SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. 3)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.11(c) or Section
240.14a-12
BANYAN STRATEGIC REALTY TRUST
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
Shares of Beneficial Interest
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:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
...........................................
2) Form, Schedule or Registration Statement No.:
...........................................
3) Filing Party:
...........................................
4) Date Filed:
...........................................
<PAGE>
Banyan Strategic Realty Trust
150 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
This Proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Leonard G. Levine and Robert G.
Higgins, and each of them, as Proxies, with the power to appoint their
substitutes, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all the Common Shares of Beneficial
Interest of Banyan Strategic Realty Trust (the "Trust") held of record by
the undersigned on ______, 1998, at the Annual Meeting of Shareholders when
convened on June 18 , 1998, or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS SET FORTH HEREIN. In
the event that any other matter may properly come before the Annual
Meeting, or any adjournment thereof, the Proxies are authorized, in their
discretion, to vote on the matter.
Continued on the reverse side.
<PAGE>
PROXY CARD
[ X ] Please mark your
votes as in this
example
1. Elect three individuals to serve as independent trustees until the
next annual meeting of Shareholders or otherwise as provided in the
Declaration.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Concur in the selection of Ernst & Young LLP as the Trust's
independent public accountants for the fiscal year ending December 31,
1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Delete certain provisions of the Declaration requiring reservation of
board seats for an "Advisor" and change the designation of "Class A
Trustees" to "Independent Trustees."
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Amend certain provisions of the Declaration
requiring the Trustees to consider terminating the
Trust by October 17, 2001.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. Authorize the issuance of preferred shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. Increase compensation payable to independent Trustees.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
7. Modify the liability and indemnification provisions of the
Declaration applicable to the Trust's Trustees, officers, employees and
agents.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
8. Approve the issuance of Common Shares issuable upon conversion of
preferred shares and loans.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<STRIKEOUT>
9. Transact such other business as may properly come before the Annual
Meeting, or any adjournment thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</STRIKEOUT>
9. Delete certain provisions of the Declaration relating to the
incurrence of indebtedness.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
SIGNATURE(S) ______________________________________ DATE _______________
NOTE: Sign exactly as name appears at left. If joint tenant, both should
sign. If attorney, executor, administrator, trustee or guardian, give full
title as such. If a corporation, please sign corporate name by president
or authorized officer. If partnership, sign in full partnership name by
authorized person.
<PAGE>
BANYAN STRATEGIC REALTY TRUST
150 South Wacker Drive, Suite 2900
Chicago, Illinois 60606
(312) 683-3671
________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
________________________________________
To the Shareholders of Banyan Strategic Realty Trust:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting" or the "Meeting") of Banyan Strategic Realty Trust, a
Massachusetts business trust (the "Trust"), will be convened at the
Metropolitan Club, 233 South Wacker Drive, Chicago, Illinois 60606 on
June 18 , 1998, at 10:00 a.m. central time (the "Meeting
Date"). All Shareholders of the Trust (the "Shareholders") are entitled to
attend the Meeting. The Annual Meeting will be held for the purpose of
considering and voting upon proposals to:
1. Elect three individuals to serve as independent trustees until
the next annual meeting of Shareholders or otherwise as provided in the
Declaration;
2. Concur in the selection of Ernst & Young LLP as the Trust's
independent public accountants for the fiscal year ending December 31,
1998;
3. Delete certain provisions of the Declaration requiring
reservation of board seats for an "Advisor" and change the designation of
"Class A Trustees" to "Independent Trustees";
4. Amend certain provisions of the Declaration requiring the
Trustees to consider terminating the Trust by October 17, 2001;
5. Authorize the issuance of preferred shares;
6. Increase compensation payable to Independent Trustees;
7. Modify the liability and indemnification provisions of the
Declaration applicable to the Trust's Trustees, officers, employees and
agents;
8. Approve the issuance of Common Shares upon conversion of
preferred shares and loans; <STRIKEOUT>and</STRIKEOUT>
9. Delete certain provisions of the Declaration relating to the
incurrence of indebtedness; and
<STRIKEOUT>9.</STRIKEOUT>
10.
Transact such other business as may properly come before the
Annual Meeting, or any adjournment thereof.
Only Shareholders of record at the close of business on May 7 ,
1998 are entitled to receive notice of and to vote at the Annual Meeting or
any adjournment thereof (the "Eligible Holders"). A complete list of
Eligible Holders will be available for inspection at the Trust's offices
for at least ten days prior to the Meeting. Unless otherwise defined,
defined terms in this Notice shall have the meaning ascribed to them in the
Proxy Statement accompanying this Notice.
<PAGE>
A PROXY STATEMENT AND PROXY ARE ENCLOSED. WHETHER OR NOT YOU EXPECT
TO ATTEND THE ANNUAL MEETING, IT IS IMPORTANT THAT YOU PROMPTLY FILL IN,
SIGN, DATE AND MAIL THE PROXY IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES
MAY BE VOTED FOR YOU.
By order of the Board of Trustees:
Robert G. Higgins
Vice President, General Counsel and Secretary
Chicago, Illinois
____________________, 1998
The Trust's 1997 Annual Report is enclosed with this notice and Proxy
Statement.
<PAGE>
[BSRT LETTERHEAD]
<STRIKEOUT>Subject to completion __________,1998</STRIKEOUT>
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders
of Banyan Strategic Realty Trust (the "Trust") to be held at the
Metropolitan Club, 233 South Wacker Drive, Chicago, Illinois 60606 on
June 18, , 1998, at 10:00 a.m. central time. At the meeting,
you will be asked to consider and vote upon proposals to: (i) elect three
individuals as independent trustees; (ii) concur in the selection of Ernst
& Young LLP as the Trust's independent accountants; (iii) delete certain
provisions of the Declaration of Trust requiring reservation of board seats
for the "Advisor" and change the designation of "Class A Trustees" to
"Independent Trustees"; (iv) amend certain provisions of the Declaration
requiring the Trustees to consider terminating the Trust by October 17,
2001; (v) authorize the issuance of preferred shares; (vi) increase
compensation payable to independent trustees; (vii) modify the liability
and indemnification provisions of the Declaration of Trust for Trustees,
officers, employees and agents; <STRIKEOUT>and</STRIKEOUT> (viii) approve
the issuance of common shares upon conversion of Series A Convertible
Preferred Shares and the Convertible Loan ; and (ix) delete certain
provisions of the Declaration relating to the incurrence of
indebtedness , all as more particularly described in the accompanying
Proxy Statement.
With respect to the proposal described in (i) above, the three
individuals receiving the highest number of votes will be elected as
independent trustees. Approval of the proposal described in (ii) and
(viii) above requires the affirmative vote of a majority of the shares of
beneficial interest present in person or represented by proxy and eligible
to vote at the annual meeting, a quorum being present. Approval of the
proposals described in (iii), (iv), (vi) <STRIKEOUT>and</STRIKEOUT> (vii)
and (ix) above requires the affirmative vote of a majority of the
Trust's outstanding Common Shares. Approval of the proposal described in
(v) above requires the affirmative vote of two-thirds of the Trust's
outstanding Common Shares. Accordingly whether or not you plan to attend
the meeting, please complete, sign and date the accompanying proxy and
return it in the enclosed prepaid envelope. You may revoke your proxy in
the manner described in the accompanying Proxy Statement at any time before
it has been voted at the meeting. If you attend, you may vote in person,
even if you have previously returned your proxy. Your prompt cooperation
will be greatly appreciated. This solicitation is authorized by and is
made on behalf of the Trust's board of trustees.
Sincerely,
BANYAN STRATEGIC REALTY TRUST
Leonard G. Levine
President
<PAGE>
--------------------------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS OF
BANYAN STRATEGIC REALTY TRUST
_______________, 1998
--------------------------------------------------
This proxy statement is furnished to the holders of shares (the
"Shareholders") of beneficial interest, no par value (the "Common Shares"),
a Massachusetts business trust (the "Trust"), in connection with the
solicitation of proxies by the Trust's board of trustees (the "Trustees" or
the "Board") for use at the annual meeting of Shareholders to be held on
June 18 , 1998 (the "Annual Meeting"). The Annual Meeting will be
convened at approximately 10:00 a.m. central time. Any adjournment
or postponement thereof will be announced at the meeting. This Proxy
Statement, the enclosed notice and proxy were first sent or given to
Shareholders on or about _______, 1998. Shareholders who wish to attend
the Annual Meeting should contact the Trust at (312) 683-3671 to make
arrangements.
The Trust will pay all costs associated with soliciting proxies,
including the cost of preparing, printing and mailing this Proxy Statement.
In addition to the use of the mails, proxies may be solicited by the
Trustees and the Trust's officers and employees. None of these individuals
will receive additional compensation for doing so, but they may be
reimbursed for out-of-pocket expenses associated with the solicitation. We
will also make arrangements with brokerage houses, banks and other
custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of the Common Shares held of record by those persons.
The Trust may reimburse these custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses incurred in forwarding the
material. The Trust has engaged Chase Mellon Shareholder Services to
assist in soliciting proxies for the Annual Meeting at a fee payable by the
Trust of $7,500, plus out-of-pocket expenses.
Only Common Shares represented by properly executed proxies in the
accompanying form received by the Board prior to the Annual Meeting will be
voted at the Annual Meeting. If a Shareholder specifies a choice with
respect to any matter to be acted upon, the Common Shares represented by
that proxy will be voted as specified. If a Shareholder does not specify a
choice, in an otherwise properly executed proxy, with respect to any
proposal referred to therein, the Common Shares represented by that proxy
will be voted with respect to that proposal in accordance with the
recommendations of the Board described herein. A Shareholder who signs
and returns a proxy in the accompanying form may revoke it by: (i) giving
written notice of revocation to the Trust before the proxy is voted at the
Annual Meeting; (ii) executing and delivering a later-dated proxy before
the proxy is voted at the Annual Meeting; or (iii) attending the Annual
Meeting and voting the Common Shares in person.
The close of business on May 7 , 1998 has been fixed as the date
for determining Shareholders entitled to notice of and to vote at the
Annual Meeting (the "Record Date"). On the Record Date, the Trust had
13,269,492 <STRIKEOUT>13,268,316</STRIKEOUT> Common Shares
outstanding, each of which entitles the holder thereof to one vote per
Share. Trustees and officers of the Trust own approximately 3.9% of these
Common Shares and intend to vote in favor of each of the proposals. Only
Shareholders of record as of the Record Date will be entitled to vote at
the meeting. The presence of a majority of the
<PAGE>
outstanding Common Shares represented in person or by proxy at the Annual
Meeting will constitute a quorum. Abstentions and broker non-votes will be
treated as Common Shares that are present for the purpose of determining
whether a quorum exists and will have the effect of a vote against
Proposals Number Three through Seven and Proposal Number Nine since
these proposals require approval of at least a majority of the Common
Shares to pass (two-thirds in the case of Proposal Number Five). With
respect to Proposals Number Two and Eight, abstentions and broker non-votes
will have no effect since both proposals merely require approval of a
majority of the Common Shares cast in person or by proxy. With respect to
Proposal Number One, the three nominees receiving the highest vote totals
will be elected as trustees.
The mailing address of the principal executive offices of the Trust is
150 South Wacker Drive, Suite 2900, Chicago, Illinois 60606. The Common
Shares are included for quotation on The Nasdaq Stock Market ("Nasdaq")
under the symbol "BSRTS". On March 10, 1998, the last reported sales price
of the Common Shares as reported by Nasdaq was $5.75 per Share.
THE DATE OF THIS PROXY STATEMENT IS __________, 1998.
SHAREHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT OR INCORPORATED BY REFERENCE. NO PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT IN CONNECTION WITH THE SOLICITATION MADE BY THIS PROXY STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THE DELIVERY OF THIS
PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH EITHER IN THIS
PROXY STATEMENT OR IN THE TRUST'S AFFAIRS SINCE THE DATE HEREOF. THIS
PROXY STATEMENT DOES NOT CONSTITUTE A SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH THE SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING THE SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE A SOLICITATION.
AVAILABLE INFORMATION
The Trust files reports, proxy materials and other information with
the Securities and Exchange Commission (the "Commission"). These reports,
proxy materials and other information concerning the Trust can be inspected
and copied at the Public Reference Section maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies can be obtained by mail from the Commission at prescribed
rates from the Public Reference Section of the Commission at its principal
office in Washington, D.C. The Commission also maintains a site on the
World Wide Web (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the Commission. The Common Shares are included
for quotation on Nasdaq and copies of reports and other material concerning
the Trust can be inspected at the offices of the National Association of
Securities Dealers, Inc. at 1801 K Street, N.W., 8th Floor, Washington,
D.C. 20006.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information appearing elsewhere
in this Proxy Statement. Unless the context otherwise requires, all
references in this Proxy Statement to the "Trust" refer to Banyan Strategic
Realty Trust, and its subsidiaries. Unless defined herein, all defined
terms shall have the meaning as ascribed to them in the Trust's Amended and
Restated Declaration of Trust, as amended (the "Declaration").
MATTERS TO BE CONSIDERED BY SHAREHOLDERS AT THE ANNUAL MEETING
The Annual Meeting of Shareholders of the Trust will be held for the
purpose of considering and voting upon proposals to:
1. Elect three individuals to serve as independent trustees until
the next annual meeting of Shareholders or otherwise as provided in the
Declaration;
2. Concur in the selection of Ernst & Young LLP as the Trust's
independent public accountants for the fiscal year ending December 31,
1998;
3. Delete certain provisions of the Declaration requiring
reservation of board seats for an "Advisor" and change the designation of
"Class A Trustees" to "Independent Trustees";
4. Amend certain provisions of the Declaration requiring the
Trustees to consider terminating the Trust by October 17, 2001;
5. Authorize the issuance of preferred shares;
6. Increase compensation payable to independent trustees;
7. Modify the liability and indemnification provisions of the
Declaration applicable to the Trust's Trustees, officers, employees and
agents;
8. Approve the issuance of Common Shares upon conversion of
preferred shares and loans; <STRIKEOUT>and</STRIKEOUT>
9. Delete certain provisions of the Declaration relating to the
incurrence of indebtedness; and
<STRIKEOUT>9.</STRIKEOUT>
10.
Transact such other business as may properly come before the
Annual Meeting, or any adjournment thereof.
Only Shareholders of record at the close of business on the Record
Date are entitled to receive notice of and to vote at the Annual Meeting or
any adjournment thereof.
<PAGE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement that are not historical
facts constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Discussions containing such forward-looking statements may be herein in the
material set forth under "Matters to be Considered by Shareholders" as well
as within the Proxy Statement generally. In addition, when used in the
Proxy Statement, the words "believes," "intends," "anticipates," "expects"
and similar expressions are intended to identify forward-looking
statements. These statements are subject to a number of risks and
uncertainties, including, among others, general real estate investment
risks, lack of operating history associated with recent acquisitions,
potential inability to repay or refinance indebtedness at maturity,
increases in interest rates, competition for property acquisitions, adverse
consequences of failure to qualify as a REIT and possible environmental
liabilities. Actual results could differ materially from those projected
in the forward-looking statements as a result of the factors set forth in
the Proxy Statement generally and in the Trust's annual report on Form 10-K
under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors Affecting the Trust's
Business Plan."
OVERVIEW
In addition to electing nominees to serve as "Independent Trustees"
and seeking the concurrence of the Shareholders in the selection of Ernst &
Young LLP, the Trustees have approved, and are seeking Shareholder approval
of, proposals to amend various provisions of the Declaration. These
amendments, if approved by the Shareholders, would: (i) delete provisions
in the Declaration reserving board seats for an "Advisor"; (ii) amend
certain provisions of the Declaration requiring the Trustees to consider
terminating the Trust by October 17, 2001; (iii) permit the Trust to pay
individuals serving as "Independent Trustees" an annual retainer of $20,000
per year plus per meeting fees of $1,000 for each board meeting attended in
person and $500 per hour for each meeting held via telephonic conference
call; and (iv) permit the Trust to issue preferred stock on such rights,
preferences and designations as determined by the Trust's Board of Trustees
(the "Board").
. As described below, the Trust has agreed, subject to approval
of the Shareholders, to issue up to 200,000 shares of Series A Convertible
Preferred Shares upon conversion of a convertible term loan made to the
Trust by a group of investors. See "Proposal Number Five" below. Adoption
of this proposal may render it more difficult to effectuate or may
discourage a merger, tender offer or proxy contest even if such an event
would be favorable to and in the best interests of Shareholders. A copy of
the Declaration reflecting the proposed additions and deletions is attached
to this Proxy Statement as Annex A.
. If proposal number four is approved, the Board will no longer
be under an express obligation to consider terminating the Trust in October
2001. Approval of the proposal will have the effect of removing any
limitation on the duration of the Trust. Further, shareholders are advised
that adoption of the amendment will also eliminate any right of action they
may have had based on a breach of the Declaration in the event that the
Board had failed to consider terminating the Trust in October 2001.
<PAGE>
PROPOSAL NUMBER ONE: ELECTION OF TRUSTEES
Three individuals will be elected at the Annual Meeting to serve as
"Independent Trustees" until the next annual meeting of the Shareholders or
otherwise as provided in the Declaration. Unless instructions to the
contrary are given, the persons named as proxy voters in the accompanying
proxy, or their substitutes, will vote for the following nominees with
respect to all proxies received by the Trust. If any nominee should become
unavailable for any reason, the votes will be cast for a substitute nominee
designated by the Board. The Trustees have no reason to believe that any
of the nominees named below will be unable to serve if elected.
The nominees for election to the Board are as follows:
WALTER E. AUCH, SR. Trustee since 1986, age 76. Prior to retiring,
Mr. Auch was the Chairman and Chief Executive Officer of the Chicago Board
of Options Exchange from 1979 to 1986. Prior to that time, Mr. Auch was
Executive Vice President, Director and a member of the executive committee
of PaineWebber. Mr. Auch is a Director of Pimco Advisors L. P., Geotek
Communications, Inc., Smith Barney Concert Series Funds, Smith Barney Trak
Fund, The Crimson Partners Funds and Nicholas Applegate Funds and is a
Trustee of Hillsdale College and the Arizona Heart Institute. Mr. Auch is
also a Director of Semele Group, Inc. (f/k/a Banyan Strategic Land Fund II)
and Legend Properties, Inc. (f/k/a Banyan Mortgage Investment Fund).
NORMAN M. GOLD. Trustee since 1986, age 67. Mr. Gold is a partner in
the law firm of Altheimer & Gray and has practiced law for over forty
years, specializing in tax, corporate and real estate law. Mr. Gold is also
a Trustee of New Plan Realty Trust. He is a Certified Public Accountant
and member of the Chicago and American Bar Associations.
MARVIN A. SOTOLOFF. Trustee since 1986, age 54. Mr. Sotoloff is the
Chief Executive Officer and Chairman of the Board of Equity Resources, Inc.
(f/k/a The Palmer Group Ltd.), a company engaged in real estate brokerage,
development and property management, concentrating on commercial real
estate. Prior to joining Equity Resources, Mr. Sotoloff was regional vice
president of Premisys Real Estate Services, Inc., a subsidiary of the
Prudential Realty Group.
The Board is required to meet at least four times per year, either in
person or by telephonic conference. The Board met twenty-one times during
calendar year 1997, including one time to perform its function as an audit
committee. The Trustees have not established any nominating, compensation
or other committees or other groups performing similar functions. The
Board, as a whole, acts as an "Audit Committee." For information regarding
the management of the Trust and the compensation paid to its principal
executive officers, see "Management" below.
RECOMMENDATION OF THE BOARD: The Board hereby recommends and
nominates Messrs. Auch, Gold and Sotoloff for election as "Independent
Trustees" of the Trust by the Shareholders at the Annual Meeting to serve
until the next annual meeting of Shareholders or as otherwise provided in
the Declaration.
VOTE REQUIRED: The three nominees receiving the highest vote totals
will be elected as "Independent Trustees" of the Trust.
<PAGE>
PROPOSAL NUMBER TWO: SELECTION OF INDEPENDENT ACCOUNTANT
The Trust's financial statements, including those for the fiscal year
ended December 31, 1997, are included in the Annual Report furnished to all
Shareholders and included with this Proxy Statement. The year-end
statements have been audited by the independent firm of Ernst & Young LLP
which has served as the Trust's independent accountants since the fiscal
year ended December 31, 1989. The Board believes that Ernst & Young LLP is
knowledgeable about the Trust's operations and accounting practices and is
well qualified to act in the capacity of independent accountants.
Therefore, the Board has selected Ernst & Young LLP as the Trust's
independent accountants to examine its financial statements for the fiscal
year ending December 31, 1998. Although this selection does not require
Shareholder approval, the Board believes it is desirable to obtain the
concurrence of the Shareholders to this selection. Due to the difficulty
and expense involved in retaining another independent firm on short notice,
the Board does not contemplate appointing another firm to act as the
Trust's independent accountants for fiscal year 1998 if the Shareholders do
not concur in the appointment of Ernst & Young LLP. Instead, the Board
will consider the vote as advice in making their selection for the
following year.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they so
desire and will be available to respond to appropriate questions from
Shareholders.
RECOMMENDATION OF THE BOARD: That the Shareholders concur in the
following resolution which will be presented for a vote of the Shareholders
at the Annual Meeting:
RESOLVED, that the Shareholders concur in the
appointment of Ernst & Young LLP to serve as the Trust's independent
accountants for the fiscal year ending December 31, 1998.
VOTE REQUIRED: The affirmative vote of a majority of the votes cast
by the Shareholders present in person or by proxy and eligible to vote at
the Annual Meeting, a quorum being present, is required to adopt the
foregoing resolution.
PROPOSAL NUMBER THREE: DELETE CERTAIN PROVISIONS OF THE DECLARATION
REQUIRING RESERVATION OF BOARD SEATS FOR THE ADVISOR AND CHANGE THE
DESIGNATION OF "CLASS A TRUSTEES" TO "INDEPENDENT TRUSTEES."
The Declaration permits the Board to engage a third party as an
"Advisor" and contemplates a Board comprised of "Class A Trustees"
(essentially independent, unaffiliated individuals) and "Class B Trustees"
(essentially individuals affiliated with the "Advisor"). The Trust was
formed in 1986, principally to make loans to affiliates of VMS Realty
Partners (the "VMS Affiliates") and engaged VMS Realty Partners ("VMS") as
the "Advisor" to manage its business. In early 1990, the VMS Affiliates
defaulted on loans made by the Trust. As a result of these defaults, the
Trust subsequently terminated its advisory relationship with VMS and all of
the Class B Trustees resigned. In addition, the Board established and
implemented a plan to preserve and protect the Trust's assets. As a result
of this plan, the Trust took title to substantially all of the properties
securing loans which it had made to the VMS Affiliates. The Board
subsequently authorized reinvestment of the proceeds generated from the
sale of these assets into new real estate assets. As part of the plan, the
<PAGE>
Board decided not to engage a new advisor, but instead hired its own
team of professionals to oversee management of the Trust and engaged Banyan
Management Corp. to provide ministerial services. The vacancies created by
resignation of the Class B Trustees were not filled since the express
language of the Declaration states that only individuals affiliated or
associated with VMS or a successor "Advisor" may fill these seats. Thus,
the Board has been comprised of three "Class A Trustees" (essentially
"Independent Trustees") since the Class B Trustees resigned.
The Board believes that management of the Trust is better accomplished
in a "self-managed" structure and has decided not to engage a third party
to perform the functions of an "Advisor." The Board's conclusion is based
on the fact that most of the REITs which have been formed in the last five
years are self-managed (as opposed to being managed by a third party
advisor) which the Board believes is less expensive since advisory
arrangements usually contemplate the advisor making a "profit" for
rendering the services as opposed to providing the services at cost.
Although the Board may decide to engage a third party at a future date
to provide management functions, the Board does not believe that Board
seats should be specifically reserved for an "Advisor." Instead, the
Trustees desire the option of slating individuals who would be either
"Independent Trustees" or members of management should the Board be
increased in size. As a result, the Board is seeking to amend the
Declaration to delete provisions requiring "Class B Trustees" and to
substitute the word "Independent" in lieu of "Class A" throughout the
Declaration where applicable since it would no longer be necessary to
distinguish between Class A or Class B Trustees. Instead, the distinction
would be between Independent Trustees and Trustees who are not Independent.
Further, the definition of an "Independent Trustee" would be revised to
mirror the definition of an "independent director" contained in Rule
4460(c) of the Nasdaq Stock Market. Thus, in order to be classified as
"independent," an individual could not be an officer of the Trust and could
not have any other relationship with the Trust that in the Board's opinion
would interfere with the individual's ability to exercise independent
judgment.
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders approve of and adopt the following resolutions which will be
presented for a vote of the Shareholders at the Annual Meeting:
RESOLVED, that Article III, Sections 3.1 through 3.5 of
the Declaration be and hereby are amended in the manner necessary to delete
any requirement that the Board be comprised, in part, of "Class B
Trustees";
FURTHER RESOLVED, that Article V, Sections 5.1, 5.4 and
5.5 of the Declaration be and hereby are amended in the manner necessary to
provide that the Trust may, but shall not be obligated to, engage an
Advisor;
FURTHER RESOLVED, that "Independent" be and hereby is
substituted for "Class A" wherever "Class A" appears in the Declaration;
<PAGE>
FURTHER RESOLVED, that the definitions of "Class A
Trustees" and "Class B Trustees" shall be deleted in their entirety;
FURTHER RESOLVED, that Article I, Section 1.5 of the
Declaration be, and hereby is, amended to add the following definition:
"Independent Trustee" shall mean a person
other than an officer or employee of the Trust or its subsidiaries or any
other individual having a relationship which, in the opinion of the Board
of Trustees, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a Trustee.
FURTHER RESOLVED, that the definition of "Trustee"
contained in Article I, Section 1.5 shall be deleted in its entirety and
replaced by the following:
"Trustees" as of any particular time, means
the individuals holding office under this Declaration at such time, whether
they be the Trustees named herein or additional or successor Trustees.
VOTE REQUIRED. The affirmative vote of a majority of the outstanding
Common Shares is required to adopt the foregoing resolutions and to amend
the Declaration to effect the intent of the resolutions.
If the proposal is adopted, the Board will retain the power to engage
an "Advisor" but will not be required to grant the "Advisor" board
representation. Further, the term "Class A Trustees" will be deleted and
replaced by the term "Independent Trustees."
PROPOSAL NUMBER FOUR: AMEND CERTAIN PROVISIONS OF THE DECLARATION
REQUIRING THE TRUSTEES TO TERMINATE THE TRUST BY OCTOBER 17, 2001.
Since the middle of 1993, the Trust has been making investments in
newly acquired properties. To continue making new investments, the Trust
requires additional capital. Management of the Trust has advised the Board
that based on discussions with potential investors, the Trust's ability to
raise additional capital on terms attractive to the Trust is hindered by
the provision contained in Article IX, Section 9.1 of the Declaration.
This provision requires the Trustees to use reasonable efforts to terminate
the Trust by March 14, 2001 subject to the absolute discretion of the
Trustees to extend the termination date if they decide in good faith that
extension is in the Shareholders' best interest. The Trust has also been
advised by Peabody & Brown, opining on Massachusetts law, a Massachusetts
court would likely interpret this to give the Trustees fairly broad
authority to determine a future termination since in Peabody & Brown's
opinion "[i]t is well settled under Massachusetts law that the authority
and powers of the trustees of a Massachusetts business trust and the rights
of the shareholders of the trust are governed by the declaration of the
trust under which the trust is created."
<PAGE>
Management believes that the provision, even if broadly interpreted,
creates ambiguity and uncertainty since it does not indicate how often this
determination must be made after March 14, 2001, making it difficult for
new investors to evaluate the type of returns that may be generated by an
investment in the Trust. In management's view, since most REITs are
perpetual life entities, this ambiguity likely results in the Trust
incurring a higher cost of capital, measured by the returns paid to
investors of the new capital, than it would in the absence of such a
provision. Management believes that a higher cost of capital compared to
the Trust's competitors may make it more difficult to acquire properties on
a competitive basis, particularly if "cap rates" decrease, thus increasing
acquisition prices. Management stated that in its view, the Trust's
ability to attract new capital both now and in the future would be enhanced
by eliminating the provision. Management added that additional equity
capital would also likely increase the Trust's market capitalization and,
hence, liquidity. By doing so, the Trust may then be able to utilize
Common Shares in making property acquisitions, thus increasing the Trust's
flexibility in negotiating acquisitions.
Although the Board and management have discussed this issue
previously, the Board has been reluctant to seek shareholder approval in
the absence of a valid proposal from third parties to invest additional
monies in the Trust making realization of a long-term growth strategy
possible. The Board believes that the Financing Transaction (defined in
Proposal Number Eight) provides this opportunity and also validates
management's view that new investors would prefer to see the provision
removed. In fact, the terms of the agreement governing the Convertible
Loan (defined in Proposal Number Eight) require the Trust to seek approval
of this proposal. Failure to approve the proposal does not, however,
constitute an event of default under that agreement. The Board received a
liquidation analysis in connection with evaluating the Financing
Transaction. The Board also utilized this liquidation analysis in
evaluating this proposal. The Board then recommended making a proposal to
Shareholders to amend Section 9.1 and also directed management to continue
seeking additional capital and making new investments even if the proposal
is not adopted. If the proposal is approved, the Board will no longer have
an express obligation to consider terminating the Trust in March 2001.
Approval of the proposal will have the effect of removing any limitation on
the duration of the Trust. Further, shareholders are advised that adoption
of the amendment will also eliminate any right of action they may have had
based on a breach of the Declaration in the event that the Board had failed
to consider terminating the Trust in March 2001. In the Board's view, the
ability to continue raising capital will likely affect its decision on
whether to terminate the Trust in March 2001 if the proposal is not
adopted. The Board decided not to make a present decision regarding
termination in the event the proposal is not adopted.
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders approve of and adopt the following resolution which will be
presented for a vote of the Shareholders at the Annual Meeting:
RESOLVED, that Article IX, Section 9.1 of the Declaration
be and hereby is amended by deleting Section 9.1 entirely and replacing it
in its entirety with the following:
<PAGE>
9.1 DURATION AND TERMINATION OF TRUST. The duration of the Trust
shall be perpetual unless a majority of the Trustees shall determine that
the Trust should be terminated and liquidated. Any determination by the
Trustees of the date upon which termination shall occur shall be reflected
in a vote of or written instrument signed by a majority of all of the
Trustees then in office, including a majority of the Independent Trustees;
provided that the Trust shall be subject to termination at any time by the
vote or consent of Shareholders holding or having the right to vote a
majority of the outstanding Shares entitled to vote thereon.
9.1.1 Upon the termination of the Trust:
a. the Trust shall carry on no business except for the
purpose of winding up its affairs;
b. the Trustees shall proceed to wind up the affairs
of the Trust and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining Trust Estate to one or more
persons at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business (and provided that the Trustees may, if permitted by
applicable law, and if they deem it to be in the best interest of the
Shareholders, appoint a liquidating trustee or agent or other entity to
perform one or more of the foregoing functions); and
c. after paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases, indemnities
and refunding agreements, as they deem necessary for their protection, and
after payment in full of the liquidation preferences to holders of any
Preferred Shares as required under the applicable designations of Preferred
Shares, the Trustees or any liquidating trust, agent or other entity
appointed by them, shall distribute the remaining Trust Estate among the
Shareholders, pro rata, according to the number of Shares held by each.
