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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1998
FILE NO. 333-29475
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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UNITED INVESTORS REALTY TRUST
(Exact name of Registrant as Specified in its Governing Instruments)
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5847 SAN FELIPE, SUITE 850, HOUSTON, TEXAS 77057
(713) 781-2860
(Address of Principal Executive Offices)
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LEWIS H. SANDLER, CHIEF EXECUTIVE OFFICER
UNITED INVESTORS REALTY TRUST
5847 SAN FELIPE, SUITE 850
HOUSTON, TEXAS 77057
(713) 781-2860
(Name and Address of Agent for Service)
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Copies To:
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BRYAN L. GOOLSBY
GINA E. BETTS BRUCE A. CHEATHAM
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P. WINSTEAD SECHREST & MINICK P.C.
2001 ROSS AVENUE, SUITE 3000 1201 ELM STREET, SUITE 5400
DALLAS, TEXAS 75201 DALLAS, TEXAS 75270
(214) 849-5500 (214) 745-5400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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Common Shares of
Beneficial Interest, no
par value............... 8,740,000 shares(1) $10.50 $91,770,000 $27,073(3)
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(1) Includes 1,140,000 Common Shares of Beneficial Interest which may be
purchased by the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
(3) A fee of $27,352 was paid in connection with prior filings.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 1998
7,600,000 SHARES
UNITED INVESTORS REALTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
------------------------
United Investors Realty Trust, a Texas real estate investment trust (the
"Company"), has been operating since 1989 as a private real estate investment
trust engaged in the acquisition, ownership, management, leasing and
redevelopment of community shopping centers in the Sunbelt region of the United
States. Since its inception, the Company has acquired and improved eight
community shopping centers located in Texas, Tennessee and Arizona
(collectively, the "Original Properties"). The Original Properties contain an
aggregate of 754,563 square feet of gross leasable area ("GLA") and were 94.7%
leased as of December 31, 1997. The Company plans to use $1,753,000 of the
offering proceeds to acquire the minority interests in three of the Original
Properties.
The Company has recently acquired or has under contract or option to
purchase eight community shopping centers located in Texas, Florida and Arizona
(collectively, the "Acquisition Properties"). The Acquisition Properties contain
an aggregate of 989,178 square feet of GLA. As of December 31, 1997, the
Acquisition Properties were 96.9% leased. The Original Properties and
Acquisition Properties are sometimes hereinafter referred to as the
"Properties." The Company recently acquired four of the Acquisition Properties
and it is anticipated that three additional Acquisition Properties will be
acquired prior to or in conjunction with completion of the Offering (as defined
below), and the remaining Acquisition Property will be acquired shortly after
completion of the Offering. A portion of the net proceeds from the Offering will
be used to retire indebtedness incurred by the Company to finance a portion of
the purchase price of the Acquisition Properties. See "Use of Proceeds." Upon
consummation of the purchase of the Acquisition Properties, the Company will own
16 Properties containing approximately 1,743,741 square feet of GLA. The Company
elected to be treated as a real estate investment trust ("REIT") for federal tax
purposes for the taxable year ended 1989 and for each subsequent year and is
advised by an affiliate, FCA Corp (the "Investment Manager"). See "Investment
Manager."
All of the common shares of beneficial interest, no par value per share (the
"Common Shares"), of the Company offered hereby (the "Offering") are being sold
by the Company. It is currently anticipated that the initial public offering
price per share will be between $10.00 and $11.00. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
Prior to the Offering, there has been no public market for the Common
Shares. The Company has applied for listing of the Common Shares on the
. The Company intends to pay quarterly cash distributions to
its shareholders. See "Distribution Policy."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON SHARES INCLUDING:
- The Company is solely reliant on the Investment Manager and is incapable
of operating without the Investment Manager because the Company utilizes
the Investment Manager's personnel to acquire and manage all of its
Properties.
- A conflict of interest with the Investment Manager exists.
- The Company's financial condition could be adversely affected if the
Company fails to manage rapid growth and integrate operations.
- Immediate dilution in the net tangible book value of Common Shares
purchased in the Offering will occur in the amount of $1.31 per share
(based on an estimated $10.50 Offering price).
- The Properties are currently limited to the Sunbelt region of the United
States, and as a result of such concentration, any downturn in the economy
in the Sunbelt region could have a material adverse effect on the
business, results of operation and financial condition of the Company.
- The liquidation value of the Company may be less than the value of the
Company as a going concern.
- The Board of Trust Managers has the ability to change the investment,
financing and other policies of the Company at any time without
shareholder approval.
- Limiting ownership to 9.8% of the outstanding Common Shares and certain
other provisions contained in the Company's organizational documents may
have an anti-takeover effect.
- There is no limitation on the amount or type of indebtedness that may be
incurred by the Company.
- There is no prior public market for the Common Shares.
- The Company will be taxed as a corporation if it fails to continue to
qualify as a REIT, resulting in a loss of pass-through tax treatment which
would have a significant adverse effect on the return to shareholders.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share......................................... $ $ $
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Total(3).......................................... $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the Offering estimated at $ payable by
the Company.
(3) The Company has granted the Underwriters an option to purchase up to
1,140,000 additional Common Shares at the Price to Public, less the
Underwriting Discount, for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------------
The Common Shares are offered by the Underwriters when, as and if delivered
to and accepted by them, subject to their right to withdraw, cancel or reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the Common Shares will be
made against payment on or about , 1998, at the offices of Morgan
Keegan & Company, Inc. in Memphis, Tennessee or through the facilities of The
Depository Trust Company.
MORGAN KEEGAN & COMPANY, INC.
DAIN RAUSCHER INCORPORATED
SCOTT & STRINGFELLOW, INC.
SOUTHWEST SECURITIES, INC.
The date of this Prospectus is , 1998.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY.......................................... 1
The Company............................................... 1
Risk Factors.............................................. 2
Business Objectives and Strategies........................ 4
Industry.................................................. 5
The Properties............................................ 5
Distributions............................................. 7
Tax Status................................................ 7
The Offering.............................................. 8
Summary Financial Data.................................... 9
RISK FACTORS................................................ 12
Sole Reliance on Investment Manager....................... 12
Conflicts of Interest..................................... 12
Failure to Manage Rapid Growth and Integrate Operations;
Acquisition of Additional Properties................... 12
Immediate and Substantial Dilution........................ 12
Limited Geographic Diversification of the Portfolio....... 12
Limitations on Acquisition and Change in Control.......... 13
Liquidation Value of the Company May Be Less Than Value as
a Going Concern........................................ 13
Changes in Investment and Financing Policies Without
Shareholder Approval................................... 13
Ownership Limit; Anti-Takeover Effect..................... 13
No Limitation in Organizational Documents on the
Incurrence of Debt..................................... 13
Failure to Continue to Qualify as a REIT Would Reduce
Shareholder Returns.................................... 14
Absence of Prior Public Market for Common Shares.......... 14
Risks Associated with Development and Construction........ 14
Real Estate Investment Risks.............................. 14
Competition............................................... 16
Increase In Market Interest Rate May Cause a Common Share
Price Decrease......................................... 16
Increased Leverage May Result in Loss of Properties in the
Event of a Foreclosure................................. 16
Inability to Acquire Additional Properties; Acquisition
Properties May Not Perform as Expected................. 16
Environmental Matters..................................... 17
Uninsured Loss and Condemnation........................... 17
Sales of Previously Issued Shares May Cause Decreases In
Market Price........................................... 17
Investors Subject to ERISA................................ 18
Forward Looking Information............................... 18
Year 2000 Systems Issues.................................. 18
USE OF PROCEEDS............................................. 19
DISTRIBUTION POLICY......................................... 20
General................................................... 20
Dividend Reinvestment Plan................................ 22
CAPITALIZATION.............................................. 23
DILUTION.................................................... 24
SELECTED PRO FORMA AND HISTORICAL FINANCIAL AND PROPERTIES
INFORMATION............................................... 25
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 26
Overview.................................................. 26
Results of Operations..................................... 26
Liquidity and Capital Resources........................... 29
STRATEGY FOR FUTURE GROWTH.................................. 31
Growth Strategy........................................... 31
Operating Strategy........................................ 33
Financing................................................. 34
OVERVIEW OF THE COMPANY'S FIVE KEY U.S. MARKETS............. 34
General................................................... 34
BUSINESS AND PROPERTIES..................................... 38
Business.................................................. 38
Management and Leasing.................................... 39
The Properties............................................ 40
Significant Leases........................................ 43
National, Regional and Local Tenant Summary............... 44
Lease Expirations......................................... 44
Additional Information Concerning Certain Properties...... 45
Additional Information Concerning the Acquisition
Properties............................................. 51
Tenant Delinquencies and Bankruptcies..................... 61
Mortgage Indebtedness..................................... 62
Rental Revenues........................................... 63
Capital Expenditures...................................... 63
Competition............................................... 63
Employees................................................. 63
Legal Proceedings......................................... 63
Regulations and Insurance................................. 64
Environmental Matters..................................... 64
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES................. 65
Investment Policies....................................... 65
Financing Policies........................................ 66
Affiliate Transaction Policy.............................. 67
Certain Other Policies.................................... 67
MANAGEMENT.................................................. 68
Trust Managers and Officers............................... 68
Committees of the Board of Trust Managers................. 69
Compensation of Trust Managers............................ 70
Executive Compensation.................................... 70
Advisory Board............................................ 71
Share Incentive Plan...................................... 72
Indemnification Agreements................................ 73
Limitation of Liability and Indemnification............... 73
CERTAIN RELATIONSHIPS AND TRANSACTIONS...................... 74
PRINCIPAL SHAREHOLDERS...................................... 76
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST................ 77
General................................................... 77
Restrictions on Transfer.................................. 77
Preemptive Rights......................................... 78
Share Distributions....................................... 78
Redemption of Company Shares.............................. 78
Voting Rights............................................. 79
CERTAIN PROVISIONS OF THE TEXAS REIT ACT AND OF THE
COMPANY'S CHARTER AND BYLAWS.............................. 79
Board of Trust Managers................................... 79
Business Combinations..................................... 79
Shareholder Liability..................................... 81
Trust Manager Liability................................... 81
Special Shareholder Meetings.............................. 81
Termination of the Company................................ 81
Amendment of Charter and Bylaws........................... 82
SHARES AVAILABLE FOR FUTURE SALE............................ 82
FEDERAL INCOME TAX CONSEQUENCES............................. 83
General................................................... 83
Requirements for Qualification as a Real Estate Investment
Trust.................................................. 84
Federal Taxation of the Company -- Specific Items......... 88
Proposed Legislation...................................... 89
Failure to Qualify........................................ 89
Taxation of Shareholders.................................. 89
Disclosure Regarding Dividend Reinvestment Plan........... 90
Taxation of Tax-Exempt Shareholders....................... 90
Taxation of Foreign Shareholders.......................... 91
Other Taxation............................................ 92
ERISA CONSIDERATIONS........................................ 92
UNDERWRITING................................................ 93
LEGAL MATTERS............................................... 95
EXPERTS..................................................... 95
ADDITIONAL INFORMATION...................................... 96
GLOSSARY.................................................... 97
INDEX TO FINANCIAL STATEMENTS............................... F-1
SCHEDULE.................................................... S-1
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
description and financial information and statements, and the notes thereto,
appearing elsewhere in this Prospectus. Capitalized and certain other terms used
herein shall have the meanings assigned to them in the Glossary which begins on
page 97. Except as otherwise indicated, all information in this Prospectus
assumes that the Underwriters' over-allotment option will not be exercised. All
references to the Company shall include its subsidiaries and controlled
affiliates.
THE COMPANY
United Investors Realty Trust (the "Company") has been operating since 1989
as a private REIT engaged in the acquisition, ownership, management, leasing and
redevelopment of community shopping centers in the "Sunbelt" region of the
United States. The Company focuses on purchasing properties anchored by major
retail tenants located in this economically favorable region. The Company
believes that its best opportunities for growth will come from focusing on
acquiring single properties and small portfolios. The Company believes its
primary competitors for these properties are private individuals, small REITs,
and groups that will not have the resources of a relatively larger public REIT.
Further, the Company believes that larger public REITs generally seek to acquire
larger portfolios than the Company seeks to acquire. It is also the Company's
belief that its operating flexibility provides it with an advantage in acquiring
these properties relative to its larger, public competitors. In 1997, FCA Corp
(the "Investment Manager") hired Lewis H. Sandler as the Company's President and
Chief Executive Officer, and Daniel M. Jones, III as Chief Financial Officer,
and provided additional resources to accelerate the Company's growth plans. As
of February 13, 1998, the Company had acquired four of the Acquisition
Properties and had entered into contracts or had options to acquire four
additional Acquisition Properties located in Texas, Florida and Arizona. The
Acquisition Properties contain approximately 989,178 square feet of GLA. The
acquisitions represent a 131% increase in GLA over the 754,563 square feet
contained in the Company's properties held on December 31, 1997. While its
association with the Investment Manager provides the Company with professional
resources normally unavailable to a Company its size, the Company is reliant on
the Investment Manager to perform normal operating activities and, as a result,
conflicts between the Investment Manager and the Company's interests exist.
At December 31, 1997, the Company owned five and controlled three community
shopping center properties located in Texas, Tennessee and Arizona
(collectively, the "Original Properties" and, collectively with the Acquisition
Properties, the "Properties"). With respect to the three Original Properties
that are controlled by the Company, the Company owns the 5% general partner and
a 51% limited partner interest in a limited partnership which owns one property
and a 70% general partner interest in a limited partnership which owns two
properties. Upon completion of the acquisition of the Acquisition Properties,
the Company will have 16 properties with an aggregate GLA of approximately
1,743,741 square feet. The Properties are strategically located in areas
intended to provide busy working families with the opportunity to do most of
their shopping between work and home. The Properties range in size from
approximately 29,000 square feet to approximately 316,000 square feet, and are
anchored primarily by national and regional supermarkets, drug stores and
retailers which offer everyday necessities to their neighborhood communities.
Approximately 93.1% (based on GLA) of the existing leases at the Properties are
triple net, i.e., the tenants under such leases are required to pay base rent
and their respective pro rata shares of the common area maintenance charges,
real estate taxes and insurance costs incurred annually at their respective
Properties. Any future property acquisitions by the Company are expected to be
in established neighborhoods in medium to large-sized metropolitan communities,
where potential future increases in rental and occupancy rates are anticipated
to be realized as a result of better than average population and employment
growth.
The Company seeks to maximize growth in Funds From Operations and Cash
Available for Distribution to shareholders through effective management,
operation and acquisition of community shopping centers. The Company currently
follows five general investment policies to achieve its objectives: (i) the
Company seeks to acquire real estate assets for long-term investment and income
applying selective criteria and employing the
1
<PAGE> 8
most advantageous sources of capital alternatives; (ii) the Company intends to
aggressively seek acquisitions, including properties that it can renovate and/or
expand, and maintain and intensively manage a portfolio of high quality and
well-located properties with a majority of the space already leased; (iii) the
Company intends to focus its acquisition efforts on communities in which it
already has properties or in areas where the Company can acquire several
properties concurrently, in order to obtain economies of scale in the use of
local personnel, advertising and purchasing of services; (iv) the Company
expects to enhance its existing portfolio by entering into a limited number of
joint venture alliances with experienced developers in order to develop new
community shopping centers; and (v) the Company intends to sell, from time to
time, select properties as dictated by market conditions in order to realize
capital gains and to improve the Company's overall portfolio profile and
valuation.
Historically, the Company has contracted with local, professional
management for the day to day operation of the properties. Management believes
that these managers possess a valuable understanding of their local markets.
Further, management has concluded that local management, in select situations,
is currently an economical and viable alternative to management by Company
personnel, and the opportunity to manage future properties acquired by the
Company provides an incentive for these professionals to assist the Company in
finding additional potential acquisitions. These local professionals are, or can
be, on site on a daily basis and are familiar with the communities in which the
centers are situated and the needs of the tenants that these centers serve. In
connection with the purchase of the Acquisition Properties, the Company intends
to manage, with its own personnel, the four Houston Acquisition Properties and
one of the Original Properties located in the Houston area. In addition, the
Company intends to selectively retain certain qualified senior managers to
continue the leasing and management of properties acquired by the Company on
terms satisfactory to the Company. The Company has also established a regional
office in Tampa to help supervise its central and southern Florida properties
and provide a foundation for future growth in those markets.
The investments of the Company are managed by the Investment Manager.
Robert W. Scharar, Chairman of the Board of the Company, is a principal
shareholder of the Investment Manager. The Company's President and Chief
Executive Officer, Lewis H. Sandler, is also the Chief Executive Officer of the
real estate services division of the Investment Manager. See "Risk
Factors -- Conflicts of Interest." The Investment Manager's senior management
originally sponsored the organization of the Company as a benefit to a number of
clients who desired to include real estate properties in their investment
portfolios. The Investment Manager currently provides administrative,
accounting, financial, legal and operating personnel as well as asset management
to the Company on an "as-needed" basis. After completion of the Offering, the
Investment Manager has agreed to dedicate to the administration of the Company
the full-time services of Randall D. Keith and Daniel M. Jones, III, who serve
as the Company's Chief Operating Officer and Chief Financial Officer,
respectively. See "Management."
The Company is a real estate investment trust formed under the Texas REIT
Act. The Company elected to be taxed as a REIT under the Code for its taxable
year ended December 31, 1989 and for each subsequent taxable year. The Company's
principal executive offices are located at 5847 San Felipe, Suite 850, Houston,
Texas 77057, and its telephone number is (713) 781-2860.
RISK FACTORS
An investment in the Common Shares involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to any investment in the Company. Such risks include, among others:
- The Company is solely reliant upon the Investment Manager and is
incapable of operating without the Investment Manager because the Company
utilizes the Investment Manager's personnel to acquire and manage all of
its Properties.
- A conflict of interest with the Investment Manager exists.
- The Company's financial condition could be adversely affected if the
Company fails to manage rapid growth and integrate operations.
2
<PAGE> 9
- Investors in the Offering will experience immediate dilution in the net
tangible book value of $1.31 per Common Share purchased in the Offering
(based on an estimated $10.50 Offering price).
- The Properties are currently limited to the Sunbelt region of the United
States, and as a result of such concentration, any downturn in the
economy in the Sunbelt region could have a material adverse effect on the
business, results of operation and financial condition of the Company.
- The liquidation value of the Company may be less than the value of the
Company as a going concern.
- The Board of Trust Managers has the ability to change the investment,
financing and other policies of the Company at any time without
shareholder approval.
- The limitation on share ownership to 9.8% of the outstanding Common
Shares (with certain exceptions) and certain other provisions contained
in the organizational documents of the Company, such as the ability to
issue preferred shares, may discourage a change in control and may limit
the opportunity for the Company's shareholders to receive a premium for
their Common Shares.
- There is no provision in the organizational documents of the Company that
limits the amount and type of debt that the Company may incur, which may
result in increases in debt service requirements that could adversely
affect the Company's Funds From Operations and its ability to make
distributions to shareholders and result in an increased risk of default
on the Company's obligations.
- There is no prior public market for the Common Shares.
- The Company will be taxed as a corporation if it fails to continue to
qualify as a REIT, resulting in loss of pass-through tax treatment which
would have a significant adverse effect on the return to shareholders.
- There are certain real estate risks associated with an investment in the
Company, such as the effect of economic and other conditions on
commercial property values, including the dependence of the Properties on
the economies of the metropolitan areas in which they are located, the
ability of tenants to make rent payments, the ability of the Properties
to generate revenues sufficient to meet operating expenses, including
future debt service, and the illiquidity of real estate investments.
- Many entities, as well as individuals, compete for investments similar to
those proposed to be made by the Company, many of whom have far greater
resources than the Company.
- Increases in market interest rates may lead prospective purchasers of the
Common Shares to demand a higher annual yield from future distributions,
which may adversely affect the market price of the Common Shares.
- Failure to make payments on secured indebtedness may result in the loss
of the property securing such indebtedness.
- Properties acquired by the Company may not perform as expected.
- The Company is potentially liable for unknown or future environmental
issues.
- The Company may suffer losses in the event of a casualty or other
liabilities that are not insured, are uninsurable or not economically
insurable.
- Future sales of Common Shares could adversely affect the prevailing
market price for Common Shares.
- An investment in the Common Shares may not be suitable for certain
investors subject to ERISA.
3
<PAGE> 10
BUSINESS OBJECTIVES AND STRATEGIES
The Company's operating, acquisition and financing strategies and
management policies are determined by the Board of Trust Managers and are
implemented by the Company's executive officers and by the Investment Manager.
These strategies and policies may be amended or revised from time to time at the
discretion of the Board of Trust Managers without a vote of the shareholders of
the Company.
GROWTH STRATEGY
The Company's growth strategy will be to:
- Focus primarily on acquisitions of community shopping centers in medium
to large-sized metropolitan communities where the Company currently owns
and operates properties and in the Houston area, where the Company is
based, or in areas where the Company can acquire, concurrently, several
properties, in order to obtain economies of scale. In either event, the
Company will focus on areas where potential future increases in rental
and occupancy rates are anticipated to be realized as a result of better
than average population and employment growth. The Company's knowledge of
the real estate market is strongest in the Sunbelt region. The Company's
knowledge is dependent upon officers of the Company whose salaries are
paid by the Investment Manager.
- Acquire community shopping centers that are generally anchored by
supermarkets or by national or regional retailers with long-term leases
and which offer everyday necessities to their neighborhood communities.
- Acquire community shopping centers located along major traffic arteries
in established neighborhoods where the development of competing shopping
centers is impeded by the lack of developable land and zoning
restrictions and where tenant relocation alternatives are limited.
- Take advantage of its structural flexibility by offering, on a selective
basis, senior management of prospective sellers an opportunity to
continue the management of their former community shopping centers if
such persons can be retained on terms acceptable to the Company.
- Acquire, redevelop and re-tenant under-managed retail properties in areas
with strong prospects for future growth.
- Renovate and expand the Properties to meet the needs of existing or new
tenants.
- Develop on a limited basis (up to approximately 20% of its GLA), with
experienced joint venture partners, new community shopping centers in
select areas with supermarkets or other national or regional retail
anchors.
OPERATING STRATEGY
The Company's operating objectives are to:
- Hold and maintain properties for long-term investment and place a strong
emphasis on aesthetics, regular maintenance, periodic renovation and
capital improvements.
- Maintain and diversify its core base of national and regional supermarket
and retail tenants.
- Aggressively market vacant space, renew existing leases at higher base
rents per square foot, and utilize base rent escalation provisions in its
leases.
FINANCING
In order to most effectively pursue its business strategies, the Company's
financing strategy will be to:
- Maintain a capital structure with a ratio of long-term debt to Total
Market Capitalization of no more than 50%. On a pro forma basis at
December 31, 1997, after giving effect to the Offering (assuming an
initial public offering price of $10.50 per Common Share), the Company
would have had a long-term
4
<PAGE> 11
debt to Total Market Capitalization ratio of approximately 27.0%. See "Strategy
For Future Growth -- Financing."
- Utilize the most appropriate sources of capital for potential future
acquisition projects, which may include undistributed Cash Available for
Distribution, the issuance of equity securities (including preferred
shares), bank and other institutional borrowings (secured and unsecured)
and the issuance of debt securities, and proceeds from the sale of
properties.
INDUSTRY
In the early 1990s, many major retailers restructured or downsized their
operations. As a result, landlords encountered loss of credit-worthy tenants and
experienced high anchor tenant turnover. The Company believes that the retail
industry is now healthy and anticipates aggressive expansion in the retail
sector.
Management believes that community shopping centers with a grocery store or
drug store anchor and other tenants such as restaurants and dry cleaners provide
consumers with basic goods and services that will always be in demand. According
to the International Council of Shopping Centers ("ICSC"), in 1996 $973.6
billion of retail sales, or 52% of total non-automotive retail sales, took place
in community shopping centers, strip shopping centers and regional malls
(collectively, "shopping centers"). ICSC statistics indicate that there are
42,048 shopping centers in the United States containing approximately 5.1
billion square feet of GLA. The Company estimates from the National Association
of Real Estate Investment Trusts' ("NAREIT") 1997 REIT Handbook that publicly
owned REITs owned approximately 600 million square feet of retail space with
approximately 45% of that in community and strip shopping centers. The non-REIT
owned portion of the industry remains highly fragmented and provides the Company
with the opportunity to consolidate single assets and small portfolios. The
Properties are community shopping centers with an average size of 108,000 square
feet of GLA. According to ICSC, 36,683 shopping centers, or 87% of all shopping
centers, are under 200,000 square feet of GLA. Further, according to ICSC, over
the three year period of 1994 through 1996, 148.8 million square feet of
shopping center GLA was added nationally, representing an average increase of
less than 1% per year.
THE PROPERTIES
The Original Properties consist of eight community shopping centers located
in Austin, College Station, El Campo and San Antonio, Texas; Lenoir City and
Athens, Tennessee; and Phoenix. The Original Properties were built between 1970
and 1991, with the oldest property having been substantially expanded and
renovated in 1984. The Original Properties were 94.7% leased as of December 31,
1997.
The Acquisition Properties consist of eight community shopping centers,
four of which are located in Houston and the others in Carrollton (Dallas
suburb), Tampa, Pembroke Pines (Fort Lauderdale area) and Phoenix. The
Acquisition Properties were built between 1973 and 1994, with most having
undergone substantial renovations in recent years. As of December 31, 1997, the
Acquisition Properties were 96.9% leased. As of February 13, 1998, the Company
had acquired four of the Acquisition Properties.
The Properties range in size from approximately 29,000 square feet to
316,000 square feet. Further acquisitions are expected to concentrate on similar
properties that are anchored primarily by national and regional supermarkets,
drug stores and retailers which offer everyday necessities to their neighborhood
communities. The Company's success has been based, in part, on its ability to
infuse capital, on a selective basis, into those shopping centers where the
capital is expected to generate greater occupancies and higher rents.
5
<PAGE> 12
Set forth below is information regarding the Properties as of December 31,
1997:
<TABLE>
<CAPTION>
TOTAL BASE RENT YEAR
ENDED 12/31/97
GROSS -----------------------
YEAR LEASABLE TOTAL % OF
DEVELOPED/ AREA PERCENT NUMBER PORTFOLIO
PROPERTY LOCATION RENOVATED (SQ. FT.) LEASED OF TENANTS BASE RENT BASE RENT
-------- -------- ---------- --------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TEXAS
Autobahn Shopping Center.......... San Antonio 1984 28,878 97.2% 6 $ 316,545 2.4%
Bandera Festival Shopping
Center........................... San Antonio 1989 189,438 98.2(6) 28 1,510,643 11.7
Benchmark Crossing Shopping
Center(4)........................ Houston 1986/1990/1994 58,384 100.0 5 642,743 5.0
Centennial Shopping Center........ Austin 1970/1984 80,492 90.9 12 600,768 4.6
El Campo Shopping Center.......... El Campo 1985 83,330 90.0 16 294,932 2.3
Hedwig Shopping Centers(4)........ Houston 1974/1987/1989 69,554 98.2 11 815,989 6.3
The Market at First Colony(4)..... Houston 1988/1991/1994 94,241 96.6 31 1,311,102 10.1
Mason Park Centre(4).............. Houston 1985 160,047 92.6 33 1,649,580 12.8
Rosemeade Park Shopping
Center(4)........................ Carrollton 1986 49,554 86.6 17 513,935 4.0
University Park Shopping
Center(2)........................ College 1973-1991 91,654 98.0 5 745,843 5.8
Station
--------- ----- -- ----------- ---
TOTAL/WEIGHTED AVERAGE......... 905,572 95.1% 164 $ 8,401,980 65.0%
ARIZONA
Park Northern Shopping
Center(1)........................ Phoenix 1982 128,378 90.6(7) 23 640,424 5.0
Southwest/Walgreen's Shopping
Center(4)........................ Phoenix 1975 83,698 100.0 19 537,003 4.2
--------- ----- -- ----------- ---
TOTAL/WEIGHTED AVERAGE......... 212,076 94.3% 42 $ 1,177,427 9.2%
FLORIDA
Town 'N Country Plaza(4).......... Tampa 1970/1986 158,104 100.0 17 641,419 5.0
University Mall Shopping
Center(4)........................ Pembroke Pines 1973/1984 315,596 98.0 36 1,953,254 15.1
--------- ----- -- ----------- ---
TOTAL/WEIGHTED AVERAGE......... 473,300 98.4% 53 $ 2,594,673 20.1%
TENNESSEE
McMinn Plaza Shopping Center...... Athens 1982 99,969 98.0(8) 10 401,028 3.1
Twin Lakes Shopping Center........ Lenoir City 1986 52,424 91.4 10 355,453 2.6
--------- ----- -- ----------- ---
TOTAL/WEIGHTED AVERAGE......... 152,393 95.7% 20 $ 756,481 5.7%
--------- ----- -- ----------- ---
GRAND TOTAL/WEIGHTED AVERAGE...... 1,743,741 95.9% 279 $12,930,561 100.0%
========= ===== == =========== ===
<CAPTION>
ANNUALIZED BASE RENT
-----------------------------
TOTAL NET EFFECTIVE
ANNUALIZED RENT PER
PROPERTY BASE RENT(3) SQUARE FOOT(5) MAJOR TENANT(S)
-------- ------------ -------------- -----------------
<S> <C> <C> <C>
TEXAS
Autobahn Shopping Center.......... $ 318,202 $11.34 Blockbuster Music
Bandera Festival Shopping
Center........................... 1,513,584 8.14 Kmart
Solo Serve
Benchmark Crossing Shopping
Center(4)........................ 663,571 11.37 Bally's
Centennial Shopping Center........ 633,646 8.66 Drug Emporium
Tuesday Morning
El Campo Shopping Center.......... 300,947 4.01 David's
Supermarkets
Hedwig Shopping Centers(4)........ 850,185 12.45 Ross Stores
Blockbuster Music
The Market at First Colony(4)..... 1,295,168 14.23 T J Maxx
Eckerd Drugs
Mason Park Centre(4).............. 1,606,557 10.84 Palais Royal
Petco
Cinemark Cinema
Walgreen's
Rosemeade Park Shopping
Center(4)........................ 548,688 12.79 Blockbuster Video
Cosmopolitan Lady
University Park Shopping
Center(2)........................ 733,976 8.17 Albertson's Food
----------- ------
TOTAL/WEIGHTED AVERAGE......... $ 8,464,524 $ 9.83
ARIZONA
Park Northern Shopping
Center(1)........................ 687,253 5.91 Safeway
Southwest/Walgreen's Shopping
Center(4)........................ 550,597 6.58 Walgreen's
Southwest
Supermarket
----------- ------
TOTAL/WEIGHTED AVERAGE......... $ 1,237,850 $ 6.19
FLORIDA
Town 'N Country Plaza(4).......... 705,692 4.46 Big Lots
T J Maxx
Autozone
University Mall Shopping
Center(4)........................ 2,078,255 6.72 Uptons
Sports Authority
Ross Stores
Office Max
Eckerd Drugs
----------- ------
TOTAL/WEIGHTED AVERAGE......... $ 2,783,947 $ 5.97
TENNESSEE
McMinn Plaza Shopping Center...... 404,715 4.13 Ingles
Twin Lakes Shopping Center........ 336,097 7.01 Food City
----------- ------
TOTAL/WEIGHTED AVERAGE......... $ 740,812 $ 5.08
----------- ------
GRAND TOTAL/WEIGHTED AVERAGE...... $13,227,133 $ 7.91
=========== ======
</TABLE>
6
<PAGE> 13
- ---------------
(1) This property is currently owned by Park Northern/Centennial Partners L.P.,
a Texas limited partnership, in which the Company is the general partner and
owns 70% of the partnership interests. The Company intends to purchase the
minority interest from the proceeds of the Offering.
(2) This property is currently owned by UIRT/University Park-I L.P., a Texas
limited partnership, in which the Company owns the 5% general partner's
interest through a corporate subsidiary and a 51% interest as a limited
partner. The Company intends to purchase all but 4% of the minority interest
from the proceeds of the Offering.
(3) Based on December 31, 1997 rent rolls of the Original Properties and the
Acquisition Properties.
(4) All information on these properties was supplied to the Company by the
sellers of such properties.
(5) Net effective rent per square foot represents total annualized base rent on
December 31, 1997 divided by total leased square footage. The net effective
rent does not take into account any "give backs" or other concessions made
by the Company because no material "give backs" or other concessions have
been granted to any current tenant.
(6) Includes Eckerd Drugs (8,715 square feet or 4.6% of Bandera's GLA) which has
vacated its space, but is obligated to pay rent through October 31, 2008.
The percentage of Bandera's GLA leased without considering Eckerd is 93.6%.
(7) Includes Walgreen's (12,000 square feet or 9.35% of Park Northern's GLA)
which will vacate its space at the end of February 1998, but is obligated to
pay rent through April 30, 2011. The percentage of Park Northern's GLA
leased without considering Walgreen's is 81.3%.
(8) Includes Wal-Mart/Bud's (52,769 square feet or 52.8% of McMinn's GLA) which
has vacated its space but is obligated to pay rent through November 29,
2002. The percentage of McMinn's GLA leased without considering
Wal-Mart/Bud's is 45.2%.
DISTRIBUTIONS
Prior to the Offering, the Company has made quarterly distributions per
Common Share in amounts sufficient to maintain the Company's REIT status. Future
distributions by the Company will be determined by and at the discretion of the
Board of Trust Managers and will be dependent upon a number of factors,
including the federal income tax requirement that a REIT must distribute
annually at least 95% of its taxable income. The Company intends to make regular
quarterly distributions to the holders of the Common Shares. The Company expects
to pay a distribution for the quarter of 1998 in which the Offering is
completed, pro rated for each full month remaining in the calendar quarter in
which the Offering is completed through the end of such quarter. Assuming that
the Offering is completed in March 1998, the first cash distribution after the
completion of the Offering is expected to be $0.215 per share, which is expected
to be paid on July 28, 1998 to record holders on July 6, 1998. Initially, the
Company intends to pay regular quarterly distributions to its shareholders of
$0.86 per share on an annualized basis. This would represent an initial
annualized yield of approximately 8.19%, based on an assumed initial public
offering price of $10.50 per share. The Company currently intends to maintain
its initial distribution rate for the balance of 1998, unless actual results of
operations, economic conditions and other factors differ materially from the
assumptions used in its estimate. The Company does not intend to reduce the
expected distribution rate if the Underwriters' over-allotment option is
exercised. Approximately 27% of the distributions anticipated to be paid by the
Company for 1998 are expected to represent a return of capital for federal
income tax purposes.
TAX STATUS
The Company elected to be treated as a REIT under sections 856 through 860
of the Code for the taxable year ended December 31, 1989 and for each subsequent
taxable year. As a REIT, the Company generally will not be subject to federal
income tax provided it makes certain distributions to its shareholders and meets
certain organizational and other requirements. If the Company fails to qualify
as a REIT in any taxable year, it will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. See "Risk Factors -- Failure to Qualify as a REIT Would
Reduce Shareholder Returns" and "Federal Income Tax Consequences." As a REIT,
the Company is subject to certain federal, state and local taxes. See "Federal
Income Tax Consequences."
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. will deliver prior to the
closing of this Offering its opinion that: (1) the Company has been organized in
conformity with the requirements for qualification as a REIT for federal income
tax purposes for the taxable year ended December 31, 1989, and has continued to
satisfy the requirements for qualification as a REIT through the date of the
opinion; and (2) the Company's anticipated investments and plan of operation
(which plan includes complying with all of the REIT requirements described in
the Prospectus) will enable it to continue to satisfy the requirements for
qualification as a REIT for federal income tax purposes.
7
<PAGE> 14
THE OFFERING
Shares Offered.......................... 7,600,000
Shares to be Outstanding After the
Offering................................ 8,514,889(1)
Use of Proceeds......................... To repay certain mortgage and other
indebtedness associated with the Properties, acquisitions of properties and
partnership interests and for
general working capital purposes.
Symbol.................................. UIR
- ---------------
(1) Does not include 300,000 Common Shares issuable upon exercise of options to
be granted pursuant to the Company's 1997 Share Incentive Plan (the "Plan")
immediately prior to completion of the Offering. See "Management -- Share
Incentive Plan."
8
<PAGE> 15
SUMMARY FINANCIAL DATA
The following table sets forth summary selected pro forma and historical
financial and Properties information of the Company. The following financial
information should be read in conjunction with all of the financial statements
and notes thereto included elsewhere in this Prospectus. The historical and pro
forma operating data of the Company may not be indicative of future operating
results of the Company. The pro forma operating data of the Company are
presented as if the Offering and the purchase of the Acquisition Properties had
occurred as of January 1, 1997. The pro forma balance sheet data are presented
as if the Offering and the purchase of the Acquisition Properties had occurred
on December 31, 1997. The following pro forma information is not necessarily
indicative of what the Company's results of operations or financial condition or
property information would have been for the periods or at the date indicated.
9
<PAGE> 16
SUMMARY SELECTED PRO FORMA AND HISTORICAL
FINANCIAL AND PROPERTIES INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
PRO FORMA
1997 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION:
Revenues:
Base rent.................... $ 13,374,146 $ 4,954,820 $ 4,097,911(1) $ 4,389,491 $ 3,794,711 $ 3,194,084
Percentage rent.............. 293,330 26,400 32,822 -- -- --
Tenant reimbursements........ 3,836,743 1,167,355 835,940 848,975 844,299 622,164
Interest and other income.... 49,087 27,278 67,409 44,224 10,344 13,886
------------ ----------- ----------- ----------- ----------- -----------
Total revenue............ 17,553,306 6,175,853 5,034,082 5,282,690 4,649,354 3,830,134
------------ ----------- ----------- ----------- ----------- -----------
Expenses:
Property operating and
maintenance................ 2,242,815 754,703 582,481 875,193 570,307 454,996
Real estate taxes............ 2,359,299 793,359 558,000 569,634 512,070 437,679
General and administrative... 333,777 179,933 89,529 63,225 23,710 6,551
------------ ----------- ----------- ----------- ----------- -----------
4,935,891 1,727,995 1,230,010 1,508,052 1,106,087 899,226
------------ ----------- ----------- ----------- ----------- -----------
12,617,415 4,447,858 3,804,072 3,774,638 3,543,267 2,930,908
Advisory and Trust Manager
fees....................... 802,822 345,000 312,000 296,000 253,000 231,891
Share grant to advisor and
officers................... 787,500 787,500 -- -- -- --
Other........................ 204,829 204,829 93,302 60,482 105,755 104,297
Interest..................... 2,929,978 2,435,538 2,132,390 2,177,447 2,101,762 1,923,640
Depreciation and amortization
and ground lease........... 3,351,107 1,309,180 967,111 986,129 756,914 631,567
------------ ----------- ----------- ----------- ----------- -----------
8,076,236 5,082,047 3,504,803 3,520,058 3,217,431 2,891,395
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before gain on sale
of investment real estate,
minority interest and
redeemable preferred share
dividend requirements.......... 4,541,179 (634,189) 299,269 254,580 325,836 39,513
Gain on sale of investment real
estate......................... -- -- -- 25,020 -- --
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before minority
interest and redeemable
preferred share dividend
requirements................... 4,541,179 (634,189) 299,269 279,600 325,836 39,513
Minority interest in net income
of real estate ventures........ -- (40,894) (51,941) (43,278) (48,435) (31,084)
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before redeemable
preferred share dividend
requirements................... $ 4,541,179 $ (675,083) $ 247,328 $ 236,322 $ 277,401 $ 8,429
Redeemable preferred share
dividend requirements.......... $ -- $ (96,633) $ (96,296) $ (43,618) $ -- $ --
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss) available for
common shareholders............ $ 4,541,179 $ (771,716) $ 151,032 $ 192,704 $ 277,401 $ 8,429
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss) per share...... $ 0.53 $ (0.85) $ 0.17 $ 0.21 $ 0.32 $ 0.01
============ =========== =========== =========== =========== ===========
Weighted average common shares... 8,512,493 912,493 909,405 909,397 872,655 745,725
============ =========== =========== =========== =========== ===========
Cash distributions per common
share.......................... -- --(2) --(2) --(2) $ 0.40 $ 0.39
============ =========== =========== =========== =========== ===========
BALANCE SHEET INFORMATION:
Investment real estate,
gross........................ $111,984,713 $39,734,731 $39,327,929 $34,166,161 $33,852,985 $29,349,299
Total assets................... 112,496,708 39,286,969 37,201,773 32,461,433 32,702,850 28,773,597
Mortgage and other notes
payable...................... 32,832,881 28,363,899 26,542,992 22,484,845 23,826,831 21,690,375
Total liabilities.............. 34,262,114 29,793,132 27,406,859 23,407,145 24,647,866 23,113,687
Minority interest.............. -- 1,571,018 1,584,673 699,984 794,730 813,578
Preferred shares............... -- 1,068,226 1,068,226 1,068,226 -- --
Net equity..................... 78,234,594 6,854,593 7,142,015 7,286,078 7,260,254 5,578,532
OTHER DATA:
Funds From Operations(3)......... 8,579,134 1,361,839 1,291,047 1,260,709 1,082,750 671,080
Cash flows from:
Operating activities........... 8,692,879 1,688,057 1,062,002 958,510 993,272 504,103
Investing activities........... (48,769,503) (2,711,802) (1,319,213) (269,479) (2,240,884) (7,030,882)
Financing activities........... 50,668,312 1,250,578 (51,293) (384,637) 1,121,241 6,474,138
Number of Properties (at end of
period)........................ 16 8 8 6 6 5
GLA (sq. ft.) (at end of
period)........................ 1,743,741 754,563 753,790 542,095 542,095 442,126
Percentage of GLA leased (at end
of period)..................... 96% 95% 96% 95% 96% 96%
</TABLE>
10
<PAGE> 17
- ---------------
(1) Base rent was lower in 1996 as a result of the conveyance of the One West
Hills office building on January 1, 1996 to Ivy, an affiliated office REIT
managed by the Investment Manager.
(2) For 1997, 1996 and 1995, the Company distributed a dividend in kind of Ivy
shares with a value of $0.398, $0.40 and $0.20 per Common Share,
respectively.
(3) The NAREIT White Paper defines Funds From Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization and after adjustments for unconsolidated entities in which
the REIT holds an interest. Management believes Funds From Operations is
helpful to investors as a measure of the performance of an equity REIT
because, along with cash flows from operating activities, financing
activities and investing activities, it provides investors with an
understanding of the ability of the Company to incur and service debt and
make capital expenditures. The Company computes Funds From Operations in
accordance with the standards established by the White Paper, which may
differ from the methodology for calculating Funds From Operations utilized
by other equity REITs, and accordingly, may not be comparable to such other
REITs. Further, Funds From Operations does not represent amounts available
for management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
Funds From Operations should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flows from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make distributions.
11
<PAGE> 18
RISK FACTORS
An investment in the Company involves various investment risks. Prospective
investors should carefully consider the following factors together with the
information provided elsewhere in this Prospectus in evaluating an investment in
the Company.
SOLE RELIANCE ON INVESTMENT MANAGER
The Company does not currently have the personnel to acquire and manage
properties, and as a result, the Company is solely dependent upon the efforts
and abilities of the officers of the Investment Manager, Robert W. Scharar, the
Investment Manager's President, and Lewis H. Sandler, Chief Executive Officer of
the real estate services division of the Investment Manager. These and the other
officers of the Company are paid by the Investment Manager and several of them
are also officers of the Investment Manager. The success of the Company is
dependent in large part on its officers. The loss or interruption of the
services of these persons could have a material adverse effect on the Company's
business, results of operations and financial condition. Although management of
the Company believes that the Company can obtain the services of third party
investment advisors or hire sufficient personnel to manage the Company's
investments, in the event that the First Amended and Restated Advisory Agreement
(the "Advisory Agreement") is terminated, no assurance can be given that the
Company could obtain alternative investment management services of a comparable
quality or at comparable prices.
CONFLICTS OF INTEREST
The fee of the Investment Manager is based on a percentage of Funds From
Operations before deducting annual interest payments on outstanding indebtedness
and the fee payable to the Investment Manager ("Advisory Funds From Operations")
and is not dependent upon the profitability of the Properties. Determination of
the fee was not the result of an arm's-length negotiation. See "Certain
Relationships and Transactions."
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; ACQUISITION OF
ADDITIONAL PROPERTIES
The Company is currently experiencing a period of rapid growth. As a result
of the rapid growth of the Company's portfolio, there can be no assurance that
the Company will be able to adapt its management, administrative, accounting and
operational systems to respond to any future acquisitions of additional
properties without certain operating disruptions or unanticipated costs. The
failure to successfully integrate any future acquisitions into the Company's
portfolio could have a material adverse effect on the results of operations and
financial condition of the Company and its ability to pay expected distributions
to shareholders. As it acquires additional properties, the Company will be
subject to risks associated with new properties, including tenant retention and
indebtedness default. In addition, there can be no assurance that the Company
will be able to maintain its current rate of growth or negotiate and acquire any
acceptable properties in the future. A larger portfolio of properties would
entail additional operating expenses that would be payable by the Company.
IMMEDIATE AND SUBSTANTIAL DILUTION
The anticipated price per Common Share in the Offering substantially
exceeds the pro forma net tangible book value per share immediately subsequent
to the Offering. Accordingly, based upon an estimated Offering price of $10.50
per share, the shareholders acquiring shares in the Offering will experience
immediate and substantial dilution of $1.31 per share in the net tangible book
value of the Common Shares. See "Dilution."
LIMITED GEOGRAPHIC DIVERSIFICATION OF THE PORTFOLIO
The Company's Properties are located in four states, Texas (52.0%), Florida
(27.2%), Arizona (12.1%) and Tennessee (8.7%) (based on percentage of GLA), all
of which are in the Sunbelt region. The concentration of the portfolio in the
Sunbelt region creates the risk that should this region experience an economic
downturn, the Company's operations may be adversely affected.
12
<PAGE> 19
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
The Company's Amended and Restated Declaration of Trust (the "Charter") and
Amended and Restated Bylaws (the "Bylaws") of the Company contain a number of
provisions, and the Board of Trust Managers has taken certain actions, that
could impede a change of control in the Company. The Charter authorizes the
Board of Trust Managers to create new classes and series of securities and to
establish the preferences and rights of any such classes and series. See
"Description of Capital Stock." The issuance of securities by the Board of Trust
Managers pursuant to this Charter provision could have the effect of delaying or
preventing a change of control of the Company, even if a change of control were
in the interest of some, or a majority, of shareholders.
LIQUIDATION VALUE OF THE COMPANY MAY BE LESS THAN VALUE AS A GOING CONCERN
The valuation of the Company has not been determined on a
property-by-property basis because the Company is an on-going business
enterprise. Rather, the Company has been valued based on the cash flow and cash
flow potential of the Properties, and the factors set forth in this Prospectus.
The Company does not obtain appraisals of its properties in the ordinary course
of business, and appraisals of the Properties have not been obtained in
connection with the Offering. Investors should be aware that the liquidation
value of the Company may be less than the value of the Company as a going
concern.
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT SHAREHOLDER APPROVAL
The investment and financing policies of the Company, and its policies with
respect to certain other activities, including its growth, debt capitalization,
distributions, REIT status and investment and operating policies are determined
by the Board of Trust Managers. Although it has no present intention to do so,
these policies may be amended or revised from time to time at the discretion of
the Board of Trust Managers without a vote of the shareholders of the Company.
OWNERSHIP LIMIT; ANTI-TAKEOVER EFFECT
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding shares of the Company may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). To ensure that the Company will not fail to qualify as a REIT
under this test, the Charter provides that no holder of capital shares, other
than any person approved by the Trust Managers, may directly or indirectly own
more than 9.8% of the lesser of the number or value of the outstanding capital
shares. There can be no assurance that there will not be five or fewer
individuals who will own more than 50% in value of the shares thereby causing
the Company to fail to qualify as a REIT. The ownership limits may discourage a
change of control of the Company and may also (i) deter tender offers for the
Common Shares, which offers may be attractive to the shareholders or (ii) limit
the opportunity for shareholders to receive a premium for their Common Shares
that might otherwise exist if an investor attempted to assemble a block of
Common Shares in excess of 9.8% in number or value of the outstanding capital
shares or otherwise to effect a change of control of the Company. See
"Description of Shares of Beneficial Interest -- Restrictions on Transfer."
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON THE INCURRENCE OF DEBT
The Company currently has a general policy of limiting its borrowings to a
ratio of approximately 50% of long-term debt to Total Market Capitalization. The
organizational documents of the Company contain no limitation on the amount or
percentage of indebtedness which the Company may incur. Therefore, the Board of
Trust Managers, without a vote of the shareholders, could alter or eliminate the
current policy of limiting borrowings at any time. If the Company's debt to
capitalization policy were changed, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company's operating cash flow and its ability to make expected distributions
to shareholders and could result in an increased risk of default on its
obligations.
13
<PAGE> 20
Although the Company will consider factors other than Total Market
Capitalization in making decisions regarding the incurrence of debt (such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of properties upon refinancing, and the ability of particular
properties and the Company, as a whole, to generate cash flow to cover expected
debt service), there can be no assurance that the ratio of long-term debt to
Total Market Capitalization will be consistent with the maintenance of the
expected level of distributions to shareholders.
FAILURE TO CONTINUE TO QUALIFY AS A REIT WOULD REDUCE SHAREHOLDER RETURNS
The Company must continue to meet a number of highly technical and complex
requirements to maintain its status as a REIT under the Code. Failure to
continue to qualify as a REIT would result in the taxation of the Company at
corporate rates and loss of pass-through tax treatment which would have a
significant adverse effect on the return to shareholders. Failure to qualify as
a REIT under the Code during a taxable year would generally render the Company
ineligible to elect REIT status again until the fifth subsequent taxable year.
The Company will not be required to make distributions to shareholders in the
event that it fails to qualify as a REIT under the Code and there can be no
assurance that the Company will continue to make distributions in such event.
Transfers of the Common Shares are subject to certain restrictions to protect
the Company's REIT status under the Code. In addition, the Company may be
subject to state or local taxes. No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not change
the tax laws with respect to qualification as a REIT, the federal income tax
consequences of such qualification or the application of state or local taxes to
the Company. See "Federal Income Tax Consequences."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES
Prior to the Offering, there has been no public market for the Common
Shares. Although the Common Shares are expected to be listed on the
, there can be no assurance that an active
trading market will develop or be sustained or that investors in the Offering
will be able to resell their Common Shares at or above the initial public
offering price. The initial public offering price of the Common Shares was
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Shares after the Offering. See
"Underwriting."
RISKS ASSOCIATED WITH DEVELOPMENT AND CONSTRUCTION
The Company intends to selectively develop and construct community shopping
centers on a limited basis (up to approximately 20% of GLA) with experienced
joint venture partners. Risks associated with the Company's development and
construction activities may include abandonment of development opportunities;
goals of the joint venture partner may not be compatible with the Company's
goals; construction costs of a property exceeding original estimates, possibly
making the property uneconomical; occupancy rates and rents at a newly renovated
or completed property may not be sufficient to make the property profitable;
financing may not be available on favorable terms for development of a property;
permanent financing may not be available on favorable terms to replace a
short-term construction loan; and construction and lease-up may not be completed
on schedule, resulting in increased debt service expense and construction costs.
In addition, new development activities, regardless of whether they are
ultimately successful, typically require a substantial portion of management's
time and attention. The inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required governmental
permits and authorizations could result in the inability to develop a property
or a delay in completion of the project. Any delay in completion would delay
cash flow from such project needed to service debt, if any, on such project.
REAL ESTATE INVESTMENT RISKS
ECONOMIC PERFORMANCE AND VALUE OF PROPERTIES DEPENDENT ON MANY
FACTORS. Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income generated and expenses incurred. If the Company's properties do not
generate
14
<PAGE> 21
income sufficient to meet operating expenses, including debt service, the
Company's income and ability to make distributions to its shareholders will
decrease.
The income from and market value of a leased property may be decreased by
such factors as changes in the general economic climate, local conditions such
as an oversupply of space or a reduction in demand for real estate in the area,
the attractiveness of the properties to tenants and competition from other
available space. Real estate values and income are also affected by such factors
as government regulations and changes in real estate, zoning or tax laws,
interest rate levels, the availability of financing and potential liability
under environmental and other laws.
Adverse economic conditions could decrease the ability of a tenant to make
its lease payments to the Company, resulting in a reduction in the cash flow of
the Company and a decrease in the value of the property leased to such tenant in
the event the lease is terminated and the Company is unable to lease the
property to another tenant on similar or better terms, or at all. In addition,
the Company may experience delays in enforcing its rights as lessor and may
incur substantial costs in protecting its investment. The Company not only could
lose the cash flow from such defaulting tenant, but in order to prevent a
foreclosure, also might divert cash flow generated by other properties to meet
mortgage payments, if any, and pay other expenses associated with owning the
property with respect to which the default occurred.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY TO MEET DEBT OBLIGATIONS AND
MAKE DISTRIBUTIONS. As substantially all of the Company's income is derived from
rental income from real property, the Company's income and Funds From Operations
could decrease if a single major tenant or a number of smaller tenants were
unable to meet their obligations to the Company or if the Company were unable to
lease on economically favorable terms a significant amount of space in its
Properties. Although such adverse effect may be limited by the fact that the
Company does not rely on any single major tenant, such risk is not eliminated.
In addition, the Company's tenants may have the right to terminate their leases
upon the occurrence of certain customary events of default, or, in some cases,
if the lease held by an anchor tenant or other principal tenant of the property
expires, is terminated or the property subject to the lease is vacated, even if
rent continues to be paid under the lease. No assurance can be given that leases
that expire or are terminated can be renewed or replaced, or that the properties
covered by leases that expire or are terminated can be leased to comparable
tenants or on comparable terms, or at all.
BANKRUPTCY OF MAJOR TENANTS. The bankruptcy or insolvency of a major tenant
or a number of small tenants may have an adverse impact on the properties
affected and on the income produced by such properties. Generally, under
bankruptcy law, a tenant has the option of continuing or terminating any
unexpired lease. If the tenant continues its lease with the Company, the tenant
must cure all defaults under the lease and provide the Company with adequate
assurance of its future performance under the lease. If the tenant terminates
the lease, the Company's claim for breach of the lease would (absent collateral
securing the claim) be treated as a general unsecured claim. General unsecured
claims are the last claims to be paid in a bankruptcy and therefore funds may
not be available to pay such claims. As of December 31, 1997, none of the
Company's major tenants was in bankruptcy or had defaulted on a lease which
caused a material adverse effect on the Company.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of the Company to
vary its portfolio in response to changes in economic or other conditions. In
addition, mortgage payments and, to the extent a property is not subject to
Triple Net Leases, certain significant expenditures such as real estate taxes
and maintenance costs generally are not reduced when circumstances cause a
reduction in income from the investment, and should such events occur, the
Company's income and Cash Available for Distribution would decrease. At this
time, substantially all of the Properties' leases are Triple Net Leases. See
"-- Increased Leverage May Result in Loss of Properties in the Event of a
Foreclosure."
CHANGES IN LAWS. Costs resulting from changes in real estate taxes
generally may be passed through to tenants and, to such extent, will not affect
the Company. Increases in income, service or transfer taxes, however, generally
are not passed through to tenants under the leases and may decrease the
Company's operating cash flow and its ability to make distributions to
shareholders. Similarly, changes in laws increasing
15
<PAGE> 22
the potential liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which would decrease the Company's
operating cash flow and its distributions to shareholders.
COMPETITION
All of the Properties are located in areas which have shopping centers and
other retail facilities. Generally, there are other community shopping centers
within close proximity to the Properties. The amount of rentable retail space in
an area could have a material adverse effect on the amount of rent charged by
the Company and on the Company's ability to rent vacant space and/or renew
leases. There are numerous commercial developers, real estate companies, REITs
and major retailers that compete with the Company in seeking properties for
acquisition and tenants for properties, many of which may have greater financial
and other resources than the Company and may have substantially more operating
experience than that of the Company, its officers and agents. There are numerous
shopping facilities that compete with the Properties in attracting retailers to
lease space. In addition, retailers at the Properties face increasing
competition from outlet malls, discount shopping clubs, catalog companies,
direct mail and telemarketing. This competition may affect the amount of
percentage rent retailers pay to the Company and their desire to renew their
leases at the Properties.
INCREASE IN MARKET INTEREST RATE MAY CAUSE A COMMON SHARE PRICE DECREASE
One of the factors that may influence the price of the Company's shares in
public markets is the annual distribution rate on the Common Shares. Thus, an
increase in market interest rates may lead purchasers of Common Shares to demand
a higher annual distribution rate, which could adversely affect the market price
of the Common Shares. In addition, an increase in the market rate of interest
may increase interest expenses under any variable rate indebtedness of the
Company.
INCREASED LEVERAGE MAY RESULT IN LOSS OF PROPERTIES IN THE EVENT OF A
FORECLOSURE
At December 31, 1997, after giving effect to the Offering (assuming an
initial public offering price of $10.50 per Common Share) and the purchase of
the Acquisition Properties, the Company would have had a ratio of long-term debt
to Total Market Capitalization of approximately 27%. Although the use of
leverage may increase the Company's rate of return on its investments and allow
the Company to make more investments than it otherwise would, the use of
leverage also presents an additional element of risk in the event that the cash
flow from lease payments on the Properties is insufficient to meet debt
obligations, the Company is unable to refinance its debt obligations as
necessary or on as favorable terms or there is an increase in interest rates. If
a property is mortgaged to secure payment of indebtedness and the Company is
unable to meet mortgage payments, the property could be lost through foreclosure
with a consequent loss of income and asset value to the Company. Currently, all
of the Original Properties are mortgaged to secure the repayment of
indebtedness.
INABILITY TO ACQUIRE ADDITIONAL PROPERTIES; ACQUISITION PROPERTIES MAY NOT
PERFORM AS EXPECTED
The fact that the Company must distribute 95% of its taxable income in
order to maintain its qualification as a REIT will limit the ability of the
Company to rely upon income from operations or cash flow from operations to
finance new acquisitions. As a result, if permanent debt or equity financing was
not available on acceptable terms to finance acquisitions, then further
acquisitions might be limited or Cash Available for Distribution might be
decreased. Acquisitions entail risks that investments will fail to perform in
accordance with expectations and that judgments with respect to the costs of
improvements to bring an acquired property up to standards established for the
market position intended for that property will prove inaccurate, as well as
general investment risks associated with any new real estate investment.
16
<PAGE> 23
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs
of any required remediation or removal of such substances may be substantial and
the owner's liability therefor as to any property is generally not limited under
such laws, ordinances and regulations and could exceed the value of the
property. The presence of such substances, or the failure to properly remediate
such substances, may adversely affect the owner's ability to sell the property
or to borrow using real estate as collateral. All of the Properties have had
Phase I environmental audits (which involves inspection without soil sampling or
ground water analysis) by independent environmental consultants within the past
18 months. The Phase I audit reports have not revealed any environmental
liability, nor is the Company aware of any environmental liability that the
Company's management believes would have a material adverse effect on the
Company's business, assets or results of operations, taken as a whole. No
assurance, however, can be given that these reports reveal all environmental
liabilities or that no prior owner created any material environmental condition
not known to the Company.
