of the Trust. However, the term "Employment
Termination" shall not include a Non-Employee Trust Manager
ceasing to be a Trust Manager or a transfer of a Participant from
the Trust to an Affiliate or vice versa, or from one Affiliate to
another, or a leave of absence duly authorized by the Trust
unless the Committee has provided otherwise.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended form time to time, and any successor
statute.
"Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor statute.
"Exercise Notice" has the meaning given it in Section
6.1(h).
"Executive Officer" means an eligible person who, as of
the earlier of: (i) the date an Award is vested, (ii) the date
restrictions with respect to an Award lapse or (iii) the date a
payment is made pursuant to an Award Agreement, is a "covered
employee" as defined in Section 1.162-27(c)(2) of the Treasury
Regulations and any successor Treasury Regulation adopted under
Section 162(m).
"Grant Date" has the meaning given it in Section
6.1(d).
"Incentive Share Option" or "ISO" mean any Option
intended to be and designated as an "incentive stock option"
within the meaning of Section 422 of the Code or successor
provision.
"Non-Employee Trust Manager" means a person who
qualifies as a "Non-Employee Director" as defined in Rule 16b-3
and an "outside director" as defined in Treasury Regulation
1.162-27(e)(3) and any successor Treasury Regulation.
"Non-Qualified Share Option" or "NQO" mean any Option
that is not an Incentive Share Option.
"Option" means an option granted under Section 5.
"Participant" means an eligible person who is granted
an Award.
"Plan" means this Employee and Trust Manager Incentive
Share Plan.
"Restricted Shares" means an Award granted under
Section 7.
"Retainer" has the meaning given it in Section 10.
"Rule 16b-3" means Rule 16b-3 adopted under Section
16(b) of the Exchange Act or any successor rule, as it may be
amended from time to time, and references to paragraphs or
clauses of Rules 16b-3 refer to the corresponding paragraphs or
clauses of Rule 16b-3 as it exists at the Effective Date or the
comparable paragraph or clause of Rule 16b-3 or successor rule,
as that paragraph or clause may thereafter be amended.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, and any successor statute.
"Share Appreciation Right" means an Award granted under
Section 8.
"Ten Percent Shareholder" means any person who, at the
time this definition is being applied, owns, directly or
indirectly (or is treated as owning by reason of attribution
rules currently set forth in Code Section 424 or any successor
statute), shares of the Trust constituting more than 10% of the
total combined voting power of all classes of outstanding shares
of the Trust or of any Affiliate of the Trust.
"Trust" has the meaning given it in Section 1.1.
"Trust Manager" means a person elected or appointed and
serving as a trust manager of the Trust in accordance with the
Declaration of Trust and the Texas Real Estate Investment Trust
Act.
"Trust Manager Option" has the meaning given it in
Section 5.3.
"Trust Manager Shares" means Shares issued to a Non-
Employee Trust Manager under Section 10.
2. ELIGIBLE PERSONS
Every person who, at or as of the Grant Date, is (a) a full-
time Employee of the Trust or an Affiliate of the Trust, (b) a
Trust Manager of the Trust or an Affiliate of the Trust, or (c)
someone whom the Committee designates as eligible for an Award
(other than for Incentive Share Options) because the person (i)
performs bona fide consulting or advisory services for the Trust
or an Affiliate of the Trust (other than services in connection
with the offer or sale of securities in a capital-raising
transaction) and (ii) has a direct and significant effect on the
financial development of the Trust or an Affiliate of the Trust,
shall be eligible to receive Awards hereunder. Trust Managers of
the Trust who are not full-time Employees are only eligible to
receive Trust Manager Options under Section 5.3 and Trust Manager
Shares under Section 10.
3. SHARES SUBJECT TO THIS PLAN
The total number of Shares that may be issued under Awards,
all or any part of which may be issued to any Participant, is
800,000. Such Shares may consist, in whole or in part, of
authorized and unissued Common Shares or Shares reacquired in
private transactions or open market purchases, but all Shares
issued under the Plan, regardless of their source, shall be
counted against the 800,000 Share limitation. Any Shares that
are retained by the Trust upon exercise or settlement of an Award
in order to satisfy the exercise price in whole or in part, or to
pay withholding taxes due with respect to such exercise or
settlement, shall be treated as issued to the Participant and
will thereafter not be available under the Plan. The number of
Shares reserved for issuance under this Plan is subject to
adjustment in accordance with the provisions for adjustment in
this Plan.
4. ADMINISTRATION
4.1 Committee. This Plan shall be administered by a
committee (the "Committee") appointed by the Board. The
Committee shall be constituted so that, as long as Shares are
registered under Section 12 of the Exchange Act, each member of
the Committee shall be a Non-Employee Trust Manager. The number
of persons that shall constitute the Committee shall be
determined from time to time by a majority of all the members of
the Board; provided, however, the Committee shall not consist of
fewer than two persons.
4.2 Duration, Removal, Etc. The members of the Committee
shall serve at the pleasure of the Board, which shall have the
power, at any time and from time to time, to remove members from
or add members to the Committee. Removal from the Committee may
be with or without cause. Any individual serving as a member of
the Committee shall have the right to resign from the Committee
by giving at least three days' written notice to the Board. The
Board, and not the remaining members of the Committee, shall have
the power and authority to fill vacancies on the Committee,
however caused. The Board shall promptly fill any vacancy that
causes the number of members of the Committee to be fewer than
two or any other minimum number that Rule 16b-3 may require from
time to time (unless the Board expressly determines not to have
Awards under the Plan comply with Rule 16b-3).