If any plan for the termination of the Trust approved by Shareholders
holding or having the right to vote two-thirds of the outstanding Shares
and agreeable to a majority of the Trustees provides for actions of the
Trustees other than as aforesaid, the Trustees shall have full authority to
take all action as in their opinion is necessary or appropriate to
implement such plan.
9.1.2. After termination of the Trust and distribution to
the Shareholders as provided herein or in any such plan so approved by the
Shareholders, the Trustees shall execute and include among the records of
the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder and the rights and interests of
all Shareholders hereunder shall thereupon cease.
<PAGE>
VOTE REQUIRED. The affirmative vote of a majority of the outstanding
Common Shares is required to adopt the foregoing resolution and to amend
the Declaration to effect the intent of the resolution.
PROPOSAL NUMBER FIVE: AUTHORIZE THE ISSUANCE OF PREFERRED SHARES.
Under the Declaration, the Trust is authorized to issue an unlimited
number of Common Shares, all of which must be of a single class, each with
the same voting rights and preferences to distributions. The Declaration
also grants the Trustees the authority to cause the Trust to borrow money
on a secured or unsecured basis. The Declaration does not grant the
Trustees the authority to cause the Trust to issue an additional class of
equity securities which may grant the holders thereof preferential rights
as compared to the holders of Common Shares. These preferences may include
the right to elect certain board members or to receive distributions before
the holders of Common Shares. The Trustees believe that the ability to
issue and sell an additional class of equity securities with these
preferential rights would enhance the Trust's ability to raise additional
capital. In particular, the Board believes that the total returns
(dividends plus market appreciation) required by investors in this type of
security are typically less than that required by investors for common
securities such as the Common Shares. Similarly, since an investment in
preferred equity securities is not secured by the issuer's assets, the
Trust in issuing this type of security would lessen the risk of foreclosure
on the Trust's assets in the event of unfavorable results at the Trust's
properties. Shareholders should note that the dividend rate on preferred
securities may be greater than the dividend rate on common securities such
as the Common Shares. Further, the issuance of preferred securities
render it more difficult to effectuate or may discourage a merger, tender
offer or proxy contest even if such an event would be favorable to, or in
the best interests of holders of the Common Shares.
The Board, having weighed the benefits and detriments of issuing
preferred securities, believes that it is in the Trust's best interest to
amend the Declaration to permit the sale and issuance of up to two million
preferred shares, no par value (the "Preferred Shares"), on such rights,
preferences and designations which grant the holders rights in the Trust
Estate (as defined in the Declaration) superior to those possessed by
holders of Common Shares. As part of the financing completed with the
Morgens Investors (defined below in Proposal Number Eight), the Trust has
agreed that amounts funded under the Convertible Loan (also defined in
Proposal Number Eight) may be converted into a series of Preferred Shares
designated as "Series A Convertible Preferred Shares" (the "Series A
Shares") at the rate of $100.00 per share. Conversion is subject to
approval of this proposal. If the entire Convertible Loan is funded and
converted into Series A Shares, the Trust would be required to issue
200,000 Series A Shares. The holders of the Series A Shares would be
entitled to receive cash dividends accruing from the date of issuance at an
annual rate equal to 10% per annum payable quarterly on March 31, June 30,
September 30 and December 31 of each year. Dividends on each Series A
Share would cumulate from the date of issuance whether or not the Trust has
funds legally available to pay these dividends. If dividends were not paid
when due, then the holders of the Series A Shares would be entitled to
receive dividends at an annual rate of 11% per annum. In contrast, the
Convertible Loan bears interest at the rate of 12% per annum. During any
time when the Trust is in default on any dividend payment on the Series A
Shares, the Trust would not be permitted to make, declare and pay dividends
<PAGE>
or other distributions on the Common Shares. Draws on the Convertible Loan
bear interest at the rate of 12% per annum increasing to 14% in the event
of a default as defined in the agreement governing the Convertible Loan.
The outstanding balance of the loan plus all interest thereon is due and
payable on September 30, 2002. The Trust may prepay the Convertible Loan
if, in the absence of consent of the lenders, the Trust merges with, or
sells substantially all of its assets to, a third party. If prepayment is
required in connection with a merger or sale occurring before October 14,
1999, then on the date of the merger or sale the Trust will be required to
pay the Lenders interest and fees, discounted to present value, on the
maximum amount of the Convertible Loan through October 14,1999. The Trust
may use the proceeds of the loan solely to acquire additional properties.
The Series A Shares would rank senior to the Common Shares with
respect to rights to distributions, including distributions made on
liquidation, winding up and dissolution of the Trust. For example, if the
Trust were to liquidate, then after paying or providing for the payment of
amounts, if any, owed to the holders of securities senior to the Series A
Shares, the holders of Series A Shares would be entitled to receive out of
the Trust's remaining assets, $100.00 plus accrued and unpaid dividends in
cash for each Series A Share before the Trust paid or made any other
distribution of cash to the holders of securities junior to the Series A
Shares, including the Common Shares. Holders of the Series A Shares would
have the right to vote, together with holders of the Common Shares, as a
single class on any and all matters with respect to which holders of the
Common Shares have voting or consent rights. Each Series A Share would
entitle the holder to cast that number of votes which could be cast by the
number of Common Shares into which the Series A Shares are then
convertible. Subject to approval of Proposal Number Eight, each Series A
Share would be convertible into 19.417 Common Shares. Thus, if the entire
amount of the Convertible Loan is funded ($20 million), the Series A Shares
would be convertible into 3,883,480 Common Shares. The conversion rate is
subject to adjustment from time to time if the Trust: (i) pays a dividend
in Common Shares; (ii) subdivides or splits the Common Shares into a
greater or lesser number of Common Shares; (iii) distributes to holders of
the Common Shares evidences of indebtedness or other assets, or distributes
to holders of Common Shares rights, options or warrants to subscribe to
securities of the Trust; or (iv) sells, transfers or otherwise conveys
Common Shares at a price less than $5.15, as adjusted to take account of
the events described in this sentence.
As of May 7, <STRIKEOUT>March 12, 1998,</STRIKEOUT> the Trust
would have had 17,152,972 <STRIKEOUT>17,151,811</STRIKEOUT> Common
Shares outstanding assuming full conversion of the Convertible Loan into
Common Shares or into Preferred Shares and then into Common Shares. THUS,
THE HOLDERS OF THE SERIES A SHARES WOULD HAVE THE RIGHT TO VOTE
APPROXIMATELY 35.4% OF THE COMMON SHARES, INCLUDING COMMON SHARES PURCHASED
IN THE EQUITY INVESTMENT (AS DEFINED IN PROPOSAL NUMBER EIGHT BELOW),
ENTITLED TO VOTE ON ANY MATTER SUBMITTED TO SHAREHOLDERS AND WILL HAVE
SUBSTANTIAL INFLUENCE ON THE OUTCOME OF ANY SUCH MATTER. If the Trust
fails to pay the dividends when due on the Series A Shares, the holders of
these shares would also be entitled to immediately elect, as a class, two
trustees to the Board. If the default continues for one year, the holders
of Series A Shares would be entitled to elect one additional trustee.
Thereafter, the holders would be granted the right to elect one additional
<PAGE>
trustee for each year during which the default continues. Each Series A
Share would be redeemable at any time, or from time to time, from and after
three years after the issuance date, at the Trust's option, at a price
equal to one hundred dollars ($100.00) plus accrued and unpaid dividends
or, at the holder's option, at a price equal to one hundred dollars
($100.00).
The Series A Shares issuable upon conversion of the Convertible Loan
or any Common Shares issuable upon conversion of Series A Shares would be
restricted as to transfer except in compliance with applicable federal or
state law or exemptions therefrom. In addition, the Trust has granted the
holders of the Series A Shares the right to cause the Trust to register
such Common Shares. A copy of the amendment to the Declaration setting
forth the rights, preferences and other characteristics of the Series A
Shares is attached hereto as Annex C.
If this proposal is approved, certain sections of the Declaration
would be amended to provide that in the event of a conflict with the
designations of any Preferred Shares, the terms of the Preferred Share
designations would prevail, and certain sections would be amended to
clarify that where the vote or consent of Shareholders is required or
permitted, the minimum number of votes required would include all holders
having the right to vote Common Shares. This would include holders of
Preferred Shares, such as the Series A Shares discussed above, entitled to
cast votes equal to the number of Common Shares into which the Preferred
Shares would be convertible. If this proposal is not approved, the Trust
will not have authority to issue Preferred Shares and holders of the
Convertible Loan will not be able to convert amounts funded under the loan
into Series A Shares.
RECOMMENDATION: The Board recommends that the Shareholders approve of
and adopt the following resolution which will be presented for a vote of
the Shareholders at the Annual Meeting:
RESOLVED, that Article VII, Section 7.1 of the
Declaration be and hereby is amended by deleting it in its entirety and
substituting the following therefore:
7.1 TRUST ESTATE. The beneficial interest in the
Trust shall be divided into shares of beneficial interest. The Trust shall
have authority to issue an unlimited number of common shares of beneficial
interest, no par value per share (the "Shares"), and two million preferred
shares of beneficial interest, no par value per share (the "Preferred
Shares"). The Preferred Shares may be issued on such rights, preferences
and designations as determined by the Trustees, including without
limitation such rights, preferences and designations which grant the
holders of Preferred Shares rights in the Trust Estate superior to those
rights of the holders of Shares. The Shares and Preferred Shares may be
issued for such consideration as the Trustees shall determine, including,
upon the conversion of convertible debt, or by way of share distribution or
share split in the discretion of the Trustees. Subject to Section 7.12
hereof, outstanding Shares or Preferred Shares shall be transferrable and
assignable in like manner as are shares of common stock or preferred stock
of a Massachusetts business corporation. Shares or Preferred Shares
reacquired by the Trust shall no longer be deemed outstanding and shall
have no voting or other rights unless and until reissued. Shares or
Preferred Shares reacquired by the Trust may be cancelled by action of the
Trustees. All Shares or Preferred Shares shall be fully-paid and non-
assessable by or on behalf of the Trust upon receipt of full consideration
for which they have been issued or without additional consideration if
issued by way of distribution, split, or upon the conversion of convertible
debt. Neither the Shares nor the Preferred Shares shall entitle the holder
to preference, preemptive, conversion or exchange rights of any kind,
except as the Trustees may specifically determine with respect to any
Shares or Preferred Shares at the time of issuance of such shares, as set
forth in the applicable designations (in the case of Preferred Shares), and
except as specifically required by law.
FURTHER RESOLVED, that Article VII, Section 7.2 of the
Declaration be amended by deleting it in its entirety and substituting in
its entirety the form of amendment set forth in Annex C to the Proxy
Statement.
FURTHER RESOLVED, that Article VI, Section 6.1.3(b) of
the Declaration be, and hereby is, amended by deleting it in its entirety
and substituting the following therefor:
6.1.3(b) [reserved]
FURTHER RESOLVED, that Sections 3.1, 3.4, 3.5, 4.2.23,
4.2.24, 4.2.26, 7.7, 7.10, 9.1.1(c) and 9.2 of the Declaration be and
hereby are amended in the manner necessary to provide that in the event of
a conflict between the designations of any Preferred Shares and the
provisions of such Section, the terms of the designations shall prevail.
FURTHER RESOLVED, that Sections 3.1, 3.4, 7.7, 9.1,
9.1.1, 9.2 and 9.3 of the Declaration be, and hereby are, amended to
replace the phrase "the holders of" with the phrase "Shareholders holding
or having the right to vote."
VOTE REQUIRED. The affirmative vote of two-thirds of the outstanding
Common Shares is required to adopt the foregoing resolutions and to amend
the Declaration to effect the intent of the resolutions.
PROPOSAL NUMBER SIX: INCREASE COMPENSATION PAYABLE TO INDEPENDENT
TRUSTEES.
Under the provisions of the Declaration, the Class A Trustees (to be
redesignated "Independent Trustees") are entitled to receive $15,000 per
year for their services as Trustees plus $875 for each meeting attended in
person and $250 an hour for each telephonic board meeting. The annual base
fee has not changed since the Trust was formed. The per meeting fees were
last changed in June 1991. To ensure that the Trust is able to attract and
retain qualified individuals to serve as Trustees and in light of the time
and responsibility involved in serving as a Trustee, the Board is proposing
to increase the amount of fees payable to the Independent Trustees annually
from $15,000 to $20,000 and the per meeting fees from $875 to $1,000 for
each meeting attended in person and from $250 an hour to $500 an hour for
each meeting attended via telephonic conference call.
<PAGE>
RECOMMENDATION OF THE BOARD: The Board of Trustees recommends that the
Shareholders adopt the following resolution:
RESOLVED, that the first sentence of Section 3.3 of the
Declaration be, and hereby is, deleted in its entirety and replaced with
the following: Each Independent Trustee shall be entitled to receive
$20,000 per year for his or her services as an Independent Trustee plus
$1,000 for each meeting of the Board attended in person and $500 per hour
for each meeting of the Board attended via telephonic conference call.
VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding Common Shares is required to adopt the foregoing resolution
and to amend the Declaration to effect the intent of the resolution.
PROPOSAL NUMBER SEVEN: MODIFY THE LIABILITY AND INDEMNIFICATION PROVISIONS
OF THE DECLARATION OF TRUST FOR TRUSTEES, OFFICERS AND OTHER PARTIES.
Under Article VIII, Section 8.1 of the Declaration, no Trustee or
officer of the Trust may be found liable to the Trust or any other Trustee,
Shareholder, officer or agent of the Trust, for any act or omission causing
loss to the Trust or such other individuals in connection with the affairs
of the Trust so long as the person acted in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interest of the
Trust, unless the loss was the result of negligence or misconduct by the
person.
Under Section 8.4 of Article VIII, the Trust is required to indemnify
any trustee, officer, employee or other agent of the Trust made a party to
any action, suit or proceeding or against whom a claim of liability is
asserted by reason of the fact the person was serving on behalf of the
Trust so long as the person has determined in good faith, that the course
of conduct which caused the loss or liability: (i) was in the best
interest of the Trust; and (ii) was not the result of negligence or
misconduct. Further, indemnification is not permitted for losses,
liabilities, settlements and related expenses of lawsuits alleging
securities law violations unless: (x) a court approves the settlement and
indemnification; or (y) the matter is dismissed with prejudice or the
merits of the suit are successfully adjudicated. In no event may the Trust
advance funds for legal expenses and other costs incurred in connection
with any legal action initiated by a Shareholder of the Trust. The Trust
may, however, advance funds if the action is initiated by a third party who
is not a Shareholder of the Trust and the individual seeking
indemnification agrees to repay the advances if it is ultimately determined
that the person is not entitled to indemnification.
The Trustees believe that these prohibitions may have a negative
impact on the Trust's ability to attract and retain qualified persons to
serve as Trustees, officers, employees or agents of the Trust since most
comparable entities do not limit indemnification unless the loss or
liability is the result of the person's gross negligence as opposed to mere
negligence. As a result, the Trustees are proposing to amend Sections 8.1
and 8.4 in two respects. First, the Trustees believe that the Trust should
be required to indemnify persons serving the Trust against losses,
judgments, liabilities, expenses and amounts paid in settlement unless the
loss or liability was the result of the person's gross negligence as
opposed to negligence. Second, the Trustees believe that the Trust should
be permitted to advance funds to a person for legal expenses incurred as a
result of any legal action initiated against the person in his or her
capacity as a trustee, officer, employee or agent of the Trust even if the
action is initiated by a Shareholder of the Trust. Any advances would
still be subject to the agreement of the indemnified party to repay any
advances if it is later determined that the indemnified party was not
entitled to indemnification. Further, any amounts paid to indemnify a
person would continue to be paid only from the assets of the Trust and not
from the personal assets of any Shareholder. Indemnification would not be
permitted for losses, liabilities, settlements and related expenses of
lawsuits alleging securities law violations unless a court approved the
settlement and found that indemnification was appropriate or if the matter
were to be dismissed with prejudice or successfully concluded on the merits
for the person seeking indemnification.
The Board believes these changes will enhance the Trust's ability to
attract and retain qualified individuals to serve as Trustees, officers,
employees and agents of the Trust.
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders approve of and adopt the following resolution which will be
presented for a vote of the Shareholders at the Annual Meeting.
RESOLVED, that Article VIII, Section 8.1 of the
Declaration be, and hereby is, deleted in its entirety and replaced in its
entirety by the following:
LIMITATION OF LIABILITY OF TRUSTEES AND OFFICERS. The
Trustees of the Trust shall be deemed to be in a fiduciary relationship to
the Shareholders. No Trustee, officer, employee or other agent of the
Trust shall be liable to the Trust or to any Trustee or Shareholder for any
act or omission of any other Trustee, Shareholder, officer, agent or
employee of the Trust or be held to any personal liability whatsoever in
tort, contract or otherwise, in connection with the affairs of this Trust
if it is determined that such person acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests
of the Trust, unless such liability was the result of gross negligence or
misconduct by the person.
FURTHER RESOLVED, that Article VIII, Section 8.4 of the
Declaration be, and hereby is, deleted in its entirety and replaced in its
entirety by the following:
INDEMNIFICATION. Any person made a party to any action,
suit or proceeding, or against whom a claim or liability is asserted by
reason of the fact that he, his testator or intestate was or is a Trustee,
officer, employee or other agent acting on behalf of the Trust shall be
indemnified and held harmless by the Trust against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claim sustained
by them in connection with the Trust, provided that (a) such person has
determined, in good faith, that the course of conduct which caused the loss
or liability was in the best interests of the Trust, (b) such liability or
loss was not the result of gross negligence or misconduct by such person,
and (c) such indemnification or agreement to hold harmless is recoverable
only out of the assets of the Trust and not from the personal assets of any
Shareholder. Indemnification will not be allowed for any liability imposed
by judgment, and costs associated therewith, including attorneys' fees,
arising from or out of a violation of state or federal securities laws
associated with the offer and sale of the Common Shares. Indemnification
will not be allowed for losses, liabilities, settlements and related
expenses of lawsuits alleging securities law violations unless (1) a court
approves the settlement and finds that indemnification of the settlement
and related costs should be made, or (2) there has been a dismissal with
prejudice or a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnity.
Any person seeking indemnification shall apprise the court of the position
of the Securities and Exchange Commission and the Massachusetts Securities
Division with respect to indemnification for securities law violations,
before seeking court approval for indemnification. The Trust may advance
funds to any person for legal expenses and other costs incurred as a result
of any legal action initiated against the person if (i) the legal action
relates to the performance of duties or services by the person on behalf of
the Trust; and (ii) such person agrees in writing to repay the advanced
funds to the Trust if it is ultimately determined that he or she is not
entitled to indemnification by the Trust as authorized herein. The rights
accruing to any person under these provisions shall not exclude any other
right to which he or she may be lawfully entitled, nor shall anything
contained herein restrict the right of any person to contribution as may be
available under applicable law. The Trust shall have the power to
purchase and maintain liability insurance on behalf of any person entitled
to indemnity hereunder, including the Trustees, but the Trust shall not
incur the costs of that portion of liability insurance which insures any
party against liability for which he or she could not be indemnified under
this Declaration.
VOTE REQUIRED. The affirmative vote of the majority of the
outstanding Common Shares is required to adopt the foregoing resolutions
and to amend the Declaration to effect the intent of the resolutions.
PROPOSAL NUMBER EIGHT: APPROVE ISSUANCE OF COMMON SHARES UPON CONVERSION
OF PREFERRED SHARES AND LOANS.
On October 14, 1997, the Trust completed a $30.0 million financing
with a group of institutional investors for which Morgens, Waterfall,
Vintiadis & Company, Inc. served as agent (the "Morgens Investors"). The
financing was comprised of approximately $10.0 million of equity (2,192,501
shares (the "Equity Investment") representing 19.9% of the Trust's
outstanding shares prior to the issuance), and $20.0 million in the form of
a commitment to fund a loan convertible, upon Shareholder approval, into
Series A Preferred Shares and/or Common Shares (the "Convertible Loan";
together with the Equity Investment, the "Financing Transaction").
<PAGE>
Amounts funded under the Convertible Loan may be converted, at the
holder's option, into Series A Shares or into additional Common Shares.
The number of Common Shares issuable on conversion would be equal to the
dollar value of the being converted divided by $5.15. If the full amount
of the Convertible Loan is funded ($20.0 million), the Trust would be
required to issue approximately 3.9 million additional Common Shares upon
conversion. These shares, when aggregated with the shares purchased in the
Equity Investment, would result in the Morgens Investors owning
approximately 35.4% of the Trust's issued and outstanding Common Shares
giving effect to all of the issuances.
Under the rules governing issuers, such as the Trust, whose securities
are included for quotation on Nasdaq, shareholder approval is required for
certain issuances as a condition to Nasdaq approving these securities for
inclusion in the Nasdaq system. These include issuances: (i) in connection
with the acquisition of the stock or assets of another company if the
securities have, or will have upon issuance, voting power equal to or in
excess of 20% of the voting power outstanding before such issuance, or the
number of securities to be issued is or will be equal to or exceed 20% of
the number of securities outstanding before such issuance; (ii) at a price
less than the greater of book or market value and which equals 20% or more
of the outstanding securities; or (iii) which may result in officers or
directors of the company acquiring the greater of 1% of the number of
outstanding securities of the company or 25,000 shares. The Common Shares
issuable upon conversion of the Convertible Loan or the Series A Shares to
the holders of the loan or preferred shares would, when aggregated with the
Common Shares purchased in the Equity Investment by the same holders,
exceed 20% of the outstanding Common Shares at the time that the Equity
Investment was completed. As a result, approval of the Shareholders is
required as a condition to authorizing issuance of the additional Common
Shares issuable upon conversion of the Convertible Loan or the Series A
Shares.
The Board believes that approving the issuance upon conversion will
benefit the Shareholders because: (i) conversion of indebtedness under the
Convertible Loan into shares would reduce the Trust's outstanding
indebtedness; and (ii) conversion of the Series A Shares into Common Shares
would reduce the outstanding Series A Shares which have a liquidation
preference and other rights superior to those of the Common Shares.
The Common Shares issued in the Equity Investment were sold at a price
equal to $5.00 per share which represented a discount of approximately
$0.30 per share compared to the average closing price of the Trust's shares
for the five trading days prior to completion of the transaction and $0.76-
$1.48 per share compared to the projected range of liquidation values as of
June 30, 1997 of $5.76 to $6.48 per share. As a result, the Trust retained
Josephthal & Co. Inc. f/k/a/ Josephthal Lyon & Ross, Incorporated
("Josephthal") to render an opinion regarding the fairness, from a
financial point of view, of the consideration received by the Trust.
Josephthal's opinion is included with this Proxy Statement as Annex B for
Shareholder's reference and is summarized below. Under the Declaration,
the Trustees had the authority to complete the Financing Transaction
without any additional approvals. Except as described in Proposal Number
Five and Number Eight, Shareholder approval is not being sought for the
Financing Transaction. If this Proposal Number Eight is not approved, the
holders of the Convertible Loan or Series A Shares, as the case may be,
will not be permitted to convert either interest into additional Common
Shares.
<PAGE>
OPINION OF JOSEPHTHAL, LYON & ROSS INCORPORATED
The Trust retained Josephthal to render an opinion regarding the
fairness, from a financial point of view, of the consideration received by
the Trust from the Common Shares sold to the Morgens Investors. Neither
the Board nor the Trust's management imposed any limitations on Josephthal
with respect to the investigations made or procedures followed by
Josephthal in preparing and rendering its opinion. Josephthal rendered an
opinion to the Board on October 10, 1997 to the effect that, based upon and
subject to the considerations set forth in its opinion, as of October 10,
1997, the consideration paid to the Trust in the Financing Transaction was
fair to the Trust and its Shareholders from a financial point of view.
Josephthal expressed no opinion on the use of proceeds from the Equity
Investment and is under no obligation to update, revise or reaffirm its
opinion even in the event that the value of the Common Shares materially
changes. As of the date of this Proxy Statement, management has not
requested that Josephthal update its opinion since management does not
believe that there has been a material change to any of the information
upon which Josephthal relied in preparing its opinion.
The full text of Josephthal's fairness opinion, which sets forth the
assumptions made, general procedures followed, matters considered and
limits on the review undertaken, is included as Annex B to this Proxy
Statement. This summary of Josephthal's opinion is qualified in its
entirety by reference to the full text of the opinion in Annex B. EACH
SHAREHOLDER IS URGED TO READ THE OPINION IN ITS ENTIRETY. Josephthal's
opinion is directed to the Board, addresses only the consideration payable
to the Trust and does not constitute a recommendation to any holder of
Common Shares as to how the holder should vote on either Proposal Number
Five or Eight.
In connection with its opinion, Josephthal reviewed such materials and
considered those financial and other factors that it deemed relevant under
the circumstances, including, among others, the following: (i) the Stock
Purchase Agreement dated October 10, 1997, and a Term Loan Agreement dated
October 10, 1997, by and among the Trust and the Morgens Investors and the
exhibits thereto; (ii) certain historical financial, operating and other
data that were publicly available or were furnished to Josephthal by the
Trust regarding the Trust including, but not limited to (a) projections
prepared by management of the Trust; (b) liquidation analyses prepared by
management of the Trust; (c) Form 10-K for the period ended December 31,;
(d) Form 10-Q for the period ended June 30, 1997; (e) estimates of the
Trust's quarterly results for the fiscal quarter ended September 30, 1997;
and (f) internally generated operating reports of the Trust; (iii) publicly
available financial, operating and stock market data for companies
Josephthal deemed comparable to the Trust; (iv) publicly available
financial, operating and stock market data for companies Josephthal deemed
comparable to the Trust which had been involved in a merger or acquisition
since January 1, 1996; and (v) such other factors as Josephthal deemed
appropriate. Josephthal did not review the Trust's actual quarterly
results for the quarter ended September 30, 1997 or any subsequent period
since the results were not available at the time of its analysis.
Josephthal met with senior officers of the Trust to discuss the prospects
for the Trust's business, their estimates of future financial performance
and such other matters as Josephthal believed relevant. Josephthal's
opinion is solely and necessarily based on economic, financial and market
conditions as they existed and as they could be evaluated as of the date of
its opinion. In evaluating the fairness of the consideration received by
the Trust from the Morgens Investors, Josephthal reviewed various analyses
prepared by management and considered the potential that the Trust would
terminate by March 14, 2001.
As described in its opinion, Josephthal relied upon and assumed,
without any responsibility to independently verify, the accuracy and
completeness of the financial and other information provided or which was
publicly available, and did not attempt to verify independently any such
information. Josephthal relied solely on the information and estimates
provided to it by the Trust's management and neither made nor obtained any
independent appraisals of the Trust's properties, other assets or
facilities. With respect to certain financial information, including
financial analyses and projections, relating to the Trust's business and
prospects provided to Josephthal by the Trust, Josephthal assumed that the
financial information was reasonably prepared and that the financial
projections represented management's best currently available estimates as
to the future financial performance of the Trust without and subsequent to
the Equity Investment.
First, Josephthal reviewed and analyzed estimates of funds from
operations ("FFO") and per share values prepared by the Trust's management
for the period 1997 through 2002 based on the assumption that: (i) no
additional capital would be raised; and (ii) the Financing Transaction
would be completed. The first or baseline analysis projected FFO and per
share values assuming that the Trust did not raise additional capital and
continued to hold its existing properties. Revenues for the existing or
core properties were estimated based upon historical experience and an
analysis of existing leases. For purposes of this analysis leases for 67%
of the space were assumed to renew at market rates for a term of four
years. The remaining 33% of the space was assumed to remain vacant for six
months before being leased at market rates for four years. Overall, the
financial model provided for vacancy at the greater of the above lease
expiration assumptions or a minimum 5% vacancy allowance. Credit loss or
allowance for uncollectible rents was assumed to be 1% per annum. Market
rental rates were assumed to increase at a rate of 3% per annum. Expenses
for the core portfolio as well as for general and administrative functions
were estimated based on historical results and were assumed to increase at
a compounded annual rate of approximately 3%. In calculating per share
values, the FFO per share generated from 1997 through 2002 was discounted
to present value utilizing discount rates ranging from 12% to 25% and added
to the terminal value which was calculated by multiplying the FFO in 2002
by 9.2 and discounting to present value using discount rates ranging from
12% to 25%. The terminal multiple of 9.2 was selected based on an analysis
of market multiples for the comparable companies described below. This
analysis produced estimated per share values ranging from $4.23 per share
to $7.24 per share.
The other set of estimates assumed completion of the Financing
Transaction. For these purposes, management constructed two scenarios,
conservative and aggressive, assuming investment of the proceeds are in
properties at prices (measured by capitalization rates) substantially
equivalent to the price that the Trust has paid in recent acquisitions
(generally a cap rate of approximately 11% in the conservative scenario
versus 12% in the more aggressive scenario), that the acquisitions would be
structured similarly to those in the Trust's existing portfolio in terms of
leverage, property type and tenant make-up and that the operating margins
would be similar to the margins produced by the existing portfolio. The
analysis also assumed that the newly-acquired properties would generate
approximately $13.7 million of revenue in 1998 increasing to $17.2 million
in 1999 and thereafter increasing at an annual compounded rate of 3% in the
conservative scenario and 4% in the aggressive scenario. Expenses for the
newly-acquired properties were estimated to be approximately $5.4 million
in 1998, increasing to approximately $6.7 million in 1999 and thereafter
increasing at an annual compounded rate of 3% in both the conservative and
aggressive scenarios. Management also assumed sale of the properties
making up the core portfolio in five to seven years and reinvestment of the
proceeds in additional properties.
The FFO per share produced by the conservative scenario was then used
to estimate trading prices of the Common Shares assuming an investor would
sell the shares in year 2002. For this purpose, the FFO generated in the
years 1997 through 2002 was discounted to present value utilizing discount
rates ranging from 12% to 25%, and the FFO in 2002 capitalized utilizing
multiples ranging from 9.2 to 11 times FFO and discounting to present value
utilizing the same discount rates. This resulted in projected share prices
ranging from $8.98 per share to $5.17 per share using a multiple of 11
times 2002 FFO and $8.03 per share to $4.68 per share using a multiple of
9.2 times 2002 FFO. Although management had also calculated projected
share prices based on both the more aggressive revenue projections
described above and by using an increased multiple of 2002 FFO, Josephthal
did not consider this estimate in its analysis since the Board requested
that Josephthal focus its fairness analysis on the more conservative
revenue projections and the lower multiples.
Second, Josephthal reviewed and analyzed a liquidation analysis
prepared by management of the Trust. The liquidation analysis projected
the net realizable value of the Trust's existing assets as of June 30, 1997
and then adjusted each asset's carrying value to management's estimate of
market value. These values were then further reduced alternatively by
another 5% and 10%, respectively, to reflect the cost of selling the
properties along with debt prepayment costs and discounts required to
effect a quick and orderly sale of the assets. Management used a variety
of approaches to estimate market value. In some cases, recent offers for
the subject property were utilized. In other cases, the property's income
stream for the last year was capitalized utilizing market comparable
transactions to establish a capitalization or "cap" rate. These cap rates
ranged from 10% to 13%. The analysis assumed that no additional properties
would be acquired and that the Trust would not raise any additional
capital. The analysis described above yielded projected ranges of value
equal to $5.76 to $6.48 per share.