The Company believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances, and neither the Company nor the Investment Manager has been
notified by any governmental authority of any material noncompliance, liability
or other claim in connection with any of their respective present or former
properties.
UNINSURED LOSS AND CONDEMNATION
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to the Original Properties (and will
cover the Acquisition Properties) with policy specifications and insured limits
customarily carried for similar properties. There are, however, certain types of
losses (such as from wars or earthquakes) which may be either uninsurable or not
economically insurable. Should an uninsured loss occur, the Company could lose
both its invested capital in and anticipated profits from the property, and
would continue to be obligated to repay any mortgage indebtedness on the
property, other than non-recourse mortgage indebtedness. As of December 31,
1997, such non-recourse mortgage indebtedness represented 100% of the Company's
pro forma total mortgage indebtedness.
Tenant leases may permit the tenant to terminate its lease in the event of
a substantial casualty or a taking by eminent domain of a substantial portion of
a property. Should any such event occur, the Company generally will be
compensated by insurance proceeds or a condemnation award. There can be no
assurance, however, that insurance proceeds, if available, or a condemnation
award, if given, will equal the value of such property or the Company's
investment in such property.
SALES OF PREVIOUSLY ISSUED SHARES MAY CAUSE DECREASE IN MARKET PRICE
Upon consummation of the Offering, the Company will have a total of
8,514,889 Common Shares outstanding, of which 914,889 Common Shares will
constitute "restricted" securities as that term is defined in Rule 144 as
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
Of the 914,889 shares, a total of 834,397 restricted shares will be eligible for
sale in the public market pursuant to Rule 144 immediately after the
consummation of the Offering. Ninety days after the consummation of the
Offering, 78,092 Common Shares will be eligible for resale pursuant to Rule 144
and Rule 701 as promulgated under the Securities Act. An aggregate of 103,697
Common Shares, which are restricted securities, are subject to 180 day lock-up
agreements with the Underwriters. Of the 103,697 shares, 101,297 of such shares
will be eligible for immediate resale upon expiration of the 180 day lock-up
period (or earlier with the consent of Morgan Keegan & Company, Inc.). The
remaining restricted shares will become eligible for sale in the public market
from time to time. Following this Offering, sales of substantial amounts of the
Common Shares in the public market pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, could adversely affect the prevailing
market price of the Common Shares and impair the Company's ability to raise
additional capital through the sale of equity securities. See "Shares Available
for Future Sale."
17
<PAGE> 24
INVESTORS SUBJECT TO ERISA
Fiduciaries of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), should consider whether the investment of plan assets in the Common
Shares satisfies the diversification requirements of ERISA, whether the
investment is prudent in light of possible limitations on the marketability of
the Common Shares, and whether such fiduciaries have authority to acquire such
Common Shares under their appropriate governing instruments and Title I of
ERISA. See "ERISA Considerations."
FORWARD LOOKING INFORMATION
This Prospectus contains certain forward-looking information regarding the
plans and objectives of management for future operations, including plans and
objectives relating to future growth of the property portfolio and availability
of funds. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, including, without limitation, the
risks set forth in "Risk Factors," the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
YEAR 2000 SYSTEMS ISSUES
Many existing computer programs use only two digits to identify a year in
the date field, and if not corrected, many computer applications could fail or
create erroneous results by or at the year 2000. Left uncorrected, year 2000
systems issues could have a material negative impact on the Company's operations
and its profitability.
In response to ongoing business needs, the Company has begun implementing a
new Timberline software system, and the year 2000 issue was one of the design
prerequisites for this new system. While the Company has taken every precaution
to ensure that the new information system will operate properly in the year
2000, management has relied on assurances by its software vendor. As such, the
Company cannot rule out the possibility of year 2000 issues. The Company will
test its new systems for year 2000 compliance throughout the implementation
process.
18
<PAGE> 25
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of Common Shares in the
Offering, after payment of expenses, are estimated to be approximately
$73,615,500 (based on an estimated initial public offering price per share of
$10.50).
The Company expects to use the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Repay bridge loan........................................... $56,800,000(1)
Break-up fee on bridge loan................................. 941,500(2)
Repay short-term borrowings used to acquire University
Mall...................................................... 4,500,000(3)
Purchase minority interest in three Original Properties..... 1,753,000(4)
Purchase Town 'N Country Plaza.............................. 4,990,000
Repay 10% and 11% short-term notes.......................... 650,000
Redeem 10,737 9% Preferred Shares........................... 1,105,911
Repay 9% Redeemable Convertible Subordinated Notes.......... 212,400
Develop existing outparcels and shopping center upgrades.... 1,690,000
Fees to Southwest Securities, Inc........................... 184,000(5)
Repay unsecured lines of credit............................. 300,000
Working capital............................................. 488,689
-----------
$73,615,500
===========
</TABLE>
- ---------------
(1) Assumes that the entire bridge loan is funded.
(2) The break-up fee applies to that portion of the bridge loan that is not
replaced with permanent financing. Only $3,000,000 of the bridge loan will
be replaced with permanent financing secured by Southwest/Walgreen's.
(3) Of this amount, $1,400,000 will be repaid to FCMT and $3,100,000 will be
used to retire the purchase money note to the seller of the property.
(4) Of this amount, $825,000 will be used to purchase a limited partner's 30%
interest in each of Centennial and Park Northern and $928,000 will be used
to purchase 40% of the approximately 44% limited partnership interests in
University Park not presently owned by the Company.
(5) A fee of $334,000 was earned by Southwest Securities, Inc. for providing
financial services in connection with the Offering, including the
procurement of the bridge loan for the Company. The balance of the fee has
already been paid.
The amount of $56,800,000 of the net proceeds of the Offering will be used
to repay a bridge loan, the proceeds of which were or are to be used, in
substantial part, to (i) repay existing mortgage indebtedness of $16,060,899 on
five of the eight Original Properties; and (ii) acquire six of the Acquisition
Properties for an aggregate consideration of approximately $38,500,000. The
bridge loan is secured by the following properties: Twin Lakes, Autobahn,
Centennial, Bandera, El Campo, Mason Park, Southwest/Walgreen's and The Market
at First Colony shopping centers. The bridge loan matures on August 11, 1998 and
has an interest rate of 30-day LIBOR plus 250 basis points. The bridge loan will
be repaid from the proceeds of the Offering.
The short-term borrowings incurred to acquire University Mall include a
note for $1,400,000 which matures on June 30, 1998 and has an interest rate of
12%, and a purchase money note to the seller for $3,100,000 which matures on
April 29, 1998 and has an interest rate of 10%.
The 10% and 11% short-term notes which will be repaid from the proceeds of
the Offering were issued in 1996 and 1997, and mature between March 1, 1998 and
July 19, 1998.
The 9% Redeemable Convertible Subordinated Notes mature on December 31,
2002.
As of December 31, 1997, the Company had two unsecured lines of credit with
total outstanding balances of $300,000. One of the lines of credit matures on
May 5, 1998 and bears interest at prime (8.50% on December 31, 1997) plus 1.50%.
The second line matures on April 30, 1998 and bears interest at prime (8.50% on
December 31, 1997) plus 0.5%. These lines of credit will be repaid from the
proceeds of the Offering.
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<PAGE> 26
DISTRIBUTION POLICY
GENERAL
Initially, the Company intends to pay regular quarterly distributions to
its shareholders of $0.215 per share or $0.86 per share on an annualized basis.
This would represent an initial annualized yield of approximately 8.19%, based
on the assumed public offering price of $10.50 per share. The Company currently
intends to pay a distribution for the quarter of 1998 in which the Offering is
completed (pro rated for each full month remaining in the calendar quarter in
which the Offering is completed through the end of such quarter). The
distribution rate was established based on an estimate of Cash Available for
Distribution after the Offering under present conditions. Approximately 27% of
the distributions anticipated to be paid by the Company for 1998 are expected to
represent a return of capital for federal income tax purposes. The Company does
not expect to change its estimated distribution rate if the Underwriters'
over-allotment option is exercised.
The Company's intended initial distribution is based upon an estimate of
Cash Available for Distribution that will be available for distributions after
the Offering under present conditions. This estimate has been based upon pro
forma 1998 Cash Available for Distribution with certain adjustments based on the
assumptions described below. The first cash distribution after the completion of
the Offering is expected to be $0.215 per share, which is expected to be paid on
July 28, 1998 to record holders on July 6, 1998, assuming that the Offering is
completed in March 1998.
The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company expects to maintain its initial distribution rate for the balance of the
calendar year in which the Offering is completed, unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in the estimate. The actual return that the Company will
realize will be affected by a number of factors, including the revenues received
from rental properties, the operating expenses of the Company, the interest
expense incurred in its borrowings, the ability of tenants to meet their
obligations to the Company and unanticipated capital expenditures. No assurance
can be given that the Company's estimate will prove accurate. Distributions in
subsequent years will be impacted by the Company's investing and financing
strategies. In particular, the Company expects to initially finance certain
acquisitions and redevelopments through borrowings. As a result, the Company's
need to repay and/or refinance such indebtedness may adversely affect its
ability to make future distributions.
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<PAGE> 27
The following table illustrates the adjustments made by the Company to its
pro forma Funds From Operations for the twelve months ended December 31, 1997,
as annualized, in order to calculate estimated distributions:
<TABLE>
<CAPTION>
AMOUNTS
--------------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C>
Pro forma income before minority interest for the twelve
months ended December 31, 1997............................ $4,541
Plus pro forma depreciation and amortization for the twelve
months ended December 31, 1997(1)......................... 3,251
------
Pro forma Funds From Operations for the 12 months ended
December 31, 1997......................................... $7,792
Adjustments:
Net increases from new and renewed leases(2).............. 294
Net effect of any lease expirations, assuming no
renewals(3)............................................ (362)
------
Estimated Pro forma Funds From Operations for the 12 months
ended December 31, 1998................................... $7,724
Net effect of straight-line rents(4)...................... (312)
Non-cash stock compensation............................... 787
Non-recurring fees........................................ 55
------
Estimated adjusted pro forma cash flows from operating
activities for the 12 months ended December 31, 1998...... $8,254
Estimated cash flows used in investing activities for the 12
months ending December 31, 1998:
Estimated capital expenditures(5)......................... (348)
------
Estimated pro forma cash flows used in financing activities
for the 12 months ending December 31, 1998:............... 7,906
Scheduled debt repayment (per amortization schedules)..... (565)
------
Estimated cash available for distribution for the 12 months
ending December 31, 1998.................................. $7,341
======
Total estimated initial annual distribution(6).............. $7,323
======
Estimated initial annual distribution per share............. $ 0.86
Expected Payout Ratio of Cash Available for Distribution.... 99.8%
======
</TABLE>
- ---------------
(1) Pro forma depreciation for the 12 months ended December 31, 1997 represents
actual 12 months depreciation on the Original Properties plus depreciation
on the Acquisition Properties, calculated on 85% of the purchase price (15%
allocated to land) depreciated over 30 years.
(2) Represents the incremental increase in Funds From Operations attributable to
rental revenue from new, fully executed leases commencing on or after
January 1, 1997, for the 12 months ending December 31, 1998 over rental
revenue included in pro forma Funds From Operations for the 12 months ended
December 31, 1997.
(3) Represents the incremental decrease in Funds From Operations attributable to
rental revenue from expiring leases ending on or after January 1, 1998 for
the 12 months ending December 31, 1998 as compared to rental revenue
included in pro forma Funds From Operations for the 12 months ended December
31, 1997.
(4) Represents the effect of adjusting straight-line rental income included in
the 12 months ended December 31, 1997 from an accrual basis under GAAP to a
cash basis.
(5) Capital expenditures and tenant improvements are budgeted at the three year
average of $0.20 per square foot.
(6) The distributions for 1998 are based on 8,514,889 shares at $0.86 per share
per year.
Future distributions by the Company will be at the discretion of the Board
of Trust Managers and will depend on the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Code (see "Federal Income Tax Consequences --
Taxation of the Company") and such other factors as the Board of Trust Managers
deems relevant. The Company anticipates that distributions will be paid from
Cash Available for Distribution, which will be
21
<PAGE> 28
affected by a number of factors, including: (i) changes in rent attributable to
the renewal of existing leases or replacement leases; (ii) operating expenses
and capital expenditures requirements; and (iii) debt service requirements. For
a discussion of the tax treatment of distributions to the shareholders, see
"Federal Income Tax Consequences -- Taxation of Shareholders" and " -- Taxation
of Foreign Shareholders."
Distributions to shareholders of the Company for 1997, 1996 and 1995
consisted of a distribution in kind of Ivy common shares with a value of $0.398,
$0.40 and $0.20 per Common Share, respectively.
DIVIDEND REINVESTMENT PLAN
The Company intends to implement a Dividend Reinvestment Plan (the "DRIP")
as soon as practicable after consummation of the Offering. Pursuant to the DRIP,
a shareholder whose Common Shares are registered in his or her own name will be
able to elect to have all distributions reinvested automatically in additional
Common Shares by contacting the "Plan Agent." The Company may place limitations
on participation in the DRIP to assure the maintenance of its REIT status. See
"Federal Income Tax Consequences." Shareholders whose Common Shares are held in
the name of a nominee will be able to have distributions reinvested
automatically by the nominee in additional Common Shares under the DRIP, but
only to the extent the nominee participates on his or her behalf. Shareholders
whose Common Shares are held in the name of a nominee should contact the nominee
for details. All distributions to investors who do not participate (or whose
nominee does not participate) in the DRIP will be paid by check mailed directly
to the record holder by or under the direction of the Plan Agent.
The Plan Agent will promptly apply a DRIP participant's distributions to
the purchase of newly issued Common Shares from the Company. The purchase price
per share of Common Shares purchased from the Company will be 95% of the closing
price for Common Shares on the open market on the distribution payment date. The
number of Common Shares to be received by the DRIP participants of record on the
record date for the payment of the Company's distributions on account of the
distribution will be calculated on the basis of the open market price of the
Common Shares on the distribution payment date and will be credited to their
accounts as of the payment date of the distribution.
The Plan Agent will maintain all shareholder accounts in the DRIP and will
furnish written confirmations of all transactions in the account, including
information needed by shareholders for personal and tax records. Certificates
for the shares will be held in the name of the Plan Agent and will be issued to
a DRIP participant upon written request. There will be no charge to participants
for reinvesting distributions and capital gains distributions.
The DRIP also will permit participants to purchase Common Shares thereunder
by making voluntary cash payments to the Plan Agent in amounts of not less than
$100 or more than $10,000 per calendar quarter. These optional cash payments
will be applied to acquire Common Shares from the Company on the same terms as
the reinvestment of distributions.
The automatic reinvestment of distributions will not relieve participants
of any income tax which may be payable on distributions.
Experience under the DRIP may indicate that changes are desirable.
Accordingly, the Company will reserve the right to amend or terminate the DRIP
on written notice to participants in the DRIP. The Company may also amend or
terminate the DRIP without notice if necessary to preserve the Company's REIT
status. All correspondence concerning the DRIP should be directed to the
Company.
The Company intends to reserve 1,000,000 Common Shares for issuance
pursuant to the DRIP.
22
<PAGE> 29
CAPITALIZATION
The following table sets forth, as of December 31, 1997, the consolidated
capitalization of the Company. The information set forth in the following table
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in the Prospectus, as well as "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
DECEMBER 31, 1997(1)
-------------------------------
HISTORICAL PRO FORMA
-------------- --------------
(IN THOUSANDS) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable.................................... $24,926 $ 32,832(2)
Short term notes and lines of credit...................... 3,225 0
Redeemable convertible subordinated notes................. 212 0
Minority interest in real estate joint ventures........... 1,571 0
Redeemable preferred shares, no par value, 20,000 shares
designated at $100 par value; 10,737 shares issued and
outstanding............................................. 1,068 0(3)
Common shareholders' equity:
Common shares of beneficial interest, no par value,
914,889 shares issued and outstanding................... 8,345 81,960(4)
Accumulated deficit....................................... (1,490) (3,726)(5)
------- --------
Total common shareholders' equity......................... 6,855 78,234
------- --------
Total capitalization...................................... $37,857 $111,066
======= ========
</TABLE>
- ---------------
(1) Reflects capitalization of the Company as of December 31, 1997.
(2) Assumes the prepayment of the mortgages at Twin Lakes Shopping Center,
Autobahn Shopping Center, Bandera Festival Shopping Center, El Campo
Shopping Center, Centennial Shopping Center and Town 'N Country Shopping
Center with a portion of the proceeds of the Offering. Also assumes the
acquisition of the Hedwig Centers, Benchmark Crossing Shopping Center,
University Mall and Rosemeade Shopping Center, each of which (except for
phase one of Hedwig) is secured by a first mortgage that will remain in
place in connection with the acquisition of the property secured thereby.
(3) The 9% Preferred Shares will be redeemed with the proceeds of the Offering.
(4) Includes the offering of 7,600,000 Common Shares at the assumed offering
price per share of $10.50, less Offering expenses of 7.75%. Assumes the
Underwriters' over-allotment option to purchase up to 1,140,000 Common
Shares is not exercised.
(5) Includes (i) prepayment penalties of $244,314 associated with the prepayment
of the above mortgages; (ii) fees and other costs of $1,953,500 associated
with the $56,800,000 in bridge financing; and (iii) $37,685 payment in
excess of book value to redeem the 9% Preferred Shares.
23
<PAGE> 30
DILUTION
At December 31, 1997, the pro forma net tangible book value of the Company
immediately prior to the Offering would have been $6,854,593, or $7.49 per
Common Share. After giving effect to the sale by the Company of the Common
Shares offered hereby, the pro forma net tangible book value of the Company at
December 31, 1997 would have been $78,234,594, or $9.19 per Common Share. This
represents an immediate decrease in the net tangible book value per Common Share
to purchasers of Common Shares in the Offering. Net tangible book value per
Common Share represents the amount of total tangible assets of the Company less
total liabilities, divided by the number of Common Shares outstanding. The
following table illustrates the foregoing dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per Common Share(1)........... $10.50
Pro forma net tangible book value before the Offering(2).... $7.49
Increase in net tangible book value per Common Share
attributable to the Offering.............................. $1.70
-----
Pro forma net tangible book value per Common Share after the
Offering(3)............................................... $ 9.19
------
Dilution per Common Share to new public investors........... $ 1.31
======
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and estimated expenses of the
Offering.
(2) Net tangible book value per Common Share before the Offering is determined
by dividing net tangible book value (total tangible assets less total
liabilities) of the Company by the number of Common Shares of the Company.
(3) Based on pro forma net tangible book value of $78,234,594 divided by
8,514,889 Common Shares outstanding.
The following table sets forth the number of Common Shares to be sold by
the Company in the Offering, the total price paid by purchasers of the Common
Shares sold in the Offering, the net book value as of December 31, 1997
attributable to the outstanding shares and the book value of consideration per
Common Share.
<TABLE>
<CAPTION>
BOOK VALUE OF TOTAL
SHARES ISSUED CONSIDERATION TO
BY THE COMPANY(1) THE COMPANY BOOK VALUE OF
------------------- --------------------- CONSIDERATION PER
NUMBER PERCENT AMOUNT PERCENT COMMON SHARE
--------- ------- ----------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Current shareholders................ 914,889 10.8% $ 6,854,593 8.5% $7.49
New public investors................ 7,600,000 89.2 73,615,500(1) 91.5 $9.69(2)
--------- ----- ----------- -----
Total..................... 8,514,889 100.0% $80,470,093 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) After deducting the Underwriters' discounts and commissions and Offering
expenses estimated to be $6,184,500.
(2) This amount is based on the assumed Offering price of $10.50 per share less
estimated Offering expenses of 7.75%.
24
<PAGE> 31
SUMMARY SELECTED PRO FORMA AND HISTORICAL
FINANCIAL AND PROPERTIES INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
PRO FORMA
1997 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION:
Revenues:
Base rent.......................... $ 13,374,146 $ 4,954,820 $ 4,097,911(1) $ 4,389,491 $ 3,794,711 $ 3,194,084
Percentage rent.................... 293,330 26,400 32,822 -- -- --
Tenant reimbursements.............. 3,836,743 1,167,355 835,940 848,975 844,299 622,164
Interest and other income.......... 49,087 27,278 67,409 44,224 10,344 13,886
------------ ----------- ----------- ----------- ----------- -----------
Total revenue.................. 17,553,306 6,175,853 5,034,082 5,282,690 4,649,354 3,830,134
------------ ----------- ----------- ----------- ----------- -----------
Expenses:
Property operating and
maintenance...................... 2,242,815 754,703 582,481 875,193 570,307 454,996
Real estate taxes.................. 2,359,299 793,359 558,000 569,634 512,070 437,679
General and administrative......... 333,777 179,933 89,529 63,225 23,710 6,551
------------ ----------- ----------- ----------- ----------- -----------
4,935,891 1,727,995 1,230,010 1,508,052 1,106,087 899,226
------------ ----------- ----------- ----------- ----------- -----------
12,617,415 4,447,858 3,804,072 3,774,638 3,543,267 2,930,908
Advisory and Trust Manager fees.... 802,822 345,000 312,000 296,000 253,000 231,891
Share grant to advisor and
officers......................... 787,500 787,500 -- -- -- --
Other.............................. 204,829 204,829 93,302 60,482 105,755 104,297
Interest........................... 2,929,978 2,435,538 2,132,390 2,177,447 2,101,762 1,923,640
Depreciation and amortization and
ground lease..................... 3,351,107 1,309,180 967,111 986,129 756,914 631,567
------------ ----------- ----------- ----------- ----------- -----------
8,076,236 5,082,047 3,504,803 3,520,058 3,217,431 2,891,395
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before gain on sale of
investment real estate, minority
interest and redeemable preferred
share dividend requirements.......... 4,541,179 (634,189) 299,269 254,580 325,836 39,513
Gain on sale of investment real
estate............................... -- -- -- 25,020 -- --
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest
and redeemable preferred share
dividend requirements................ 4,541,179 (634,189) 299,269 279,600 325,836 39,513
Minority interest in net income of real
estate ventures...................... -- (40,894) (51,941) (43,278) (48,435) (31,084)
------------ ----------- ----------- ----------- ----------- -----------
Income (loss) before redeemable
preferred share dividend
requirements......................... $ 4,541,179 $ (675,083) $ 247,328 $ 236,322 $ 277,401 $ 8,429
Redeemable preferred share dividend
requirements......................... $ -- $ (96,633) $ (96,296) $ (43,618) $ -- $ --
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss) available for common
shareholders......................... $ 4,541,179 $ (771,716) $ 151,032 $ 192,704 $ 277,401 $ 8,429
------------ ----------- ----------- ----------- ----------- -----------
Net income (loss) per share............ $ 0.53 $ (0.85) $ 0.17 $ 0.21 $ 0.32 $ 0.01
============ =========== =========== =========== =========== ===========
Weighted average common shares......... 8,512,493 912,493 909,405 909,397 872,655 745,725
============ =========== =========== =========== =========== ===========
Cash distributions per common share.... -- --(2) --(2) --(2) $ 0.40 $ 0.39
============ =========== =========== =========== =========== ===========
BALANCE SHEET INFORMATION:
Investment real estate, gross........ $111,984,713 $39,734,731 $39,327,929 $34,166,161 $33,852,985 $29,349,299
Total assets......................... 112,496,708 39,286,969 37,201,773 32,461,433 32,702,850 28,773,597
Mortgage and other notes payable..... 32,832,881 28,363,899 26,542,992 22,484,845 23,826,831 21,690,375
Total liabilities.................... 34,262,114 29,793,132 27,406,859 23,407,145 24,647,866 23,113,687
Minority interest.................... -- 1,571,018 1,584,673 699,984 794,730 813,578
Preferred shares..................... -- 1,068,226 1,068,226 1,068,226 -- --
Net equity........................... 78,234,594 6,854,593 7,142,015 7,286,078 7,260,254 5,578,532
OTHER DATA:
Funds From Operations.................. 8,579,134 1,361,839 1,291,047 1,260,709 1,082,750 671,080
Cash flows from:
Operating activities................. 8,692,879 1,688,057 1,062,002 958,510 993,272 504,103
Investing activities................. (48,769,503) (2,711,802) (1,319,213) (269,479) (2,240,884) (7,030,882)
Financing activities................. 50,668,312 1,250,578 (51,293) (384,637) 1,121,241 6,474,138
Number of Properties (at end of
period).............................. 16 8 8 6 6 5
GLA (sq. ft.) (at end of period)....... 1,743,741 754,563 753,790 542,095 542,095 442,126
Percentage of GLA leased (at end of
period).............................. 96% 95% 96% 95% 96% 96%
</TABLE>
- ---------------
(1) Base rent was lower in 1996 as a result of the conveyance of the One West
Hills office building on January 1, 1996 to Ivy, an affiliated office REIT
managed by the Investment Manager.
(2) For 1997, 1996 and 1995, the Company distributed a dividend in kind of Ivy
shares with a value of $0.398, $0.40 and $0.20 per Common Share,
respectively.
25
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements and the
related Notes included elsewhere in this Prospectus.
OVERVIEW
The Historical Consolidated Financial Statements for United Investors
Realty Trust present the financial position and results of operations of the
Company for each of the fiscal periods indicated. The financial results
presented in the Historical Consolidated Financial Statements and the related
Notes reflect the operating revenues and expenses associated with the Original
Properties, as well as other related expenses, including general and
administrative expenses associated with the management function such as
Investment Manager fees and direct overhead items.
RESULTS OF OPERATIONS
Twelve Months Ended December 31, 1997 Compared to the Twelve Months Ended
December 31, 1996
For the 12 months ended December 31, 1997, net income(loss) before gain on
sale of investment real estate was ($634,189) as compared to $299,269 in 1996.
During 1997, the Company awarded the Investment Manager and certain officers and
Trust Managers an aggregate of 75,000 Common Shares, for which the Company took
a charge of $787,500. Also, the Company incurred $65,000 in additional
professional costs related to the employment of a contract Chief Financial
Officer, and $55,000 in fees related to a canceled bridge financing. Without
these non-recurring charges, net income for the twelve months ended December 31,
1997 would have been $273,311 as compared to $299,269 in 1996, an 8.7% decrease.
The Company defines mature centers as those that were owned by the Company
for all of 1997 and 1996, which includes Autobahn, Twin Lakes, Centennial,
University Park, McMinn Plaza and Bandera Festival, or all of the Original
Properties excluding El Campo and Park Northern. The following table separates
new centers from mature centers, allowing a comparison of year-to-year results
on both a mature and total basis.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------- ---------------------------------------
EL CAMPO & EL CAMPO &
MATURE PARK NORTHERN TOTAL MATURE PARK NORTHERN TOTAL
---------- ------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues............. $4,853,225 $1,322,628 $6,175,853 $4,787,444 $246,638 $5,034,082
Expenses:
Operating and
maintenance........... 593,718 160,985 754,703 549,140 33,341 582,481
Real estate taxes........ 534,012 259,347 793,359 520,246 37,754 558,000
General and
administrative........ 137,646 42,287 179,933 86,730 2,799 89,529
---------- ---------- ---------- ---------- -------- ----------
1,265,376 462,619 1,727,995 1,156,116 73,894 1,230,010
$3,587,849 $ 860,009 $4,447,858 $3,631,328 $172,744 $3,804,072
Advisory and Trust
Manager fees.......... 291,073 53,927 345,000 308,996 3,004 312,000
Share grant to Investment
Manager............... 787,500 0 787,500 0 0 0
Other.................... 199,429 5,400 204,829 93,302 0 93,302
Interest................. 2,051,829 383,709 2,435,538 2,037,595 94,795 2,132,390
Depreciation,
amortization and
ground lease.......... 949,616 359,565 1,309,180 916,442 50,669 967,111
---------- ---------- ---------- ---------- -------- ----------
4,279,447 802,600 5,082,047 3,356,335 148,468 3,504,803
Income(loss) before
gain on sale of
investment real
estate.............. $ (691,598) $ 57,409 $ (634,189) $ 274,993 $ 24,276 $ 299,269
========== ========== ========== ========== ======== ==========
</TABLE>
26
<PAGE> 33
Total revenues increased 23% to $6,175,853 for 1997 as compared to
$5,034,082 in 1996. Of the increase, $1,075,990 was attributable to the
additions of El Campo and Park Northern Shopping Centers in 1996. Revenues at
mature shopping centers increased by $65,781, or 1.4%, for the year.
Operating and maintenance expenses at mature properties increased $44,578
in 1997 due to higher painting and other maintenance costs at Bandera. Real
estate taxes were up by $13,766 at mature properties in 1997, reflecting higher
appraised values, and general and administrative costs at mature properties
increased $50,916, reflecting higher bad debt expense of $59,322.
Interest expense increased from $2,132,390 in 1996 to $2,435,538 in 1997,
an increase of 14.2%. Of this amount, $288,914 is directly attributable to
mortgages assumed at El Campo and Park Northern. The balance of the increase
($14,234) is attributable to higher short-term borrowings in 1996 and 1997 to
finance acquisitions, offset by lower principal balances on mature mortgages.
Depreciation and amortization expenses increased 35.4% to $1,309,180 in
1997 from $967,111 in 1996; most of which is attributable to the additions of El
Campo and Park Northern. The increase of $33,174 at mature properties represents
higher amortization costs on higher leasing commissions and leasehold
improvements.
Trust Manager fees were $33,000 in each of 1997 and 1996. Advisory fees
increased from $279,000 in 1996 to $312,000 in 1997. Advisory fees, which were
based on a percentage of assets of the Company, increased as a result of the
acquisitions of the El Campo and Park Northern properties. Effective the first
day of the calendar quarter in which the registration statement of which this
Prospectus is a part is declared effective, the method of calculating the
advisory fee is being changed and will be based on a percentage of Advisory
Funds From Operations (as defined in the Glossary). See "Certain Relationships
and Transactions." Management believes that an advisory fee based on Advisory
Funds From Operations is tantamount to incentive based compensation and that
such basis is in the best interest of the shareholders. If the Advisory
Agreement had been in effect in 1997 and 1996, the Investment Manager would have
received $287,598 and $251,766, respectively.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
For the year ended December 31, 1996, net income available for common
shareholders decreased 21.6% to $151,032 as compared to $192,704 for the year
ended December 31, 1995, primarily because the results of One West Hills Office
Building were included in 1995 but not in 1996. Excluding the gain on sale of
investments and the net income generated by One West Hills of $68,710 in 1995,
net income available for common shareholders actually increased 53% to $151,032
in 1996 as compared to $98,974 in 1995. The spin-off of the One West Hills
Office Building to Ivy occurred on January 1, 1996.
Total revenues decreased 5% to $5,034,082 in 1996 as compared to $5,282,690
in 1995. The exclusion of One West Hills revenue of $619,820 in 1995 would have
resulted in an 8% increase in revenues for 1996 as compared to 1995. The
additional revenues consisted of $176,812 from the El Campo Shopping Center and
$137,607 from the Park Northern Shopping Center acquisitions during 1996, with
the balance from additional rents from existing shopping centers.
Property operating and maintenance expenses decreased 33% to $442,701 in
1996 as compared to $662,687 for 1995. The decrease in property operating and
maintenance expenses was primarily attributable to the conveyance of One West
Hills, which was partially offset by additional operating expenses of $38,022
and $37,173 in 1996 for El Campo and Park Northern, respectively.
Real estate taxes decreased 2% to $558,000 in 1996 as compared to $569,634
in 1995. The decrease was attributable to the conveyance of One West Hills to
Ivy, offset by the El Campo and Park Northern acquisitions.
Trust Manager fees were $33,000 in 1996 and $20,000 in 1995. Advisory fees
increased 1% to $279,000 in 1996 as compared to $276,000 in 1995. The advisory
fee, which was based on assets at year end, was prorated
27
<PAGE> 34
with respect to the Properties acquired during the year. If the Advisory
Agreement had been in effect in 1996 and 1995, the Investment Manager would have
received advisory fees of $251,766 and $252,563, respectively.
Management fees decreased 34% to $139,780 in 1996 as compared to $212,506
in 1995. The decrease, which was primarily attributable to the conveyance of One
West Hills to Ivy, was partially offset by the acquisitions of El Campo and Park
Northern. Management fees, which included on site personnel, are generally
higher for office buildings.
Legal and accounting expenses increased 54% to $93,302 in 1996 as compared
to $60,482 in 1995. The increase was primarily attributable to professional fees
associated with preparing the documentation of the Partnership.
Other general and administrative expenses increased 21% to $130,862 in 1996
as compared to $108,478 in 1995. The increase was attributable to additional
expenses associated with a larger asset base and ground lease expenses for Park
Northern.
Interest expense decreased 2% to $2,132,390 in 1996 as compared to
$2,177,447 in 1995. The decrease is also primarily attributable to the
conveyance of One West Hills to Ivy. This was partially offset by interest
expense from short-term notes issued in 1996.
Depreciation and amortization expenses decreased less than 1% to $958,778
in 1996 as compared to $960,876 in 1995. The decrease was attributable to the
conveyance of One West Hills to Ivy, which was offset by the depreciation
expense on the El Campo and Park Northern acquisitions.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
For the year ended December 31, 1995, net income available for common
shareholders decreased 30% to $192,704 in 1995 as compared to $277,401 in 1994.
The decrease was the result of higher depreciation expenses associated with the
McMinn Plaza Shopping Center and One West Hills Office Building acquisitions,
which were acquired in June and September, 1994, respectively, and depreciation
expenses on capital improvements to the existing portfolio.
Total revenues increased 14% to $5,282,690 in 1995 as compared to
$4,649,354 in 1994. The increase in revenues was primarily attributable to the
acquisitions of McMinn Plaza and One West Hills Office Building.
Property operating and maintenance expenses increased 49% to $662,687 in
1995 as compared to $445,635 for 1994. The increase in operating expenses was
the result of the acquisitions in 1994 of McMinn Plaza and One West Hills.
Real estate taxes increased 11% to $569,634 in 1995 as compared to $512,070
in 1994. The increase was primarily attributable to the McMinn Plaza and One
West Hills acquisitions.
Trust Manager fees were $20,000 in 1995 and no fees were paid to Trust
Managers in 1994. Advisory fees increased 9% to $276,000 in 1995 as compared to
$253,000 in 1994. The increase was primarily attributable to the One West Hills
and McMinn Plaza acquisitions. If the Advisory Agreement had been in effect in
1995 and 1994, the Investment Manager would have received advisory fees of
$252,563 and $233,751, respectively.
Management fees increased 70% to $212,506 in 1995 as compared to $124,672
in 1994. The increase was primarily attributable to the One West Hills
acquisition and, to a lesser extent, the McMinn Plaza acquisition.
Legal and accounting expenses increased 19% to $60,482 in 1995 as compared
to $50,657 in 1994. The increase was primarily attributable to higher
professional fees associated with the larger asset base in 1995 as compared to
1994.
Other general and administrative expenses increased 38% to $108,478 in 1995
as compared to $78,808 in 1994. The increase was primarily attributable to
franchise tax associated with the McMinn Plaza acquisition and additional
expenses associated with a larger asset base.
28
<PAGE> 35
Interest expense increased 4% to $2,177,447 in 1995 as compared to
$2,101,762 in 1994. The increase was primarily attributable to the additional
first mortgages associated with the McMinn Plaza and One West Hills acquisitions
and was partially offset by the repayment of short term notes during 1994.
Depreciation and amortization expenses increased 27% to $960,876 in 1995 as
compared to $756,914 in 1994. The increase was primarily attributable to the
McMinn Plaza and One West Hills acquisitions and, to a lesser extent,
depreciation expense on capital and tenant improvements at Bandera Festival
Shopping Center and Centennial Shopping Center.
LIQUIDITY AND CAPITAL RESOURCES
Indebtedness
As of December 31, 1997, the Company had total indebtedness of
approximately $28.2 million, which consisted of approximately $25.0 million in
indebtedness collateralized by the eight Original Properties and a recently
acquired unimproved outparcel, and $3.2 million of unsecured indebtedness. Of
such indebtedness, $300,000 is variable rate indebtedness and $25.9 million is
at a fixed rate. Under the current debt structure, in which only $300,000 is not
fixed or capped, the Company does not hedge against changes in interest rates.
Upon acquisition of additional properties through debt financing or the
refinancing of existing debt, the Company will consider the purchase of interest
rate hedges. The purchase of hedges, in either event, will require outlays of
capital and could affect the Company's ability to continue its planned level of
distributions. Accordingly, the Company plans to use variable rate debt only if
the cost of an appropriate hedge is in line with the Company's overall strategy
for distribution and growth. The costs of any future interest rate caps are
dependent upon any number of factors, including fluctuations in interest rates,
and may increase in the future. The Company's indebtedness has interest rates
ranging from 7.63% to 10.75%, with a weighted average interest rate of 9.25%,
and will mature between 1998 and 2018, with a weighted average remaining term to
maturity of 5.8 years. See "Business and Properties -- Mortgage Indebtedness."
Most of the Company's indebtedness maturing in 1998 and 1999 is expected to be
repaid with proceeds from the Offering. Of the remaining mortgage debt, no
individual note with balances due at maturity (of any significance) will mature
until 2005. See "Risk Factors -- Increased Leverage May Result in Loss of
Properties in the Event of a Foreclosure" for a more complete discussion of
uncertainties regarding refinancing of the Company's mortgage indebtedness.
Liquidity Sources and Requirements
Historically, the principal sources of funding for the Company's
acquisitions of properties have been equity offerings, mortgages, notes and
short term lines of credit.
The Company expects to meet its short term liquidity requirements generally
through working capital and ongoing net cash provided by operations. The Company
believes that its net cash provided by operations will be sufficient to allow
the Company to make any distributions necessary to enable the Company to
continue to qualify as a REIT. The Company also believes that the foregoing
sources of liquidity will be sufficient to fund its short-term liquidity needs
through 1998. Development activities are expected to be financed in part by
construction loans and other available credit facilities.
The Company expects to meet certain long term liquidity requirements such
as property acquisitions, scheduled debt maturities, renovations, expansions and
other non-recurring capital improvements through long term collateralized and
uncollateralized indebtedness, including a new line of credit facility and the
issuance of additional equity securities.
The Company's primary demands for liquidity are expected to be funding
distributions to its shareholders, debt service payments, property operations
and general and administrative expenses.
With regard to future shareholder distributions, the Company must
distribute at least 95% of its "real estate investment trust taxable income" (as
defined in the Code) in order to meet the qualifications of a REIT. The
Company's regular quarterly distributions are expected to be paid with Cash
Available for
29
<PAGE> 36
Distribution. However, under certain circumstances, the Company may be required
to make distributions in excess of Cash Available for Distribution in order to
meet REIT distribution requirements.
The Company has received a letter of intent from a bank for a $20 million
revolving line of credit. If utilized, the credit line will be used primarily to
acquire additional community shopping centers. The credit line, which is
expected to bear interest on funds as they are drawn down at the rate of 150
basis points over 90-day LIBOR, will have a two-year term and will be secured by
a first lien on several of the Properties whose existing mortgage debt will be
repaid in connection with the completion of the Offering.
Cash Flow
Net cash flow from operating activities increased from $1,062,002 for the
12 months of 1996 to $1,688,057 in 1997 due primarily to the $335,585 positive
impact of El Campo and Park Northern. Net cash flow provided by operating
activities increased from $958,510 in 1995 to $1,062,002 in 1996 due primarily
to improved property performance in 1996. Trade accounts payable were up
$191,717 at December 31, 1996 but were largely offset by increased accounts
receivable and decreased accrued expenses. For 1995, net cash flow from
operating activities was virtually unchanged from 1994 at approximately $1.0
million in each year.
Net cash flow used in investing activities increased from $1,319,213 in
1996 to $2,711,802 in 1997 representing $2,305,000 in deposits on Acquisition
Properties plus $406,802 in capital investments. Cash flow used in investing
activities increased from $269,479 in 1995 (roof at Centennial) to $1,319,213
(primarily new acquisitions) in 1996. On January 1, 1996, the Company conveyed
the One West Hills office building to Ivy and during 1996, it acquired El Campo
Shopping Center and a majority interest in Park Northern Shopping Center. Net
cash flow used in investing activities in 1994 were $2,240,884, mostly
attributable to the acquisition of McMinn Shopping Center and the One West Hills
office building.
For the 12 months ended December 31, 1997, $1,250,578 was provided by
financing activities, representing $2,525,000 new-short-term financing minus
$799,964 in principal payments on mortgages and offering costs of $49,700. For
the same period in 1996, funds provided by financing activities were $51,293 as
the Company assumed $1,600,000 in existing debt at El Campo and issued $740,000
in new short-term notes payable to fund the purchase of El Campo and Park
Northern and repaid $604,574 in Mortgage Principle. Cash flow used for financing
activities decreased from $384,637 in 1995 to $51,293 in 1996. During 1996,
$600,000 in new, short term notes and new lines of credit totaling $140,000 were
secured to complete the purchase of El Campo and Park Northern and pay down the
mortgage at Park Northern by $600,000. During 1995, $0.6 million was received as
proceeds from preferred stock and $2.0 million in new mortgage notes were
obtained, and $2.9 million in mortgage and note principal was retired. In 1994,
$1.6 million in new mortgages were assumed as part of the McMinn Plaza and One
West Hills office building acquisitions and $0.4 million in principal was
retired. Total cash flow from financing operations in 1994 were $1.1 million.
Capital Expenditures
The Company's capital improvements have averaged approximately $.20 per
square foot per year over the last three years. Several factors exist which help
to minimize capital improvements. They are:
(i) The majority of the Company's leases provide for the tenants to
share in the common area maintenance expenses of the shopping centers owned
by the Company.
(ii) Tenants are typically responsible for the repair and replacement
of their HVAC systems.
(iii) Only 2,990 square feet of the Company's portfolio is shell space
(i.e., not previously improved for a tenant).
(iv) Leases typically provide for the Company to provide tenants with
a "white box" (i.e., unfinished space). Hence, the tenant is responsible
for finishing out the space for its needs. Additionally, some leases
provide that the space is delivered to the tenant in an "as is" condition.
(v) The Company maintains an active preventative maintenance program
designed to preserve and lengthen the life of the roofs and parking lots of
its shopping centers.
30
<PAGE> 37
The Company capitalized $161,063 in capital expenditures and tenant
improvements during 1996 and $369,282 in 1997.
Inflation
During the periods presented above, inflation has not had a significant
impact on the Company. Most of the Company's long-term leases contain provisions
designed to mitigate the adverse impact of inflation on the Company's net
income. Such provisions include clauses enabling the Company to receive
percentage rents based on gross sales of tenants, which generally increase as
prices rise, and/or in certain instances, escalation clauses, which generally
increase rental rates during the terms of the leases. In addition, most of the
Company's leases require the tenants to pay their share of operating expense,
including common area maintenance, real estate taxes, insurance and utilities,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation.
New Accounting Pronouncement
In February 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share" which simplifies the standards
for computing and presenting earnings per share ("EPS") and makes them
comparable to international EPS standards. This statement is effective for the
year ended December 31, 1997.
STRATEGY FOR FUTURE GROWTH
The Company will seek to maximize growth in Cash Available for Distribution
and enhance the value of its portfolio through effective acquisition, operation,
rehabilitation and financing strategies as well as intensive management
policies. The Company believes that attractive opportunities exist to acquire
additional community shopping centers at prices that are accretive to the
Company's Funds From Operations. The Company intends to aggressively pursue such
acquisitions at costs that are generally less than the cost of new construction.
Such acquisition policy should continue to present the Company with potential
for cash flow growth and capital appreciation.
The Company also believes that attractive opportunities exist to increase
rental revenues and Cash Available for Distribution through effective leasing
and intensive management of the properties in its portfolio. This is especially
true with respect to most of the Acquisition Properties, which, management
believes, have been under-managed. By way of example, management believes that
University Mall can be repositioned in its market with some aggressive leasing
combined with the introduction of an attractive signage program, installation of
better lighting and the implementation of an overall plan to reduce the impact
of existing trees to create better visibility from the street.
Management expects to enter into a limited number of joint venture
arrangements with experienced shopping center developers to build, in select
areas, additional retail centers with supermarket or other national or regional
retail anchors. Several potential joint venture partners and identified sites
are currently under consideration by management. Although such development will
be limited, initially, to approximately 20% of the Company's GLA, such
development presents the potential for returns in excess of those that can
generally be obtained from acquisitions of existing properties.
The Company's operating, acquisition, development and financing strategies
and management policies are determined by the Company's Board of Trust Managers
and implemented by the executive officers and other key employees of the
Investment Manager and may be amended or revised from time to time at the
discretion of the Board of Trust Managers without a vote of the shareholders of
the Company.
31
<PAGE> 38
GROWTH STRATEGY
Acquisitions
The Company's primary strategy to increase the size of its portfolio is to
acquire well-located community shopping centers anchored by supermarkets and
other national and regional credit-worthy tenants with long-term leases. The
Company's acquisition emphasis will be on retail properties with what management
considers to be strong prospects for future cash flow growth and capital
appreciation, and on community shopping centers where significant redevelopment
opportunities exist. The Company will focus primarily on acquisitions of retail
properties in medium to large-sized metropolitan communities where the Company's
knowledge of the real estate market is strongest or in areas where the Company
can acquire, concurrently, several properties, in order to obtain economies of
scale. In either event, the Company will focus on areas where potential future
increases in rental and occupancy rates are anticipated to be realized as a
result of better than average population and employment growth. The Company
intends to acquire community shopping centers located along major traffic
arteries in established neighborhoods where the development of competing
shopping centers is impeded by the lack of developable land and zoning
restrictions, and where tenant relocation alternatives are limited.
In evaluating the potential acquisition of any property, management
considers a variety of factors such as (i) the location, visibility and
accessibility of the property; (ii) the demographic characteristics of the local
market, including potential for growth; (iii) the size of the property; (iv) the
purchase price; (v) the availability of funds or other consideration for the
proposed acquisition and the cost thereof; (vi) the geographic "fit" of the
property with the Company's existing portfolio; (vii) the absence or existence
of environmental problems, if any; (viii) the current and projected cash flow of
the property and perceived ability to increase cash flow; (ix) the terms of the
leases, including the potential for rent increases; (x) the quality of
construction, physical condition and design of the property; (xi) the terms of
existing financing on the property; and (xii) existing and the potential for
future competition within the community in which the prospective acquisitions
are located.
The Company believes the Acquisition Properties are indicative of the
growth potential through acquisitions available in the marketplace. Further, it
believes that its ability to compete effectively with other shopping center
operators in its peer group with respect to future acquisitions will be enhanced
by the completion of the Offering. It has been management's experience that many
retail center owners with an interest in selling their properties wish to
maintain an active role in the management of their centers. Management believes
that many of the Company's competitors have no interest in or capacity for
retaining the management services of the persons who control the assets that
such competitors wish to acquire. The Company is prepared to allow certain
qualified senior management to continue the management of their former assets if
such persons can be retained on terms satisfactory to the Company. For example,
the Town 'N Country shopping center in Tampa, Florida involves a group of
professional shopping center operators who currently own and operate six other
retail centers in the same central Florida area. Two members of this group (the
"Tampa Group") have been retained by the Company to manage the Town 'N Country
shopping center and to act as regional (initially limited to central and south
Florida) representatives for the Company upon the acquisition of the property by
the Company. The Company believes that its ability to retain such managers will
facilitate access to additional acquisitions, integration of future property
acquisitions, and retention of the existing goodwill resulting from the
long-term tenant relations and community involvement of such managers.
Initially, the Company will concentrate its acquisition activities on
communities in which it already has properties or where the Company can acquire
several properties in order to obtain economies of scale in the use of local
personnel, advertising and purchasing of services locally. The Company believes
that its strategy to anchor its shopping centers with supermarkets and other
national and regional credit tenants under long-term leases will continue to
support stable cash flows from the Properties.
Redevelopment
Redevelopment activities have been an integral part of the Company's
business strategy and will continue to be an important component of its strategy
in the future. Redevelopment activities generally involve
32
<PAGE> 39
physically upgrading an existing retail facility in order to meet current
industry standards as well as to accommodate the expansion of existing tenants
and/or the placement of additional tenants. The Company has significant
experience in all phases of the redevelopment process. Management believes that
most of the Acquisition Properties have been under-managed and, as a result,
present opportunities for such redevelopment. Plans and budgets for
redevelopment and/or expansion of several of the Acquisition Properties and two
of the Original Properties are being prepared for implementation after the
completion of the Offering.
Development
With respect to development opportunities, the Company has a contract to
acquire an 8.5 acre site in San Antonio, Texas that management considers to be
an excellent location. The Company is currently evaluating various development
plans for the site and is in discussions with several prospective tenants. A
second site is under consideration in central Florida where the Tampa Group has
obtained a preliminary indication of possible interest from a supermarket chain.
If the Company decides to proceed with either or both sites, it intends to enter
into joint venture arrangements with experienced local retail developers for the
development and lease-up of these properties. Management believes that
development properties, if well-located and properly leased, can provide better
than average returns to the Company. Since the risk inherent in such development
is also potentially greater than in acquisition of mature properties, management
intends to limit such development activities to approximately 20% of the
Company's GLA.
OPERATING STRATEGY
The Company believes in an aggressive leasing and property management
strategy conducted by professionals with extensive experience, knowledge of
local markets and an established track record with national, regional and local
retailers. The Company's leasing and property management activities are
conducted by Company managers and representatives as well as by local leasing
and property managers, all of whom are supervised by the Company's officers.
Regional supervision of the Company's central and south Florida properties will
be provided by the Tampa Group. The Company believes that the expertise and
relationships developed by the professional leasing and management teams enhance
the Company's ability to retain existing tenants as well as attract national and
regional retailers to its Properties.
The Company's overall property management and leasing strategy is designed
to permit the Company to realize significant opportunities for increased rental
revenue and cash flow growth. Each Property has a specific management and
leasing program which takes into account the location, community needs, tenant
mix and other factors affecting such Property. Key elements of the Company's
strategy include:
- Tenants. The Company intends to maintain and diversify its core base of
national and regional credit-worthy tenants. The Company recognizes the
dynamics inherent at each of its properties and intends to tailor the
tenant mix at each Property to meet the needs of the local communities.
The Company also intends to continue to focus its anchorage at each
Property on supermarkets and on other recognized national and regional
tenants.
- Lease Renewals/Extensions. Company officers and property managers (under
the direction of Company officers) expect to aggressively market vacant
space, renew existing leases at higher base rents per square foot, and
utilize base rent escalation provisions in its leases to the extent
allowed by lease and market conditions. The Company believes that a
number of its leases currently are below market rents and that
opportunities may exist in the future to renew those leases at higher
base rents upon expiration.
- Property Management. The Company seeks to maintain attractive facilities
through regularly scheduled inspection visits and maintenance programs
for each Property, placing a strong emphasis on aesthetics, regular
maintenance, periodic renovation and capital improvements. The Company
expects to continue such programs and will budget annually what
management considers to be appropriate maintenance expenditures. The
Company's property managers will be charged with the responsibility for
implementing designated repairs and improvements, which the Company's
officers will regularly
33
<PAGE> 40
inspect. The Company believes that such hands-on property management enhances
the value of its Properties in the eyes of its tenants and attracts new tenants
to its Properties.
- Property Sales. The Company may, from time to time, sell properties at
advantageous prices, depending on prevailing market conditions and
subject to certain limitations relating to the Company's taxation as a
REIT. The Company currently has no plans to sell any of the Properties.
FINANCING
In order to pursue its acquisition, redevelopment, development and
operating strategies most effectively, the Company intends to maintain a capital
structure with a ratio of long-term debt to Total Market Capitalization of no
more than approximately 50%. On a pro forma basis at December 31, 1997, after
giving effect to the Offering (assuming an initial public offering price of
$10.50 per Common Share), the purchase of all Acquisition Properties and the
application of the estimated net proceeds, the Company would have had a
long-term debt to Total Market Capitalization ratio of approximately 27.0%. The
Company, however, may from time to time increase or decrease its ratio of
long-term debt to Total Market Capitalization in light of then current economic
conditions, relative costs of debt and equity capital, the market values of its
properties, growth and acquisition opportunities and other factors. Fluctuations
in the market price of the Common Shares may cause this ratio to vary from time
to time. The Company has established its financing policies relative to the
Total Market Capitalization of the Company rather than relative to the book
value of the Company's assets. The Company has used market capitalization
because management believes that the book value of the Company's assets does not
accurately reflect the fair market value of such assets or the Company's ability
to borrow and to meet debt service requirements. The market capitalization of
the Company, however, is more variable than book value, and does not necessarily
reflect the fair market value of the underlying assets of the Company at all
times. The Company intends to avoid exposure to long-term variable rate debt by
utilizing either fixed-rate debt or entering into interest rate protection
agreements.
The Company intends to finance its acquisitions, redevelopments and
developments with what it considers to be the most appropriate sources of
capital, which may include undistributed cash available for distribution, the
issuance of equity securities (including preferred shares), sales of
investments, bank and other institutional borrowings (secured and unsecured),
the issuance of debt securities and proceeds from the sale of properties.
The Company has received a letter of intent from a bank for a $20 million
revolving line of credit. If utilized, the credit line will be used primarily to
acquire additional community shopping centers. The credit line, which is
expected to bear interest on funds as they are drawn down at the rate of 150
basis points over 90-day LIBOR, will have a two-year term and will be secured by
a first lien on several of the Properties whose mortgage debt will be repaid in
connection with the completion of the Offering.
OVERVIEW OF THE COMPANY'S FIVE KEY U.S. MARKETS
GENERAL
The Company believes that the five key U.S. markets in which most of the
Properties are located, Dallas, Houston, Phoenix, San Antonio and Tampa/St.
Petersburg, have been and will continue to be solid markets in which to own and
operate community shopping centers for long term investment. The following
discussions of the economic and demographic characteristics of these five
submarkets where the Company has a concentration of Properties is taken from the
findings of Claritas. In the graphs below, the percentages reflect compounded
annual growth rates. While the Company believes Claritas' views of economic
trends are reasonable, there can be no assurance that these trends will in fact
continue.
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<PAGE> 41
POPULATION. Based on Claritas' findings for the periods from 1990 to 1997
and from 1997 to 2002, each of the Company's Sunbelt region markets has
experienced, and is expected to continue to experience, population growth.
[CHART]
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<PAGE> 42
EMPLOYMENT. Based on Claritas' findings for the periods from 1990 to 1997
and from 1997 to 2002, each of the Company's Sunbelt region markets has
experienced, and is expected to continue to experience, employment growth.
[CHART]
36
<PAGE> 43
MEDIAN HOUSEHOLD INCOME. Based on Claritas' findings for the periods from
1989 to 1997 and from 1997 to 2002, each of the Company's Sunbelt region markets
has experienced, and is expected to continue to experience, growth in household
income.
[CHART]
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<PAGE> 44
RETAIL SALES. Based on Claritas' findings for the period from 1997 to 2002,
each of the Company's Sunbelt region markets is expected to experience retail
sales growth.
[CHART]
BUSINESS AND PROPERTIES
BUSINESS
The Company was formed for the purpose of investing directly in income
producing real property located in the continental United States and in
partnerships formed to own such real properties. At December 31, 1997, the
Company owned or controlled eight community shopping center properties located
in Texas, Tennessee and Arizona. The Company has recently acquired four
community shopping centers and has under contract or option to purchase four
additional community shopping centers located in Texas, Florida and Arizona. The
Properties are strategically located in areas intended to provide busy working
families with the opportunity to do most of their shopping between work and
home. The Properties range in size from approximately 29,000 square feet to
316,000 square feet, and are anchored primarily by supermarkets and by national
and regional retailers who offer everyday necessities to their neighborhood
communities.
Any future property acquisitions by the Company are expected to be in
established neighborhoods in medium to large-sized metropolitan communities,
where potential future appreciation will be driven by better than average
population and employment growth. The Company partners with local, professional
management for day-to-day operation of most of its Properties. Management feels
that these managers possess valuable understanding of these local markets.
Further, management has concluded that local management is currently an
economical alternative to management by Company personnel in all but its Houston
markets. Management also believes that the opportunity to manage future
properties acquired by the Company provides incentive for these professionals to
assist the Company in finding additional potential acquisitions. These local
professionals are, or can be, on-site on a daily basis and are familiar with the
communities in which the centers are situated and the needs of the tenants that
these centers serve. The Company intends to lease and manage four of the
38
<PAGE> 45
Acquisition Properties and one of the Original Properties, all of which are
located in or near Houston, directly from its Houston office and to rely on
unaffiliated professional managers on the remaining four Acquisition Properties.
The Company has also established a regional office in Tampa to help supervise
its central and southern Florida properties and to facilitate the acquisition of
additional community shopping centers in that area.
The Company seeks to maximize growth in Funds From Operations and Cash
Available for Distribution to shareholders through effective management,
operation and acquisition of community shopping centers. The Company currently
follows five general investment policies to achieve its objectives: (i) the
Company seeks to acquire real estate assets for long-term investment and income
applying selective criteria and employing the most advantageous sources of
capital alternatives; (ii) the Company intends to aggressively seek
acquisitions, including properties that it can renovate and/or expand, and
maintain and intensively manage a portfolio of high quality and well-located
properties with a majority of the space already leased; (iii) the Company
intends to focus its acquisition efforts on communities in which it already has
properties or in areas where the Company can acquire several properties
concurrently, in order to obtain economies of scale in the use of local
personnel, advertising and purchasing of services; (iv) the Company expects to
enhance its existing portfolio by entering into a limited number of joint
venture alliances with experienced developers in order to develop new community
shopping centers; and (v) the Company intends to sell, from time to time, select
properties as dictated by market conditions in order to realize capital gains
and to improve the Company's overall portfolio profile and valuation.
The investments of the Company are managed by the Investment Manager.
Robert W. Scharar, Chairman of the Board of the Company, is a principal
shareholder of the Investment Manager. The Company's President and Chief
Executive Officer, Lewis H. Sandler, is also the Chief Executive Officer of the
real estate services division of the Investment Manager. See "Risk
Factors -- Conflicts of Interest." The Investment Manager's senior management
originally sponsored the organization of the Company as a benefit to a number of
clients who desired to include real estate properties in their investment
portfolios. The Investment Manager currently provides administrative,
accounting, financial, legal and operating personnel as well as asset management
to the Company on an "as-needed" basis. See "Investment Manager." After
completion of the Offering, the Investment Manager has agreed to dedicate to the
administration of the Company the full-time services of Randall D. Keith and
Daniel M. Jones, III, who currently serve as the Company's Chief Operating
Officer and Chief Financial Officer, respectively. See "Management."