4.3 Meetings and Actions of Committee. The Board shall
designate which of the Committee members shall be the chairperson
of the Committee. If the Board fails to designate a chairperson
for the Committee, the members of the Committee shall elect one
of the Committee members as chairperson, who shall act as
chairperson until he or she ceases to be a member of the
Committee or until the Board elects a new chairperson. The
Committee shall hold its meetings at those times and places as
the chairperson of the Committee may determine. At all meetings
of the Committee, a quorum for the transaction of business shall
be required and a quorum shall be deemed present if at least a
majority of the members of the Committee is present. At any
meeting of the Committee, each member shall have one vote. All
decisions and determinations of the Committee shall be made by
the majority vote of all of its members present at a meeting at
which a quorum is present and a unanimous vote of the members of
the Committee shall be required if the Committee is comprised of
only two members; provided, however, that any decision or
determination reduced to writing and signed by all members of the
Committee shall be as fully effective as if it had been made at a
meeting that was duly called and held. The Committee may make
any rules and regulations for the conduct of its business that
are not inconsistent with this Plan, the Declaration of Trust or
bylaws of the Trust or Rule 16b-3 (so long as it is applicable).
4.4 Committee's Powers. Subject to the express provisions
of this Plan and Rule 16b-3 (so long as it is applicable), the
Committee shall have the authority, in its sole discretion: (a)
to adopt, amend and rescind administrative and interpretive rules
and regulations relating to the Plan; (b) to determine the
eligible persons to whom, and the time or times at which, Awards
shall be granted; (c) to determine the number of Shares that
shall be the subject of each Award; (d) to determine the terms
and provisions of each Award Agreement (which need not be
identical) and any amendments thereto, including provisions
defining or otherwise relating to (i) the period or periods and
extent of exercisability of any Option or Share Appreciation
Right, (ii) the extent to which the transferability of Shares
issued or transferred pursuant to any Award is restricted, (iii)
the effect of Employment Termination on an Award, and (iv) the
effect of approved leaves of absence (consistent with any
applicable Treasury Regulations); (e) to accelerate the time of
exercisability of any Option, Dividend Equivalent Right or Share
Appreciation Right; (f) to construe the respective Award
Agreements and the Plan; (g) to make determinations of the fair
market value of Shares; (h) to waive any provision, condition or
limitation set forth in an Award Agreement; (i) to delegate its
duties under the Plan to such agents as it may appoint from time
to time, provided, however, that the Committee may not delegate
its duties with respect to making or exercising discretion with
respect to Awards to eligible persons if such delegation would
cause Awards not to qualify for the exemptions provided by Rule
16b-3 (unless the Board expressly determines not to have Awards
under the Plan comply with Rule 16b-3); and (j) to make all other
determinations, perform all other acts and exercise all other
powers and authority necessary or advisable for administering the
Plan, including the delegation of those ministerial acts and
responsibilities as the Committee deems appropriate. Subject to
Rule 16b-3 (so long as it is applicable), the Committee may
correct any defect, supply any omission or reconcile any
inconsistency in the Plan, in any Award or in any Award Agreement
in the manner and to the extent it deems necessary or desirable
to implement the Plan, and the Committee shall be the sole and
final judge of that necessity or desirability. The
determinations of the Committee on the matters referred to in
this Section 4.4 shall be final and conclusive. Notwithstanding
any provision in this Plan to the contrary, Awards will be made
to Non-Employee Trust Managers only under Sections 5.3 and 10 of
this Plan. In addition, notwithstanding any provision of this
Plan to the contrary, the Committee may not in any manner
exercise discretion under the Plan with respect to any Awards
made to Non-Employee Trust Managers.
4.5 Term of Plan. No Awards shall be granted under this
Plan after 10 years from the Effective Date of this Plan.
5. GRANT OF OPTIONS
5.1 Written Agreement. Each Option shall be evidenced by
an Award Agreement. The Award Agreement shall specify whether
each Option it evidences is a NQO or an ISO.
5.2 Annual $100,000 Limitation on ISOs. To the extent that
the aggregate "fair market value" of Shares with respect to which
ISOs first become exercisable by a Participant in any calendar
year exceeds $100,000, taking into account ISOs granted under
this Plan and any other plan of the Trust or any Affiliate of the
Trust, the Options covering such additional Shares becoming
exercisable in that year shall cease to be ISOs and thereafter be
NQOs. For this purpose, the "fair market value" of Shares
subject to Options shall be determined as of the date the Options
were granted. In reducing the number of Options treated as ISOs
to meet this $100,000 limit, the most recently granted Options
shall be reduced first.
5.3 Annual Grants to Non-Employee Trust Managers. On the
last day of each calendar year beginning with the last day of
1997, each Non-Employee Trust Manager who is then a member of the
Board shall automatically be granted a NQO to purchase 5,000
Shares. Each option referred to in the previous sentence is
referred to as a "Trust Manager Option." The exercise price of
Trust Manager Options shall be the fair market value of the
Shares subject to the Option on the date the Option is granted.