SHAREHOLDERS SHOULD NOTE THAT THE ESTIMATES DESCRIBED ABOVE ARE
NECESSARILY BASED ON ECONOMIC, MARKET, FINANCIAL AND OTHER CONDITIONS THAT
ARE NOT SUSCEPTIBLE TO PRECISE PREDICTION. THESE ESTIMATES WERE PREPARED
IN GOOD FAITH BY MANAGEMENT OF THE TRUST. THERE CAN BE NO ASSURANCE THAT
THE TRUST WILL ACHIEVE THE ESTIMATED RESULTS OR THE PROJECTED SHARE PRICES.
SEE "SPECIAL NOTE ON FORWARD LOOKING STATEMENTS" ABOVE.
Third, Josephthal performed a comparable company analysis. Josephthal
identified and selected two groups of publicly-traded companies. The first
group of companies owned properties similar to those owned by the Trust but
had substantially larger market capitalizations than the Trust and lower
amounts of indebtedness as a percentage of their capital structure than the
Trust. These real estate investment trusts were Bedford Property
Investors, Great Lakes REIT, Inc., Kilroy Realty Corp., Meridian Industrial
Trust, Parkway Properties, Inc., Reckson Associates Realty Corp., Trinet
Corporate Realty Trust and Weeks Corp. The second group consisted of real
estate investment trusts with total market capitalization of less than
$400.0 million, a highly-leveraged capital structure but with a real estate
portfolio consisting of diversified properties. The entities in this group
consisted of HMG Courtland Properties, Income Opportunity Realty Investors,
Lexington Corporate Properties, Pacific Gateway Properties and Sizeler
Property Investors (collectively the "Comparable Companies").
<PAGE>
In each case, Josephthal compared the Trust's FFO, revenues, net
operating income and book value with a range of multiples derived from
analysis of each of the Comparable Companies. With respect to the first
group of these companies, Josephthal applied average multiples (derived
from the average multiple of these Comparable Companies) of 18.3x to the
Trust's FFO for the fiscal year ended December 31, 1996, 13.7x for the
estimated FFO for the fiscal year ending December 31, 1997, 11.7x for the
fiscal year ending December 31, 1998 and 10.4x revenues, 13.8x net
operating income and 1.7x book value to the Trust's actual results as of
June 30, 1997. This analysis produced per share values ranging from $6.91
to $14.04 per share. Josephthal then performed a similar analysis with
respect to the second group of Comparable Companies. In this case,
Josephthal applied average multiples also derived from the average
multiples from this second group of companies of 9.2x to the Trust's FFO
for the fiscal year ended December 31, 1996, 9.5x for the estimated FFO for
the fiscal year ended December 31, 1997, 9.1x for the fiscal year ending
December 31, 1998 and 5.6x revenues, 11.1x net operating income and 0.9x
book value to the Trust's actual results as of June 30, 1997. This
analysis yielded values ranging from $3.46 per share to $6.79 per share.
Josephthal explained, however, that it did not place great weight on
the Comparable Company analysis in evaluating the fairness of the
transaction although the second set of companies likely provided a more
comparable measure of value. Josephthal noted that the first group of
companies had substantially larger market capitalizations and significantly
less indebtedness as a percentage of their capital structure than the
Trust. In Josephthal's view, these two factors significantly impact the
market multiples with larger capitalization, lower leveraged entities
typically trading at higher multiples. Josephthal suggested that the lower
end of the range produced by this analysis may be more appropriate to
reflect the relative differences in sizes. Utilizing the lower end of the
analysis, the per share values ranged from $4.36 per share to $7.69 per
share. With respect to the second group of companies, Josephthal noted
that while these entities did not have similar property portfolios they did
have similar capital structures. In Josephthal's view, the former is not
as important as the latter in evaluating value.
Fourth, Josephthal reviewed certain information relating to eleven
relevant business combination or equity transactions completed recently:
(i) Lazard Freres Real Estate Investors, L.L.C. purchase of 1.3 million
newly issued common shares of Alexander Haagen; (ii) the purchase by an
affiliate of Equity Residential Properties Trust of a 9.5% interest in
Ambassador Apartments, Inc.; (iii) the sale by Apartment Investment &
Management Company of approximately 2.3 million shares of newly-issued
Class A common stock to an institutional investor; (iv) the purchase by the
Dutch Public Employees Pension Fund of approximately 2.75 million shares in
Avalon Properties, Inc.; (v) the acquisition of Crocker Realty Trust, Inc.
by Highwood Properties, Inc.; (vi) the purchase by Apollo Real Estate
Investment Fund II of 3.0 million common shares of Koger Equity, Inc.;
(vii) the purchase by Rothschild Realty of approximately 700,000 Class A
cumulative convertible preferred shares in Lexington Corporate Properties,
Inc.; (viii) the acquisition of Paragon Group, Inc. by Camden Property
Trust in a stock swap transaction; (ix) the acquisition by Gotham Partners
of approximately 589,000 common shares in the open market of Santa Anita
Realty Trust; (x) the acquisition by Franklin Resources of 618,000 common
shares in the open market of Santa Anita Realty Trust; and (xi) the
acquisition by a private investment group of approximately 270,000 common
shares in the open market of Weeks Corp. (collectively, the "Comparable
Acquisitions").
<PAGE>
Josephthal reviewed the resulting transaction value as a multiple of
revenues, total assets and book value. These average multiples were then
applied to the Trust's actual revenues, total assets and book value as of
June 30, 1997. This analysis yielded an average per share value of $8.78.
Josephthal noted, however, that each of the companies included in the
Comparable Acquisitions analysis were substantially larger in terms of
market capitalization. Josephthal explained that it, therefore, placed
greater emphasis on the low end of the range which produced a value of
$5.24 per share.
Fifth, Josephthal performed a price-volume trading history analyzing
the trading pattern of the Trust's shares over the past year, two years and
three years. In each case, Josephthal calculated the percentage of shares
that traded below a specific price in a continuum of prices and also
calculated the percentage, based on the same continuum of prices, to the
total number of shares outstanding during each period.
The summary set forth above does not purport to be a complete
description of Josephthal's analyses. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Josephthal believes that the summary and
its analyses must be considered as a whole and that selecting portions
thereof, without considering all of its analyses, could create an
incomplete view of the processes underlying its analyses and opinion.
Josephthal based its analyses on assumptions that it deemed reasonable,
including assumptions concerning general business and economic conditions
and industry specific factors. Although none of these factors caused
Josephthal concern in reaching its fairness conclusion, as noted above,
Josephthal did advise the Board not to place significant weight on the
comparable companies analysis due to the difficulty in identifying truly
comparable entities. Josephthal's analyses are not necessarily indicative
of actual values or actual future results that might be achieved, which
values may be higher or lower than those indicated. Moreover, Josephthal's
analyses are not and do not purport to be appraisals or otherwise
reflective of the prices at which businesses or securities actually could
be bought or sold.
Josephthal was engaged to provide financial advisory services and to
provide a fairness opinion, such as the opinion delivered on October 10,
1997, if necessary. Under the terms of the agreement, the Trust paid
Josephthal a $75,000 retainer fee and agreed to pay an additional $425,000,
at the first closing of a financing transaction, including out-of-pocket
expenses. The Trust also agreed to reimburse Josephthal for reasonable
expenses incurred by Josephthal in excess of $25,000 and to indemnify
Josephthal against certain liabilities, including liabilities under the
federal securities laws. None of the amounts payable to Josephthal are or
were contingent upon approval of the proposals described herein. At the
closing of the Equity Investment and the Convertible Loan Josephthal
received the additional fee of $425,000.
Josephthal has advised the Trust that its fairness opinion is "solely
for the benefit and use of the Company and the Board" and, as such, may not
be relied upon by third parties, such as shareholders of the Trust.
Josephthal believes that under the terms of its engagement letter with the
Trust, which is governed by New York state law, Josephthal has no legal
responsibility to any other persons, including shareholders of the Trust,
as a result of the express disclaimers described above. Josephthal has
advised the Board that it intends to assert the disclaimer as a defense to
<PAGE>
any claims that may be brought against it by shareholders with respect to
its fairness opinion. However, since no New York state court or federal
court applying New York law has definitively ruled on the availability to a
financial advisor, such as Josephthal, of an express disclaimer as a
defense to shareholder liability with respect to its fairness opinion, the
issue necessarily would have to be resolved by a court of competent
jurisdiction. The availability or non-availability of such a defense will
have no effect on Josephthal's rights and responsibilities under federal
securities law, or the rights and responsibilities of the Board under
governing state law or under federal securities laws.
Josephthal was selected because it is a nationally recognized
investment banking firm with substantial experience in the real estate and
REIT industry. Further, Josephthal is familiar with the Trust and its
operations, although it has not previously rendered services to the Trust.
As part of its investment banking practice, Josephthal regularly values
businesses and securities in connection with mergers and acquisitions;
investments for passive and control purposes; negotiated underwritings;
secondary distributions of listed and unlisted securities; private
placements; and estate, corporate and other purposes. In the ordinary
course of business, Josephthal actively trades the securities of the Trust
for its own account and for the accounts of its customers, and may at any
time hold a long or short position in the Trust's securities.
RECOMMENDATION OF THE BOARD: The Board recommends that the
Shareholders approve of and adopt the following resolution which will be
presented for a vote of the Shareholders at the Annual Meeting.
RESOLVED, that the issuance by the Trust of the Common
Shares issuable upon conversion of the Series A Shares or the Convertible
Loan be, and hereby is, authorized and approved.
VOTE REQUIRED. The affirmative vote of a majority of the votes cast
by Shareholders present in person or by proxy and eligible to vote at a
Annual Meeting, a quorum being present, is required to adopt the foregoing
resolution.
PROPOSAL NUMBER NINE: DELETE CERTAIN PROVISIONS OF THE DECLARATION
RELATING TO THE INCURRENCE OF INDEBTEDNESS
Article VI, Section 6.1.8 of the Declaration provides that the Trust
may not incur indebtedness in excess of 200% of the Trust's "Net Assets" or
unsecured indebtedness that would result in an "Asset Coverage Ratio" of
less than 300%. Net Assets are defined in the Declaration as the BOOK
VALUE (emphasis added) of the Trust's assets (other than intangibles)
before depreciation or other non-cash reserves, less total liabilities.
Asset Coverage Ratio is defined in the Declaration as the ratio that the
value of the Trust's assets, less all liabilities and indebtedness (except
unsecured indebtedness), bears to the aggregate amount of all unsecured
borrowings of the Trust.
The Board and management of the Trust believe, however, that these
provisions are inconsistent with the manner that real estate investment
trusts ("REITs") generally, and the Trust specifically, manage and evaluate
the overall level of indebtedness that is appropriate for their or its
capital structure. Management of the Trust believes that there are two
methods appropriate for evaluating the amount of indebtedness that a
company should maintain as part of its capital structure. One method
compares the ratio of debt to total market capitalization and is utilized
by a number of REITs, particularly those whose stock trades at a premium to
book value and who incur the debt primarily at the entity level. For these
purposes, market capitalization is defined as the number of outstanding
common shares multiplied by the price per share plus the face value of
outstanding indebtedness. The second method evaluates the appropriate
level of indebtedness by comparing the principal amount of the indebtedness
<PAGE>
to the FAIR MARKET VALUE of the property being financed. The Board tends
to focus more on the second method than the first at the present time in
establishing the Trust's debt policy since the Trust typically incurs
indebtedness primarily when acquiring properties.
The Trust generally seeks to limit the amount of indebtedness it
incurs on acquisition of a property to 65% of the property's fair
market value. At the time of acquisition, book value approximates fair
market value. Book value does not, however, increase even when the value
of the underlying property has increased. From time to time, the Trust
generates additional capital to use in new acquisitions by refinancing
existing indebtedness where the underlying property has increased in value.
For example, the Trust has recently completed, or is in the process of
completing, a refinancing of indebtedness secured by two properties which
have increased in value based on third party appraisals commissioned by
third party lenders. The first, known as Northlake Festival Tower, has a
book value of approximately $18.0 million and previously secured
approximately $10.3 million of acquisition indebtedness. The fair market
value of Northlake, based on the appraisal, had appreciated to
approximately $22.0 million. The Trust refinanced the property by
increasing the amount of indebtedness secured by the property to
approximately $17.5 million. The second property, known as the Lexington
Business Center, has a book value of approximately $7.5 million and
presently secures approximately $5.0 million of acquisition indebtedness.
The fair market value of Lexington Business Center, based on the appraisal,
is approximately $11.9 million. The Trust anticipates increasing the amount
of indebtedness secured by the property to approximately $7.7 million.
The proceeds from the refinancings were used or will be typically
used to purchase properties. Refinancing indebtedness is typically
recourse only to the properties and not to the Trust's other assets. The
refinancings described above are consistent with the provisions of Section
6.1.8 since the additional indebtedness did not or will not cause the Trust
to exceed either of the limitations described above. As of March 31, 1998,
the Trust had indebtedness of $106 million or 152% of Net Assets and had
an Asset Coverage Ratio of 1,150%. The Trust's ability to incur additional
secured indebtedness, even if the properties in the Trust's underlying
portfolio have appreciated, will, however, be limited by the 200%
limitation. Thus, in the absence of raising additional equity, creating
additional borrowing capacity on a secured basis or selling existing
properties at prices in excess of book value, the Trust's ability to
increase the size of its portfolio will be limited. Since the Trust's
business plan contemplates further growth of its portfolio, the Board is
desirous of maximizing its options for creating capital and believes that
the provisions contained in Section 6.1.8 should be deleted. By doing so,
the Board believes that the Trust will have greater capacity to make new
acquisitions or to increase the Trust's capital for other uses; such as
capital improvements to its portfolio.
Shareholders should note, however, that if this proposal is approved,
the Declaration will no longer limit the amount of indebtedness that the
Trust may incur. Overall increases in indebtedness would increase the
Trust's debt service obligations and could increase the risk of default by
the Trust on its debt obligations which could have a material adverse
effect on the Trust's financial condition and results of operations. In
addition, the Trust will be further subjected to the risks associated with
debt financing, including: (i) the risk that the Trust's cash flow will be
<PAGE>
insufficient to meet required payments of principal and interest; (ii) that
the Trust will not be able to refinance existing indebtedness or that the
terms of any refinancing will not be as favorable to the Trust as the terms
of existing indebtedness; and (iii) the risk that necessary capital
expenditures for purposes, such as reletting space, will not be able to be
financed on favorable terms. Further, if a property is mortgaged to secure
payment of indebtedness and the Trust is unable to meet its payment
obligations, the property could be forfeited (by foreclosure or otherwise)
to the mortgagee with a consequent loss of any prospective income and
equity value from the property to the Trust. Although the Board intends to
limit the amount of indebtedness secured by any particular property to 65%-
80% of fair market value, the Trust may incur greater amounts of
indebtedness secured by particular properties from time to time.
RECOMMENDATION OF THE BOARD: That the Shareholders concur in the
following resolution which will be presented for a vote of the Shareholders
at the Annual Meeting:
RESOLVED, that Section 6.1.8 of Article VI be, and hereby
is, amended by deleting it in its entirety and substituting the following:
6.1.8 [Reserved]
VOTE REQUIRED: The affirmative vote of a majority of the outstanding
Common Shares is required to adopt the foregoing resolution and to amend
the Declaration to effect the intent of the resolution.
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
LEONARD G. LEVINE. Mr. Levine, age 51, has been President of the
Trust since 1990. Mr. Levine received a B.S./B.A. Degree in accounting
from Roosevelt University and a Master's Degree in taxation from DePaul
University. Mr. Levine's areas of expertise include real estate
syndication, estate planning and taxation of closely-held corporations.
Mr. Levine is also a certified public accountant and a licensed real estate
broker.
NEIL D. HANSEN. Mr. Hansen, age 51, has been First Vice President of
the Trust since 1991. Mr. Hansen received a B.S. Degree in finance from
the University of Illinois and a Master of Management Degree from
Northwestern University. Mr. Hansen is also a certified public accountant.
ROBERT G. HIGGINS. Mr. Higgins, age 46, has served as Vice President
and General Counsel of the Trust since 1992. Mr. Higgins assumed the
duties of Secretary of the Trust in 1995. Mr. Higgins is also a licensed
attorney admitted to the bar in the States of Illinois, Minnesota and
Texas.
JOEL L. TEGLIA. Mr. Teglia, age 36, has served as the Trust's Vice
President and Chief Financial Officer since 1994. Prior to his
appointment, Mr. Teglia provided various services to the Trust in his
capacity as Controller for BSRT Management Corp. (f/k/a Banyan Management
Corp.), a position that Mr. Teglia held from 1991 to 1994. Mr. Teglia is
also a certified public accountant.
JAY E. SCHMIDT. Mr. Schmidt, age 46, has served as the Trust's Vice
President of Investments since 1995. Prior to his appointment, Mr. Schmidt
provided similar services to the Trust in his capacity as Vice President of
Investments for BSRT Management Corp., a position Mr. Schmidt held from
1992 to 1995. Mr. Schmidt is also a licensed attorney admitted to the bar
in the State of Wisconsin and a licensed real estate broker.
TRUSTEE COMPENSATION. The Trustees are currently paid an annual fee
of $15,000, payable quarterly, plus $875 for each Board meeting, including
meetings as an audit committee, attended in person and $250 an hour for
each Board meeting, including meetings as an audit committee, attended via
telephonic conference call. Each Trustee is also reimbursed for out-of-
pocket expenses incurred in attending meetings of the Board. The
compensation paid to Trustees would increase if Proposal Number Six is
approved by the Shareholders.
<PAGE>
<TABLE>
EXECUTIVE COMPENSATION. Compensation paid to the chief executive officer of the Trust and the four most
highly compensated executive officers, other than the CEO, for the years ended December 31, 1997, 1996 and 1995 is
as follows:
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ----------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
SECURITIES
UNDER-
OTHER RESTRICTED LYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION AWARD(S) SARs(#) PAYOUTS COMPENSATION
- ---- ---- ------ ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard G. Levine,
President and Chief (1)
Executive Officer . 1997 $195,540 -- -- $2,319,292 -- -- --
1996 $189,247 -- -- 7,700 -- $ 66,985 --
1995 $184,812 -- -- 24,899 -- $111,739 --
Jay E. Schmidt
Vice President-
Investments . . . . 1997 $165,281 $ 35,000 --
(2)
1996 $154,615 $ 65,000 -- -- -- -- --
(2)
1995 $148,136 $ 27,000 -- -- -- -- --
Neil D. Hansen
First Vice
President . . . . . 1997 $192,546 $ 20,000 -- -- -- -- --
1996 -- -- -- -- -- -- --
1995 -- -- -- -- -- -- --
Joel L. Teglia
Vice President and
Chief Financial
Officer . . . . . . 1997 $ 95,160 $ 10,000 -- -- -- -- --
1996 -- -- -- -- -- -- --
1995 -- -- -- -- -- -- --
<PAGE>
<FN>
(1) As of the fiscal year ended December 31, 1997, Mr. Levine owned 503,504 shares of beneficial interest which
were restricted. The value of these shares as of such date was $2,643,396. Mr. Levine owns all of these shares
free of any vesting conditions and is entitled to all dividends or other distributions in respect of such shares.
(2) The bonus of $27,000 paid to Mr. Schmidt was earned in 1994, but paid in 1995. Mr. Schmidt earned a bonus
of $30,000 for the year ended December 31, 1995, but was not paid the bonus until 1996. Mr. Schmidt also earned a
bonus of $35,000 for the year ended December 31, 1996 which was paid in 1996.
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENTS. The Trust has entered into an employment
agreement with only one of the executives named above, Mr. Levine has
served as the Trust's President and Chief Executive Officer since 1990 and
recently entered into a new agreement with the Trust to continue in that
position through December 31, 2001. Under the new agreement, which was
signed on March 11, 1998, but which became retroactively effective as of
October 1, 1997, the Trust will pay Mr. Levine a base salary equal to
$200,000 per year during the first two and one-quarter years of the
contract, increasing to $210,000 per year during the last two years of the
agreement. In addition, Mr. Levine may also earn incentive compensation
during each year of the agreement equal to 62.5% of the base salary for
that year subject to the Trust achieving certain predetermined levels of
"funds from operations." The Trust has also granted Mr. Levine non-
qualified stock options to purchase an aggregate of 350,000 shares of the
Trust's common shares of beneficial interest at an exercise price equal to
$5.50 per share.
Options to purchase 100,000 shares vested and became exercisable upon
execution of the agreement. Options to purchase an additional 100,000
shares will vest and become exercisable in 25,000 share increments at the
end of each calendar year of the agreement with the first increment of
25,000 shares vesting and becoming exercisable on December 31, 1998.
Options to purchase an additional 50,000 shares will vest and become
exercisable if during any consecutive thirty (30) trading days during the
term of the agreement the closing price of the common shares averages at
least $8.50 per share. Options to purchase an additional 100,000 shares
will vest and become exercisable on a proportionate basis if during any
thirty (30) consecutive trading days during the term of the agreement the
closing price of the shares averages more than $8.50 per share with full
vesting occurring with respect to 75,000 shares if the closing price
averages $9.00 per share, and $10.00 per share with respect to the other
25,000 shares. The number of shares underlying the options and the
exercise price of each option are subject to adjustment from time to time
if the Trust: (i) issues or sells additional common shares of beneficial
interest in exchange for consideration at a price less than the prevailing
market price of the Trust's shares; (ii) issues or sells warrants with
exercise prices less than the prevailing market price; (iii) declares a
dividend or otherwise makes a distribution to the holders of its beneficial
interest in the form of additional common shares; (iv) subdivides its
outstanding common shares of beneficial interest into a larger number of
common shares; or (v) combines its outstanding common shares into a smaller
number of common shares. All of the options must be exercised by October
1, 2007, except that if Mr. Levine dies or becomes permanently disabled
during the term of the agreement, then all options which have vested must
be exercised within one year of death or permanent disability. In
addition, upon death or permanent disability, all options not otherwise
vested, but which would or will vest within six months following the date
of death or permanent disability either by passage of time or satisfaction
of the various performance standards will be deemed vested and become
exercisable within the same one-year time period.
The agreement also requires the Trust to provide Mr. Levine with both
life and disability insurance benefits during the term of the agreement, as
well as all non-wage benefits provided by the Trust to its other salaried
employees. The agreement grants the Trust the right to terminate Mr.
Levine's employment if the Trust does not achieve certain earnings targets
in each fiscal year within thirty (30) calendar days after the Trust files
its annual report on Form 10-K with the Securities and Exchange Commission
for the preceding year. The Trust may also terminate Mr. Levine if he is
convicted of, or has a civil judgment rendered against him for, theft or
embezzlement of the Trust's property, is convicted of a felony resulting in
injury to the Trust's business property or reputation, if a civil judgment
is rendered that Mr. Levine breached his duty of loyalty to the Trust or if
an arbitrator determines that Mr. Levine has refused to perform, or
willfully failed to perform, his material duties under the agreement or
committed intentional acts that caused material damage to the Trust's
business or properties or performed his material duties in a manner that
constituted gross negligence. Mr. Levine has the right to terminate the
agreement upon ninety (90) days' notice to the Trust for any reason (the
"Notice Termination"), or upon a "Change of Control" or "Constructive
Termination." For these purposes, "Change of Control" will be deemed to
have occurred if the members of the Board as of October 1, 1997 fail to
constitute a majority of the members of the Board, except for individuals
consented to by Mr. Levine, or if the Shareholders of the Trust adopt a
plan of liquidation or take other action having the effect of a plan of
liquidation without the recommendation and approval of the Board. A
"Constructive Termination" will be deemed to have occurred if Mr. Levine's
authority is materially reduced or if there is a material adverse change in
his working conditions or the Trust requires him to relocate from the
Chicago metropolitan area. If Mr. Levine terminates the agreement upon a
"Change of Control" or is deemed to suffer a "Constructive Termination" the
Trust will be obligated to pay Mr. Levine all amounts which would have been
paid under the agreement. For purposes of making this calculation, the
Trust will be deemed to have satisfied all standards applicable to the
payment of incentive compensation and all Options granted will become
vested and immediately exercisable. If Mr. Levine is not employed by the
Trust on January 1, 2002, pursuant to a written employment agreement, and
has not then died or become permanently disabled, the Trust is obligated to
pay Mr. Levine $210,000, unless the agreement has previously been
terminated by the Trust either due to the Trust's failing to achieve
certain performance standards or for "Just Cause" or by Mr. Levine by a
Notice Termination.
Prior to September 30, 1997, Mr. Levine was employed by the Trust
pursuant to the terms of an agreement executed as of January 1, 1990 and
subsequently amended. Under the prior agreement, Mr. Levine was paid a
base salary which, during the nine months ended September 30, 1997,
amounted to approximately $146,655 and was entitled to receive compensation
under an incentive program based upon recoveries by the Trust on
"foreclosed real estate assets" owned by the Trust as of December 31, 1992
and upon the performance of the Trust's reinvestment activities commencing
as of January 1, 1993.
In particular, Mr. Levine was able to earn incentive compensation
based upon disposition of foreclosed real estate assets equal to: (i) 1% of
the amount of the Trust's secured claims existing as of January 1, 1990
which were converted into cash on or after January 1, 1993; and (ii) 3% of
the Trust's unsecured claims existing as of January 1, 1990 which were
converted into cash on or after January 1, 1993. Further, Mr. Levine was
able to earn annual incentive compensation based upon the performance of
the Trust's "reinvestment activities" by comparing the yield on these
activities to the yield on five-year Treasury Notes plus 100 basis points
("investment hurdle") as of January 1 of each year (commencing as of
January 1, 1993) equal to: (i) $500 for each basis point by which the
Trust's rate of return from reinvestment activities exceeded the investment
hurdle up to 500 basis points; and (ii) $250 per each basis point by which
the rate of return from reinvestment activities exceeded the investment
hurdle plus 500 basis points. All incentive compensation earned on
reinvestment activities was to be paid 80% in cash and 20% in shares
("Award Shares") of the Trust on March 15 of the year following the period
for which the incentive was earned. The agreement also provided that as
soon as practicable after December 31, 1997, the aggregate incentive
compensation paid in respect of reinvestment activities would be computed
on a cumulative basis covering the period January 1, 1993 through December
31, 1997 or the date of employment termination. For purposes of the
cumulative computation, the Trust was deemed to realize all profits and
gains on the reinvestment activities, but which were not realized. Since
the cumulative computation exceeded the actual amount paid to Mr. Levine,
the Trust awarded Mr. Levine additional shares of the Trust equal in value
to the excess compensation owed to Mr. Levine (the "Additional Incentive
Compensation"). For these purposes, the shares were valued at a price
equal to $3.75 per share. If the calculation had resulted in Mr. Levine
receiving more incentive compensation during the term of the agreement than
otherwise reflected by the cumulative computation, Mr. Levine would have
been required to forfeit shares to the Trust equal in value to the excess.
For these purposes, the number of the shares would be valued at the average
price at which they were issued to Mr. Levine under the agreement.
On September 4, 1997, the Trust and Mr. Levine further amended the
former agreement based on an analysis performed by the Trust which
indicated that the Trust would owe Mr. Levine Additional Incentive
Compensation at the end of calendar year 1997 based on projections of the
Trust's asset values. In an effort to remove the uncertainty this may have
caused in the Trust's discussions with potential investors, the Trust and
Mr. Levine agreed to fix the amount of Additional Incentive Compensation as
well as incentive compensation due Mr. Levine for the period January 1,
1997 through August 31, 1997. Under this amendment, the Trust agreed to
issue 400,000 shares of beneficial interest in the Trust in respect of this
compensation. For purposes of this issuance, the shares were issued at a
price equal to the average closing price of the Trust's shares for the five
business days ended August 31, 1997, which was $4.812 per share.
<PAGE>
<TABLE>
STOCK OPTION GRANTS IN 1997 FISCAL YEAR
---------------------------------------
<CAPTION>
Potential Realized
Value at Assumed
Annual Rates of Stock
Price Appreciations
for Option Term
------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal or Base Expiration
Name Granted Year Price Date 5% 10%
- ---- ----------- ---------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leonard G. Levine . . . 350,000 67% $5.50 Oct 1, 2007 $1,210,622 $3,067,954
Jay E. Schmidt. . . . . 5,000 1% $4.08 Jul 7, 2007 $ 12,829 $ 32,512
20,000 4% $6.38 Nov 18, 2007 $ 80,184 $ 203,202
Neil D. Hansen. . . . . 5,000 1% $4.08 Jul 7, 2007 $ 12,829 $ 32,512
20,000 4% $6.38 Nov 18 2007 $ 80,184 $ 203,202
Robert G. Higgins . . . 5,000 1% $4.08 Jul 7, 2007 $ 12,829 $ 32,512
20,000 4% $6.38 Nov 18, 2007 $ 80,184 $ 203,202
Joel L. Teglia. . . . . 5,000 1% $4.08 Jul 7, 2007 $ 12,829 $ 32,412
15,000 3% $6.38 Nov 18, 2007 $ 60,138 $ 152,402
</TABLE>
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES DURING 1997
AND DECEMBER 1997 OPTION VALUES
---------------------------------------
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Shares Options at December 31 December 31
Acquired on
Name Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Leonard G. Levine . . . -- $ -- 100,000 / 250,000 (1) $0 / $0
Jay E. Schmidt. . . . . -- $ -- 0 / 25,000 $0 / $5,850
Neil D. Hansen. . . . . -- $ -- 0 / 25,000 $0 / $5,850
Robert G. Higgins . . . -- $ -- 0 / 25,000 $0 / $5,850
Joel L. Teglia. . . . . -- $ -- 0 / 20,000 $0 / $5,850
<FN>
(1) Reflects options granted under Mr. Levine's contract which was executed on March 11, 1998, effective as of
October 1, 1997.
</TABLE>
<PAGE>
BOARD OF TRUSTEES REPORT ON EXECUTIVE COMPENSATION
The Board has not formed a separate committee to review the
compensation of executive officers, including those named in the Summary
Compensation Table contained in this Proxy Statement. Instead, the Board
as a whole is responsible for reviewing and approving executive
compensation as well as approving awards made under the Trust's 1997
Omnibus Stock and Incentive Plan (the "Plan").
The Trust's policy regarding executive compensation is designed to
attract and retain high caliber executives and motivate them to superior
performance for the benefit of the Trust's shareholders. Base salaries are
linked to competitive factors with increases based primarily on merit. In
setting cash compensation for the Trust's executive officers, the Board
considers the range of amounts paid to executives who are employed in
similar positions in companies primarily in the real estate industry with
asset size and funds from operations roughly comparable to the Trust,
although there is no specific list of entities that is used to make this
comparison. With the exception of Mr. Levine, the Trust's President and
Chief Executive Officer, whose salary and bonuses are contractually
established, the Board reviews all other executives' salaries each year and
awards merit increases based on the individual's accomplishments as well as
current salary within the range for his or her level. Greater weight is
normally given to accomplishment of objectives and standards than to the
executive's current salary level within his or her level, although specific
weights for each factor have not been established. In addition, salary can
be substantially increased if an executive officer is promoted to a higher
position with greater responsibilities.
Under an agreement entered into with the Trust, Mr. Levine is able to
earn annual incentive compensation equal to a percentage of his base
salary. Payment of the annual incentive is conditioned on the Trust
attaining certain financial goals. Mr. Levine has also been granted
options to purchase common shares. Over 40% of these options are subject
to vesting provisions tied to the performance of the Trust's stock price.