MANAGEMENT AND LEASING
The Company maintains operating flexibility while minimizing its overhead
expenses by using local third-party management and leasing firms to handle the
day-to-day activities of its centers where it does not have a large enough
concentration of properties to warrant the hiring of "in-house" management
personnel. Management believes that as the Company acquires a concentration of
community shopping centers in a limited geographic area, it may become more cost
effective and managerially efficient to perform certain third party functions
in-house. The Company intends to hire an in-house professional property manager
to manage and lease the four Acquisition Properties located in Houston and one
of the Original Properties located near Houston in El Campo, Texas. It is
anticipated that the professional property manager will be retained prior to or
shortly after the completion of the Offering. Under the direction of the
Company's executive officers, six property management firms currently perform
day-to-day on-site management and leasing functions at the Company's eight
shopping centers. After the Acquisition Properties have been purchased, the
Company expects to retain an aggregate of seven unaffiliated property managers
and one "in-house" manager to perform these functions at the Properties. The
third party management contracts are typically cancelable upon 30 days' notice
or upon the occurrence of certain events, such as selling the property. Company
executives are in daily contact with local property representatives and make all
substantive management, capital expenditure and tenant leasing decisions. The
Company constantly monitors each Property's performance through its local
representatives and by periodic visits by Company officers and regional
representatives.
The Company has the flexibility to select the best available local firm or
person who is familiar with each tenant and the needs of each community served
by its shopping centers, which provides the Company with a
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<PAGE> 46
cost-effective way to operate the Properties. Because the community shopping
center management and leasing business is a highly competitive and fragmented
industry, the Company believes it is able to select qualified local third-party
management and leasing representatives at market rates.
The Company's third-party property management will be supplemented, where
appropriate, by the establishment of regional offices. In this connection, the
Tampa Group has agreed to act as a regional representative of the Company. The
Tampa Group currently owns and operates a number of community shopping centers
in the Tampa area. They will continue to manage the Town 'N Country property and
will help supervise the management and leasing of the University Mall center in
Pembroke Pines, Florida. Their knowledge of the Florida markets and proximity to
these two Properties should facilitate good management practices and leasing
activity. In addition, the Company believes the Tampa Group's knowledge of and
reputation in the Tampa market should facilitate acquisitions by the Company of
additional community shopping centers in the central and southern Florida
markets.
The Company's operating flexibility is expected to play an important role
in its ability to acquire additional retail centers. Many owner-operators of
well located and tenanted neighborhood centers are looking for exit strategies.
Management believes that if it offers certain senior management of these
community shopping centers an opportunity to continue in property management and
leasing positions, on terms and conditions acceptable to the Company, they may
be more willing to sell their community shopping centers to the Company upon
favorable terms.
THE PROPERTIES
At December 31, 1997, the Company owned or controlled the eight Original
Properties and has recently acquired four of the Acquisition Properties and has
contracts or options to purchase the four remaining Acquisition Properties. Each
of the Properties is designed to meet the needs of surrounding local communities
and is anchored by a supermarket, drug store and/or by one or more national
and/or regional tenants. The Properties are located in four states, Texas(10),
Florida(2), Tennessee(2) and Arizona(2).
The Company defines national tenants as any tenant that operates in at
least four metropolitan areas located in more than one region (i.e., northwest,
northeast, midwest, southeast or southwest); regional tenants as any tenant that
operates in two or more metropolitan areas located within the same region; and
local tenants as any tenant that operates stores only within the same
metropolitan area as the community shopping center.
The Properties contain approximately 1,743,741 square feet of total GLA.
The Company's three largest Properties, University Mall, Bandera Festival
Shopping Center and Mason Park Centre, account for approximately 18.1%, 10.9%
and 9.2% of the Company's total GLA, respectively.
As of December 31, 1997, the Original Properties were approximately 94.7%
leased. Anchor space at the Original Properties, representing approximately
63.7% of total GLA, was 100% leased as of December 31, 1997, while non-anchor
space, accounting for the remaining 36.3% of total GLA, was approximately 85.3%
leased. National, regional and local tenants represented 48.4%, 26.4% and 19.8%
of total GLA, respectively.
Although the Company did not own any of the Acquisition Properties at
December 31, 1997, the Company believes that they were approximately 96.9%
leased, that the anchor space, representing 51.5% of the total GLA, was 100.0%
leased, and that non-anchor space was approximately 93.6% leased. National,
regional and local tenants at the Acquisition Properties accounted for
approximately 50.9%, 17.7% and 28.3% of total GLA, respectively.
Substantially all of the Company's revenues from the Properties consist of
base rents and percentage rents received under long-term leases. For the year
ended December 31, 1997, total base rents and percentage rents from the Original
Properties were $4,865,637 and $26,400, respectively. The total base rents and
percentage rents from the Acquisition Properties for the year ended December 31,
1997 were $8,064,924 and $266,930, respectively.
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<PAGE> 47
The following table presents certain information with respect to the
Properties:
LOCATIONS OF THE PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF TOTAL GLA PERCENTAGE OF
STATE PROPERTIES (SQ. FT.) TOTAL GLA
----- ---------- --------- -------------
<S> <C> <C> <C>
Texas.......................................... 10 905,572 51.9%
Arizona........................................ 2 212,076 12.2
Florida........................................ 2 473,300 27.1
Tennessee...................................... 2 152,393 8.8
-- --------- -----
Total................................ 16 1,743,741 100.0%
== ========= =====
</TABLE>
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<PAGE> 48
Set forth below is information regarding the Properties as of December 31,
1997:
<TABLE>
<CAPTION>
OWNERSHIP GROSS TOTAL
YEAR UPON LAND LEASEABLE ANNUALIZED
DEVELOPED/ COMPLETION AREA AREA BASE
PROPERTY LOCATION RENOVATED OF OFFERING (ACRES) (SQ. FT.) RENT(3)
-------- ---------------- -------------- ----------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
Autobahn Shopping Center........... San Antonio 1984 100% 2.4 28,878 $ 318,202
Bandera Festival Shopping Center... San Antonio 1989 100 18.5 189,438 1,513,584
Benchmark Crossing Shopping
Center(4)........................ Houston 1986/1990/1994 100 6.6 58,384 663,571
Centennial Shopping Center......... Austin 1970/1984 100(1) 6.3 80,492 633,646
El Campo Shopping Center........... El Campo 1985 100 7.4 83,330 300,947
Hedwig Shopping Centers(4)......... Houston 1974/1987/1989 100 4.1 69,554 850,185
The Market at First Colony(4)...... Houston 1988/1991/1994 100 9.7 94,241 1,295,168
Mason Park Centre(4)............... Houston 1985 100 13.6 160,047 1,606,557
Rosemeade Park Shopping
Center(4)........................ Carrollton 1986 100 5.2 49,554 548,688
University Park Shopping
Center(2)........................ College Station 1973-1991 96 9.3 91,654 733,976
----- ---------- -----------
TOTAL/WEIGHTED AVERAGE......... 83.3 905,572 $ 8,464,524
ARIZONA
Park Northern Shopping Center...... Phoenix 1982 100(1) 15.0 128,378 687,253
Southwest/Walgreen's Shopping
Center(4)........................ Phoenix 1975 100 10.0 83,698 550,597
----- ---------- -----------
TOTAL/WEIGHTED AVERAGE......... 25.0 212,076 $ 1,237,850
FLORIDA
Town 'N Country Plaza(4)........... Tampa 1970/1986 100 11.1 158,104 705,692
University Mall Shopping
Center(4)........................ Pembroke Pines 1973/1984 100 27.5 315,596 2,078,255
----- ---------- -----------
TOTAL/WEIGHTED AVERAGE......... 40.1 473,700 $ 2,783,947
TENNESSEE
McMinn Plaza Shopping Center....... Athens 1982 100 11.7 99,969 404,715
Twin Lakes Shopping Center......... Lenoir City 1986 100 6.8 52,424 336,097
----- ---------- -----------
TOTAL/WEIGHTED AVERAGE......... 18.5 152,393 $ 740,812
----- ---------- -----------
GRAND TOTAL/WEIGHTED AVERAGE....... 166.9 1,743,741 $13,227,133
===== ========== ===========
<CAPTION>
NET EFFECTIVE
RENT PER
SQUARE PERCENT MAJOR TENANT(S)
PROPERTY FOOT(5) LEASED (LEASE EXPIRATION)
-------- ------------- ------- ---------------------
<S> <C> <C> <C>
TEXAS
Autobahn Shopping Center........... $11.34 97.2% Blockbuster Music
(2000)
Bandera Festival Shopping Center... 8.14 98.2(6) Kmart (2013)
Solo Serve (2004)
Benchmark Crossing Shopping
Center(4)........................ 11.37 100.0 Bally's (2006)
Centennial Shopping Center......... 8.66 90.9 Drug Emporium (2001)
Tuesday Morning
(2004)
El Campo Shopping Center........... 4.01 90.0 David's Supermarkets
(2002)
Hedwig Shopping Centers(4)......... 12.45 98.2 Ross Stores (2010)
Blockbuster Music
(2000)
The Market at First Colony(4)...... 14.23 96.6 T J Maxx (2002)
Eckerd Drugs (2014)
Mason Park Centre(4)............... 10.84 92.6 Palais Royal (2006)
Petco (2005)
Cinemark Cinema
(2000)
Walgreen's (2015)
Rosemeade Park Shopping
Center(4)........................ 12.79 86.6 Blockbuster Video
(2003)
Cosmopolitan Lady
(2008)
University Park Shopping
Center(2)........................ 8.17 98.0 Albertson's (2023)
------ -----
TOTAL/WEIGHTED AVERAGE......... $ 9.83 95.1%
ARIZONA
Park Northern Shopping Center...... 5.91 90.6(7) Safeway (2003)
Southwest/Walgreen's Shopping
Center(4)........................ 6.58 100.0 Southwest Supermarket
(2000)
Walgreen's (2000)
------ -----
TOTAL/WEIGHTED AVERAGE......... $ 6.19 94.3%
FLORIDA
Town 'N Country Plaza(4)........... 4.46 100.0 Autozone (2002)
Big Lots (2002)
T J Maxx (1999)
University Mall Shopping
Center(4)........................ 6.72 98.0 Office Max (2003)
Ross Stores (2001)
Sports Authority
(2012)
Uptons (2002)
Eckerd Drugs(2002)
------ -----
TOTAL/WEIGHTED AVERAGE......... $ 5.97 98.4%
TENNESSEE
McMinn Plaza Shopping Center....... 4.13 98.0(8) Ingles (2002)
Twin Lakes Shopping Center......... 7.01 91.4 Food City (2007)
------ -----
TOTAL/WEIGHTED AVERAGE......... $ 5.08 95.7%
------ -----
GRAND TOTAL/WEIGHTED AVERAGE....... $ 7.91 95.9%
====== =====
</TABLE>
42
<PAGE> 49
- ---------------
(1) This property is currently owned by Park Northern/Centennial Partners L.P.,
a Texas limited partnership, in which the Company is the general partner and
owns 70% of the partnership interests. The Company intends to purchase the
minority interest from the proceeds of the Offering.
(2) This property is currently owned by UIRT/University Park-I L.P., a Texas
limited partnership, in which the Company owns the 5% general partner's
interest through a corporate subsidiary and a 51% interest as a limited
partner. The Company intends to purchase the minority interest from the
proceeds of the Offering.
(3) Based on December 31, 1997 rent rolls of the Original Properties and the
Acquisition Properties.
(4) Information on these properties was supplied by the sellers of such
properties.
(5) Net effective rent per square foot represents total annualized base rent on
December 31, 1997 divided by total leased square footage. The net effective
rent does not take into account any "give backs" or other concessions made
by the Company because no material "give backs" or other concessions have
been granted to any current tenant.
(6) Includes Eckerd Drugs (8,715 square feet or 4.6% of Bandera's GLA) which has
vacated its space, but is obligated to pay rent through October 31, 2008.
The percentage of Bandera's GLA leased without considering Eckerd is 93.6%.
(7) Includes Walgreen's (12,000 square feet or 9.35% of Park Northern's GLA)
which will vacate its space at the end of February 1998, but is obligated to
pay rent through April 30, 2011. The percentage of Park Northern's GLA
leased without considering Walgreen's is 81.3%.
(8) Includes Wal-Mart/Bud's (52,769 square feet or 52.8% of McMinn's GLA) which
has vacated its space, but is obligated to pay rent through November 29,
2002. The percentage of McMinn's GLA leased without considering
Wal-Mart/Bud's is 45.2%.
SIGNIFICANT LEASES
The following table sets forth certain information as of December 31, 1997
with respect to certain of the Company's significant lessees.
<TABLE>
<CAPTION>
ANNUALIZED BASE RENT IN PLACE AT
12/31/97
LEASED GLA ------------------------------------
AS OF % OF TOTAL ANN. BASE % OF TOTAL
NUMBER OF 12/31/97 LEASED TOTAL ANN. RENT/ ANN.
LESSEE LEASES (SQ. FT.) GLA BASE RENT SQ. FT. BASE RENT
------ --------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Albertson's.................... 1 80,478 4.8% $ 601,013 $ 7.47 4.5%
Autozone....................... 1 10,000 0.6 85,000 8.50 0.6
Bally's........................ 1 40,966 2.5 315,000 7.69 2.4
Big Lots....................... 1 30,000 1.8 88,372 2.95 0.7
Blockbuster Video and Music.... 3 32,214 1.9 374,518 11.63 2.8
Cinemark Cinema................ 1 28,750 1.7 301,872 10.50 2.3
Cosmopolitan Lady.............. 1 14,000 0.8 137,060 9.79 1.0
David's Supermarkets........... 1 30,195 1.8 78,000 2.58 0.6
Drug Emporium.................. 1 31,050 1.9 194,063 6.25 1.5
Eckerd Drugs................... 2 17,355 1.0 175,673 10.12 1.3
Food City...................... 1 32,614 2.0 199,038 6.10 1.5
Ingle's........................ 1 27,200 1.6 108,000 3.97 0.8
Kmart.......................... 1 86,479 5.2 454,015 5.25 3.4
Office Max..................... 1 23,500 1.4 129,240 5.50 1.0
Palais Royal................... 1 29,922 1.8 243,264 8.13 1.8
Petco.......................... 1 13,973 0.8 90,540 6.48 0.7
Ross Stores.................... 2 52,920 3.2 456,264 8.62 3.4
Safeway........................ 1 53,037 3.2 184,363 3.48 1.4
Solo Serve..................... 1 30,000 1.8 213,900 7.13 1.6
Southwest Supermarket.......... 1 27,064 1.6 82,884 3.06 0.6
Sports Authority............... 1 42,000 2.5 190,000 4.52 1.4
T J Maxx....................... 2 49,540 3.0 333,795 6.74 2.5
Tuesday Morning................ 1 23,493 1.4 140,958 6.00 1.1
Uptons......................... 1 90,815 5.4 320,250 3.53 2.4
Walgreen's..................... 3 38,998 2.3 218,679 5.61 1.7
Wal-Mart/Bud's................. 1 52,769 3.2 179,415 3.40 1.4
-- ------- ---- ---------- ------ ----
TOTAL.......................... 33 989,332 59.2% $5,895,176 $ 5.96 44.4%
== ======= ==== ========== ====== ====
</TABLE>
43
<PAGE> 50
NATIONAL, REGIONAL AND LOCAL TENANT SUMMARY
The following table sets forth certain information regarding the Company's
national, regional and local tenants at each Property as of December 31, 1997
and a breakdown of base rents in place at December 31, 1997 and for each
Property by type of retail tenant.
<TABLE>
<CAPTION>
NATIONAL TENANTS REGIONAL TENANTS LOCAL TENANTS
---------------------- ---------------------- ----------------------
% OF % OF % OF
% OF PROPERTY % OF PROPERTY % OF PROPERTY
PROPERTY ANN. PROPERTY ANN. PROPERTY ANN.
PROPERTY AND LOCATION LEASED GLA BASE RENT LEASED GLA BASE RENT LEASED GLA BASE RENT
--------------------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
TEXAS
Autobahn Shopping Center......... 48.4% 51.6% 36.3% 35.4% 15.3% 13.0%
Bandera Shopping Center.......... 57.9 45.7 18.7 22.0 23.3 32.3
Benchmark Crossing............... 88.0 86.3 12.0 13.7 0.0 0.0
Centennial Shopping Center....... 36.4 39.0 44.4 33.4 19.2 27.5
El Campo Shopping Center......... 14.3 14.5 40.3 25.9 45.4 59.5
Hedwig Shopping Centers.......... 80.5 72.3 9.6 13.3 9.9 14.4
The Market at First Colony....... 48.3 36.3 14.4 19.2 37.3 44.5
Mason Park Centre................ 72.2 64.5 8.5 12.1 19.3 23.4
Rosemeade Park................... 20.9 36.1 3.3 3.3 75.9 60.6
University Park Shopping
Center......................... 90.9 84.1 6.8 12.0 2.3 3.9
---- ---- ---- ---- ---- ----
WEIGHTED AVERAGE....... 58.8% 55.0% 17.9% 17.6% 23.2% 27.4%
ARIZONA
Park Northern Shopping Center.... 59.2 41.0 17.9 18.7 23.0 40.3
Southwest/Walgreen's Shopping
Center......................... 27.6 20.7 34.2 18.9 38.2 60.4
---- ---- ---- ---- ---- ----
WEIGHTED AVERAGE....... 45.9% 32.0% 24.7% 18.8% 29.4% 49.2%
FLORIDA
Town 'N Country Plaza............ 55.1 74.4 7.0 5.7 37.9 19.9
University Mall Shopping
Center......................... 41.2 43.0 30.7 17.7 28.1 39.3
---- ---- ---- ---- ---- ----
WEIGHTED AVERAGE....... 45.9% 51.0% 22.7% 14.7% 31.4% 34.4%
TENNESSEE
McMinn Plaza Shopping Center..... 55.9 47.3 33.1 37.4 11.0 15.3
Twin Lakes Shopping Center....... 2.5 3.4 68.1 59.2 29.4 37.4
---- ---- ---- ---- ---- ----
WEIGHTED AVERAGE....... 38.4% 27.4% 44.6% 47.3% 17.1% 25.3%
PORTFOLIO TOTAL.................. 51.9% 50.5% 22.4% 18.8% 25.7% 30.8%
==== ==== ==== ==== ==== ====
</TABLE>
LEASE EXPIRATIONS
At December 31, 1997, anchor tenants leased approximately 59.1% of the
total leased GLA and 67.4% of anchor-leased GLA (39.8% of total leased GLA) is
scheduled to expire within the next 10 years.
44
<PAGE> 51
The following table sets forth certain information regarding lease
expirations for the Properties for each of the 10 years beginning with 1998,
assuming that none of the tenants exercises renewal options or termination
rights:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA ANNUALIZED BASE RENT
--------------------- IN PLACE AT 12/31/97
SQUARE --------------------------------------
FOOTAGE % OF TOTAL % OF TOTAL
LEASE NUMBER UNDER PORTFOLIO PORTFOLIO ANN.
EXPIRATION OF LEASES EXPIRING EXPIRING TOTAL ANN. ANN. BASE RENT/
YEAR YEAR EXPIRING LEASES GLA BASE RENT BASE RENT SQ. FT.
---------- ---- --------- --------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1998................... 1 49 106,863 6.4% $ 1,188,546 9.0% $11.12
1999................... 2 51 133,215 8.0 1,435,481 10.9 10.78
2000................... 3 62 203,964 12.2 2,064,732 15.6 10.12
2001................... 4 32 130,003 7.8 1,314,681 9.9 10.11
2002................... 5 45 450,998 27.0 2,458,490 18.6 5.45
2003................... 6 8 106,601 6.4 554,807 4.2 5.20
2004................... 7 5 67,896 4.1 523,446 4.0 7.71
2005................... 8 2 19,173 1.1 179,720 1.4 9.37
2006................... 9 6 82,763 4.9 706,778 5.3 8.54
2007 and thereafter.... 10 19 371,251 22.1 2,800,452 21.1 7.54
--- --------- ----- ----------- ----- ------
Total................ 279 1,672,727 100.0% $13,227,133 100.0% $ 7.91
=== ========= ===== =========== ===== ======
</TABLE>
ADDITIONAL INFORMATION CONCERNING CERTAIN PROPERTIES
As of December 31, 1997, four of the Original Properties, Bandera Festival
Shopping Center, Centennial Shopping Center, Park Northern Shopping Center and
University Park Shopping Center, and all of the Acquisition Properties each had
a book value equal to or greater than 10% of the total assets of the Company or
gross revenues equal to or greater than 10% of the Company's aggregate gross
revenues. Set forth below is additional information with respect to such
Properties.
Bandera Festival Shopping Center
Bandera is a 189,438 square foot shopping center located at the northwest
corner of Bandera Road and Guilbeau Road in northwest San Antonio, Texas. The
property consists of 18.54 acres. San Antonio is the home of Kelly, Lackland and
Randolph Air Force Bases, Fort Sam Houston and USAA Insurance Company. The site
offers excellent access and high visibility.
Bandera was built in 1988 and is anchored by Kmart (86,479 square feet) and
Solo Serve (30,000 square feet). McDonald's, Peter Piper Pizza and Frost Bank
are situated on outparcels within the shopping center. The Taco Cabana site is a
free-standing building within the shopping center and is owned by the Company.
Bandera has 28 tenants ranging in size from 975 square feet to 86,479 square
feet. The small tenants include a mix of national, regional and local retail and
service tenants. As of December 31, 1997 the center was 93.6% occupied.
In 1997, Bandera accounted for approximately 25.1% of the total GLA and
30.7% of the total annualized minimum rents from the Original Properties. As of
December 31, 1997, Bandera was 98.2% leased, with approximately 66.1% of its GLA
leased to anchor tenants.
Depreciation on Bandera is taken on a straight line basis over 40 years for
book purposes and 31.5 years for tax purposes, resulting in a rate of
approximately 2.5% and 3.20% per year, respectively. At December 31, 1997, the
federal tax basis of the Bandera Festival Shopping Center was approximately
$10.0 million. The realty tax on the Bandera Festival Shopping Center is
approximately $2.81 per $100 of assessed value, resulting in a 1997 realty tax
of approximately $264,531.
45
<PAGE> 52
The following table sets forth the percentage of GLA at Bandera which was
leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED
------ -----------------
<S> <C>
December 31, 1993........................................... 98.1%
December 31, 1994........................................... 98.1
December 31, 1995........................................... 95.5
December 31, 1996........................................... 98.5
December 31, 1997........................................... 98.2(1)
</TABLE>
- ---------------
(1) The percentage of Bandera's GLA leased without considering Eckerd Drugs is
93.6%.
The following table sets forth the average annual rental income per square
foot at Bandera for each of the last five years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
PERIOD: INCOME PER SQ. FT. OF GLA
------- -------------------------
<S> <C>
Year Ended December 31, 1993................................ $7.38
Year Ended December 31, 1994................................ 7.80
Year Ended December 31, 1995................................ 7.63
Year Ended December 31, 1996................................ 7.56
Year Ended December 31, 1997................................ 7.97
</TABLE>
The following table shows, as of December 31, 1997, Bandera's anchor
tenants, their GLA, gross annual rent for 1997 and lease expiration date, not
including renewal options:
<TABLE>
<CAPTION>
GROSS ANNUAL LEASE
TENANT GLA (SQ. FT.) RENT EXPIRATION DATE
------ ------------- ------------ ----------------
<S> <C> <C> <C>
Kmart................................... 86,479 $484,015 October 31, 2013
Solo Serve.............................. 30,000 282,267 January 31, 2004
</TABLE>
Scheduled lease expirations at Bandera during the next 10 years are as
follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA EFFECTIVE ANNUAL RENTAL INCOME
------------------------ -------------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT OF PERCENT OF AVERAGE PER
EXPIRATION EXPIRING SQ. FT. TOTAL AMOUNT TOTAL SQ. FT.
---------- ------------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998................ 2 11,920 6.4% $ 105,360 7.0% $ 8.84
1999................ 3 3,150 1.7 42,274 2.8 13.42
2000................ 4 8,330 4.5 94,470 6.2 11.34
2001................ 4 8,630 4.6 109,617 7.2 12.70
2002................ 7 15,431 8.3 203,722 13.5 13.20
2003................ 3 5,884 3.2 68,336 4.5 11.61
2004................ 2 34,999 18.8 262,640 17.4 7.50
2005................ 0 0 0.0 0 0.0 0
2006................ 0 0 0.0 0 0.0 0
2007 and
thereafter....... 3 97,594 52.5 627,165 41.4 6.43
-- ------- ----- ---------- ----- ------
Total....... 28 185,938 100.0% $1,513,584 100.0% $ 8.14
== ======= ===== ========== ===== ======
</TABLE>
Two tenants at Bandera, Solo Serve and Kmart, each occupy in excess of 10%
of the GLA at Bandera. Solo Serve occupies 30,000 square feet and has annual
minimum rent of $213,900. The lease expires on January 31, 2004 and has 2
five-year options under the same terms and conditions except rent which will be
$9.00 per square foot and $9.67 per square foot, respectively. Kmart occupies
86,479 square feet and has annual minimum rent of $454,015. The lease expires on
October 31, 2013 and has 10 five-year options under the same terms and
conditions.
46
<PAGE> 53
Although Eckerd Drugs has vacated its 8,715 square foot space, it is
obligated to pay annual minimum rent of $82,793 through the term of the lease,
which expires October 31, 2008.
Centennial Shopping Center
Centennial is a 80,492 square foot shopping center located on 6.31 acres in
Austin, Texas. Centennial is located at the northeast corner of Burnet Road and
Greenlawn Parkway, approximately one mile from Northcross Mall. According to the
City of Austin Transportation Study, Burnet Road has a traffic count of over
30,000 cars daily. Centennial is located in the north/central Austin trade area,
which is considered an "in-fill" (i.e., a developed area with limited space
available for development by additional competition).
Centennial was built in two phases. The original building, built in 1970,
was a Gibson's Discount center and contained 54,000 square feet. In 1984,
approximately 23,000 square feet of retail space was added along the north
boundary and extending from the original building toward Burnet Road. The center
is anchored by Drug Emporium (31,050 square feet) and Tuesday Morning (23,493
square feet). Taco Bell is a free-standing building within the shopping center
and is owned by the Company. Additional revenue is received from the parking lot
that is leased in the evenings to an adjacent night club. Centennial has 12
tenants ranging in size from 1,000 square feet to 31,050 square feet. The small
tenants include a mix of regional and local retail and service tenants. As of
December 31, 1997, the center was 90.9% occupied.
In 1997, Centennial accounted for approximately 10.7% of total GLA and
12.9% of the total annualized minimum rents from the properties. As of December
31, 1997, Centennial was 90.9% leased, with approximately 67.8% of its GLA
occupied by anchor tenants.
Depreciation on Centennial Shopping Center is taken on a straight line
basis over 30 years for book purposes and 31.5 years for tax purposes, resulting
in a rate of approximately 3.3% and 3.2% per year, respectively. At December 31,
1997, the federal tax basis of the Centennial Shopping Center was approximately
$4.6 million. The realty tax on the Centennial Shopping Center is approximately
$2.48 per $100 of assessed value, resulting in a 1997 realty tax of
approximately $103,811.
The following table sets forth the percentage of GLA at Centennial which
was leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED
------ -----------------
<S> <C>
December 31, 1993........................................... 80.0%
December 31, 1994........................................... 65.0
December 31, 1995........................................... 81.0
December 31, 1996........................................... 78.0
December 31, 1997........................................... 90.9
</TABLE>
The following table sets forth the average annual rental income per square
foot at Centennial for each of the last five years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER
PERIOD: SQ. FT. OF GLA
------- --------------
<S> <C>
Year ended December 31, 1993................................ $7.49
Year ended December 31, 1994................................ 6.74
Year ended December 31, 1995................................ 6.93
Year ended December 31, 1996................................ 7.18
Year ended December 31, 1997................................ 7.46
</TABLE>
47
<PAGE> 54
The following table shows, as of December 31, 1997, Centennial's anchor
tenants, their GLA, gross annual rent for 1997 and lease expiration date, not
including renewal options:
<TABLE>
<CAPTION>
GROSS LEASE
TENANT GLA ANNUAL RENT EXPIRATION DATE
------ ------ ----------- -----------------
<S> <C> <C> <C>
Drug Emporium.............................. 31,050 $253,058 August 31, 2001
Tuesday Morning............................ 23,493 140,958 December 31, 2004
</TABLE>
Scheduled lease expirations at Centennial during the next 10 years are as
follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA EFFECTIVE ANNUAL RENTAL INCOME
----------------------- -----------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- ------------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998.................... 1 1,420 1.9% $ 15,620 2.5% $11.00
1999.................... 1 3,155 4.3 106,380 16.8 33.72
2000.................... 5 10,479 14.3 135,235 21.3 12.91
2001.................... 2 32,450 44.4 211,913 33.4 6.53
2002.................... 2 2,160 3.0 23,540 3.7 10.90
2003.................... 0 0 0.0 0 0.0 0
2004.................... 1 23,493 32.1 140,958 22.3 6.00
2005.................... 0 0 0.0 0 0.0 0
2006.................... 0 0 0.0 0 0.0 0
2007 and thereafter..... 0 0 0.0 0 0.0 0
-- ------ ----- -------- ----- ------
Total........... 12 73,157 100.0% $633,646 100.0% $ 8.66
== ====== ===== ======== ===== ======
</TABLE>
Two tenants, Drug Emporium and Tuesday Morning, each occupy in excess of
10% of the GLA at Centennial. Drug Emporium occupies 31,050 square feet and has
annual minimum rent of $194,063. The lease expires on August 31, 2001 and has
three renewal options of five years each under the same terms and conditions
except rent, which will be $7.80 per square foot, $8.96 per square foot and
$10.32 per square foot, respectively. Drug Emporium has a one-time only option
to cancel which resulted from their plan of reorganization. Tuesday Morning
occupies 23,493 square feet and has annual minimum rent of $140,958. The lease
expires on December 31, 2004 and has one renewal option of five years under the
same terms and conditions except rent, which will be $8.00 per square foot.
Park Northern Shopping Center
Park Northern is a 128,378 square foot of GLA shopping center located in
Phoenix, Arizona. The center was acquired in November 1996 by Park
Northern/Centennial Partners L.P., of which the Company is the general partner
and owns 70% of the limited partner interests. The shopping center is located in
the Glendale area, which is the northwest quadrant of Phoenix.
Park Northern is located at the northeast corner of Northern Avenue and
35th Avenue in Northwest Phoenix. This is one of the busiest intersections in
the City of Phoenix, with Northern Avenue being the primary east-west road into
Glendale, Arizona. According to the City of Phoenix, 35th Avenue is a major
north-south arterial with an average daily traffic count of 70,500. This site is
approximately one and one-half miles from Metrocenter Mall, which is the largest
mall in Arizona. The center is also located one mile west of the Black Canyon
Freeway (I-17), which is the major interstate freeway through Phoenix.
The property includes 15.0 acres of land and is subject to a long term
ground lease. Pursuant to the ground lease, the Company pays rent of $100,000
per year plus 5% of total gross revenues. The lease expires in November 2035 and
has four 10-year renewal options. The shopping center was built in 1982. The
shopping center is anchored by Safeway (53,037 square feet). Safeway has
recently completed an expansion of its store by approximately 11,700 square feet
at its own cost. The cost of the addition can be offset against future
percentage rents due, if any. Safeway's reimbursement of the shopping center's
common area maintenance expenses, taxes and insurance has been increased to
reflect its higher pro rata share of the leased premises.
48
<PAGE> 55
Long John Silver's and Chuck E. Cheese's are free-standing buildings within the
shopping center and are owned by the Company. Bank One is situated on an
outparcel adjacent to the property. The bank site is not owned by the Company.
Park Northern has 23 tenants ranging in size from 735 square feet to 53,037
square feet. The small tenants include a mix of regional and local retail and
service tenants. The center is currently 90.6% occupied.
In 1997, Park Northern accounted for approximately 17.0% of total GLA and
14.0% of the total annualized minimum rents from the Original Properties. As of
December 31, 1997, Park Northern was 90.6% leased, with approximately 50.7% of
its GLA occupied by anchor tenants.
Depreciation on Park Northern Shopping Center is taken on a straight line
basis over 30 years for book purposes and 39 years for tax purposes, resulting
in a rate of approximately 3.3% and 2.6% per year, respectively. At December 31,
1997, the federal tax basis of the Park Northern Shopping Center was
approximately $4,332,592. The realty tax on the Park Northern Shopping Center is
approximately $3.96 per $100 of assessed value, resulting in a 1997 realty tax
of approximately $217,717.
As of December 31, 1996 and December 31, 1997, 85.0% and 90.6%,
respectively, of the GLA at Park Northern was leased. The percentage of Park
Northern's GLA leased as of December 31, 1997, without considering Walgreen's is
81.3%.
For the years ended December 31, 1996, and December 31, 1997, the average
rental income per square foot of GLA at Park Northern was $4.86 and $4.99,
respectively.
The following table shows, as of December 31, 1997, Park Northern's anchor
tenant, its GLA, gross annual rent for 1996 and lease expiration date, not
including renewal options:
<TABLE>
<CAPTION>
GROSS LEASE
TENANT GLA ANNUAL RENT EXPIRATION DATE
------ ------ ----------- ---------------
<S> <C> <C> <C>
Safeway............................................... 53,037 292,876 May 31, 2003
</TABLE>
Scheduled lease expirations at Park Northern during the next 10 years are
as follows:
<TABLE>
<CAPTION>
EFFECTIVE ANNUAL RENTAL INCOME
GROSS LEASEABLE AREA ---------------------------------
NO. OF ---------------------- AVERAGE
LEASE LEASES APPROXIMATE PERCENT PERCENT PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- -------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998...................... 2 4,079 3.5% $ 33,593 4.9% $ 8.24
1999...................... 4 4,935 4.2 59,220 8.6 12.00
2000...................... 4 10,126 8.7 94,604 13.8 9.34
2001...................... 5 12,616 10.8 136,619 19.9 10.83
2002...................... 5 6,650 5.7 79,235 11.5 11.92
2003...................... 2 65,921 56.7 228,782 33.3 3.47
2004...................... 0 0 0.0 0 0.0 --
2005...................... 0 0 0.0 0 0.0 --
2006...................... 0 0 0.0 0 0.0 0
2007 and thereafter....... 1 12,000 10.4 55,200 8.0 4.60
-- ------- ----- -------- ----- ------
Total.................. 23 116,327 100.0% $687,253 100.0% $ 5.91
== ======= ===== ======== ===== ======
</TABLE>
One tenant at Park Northern occupies more than 10% of the GLA. Safeway
occupies 53,037 square feet and has annual minimum rent of $184,363. The lease
expires on May 31, 2003 and Safeway's lease has eight renewal options of five
years each under the same terms and conditions.
Although Walgreen's has given notice that it plans to vacate its 12,000
square foot space, it is obligated to pay annual minimum rent of $85,697 through
the term of the lease, which expires April 30, 2011.
49
<PAGE> 56
University Park Shopping Center
University Park is a 91,654 square foot shopping center located in College
Station, Texas. The center is located at the northwest corner of University
Drive and Tarrow Drive. College Station is approximately 100 miles northwest of
Houston, Texas and is home to Texas A&M University, which has an enrollment of
over 40,000 students. The shopping center is located approximately one mile east
of the University. According to the Bryan/College Station Metropolitan Planning
Organization, University Drive has a traffic count of over 38,000 cars daily.
The property includes 9.275 acres of land. The Company has acquired a 1.26
acre tract of land adjacent to the University Park Shopping Center and is
currently contemplating the development of this site into approximately 13,000
square feet of additional retail space. The shopping center was built in 1991.
University Park has five tenants ranging in size from 1,168 square feet to
80,478 square feet. The shopping center is anchored by an Albertson's
Supermarket (80,478 square feet). The small tenants include a mix of regional
and local retail and service tenants. The center is currently 98.0% occupied.
In 1997, University Park accounted for approximately 12.2% of total GLA and
14.9% of the total annualized minimum rents from the Original Properties. As of
December 31, 1997, University Park was 98.0% leased, with approximately 87.8% of
its GLA occupied by its anchor tenant.
Depreciation on University Park Shopping Center is taken on a straight line
basis over 40 years for book purposes and 31.5 years for tax purpose, resulting
in a rate of approximately 2.5% and 3.20% per year, respectively. At December
31, 1997, the federal tax basis of the University Park Shopping Center was
approximately $6.2 million. The realty tax on the University Park Shopping
Center is approximately $2.58 per $100 of assessed value, resulting in a 1997
realty tax of approximately $152,013.
The following table sets forth the percentage of GLA at University Park
which was leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
PERCENTAGE
AS OF: LEASED
------ ----------
<S> <C>
December 31, 1993........................................... 100.0%
December 31, 1994........................................... 100.0
December 31, 1995........................................... 100.0
December 31, 1996........................................... 100.0
December 31, 1997........................................... 98.0
</TABLE>
The following table sets forth the average rental income per square foot at
University Park for each of the last four years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER SQ. FT.
PERIOD: OF GLA
------- ------------------
<S> <C>
Year ended December 31, 1993................................ $8.08
Year ended December 31, 1994................................ 8.13
Year ended December 31, 1995................................ 8.06
Year ended December 31, 1996................................ 8.14
Year ended December 31, 1997................................ 8.14
</TABLE>
The following table shows, as of December 31, 1997, University Park's
anchor tenant, its GLA, gross annual rent for 1996 and lease expiration date,
not including renewal options:
<TABLE>
<CAPTION>
TENANT GLA GROSS ANNUAL RENT LEASE EXPIRATION DATE
------ ------ ----------------- ---------------------
<S> <C> <C> <C>
Albertson's............................ 80,478 $823,790 April 12, 2023
</TABLE>
50
<PAGE> 57
Scheduled lease expirations at University Park during the next 10 years are
as follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA ANNUALIZED BASE RENTAL INCOME
---------------------- ---------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- ------------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998............... 2 3,239 3.6% $ 44,914 6.1% $13.87
1999............... 0 0 0.0 0 0.0 --
2000............... 1 2,349 2.6 31,395 4.3 13.37
2001............... 0 0 0.0 0 0.0 --
2002............... 1 3,777 4.2 56,655 7.7 15.00
2003............... 0 0 0.0 0 0.0 0
2004............... 0 0 0.0 0 0.0 --
2005............... 0 0 0.0 0 0.0 --
2006 0 0 0.0 0 0.0 0
2007 and
thereafter...... 1 80,478 89.6 601,013 81.9 7.47
- ------ ----- -------- ----- ------
Total...... 5 89,843 100.0% $733,976 100.0% $ 8.17
=
====== ===== ======== ===== ======
</TABLE>
The only tenant occupying more than 10% of the GLA of the center is
Albertson's. Albertson's lease expires April 12, 2023 and has three renewal
options of five years each.
ADDITIONAL INFORMATION CONCERNING THE ACQUISITION PROPERTIES
The Company has recently acquired four community shopping centers:
Southwest/Walgreen's Shopping Center, Hedwig Shopping Centers, The Market at
First Colony and Mason Park Centre. The Company has contracts or options to
acquire four additional community shopping centers: Rosemeade Park Shopping
Center, Benchmark Crossing Shopping Center, Town 'N Country Plaza and University
Mall Shopping Center. Set forth below is additional information with respect to
such properties.
Benchmark Crossing
Benchmark Crossing is a 58,384 square foot shopping center located at the
northeast corner of the intersection of Highway 290 and Hollister in northwest
Houston, Texas. The property includes approximately 6.6 acres of land.
Benchmark Crossing consists of five separate buildings. The anchor tenant,
Bally's Total Fitness (the largest health club operator in the United States),
leases a two-story building built in 1986, consisting of 40,966 square feet.
Click's Billiards and the International House of Pancakes are single story
buildings built in 1994, consisting of 7,000 square feet and 4,543 square feet,
respectively. Burger King and Jack in the Box are single story buildings built
in 1990 and 1986, respectively. All parking lots are constructed of concrete.
According to Revac, Inc. Houston/Harris County Market Survey, the inner
northwest submarket has had positive absorption of over 900,000 square feet
since 1992, resulting in an overall occupancy rate of 90% for all retail
centers. Benchmark Crossing is 100% leased under five long-term leases with
maturities ranging from 2004 to 2013.
After its acquisition in February 1998, the federal tax basis of Benchmark
Crossing will be its purchase price plus closing costs, estimated to be
$5,637,500. The realty tax rate on Benchmark Crossing is approximately $3.06 per
$100 of assessed value, resulting in an estimated 1997 realty tax of
approximately $131,946.
51
<PAGE> 58
The following table sets forth the percentage of GLA at Benchmark Crossing
which was leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1993........................................... 100.0%
December 31, 1994........................................... 100.0
December 31, 1995........................................... 100.0
December 31, 1996........................................... 100.0
December 31, 1997........................................... 100.0
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
The following table sets forth the average rental income per square foot at
Benchmark Crossing for each of the last five years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER SQ. FT.
PERIOD: OF GLA(1)
------- ------------------
<S> <C>
Year ended December 31, 1993................................ $ 7.86
Year ended December 31, 1994................................ 10.03
Year ended December 31, 1995................................ 10.88
Year ended December 31, 1996................................ 11.13
Year ended December 31, 1997................................ 11.30
</TABLE>
- ---------------
(1) Based on unaudited, cash basis financial statements provided by the seller.
Scheduled lease expirations at Benchmark Crossing during the next 10 years
are as follows:
<TABLE>
<CAPTION>
ANNUALIZED BASE RENTAL INCOME
GROSS LEASABLE AREA ---------------------------------
---------------------- AVERAGE
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
- --------------------------- ------------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998..................... 0 0 0.0% $ 0 0.0% $ --
1999..................... 0 0 0.0 0 0.0 --
2000..................... 0 0 0.0 0 0.0 --
2001..................... 0 0 0.0 0 0.0 --
2002..................... 0 0 0.0 0 0.0 --
2003..................... 0 0 0.0 0 0.0 --
2004..................... 1 7,000 12.0 91,000 13.7 13.00
2005..................... 0 0 0.0 0 0.0 0.00
2006..................... 2 44,041 75.4 387,571 58.4 8.80
2007 and thereafter...... 2 7,343 12.6 185,000 27.9 25.19
- ------ ----- -------- ----- ------
Total............ 5 58,384 100.0% $663,571 100.0% $11.37
=
====== ===== ======== ===== ======
</TABLE>
Two tenants, Bally's Fitness Center and Click's Billiards, each occupy in
excess of 10% of the GLA at Benchmark Crossing. Bally's occupies 40,966 square
feet under a lease which expires on December 31, 2006 and has two renewal
options of five years each. Click's occupies 7,000 square feet of GLA under a
lease which expires on July 31, 2004 and has one renewal option of five years.
Hedwig Shopping Centers
Hedwig Shopping Centers consists of three separate buildings totaling
69,554 square feet built in 1974, 1987 and 1989. The center fronts Interstate
10, which is a major east/west thoroughfare. The center is located within Hedwig
Village, an independent municipality surrounded by Houston, Texas. Hedwig
Village is considered an affluent area with a median home price of $284,000 in
1996, according to the Houston Chronicle. The property includes approximately
4.1 acres of land.
52
<PAGE> 59
According to Revac Inc. Houston/Harris County Market Survey, the average
rental rate per square foot in the first half of 1997 for the inner west
submarket where Hedwig Shopping Centers is located was $22.41. Hedwig Shopping
Centers' average rental rate per square foot during the same period was $12.37.
The inner west submarket rates are substantially higher than Hedwig's because of
the higher rental rates at Memorial City Mall which has in excess of 1,000,000
square feet.
The shopping center is adjacent to and complemented by Target (120,000 sq.
ft.) and Marshall's (35,650 sq. ft.) department stores, which are owned by a
third party. The center has 11 tenants ranging in size from 1,050 square feet to
27,000 square feet.
The federal tax basis of Hedwig Shopping Centers is its purchase price plus
closing costs, or approximately $6,937,500. The realty tax rate on Hedwig
Shopping Centers is approximately $2.85 per $100 of assessed value, resulting in
a 1997 realty tax of approximately $134,647.
The following table sets forth the percentage of GLA at Hedwig Shopping
Centers which was leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1993........................................... 100.0%
December 31, 1994........................................... 98.0
December 31, 1995........................................... 100.0
December 31, 1996........................................... 80.9
December 31, 1997........................................... 98.2
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
The following table sets forth the average rental income per square foot at
Hedwig Shopping Centers for each of the last five years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER SQ. FT.
PERIOD: OF GLA(1)
------- ------------------
<S> <C>
Year ended December 31, 1993................................ $11.25
Year ended December 31, 1994................................ 11.41
Year ended December 31, 1995................................ 11.54
Year ended December 31, 1996................................ 11.35
Year ended December 31, 1997................................ 11.88
</TABLE>
- ---------------
(1) Based on unaudited, cash basis financial statements provided by the seller.
Scheduled lease expirations at Hedwig Shopping Centers during the next 10
years are as follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA ANNUALIZED BASE RENTAL INCOME
---------------------- ----------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- ------------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998.................. 1 6,612 9.7% $112,668 13.3% $17.04
1999.................. 0 0 0.0 0 0.0 0
2000.................. 5 22,965 33.6 309,193 36.4 13.46
2001.................. 1 2,564 3.8 41,024 4.8 16.00
2002.................. 3 9,188 13.4 164,820 19.4 17.94
2003.................. 0 0 0.0 0 0.0 0
2004.................. 0 0 0.0 0 0.0 0
2005.................. 0 0 0.0 0 0.0 0
2006.................. 0 0 0.0 0 0.0 0
2007 and thereafter... 1 27,000 39.5 222,480 26.1 8.24
-- ------ ----- -------- ----- ------
Total......... 11 68,329 100.0% $850,185 100.0% $12.44
== ====== ===== ======== ===== ======
</TABLE>
53
<PAGE> 60
Two tenants, Ross Dress For Less and Blockbuster Music, each occupy in
excess of 10% of the GLA at the Hedwig Shopping Centers. Ross occupies 27,000
square feet of GLA under a lease which expires on March 31, 2010 and has two
renewal options of five years each. Blockbuster Music occupies 13,664 square
feet of GLA under a lease which expires on July 31, 2000 and has four renewal
options of five years each.
The Market at First Colony
The Market at First Colony is a 94,241 square foot shopping center located
at the corner of Texas State Highway 6 and Williams Trace Boulevard in southwest
Houston. The property includes approximately of 9.7 acres of land. The shopping
center was built in three phases in 1988, 1991 and 1994. The parking lot is
constructed of concrete.
The shopping center is adjacent to and complemented by a 62,000 square foot
Kroger Supermarket which is owned by a third party. Taco Bell is a free standing
building within the shopping center. Stop N Go, World Savings, Burger King,
McDonalds, Kentucky Fried Chicken, Bronx Grill and a Chevron Service Station are
situated on outparcels and owned by third parties. The center has 31 tenants
ranging in size from 825 square feet to 25,220 square feet.
The federal tax basis of The Market at First Colony is its purchase price
plus closing costs, or approximately $11,625,000. The realty tax rate on The
Market at First Colony is approximately $3.61 per $100 of assessed value,
resulting in a 1997 realty tax of approximately $277,941.
The following table sets forth the percentage of GLA at The Market at First
Colony which was leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1993........................................... 97.2%
December 31, 1994........................................... 93.4
December 31, 1995........................................... 100.0
December 31, 1996........................................... 95.0
December 31, 1997........................................... 96.6
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
The following table sets forth the average rental income per square foot at
The Market at First Colony for each of the last five years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER SQ. FT.
PERIOD: OF GLA(1)
------- ------------------
<S> <C>
Year ended December 31, 1993................................ $11.77
Year ended December 31, 1994................................ 10.57
Year ended December 31, 1995................................ 10.45
Year ended December 31, 1996................................ 13.50
Year ended December 31, 1997................................ 13.93
</TABLE>
- ---------------
(1) Based on unaudited, cash basis financial statements provided by the seller.
54
<PAGE> 61
Scheduled lease expirations at The Market at First Colony during the next
10 years are as follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA EFFECTIVE ANNUAL RENTAL INCOME
---------------------- ------------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- ------------- ----------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998................ 7 14,993 16.5% $ 271,993 21.0% $18.14
1999................ 7 13,440 14.8 235,850 18.2 17.55
2000................ 10 17,378 19.1 290,476 22.4 16.72
2001................ 2 3,781 4.2 68,058 5.3 18.00
2002................ 3 30,820 33.9 280,915 21.7 9.11
2003................ 0 0 0.0 0 0.0 0
2004................ 0 0 0.0 0 0.0 0
2005................ 0 0 0.0 0 0.0 0
2006 and
thereafter....... 2 10,629 11.5 147,876 11.4 13.91
-- ------ ----- ---------- ----- ------
Total....... 31 91,041 100.0% $1,295,168 100.0% $14.23
== ====== ===== ========== ===== ======
</TABLE>
One tenant, T J Maxx, occupies in excess of 10% of the GLA at The Market at
First Colony. T J Maxx occupies 25,220 square feet of GLA under a lease which
expires on April 30, 2002 and has two renewal options of five years each.
Mason Park Centre
Mason Park Centre is a 160,047 square foot shopping center located at the
corner of Mason Park Road and Kingsland Boulevard in west Houston. The property
includes approximately of 13.6 acres of land. The shopping center was built in
1985. The parking lot is constructed of concrete.
According to Revac, Inc. Houston/Harris County Market Survey, the west
submarket grew in population by 87% from 1980 to 1996 and has a 1996 average
household income of approximately $74,000.
The shopping center is adjacent to and complemented by a 58,800 square foot
Kroger Supermarket which is owned by a third party. Schlotzsky's is a
freestanding building within the shopping center. World Savings and an Exxon
Service Station are situated on outparcels and owned by third parties. The
center has 33 tenants ranging in size from 980 square feet to 29,922 square
feet. The center is anchored by Palais Royal (29,922 square feet), a women's
apparel store, Cinemark Cinema (28,750 square feet), an eight screen first run
theater, Petco (13,973 square feet), an upscale pet supply store, and Walgreen's
Drug Store (10,998 square feet). Palais Royal, Cinemark, Petco and Walgreen's
leases expire January 31, 2006, January 1, 2000, January 31, 2005 and October
31, 2015, respectively. The center is approximately 92.6% occupied.
The federal tax basis of Mason Park Centre is its purchase price plus
closing costs, or approximately $15,325,000. The realty tax rate on Mason Park
Centre is approximately $3.11 per $100 of assessed value, resulting in a 1997
realty tax of approximately $390,845.
The following table sets forth the percentage of GLA at Mason Park Centre
which was leased as of December 31 for each of the last three years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1995........................................... 97.7%
December 31, 1996........................................... 98.0
December 31, 1997........................................... 92.6
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
For the years ended December 31, 1996 and December 31, 1997, the average
rental income per square foot of GLA at Mason Park Centre was $9.91 and $10.05,
respectively.
55
<PAGE> 62
Scheduled lease expirations at Mason Park Centre during the next 10 years
are as follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA EFFECTIVE ANNUAL RENTAL INCOME
---------------------- -----------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- ------------- ----------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998.................. 3 4,623 3.1% $ 59,568 3.7% $12.88
1999.................. 7 13,999 9.4 170,732 10.6 12.20
2000.................. 9 41,092 27.7 463,982 28.9 11.29
2001.................. 6 15,588 10.5 218,778 13.6 14.04
2002.................. 1 3,709 2.5 46,362 2.9 12.50
2003.................. 1 5,102 3.4 51,024 3.2 10.00
2004.................. 1 2,404 1.6 28,848 1.8 12.00
2005.................. 2 19,173 12.9 179,720 11.2 9.37
2006.................. 2 31,522 21.4 272,064 16.9 8.63
2007 and thereafter... 1 10,998 7.5 115,479 7.2 10.50
-- ------- ------ ---------- ------ ------
Total......... 33 148,210 100.0% $1,606,557 100.0% $10.84
== ======= ====== ========== ====== ======
</TABLE>
Two tenants, Palais Royal and Cinemark Cinema, each occupy in excess of 10%
of the GLA at Mason Park Shopping Center. Palais Royal occupies 29,922 square
feet of GLA under a lease which expires on January 31, 2006 and has two renewal
options of five years each. Cinemark occupies 28,750 square feet of GLA under a
lease which expires on January 1, 2000 and has three renewal options of five
years each.
Rosemeade Park Shopping Center
Rosemeade Park is a 49,554 square foot shopping center located at the
northwest corner of Rosemeade Parkway and Marsh Lane in Carrollton, Texas.
Carrollton is a northern suburb of Dallas. The property includes approximately
of 5.2 acres of land.
Rosemeade Park was built in 1986. The parking lot is constructed of
concrete. The shopping center is adjacent to and complemented by a 58,900 square
foot Kroger Supermarket, which is owned by a third party.
The shopping center has 16 tenants (and one ground lease) ranging in size
from 1,125 square feet to 14,000 square feet. Additionally, the shopping center
leases the land on the corner of the shopping center to Mobil Oil for a service
station. The center is anchored by Cosmopolitan Lady (14,000 square feet), a
health club, and Blockbuster Video (6,194 square feet). Cosmopolitan Lady's
lease expires July 31, 2008 and Blockbuster Video recently renewed its lease
through March 31, 2003. The center is approximately 86.6% occupied.
After its acquisition, anticipated for early March 1998, the federal tax
basis of Rosemeade Park Shopping Center will be its purchase price plus closing
costs, estimated to be $4,700,000. The realty tax rate on Rosemeade Shopping
Center is approximately $2.36 per $100 of assessed value, resulting in an
estimated 1997 realty tax of approximately $94,683.
The following table sets forth the percentage of GLA at Rosemeade Shopping
Center which was leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1993........................................... 84.0%
December 31, 1994........................................... 81.0
December 31, 1995........................................... 84.0
December 31, 1996........................................... 81.0
December 31, 1997........................................... 86.6
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
56
<PAGE> 63
The following table sets forth the average rental income per square foot at
Rosemeade Park Shopping Center for each of the last five years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER SQ. FT.
PERIOD: OF GLA
------- ------------------
<S> <C>
Year ended December 31, 1993................................ $ 9.40
Year ended December 31, 1994................................ 5.60
Year ended December 31, 1995................................ 8.16
Year ended December 31, 1996................................ 8.99
Year ended December 31, 1997................................ 10.31
</TABLE>
- ---------------
(1) Based on unaudited, cash basis financial statements provided by the seller.
Scheduled lease expirations at Rosemeade Park Shopping Center during the
next 10 years are as follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA EFFECTIVE ANNUAL RENTAL INCOME
---------------------- ---------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- ------------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998..................... 4 7,670 17.9% $ 90,007 16.4% $11.73
1999..................... 2 3,280 7.6 35,152 6.4 10.72
2000..................... 6 9,232 21.5 92,668 16.9 10.04
2001..................... 1 1,200 2.8 15,600 2.8 13.00
2002..................... 2 1,332 3.1 100,776 18.4 75.66
2003..................... 1 6,194 14.4 77,425 14.1 12.50
2004..................... 0 0 0.0 0 0.0 0
2005..................... 0 0 0.0 0 0.0 0
2006..................... 0 0 0.0 0 0.0 0
2007 and thereafter...... 1 14,000 32.7 137,060 24.9 9.79
-- ------ ----- -------- ----- ------
Total 17 42,908 100.0% $548,688 100.0% $12.79
== ====== ===== ======== ===== ======
</TABLE>
Two tenants, Cosmopolitan Lady and Blockbuster Video, each occupy an excess
of 10% of the GLA at Rosemeade Park Shopping Center. Cosmopolitan Lady occupies
14,000 square feet of GLA under a lease which expires on July 31, 2008 and has
one five year option. Blockbuster Video occupies 6,194 square feet of GLA under
a lease which expires on March 31, 2003 and has two renewal options of five
years each.
Southwest/Walgreen's Shopping Center
Southwest/Walgreen's is an 83,698 square foot shopping located at the
northwest corner of Northern and 19th Avenues in Phoenix, Arizona. The property
includes approximately 10.0 acres of land. Southwest/ Walgreen's was built in
1975.
The shopping center is located approximately two miles from the Company's
Park Northern Shopping Center. The center is located in an infill area where
there is little vacant land available for development. Directly across Northern
Avenue a new Albertson's anchored shopping center was developed in 1993.
The shopping center consists of four buildings, which are occupied by 19
tenants ranging in size from 968 square feet to 27,064 square feet. The shopping
center is anchored by Southwest Supermarket (27,064 square feet) and Walgreen's
(16,000 square feet). Southwest Supermarket is a 38-store chain owned by the New
York investment firm of Kohlberg & Company. Southwest Supermarket's lease
expires May 31, 2000 and Walgreen's lease expires January 31, 2000. The shopping
center is 100% occupied.
The federal tax basis of Southwest/Walgreen's is its purchase price plus
closing costs, or approximately $4,800,000. The realty tax rate on
Southwest/Walgreen's is approximately $3.38 per $100 of assessed value,
resulting in a 1997 realty tax of approximately $113,323.
57
<PAGE> 64
The following table sets forth the percentage of GLA at
Southwest/Walgreen's which was leased as of December 31 for each of the last
five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1993........................................... 85.0%
December 31, 1994........................................... 96.0
December 31, 1995........................................... 98.0
December 31, 1996........................................... 100.0
December 31, 1997........................................... 100.0
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
The following table sets forth the average rental income per square foot at
Southwest/Walgreen's for each of the last four years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER SQ. FT.
PERIOD: OF GLA(1)
------- ------------------
<S> <C>
Year ended December 31, 1994................................ $6.04
Year ended December 31, 1995................................ 6.45
Year ended December 31, 1996................................ 5.32
Year ended December 31, 1997................................ 6.52
</TABLE>
- ---------------
(1) Based on unaudited, cash basis financial statements provided by the seller.
Scheduled expirations at Southwest/Walgreen's during the next 10 years are
as follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA ANNUALIZED BASE RENTAL INCOME
NO. OF ---------------------- ---------------------------------
LEASE LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- -------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998........................ 4 5,040 6.0% $ 59,062 10.7% $11.72
1999........................ 6 13,764 16.4 155,264 28.2 11.28
2000........................ 5 49,514 59.2 188,826 34.3 3.81
2001........................ 4 15,380 18.4 147,446 26.8 9.59
2002........................ 0 0 0.0 0 0.0 0
2003........................ 0 0 0.0 0 0.0 0
2004........................ 0 0 0.0 0 0.0 0
2005........................ 0 0 0.0 0 0.0 0
2006........................ 0 0 0.0 0 0.0 0
2007 and thereafter......... 0 0 0.0 0 0.0 0
-- ------ ----- -------- ----- ------
Total............... 19 83,698 100.0% $550,598 100.0% $ 6.58
== ====== ===== ======== ===== ======
</TABLE>
Two tenants, Southwest Supermarket and Walgreen's, each occupy in excess of
10% of the GLA at Southwest/Walgreen's Shopping Center. Southwest Supermarket
occupies 27,064 square feet of GLA under a lease which expires on May 31, 2000
and has seven renewal options of five years each. Walgreen's occupies 16,000
square feet of GLA under a lease which expires on January 31, 2000.
Town 'N Country Plaza
Town 'N Country Plaza is a 158,104 square foot shopping center located in
Tampa, Florida at the intersection of Hillsborough Avenue and Hanley Road. The
property includes approximately 11.1 acres of land. The shopping center was
built in 1970 (and renovated in 1986) and has an asphalt parking lot. An
extensive renovation of the facade, signage and parking lot lighting was
completed in 1997. The shopping center is located in the northwest area of Tampa
and is considered an infill location.