Each Trust Manager Option shall be fully exercisable commencing
six months after the date of grant and continuing, unless sooner
terminated as provided in this Plan, for 10 years after the date
it is granted. If, for any reason other than death or permanent
and total disability, a Non-Employee Trust Manager ceases to be a
member of the Board, each Trust Manager Option held by that Non-
Employee Trust Manager on the date that the Non-Employee Trust
Manager ceases to be a member of the Board may be exercised in
whole or in part at any time within one year after the date of
such termination or until the expiration of the Trust Manager
Option, whichever is earlier. If a Non-Employee Trust Manager
dies or becomes permanently and totally disabled (within the
meaning of Section 422(c)(6) of the Code) while a member of the
Board (or within the period that the Trust Manager Options remain
exercisable after the Non-Employee Trust Manager ceases to be a
member of the Board), each Trust Manager Option then held by that
Non-Employee Trust Manager may be exercised, in whole or in part,
by the Non-Employee Trust Manager, by the Non-Employee Trust
Manager's personal representative or by the person to whom the
Non-Employee Trust Manager transferred the Trust Manager Option
by will or the laws of descent and distribution, at any time
within two years after the date of death or permanent and total
disability of the Non-Employee Trust Manager or until the
expiration date of the Trust Manager Option, whichever is
earlier. Nothing in this Section 5.3 or in Section 6.1(c) shall
have the effect of accelerating the six-month period during which
Trust Manager Options are not exercisable. Each Trust Manager
Option shall be evidenced by an Award Agreement.
6. CERTAIN TERMS AND CONDITIONS OF OPTIONS AND OTHER AWARDS
Each Option shall be designated as an ISO or a NQO and shall
be subject to the terms and conditions set forth in Section 6.1.
Notwithstanding the foregoing, the Committee may provide for
different terms and conditions in any Award Agreement or
amendment thereto as provided in Section 4.4.
6.1 All Awards. All Options and other Awards shall be
subject to the following terms and conditions:
(a) Changes in Capital Structure. If the number of
outstanding Shares is increased by means of a share dividend
payable in Shares, a share split or other subdivision or by a
reclassification of Shares, then, from and after the record date
for such dividend, subdivision or reclassification, the number
and class of Shares subject to this Plan (including without
limitation its Sections 3, 5.3 and 10) and each outstanding Award
shall be increased in proportion to such increase in outstanding
Shares and the then-applicable exercise price of each outstanding
Award shall be correspondingly decreased. If the number of
outstanding Shares is decreased by means of a share split or
other subdivision or by a reclassification of Shares, then, from
and after the record date for such split, subdivision or
reclassification, the number and class of Shares subject to this
Plan (including without limitation its Sections 3, 5.3 and 10)
and each outstanding Award shall be decreased in proportion to
such decrease in outstanding Shares and the then-applicable
exercise price of each outstanding Award shall be correspondingly
increased.
(b) Certain Corporate Transactions. This Section 6.1(b)
addresses the impact of certain corporate transactions on
outstanding Awards other than Awards granted to Non-Employee
Trust Managers (except to the extent provided in Section 6.1(c))
and other than transactions requiring adjustments in accordance
with Section 6.1(a). In the case of any reclassification or
change of outstanding Shares issuable upon exercise of an
outstanding Award or in the case of any consolidation or merger
of the Trust with or into another entity (other than a merger in
which the Trust is the surviving entity and which does not result
in any reclassification or change in the then-outstanding Shares)
or in the case of any sale or conveyance to another entity of the
property of the Trust as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change,
consolidation, merger, sale or conveyance, the Trust or such
successor or purchasing entity, as the case may be, shall make
lawful and adequate provision whereby the holder of each
outstanding Award shall thereafter have the right, on exercise of
such Award, to receive the kind and amount of securities,
property and/or cash receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of
the number of securities issuable upon exercise of such Award
immediately before such reclassification, change, consolidation,
merger, sale or conveyance. Such provision shall include
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 6.1(a).
Notwithstanding the foregoing, if such a transaction occurs, in
lieu of causing such rights to be substituted for outstanding
Awards, the Committee may, upon 20 days' prior written notice to
Participants in its sole discretion: (i) shorten the period
during which Awards are exercisable, provided they remain
exercisable, to the extent otherwise exercisable, for at least 20
days after the date the notice is given, or (ii) cancel an Award
upon payment to the Participant in cash, with respect to each
Award to the extent then exercisable, of an amount which, in the
sole discretion of the Committee, is determined to be equivalent
to the amount, if any, by which the fair market value (at the
effective time of the transaction) of the consideration that the
Participant would have received if the Award had been exercised
before the effective time exceeds the exercise price of the
Award. The actions described in this Section 6.1(b) may be taken
without regard to any resulting tax consequences to the
Participant. The fourth sentence of this Section 6.1(b) shall
not apply to any Award held by a person then subject to Section
16(b) if such Award has not been outstanding for at least six
months.
(c) Special Rule For Non-Employee Trust Managers. In the
case of any of the transactions described in the second sentence
of Section 6.1(b), that second sentence and the third sentence,
but not the fourth sentence, of Section 6.1(b) shall apply to any
outstanding Options granted to Non-Employee Trust Managers under
Section 5.3.
(d) Grant Date. Each Award Agreement shall specify the
date as of which it shall be effective (the "Grant Date").