To be fully vested, the stock price would have to increase over 75% from
the value at which the exercise price was established and must increase at
least 50% to become partially vested in the "incentive options."
The Trust's other executive officers are also eligible to receive
annual bonuses. Mr. Levine is generally granted the discretion to make
cash awards from a bonus pool established for this purpose. These awards
are based primarily on the individual's performance and not typically on
the Trust's financial performance, although financial performance may
impact the size of the bonus pool. The Trust has also granted options to
certain of its other employees and officers. The granting of these options
is strictly within the Board's discretion, although Mr. Levine typically
makes recommendations regarding these awards. The vesting of these options
is typically not subject to the Trust's financial performance, but instead
is tied to the individual remaining in the Trust's employment for a certain
period of time. All option awards are designed to further incentivize
executive performance and to further align the interests of the Trust's
officers and employees with those of the Trust's shareholders.
Walter E. Auch, Sr.
Norman M. Gold
Marvin A. Sotoloff
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total Shareholder return on
the Common Shares of the Trust for the last five fiscal years with the
cumulative total return on the Standard & Poor's 500 Index and the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") Equity REIT
Total Return Index for all equity REITs over the same period (assuming the
investment of $100 in the Trust's Common Shares, the S&P 500 Total Return
Index and the NAREIT Equity REIT Total Return Index on December 31, 1990,
and the reinvestment of all dividends). For the year ended December 31,
1994, the Trust utilized the NAREIT Equity Index for comparison to industry
or peer performance. Beginning with the fiscal year ended December 31,
1995, the Trust switched to NAREIT's Equity REIT Total Return Index, which
excludes REITs operating health care facilities for comparison to industry
or peer performance since management believes that this index provides a
more meaningful comparison.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE S&P 500 TOTAL RETURN INDEX
AND THE NAREIT EQUITY REIT TOTAL RETURN INDEX
Year-End Data 1992 1993 1994 1995 1996 1997
- ------------- ---- ---- ---- ---- ---- ----
BSRT. . . . . . . . . 100.0 125.57 137.23 155.23 155.66 229.69
S&P 500 Index . . . . 100.0 109.99 111.43 153.15 188.29 251.13
NAREIT Equity
Index. . . . . . . . 100.0 119.65 123.45 142.30 192.48 231.47
(without
Health Care)
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of April 23,
<STRIKEOUT>March 12,</STRIKEOUT> 1998 regarding the number and percentage
of outstanding shares of the Trust beneficially owned by: (i) each Trustee;
(ii) each executive officer; (iii) all Trustees and executive officers as a
group; and (iv) any person known to the Trust to be the beneficial owner of
more than five percent of the outstanding Common Shares. Share amounts and
percentages shown for each person or entity are adjusted to give effect to
Common Shares that are not outstanding but may be acquired by a person or
entity upon exercise of all options exercisable by such entity or person
within 60 days of April , 1998. However, those Common Shares are not
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person.
- --------------------------------------------------------------------------
Amount
Name and Address of Beneficial Percent
of Beneficial Owner Ownership of Class
- --------------------------------------------------------------------------
FMR Corp. (1) 1,110,500 8.4%
Fidelity Management & Research Company
Fidelity Low-Priced Stock Fund
Fidelity Management Trust Company
Edward C. Johnson 3d
Abigail P. Johnson
82 Devonshire St. Boston, MA 02109
Magten Asset Management Corp. (2) 1,897,605 14.3%
Mellon Bank, N.A. as Trustee for the
General Motors Employees Domestic
Group Pension Trust
General Motors Investment Management
Corporation
350 East 21st Street
New York, New York 10010
Morgens Waterfall Income Partners,
L.P.(3) 2,192,501 16.6%
Restart Partners, L.P.
Restart Partners II, L.P.
Restart Partners III, L.P.
Restart Partners IV, L.P.
Restart Partners V, L.P.
Endowment Restart, L.L.C.
10 East 50th Street
New York, NY 10022
Leonard G. Levine, 612,504 4.6%
President (4)(5)
Neil D. Hansen, <STRIKEOUT>13,688</STRIKEOUT> 12,564 *
First Vice President (4)
Jay E. Schmidt, 2,001 *
Vice President (4)
<PAGE>
Joel L. Teglia, <STRIKEOUT>1,206</STRIKEOUT> 1,272 *
Chief Financial
Officer (4)
Robert G. Higgins, <STRIKEOUT>1,081</STRIKEOUT> 1,494 *
Vice President,
General Counsel
and Secretary (4)(6) <STRIKEOUT>1,081 *
</STRIKEOUT>
All Trustees and<STRIKEOUT>630,263</STRIKEOUT> 629,835 4.7%
Officers of the Trust,
as a group (eight persons)
- --------------------------------------------------------------------------
* less than 1%
(1) FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson (who together
with other members of the Johnson family may be deemed to form a
controlling group with respect to FMR Corp.) have filed reports with the
Commission pursuant to Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), indicating combined ownership of
five percent (5%) or more of the outstanding Common Shares. As of the
Record Date, Fidelity Management & Research Company, an investment adviser
registered under the Investment Advisers Act of 1940 (the "1940 Act"), and
Fidelity Low-Priced Stock Fund, an investment company which it serves as
investment adviser, owned 991,750 shares or 7.47% of the outstanding Common
Shares. Edward C. Johnson 3d and FMR Corp. each has sole dispositive power
over these 991,750 shares, but neither has sole voting power over these
shares. As of the Record Date, Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp., owned 118,800 shares or .9% of the
outstanding Common Shares as a result of serving as investment manager of
institutional accounts. Edward C. Johnson 3d and FMR Corp. each has sole
voting and dispositive power over these 118,800 Common Shares.
(2) Magten Asset Management Corp. ("Magten") is an investment adviser
registered under the 1940 Act. Magten has filed reports with the Commission
pursuant to Section 13(d) of the Exchange Act, indicating ownership of five
percent (5%) or more of the outstanding Common Shares. Magten has shared
dispositive power over 1,897,605 Common Shares, and shared voting power
over 1,436,005 Common Shares. The General Motors Employees Domestic Group
Pension Trust (the "GM Trust") receives investment management services from
General Motors Investment Management Corporation (the "GM Adviser"), an
investment adviser registered under the 1940 Act. Magten provides
investment management services to the GM Trust. The GM Trust and the GM
Adviser have shared voting and dispositive power over 651,055 Common
Shares, or 4.9% of the outstanding Common Shares. Each of the GM Trust and
the GM Adviser disclaims beneficial ownership of these shares.
(3) Certain affiliates of Morgens Waterfall have filed reports with the
Commission pursuant to Section 13(d) of the Exchange Act, indicating
combined ownership of five percent (5%) or more of the outstanding Common
Shares. As of the Record Date: (i) Morgens Waterfall Income Partners,
L.P., owns 83,315 Common Shares, or a 0.6 % ownership interest; (ii)
Restart Partners, L.P., owns 418,768 Common Shares, or a 3.2% ownership
interest; (iii) Restart Partners II, L.P., owns 692,830 Common Shares, or
a 5.2% ownership interest; (iv) Restart Partners III, L.P., owns 482,350
Common Shares, or a 3.7% ownership
<PAGE>
interest; (v) Restart Partners IV, L.P., owns 304,758 Common Shares,
or a 2.3% ownership interest; (vi) Restart Partners V, L.P., owns 100,855
Common Shares, or a .8% ownership interest; (vii) Endowment Restart,
L.L.C., owns 109,625 Common Shares, or a .8% ownership interest. Although
John C. Waterfall and Edwin H. Morgens do not directly own any Common
Shares, each of them may be deemed an indirect beneficial owner of
2,192,501 Common Shares by virtue of their effective control over the
operation of each of the affiliated entities listed above. Furthermore,
Morgens Waterfall Capital, L.L.C., may be deemed an owner of 83,315 Common
Shares by virtue of its position as general partner of Morgens Waterfall
Income Partners, L.P.
(4) The business address for each of Messrs. Levine, Hansen, Schmidt,
Teglia and Higgins is 150 S. Wacker Drive, Suite 2900, Chicago, Illinois
60606.
(5) Includes options to purchase 100,000 shares.
(6) Includes 300 <STRIKEOUT>217</STRIKEOUT> shares owned by Mr.
Higgins' daughter. Mr. Higgins disclaims beneficial ownership of these
shares.
The Trust is not aware of any arrangements, the operation of which may
at a subsequent date result in a change of control of the Trust.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Trust's officers and trustees, and persons who own more than
ten percent of a registered class of the Trust's equity securities, to file
initial statements of beneficial ownership (Form 3), and statements of
changes in beneficial ownership (Forms 4 or 5), of Beneficial Interest and
other equity securities of the Trust with the Securities and Exchange
Commission (the "SEC") and the National Association of Securities Dealers,
Inc. (the "NASD"). The SEC requires officers, trustees and greater than
ten percent Shareholders to furnish the Trust with copies of all these
forms filed with the SEC or the NASD.
To the Trust's knowledge, based solely upon its review of the copies
of these forms received by it, or written representations from certain
reporting persons that no additional forms were required for those persons,
the Trust believes that all filing requirements applicable to its officers,
trustees, and greater than ten percent beneficial owners were complied with
during 1997.
----------------------------------------
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective January 1, 1997, the Trust began paying employees directly
in contrast to the prior practice of reimbursing Banyan Management Corp.
("BMC") on an hourly basis for the services of BMC's personnel. In prior
years, these payroll costs, along with administrative costs, were allocated
to the Trust and other entities to which BMC provided administrative
services based upon the actual number of hours spent by BMC personnel on
matters related to that particular entity in relation to the total number
of BMC personnel hours. From January 1, 1997 through September 30, 1997,
the Trust shared only certain administrative items, such as office rent and
office expenses, with other companies for which BMC provided services.
These costs were shared based upon the total hours worked by employees of
the Trust relative to total hours worked by employees of BMC and the Trust
combined. The Trust's allocable share of costs for the years ended
December 31, 1997, 1996 and 1995 amounted to $403,100, $374 and $1,
respectively. Beginning October 1, 1997, the Trust paid all of its
administrative costs directly and no longer shared these costs with other
companies.
As of December 15, 1997, all Shareholders of BMC, other than the
Trust, had terminated their administrative services relationship with, and
had surrendered their respective ownership interest in BMC, making the
Trust the sole remaining shareholder of BMC. On December 15, 1997, BMC
merged into a wholly-owned subsidiary of the Trust, BSRT Management Corp.
As a result of the merger, the Trust assumed current liabilities of
$101,526, cash of $83,178 and other assets of $64,171. BSRT Management
Corp. paid a dividend to the Trust in the amount of $150,000 representing a
distribution of its accumulated earnings and profits. This amount has been
included in Other Income of the Trust.
During the fiscal year ended December 31, 1997, the Trust paid no
salary to, but purchased legal services from, Robert G. Higgins, the
Trust's Vice President, Secretary and General Counsel, in the aggregate
amount of $337,672. The Trust also provides Mr. Higgins with office space
and equipment. Mr. Higgins does not pay any rent for the use of office
space and equipment. Instead, Mr. Higgins provides the Trust with a 20%
discount for all time billed to the Trust by Mr. Higgins and his employees.
Mr. Higgins also reimburses the Trust for the cost of two full-time and
certain part-time employees. In addition, during the fiscal year ended
December 31, 1997, the Trust paid Adam Levine, the son of the Trust's
President and Chief Executive Officer, $65,200 for services rendered to the
Trust as an employee. The Trust also provided Adam Levine with benefits
customarily provided to the Trust's other employees.
<STRIKEOUT>INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Trust incorporates by reference herein the following document
filed pursuant to the Exchange Act under the Trust's Exchange Act File No.
0-15465: the Trust's annual report on Form 10-K for the fiscal year ended
December 31, 1997 (as amended on Form 10-K/A) . <STRIKEOUT>All
reports and other documents filed by the Trust pursuant to
Section 13(a)(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement also shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing these
reports and documents.</STRIKEOUT> Any statement incorporated or deemed to
be incorporated herein shall be deemed to be modified or superseded for
purposes of this Proxy Statement to the extent that any statement contained
herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes this
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement. The Trust will not update this Proxy Statement for events
occurring subsequent to the date of this Proxy Statement.</STRIKEOUT>
<PAGE>
The Trust hereby undertakes to provide without charge to each person
to whom a copy of this Proxy Statement has been delivered, upon written or
oral request of the person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to documents, unless
these exhibits are specifically incorporated by reference into the
document). Requests for these documents should be made to the Investor
Relations Department at the Trust's principal executive offices located at
150 South Wacker Drive, Suite 2900, Chicago, Illinois 60606; telephone
number (312) 683-3671. A copy of the Trust's annual report on Form 10-K
and 10K/A (as amended on Form 10-K/A) for the fiscal year ended
December 31, 1997 is included with this Proxy Statement.
STOCKHOLDER PROPOSALS
No shareholder proposals were received by the Trust for inclusion in
this year's proxy statement. If a shareholder wishes to present a proposal
to be included in the proxy statement for the next Annual Meeting of
Shareholders, the proposal must be submitted in writing and received by the
Trust's Secretary at the Trust's offices no later than ____________, 1999.
==================================================
YOUR VOTE IS IMPORTANT. THE PROMPT RETURN OF
PROXIES WILL SAVE THE TRUST THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES. PLEASE
PROMPTLY MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
==================================================
<PAGE>
ANNEX A
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
OF
VMS STRATEGIC LAND TRUST
[Name changed to "Banyan Strategic Realty Trust" by Second Amendment]
THIS AMENDED AND RESTATED DECLARATION OF TRUST, dated as of March 14,
1986, as amended and restated as of August 8, 1986, and amended on March
8, 1991 and May 4, 1993 and amended and restated on _________, 1997, is
hereby accepted by the undersigned Trustees of VMS STRATEGIC LAND TRUST
(the "Trust"), who hereby declare that all property, real, personal or
mixed, tangible or intangible or of any other description now held or
hereafter acquired by or transferred to them in their capacities as Trustee
hereunder, together with the income and profits therefrom and the proceeds
thereof, shall be held by them in trust and shall be received, managed and
disposed of for the benefit of the Shareholders hereunder and in the manner
and subject to the terms and conditions herein provided.
ARTICLE I
THE TRUST, DEFINITIONS
1.1 NAME. [This Section was replaced by text set forth in the
Second Amendment<STRIKEOUT>.</STRIKEOUT>]
1.2 PLACE OF BUSINESS. The Trust shall maintain an office, and
shall designate a resident agent for the service of process (whose name and
address shall be reported from time to time to the Secretary of State of
Massachusetts) in Boston, Massachusetts. The Trust may have such other
offices or places of business within or without the Commonwealth of
Massachusetts as the Trustees may from time to time determine.
1.3 NATURE OF TRUST. The Trust is a trust or voluntary association
of the type referred to in Section 1 of Chapter 182 of the General Laws of
the Commonwealth of Massachusetts and commonly known as a business trust.
It is intended that the Trust elect to carry on business as a real estate
investment trust as described in Sections 856-860 of the Code as soon as
and as long as it is deemed by the Trustees to be in the best interest of
the Shareholders to make such election; provided, however, that, by
affirmative vote of the holders of two-thirds of the outstanding shares,
the Shareholders may determine that the Trust shall no longer carry on the
business as a real estate investment trust and shall cease to qualify as
such under the Code. The Trust is not intended to be, shall not be deemed
to be, and shall not be treated as, a general partnership, limited
partnership, joint venture, corporation, or joint stock company or
association (but nothing herein shall preclude the
A-1
<PAGE>
Trust from being taxable as an association under Section 856-860 of the
Code) nor shall the Trustees or Shareholders or any of them for any purpose
be deemed to be or be treated in any way whatsoever to be, liable or
responsible hereunder as partners or joint venturers or as agents of one
another. The relationship of the Shareholders to the Trustees shall be
solely that of beneficiaries of the Trust and their rights shall be limited
to those conferred upon them by this Declaration.
1.4 PURPOSE OF THE TRUST. The purpose of the Trust is to lend
funds secured by real property, by interests in entities which own real
property or by a similar security interest, and in general to carry on any
other acts in connection with or arising out of the foregoing and to have
and exercise all powers that are available to voluntary associations formed
under the laws of the Commonwealth of Massachusetts and to do any or all of
the things herein set forth to the same extent as natural persons might or
could do.
1.5 DEFINITIONS. The terms defined in this Section 1.5 whenever
used in this Declaration shall, unless the context otherwise requires, have
the respective meanings hereinafter specified in this Section 1.5. In this
Declaration, words in the singular number include the plural and in the
plural number include the singular.
"Advisor." VMS Realty Partners, which, pursuant to the Advisory
Agreement, will serve as the initial investment advisor and administrator
of the Trust, or any successor Advisor selected by the Trustees; it shall
also include any person or entity to which the Advisor subcontracts
substantially all of its administrative functions.
"Affiliate." An Affiliate of, or a person Affiliated with, a
specified person, is (i) any person directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 10% or more or the outstanding voting securities or
beneficial interests of such other person, (iii) any officer, director,
trustee or general partner of such person and (iv) if such other person is
an officer, director, trustee or partner of another entity, then the entity
for which that person acts in any such capacity.
"Annual Meeting of Shareholders." The meeting referred to in the
first sentence of Section 7.7.
"Annual Report." The report referred to in Section 7.9.
"As-Built Appraised Value of the Property" shall mean the land
portion of the Appraised Value of the mortgaged property, taking into
account the planned development of the property as determined by an MAI
appraisal.
"Average Invested Assets." For any period, the average Total Assets
of the Trust, invested, directory or indirectly, in Mortgage Loans before
reserves for bad debts or other similar non-cash reserves, computed by
taking the average of such values at the end of each month during such
period.
A-2
<PAGE>
"By-Laws." The By-Laws referred to in Section 4.4, if adopted.
"Chairman." The Advisor , if any, shall designate one of the
<STRIKEOUT>Class B</STRIKEOUT> Trustees to be Chairman of the Board of
Trustees. The Chairman shall not have any powers not also delegated to the
other <STRIKEOUT>Class B</STRIKEOUT> Trustees, except as expressly provided
herein.
<STRIKEOUT>"Class A Trustees." Those Trustees who (i) are not affiliated,
directly or indirectly, with the Advisor, whether by ownership of,
ownership interest in, employment by, any material business or professional
relationship with, or service as an officer or director of, the Advisor or
its Affiliates; (ii) do not serve as a trustee for more than two other
REITs organized by the Advisor or its Affiliates; and (iii) perform no
other services for the Trust, except as Trustees. An indirect relationship
shall include circumstances in which the immediate family of a Trustee has
one of the foregoing relationships with the Advisor or the Trust.
"Class B Trustees." Those Trustees who are nominated by the Advisor and who
serve one year terms.</STRIKEOUT>
"Code." The Internal Revenue Code of 1986, as amended, or
corresponding provisions of any successor legislation.
"Commission." The Securities and Exchange Commission.
"Declaration." This Declaration of Trust and all amendments or
modifications hereof.
"Independent Trustees" shall mean a person other than an officer
or employee of the Trust or its subsidiaries or any other individual having
a relationship which, in the opinion of the Board of Trustees, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a Trustee.
"Mortgage Loans." Notes, debentures, bonds and other evidences of
indebtedness or obligations which are secured or collateralized by
interests in real property.
"Net Assets." The Total Assets (other than intangibles) of the Trust
at cost before deducting depreciation or other non-cash reserves, less
total liabilities, calculated at least quarterly according to generally
accepted accounting principles on a basis consistently applied.
"Net Income." The net income of the Trust for any period shall mean
total revenues applicable to such period as determined for federal income
tax purposes, less the expenses applicable to such period, other than
additions to reserves for bad debts or other similar non-cash reserves; for
purposes of calculating Operating Expenses, Net Income shall not include
the gain from the sale of the Trust's assets.
"Operating Expenses." All operating, general and administrative
expenses of the Trust as determine under generally accepted accounting
principles, including rent, utilities, capital
A-3
<PAGE>
equipment, salaries, fringe benefits, travel expenses and other
administrative items, but excluding the expenses of raising capital,
interest payments, taxes, non-cash expenditures (e.g., depreciation,
amortization, bad debt reserves), the Subordinated Incentive Fee, and the
costs related directly to a specific Mortgage Loan investment by the Trust,
such as expenses for originating, acquiring, servicing or disposing of a
Mortgage Loan.
"Registration Statement." The Trust's registration statement on Form
S-11 filed with the Securities and Exchange Commission, as amended,
relating to the Trust's first public offering of securities.
"Preferred Shares" shall mean preferred shares of beneficial
interest of the Trust, designated by the Board of Trustees and issued
pursuant to the Declaration.
"REIT" and "real estate investment trust." A real estate investment
trust as defined in Sections 856-860 of the Code.
<STRIKEOUT>"Shareholders." The registered holders of Shares.</STRIKEOUT>
"Shares." Shares of beneficial interest of the Trust, evidencing a
pro <STRIKEOUT>-</STRIKEOUT>rata ownership interest in the Trust Estate and
being of a class having the right to elect the Trustees of the Trust,
issued pursuant to the Declaration.
"Sponsor." Any person directly or indirectly instrumental in
organizing, wholly or in part, the Trust or any person who will manage or
participate in the management of the Trust, and any Affiliate of any such
person, but excluding : (i) a person whose only relationship with the
Trust is that of an independent property manager and whose only
compensation is as such<STRIKEOUT>,</STRIKEOUT> ; and (ii) wholly
independent third parties ; such as attorneys, accountants and
underwriters whose only compensation is for professional services.
"Shareholders." The registered holders of Shares.
"Total Assets." The book value of all assets of the Trust,
determined in accordance with generally accepted accounting principles.
"Trust." The Trust created by this Declaration.
"Trustees." As of any particular time, Trustees holding office under
this Declaration at such time, whether they be the Trustees named herein or
additional or successor Trustees<STRIKEOUT>, and shall not include the
officers, representatives or agents of the Trust not otherwise serving as
Trustees or the Shareholders; but nothing herein shall be deemed to
preclude the Class B Trustees from also serving as officers,
representatives or agents of the Trust or owning Shares</STRIKEOUT>.
A-4
<PAGE>
"Trust Estate." The assets of the Trust, the legal title to which is
held by the Trustees as Trustees of the Trust and the equitable title to
which is evidenced by the Shares and held by the Shareholders.
"Unimproved Real Property." Property which has each of the following
three characteristics: (i) it was not acquired for the purpose of producing
rental or other operating income, (ii) there is no development or
construction in process on such land, and (iii) there is no development or
construction planned in good faith to commence on such land within one
year.
ARTICLE II
INVESTMENT POLICY
2.1 GENERAL STATEMENT OF POLICY. It is the general policy of the
Trust that the Trustees invest the Trust Estate principally in investments
which will conserve and protect the Trust's invested capital, produce
income and cash which may be used to make cash distributions to Share-
holders, and offer the potential for participation in the appreciation
realized upon the sale, refinancing or other disposition of the properties
which secure such investments. To achieve this objective, the Trustees
intend to invest the assets of the Trust principally in junior Mortgage
Loans secured by subordinate liens upon Properties not then at their
highest and best use, but which the borrower plans to develop, or by
interests in entities which own such properties. <STRIKEOUT>The Trustees,
including a majority of the Class A Trustees,</STRIKEOUT> The
Trustees shall at least annually review the investment policies of the
Trust to determine that the policies being followed by the Trust are in the
best interests of the Shareholders, and each such determination and the
basis therefor shall be set forth in the minutes of meetings of the
Trustees.
2.2 ADDITIONAL INVESTMENTS. To the extent that the Trust has
assets not otherwise invested in accordance with Section 2.1, the Trustees
may invest such assets in:
2.2.1 mortgage-backed obligations of or guaranteed or insured -
by the United States Government or any agencies or political
subdivisions thereof;
2.2.2 other obligations of or guaranteed or insured by the
United States Government or by any state, territory or possession of the
United States of America or any agencies or political subdivisions thereof;
2.2.3 shares of other REITs; or
2.2.4 other investments which qualify as "real estate assets,
cash and cash items (including receivables), and Government securities"
under Section 856(c)(5)(A) of the Code;
provided, however, that the assets of the Trust shall at all times be
invested in a manner which permits the Trust to qualify as a REIT under the
Code, so long as the Trust elects to qualify as a REIT.
A-5
<PAGE>
ARTICLE III
TRUSTEES
3.1 NUMBER, TERM OF OFFICE, QUALIFICATION OF TRUSTEES.
<STRIKEOUT>Not later than the effective date of the Registration Statement,
and thereafter, there shall be </STRIKEOUT> The Board of the Trust shall
be comprised of no fewer than three nor more than nine Trustees,
<STRIKEOUT>at least a majority of whom shall at all times be Class A
Trustees. At the first meeting of the Class A Trustees and the Class B
Trustees,</STRIKEOUT> unless one or more Trustees are required to be
added to the Board under the designations of any Preferred Shares, in which
case the authorized number of Trustees shall be increased in order to
comply with such designations. At least a majority of the
Trustees<STRIKEOUT>, including a majority of the Class A Trustees, shall
review and ratify the Declaration, as amended. The number of Class A
Trustees at any time shall not exceed the number of Trustees who are not
Class A Trustees by more than one</STRIKEOUT> shall at all times be
Independent Trustees . The range in the authorized number of Trustees
may be changed by vote of <STRIKEOUT>the holders of</STRIKEOUT>
Shareholders holding or having the right to vote a majority of the
Shares, <STRIKEOUT>and</STRIKEOUT> provided that the exact number
of Trustees within such range shall be specified by the Trustees
from time to time. <STRIKEOUT>Each Class A Trustee shall hold office for a
term of one year or until the election and qualification of his successor.
Subject to the provisions of Section 3.4, each Class B Trustee shall hold
office for a term of one year or until the election and qualification of
his successor. At each Annual Meeting of Shareholders, the Shareholders
shall elect successors to the Class A and Class B Trustees, unless the
number of Trustees is then being reduced.</STRIKEOUT> There shall be no
cumulative voting in the election of Trustees. Trustees may be reelected
without limit as to the number of times. A Trustee shall be an individual
at least 21 years of age who is not under legal disability. Unless
otherwise required by law or by action of the Trustees, no Trustee shall be
required to give bond, surety or security in any jurisdiction for the
performance of any duties or obligations hereunder. The Trustees in their
capacity as Trustees shall not be required to devote their entire time or
any specified portion of their time to the business and affairs of the
Trust.
3.2 ELECTION OF TRUSTEES. The initial Trustees shall be elected
at the annual meeting of the Shareholders, except as provided in
Sections 3.4 or 3.5, and each Trustee elected shall hold office until
the <STRIKEOUT>time each such Trustee must stand for re-election pursuant
to the provisions of Section 3.1 hereof. The Class A Trustees shall
nominate persons to be elected as Class A Trustees or may appoint a
committee of Trustees to make such nominations. The Class B Trustees shall
be nominated by the Advisor.</STRIKEOUT> next annual meeting of the
Shareholders of the Trust and until his or her successor is duly elected
and qualified, or until his or her death or retirement or until he or she
resigns or is removed in the manner hereinafter provided. Such election
shall be by written ballot.
3.3 COMPENSATION AND OTHER REMUNERATION. The <STRIKEOUT>Class
A</STRIKEOUT> Independent Trustees shall
<STRIKEOUT>initially</STRIKEOUT> be entitled to receive
<STRIKEOUT>$15,000</STRIKEOUT> $20,000 per year for their services
as <STRIKEOUT>Trustees hereunder</STRIKEOUT> Independent Trustees plus
$1,000 for each meeting of the Board attended in person and $500 an hour
for each meeting of the Board attended via telephonic conference call .
The compensation payable to the Trustees for their services hereunder may
be increased or decreased upon the affirmative vote of the holders of a
majority of Shares <STRIKEOUT>present and voting, in person or by
A-6
<PAGE>
proxy,</STRIKEOUT> at an Annual Meeting of Shareholders or a special
meeting of Shareholders called for that purpose. The <STRIKEOUT>Class B
Trustees shall not be entitled to receive, directly or indirectly, any
remuneration for services rendered to the Trust in any capacity, including,
without limitation, services as an officer of or, consultant to the Trust,
legal, accounting or, other professional services, or otherwise. The Class
A</STRIKEOUT> Trustees shall be reimbursed for their reasonable expenses
incurred in connection with their services as Trustees, including, without
limitation, travel to and attendance at meetings of the Board of Trustees
and Annual Meetings of Shareholders.
3.4 RESIGNATION, REMOVAL AND DEATH OF TRUSTEES. A Trustee may
resign at any time by giving written notice to the remaining Trustees.
Such resignation shall take effect on the date such notice is given or at
any later time specified in the notice. A Trustee may be removed at any
time with or without cause by vote or written consent of <STRIKEOUT>the
holders of</STRIKEOUT> Shareholders holding or having the right to
vote a majority of the outstanding Shares, and can be removed at a
special meeting pursuant to Section 7.7 herein<STRIKEOUT>. A
Class</STRIKEOUT> , unless the designations of any Preferred Shares
require otherwise, in which case the terms of the designations shall
prevail. A Trustee may also be removed with cause by a majority of the
remaining <STRIKEOUT>Class A Trustees. A Class B Trustee may also be
removed with cause by a majority of the remaining Trustees</STRIKEOUT>
Trustees, unless the designations of any Preferred Shares require
otherwise, in which case the terms of the designations shall prevail .
For purposes of the immediately preceding sentence "cause" shall include,
without limitation, any physical and/or mental inability, due to a
condition or illness which is expected to be of permanent or indefinite
duration, to perform the duties of a Trustee. Upon the resignation or
removal of any Trustee, or his otherwise ceasing to be a Trustee, he shall
execute and deliver such documents, if any, as the remaining Trustees shall
reasonably require for the conveyance of any Trust property held in his
name, shall account to the remaining Trustees as they require for all
property which he holds as Trustee and shall thereupon be discharged as
Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall perform the acts, if any, set forth in the preceding
sentence and the discharge mentioned therein shall run to such legal
representative and to the incapacitated Trustee, or the estate of the
deceased Trustee, as the case may be. <STRIKEOUT> If at any time, neither
the Sponsor nor any Affiliate thereof is the Advisor, the Class B Trustees
theretofore appointed by an Affiliate of the Sponsor shall immediately
resign as Class B Trustees and successor Class B Trustees may be appointed
by the person who becomes the investment advisor to the Trust, to serve
until the next election of Trustees by the Shareholders pursuant to Section
3.4.</STRIKEOUT>
3.5 VACANCIES. If any or all of the Trustees cease to be Trustees
hereunder, whether by reason of resignation, removal, incapacity, death or
otherwise, such event shall not terminate the Trust or affect its
continuity. Until vacancies are filled, the remaining Trustee or Trustees
may exercise the power of the Trustees hereunder. Vacancies among the
<STRIKEOUT>Class A</STRIKEOUT> Trustees (including vacancies created by
increases in the number of <STRIKEOUT>Class A</STRIKEOUT> Trustees) shall
be filled <STRIKEOUT>for the unexpired term by the remaining Class A
Trustee or</STRIKEOUT> by a majority of the remaining <STRIKEOUT>Class A
Trustees. Vacancies among the Class B Trustees including vacancies created
by increases in the number of Class B Trustees) shall be filled by
appointment by the Advisor</STRIKEOUT> Trustees, unless the
designations of any Preferred Shares require otherwise, in which case the
terms of the designations shall prevail . If at any time there shall be
no Trustees in office, successor Trustees shall be elected by
A-7
<PAGE>
the Shareholders as provided in Section 7.7 , unless the designations of
any Preferred Shares require otherwise, in which case the terms of the
designations shall prevail .