The shopping center has 17 tenants ranging in size from 320 square feet to
50,000 square feet. Additionally, separate buildings are leased to Checkers, a
fast food restaurant, and to NationsBank for an
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<PAGE> 65
ATM. Kentucky Fried Chicken is located on a free-standing parcel within the
shopping center. The shopping center is anchored by Big Lots (30,000 square
feet), and T J Maxx (24,320 square feet), a clothing store. Holiday Wonderland
occupies 50,000 square feet, but is not considered an anchor tenant because it
may not be considered a credit tenant. Big Lot's lease expires January 31, 2002
and T J Maxx's lease expires October 31, 1999. The shopping center is 100%
occupied.
After its acquisition, anticipated for March 1998, the federal tax basis of
Town 'N Country will be its purchase price plus closing costs, estimated to be
$4,990,000. The realty tax rate on Town 'N Country is approximately $2.56 per
$100 of assessed value, resulting in an estimated 1997 realty tax of
approximately $97,271.
The following table sets forth the percentage of GLA at Town 'N Country
which was leased as of December 31 for the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1993........................................... 100.0%
December 31, 1994........................................... 100.0
December 31, 1995........................................... 67.7
December 31, 1996........................................... 100.0
December 31, 1997........................................... 100.0
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
The following table sets forth the average rental income per square foot at
Town 'N Country for the last five years:
<TABLE>
<CAPTION>
AVERAGE EFFECTIVE ANNUAL
RENTAL INCOME PER
PERIOD: SQ. FT.(1)
------- ------------------------
<S> <C>
Year ended December 31, 1993................................ $3.14
Year ended December 31, 1994................................ 3.36
Year ended December 31, 1995................................ 3.76
Year ended December 31, 1996................................ 3.58
Year ended December 31, 1997................................ 4.02
</TABLE>
- ---------------
(1) Based on unaudited, cash basis financial statements provided by the seller.
Scheduled lease expirations at Town 'N Country during the next 10 years are
as follows:
<TABLE>
<CAPTION>
EFFECTIVE ANNUAL RENTAL INCOME
GROSS LEASABLE AREA ----------------------------------
----------------------- AVERAGE
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- -------------- ----------- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998................... 6 8,420 5.3% $ 86,700 12.3% $10.30
1999................... 3 27,120 17.2 169,120 24.0 6.24
2000................... 0 0 0.0 0 0.0 0
2001................... 0 0 0.0 0 0.0 0
2002................... 7 119,300 75.5 419,872 59.5 3.52
2003................... 0 0 0.0 0 0.0 0
2004................... 0 0 0.0 0 0.0 0
2005................... 0 0 0.0 0 0.0 0
2006................... 0 0 0.0 0 0.0 0
2007 and thereafter.... 1 3,264 2.0 30,000 4.2 9.19
-- ------- ----- -------- ----- ------
Total.......... 17 158,104 100.0% $705,692 100.0% $ 4.46
== ======= ===== ======== ===== ======
</TABLE>
59
<PAGE> 66
Three tenants, Holiday Wonderland, Big Lots and T J Maxx, each occupy in
excess of 10% of the GLA at Town 'N Country Shopping Center. Holiday Wonderland
occupies 50,000 square feet of GLA under a lease which expires on January 31,
2002 and has one renewal option of five years. Big Lot occupies 30,000 square
feet of GLA under a lease which expires on January 31, 2002 and has three
renewal options of five years each. T J Maxx occupies 24,320 square feet of GLA
under a lease which expires on October 31, 1999 and has one renewal option of
five years.
University Mall Shopping Center
University Mall is a 315,596 square feet shopping center located at the
corner of Pines and University Boulevards in Pembroke Pines, Florida. Pembroke
Pines is an independent municipality near Ft. Lauderdale, Florida. Pines and
University are the main thoroughfares in Pembroke Pines. The property includes
approximately 29.0 acres of land.
University Mall was built in 1973 and originally contained interior mall
space. Separate buildings (Phase II and Phase III) were developed in 1975 and
1984, respectively, and contain 16,296 square feet and 26,625 square feet,
respectively. During 1990 and 1993, an aggregate of 13,000 square feet was added
to Phase I and all interior mall space was converted to storefront space with
the addition of several large anchor tenants.
University Mall has 36 tenants ranging in size from 750 square feet to
91,500 square feet. Additionally, separate buildings are leased to TGI Fridays,
WAG's, Taco Bell and a Federal Express kiosk. Also, Pollo Tropical and Red
Lobster are situated on outparcels and owned by third parties. University Mall
is anchored by Uptons (91,500 square feet), whose lease expires December 1,
2002, Sports Authority (42,000 square feet), whose lease expires April 30, 2012,
Ross Stores (25,920 square feet), whose lease expires January 31, 2001,
OfficeMax (23,500 square feet), whose lease expires January 31, 2003 and Eckerd
Drugs (12,000 square feet), whose lease expires December 31, 2002. Additionally,
46,246 square feet in the rear of the shopping center is leased to University
Self Storage, a climate controlled, self-storage facility, the lease for which
expires December 15, 2007. The shopping center is approximately 98% leased.
After its acquisition in February 1998, the federal tax basis of University
Mall will be its purchase price plus closing costs, estimated to be $18,650,000.
The realty tax rate on University Mall is approximately $2.57 per $100 of
assessed value, resulting in an estimated 1997 realty tax of approximately
$324,339.
The following table sets forth the percentage of GLA at University Mall
which was leased as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
AS OF: PERCENTAGE LEASED(1)
------ --------------------
<S> <C>
December 31, 1993........................................... 92.4%
December 31, 1994........................................... 90.7
December 31, 1995........................................... 94.8
December 31, 1996........................................... 97.6
December 31, 1997........................................... 98.0
</TABLE>
- ---------------
(1) Based on unaudited information provided by the seller.
The following table sets forth the average rental income per square foot at
University Mall for each of the last five years:
<TABLE>
<CAPTION>
AVERAGE RENTAL
INCOME PER SQ. FT.
PERIOD: OF GLA(1)
------- ------------------
<S> <C>
Year ended December 31, 1993................................ $5.93
Year ended December 31, 1994................................ 6.07
Year ended December 31, 1995................................ 6.08
Year ended December 31, 1996................................ 6.12
Year ended December 31, 1997................................ 6.19
</TABLE>
- ---------------
(1) Based on unaudited, cash basis financial statements provided by the seller.
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<PAGE> 67
Scheduled lease expirations at University Mall during the next 10 years are
as follows:
<TABLE>
<CAPTION>
GROSS LEASABLE AREA EFFECTIVE ANNUAL RENTAL INCOME
---------------------- -----------------------------------
LEASE NO. OF LEASES APPROXIMATE PERCENT PERCENT AVERAGE PER
EXPIRATION EXPIRING SQ. FT. OF TOTAL AMOUNT OF TOTAL SQ. FT.
---------- ------------- ----------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998.................. 4 10,572 3.4% $ 132,895 6.4% $12.57
1999.................. 9 21,935 7.1 287,408 13.8 13.10
2000.................. 7 11,711 3.8 160,072 7.7 13.67
2001.................. 3 27,045 8.8 258,409 12.4 9.55
2002.................. 8 139,243 45.2 642,839 30.9 4.62
2003.................. 1 23,500 7.6 129,240 6.2 5.50
2004.................. 0 0 0.0 0 0.0 0
2005.................. 0 0 0.0 0 0.0 0
2006.................. 0 0 0.0 0 0.0 0
2007 and thereafter... 4 73,831 24.1 467,392 22.6 6.33
-- ------- ----- ---------- ----- ------
Total......... 36 309,346 100.0% $2,078,255 100.0% $ 6.75
== ======= ===== ========== ===== ======
</TABLE>
Two tenants, Uptons and The Sports Authority, each occupy in excess of 10%
of the GLA at University Mall. Uptons occupies 91,500 square feet of GLA under a
lease which expires on December 1, 2002 and has five renewal options of five
years each. The Sports Authority occupies 42,000 square fee of GLA under a lease
which expires on April 30, 2012 and has four renewal options of five years each.
TENANT DELINQUENCIES AND BANKRUPTCIES
As of December 31, 1997, four tenants representing 1.6% of the total GLA of
the Original Properties were consistently delinquent with their rent. Management
expects two of these tenants to vacate and is actively seeking replacement
tenants. Management is not aware of any tenants that are currently in
bankruptcy.
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<PAGE> 68
MORTGAGE INDEBTEDNESS
The following table sets forth certain information regarding the mortgage
indebtedness of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
PROJECTED
DEBT TO BE ANNUAL
REPAID UPON INTEREST RATE INTEREST
COMPLETION BALANCE TO ON BALANCE PAYMENTS
BALANCE AS OF THE REMAIN REMAINING MATURITY AS
PROPERTY OF 12/31/97 OFFERING OUTSTANDING OUTSTANDING DATES(1) OF 12/31/97
-------- ----------- ----------- ----------- ------------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ORIGINAL PROPERTIES:
- ----------------------------------
Twin Lakes Shopping Center(4)..... $ 1,735 $ 1,735 $ 0 --% 05/10/05 $ 0
Autobahn Shopping Center(4)....... 1,131 1,131 0 -- 11/30/98 0
Centennial Shopping
Center(3)(4).................... 3,744 3,744 0 -- 09/25/98 0
Centennial Shopping Center(4)..... 124 124 0 -- 09/25/98 0
Centennial Shopping Center(4)..... 7 7 0 -- 03/25/98 0
Bandera Festival Shopping
Center(2)(4).................... 7,772 7,772 0 -- 03/31/99 0
University Park Shopping Center... 4,798 0 4,798 9.30 04/01/18 443
McMinn Plaza Shopping Center...... 387 0 387 8.25 07/01/03 30
McMinn Plaza Shopping Center...... 703 0 703 7.63 11/01/02 49
Park Northern Shopping Center..... 2,743 0 2,743 8.37 12/01/06 227
El Campo Shopping Center(3)(4).... 1,576 1,576 0 -- 06/27/03 0
College Station land(5)........... 206 0 206 8.50 12/27/99 18
------- ------- ------- ------
Total Original
Properties............. $24,926 $16,089 $ 8,837 $ 767
ACQUISITION PROPERTIES:
- ----------------------------------
The Market at First Colony........ 0 0 0 -- -- 0
Hedwig Shopping Centers........... 3,577 0 3,577 10.75 06/10/99 383
Benchmark Crossing................ 3,695 0 3,695 9.25 08/01/05 340
University Mall Shopping Center... 13,347 0 13,347 8.44 12/01/06 1,122
Mason Park Centre................. 0 0 0 -- -- 0
Rosemeade Park Shopping Center.... 3,497 0 3,497 8.30 12/01/07 288
Town 'N Country Plaza............. 2,500 2,500 0 -- 11/01/02 0
Southwest/Walgreen's Shopping
Center.......................... 0 0 0 -- -- 0
------- ------- ------- ------
Total Acquisition
Properties............. $26,616 $ 2,500 $24,116 $2,133
------- ------- ------- ------
Total Mortgage Indebtedness....... $51,542 $18,465 $33,077 $2,900
======= ======= ======= ======
</TABLE>
- ---------------
(1) The mortgage loan secured by University Park Shopping Center may not be
prepaid until May 2005 and can be prepaid thereafter with a penalty of 5%,
4%, 3%, 2%, and 1%, respectively, in the next five years. The 7.625%
mortgage loan secured by a portion of McMinn Plaza Shopping Center may not
be prepaid until July 1999 and can be prepaid thereafter with a penalty of
5% in the first year thereafter, 4% in the second year, 3% in the third year
and 2% in the fourth and fifth years. The mortgage loan secured by Twin
Lakes Shopping Center may be prepaid prior to May 10, 2000 by paying a
penalty of 3%, 2% and 1% in the mortgage years ending May 10, 1998, May 10,
1999 and May 10, 2000, respectively. The mortgage loan secured by Benchmark
Crossing may not be prepaid until August 2000 and the mortgage loan secured
by University Mall may not be prepaid until November 1999. All of the other
mortgage loans may be prepaid at any time, either at par or subject to
prepayment penalties calculated typically on a yield maintenance basis.
(2) This mortgage loan requires an additional principal payment equal to 1/2%
of outstanding principal on April 1, 1998.
(3) These mortgage loans may each be extended one time for three years after the
due date. The Centennial mortgage loan extension provides for an increase in
the interest rate to 9.5% and a $100,000 principal payment on September 25,
1998. The El Campo mortgage loan extension requires a $150,000 principal
payment on June 27, 2003 and the payment of interest at the lesser of prime
plus 1/2%, or 9%.
(4) Mortgages on five properties, with a combined balance of approximately
$16,000,000, were repaid from the proceeds of a $56,800,000 bridge loan that
is secured by a first mortgage on the following properties: Twin Lakes,
Autobahn, Centennial, Bandera, El Campo, Mason Park, Southwest/Walgreen's
and The Market at First Colony. It is anticipated that the bridge loan will
be repaid from the proceeds of the Offering.
(5) The interest rate accrues at the prime rate of Chase Bank of Texas, which
was 8.5% at December 31, 1997.
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<PAGE> 69
As of December 31, 1997, the Company's mortgage indebtedness was
approximately $25.0 million, with each mortgage loan being secured by one of the
Original Properties. The Company's mortgage indebtedness bears interest rates
ranging from 7.63% to 9.75%, with a weighted average stated interest rate of
8.99% and a weighted maturity of 6.5 years.
All of the mortgage loans included in the above table, except the College
Station land loan (relating to the recently acquired outparcel of University
Park Shopping Center), have fixed interest rates. Accordingly, 99.2% of the
Company's mortgage indebtedness has fixed interest rates.
RENTAL REVENUES
Substantially all of the income from the Properties consists of rent
received under long-term leases. In addition, substantially all of the leases
provide for payment from tenants of a pro rata share of the real estate taxes,
insurance, utilities and common area maintenance of the property. Leases at the
Properties which provide for the payment of percentage rents represent 39% of
the total number of leases. Percentage rents represented approximately 0.54% of
gross rental revenue from the Original Properties, or approximately $26,400, for
the year ended December 31, 1997.
CAPITAL EXPENDITURES
The following table sets forth information relating to historical capital
expenditures on the Company's Original Properties:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Total capital expenditures......................... $ 50,056 $117,964 $202,939
Average number of square feet(1)................... 754,563 594,457 542,095
Capital expenditures per square foot............... $ 0.07 $ 0.20 $ 0.37
Three year average capital expenditure per square
foot............................................. $ 0.20
</TABLE>
- ---------------
(1) Represents the average aggregate amount of square feet owned by the Company
during the year.
COMPETITION
All of the Properties are located in areas which have shopping centers and
other retail facilities. Generally, there are other neighborhood and community
shopping centers within close proximity to the Property. The amount of rentable
retail space in an area could have a material adverse effect on the amount of
rent charged by the Company and on the Company's ability to rent vacant space
and/or renew leases. There are numerous commercial developers, real estate
companies, private REITs, smaller public REITs and major retailers that compete
with the Company in seeking properties for acquisition and tenants for
properties, many of which may have greater financial and other resources than
the Company and may have substantially more operating experience than that of
the Company, its officers and agents. There are numerous shopping facilities
that compete with the Properties in attracting retailers to lease space. In
addition, retailers at the Properties face increasing competition from outlet
malls, discount shopping clubs, catalog companies, direct mail and
telemarketing.
EMPLOYEES
The Company has no salaried employees. All personnel required for the
Company's operations are provided by the Investment Manager.
LEGAL PROCEEDINGS
The Company is not presently involved in any litigation nor, to its
knowledge, is any litigation threatened against the Company or any of the
Properties, except for routine litigation arising in the ordinary course of
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<PAGE> 70
business which, in the opinion of the executive officers of the Company, would
not have a material adverse effect on the Company.
REGULATIONS AND INSURANCE
General. The Properties, as well as any other properties which the Company
may acquire in the future, are subject to various federal, state and local laws,
ordinances and regulations, including, among other things, zoning regulations,
land use controls, environmental controls relating to air and water quality,
noise pollution and indirect environmental impacts such as increased motor
vehicle activity. The Company believes that each Property when acquired had all
permits and approvals necessary under current law.
Insurance. The Company believes that the Properties are, or upon
acquisition will be, covered by adequate property and liability insurance
provided by reputable, commercially rated companies and with commercially
reasonable deductibles and limits. Management expects to maintain such insurance
coverage and to obtain similar coverage with respect to any additional
properties acquired by the Company in the near future. The Company has obtained
or will obtain title insurance relating to the Properties in an aggregate amount
which the Company believes to be adequate. See "Risk Factors--Uninsured Loss and
Condemnation."
Americans With Disabilities Act. The Properties are subject to the
Americans with Disabilities Act of 1990 (the "ADA"). The ADA has separate
compliance requirements for "public accommodations" and "commercial facilities"
but generally requires that all public facilities be made accessible to people
with disabilities. The requirements became effective in 1992. Compliance with
the ADA requirements could require removal of access barriers and other capital
improvements at the Properties. Noncompliance could result in the imposition of
fines by the U.S. government or an award of damages to private litigants. The
Company believes that the Properties are substantially in compliance with these
requirements.
ENVIRONMENTAL MATTERS
Under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), as well as similar state and local laws,
owners and operators of property, both past and present, may be held financially
responsible for the investigation and, if appropriate, the remediation of
hazardous substance releases into the environment. Other parties who arranged
for the disposition of hazardous substances or transported hazardous substances
for disposition also may be held liable. Liability under CERCLA and similar laws
is strict, joint and several and, in many instances, may be imposed without
regard to the party's culpability concerning the hazardous substance release.
Potentially responsible parties may be liable to one another, the government
and, in some instances, third parties.
Costs recoverable under CERCLA must be consistent with the National
Contingency Plan. The National Contingency Plan establishes a procedure whereby
contaminated properties are identified and, if necessary, remediated in a
priority fashion. If conducted in the appropriate manner, these costs will
include, but may not be limited to, funds expended to investigate and to
remediate hazardous substance releases. Costs associated with any such
environmental activity may be substantial.
Phase I environmental assessments have been conducted on all of the
Properties within the past 18 months. See "Risk Factors -- Environmental
Matters." The purpose of the Phase I environmental assessments was to determine
if past or present uses of, or conditions on, the Properties or properties in
the vicinity of the Properties, indicate the potential for soil or groundwater
contamination or if other environmental conditions might affect future uses of
the Properties or liability associated therewith. Phase I environmental
assessments generally included the following: visual inspection of the property,
review of available land use records, interviews with the property
representatives; examination of information from environmental agencies; and a
walk-through survey for suspected asbestos and lead-containing materials. As may
be required by any applicable federal, state or local laws, the Company has
addressed or will address any recommendations contained in the Phase I
environmental assessment reports.
64
<PAGE> 71
None of the reports from the Phase I environmental assessments or
subsequent investigations has revealed, nor is the Company or the Investment
Manager aware of, any environmental condition that the Company believes would
have a material adverse effect on the Company's business, assets or results of
operations. The Company and the Investment Manager believe that the Properties
are in compliance in all material respects with applicable federal, state and
local laws, ordinances and regulations concerning the presence of hazardous
substances. Neither the Company nor the Investment Manager has been notified by
any governmental authority, and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous substances in connection
with any of its Properties. It is possible, however, that the Phase I
environmental assessments and subsequent investigations do not reveal all
environmental liability concerns or that there are material environmental
liabilities of which the Company is unaware. Accordingly, no assurance can be
given that (i) future laws, ordinances or regulations will not require or impose
any material expenditures or liabilities in connection with the environmental
conditions by or on the Company or the Properties; (ii) the current
environmental condition of each Property will not be affected by tenants and
occupants of such Property, by the condition of properties in the vicinity of
such Property or by third parties unrelated to the Company; (iii) prior owners
or prior or current tenants of a Property did not create any material adverse
environmental condition of which the Company or the Investment Manager is
unaware.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's current policies with
respect to investments, financings, affiliate transactions and certain other
activities. The Company's policies with respect to these activities have been
determined by management of the Company and by the Investment Manager and may be
amended or revised from time to time at the discretion of the Board of Trust
Managers without a vote of the shareholders of the Company. No assurance can be
given that the Company's investment objectives will be attained or that the
value of the Company will not decrease.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The Company's
primary business objective is to maximize shareholder value by maintaining
long-term growth in Cash Available for Distribution and paying distributions to
its shareholders. The Company intends to pursue this objective by continuing to
acquire community shopping centers for long-term ownership and to manage its
properties intensively, and thereby seek to maximize current and long-term
income and the value of its assets. The Company's policy, as determined by the
Investment Manager, is to acquire or redevelop assets in geographic areas where
the Company believes that opportunities exist for acceptable investment returns.
The Company expects to pursue its investment objectives primarily through
the direct ownership of properties. The Company currently intends to invest in
or develop primarily community shopping center properties in its primary
markets. However, future investment or redevelopment activities will not be
limited to any geographic area or to a specified percentage of the Company's
assets. All of the Properties initially will be managed by the Company or third
party on-site property managers retained by the Investment Manager. There is no
limit on the percentage of assets which will be invested in any specific
property.
The Company may also participate with other entities in property ownership,
through joint ventures or other types of common ownership. Equity investments
may be subject to existing mortgage financing and other indebtedness which have
priority over any equity interest of the Company.
Investments in Real Estate Mortgages. While the Company intends to
emphasize equity real estate investments, it may, in its discretion, invest in
first or second mortgages or other real estate interests consistent with its
qualification as a REIT. The Company may also invest in participating or
convertible mortgages if the Trust Managers conclude that the Company and its
shareholders may benefit from the cash flow or any appreciation in the value of
the subject property. Such mortgages are similar to equity participation. There
is no limit on the percentage of assets which may be invested in any type of
mortgage or in any single mortgage, nor is there any limit on the types of
properties subject to mortgages in which the Company may invest.
65
<PAGE> 72
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage ownership limitations
and gross income tests necessary for REIT qualification, the Company also may
invest in securities of entities engaged in real estate activities or securities
of other issuers, including for the purpose of exercising control over such
entities, although it has not done so in the past. See "Federal Income Tax
Consequences -- Requirements for Qualification as a Real Estate Investment
Trust." The Company may acquire all or substantially all of the securities or
assets of other REITs or similar entities where such investments would be
consistent with the Company's investment policies. There is no limit on the
percentage of assets which may be invested in securities of or interests in
other issuers.
Periodic Review of Assets. The Company has no current intention to dispose
of any of the Properties. Nevertheless, the Company reserves the right to
dispose of any of the Properties or any property that may be acquired in the
future if the Company determines that the disposition of such property is in the
best interests of the Company and its shareholders.
FINANCING POLICIES
The organizational documents of the Company do not contain any limitations
on the amount or percentage of indebtedness the Company may incur, nor does the
Company have a policy limiting the amount of indebtedness that the Company may
incur. As a general policy, however, the Company intends to maintain a ratio of
total indebtedness to Total Market Capitalization of approximately 50%. However,
no assurance can be given that the Company will be able to accomplish this
objective. The debt to Total Market Capitalization ratio is based in part upon
the stock market value of equity, and accordingly fluctuates with changes in the
price of the shares and differs from a debt-to-tangible net worth ratio which is
based on book value of a company's assets. The Company is basing its debt
capitalization policy on a ratio of long-term debt to Total Market
Capitalization rather than debt-to-book value of assets because the Company
believes that market capitalization is a more appropriate measure of the market
value of the Company's assets than the book value of its assets and more
indicative of its ability to repay debt.
On a pro forma basis at December 31, 1997, after giving effect to the
Offering (assuming an initial public offering price of $10.50 per Common Share),
the Company had a ratio of long-term debt to Total Market Capitalization of
27.0%. See "Capitalization." Assuming no change in the market value of issued
and outstanding Common Shares, the Company would be able to incur approximately
$56,000,000 of additional indebtedness and still maintain a ratio of long-term
debt to Total Market Capitalization of 50%. The Company, however, may at any
time and from time to time reevaluate and change its debt policy in light of
current economic conditions, relative cost of debt and equity capital, changes
in the market capitalization of the Company, acquisition opportunities and other
factors, and may modify its debt financing policy and may increase or decrease
its ratio of long-term debt to Total Market Capitalization without a vote of its
shareholders. The Trust Managers will consider a number of factors when
evaluating the Company's level of indebtedness and when making decisions
regarding the incurrence of indebtedness, including the purchase price of
properties to be acquired with debt financing, the estimated market value of its
properties upon refinancing, and the ability of particular properties and the
Company as a whole to generate cash flow to cover expected debt service.
Indebtedness incurred by the Company may be in the form of bank borrowings,
purchase money obligations to the sellers of properties, publicly or privately
placed debt instruments or financing from institutional investors or other
lenders, any of which indebtedness may be unsecured or may be secured by
mortgages or other interests in properties owned by the Company or may be
limited to the particular property to which the indebtedness relates. The
proceeds from any borrowings by the Company may be used for the payment of
distributions, for working capital, to refinance existing indebtedness or to
finance acquisitions of new properties.
In the event that the Trust Managers determine to raise additional equity
capital, the Trust Managers have the authority, without shareholder approval, to
issue additional Common Shares or Preferred Shares in any manner (and on such
terms and for such consideration) they deem appropriate, including in exchange
for property. Existing shareholders would have no preemptive right to purchase
such shares in any offering, and
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<PAGE> 73
any such offering might cause a dilution of a shareholder's investment in the
Company. See "Description of Shares of Beneficial Interest."
AFFILIATE TRANSACTION POLICY
The Company has adopted a policy that it will not without the approval of a
majority of the independent Trust Managers (i) acquire from or sell to any Trust
Manager, officer or employee of the Company, or any entity in which a Trust
Manager, officer or employee of the Company beneficially owns more than a 1%
interest, or, except for any property in which the Company owns an economic
interest, acquire from or sell to any affiliate of any of the foregoing, any
property or other assets of the Company, or (ii) make any loan (other than
pursuant to the Plan) to or borrow from any of the foregoing persons.
CERTAIN OTHER POLICIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
to (i) invest in the securities of other issuers for the purpose of exercising
control over such issuer, (ii) underwrite securities of other issuers, or (iii)
actively trade in loans or other investments.
The Company may make investments other than as previously described,
although it does not currently intend to do so. The Company has authority to
purchase or otherwise reacquire Common Shares or any of its other securities in
the open market or otherwise and may engage in such activities in the future.
The Trusts Managers have no present intention of causing the Company to
repurchase any of the Common Shares, and any such action would be taken only in
conformity with applicable federal and state laws and the requirements for
qualifying as a REIT under the Code. The Company may issue securities in
exchange for real estate assets if the Trust Managers determine such issuances
to be in the best interests of the Company's shareholders.
The Company has not made any loans to third parties, although it may in the
future make loans to third parties, including, without limitation, loans to
joint ventures in which it participates. The Company has not engaged in trading,
underwriting or agency distribution or sale of securities of other issuers, and
the Company does not intend to do so in the future. The Company's policies with
respect to such activities may be reviewed and modified from time to time by the
Board of Trust Managers without the vote of the shareholders.
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MANAGEMENT
TRUST MANAGERS AND OFFICERS
The Company's Trust Managers are elected annually by the shareholders and
remain in office until their successors, if any, are elected. The Trust Managers
are responsible for appointing the executive officers of the Company, for
selecting, monitoring and supervising the Investment Manager and for approving
borrowings by the Company. The Trust Managers are also responsible for the
adoption from time to time of such investment policies and limitations as they
may deem appropriate in light of the Company's investment objective.
The following table sets forth the names and positions of the Trust
Managers and executive officers of the Company.
<TABLE>
<CAPTION>
POSITIONS AND
NAME AGE OFFICES WITH THE COMPANY
---- --- ------------------------
<S> <C> <C>
Robert W. Scharar....................... 49 Trust Manager and Chairman of the Board
Jerry M. Coleman........................ 62 Trust Manager
Josef C. Hermans........................ 55 Trust Manager
William C. Brooks....................... 61 Trust Manager
Ira T. Wender........................... 70 Trust Manager
Lewis H. Sandler........................ 61 President and Chief Executive Officer
Daniel M. Jones, III.................... 55 Chief Financial Officer
Randall D. Keith........................ 39 Vice President and Chief Operating Officer
</TABLE>
Information concerning the Trust Managers and executive officers of the
Company is as follows:
Robert W. Scharar. Mr. Scharar, who resides in Houston, Texas, received a
B.S.B.A. degree in business from the University of Florida in 1970, an M.B.A.
degree in 1971 from Northeastern University, a J.D. from Northeastern University
Law School in 1974, and an L.L.M. degree in Taxation from Boston University Law
School in 1979. In 1975, he formed First Commonwealth Associates, a Texas
partnership, which engaged in financial planning and advisory services. In 1981,
the assets of First Commonwealth Associates were acquired by UST Financial
Planning Company, Inc., a subsidiary of UST Corp. (a Massachusetts bank holding
company), and Mr. Scharar served as President of that subsidiary. In 1983, Mr.
Scharar founded the Investment Manager, which acquired the Texas and Florida
offices of UST Financial Planning Company, Inc. Mr. Scharar is President and a
director of the Investment Manager. Mr. Scharar also serves as one of four
Trustees of both First Commonwealth Mortgage Trust ("FCMT"), a private real
estate investment trust which is engaged in the business of originating and
investing in real estate mortgage loans, and Ivy, a private REIT engaged in the
business of acquiring and operating office buildings. The Investment Manager is
also the investment manager for FCMT and Ivy. Since 1991, Mr. Scharar has served
as President and Portfolio Manager of Capstone New Zealand Fund and since 1997
as President and Portfolio Manager of Capstone Japan Fund. From 1992 through
1996, he served as director of South West Property Trust, Inc. ("SWP") and in
1997 when SWP merged into United Dominion Realty Trust, Inc. ("UDR"), he became
a director of UDR. Mr. Scharar has served as a Trust Manager and Chairman of the
Board of the Company since its inception in 1989.
Jerry M. Coleman. Mr. Coleman resides in El Paso, Texas and is a commercial
real estate developer and builder. Mr. Coleman received his J.D. from the
University of Texas. Since 1975, Mr. Coleman has served as Chairman and CEO of
Capital Resource & Investment Co. and managing partner of Azar-Coleman
Properties since 1982. From 1977 to 1980, Mr. Coleman was Chairman of the Board
and Chief Executive Officer of Citizen National Bank of Austin, Texas and
remained Chairman of the Board of the successor MBank until 1988. Mr. Coleman
has served as a Trust Manager of the Company since January 1, 1989.
Josef C. Hermans. Mr. Hermans resides in Houston, Texas and is a consultant
to the hotel industry. Mr. Hermans is a graduate of the Lausanne, Switzerland
Hotel Management School. In addition to his early experience in European hotels,
Mr. Hermans served as Vice President of Operations of Mariner Corporation
between 1976 and 1983. Since 1983, Mr. Hermans has been self-employed as a
consultant in the hospitality
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industry. Mr. Hermans currently serves as a Trust Manager of FCMT and Ivy and a
director of Mirror Properties Corp. Mr. Hermans has served as a Trust Manager of
the Company since January 1, 1989.
William C. Brooks. Mr. Brooks is a financial consultant who resides in
Boynton Beach, Florida. Mr. Brooks is a graduate of Oberlin College in Oberlin,
Ohio. From 1980 to 1994, Mr. Brooks was Chief Financial Officer, Senior Vice
President and Treasurer of UST Corp., a Massachusetts bank holding company.
Since 1994, Mr. Brooks has served as a financial consultant. Mr. Brooks
currently serves as a Trust Manager of FCMT and Ivy. Mr. Brooks has served as a
Trust Manager of the Company since March 3, 1995.
Ira T. Wender. Mr. Wender resides in New York, New York. He is a former
partner and is currently of counsel to the law firm of Patterson, Belknap, Webb
& Tyler, New York, New York, which he joined in January 1993. From 1982 through
May 1997, Mr. Wender was a Director of Southwest Realty, Ltd. and its successors
in interests, South West Property Trust Inc. and United Dominion Realty Trust.
From January 1994 to December 1995, Mr. Wender was Chairman of Perry Ellis
International, Inc. He is currently a director of Dime Savings Bank of New York
and REFAC Technology, Inc. Mr. Wender has served as a Trust Manager of the
Company since December 1997.
Lewis H. Sandler. Mr. Sandler resides in Dallas, Texas. Mr. Sandler has
served as President and Chief Executive Officer of the Company and the Chief
Executive Officer of the real estate services division of the Investment Manager
since January 1997. Prior to that time, he served as Executive Vice President,
Secretary, General Counsel and a Director of Southwest Realty, Ltd., a publicly
traded multi-family limited partnership from 1983 through October, 1992. From
October 1992 through December 1996, Mr. Sandler served in similar roles for SWP.
Mr. Sandler received a B.A. degree from Hamilton College in 1958 and an L.L.B.
from Columbia University Law School in 1961. He is licensed to practice law in
New York and Texas.
Daniel M. Jones, III. Mr. Jones, who resides in Garland, Texas, has been
Chief Financial Officer of the Company since May 1, 1997, and worked as a
consultant to the Company and the Investment Manager for several months prior
thereto. Prior to that time, he served from June 1996 until February 1997 as
Vice President, Treasurer and Chief Financial Officer for SWP. Prior to SWP, Mr.
Jones spent over 25 years as a senior financial officer in the retail industry
with such companies as Dayton Hudson Department Stores (1979-81), Federated
Department Stores (1981-83), R.H. Macy & Company (1983-87), Wyatt Cafeterias
(1992-93) and Annie's Attic (1994-96). His work often included strategic
planning, site selection, real estate and legal responsibilities. Mr. Jones also
has an extensive background in contract and lease negotiations, all from the
tenant's side. He received his B.S. in Accounting from Virginia Commonwealth
University in Richmond, Virginia and is a CPA, licensed in Texas and Virginia.
Randall D. Keith. Mr. Keith resides in Houston, Texas. He received a B.B.A.
in Accounting from the University of Texas and is a Texas CPA. He is a member of
the Houston Society of Financial Analysts, Texas Society of Certified Public
Accountants and the Association for Management and Research. Mr. Keith has
experience with Service Corporation International in equity research and
portfolio management in both the public and private markets and in auditing and
taxation with Grant Thorton. Mr. Keith currently serves as Vice President and
Chief Operating Officer of the Company. Mr. Keith has been involved with the
Company since its inception in 1988. He served as Secretary of the Company from
1988 to 1990 and from 1993 to 1996, Treasurer from 1990 to 1993, Vice President
from 1993 to 1996, and as Vice President and Chief Operating Officer from 1996
to the present. Mr. Keith is employed by the Investment Manager.
All officers and Trust Managers hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal.
COMMITTEES OF THE BOARD OF TRUST MANAGERS
Audit Committee. The Board of Trust Managers has established an Audit
Committee consisting of Messrs. Coleman, Hermans, Brooks and Wender. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public
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accountants, reviews the independence of the independent public accountants,
considers the range of audit and non-audit fees and reviews the adequacy of the
Company's internal accounting controls.
Executive Committee. The Board of Trust Managers will establish, after
completion of the Offering, an Executive Committee. The Executive Committee will
have the authority to acquire, dispose of and finance investments for the
Company and execute contracts and agreements, including those related to the
borrowing of money by the Company, and generally exercise all other powers of
the Board of Trust Managers except for those which require action by all Trust
Managers or the independent Trust Managers under the Charter or Bylaws or under
applicable law.
Compensation Committee. The Board of Trust Managers has established a
Compensation Committee, consisting of Messrs. Coleman, Hermans, Brooks and
Wender. The Compensation Committee has the authority to administer the Plan and
the DRIP. Although the Investment Manager determines the compensation for the
Company's officers, the Compensation Committee evaluates the performance of the
Company's officers and makes recommendations to the Investment Manager regarding
officer compensation.
COMPENSATION OF TRUST MANAGERS
For services provided during fiscal 1997, Messrs. Coleman, Hermans and
Brooks received 800 Common Shares in December 1997. Messrs. Coleman, Hermans,
Brooks and Wender were each awarded 2,000 Common Shares in December 1997.
Commencing in 1998, each independent Trust Manager will receive an annual
fee of $10,000 plus $250 per meeting attended. Trust Managers who are employees
of the Company or the Investment Manager will not be paid any Trust Manager
fees. In addition, the Company may reimburse the Trust Managers for travel
expenses incurred in connection with their activities on behalf of the Company.
Trust Managers who are not employees of the Company or the Investment Manager
will each receive a grant of options, upon completion of the Offering, to
purchase 8,000 Common Shares under the Plan. The options will vest over a four
year-period commencing January 1, 1999 and will be exercisable at a price per
Common Share equal to the initial public Offering price. The unaffiliated Trust
Managers will also be eligible to receive loans from the Company for purposes of
exercising vested options, all or a portion of which may be forgiven over time.
Additional options to purchase 2,000 Common Shares will be granted annually to
each independent Trust Manager. The exercise price will be the fair market value
on the date of option grant.
EXECUTIVE COMPENSATION
Under the Advisory Agreement, the Investment Manager has assumed the
responsibility for payment of all salaries and bonuses, if any, as well as
payroll taxes and other fringe benefits for each of the Executive Officers of
the Company and will make available at its own cost such other support personnel
as may be needed by the Company. The Investment Manager will also supply the
Company with office space and equipment, including telephones, facsimile and
duplicating machines, as well as access to conference rooms and secretarial
assistance. Should the advisory fee payable to the Investment Manager prove
insufficient to cover such costs and expenses, the Investment Manager will bear
the cost of any such overage. The Company will pay for its own direct and
variable expenses that are identifiable directly to the Company's activities and
operations. In this regard, the Company will bear its own costs for long
distance telephone charges, postage, travel expense, printing costs and contract
labor costs. See "Certain Relationships and Transactions."
Each of Messrs. Sandler and Jones was hired by the Investment Manager
during the Company's 1997 fiscal year. Although an officer of the Company during
most of 1997, Mr. Jones was hired by the Company as an independent consultant
for the purpose of assisting the Company in connection with the Offering and his
monetary compensation was as a consultant. Mr. Keith was an officer of the
Company during 1997 but allocated his time among the Company, the Investment
Manager and several other entities affiliated within the Investment Manager.
Together Messrs. Sandler, Jones and Keith are the Company's executive officers
(the "Named Executive Officers"). The following table sets forth the annualized
base salary paid to each of
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the Named Executive Officers by the Investment Manager for the 1997 fiscal year
and their estimated compensation for the 1998 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
---------------------------------- RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL SHARE UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
-------- ------ -------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lewis H. Sandler 1997 $ 67,166(1) $ -- $ -- $105,000(5) -- --
President and Chief 1998 155,000(2) 25,000(2) -- -- 40,000(6) --
Executive Officer
Daniel M. Jones, III 1997 $ 63,750(3) $ -- $ 900 84,000(5) -- --
Chief Financial
Officer 1998 106,667(3) 15,000(2) -- -- 32,000(6) --
Randall D. Keith 1997 $ 67,548(4) $ -- $4,463 84,000(5) -- --
Vice President and 1998 93,334(2) -- -- -- 32,000(6) --
Chief Operating
Officer
</TABLE>
- ---------------
(1) Represents the salary paid to Mr. Sandler by the Investment Manager.
Approximately $6,716 of such amount represents compensation paid for
services rendered to the Investment Manager and its affiliates.
(2) Represents estimated compensation for fiscal 1998, assuming the Offering is
completed in early March 1998.
(3) The 1997 compensation and a portion of the 1998 compensation represent sums
paid to Mr. Jones in his capacity as a consultant to the Company. Upon
consummation of the Offering, Mr. Jones will become an employee of the
Investment Manager and his salary will be paid by the Investment Manager.
Mr. Jones will be dedicated by the Investment Manager solely to perform
services for the Company.
(4) Represents the salary paid to Mr. Keith by the Investment Manager. Mr. Keith
has been dedicated by the Investment Manager solely to perform services for
the Company.
(5) Based solely upon the estimated Offering price of $10.50 per share and does
not necessarily reflect the fair market value of the shares. The restricted
shares vest in 25% increments every six months, with the first vesting to
occur on June 30, 1998. The recipients of restricted share awards under the
Plan will receive distributions with respect to all of the shares. The only
restricted shares held by the Named Executive Officers are listed above.
(6) It is anticipated that the Investment Manager will award a portion of the
Options it receives to purchase 300,000 Common Shares in connection with the
Offering to the Named Executive Officers as listed above. The options will
vest in 25% annual increments beginning January 1, 1999. Vested options may
be exercised for a period of five years. Payment for the Common Shares upon
exercise will be made by the optionee's delivering to the Company a
four-year promissory note in the original principal amount equal to the
aggregate exercise price. The promissory note will bear interest at the
applicable federal rate. Principal of the promissory note will be payable in
four equal annual installments, together with accrued but unpaid interest.
If the optionee is an employee or Trust Manager of the Company on the date
an annual installment of principal is due, 80% of the annual installment
(20% of the original principal amount) due will be forgiven by the Company,
and the optionee will only be required to make a payment to the Company in
an amount equal to 20% of the principal installment due, together with all
accrued but unpaid interest.
None of the Company's executive officers has an employment agreement with
either the Company or the Investment Manager.
ADVISORY BOARD
The Board of Trust Managers of the Company has established an advisory
board (the "Advisory Board") that primarily will include real estate and
securities industries professionals. The Trust Managers intend to appoint
approximately seven professionals to the Advisory Board. Such professionals are
expected to include shopping center developers and/or operators, regional or
national retail brokers (for leasing and/or sales), experienced builders,
securities underwriters, real estate attorneys, accountants and/or bankers. The
identity, number and/or expertise of the professionals serving on the Advisory
Board may vary from time to time at the discretion of the Trust Managers, at
whose pleasure such professionals will serve. Members of the Advisory Board will
be invited to all Board meetings and will be expected to lend their expertise to
matters under consideration at such meetings. Such Advisory Board members,
however, will have no vote on any matters brought before the Board of Trust
Managers nor will they receive any monetary compensation for their service. The
Company may, however, reimburse the Advisory Board members for travel expenses
incurred on
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behalf of the Company. In addition, the Company intends to award each of the
members of the Advisory Board options to purchase up to 2,000 Common Shares
under the Plan to be effective upon the later of consummation of the Offering or
joining the Advisory Board. The options will vest on January 1, 1999 and will be
exercisable for a period of five years from the date of vesting at a price per
Common Share equal to the initial public Offering price or fair market value, as
applicable. It is anticipated that options will be awarded annually to each
member of the Advisory Board to purchase up to an additional 2,000 Common Shares
per annum at an option exercise price equal to the fair market value of the
Common Shares on the date of each option grant.
Under Texas law, Advisory Board members have no fiduciary duties to
shareholders. They will, however, obtain non-public information about the
Company by attending Board meetings. Accordingly, they must comply with
applicable federal and state securities laws.
The first seat awarded by the Trust Managers on the Advisory Board was to
the group comprised of Loren M. Pollack, David J. Scher and James H. Shimberg.
These three experienced real estate developers/operators share one seat on the
Advisory Board in that although all three of them may attend all Advisory Board
meetings, the group will be compensated and reimbursed for the expenses of only
one member of the group. They bring to the Company an aggregate of more than 50
years of retail development and operating experience. Information on the
individual members of the group is as follows:
Loren M. Pollack. Mr. Pollack, who resides in Clearwater, Florida, received
a degree in Business Administration from the University of Illinois in 1955. He
joined Stuart S. Golding Company ("Golding") in 1964 and has been an owner and
President of Golding since 1975. Mr. Pollack has been actively involved in all
aspects of Golding's development, financing, leasing and management of its
retail shopping centers. He is a licensed real estate broker in Florida, has
served as Florida State Director for the International Council of Shopping
Centers and was a member of the Building Advisory and Examining Committee for
Pinellas County, Florida.
David J. Scher. Mr. Scher received a Bachelor of Science degree in
economics from the University of Wales and became a qualified chartered
accountant (England) in 1973. In 1987, Mr. Scher founded Major Video Canada and
expanded it into a chain of 41 stores by the time it became Blockbuster Canada
in 1989. In 1989, Mr. Scher joined Golding as a co-owner and has been actively
involved in the planning, development, operation and management of more than
eight retail (including mall and neighborhood) centers. Mr. Scher is the
immediate past President of the Tampa Jewish Federation.
James H. Shimberg. Mr. Shimberg is a graduate of the University of Chicago
Law School and is a member of the New York and Florida Bars. He is the President
of Town 'N Country Park, Inc., one of Tampa's largest home builders (over 8,000
homes) and a partner of Shimberg-Cross, one of Tampa's largest residential land
developers. He is past President of both the Florida Home Builders Association
and the Home Builders Association of Greater Tampa, and a permanent Life-Time
Director of the National Association of Home Builders. In May 1985, he was
inducted into the National Housing Hall of Fame in Washington, DC and in 1989
was inducted into the State of Florida Housing Hall of Fame. Mr. Shimberg has
served as a member of a number of important state committees by appointment of
successive Governors of Florida, and as the first Chairman of the Board of
Trustees of the University Community Hospital of Tampa, Florida from 1968 to
1977.
SHARE INCENTIVE PLAN
The Company has established an incentive compensation plan to enable Trust
Managers, executive officers and key employees of the Company (and including any
operating partnership of the Company) as well as key personnel of the Investment
Manager who contributed services to the Company to participate in the ownership
of the Company. The Plan is designed to attract and retain executive officers,
Trust Managers and other key employees of the Company and the Investment Manager
(collectively, "Plan Participants") and to provide incentives to such persons to
maximize the Company's growth and cash flow available for distribution. The Plan
provides for awards to the Plan Participants of both grants of restricted shares
and non-qualified share options as well as incentive share options.
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Under the Plan, 5,000,000 Common Shares are reserved for issuance;
provided, however, the number of shares subject to outstanding options may not
exceed 10% of the outstanding Common Shares. The Compensation Committee will
administer the Plan and will determine the Plan Participants, the number of
shares to be granted, the number of options and shares covered thereby to be
granted and the terms and conditions of grant and/or option exercise. The
Compensation Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the Plan. Loans, if any, to facilitate the
exercise of option grants will also be determined and administered by the
Compensation Committee.
Non-qualified stock options will provide for the right to purchase Common
Shares at a specified price which will not be less than the fair market value on
the date of the grant and usually will become exercisable in installments for up
to seven years after the grant date. Non-qualified stock options will expire not
more than 10 years from the date of grant.
Incentive stock options, if granted, will be designed to comply with the
provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of the fair market value
of the Common Shares on the grant date and a ten year restriction on their term.
These options may be subsequently modified to disqualify them for treatment as
incentive stock options.
In December 1997, the Company awarded 67,000 Common Shares to the
Investment Manager for the benefit of Messrs. Scharar, Sandler, Jones and Keith
as well as other officers and key employees of the Investment Manager who have
contributed to and are expected to continue to contribute to the Company's
success, and awarded 2,000 Common Shares to each of the Company's four
independent Trust Managers. The Investment Manager may transfer some or all of
these Common Shares directly to the beneficiaries. These Common Shares are
restricted and are subject to divestiture over a two year period in the event
that the recipient or beneficial owner should voluntarily cease to be an officer
or key employee of the Investment Manager or should be dismissed for cause
during such vesting period. In addition, the Company will grant options to
purchase 300,000 Common Shares to the Investment Manager immediately prior to
completion of the Offering for the benefit of certain Investment Manager
employees who contribute to the Company's success, including the Company's
executive officers. The Investment Manager has identified the following persons
to receive a portion of its options to purchase 300,000 shares: Messrs. Scharar
(40,000), Sandler (40,000), Jones (32,000) and Keith (32,000) and each of the
independent Trust Managers (2,000). The remaining options to purchase 156,000
shares will be held by the Investment Manager. These options will be exercisable
at the public offering price of the Offering of the Common Shares and will vest
evenly over a four-year period commencing January 1, 1999. These options may
also be assigned, in whole or in part, directly to the beneficiaries for whom
the Investment Manager is holding them. The beneficiaries of these option grants
will be eligible to receive loans from the Company for purposes of exercising
vested options, all or a portion of which may be forgiven over time. See
"Management -- Executive Compensation," note 6.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements requiring the
Company to indemnify its officers and Trust Managers, and advance expenses, to
the maximum extent permitted by Texas law. See "-- Limitation of Liability and
Indemnification."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 9.20 of the Texas REIT Act, subject to procedures and limitations
stated therein, allows the Company to indemnify any person who was, is or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a trust manager or officer against judgments, penalties
(including excise and similar taxes), fines, settlements and reasonable expenses
actually incurred by the person in connection with the proceeding. The Company
is required by Section 9.20 of the Texas REIT Act to indemnify a trust manager
or officer against reasonable expenses incurred by him in connection with a
proceeding in which he is a named defendant or respondent because he is or was a
trust manager or officer if he has been wholly successful, on the merits or
otherwise, in the defense of the proceeding. Under the Texas
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REIT Act, Trust Managers and officers are not entitled to indemnification if (i)
the trust manager or officer is found liable to the real estate investment trust
or is found liable on the basis that personal benefit was improperly received
and (ii) the trust manager or officer was found liable for willful or
intentional misconduct in the performance of his duty to the real estate
investment trust. The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a person
may be entitled under any provision of the Charter, bylaws, agreements or
otherwise. In addition, the Company has, pursuant to Section 15.10 of the Texas
REIT Act, provided in its Charter that, to the fullest extent permitted by
applicable law, a Trust Manager of the Company shall not be liable for any act,
omission, loss, damage or expense arising from the performance of his duty under
the Texas REIT Act, except for his own willful misfeasance or gross negligence.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
As of June 9, 1997, the Company amended the Advisory Agreement with the
Investment Manager. The Advisory Agreement is effective the first day of the
quarter in which the Registration Statement of which this Prospectus is a part
is declared effective. Under the terms of the Advisory Agreement, the Investment
Manager is obligated to use its best efforts to administer the day-to-day
operations of the Company and to implement the directives of the Trust Managers
with respect to property operations, maintenance, rehabilitation, acquisitions,
financings, refinancings and dispositions. Subject to their duty of overall
supervision, the Trust Managers have delegated to the Investment Manager the
power and duty to: (i) perform necessary administrative functions in the
management of the Company; (ii) serve as the investment and financial investment
manager and provide research, economic and statistical data in connection with
investments and financial policies; (iii) investigate, select and conduct
relations with accountants, attorneys, brokers, investors, property managers,
builders, developers, banks and other lenders, and others as necessary in
connection with investments; (iv) maintain bank accounts, and arrange for
fidelity bonds with respect to all of the personnel handling funds and other
liquid assets of the Company, with the Company named as an insured party; (v)
administer such day-to-day bookkeeping and accounting functions as are required
for the proper management of the assets of the Company, contract for audits and
prepare or cause to be prepared such reports as may be required by any
governmental authority; (vi) provide office space and office equipment and the
use of accounting or computing equipment when required, and provide personnel
necessary for the performance of such services; (vii) obtain services that may
be required in acquiring and disposing of investments, disbursing and collecting
funds, paying debts and fulfilling the obligations and handling, prosecuting and
settling any claims of the Company; (viii) supervise and monitor the services of
all professionals and agents retained by or for the benefit of the Trust to
ensure that the Properties are operated and the business of the Trust is
conducted in a prudent and businesslike manner; and (ix) render advice, and
where appropriate, assist in the conduct of the Trust's business and affairs.
The initial term of the Advisory Agreement will expire on December 31,
1998, and will automatically be renewed for five successive one-year terms,
subject to a determination by a majority of the independent Trust Managers that
the performance of the Investment Manager has been satisfactory. If the
independent Trust Managers determine that the Investment Manager's performance
has been unsatisfactory or without cause, they may terminate the Advisory
Agreement upon six months prior notice, and pay the Investment Manager a
termination fee (the "Termination Fee") equal to the product of the average
monthly fee paid to the Investment Manager for the three full calendar months
immediately preceding the month in which termination notice is given, times 12,
less any sums paid or payable to the Investment Manager for the calendar months
(up to a maximum of six) following the giving of notice but prior to the
termination date. The Investment Manager's performance will be measured, in
part, by the Company's growth in Funds From Operations, Funds From Operations
per share, Cash Available for Distribution, market conditions that may affect
each of its Properties and the Company's ability to acquire additional retail
properties on terms and conditions that should be accretive to the Company's
Funds From Operations over a reasonable period of time. The Company may
terminate the contract for cause at any time and without payment of a
termination fee. The Investment Manager may terminate the Advisory Agreement
upon 90 days prior written notice
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without premium or penalty. If such termination is for cause, however, the
Company would be obligated to pay the Termination Fee to the Investment Manager.
Pursuant to the terms of the Bylaws and the Advisory Agreement, the
Investment Manager is prohibited from performing similar functions for any real
estate entity (other than the Company) whose primary function is to own and
operate shopping centers in the United States. There is no limit on the right of
any Trust Manager or Advisory Board member, or any director, officer, employee
or shareholder of the Investment Manager to engage in any business (including
competitive business activities) or to render services of any kind to any other
entity.
Under the Advisory Agreement, effective the first day of the calendar
quarter in which the Registration Statement of which this Prospectus is a part
is declared effective, the Investment Manager will be entitled to a fee equal to
6.8% of Advisory Funds From Operations. Based upon revenues of the Company for
fiscal 1997, on a pro forma basis, the fee payable to the Investment Manager for
fiscal 1997 would have been approximately $287,598.
The Company is acquiring University Mall with $1,400,000 borrowed from
FCMT, an affiliate of the Investment Manager and a purchase money promissory
note from the seller of the shopping center. FCMT is a mortgage REIT that is
also managed by the Investment Manager. The note to FCMT bears interest at the
rate of 12% per annum and matures on June 30, 1998. It is secured by a second
mortgage on the Autobahn property. The seller of the University Mall will take
back a purchase money note in the amount of approximately $3,100,000, maturing
on April 29, 1998. The purchase money note will bear interest at the rate of 10%
per annum and will be secured by a pledge of the stock in the special purpose
entity that is wholly-owned by the Company and that was formed for the sole
purpose of acquiring title to this property.
Messrs. Scharar, Sandler, Jones and Keith are the Chairman of the Board,
President and Chief Executive Officer, Chief Financial Officer and the Vice
President and Chief Operating Officer, respectively, of the Company. They are
all employees of the Investment Manager. See "Risk Factors -- Sole Reliance on
Investment Manager."
In connection with services rendered in connection with the Offering, the
Company awarded 67,000 Common Shares to the Investment Manager for the benefit
of Messrs. Scharar, Sandler, Jones and Keith, as well as other officers and key
employees of the Investment Manager who have contributed to and are expected to
continue to contribute to the Company's success, and awarded 2,000 Common Shares
to each of the Company's four independent Trust Managers. The Investment Manager
may transfer some or all of these Common Shares directly to the beneficiaries.
These Common Shares are restricted and are subject to divestiture over a two
year period in the event that the recipient or beneficial owner should
voluntarily cease to be an officer or key employee of the Investment Manager or
should be dismissed for cause during such vesting period. In addition, the
Company will grant options to purchase 300,000 Common Shares to the Investment
Manager immediately prior to completion of the Offering for the benefit of
certain Investment Manager employees who contribute to the Company's success,
including the Company's executive officers. See "Management -- Share Incentive
Plan." These options will be exercisable at the public offering price of the
Offering of the Common Shares and will vest evenly over a four-year period
commencing January 1, 1999. These options may also be assigned, in whole or in
part, directly to the beneficiaries for whom the Investment Manager is holding
them. The beneficiaries of these option grants will be eligible to receive loans
from the Company for purposes of exercising vested options, all or a portion of
which may be forgiven over time. See "Management -- Executive Compensation,"
note 6.
On January 22, 1998, the Company borrowed $50,000 from UIRT/University
Park - I, L.P. The 10% loan was repaid on February 3, 1998.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the outstanding Common Shares as of December 31, 1997 and the
Common Shares to be acquired in the Offering, by (i) the only shareholders known
to the management of the Company to own beneficially more than 5% of the
outstanding Common Shares; (ii) the Investment Manager; (iii) each Trust Manager
and the executive officers of the Company; and (iv) the Trust Managers and
executive officers as a group. Unless otherwise indicated, each person named in
the table has sole voting and investment power with respect to all of the Common
Shares shown as beneficially owned by such person:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF PERCENT OF
COMMON SHARES CLASS PRIOR TO CLASS AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED THE OFFERING THE OFFERING
------------------------ ------------------ --------------- ------------
<S> <C> <C> <C>
GAIA Visions Partners, Ltd. ... 83,737(1) 9.15% *%
c/o J.M. Haley
7149 Hillgreen
Dallas, TX 75214
FCA Corp (Investment Manager).. 31,000(2) 3.39 *
5847 San Felipe, Suite 850
Houston, TX 77057
Alfred S. Ross................. 47,367 5.18 *
150 Elm Street
S. Dartmouth, MA 02748
Robert W. Scharar.............. 65,302(3) 6.59 *
c/o FCA Corp
5847 San Felipe, Suite 850
Houston, TX 77057
Jerry M. Coleman............... 5,169(4)(6) * *
Josef C. Hermans............... 5,626(6)(9) * *
William C. Brooks.............. 8,600(6)(10) * *
Ira T. Wender.................. 7,000(6)(11) *
Randall D. Keith............... 10,000(7) 1.04 *
Lewis H. Sandler............... 60,000(5) 1.09 *
Daniel M. Jones, III........... 10,000(8) * *
Trust Managers / Officers as a
Group (8 persons)............ 160,533(2)(3)(4)(5)(6)(7)(8) 11.20 1.20
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 12,832 Common Shares into which its 1,604 Preferred Shares are
convertible. The Preferred Shares will be redeemed from the proceeds of the
Offering.
(2) Includes 31,000 Common Shares awarded under the Plan in December 1997.
(3) Includes 10,000 Common Shares awarded to Mr. Scharar and 31,000 Common
Shares awarded under the Plan to the Investment Manager in December 1997.
Mr. Scharar is President and a Director and a 52.7% shareholder of the
Investment Manager. As a result of his control of the Investment Manager,
the 31,000 Common Shares are required to be included in the number of
shares beneficially owned by Mr. Scharar. Also includes 9,838 Common Shares
as to which Mr. Scharar is a trustee, but has no beneficial interest. In
addition, Mr. Scharar expects to acquire 5,000 Common Shares in the
Offering.
(4) Includes 1,569 Common Shares which are registered to Azar-Coleman
Properties and controlled by Mr. Coleman and 500 Common Shares which Mr.
Coleman plans to acquire in the Offering.
(5) Includes 10,000 Common Shares awarded under the Plan to Mr. Sandler in
December 1997. In addition, Mr. Sandler, on behalf of himself and trusts
for the benefit of his immediate family, expects to acquire at least 50,000
Common Shares in the Offering.
(6) Includes 2,000 Common Shares awarded under the Plan to each independent
Trust Manager in December 1997.
(7) Includes 8,000 Common Shares awarded under the Plan in December 1997 and
500 Common Shares that Mr. Keith plans to acquire in the Offering.
(8) Includes 8,000 Common Shares awarded under the Plan in December 1997 and
2,000 Common Shares that Mr. Jones plans to acquire in the Offering.