(e) Fair Market Value. For purposes of this Plan, the fair
market value of Shares shall be determined as follows:
(i) If the Shares are listed on any established stock
exchange or a national market system, including, without
limitation, the National Market System of the National
Association of Securities Dealers Automated Quotation System, its
fair market value shall be the closing sales price for the
Shares, or the mean between the high bid and low asked prices if
no sales were reported, as quoted on such system or exchange (or,
if the Shares are listed on more than one exchange, then on the
largest such exchange) for the date the value is to be determined
(or if there are no sales or bids for such date, then for the
last preceding business day on which there were sales or bids),
as reported in The Wall Street Journal or similar publication.
(ii) If the Shares are regularly quoted by a recognized
securities dealer but selling prices are not reported, its fair
market value shall be determined in good faith by the Committee,
with reference to the Trust's net worth, prospective earning
power, dividend-paying capacity and other relevant factors,
including the goodwill of the Trust, the economic outlook in the
Trust's industry, the Trust's position in the industry and its
management, and the values of stock of other corporations in the
same or similar lines of business.
(f) Time of Exercise; Vesting. Awards may, in the sole
discretion of the Committee, be exercisable or may vest, and
restrictions may lapse, as the case may be, at such times and in
such amounts as may be specified by the Committee in the grant of
the Award.
(g) Nonassignability of Rights. No Award that is a
derivative security (as defined in Rule 16a-1(c) under the
Exchange Act) shall be transferable other than with the consent
of the Committee (which consent will not be granted in the case
of ISOs unless the conditions for transfer of ISOs specified in
the Code have been satisfied) or by will or the laws of the
descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of ERISA.
Awards requiring exercise shall be exercisable only by the
Participant, assignees that were approved by the Committee,
executors, administrators or beneficiaries of the Participant
(who are the permitted transferees hereunder), guardians or
members of a committee for an incompetent Participant, or similar
persons duly authorized by law to administer the estate or assets
of a Participant.
(h) Notice and Payment. To the extent it is exercisable,
an Award shall be exercisable only by written or recorded
electronic notice of exercise, in the manner specified by the
Committee from time to time, delivered to the Trust or its
designated agent during the term of the Award (the "Exercise
Notice"). The Exercise Notice shall: (a) state the number of
Shares with respect to which the Award is being exercised; (b) be
signed by the holder of the Award or by the person authorized to
exercise the Award pursuant to Section 6.1(g); and (c) include
such other information, instruments and documents as may be
required to satisfy any other condition to exercise set forth in
the Award Agreement. Except as provided below, payment in full,
in cash or check, shall be made for all Shares purchased at the
time notice of exercise of an Award is given to the Trust. The
proceeds of any payment shall constitute general funds of the
Trust. At the time an Award is granted or before it is
exercised, the Committee, in the exercise of its sole discretion,
may authorize any one or more of the following additional methods
of payment:
(i) for all Participants other than officers and Trust
Managers, acceptance of such Participants' full recourse
promissory note for some or all of the exercise price of the
Shares being acquired, payable on such terms and bearing such
interest rate as determined by the Committee, and secured in such
manner, if at all, as the Committee shall approve, including,
without limitation, by a security interest in the Shares which
are the subject of the Award or other securities;
(ii) for all Participants, delivery by such
Participants of Shares of the Trust already owned by such
Participants for all or part of the exercise price of the Award
being exercised, provided that the fair market value of such
Shares are equal on the date of exercise to the exercise price of
the Award being exercised, or such portion thereof as the
Participants are authorized to pay and elects to pay by delivery
of such Shares;
(iii) for all Participants, surrender by such
Participants, or withholding by the Trust from the Shares
issuable upon exercise of the Award, of a number of Shares
subject to the Award being exercised with a fair market value
equal to some or all of the exercise price of the Shares being
acquired, together with such documentation as the Committee and
the broker, if applicable, shall require; or
(iv) for all Participants, to the extent permitted by
applicable law, payment may be made pursuant to arrangements with
a brokerage firm under which that brokerage firm, on behalf of
such Participants, shall pay to the Trust the exercise price of
the Award being exercised (either as a loan to the Participant or
from the proceeds of the sale of Shares issued under that Award),
and the Trust shall promptly cause the Shares being purchased
under the Award to be delivered to the brokerage firm. Such
transactions shall be effected in accordance with the procedures
that the Committee may establish from time to time.
If the exercise price is satisfied in whole or in part by the
delivery of Shares pursuant to paragraph (ii) above, the
Committee may issue the Participant an additional Option, with
terms identical to those set forth in the option agreement
governing the exercised Option, except for the exercise price
which shall be the fair market value used for such delivery and
the number of Shares subject to such additional Option shall be
the number of Shares so delivered.
(i) Termination of Employment. Any Award or portion
thereof which has not vested on or before the date of a
Participant's Employment Termination shall expire on the date of
Employment Termination. As to an Award or portion thereof that
has vested by the time of Employment Termination, the Committee
shall establish, in respect of each Award when granted, the
effect of an Employment Termination on the rights and benefits
thereunder and in so doing may, but need not, make distinctions
based upon the cause of termination (such as retirement, death,
disability or other factors) or which party effected the
termination (the employer or the Employee). Notwithstanding any
other provision in this Plan or the Award Agreement, the
Committee may decide in its discretion at the time of any
Employment Termination (or within a reasonable time thereafter)
to extend the exercise period of an Award (but not beyond the
period specified in Section 6.2(b) or 6.3(b), as applicable) and
not decrease the number of Shares covered by the Award with
respect to which the Award is exercisable or vested. A transfer
of a Participant from the Trust to an Affiliate or vice versa, or
from one Affiliate to another, or a leave of absence duly
authorized by the Trust, shall not be deemed an Employment
Termination or a break in continuous employment unless the
Committee has provided otherwise.