3.6 SUCCESSOR AND ADDITIONAL TRUSTEES. The right, title and
interest of the Trustees in and to the Trust property, shall also vest in
successor and additional Trustees upon their qualification, and they shall
thereupon have all the rights and obligations of Trustees hereunder. Such
right, title and interest shall vest in the Trustees whether or not
conveyancing documents have been executed and delivered pursuant to
Section 3.4 or otherwise. Appropriate written evidence of the election and
qualification of successor and additional Trustees shall be filed with the
records of the Trust and in such other offices or places as the Trustees
may deem necessary, appropriate or desirable. Upon, the resignation,
removal or death of a Trustee, he (and in the event of his death, his
estate) shall automatically cease to have any right, title or interest in
or to any of the Trust property, and the right, title and interest in such
Trustee in and to the Trust Estate shall vest automatically in the
remaining Trustees without any further act.
3.7 ACTIONS BY TRUSTEES. The Trustees may act with or without a
meeting. A quorum for all meetings of the Trustees shall be a majority of
the Trustees<STRIKEOUT>, so long as a majority of the Class A Trustees are
present in such quorum</STRIKEOUT>. Unless specifically provided otherwise
in this Declaration, any action of the Trustees may be taken at a meeting
by vote of a majority of the Trustees present at such meeting if a quorum
is present, or without a meeting by written consent of all of the Trustees.
The acquisition of any investment shall require the approval of the
majority of the Trustees. Any action taken by the Trust in which the Spon-
sor, the Advisor or their Affiliates have an interest must be approved by a
majority of the <STRIKEOUT>Class A</STRIKEOUT> Trustees. In addition, any
investment, distribution, payment or disposition of assets or funds between
the Trust and the Sponsor, the Advisor or a Trustee or any of their
respective Affiliates require the additional approval of a majority of the
Trustees who are not parties to the transaction or Affiliates of any person
or entity (other than the Trust) who is a party to the transaction. Any
agreement, deed, mortgage, lease or other instrument or writing executed by
any one or more of the Trustees or by any one or more authorized persons
shall be valid and binding upon the Trustees and upon the Trust when
authorized by action of the Trustees or as approved in the By-Laws, if the
same are adopted. Trustees may conduct meetings by conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in
a meeting shall constitute presence in person at such meeting.
An annual meeting of the Trustees shall be held at substantially the
same time as the Annual Meeting of Shareholders. Regular meetings shall be
held at least four times per year at such times as shall be fixed by the
Trustees. No notice shall be required of an annual or a regular meeting of
Trustees.
Special meetings of the Trustees shall be called by the Chairman upon
the request of any two Trustees and may be called by the Chairman on his
own motion, on not less than two days' notice to each Trustee if the
meeting is to be held in person, and/or not less than eight hours' notice
if the meeting is to be held by conference telephone or similar equipment.
Such notice, which shall state the purpose of the meeting, shall be by
oral, telegraphic, telephonic or written communication stating
A-8
<PAGE>
the time and place therefor. Notice of any special meeting need not be
given to any Trustee entitled thereto who submits a written and signed
waiver of notice, either before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack
of notice to him.
Regular or special meetings of the Trustees may be held within or
without the Commonwealth of Massachusetts, at such places as shall be
designated by the Trustees. The Trustees may adopt such rules and
regulations for their conduct and the management of the affairs of the
Trust as they may deem proper and as are not inconsistent with this De-
claration.
3.8 <STRIKEOUT>CLASS A</STRIKEOUT> INDEPENDENT TRUSTEES. In
order that a majority of the Trustees shall at all times be
<STRIKEOUT>Class A</STRIKEOUT> Independent Trustees, if, at any
time, by reason of one or more vacancies, there shall not be such a
majority, then within 90 days after such vacancy occurs, the continuing
<STRIKEOUT>Class A</STRIKEOUT> Independent Trustee or Trustees then
in office shall appoint, pursuant to Section 3.5, a sufficient number of
other persons who are <STRIKEOUT>Class A</STRIKEOUT> Independent
Trustees, so that there shall be such a majority. Notwithstanding the
provisions of Section 3.1, of the preceding sentence of this Section 3.8,
or of any other provision of this Declaration of Trust, however, there
shall be no requirement as to the election, appointment or incumbency of,
or as to any action by, <STRIKEOUT>Class A</STRIKEOUT> Independent
Trustees at any time that all of the outstanding Shares of the Trust are
owned by the Advisor and Affiliated persons of the Advisor, and by
employees of the Advisor and of such Affiliated persons.
3.9 COMMITTEES. The Trustees may appoint from among their number
an executive committee and such other standing committees, including
without limitation, audit and nominating committees, or special committees
as the Trustees determine. Each standing committee shall consist of three
or more members, a majority of whom shall be <STRIKEOUT>Class A</STRIKEOUT>
Independent Trustees. Each committee shall have such powers, duties
and obligations as may be required by any governmental agency or other
regulatory body or as the Trustees may deem necessary and appropriate.
3.10 RESIGNATION OF <STRIKEOUT>CLASS A</STRIKEOUT>
INDEPENDENT TRUSTEES. In the event that a person elected as
<STRIKEOUT>a Class A</STRIKEOUT> an Independent Trustee ceases to be
an Independent Trustee, <STRIKEOUT>such Trustee shall cease to be a Class A
Trustee</STRIKEOUT> and if, as a result, a majority of Trustees are no
longer <STRIKEOUT>Class A</STRIKEOUT> Independent Trustees, such
person shall immediately resign as a Trustee and such vacancy shall be
filled in a manner consistent with Sections 3.5, 3.6 and 3.8 hereof.
ARTICLE IV
TRUSTEES' POWERS
4.1 POWER AND AUTHORITY OF TRUSTEES. The Trustees, subject only to
the specific limitations contained in this Declaration, shall have, without
further or other authorization, and free from any power of control on the
part of the Shareholders, full, absolute and exclusive power, control and
authority over the Trust Estate and over the business and affairs of the
Trust to the same extent as if the Trustees were the sole owners thereof in
their own right, and to do all such acts and things as in their sole
judgment and discretion are necessary or incidental to, or desirable for,
the
A-9
<PAGE>
carrying out of any of the purposes of the Trust or conducting the business
of the Trust. Any determination made in good faith by the Trustees of the
purposes of the Trust or the existence of any power or authority hereunder
shall be conclusive and each such determination and the basis therefor
shall be set forth in the minutes of meetings of the Trustees. In
construing the provisions of this Declaration, the presumption shall be in
favor of the grant of powers and authority to the Trustees. The
enumeration of any specific power or authority herein shall not be con-
strued as limiting the general powers or authority or any other specified
power or authority conferred herein by statute or rule of law upon the
Trustees.
4.2 SPECIFIC POWERS AND AUTHORITIES. Subject only to the express
limitations contained in this Declaration and in addition to any powers and
authorities conferred by this Declaration or which the Trustees may have by
virtue of any present or future statute or rule of law, the Trustees,
without any action or consent by the Shareholders shall have and may
exercise, at any time, and from time to time, the following powers and
authorities which may or may not be exercised by them in their sole
judgment and discretion, and in such manner, and upon such terms and
conditions as they may, from time to time, deem proper:
4.2.1 to retain, invest and reinvest the capital or other funds
of the Trust and, for such consideration as they deem proper, to purchase
or otherwise acquire for cash or other property or through the issuance of
Shares or other securities of the Trust and hold for investment real or
personal property of any kind, tangible or intangible, in entirety or in
participation and to possess and exercise all the rights, powers and
privileges appertaining to the ownership of the Trust Estate with respect
thereto;
4.2.2 to sell, rent, lease, hire, exchange, release,
partition, assign, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer or otherwise dispose
of or grant interests in all or any portion of the Trust Estate by deeds,
financing statements, security agreements and other instruments, trust
deeds, assignments, bills of sale, transfers, leases or mortgages, for any
of such purposes;
4.2.3 to enter into leases, contracts, obligations, and other
agreements for a term extending beyond the term of office of the Trustees
and beyond the possible termination of the Trust or for a lesser term;
4.2.4 to borrow money and give negotiable or non-negotiable
instruments therefor; to guarantee, indemnify or act as surety with respect
to payment or performance of obligations of third parties; to enter into
other obligations on behalf of the Trust; and to assign, convey, transfer,
mortgage, subordinate, pledge, grant security interests in, encumber or
hypothecate the Trust Estate to secure any of the foregoing;
4.2.5 to lend money, whether secured or unsecured, to any
person, including any person affiliated with the Trust or the Advisor;
4.2.6 to create reserve funds for any purpose;
A-10
<PAGE>
4.2.7 to incur and pay out of the Trust Estate any charges or
expenses, and disburse any funds of the Trust, which charges, expenses or
disbursements are, in the opinion of the Trustees, necessary or incidental
to or desirable for the carrying out of any of the purposes of the Trust or
conducting the business of the Trust, including, without limitation, taxes
and other governmental levies, charges and assessments, of whatever kind or
nature, imposed upon or against the Trustees in connection with the Trust
or the Trust Estate or upon or against the Trust Estate or any part
thereof, and for any of the purposes herein;
4.2.8 to deposit funds of the Trust in or with banks, trust
companies, savings and loan associations, money market organizations and
other depositories or issuers of depository-type accounts, whether or not
such deposits will draw interest or be insured, the same to be subject to
withdrawal or redemption on such terms and in such manner and by such
person or persons (including any one or more Trustees, officers, agents or
representatives) as the Trustees may determine;
4.2.9 to possess and exercise all the rights, powers and
privileges appertaining to the ownership of any or all mortgages or
securities issued or created by, or interests in, any person, forming part
of the Trust Estate, to the same extent that an individual might and,
without limiting the generality of the foregoing, to vote or give consent,
request or notice, or waive any notice, either in person or by proxy or
power of attorney, with or without power of substitution, to one or more
persons, which proxies and powers of attorney may be for meetings or action
generally or for any particular meeting or action, and may include the
exercise of discretionary powers;
4.2.10 to enter into joint ventures, general or limited
partnerships and any other lawful combinations or associations;
4.2.11 to elect or appoint officers of the Trust (none of
whom needs be a Trustee), who may be removed or discharged at the
discretion of the Trustees, such officers to have such powers and duties,
and to serve such terms, as may be prescribed by the Trustees or by the By-
Laws of the Trust, if adopted, or as may pertain to such offices;
4.2.12 subject to the provisions of Article 5, to retain
an Advisor and to pay the Advisor for its services so retained;
4.2.13 subject to the provisions of Sections 8.5 and 8.6,
to engage or employ any persons as agents, representatives, employees or
independent contractors (including without limitation, real estate
advisors, investment advisors, transfer agents, registrars, underwriters,
accountants, attorneys at law, real estate agents, managers, appraisers,
brokers, architects, engineers, construction managers, general contractors
or otherwise) in one or more capacities, in connection with the management
of the Trust's affairs or otherwise, and to pay compensation from the Trust
for services in as many capacities as such person may be so engaged or
employed and notwithstanding that any such person is, or is an Affiliated
person of, a <STRIKEOUT>Class B</STRIKEOUT> Trustee or officer of the
Trust, and, except as prohibited by law, to delegate any
A-11
<PAGE>
of the powers and duties of the Trustees to any one or more Trustees,
agents, representatives, officers, employees, independent contractors or
other persons, including the Advisor, provided, however, that no such
delegation shall be made to an Affiliated person of the Advisor except with
the approval of a majority of the Independent Trustees;
4.2.14 to determine whether moneys, securities or other
assets received by the Trust shall be charged or credited to income or
capital or allocated between income and capital, including the power to
amortize or fail to amortize any part or all of any premium or discount, to
treat all or any part of the profit resulting from the maturity or sale of
any asset, whether purchased at a premium or at a discount, as income or
capital, or apportion the same between income and capital, to apportion the
sales price of any asset between income and capital, and to determine in
what manner any expenses or disbursements are to be borne as between income
and capital, whether or not in the absence of the power and authority
conferred by this subsection such moneys, securities or other assets would
be regarded as income or as capital or such expense or disbursement would
be charged to income or to capital; to treat any dividend or other
distribution on any investment as income or capital or to apportion the
same between income and capital; to provide or fail to provide reserves for
depreciation, amortization, doubtful collection, or obsolescence in respect
of all or any part of the Trust Estate subject to depreciation,
amortization, collection, or obsolescence in such amounts and by such
methods as they shall determine; and to determine the method or form in
which the accounts and records of the Trust shall be kept and to changed
from time to time such method or form;
4.2.15 to determine from time to time the value of all or
any part of the Trust Estate and of any services, securities, property or
other consideration to be furnished to or acquired by the Trust, and from
time to time to revalue all or any part of the Trust Estate in accordance
with such valuations or other information, which valuations or other
information may be provided by the Advisor and or by other persons retained
for the purpose, as the Trustees, in their sole judgment, may deem
necessary;
4.2.16 to collect, sue for and receive all sums of money
coming due to the Trust, and to engage in, intervene in, prosecute, join,
defend, compound, compromise, abandon or adjust, by arbitration or
otherwise, any actions, suits, proceedings, disputes, claims, con-
troversies, demands or other litigation relating to the Trust, the Trust
Estate or the Trust's affairs, to enter into agreement therefor, whether or
not any suit is commenced or claim accrued or asserted and, in advance of
any controversy, to enter into agreements regarding arbitration,
adjudication or settlement thereof;
4.2.17 to renew, modify, release, compromise, extend, -
consolidate or cancel, in whole or in part, any obligation to or of
the Trust;
4.2.18 subject to Section 8.4 below, to purchase and pay
for out of the Trust Estate insurance contracts and policies insuring the
Trust Estate against any and all risks and insuring the Trust, the
Trustees, the Shareholders, the officers of the Trust, the Advisor or
A-12
<PAGE>
any or all of them, against any and all claims and liabilities of
every nature asserted by any person arising by reason of any action alleged
to have been taken or omitted by the Trust or by the Trustees,
Shareholders, officers or the Advisor;
4.2.19 to cause legal title to any of the Trust Estate to
be held by or in the name of the Trust or one or more of the Trustees or
any other person as the Trustees may determine, on such terms and in such
manner and with such powers (not inconsistent with Section 1.1), and with
or without disclosure that the Trust or Trustees are interested therein;
4.2.20 to adopt an accounting method for the Trust, and
from time to time to change such accounting method, and to engage a firm of
independent certified public accountants to audit the financial records of
the Trust;
4.2.21 to adopt and use a seal (but the use of a seal
shall not be required for the execution of instruments or obligations of
the Trust);
4.2.22 with respect to any securities issued by the Trust,
to provide that the same may be signed by the manual signature of one or
more Trustees or officers, or persons who have theretofore been Trustees or
officers or by the facsimile signature of any such person (with or without
countersignature by a transfer agent, registrar, authenticating agent or
other similar person), and to provide that ownership of such securities may
be conclusively evidenced by the books and records of the Trust or in any
appropriate evidence of the Trust without the necessity of any certificate,
all as determined by the Trustees from time to time to be consistent with
normal commercial practices;
4.2.23 to declare and pay cash distributions to
Shareholders as provided in Section 7.5 , subject to any restrictions set
forth in the designations of any Preferred Shares ;
4.2.24 to adopt a distribution reinvestment or similar
such plan for the Trust, and to provide for the cost of the administration
thereof to be borne by the Trust , subject to any restrictions set forth
in the designations of any Preferred Shares ;
4.2.25 to file any and all documents and take any and all
such other action as the Trustees in their sole judgment may deem necessary
in order that the Trust may lawfully conduct its business in any
jurisdiction;
4.2.26 to participate in any reorganization, readjustment,
consolidation, merger, dissolution, sale or purchase of assets, lease or
similar proceedings of any corporation, partnership or other organization
in which the Trust shall have an interest and in connection therewith to
delegate discretionary powers to any reorganization, protective or similar
committee and to pay assessments and other expenses in connection
therewith , subject to any restrictions set forth in the designations of
any Preferred Shares ;
A-13
<PAGE>
4.2.27 to determine whether or not, at any time or from
time to time, to attempt to cause the Trust to qualify or to cease to
qualify as a real estate investment trust for federal income tax purposes,
and to take all action deemed by the Trustees appropriate in connection
with maintaining or ceasing to maintain such qualification;
4.2.28 to do all other such acts and things as are
incident to the foregoing, and to exercise all powers which are necessary
or useful to carry on the business of the Trust, to promote any of the
purposes for which the Trust is formed, and to carry out the provisions of
this Declaration; and
4.2.29 in the event that either (a) the assets of the
Trust would constitute "plan assets" for purposes of ERISA or (b) the
transactions contemplate hereunder would constitute "prohibited
transactions" under ERISA or the Code and an exemption for such
transactions is not obtainable, or not sought by the Trustees, from the
United States Department of Labor, to (1) restructure the Trust's
activities to the extent necessary to comply with any exemption in any
final plan asset regulation adopted by the Department of Labor or to comply
with any requirement the Department of Labor might impose as a condition to
granting a prohibited transaction exemption, and/or (2) terminate the
offering of Shares or compel a dissolution and termination of the Trust.
The Trustees are empowered to amend such provisions to the minimum extent
they believe is necessary in accordance with the advice of accountants
and/or counsel to comply with any applicable federal or state legislation,
rules, regulations, administrative pronouncements or interpretations and/or
judicial interpretations thereof after the date of this Declaration. Such
amendment(s) made by the Trustees in reliance upon the advice of competent
accountants or counsel described above shall be deemed to be made pursuant
to the fiduciary obligation of the Trustees to the Trust and Shareholders,
and no such amendment shall give rise to any claim or cause of action by
any Shareholder.
4.3 INVESTMENT OPPORTUNITIES. All Trustees must present investment
opportunities which comply with the Trust's investment policies to the
Trust prior to engaging in such investments themselves.
4.4 BY-LAWS. The Trustees may, but are not required to, make,
adopt, amend or repeal By-Laws containing provisions relating to the
business of the Trust, the conduct of its affairs, its rights or powers and
the rights or powers of its Shareholders, Trustees or officers not incon-
sistent with law or with this Declaration. Such By-Laws may provide for
the appointment of assistant officers or agents of the Trust, subject,
however, to the right of the Trustees to remove or discharge such officers
or agents.
A-14
<PAGE>
ARTICLE V
ADVISOR AND OTHER AGENTS; ANNUAL OPERATING EXPENSES
5.1 EMPLOYMENT OF ADVISOR, EMPLOYEES AND AGENTS. The Trustees are
responsible for the general policies of the Trust and for such general
supervision of the business of the Trust conducted by all officers, agents,
employees, advisors, managers or independent contractors of the Trust as
may be necessary to insure that such business conforms to the provisions of
this Declaration. However, the Trustees shall have the power <STRIKEOUT>to
</STRIKEOUT> and may, but are not obligated to, retain an Advisor
and/or to appoint, employ or contract with any person <STRIKEOUT>(including
any corporation, partnership, or trust in which one or more of the Class B
Trustees may be directors, officers, stockholders, partners or trustees but
not including any person so related to a Class A Trustee)</STRIKEOUT> as
the Trustees may deem necessary, or proper for the transaction of the
business of the Trust, and for such purpose may grant or delegate such
authority to any such person as the Trustees may in their sole discretion
deem necessary or desirable without regard to whether such authority is
normally granted or delegated by trustees; provided, however, that any
determination to retain an Advisor which is an <STRIKEOUT>affiliated person
of a Class B Trustee</STRIKEOUT> Affiliate shall be valid only if
made or ratified with the approval of a majority of the <STRIKEOUT>Class
A</STRIKEOUT> Trustees; and provided further that any such delegation shall
not preclude the qualification of the Trust as a REIT under the Code. No
advisory contract with an <STRIKEOUT>Affiliated person of a Class B
Trustee</STRIKEOUT> Affiliate shall be entered into or renewed
without the approval of a majority of the <STRIKEOUT>Class A
</STRIKEOUT>Trustees.
It shall be the duty of the Trustees (a) to evaluate the performance
of the Advisor before entering into or renewing an advisory contract; (b)
to monitor the administrative procedures, investment operations, and
performance of the Trust and the Advisor; and (c) to determine from time to
time but at least annually that the total fees and expenses of the Trust
are reasonable in light of the investment experience of the Trust, its Net
Assets, its Net Income, and the fees and expenses of other comparable
advisors in real estate, with each such determination reflected in the
minutes of the Trustees' meetings.
The Trustees, subject to the approval of a majority of the
<STRIKEOUT>Class A</STRIKEOUT> Independent Trustees, and subject to
the provisions of Section 5.4, shall have the power to determine the terms
and compensation of the Advisor or any other person whom they may employ or
with whom they may contract. The Trustees may exercise broad discretion in
allowing the Advisor to administer and regulate the operations of the
Trust, to act as agent for the Trust, to execute documents on behalf or the
Trustees, and to make executive decisions which conform to general policies
and general principles previously established by the Trustees.
5.2 TERM. The Trustees shall not enter into any contract with an
Advisor unless such contract has an initial term of not more than one year,
provides for annual renewal or extension thereafter and provides that it
may be terminated at any time by the Trustees, without cause, upon 60 days
written notice or by the Advisor, without penalty, upon 120 days written
notice. Any agreement with the Advisor may be terminated by a majority of
the <STRIKEOUT>Class A</STRIKEOUT> Independent Trustees. If the
Agreement with the Advisor is terminated, the Advisor will cooperate with
the Trust and take
A-15
<PAGE>
all reasonable steps requested to assist the Trustees in making an orderly
transition of the advisory function. The Trustees shall determine that any
successor Advisor possesses sufficient qualifications (a) to perform the
advisory function for the Trust and (b) to justify the compensation
provided for in its contract with the Trust.
5.3 ACTIVITIES OF ADVISOR. The Advisor may render advice and
services to the Trust as its sole and exclusive function, or engage in
other activities including, without limitation, the rendering of advice to
other investors and the management of other investments or other real
estate investment trusts with similar investment objectives, including,
without limitation, investors and investments advised, sponsored or
organized by the Advisor. The Trustees may request the Advisor to engage
in certain other activities which complement the Trust's investments.
Nothing in this Declaration shall limit or restrict the right of any
director, officer, employee or shareholder of the Advisor, whether or not
also a Trustee, officer or employee of the Trust, to engage in any other
business or to render services of any kind to any other partnership,
corporation, firm, individual, trust or association. The Advisor may, with
respect to any loan or other investment in which the Trust may participate
or allot a participation, render advice and service, with or without
remuneration, to each and every participant in that loan or other
investment.
5.4 ANNUAL OPERATING EXPENSES. The annual Operating Expenses of
the Trust shall not exceed the greater of (a) 2% of the Average Invested
Assets of the Trust or (b) 25% of the Net Income of the Trust for such
year. <STRIKEOUT>The</STRIKEOUT> If the Trust engages an Advisor, the
agreement with the Advisor shall require the Advisor to
reimburse the Trust for the amount by which the aggregate annual expenses
paid or incurred by the Trust exceed the limitations herein provided,
within 60 days after the end of such year.
In the event the Shares are listed for trading on the American Stock
Exchange or included for quotation on Nasdaq, then, if required for listing
or quotation, each contract with the Advisor shall also provide that, so
long as the Shares are listed or quoted , the Advisor will reimburse
the Trust<STRIKEOUT>,</STRIKEOUT> within 120 days after the end of the
Trust's fiscal year<STRIKEOUT>,</STRIKEOUT> for any amount by which the
aggregate compensation paid by the Trust to the Advisor with respect to
such fiscal year exceeds the compensation permitted to be paid by the Trust
to the Advisor pursuant to the listing guidelines, as applicable from time
to time, of the American Stock Exchange or Nasdaq, as the case may be.
The Trust shall send to its Shareholders quarterly a statement
setting forth: (i) the ratio of the costs of raising capital during the
quarter to the capital raised; and (ii) the aggregate amount and type of
fees paid to the Advisor and all Affiliates of the Advisor by the Trust and
by third parties doing business with the Trust who make such payments for
the account of the Trust.
5.5 ADVISOR COMPENSATION. The <STRIKEOUT>Class A</STRIKEOUT>
Independent Trustees shall at least annually review generally the
performance of the Advisor , if any, in order to determine whether
the compensation which the Trust has contracted to pay to the Advisor is
within the limits set forth in this Declaration and is reasonable in
relation to the nature and quality of services performed and whether the
provisions of the contract with the Advisor are being carried out. The
<STRIKEOUT>Class A</STRIKEOUT> Independent Trustees have a fiduciary
duty to the Shareholders to supervise the relationship of the
A-16
<PAGE>
Trust with the Advisor in all respects, including the level of
compensation. Each such determination shall be based on such of the
following and other factors as the <STRIKEOUT>Class A</STRIKEOUT>
Independent Trustees deem relevant, and shall be reflected in the
minutes of the meetings of the Trustees:
5.5.1 the size of the fees payable to the Advisor in relation
to the size, composition and profitability of the portfolio of the Trust;
5.5.2 the success of the Advisor in generating opportunities
that meet the investment objectives of the Trust;
5.5.3 the rates charged to other REITs and to investors other
than REITs by advisors performing similar services;
5.5.4 additional revenues realized by the Advisor and its
Affiliates through their relationship with the Trust, whether paid by the
Trust or by others with whom the Trust does business;
5.5.5 the quality and extent of service and advice furnished to
the Trust by the Advisor;
5.5.6 the performance of the investment portfolio of the Trust,
including income, conservation or appreciation of capital, frequency of
problem investments and competence in dealing with distress situations; and
5.5.7 the quality of the portfolio of the Trust in relationship
to any investments generated by the Advisor for its own account.
ARTICLE VI
PROHIBITED ACTIVITIES
6.1 PROHIBITED INVESTMENTS AND ACTIVITIES. The Trust shall not
engage in any of the following investment practices or activities:
6.1.1 invest in any foreign currency, bullion or commodities or
commodities future, contracts or effect short sales of commodities or
securities;
6.1.2 invest in contracts for the sale of real estate unless
such contracts are recordable in the chain of title;
6.1.3 issue (a) "redeemable securities," "face amount
certificates of the installment type" or "periodic payment plan
certificates," all as defined in the Investment Company Act of 1940, (b)
<STRIKEOUT>more than one class of equity security (excluding warrants,
rights, options and convertible obligations)</STRIKEOUT> [reserved] ,
(c) nonvoting or assessable securities (other than debt
A-17
<PAGE>
securities), and (d) convertible or nonconvertible debt securities to
the public unless the historical cash flow of the Trust or the
substantiated future cash flow of the Trust, excluding extraordinary items,
is sufficient to cover the interest of the debt securities;
6.1.4 grant options, warrants or rights to purchase Shares at
exercise prices less than the fair market value of such Shares on the date
of grant and for consideration (which may include services) that in the
judgment of the Trustees has a market value less than the value of such
option, warrant or right on the date of grant; any such options, warrants
or rights to purchase Shares issued to the Advisor, Trustees, Sponsor or
their Affiliates shall be on the same terms as those sold to the public and
shall not exceed an amount equal to 10% of the number of outstanding Shares
on the date of the grant;
6.1.5 engage in underwriting or the agency distribution of
securities issued by others;
6.1.6 invest more than 10% of Total Assets of the Trust in
Unimproved Real Property or indebtedness secured by a deed of trust or
Mortgage Loans on Unimproved Real Property;
6.1.7 engage in trading, as compared with investment,
activities or in any other activity which would have the effect of causing
the Trust to fail to qualify as a REIT under the Code;
6.1.8 [Reserved] <STRIKEOUT>allow the aggregate
borrowings of the Trust, secured and unsecured, to exceed 200% of the Net
Assets of the Trust; or borrow, on an unsecured basis, if such borrowing
will result in an asset coverage of less than 300% ("asset coverage" means
the ratio which the value of the total assets, less all liabilities and
indebtedness except indebtedness for unsecured borrowings, bears to the
aggregate amount of all unsecured borrowings of the Trust).</STRIKEOUT>
6.1.9 acquire securities in any company holding investments or
engaging in activities prohibited by this Section 6.1;
6.1.10 the Trust may not make junior Mortgage Loans except
where the principal amount of such junior Mortgage Loans (excluding
interest and working capital and interest reserves) plus the outstanding
amount of senior debt does not exceed 85% of the As-Built Appraised Value
of the Property, unless a majority of the Independent Trustees determine
that an increased amount is justified by additional credit or collateral;
the Trust may not make a junior Mortgage Loan which is subordinate to a
mortgage held by the Advisor, Trustees, Sponsors or Affiliates of the
Trust;
6.1.11 purchase property from the Sponsor, the
Advisor<STRIKEOUT>, the Trustees</STRIKEOUT> or any Trustee or their
Affiliates, unless (i) a majority of the Trustees <STRIKEOUT>(including a
majority of the Class A Trustees)</STRIKEOUT> not otherwise interested in
such transaction approve the transaction as
A-18
<PAGE>
being fair and reasonable to the Trust and at a price to the Trust no
greater than the cost of the asset to such Sponsor, Advisor, Trustee or
Affiliate thereof, or, (ii) if the price to the Trust is in excess of such
costs, that substantial justification for such excess exists and such
excess is not unreasonable; in no event shall the cost of such asset to the
Trust exceed its current appraised value as determined by a qualified
independent real estate appraiser selected by the <STRIKEOUT>Class A
Trustees</STRIKEOUT> Trustees not otherwise interested in such
transaction ; or (b) sell property to the Sponsor, the Advisor,
<STRIKEOUT>the Trustees</STRIKEOUT> any Trustee or their Affiliates;
6.1.12 borrow funds from the Sponsor or its Affiliates
unless the interest and other financing charges or fees received by the
Sponsor or its Affiliates do not exceed the amount which would be charged
by unrelated lending institutions on comparable loans for the same purpose;
6.1.13 purchase insurance either through or from any
Affiliate of the Advisor or the Sponsor, unless: (i) before a master
insurance policy covering all the Trust's assets is placed through such
brokerage services, there will have been received quotations from two
independent insurance brokers relating to the proposed coverage, which
quotations shall be upon coverage and terms comparable to those proposed to
be provided by the Affiliate , and such Affiliate shall not provide
such insurance brokerage services unless it can obtain such insurance at a
cost which is no greater than the lowest of the two unaffiliated insurance
agency quotations for such master insurance policy; and (ii) if at any time
the Affiliates cease to derive at least 75% of their business from
insurance commissions with respect to insurance written for individuals,
partnerships, corporations, trusts or other entities which are not
Affiliates of the Advisor or the Sponsor, the Affiliates shall not write
any further insurance on behalf of the Trust or on properties then owned by
it;
6.1.14 invest in equity securities of any nongovernmental
issuer, including other REITs or limited partnerships, for a holding period
in excess of 18 months; such investments in entities affiliated with the
Advisor or its Affiliates will not be permitted unless a majority of the
Trustees (including a majority of the Independent Trustees) not otherwise
interested in such transaction approve the transaction as being fair and
reasonable to the Trust; or
6.1.15 issue its Shares on a deferred payments basis or
other similar arrangement.
6.2 OBLIGOR'S DEFAULT. Notwithstanding any provision in any
Article of this Declaration, when an obligor to the Trust is in default
under the terms of any obligation to the Trust, the Trustees shall have the
power to pursue any remedies permitted by law which in their sole judgment
are in the interest of the Trust and the Trustees shall have the power to
enter into any necessary investment, commitment or obligation of the Trust
resulting from the pursuit of such remedies that are necessary or desirable
to dispose of property acquired in the pursuit of such remedies.