(9) Includes 500 Common Shares that Mr. Hermans plans to acquire in the
Offering.
(10) Includes 5,000 Common Shares that Mr. Brooks plans to acquire in the
Offering.
(11) Includes 5,000 Shares that Mr. Wender plans to acquire in the Offering.
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<PAGE> 83
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
GENERAL
The Charter authorizes the Company to issue up to 550,000,000 shares of
beneficial interest of the Company ("Trust Shares"), consisting of 500,000,000
Common Shares, no par value, 50,000,000 preferred shares of beneficial interest,
20,000 of which are authorized to be issued at $100 par value per share and the
remainder of which are authorized to be issued at no par value ("Preferred
Shares"), and such other types of classes of shares of beneficial interest as
the Trust Managers may create and authorize from time to time. Upon completion
of the Offering, 8,514,889 Common Shares will be issued and outstanding together
with options to purchase 300,000 Common Shares issued under the Plan. Not
included in the issued and outstanding Common Shares are 1,140,000 Common Shares
which may be purchased by the Underwriters to cover over-allotments. After the
Offering, no Preferred Shares will be issued or outstanding.
As of December 31, 1997, there were 914,889 Common Shares and 10,737 shares
of 9% Convertible Preferred Shares, Series 1995, par value $100 per share ("9%
Preferred Shares"), issued and outstanding. The Company plans to redeem these 9%
Preferred Shares from the proceeds of the Offering.
Common Shares of Beneficial Interest. Each outstanding Common Share
entitles the holder to one vote on all matters submitted to a vote of
shareholders, including the election of Trust Managers. There is no cumulative
voting in the election of Trust Managers, which means that the holders of a
majority of the outstanding Common Shares can elect all of the Trust Managers
then standing for election. Holders of Common Shares are entitled to such
distributions as may be declared from time to time by the Trust Managers out of
funds legally available therefor. See "Dividends and Distributions Policy."
Holders of Common Shares have no conversion, redemption or preemptive
rights to subscribe for any securities of the Company. All outstanding Common
Shares will be fully paid and nonassessable. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of Common
Shares will be entitled to share ratably in the assets of the Company remaining
after provision for payment of liabilities to creditors and payment of
liquidation preferences to holders of Preferred Shares, if any.
Preferred Shares. The Trust Managers are authorized (without any further
action by the shareholders) to issue Preferred Shares in one or more series and
to fix the voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. Holders of Preferred Shares would normally
be entitled to receive a preference payment in the event of any liquidation,
dissolution or winding up of the Company before any payment is made to the
holders of Common Shares. The Company has no present intention to issue any
additional Preferred Shares or any other new class of securities.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, (i) not more than 50%
in value of its outstanding Trust Shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year; (ii) the Trust Shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year; and
(iii) certain percentages of the Company's gross income must be from particular
activities. See "Federal Income Tax Consequences." Because the Trust Managers
believe it is essential for the Company to continue to qualify as a REIT, the
Charter, subject to certain exceptions, provides that no holder other than any
person approved by the Trust Managers, at their option and in their discretion
(provided that such approval will not result in the termination of the status of
the Company as a REIT), may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (the "Ownership Limit") of
the lesser of the number or value (in either case as determined in good faith by
the Trust Managers) of the total outstanding Trust Shares. The Trust Managers
may waive the Ownership Limit if evidence satisfactory to the Trust Managers and
the Company's tax counsel is presented that such ownership will not then or in
the future jeopardize the Company's status as a REIT. As a condition of such
waiver, the intended transferee must give written notice to the Company of the
proposed transfer and must furnish such opinions of counsel,
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<PAGE> 84
affidavits, undertakings, agreements and information as may be required by the
Trust Managers no later than the fifteenth day prior to any transfer which, if
consummated, would result in the intended transferee owning Trust Shares in
excess of the Ownership Limit. The foregoing restrictions on transferability and
ownership will not apply if the Trust Managers determine that it is no longer in
the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT. Any transfer or issuance of Trust Shares or any security
convertible into Trust Shares that would (i) create a direct or indirect
ownership of Trust Shares in excess of the Ownership Limit; (ii) with respect to
transfers only, result in the Trust Shares being owned by fewer than 100
persons; or (iii) result in the Company being "closely held" within the meaning
of Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the Trust Shares. The Company's Charter
provides that the Company, by notice to the holder thereof, may purchase any or
all Trust Shares (the "Excess Shares") that are proposed to be transferred
pursuant to a transfer which, if consummated, would result in the intended
transferee owning Trust Shares in excess of the Ownership Limit or would
otherwise jeopardize the REIT status of the Company. The purchase price of any
Excess Shares shall be equal to the fair market value of such Excess Shares on
the last trading day immediately preceding the day on which notice of such
proposed transfer was sent, as reflected in the closing sales price for the
Excess Shares, if then listed on a national securities exchange, or such price
for the Excess Shares on the principal exchange if then listed on more than one
national securities exchange, or, if the Excess Shares are not then listed on a
national securities exchange, the latest bid quotation for the Excess Shares if
then traded over-the-counter, or, if no such closing sales prices or quotations
are available, the fair market value as determined by the Trust Managers in good
faith. From and after the date fixed for purchase by the Trust Managers, so long
as payment of the purchase price for the Excess Shares to be so redeemed shall
have been made or duly provided for, the holder of such Excess Shares to be
purchased by the Company shall cease to be entitled to distributions, voting
rights and other benefits with respect to such Excess Shares except the right to
payment of the purchase price for the Excess Shares. Any dividend or
distribution paid to a proposed transferee on Excess Shares prior to the
discovery by the Company that such Excess Shares have been transferred in
violation of the provisions of the Charter, shall be repaid to the Company upon
demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such
Excess Shares and to hold such Excess Shares on behalf of the Company.
PREEMPTIVE RIGHTS
The Common Shares issued by the Company shall have no preemptive rights.
SHARE DISTRIBUTIONS
The Charter allows for the payment of Common Share distributions to be paid
in Common Shares of the Company, cash and property. The general effect of the
provision is to afford the Company greater flexibility in the means by which it
pays distributions to its shareholders. When making a determination of whether
to declare a distribution, the Trust Managers shall make the determination
consistent with their fiduciary duties as Trust Managers. However, no
distribution shall be declared or paid when the Company is unable to pay its
debts as they become due in the usual course of its business, or when the
payment of such distribution would result in the Company being unable to pay its
debts as they become due in the usual course of business.
REDEMPTION OF COMPANY SHARES
The Company may purchase or acquire its own shares, subject to the
limitations of the Texas REIT Act. The Texas REIT Act allows REITs formed
thereunder to redeem or purchase shares unless (i) after giving effect thereto,
the Company would be insolvent, or (ii) the amount paid therefor exceeds the
surplus of the Company. The term "surplus" is defined by reference to the Texas
Business Corporation Act as the excess of the net assets of a corporation over
its stated capital. Moreover, if the net assets of the Company are not less than
the proposed distribution, the Company may make a distribution to purchase or
redeem any of its shares if the purchase or redemption is made, for example, to
effect the purchase or redemption of redeemable shares
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<PAGE> 85
in accordance with the Texas REIT Act that requires rights of redemption to be
enumerated by a Texas REIT in its operative declaration of trust. The Charter
provision affords the Company a means of distributing assets of the Company by
acquiring outstanding Common Shares, as well as the ability to redeem shares in
transactions in which such a redemption may be beneficial to the Company and its
shareholders.
VOTING RIGHTS
Each shareholder is entitled at each meeting of shareholders to one vote on
each matter submitted to a vote at such meeting for each share having voting
rights registered in his name on the books of the Company at the time of the
closing of the share transfer books (or at the record date) for such meeting.
When a quorum is present at any meeting (and not withstanding the subsequent
withdrawal of enough shareholders to leave less than a quorum present), the
votes of a majority of the Common Shares entitled to vote, present in person or
by proxy, shall decide any matter submitted to such meeting, unless the matter
is one upon which by law or by express provision of the Charter or of the Bylaws
the vote of a greater number is required, in which case the vote of such greater
number shall govern and control the decision of such matter. In determining the
number of Common Shares entitled to vote, shares abstaining from voting or not
voted on a matter (including elections) will not be treated as entitled to vote.
CERTAIN PROVISIONS OF THE TEXAS REIT ACT AND OF
THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Texas law and the
Charter and Bylaws. The summary does not purport to be complete and reference is
made to Texas law and the Charter and Bylaws, copies of which are exhibits to
the registration statement of which this Prospectus is a part.
BOARD OF TRUST MANAGERS
The Bylaws provide that the number of Trust Managers of the Company may not
be fewer than two nor more than nine. In accordance with the terms of the
Charter and Bylaws, the Board of Trust Managers currently consists of five
persons. Trust Managers hold office until their successors are duly elected and
qualified or until their death, resignation or removal.
The Bylaws also provide that any vacancy (including a vacancy created by an
increase in the number of Trust Managers) may be filled by a majority of the
remaining Trust Managers or by a vote of the holders of at least a majority of
the outstanding Common Shares at an annual or special meeting of the
shareholders. In addition, the Bylaws also require the affirmative vote of a
majority of the outstanding Common Shares to elect new Trust Managers. Any Trust
Manager that has been previously elected as a Trust Manager by the shareholders
who is not re-elected by such majority vote at a subsequent annual meeting shall
nevertheless remain in office until his or her successor is elected and
qualified. The Charter and Bylaws require the affirmative vote of two-thirds of
the outstanding Common Shares to remove a Trust Manager, with or without cause.
BUSINESS COMBINATIONS
The Charter requires that except in certain circumstances, a Business
Combination (as defined below) between the Company and a Related Person (as
defined below) must be approved by the affirmative vote of the holders of 80% of
the outstanding Common Shares of the Company, including the affirmative vote of
the holders of not less than 50% of the outstanding Common Shares not owned by
the Related Person. However, the 50% voting requirement referred to is not
applicable if the Business Combination is approved by the affirmative vote of
the holders of not less than 80% of the outstanding Common Shares.
The Charter provides that a "Business Combination" is: (i) any merger or
consolidation, if and to the extent permitted by law, of the Company or a
subsidiary, with or into a Related Person; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of more than 35% of the book
value of the total assets of the Company and its subsidiaries (taken as a whole)
as of the end of the fiscal year ending prior to the time
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<PAGE> 86
the determination is being made, to or with a Related Person; (iii) the issuance
or transfer by the Company or a subsidiary (other than by way of a pro rata
distribution to all shareholders) of any securities of the Company or a
subsidiary of the Company to a Related Person; (iv) any reclassification of
securities (including any reverse Share split) or recapitalization by the
Company, the effect of which would be to increase the voting power of the
Related Person; (v) the adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of a Related Person which
involves any transfer of assets, or any other transaction, in which the Related
Person has any direct or indirect interest (except proportionally as a
shareholder); (vi) any series or combination of transactions having, directly or
indirectly, the same or substantially the same effect as any of the foregoing;
and (vii) and agreement, contract or other arrangement providing, directly or
indirectly, for any of the foregoing.
A "Related Person" generally is defined in the Charter to include any
individual, corporation, partnership or other person and the affiliates and
associates of any such individual, corporation, partnership or other person
which individually or together is the beneficial owner in the aggregate of more
than 50% of the outstanding Common Shares of the Company, except that an
individual, corporation, partnership or other person which individually or
together beneficially owned in excess of 20% of the outstanding Common Shares at
the time the Charter provision was adopted shall only be considered a Related
Person at such time as he, she, it or they acquire in the aggregate beneficial
ownership of more than 80% of the outstanding Common Shares.
The 80% and 50% voting requirements outlined above will not apply, however,
if: (i) the Trust Managers by a vote of not less than 80% of the Trust Managers
then holding office (a) have expressly approved in advance the acquisition of
Shares of the Company that caused the Related Person to become a Related Person
or (b) have expressly approved the Business Combination prior to the date on
which the Related Person involved in the Business Combination shall have become
a Related Person; or (ii) the Business Combination is solely between the Company
and another entity, 100% of the voting stock, shares or comparable interests of
which is owned directly or indirectly by the Company; or (iii) the Business
Combination is proposed to be consummated within one year of the consummation of
a Fair Tender Offer (as defined in the Charter) by the Related Person in which
Business Combination the cash or fair market value of the property, securities
or other consideration to be received per share by all remaining holders of
Common Shares of the Company in the Business Combination is not less than the
price offered in the Fair Tender Offer; or (iv) all of the following conditions
shall have been met: (a) the Business Combination is a merger or consolidation,
the consummation of which is proposed to take place within one year of the date
of the transaction pursuant to which such person became a Related Person and the
cash or fair market value of the property, securities or other consideration to
be received per share by all remaining holders of Common Shares of the Company
in the Business Combination is not less than the highest per-share price, with
appropriate adjustments for recapitalizations and for share splits and share
dividends, paid by the Related Person in acquiring any of its holdings of the
Company's Common Shares (a "Fair Price"); (b) the consideration to be received
by such holders is either cash or, if the Related Person shall have acquired the
majority of its holdings of the Company's Common Shares for a form of
consideration other than cash, in the same form of consideration with which the
Related Person acquired such majority; (c) after such person has become a
Related Person and prior to consummation of such Business Combination: (1) there
shall have been no reduction in the annual rate of dividends, if any, paid per
share on the Company's Common Shares (adjusted as appropriate for
recapitalizations and for share splits, reverse share splits and share
dividends), except any reduction in such rate that is made proportionately with
any decline in the Company's net income for the period for which such dividends
are declared and except as approved by a majority of the Trust Managers
continuing in office, and (2) such Related Person shall not have received the
benefit, directly or indirectly (except proportionately as a shareholder), of
any loans, advances, guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided by the Company prior to the
consummation of such Business Combination (other than in connection with
financing a Fair Tender Offer); and (d) a proxy statement that conforms in all
respects with the provisions of the Exchange Act and the rules and regulations
thereunder shall be mailed to holders of the Company's Common Shares at least 45
days prior to the consummation of the Business Combination for the purpose of
soliciting shareholder approval of the Business Combination; or (v) the Rights
(as hereinafter defined) shall have become exercisable.
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If a person has become a Related Person and within one year after the date
of the transaction pursuant to which the Related Person became a Related Person
(the "Acquisition Date"), (x) a Business Combination meeting all of the
requirements of clause (iv) above regarding the applicability of the 80% voting
requirement shall not have been consummated, and (y) a Fair Tender Offer shall
not have been consummated, and (z) the Company shall not have been dissolved and
liquidated, then, in such event the beneficial owner of each Common Share (not
including shares beneficially owned by the Related Person) (each such beneficial
owner being hereinafter referred to as a "Holder") shall have the right
(individually a "Right" and collectively the "Rights"), which may be exercised
subject to certain conditions, commencing at the opening of business on the
one-year anniversary date of the Acquisition Date and continuing for a period of
90 days thereafter (the "Exercise Period"), subject to certain extensions, to
sell to the Company on the terms set forth herein one Share upon exercise of
such Right. At 5:00 P.M., Dallas, Texas time, on the last day of the Exercise
Period, each Right not exercised shall become void, all rights in respect
thereof shall cease as of such time and the Certificates shall no longer
represent Rights.
SHAREHOLDER LIABILITY
Both the Texas REIT Act and the Bylaws provide that shareholders of the
Company shall not be liable personally or individually in any manner whatsoever
for any debt, act, omission or obligation incurred by the Company or Trust
Managers and shall be under no obligation to the Company or its creditors with
respect to his or her shares other than the obligation to pay to the Company the
full amount of the consideration for which his shares were issued. The Trust
Managers intend to conduct the operations of the Company in such a way as to
avoid, as far as practicable, the ultimate liability of the shareholders of the
Company.
TRUST MANAGER LIABILITY
Pursuant to the Texas REIT Act, the Charter provides that Trust Managers
shall be indemnified against all judgments, penalties (including excise and
similar taxes), fines, amounts paid in settlement and reasonable expenses
actually incurred by the Trust Manager in connection with any Proceeding (as
defined in the Charter) in which he or she was, is or is threatened to be named
defendant or respondent, or in which he or she was or is a witness without being
named a defendant or respondent, by reason, in whole or in part, of his or her
serving or having served, or having been nominated or designated to serve, as a
Trust Manager, to the fullest extent that indemnification is permitted by Texas
law in accordance with the Bylaws. This indemnification shall not be deemed
exclusive of, or to preclude, any other rights to which those seeking
indemnification may at any time be entitled under the Bylaws, any law, agreement
or vote of the shareholders or disinterested Trust Managers.
SPECIAL SHAREHOLDER MEETINGS
The Charter allows for the holders of 5% of the Common Shares to call a
special meeting. This provision was specifically adopted in light of the
Company's Excess Shares provisions, which generally limit the ownership of
Company Shares by persons to 9.8% of the Company's outstanding Common Shares.
The Texas REIT Act provides that holders of 10% of the Shares entitled to vote
may call a special meeting of a REIT formed under the Texas REIT Act unless the
declaration of trust for such REIT provides for a number of shares greater than
or less than 10% of the shares entitled to vote. Without this provision in the
Charter, the Texas REIT Act might prevent special meetings from ever being
called by shareholders of the Company in light of the Excess Shares provision,
which itself is necessary to protect the Company's continued qualification as a
REIT.
TERMINATION OF THE COMPANY
The Charter permits the termination of the Company and the discontinuation
of the operations of the Company by the affirmative vote of the holders of a
majority of the outstanding voting Common Shares.
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AMENDMENT OF CHARTER AND BYLAWS
The Charter may be amended from time to time by the affirmative vote of the
holders of at least two-thirds of the outstanding Common Shares. However,
certain provisions of the Charter that relate to Business Combinations, number
and removal of Trust Managers, certain investments and share ownership
requirements may not be amended or repealed, and provisions inconsistent
therewith may not be adopted, except by the affirmative vote of the holders of
at least 80% of the outstanding Common Shares. The Bylaws may be amended by an
affirmative vote of a majority of the Trust Managers. The Bylaws may also be
amended, to the extent not inconsistent with the Texas REIT Act and the Charter
and specified in the notice of the meeting, by an affirmative vote of two-thirds
of the outstanding Common Shares for Section 2.5 (business at the annual
meeting), 3.3 (election of Trust Managers), 3.4 (nomination of Trust Managers),
3.6 (removal of Trust Managers) and 3.7 (vacancies on the Board) or Article XI
(amendment of Bylaws), and a majority vote for all other provisions.
SHARES AVAILABLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have a total of
8,514,889 Common Shares outstanding, of which 914,889 Common Shares will
constitute "restricted" securities as that term is defined in Rule 144 as
promulgated under the Securities Act. Of the 914,889 shares, a total of 834,397
restricted shares will be eligible for sale in the public market pursuant to
Rule 144 immediately after the consummation of the Offering. Ninety days after
the consummation of the Offering, 78,092 Common Shares will be eligible for
resale pursuant to Rule 144 and Rule 701 as promulgated under the Securities
Act. An aggregate of 103,697 Common Shares, which are restricted securities, are
subject to 180 day lock-up agreements with the Underwriters. Of the 103,697
shares, 101,297 of such shares will be eligible for immediate resale upon
expiration of the 180 day lock-up period (or earlier with the consent of Morgan
Keegan & Company, Inc.). The remaining restricted shares will become eligible
for sale in the public market from time to time.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted securities from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquirer or subsequent holder thereof is entitled to sell
within any three-month period a number of Common Shares that does not exceed the
greater of 1% of the then-outstanding Common Shares or the average weekly
trading volume of the Common Shares on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to a certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. If two years
have elapsed since the date of acquisition of restricted securities from the
Company or from any "affiliate" of the Company, and the acquirer or subsequent
holder thereof is deemed not to have been an affiliate of the Company at any
time during the three months preceding a sale, such person would be entitled to
sell such Common Shares in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, public information
requirements or notice requirements of Rule 144.
In addition, Rule 144A as currently in effect, in general, permits
unlimited resales of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a discretionary basis
at least $100 million in securities or is a registered broker-dealer that owns
and invests at least $10 million in securities. Rule 144A allows the existing
shareholders of the Company to sell their Common Shares to such institutions and
registered broker-dealers without regard to any volume or other restrictions.
Unlike Rule 144, restricted securities sold under Rule 144A to non-affiliates do
not lose their status as "restricted securities."
The Investment Manager, the Trust Managers and certain officers of the
Company and the Company have agreed not to offer, sell, contract to sell or
otherwise dispose of any Common Shares for a period of 180 days from the closing
of the Offering, without the prior consent of Morgan Keegan & Company, Inc. The
Company has agreed that except under limited circumstances, it will not issue
Common Shares or securities
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convertible into Common Shares for a period of 180 days from the closing of the
Offering without the prior consent of Morgan Keegan & Company, Inc.
FEDERAL INCOME TAX CONSEQUENCES
The Company elected to be taxed as a REIT for Federal income tax purposes
commencing with its tax year ended December 31, 1989. The following general
summary of the Federal tax rules governing a REIT and its shareholders is based
on the Code, judicial decisions, Treasury Regulations, rulings and other
administrative interpretations, all of which are subject to change. Because many
provisions of the Code have been revised substantially by recent legislation,
very few judicial decisions, Treasury Regulations, rulings or other
administrative pronouncements have been issued interpreting many of the
revisions to the Code. Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. has acted as
counsel to the Company and has reviewed this summary and has rendered an opinion
that the description of the law and the legal conclusions contained herein are
correct in all material respects, and that the discussion hereunder fairly
summarizes the federal income tax considerations that are likely to be material
to the Company and a holder of a Common Share. However, Investors should be
aware that Congress continues to consider new tax bills. Accordingly, no
assurance can be given that future legislation, administrative regulations,
rulings, or interpretations or court decisions will not alter significantly the
tax consequences described below or that such changes or decisions will not be
retroactive. The Company has not requested, nor does it presently intend to
request, a ruling from the Internal Revenue Service (the "Service") with respect
to any of the matters discussed below. Because the provisions governing REITs
are complex, no attempt is made in the following discussion to discuss in detail
all of the possible tax consequences applicable to the Company or its
shareholders, including state tax laws. ACCORDINGLY, THIS DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING AND EACH PROSPECTIVE INVESTOR
IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH SPECIFIC REFERENCE TO HIS OR
HER OWN TAX SITUATION BEFORE PURCHASING COMMON SHARES.
GENERAL
In general, as long as the Company qualifies as a REIT, it will not be
subject to Federal income tax on income or capital gain that it distributes in a
timely manner to shareholders. The Company will, however, be subject to tax at
normal corporate rates upon any taxable income or capital gain not distributed.
In addition to the opinion filed as an exhibit to the registration
statement of which this Prospectus is a part, the Company and the Underwriters
will, prior to the closing of this offering, obtain an opinion of Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., counsel to the Company, that the Company has been
organized in conformity with the requirements for qualification as a REIT for
federal income tax purposes for the taxable year ending December 31, 1989, and
has continued to satisfy the requirements for qualification as a REIT through
the date of the opinion, and that its anticipated investments and its plan of
operation (which plan includes complying with all of the REIT requirements
described in this Prospectus) will enable it to continue to satisfy the
requirements for qualification as a REIT for federal income tax purposes. Unlike
a tax ruling (which will not be sought), an opinion of counsel, which is based
on counsel's review and analysis of existing law, is not binding on the Service.
Accordingly, no assurance can be given that the Service would not successfully
challenge the tax status of the Company as a real estate investment trust. It
must be emphasized that this opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters. In addition, this opinion is based upon the factual representations of
the Company concerning its business and properties as set forth in this
Prospectus and assumes that the actions described in this Prospectus are
completed in a timely fashion. Moreover, such qualification and taxation as a
REIT depends upon the Company's ability to meet, through actual annual operating
results, distribution levels, diversity of stock ownership, and the various
other qualification tests imposed under the Code discussed below, the results of
which will not be reviewed by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year will satisfy such requirements. See
"-- Failure to Qualify."
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If the Service successfully challenged the tax status of the Company as a
REIT, the Company's income and capital gains would become subject to Federal
income tax (including any applicable minimum tax) at corporate rates.
Consequently, the amount of after tax earnings available for distribution to
shareholders would decrease substantially. In addition, "net capital gain" (net
long-term capital gain in excess of net short-term capital loss) distributed by
the Company would be taxed as ordinary dividends to shareholders rather than as
long-term capital gain. The Company would not be eligible to re-elect REIT
status under the Code until the fifth taxable year beginning after the taxable
year in which it failed so to qualify, unless its failure to qualify was due to
reasonable cause and not to willful neglect and certain other requirements were
satisfied. Also, immediately prior to requalification as a REIT under the Code,
the Company could be taxed on any unrealized appreciation in its assets.
Qualification of the Company as a REIT for Federal tax purposes will depend
on its continuing to meet various requirements governing, among other things,
the ownership of its Common Shares, the nature of its assets, the sources of its
income, and the amount of its distributions to shareholders. Although the Trust
Managers and the Investment Manager intend to cause the Company to continue to
operate in a manner that will enable it to comply with such requirements, there
can be no certainty that such intention will be realized. In addition, because
the relevant laws may change, compliance with one or more of the REIT
requirements may be impossible or impractical.
REQUIREMENTS FOR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
Although the Company must meet certain qualifications to be a real estate
investment trust under the Texas REIT Act (see "Certain Provisions of the Texas
REIT Act and of the Company's Declaration of Trust and Bylaws"), the Company
must independently qualify as a REIT under the Code. To qualify as a REIT under
the Code, the Company must properly elect to be a real estate investment trust
and must satisfy various requirements in each taxable year. Generally, for
federal income tax purposes an entity will not qualify as a REIT unless it is a
corporation, trust or association (i) which is managed by one or more trustees
or directors; (ii) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest;
(iii) which would be taxable as a domestic corporation, but for Sections 856
through 859 of the Code; (iv) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or constructively, by five or fewer individuals (as defined
in the Code to include certain entities) (see "Requirements for Qualification as
a Real Estate Investment Trust -- Share Ownership"); and (vii) which meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (i) to (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. See "Requirements for Qualification as a
Real Estate Investment Trust -- Share Ownership". Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made to be
taxed as a REIT.
The Company believes that it will have issued sufficient shares pursuant to
this Offering to allow it to satisfy conditions (v) and (vi). In addition, the
Declaration of Trust provides for restrictions regarding the transfer and
ownership of shares, which restrictions are intended to assist the Company in
continuing to satisfy the share ownership requirements described in (v) and (vi)
above. Those restrictions may not ensure that the Company in all cases will be
able to satisfy the share ownership requirements described above. If the Company
fails to satisfy those share ownership requirements, the Company's status as a
REIT will terminate. See "-- Failure to Qualify". Pursuant to the Taxpayer
Relief Act of 1997, enacted August 5, 1997, starting with a REIT's first taxable
year that begins after August 5, 1997, a REIT that complies with Treasury
Regulations for ascertaining the ownership of its shares (see "Requirements for
Qualification as a Real Estate Investment Trust -- Share Ownership") and that
does not know or, exercising reasonable diligence would not have known, whether
it failed condition (vi) will be treated as meeting condition (vi). The
provisions of the Taxpayer Relief Act of 1997 will apply to each of the
Company's taxable years which begin after August 5, 1997.
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Share Ownership. (a) The beneficial ownership of Common Shares of the
Company must be held by a minimum of 100 persons for at least 335 days of a
taxable year consisting of 12 months (or a proportionate part of a taxable year
consisting of less than 12 full months), and (b) Common Shares representing no
more than 50% (by value) of the Company may be owned (directly or under rules of
constructive ownership prescribed by the Code) by five or fewer individuals at
any time during the last half of a taxable year (the "50% Shareholder Test").
Certain tax-exempt entities are treated as individuals for purposes of the 50%
Shareholder Test. In addition, the applicable constructive ownership rules
provide, among other things, that Common Shares held by a corporation,
partnership, trust or estate will be regarded as being held proportionately by
its shareholders, partners or beneficiaries, as the case may be, and Common
Shares owned by certain persons may be regarded as being owned by certain
members of their families. Common Shares held by a qualified pension plan will
be treated as held proportionately by its beneficiaries; however, Common Shares
held by a qualified pension plan will be treated as held by one individual if
persons related to the plan (such as the employer, employees, officers, or Trust
Managers) own in the aggregate more than 5% by value of the Common Shares and
the Company has accumulated earnings and profits attributable to any period for
which it did not qualify as a REIT.
To assure continued compliance with the 50% Shareholder Test, the Company's
Declaration of Trust prohibits any individual investor from acquiring an
interest in the Company such that the individual would own (or be deemed under
the applicable rules of constructive ownership to own) more than 9.8% of the
outstanding Common Shares, unless the Trust Managers (including a majority of
the independent Trust Managers) are provided evidence satisfactory to them in
their sole discretion that the qualification of the Company as a REIT will not
be jeopardized.
Treasury Regulations require the Company to maintain records of the actual
and constructive beneficial ownership of its Common Shares. Pursuant to the
Taxpayer Relief Act of 1997, if the Company fails to comply with regulations to
ascertain its ownership it will be subject to a penalty for failing to do so.
The penalty is $25,000 ($50,000 for intentional violations) for any year in
which the Company does not comply with the ownership regulations. The Company
will also be required, when requested by the IRS, to send curative demand
letters. In accordance with those Regulations, the Company must and will demand
from shareholders written statements concerning the actual and constructive
beneficial ownership of Common Shares. Any shareholder who does not provide the
Company with required information concerning share ownership will be required to
include certain information relating thereto with his income tax return.
Asset Diversification. At the close of each quarter of the taxable year, at
least 75% of the value of the Company's total assets must be represented by
"real estate assets" (which category includes interests in real property,
mortgages on real property and certain temporary investments), cash, cash items
and U.S. Government securities (the "75% Asset Test"). In addition, no more than
25% of the value of the Company's total assets may consist, in whole or in part,
of securities that do not qualify under the 75% Asset Test (the "25% Asset
Test"). Further, the value of any one issuer's securities owned by the Company
may not exceed 5% of the value of the Company's total assets (the "5% Asset
Test"), and the Company may not own more than 10% of any one issuer's voting
securities (the "10% Test"). If the Company is in violation of the foregoing
requirements (due to a discrepancy between the value of its investments and such
requirements) after the acquisition of any security or property, then the
Company will be treated as not violating the requirements if it cures the
violation within 30 days of the close of the quarter during which the Company
acquires such asset.
While the Investment Manager intends to manage the Company to meet the 75%
Asset Test, 25% Asset Test, 5% Asset Test and 10% Asset Test, no assurance can
be given that the Company will be able to do so.
The assets of the Company's wholly-owned subsidiaries will be attributable
directly to the Company for purposes of the asset diversification rules.
Additionally, the Company will be deemed to own a proportionate share (based
upon its capital interest) of the assets of any partnerships in which the
Company owns an interest.
Sources of Income. The Company must satisfy three distinct income-based
tests for each taxable year: the "75% Income Test," the "95% Income Test" and
the "30% Income Test."
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The 75% Income Test requires that at least 75% of the Company's gross
income (other than from certain "prohibited transactions") in each taxable year
consist of certain types of income identified in the Code, including qualifying
rents from real property; qualifying interest on obligations secured by
mortgages on real property or interests in real property; gain from the sale or
other disposition of real property (including interests in real property and
mortgages on real property) held for investment and not primarily for sale to
customers in the ordinary course of business; income and gain from certain
properties acquired by the Company through foreclosure; and income earned from
certain qualifying types of temporary investments. Income earned from qualifying
temporary investments means income that is (i) attributable to stock or debt
instruments, (ii) attributable to the temporary investment of capital received
by the Company from the issuance of shares of beneficial interest or from a
public offering of debt securities that have a maturity of at least five years,
and (iii) received or accrued within one year from the date the Company receives
such capital. Interest income and gain realized from the disposition of loans
which are secured solely by real property will constitute qualifying income for
purposes of the 75% Income Test, assuming that such interest income is not
excluded from the calculation of interest for purposes of the 75% Income Test by
reason of such interest being dependent on income or profits as described in
Code Section 856(f) and assuming that any such loan which is disposed of is held
for investment and not primarily for sale to customers in the ordinary course of
a trade or business.
Under the 95% Income Test, at least 95% of the Company's gross income
(other than from certain "prohibited transactions") in each taxable year must
consist of income which qualifies under the 75% Income Test as well as dividends
and interest from any other source, gain from the sale or other disposition of
Shares and other securities which is not dealer property, any payment to the
Company under an interest rate swap or cap agreement entered into as a hedge
against variable rate indebtedness incurred to acquire or carry real estate
assets, and any gain from the disposition of such an agreement.
Finally, under the 30% Income Test, the Company must limit its realization
of certain types of income so that, in each taxable year, less than 30% of its
gross income is derived from sale or other disposition of (a) Shares or
securities held for less than one year (which includes an interest rate swap or
cap agreement entered into by the Company as a hedge against any variable rate
indebtedness incurred to acquire or carry real estate assets), (b) with certain
limited exceptions, real property (including interests in and mortgages on real
property) held for less than four years and (c) property in a transaction
treated as a "prohibited transaction" under the Code. Pursuant to the Taxpayer
Relief Act of 1997, the 30% Income Test is eliminated, starting with a REIT's
first taxable year that begins after August 5, 1997.
The income of the Company's wholly-owned subsidiaries will be attributable
to the Company for purposes of the income tests described above. Additionally, a
proportionate share of the items of income of any partnership in which the
Company owns an interest will be attributable to the Company (based on the
Company's capital interest in any such partnership).
If the Company fails to meet the requirements of either or both the 75%
Income Test or the 95% Income Test in a taxable year but otherwise meets the
applicable requirements for qualification as a REIT, it may nevertheless
continue to qualify under the Code as a REIT if certain conditions are met.
While satisfaction of the conditions would prevent the Company from losing its
tax status as a REIT, the Company generally would be liable for a special tax
equal to 100% of the greater amount by which the Company fails the 75% Income
Test or the 95% Income Test. The Code does not provide for any mitigation
provisions with respect to the 30% Income Test. Accordingly, if the Company
failed to meet the 30% Income Test, if applicable, its tax status as a REIT
would terminate.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related
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Party Tenant"). Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an independent contractor from whom the REIT
derives no revenue, provided, however, the Company may directly perform certain
services that are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered "rendered to
the occupant" of the property. Moreover, pursuant to the Taxpayer Relief Act of
1997, income derived by a REIT from non-qualifying services provided to tenants
or from managing or operating a property which it owns will not be treated as
rent from real property unless such income does not exceed one percent of the
REIT's gross income from the property. The Company does not and will not (i)
charge rent for any property that is based in whole or in part on the income or
profits of any person (except by reason of being based on a percentage of
receipts or sales, as described above), (ii) rent any property to a Related
Party Tenant, (iii) derive rental income attributable to personal property
(other than personal property leased in connection with the lease of real
property, the amount of which is less than 15% of the total rent received under
the lease), or (iv) perform services considered to be rendered to the occupant
of the property (unless the income from those services qualifies as rent from
real property pursuant to the Taxpayer Relief Act of 1997) other than through an
independent contractor from whom the Company derives no revenue. The Company
believes that the aggregate amount of any non-qualifying income in any taxable
year will not exceed the limit on non-qualifying income under the gross income
tests.
Distribution Requirements. With respect to each taxable year, the Company
must distribute to shareholders an amount at least equal to the sum of 95% of
its "REIT taxable income," computed without regard to the dividends paid
deduction and by excluding any net capital gain ("net investment income"), and
95% of the excess of its net income from "foreclosure property" over the Federal
income tax imposed on such income, minus certain items of noncash income. As
noted under the caption "Distributions Policy," the Company distributes
substantially all of its net investment income annually. The Company likewise
distributes annually substantially all of its realized net capital gains. The
Service may waive the distribution requirements for any tax year if the Company
establishes that it was unable to meet such requirements by reason of
distributions previously made to meet the requirement of section 4981 of the
Code (relating to the 4% Federal excise tax on undistributed income discussed
below).
Unlike net investment income, the Company's net capital gain need not be
distributed in order for the Company to maintain its status under the Code as a
REIT; however, the Company will be taxable on any net capital gain and net
investment income which it fails to distribute in a timely manner. Pursuant to
the Taxpayer Relief Act of 1997, a REIT may elect to retain and pay income tax
on net long-term capital gains that it receives during a taxable year. If a REIT
makes this election, its shareholders are required to include in their income as
long-term capital gain their proportionate share of the undistributed long-term
capital gains so designated by the REIT. A shareholder will be treated as having
paid his or her share of the tax paid by the REIT in respect of long-term
capital gains so designated by the REIT, for which the shareholder will be
entitled to a credit or refund. In addition, the shareholder's basis in his or
her REIT shares will be increased by the amount of the REIT's designated
undistributed long-term capital gains that are included in the shareholder's
long-term capital gains, reduced by the shareholder's proportionate share of tax
paid by the REIT on those gains that the shareholder is treated as having paid.
The earnings and profits of the REIT will be reduced, and the earnings and
profits of any corporate shareholder of the REIT will be increased, to take into
account amounts designated by the REIT pursuant to this rule. A REIT must pay
its tax on its designated long-term capital gains within 30 days of the close of
any taxable year in which it designates long-term capital gains pursuant to this
rule, and it must mail a written notice of its designation to its shareholders
within 60 days of the close of the taxable year.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a shareholder's shares they will be included in income as long-term
capital gain (or short-term capital gain if the
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shares have been held for one year or less) assuming the shares are a capital
asset in the hands of the shareholder.
While the Company expects to meet its distribution requirements, its
ability to make distributions may be impaired if it has insufficient cash flow
or otherwise has excessive noncash income or nondeductible expenditures.
Furthermore, the distribution requirement may be determined not to have been met
in a given year by reason of the Service later successfully challenging the
deductibility of a Company expenditure. In such event, however, it may be
possible to cure a failure to meet the distribution requirement with a
"deficiency dividend," but if the Company uses that procedure, it may incur
substantial tax penalties and interest.
The Company will be subject to a nondeductible 4% Federal excise tax with
respect to undistributed ordinary income and capital gain net income unless it
also meets a calendar year distribution requirement. To meet this requirement,
the Company must, in general, distribute with respect to each calendar year an
amount equal to the sum of (a) 85% of its ordinary income (adjusted under the
Code for various items), (b) 95% of its capital gains in excess of its capital
losses (subject to certain adjustments) and (c) any ordinary income and capital
gain net income not distributed in prior calendar years. The Company intends to
make distributions to shareholders so that it will not incur this tax but, as
noted above, various situations could make it impractical to meet the prescribed
distribution schedule.
The Company is authorized to issue Preferred Shares. Should the Company do
so, and should the Company distribute a capital gain dividend while Preferred
Shares are outstanding, it may be required to designate a portion of dividends
entitled to be received by holders of the Preferred Shares as capital gain
dividends, thereby reducing the portion of total distributions paid to holders
of the Company's Common Shares which may be characterized as capital gains
dividends.
FEDERAL TAXATION OF THE COMPANY -- SPECIFIC ITEMS
Dispositions of Assets. The Company may realize a gain or loss on the
disposition of an asset that it owns. The gain or loss may be capital or
ordinary in character, depending upon a number of factors and the tax rules
governing the type of disposition involved.
If the Company were deemed to be holding property (such as real property or
loans) primarily for sale to customers in the ordinary course of business (i.e.,
as a "dealer"), then (a) any gains recognized by the Company upon the
disposition of such property would be subject to a 100% tax on prohibited
transactions and (b) depending on the composition of the Company's total gross
income, the Company could fail the 30% Income Test or the 75% Income Test for
qualification as a real estate investment trust.
Under existing law, whether property is held primarily for sale to
customers in the ordinary course of business must be determined from all the
facts and circumstances surrounding the particular property and sale in
question. The Company intends to hold all property for investment purposes and
to make occasional dispositions which are, in the opinion of the Trust Managers
and the Investment Manager, consistent with the Company's investment objectives
and in compliance with all the rules discussed above governing the qualification
of the Company for REIT status under the Code. Accordingly, the Company does not
expect to be treated as a "dealer" with respect to any of its assets. No
assurance, however, can be given that the Service will not take a contrary
position.
Alternative Minimum Tax. Under certain circumstances, the Company may be
subject to the alternative minimum tax on its items of tax preference.
Net Income From Foreclosure Property. If the Company has net income from
foreclosure property that is not otherwise qualifying income for REIT purposes,
it will be subject to tax on such income at the highest corporate rate.
Foreclosure property generally means real property (and any personal property
incident to such real property) which is acquired as a result of a default
either on a lease of such property or on indebtedness which such property
secured and with respect to which an appropriate election is made.
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PROPOSED LEGISLATION
President Clinton's budget proposal for 1999 includes several provisions
that would affect the tax treatment of REITs. Included among these provisions is
a call for a freeze on the grandfathered status of "stapled" or paired REITs.
Some REITs had previously bypassed certain REIT requirements, including the 95%
Income Test, by pairing or stapling REIT shares with management company shares.
These shares remained legally separate, but were traded as a pair. The Tax
Reform Act of 1984 changed the law governing REITs, and specified that entities
could no longer operate as stapled REITs. However, the law grandfathered several
entities which already were operating as stapled REITs. President Clinton has
also proposed that Code Section 856(c)(5)(B) be amended to prohibit REITs from
holding stock possessing more than 10 percent of the vote or value of all
classes of stock of a corporation. Further, another Clinton proposal would
impose an additional requirement for REIT qualification. Specifically, under the
Clinton proposal, no person could own stock of a REIT possessing more than 50%
of the total combined voting power of all classes of voting stock, or more than
50% of the total value of shares of all classes of stock.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to shareholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
TAXATION OF SHAREHOLDERS
Distributions by the Company of net investment income will be taxable to
shareholders as ordinary income to the extent of the current or accumulated
earnings and profits of the Company. Distributions of net capital gain, if any,
designated by the Company as capital gain dividends generally will be taxable to
shareholders as long-term capital gain, regardless of the length of time the
Common Shares have been held by the shareholders. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income pursuant to Section 291 of the Code. All
distributions are taxable, at least to the extent of the current or accumulated
earnings and profits of the Company, whether received in cash or invested in
additional Common Shares. Dividends declared by the Company in October, November
or December payable to shareholders of record on a date in such a month and paid
during the following January will be treated as having been received by
shareholders on December 31 in the year in which such dividends were declared.
Income (including dividends) from the Company normally will be characterized as
"portfolio" income (as opposed to "passive" income) for purposes of the tax
rules governing "passive" activities; accordingly, passive losses of the
shareholder may not be used to offset income derived by the shareholder from the
Company.
None of the distributions from the Company (as a REIT) received by
corporate shareholders, whether characterized as ordinary income or capital
gain, will qualify for the dividends received deduction generally available to
corporations.
The Company may be required to withhold and remit to the Service 31% of the
dividends paid to any shareholder who (a) fails to furnish the Company with a
properly certified taxpayer identification number, (b) has under reported
dividend or interest income to the Service or (c) fails to certify to the
Company that he is not subject to backup withholding. Any amount paid as backup
withholding will be creditable against the shareholder's income tax liability.
The Company will report to its shareholders and the Service the amount of
dividends paid during each calendar year and the amount of any tax withheld.
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In general, any gain or loss realized upon a taxable disposition of Common
Shares of the Company or upon receipt of a liquidating distribution by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the Common Shares have been held for more than one year
and as short-term capital gain or loss if the Common Shares have been held for
one year or less. The Taxpayer Relief Act of 1997 has changed the tax rates and
holding periods applicable to long-term capital gains of individuals. In
general, under applicable provisions of the Taxpayer Relief Act of 1997, which
are generally effective for taxable years ending after May 1, 1997, the maximum
tax rate applicable to net capital gains of individuals realized upon the sale
of property held for 18 months or more is 20% (10% for individuals in a tax
bracket below 28%), and the maximum tax rate on net capital gains of individuals
realized upon the sale of property for more than one year and for not more than
18 months is 28%. The taxpayer Relief Act of 1997 does not affect the taxation
of a corporation's capital gains. Because the tax rates and applicable holding
periods will vary depending upon a shareholder's individual circumstances,
investors should consult their own tax advisors concerning the effect of these
Taxpayer Relief Act of 1997 changes. If, however, the shareholder receives any
capital gain dividends with respect to Common Shares held six months or less,
any loss realized upon a taxable disposition of such Common Shares shall, to the
extent of such capital gain dividends, be treated as a long-term capital loss.
All or a portion of any loss realized upon a taxable disposition of Common
Shares of the Company may be disallowed if other Common Shares of the Company
are purchased (under a dividend reinvestment plan or otherwise) within 30 days
before or after the disposition.
DISCLOSURE REGARDING DIVIDEND REINVESTMENT PLAN
Shareholders participating in the DRIP will be deemed to have received the
gross amount of any cash distributions which would have been paid by the Company
to such shareholders had they not elected to participate. These deemed
distributions will be treated as actual distributions from the company to the
participating shareholders and will retain the character and tax effects
applicable to distributions from the Company generally. See "Taxation of Taxable
Domestic Shareholders" and "Taxation of Foreign Shareholders." Participants in
the DRIP are subject to federal income tax on the amount of the deemed
distributions to the extent that such distributions represent dividends or
gains, even though they receive no cash. Common Shares received under the DRIP
will have a holding period beginning with the day after purchase and a tax basis
equal to their cost (which is the gross amount of the deemed distribution).
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Except as noted below, based upon a revenue ruling issued by the Service,
dividend distributions by the Company to a shareholder that is a tax-exempt
entity should not constitute "unrelated business taxable income" ("UBTI"),
provided that the tax-exempt entity has not financed the acquisition of its
Common Shares with "acquisition indebtedness" within the meaning of the Code and
the Common Shares are not otherwise used in an unrelated trade or business of
the tax-exempt entity. However, if a tax-exempt entity borrows money to purchase
its Common Shares, a portion of its income from the Company will constitute UBTI
pursuant to the "debt-financed property" rules of the Code. Furthermore, social
clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts, and qualified group legal service organizations that are exempt
from taxation under Code Sections 501(c)(7), (9), (17) and (20), respectively,
are subject to different UBTI rules, which generally will require them to
characterize distributions from the Company as UBTI. Also, it should be noted
that dividend distributions by a REIT to an exempt organization that is a
private foundation should constitute investment income for purposes of the
excise tax on net investment income of private foundations imposed by Section
4940 of the Code. If an employee trust qualified under Code Section 401(a) (a
"qualified trust") owns more than 10% by value of the Common Shares in the
Company at any time during a tax year, then a portion of the dividends paid by
the Company to such trust may be treated as UBTI, but only if (i) the Company
would not have qualified as a REIT but for the provisions of the Code which
"look through" such a qualified trust for purposes of determining ownership of a
REIT and (ii) at least one qualified trust holds more than 25% (by value) of the
Common Shares in the Company or one or more qualified trusts (each of which
holds more than 10% of the Common Shares) hold in the aggregate more than 50%
(by value) of the Common Shares. If the Company were treated as a "taxable
mortgage pool," a substantial portion of the dividends paid to a tax-exempt
shareholder may be UBTI.
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Although the Company does not believe that the Company, or any portion of its
assets will be treated as a taxable mortgage pool, no assurance can be given
that the Service might not successfully maintain that such a taxable mortgage
pool exists.
Because of the complexity and variations of the UBTI rules, tax-exempt
entities should consult their own tax advisors.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "non-U.S. shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
non-U.S. shareholders should consult with their own tax advisors to determine
the impact of Federal, state and local income tax laws with regard to an
investment in Common Shares, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of "United States Real Property Interests" and not designated by the
Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Generally, such distributions will be subject to a
U.S. withholding tax equal to 30% of the gross amount of the distribution unless
an applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in the Common Shares is treated as effectively connected with the
non-U.S. shareholder's conduct of a United States trade or business, the
non-U.S. shareholder generally will be subject to a tax at graduated rates, in
the same manner as U.S. shareholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax in the case of a
shareholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends made to a non-U.S. shareholder unless (a) a lower treaty rate applies
and the non-U.S. shareholder files an IRS Form 1001 or (b) the non-U.S.
shareholder files an IRS Form 4224 with the Company claiming that the
distribution is effectively connected income. Any distributions in excess of
current and accumulated earnings and profits of the Company will not be taxable
to a non-U.S. shareholder to the extent that they do not exceed the adjusted
basis of the shareholder's Common Shares, but rather will reduce the adjusted
basis of such Common Shares. To the extent that such distributions exceed the
adjusted basis of a non-U.S. shareholder's Common Shares, they will give rise to
tax liability if the non-U.S. shareholder would otherwise be subject to tax on
any gain from the sale or disposition of his Common Shares, as described below.
If it cannot be determined at the time a distribution is made whether or not
such distribution will be in excess of current and accumulated earnings and
profits, the distributions will be subject to withholding at the same rate as
dividends. However, amounts thus withheld are refundable if it subsequently is
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a real estate investment
trust, distributions that are attributable to gain from sales or exchanges by
the Company of "United States real property interests" will be taxed to a
non-U.S. shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these
distributions are taxed to a non-U.S. shareholder as if such gain were
effectively connected with a United States business. Non-U.S. shareholders would
thus be taxed at the normal capital gain rates applicable to U.S. shareholders
(subject to applicable alternative minimum tax). Also, distributions subject to
FIRPTA may be subject to a 30% branch profits tax in the hands of a foreign
corporate shareholder not entitled to treaty exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that
could be designated by the Company as a capital gain dividend to the extent that
such capital gain dividends are attributable to the sale or exchange by the
Company of United States real property interests. This amount is creditable
against the non-U.S. shareholder's Federal tax liability. Fixed rate mortgage
loans will not normally be classified as "United States real property
interests."
Gain recognized by a non-U.S. shareholder upon a sale of Common Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled real estate investment trust," defined generally as
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a real estate investment trust in which at all times during a specified testing
period less than 50% in value of the Common Shares were held directly or
indirectly by non-U.S. persons. Additionally, gain recognized by a non-U.S.
shareholder upon a sale of Common Shares generally will not be taxed under
FIRPTA unless the shareholder beneficially owns more than 5% of the total fair
market value of the Common Shares at any time during the shorter of the
five-year period ending on the date of disposition or the period during which
the shareholder held the Common Shares. Gain not subject to FIRPTA will be
taxable to a non-U.S. shareholder if (a) investment in the Common Shares is
effectively connected with the non-U.S. shareholder's United States trade or
business, in which case the non-U.S. shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain or (b) the non-U.S.
shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year, in which case the
nonresident alien individual will be subject to a 30% tax on his U.S. source
capital gains. If the gain on the sale of Common Shares becomes subject to
taxation under FIRPTA, the non-U.S. shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals).
Subject to the provisions of any tax treaty that may exist between the
United States and the country in which the foreign holder is domiciled at the
time of his death, an individual foreign shareholder who owns Common Shares at
the time of his death will have the Common Shares subject to Federal estate tax.
The federal estate tax will be assessed on the fair market value of such Common
Shares at the time of the foreign holder's death.
OTHER TAXATION
Tax treatment of the Company and its shareholders under tax laws other than
those governing federal income tax may differ substantially from the Federal
income tax treatment described in this summary. CONSEQUENTLY, EACH PROSPECTIVE
SHAREHOLDER SHOULD CONSULT WITH HIS OWN TAX ADVISOR WITH REGARD TO THE STATE,
LOCAL AND OTHER TAX CONSEQUENCES (OTHER THAN FEDERAL TAX CONSEQUENCES) OF AN
INVESTMENT IN THE COMPANY.
ERISA CONSIDERATIONS
Because the Common Shares should qualify as a "publicly-offered security,"
plans subject to ERISA, IRAs and H.R.10 Plans ("Keogh Plans") may purchase
Common Shares and treat such Common Shares, and not the Company's assets, as
plan assets. A fiduciary of an ERISA Plan should consider the fiduciary
standards under ERISA in the context of the plan's particular circumstances
before authorizing an investment of a portion of such plan's assets in Common
Shares. Accordingly, among other factors, such fiduciary should consider (i)
whether the plan's aggregate investments (including such an investment) satisfy
the diversification requirements of Section 404(a)(1)(C) of ERISA, (ii) whether
the investment is in accordance with ERISA, the Code and the documents and
instruments governing the plan (as required by Section 404(a)(1)(D) of ERISA),
and (iii) whether the investment is prudent, considering the role such an
investment plays in the plan's portfolio, the nature of the Company's business,
the possible limitations on the marketability of Common Shares and the
anticipated earnings of the Company. Investors proposing to purchase Common
Shares for their IRAs and Keogh Plans should consider that an IRA and a Keogh
Plan may only make investments that are authorized by the appropriate governing
instruments. Moreover, Keogh Plans that cover Common law employees are also
subject to the ERISA fiduciary standards described above.
Any ERISA Plan or Keogh Plan covering Common law employees should also
consider prohibitions in ERISA relating to improper delegation of control over
or responsibility for "plan assets," prohibitions in ERISA and in the Code
relating to an ERISA Plan's engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to the plan, and other provisions in ERISA
dealing with "plan assets." The Code provisions relating to a plan's engaging in
certain transactions involving "plan assets" with persons who are "disqualified
persons" under the Code with respect to the plan also apply to IRAs and all
Keogh Plans.
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If the assets of the Company were deemed to be "plan assets" of plans that
are holders of Common Shares, Subtitle A and Parts 1 and 4 of Subtitle B of
Title I of ERISA (the prudence and fiduciary standards) with respect to ERISA
Plans and Keogh Plans covering Common law employees, and Section 4975 of the
Code (the prohibitions on transactions involving disqualified persons) with
respect to ERISA Plans, IRAs and Keogh Plans, would extend to transactions
entered into and decisions made by the Company's management. Furthermore, the
Company's management would be deemed to be fiduciaries with respect to such
plans.
ERISA and the Code do not define "plan assets." On November 13, 1986, the
U.S. Department of Labor published a final regulation, amended on December 31,
1986 and effective March 13, 1987, relating to the definition of "plan assets,"
under which the assets of an entity in which employee benefits plans, including
ERISA Plans, IRAs and Keogh Plans, acquire interests would be deemed "plan
assets" under certain circumstances (the "Regulation"). The Regulation generally
provides that when a plan acquires an equity interest in an entity which is a
"publicly-offered security," the plan's assets include only the acquired equity
interest and not any interest in the underlying assets of the entity. The
Regulation defines a "publicly-offered security" as a security that is "widely
held," freely transferable and registered pursuant to certain provisions of the
Federal securities laws. The Company believes that the Common Shares offered
hereby will be a "publicly-offered security," and thus that the Company's assets
will not be deemed to be assets of any employee benefit plan that is a holder of
Common Shares.
FIDUCIARIES OF EMPLOYEE BENEFIT PLANS THAT ARE PROSPECTIVE SHAREHOLDERS
SHOULD CONSULT WITH THEIR OWN COUNSEL AND FINANCIAL ADVISORS TO DETERMINE THE
CONSEQUENCES UNDER ERISA OF AN INVESTMENT IN THE COMPANY, AND TO DETERMINE THE
PROPRIETY OF SUCH AN INVESTMENT IN LIGHT OF THE CIRCUMSTANCES OF THAT PARTICULAR
PLAN AND CURRENT APPLICABLE LAW.
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement (the
"Underwriting Agreement") entered into between the Company and the underwriters
named below (the "Underwriters"), each of the Underwriters, for whom Morgan
Keegan & Company, Inc., Dain Rauscher Incorporated, Scott & Stringfellow, Inc.
and Southwest Securities, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Company, and the
Company has agreed to sell to the Underwriters, the respective number of Common
Shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON SHARES
----------- -------------
<S> <C>
Morgan Keegan & Company, Inc. ..............................
Dain Rauscher Incorporated .................................
Scott & Stringfellow, Inc. .................................
Southwest Securities, Inc. .................................
---------
Total............................................. 7,600,000
=========
</TABLE>
The Company has directed the Underwriters to reserve 80,000 Common Shares
offered in this Offering for sale to officers, Trust Managers and other related
persons and organizations.
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel, and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above Common Shares if any are purchased.
The Underwriters propose to offer the Common Shares in part directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and in part to certain securities dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may re-allow, concessions not in excess of $ per share
to certain other dealers. After the Common
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Shares are released for sale to the public, the offering price and other selling
terms may be changed by the Underwriters from time to time.
Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price will be determined through
negotiations between the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price of the Common
Shares will be prevailing market and economic conditions, dividend yields and
financial characteristics of publicly-traded REITs that the Company and the
Representatives believe to be comparable to the Company, an assessment of the
Company's management, the expected results of operations of the Company and the
Properties, estimates of the future business potential and earnings prospects of
the Company as a whole and the current state of the real estate market in the
Company's target markets.
Until the distribution of the Common Shares is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Shares. As an exception to these
rules, the Representative is permitted to engage in certain transactions that
stabilize the price of the Common Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Shares.
If the Underwriters create a short position in the Common Shares in
connection with this offering, that is, if they sell more Common Shares than are
set forth on the cover page of this Prospectus, the Representatives may reduce
that short position by purchasing Common Shares in the open market. The
Representatives also may elect to reduce any short position by exercising all or
part of the over-allotment option described below.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
Common Shares in the open market to reduce the Underwriters' short position or
to stabilize the price of the Common Shares, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Common Shares. In addition,
neither the Company nor any of the Underwriters makes any representations that
the Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 1,140,000
additional Common Shares solely to cover overallotments, if any. If the
Underwriters exercise their overallotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of Common Shares to be purchased by each
of them, as shown in the table above, bears to the 7,600,000 Common Shares
offered hereby.
The Representatives of the Underwriters have informed the Company that they
do not expect the Underwriters to confirm sales of Common Shares offered hereby
to accounts over which they exercise discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses including liabilities under the Securities Act.
The Company has agreed that it will not offer, sell, grant any option
(other than pursuant to the Plan) for the sale of, or otherwise dispose of any
shares or any securities convertible into or exchangeable for, or rights to
purchase or acquire Common Shares, for a period of 180 days after the date
hereof without the prior written consent of Morgan Keegan & Company, Inc. Such
restriction shall not apply, however, to Common Shares
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issued in exchange for real property or to Common Shares issued in exchange for
units in any operating partnership controlled by the Company, if such Common
Shares are subject to a restriction on transferability of at least six (6)
months. In addition, the officers and Trust Managers of the Company have agreed
with the Underwriters not to offer, sell or otherwise dispose of any Common
Shares for a period of 180 days after the date hereof without the prior written
consent of Morgan Keegan & Company, Inc.
A fee of $284,000 has been earned by Southwest Securities, Inc. for
providing financial services in connection with the Offering, including the
procurement of the bridge loan, of which $100,000 has been paid and the balance
of $184,000 will be paid from the proceeds of the Offering.