(j) Death. Any Award or portion thereof which has not
vested on or before the date of the Participant's death shall
expire on the date of such Participant's death. As to an Award
or portion thereof that has vested by the date of death of the
Participant, such Awards or portions thereof must be exercised
within two years of the date of the Participant's death by a
person authorized under this Plan to exercise such Awards.
(k) Payment of Dividends Upon Exercise of Options. Upon
exercise of an Option, the Participant shall be entitled to
receive a cash payment from the Trust equal to the amount of
dividends that have been paid from the Grant Date of the Option
through the date of exercise of the Option on that number of
Common Shares that is equal to the number of Common Shares being
purchased upon exercise of such Option.
(l) Other Provisions. Each Award Agreement may contain
such other terms, provisions and conditions not inconsistent with
this Plan, as may be determined by the Committee, and each ISO
granted under this Plan shall include such provisions and
conditions as are necessary to qualify such Option as an
"incentive stock option" within the meaning of Section 422 of the
Code, unless the Committee determines otherwise.
(m) Withholding and Employment Taxes. At the time of
exercise of an Award, the lapse of restrictions on an Award or a
disqualifying disposition of Shares issued under an ISO (within
the meaning of Section 6.3(c)), the Participant shall remit to
the Trust in cash all applicable federal and state withholding
and employment taxes. If and to the extent authorized and
approved by the Committee in its sole discretion, a Participant
may elect, by means of a form of election to be prescribed by the
Committee, to have Shares which are acquired upon exercise of an
Award withheld by the Trust or tender other Shares owned by the
Participant to the Trust at the time the amount of such taxes is
determined, in order to pay the amount of such tax obligations,
subject to such limitations as the Committee determines are
necessary or appropriate to comply with Rule 16b-3 in the case of
Participants who are subject to Section 16(b). For example, the
Committee may require that the election be irrevocable and that
the election not be made within six months of the acquisition of
the securities to be tendered to satisfy the tax withholding
obligation (except that this limitation shall not apply in the
event that death or disability of the Participant occurs before
the expiration of the six-month period). Any Shares so withheld
or tendered shall be valued by the Trust as of the date they are
withheld or tendered. If Shares are tendered to satisfy such
withholding tax obligation, the Committee may issue the
Participant an additional Option, with terms identical to those
set forth in the option agreement governing the Option exercised,
except that the exercise price shall be the fair market value
used by the Trust in accepting the tender of Shares for such
purpose and the number of Shares subject to the additional Option
shall be the number of Shares tendered by the Participant.
6.2 Terms and Condition to Which Only NQOs Are Subject.
Options granted under this Plan which are designated as NQOs
shall be subject to the following terms and conditions:
(a) Exercise Price. The exercise price of a NQO shall be
determined by the Committee; provided, however, that the exercise
price of a NQO shall not be less than 100% of the fair market
value of the Shares subject to the Option on the Grant Date or,
if required by applicable state securities laws in the case of a
NQO granted to any Ten Percent Shareholder, not less than 110% of
such fair market value.
(b) Option Term. Unless an earlier expiration date is
specified by the Committee at the Grant Date, each NQO shall
expire 10 years after the Grant Date or, if required by
applicable state securities laws in the case of a NQO granted to
a Ten Percent Shareholder, five years after the Grant Date.
6.3 Terms and Conditions to Which Only ISOs Are Subject.
Options granted under this Plan which are designated as ISOs
shall be subject to the following terms and conditions:
(a) Exercise Price. The exercise price of an ISO shall be
determined in accordance with the applicable provisions of the
Code and shall in no event be less than 100% of the fair market
value of the Shares covered by the ISO at the Grant Date;
provided, however, that the exercise price of an ISO granted to a
Ten Percent Shareholder shall not be less than 110% of such fair
market value.
(b) Option Term. Unless an earlier expiration date is
specified by the Committee at the Grant Date, each ISO shall
expire 10 years after the Grant Date; provided, however, that an
ISO granted to a Ten Percent Shareholder shall expire no later
than five years after the Grant Date.
(c) Disqualifying Dispositions. If Shares acquired by
exercise of an ISO are disposed of within two years after the
Grant Date or within one year after the transfer of the Shares to
the optionee, the holder of the Shares immediately before the
disposition shall promptly notify the Trust in writing of the
date and terms of the disposition, shall provide such other
information regarding the disposition as the Trust may reasonably
require and shall pay the Trust any withholding and employment
taxes which the Trust in its sole discretion deems applicable to
the disposition.
(d) Termination of Employment. All vested ISOs must be
exercised within three months of the Employment Termination of
the optionee unless such Employment Termination is due to the
employee being disabled (within the meaning of Section 422 (c)(6)
of the Code), in which case the ISO shall be exercised within one
year of the Employment Termination.