6.3 PERCENTAGE DETERMINATIONS. Whenever standards contained in
this Article VI are expressed in terms of a percentage, whether of value,
total assets, cost or otherwise, such percentage
A-19
<PAGE>
shall be determined at the time of the approval of a Mortgage Loan by the
Trust for a transaction covered by such standard hereunder.
ARTICLE VII
SHARES AND SHAREHOLDERS
7.1 <STRIKEOUT>SHARES</STRIKEOUT> TRUST ESTATE . The
beneficial interest in the Trust shall be divided into
<STRIKEOUT>transferable units of a single class, all of which are
designated as Shares, each without par value, and each Share shall be
identical in all respects with every other Share. Each Share shall entitle
the holder thereof to one vote on all matters upon which Shareholders are
entitled to vote. The total number of Shares which the</STRIKEOUT>
shares of beneficial interest. The Trust shall have authority to
issue <STRIKEOUT>shall be unlimited. The </STRIKEOUT> an unlimited number
of common shares of beneficial interest, no par value per share (the
"Shares"), and ___ million shares of preferred shares of beneficial
interest, no par value per share (the "Preferred Shares"). The Preferred
Shares may be issued on such rights, preferences and designations as
determined by the Trustees, including without limitation such rights,
preferences and designations which grant the holders of Preferred Shares
rights in the Trust Estate superior to those rights of the holders of
Shares. The Shares and Preferred Shares may be issued for such
consideration as the Trustees shall determine, including , upon the
conversion of convertible debt, or by way of <STRIKEOUT>Share</STRIKEOUT>
share distribution or <STRIKEOUT>Share</STRIKEOUT> share
split in the discretion of the Trustees. Subject to Section 7.12 hereof,
outstanding Shares or Preferred Shares shall be
<STRIKEOUT>transferable</STRIKEOUT> transferrable and assignable in
like manner<STRIKEOUT>,</STRIKEOUT> as are shares of common stock or
preferred stock of a Massachusetts business corporation. Shares or
Preferred Shares reacquired by the Trust shall no longer be deemed
outstanding and shall have no voting or other rights unless and until
reissued. Shares or Preferred Shares reacquired by the Trust may be
<STRIKEOUT>canceled</STRIKEOUT> cancelled by action of the Trustees.
All Shares or Preferred Shares shall be fully paid and
<STRIKEOUT>nonassessable</STRIKEOUT> non-assessable by or on behalf
of the Trust upon receipt of full consideration for which they have been
issued or without additional consideration if issued by way of
<STRIKEOUT>Share</STRIKEOUT> distribution, <STRIKEOUT>Share</STRIKEOUT>
split, or upon the conversion of convertible debt.
<STRIKEOUT>The</STRIKEOUT> Neither the Shares nor the Preferred
Shares shall <STRIKEOUT>not</STRIKEOUT> entitle the holder to
preference, preemptive, conversion or exchange rights of any kind, except
as the Trustees may specifically determine with respect to any Shares or
Preferred Shares at the time of issuance of such
<STRIKEOUT>Shares</STRIKEOUT> shares, as set forth in the applicable
designations (in the case of Preferred Shares), and except as
specifically required by law.
7.2 LEGAL OWNERSHIP OF TRUST ESTATE. The legal ownership of the
Trust Estate and the right to conduct the business of the Trust are vested
exclusively in the Trustees, and the Shareholders shall have no interest
therein other than the beneficial interest in the Trust conferred by their
Shares issued hereunder and they shall have no right to compel any
partition, division, dividend or distribution of the Trust or any of the
Trust Estate, nor can they be called upon to share or assume any losses of
the Trust or suffer an assessment of any kind by virtue of their ownership
of Shares.
7.3 SHARES DEEMED PERSONAL PROPERTY. The Shares shall be personal
property and shall confer upon the holders thereof only the interest and
rights specifically set forth in this Declaration.
A-20
<PAGE>
The death, insolvency or incapacity of a Shareholder shall not dissolve or
terminate the Trust or affect its continuity nor give his legal
representative any rights whatsoever, whether against or in respect of
other Shareholders, the Trustees or the Trust Estate or otherwise except
the sole right to demand and, subject to the provisions of this Declara-
tion, the By-Laws, if adopted, and any requirements of law, to receive a
new certificate for Shares registered in the name of such legal
representative, in exchange for the certificate held by such Shareholder.
7.4 SHARE RECORD; ISSUANCE AND TRANSFERABILITY OF SHARES. Records
shall be kept by or on behalf of and under the direction of the Trustees,
which shall contain the names and addresses of the Shareholders, the number
of Shares held by them respectively, and the number of certificates, if
any, representing the Shares, and in which there shall be recorded all
transfers of Shares. The persons in whose names Shares are so recorded
shall be deemed the absolute owners of such Shares for all purposes of this
Trust; but nothing herein shall be deemed to preclude the Trustees or
officers, or their agents or representatives from inquiring as to the
actual ownership of Shares. Until a transfer is duly registered on the
records of the Trust, the Trustees shall not be affected by any notice of
such transfer, either actual or constructive. The payment thereof to the
person in whose name any Shares are registered on the records of the Trust
or to the duly authorized agent of such person (or if such Shares are so
registered in the names of more than one person, to any one of such persons
or to the duly authorized agent of such person) shall be sufficient
discharge for all distributions payable or deliverable in respect of such
Shares.
In case of the loss, mutilation or destruction of any certificate for
Shares, the Trustees may issue or cause to be issued a replacement
certificate on such terms and subject to such rules and regulations as the
Trustees may from time to time prescribe. Nothing in this Declaration
shall impose upon the Trustees or a transfer agent a duty, or limit their
rights, to inquire into adverse claims.
Any issuance, redemption or transfer of Shares which would operate
to disqualify the Trust as a real estate investment trust for
federal income tax purposes, is null and void, and such transaction will be
cancelled when so determined in good faith by the Trustees.
7.5 DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall declare and
pay to Shareholders quarterly distributions in cash, out of current or
accumulated income, capital, capital gains, principal, surplus, proceeds
from the increase or refinancing of Trust obligations, from the repayment
of loans made by the Trust, from the sale of portions of the Trust Estate,
or from any other source as the Trustees in their discretion shall
determine within 45 days after the last day of each fiscal quarter during
which the "real estate investment trust taxable income" (as defined in Code
Section 856(b)(2)) of the Trust was greater than zero; but, in any event,
the Trustees, shall, from time to time, declare and pay to the Shareholders
such distributions as may be necessary to continue to qualify the Trust as
a real estate investment trust, so long as such qualification, in the
opinion of the Trustees, is in the best interest of the Shareholders.
Shareholders shall have no right to any distribution unless and until
declared by the Trustees. The date for determining the Shareholders who
are entitled to participate in such distributions shall be such date as the
Trustees shall designate. The Trustees shall furnish the Shareholders at
the time of each such distribution with a statement in
A-21
<PAGE>
writing advising as to the source of the funds so distributed or, if the
source thereof has not then been determined, a written statement disclosing
the source shall be sent to each Shareholder who received the distribution
not later than 75 days after the close of the fiscal year in which the
distribution was made.
7.6 TRANSFER AGENT, DISTRIBUTION, DISBURSING AGENT AND REGISTRAR.
The Trustees shall have power to employ one or more transfer agents,
distribution disbursing agents, distribution reinvestment plan agents and
registrars and to authorize them on behalf of the Trust to keep records, to
hold and disburse any distributions and to have and perform powers and
duties customarily had and performed by transfer agents, distribution
disbursing agents, distribution reinvestment plan agents and registrar as
may be conferred upon them by the Trustees.
7.7 SHAREHOLDERS' MEETINGS AND CONSENTS. The Trustees shall cause
to be called and held an Annual Meeting of Shareholders at such time and
such place as they may determine, at which Trustees shall be elected and
any other proper business may be conducted. The Annual Meeting of
Shareholders shall be held within six months after the end of each fiscal
year, after not fewer than 10 days nor more than 60 days written notice of
such meeting has been sent to Shareholders by the Trustees and not less
than 30 days after delivery to the Shareholders of the Annual Report for
the fiscal year then ended. Special meetings of Shareholders may be called
by a majority of the Trustees <STRIKEOUT>or a majority of the Class A
Trustees</STRIKEOUT>, and shall be called by the
<STRIKEOUT>Chairman</STRIKEOUT> Board of Trustees upon the written
request of Shareholders holding or having the right to vote not less
than 10% of the outstanding Shares of the Trust. Within 45 days after
receipt of a written request either in person or by registered mail stating
the purpose of the meeting requested by Shareholders, the Trust shall
provide all Shareholders written notice (either in person or by mail) of a
meeting and the purpose of such meeting to be held on a date not fewer than
20 days nor more than 60 days before the date of such meeting, at a time
and place convenient to Shareholders. The call and notice of any special
meeting shall state the purpose of the meeting and no other business shall
be considered at such meeting. If there shall be no Trustees, a special
meeting of the Shareholders shall be held promptly for the election of
successor Trustees. Notwithstanding anything contained in this Section
7.7 to the contrary, the Trustees may grant to the holders of Preferred
Shares the right to call a special meeting, as set forth in the
designations of the applicable Preferred Shares.
A majority of the outstanding Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at such
meeting. Whenever Shareholders are required or permitted to take any
action, such action may be taken, except as otherwise provided by this
Declaration or required by law, by a majority of the votes cast at a
meeting of Shareholders at which a quorum is present by holders of Shares
entitled to vote thereon, or without a meeting by written consent setting
forth the action so taken signed by the holders of a majority of the
outstanding Shares entitled to vote thereon or such larger proportion
thereof as would be required for a vote of Shareholders at a meeting. Any
written consent may be revoked by a writing received by the Trust prior to,
but not after, the time that written consents of the number of Shares
required to authorize the proposed action have been filed with the Trust.
Notwithstanding this or any other provision of this Declaration, no vote or
consent of Shareholders shall be required to approve the sale, exchange or
other disposition, pledging, hypothecating, granting security interests in,
mortgaging,
A-22
<PAGE>
encumbering or leasing by the Trustees of less taken half of the assets of
the Trust or upon the liquidation and dissolution of the Trust in the
ordinary course.
7.8 PROXIES. Whenever the vote or consent of Shareholders is
required or permitted under this Declaration, such vote or consent may be
given either directly by the Shareholder or by a proxy. The Trustees may
solicit such proxies from the Shareholders or any of them in any matter
requiring or permitting the Shareholders' vote or consent.
7.9 REPORTS TO SHAREHOLDERS. The Trustees shall cause to be
prepared and mailed to the Shareholders not later than 120 days after the
close of each fiscal year of the Trust, and in any event not less than 15
days prior to the Trust's annual meeting of Shareholders, a report of the
business and operation of the Trust during such fiscal year, which report
shall constitute the accounting of the Trustees for such fiscal year. The
report shall be in such form and have such content as the Trustees deem
proper, but shall in any event include : (a) a balance sheet, an
income statement and a statement of changes in financial position, each
prepared in accordance with generally accepted accounting principles, shall
be audited by an independent certified public accountant thereon, and shall
be accompanied by the report of such accountant
thereon<STRIKEOUT>,</STRIKEOUT> ; and (b) a description of the
material terms and circumstances of any transactions between the Trust and
the Sponsor, the Advisor, any Trustee, Officer of any Affiliate thereof,
including , without limitation , purchases
from<STRIKEOUT>,</STRIKEOUT> loans to or from<STRIKEOUT>,</STRIKEOUT> or
joint ventures with the Trust, and a statement that a majority of the
Trustees and a majority of the disinterested <STRIKEOUT>Class A</STRIKEOUT>
Trustees determined that such transactions were fair and reasonable to the
Trust and on terms not less favorable than those available from
unaffiliated third parties.
7.10 FIXING RECORD DATE. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any
adjournment thereof or for the purpose of any other action, the Trustees
shall fix a date not more than 60 days prior to the date of any meeting of
Shareholders or distribution payment or other action as a record date for
the determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to take any other action. Any Shareholder who was a
Shareholder at the time so fixed shall be entitled to vote at such meeting
or adjournment thereof or to take such other action, even though he has
since that date disposed of his Shares, and no Shareholder becoming such
after that date shall be so entitled to vote at such meeting or any
adjournment thereof or to take such other action. The provisions of this
Section 7.10 shall not limit the rights of holders of Preferred Shares to
vote at any special meeting, as set forth in the designations of the
applicable Preferred Shares.
7.11 NOTICE TO SHAREHOLDERS. Any notice of meeting or other notice,
communication or report to any Shareholder shall be deemed duly delivered
to such Shareholder when such notice, communication or report is deposited,
with postage thereon prepaid, in the United States mail, addressed to such
Shareholder at his address as it appears on the records of the Trust or is
delivered in person to such Shareholder.
7.12 SHAREHOLDERS' DISCLOSURE; TRUSTEES' RIGHT TO REFUSE TO TRANSFER
SHARES; LIMITATION ON HOLDINGS; REDEMPTION OF SHARES.
A-23
<PAGE>
7.12.1 The Shareholders shall upon demand disclose to the
Trustees in writing such information with respect to direct and indirect
ownership of the Shares as the Trustees deem necessary to comply with
Sections 856-860 of the Code or to comply with the requirements of any
taxing authority or governmental agency.
7.12.2 Whenever it is deemed by them to be reasonably
necessary to protect the tax status of the Trust as a REIT, the Trustees
may require a statement or affidavit from each proposed transferee of
Shares setting forth the number of Shares already owned by him and any
related person specified in the form prescribed by the Trustees and, in
connection therewith, if the proposed transfer may jeopardize the
qualification of the Trust as a REIT, the Trustees shall have the right,
but not a duty, to refuse to transfer the Shares to the proposed
transferee. All contracts for the sale or other transfer of Shares shall
be subject to this provision.
7.12.3 Notwithstanding any other provision of this
Declaration of Trust to the contrary and subject to the provisions of
subsection 7.12.5, no person shall at any time directly or indirectly
acquire ownership in the aggregate of more than 9.9% of the outstanding
Shares of the Trust (the "Limit"). Shares owned by a person or group of
persons in excess of the Limit at any time shall be deemed "Excess Shares."
For the purposes of this Section 7.12, "person" shall have the meaning set
forth in Section 7701(a)(1) of the Code, and shall also mean any
partnership, limited partnership, syndicate or other group deemed to be a
"person" pursuant to Section 13(d)(3) of the Securities Exchange Act of
1934, as amended; and a person shall be deemed to own (a) Shares actually
owned by such person, (b) Shares constructively owned by such person after
applying the rules of Section 544 of the Code, and (c) Shares of which such
person is beneficial owner as defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934. All Shares which any person has the right
to acquire upon exercise of outstanding rights, options and warrants, and
upon conversion of any securities convertible into Shares, if any, shall be
considered outstanding for purposes of the Limit if such inclusion will
cause such person to own more than the Limit.
7.12.4 The Trustees, by notice to the holder thereof, may
redeem any or all Shares that are Excess Shares (including Shares that
remain or become Excess Shares because of the decrease in outstanding
shares resulting from such redemption); and from and after the date of
giving of such notice of redemption ("Redemption Date") the Shares called
for redemption shall cease to be outstanding and the holder thereof shall
cease to be entitled to dividends, voting rights and other benefits with
respect to such Shares excepting only the right to payment by the Trust of
the redemption price determined and payable as set forth in the following
two sentences. Subject to the limitation on payment set forth in the
following sentence, the redemption price of each Excess Share called for
redemption shall be the average daily per Share closing sales price if the
Shares of the Trust are listed on a national securities exchange, and if
the Shares are not so listed shall be the mean between the average per
Share closing bid and asked prices, in each case during the 30 calendar day
period ending on the business day prior to the Redemption Date, or if there
have been no
A-24
<PAGE>
sales on a national securities exchange and no published bid
quotations and no published asked quotations with respect to Shares of the
Trust during such 30 calendar day period, the redemption price shall be the
price determined by the Trustees in good faith. Unless the Trustees
determine that it is in the interest of the Trust to make earlier payment
of all of the amount determined as the redemption price per Share in
accordance with the preceding sentence, the redemption price shall be
payable only upon the liquidation of the Trust and shall not exceed an
amount which is the sum of the per Share distributions designated as
liquidation distributions and return of capital distributions declared with
respect to unredeemed Shares of the Trust of record subsequent to the
Redemption Date, and no interest shall accrue with respect to the period
subsequent to the Redemption Date to the date of such payments; provided,
however, that in the event that within 30 days after the Redemption Date
the person from whom the Excess Shares have been redeemed sells (and
notifies the Trust of such sale) a number of the remaining Shares owned by
him at least equal to the number of such Excess Shares (and such sale is to
a person in whose hands the Shares sold would not be Excess Shares), then
the Trust shall rescind the redemption of the Excess Shares if following
such rescission such person would not be the holder of Excess Shares,
except that if the Trust receives an opinion of its counsel that such
rescission would jeopardize the tax status of the Trust as a REIT then the
Trust shall in lieu of rescission make immediate payment of the redemption
price.
7.12.5 The Limit set forth in Section 7.12.3 shall not
apply to acquisitions of Shares pursuant to a cash tender offer made for
all outstanding Shares of the Trust (including securities convertible into
Shares) in conformity with applicable federal and state securities laws
where a majority of the outstanding Shares (not including Shares or
securities convertible into Shares held by the tender offerer and/or any
"affiliates" or "associates" thereof within the meaning of the Act) are
duly tendered and accepted pursuant to the cash tender offer; nor shall the
Limit apply to the acquisition of Shares by an underwriter in a public
offering of Shares, or in any transaction involving the issuance of Shares
by the Trust, in which a majority of the Trustees determine that the
underwriter or other person or party initially acquiring such Shares will
make a timely distribution of such Shares to or among other holders such
that, following such distribution, none of such Shares will be Excess
Shares.
7.12.6 The Trustees in their discretion may exempt from
the Limit ownership of certain designated Shares while owned by a person
who has provided the Trustees with evidence and assurance acceptable to the
Trustees that the qualification of the Trust as a REIT would not be
jeopardized thereby.
7.12.7 Notwithstanding any other provisions of this
Declaration of Trust to the contrary, any purported acquisition of Shares
of the Trust which would result in the disqualification of the Trust as a
REIT shall be null and void, ab initio.
7.12.8 Nothing contained in this Section 7.12 or in any
other provision of this Declaration of Trust shall limit the authority of
the Trustees to take such other action as they
A-25
<PAGE>
deem necessary or advisable to protect the Trust and the interests of
the Shareholders by preservation of the Trust's qualification as a REIT
under Section 856-860 of the Code.
7.12.9 If any provision of this Section 7.12 or any
application of any such provision is determined to be invalid by any
federal or state court having jurisdiction over the issues, the validity of
the remaining provisions shall not be affected and other applications of
such provision shall be affected only to the extend necessary to comply
with the determination of such court. To the extent this Section 7.12 may
be inconsistent with any other provision of this Declaration of Trust, this
Section 7.12 shall be controlling.
7.13 INSPECTION BY SHAREHOLDERS. The Trust will maintain a list of
the names and addresses of all Shareholders as part of its books and
records. Inspection of the Trust's books and records (including a list of
Shareholders) by a state securities administrator shall be permitted upon
request upon reasonable notice and during normal business hours.
Inspection of the books and records of the Trust by the Shareholders shall
be permitted to the same extent as permitted under the laws of the
Commonwealth of Massachusetts applicable to business corporations.
ARTICLE VIII
LIABILITY OF TRUSTEES, SHAREHOLDERS
AND OFFICERS, AND OTHER MATTERS
8.1 LIMITATION OF LIABILITY OF TRUSTEES AND OFFICERS. The
Trustees , officers and Advisor of the Trust shall be deemed to be in
a fiduciary relationship to the Shareholders. No Trustee or officer of
the Trust shall be liable to the Trust or to any Trustee or Shareholder for
any act or omission of any other Trustee, Shareholder, officer or agent of
the Trust or be held to any personal liability whatsoever in tort, contract
or otherwise in connection with the affairs of this Trust if it is
determined that such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Trust, unless such liability was the result of gross negligence or
misconduct by the Trustee.
8.2 LIMITATION OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OFFICERS.
The Trustees and officers in incurring any debts, liabilities or
obligations, or in taking or omitting any other actions for or in
connection with the Trust are, and shall be deemed to be, acting as
Trustees or officers of the Trust and not in their own individual
capacities. Except to the extent provided in Section 8.1, no Trustee,
officer or Shareholder shall be liable for any debt, claim, demand,
judgment, decree, liability or obligation of any kind of, against or with
respect to the Trust arising out of any action taken or omitted for or on
behalf of the trust and the Trust shall be solely liable therefor and
resort shall be had solely to the Trust Estate for the payment or
performance thereof. Each Shareholder shall be entitled to pro rata
indemnity from the Trust Estate if, contrary to the provisions hereof, such
Shareholder shall be held to any such personal liability.
A-26
<PAGE>
8.3 EXPRESS EXCULPATORY CLAUSES IN INSTRUMENTS. As far as
practicable, the Trustees shall cause any written instrument creating an
obligation of the Trust to include a reference to this Declaration and to
provide that neither the Shareholders nor the Trustees nor the officers of
the Trust shall be liable thereunder and that the other parties to such
instrument shall look solely to the Trust Estate for the payment of any
claim of such obligation. The omission of this provision from any such
instrument shall not render the Shareholders or any Trustee or officer of
the Trust liable nor shall the Trustees or any officer of the Trust be
liable to anyone for such omission.
8.4 INDEMNIFICATION. Any person made a party to any action, suit
or proceeding or against whom a claim or liability is asserted by reason of
the fact that he, his testator or intestate was or is a Trustee, Advisor,
officer, employee or other agent acting on behalf of the Trust shall be
indemnified and held harmless by the Trust against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Trust, provided that (a) such
person has determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interest of the Trust, (b)
such liability or loss was not the result of gross negligence or
misconduct by such person, and (c) such indemnification or agreement to
hold harmless is recoverable only out of the assets of the Trust and not
from the Shareholders. Indemnification will not be allowed for any
liability imposed by judgment, and costs associated therewith, including
attorneys' fees, arising from or out of a violation of state or federal
securities laws associated with the offer and sale of the Shares.
Indemnification will not be allowed for losses, liabilities, settlements
and related expenses of lawsuits alleging securities law violations unless
(1) a court approves the settlement and finds that indemnification of the
settlement and related costs should be made, or (2) there has been a
dismissal with prejudice or a successful adjudication on the merits of each
count involving alleged securities law violations as to the particular
indemnitee. Any person seeking indemnification shall apprise the court of
the position of the Securities and Exchange Commission and the
Massachusetts Securities Division with respect to indemnification for
securities law violations, before seeking court approval for
indemnification. The Trust may <STRIKEOUT>not</STRIKEOUT> advance funds to
<STRIKEOUT>any</STRIKEOUT> a person for legal expenses and other
costs incurred as <STRIKEOUT>a result of any legal action initiated against
such person by a shareholder of the Trust. The Trust may advance funds to a
person for legal expenses and other costs incurred as</STRIKEOUT> result of
a legal action if the following <STRIKEOUT>three</STRIKEOUT> two
conditions are satisfied: (i) the legal action relates to the performance
of duties or services by such person on behalf of the Trust;
<STRIKEOUT>(ii) the legal action is initiated by a third party who is not a
Shareholder of the Trust; and (iii)</STRIKEOUT> and (ii) such person
agrees in writing to repay the advanced funds to the Trust if it is
ultimately determined that he is not entitled to indemnification by the
Trust as authorized herein. The rights accruing to any person under these
provisions shall not exclude any other right to which he may be lawfully
entitled, nor shall anything contained herein restrict such right of a
Trustee to contribution as may be available under applicable law. The
Trust shall have power to purchase and maintain liability insurance on
behalf of any person entitled to indemnity hereunder, including the
Trustees, but the Trust shall not incur the cost of that portion of
liability insurance which insures any party against any liability for which
he could not be indemnified under this Declaration.
8.5 RIGHT OF TRUSTEES AND OFFICERS TO OWN SHARES OR OTHER PROPERTY
AND TO ENGAGE IN OTHER BUSINESS. Any Trustee or officer may acquire, own,
hold and dispose of Shares in the Trust, for his individual account, and
may exercise all rights of a Shareholder to the same extent and in the
A-27
<PAGE>
same manner as if he were not a Trustee or officer. any Trustee or officer
may have personal business interests and may engage in personal business
activities, which interests and activities may include the acquisition,
syndication, holding, management, development, operation or investment in,
for his own account or for the account of others, interests in real
property or persons engaged in the real estate business. Subject to the
provisions of Article V and Section 3.10, any Trustee or officer may be
interested as trustee, officer, director, stockholder, partner, member,
Advisor or employee, or otherwise have a direct or indirect interest in any
person who may be engaged to render advice or services to the Trust, and
may receive compensation from such person as well as compensation as
Trustee, officer or otherwise hereunder and no such activities shall be
deemed to conflict with his duties and powers as Trustee or officer.
8.6 TRANSACTIONS WITH AFFILIATES. The Trust shall not engage in
transactions with the Sponsor, the Advisor, any Trustee, officer or any
Affiliated person of such Advisor, Trustee or officer, except to the extent
that each such transaction has, after disclosure of such affiliation, been
approved or ratified by the affirmative vote of a majority of the
<STRIKEOUT>Class A</STRIKEOUT> Independent Trustees who are not
interested parties in the transactions after a determination by them that:
8.6.1 the transaction is fair and reasonable to the Trust and
its Shareholders;
8.6.2 the terms of such transaction are at least as favorable
as the terms of any comparable transactions made on an arm's length basis;
8.6.3 payments to the Advisor or to any Trustee or officer for
services rendered in a capacity other than that as
<STRIKEOUT>Advisor,</STRIKEOUT> Trustee, or officer may only be made upon
determination that:
a. the compensation is not in excess of their
compensation paid for any comparable services; and
b. the compensation is not greater than the charges
for comparable services available from others who are competent and not
affiliated with any of the parties involved.
The Trust may enter into joint investments with Affiliates of the
Advisor if a majority of the Trustees (including a majority of the
<STRIKEOUT>Class A</STRIKEOUT> Independent Trustees) approve the
joint investment as being fair and reasonable to the Trust and on
substantially the same terms and conditions as those of the other
Affiliates participating in the joint investment. In connection with such
a joint investment, both the Trust and the Affiliate would be required to
approve any material decisions concerning the investment, including
refinancings and capital improvements.
8.7 PERSONS DEALING WITH TRUSTEES OR OFFICERS. Any act of the
Trustees or officers purporting to be done in their capacity as such shall,
as to any persons dealing with such Trustees or officers, be conclusively
deemed to be within the purposes of this Trust and within the powers of the
Trustees and officers. No person dealing with the Trustees or any of them,
or with the
A-28
<PAGE>
authorized officers, agents or representatives of the Trust shall be bound
to see to the application of any funds or property passing into their hands
or control. The receipt of the Trustees or any of them, or of authorized
officers, agents or representatives of the Trust, for moneys or other
consideration, shall be binding upon the Trust.
ARTICLE IX
DURATION, TERMINATION, AMENDMENT
AND REORGANIZATION OF TRUST
9.1 DURATION AND TERMINATION OF TRUST. The <STRIKEOUT>Trustees
will use reasonable efforts to terminate the Trust within approximately 15
years from the date of this Declaration of Trust. However, it shall be in
the absolute discretion of the Trustees to determine in good faith such
termination date as will be in the best interest of the Shareholders of the
Trust, taking into consideration the investments of the Trust at the time
at which termination is considered</STRIKEOUT> duration of the Trust
shall be perpetual unless a majority of the Trustees shall determine that
the Trust should be terminated and liquidated . Any determination by the
Trustees of the date upon which termination shall occur shall be reflected
in a vote of or written instrument signed by a majority of all of the
Trustees then in office, including a majority of the <STRIKEOUT>Class
A</STRIKEOUT> Independent Trustees; provided that the Trust shall be
subject to termination at any time by the vote or consent of <STRIKEOUT>the
holders of</STRIKEOUT> Shareholders holding or having the right to
vote a majority of the outstanding Shares entitled to vote thereon.
9.1.1 Upon the termination of the Trust;
a. the Trust shall carry on no business except for the
purpose of winding up its affairs;
b. the Trustees shall proceed to wind up the affairs
of the Trust and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer or otherwise
dispose of all or any part of the remaining Trust Estate to one or more
persons at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business (and provided that the Trustees may, if permitted by
applicable law, and if they deem it to be in the best interest of the
Shareholders, appoint a liquidating trustee or agent or other entity to
perform one or more of the foregoing functions); and
A-29
<PAGE>
c. after paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases, indemnities
and refunding agreements, as they deem necessary for their protection,
and after payment in full of the liquidation preferences to holders of any
Preferred Shares as required under the applicable designations of Preferred
Shares, the Trustees or any liquidating trust, agent or other entity
appointed by them, shall distribute the remaining Trust Estate among the
Shareholders, pro rata, according to the number of Shares held by each.
If any plan for the termination of the Trust approved by
<STRIKEOUT>the holders of</STRIKEOUT> Shareholders holding or having the
right to vote two-thirds of the outstanding Shares and agreeable to a
majority of the Trustees provides for actions of the Trustees other than as
aforesaid, the Trustees shall have full authority to take all action as in
their opinion is necessary or appropriate to implement such plan.
9.1.2 After termination of the Trust and distribution to the
Shareholders as provided herein or in any such plan so approved by the
Shareholders, the Trustees shall execute and include among the records of
the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder and the rights and interests of
all Shareholders hereunder shall thereupon cease.
<STRIKEOUT>No person dealing with the Trust or any person or persons
purporting to act as Trustees shall at any time (whether or not after 15
years from the date of this Declaration of Trust) have any obligation to
inquire whether or not the Trust is terminated.</STRIKEOUT>
9.2 MERGER, ETC. Upon the vote or written consent of a majority of
the Trustees, <STRIKEOUT>including a majority of the Class A
Trustees,</STRIKEOUT> and with the approval of <STRIKEOUT>the holders
of</STRIKEOUT> Shareholders holding or having the right to vote two-
thirds of the Shares then outstanding, at a meeting the notice for which
included a statement of the proposed action, the Trustees may (a) merge the
Trust into, or sell, convey and transfer the Trust Estate to, any
corporation, association, trust or other organization, which may or may not
be a subsidiary of the Trust, in exchange for shares or securities thereof,
or beneficial interests therein, or other consideration, and the assumption
by such transferee of the liabilities of the Trust and (b) thereupon
terminate the Trust and, subject to this Section 9 and in compliance
with the designations of any Preferred Shares , distribute such shares,
securities, beneficial interests or other consideration ratably among the
Shareholders in redemption of their Shares; provided, however, that: (i)
the Shareholders would, thereafter, be the sole equity owners of such
entity; and (ii) such entity and the Shareholders would thereafter be
subject to federal income tax in much the same manner as they were so long
as the Trust qualified as a REIT.