LEGAL MATTERS
The legality of the Common Shares offered hereby and certain tax matters
will be passed upon for the Company by Liddell, Sapp, Zivley, Hill & LaBoon,
L.L.P., Dallas, Texas. Certain legal matters will be passed on for the
Underwriters by Winstead Sechrest & Minick P.C., Dallas, Texas.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1997 and
1996, the consolidated statements of operations, changes in redeemable preferred
shares and common shareholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1997, financial statement schedule III
as of December 31, 1997 and the statements of revenue and certain expenses for
Benchmark Crossing, Hedwig Centers, The Market at First Colony, Mason Park,
Rosemeade Park, Southwest/Walgreens, Town 'N Country, and University Mall for
the year ended December 31, 1997, have been included herein and in the
registration statement in reliance upon the reports of Ernst & Young LLP,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing. The reports on the statements of
revenue and certain expenses for Benchmark Crossing, Hedwig Centers, The Market
at First Colony, Mason Park, Rosemeade Park, Southwest/Walgreens, Town 'N
Country, and University Mall contain a paragraph that states that the statement
of revenue and certain expenses was prepared for the purpose of complying with
the rules and regulations of the Commission, as described in Note 1 to the
statements of revenue and certain expenses. It is not intended to be a complete
presentation of revenue and expenses of Benchmark Crossing, Hedwig Centers, The
Market at First Colony, Mason Park, Rosemeade Park, Southwest/Walgreens, Town 'N
Country, and University Mall.
On October 29, 1997, the Company dismissed Coopers & Lybrand L.L.P. as its
independent accountants. Coopers & Lybrand's reports on the financial statements
for the past two years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. The decision to dismiss Coopers & Lybrand was unanimously
approved by the Trust Managers. During the second quarter of 1997, the Company
and Coopers & Lybrand disagreed as to the accounting treatment of the
approximately $17,000 paid to Daniel M. Jones, III in consulting fees. The
Company believed that such fees should be recorded as Offering costs whereas
Coopers & Lybrand advised that they should be expensed. The consulting fee is
being accounted for as recommended by Coopers & Lybrand. This issue was
discussed by Coopers & Lybrand and management of the Company. The Company has
authorized Coopers & Lybrand to respond fully to the inquiries of Ernst & Young
LLP concerning the subject matter of the disagreement. There were no other
disagreements or "reportable events" during the two most recent fiscal years and
the interim period preceding the dismissal of Coopers & Lybrand.
Ernst & Young LLP was engaged by the Company on October 29, 1997. During
fiscal 1996 and through October 29, 1997, the Company did not consult Ernst &
Young LLP regarding the application of accounting principles to a specified
transaction or any audit opinion.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, with respect to the Common Shares offered pursuant to
this Prospectus. This Prospectus, which is part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and financial statement schedules thereto. For further
information with respect to the Company and the Common Shares offered hereby,
reference is made to the Registration Statement and such exhibits and financial
statement schedules, copies of which may be examined without charge at, or
obtained upon payment of prescribed fees from the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding the Company and other registrants that have been filed
electronically with the Commission. The address of such site is
http://www.sec.gov. The Company's Registration Statement and the exhibits
thereto are accessible on the Commission's web site.
The Company will be required to file reports and other information with the
Commission pursuant to the Exchange Act. In addition to applicable legal or
requirements, if any, holders of the Common
Shares will receive annual reports containing audited financial statements with
a report thereon by the Company's independent certified public accountants, and
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
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GLOSSARY
"Acquisition Properties" means The Market at First Colony, Hedwig Shopping
Centers, Benchmark Crossing, University Mall Shopping Center, Mason Park Centre,
Rosemeade Park Shopping Center, Town 'N Country Plaza and Southwest/Walgreen's
Shopping Center.
"ADA" means the Americans with Disabilities Act of 1990.
"Advisory Agreement" means the Amended and Restated Advisory Agreement
dated as of June 9, 1997, by and between the Company and the Investment Manager.
"Advisory Funds From Operations" means Funds From Operations plus annual
interest payments on outstanding indebtedness and the fee payable to the
Investment Manager.
"Board of Trust Managers" means the Company's Board of Trust Managers.
"Bylaws" means the Company's Amended and Restated Bylaws.
"Cash Available for Distribution" is defined as net income (loss) as
computed in accordance with GAAP, excluding gains and losses from debt
restructuring and property sales, plus depreciation and amortization, less
capital expenditures.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Charter" means the Company's Amended and Restated Declaration of Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the Company's common shares of beneficial interest,
no par value per share.
"Company" means United Investors Realty Trust, a Texas real estate
investment trust.
"DRIP" means the Company's Dividend Reinvestment Plan to be implemented by
the Company upon consummation of the Offering.
"EPS" means earnings per share.
"ERISA" means the Employee Retirement Income Securities Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excess Shares" means the shares into which shares of capital stock of the
Company owned, or deemed to be owned or transferred to the shareholders in
excess of the Ownership Limit will be automatically exchanged.
"FCMT" means First Commonwealth Mortgage Trust.
"Funds From Operations" means net income (loss) computed in accordance with
GAAP, excluding gains or losses from debt restructuring and sales of property,
plus real estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures.
"GAAP" means generally accepted accounting principles in effect at date of
the Offering.
"GLA" means gross leasable area.
"Gross Receipts" means the gross revenues generated by the Company during a
period of time from operations, including rents, percentage rents, tenant
reimbursements, interest and income, but excluding receipts from capital
transactions, including sales, financings, refinancings and the sale of equity
securities.
"ICSC" means International Council of Shopping Centers.
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"Investment Manager" means FCA Corp, an affiliate of the Company, that
provides investment and management services to the Company pursuant to the terms
of the Advisory Agreement.
"Investment Advisors Act" means the Investments Advisors Act of 1974, as
amended.
"IRA" means an individual retirement account.
"Ivy" means Ivy Realty Trust, an affiliate of the Company.
"Keogh Plans" means plans subject to ERISA, IRAs and H.R. 10 Plans.
"Named Executive Officers" means Lewis H. Sandler, Daniel M. Jones, III and
Randall D. Keith, collectively.
"NAREIT" means National Association of Real Estate Investment Trusts.
"9% Preferred Shares" means the Company's 9% Convertible Preferred Shares,
Series 1995, par value $100 per share.
"Offering" means the initial public offering of the Common Shares as
described in this Prospectus.
"Original Properties" means Autobahn Shopping Center, Bandera Festival
Shopping Center, Centennial Shopping Center, Twin Lakes Shopping Center,
University Park Shopping Center, McMinn Plaza Shopping Center, Park Northern
Shopping Center and El Campo Shopping Center.
"Ownership Limit" means the restriction contained in the Charter providing
that, subject to certain exemptions, the holder may not own or be deemed to own,
by virtue of attribution rules of the Code, more than 9.8% of the total
outstanding Trust Shares.
"Partnership" means Park Northern/Centennial Partners L.P.
"Plan Agent" means the agent for the DRIP.
"Plan" means the Company's 1997 Share Incentive Plan.
"Plan Participants" means those executive officers, Trust Managers and key
employees of the Company and the Investment Manager awarded grants under the
Plan.
"Preferred Shares" means the Company's preferred shares of beneficial
interest, of which 20,000 shares are authorized to be issued with a $100 par
value per share, the remainder to be issued at no par value.
"Properties" means the Acquisition Properties and the Original Properties,
collectively.
"REIT" means a real estate investment trust, as defined by Sections 856
through 860 of the Code.
"Service" means the Internal Revenue Service.
"Securities Act" means the Securities Act of 1933, as amended.
"SFAS" means Statement of Financial Accounting Standards.
"SWP" means South West Property Trust, Inc.
"Termination Fee" means the fee payable to the Investment Manager under
certain circumstances upon termination of the Advisory Agreement.
"Texas REIT Act" means the Texas Real Estate Investment Trust Act.
"Total Market Capitalization" means the total number of Common Shares and
Preferred Shares outstanding times the current market price of such shares plus
long-term debt.
"Triple Net Lease" means a lease under which a tenant pays, in addition to
base rent, its pro rata share of the shopping centers common area maintenance
expenses, real estate taxes, insurance expenses and utilities.
"Trust Shares" means, collectively, the Common Shares and the Preferred
Shares.
"UDR" means United Dominion Realty Trust, Inc.
98
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES -- PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Introduction to Pro Forma Condensed Consolidated Financial
Statements............................................. F-3
Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1997...................................... F-4
Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1997................... F-5
Notes to Pro Forma Condensed Consolidated Financial
Statements............................................. F-6
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES -- FINANCIAL
STATEMENTS
Report of Independent Auditors............................ F-9
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-10
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995....................... F-11
Consolidated Statements of Redeemable Preferred Shares and
Common Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995....................... F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995....................... F-13
Notes to Consolidated Financial Statements................ F-14
FINANCIAL STATEMENT SCHEDULE
Schedule III -- Real Estate and Accumulated Depreciation
as of December 31, 1997................................ F-23
Notes to Schedule III..................................... F-24
ACQUISITION PROPERTIES -- STATEMENTS OF REVENUE AND CERTAIN
EXPENSES
BENCHMARK CROSSING
Report of Independent Auditors............................ F-25
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-26
Notes to Statement of Revenue and Certain Expenses........ F-27
HEDWIG CENTERS
Report of Independent Auditors............................ F-29
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-30
Notes to Statement of Revenue and Certain Expenses........ F-31
MARKET AT FIRST COLONY
Report of Independent Auditors............................ F-33
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-34
Notes to Statement of Revenue and Certain Expenses........ F-35
MASON PARK
Report of Independent Auditors............................ F-37
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-38
Notes to Statement of Revenue and Certain Expenses........ F-39
ROSEMEADE PARK
Report of Independent Auditors............................ F-41
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-42
Notes to Statement of Revenue and Certain Expenses........ F-43
SOUTHWEST WALGREENS
Report of Independent Auditors............................ F-45
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-46
Notes to Statement of Revenue and Certain Expenses........ F-47
</TABLE>
F-1
<PAGE> 106
TOWN 'N COUNTRY
Report of Independent Auditors............................ F-49
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-50
Notes to Statement of Revenue and Certain Expenses........ F-51
UNIVERSITY MALL
Report of Independent Auditors............................ F-53
Statement of Revenue and Certain Expenses for the year
ended December 31, 1997................................ F-54
Notes to Statement of Revenue and Certain Expenses........ F-55
F-2
<PAGE> 107
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION:
The unaudited pro forma condensed consolidated balance sheet as of December
31, 1997 is presented as if the Acquisition Transactions, the Offering, and the
application of the net proceeds of the Offering all had occurred on December 31,
1997. The pro forma condensed consolidated statement of operations for the year
ended December 31, 1997 is presented as if the such transactions all had
occurred on January 1, 1997.
The pro forma condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements of United Investors
Realty Trust ("UIRT"), including the notes thereto, included elsewhere in the
Prospectus. The pro forma condensed consolidated financial statements do not
purport to represent the Company's financial position of December 31, 1997 that
would actually have occurred had such transactions all been completed on
December 31, 1997 or at the beginning of the period presented, or to project the
Company's financial position or results of operations as of any future date or
for any future period.
F-3
<PAGE> 108
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
UNITED INVESTORS PRO FORMA TOTAL
REALTY TRUST ADJUSTMENTS PRO FORMA
---------------- ------------ ------------
<S> <C> <C> <C>
Investment real estate:
Land...................................... $ 8,118,723 $ 10,810,200(A) $ 18,928,923
Buildings and improvements................ 31,616,008 61,257,800(A) 93,055,790
181,982(B)
----------- ------------ ------------
39,734,731 72,249,982 111,984,713
Less accumulated depreciation............. (4,861,957) (4,861,957)
----------- ------------ ------------
Investment real estate, net............ 34,872,774 72,249,982 107,122,756
Cash and cash equivalents................... 346,149 (45,845,719)(A) 3,560,906
(1,753,000)(B)
73,615,500(C)
(1,105,911)(D)
(3,225,000)(E)
(212,400)(F)
(16,305,213)(G)
(1,953,500)(H)
Accounts receivable, net.................... 797,696 797,696
Prepaid expenses and other assets........... 3,270,350 (2,255,000)(A) 1,015,350
----------- ------------ ------------
Total assets...................... $39,286,969 $ 73,209,739 $112,496,708
=========== ============ ============
LIABILITIES, MINORITY INTEREST, REDEEMABLE PREFERRED SHARES
AND COMMON SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................... $24,926,499 $ 23,967,281(A) $ 32,832,881
(16,060,899)(G)
Redeemable convertible subordinated
notes.................................. 212,400 (212,400)(F) --
Short-term notes and lines of credit...... 3,225,000 (3,225,000)(E) --
Accounts payable and accrued expenses..... 1,322,739 1,322,739
Security deposits......................... 106,494 106,494
----------- ------------ ------------
Total liabilities................. 29,793,132 4,468,982 34,262,114
----------- ------------ ------------
Minority interest in real estate joint
ventures.................................. 1,571,018 (1,571,018)(B) --
----------- ------------ ------------
Redeemable preferred shares of beneficial
interest, $100 par value, 50,000,000
shares authorized, 10,737 shares issued
and outstanding at December 31, 1997...... 1,068,226 (1,068,226)(D) --
----------- ------------ ------------
Common shareholders' equity:
Common shares of beneficial interest, no
par value, 500,000,000 shares
authorized, 914,889 shares issued and
outstanding at December 31, 1997....... 8,345,077 73,615,500(C) 81,960,577
Accumulated deficit....................... (1,490,484) (1,953,500)(H) (3,725,983)
(37,685)(D)
(244,314)(G)
----------- ------------ ------------
Total common shareholders'
equity.......................... 6,854,593 71,380,001 78,234,594
----------- ------------ ------------
Total liabilities, minority
interest, redeemable preferred
shares and common shareholders'
equity.......................... $39,286,969 $ 73,209,739 $112,496,708
=========== ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 109
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNITED INVESTORS PRO FORMA TOTAL
REALTY TRUST ADJUSTMENTS PRO FORMA
---------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Base rents..................................... $4,954,820 $ 8,419,326(J) $13,374,146
Percentage rents............................... 26,400 266,930(J) 293,330
Expense reimbursements......................... 1,167,355 2,669,388(J) 3,836,743
Interest and other income...................... 27,278 21,809(J) 49,087
---------- ----------- -----------
Total revenues......................... 6,175,853 11,377,453 17,553,306
---------- ----------- -----------
Property operating expenses:
Operating and maintenance...................... 754,703 1,488,112(J) 2,242,815
Real estate taxes.............................. 793,359 1,565,940(J) 2,359,299
General and administrative..................... 179,933 153,844(J) 333,777
---------- ----------- -----------
1,727,995 3,207,896 4,935,891
---------- ----------- -----------
4,447,858 8,169,557 12,617,415
Other expenses
Advisor and trustee fees....................... 345,000 457,822(L) 802,822
Stock grants to Advisor and officers........... 787,500 -- 787,500
Other.......................................... 204,829 -- 204,829
Interest....................................... 2,435,538 494,440(O) 2,929,978
Depreciation, amortization and ground leases... 1,309,180 2,041,927(J) 3,351,107
---------- ----------- -----------
Total other expenses................... 5,082,047 2,994,189 8,076,236
---------- ----------- -----------
Income (loss) before minority interest and
preferred share dividend requirements.......... (634,189) 5,175,368 4,541,179
Minority interest in net income of real estate
ventures....................................... (40,894) 40,894(M) --
---------- ----------- -----------
Income (loss) before preferred share dividend
requirements................................... (675,083) 5,216,262 4,541,179
Preferred share dividend requirements............ (96,633) 96,633(N) --
---------- ----------- -----------
Net income (loss) available for common
shareholders................................... $ (771,716) $ 5,312,895 $ 4,541,179
========== =========== ===========
Net income (loss) per common share (basic and
diluted)....................................... $ (.85) $ .53
========== ===========
Weighted average shares outstanding.............. 912,493 8,512,493
========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 110
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The pro forma adjustments to the Pro Forma Condensed Consolidated Balance
Sheet as of December 31, 1997 are as follows:
<TABLE>
<S> <C> <C>
(A) Acquisition of Acquisition Properties (land)................ $ 10,810,200
Acquisition of Acquisition Properties (improvements)........ 61,257,800
------------
$ 72,068,000
============
Escrow...................................................... $ (2,255,000)
Cash........................................................ (45,845,719)
Mortgage notes payable...................................... (23,967,281)
------------
$(72,068,000)
============
(B) Minority interests.......................................... 1,571,018
Cash........................................................ (1,753,000)
------------
Acquisition of property from minority interests............. $ 181,982
============
(C) Sale of 7,600,000 shares of beneficial interest............. $ 79,800,000
Costs associated with sale of shares........................ (6,184,500)
------------
$ 73,615,500
============
(D) Redeem preferred shares..................................... $ 1,068,226
Accumulated deficit (redemption premium).................... 37,685
------------
Cash........................................................ $ (1,105,911)
============
(E) Repay short term notes...................................... $ 3,225,000
============
(F) Redeem convertible subordinated notes....................... $ 212,400
============
(G) Repay existing mortgage notes............................... $ 16,060,899
Accumulated deficit (prepayment fees)....................... 244,314
------------
Cash........................................................ $(16,305,213)
============
(H) Accumulated deficit (pay bridge loan financing fees)........ $ 1,953,500
============
</TABLE>
F-6
<PAGE> 111
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The pro forma adjustments to the Pro Forma Condensed Consolidated Statement
of Operations for the year ended December 31, 1997, are as follows:
<TABLE>
<S> <C> <C>
(J) Acquisition of Acquisition Properties:
Base rents................................................ 8,419,326
Percentage rents.......................................... 266,930
Expense reimbursements.................................... 2,669,388
Other income.............................................. 21,809
Operating and maintenance................................. 1,488,112
Real estate taxes......................................... 1,565,940
General and administrative................................ 153,844
Depreciation and amortization............................. 2,041,927
(K) Decrease in interest expense related to repayment of
mortgage debt and lines of credit........................... $ 1,644,257
===========
(L) Increase in Advisory Fees related to revenue from
Acquisition Properties and amendment of advisory
agreement................................................... $ 457,822
===========
(M) Decrease in minority interest in earnings of consolidated
partnerships................................................ $ 40,894
===========
(N) Decrease in preferred dividends related to redemption of
preferred shares............................................ $ 96,633
===========
(O) Interest expense; net pro forma adjustment to interest
expense is comprised of the following:
Decrease in interest related to mortgage and other loans
to be repaid with IPO proceeds.......................... $(1,644,257)
Interest on mortgage loans to be assumed.................. 2,138,697
-----------
Total pro forma adjustment................................ $ 494,440
===========
</TABLE>
NOTE 3 -- RENTAL INCOME FROM ACQUISITION PROPERTIES
The statements of revenue and certain expenses of the Acquisition
Properties included elsewhere in this registration statement present rental
revenue adjusted for scheduled increases from the inception of the respective
lease agreements. The pro forma adjustments to rental revenue included in the
unaudited pro forma condensed consolidated statement of operations recognize
anticipated remaining rental receipts as of January 1, 1997 (pursuant to
executed lease agreements) ratably over the remaining terms of the respective
leases.
NOTE 4 -- ADVISORY AGREEMENT
In conjunction with the Offering, the Company will amend its agreement with
the Advisor to change the method by which the advisory fee is calculated. Under
the new and old methods, the pro forma advisory fee for the year ended December
31, 1997 would be approximately $770,000 and $904,000, respectively.
F-7
<PAGE> 112
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
Pro forma principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998............................................. $ 565,500
1999............................................. 4,132,364
2000............................................. 635,791
2001............................................. 691,022
2002............................................. 745,426
Thereafter......................................... 26,056,778
-----------
$32,832,881
===========
</TABLE>
NOTE 6 -- EARNINGS PER SHARE
Pro forma weighted average basic and diluted common shares outstanding is
consolidated as follows:
<TABLE>
<CAPTION>
PRO FORMA SHARES
WEIGHTED AVERAGE
OUTSTANDING
DECEMBER 31, 1997
<S> <C>
Total shares issued and outstanding at December 31, 1996.... 837,489
Offering of 7,600,000 shares assumed January 1, 1997........ 7,600,000
Grant of 75,000 shares on December 30, 1997 (assumed January
1, 1997).................................................. 75,000
Grant of 2,400 shares on December 30, 1997.................. 4
----------
Basic and Diluted Weighted Average Shares
Outstanding..................................... 8,512,493
==========
</TABLE>
NOTE 7 -- NON-RECURRING CHARGES
Pro forma accumulated deficit as of December 31, 1997 is increased for the
amount of loan fees and other costs related to obtaining, funding, and repaying
the Bridge Loan ($1,953,500); fees related to mortgage debt prepayments
($244,314); and the premium paid to preferred share owners related to redemption
of such shares.
F-8
<PAGE> 113
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of United
Investors Realty Trust and Subsidiaries (the "Company") as of December 31, 1997
and 1996 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997 and the financial statement schedule listed in the index on page F-1.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United
Investors Realty Trust and Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-9
<PAGE> 114
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Investment real estate (Note 2):
Land...................................................... $ 8,118,723 $ 8,118,723
Buildings and improvements................................ 31,616,008 31,209,206
----------- -----------
39,734,731 39,327,929
Less accumulated depreciation............................. (4,861,957) (3,767,720)
----------- -----------
Investment real estate, net............................... 34,872,774 35,560,209
Cash and cash equivalents................................... 346,149 119,316
Accounts receivable, net of allowance of $41,771 and $31,209
for 1997 and 1996, respectively........................... 797,696 885,157
Prepaid expenses and other assets (Notes 7 and 10).......... 3,270,350 303,332
Investment in real estate venture (Note 5).................. -- 333,759
----------- -----------
Total assets...................................... $39,286,969 $37,201,773
=========== ===========
LIABILITIES, MINORITY INTEREST, REDEEMABLE
PREFERRED SHARES AND COMMON SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable (Note 3)........................... $24,926,499 $25,590,592
Redeemable convertible subordinated notes (Note 3)........ 212,400 212,400
Short-term notes and lines of credit (Note 3)............. 3,225,000 740,000
Accounts payable -- trade................................. 552,996 250,848
Accrued property taxes.................................... 769,743 500,918
Security deposits......................................... 106,494 112,101
----------- -----------
Total liabilities................................. 29,793,132 27,406,859
----------- -----------
Minority interest in real estate ventures................... 1,571,018 1,584,673
----------- -----------
Commitments and contingencies (Note 7)
Redeemable preferred shares of beneficial interest, $100 par
value, 50,000,000 shares authorized, 10,737 shares issued
and outstanding at December 31, 1997 and 1996 (Note 4).... 1,068,226 1,068,226
----------- -----------
Common shareholders' equity:
Common shares of beneficial interest, no par value,
500,000,000 shares authorized, 914,889 and 837,489
shares issued and outstanding at December 31, 1997 and
1996, respectively (Note 4)............................ 8,345,077 7,527,577
Accumulated deficit....................................... (1,490,484) (385,562)
----------- -----------
Total common shareholders' equity................. 6,854,593 7,142,015
----------- -----------
Total liabilities, minority interest, redeemable
preferred shares and common shareholders'
equity......................................... $39,286,969 $37,201,773
=========== ===========
</TABLE>
See accompanying notes.
F-10
<PAGE> 115
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Base rents........................................... $4,954,820 $4,097,911 $4,389,491
Percentage rents..................................... 26,400 32,822 --
Expense reimbursements............................... 1,167,355 835,940 848,975
Interest and other income............................ 27,278 67,409 44,224
---------- ---------- ----------
Total revenues............................... 6,175,853 5,034,082 5,282,690
---------- ---------- ----------
Expenses:
Operating and maintenance............................ 754,703 582,481 875,193
Real estate taxes.................................... 793,359 558,000 569,634
General and administrative........................... 179,933 89,529 63,225
---------- ---------- ----------
1,727,995 1,230,010 1,508,052
---------- ---------- ----------
4,447,858 3,804,072 3,774,638
Advisory and trustee fees............................ 345,000 312,000 296,000
Share grant to Advisor and officers.................. 787,500 -- --
Other................................................ 204,829 93,302 60,482
Interest............................................. 2,435,538 2,132,390 2,177,447
Depreciation, amortization and ground lease.......... 1,309,180 967,111 986,129
---------- ---------- ----------
5,082,047 3,504,803 3,520,058
Income (loss) before gain on sale of investment real
estate, minority interest and preferred share
dividend requirements................................ (634,189) 299,269 254,580
---------- ---------- ----------
Gain on sale of investment real estate................. -- -- 25,020
---------- ---------- ----------
Income (loss) before minority interest and preferred
share dividend requirements.......................... (634,189) 299,269 279,600
Minority interest in net income of real estate
ventures............................................. (40,894) (51,941) (43,278)
---------- ---------- ----------
Net income (loss)...................................... (675,083) 247,328 236,322
Preferred share dividend requirements.................. (96,633) (96,296) (43,618)
---------- ---------- ----------
Net income (loss) available for common shareholders
(basic and diluted).................................. $ (771,716) $ 151,032 $ 192,704
========== ========== ==========
Net income (loss) per common share..................... $ (.85) $ .17 $ .21
========== ========== ==========
Weighted average shares outstanding.................... 912,493 909,405 909,397
========== ========== ==========
</TABLE>
See accompanying notes.
F-11
<PAGE> 116
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED
SHARES AND COMMON SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED SHARES OF COMMON SHARES OF
BENEFICIAL INTEREST BENEFICIAL INTEREST
------------------- -------------------- ACCUMULATED
NUMBER AMOUNT NUMBER AMOUNT DEFICIT
------ ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.......... -- -- 834,397 $7,488,913 $ (228,659)
Issuance of redeemable preferred
shares.............................. 10,737 $1,073,700 -- -- --
Offering expenses..................... -- (5,474) -- -- --
Income before preferred share dividend
requirements........................ -- -- -- -- 236,322
Dividends............................. -- -- -- -- (166,880)
Redeemable preferred shares of
beneficial interest cash dividend,
$6.75 per share..................... -- -- -- -- (43,618)
------ ---------- ------- ---------- -----------
Balance at December 31, 1995.......... 10,737 1,068,226 834,397 7,488,913 (202,835)
Issuance of common shares of
beneficial interest................. -- 3,092 38,664 --
Income before preferred share dividend
requirements........................ -- -- -- -- 247,328
Dividends............................. -- -- -- -- (333,759)
Redeemable preferred shares of
beneficial interest cash dividends,
$9.00 per share..................... -- -- -- -- (96,296)
------ ---------- ------- ---------- -----------
Balance at December 31, 1996.......... 10,737 1,068,226 837,489 7,527,577 (385,562)
Issuance of common shares of
beneficial interest................. -- -- 77,400 817,500 --
Loss before preferred share dividend
requirements........................ -- -- -- -- (675,083)
Dividends............................. -- -- -- -- (333,206)
Redeemable preferred shares of
beneficial interest distributions,
$9.00 per share..................... -- -- -- -- (96,633)
------ ---------- ------- ---------- -----------
Balance at December 31, 1997.......... 10,737 $1,068,226 914,889 $8,345,077 $(1,490,484)
====== ========== ======= ========== ===========
</TABLE>
See accompanying notes.
F-12
<PAGE> 117
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (675,083) $ 247,328 $ 236,322
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,175,528 956,778 960,876
Minority interest in net income of real estate
ventures........................................ 40,894 51,941 43,278
Recognition of deferred rent...................... (89,184) (82,201) (44,677)
Provision for uncollectible accounts.............. 10,562 8,220 4,468
Gain on sale of investment real estate............ -- -- (25,020)
Payment of common shares for services............. 817,500 38,664 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable...... 166,083 (176,533) 16,530
Increase in prepaid expenses and other assets... (323,609) (78,167) (167,660)
Increase (decrease) in accounts
payable -- trade............................. 302,148 191,717 (90,885)
Increase (decrease) in accrued property taxes... 268,825 (53,910) 12,025
Increase (decrease) in security deposits........ (5,607) (41,835) 13,253
----------- ----------- -----------
Net cash provided by operating activities.... 1,688,057 1,062,002 958,510
----------- ----------- -----------
Cash flows from investing activities:
Purchase of and capital improvements to investment
real estate....................................... (406,802) (1,374,675) (383,957)
Escrow deposits...................................... (2,305,000) -- --
Proceeds from sale of investment..................... -- -- 114,478
Payment received on affiliate note receivable........ -- 55,462 --
----------- ----------- -----------
Net cash used in investing activities........ (2,711,802) (1,319,213) (269,479)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings............................. 135,871 740,000 2,021,210
Proceeds from short-term notes payable............... 2,525,000 -- --
Principal payments on mortgage notes payable......... (799,964) (604,574) (2,629,496)
Principal payments on short-term notes payable....... (40,000) (23,103) (235,000)
Preferred share dividends............................ (96,633) (96,296) (43,618)
Proceeds from issuing preferred shares of beneficial
interest, net..................................... -- -- 569,526
Offering costs (Note 10)............................. (419,700) -- --
Distribution to holders of minority interests........ (53,996) (67,320) (67,259)
----------- ----------- -----------
Net cash provided by (used in) financing
activities................................. 1,250,578 (51,293) (384,637)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents....... 226,833 (308,504) 304,394
Cash and cash equivalents at beginning of year......... 119,316 427,820 123,426
----------- ----------- -----------
Cash and cash equivalents at end of year............... $ 346,149 $ 119,316 $ 427,820
=========== =========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE> 118
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
United Investors Realty Trust and Subsidiaries (the "Company") was
organized on December 1, 1988, as a Massachusetts business trust and
subsequently converted to a Texas real estate investment trust. The Company was
formed for the purpose of investing directly in income-producing real property
and in partnerships formed to own such real property.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its subsidiaries, and partnerships in which it owns controlling interests.
Investments in 50% or less owned real estate ventures over which the
Company has the ability to exercise influence are accounted for using the equity
method.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVESTMENT REAL ESTATE
Investment real estate, consisting of eight shopping centers, is recorded
at cost. The cost of real estate acquired by the issuance of shares of
beneficial interest is determined by the estimated value of the shares issued or
the real estate acquired. The allocation of cost between land and building is
based on the estimated fair value at the time of the purchase. Depreciation is
computed using the straight-line method over the estimated useful lives of 20 to
40 years for the shopping centers and over the lease term for tenant
improvements (generally 5 to 15 years). Depreciation expense included in the
statements of operations was $1,094,237, $886,173 and $902,380 for the years
ended December 31, 1997, 1996 and 1995, respectively.
Expenditures for repairs and maintenance are charged to operations as
incurred. Significant betterments are capitalized.
When assets are sold or retired, their costs and related accumulated
depreciation are removed from the accounts, with the resulting gains or losses
reflected in operations for the period.
Recoverability of investment real estate is evaluated periodically as
events or circumstances indicate a possible inability to recover its carrying
amount. Recoverability is determined on a property-by-property basis utilizing
the undiscounted cash flow method. If undiscounted cash flows do not recover the
carrying amount of the real estate, the real estate is reduced to fair value.
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income available
for common shareholders by the weighted average number of shares of beneficial
interest outstanding during the year. The assumed conversion of redeemable debt
and redeemable preferred shares would be antidilutive in all years presented.
F-14
<PAGE> 119
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF RISK
The Company's primary business activity is investing in income-producing
real property. The Company's retail shopping center properties are located in
Austin, College Station, El Campo and San Antonio, Texas; Lenoir City and
Athens, Tennessee; and Phoenix, Arizona.
During 1997, 1996 and 1995, the Company earned approximately $1,155,000,
$1,151,000 and $1,131,000, respectively, in rental revenue from two tenants.
These two tenants' revenues amounted to approximately 19%, 23% and 21% of the
Company's total revenue for the years ended December 31, 1997, 1996 and 1995.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
Per Share" which simplifies the standards for computing and presenting earnings
per share ("EPS") and makes them comparable to international EPS standards. This
statement is effective for the year ending December 31, 1997. The Company has
implemented SFAS No. 128.
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation which requires a fair value based method of accounting for
stock-based employee compensation plans. The Company has recorded stock-based
compensation under Accounting Principles Board Opinion No. 25.
2. INVESTMENT REAL ESTATE
EL CAMPO SHOPPING CENTER
The Company purchased El Campo Shopping Center in June 1996 for $400,000
cash and a note payable of $1,600,000. The shopping center is located in El
Campo, Texas and is managed by an unrelated third party.
ONE WEST HILLS OFFICE BUILDING
The Company purchased One West Hills office building in September 1994 for
$126,749 in cash, 60,365 shares of beneficial interest valued at $12.00 per
share and assumption of a note payable of $685,341. The office building is
located in Dallas, Texas and is managed by an unrelated third party. On January
1, 1996, the Company transferred, at its cost basis, its investment in the
office building to an affiliated real estate investment trust (See Note 5). At
December 31, 1997 and 1996, the Company owned 0% and 23.8%, respectively of the
affiliated REIT, which is accounted for by the equity method.
3. NOTES PAYABLE
REDEEMABLE CONVERTIBLE SUBORDINATED NOTES
At December 31, 1997 and 1996, the Company had outstanding $212,400 of
redeemable convertible subordinated notes payable bearing interest at 9% with
semiannual interest payments due June 30 and December 31 of each year. The notes
are due on December 31, 2002.
F-15
<PAGE> 120
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holders of the notes may convert the notes at their option, in multiples of
$1,000, into common shares of beneficial interest at the following conversion
prices per share:
<TABLE>
<CAPTION>
YEAR PRICE
---- ------
<S> <C>
Through 12/31/97..................................... $12.00
1998................................................. 12.50
1999................................................. 13.00
2000................................................. 13.50
2001................................................. 14.00
2002................................................. 14.50
</TABLE>
During 1995, the holders of the notes were granted the option to convert
the notes to redeemable preferred shares of beneficial interest at the
conversion price of $100 per share and $498,700 of the notes were converted to
4,987 shares of redeemable preferred shares (See Note 4).
These notes can be redeemed by the Company for 100% of the redemption price
of $100 par value beginning in 1997.
MORTGAGE NOTES PAYABLE
As of December 31, 1997 and 1996, mortgage notes payable consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage note payable to a financial institution with
installments of principal and interest in the sum of
$20,167 payable monthly. The note bears interest at 8%,
and was originally due and payable on December 4, 1994. In
December 1994, the note was extended until June 4, 1995 at
a rate of 9%, with principal and interest payments of
$21,086 payable monthly. The note was refinanced in June
1995 with installments of principal and interest in the
amount of $20,835 payable monthly. The note bears interest
at 9%, is callable on May 10, 2000, but otherwise due and
payable on May 10, 2005, and is collateralized by Twin
Lakes Shopping Center land and building................... $ 1,734,717 $ 1,824,213
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the sum
of $20,285. The note bears interest at 8.5%, is due on
November 30, 1998 and is collateralized by Autobahn
Shopping Center land and building......................... 1,130,916 1,271,592
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the sum
of $31,541. The note bears interest at 9%, is due on
September 25, 1998 and is collateralized by Centennial
Shopping Center land and building. In 1998, the Company
has the option to renew the note for three years at 9.5%
with monthly installments of principal and interest based
upon a 20-year amortization schedule. If renewed, $100,000
of principal is due....................................... 3,744,425 3,779,493
Mortgage note payable to a financial institution. The note
bears interest at 9.75%, is due and payable on March 31,
1999 and is collateralized by Bandera Festival Shopping
Center land and building. Monthly installments of $72,419
are based on a 25-year amortization schedule. Additional
annual principal payments are due as follows:
April 1, 1997 -- 1% of the then outstanding principal
balance
April 1, 1998 -- 1/2% of 1% of the then outstanding
principal balance..................... 7,771,827 7,957,094
</TABLE>
F-16
<PAGE> 121
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the
amount of $43,852. The note bears interest at 9.3%,
amortizes over 25 years until April 1, 2018 and is
collateralized by the Randall's/University Park Shopping
Center, land and building................................. 4,798,038 4,874,155
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the
amount of $7,232. The note bears interest of 8.25%,
amortizes over the term of the note, is due on July 1,
2003 and is collateralized by a portion of the McMinn
Plaza Shopping Center, land and building.................. 387,218 439,680
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the sum
of $14,238. The note bears interest at 7.625%, amortizes
over the term of the note, is due on November 1, 2002 and
is collateralized by a portion of the McMinn Plaza
Shopping Center, land and building........................ 702,858 814,647
Mortgage note payable to a financial institution with
interest only due through March 25, 1995. Thereafter,
monthly installments of principal and interest in the
amount of $2,287 are due. The note bears interest at 9.5%,
amortizes over three years, is collateralized by
Centennial Shopping Center land and building and is due on
March 25, 1998............................................ 6,758 32,192
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the sum
of $3,220. The note bears interest at 9.0%, amortizes over
4 years, is due on September 25, 1998 and is
collateralized by Centennial shopping center land and
building. The Company can extend the note for 3 years..... 124,103 --
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the sum
of $24,069. The note bears interest at 8.37%, amortizes
over 20 years, is due on December 1, 2006, and is
collateralized by the Park Northern Shopping Center....... 2,743,391 2,800,000
Mortgage note payable to a financial institution with
monthly installments of principal and interest in the sum
of $13,427. The note bears interest at 9%, amortizes over
25 years, is due on June 27, 2003 and is collateralized by
the El Campo Shopping Center land and buildings. The
Company can extend the note for 3 years at a lesser of
prime plus 1/2% or 9% with a $150,000 principal
reduction................................................. 1,575,998 1,591,276
Mortgage note payable to a financial institution with
quarterly installments of interest only. The note bears
interest at the prime rate, is due on December 27, 1999
and is collateralized by land in College Station, Texas... 206,250 206,250
----------- -----------
$24,926,499 $25,590,592
=========== ===========
</TABLE>
F-17
<PAGE> 122
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate annual maturities of mortgage notes payable for each of the five
years ending December 31 and thereafter are as follows:
<TABLE>
<S> <C>
1998............................................. $ 5,600,728
1999............................................. 8,304,048
2000............................................. 1,934,971
2001............................................. 440,627
2002............................................. 473,564
Thereafter....................................... 8,172,561
-----------
$24,926,499
===========
</TABLE>
As of December 31, 1997, the Company's mortgage indebtedness was
approximately $25 million, collateralized by investment real estate. The
mortgage indebtedness interest rates range from 7.63% to 9.75%, with a weighted
average interest rate of 9.15% and a weighted average maturity of 6.17 years.
SHORT-TERM NOTES PAYABLE
During 1996, the Company issued $600,000 of unsecured promissory notes to
individuals. The notes require quarterly payments of interest only at 11% and
are due in 1998. During 1997, the Company issued an additional $400,000 of
unsecured promissory notes to individuals. The notes require quarterly payments
of interest only, at 10% and are due in 1998.
REVOLVING LINES OF CREDIT
Effective August 23, 1996, the Company entered into a $200,000 unsecured
revolving line of credit facility with a bank. Interest of prime (8.25% at
December 31, 1996 and 8.5% at December 31, 1997) plus 1/2% is payable quarterly
until maturity in April 1998. At December 31, 1997, $200,000 was outstanding.
The Company entered into a $100,000 unsecured revolving line of credit
facility with a bank in February 1996. Interest of prime (8.25% at December 31,
1996 and 8.5% at December 31, 1997) plus 1.5% is payable monthly until maturity
in May 1998. As of December 31, 1997 the Company had drawn $100,000 on the bank
credit facility.
The Company entered into short-term mortgage loan agreements with an
affiliate of the Advisor (see Note 8) in December 1997. The loan proceeds, which
bear interest at 12% and total $1,925,000, are repayable in April 1998. The
loans are collateralized by second lien mortgages on a shopping center which the
Company owns.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, receivables, accounts
payable and accrued expenses are reasonable estimates of their fair values
because of the short maturities of these instruments. Mortgage notes payable
have aggregate carrying values which approximate their estimated fair values
based on comparison to debt and interest rates for debt with similar terms and
remaining maturities.
4. SHARES OF BENEFICIAL INTEREST:
REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST
In 1995, the Company authorized 20,000, $100 par value, 9% redeemable
preferred shares of beneficial interest ("preferred shares") and issued 5,750
preferred shares at par value and 4,987 shares through conversion from the 9%
redeemable convertible subordinated notes (See Note 3). Dividends on the
preferred shares are cumulative from date of issuance and payable on a quarterly
basis. The preferred shares are
F-18
<PAGE> 123
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
convertible at the option of the holder into common shares of beneficial
interest of the Company at a conversion price of $12.50 per share, subject to
adjustment under certain conditions. The preferred shares are redeemable at the
option of the Company, in whole or in part, at any time after January 1, 1996,
at a redemption price equal to the sum of par value of the amount of the
preferred shares being redeemed and the premium. The premium is based upon the
following rates:
<TABLE>
<CAPTION>
CALENDAR YEAR PREMIUM
------------- -------
<S> <C>
1998............................................. 3%
1999............................................. 2%
2000............................................. 1%
2001 and thereafter.............................. 0%
</TABLE>
The Company is required to purchase and redeem 20% of the number of
preferred shares outstanding at a redemption price equal to par value commencing
on March 15, 2001 and annually thereafter until all preferred shares are
redeemed. Holders of preferred shares are entitled to limited voting rights at
one vote per share.
COMMON SHARES OF BENEFICIAL INTEREST
In December 1997 the Company issued 75,000 shares to the Advisor (see Note
8) and certain officers in compensation for past services. The shares were
valued at $10.50 for a total of $787,500 which is charged to expense in 1997.
The Company issued 2,400 shares in each of 1997 and 1996 to the trustees
for payment of services rendered (See Note 8). The Company issued an additional
692 shares for payment of lease commissions in 1996.
5. INVESTMENT IN REAL ESTATE VENTURE
In December 1995 the Company formed a new real estate investment trust, Ivy
Realty Trust ("Ivy"). On January 1, 1996 the Company transferred its investment
in One West Hills office building, the related mortgage note payable of $660,426
and net liabilities to Ivy in exchange for 834,397 shares valued at one dollar
per share of Ivy stock (based on the carryover basis of the assets contributed
by the Company) and a $55,462 promissory note. On January 15, 1996 the Company
distributed to its shareholders 500,638 shares of Ivy as a dividend. One-third
of the dividend was treated as a 1995 dividend with the remainder treated as a
1996 dividend. On August 1, 1997, the Company distributed to its shareholders
333,644 shares of Ivy as a dividend. The dividend was treated as a 1997
dividend.
6. FEDERAL INCOME TAXES
The Company operates in such a manner so as to qualify as a "real estate
investment trust" under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended, and the Treasury Regulations promulgated thereunder. Under
those Sections, the Company will not be taxed on that portion of its income
distributed to shareholders so long as at least 95 percent of the Company's
otherwise taxable income is distributed to shareholders each year and other
requirements of a qualified real estate investment trust are met. Management
believes the Company has satisfied the income distribution and other
requirements through the year ended December 31, 1997 and believes all other
requirements of a qualified real estate investment trust have been met.
The Company has approximately $545,000 of net operating losses that may be
carried forward to offset future taxable income. However, in 1990, sales of
shares of beneficial interest resulted in a change of ownership for federal
income tax purposes. As a result of the ownership change, the amount of net
operating losses generated prior to the ownership change, which may be used to
offset federal taxable income, is subject
F-19
<PAGE> 124
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to an annual limitation imposed by the Internal Revenue Code. These net
operating losses expire from 2009 through 2016.
The tax status of per-share dividend distributions relating to common
shares of beneficial interest declared attributable to the year presented is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Ordinary income......................................... $ 0 $ .40 $ .20
===== ===== =====
Return of capital....................................... $ .40 $ 0 $ 0
===== ===== =====
</TABLE>
7. COMMITMENTS
TENANT LEASES
The Company leases commercial retail space generally under operating leases
which provide for minimum base rentals plus contingent rentals based upon a
percentage of gross receipts. Most leases also provide that the tenant must pay
as additional rent a pro rata share of real property taxes, insurance and common
area maintenance.
The future minimum base rents for the operating leases in existence at
December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998............................................ $ 4,751,001
1999............................................ 4,360,174
2000............................................ 3,771,158
2001............................................ 3,374,711
2002............................................ 2,813,054
Thereafter...................................... 20,571,229
-----------
$39,641,327
===========
</TABLE>
GROUND LEASE
The Company has a 40-year ground lease for Park Northern Shopping Center
with an unrelated third party. Rent of $8,333 plus 5% of total gross revenues is
payable monthly through the year 2035. The Company has an option to extend this
lease for four consecutive periods of ten years each. Future minimum lease
payments are as follows:
<TABLE>
<CAPTION>
YEARS AMOUNT
----- ----------
<S> <C>
1998.............................................. $ 100,000
1999.............................................. 100,000
2000.............................................. 100,000
2001.............................................. 100,000
2002 through 2035................................. 3,400,000
----------
$3,800,000
==========
</TABLE>
Rental expense included in the statement of operations was $133,652, $8,333
and $25,353 in 1997, 1996 and 1995, respectively.
PURCHASE COMMITMENTS
The Company has entered into commitments to acquire eight shopping centers
(see Note 10) from unrelated parties. In connection with these agreements, the
Company has non-refundable earnest money deposits made into escrow of
$2,305,000.
F-20
<PAGE> 125
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ADVISORY AGREEMENT AND RELATED PARTY TRANSACTIONS
The Company is managed and advised by an entity affiliated with certain
Trust Managers (the "Advisor"). Advisory fee expenses were $312,000, $279,000
and $276,000 for 1997, 1996 and 1995, respectively. Advisory fees are calculated
at .8%, on an annual basis, of the gross Company assets, as defined, at
year-end, increased by noncash reserves. During 1997, 1996 and 1995, the Advisor
reduced its fee due from the Company under the agreement by approximately
$42,500, $50,600 and $9,200, respectively, to reflect the timing of acquisitions
made during the year.
In conjunction with the Offering (see Note 10), the Company will amend the
advisory agreement to provide that the advisory fee be based on 6.8% of adjusted
funds from operations as defined. Had the advisory fee been calculated pursuant
to the amended agreement in 1997, the fee would have approximated $224,000.
Total fees paid to independent trust managers were approximately $33,000,
$33,000 and $20,000 in 1997, 1996 and 1995, respectively. During 1996 and 1997,
$30,000 of the investment management fees were satisfied by issuing a total of
2,400 shares of beneficial interest (based on an estimated value of $12.50 per
share. Subsequent to the Offering (see Note 10), such stock compensation will be
valued at the market price per share. These shares are restricted as to transfer
or sale for two years after the issuance date.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information is related to the statement of cash
flows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Acquisition of land for mortgage note payable........... $ $ 206,250 $
Assumption of mortgage notes payable for acquisition of
investment real estate................................ 4,400,000
Net liabilities assumed in acquisition of investment
real estate........................................... 20,197
Minority interest granted in exchange for investment
real estate contributed............................... 630,000
Net liabilities assumed in acquisition of investment
real estate........................................... 109,786
Exchange of investment real estate for 834,397 shares of
Ivy Realty Trust, an affiliated trust, transfer of
mortgage note payable, issuance of mortgage note
receivable and transfer of net liabilities............ 1,640,465
Payment of dividend with shares of affiliated trust..... 333,206 500,639
Cash paid for interest.................................. 2,433,278 2,112,038 $2,180,835
Issuance of 4,987 preferred shares of beneficial
interest for redeemable convertible notes payable..... -- 496,700
Dividend declared but not paid.......................... -- 166,880
</TABLE>
10. SUBSEQUENT EVENT (UNAUDITED)
The Company expects to issue approximately 7,600,000 common shares of
beneficial interest, no par value, in a proposed public offering (the
"Offering"). The Company had incurred and capitalized approximately $420,000 in
offering costs as of December 31, 1997. There is no assurance that the Offering
can be completed.
In conjunction with the planned Offering, the Company has entered into
agreements with several unrelated parties to acquire eight community shopping
centers in Texas, Florida and Arizona for an aggregate purchase price of
approximately $72,000,000.
F-21
<PAGE> 126
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to December 31, 1997 acquisition of certain of the eight
properties was completed and certain mortgage loans were prepaid. Prepayment
penalties approximated $241,000. The Company entered into a loan agreement for
$56,800,000 (of which approximately $52,217,000 was funded as of February 11,
1998) for the purpose of acquiring the aforementioned properties and retiring
certain existing debt. There is no assurance that the remaining acquisitions can
be completed.
11. SUPPLEMENTAL EARNINGS PER SHARE INFORMATION
Weighted average shares outstanding includes 75,000 shares granted to the
Advisor and certain officers on December 30, 1997 as if such shares had been
outstanding for the entirety of each year.
F-22
<PAGE> 127
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COST
INITIAL COST CAPITALIZED
DESCRIPTION -------------------------- SUBSEQUENT TO
- ---------------------------------------------- BUILDINGS AND ACQUISITION --
PROPERTY LOCATION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS
-------- -------- ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Shopping centers:
Autobahn San Antonio, TX $ 1,130,915 $ 515,205 $ 1,726,150 $ 26,634
Bandera San Antonio, TX 7,771,826 2,350,000 8,759,593 544,035
Centennial Austin, TX 3,875,287 1,400,000 3,527,909 579,502
El Campo El Campo, TX 1,575,998 360,000 1,640,350 51,499
McMinn Athens, TN 1,090,077 513,912 2,170,052 83,705
Park Northern Phoenix, AZ 2,743,391 -- 4,410,691 120,792
Twin Lakes Lenoir City, TN 1,734,717 860,706 3,040,000 (27,144)
University Park College Station, TX 4,798,038 1,842,331 4,955,490 6,750
Undeveloped land:
University Park College Station, TX 206,250 276,569 -- --
----------- ---------- ----------- ----------
Totals $24,926,499 $8,118,723 $30,230,235 $1,385,773
=========== ========== =========== ==========
<CAPTION>
GROSS AMOUNTS OF WHICH
CARRIED AT CLOSE OF PERIOD
DESCRIPT --------------------------
- ------------------------- BUILDINGS AND ACCUMULATED DATE OF DATE
PROPERTY LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
-------- ---------- ------------- ----------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Shopping centers:
Autobahn $ 515,205 $ 1,752,784 $ 2,267,989 $ 427,055 1984 1990
Bandera 2,350,000 9,303,628 11,653,628 1,528,808 1989 1992
Centennial 1,400,000 4,107,411 5,507,411 942,641 1970 1991
El Campo 360,000 1,691,849 2,051,849 93,772 1985 1996
McMinn 513,912 2,253,757 2,767,669 403,627 1982 1994
Park Northern -- 4,531,483 4,531,483 169,038 1982 1996
Twin Lakes 860,706 3,012,856 3,873,562 710,278 1986 1995
University Park 1,842,331 4,962,240 6,804,571 586,738 1991 1993
Undeveloped land:
University Park 276,569 -- 276,569 --
---------- ----------- ----------- ----------
Totals $8,118,723 $31,616,008 $39,734,731 $4,861,957
========== =========== =========== ==========
</TABLE>
F-23
<PAGE> 128
UNITED INVESTORS REALTY TRUST AND SUBSIDIARIES
NOTES TO SCHEDULE III
(a) Initial cost for acquired property is cost at acquisition.
(b) The aggregate gross cost of land, buildings and improvements for federal
income tax and book purposes is substantially the same.
(c)
RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year........ $39,327,929 $34,166,161 $33,852,975
Additions -- improvements........... 406,802 6,871,735 390,451
Deductions.......................... -- (1,709,967) (77,265)
----------- ----------- -----------
Balance at end of year............ $39,734,731 $39,327,929 $34,166,161
=========== =========== ===========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year........... $3,767,720 $2,988,030 $2,085,650
Depreciation expense................... 1,094,237 886,173 902,380
Deductions............................. -- (106,483) --
---------- ---------- ----------
Balance at end of year............... $4,861,957 $3,767,720 $2,988,030
========== ========== ==========
</TABLE>
(d) See description of mortgage notes payable in Note 3 to consolidated
financial statements.
(e) Depreciation is computed based upon the following estimated lives:
<TABLE>
<S> <C>
Buildings................................................... 20-40 years
Improvements................................................ 5-10 years
</TABLE>
F-24
<PAGE> 129
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of Benchmark Crossing for the year ended December 31, 1997. This statement is
the responsibility of the seller's management. Our responsibility is to express
an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of Benchmark Crossing's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
Benchmark Crossing for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-25
<PAGE> 130
BENCHMARK CROSSING
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Base rents................................................ $642,743
Expense reimbursements.................................... 200,686
Other income.............................................. 100
--------
843,529
--------
Certain expenses:
Operating and maintenance................................. 134,211
Real estate taxes......................................... 131,946
General and administrative................................ 9,440
Interest (Note 3)......................................... 331,024
--------
606,621
--------
Revenue in excess of certain expenses....................... $236,908
========
</TABLE>
See accompanying notes.
F-26
<PAGE> 131
BENCHMARK CROSSING
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Benchmark Crossing (the "Property"), a 58,384-square-foot shopping
center located in Houston, Texas.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, accordingly, is not representative of
the actual results of operations of Benchmark Crossing for the year ended
December 31, 1997 due to the exclusion of the following expenses, which may not
be comparable to the proposed future operations of the Property:
- Depreciation and amortization
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. MORTGAGE NOTE PAYABLE
A loan in the amount of $3,672,501, secured by a first trust deed and an
assignment of rents, was executed by the current owners of the Property on
September 1, 1995. The Company intends to assume the loan as part of its
acquisition of the Property. The loan bears interest at an annual rate of 9.25%
with principal and interest payments of $32,543 due monthly through August 1,
2005, at which time the outstanding principal balance (expected to be
approximately $2,884,649 and any accrued interest thereon is due. The principal
balance of the loan at December 31, 1997 was $3,545,961.
4. RENT REVENUE
The Property consists of five separate buildings. The anchor tenant,
Bally's Total Fitness, leases a two-story building built in 1986, consisting of
40,966 square feet. Click's Billiards and the International House of Pancakes
are single-story buildings built in 1994, consisting of 7,000 square feet and
4,543 square feet, respectively. Burger King and Jack in the Box are
single-story buildings built in 1990 and 1986, respectively. All parking lots
are constructed of concrete. The center is 100% occupied.
Retail space is leased to tenants under various operating leases with terms
ranging from 10 to 20 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area
F-27
<PAGE> 132
BENCHMARK CROSSING
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
maintenance and certain other operating expenses. Certain leases also contain
provisions for percentage rent. Percentage rent earned for the year ended
December 31, 1997 was $-0-.
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998........................................... $ 663,571
1999........................................... 672,271
2000........................................... 676,646
2001........................................... 699,461
2002........................................... 699,461
Thereafter..................................... 3,978,579
----------
$7,389,989
==========
</TABLE>
5. CONCENTRATION OF RISK
At December 31, 1997, 5 tenants individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
Click's Billiards No. 20.................................... 11.9%
IHOP........................................................ 7.8%
Presidents First Lady....................................... 70.2%
Jack-in-the-Box............................................. 5.3%
Burger King................................................. 4.8%
</TABLE>
F-28
<PAGE> 133
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of Hedwig Centers for the year ended December 31, 1997. This statement is the
responsibility of the seller's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of Hedwig Centers' revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
Hedwig Centers for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-29
<PAGE> 134
HEDWIG CENTERS
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Base rents................................................ $ 815,989
Expense reimbursements.................................... 219,187
Other income.............................................. --
----------
1,035,176
----------
Certain expenses:
Operating and maintenance................................. 128,468
Real estate taxes......................................... 134,646
General and administrative................................ 12,002
Interest (Note 3)......................................... 386,226
----------
661,342
----------
Revenue in excess of certain expenses....................... $ 373,834
==========
</TABLE>
See accompanying notes.
F-30
<PAGE> 135
HEDWIG CENTERS
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Hedwig Centers (the "Property"), a 69,554-square-foot shopping
center located within Hedwig Village, an independent municipality surrounded by
Houston, Texas.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property. Subsequent to December 31, 1997, the Company completed
the acquisition of one of three phases.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, accordingly, is not representative of
the actual results of operations of Hedwig Centers for the year ended December
31, 1997 due to the exclusion of the following expenses, which may not be
comparable to the proposed future operations of the Property:
- Depreciation and amortization
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. MORTGAGE NOTE PAYABLE
A loan in the amount of $3,700,000, secured by a first trust deed and an
assignment of rents, was executed by the current owners of the Property on June
10, 1992. The Company intends to assume the loan as part of its acquisition of
the Property. The loan bears interest at an annual rate of 10.75% with principal
and interest payments of $34,546 due monthly through June 10, 1999, at which
time the outstanding principal balance (expected to be approximately $3,537,946)
and any accrued interest thereon is due. The principal balance of the loan at
December 31, 1997 was $3,577,204.
4. RENT REVENUE
The Property is adjacent to Target and Marshall's department stores, which
are owned by a third party. The center has 11 tenants ranging in size from 1,050
square feet to 27,000 square feet. The center is anchored by Ross Dress For Less
(27,000 square feet) and Blockbuster Music (13,664 square feet). Ross' lease
expires March 31, 2010 and Blockbuster's lease expires July 31, 2000. The center
is approximately 98% occupied.
Retail space is leased to tenants under various operating leases with terms
ranging from 3 to 20 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area maintenance
F-31
<PAGE> 136
HEDWIG CENTERS
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
and certain other operating expenses. Certain leases also contain provisions for
percentage rent. Percentage rent earned for the year ended December 31, 1997 was
$-0-.
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1998........................................... $ 592,363
1999........................................... 575,349
2000........................................... 494,688
2001........................................... 272,206
2002........................................... 246,780
Thereafter..................................... 1,869,525
----------
$4,050,911
==========
</TABLE>
5. CONCENTRATION OF RISK
At December 31, 1997, 3 tenants individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
EyeMasters............................................ 9.5%
Ross Dress for Less................................... 38.8%
Blockbuster Music..................................... 19.6%
</TABLE>
F-32
<PAGE> 137
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of Market at First Colony for the year ended December 31, 1997. This statement
is the responsibility of the seller's management. Our responsibility is to
express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of Market at First Colony's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
Market at First Colony for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-33
<PAGE> 138
MARKET AT FIRST COLONY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Base rents................................................ $1,311,002
Expense reimbursements.................................... 421,663
Other income.............................................. 11,434
----------
1,744,099
----------
Certain expenses:
Operating and maintenance................................. 281,288
Real estate taxes......................................... 277,941
General and administrative................................ 15,045
----------
574,274
----------
Revenue in excess of certain expenses....................... $1,169,825
==========
</TABLE>
See accompanying notes.
F-34
<PAGE> 139
MARKET AT FIRST COLONY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Market at First Colony (the "Property"), a 94,241-square-foot
shopping center located in Houston, Texas.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property. Subsequent to December 31, 1997, the Company completed
the acquisition.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, accordingly, is not representative of
the actual results of operations of Market at First Colony for the year ended
December 31, 1997 due to the exclusion of the following expenses, which may not
be comparable to the proposed future operations of the Property:
- Depreciation and amortization
- Interest on mortgage which was not assumed by the Owner
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. RENT REVENUE
The Property is adjacent to a 62,000-square-foot Kroger Supermarket, which
is owned by a third party. Taco Bell is a freestanding building within the
shopping center which the Company is acquiring. Stop N Go, World Savings, Burger
King, McDonalds, Applebee's and Kentucky Fried Chicken are situated on
outparcels and are owned by third parties. The center has 31 tenants ranging in
size from 825 square feet to 25,200 square feet. The center is anchored by TJ
Maxx (25,200 square feet), an off-price apparel store, and Eckerd Drugs (8,640
square feet). TJ Maxx's lease expires April 30, 2002, and Eckerd's lease expires
March 31, 2014. The center is approximately 97% occupied.