6.4 Surrender of Options. The Committee, acting in its
sole discretion, may include a provision in an option agreement
allowing the optionee to surrender the Option covered by the
agreement, in whole or in part in lieu of exercise in whole or in
part, on any date that the fair market value of the Shares
subject to the Option exceeds the exercise price and the Option
is exercisable (to the extent being surrendered). The surrender
shall be effected by the delivery of the option agreement,
together with a signed statement which specifies the number of
shares as to which the optionee is surrendering the Option,
together with a request for such type of payment. Upon such
surrender, the optionee shall receive (subject to any limitations
imposed by Rule 16b-3), at the election of the Committee, payment
in cash or Shares, or a combination of the two, equal to (or
equal in fair market value to) the excess of the fair market
value of the Shares covered by the portion of the Option being
surrendered on the date of surrender over the exercise price for
such Shares. The Committee, acting in its sole discretion, shall
determine the form of payment, taking into account such factors
as it deems appropriate. To the extent necessary to satisfy Rule
16b-3, the Committee may terminate an optionee's rights to
receive payments in cash for fractional Shares. Any option
agreement providing for such surrender privilege shall also
incorporate such additional restrictions on the exercise or
surrender of Options as may be necessary to satisfy the
conditions of Rule 16b-3.
7. RESTRICTED SHARES.
Restricted Shares shall be subject to the following terms
and conditions:
7.1 Grant. The Committee may grant one or more Awards of
Restricted Shares to any Participant other than Non-Employee
Trust Managers. Each Award of Restricted Shares shall specify
the number of Shares to be issued to the Participant, the date of
issuance and the restrictions imposed on the Shares including the
conditions of release or lapse of such restrictions. Unless the
Committee provides otherwise, the restrictions shall not lapse
earlier than six months after the date of the Award. Pending the
lapse of restrictions, Share certificates evidencing Restricted
Shares shall bear a legend referring to the restrictions and
shall be held by the Trust. Prior to the issuance of any
Restricted Shares, the Participant receiving such Restricted
Shares shall pay to the Trust an amount of cash equal to, at a
minimum, the par value per Restricted Share multiplied by the
number of Restricted Shares to be issued. Upon the issuance of
Restricted Shares, the Participant may be required to furnish
such additional documentation or other assurances as the
Committee may require to enforce the restrictions.
7.2 Restrictions. Except as specifically provided
elsewhere in this Plan or the Award Agreement regarding
Restricted Shares, Restricted Shares may not be sold, assigned,
transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until the restrictions have
lapsed and the rights to the Shares have vested. The Committee
may in its discretion provide for the lapse of such restrictions
in installments and may accelerate or waive such restrictions, in
whole or in part, based on service, performance or such other
factors or criteria as the Committee may determine.
7.3 Dividends. Unless otherwise determined by the
Committee, cash dividends with respect to Restricted Shares shall
be paid to the recipient of the Award of Restricted Shares on the
normal dividend payment dates, and dividends payable in Shares
shall be paid in the form of Restricted Shares having the same
terms as the Restricted Shares upon which such dividend is paid.
Each Award Agreement for Awards of Restricted Shares shall
specify whether and, if so, the extent to which the Participant
shall be obligated to return to the Trust any cash dividends paid
with respect to any Restricted Shares which are subsequently
forfeited.
7.4 Forfeiture of Restricted Shares. Except to the extent
otherwise provided in the governing Award Agreement, when a
Participant's Employment Termination occurs, the Participant
shall forfeit all Restricted Shares still subject to restriction.
8. SHARE APPRECIATION RIGHTS
The Committee may grant Share Appreciation Rights to
eligible persons other than Non-Employee Trust Managers. A Share
Appreciation Right shall entitle its holder to receive from the
Trust, at the time of exercise of the right, an amount in cash
equal to (or, at the Committee's discretion, Shares equal in fair
market value to) the excess of the fair market value (at the date
of exercise) of a Share over a specified price fixed by the
Committee in the governing Award Agreement multiplied by the
number of Shares as to which the holder is exercising the Share
Appreciation Right. The specified price fixed by the Committee
shall not be less than the fair market value of the Shares at the
date of grant of the Share Appreciation Right. Share
Appreciation Rights may be granted in tandem with any previously
or contemporaneously granted Option or independent of any Option.
The specified price of a tandem Share Appreciation Right shall be
the exercise price of the related Option. Any Share Appreciation
Rights granted in connection with an ISO shall contain such terms
as may be required to comply with Section 422 of the Code.
9. DIVIDEND EQUIVALENT RIGHTS
9.1 General. The Committee shall have the authority to
grant Dividend Equivalent Rights to Participants other than Non-
Employee Trust Managers upon such terms and conditions as it
shall establish, subject in all events to the following
limitations and provisions of general application set forth in
this Plan. Each Dividend Equivalent Right shall entitle a holder
to receive, for a period of time to be determined by the
Committee, a payment equal to the quarterly dividend declared and
paid by the Trust on one Common Share. If the right relates to a
specific Option, the period shall not extend beyond the earliest
of the date the Option is exercised, the date any Share
Appreciation Right related to the Option is exercised, or the
expiration date set forth in the Option.
9.2 Rights and Options. Each right may relate to a
specific Option granted under this Plan and may be granted to the
optionee either concurrently with the grant of such Option or at
such later time as determined by the Committee, or each right may
be granted independent of any Option.
9.3 Payments. The Committee shall determine at the time of
grant whether payment pursuant to a right shall be immediate or
deferred and if immediate, the Trust shall make payments pursuant
to each right concurrently with the payment of the quarterly
dividend to holders of Common Shares. If deferred, the payments
shall not be made until a date or the occurrence of an event
specified by the Committee and then shall be made within 30 days
after the occurrence of the specified date or event, unless the
right is forfeited under the terms of the Plan or applicable
Award Agreement.