9.3 AMENDMENT PROCEDURE. This Declaration may be amended by the
vote or written consent of a majority of the Trustees and of <STRIKEOUT>the
holders of</STRIKEOUT> Shareholders holding or having the right to
vote a majority of the outstanding Shares; provided, however, that no
amendment which
A-30
<PAGE>
would reduce the priority of payment or amount payable to holders of Shares
of the Trust upon liquidation of the Trust or that would diminish or
eliminate any voting rights pertaining to holders of Shares shall be made
unless approved by the vote or consent of <STRIKEOUT>the holders
of</STRIKEOUT> Shareholders holding or having the right to vote two-
thirds of the outstanding Shares; provided further, however, that a
majority of the Trustees <STRIKEOUT>(including a majority of the Class A
Trustees)</STRIKEOUT> without the vote or consent of Shareholders may at
any time amend the Declaration to the extent deemed by the Trustees in good
faith to be necessary (i) to clarify any ambiguities or correct any
inconsistencies; (ii) to meet the requirements for qualification as a real
estate investment trust under Sections 856-860 of the Code or any
interpretation thereof by a court or other governmental agency of competent
jurisdiction, but the Trustees shall not be liable for failing so to do;
(iii) (a) to restructure the Trust's activities to the extent necessary to
comply with any exemption in the final plan asset regulation adopted by the
Department of Labor, including establishing a fixed percentage of Shares
permitted to be held by Qualified Plans or other Tax-Exempt Entities,
discontinuing sales to such investors after a given date as necessary to
obtain a prohibited transaction exemption from the Department of Labor
and/or (b) to terminate the offering or to compel a dissolution and
termination of the Trust. Actions by the Trustees pursuant to the third
paragraph of Section 1.1 hereof or pursuant to Subsection 10.3.1 hereof
that result in amending this Declaration may also be effected without vote
or consent of any Shareholder.
9.4 ACTIONS PRIOR TO FIRST PUBLIC SALE OF SHARES. Notwithstanding
any other provision of this Declaration, at such time as there is only one
holder of all of the outstanding Shares and prior to the issuance of Shares
pursuant to a registration statement under the Securities Act of 1933, said
holder of all of the outstanding Shares may, without any vote or consent of
the Trustees: (i) amend this Declaration in whole or in part; (ii)
terminate this Trust; (iii) remove and/or replace any of all of the
Trustees; and (iv) instruct the investment and disposition of any funds or
properties held by the Trustees.
ARTICLE X
MISCELLANEOUS
10.1 APPLICABLE LAW. This Declaration of Trust is made in The
Commonwealth of Massachusetts; the situs, domicile and residency of the
Trust for all purposes is Massachusetts; and the Trust is created under and
is to be governed by and construed and administered according to the laws
of such Commonwealth, including the Massachusetts Business Corporation Law
as the same may be amended from time to time, to which reference is made
with the intention that matters not specifically covered herein or as to
which an ambiguity may exist shall be resolved as if the Trust were a
Massachusetts business corporation, but the reference to such Business
Corporation Law is not intended to and shall not give the Trust, the
Trustees, the Shareholders or any other person any right, power, authority
or responsibility available only to or in connection with an entity
organized in corporate form.
A-31
<PAGE>
10.2 FILING OF COPIES; REFERENCES; HEADINGS. The original or a copy
of this instrument and of each amendment hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with
the Secretary of The Commonwealth of Massachusetts and with the Boston City
Clerk, as well as any other governmental office where such filing may from
time to time be required, but the failure to make any such filing shall
not impair the effectiveness of this instrument or any such amendment.
Anyone dealing with the Trust may rely on a certificate by an officer of
the Trust as to whether or not any such amendments have been made, as to
the identities of the Trustees and officers, and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it
were the original, may rely on a copy certified by an officer of the Trust
to be a copy of this instrument or of any such amendments. In this
instrument and in any such amendment, references to this instrument, and
all expressions like "herein," "hereof," and "hereunder" shall be deemed to
refer to this instrument as a whole as the same may be amended or affected
by any such amendments. The masculine gender shall include the feminine
gender and the neuter. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or effect of this instrument. This instrument may
be executed in any number of counterparts each of which shall be deemed an
original.
10.3 PROVISIONS OF THE TRUST IN CONFLICT WITH LAW OR REGULATIONS.
10.3.1 The provisions of this Declaration are severable
and if a majority of the Trustees <STRIKEOUT>(including a majority of the
Class A Trustees)</STRIKEOUT> shall determine, with the advice of counsel,
that any one or more of such provision (the "Conflicting Provisions") would
have the effect of preventing the Trust from qualifying as a real estate
investment trust under Sections 856-860 of the Code (and if the Trustees
have determined the Trust should elect to be taxed as a REIT under the
Code) or are in conflict with other applicable federal or state laws or
regulations, the Conflicting Provisions shall be deemed never to have
constituted a part of the Declaration; provided, however, that such
determination by the Trustees shall not affect or impair any of the
remaining provisions of this Declaration or render invalid or improper any
action taken or omitted (including but not limited to the election of
Trustees) prior to such determination. A certification signed by a
majority of the Trustees setting forth any such determination and reciting
that it was duly adopted by the Trustees, or a copy of this Declaration,
with the Conflicting Provisions removed pursuant to such a determination,
signed by a majority of the Trustees, shall be conclusive evidence (except
as to Shareholders, as to whom it shall only be prima facie evidence) of
such determination when included in the records of the Trust. The Trustees
shall not be liable for failure to make any determination under this
Section 10.3.1. Nothing in this Section 10.3.1 shall in any way limit or
affect the right of the Trustees to amend this Declaration as provided in
Section 9.3.
10.3.2 If any provision of this Declaration shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render invalid
or unenforceable any other provision of this Declaration, and this
Declaration shall be carried out as if any such invalid or unenforceable
provisions were not contained herein.
A-32
<PAGE>
10.4 BINDING EFFECT; SUCCESSOR IN INTEREST. Each person who becomes
a Shareholder shall, as a result thereof, be deemed to have agreed to and
to be bound by the provisions of this Declaration of Trust. This
Declaration shall be binding upon and inure to the benefit of the Trustees
and the Shareholders and each of their respective successors, assigns,
heirs, distributees and legal representatives.
IN WITNESS WHEREOF, the undersigned have executed this Second
Amended and Restated Declaration of Trust of VMS Strategic Land Trust as of
the date set forth above.
------------------------------
Walter E. Auch, Sr.,
<STRIKEOUT>Class A </STRIKEOUT>
Independent Trustee
------------------------------
Norman M. Gold,
<STRIKEOUT>Class A</STRIKEOUT>
Independent Trustee
------------------------------
Marvin A. Sotoloff,
<STRIKEOUT>Class A </STRIKEOUT>
Independent Trustee
A-33
<PAGE>
ADDRESSES OF TRUSTEES
---------------------
Walter E. Auch, Sr.
c/o Banyan Strategic Realty Trust
150 South Wacker Drive
Suite 2900
Chicago, Illinois 60606
Norman M. Gold
Altheimer & Gray
333 West Wacker Drive
Suite 2600
Chicago, IL 60606
Marvin A. Sotoloff
Equity Resources
101 North Wacker Drive
Suite 230
Chicago, Illinois 60606
A-34
<PAGE>
FIRST AMENDMENT
TO THE
AMENDED AND RESTATED DECLARATION OF TRUST
OF
VMS STRATEGIC LAND TRUST
The undersigned, desiring to amend the Amended and Restated
Declaration of Trust (the "Declaration of Trust") of VMS Strategic Land
Trust (the "Trust"), under the applicable provisions of the laws of the
Commonwealth of Massachusetts and Sections 1.1 and 9.3 of the Declaration
of Trust, hereby makes and executes the following Certificate of Amendment.
The Declaration of Trust, dated as of March 14, 1986 and amended and
restated as of August 8, 1986 was filed in the office of the Secretary of
State of the Commonwealth of Massachusetts on March 26, 1986.
This First Amendment to the Declaration of Trust is for the purpose
of changing the name of the Trust from VMS Strategic Land Trust to Banyan
Strategic Land Trust.
1. Section 1.1 of the Declaration of Trust is hereby amended in
its entirety to read as follows:
"1.1 Name. The trust created by this Declaration of Trust, herein
referred to as the "Trust," shall be known by the name "BANYAN STRATEGIC
LAND TRUST." So far as may be practicable, legal and convenient, the
affairs of the Trust shall be conducted and transacted under that name,
which name shall not refer to the Trustees individually or personally or to
the Shareholders of the Trust, or to any officers, employees or agents of
the Trust or the Trustees.
Under circumstances in which the Trustees determine that the use of
the name "BANYAN STRATEGIC LAND TRUST" is not practicable, legal and
convenient, they may as appropriate use and adopt another name under which
the Trust may hold property or operate in any jurisdiction. Legal title to
all the properties subject from time to time to this Declaration of Trust
shall be transferred to, vested in and held by the Trustees as joint
tenants with right of survivorship as Trustees of this Trust, and not
individually, except that the Trustees shall have the power to cause legal
title to any property of this Trust to be held by and/or in the name of one
or more of the Trustees, or any other person as nominee, on such terms, in
such manner, and with such powers as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected.
A-35
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this First
Amendment to the Declaration of Trust of VMS Strategic Land Trust as of the
6th day of March, 1991.
VMS STRATEGIC LAND TRUST
By: /s/ Leonard G. Levine
------------------------------
Leonard G. Levine,
President
A-36
<PAGE>
CERTIFICATE
The undersigned, being the duly elected, qualified and acting
President of VMS Strategic Land Trust, a Massachusetts business trust
("VSLT"), and as President having authority to certify as true and correct
resolutions of the board of trustees of VSLT (the "Trustees"), does hereby
certify that at a January 15, 1991 meeting of the Trustees, the Trustees
adopted the following resolutions approving an amendment to the declaration
of trust of VSLT for the purpose of changing the name from VMS Strategic
Land Trust to Banyan Strategic Land Trust:
RESOLVED, that each of VST, VSLT, VMLP, VMLPII and VMLPIII
amend their respective organizational documents for the purpose of
changing their legal name by eliminating "VMS" and replacing it with
"Banyan;" and
FURTHER RESOLVED, that the officers of VST, VSLT, VMLP,
VMLPII and VMLPIII and/or their authorized agents are hereby authorized
and directed to take those actions and execute and deliver those
documents in the name of and on behalf of their respective Fund as they
shall, in their discretion, deem necessary to effectuate the resolution
set forth above.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of March,
1991.
/s/ Leonard G. Levine
---------------------
Leonard G. Levine
President
A-37
<PAGE>
SECOND AMENDMENT
TO THE AMENDED AND RESTATED DECLARATION OF TRUST
OF BANYAN STRATEGIC LAND TRUST
(ORGANIZED AS VMS STRATEGIC LAND TRUST)
The undersigned, desiring to amend the Declaration of Trust (the
"Declaration of Trust") of Banyan Strategic Land Trust, under the applicable
provisions of the laws of the Commonwealth of Massachusetts and Sections 1.1
and 9.3 of the Declaration of Trust, hereby makes and executes the following
Certificate of Amendment.
The Declaration of Trust, dated as of March 14, 1986, was filed in the
office of the Secretary of State of the Commonwealth of Massachusetts on March
26, 1986.
The Amended and Restated Declaration of Trust, dated as of August 8,
1986 was filed in the Office of the Secretary of State of the Commonwealth of
Massachusetts on October 17, 1986.
The First Amendment to the Amended and Restated Declaration of Trust was
filed in the office of the Secretary of State of the Commonwealth of
Massachusetts on March 8, 1991 for the purpose of changing the name of the
trust from VMS Strategic Land Trust to Banyan Strategic Land Trust.
This Second Amendment to the Amended and Restated Declaration of Trust
is for the sole purpose of changing the name of the trust from Banyan
Strategic Land Trust to Banyan Strategic Realty Trust.
1. Section 1.1 of the Declaration of Trust is hereby amended in its
entirety to read as follows:
1.1 NAME. The trust created by this Declaration of Trust, herein
referred to as the "Trust," shall be known by the name "BANYAN STRATEGIC
REALTY TRUST" (the "Trust"). So far as may be practicable, legal and
convenient, the affairs of the Trust shall be conducted and transacted under
that name, which name shall not refer to the Trustees individually or
personally or to the Shareholders of the Trust, or to any officers, employees
or agents of the Trust or the Trustees.
Under circumstances in which the Trustees determine that the use of the
name "BANYAN STRATEGIC REALTY TRUST" is not practicable, legal and convenient,
they may as appropriate use and adopt another name under which the Trust may
hold property or operate in any jurisdiction. Legal title to all the
properties subject from time to time to this Declaration of Trust shall be
transferred to, vested in and held by the Trustees as joint tenants with right
of survivorship as Trustees of this Trust, and not individually, except that
the Trustees shall have the power to cause legal title to any property of this
Trust to be held by and/or in the name of one or more of the Trustees, or any
other person as nominee, on such terms, in such manner, and with such powers
as the Trustees may determine, provided that the interest of the Trust therein
is appropriately protected.
A-38
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Second
Amendment to the Declaration of Trust of Banyan Strategic Land Trust
(Organized as VMS Strategic Land Trust) as of the 1st day of May, 1993.
BANYAN STRATEGIC LAND TRUST
By: /s/ Leonard G. Levine
----------------------------
Leonard G. Levine, President
A-39
<PAGE>
CERTIFICATE
The undersigned, being the duly elected, qualified and acting President
of Banyan Strategic Land Trust, a Massachusetts business trust (the "Trust" or
"BSLT"), and as President having authority to certify as true and correct
resolutions of the board of trustees of BSLT (the "Trustees"), does hereby
certify that at an April 23, 1993 meeting of the Trustees, the Trustees
adopted the following resolutions approving an amendment to the declaration of
trust of BSLT for the purpose of changing the name from Banyan Strategic Land
Trust to Banyan Strategic Realty Trust:
RESOLVED, that the Trust amend the declaration of trust for
the sole purpose of changing the name of the Trust to Banyan Strategic Realty
Trust effective May 1, 1993; and
FURTHER RESOLVED, that Leonard G. Levine and/or his
designees be, and hereby are, authorized and directed to take those actions
(including the delegation, by power of attorney or otherwise, to act on their
behalf) and execute and deliver those documents in the name and on behalf of
the Trust as they shall, in their sole discretion, deem necessary to
effectuate the resolution set forth above.
IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of
April, 1993.
/s/ Leonard G. Levine
---------------------
Leonard G. Levine
President
A-40
<PAGE>
ANNEX B
OPINION OF ADVISOR
[LETTERHEAD OF JOSEPHTHAL LYON & ROSS INCORPORATED]
October 10, 1997
PRIVATE AND CONFIDENTIAL
- ------------------------
The Board of Trustees
Banyan Strategic Realty Trust
150 South Wacker Drive
Suite 2900
Chicago, IL 60606
Gentlemen:
We understand that Banyan Strategic Realty Trust ("Banyan"), a
Massachusetts business trust, and Morgens, Waterfall, Vintiadis & Company,
Inc. ("Morgens Waterfall") a New York corporation, acting as agent on behalf
of various investment advisory clients have entered into formal agreements
relating to certain equity and convertible debt financing for Banyan. Those
agreements are contained in (i) a Stock Purchase Agreement; dated October 10,
1997; and (ii) a Term Loan Agreement, dated October 10, 1997, and in the
exhibits thereto (the "Transaction"). In sum, and subject to the specific
terms as set forth in the above referenced documents, Morgens Waterfall, as
agent and on behalf of certain funds and accounts will purchase (i)
approximately 2,189,000 shares of beneficial interest of Banyan ("Shares") at
$5.00 per share and (ii) $20 million of 12% unsecured debt, which subject to
certain terms and conditions is convertible into preferred shares, at the rate
of $5.15 per share, which are in turn convertible into Shares; all as detailed
in the above referenced documents.
You have requested our opinion as to the fairness from a financial point
of view to the current holders of Shares of the consideration to be paid to
Banyan pursuant to the Transaction. We express no opinion as to the use of
proceeds from the Transaction. Also, we make no representations as to whether
or not Morgens Waterfall will be able to raise the funds necessary to complete
the Transaction.
In conducting our analysis and arriving at the opinion expressed herein,
we have reviewed such materials and considered such financial and other
factors as we deemed relevant under the circumstances, including, among
others, the following: (i) a Stock Purchase Agreement dated October 10, 1997,
and a Term Loan Agreement dated October 10, 1997, by and among Banyan and
Morgens Waterfall and the exhibits thereto; (ii) certain historical financial,
operating and other data that are publicly available or were furnished to us
by Banyan regarding Banyan including, but not limited to: (a) projections
prepared by management of Banyan; (b) liquidation analyses prepared by
management of Banyan; (c) Form 10-K for the period ended December 31, 1996 of
Banyan; (d) Form 10-Q for the period ended June 30, 1997 of Banyan; and (e)
internally generated operating reports of Banyan; (iii) publicly available
financial, operating and stock market data for companies engaged in businesses
we deemed comparable to Banyan;
B-1
<PAGE>
(iv) publicly available financial, operating and stock market data for
companies we deemed comparable to Banyan which had been involved in a merger
or acquisition since January 1, 1996; and (v) such other factors as we deemed
appropriate. We have met with senior officers of Banyan to discuss the
prospects for Banyan's business and their estimates of such business' future
financial performance, and such other matters as we believed relevant. Our
opinion is solely and necessarily based on economic, financial and market
conditions as they exist and can be evaluated as of the date hereof.
In connection with our review and analysis and in arriving at our
opinion, we have assumed and relied upon the accuracy and completeness of the
financial and other information provided to us or which is publicly available,
and have not attempted to verify independently any such information. We have
relied solely on the information and estimates provided to us by Banyan's
management and have neither made nor obtained any independent appraisals of
any properties, other assets or facilities of Banyan. With respect to certain
financial information, including financial analyses and projections, relating
to the business and prospects of Banyan, provided to us by Banyan's
management, we have assumed that the financial information has been reasonably
prepared and that the financial projections represent Banyan management's best
currently available estimates as to the future financial performance of Banyan
without and subsequent to the Transaction.
As you know, Josephthal Lyon & Ross Incorporated ("Josephthal") has been
retained by Banyan to render this opinion and provide other financial advisory
services, and will receive fees for such services. In addition, in the
ordinary course of business, Josephthal may actively trade the Shares for its
own account and for the accounts of its customers, and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is solely for the use of the Board of Trustees of Banyan and
is not to be publicly disclosed, used, excerpted, reproduced or disseminated,
quoted or referred to at any time, in any manner or for any purpose, without
the prior written consent of Josephthal other than the inclusion of this
letter as an annex to the proxy statement to be delivered to the Securities
and Exchange Commission and the stockholders of Banyan. This opinion does not
constitute a recommendation to any stockholder of Banyan as to how any such
stockholder should vote on any aspect of the Transaction, nor does this
opinion address the relative merits of the Transaction or any other
transactions or business strategies discussed by the Board of Trustees of
Banyan as alternatives to the Transaction or the decision of the Board of
Trustees of Banyan to proceed with the Transaction.
Based upon and subject to the foregoing it is our opinion that, as of the
date hereof, the consideration to be paid in the Transaction, is fair to the
current holders of Shares from a financial point of view.
Very truly yours,
/s/ Josephthal Lyon & Ross Incorporated
---------------------------------------
JOSEPHTHAL LYON & ROSS INCORPORATED
B-2
<PAGE>
ANNEX C
FORM OF AMENDMENT TO THE DECLARATION OF TRUST
of
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED SHARES
of
BANYAN STRATEGIC REALTY TRUST,
a Massachusetts business trust
BANYAN STRATEGIC REALTY TRUST, a Massachusetts business trust (the
"Trust"), hereby certifies that the following resolutions were adopted by
the Board of Trustees of the Trust pursuant to the authority of the Board
of Trustees.
RESOLVED, that pursuant to the authority granted to the Board of
Trustees in accordance with the provisions of the Trust's Second Amended
and Restated Declaration of Trust, the Board of Trustees hereby authorizes
a series of the Trust's previously authorized Preferred Shares, no par
value per share, and hereby states the designation and number of shares,
and fixes the relative rights, preferences, privileges and restrictions
thereof as follows:
1. DESIGNATION, RANK AND NUMBER OF SHARES. The preferred
shares created and authorized hereby shall be designated as the "Series A
Convertible Preferred Shares" ("Series A Convertible Preferred Shares").
The Series A Convertible Preferred Shares will rank, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, (i)
senior to Junior Securities, as they exist on the date hereof or as such
Junior Securities may be constituted from time to time; (ii) on a parity
with Parity Securities, as such Parity Securities may be constituted from
time to time; and (iii) junior to Senior Securities, as such Senior
Securities may be constituted from time to time. The number of Series A
Convertible Preferred Shares shall be 200,000. The Series A Convertible
Preferred Shares shall be issuable solely in whole shares that shall
entitle the holder thereof to exercise the voting rights, to participate in
the distributions and to have the benefit of all other rights of holders of
Series A Convertible Preferred Shares as set forth herein and in the
Declaration of Trust and under applicable law. The Series A Convertible
Preferred Shares shall, in addition to those provided by applicable law,
have the rights, preferences, privileges and terms set forth in this
Certificate of Designations.
C-1
<PAGE>
2 DEFINITIONS. Capitalized terms used herein have the
meanings assigned to them herein. The following terms, which are not
otherwise defined herein, when used herein have the meanings set forth
below:
"Board" means the Board of Trustees of the Trust.
"Change in Control" means any of the following: (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
Trust's assets as an entirety or substantially as an entirety to any person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) in
one or a series of transactions, provided that a transaction where the
holders of Shares immediately prior to such transaction own, directly or
indirectly, 50% or more of the Shares of such person or group immediately
after such transactions shall not be a Change in Control; (ii) the
acquisition by the Trust and/or any of its subsidiaries of 50% or more of
the aggregate voting power of the Shares in one transaction or a series of
related transactions; (iii) the liquidation or dissolution of the Trust,
provided that a liquidation or dissolution of the Trust which is part of a
transaction or series of related transactions that does not constitute a
Change in Control under the "provided" clause of clause (i) above shall not
constitute a Change in Control under this clause (iii); or (iv) any
transaction or series of transactions (as a result of a tender offer,
merger, consolidation or otherwise) that results in, or that is in
connection with, (a) any person, including a "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) that includes such person, acquiring
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% or more of the aggregate voting power of the
Shares of the Trust or "beneficial ownership" (as defined in Rule 13d-3
under the Exchange Act), directly, of 50% or more of the Shares
outstanding, or (b) less than 50% (measured by either the aggregate voting
power or the right to participate in dividends, distributions or
liquidation of all classes) of the Trust's Shares being registered under
Section 12(b) or 12(g) of the Exchange Act.
"Change in Control Redemption Price" means 105% of the
Liquidation Preference.
"Conversion Rate" has the meaning specified in Section 8(a).
"Current Market Price" per share of beneficial interest (or
other security, as applicable) on any date shall be deemed to be the
average of the sale prices of a share of such beneficial interest (or other
security, as applicable) for the fifteen consecutive trading days
commencing twenty trading days before the earliest of the date in question
and the date before the "ex date" with respect to the issuance or
distribution requiring such computation. For the purposes of this
definition, the term "ex date," when used with respect to any issuance or
distribution, means the first date on which the share of beneficial
interest (or other security, as applicable) trades regular way on the
principal national securities exchange on which the share of beneficial
interest is listed or admitted to trading (or if not so listed or admitted,
on NASDAQ, or a similar organization if NASDAQ is no longer reporting
trading information) without the right to receive such issuance or
distribution.
C-2
<PAGE>
"Default Period" has the meaning specified in Section 3(b)(1).
"Determination Date" means, with respect to any dividend or
other distribution, the date fixed for the determination of the holders of
shares of beneficial interest or other equity- securities of the Trust
entitled to receive such dividend or distribution, or if a dividend or
distribution is paid or made without fixing such a date, the date of such
dividend or distribution.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder Redemption Date" has the meaning specified in Section
6(c).
"Holder Redemption Price" has the meaning specified in Section
6(a).
"Implied Price" means the Stated Value divided by the
Conversion Rate.
"Issue Date" has the meaning specified in Section 4(a).
"Liquidation" means the date of the final distribution of the
assets of the Trust upon any liquidation, dissolution or winding up of the
Trust, whether voluntary or involuntary.
"Liquidation Preference" has the meaning specified in
Section 7.
"Junior Securities" means the Shares and the shares of any
other class or series of beneficial interest or other equity securities of
the Trust which (by the terms of the Declaration of Trust or of the
instrument by which the Board acting pursuant to authority granted in the
Declaration of Trust, shall fix the relative rights, preferences and
limitations thereof) shall be subordinated to the Series A Convertible
Preferred Shares in respect of the right to receive dividends and assets of
the Trust in Liquidation.
"Optional Conversion" has the meaning specified in Section
8(a).
"Notice of Change in Control" shall state (i) that a Change in
Control has occurred, and that the holder may exercise its right to
optional redemption ("Change in Control Redemption Right"), (ii) the
expiration of such Change in Control Redemption Right (iii) the Change in
Control Redemption Price, and (iv) a description of the procedure which a
holder must follow to exercise its Change in Control Redemption Right.
"Parity Securities" means the shares of any class or series of
beneficial interest or other equity securities of the Trust which (by the
terms of the Declaration of Trust or of the instrument by which the Board,
acting pursuant to authority granted in the Declaration of Trust, shall fix
the relative rights, preferences and limitations thereof) shall, in the
event that the amounts payable thereon in Liquidation are not paid in full,
be entitled to share ratably with the Series A Convertible Preferred Shares
in any distribution of assets other than by way of dividends in accordance
with the sums which would be payable in such distribution of assets if all
sums payable were discharged in full.
C-3
<PAGE>
"Redemption Date" has the meaning specified in Section 5(b).
"Redemption Default Period" has the meaning specified in
Section 6(d)(1).
"Redemption Price" means 100% of Liquidation Preference, as
required pursuant to Section 5 herein.
"Sale Price" has the meaning specified in Section 8(c)(4).
"Senior Securities" means the shares of any class or series of
beneficial interest or other equity securities of the Trust which (by the
terms of the Declaration of Trust or of the instrument by which the Board
acting pursuant to authority granted in the Declaration of Trust, shall fix
the relative rights, preferences and limitations thereof) shall be senior
to the Series A Convertible Preferred Shares in respect of the right to
receive dividends and assets of the Trust in Liquidation.
"Series A Convertible Preferred Shares" has the meaning
specified in Section 1.
"Stated Value" means the per share value of Series A
Convertible Preferred Shares, which shall be initially established at One
Hundred Dollars ($100.00) per share.
"Trust" means Banyan Strategic Realty Trust, a Massachusetts
business trust.
"Voting Parity Securities" has the meaning specified in Section
3(b)(1).
3. VOTING RIGHTS.
(a) Voting Power. The holders of Series A Convertible
Preferred Shares shall have the right to vote together with the holders of
Shares as a single class in any and all matters with respect to which
holders of Shares have voting or consent rights. Each Series A Convertible
Preferred Share shall be entitled to cast such number of votes as are equal
to the number of votes which could be cast by the number of Shares into
which such Series A Convertible Preferred Share is then convertible;
provided, however, that any fraction of a vote attributable to the
aggregate number of votes entitled to be cast by a shareholder as a result
of computing votes from the voting conversion calculation shall be
disregarded for voting purposes. The Conversion Rate to be used in
connection with the foregoing shall be the Conversion Rate in effect on the
date fixed for the determination of holders of Shares entitled to vote on
such matter. The holders of the Series A Convertible Preferred Shares and
the holders of Shares shall vote as one class except as otherwise provided
by law or this Declaration of Trust.
C-4
<PAGE>
(b) Votes on Default.
(1) In the event that any accrued dividends (whether or
not declared) on the Series A Convertible Preferred Shares shall not have
been paid when required by Section 4, in addition to their other rights,
holders of Series A Convertible Preferred Shares shall be entitled to vote
their Series A Convertible Preferred Shares, together with the holders of
any Parity Securities upon which like voting rights have been conferred and
are exercisable (the "Voting Parity Securities"), in accordance with the
procedures set forth below, (i) immediately to elect, as a class, two
trustees to the Board of Trustees, and, (ii) if, on the first anniversary
after the election (the "Initial Election") of such trustees, any accrued
dividends (whether or not declared) on the Series A Convertible Preferred
Shares shall not have been paid, to elect one additional trustee, and (iii)
if, on each succeeding anniversary of the Initial Election any accrued
dividends (whether or not declared) on the Series A Preferred Shares shall
not have been paid, to elect one additional trustee. So long as any Series
A Convertible Preferred Shares shall be outstanding, the holders of Series
A Convertible Preferred Shares shall retain the right to vote and elect,
with the holders of such Voting Parity Securities, as a class, the trustees
permitted by the preceding sentence until all accrued but unpaid dividends
on the Series A Convertible Preferred Shares are paid in full or declared
and set aside for payment. The period during which holders of Series A
Convertible Preferred Shares retain such right is referred to as a "Default
Period."
(2) So long as any Series A Convertible Preferred
Shares shall be outstanding, during any Default Period, the voting right
described in subsection (1) above may be exercised initially at a special
meeting called pursuant to subsection (3) below or at any annual meeting of
shareholders. The absence of a quorum of holders of Shares (or any class
thereof) shall not affect the exercise of such voting rights by the holders
of Series A Convertible Preferred Shares and Voting Parity Securities.
Holders of Series A Convertible Preferred Shares and Voting Parity
Securities shall be entitled, as among the class of holders of Series A
Convertible Preferred Shares and Voting Parity Securities, to one vote for
each $100 of Liquidation Preference represented by the shares so held.
(3) Unless the holders of Series A Convertible
Preferred Shares and Voting Parity Securities, if any are then outstanding,
have, during an existing Default Period, previously exercised their right
to elect trustees, the Board may, and upon the request of the holders of
record of not less than 10% of the aggregate Liquidation Preference of
Series A Convertible Preferred Shares, the Board shall, order the calling
of a special meeting of holders of Series A Convertible Preferred Shares
and Voting Parity Securities, if any are then outstanding, which meeting
shall thereupon be called by the President, a Vice President or the
Secretary of the Trust. Notice of such meeting and of any annual meeting
at which holders of Series A Convertible Preferred Shares and Voting Parity
Securities are entitled to vote pursuant to
C-5
<PAGE>
this subsection (3) shall be given to each holder of record of Series A
Convertible Preferred Shares by mailing a copy of such notice to such
holder at such holder's last address as it appears on the books of the
Trust. Such meeting shall be called for a date not later than 90 days
after such order or request, or, in default of the calling of such meeting
within 90 days after such order or request, such meeting may be called on
similar notice by any shareholder or shareholders owning in the aggregate
not less than 10% of the aggregate Liquidation Preference of the Series A
Convertible Preferred Shares. Notwithstanding the provisions of this
subsection (3), the Trust shall not be required to call such a special
meeting if such request is received less than 120 days before the date
fixed for the next ensuing annual meeting of shareholders of the Trust, at
which meeting such trusteeships -shall be filled by vote of the holders of
Series A Convertible Preferred Shares and Voting Parity Securities.
(4) During any Default Period, the holders of Shares,
and other classes of beneficial interest or other equity securities of the
Trust, if applicable, shall continue to be entitled to elect all of the
trustees unless and until the holders of Series A Convertible Preferred
Shares and Voting Parity Securities shall have exercised their right to
elect trustees voting as a class. After the exercise of this right (i) the
trustees so elected by the holders of Series A Convertible Preferred Shares
and Voting Parity Securities shall continue in office until the earlier of
(A) such time as their successors shall have been elected by such holders
and (B) the expiration of the Default Period, and (ii) any vacancy in the
Board with respect to a trusteeship to be elected pursuant to this Section
by the holders of Series A Convertible Preferred Shares and Voting Parity
Securities may be filled by vote of the remaining trustee(s) previously
elected by such holders. References in this subsection (b) to trustees
elected by the holders of a particular class of beneficial interest or
other equity security shall include trustees elected by such trustees to
fill vacancies as provided in clause (ii) of the foregoing sentence.