Retail space is leased to tenants under various operating leases with terms
ranging from 3 to 20 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area maintenance and certain other
operating expenses. Certain leases also contain provisions for percentage rent.
No percentage rent was earned for the year ended December 31, 1997.
F-35
<PAGE> 140
MARKET AT FIRST COLONY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998........................................... $1,182,279
1999........................................... 954,778
2000........................................... 724,592
2001........................................... 467,397
2002........................................... 263,504
Thereafter..................................... 2,123,879
----------
$5,716,429
==========
</TABLE>
4. CONCENTRATION OF RISK
At December 31, 1997, 1 tenant individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
TJ Maxx.............................................. 26.7%
</TABLE>
F-36
<PAGE> 141
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of Mason Park for the year ended December 31, 1997. This statement is the
responsibility of the seller's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of Mason Park's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
Mason Park for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-37
<PAGE> 142
MASON PARK
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Base rents................................................ $1,649,580
Percentage rents.......................................... 60,000
Expense reimbursements.................................... 533,055
----------
2,242,635
----------
Certain expenses:
Operating and maintenance................................. 303,311
Real estate taxes......................................... 390,845
General and administrative................................ 71,175
----------
765,331
----------
Revenue in excess of certain expenses....................... $1,477,304
==========
</TABLE>
See accompanying notes.
F-38
<PAGE> 143
MASON PARK
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Mason Park (the "Property"), a 160,047-square-foot shopping center
located in Houston, Texas.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property. Subsequent to December 31, 1997, the Company completed
the acquisition.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, accordingly, is not representative of
the actual results of operations of Mason Park for the year ended December 31,
1997 due to the exclusion of the following expenses, which may not be comparable
to the proposed future operations of the Property:
- Depreciation and amortization
- Interest on mortgage which was not assumed by the Owner
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. RENT REVENUE
The shopping center is adjacent to a 58,800-square-foot Kroger Supermarket,
which is owned by a third party. Schlotzsky's is a freestanding building within
the shopping center which the Company is acquiring. World Savings and an Exxon
Service Station are situated on outparcels and are owned by third parties. The
center has 33 tenants ranging in size from 997 square feet to 29,922 square
feet. The center is anchored by Palais Royal (29,922 square feet), a woman's
apparel store; Cinemark Cinema (28,750 square feet), an eight-screen, first-run
theater; Petco (13,973 square feet), an upscale pet supply store, and Walgreens'
drug store (10,998 square feet). Palais Royal's, Cinemark's, Petco's and
Walgreens' leases expire January 31, 2006; January 1, 2000; January 31, 2005 and
October 31, 2015, respectively. The center is approximately 93% occupied.
Retail space is leased to tenants under various operating leases with terms
ranging from 5 to 30 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area maintenance and certain other
operating expenses. Certain leases also contain provisions for percentage rent.
Percentage rent earned for the year ended December 31, 1997 was $60,000.
F-39
<PAGE> 144
MASON PARK
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998........................................... $1,880,878
1999........................................... 1,642,820
2000........................................... 1,015,778
2001........................................... 815,390
2002........................................... 697,139
Thereafter..................................... 3,028,889
----------
$9,080,394
==========
</TABLE>
4. CONCENTRATION OF RISK
At December 31, 1997, 2 tenants individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
Cinemark Cinema 8.................................... 18.0%
Palais Royal......................................... 18.7%
</TABLE>
F-40
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of Rosemeade Park for the year ended December 31, 1997. This statement is the
responsibility of the seller's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of Rosemeade Park's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
Rosemeade Park for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-41
<PAGE> 146
ROSEMEADE PARK
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Base rents................................................ $513,935
Expense reimbursements.................................... 150,340
Other income.............................................. 6,086
--------
670,361
--------
Certain expenses:
Operating and maintenance................................. 107,905
Real estate taxes......................................... 95,629
General and administrative................................ 5,268
Interest (Note 3)......................................... 40,265
--------
249,067
--------
Revenue in excess of certain expenses....................... $421,294
========
</TABLE>
See accompanying notes.
F-42
<PAGE> 147
ROSEMEADE PARK
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Rosemeade Park (the "Property"), a 49,554-square-foot shopping
center located in Carrollton, Texas.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property.
The accompany statement of revenue and certain expenses has been prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission and, accordingly, is not representative of the actual
results of operations of Rosemeade Park for the year ended December 31, 1997 due
to the exclusion of the following expenses, which may not be comparable to the
proposed future operations of the Property:
- Depreciation and amortization
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. MORTGAGE NOTE PAYABLE
A loan in the amount of $3,500,000, secured by a first trust deed and an
assignment of rents, was executed by the current owners of the Property on
November 10, 1997. The Company intends to assume the loan as part of its
acquisition of the Property. The loan bears interest at an annual rate of 8.30%
with principal and interest payments of $27,980 due monthly through December 1,
2007, at which time the outstanding principal balance (expected to be
approximately $2,856,302) and any accrued interest thereon is due. The principal
balance of the loan at December 31, 1997 was $3,496,228.
4. RENT REVENUE
The Property has 17 tenants ranging in size from 1,125 square feet to
14,000 square feet. Additionally, the shopping center leases the land on the
corner of the shopping center to Mobil Oil for a service station. The center is
anchored by Cosmopolitan Lady (14,000 square feet), a health club and
Blockbuster Video (6,194 square feet). Cosmopolitan Lady's lease expires July
31, 2007 and Blockbuster recently renewed its lease through March 31, 2003. The
center is approximately 87% occupied.
Retail space is leased to tenants under various operating leases with terms
ranging from 2 to 15 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area maintenance
F-43
<PAGE> 148
ROSEMEADE PARK
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
and certain other operating expenses. Certain leases also contain provisions for
percentage rent. Percentage rent earned for the year ended December 31, 1997 was
$-0-.
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998........................................... $ 565,795
1999........................................... 487,589
2000........................................... 382,913
2001........................................... 338,113
2002........................................... 289,483
Thereafter..................................... 863,156
----------
$2,927,049
==========
</TABLE>
5. CONCENTRATION OF RISK
At December 31, 1997, 3 tenants individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
Cosmopolitan Lady.............................. 28.3%
Blockbuster Video.............................. 12.5%
Mobil Oil Corporation.......................... Ground lease
</TABLE>
F-44
<PAGE> 149
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of Southwest Walgreens for the year ended December 31, 1997. This statement is
the responsibility of the seller's management. Our responsibility is to express
an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of Southwest Walgreens' revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
Southwest Walgreens for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-45
<PAGE> 150
SOUTHWEST WALGREENS
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Base rents................................................ $537,003
Percentage rents.......................................... 12,076
Expense reimbursements.................................... 237,196
Other income.............................................. 213
--------
786,488
--------
Certain expenses:
Operating and maintenance................................. 129,416
Real estate taxes......................................... 113,323
General and administrative................................ 16,941
--------
259,680
--------
Revenues in excess of certain expenses...................... $526,808
========
</TABLE>
See accompanying notes.
F-46
<PAGE> 151
SOUTHWEST WALGREENS
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Southwest Walgreens (the "Property"), an 83,698-square-foot
shopping center located in Phoenix, Arizona.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property. Subsequent to December 31, 1997, the Company completed
the acquisition.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, accordingly, is not representative of
the actual results of operations of Southwest Walgreens for the year ended
December 31, 1997 due to the exclusion of the following expenses, which may not
be comparable to the proposed future operations of the Property:
- Depreciation and amortization
- Interest on mortgage which was not assumed by the Owner
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. RENT REVENUE
The Property is occupied by 19 tenants ranging in size from 968 square feet
to 27,064 square feet. The shopping center is anchored by Southwest Supermarket
(27,064 square feet) and Walgreens (16,000 square feet). Southwest Supermarket
is a 38-store chain owned by the New York investment firm of Kohlberg & Company.
Southwest Supermarket's lease expires May 31, 2000 and Walgreens' lease expires
January 31, 2000. The shopping center is 100% occupied.
Retail space is leased to tenants under various operating leases with terms
ranging from 3 to 25 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area maintenance and certain other
operating expenses. Certain leases also contain provisions for percentage rent.
Percentage rent earned for the year ended December 31, 1997 was $12,076.
F-47
<PAGE> 152
SOUTHWEST WALGREENS
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998............................................ $375,421
1999............................................ 325,593
2000............................................ 179,990
2001............................................ 23,123
2002............................................ --
Thereafter...................................... --
--------
$904,127
========
</TABLE>
4. CONCENTRATION OF RISK
At December 31, 1997, 3 tenants individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
Southwest Supermarkets............................... 32.3%
Walgreens............................................ 19.1%
Renal West........................................... 7.2%
</TABLE>
F-48
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of Town 'N Country for the year ended December 31, 1997. This statement is the
responsibility of the seller's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of Town 'N Country's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
Town 'N Country for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-49
<PAGE> 154
TOWN 'N COUNTRY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Base rents................................................ $641,419
Percentage rents.......................................... 93,669
Expense reimbursements.................................... 132,585
Other income.............................................. 1,648
--------
869,321
--------
Certain expenses:
Operating and maintenance................................. 75,275
Real estate taxes......................................... 97,271
General and administrative................................ 2,394
--------
174,940
--------
Revenues in excess of certain expenses...................... $694,381
========
</TABLE>
See accompanying notes.
F-50
<PAGE> 155
TOWN 'N COUNTRY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of Town 'N Country (the "Property"), a 158,104-square-foot shopping
center located in Tampa, Florida.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, accordingly, is not representative of
the actual results of operations of Town 'N Country for the year ended December
31, 1997 due to the exclusion of the following expenses, which may not be
comparable to the proposed future operations of the Property:
- Depreciation and amortization
- Interest on mortgage which was not assumed by the Owner
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. RENT REVENUE
The Property has 17 tenants ranging in size from 320 square feet to 50,000
square feet. Additionally, separate buildings are leased to Checkers, a fast
food restaurant, and to NationsBank for an ATM. Kentucky Fried Chicken is
located on a ground lease parcel and owned by a third party. The shopping center
is anchored by Big Lots (30,000 square feet) and TJ Maxx (24,320 square feet), a
clothing store. Holiday Wonderland occupied 50,000 square feet, but is not
considered an anchor tenant because it may not be considered a credit tenant.
Big Lot's lease expires January 31, 2002, and TJ Maxx's lease expires October
31, 1999. The shopping center is 100% occupied.
Retail space is leased to tenants under various operating leases with terms
ranging from 2 to 10 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area maintenance and certain other
operating expenses. Certain leases also contain provisions for percentage rent.
Percentage rent earned for the year ended December 31, 1997 was $93,669.
F-51
<PAGE> 156
TOWN 'N COUNTRY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1998........................................... $ 630,350
1999........................................... 548,089
2000........................................... 425,372
2001........................................... 412,872
2002........................................... 142,531
Thereafter..................................... 140,000
----------
$2,299,214
==========
</TABLE>
4. CONCENTRATION OF RISK
At December 31, 1997, 2 tenants individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
TJ Maxx............................................... 15.4%
Big Lots.............................................. 19.0%
Holiday Wonderland.................................... 31.6%
</TABLE>
F-52
<PAGE> 157
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Investors Realty Trust
We have audited the accompanying statement of revenue and certain expenses
of University Mall for the year ended December 31, 1997. This statement is the
responsibility of the seller's management. Our responsibility is to express an
opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and for inclusion in the registration statement on Form S-11
of United Investors Realty Trust, as described in Note 1 to the statement of
revenue and certain expenses. It is not intended to be a complete presentation
of University Mall's revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses, as described in Note 1, of
University Mall for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 11, 1998
F-53
<PAGE> 158
UNIVERSITY MALL
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenue:
Base rents................................................ $1,953,254
Percentage rents.......................................... 101,185
Expense reimbursements.................................... 774,676
Other income.............................................. 2,328
----------
2,831,443
----------
Certain expenses:
Operating and maintenance................................. 328,238
Real estate taxes......................................... 324,339
General and administrative................................ 21,579
Interest (Note 3)......................................... 1,131,260
----------
1,805,416
----------
Revenues in excess of certain expenses...................... $1,026,027
==========
</TABLE>
See accompanying notes.
F-54
<PAGE> 159
UNIVERSITY MALL
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses relates to the
operations of University Mall (the "Property"), a 315,596-square-foot shopping
center located in Pembroke Pines, Florida.
United Investors Realty Trust (the "Company") entered into a contract to
acquire this property.
The accompanying statement of revenue and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and, accordingly, is not representative of
the actual results of operations of University Mall for the year ended December
31, 1997 due to the exclusion of the following expenses, which may not be
comparable to the proposed future operations of the Property:
- Depreciation and amortization
- Interest on mortgage which was not assumed by the Owner
- Federal and state income taxes
- Other costs not directly related to the proposed future operations of the
Property
The Company is not aware of any material factors which would cause the
reported financial information not to be indicative of future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Rent revenue is recognized on a straight-line basis over the terms of the
individual leases.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting and disclosure of revenue and certain expenses during the reporting
period to prepare the statement of revenue and certain expenses in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
3. MORTGAGE NOTE PAYABLE
A loan in the amount of $13,450,000, secured by a first trust deed and an
assignment of rents, was executed by the current owners of the Property as of
November 27, 1996. The Company intends to assume the loan as part of its
acquisition of the Property. The loan bears interest at an annual rate of 8.44%
with principal and interest payments of $102,847 due monthly through December 1,
2006, at which time the outstanding principal balance (expected to be
approximately $11,922,232) and any accrued interest thereon is due. The
principal balance of the loan at December 31, 1997 was $13,347,096.
4. RENT REVENUE
The Property has 32 tenants ranging in size from 750 square feet to 90,815
square feet. Additionally, separate buildings are leased to TGI Fridays, WAG's,
Taco Bell and a Federal Express kiosk. Also, Pollo Tropical and Red Lobster are
situated on outparcels and are owned by third parties. University Mall is
anchored by Upton's (90,815 square feet), whose lease expires December 1, 2002;
Sports Authority (42,000 square feet), whose lease expires April 30, 2012; Ross
Stores (25,920 square feet), whose lease expires January 31, 2001; OfficeMax
(23,500 square feet), whose lease expires January 31, 2003, and Eckerd Drugs
(12,000 square feet), whose lease expires December 31, 2002. Additionally,
46,246 square feet in the rear of
F-55
<PAGE> 160
UNIVERSITY MALL
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES -- (CONTINUED)
the shopping center is leased to University Self Storage, a climate-controlled,
self-storage facility, and the lease expires December 12, 2007. The shopping
center is approximately 98% leased.
Retail space is leased to tenants under various operating leases with terms
ranging from 5 to 30 years. The leases generally provide for minimum rent and
reimbursement of real estate taxes, common area maintenance and certain other
operating expenses. Certain leases also contain provisions for percentage rent.
Percentage rent earned for the year ended December 31, 1997 was $101,185.
Future minimum rentals to be received under noncancelable operating leases
in effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998.......................................... $ 1,729,090
1999.......................................... 1,621,869
2000.......................................... 1,426,310
2001.......................................... 1,061,825
2002.......................................... 984,655
Thereafter.................................... 7,930,317
-----------
$14,754,066
===========
</TABLE>
5. CONCENTRATION OF RISK
At December 31, 1997, 3 tenants individually accounted for more than 10% of
total revenue. Percentage GLA for these tenants for the year ended December 31,
1997 were as follows:
<TABLE>
<S> <C>
Ross Stores.......................................... 8.2%
Uptons............................................... 28.8%
Sports Authority..................................... 13.3%
</TABLE>
F-56
<PAGE> 161
=========================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE COMPANY'S INVESTMENT MANAGER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 1
Risk Factors............................. 12
Use of Proceeds.......................... 19
Distribution Policy...................... 20
Capitalization........................... 23
Dilution................................. 24
Selected Pro Forma and Historical
Financial and Properties Information... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 26
Strategy for Future Growth............... 31
Overview of the Company's Five Key U.S.
Markets................................ 34
Business and Properties.................. 38
Policies with Respect to Certain
Activities............................. 65
Management............................... 68
Certain Relationships and Transactions... 74
Principal Shareholders................... 76
Description of Shares of Beneficial
Interest............................... 77
Certain Provisions of the Texas REIT Act
and of the Company's Charter and
Bylaws................................. 79
Shares Available for Future Sale......... 82
Federal Income Tax Consequences.......... 83
ERISA Considerations..................... 92
Underwriting............................. 93
Legal Matters............................ 95
Experts.................................. 95
Additional Information................... 96
Glossary................................. 97
Index to Financial Statements............ F-1
Schedule................................. S-1
</TABLE>
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=========================================================
=========================================================
7,600,000 SHARES
UNITED INVESTORS
REALTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
---------------------
PROSPECTUS
---------------------
MORGAN KEEGAN & COMPANY, INC.
DAIN RAUSCHER INCORPORATED
SCOTT & STRINGFELLOW, INC.
SOUTHWEST SECURITIES, INC.
, 1998
=========================================================
<PAGE> 162
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company in
connection with the offering of the Common Shares being registered. All of the
amounts shown are estimates except the Securities and Exchange Commission
registration fee, the NASD fee and listing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
Registration Fee -- Securities and Exchange Commission...... $ 27,073
NASD Fee.................................................... 10,238
Transfer Agent's and Registrar's Fees....................... 2,500
Printing and Engraving Fees................................. 100,000
Legal Fees and Expenses (other than Blue Sky)............... 200,000
Accounting Fees and Expenses................................ 300,000
Blue Sky Fees and Expenses (including fees of counsel)...... 2,500
--------
Total............................................. $642,311
========
</TABLE>
ITEM 32. SALES TO SPECIAL PARTIES
Not applicable.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
On December 31, 1997, the Company issued 800 shares to each of Messrs.
Coleman, Hermans and Brooks for services provided as independent Trust Managers
during fiscal 1997. The issuance of these shares was effected in reliance upon
an exemption from registration under Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
On December 31, 1997, the Company awarded an aggregate of 75,000 shares to
the independent Trust Managers, the Investment Manager, Mr. Scharar and the
Named Executive Officers under the Plan. The issuance of these shares was
effected in reliance upon an exemption from registration under Rule 701
promulgated under the Securities Act.
On December 31, 1996, the Company issued 692 Common Shares to Fulcrum
Property Group, Inc., which manages and acts as leasing agent for Autobahn
Shopping Center and Bandera Festival Shopping Center. The shares were issued to
Fulcrum Property Group, Inc. as partial payment for its leasing commission.
Pursuant to the management agreements, the Company valued the Common Shares at
$12.00 per share, for an aggregate price of $8,304. The issuance of these shares
was effected in reliance upon an exemption from registration under Section 4(2)
of the Securities Act as a transaction by an issuer not involving a public
offering.
On December 31, 1996, the Company issued 800 Common Shares to each of Jerry
M. Coleman, Josef C. Hermans and William C. Brooks (an aggregate of 2,400 Common
Shares) for services provided as an independent Trust Manager during the 1996
fiscal year. The issuance of these shares was effected in reliance upon an
exemption from registration under Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
From January 1995 through December 1997, the Company issued to 15 holders
$1,150,000 of 10% and 11% short term notes. The issuance of these notes was
effected in reliance upon an exemption from registration under Section 4(2) of
the Securities Act as a transaction by an issuer not involving a public
offering.
II-1
<PAGE> 163
During 1995, the Company issued to 35 holders an aggregate of 10,737 9%
Convertible Preferred Shares. Of the aggregate number of shares issued, 5,750
Preferred Shares were sold to accredited investors for $100 per share, for a
total purchase price of $575,000. The remaining 4,987 Preferred Shares were
issued in connection with the redemption of the Company's Convertible
Subordinated Notes, Series 1992, at a value of $100 per share, for an aggregate
price of $498,700. The issuance of these shares was effected in reliance upon an
exemption from registration under Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
ITEM 34. INDEMNIFICATION OF TRUST MANAGERS AND OFFICERS
Section 9.20 of the Texas Real Estate Investment Trust Act (the "Texas REIT
Act"), subject to procedures and limitations stated therein, allows the Company
to indemnify any person who was, is or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a Trust
Manager or officer against judgments, penalties (including excise and similar
taxes), fines, settlements and reasonable expenses actually incurred by the
person in connection with the proceeding. The Company is required by Section
9.20 to indemnify a Trust Manager or officer against reasonable expenses
incurred by him or her in connection with a proceeding in which he is a named
defendant or respondent because he or she is or was a Trust Manager or officer
if he or she has been wholly successful, on the merits or otherwise, in the
defense of the proceeding. Under the Texas REIT Act, Trust Managers and officers
are not entitled to indemnification if (i) the Trust Manager or officer is found
liable to the real estate investment trust or is found liable for willful or
intentional misconduct in the performance of his duty to the real estate
investment trust and (ii) the Trust Manager or officer was found liable for
willful or intentional misconduct in the performance of his or her duty to the
real estate investment trust. The statute provides that indemnification pursuant
to its provisions is not exclusive of the rights of indemnification to which a
person may be entitled under any provision of the Amended and Restated
Declaration of Trust, bylaws, agreements, or otherwise. In addition, the Company
has, pursuant to Section 15.10 of the Texas REIT Act, provided in its Amended
and Restated Declaration of Trust that, to the fullest extent permitted by
applicable law, a Trust Manager of the Company shall not be liable for any act,
omission, loss, damage or expense arising from the performance of his or her
duty under the real estate investment trust, except for his or her own willful
misfeasance, malfeasance or negligence.
The Company's Amended and Restated Declaration of Trust and Bylaws provide
for indemnification by the Company of its Trust Managers and officers to the
fullest extent permitted by the Texas REIT Act. In addition, the Company's
Bylaws provide that the Company may pay or reimburse, in advance of final
disposition of a proceeding, reasonable expenses incurred by a present or former
Trust Manager or officer made a party to a proceeding by reason of his or her
status as a Trust Manager or officer provided that (i) the Trust Managers have
consented to the advancement of expenses (which consent shall not be
unreasonably withheld) and (ii) the Company shall have received (a) a written
affirmation by the Trust Manager or officer of his or her good faith belief that
he or she has met the standard of conduct necessary for indemnification by the
Company under the Texas REIT Act and (b) a written undertaking by or on his or
her behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met or it is
ultimately determined that indemnification of the Trust Manager against expenses
incurred by him in connection with that proceeding is prohibited by Section 9.20
of the Texas REIT Act.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses including liabilities under the Securities Act
of 1933, or to contribute to payments that the Underwriters may be required to
make in respect thereof.
ITEM 35. TREATMENT OF PROCEEDS FROM COMMON SHARES BEING REGISTERED
Not applicable.
II-2
<PAGE> 164
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Redeemable Preferred Shares and Common
Shareholders' Equity for the Years Ended December 31, 1997, 1996 and
1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Schedule III. Real Estate and Accumulated Depreciation as of December 31,
1997
Notes to Schedule III
Introduction to Pro Forma Condensed Consolidated Financial Statements
Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1997
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended
December 31, 1997
Notes to Pro Forma Condensed Consolidated Financial Statements
BENCHMARK CROSSING
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
HEDWIG CENTERS
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
THE MARKET AT FIRST COLONY
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
MASON PARK
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
II-3
<PAGE> 165
ROSEMEADE PARK
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
SOUTHWEST/WALGREENS
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
TOWN 'N COUNTRY
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
UNIVERSITY MALL
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Year Ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
B. SCHEDULES TO FINANCIAL STATEMENTS
Report of Independent Accountants
Schedule II -- Valuation of Qualifying Accounts and Reserves
All other schedules are omitted or the required information is inapplicable
or the information is presented in the Company's consolidated financial
statements or related notes included in the prospectus.
C. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
**3.1 -- First Amended and Restated Declaration of Trust
**3.2 -- First Amended and Restated Bylaws
4.1 -- Instruments defining the rights of security holders. The
instruments are filed in response to items 3.1 and 3.2
above and are incorporated herein by reference.
*4.2 -- Common share certificate
**5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.,
regarding the legality of the Common Shares.
**8.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.,
regarding tax matters.
**10.1 -- First Amended and Restated Advisory Agreement dated as of
June 9, 1997, by and between the Company and Investment
Manager
**10.2 -- 1997 Share Incentive Plan
**10.3 -- Form of Indemnification Agreement
</TABLE>
II-4
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
**10.4 -- Loan Agreement dated as of January 30, 1998, by and
between the Company and Nomura Asset Capital Corporation
("Nomura")
**10.5 -- Promissory Note dated January 30, 1998, executed by the
Company in favor of Nomura
**10.6 -- Assumption and Modification Agreement dated November 19,
1996, by and among The Travelers Insurance Company,
George I. Brown, Park Northern/Centennial Partners, L.P.
and George I. Brown, as Trustee of the Waipo Trust II
**10.7 -- Promissory Note dated as of July 31, 1995, executed by
PFL-290 Limited Partnership in favor of RFG Financial,
Inc.
**10.8 -- Promissory Note dated June 10, 1992, executed by Hedwig
II, Inc. in favor of Sun Life Insurance Company of
America
**10.9 -- Promissory Note dated June 10, 1992, executed by Hedwig
III Joint Venture in favor of Sun Life Insurance Company
of America
**10.10 -- Deed of Trust Note dated April 13, 1993, executed by
UIRT/University Park-I, L.P. in favor of The Franklin
Life Insurance Company
**10.11 -- Promissory Note dated June 15, 1994, executed by
UIRT-I-McMinn, Inc. in favor of Protective Life Insurance
Company
**10.12 -- Promissory Note dated June 11, 1994, executed by
UIRT-W-McMinn, Inc. in favor of Conseco Mortgage Capital,
Inc.
**10.13 -- Note Secured by Deed of Trust dated November 9, 1990
executed by George I. Brown and George I. Brown, as
Trustee of the Waipio Trust II in favor of The Travelers
Insurance Company
**10.14 -- Earnest Money Contract dated October 13, 1997, by and
among the Company, Balous Miller, John K. Miller, Douglas
Miller and Louis Vance
**10.15 -- Agreement for the Purchase and Sale of Commercial Real
Estate dated December 12, 1997, by and between the
Company and the Board of Pension Commissioners of the
City of Los Angeles.
**10.16 -- Contract of Sale dated December 5, 1997, by and between
the Company and Desert Pacific Properties, L.L.C.
**10.17 -- Contract of Sale dated December 5, 1997, by and between
the Company and Rosemeade Park Limited Partnership
**10.18 -- Letter Agreement dated November 25, 1997 and October 15,
1997, by and among the Company, Town 'N Country Plaza of
Tampa, Limited and James H. Shimberg, Trustee on Behalf
of Landowner
**10.19 -- Contract of Sale dated December 5, 1997, by and between
Market at First Colony Joint Venture, Hedwig II Joint
Venture, PFL-290 Limited Partnership, R & R Limited
Partnership, Hedwig II, Inc., and the Company
**11.1 -- Statement Regarding Computation of Per Share Earnings
**16.1 -- Letter regarding change in certifying accountant
**21.1 -- List of Subsidiaries
**23.1 -- Consent of Ernst & Young LLP
**23.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Included in responses to Items 5.1 and 8.1.
24.1 -- Powers of Attorney
**24.2 -- Power of Attorney for Ira T. Wender
**27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
II-5
<PAGE> 167
ITEM 37. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the representatives of the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trust Managers, officers, and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-6
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
United Investors Realty Trust certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-11 and has
duly caused this Amendment No. 2 to its registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on February 12, 1998.
UNITED INVESTORS REALTY TRUST
/s/ LEWIS H. SANDLER
------------------------------------
Lewis H. Sandler, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
* Chairman of the Board and Trust February 12, 1998
- ----------------------------------------------------- Manager
Robert W. Scharar
/s/ LEWIS H. SANDLER Chief Executive Officer, February 12, 1998
- ----------------------------------------------------- (principal executive officer)
Lewis H. Sandler
/s/ DANIEL M. JONES, III Chief Financial Officer (principal February 12, 1998
- ----------------------------------------------------- financial and accounting
Daniel M. Jones, III officer)
* Trust Manager February 12, 1998
- -----------------------------------------------------
William C. Brooks
* Trust Manager February 12, 1998
- -----------------------------------------------------
Jerry M. Coleman
* Trust Manager February 12, 1998
- -----------------------------------------------------
Josef C. Hermans
* Trust Manager February 12, 1998
- -----------------------------------------------------
Ira T. Wender
*/s/ LEWIS H. SANDLER February 12, 1998
- -----------------------------------------------------
Lewis H. Sandler, as attorney-in-fact
</TABLE>
II-7
<PAGE> 169
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
**3.1 -- First Amended and Restated Declaration of Trust
**3.2 -- First Amended and Restated Bylaws
4.1 -- Instruments defining the rights of security holders. The
instruments are filed in response to items 3.1 and 3.2
above and are incorporated herein by reference.
*4.2 -- Common share certificate
**5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.,
regarding the legality of the Common Shares.
**8.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.,
regarding tax matters.
**10.1 -- First Amended and Restated Advisory Agreement dated as of
June 9, 1997, by and between the Company and Investment
Manager
**10.2 -- 1997 Share Incentive Plan
**10.3 -- Form of Indemnification Agreement
**10.4 -- Loan Agreement dated as of January 30, 1998, by and
between the Company and Nomura Asset Capital Corporation
("Nomura")
**10.5 -- Promissory Note dated January 30, 1998, executed by the
Company in favor of Nomura
**10.6 -- Assumption and Modification Agreement dated November 19,
1996, by and among The Travelers Insurance Company,
George I. Brown, Park Northern/Centennial Partners, L.P.
and George I. Brown, as Trustee of the Waipo Trust II
**10.7 -- Promissory Note dated as of July 31, 1995, executed by
PFL-290 Limited Partnership in favor of RFG Financial,
Inc.
**10.8 -- Promissory Note dated June 10, 1992, executed by Hedwig
II, Inc. in favor of Sun Life Insurance Company of
America
**10.9 -- Promissory Note dated June 10, 1992, executed by Hedwig
III Joint Venture in favor of Sun Life Insurance Company
of America
**10.10 -- Deed of Trust Note dated April 13, 1993, executed by
UIRT/University Park-I, L.P. in favor of The Franklin
Life Insurance Company
**10.11 -- Promissory Note dated June 15, 1994, executed by
UIRT-I-McMinn, Inc. in favor of Protective Life Insurance
Company
**10.12 -- Promissory Note dated June 11, 1994, executed by
UIRT-W-McMinn, Inc. in favor of Conseco Mortgage Capital,
Inc.
**10.13 -- Note Secured by Deed of Trust dated November 9, 1990
executed by George I. Brown and George I. Brown, as
Trustee of the Waipio Trust II in favor of The Travelers
Insurance Company
**10.14 -- Earnest Money Contract dated October 13, 1997, by and
among the Company, Balous Miller, John K. Miller, Douglas
Miller and Louis Vance
**10.15 -- Agreement for the Purchase and Sale of Commercial Real
Estate dated December 12, 1997, by and between the
Company and the Board of Pension Commissioners of the
City of Los Angeles.
**10.16 -- Contract of Sale dated December 5, 1997, by and between
the Company and Desert Pacific Properties, L.L.C.
**10.17 -- Contract of Sale dated December 5, 1997, by and between
the Company and Rosemeade Park Limited Partnership
</TABLE>
<PAGE> 170
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
**10.18 -- Letter Agreement dated November 25, 1997 and October 15,
1997 and by and among the Company, Town 'N Country Plaza
of Tampa, Limited and James H. Shimberg, Trustee on
Behalf of Landowner
**10.19 -- Contract of Sale dated December 5, 1997, by and between
Market at First Colony Joint Venture, Hedwig II Joint
Venture, PFL-290 Limited Partnership, R&R Hedwig I
Limited Partnership, Hedwig II, Inc., and the Company
**11.1 -- Statement Regarding Computation of Per Share Earnings
**16.1 -- Letter regarding change in certifying accountant
**21.1 -- List of Subsidiaries
**23.1 -- Consent of Ernst & Young LLP
**23.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Included in responses to Items 5.1 and 8.1.
24.1 -- Powers of Attorney
**24.2 -- Power of Attorney for Ira T. Wender
**27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
<PAGE> 1
EXHIBIT 3.1
FIRST AMENDED AND RESTATED
DECLARATION OF TRUST
OF
UNITED INVESTORS REALTY TRUST
The undersigned, acting as the Trust Managers of a real estate
investment trust under the Texas Real Estate Investment Trust Act (the "Texas
REIT Act"), hereby adopt the following First Amended and Restated Declaration
of Trust for such trust, which replaces in its entirety the previously enacted
Declaration of Trust, which First Amended and Restated Declaration of Trust was
adopted by the Shareholders of the Trust on June 9, 1997 pursuant to the
affirmative vote of the holders of at least two-thirds of the outstanding
Shares of the Trust.
ARTICLE ONE
The name of the trust (the "Trust") is "United Investors Realty
Trust." An assumed name certificate setting forth such name has been or will
be filed concurrently herewith in the manner prescribed by law.
ARTICLE TWO
The Trust is formed pursuant to the Texas REIT Act and has the
following as its purpose:
To purchase, hold, lease, manage, sell, exchange, develop,
subdivide and improve real property and interests in real
property, and in general, to carry on any other business and
do any other acts in connection with the foregoing and to have
and exercise all powers conferred by the laws of the State of
Texas upon real estate investment trusts formed under the
Texas REIT Act, and to do any or all of the things hereinafter
set forth to the same extent as natural persons might or could
do. The term "real property" and the term "interests in real
property" for the purposes stated herein shall not include
severed mineral, oil or gas royalty interests.
ARTICLE THREE
The address of the Trust's principal office and place of business is
5847 San Felipe, Suite 850, Houston, Texas 77057.
1
<PAGE> 2
ARTICLE FOUR
The street address of the Trust's registered office is 5847 San
Felipe, Suite 850, Houston, Texas 77057. The name of the Trust's registered
agent at that address is Jerry A. Seade.
ARTICLE FIVE
The names and business addresses of the Trust Managers approving and
adopting this Declaration of Trust are as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ------------------------
<S> <C>
Jerry M. Coleman 4543 North Mesa
El Paso, Texas 779912
William C. Brooks 8191 Muirhead Circle
Boynton Beach, Florida 33437
Josef C. Hermans 3162 Las Palmas. Suite 850
Houston, Texas 77027
Robert W. Scharar 5847 San Felipe, Suite 850
Houston, Texas 7705778230
</TABLE>
ARTICLE SIX
The period of the Trust's duration is perpetual. The Trust may be
sooner terminated by the vote of the holders of at least a majority of the
outstanding voting Shares.
ARTICLE SEVEN
The aggregate number of shares of beneficial interest which the Trust
shall have authority to issue is five hundred million common shares, no par
value ($0.00) per share ("Common Shares"), and fifty million preferred shares,
of which 20,000 shall be of $100 par value per share and 49,980,000 shall be of
no par value ($0.00) per share (collectively, the "Preferred Shares"). All of
the Common Shares shall be equal in all respects to every other such Common
Share, and shall have no preference, conversion, exchange or preemptive rights.
Unless otherwise specified, the term "Shares" in this Declaration of
Trust shall be deemed to refer to the Common Shares and, solely to the extent
specifically required by law or as specifically provided in any resolution or
resolutions of the Trust Managers providing for the issue of any particular
series of Preferred Shares, to the Preferred
2
<PAGE> 3
Shares. For purposes of Articles Ten and Nineteen (other than Article Nineteen
(j)) of this Declaration of Trust, the term Shares shall be deemed to refer to
both the Common Shares and the Preferred Shares and, for purposes of such
Articles Ten and Nineteen (other than Article Nineteen (j)), the number of
outstanding Shares shall be deemed to be equal to the value of the Trust's
outstanding Shares as determined from time to time by resolution of the Trust
Managers, such determination to include an allocation of relative value among
the Common Shares and any outstanding series of Preferred Shares.
The Trust may issue one or more series of Preferred Shares, each such
series to consist of such number of shares as shall be determined by resolution
of the Trust Managers creating such series. The Preferred Shares of each such
series shall have such designations, preferences, conversion, exchange or other
rights, participations, voting powers, options, restrictions, limitations,
special rights or relations, limitations as to dividends, qualifications or
terms, or conditions of redemption thereof, as shall be stated and expressed by
the Trust Managers in the resolution or resolutions providing for the issuance
of such series of Preferred Shares pursuant to the authority to do so which is
hereby expressly vested in the Trust Managers.
Except as otherwise specifically provided in any resolution or
resolutions of the Trust Managers providing for the issue of any particular
series of Preferred Shares, the number of shares of any such series so set
forth in such resolution or resolutions may be increased or decreased (but not
below the number of shares of such series then outstanding) by a resolution or
resolutions likewise adopted by the Trust Managers.
Except as otherwise specifically provided in any resolution or
resolutions of the Trust Managers providing for the issue of any particular
series of Preferred Shares, Preferred Shares redeemed or otherwise acquired by
the Trust shall assume the status of authorized but unissued Preferred Shares
and shall be unclassified as to series and may thereafter, subject to the
provisions of this Article Seven and to any restrictions contained in any
resolution or resolutions of the Trust Managers providing for the issuance of
any such series of Preferred Shares, be reissued in the same manner as other
authorized but unissued Preferred Shares.
Except as otherwise specifically provided in any resolution or
resolutions of the Trust Managers providing for the issue of any particular
series of Preferred Shares, holders of Preferred Shares shall have no
preemptive rights.
Except as otherwise specifically required by law or this Declaration
of Trust or as specifically provided in any resolution or resolutions of the
Trust Managers providing for the issuance of any particular series of Preferred
Shares, the exclusive voting power of the Trust shall be vested in the Common
Shares of the Trust. Each Common Share entitles the holder thereof to one vote
at all meetings of the shareholders of the Trust.
Reference is hereby made to a Statement of Designation Establishing
Series of Shares (the "Statement") which was filed in the County Clerk's Office
of Harris County, Texas on or about March 10, 1995 under File Number R303039.
Such Statement, a copy of which is attached hereto and made a part hereof as
Exhibit "A", established a series of
3
<PAGE> 4
Preferred Shares designated as "9% Convertible Preferred Shares, Series 1995".
Such Series is restated in its entirety and incorporated herein and shall
remain in full force and effect in accordance with its terms.
ARTICLE EIGHT
The Trust shall issue Shares for consideration consisting of any
tangible or intangible benefit to the Trust, including cash, promissory notes,
services performed, contracts for services to be performed, or other securities
of the Trust, such consideration to be determined by the Trust Managers.
ARTICLE NINE
The Trust Managers shall manage all money and/or property received for
the issuance of Shares for the benefit of the shareholders of the Trust.
ARTICLE TEN
The Trust will not commence business until it has received for the
issuance of Shares consideration of at least $1,000 value.
ARTICLE ELEVEN
The Trust shall not engage in any activities beyond the scope of the
purpose of a real estate investment trust formed pursuant to the Texas REIT
Act, as such purpose is set forth in Article Two hereof.
ARTICLE TWELVE
Cumulative voting for the election of Trust Managers is prohibited.
ARTICLE THIRTEEN
(a) The affirmative vote of the holders of not less than 80% of
the outstanding Shares of the Trust, including the affirmative vote of the
holders of not less than 50% of the outstanding Shares not owned, directly or
indirectly, by any "Related Person" (as hereinafter defined), shall be required
for the approval or authorization of any "Business Combination" (as hereinafter
defined); provided, however, that the 50% voting requirement referred to above
shall not be applicable if the Business Combination is approved by the
affirmative vote of the holders of not less than 80% of the outstanding
4
<PAGE> 5
Shares; provided further, that neither the 80% voting requirement nor the 50%
voting requirement referred to above shall be applicable if:
(i) The Trust Managers of the Trust by a vote of not less
than 80% of the Trust Managers then holding office (A) have expressly
approved in advance the acquisition of Shares of the Trust that caused
the Related Person to become a Related Person or (B) have expressly
approved the Business Combination prior to the date on which the
Related Person involved in the Business Combination shall have become
a Related Person; or
(ii) The Business Combination is solely between the Trust
and another entity, 100% of the voting stock, shares or comparable
interests of which is owned directly or indirectly by the Trust; or
(iii) The Business Combination is proposed to be
consummated within one year of the consummation of a Fair Tender Offer
(as hereinafter defined) by the Related Person in which Business
Combination the cash or Fair Market Value (as hereinafter defined) of
the property, securities or other consideration to be received per
Share by all remaining holders of Shares of the Trust in the Business
Combination is not less than the price offered in the Fair Tender
Offer; or
(iv) All of conditions (A) through (D) of this
subparagraph (iv) shall have been met: (A) if and to the extent
permitted by law, the Business Combination is a merger or
consolidation, consummation of which is proposed to take place within
one year of the date of the transaction pursuant to which such person
became a Related Person and the cash or Fair Market Value of the
property, securities or other consideration to be received per share
by all remaining holders of Shares of the Trust in the Business
Combination is not less than the Fair Price (as hereinafter defined);
(B) the consideration to be received by such holders is either cash
or, if the Related Person shall have acquired the majority of its
holdings of the Trust's Shares for a form of consideration other than
cash, in the same form of consideration with which the Related Person
acquired such majority; (C) after such person has become a Related
Person and prior to consummation of such Business Combination: (1)
there shall have been no reduction in the annual rate of dividends, if
any, paid per share on the Trust's Shares (adjusted as appropriate for
recapitalizations and for Share splits, reverse Share splits and Share
dividends) except any reduction in such rate that is made
proportionately with any decline in the Trust's net income for the
period for which such dividends are declared and except as approved by
a majority of the Continuing Trust Managers (as hereinafter defined),
and (2) such Related Person shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of
any loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the Trust prior
to the consummation of such Business Combination (other than in
connection with financing a Fair Tender Offer); and (D) a proxy
statement that conforms in all respects with the provisions of the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder (or any subsequent provisions replacing the
Exchange Act
5
<PAGE> 6
or the rules or regulations thereunder) shall be mailed to holders of
the Trust's Shares at least 45 days prior to the consummation of the
Business Combination for the purpose of soliciting shareholder
approval of the Business Combination; or
(v) The "Rights" (as defined in paragraph (b) of this Article
Thirteen) shall have become exercisable.
(b) If a person has become a Related Person and within one year
after the date (the "Acquisition Date") of the transaction pursuant to which
the Related Person became a Related Person (x) a Business Combination meeting
all of the requirements of subparagraph (iv) of the proviso to paragraph (a) of
this Article Thirteen regarding the applicability of the 80% voting requirement
shall not have been consummated and (y) a Fair Tender Offer shall not have been
consummated and (z) the Trust shall not have been dissolved and liquidated,
then, in such event the beneficial owner of each Share (not including Shares
beneficially owned by the Related Person) (each such beneficial owner being
hereinafter referred to as a "Holder") shall have the right (individually a
"Right" and collectively the "Rights"), which may be exercised subject to the
provisions of paragraph (d) of this Article Thirteen, commencing at the opening
of business on the one-year anniversary date of the Acquisition Date and
continuing for a period of 90 days thereafter, subject to extensions as
provided in paragraph (d) of this Article Thirteen (the "Exercise Period"), to
sell to the Trust on the terms set forth herein one Share upon exercise of such
Right. Within five business days after the commencement of the Exercise Period
the Trust shall notify the Holders of the commencement of the Exercise Period,
specifying therein the terms and conditions for exercise of the Rights. During
the Exercise Period, each certificate representing Shares beneficially owned by
a Holder (a "Certificate") shall also represent the number of Rights equal to
the number of Shares represented thereby and the surrender for transfer of any
Certificate shall also constitute the transfer of the Rights represented by
such Shares. At 5:00 P.M., Houston, Texas time, on the last day of the
Exercise Period, each Right not exercised shall become void, all rights in
respect thereof shall cease as of such time and the Certificates shall no
longer represent Rights.
(c) The purchase price for a Share upon exercise of an
accompanying Right shall be equal to the then-applicable Fair Price paid by
the Related Person (plus, as an allowance for interest, an amount equal to the
prime rate of interest as published in the Wall Street Journal and as in effect
from time to time from the Acquisition Date until the date of the payment for
such Share but less the amount of any cash and the Fair Market Value of any
property or securities distributed with respect to such Shares as dividends or
otherwise during such time period), pursuant to the exercise of the Right
relating thereto. In the event the Related Person shall have acquired any of
its holdings of the Trust's Shares for a form of consideration other than cash,
the value of such other consideration shall be the Fair Market Value thereof.
(d) Notwithstanding the foregoing in paragraph (b) of this Article
Thirteen, the Exercise Period will be deferred in the event (a "Deferral
Event") that the Trust is otherwise prohibited under applicable law from
repurchasing Shares pursuant to the Rights. In the event the Exercise Period
is deferred, or if at any time the Trust reasonably anticipates that a Deferral
Event will exist, the Trust will, as soon as practicable, notify the
6
<PAGE> 7
Holders. If at the end of any fiscal quarter the Deferral Event ceases to
exist, notice shall be given to the Holders of the commencement of the deferred
Exercise Period, which Exercise Period shall commence no sooner than 15 days
nor more than 45 days from the date of such notice and which shall continue in
effect for a period of time equal in duration to the previously unexpired
portion of the Exercise Period. Notwithstanding any other provision of this
Declaration of Trust to the contrary, during the Exercise Period (including
during the existence of any Deferral Event), neither the Trust nor any
subsidiary may declare or pay any dividend or make any distribution on its
shares or to its shareholders (other than dividends or distributions payable in
its Shares or, in the case of any subsidiary, dividends payable to the Trust)
or purchase, redeem or otherwise acquire or retire for value, or permit any
subsidiary to purchase or otherwise acquire for value, any Shares of the Trust
if, upon giving effect to such dividend, distribution, purchase, redemption, or
other acquisition or retirement, the aggregate amount expended for all such
purposes (the amount expended for such purposes, if other than in cash, to be
determined by a majority of the Continuing Trust Managers, whose determination
shall be conclusive) would prejudice the ability of the Trust to satisfy its
maximum obligation to purchase Shares upon exercise of the Rights.
(e) Rights may be exercised upon surrender to the Trust's
principal transfer agent (the "Transfer Agent") at its principal office of the
Certificate or Certificates evidencing the Shares to be tendered for purchase
by the Trust, together with the form on the reverse thereof completed and duly
signed in accordance with the instructions thereon. In the event that a Holder
shall tender a Certificate which represents greater than the number of Shares
which the Holder elects to require the Trust to purchase upon exercise of the
Rights, the Holder shall designate on the reverse side of such Certificate the
number of Shares to be sold from such Certificate. The Transfer Agent shall
thereupon issue a new Certificate or Certificates for the balance of the number
of Shares not sold to the Trust, which new Certificate or Certificates shall
also represent Rights for an equivalent number of Shares.
(f) For the purposes of this Article:
(i) The term "Business Combination" shall mean (A) any
merger or consolidation, if and to the extent permitted by law, of the
Trust or a subsidiary, with or into a Related Person, (B) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition, of
all or any Substantial Part (as hereinafter defined) of the assets of
the Trust and its subsidiaries (taken as a whole) (including, without
limitation, any voting securities of a subsidiary) to or with a
Related Person, (C) the issuance or transfer by the Trust or a
subsidiary (other than by way of a pro rata distribution to all
shareholders) of any securities of the Trust or a subsidiary of the
Trust to a Related Person, (D) any reclassification of securities
(including any reverse Share split) or recapitalization by the Trust,
the effect of which would be to increase the voting power (whether or
not currently exercisable) of the Related Person, (E) the adoption of
any plan or proposal for the liquidation or dissolution of the Trust
proposed by or on behalf of a Related Person which involves any
transfer of assets, or any other transaction, in which the Related
Person has any direct or indirect interest (except proportionately as
a shareholder), (F) any series
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or combination of transactions having, directly or indirectly, the
same or substantially the same effect as any of the foregoing, and (G)
any agreement, contract or other arrangement providing, directly or
indirectly, for any of the foregoing.
(ii) The term "Continuing Trust Manager' shall mean (x)
any Trust Manager of the Trust who is not affiliated with a Related
Person and who was a Trust Manager immediately prior to the time that
the Related Person became a Related Person, and (y) any other Trust
Manager who is not affiliated with the Related Person and is
recommended either by a majority of the persons described in clause
(x) of this subparagraph (ii) or by persons described in this clause
(y) who are then Trust Managers of the Trust to succeed a person
described in either the said clause (x) or clause (y) as a Trust
Manager of the Trust.
(iii) The term "Fair Market Value" shall mean: (A) in the
case of securities, the highest closing sale price during the 30-day
period immediately preceding the date in question of such security on
the Composite Tape for New York Stock Exchange-Listed Stocks, or, if
such security is not quoted on the Composite Tape on the New York
Stock Exchange, or, if such security is not listed on such Exchange,
on the principal United States securities exchange registered under
the Exchange Act on which such security is listed, or, if such
security is not listed on any such exchange, the highest closing bid
quotation with respect to such security during the 30-day period
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotation System or any system then
in use, or if no such quotations are available, the fair market value
on the date in question of such security as reasonably determined by
an independent appraiser selected by a majority of the Continuing
Trust Managers (or, if there are no Continuing Trust Managers, by the
investment banking firm most recently retained by the Trust) in good
faith; and (B) in the case of property other than cash or stock, the
fair market value of such property on the date in question as
reasonably determined by an independent appraiser selected by a
majority of the Continuing Trust Managers (or, if there are no
Continuing Trust Managers, by the investment banking firm most
recently retained by the Trust) in good faith. In each case hereunder
in which an independent appraiser is to be selected to determine Fair
Market Value, (1) in the event (x) there are no Continuing Trust
Managers, and (y) the investment banking firm most recently retained
by the Trust is unable or elects not to serve as such appraiser, or
(2) in the event there are Continuing Trust Managers that do not
select an independent appraiser within 10 days of a request for such
appointment made by a Related Person, such independent appraiser may
be selected by such Related Person.
(iv) The term "Fair Price" shall mean the highest per-Share price
(which, to the extent not paid in cash, shall equal the Fair Market
Value of any other consideration paid), with appropriate adjustments
for recapitalizations and for Share splits, reverse Share splits and
Share dividends, paid by the Related Person in acquiring any of its
holdings of the Trust's Shares.
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(v) The term "Fair Tender Offer" shall mean a bona fide tender
offer for all of the Trust's Shares outstanding (and owned by persons
other than a Related Person if the tender offer is made by the Related
Person), whether or not such offer is conditional upon any minimum
number of Shares being tendered, in which the aggregate amount of cash
or the Fair Market Value of any securities or other property to be
received by all holders who tender their Shares for each Share so
tendered shall be at least equal to the then applicable Fair Price
paid by a Related Person or paid by the person making the tender offer
if such person is not a Related Person. In the event that at the time
such tender offer is commenced the terms and conduct thereof are not
directly regulated by Section 14(d) or 13(e) of the Exchange Act and
the general rules and regulations promulgated thereunder, then the
terms of such tender offer regarding the time such offer is held open
and regarding withdrawal rights shall conform in all respects with
such terms applicable to tender offers regulated by either of such
Sections of the Exchange Act. A Fair Tender Offer shall not be deemed
to be "consummated" until Shares are purchased and payment in full has
been made for all duly tendered Shares.
(vi) The term "Related Person" shall mean and include any
individual, corporation, partnership or other "person" (as defined in
Section 13(d)(3) of the Exchange Act), and the "Affiliates" and
"Associates" (as defined in Rule 12b-2 of the Exchange Act) of any such
individual, corporation, partnership or other person) which
individually or together is the "Beneficial Owner" (as defined in Rule
13d-3 of the Exchange Act) in the aggregate of more than 50% of the
outstanding Shares of the Trust, other than the Trust or any employee
benefit plan(s) sponsored by the Trust, except that an individual,
corporation, partnership or other person which individually or together
Beneficially Owns or upon conversion of debt securities (owned or with
regard to which such individual, corporation, partnership or other
person is committed to purchase as of the date of adoption of this
Declaration of Trust) would own in excess of 20% of the outstanding
Shares at the time this provision is adopted by vote of the Trust's
shareholders shall only be considered a Related Person at such time as
he, she, it or they acquire in the aggregate Beneficial Ownership of
more than 80% of the outstanding Shares.
(vii) The term "Substantial Part" shall mean more than 35% of the
book value of the total assets of the Trust and its subsidiaries
(taken as a whole) as of the end of the fiscal year ending prior to
the time the determination is being made.
(viii) Any person (as such term is defined in subsection (vi) of this
paragraph (f)) that has the right to acquire any Shares of the Trust
pursuant to any agreement, or upon the exercise of conversion rights,
warrants or options, or otherwise, shall be deemed a Beneficial Owner
of such Shares for purposes of determining whether such person,
individually or together with its Affiliates and Associates, is a
Related Person.
(ix) For purposes of subparagraph (iii) of paragraph (a) of this
Article Thirteen, the term "other consideration to be received" shall
include, without limitation,
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Shares of the Trust retained by its existing public shareholders in
the event of a Business Combination in which the Trust is the
surviving entity.
(g) The affirmative vote of the holders of not less than 80% of
the outstanding Shares of the Trust, including the affirmative vote of the
holders of not less than 50% of the outstanding Shares not owned, directly or
indirectly, by any Related Person (such 50% voting requirement shall not be
applicable if such amendment, alteration, change, repeal or rescission is
approved by the affirmative vote of not less than 80% of the outstanding
Shares) shall be required to amend, alter, change, repeal or rescind, or adopt
any provisions inconsistent with, this Article Thirteen.
(h) The provisions of this Article Thirteen shall be subject to
all valid and applicable laws, including, without limitation, the Texas REIT
Act, and, in the event this Article Thirteen or any of the provisions hereof
are found to be inconsistent with or contrary to any such valid laws, such laws
shall be deemed to control and this Article Thirteen shall be regarded as
modified accordingly, and, as so modified, to continue in full force and
effect.
ARTICLE FOURTEEN
The Trust Managers may from time to time declare, and the Trust may
pay, dividends on its outstanding Shares in cash, in property or in its Shares,
except that no dividend shall be declared or paid when the Trust is unable to
pay its debts as they become due in the usual course of its business, or when
the payment of such dividend would result in the Trust being unable to pay its
debts as they become due in the usual course of business.
ARTICLE FIFTEEN
Upon resolution adopted by the Trust Managers, the Trust shall be
entitled to purchase or redeem, directly or indirectly, its own Shares, subject
to any limitations of the Texas REIT Act.
ARTICLE SIXTEEN
(a) In this Article:
(i) "Indemnitee" means (A) any present or former Trust
Manager or officer of the Trust, (B) any person who while
serving in any of the capacities referred to in clause (A)
hereof served at the Trust's request as a trust manager,
director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another real estate
investment trust or foreign or domestic corporation,
partnership, joint venture, sole
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proprietorship, trust, employee benefit plan or other
enterprise and (C) any person nominated or designated by (or
pursuant to authority granted by) the Trust Managers or any
committee thereof to serve in any of the capacities referred
to in clauses (A) or (B) hereof.
(ii) "Official Capacity" means (A) when used with respect
to a Trust Manager, the office of Trust Manager of the Trust
and (B) when used with respect to a person other than a Trust
Manager, the elective or appointive office of the Trust held
by such person or the employment or agency relationship
undertaken by such person on behalf of the Trust, but in each
case does not include service for any other real estate
investment trust or foreign or domestic corporation or any
partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise.
(iii) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in
such an action, suit or proceeding, and any inquiry or
investigation that could lead to such an action, suit or
proceeding.
(b) The Trust shall indemnify every Indemnitee against all
judgments, penalties (including excise and similar taxes), fines, amounts paid
in settlement and reasonable expenses actually incurred by the Indemnitee in
connection with any Proceeding in which he or she was, is or is threatened to
be named defendant or respondent, or in which he or she was or is a witness
without being named a defendant or respondent, by reason, in whole or in part,
of his or her serving or having served, or having been nominated or designated
to serve, in any of the capacities referred to in paragraph (a)(i) of this
Article Sixteen, to the fullest extent that indemnification is permitted by
Texas law. An Indemnitee shall be deemed to have been found liable in respect
of any claim, issue or matter only after the Indemnitee shall have been so
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom. Reasonable expenses shall include, without limitation, all court
costs and all fees and disbursements of attorneys for the Indemnitee.
(c) Without limitation of paragraph (b) of this Article Sixteen
and in addition to the indemnification provided for in paragraph (b) of this
Article Sixteen, the Trust shall indemnify every Indemnitee against reasonable
expenses incurred by such person in connection with any proceeding in which he
or she is a witness or a named defendant or respondent because he or she served
in any of the capacities referred to in paragraph (a)(i) of this Article
Sixteen.
(d) Reasonable expenses (including court costs and attorneys'
fees) incurred by an Indemnitee who was or is a witness or was, is or is
threatened to be made a named defendant or respondent in a Proceeding shall be
paid or reimbursed by the Trust at reasonable intervals in advance of the final
disposition of such Proceeding after receipt by the Trust of a written
undertaking by or on behalf of such Indemnitee to repay the amount paid or
reimbursed by the Trust if it shall ultimately be determined that he or she is
not
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entitled to be indemnified by the Trust as authorized in this Article Sixteen.
Such written undertaking shall be an unlimited obligation of the Indemnitee but
need not be secured and it may be accepted without reference to financial
ability to make repayment. Notwithstanding any other provision of this Article
Sixteen, the Trust may pay or reimburse expenses incurred by an Indemnitee in
connection with his or her appearance as a witness or other participation in a
Proceeding at a time when he or she is not named a defendant or respondent in
the Proceeding.
(e) The indemnification provided by this Article Sixteen shall (i)
not be deemed exclusive of, or to preclude, any other rights to which those
seeking indemnification may at any time be entitled under the Trust's Bylaws,
any law, agreement or vote of shareholders or disinterested Trust Managers, or
otherwise, or under any policy or policies of insurance purchased and
maintained by the Trust on behalf of any Indemnitee, both as to action in his
or her Official Capacity and as to action in any other capacity, (ii) continue
as to a person who has ceased to be in the capacity by reason of which he or
she was an Indemnitee with respect to matters arising during the period he or
she was in such capacity, and (iii) inure to the benefit of the heirs,
executors and administrators of such a person.
(f) The provisions of this Article Sixteen (i) are for the benefit
of, and may be enforced by, each Indemnitee of the Trust, the same as if set
forth in their entirety in a written instrument duly executed and delivered by
the Trust and such Indemnitee and (ii) constitute a continuing offer to all
present and future Indemnitees. The Trust, by its adoption of this Declaration
of Trust, (x) acknowledges and agrees that each Indemnitee of the Trust has
relied upon and will continue to rely upon the provisions of this Article
Sixteen in becoming, and serving in any of the capacities referred to in
paragraph (a)(i) of this Article Sixteen, (y) waives reliance upon, and all
notice of acceptance of, such provisions by such Indemnitees and (z)
acknowledges and agrees that no present or future Indemnitee shall be
prejudiced in his or her right to enforce the provisions of this Article
Sixteen in accordance with their terms by any act or failure to act on the part
of the Trust.
(g) No amendment, modification or repeal of this Article Sixteen
or any provision of this Article Sixteen shall in any manner terminate, reduce
or impair the right of any past, present or future Indemnitees to be
indemnified by the Trust, nor the obligation of the Trust to indemnify any such
Indemnitees, under and in accordance with the provisions of this Article
Sixteen as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless
of when such claims may be asserted.