9.4 Termination of Employment. In the event of Employment
Termination, any Dividend Equivalent Right held by such
Participant on the date of Employment Termination shall be
forfeited, unless otherwise expressly provided by the Committee.
10. TRUST MANAGER SHARES
10.1 Election. The Trust intends to pay each Non-Employee
Trust Manager an annual fee in the amount set from time to time
by the Board (the "Retainer"). Each Non-Employee Trust Manager
shall be entitled to receive his or her Retainer exclusively in
cash, exclusively in unrestricted Shares ("Trust Manager Shares")
or any portion in cash and Trust Manager Shares. Following the
approval of this Plan by the shareholders of the Trust, each Non-
Employee Trust Manager shall be given the opportunity, during the
month the Non-Employee Trust Manager first becomes a Non-Employee
Trust Manager and during each December thereafter, to elect among
these choices for the balance of the calendar year (in the case
of the election made during the month the Non-Employee Trust
Manager first becomes a Non-Employee Trust Manager) and for the
ensuing year (in the case of a subsequent election made during
any December). If the Non-Employee Trust Manager chooses to
receive at least some of his or her Retainer in Trust Manager
Shares, the election shall also indicate the percentage of the
Retainer to be paid in Trust Manager Shares. If a Non-Employee
Trust Manager makes no election during his or her first
opportunity to make an election, the Non-Employee Trust Manager
shall be assumed to have elected to receive his or her entire
Retainer in cash. If a Non-Employee Trust Manager makes no
election during any succeeding election month, the Non-Employee
Trust Manager shall be assumed to have remade the election then
currently in effect for that Non-Employee Trust Manager.
10.2 Issuance. The Trust shall make the first issuance of
Trust Manager Shares on the first trading day following the last
day of the full calendar quarter following the approval of the
Plan by the Trust's shareholders. Subsequent issuances of Trust
Manager Shares shall be made on the first trading day of each
subsequent calendar quarter and shall be made to all persons who
are Non-Employee Trust Managers on that trading day except any
Non-Employee Trust Manager whose Retainer is to be paid entirely
in cash. The number of Shares issuable to those Non-Employee
Trust Managers on the relevant trading date indicated above shall
equal:
(% x R) / P
4
where:
% = the percentage of the Non-Employee Trust Manager's
Retainer that the Non-Employee Trust Manager elected or is deemed
to have elected to receive in the form of Trust Manager Shares,
expressed as a decimal;
R = the Non-Employee Trust Manager's Retainer for the
year during which the issuance occurs;
P = the fair market value of Shares determined in
accordance with Section 6.1(e).
Trust Manager Shares shall not include any fractional Shares.
Fractions shall be rounded to the nearest whole Share.
11. SECURITIES LAWS
Nothing in this Plan or in any Award or Award Agreement
shall require the Trust to issue any Shares with respect to any
Award if, in the opinion of counsel for the Trust, that issuance
could constitute a violation of the Securities Act, any other law
or the rules of any applicable securities exchange or securities
association then in effect. As a condition to the grant or
exercise of any Award, the Trust may require the Participant (or,
in the event of the Participant's death, the Participant's legal
representatives, heirs, legatees or distributees) to provide
written representations concerning the Participant's (or such
other person's) intentions with regard to the retention or
disposition of the Shares covered by the Award and written
covenants as to the manner of disposal of such Shares as may be
necessary or useful to ensure that the grant, exercise or
disposition will not violate the Securities Act, any other law or
any rule of any applicable securities exchange or securities
association then in effect. The Trust shall not be required to
register any Shares under the Securities Act or register or
qualify any Shares under any state or other securities laws.
12. EMPLOYMENT OR OTHER RELATIONSHIP
Nothing in this Plan or any Award shall in any way interfere
with or limit the right of the Trust or any of its Affiliates to
terminate any Participant's employment or status as a consultant
or Trust Manager at any time, nor confer upon any Participant any
right to continue in the employ of, or as a Trust Manager or
consultant of, the Trust or any of its Affiliates.
13. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN
The Board may at any time amend, suspend or discontinue this
Plan without shareholder approval, except as required by
applicable law; provided, however, that no amendment, alteration,
suspension or discontinuation shall be made which would impair
the rights of any Participant under any Award previously granted,
without the Participant's consent, except to conform this Plan
and Awards granted to the requirements of federal or other tax
laws including without limitation Section 422 of the Code and/or
ERISA, or to the requirements of Rule 16b-3. The provisions of
the Plan relating to Awards for Non-Employee Trust Managers may
not be amended more than once each six months. The Board may
choose to require that the Trust's shareholders approve any
amendment to this Plan in order to satisfy the requirements of
Section 422 of the Code, Rule 16b-3 or for any other reason.
14. LIABILITY AND INDEMNIFICATION OF THE COMMITTEE
No person constituting, or member of the group constituting,
the Committee shall be liable for any act or omission on such
person's part, including but not limited to the exercise of any
power or discretion given to such member under this Plan, except
for those acts or omissions resulting from such member's gross
negligence or willful misconduct. The Trust shall indemnify each
present and future person constituting, or member of the group
constituting, the Committee against, and each person or member of
the group constituting the Committee shall be entitled without
further act on his or her part to indemnity from the Trust for,
all expenses (including the amount of judgments and the amount of
approved settlements made with a view to the curtailment of costs
of litigation) reasonably incurred by such person in connection
with or arising out of any action, suit or proceeding to the
fullest extent permitted by law and by the Declaration of Trust
and Bylaws of the Trust.