(5) Immediately upon the expiration of a Default
Period, (i) the right of the holders of Series A Convertible Preferred
Shares to elect trustees pursuant to this Section 3(b) shall cease, (ii)
the term of any trustees elected by the holders of Series A Convertible
Preferred Shares and Voting Parity Securities pursuant to this Section
shall terminate, and (iii) the number of trustees shall be such number as
may be provided for in the Declaration of Trust or bylaws irrespective of
any increase made pursuant to subsection (1) of this Section 3(b) (such
number being subject, however, to subsequent change in any manner provided
by law or in the Declaration of Trust or bylaws).
(c) ISSUANCE OF PARITY AND SENIOR SECURITIES. So long as any
Series A Convertible Preferred Shares are outstanding, the vote or consent
of the holders of 66-2/3% of the outstanding Series A Convertible Preferred
Shares, voting together as a single class, shall be necessary to authorize
or issue any additional class or series of Parity Securities or Senior
Securities, or any security convertible into Parity Securities or Senior
Securities, or to issue (except in replacement or exchange of outstanding
shares) any share of Series A Convertible Preferred Shares other than upon
conversion of the notes issued pursuant to the Convertible Term Loan
Agreement dated as of October 10, 1997 between the Trust and the Lenders
named therein.
C-6
<PAGE>
(d) AMENDMENTS TO DECLARATION OF TRUST. So long as any
Series A Convertible Preferred Shares are outstanding, in addition to any
vote or consent that may be otherwise required by law or this Declaration
of Trust, the vote or consent of the holders of a majority of the Series A
Convertible Preferred Shares outstanding shall be required to amend, alter
or repeal any provision of this Declaration of Trust so as to affect
adversely the rights, preferences, powers or privileges of the Series A
Convertible Preferred Shares.
4. DIVIDENDS. (a) The holders of Series A Convertible
Preferred Shares shall be entitled to receive, when, as and if declared by
the Board, out of funds legally available therefor, cash dividends,
accruing from the date of issuance, at the annual rate of 10% per annum on
the Stated Value of the Series A Convertible Preferred Shares, and no more,
payable, when, as and if declared by the Board, quarterly on March 31, June
30, September 30 and December 31 of each year (each quarterly period ending
on any such date being hereinafter referred to as a "dividend period"), at
such annual rate. Each dividend will be payable to holders of record as
they appear on the stock books of the Trust on such record dates, not
exceeding 45 days preceding the payment dates thereof, as shall be fixed by
the Board of the Trust. The date of initial issuance of a share of Series
A Convertible Preferred Shares is hereinafter referred to as the "Issue
Date" of such share. Dividends payable on the Series A Convertible
Preferred Shares (i) for any period other than a full dividend period,
shall be computed on the basis of a 360-day year consisting of twelve 30-
day months and (ii) for each full dividend period, shall be computed by
dividing the annual dividend rate by four.
(b) Dividends on Series A Convertible Preferred Shares shall
be cumulative from the Issue Date whether or not there shall be funds
legally available for the payment thereof. If there shall be outstanding
shares -of any other series of Preferred Shares ranking on a parity with
the Series A Convertible Preferred Shares as to dividends, no full
dividends shall be declared or paid or set apart for payment on any such
other series for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A
Convertible Preferred Shares for all dividend periods terminating on or
prior to the date of payment of such dividends. If dividends on the Series
A Convertible Preferred Shares and on any other series of Preferred Shares
ranking on a parity as to dividends with the Series A Convertible Preferred
Shares are in arrears, in making any dividend payment on account of such
arrears, the Trust shall make payments ratably upon all outstanding shares
of the Series A Convertible Preferred Shares and shares of such other
series of Preferred Shares in proportion to the respective amounts of
dividends in arrears on-the Series A Convertible Preferred Shares and on
such other series of Preferred Shares to the date of such dividend payment.
During a Default Period, the holders of the Series A Convertible Preferred
Shares shall be entitled to receive dividends at an annual rate of 11% per
annum. No further interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments which may be in
arrears.
(c) Unless full cumulative dividends on all outstanding
Series A Convertible Preferred Shares shall have been paid or declared and
set aside for payment for all past dividend periods and the Trust is not in
default or in arrears in respect to the optional redemption of any Series A
Convertible
C-7
<PAGE>
Preferred Shares, no dividend shall be declared upon the Junior Securities,
nor shall the Trust make any payment on account of, or set apart money for,
the purchase, redemption or other retirement of, or for a sinking or other
analogous fund for any shares of Junior Securities or make any distribution
in respect thereof, whether in cash or property or in obligations or shares
of beneficial interest or other equity security of the Trust, other than
distributions of Junior Securities which is neither convertible into, nor
exchangeable or exercisable for, any securities of the Trust other than
Junior Securities.
5. REDEMPTION AT THE OPTION OF THE TRUST.
(a) At any time, or from time to time, from and after three
years after their Issue Date, the Series A Convertible Preferred Shares
issued on such Issue Date shall be redeemable, in whole or in part, at the
option of the Trust, upon the giving of notice as provided in Section 5(b)
hereof, at the Redemption Price plus accrued and unpaid dividends to and
including the Redemption Date, without interest.
(b) At least 30 days, but not more than 60 days, prior to the
date fixed for the redemption of Series A Convertible Preferred Shares
pursuant to Section 5(a) hereof (the "Redemption Date"), written notice of
such redemption shall be mailed to each holder of record of Series A
Convertible Preferred Shares to be redeemed in a postage prepaid envelope
sent by first class mail and addressed to such holders at their last
addresses as they shall appear on the stock register of the Trust.
Each such notice shall state:
(i) the Redemption Date;
(ii) the number of Series A Convertible Preferred Shares
to be redeemed and, if less than all of the Series A Convertible Preferred
Shares held by such holder are to be redeemed from such holder, the number
of Series A Convertible Preferred Shares to be redeemed from such holder
and the method used to calculate such number;
(iii)the Redemption Price and the amount of any accrued
but unpaid dividends to and including the Redemption Date; and
(iv) the place or places where certificates for such
Series A Convertible Preferred Shares are to be surrendered for payment of
the Redemption Price.
On or after the Redemption Date, each holder of Series A
Convertible Preferred Shares to be redeemed shall present and surrender its
certificate or certificates for such Series A Convertible Preferred Shares
to the Trust at the place designated in such notice, and thereupon, the
Redemption Price (together with any accrued by unpaid dividends to and
including the Redemption Date) for such Series A Convertible Preferred
Shares
C-8
<PAGE>
shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled. In the event that fewer than all of the
Series A Convertible Preferred Shares represented by such certificate shall
be redeemed, a new certificate shall be issued to the person whose name
appears on such certificate representing the unredeemed Series A
Convertible Preferred Shares. The issuance of such new certificates shall
be made without charge to the holder for any tax or withholding imposed in
respect of the issuance thereof, other than any tax which may be payable
with respect to any transfer involved in the issue and delivery of any
certificate in a name other than that of the holder of the Series A
Convertible Preferred Shares being redeemed.
(c) If following the making of the Redemption Notice
contemplated by Section 5(b), but on or before any Redemption Date, the
Trust deposits with any bank or trust company in New York, as a trust fund,
(1) a sum (including accrued and unpaid dividends) sufficient to redeem, on
the Redemption Date, the Series A Convertible Preferred Shares called for
redemption and (2) irrevocable instructions and authority to the bank or
trust company to give notice of redemption thereof (or to complete the
giving of the notice if already commenced) and to pay, on and after the
Redemption Date or prior thereto, the Redemption Price of the Series A
Convertible Preferred Shares to their respective holders upon the surrender
of their share certificates, then from and after the Redemption Date, the
shares so called shall be redeemed on, and dividends on those shares shall
cease to accrue after, the Redemption Date, the deposit shall constitute
full payment of the shares to their holders and from and after the
Redemption Date the shares shall no longer be outstanding and the holders
shall cease to be shareholders with respect to those shares and shall have
no rights with respect thereto except the right to receive from the bank or
trust company payment of the Redemption Price of the shares without
interest (upon the surrender of their certificates). Notwithstanding
anything in this Section 5(c) to the contrary, any rights of conversion
which may be provided under this Section 2 for those shares shall continue
until the Redemption Date. Any moneys so deposited on account of the
Redemption Price of Series A Convertible Preferred Shares that are
converted after the making of that deposit shall be repaid to the Trust
forthwith upon the conversion of such Series A Convertible Preferred
Shares. Any interest accrued on any funds so deposited shall be property
of, and paid to, the Trust. If the holders of Series A Convertible
Preferred Shares so called for redemption shall not, at the end of two
years from the Redemption Date, have claimed any funds so deposited, the
bank or trust company shall pay over to the Trust the unclaimed funds, and
the bank or trust company shall thereafter be relieved of all
responsibility to those holders and those holders shall look only to the
Trust for payment of the Redemption Price.
(d) If fewer than all of the Series A Convertible Preferred
Shares are to be redeemed, the Board of Trustees of the Trust shall
allocate the aggregate number of shares to be redeemed pro rata (or as
nearly pro rata as practicable) or by lot.
6. REDEMPTION AT THE OPTION OF THE HOLDER.
(a) At any time, or from time to time, three years after the
Issue Date of Series A Convertible Preferred Shares, the Series A
Convertible Preferred Shares issued on such Issue Date shall be redeemable,
C-9
<PAGE>
in whole or in part, at the option of the Holder, upon the giving of notice
as provided in Section 6(c) hereof, at a per share price equal to 100% of
the Stated Value (the "Holder Redemption Price") plus accrued and unpaid
dividends to and including the Holder Redemption Date, without interest.
(b) If there occurs a Change in Control with respect to the
Trust, then each share of Series A Convertible Preferred Shares may be
redeemed, at the option of the holder thereof at any time from the date of
such Change in Control until the expiration of 90 days after the date of
the Notice of Change in Control has been received by such holder of Series
A Convertible Preferred Shares, at the Change in Control Redemption Price.
(c) At least 5 days prior to the date of the Holder's
exercise of its option to have Series A Convertible Preferred Shares
redeemed pursuant to Section 6(a) hereof (the "Holder Redemption Date"),
written notice of such exercise of its option, stating the number of shares
to be redeemed and the Holder Redemption Date, shall be mailed to the Trust
(the "Holder Redemption Notice").
On or after the Holder Redemption Date, each holder of Series A
Convertible Preferred Shares to be redeemed shall present and surrender its
certificate or certificates for such Series A Convertible Preferred Shares
to the Trust at a place designated by the Trust, and thereupon, the Holder
Redemption Price (together with any accrued by unpaid dividends to and
including the Holder Redemption Date) for such Series A Convertible
Preferred Shares shall be paid to or on the order of the person whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled. In the event that fewer than
all of the Series A Convertible Preferred Shares represented by such
certificate shall be redeemed, a new certificate shall be issued to the
person whose name appears on such certificate representing the unredeemed
Series A Convertible Preferred Shares. The issuance of such new
certificates shall be made without charge to the holder for any tax or
withholding imposed in respect of the issuance thereof; provided that the
Trust shall not be required to pay any tax which may be payable with
respect to any transfer involved in the issue and delivery of any
certificate in a name other than that of the holder of the Series A
Convertible Preferred Shares being redeemed.
(d) If following the making of the Holder Redemption Notice
contemplated by Section 6(c), but on or before any Holder Redemption Date,
the Trust deposits with any bank or trust company in New York, as a trust
fund, (1) a sum (including accrued and unpaid dividends) sufficient to
redeem, on the Holder Redemption Date, the Series A Convertible Preferred
Shares selected for redemption and (2) irrevocable instructions and
authority to the bank or trust company to pay, on and after the Holder
Redemption Date or prior thereto, the Holder Redemption Price of the Series
A Convertible Preferred Shares to their respective holders upon the
surrender of their share certificates, then within 90 days after the Holder
Redemption Date, the shares so identified in the Holder Redemption Notice
as shares to be redeemed shall be redeemed on the date the respective share
certificates for such shares have been surrendered, or upon receipt of
sufficient evidence as to lost, mutilated or destroyed share certificates,
and dividends on those shares shall cease to accrue after, the Holder
Redemption Date. Any shares identified in the Holder Redemption Notice to
be redeemed, whose respective share certificates, or requisite evidence of
loss, mutilation or destruction, have not been surrendered within 90 days
of the Holder Redemption Date, shall not be redeemed, and the Holder
Redemption Notice relating to such unredeemed shares shall be deemed
cancelled, and such shares shall remain, and be deemed to have been,
outstanding. The deposit shall constitute full payment of the shares to
their holders and from and after the
C-10
<PAGE>
Holder Redemption Date the shares shall no longer be outstanding and the
holders shall cease to be shareholders with respect to those shares and
shall have no rights with respect thereto except the right to receive from
the bank or trust company payment of the Holder Redemption Price of the
shares without interest (upon the surrender of their certificates).
Notwithstanding anything in this Section 6(d) to the contrary, any rights
of conversion which may be provided in this Section 2 for those shares
shall continue until the Holder Redemption Date. Any moneys so deposited
on account of the Holder Redemption Price of Series A Convertible Preferred
Shares that are converted after the making of that deposit shall be repaid
to the Trust forthwith upon the conversion of such Series A Convertible
Preferred Shares. Any interest accrued on any funds so deposited shall be
property of, and paid to, the Trust. If the holders of Series A
Convertible Preferred Shares so selected for redemption shall not, at the
end of two years from the Holder Redemption Date, have claimed any funds so
deposited, the bank or trust company shall pay over to the Trust the
unclaimed funds, and the bank or trust company shall thereafter be relieved
of all responsibility to those holders and those holders shall look only to
the Trust for payment of the Holder Redemption Price.
(e) Votes on Redemption Default.
(1) In the event that the Trust fails to redeem any
share of Series A Convertible Preferred Shares selected for redemption by
the holder thereof pursuant to Section 6(a) or 6(b) above in the manner set
forth in 6(c) and 6(d) above (the "Selected Shares"), then holders of
Series A Convertible Preferred Shares shall be entitled to vote their
Series A Convertible Preferred Shares, together with the holders of any
Voting Parity Securities, in accordance with the procedures set forth
below, (i) immediately to elect, as a class, two trustees to the Board of
Trustees, and, (ii) if, on the first anniversary after the election (the
"Redemption Initial Election") of such trustees, any Selected Shares have
yet to be redeemed, to elect as a class the one additional trustee, and
(iii) if on each succeeding anniversary of the Redemption Initial Election,
any Selected Shares have yet to be redeemed, to elect one additional
trustee. So long as any Selected Shares are outstanding, the holders of
Series A Convertible Preferred Shares shall retain the right to vote and
elect, with the holders of such Voting Parity Securities, as a class, the
trustees permitted by the preceding sentence, until all Selected Shares
have been redeemed by the Trust. The period during which holders of Series
A Convertible Preferred Shares retain such right is referred to as a
"Redemption Default Period."
(2) So long as any Selected Shares are outstanding,
during any Redemption Default Period, the voting right described in
subsection (1) above may be exercised initially at a special meeting called
pursuant to subsection (3) below or at any annual meeting of shareholders.
The absence of
C-11
<PAGE>
a quorum of holders of Shares (or any class thereof) shall not affect the
exercise of such voting rights by the holders of Series A Convertible
Preferred Shares and Voting Parity Securities. Holders of Series A
Convertible Preferred Shares and Voting Parity Securities shall be
entitled, as among the class of holders of Series A Convertible Preferred
Shares and Voting Parity Securities, to one vote for each $100 of
Liquidation Preference represented by the shares so held.
(3) Unless the holders of Series A Convertible
Preferred Shares and Voting Parity Securities, if any are then outstanding,
have, during an existing Redemption Default Period, previously exercised
their right to elect trustees, the Board may, and upon the request of the
holders of record of not less than 10% of the aggregate liquidation
preference of Series A Convertible Preferred Shares and Voting Parity
Securities, the Board shall, order the calling of a special meeting of
holders of Series A Convertible Preferred Shares and Voting Parity
Securities, if any Series A Convertible Preferred Shares are then
outstanding, which meeting shall thereupon be called by the President, a
Vice President or the Secretary of the Trust. Notice of such meeting and
of any annual meeting at which holders of Series A Convertible Preferred
Shares and Voting Parity Securities are entitled to vote pursuant to this
subsection (3) shall be given to each holder of record of Series A
Convertible Preferred Shares by mailing a copy of such notice to such
holder at such holder's last address as it appears on the books of the
Trust. Such meeting shall be called for a date not later than 90 days
after such order or request, or, in default of the calling of such meeting
within 90 days after such order or request, such meeting may be called on
similar notice by any shareholder or shareholders owning in the aggregate
not less than 10% of the aggregate liquidation preference of the Series A
Convertible Preferred Shares and Voting Parity Securities. Notwithstanding
the provisions of this subsection (3), the Trust shall not be required to
call such a special meeting if such request is received less than 120 days
before the date fixed for the next ensuing annual meeting of shareholders
of the Trust, at which meeting such trusteeships shall be filled by vote of
the holders of Series A Convertible Preferred Shares and Voting Parity
Securities.
(4) During any Redemption Default Period, the holders
of Shares, and other classes of beneficial interest or other equity
securities of the Trust, if applicable, shall continue to be entitled to
elect all of the trustees unless and until the holders of Series A
Convertible Preferred Shares and Voting Parity Securities shall have
exercised their right to elect trustees voting as a class. After the
exercise of this right (i) the trustees so elected by the holders of Series
A Convertible Preferred Shares and Voting Parity Securities shall continue
in office until the earlier of (A) such time as their successors shall have
been elected by such holders and (B) the expiration of the Redemption
Default Period, and (ii) any vacancy in the Board with respect to a
trusteeship to be elected pursuant to this Section by the holders of Series
A Convertible Preferred Shares and Voting Parity Securities may be filled
by vote of the remaining trustee(s) previously elected by such holders.
References in this subsection (c) to trustees elected by the holders of a
particular class of shares of beneficial interest or other equity
securities shall include trustees elected by such trustees to fill
vacancies as provided in clause (ii) of the foregoing sentence.
(5) Immediately upon the expiration of a Redemption
Default Period, (i) the right of the holders of Series A Convertible
Preferred Shares to elect trustees pursuant to this Section shall cease,
(ii) the term
C-12
<PAGE>
of any trustees elected by the holders of Series A Convertible Preferred
Shares and Voting Parity Securities pursuant to this Section shall
terminate, and (iii) the number of trustees shall be such number as may be
provided for in the Declaration of Trust or bylaws irrespective of any
increase made pursuant to subsection (1) of this Section 6(e) (such number
being subject, however, to subsequent change in any manner provided by law
or in the Declaration of Trust or bylaws).
7. PRIORITY OF SERIES A CONVERTIBLE PREFERRED SHARES
IN EVENT OF LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
Liquidation, after payment or provision for payment of the debts and other
liabilities of the Trust, and after payment or provision for payment to
holders of Senior Securities (provided that the issuance of such Senior
Securities was duly approved by the holders of Series A Convertible
Preferred Shares in accordance with the provision of Section 3(c) herein),
the holders of Series A Convertible Preferred Shares shall be entitled to
receive, out of the remaining net assets of the Trust, the amount of One
Hundred dollars ($100.00) plus accrued and unpaid dividends (the
"Liquidation Preference") in cash for each share of Series A Convertible
Preferred Shares, before any payment shall be made or any assets
distributed to the holders of the Shares or any other Junior Securities
upon such Liquidation. If upon any Liquidation the amounts payable with
respect to the Liquidation Preference of Series A Convertible Preferred
Shares and any Parity Securities are not paid in full, the holders of
Series A Convertible Preferred Shares and of the Parity Securities will
share pro rata in the amounts payable and other property distributable with
respect to such Liquidation so that the per share amounts to which holders
of Series A Convertible Preferred Shares and the Parity Securities are
entitled will in all cases bear to each other the same ratio that the
Liquidation Preferences of the Series A Convertible Preferred Shares and
the liquidation preference of the Parity Securities bear to each other.
Except as otherwise provided in this Section 7, holders of Series A
Convertible Preferred Shares shall not be entitled to any distribution in
the event of Liquidation. Neither a consolidation, merger or other
business combination of the Trust with or into another corporation or other
entity, nor a sale or transfer of all or part of the Trust's assets for
cash, securities or other property shall constitute a Liquidation for
purposes of this Section 7. With regard to rights to receive distributions
upon Liquidation, the Series A Convertible Preferred Shares shall rank
prior to any other equity securities of the Trust, including the Shares of
the Trust except with respect to Senior Securities and Parity Securities.
8. CONVERSION.
(a) OPTIONAL CONVERSION. Each share of Series A Convertible
Preferred Shares is convertible, at any time or from time to time prior to
the close of business on the Redemption Date, in whole or in part, at the
option of the holders thereof ("Optional Conversion"), into duly and
validly issued, fully paid and nonassessable Shares at a rate of 19.4174
Shares for each share of Series A Convertible Preferred Shares, subject to
adjustment as set forth below (such rate, as adjusted from time to time,
being the "Conversion Rate"). If sufficient funds for redemption have been
deposited as contemplated by subsections 5(a) or 6(a), the right of
conversion of any Series A Convertible Preferred Shares called for
redemption will terminate at the close of business on the Redemption Date
or Holder Redemption Date, as applicable, with respect to such Series A
Convertible Preferred Shares.
C-13
<PAGE>
Optional Conversion of Series A Convertible Preferred Shares
may be effected by delivering the certificates evidencing such Series A
Convertible Preferred Shares, together with written notice of conversion
and proper assignment of such certificates to the Trust or in blank, to the
office maintained by the Trust for that purpose. Each Optional Conversion
shall be deemed to have been effected immediately prior to the close of
business on the date on which the foregoing requirements shall have been
satisfied and the person or persons entitled to receive the Shares
deliverable upon conversion of the Series A Convertible Preferred Shares
shall be treated for all purposes as the record holder or holders of such
Shares at such time on such date. The Optional Conversion shall be at the
Conversion Rate in effect at such time on such date.
(b) ISSUANCE OF SHARE CERTIFICATES. Upon any conversion
described in Section 8(a) above, the Trust shall, as soon as practicable
after the surrender for conversion of certificates evidencing Series A
Convertible Preferred Shares and compliance with any other required
conditions, deliver to the person for whom such Series A Convertible
Preferred Shares are so surrendered, or to the nominee or nominees of such
person, certificates evidencing the number of full Shares to which such
person shall be entitled, together with a cash payment in respect of any
fraction of a Share as hereinafter provided.
(c) ADJUSTMENT. From and after October 10, 1997, the
Conversion Rate is subject to adjustment from time to time as provided
below in this Section 8(c).
(1) If the Trust shall fix a Determination Date with
respect to the payment of, or the making of, a dividend or other
distribution with respect to its Shares in Shares (including by way of
reclassification of any of its Shares), the Conversion Rate in effect at
the opening of business on the day following the Determination Date shall
be increased by multiplying the Conversion Rate in effect at the closing of
business on the Determination Date by a fraction, the numerator of which
shall be the sum of the number of Shares outstanding at the close of
business on the Determination Date, excluding the effect of such dividend
or distribution, plus the total number of Shares constituting such dividend
or other distribution, and the denominator of which shall be the number of
Shares outstanding at the close of business on the Determination Date,
excluding the effect of such dividend or distribution, such increase to
become effective at the opening of business on the day following the
Determination Date. For the purposes of this clause (1), the number of
Shares at any time outstanding shall not include -shares held in the
treasury of the Trust and the number of shares constituting such dividend
()r other distribution shall include, if applicable, shares represented by
cash issued in lieu of fractional Shares.
(2) If outstanding Shares shall be subdivided or split
into a greater number of Shares, the Conversion Rate in effect at the
opening of business on the day following the day upon which such
subdivision or split becomes effective shall be proportionately increased,
and, conversely, in case outstanding Shares shall be combined into a lesser
number of Shares, the Conversion Rate in effect at the opening of business
on the day following the day upon which such combination becomes effective
shall be proportionately reduced, such increase or reduction, as the case
may be, to become effective at the opening of business on the day following
the day upon which such subdivision or split or combination becomes
effective.
C-14
<PAGE>
(3) If the Trust shall distribute to holders of Shares
evidences of indebtedness, equity securities other than Shares (including,
without limitation, equity interests in the Trust's subsidiaries) or other
assets (other than regular cash dividends), or shall distribute to holders
of Shares rights, options or warrants to subscribe to securities, then in
each such case the Conversion Rate shall be adjusted so that it shall equal
the rate determined by multiplying the Conversion Rate in effect
immediately prior to the date of such distribution by a fraction of which
the numerator shall be the Current Market Price per Share on the record
date mentioned below, and of which the denominator shall be such Current
Market Price less the then fair market value of the evidences of
indebtedness, equity securities and assets so distributed, or of such
subscription rights, warrants or options, applicable to one Share. For the
purposes of this subsection (3), in the event of a distribution of shares
of capital stock or other securities of any subsidiary of the Trust as a
dividend on Shares, the "then fair market value" of the shares or other
securities so distributed shall be the greater of (X) the value of such
shares or other securities on the record date mentioned below as determined
by an independent appraiser of national repute appointed in good faith, by
the Board of Trustees, and (y) the Current Market Price of the shares or
other securities so distributed as of a date 20 days following the
distribution date thereof Such adjustment shall become effective
immediately after the record date for the determination of shareholders
entitled to receive such distribution.
(4) If the Trust shall sell, transfer, or otherwise
convey Shares at a gross price per share (the "Sale Price") less than the
Implied Price (or, if previously adjusted pursuant to this subsection (4),
at a price per share less than the lowest of all the preceding Sale Prices)
per Share, then in such case the Conversion Rate shall be adjusted so, that
it shall equal the rate determined by dividing the Stated Value per Series
A Convertible Preferred Share in effect immediately prior to the date of
such conveyance by the Sale Price. Notwithstanding the foregoing, the
Trust shall not, issue, sell, transfer, or otherwise convey Shares at less
than their fair market value as determined in the reasonable good faith
judgment of the Board of Trustees (which fair market value, under all the
circumstances relevant, might not be equivalent to the Current Market
Price).
(5) All adjustments to the Conversion Rate will be
calculated to the nearest 1/100th of a Share. No adjustment in the
Conversion Rate will be required unless such adjustment would require an
increase or decrease of at least one percent in the Conversion Rate;
PROVIDED, however, that any adjustments which by reason of this Section
8(c)(5) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All adjustments to the Conversion
Rate shall be made successively.
(d) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER.
If there shall occur any capital reorganization or any reclassification of
the beneficial interest or other equity securities of the Trust,
consolidation, merger or other business combination of the Trust with or
into another corporation or other entity, or the conveyance of all or
substantially all of the assets of the Trust to another corporation or
other entity, each share of Series A Convertible Preferred Shares shall
thereafter be convertible into the
C-15
<PAGE>
number of shares or other securities or property to which a holder of the
number of Shares deliverable upon conversion of each share of Series A
Convertible Preferred Shares would have been entitled upon such
reorganization, reclassification, consolidation, merger or conveyance. In
any such case, appropriate adjustment (as determined by the Board) shall be
made in the application of the provisions hereof with respect to the rights
of the holders of Series A Convertible Preferred Shares such that the
provisions hereof (including, without limitation, provisions with respect
to changes in and other adjustments of the Conversion Rate) shall
thereafter be applicable, as nearly as reasonably practicable, in relation
to any shares or other property thereafter deliverable upon the conversion
of the Series A Convertible Preferred Shares.
(e) COMPUTATION AND NOTIFICATION OF ADJUSTMENT. Whenever the
Conversion Rate is (or in the case of clause (3) below, will be) adjusted
as provided in Section 8, the Trust shall:
(1) forthwith compute the adjusted Conversion Rate in
accordance with this Section 8 and prepare a certificate signed and
verified by the Chairman of the Board, the President or a Vice President of
the Trust and by the Chief Financial Officer, the Treasurer or an Assistant
Treasurer of the Trust setting forth the adjusted Conversion Rate, the
method of calculation thereof in reasonable detail and the facts requiring
such adjustment and upon which such adjustment is based, and shall maintain
such certificate at its principal executive office; and
(2) mail a notice stating that the Conversion Rate has
been adjusted, the facts requiring such adjustment and upon which such
adjustment is based and setting forth the adjusted Conversion Rate, to the
holders of record of the outstanding Series A Convertible Preferred Shares
at their last addresses as they shall appear on the stock register of the
Trust, as soon as practicable after such adjustment has been made.
(3) at least twenty (20) days prior to the record date
therefor, mail a notice to each holder of Series A Convertible Preferred
Shares stating, if applicable, (a) the date as of which the holders of
record of Shares to be entitled to a dividend, distribution, split, right,
option or-warrant are to be determined and a reasonably detailed
description of such dividend, distribution, split, right, option or
warrant, or (b) the date on which a reorganization, reclassification,
consolidation, merger, sale, lease, transfer, liquidation, dissolution or
winding-up is expected to become effective, and the date as of which it is
expected that holders of record of Shares shall be entitled to exchange
their shares for securities or other property, if any, deliverable upon
such reorganization, reclassification, consolidation, merger, sale, lease,
transfer, liquidation, dissolution or winding-up.
9. NO FRACTIONAL SHARES. No fractional Shares shall be
issued upon the conversion of any Series A Convertible Preferred Shares.
Upon any such conversion, in lieu of any fractional Share otherwise
issuable in respect of the aggregate number of Series A Convertible
Preferred Shares of any holder that are converted, such holders shall be
entitled to receive an amount in cash (computed to the nearest cent, with
one-half cent rounded upward) equal to the same fraction of the current
value of one Share, such value to be conclusively determined by the Board
in its sole and absolute discretion. If more than one share of Series A
Convertible Preferred Shares shall be surrendered for conversion at one
time by or for the same holder, the number of full Shares issuable upon
conversion thereof shall be computed on the basis of the aggregate number
of Series A Convertible Preferred Shares so surrendered.
C-16
<PAGE>
10. RESERVATION OF SHARES. The Trust shall at all times
reserve and keep available out of its authorized and unissued Shares,
solely for issuance upon the conversion of Series A Convertible Preferred
Shares as herein provided, free from any preemptive rights, such number of
Shares as shall from time to time be sufficient to permit the conversion of
all the Series A Convertible Preferred Shares then outstanding.
11. STATUS OF REDEEMED OR CONVERTED SERIES A CONVERTIBLE
PREFERRED SHARES. So long as Series A Convertible Preferred Shares
redeemed by the Trust or converted into Shares will be restored to the
status of authorized but unissued Preferred Shares and may not thereafter
be issued as Series A Convertible Preferred Shares. Upon the redemption or
conversion of Series A Convertible Preferred Shares such that no Series A
Convertible Preferred Shares remain outstanding, all unissued Series A
Convertible Preferred Shares will be restored to the status of authorized
but unissued Preferred Shares without designation as to series and may not
thereafter be issued as Series A Convertible Preferred Shares.
C-17
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this Certificate of
Designations as of the day of , 1998.
BANYAN STRATEGIC REALTY TRUST
By:
Name:
Title:
C-18