15. GRANTS TO PERSONS EXPECTED TO BECOME EMPLOYEES OR TRUST
MANAGERS
As allowed by this Plan, the Committee may grant Awards
(other than ISOs) to persons who are expected to become
Employees, Trust Managers (other than Non-Employee Trust
Managers) or consultants of the Trust. The grant shall be deemed
to have been made upon the date the grantee becomes an Employee,
Trust Manager or consultant of the Trust without further action
or approval by the Committee.
16. CERTAIN TRUST MANAGERS AND OFFICERS
All Award Agreements for Participants who are subject to
Section 16(b) shall be deemed to include such additional
limitations, terms and provisions as Rule 16b-3 then requires
unless the Committee determines that any such Award should not
comply with the requirements of Rule 16b-3. All Award Agreements
relating to ISOs shall be deemed to include such additional terms
and provisions as Section 422 of the Code or any successor
provision thereto then requires under the Committee expressly
determines that such Award should not comply with such
requirements.
17. SECURITIES LAW LEGENDS
Certificates of Shares and Restricted Shares, when issued,
may have the following legend and statements of other applicable
restrictions endorsed thereon:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR
SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL
THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER
(WHICH, IN THE SOLE DISCRETION OF THE ISSUER, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER,
SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE ANY
APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
This legend shall not be required for any Shares issued pursuant
to an effective registration statement under the Securities Act.
18. SEVERABILITY
If any provision of this Plan is held to be illegal or
invalid for any reason, that illegality or invalidity shall not
affect the remaining portions of the Plan, but such provision
shall be fully severable and the Plan shall be construed and
enforced as if the illegal or invalid provision had never been
included in this Plan. Such an illegal or invalid provision
shall be replaced by a revised provision that most nearly
comports to the substance of the illegal or invalid provision. If
any of the terms or provisions of this Plan or any Award
Agreement conflict with the requirements of Rule 16b-3 (as those
terms or provisions are applied to eligible persons who are
subject to Section 16(b) or Section 422 of the Code (with respect
to ISOs)), those conflicting terms or provisions shall be deemed
inoperative to the extent they conflict with those requirements.
With respect to ISOs, if this Plan does not contain any provision
required to be included in a plan under Section 422 of the Code,
that provision shall be deemed to be incorporated into this Plan
with the same force and effect as if it had been expressly set
out in this Plan; provided, however, that, to the extent any
Option that is intended to qualify as an ISO cannot so qualify,
that Option (to that extent) shall be deemed to be a NQO for all
purposes of the Plan.
19. EFFECTIVE DATE AND PROCEDURAL HISTORY
This Plan was originally approved by the Trust's Board on
January 27, 1997. It was approved in that form by the holders of
the Trust's voting shares on (the
"Effective Date").
PROXY
AMERICAN INDUSTRIAL PROPERTIES REIT
This Proxy is Solicited on Behalf of the Trust Managers of
American Industrial Properties REIT
Annual Meeting to be held May 14, 1997
The undersigned hereby appoints William H. Bricker, T. Patrick Duncan,
Robert E. Giles, Edward B. Kelley and Charles W. Wolcott, and each of them,
jointly and severally, as Proxies, each with the full power of
substitution, to vote all of the undersigned's Common Shares of Beneficial
Interest in the Trust, held of record on March 10, 1997, at the Annual
Meeting of Shareholders or at any postponements or adjournments thereof, on
the proposals set forth on the reverse side, as directed.
If the shareholders fail to approve the Recapitalization Plan, there will
be cumulative voting to elect the Trust Managers. Shareholders intending
to cumulate votes must give written notice to the Trust of such intention
on or before the day preceding the election.
This Proxy, when properly executed, will be voted in accordance with the
direction made below. If no direction is made, this Proxy will be voted
FOR the first, second and third proposals. The Proxies will vote with
respect to the fourth proposal according to their best judgment. Please
sign exactly as your name appears on your Share certificate. When Shares
are held in more than one name, all parties should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by an
authorized officer. If a partnership, please sign in partnership name by
an authorized person.
1. Adoption of Recapitalization Plan
For Against Abstain
___ ___ ___
2. Ratification of the selection of Ernst & Young LLP as independent
auditors
For Against Abstain
___ ___ ___
3. Election of Trust Managers *
Nominees:
William H. Bricker
T. Patrick Duncan
Robert E. Giles
Edward B. Kelley
Charles W. Wolcott
For Withhold
Authority
___ ___
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF
For Against Abstain
___ ___ ___
* Instruction: To withhold authority to vote for any of the above
nominees, strike a line through that nominee's name in the list above. To
withhold authority to vote for all nominees, mark the "Withhold Authority"
box.
By signing and returning this Proxy, the undersigned acknowledges receipt
of the Notice of Annual Meeting and Proxy statement delivered herewith.
By signing and returning this Proxy, the undersigned acknowledges receipt
of the Notice of Annual Meeting and Proxy statement delivered herewith.
_________________________________ ____________
Signature of Shareholder Date
_________________________________ ____________
Signature if Shares held Date
in more than one name
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE.