(h) If the indemnification provided in this Article Sixteen is
either (i) insufficient to cover all costs and expenses incurred by any
Indemnitee as a result of such Indemnitee being made or threatened to be made a
defendant or respondent in a Proceeding by reason of his or her holding or
having held a position named in paragraph (a)(i) of this Article Sixteen or
(ii) not permitted by Texas law, the Trust shall indemnify, to the fullest
extent that indemnification is permitted by Texas law, every Indemnitee with
respect to all costs and expenses incurred by such Indemnitee as a result of
such
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Indemnitee being made or threatened to be made a defendant or respondent in a
Proceeding by reason of his or her holding or having held a position named in
paragraph (a)(i) of this Article Sixteen.
(i) The indemnification provided by this Article Sixteen shall be
subject to all valid and applicable laws, including, without limitation, the
Texas REIT Act, and, in the event this Article Sixteen or any of the provisions
hereof or the indemnification contemplated hereby are found to be inconsistent
with or contrary to any such valid laws, such laws shall be deemed to control
and this Article Sixteen shall be regarded as modified accordingly, and, as so
modified, to continue in full force and effect.
ARTICLE SEVENTEEN
No Trust Manager or officer of the Trust shall be liable to the Trust
for any act, omission, loss, damage, or expense arising from the performance of
his or her duties under the Trust save only for his or her own willful
misfeasance or malfeasance or negligence. In discharging their duties to the
Trust, Trust Managers and officers of the Trust shall be entitled to rely upon
experts and other matters as provided in the Texas REIT Act and the Trust's
Bylaws.
ARTICLE EIGHTEEN
The number of Trust Managers may be increased from time to time by the
affirmative vote of the majority of the Trust Managers or decreased by the
unanimous vote of the Trust Managers. Each Trust Manager shall serve until his
or her successor is elected and qualified or until his or her death,
retirement, resignation or removal.
A Trust Manager may be removed by the vote of the holders of
two-thirds of the outstanding Shares at a special meeting of the shareholders
called for such purpose pursuant to the Trust's Bylaws.
ARTICLE NINETEEN
(a) No Person may own Shares of any class with an aggregate value
in excess of 9.8% of the aggregate value of all outstanding Shares of such
class of Shares or more than 9.8% of the number of outstanding Shares of any
class of Shares (the limitation on the ownership of outstanding Shares is
referred to in this Article Nineteen as the "Ownership Limit" and the 9.8%
threshold is referred to in this Article Nineteen as the "Percentage Limit"),
and no Securities (as hereinafter defined) shall be accepted, purchased, or in
any manner acquired by any Person if such issuance or transfer would result in
that Person's ownership of Shares exceeding the Percentage Limit. For purposes
of determining if the Ownership Limit is exceeded by a Person, Convertible
Securities (as hereinafter defined) owned by such Person shall be treated as if
the Convertible Securities owned by such Person had been converted into Shares
if the effect of such treatment
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would be to increase the ownership percentage of such Person in the Trust. The
Ownership Limit shall not apply (i) to acquisitions of Securities by any Person
that has made a tender offer for all outstanding Shares of the Trust (including
Convertible Securities) in conformity with applicable federal securities laws,
(ii) to the acquisition of Securities of the Trust by an underwriter in a
public offering of Securities of the Trust, or in any transaction involving the
issuance of Securities by the Trust, in which a majority of the Trust Managers
determines that the underwriter or other Person or party initially acquiring
such Securities will timely distribute such Securities to or among others so
that, following such distribution, none of such Securities will be Excess
Securities (as hereinafter defined), (iii) to the acquisition of Securities
pursuant to the exercise of employee share options, or (iv) to the acquisition
of Securities pursuant to an exception made pursuant to paragraph (h) hereof.
(b) Nothing in this Article Nineteen shall preclude the settlement
of any transaction in Securities entered into through the facilities of the New
York Stock Exchange. If any Securities are accepted, purchased, or in any
manner acquired by any Person resulting in a violation of paragraph (a) or (e)
hereof, such issuance or transfer shall be valid only with respect to such
amount of Securities issued or transferred as does not result in a violation of
paragraph (a) or (e) hereof, and such acceptance, purchase or acquisition shall
be void ab initio with respect to the amount of Securities that results in a
violation of paragraph (a) or (e) hereof (the "Excess Securities"), and the
intended transferee of such Excess Securities shall acquire no rights in such
Excess Securities except as set forth in subsection (d) below.
(c) Each shareholder shall, within ten days of demand by the
Trust, disclose to the Trust in writing such information with respect to his,
her or its ownership of shares as the Trust Managers in their discretion deem
necessary or appropriate in order that the Trust may fully comply with all
provisions of the Internal Revenue Code of 1986, as amended, and any successor
statute (the "Code") relating to REITs and all regulations, rulings and cases
promulgated or decided thereunder (the "REIT Provisions") and to comply with
the requirements of any taxing authority or governmental agency. All Persons
who own Shares of any class with an aggregate value in excess of 9.8% of the
aggregate value of such class of Shares or 9.8% of the number of outstanding
Shares of any class must disclose in writing such ownership information to the
Trust no later than January 31 of each year. Failure to provide such
information, upon reasonable request, shall result in the Securities so owned
being treated as Excess Securities pursuant to paragraph (b) hereof for so long
as such failure continues.
(d) The Excess Securities, and the owners thereof, shall have the
following characteristics, rights and powers:
(i) Upon any purported purchase, sale, exchange,
acquisition, disposition or other transfer or upon any change
in the capital structure of the Trust (including any
redemption of Securities) that results in Excess Securities
pursuant to paragraphs (a) or (e) of this Article Nineteen,
such Excess Securities shall be deemed to have been
transferred to the Trust, as trustee of a trust for the
exclusive benefit of such beneficiary or
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beneficiaries to whom an interest in such Excess Securities
may later be transferred pursuant to subparagraph (v) of this
subsection (d) ("Beneficial Trust"). Any such Excess
Securities so held in the Beneficial Trust shall be issued and
outstanding shares of the Trust. The purported transferee
shall have no rights in such Excess Securities except as
provided in subparagraph (v) of this subsection (d).
(ii) The holder of Excess Securities shall not be entitled
to receive any dividends, interest payments or other
distributions. Any dividend or distribution paid prior to the
discovery by the Trust that the Securities have become Excess
Securities shall be repaid to the Trust upon demand.
(iii) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution
of the assets of, the Trust, each holder of Excess Securities
shall be entitled to receive, ratably with each other holder
of Securities and Excess Securities, that portion of the
assets of the Trust available for distribution to its
shareholders. The Trust as holder of all Excess Securities in
the Beneficial Trust or if the Trust shall have been
dissolved, any trustee of such Beneficial Trust appointed by
the Trust prior to its dissolution, shall distribute ratably
to the beneficiaries of such Beneficial Trust any such assets
received in respect of the Excess Securities in any
liquidation, dissolution or winding up of, or any distribution
of the assets of, the Trust.
(iv) The holders of shares of Excess Securities shall not
be entitled to vote on any matters (except as required by
law).
(v) Except as otherwise provided in this Article
Nineteen, Excess Securities shall not be transferable. The
purported transferee may freely designate a beneficiary of an
interest in the Beneficial Trust (representing the number of
shares of Excess Securities that have not been acquired by the
Trust pursuant to subparagraph (vi) of this subsection (d)
that are held by the Beneficial Trust attributable to a
purported transfer that resulted in the Excess Securities), if
(A) the shares of Excess Securities held in the Beneficial
Trust would not be Excess Securities in the hands of such
beneficiary and (B) the purported transferee does not receive
a price from such beneficiary that reflects a price per share
for such Excess Securities that exceeds (x) the price per
share such purported transferee paid for the Securities in the
purported transfer that resulted in the Excess Securities, or
(y) if the purported transferee did not give value for such
Excess Securities (through a gift, devise or other
transaction), a price per share equal to the Market Price on
the date of the purported transfer that resulted in the Excess
Securities. Upon such transfer of an interest in the
Beneficial Trust, the corresponding shares of Excess
Securities in the Beneficial Trust shall be automatically
exchanged for an equal number of shares of the applicable
Securities and such Securities shall be transferred of record
to the transferee of the interest in the Beneficial Trust if
such Securities would not
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be Excess Securities in the hands of such transferee. Prior
to any transfer of any interest in the Beneficial Trust, the
purported transferee must give advance notice to the Trust of
the intended transfer and the Trust must have waived in
writing its purchase rights under subparagraph (vi) of this
subsection (d). Notwithstanding the foregoing, if a purported
transferee receives a price for designating a beneficiary of
an interest in the Beneficial Trust that exceeds the amounts
allowable under the foregoing provisions of this subparagraph
(v), such purported transferee shall pay, or cause such
beneficiary to pay, such excess to the Trust immediately upon
demand.
(vi) Excess Securities shall be deemed to have been
offered for sale to the Trust, or its designee, at a price per
share equal to the lesser of (A) the price per share in the
transaction that created such Excess Securities (or, in the
case of a devise or gift, the Market Price at the time of such
devise or gift) and (B) the Market Price on the date the
Trust, or its designee, accepts such offer. The Trust shall
have the right to accept such offer for a period of 90 days
after the later of (x) the date of the transfer which resulted
in such Excess Securities and (y) the date the Trust Managers
determine in good faith that a transfer resulting in Excess
Securities has occurred.
(e) Any sale, transfer, gift, assignment, devise or other
disposition of Shares (a "transfer") that, if effective, would result in (i)
the Shares of the Trust being owned by less than 100 persons (determined
without reference to any rules of attribution) shall be void ab initio as to
the Shares which would otherwise be beneficially owned by the transferee, (ii)
the Trust being "closely held" within the meaning of Section 856(h) of the
Code, shall be void ab initio as to the transfer of the Shares that would cause
the Trust to be "closely held" within the meaning of Section 856(h) of the
Code, (iii) the Trust owning, directly or indirectly, 10% or more of the
ownership interest in any tenant or subtenant of the Trust's real property
within the meaning of Section 856(d)(2)(B) of the Code and the Treasury
Regulations thereunder, shall be void ab initio, or (iv) the disqualification
of the Trust as a REIT shall be void ab initio as to the transfer of the Shares
that would cause the Trust to be disqualified as a REIT, and, in the case of
each of clauses (i), (ii), (iii) and (iv) of this paragraph (e), the intended
transferee shall acquire no rights in such Shares except as set forth in
subsection (d) above.
(f) For purposes of this Article Nineteen:
(i) The term "Convertible Securities" means any
securities of the Trust that are convertible into Shares.
(ii) The term "individual" shall mean any natural person
as well as those organizations treated as natural persons
under Section 542(a) of the Code.
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(iii) The term "Market Price" means the average of the last
reported sales price of Common Shares reported on the New York
Stock Exchange on the five trading days immediately preceding
the relevant date, or if the Common Shares are not then traded
on the New York Stock Exchange, the last reported sales price
of the Common Shares on the five trading days immediately
preceding the relevant date as reported on any exchange or
quotation system over which the Common Shares may be traded,
or if the Common Shares are not then traded over any exchange
or quotation system, then the market price of the Common
Shares on the relevant date as determined in good faith by the
Trust Managers.
(iv) The term "ownership" (including "own" or "owns") of
Shares means beneficial ownership. Beneficial ownership, for
this purpose shall be defined to include actual ownership by a
Person as well as constructive ownership by such Person after
application of principles in accordance with or by reference
to Sections 856 or 544 of the Code.
(v) The term "Person" includes an individual,
corporation, partnership, association, joint stock company,
limited liability company, trust, unincorporated association
or other entity and also includes a "group" as that term is
defined in Section 13(d)(3) of the Exchange Act.
(vi) The term "REIT" means a "real estate investment
trust" as defined in Section 856 of the Code and applicable
Treasury Regulations.
(vii) The term "Securities" means Shares and Convertible
Securities.
(g) If any of the restrictions on transfer set forth in this
Article Nineteen are determined to be void, invalid or unenforceable by virtue
of any legal decision, statute, rule or regulation, then the intended
transferee of any Excess Securities may be deemed, at the option of the Trust,
to have acted as an agent on behalf of the Trust in acquiring the Excess
Securities and to hold the Excess Securities on behalf of the Trust.
(h) The Percentage Limit set forth in paragraph (a) hereof shall
not apply to Securities which the Trust Managers in their sole discretion may
exempt from the Percentage Limit while owned by a Person who has provided the
Trust with evidence and assurances acceptable to the Trust Managers that the
qualification of the Trust as a REIT would not be jeopardized thereby. The
Trust Managers, in their sole discretion, may at any time revoke any exception
pursuant to this paragraph (h) in the case of any Person, and upon such
revocation, the provisions of paragraph (a) hereof shall immediately become
applicable to such Person and all Securities which such Person may own. A
decision to exempt or refuse to exempt from the Percentage Limit the ownership
of certain designated Securities, or to revoke an exemption previously granted,
shall be made by the Trust Managers in their sole discretion, based on any
reason whatsoever, including, but not limited to, the preservation of the
Trust's qualification as a REIT.
17
<PAGE> 18
(i) Subject to the provisions of the first sentence of paragraph
(b) hereof, nothing herein contained shall limit the ability of the Trust to
impose or to seek judicial or other imposition of additional restrictions if
deemed necessary or advisable to protect the Trust and the interests of its
security holders by preservation of the Trust's status as a qualified REIT
under the Code.
(j) All Persons who own 5% or more of the Trust's outstanding
Shares during any taxable year of the Trust shall file with the Trust an
affidavit setting forth the number of Shares during such taxable year (i) owned
directly (held of record by such Person or by a nominee or nominees of such
Person) and (ii) constructively owned (within the meaning of Section 544 of the
Code or for purposes of Rule 13(d) of the Exchange Act) by the Person filing
the affidavit. The affidavit to be filed with the Trust shall set forth all
the information required to be reported (i) in returns of shareholders under
Section 1.857-9 of the Treasury Regulations or similar provisions of any
successor Treasury Regulations and (ii) in reports to be filed under Section
13(d) of the Exchange Act. The affidavit or an amendment to a previously filed
affidavit shall be filed with the Trust annually within 60 days after the close
of the Trust's taxable year. A Person shall have satisfied the requirements of
this paragraph (j) if the person furnishes to the Trust the information in such
person's possession after such person has made a good faith effort to determine
the Shares it owns and to acquire the information required by income tax
regulation 1.857-9 or similar provisions of any successor regulation.
ARTICLE TWENTY
The Board of Trust Managers shall use its best efforts to cause the
Trust and its shareholders to qualify for U.S. federal income tax treatment in
accordance with the provisions of the Code applicable to REITs. In furtherance
of the foregoing, the Board of Trust Managers shall use its best efforts to
take such actions as are necessary, and may take such actions as it deems
desirable (in its sole discretion) to preserve the status of the Trust as a
REIT.
ARTICLE TWENTY-ONE
Special meetings of the shareholders for any purpose or purposes,
unless otherwise prescribed by law or by the Declaration of Trust, may be
called by the Trust Managers, any officer of the Trust or the holders of at
least five percent (5%) of all of the shares entitled to vote at such meeting.
ARTICLE TWENTY-TWO
This Declaration of Trust may be amended from time to time by the
affirmative vote of the holders of at least two-thirds of the outstanding
voting Shares, except that (i) Article Eleven hereof (relating to the
prohibition against engaging in non-real estate investment trust businesses);
(ii) Article Thirteen hereof (relating to the approval of
18
<PAGE> 19
Business Combinations); (iii) Article Eighteen hereof (relating to the number
and removal of Trust Managers); (iv) Article Nineteen hereof (relating to Share
ownership requirements); and (v) this Article Twenty-Two may not be amended or
repealed, and provisions inconsistent therewith and herewith may not be
adopted, except by the affirmative vote of the holders of at least 80% of the
outstanding voting Shares.
ARTICLE TWENTY-THREE
If any provision of this Declaration of Trust or any application of
any such provision is determined to be invalid by any federal or state court
having jurisdiction over the issue, the validity of the remaining provisions
shall not be affected and other applications of such provision shall be
affected only to the extent necessary to comply with the determination of such
court. In lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Declaration of Trust, a legal,
valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible, and the parties hereto request the
court or any arbitrator to whom disputes relating to this Declaration of Trust
are submitted to reform the otherwise illegal, invalid or unenforceable
provision in accordance with this Article Twenty-Three.
19
<PAGE> 20
IN WITNESS WHEREOF, the undersigned Trust Managers do hereby execute
this First Amended and Restated Declaration of Trust as of the 9th day of
June, 1997.
/s/ WILLIAM C. BROOKS
--------------------------------------
WILLIAM C. BROOKS
/s/ JERRY M. COLEMAN
--------------------------------------
JERRY M. COLEMAN
/s/ JOSEF C. HERMANS
--------------------------------------
JOSEF C. HERMANS
/s/ ROBERT W. SCHARAR
--------------------------------------
ROBERT W. SCHARAR
20
<PAGE> 21
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned Notary Public, duly commissioned and
qualified within and for the State and County aforesaid, personally came and
appeared William C. Brooks, in his capacity as Trust Manager of United
Investors Realty Trust, and acknowledged to me that he executed the foregoing
instrument on behalf of the said United Investors Realty Trust, as his own free
and voluntary act and deed, for the uses, purposes and considerations therein
expressed.
GIVEN under my hand and seal of office this 9th day of June, 1997.
[SEAL] /s/ MARI E. ANGELO
------------------------
Notary Public
My commission expires: APRIL 9, 2001
----------------
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned Notary Public, duly commissioned and
qualified within and for the State and County aforesaid, personally came and
appeared Jerry M. Coleman, in his capacity as Trust Manager of United Investors
Realty Trust, and acknowledged to me that he executed the foregoing instrument
on behalf of the said United Investors Realty Trust, as his own free and
voluntary act and deed, for the uses, purposes and considerations therein
expressed.
GIVEN under my hand and seal of office this 9th day of June, 1997.
[SEAL] /s/ MARI E. ANGELO
-----------------------
Notary Public
My commission expires: APRIL 9, 2001
----------------
21
<PAGE> 22
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned Notary Public, duly commissioned and
qualified within and for the State and County aforesaid, personally came and
appeared Josef C. Hermans in his capacity as Trust Manager of United Investors
Realty Trust, and acknowledged to me that he executed the foregoing instrument
on behalf of the said United Investors Realty Trust, as his own free and
voluntary act and deed, for the uses, purposes and considerations therein
expressed.
GIVEN under my hand and seal of office this 9th day of June, 1997.
[SEAL] /s/ MARI E. ANGELO
------------------------
Notary Public
My commission expires: APRIL 9, 2001
----------------
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned Notary Public, duly commissioned and
qualified within and for the State and County aforesaid, personally came and
appeared Robert W. Scharar, in his capacity as Trust Manager of United
Investors Realty Trust, and acknowledged to me that he executed the foregoing
instrument on behalf of the said United Investors Realty Trust, as his own free
and voluntary act and deed, for the uses, purposes and considerations therein
expressed.
GIVEN under my hand and seal of office this 9th day of June, 1997.
[SEAL] /s/ MARI E. ANGELO
----------------------
Notary Public
My commission expires: APRIL 9, 2001
----------------
22
<PAGE> 1
EXHIBIT 3.2
FIRST AMENDED AND RESTATED
BYLAWS
OF
UNITED INVESTORS REALTY TRUST
ADOPTED BY
TRUST MANAGERS
AS OF JUNE 1, 1997.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
ARTICLE I OFFICES
Section 1.1 Principal Office 1
Section 1.2 Other Offices 1
ARTICLE II MEETINGS OF SHAREHOLDERS
Section 2.1 Place of Meetings 1
Section 2.2 Annual Meeting 1
Section 2.3 Special Meetings 1
Section 2.4 Notice of Meetings 1
Section 2.5 Business at Annual Meeting 2
Section 2.6 Voting Lists 3
Section 2.7 Quorum 3
Section 2.8 Organization 3
Section 2.9 Proxies 4
Section 2.10 Voting of Shares 4
Section 2.11 Voting of Shares by Certain Holders 4
Section 2.12 Election of Trust Managers 5
Section 2.13 Telephone Meetings 5
Section 2.14 Action Without Meeting 5
Section 2.15 Inspectors and Voting Procedures 5
ARTICLE III TRUST MANAGERS
Section 3.1 Powers and Responsibilities 6
Section 3.2 Number and Qualification 6
Section 3.3 Election and Term of Office 7
Section 3.4 Nomination of Trust Managers 7
Section 3.5 Resignation 8
Section 3.6 Removal 8
Section 3.7 Vacancies 9
Section 3.8 Bond Not Required; Time Commitment 9
Section 3.9 Compensation 9
Section 3.10 Execution of Documents 9
ARTICLE IV MEETINGS OF THE TRUST MANAGERS
Section 4.1 Place of Meetings 9
Section 4.2 Annual Meeting 9
Section 4.3 Regular Meetings 9
Section 4.4 Special Meetings 10
Section 4.5 Quorum and Action 10
Section 4.6 Presumption of Assent to Action 10
Section 4.7 Telephone Meetings 10
Section 4.8 Action Without Meeting 10
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
Section 4.9 Minutes 10
Section 4.10 Interest of Trust Managers 10
Section 4.11 Right of Trust Managers and Officers
to Own Shares or Other Property and
to Engage in Other Business 11
Section 4.12 Transactions Between Trust Managers and the Trust 11
Section 4.13 Persons Dealing with Trust Managers or Officers 11
Section 4.14 Reliance 11
Section 4.15 Liability of Trust Managers 12
ARTICLE V COMMITTEES OF THE TRUST MANAGERS
Section 5.1 Membership and Authorities 12
Section 5.2 Minutes and Rules of Procedure 12
Section 5.3 Vacancies 12
Section 5.4 Telephone Meetings 12
Section 5.5 Action Without Meeting 13
Section 5.6 Executive Committee 13
ARTICLE VI OFFICERS
Section 6.1 Number 13
Section 6.2 Election, Term of Office and Qualification 13
Section 6.3 Subordinate Officers 13
Section 6.4 Resignation 13
Section 6.5 Removal 13
Section 6.6 Vacancies 14
Section 6.7 Chairman 14
Section 6.8 The Chief Executive Officer 14
Section 6.9 The President 14
Section 6.10 The Vice Presidents 14
Section 6.11 The Secretary 15
Section 6.12 Assistant Secretaries 15
Section 6.13 The Treasurer 15
Section 6.14 Assistant Treasurers 15
Section 6.15 Treasurer's Bond 16
Section 6.16 Salaries 16
Section 6.17 Execution of Documents 16
ARTICLE VII TRUST SHARES
Section 7.1 Share Certificates 16
Section 7.2 Lost Certificates, etc. 17
Section 7.3 Transfer of Shares 17
Section 7.4 Ownership of Shares 17
Section 7.5 Closing of Transfer Books 17
Section 7.6 Dividends 18
Section 7.7 Reserves 18
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII INDEMNIFICATION
Section 8.1 Definitions 18
Section 8.2 Indemnification 18
Section 8.3 Successful Defense 19
Section 8.4 Determinations 19
Section 8.5 Advancement of Expenses 20
Section 8.6 Employee Benefit Plans 20
Section 8.7 Other Indemnification and Insurance 20
Section 8.8 Notice 20
Section 8.9 Construction 21
Section 8.10 Continuing Offer, Reliance, etc. 21
Section 8.11 Effect of Amendment 21
ARTICLE IX ADVISOR AND OTHER AGENTS; ANNUAL OPERATING EXPENSES
Section 9.1 Employment of Advisor, Employees, Agents, etc. 21
Section 9.2 Term 22
Section 9.3 Activities of the Advisor 22
Section 9.4 Services to be Provided by Advisor 22
Section 9.5 Compensation to the Advisor 23
ARTICLE X GENERAL PROVISIONS
Section 10.1 General Policies 23
Section 10.2 Limited Liability of Shareholders 23
Section 10.3 Waiver of Notice 23
Section 10.4 Seal 24
Section 10.5 Fiscal Year 24
Section 10.6 Checks, Notes, etc. 24
Section 10.7 Examination of Books and Records 24
Section 10.8 Voting Upon Shares Held by the Trust 24
Section 10.9 Number, Gender, Etc. 24
Section 10.10 Annual and Quarterly Dividends 24
Section 10.11 Independent Committee 25
ARTICLE XI AMENDMENTS
Section 11.1 Amendment of Bylaws 25
ARTICLE XII SUBJECT TO ALL LAWS
Section 12.1 Subject to All Laws 25
June 9, 1997
</TABLE>
iv
<PAGE> 5
UNITED INVESTORS REALTY TRUST
FIRST AMENDED AND RESTATED BYLAWS
I. ARTICLE
OFFICES
SECTION PRINCIPAL OFFICE. The principal office of the Trust shall
be in the City of Houston, Harris County, Texas or at such other location as
the Trust Managers may from time to time determine.
SECTION 1.2 OTHER OFFICES. The Trust may also have offices at
such other places, both within and without the State of Texas, as the Trust
Managers may from time to time determine or the business of the Trust may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1 PLACE OF MEETINGS. The Trust Managers may designate
any place, either within or without the State of Texas, as the place of meeting
for any annual meeting or for any special meeting called by the Trust Managers.
A waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Texas, as the place
for the holding of such meeting. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be the principal office
of the Trust.
SECTION 2.2 ANNUAL MEETING. The annual meeting of shareholders
shall be held at such time, on such day and at such place as may be designated
by the Trust Managers. At the annual meeting, the shareholders shall, subject
to Section 2.5 and Section 3.3 of these Bylaws, elect Trust Managers and
transact such other business as may properly be brought before the meeting.
Failure to hold the annual meeting at the designated time shall not cause the
dissolution of the Trust.
SECTION 2.3 SPECIAL MEETINGS. Special meetings of the
shareholders for any purpose or purposes, unless otherwise prescribed by law or
by the Declaration of Trust, may be called by the Trust Managers, any executive
officer of the Trust or the holders of at least five percent (5%) of all of the
shares entitled to vote at the meetings. Business transacted at all special
meetings shall be confined to the purpose or purposes stated in the call.
SECTION 2.4 NOTICE OF MEETINGS. Written or printed notice of all
meetings of shareholders stating the place, day and hour thereof, and in the
case of a special meeting the purpose or purposes for which the meeting is
called, shall be personally delivered or mailed, not less than ten (10) days
nor more than sixty (60) days prior to the date of the meeting, to the
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States Mail
addressed to the shareholder
<PAGE> 6
at his address as it appears on the share transfer books of the Trust and the
postage shall be prepaid. Personal delivery of any such notice to any officer
of a corporation or association, or to any member of a partnership, shall
constitute delivery of such notice to such corporation, association or
partnership.
SECTION 2.5 BUSINESS AT ANNUAL MEETING. No business may be
transacted at an annual meeting of shareholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Trust Managers (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Trust Managers (or any duly authorized committee thereof) or
(c) otherwise properly brought before the annual meeting by any shareholder of
the Trust (i) who is a shareholder of record on the date of the giving of the
notice provided for in this Section 2.5 and on the record date for the
determination of shareholders entitled to vote at such annual meeting, and (ii)
who complies with the notice procedures set forth in this Section 2.5.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a shareholder, such shareholder
must have given timely notice thereof in proper written form to the Secretary
of the Trust. To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal office of the Trust (i)
with respect to the Trust's first annual meeting of shareholders following the
adoption of this bylaw, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which public disclosure of the adoption of this Section 2.5 is first
made and (ii) thereafter, not less than sixty (60) days nor more than ninety
(90) days prior to the date of the applicable annual meeting of shareholders,
provided, however, that in the event that less than seventy (70) days' notice
or prior public disclosure of the date of the meeting be given or made, notice
by the shareholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the applicable annual meeting was mailed or such public disclosure of
the date of such annual meeting was made, whichever first occurs. For purposes
of this Section 2.5, the date of a public disclosure shall include, but not be
limited to, the date on which such disclosure is made in a press release
reported by the Dow Jones News Services, the Associated Press or any comparable
news service or in a document publicly filed by the Trust with the Securities
and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or the rules and
regulations promulgated thereunder) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
To be in proper written form, a shareholder's notice to the Secretary
must set forth as to each matter such shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such shareholder, (iii) the
number of shares of the Trust that are owned beneficially or of record by such
shareholder, (iv) a description of all arrangements or understandings between
such shareholder and any other person or persons (including their names) in
connection with the proposal of such business by such shareholder and any
material interest of such shareholder in such business, and (v) a
representation that such shareholder intends to appear in person or by proxy at
the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of shareholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 2.5; provided, however, that, once
business has been properly brought before the annual
2
<PAGE> 7
meeting in accordance with such procedures, nothing in this Section 2.5 shall
be deemed to preclude discussion by any shareholder of any such business. If
the presiding officer of an annual meeting determines that business was not
properly brought before the annual meeting in accordance with the foregoing
procedures, the presiding officer shall declare to the meeting that the
business was not properly brought before the meeting and such business shall
not be transacted.
SECTION 2.6 VOTING LISTS. The officer or agent having charge of
the share transfer books for shares of the Trust shall make, at least ten (10)
days before each meeting of the shareholders, a complete list of shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of each shareholder and the number of
shares held by each shareholder, which list, for a period of ten (10) days
prior to such meeting, shall be kept on file at the registered office of the
Trust and shall be subject to inspection by any shareholders at any time during
usual business hours. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder for the duration of the meeting. The original share transfer books
shall be prima facie evidence as to who are the shareholders entitled to
examine such list or transfer books or to vote at any meeting of shareholders.
Failure to comply with this Section 2.6 with respect to any meeting of
shareholders shall not affect the validity of any action taken at such meeting.
SECTION 2.7 QUORUM. The holders of a majority of the shares
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at all meetings of the shareholders for the transaction of business,
except as otherwise provided by law or by the Declaration of Trust. If,
however, such quorum shall not be present or represented at any meeting of the
shareholders, the shareholders entitled to vote at such meeting, present in
person or represented by proxy, shall have the power to adjourn the meeting
from time to time without notice other than announcement at the meeting until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally convened. The
shareholders present at a duly organized meeting at which a quorum was present
may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum present, provided
that there remain at such meeting the holder or holders of at least one-third
(1/3) of the shares issued and outstanding and entitled to vote thereof,
present in person or represented in the manner specified above. A holder of a
share shall be treated as being present at a meeting if the holder of such
share is (i) present in person at the meeting, or (ii) represented at the
meeting by a valid proxy, whether the instrument granting such proxy is marked
as casting a vote or abstaining, is left blank or does not empower such proxy
to vote with respect to some or all matters to be voted upon at the meeting.
SECTION 2.8 ORGANIZATION. (a) The Chairman of the Trust
Managers, if one shall be elected, shall preside at all meetings of the
shareholders. In the absence of the Chairman or should one not be elected, the
following officers shall preside in order of priority: Chief Executive
Officer, President, Chief Financial Officer, Chief Operating Officer or
Secretary. If no such officer is available, the meeting shall be adjourned
until such an officer is available to preside over the meeting. The presiding
officer shall set the agenda for the meeting, shall conduct all aspects of the
meeting and shall establish and interpret the rules of order for the conduct of
the meeting.
3
<PAGE> 8
(b) The Secretary of the Trust shall act as secretary at all
meetings of the shareholders. In his or her absence an Assistant Secretary
shall so act and in the absence of all of these officers the presiding officer
may appoint any person to act as secretary of the meeting.
SECTION 2.9 PROXIES. (a) At any meeting of the shareholders
every shareholder entitled to vote at such meeting shall be entitled to vote in
person or by proxy executed in writing by such shareholder or by his duly
authorized attorney-in-fact. Proxies shall be filed with the Secretary or
Trust Managers immediately after the meeting has been called to order.
(b) No proxy shall be valid after eleven (11) months from the date
of its execution unless such proxy otherwise provides.
(c) A proxy shall be revocable unless the proxy form conspicuously
states that the proxy is irrevocable and the proxy is coupled with an interest
but in no event shall it remain irrevocable for a period of more than eleven
(11) months. A proxy which is revocable as aforesaid may be revoked at any
time by filing with the Secretary an instrument revoking it or a duly executed
proxy bearing a later date. Any revocable proxy which is not so revoked shall,
subject to paragraph (b) above, continue in full force and effect.
(d) In the event that any instrument in writing shall designate
two (2) or more persons to act as proxies, a majority of such persons present
at the meeting or, if only one shall be present, then that one, shall have and
may exercise all of the powers conferred by such written instrument upon all
the persons so designated unless the instrument shall otherwise provide.
SECTION 2.10 VOTING OF SHARES. Except as otherwise provided by
law, the Declaration of Trust or these Bylaws, each shareholder shall be
entitled at each meeting of shareholders to one (1) vote on each matter
submitted to a vote at such meeting for each share having voting rights
registered in his name on the books of the Trust at the time of the closing of
the share transfer books (or at the record date) for such meeting. When a
quorum is present at any meeting (and notwithstanding the subsequent withdrawal
of enough shareholders to leave less than a quorum present) in accordance with
Section 2.7 of these Bylaws, the votes of holders of a majority of the shares
entitled to vote, present in person or represented by proxy, shall decide any
matter submitted to such meeting, unless the matter is one upon which by law or
by express provision of the Declaration of Trust or of these Bylaws the vote of
a greater number is required, in which case the vote of such greater number
shall govern and control the decision of such matter. In determining the
number of shares entitled to vote, shares abstaining from voting or not voted
on a matter (including elections) will be counted in determining if a quorum is
present but shall not otherwise be treated as entitled to vote. The provisions
of this Section 2.10 will govern with respect to all votes of shareholders
except as otherwise provided for in these Bylaws or in the Declaration of Trust
or by some specific statutory provision superseding the provisions contained in
these Bylaws or the Declaration of Trust.
SECTION 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. (a) Shares
standing in the name of another business organization may be voted by such
officer, agent or proxy as the organizational documents of such organization
may authorize or, in the absence of such authorization, as may be determined by
the governing body of such organization.
4
<PAGE> 9
(b) Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name so long as such shares forming a part of
an estate are in the possession and form a part of the estate being served by
him. Shares standing in the name of a trustee may be voted by him, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name as trustee.
(c) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the court by which such receiver was
appointed.
(d) A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
SECTION 2.12 ELECTION OF TRUST MANAGERS. At each election for
Trust Managers, each shareholder entitled to vote at such election shall,
unless otherwise provided by the Declaration of Trust or by applicable law,
have the right to vote the number of shares owned by him for as many persons as
there are to be elected and for whose election he has a right to vote. Unless
otherwise provided by the Declaration of Trust, no shareholder shall have the
right or be permitted to cumulate his votes on any basis.
SECTION 2.13 TELEPHONE MEETINGS. Shareholders may participate in
and hold a meeting of the shareholders by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to
this Section shall constitute presence in person at such meeting, except where
a person participates in the meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened.
SECTION 2.14 ACTION WITHOUT MEETING. Any action required by any
provision of law or of the Declaration of Trust or these Bylaws to be taken at
a meeting of the shareholders or any action which may be taken at a meeting of
the shareholders may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof, and such consent
shall have the same force and effect as a unanimous vote of the shareholders.
SECTION 2.15 INSPECTORS AND VOTING PROCEDURES. (a) The Trust
shall, in advance of any meeting of shareholders, appoint one or more
inspectors to act at the meeting and make a written report thereof. The Trust
may designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act at a
meeting of shareholders, the person presiding at the meeting shall appoint one
or more inspectors to act at the meeting. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable
5
<PAGE> 10
period a record of the disposition of any challenges made to any determination
by the inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(c) The date and time of the opening and closing of the polls for
each matter upon which the shareholders will vote at a meeting shall be
announced at the meeting. No ballots, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless a court of appropriate jurisdiction, upon
application by a shareholder, shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors may examine and consider such records or factors as
allowed by the Texas Real Estate Investment Trust Act (the "Texas REIT Act").
ARTICLE III
TRUST MANAGERS
SECTION 3.1 POWERS AND RESPONSIBILITIES. The business and
affairs of the Trust shall be managed under the direction of its Trust Managers
who may exercise all such powers of the Trust and do all such lawful acts and
things as are not by statute, the Declaration of Trust or these Bylaws directed
or required to be exercised or done by the shareholders. The enumeration of
any specific power or authority herein shall not be construed as limiting the
aforesaid powers or the general powers or authority or any other specified
power or authority conferred herein upon the Trust Managers. Among other
things, the Trust Managers shall be responsible for (a) supervising the Trust's
relations with the Trust's advisor, if any, and the managers of the Trust's
properties, (b) evaluating the capability and performance of the managers of
the Trust's properties, (c) reviewing the Trust's investment policies, (d)
determining that the fees and expenses of the Trust are reasonable, (e)
reviewing the aggregate borrowings of the Trust, (f) authorizing the issuance
of the capital stock of the Trust, (g) approving the acquisition and
disposition of real property and interests therein, (h) ratifying the
appointments of independent accountants for the Trust, and (i) establishing and
reviewing guidelines for leasing and management of the Trust's properties.
SECTION 3.2 NUMBER AND QUALIFICATION. There shall at all times
be no less than two (2) nor more than nine (9) Trust Managers who shall be
elected annually by the shareholders. Subject to any limitations specified by
law or in the Declaration of Trust, the number of Trust Managers may be fixed
from time to time by resolution adopted by a majority of the Trust Managers.
No decrease in the number of Trust Managers shall have the effect of shortening
the term of any incumbent Trust Manager. A majority of the Trust Managers
shall be natural persons. Trust Managers need not be shareholders, must be at
least eighteen (18) years of age, must not be subject to any legal disability
and, except as provided in the immediately preceding sentence, need not be
residents of the State of Texas. A majority of the Trust Managers and a
majority of any committee of Trust Managers shall at all times be Independent
Trust Managers; provided, however, if the number of Trust Managers shall be two
(2), only one (1) of such Trust Managers shall be required to be an Independent
Trust Manager. For purposes of these Bylaws, the term "Independent Trust
Manager" shall mean a
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Trust Manager who (i) does not perform any services for the Trust (except in
the capacity of a Trust Manager) whether as an agent, advisor, consultant,
employee, property manager or in any other capacity whatsoever (other than as a
Trust Manager), and (ii) is not an "affiliate" of any person or entity that
performs any services for the Trust (other than as a Trust Manager). The term
"affiliate" as used in these Bylaws means any individual, corporation,
partnership, trust, unincorporated organization, association or other entity
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with any person or entity that
performs any services for the Trust (other than as a Trust Manager).
SECTION 3.3 ELECTION AND TERM OF OFFICE. The Trust Manager
nominees who have not been previously elected as Trust Managers by the
shareholders of the Trust shall be elected at the annual meeting of the
shareholders (except as provided in Section 3.7) by the affirmative vote of the
holders of majority of the outstanding shares of the Trust. Trust Managers who
have been previously elected as Trust Managers by the shareholders of the Trust
shall be re-elected at the annual meeting of the shareholders by the
affirmative vote of the holders of a majority of the outstanding shares of the
Trust present in person or represented by proxy at such meeting; provided,
however, that any Trust Manager that has been previously elected as a Trust
Manager by the shareholders who is not re-elected by such majority vote at a
subsequent annual meeting shall nevertheless remain in office until his
successor is elected and qualified. Each Trust Manager shall hold office until
his successor is elected and qualified, or until his death, resignation or
removal in the manner provided in these Bylaws.
SECTION 3.4 NOMINATION OF TRUST MANAGERS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as Trust Managers of the Trust. Nominations of persons for election
as Trust Managers may be made at any annual meeting of shareholders (a) by or
at the direction of the Trust Managers (or any duly authorized committee
thereof) or (b) by any shareholder of the Trust (i) who is a shareholder of
record on the date of the giving of the notice provided for in this Section 3.4
and on the record date for the determination of shareholders entitled to vote
at such annual meeting, and (ii) who complies with the notice procedures set
forth in this Section 3.4.
In addition to any other applicable requirements, for a nomination to
be made by a shareholder, such shareholder must have given timely notice
thereof in proper written form to the Secretary of the Trust. To be timely, a
shareholder's notice to the Secretary must be delivered to or mailed and
received at the principal offices of the Trust (i) with respect to the Trust's
first annual meeting of shareholders following the adoption of this bylaw,
notice by the shareholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which public
disclosure of the adoption of this Section 3.4 is first made and (ii)
thereafter, not less than sixty (60) days nor more than ninety (90) days prior
to the date of the applicable annual meeting of shareholders; provided,
however, that in the event that less than seventy (70) days' notice or prior
public disclosure of the date of the meeting is given or made, notice by the
shareholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the applicable annual meeting was mailed or such public disclosure of
the date of such annual meeting was made, whichever first occurs. For purposes
of this Section 3.4, the date of a public disclosure shall include, but not be
limited to, the date on which such disclosure is made in a press release
reported by the Dow Jones News Services, the Associated Press or any comparable
national news service or in a document publicly filed by the Trust with the
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Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) (or the
rules and regulations promulgated thereunder) of the Exchange Act.
To be in proper written form, a shareholder's notice to the Secretary
must set forth (a) as to each person whom the shareholder proposes to nominate
for election as a Trust Manager (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the number of shares of the Trust that are owned beneficially
or of record by the person, and (iv) any other information relating to the
person that would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitation of proxies for
election of Trust Managers pursuant to Section 14 of the Exchange Act, and (b)
as to the shareholder giving the notice (i) the name and record address of such
shareholder, (ii) the number of shares of the Trust that are owned beneficially
or of record by such shareholder, (iii) a description of all arrangements or
understandings between such shareholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by such shareholders, (iv) a representation that such
shareholder intends to appear in person or by proxy at the meeting to nominate
the persons named in the notice, and (v) any other information relating to such
shareholder that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies
for election of Trust Managers pursuant to Section 14 of the Exchange Act and
the rules and regulations promulgated thereunder. Such notice must be
accompanied by a written consent of each proposed nominee to being named as a
nominee and to serve as a Trust Manager if elected.
No person shall be eligible for election as a Trust Manager of the
Trust unless nominated in accordance with the procedures set forth in this
Section 3.4. If the presiding officer of the meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
presiding officer shall declare to the meeting that the nomination was
defective and such defective nomination shall be disregarded.
SECTION 3.5 RESIGNATION. Any Trust Manager may resign at any
time by giving written notice to the remaining Trust Managers. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. A Trust Manager judged incompetent or for whom
a guardian or conservator has been appointed, shall be deemed to have resigned
as of the date of such adjudication or appointment.
SECTION 3.6 REMOVAL. A Trust Manager may be removed at any time
with or without cause by the vote of holders of shares representing two-thirds
(2/3) of the total votes authorized to be cast by shares then outstanding and
entitled to vote thereon. Upon the resignation or removal of any Trust
Manager, or his otherwise ceasing to be a Trust Manager, he shall execute and
deliver such documents as the remaining Trust Managers shall require for the
conveyance of any Trust property held in his name, shall account to the
remaining Trust Managers as they require for all property which he holds as
Trust Manager and shall thereupon be discharged as Trust Manager. Upon the
incapacity or death of any Trust Manager, his legal representative shall
perform the acts set forth in the preceding sentence and the discharge
mentioned therein shall run to such legal representative and to the
incapacitated Trust Manager or the estate of the deceased Trust Manager, as the
case may be.
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SECTION 3.7 VACANCIES. If any or all of the Trust Managers cease
to be Trust Managers 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 Trust Manager
or Trust Managers (even though fewer than three) may exercise the powers of the
Trust Managers hereunder. Vacancies may be filled by successor Trust Managers
either appointed by a majority of the remaining Trust Managers or elected by
the vote of the holders of at least a majority of the outstanding shares at an
annual or special meeting of the shareholders. Any Trust Manager elected to
fill a vacancy created by the resignation, removal, incapacity or death of a
former Trust Manager shall hold office for the unexpired term of such former
Trust Manager. The election of a successor Trust Manager shall be considered
an amendment to the Declaration of Trust.
SECTION 3.8 BOND NOT REQUIRED; TIME COMMITMENT. Unless otherwise
required by law, no Trust Manager shall be required to give bond, surety or
security in any jurisdiction for the performance of his duties or obligations
to the Trust. No Trust Manager shall be required to devote his entire time to
the business and affairs of the Trust.
SECTION 3.9 COMPENSATION. Trust Managers shall receive
compensation for their services to the Trust as may be determined from time to
time by the Trust Managers; provided, however, that the cash compensation of
the Trust Managers shall not be increased by more than 20% over the prior year
without the approval of the holders of a majority of the shares cast at the
annual meeting of shareholders of the Trust. The Trust Managers may delegate
to any committee the power to fix from time to time the compensation of Trust
Managers. Officers of the Trust who also serve as Trust Managers shall not
receive compensation for their service as Trust Managers.
SECTION 3.10 EXECUTION OF DOCUMENTS. Each Trust Manager and any
one of them is authorized to execute on behalf of the Trust any document or
instrument of any nature whatsoever, provided that the execution by the Trust
of any such document or instrument shall have been previously authorized by
such action of the Trust Managers as may be required by statute, the
Declaration of Trust or these Bylaws.
ARTICLE IV
MEETINGS OF THE TRUST MANAGERS
SECTION 4.1 PLACE OF MEETINGS. The Trust Managers of the Trust
may hold their meetings, both regular and special, either within or without the
State of Texas.
SECTION 4.2 ANNUAL MEETING. The annual meeting of the Trust
Managers shall be held immediately following the adjournment of the annual
meeting of the shareholders and no notice of such meeting shall be necessary to
the Trust Managers in order to legally constitute the meeting, provided a
quorum shall be present, or they may meet at such time and place as shall be
fixed by the consent in writing of all of the Trust Managers.
SECTION 4.3 REGULAR MEETINGS. Regular meetings of the Trust
Managers, in addition to the annual meetings referred to in Section 4.2, may be
held without notice at such time and place as shall from time to time be
determined by the Trust Managers.
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SECTION 4.4 SPECIAL MEETINGS. Special meetings of the Trust
Managers may be called by the Chairman of the Trust Managers, if one shall be
elected, or by the Chief Executive Officer or President, if a Chairman is not
elected, on one (1) business day's notice (oral or written) to each Trust
Manager. Special meetings shall be called by the Chairman (if one shall be
elected), or by the Chief Executive Officer, President or the Secretary on like
notice on the oral or written request of any Trust Manager. Neither the
purpose of, nor the business to be transacted at, any special meeting of the
Trust Managers need be specified in the notice or waiver of notice of such
meeting. Attendance of a Trust Manager at a meeting shall constitute a waiver
of notice of such meeting except where a Trust Manager attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened.
SECTION 4.5 QUORUM AND ACTION. At all meetings of the Trust
Managers, the presence of a majority of the Trust Managers shall be necessary
and sufficient to constitute a quorum for the transaction of business and the
act of a majority of the Trust Managers at any meeting at which a quorum is
present shall be the act of the Trust Managers unless the act of a greater
number is required by law, the Declaration of Trust or these Bylaws. If a
quorum shall not be present at any meeting of Trust Managers, the Trust
Managers present may adjourn the meeting from time to time without notice other
than announcement at the meeting until a quorum shall be present. If there are
only two Trust Managers, the presence of both Trust Managers shall be necessary
to constitute a quorum.
SECTION 4.6 PRESUMPTION OF ASSENT TO ACTION. A Trust Manager who
is present at a meeting of the Trust Managers at which action on any Trust
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Trust immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Trust Manager who voted in favor of
such action.
SECTION 4.7 TELEPHONE MEETINGS. Trust Managers may participate
in and hold a meeting of the Trust Managers by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
SECTION 4.8 ACTION WITHOUT MEETING. Any action required or
permitted to be taken at a meeting of the Trust Managers may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed
by all the Trust Managers, and such consent shall have the same force and
effect as a unanimous vote at a meeting.
SECTION 4.9 MINUTES. The Trust Managers shall keep regular
minutes of their proceedings. The minutes shall be placed in the minute book
of the Trust.
SECTION 4.10 INTEREST OF TRUST MANAGERS. With respect to the
actions of the Trust Managers, Trust Managers who have any direct or indirect
interest in connection with any matter being acted upon may be counted for all
quorum purposes under this Article IV.
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SECTION 4.11 RIGHT OF TRUST MANAGERS AND OFFICERS TO OWN SHARES OR
OTHER PROPERTY AND TO ENGAGE IN OTHER BUSINESS. Any Trust Manager or officer
of the Trust may acquire, own, hold and dispose of shares of the Trust for his
individual account, and may exercise all rights of a shareholder to the same
extent and in the same manner as if he were not a Trust Manager or officer of
the Trust. Except as provided specifically to the contrary in a written
agreement with the Trust, any Trust Manager or officer of the Trust may, in a
capacity other than that of Trust Manager or officer of the Trust, have
business interests and engage in business activities similar to or in addition
to those relating to the Trust, which interests and activities may be similar
to and competitive with those of the Trust and may include the acquisition,
syndication, holding, management, development, operation or disposition, for
his own account or for the account of others, of interests in mortgages,
interests in real property, or interests in entities engaged in the real estate
business. Except as provided specifically to the contrary in a written
agreement with the Trust, each Trust Manager and officer of the Trust shall be
free of any obligation to present to the Trust any investment opportunity which
comes to him in any capacity other than solely as Trust Manager or agent of the
Trust, even if such opportunity is of a character which, if presented to the
Trust, could be exploited by the Trust. Subject to the provisions of Article
III hereof, any Trust Manager or officer of the Trust may be a trustee,
officer, director, shareholder, partner, member, advisor or employee of, 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 Trust Manager or officer or otherwise
hereunder.
SECTION 4.12 TRANSACTIONS BETWEEN TRUST MANAGERS AND THE TRUST.
Except as otherwise provided by the Declaration of Trust or these Bylaws, and
in the absence of fraud, a contract, act or other transaction, between the
Trust and any other person, or in which the Trust is interested, shall be valid
and no Trust Manager or officer of the Trust shall have any liability as a
result of entering into any such contract, act or transaction, even though (a)
one or more of the Trust Managers, directly or indirectly is interested in or
connected with, or is a trustee, partner, director, shareholder, member,
employee, officer or agent of such other person, or (b) one or more of the
Trust Managers, individually or jointly with others, is a party to, or directly
or indirectly is interested in, or connected with, such contract, act or
transaction, provided that (i) such interest or connection is disclosed in
reasonable detail or known to the Trust Managers and thereafter the Trust
Managers authorize or ratify such contract, act or other transaction by
affirmative vote of a majority of the Trust Managers who are not interested in
the transaction or (ii) such interest or connection is disclosed in reasonable
detail or known to the shareholders, and thereafter such contract, act or
transaction is approved by shareholders holding a majority of the shares then
outstanding and entitled to vote thereon.
SECTION 4.13 PERSONS DEALING WITH TRUST MANAGERS OR OFFICERS. Any
act of the Trust Managers or officers of the Trust purporting to be done in
their capacity as such shall, as to any person dealing with such Trust Managers
or officers, conclusively be deemed to be within the purposes of the Trust and
within the powers of the Trust Managers or officers. No person dealing with
the Trust Managers or any of them or with the officers of the Trust or any of
them, shall be bound to see to the application of any funds or property passing
into their hands or control. The receipt of the Trust Managers or any of the
officers of the Trust of moneys or other consideration shall be binding upon
the Trust.
SECTION 4.14 RELIANCE. Trust Managers and officers of the Trust
shall not be liable for any claims or damages that may result from their acts
in the discharge of any duty imposed
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or power conferred upon them by the Trust, if, in the exercise of ordinary
care, they acted in good faith and in reliance upon the written opinion of an
attorney for the Trust. In discharging their duties, Trust Managers and
officers of the Trust, when acting in good faith and exercising ordinary care,
may rely upon financial statements of the Trust, stated in a written report by
an independent certified public accountant, to fairly present the financial
position of the Trust. The Trust Managers and officers of the Trust may rely
upon any instrument or other document believed by them to be genuine.
SECTION 4.15 LIABILITY OF TRUST MANAGERS. No Trust Manager of the
Trust shall be liable to the Trust for any act, omission, loss, damage or
expense arising from the performance of his duty under the Trust, except to the
extent specifically required by statute, the Declaration of Trust or these
Bylaws.
ARTICLE V
COMMITTEES OF THE TRUST MANAGERS
SECTION 5.1 MEMBERSHIP AND AUTHORITIES. The Trust Managers, by
resolution adopted by a majority of the Trust Managers, may designate one (1)
or more Trust Managers to constitute such committees as the Trust Managers may
determine, including, but not limited to, a Compensation Committee and an Audit
Committee, each of which committees to the extent provided in such resolution
shall have and may exercise all of the authority of the Trust Managers in the
business and affairs of the Trust, except in those cases where the authority of
the Trust Managers is specifically denied to the committee or committees by the
Trust Managers, applicable law, the Declaration of Trust or these Bylaws. No
committee shall have the power to alter or to repeal any resolution adopted by
the Trust Managers. The designation of a committee and the delegation thereto
of authority shall not operate to relieve the Trust Managers, or any member
thereof, of any responsibility imposed upon each of them by law. The members
of each such committee shall serve at the pleasure of the Trust Managers. A
majority of the members of each committee shall be Independent Trust Managers;
provided, however, that if a committee shall consist of two (2) members, only
one (1) of such members shall be required to be an Independent Trust Manager.
SECTION 5.2 MINUTES AND RULES OF PROCEDURE. Each committee
designated by the Trust Managers shall keep regular minutes of its proceedings
and report the same to the Trust Managers when required. Subject to the
provisions of these Bylaws, the members of any committee may fix such
committee's own rules of procedure.
SECTION 5.3 VACANCIES. The Trust Managers shall have the power
at any time to fill vacancies in, to change the membership of, or to dissolve,
any committee.
SECTION 5.4 TELEPHONE MEETINGS. Members of any committee
designated by the Trust Managers may participate in or hold a meeting by use of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called or convened.
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SECTION 5.5 ACTION WITHOUT MEETING. Any action required or
permitted to be taken at a meeting of any committee designated by the Trust
Managers may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed by all the members of the committee, and such
consent shall have the same force and effect as a unanimous vote at a meeting.
SECTION 5.6 EXECUTIVE COMMITTEE. An Executive Committee
initially comprised of the Chairman, Chief Executive Officer, (if any, or
President, if none) and Chief Financial Officer shall oversee the affairs of
the Trust and shall implement the directives of the Trust Managers. The Trust
Managers, may from time to time, substitute or add to the members of the
Executive Committee, whose members shall serve at the pleasure of the Trust
Managers.
ARTICLE VI
OFFICERS
SECTION 6.1 NUMBER. The officers of the Trust shall include a
President and a Secretary. The Trust Managers may also elect a Chief Executive
Officer, one (1) or more Vice Presidents, a Comptroller, Treasurer, one (1) or
more Assistant Secretaries and one (1) or more Assistant Comptrollers and
Assistant Treasurers. One (1) person may hold any two (2) or more of these
offices.
SECTION 6.2 ELECTION, TERM OF OFFICE AND QUALIFICATION. The
Trust Managers shall elect executive officers, none of whom need be a Trust
Manager, except that if no Chairman of the Trust Managers has been elected by
the Trust Managers, then the Chief Executive Officer, if one shall be elected
shall also be elected as a Trust Manager, at any time and from time to time as
they deem necessary. Each officer so elected shall hold office until his
successor shall have been duly elected and qualified or until his death,
resignation or removal in the manner hereinafter provided.
SECTION 6.3 SUBORDINATE OFFICERS. The Trust Managers or the
Chief Executive Officer, if any, may appoint such other officers and agents as
it shall deem necessary who shall hold their offices for such terms, have such
authority and perform such duties as the Trust Managers or Chief Executive
Officer may from time to time determine. The Trust Managers or the Chief
Executive Officer may delegate to any committee or officer the power to appoint
any such subordinate officer or agent. No subordinate officer appointed by any
committee or executive officer as aforesaid shall be considered as an officer
of the Trust, the officers of the Trust being limited to the officers elected
or appointed as such by the Trust Managers.
SECTION 6.4 RESIGNATION. Any officer may resign at any time by
giving written notice thereof to the Trust Managers or to the President or
Secretary of the Trust. Any such resignation shall take effect at the time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 6.5 REMOVAL. Any officer elected or appointed by the
Trust Managers or by the Chief Executive Officer may be removed by the Trust
Managers at any time with or without cause by majority vote of the entire Board
of Trust Managers. Any other officer may
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be removed at any time with or without cause by the Trust Managers or by any
committee or executive officer upon whom such power of removal may be
conferred by the Trust Managers. The removal of any officer shall be without
prejudice to the contract rights, if any, of the person so removed. Election
or appointment of an officer or agent shall not of itself create any contract
rights.
SECTION 6.6 VACANCIES. A vacancy in any office shall be filled
for the unexpired portion of the term by the Trust Managers, but in case of a
vacancy occurring in an office filled by a committee or executive officer in
accordance with the provisions of Section 6.3, such vacancy may be filled by
such committee or executive officer.
SECTION 6.7 CHAIRMAN. The Chairman of the Trust Managers, if one
be elected by the Trust Managers, shall preside over all meetings of the
shareholders and Trust Managers, shall be an ex officio member of all standing
committees, and may sign, with any other proper officer, certificates for
shares of the Trust and any deeds, bonds, mortgages, contracts and other
documents which the Trust Managers have authorized to be executed, except where
required by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Trust
Managers or these Bylaws, to some other officer or agent of the Trust.
SECTION 6.8 THE CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer, if one shall be elected by the Trust managers, shall be the chief
executive officer of the Trust, shall have general and active management of the
business of the Trust, shall have the general supervision and direction of all
other officers of the Trust with full power to see that their duties are
properly performed and shall see that all orders and resolutions of the Trust
Managers are carried into effect. In the absence of the Chairman, he may sign,
with any other proper officer, certificates for shares of the Trust and any
deeds, bonds, mortgages, contracts and other documents which the Trust Managers
have authorized to be executed, except where required by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Trust Managers or these Bylaws, to some other
officer or agent of the Trust. In addition, the Chief Executive Officer shall
perform whatever duties and shall exercise all powers that are given to him by
the Trust Managers or the Chairman. In the absence of the Chairman, the Chief
Executive Officer shall act as an ex officio member of all standing committees
of the Trust Managers.
SECTION 6.9 THE PRESIDENT. If no Chief Executive Officer shall
be elected, the President shall be the chief executive officer of the Trust and
shall have the powers and duties of the Chief Executive Officer as set forth in
Section 6.8. In the absence of the Chief Executive Officer, if one shall be
elected, the President shall preside at all meetings of the shareholders and
Trust Managers. He may sign, with any other proper officer, certificates for
shares of the Trust and any deeds, bonds, mortgages, contracts and other
documents which the Trust Managers have authorized to be executed, except where
required by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Trust
Managers or these Bylaws to some other officer or agent of the Trust. In
addition, the President shall perform whatever duties and shall exercise
whatever powers given to him by the Trust Managers, by the Chairman, if any,
or, in the absence of the Chairman, by the Chief Executive Officer, if one
shall be elected.
SECTION 6.10 THE VICE PRESIDENTS. The Vice Presidents shall
perform such duties as are given to them by these Bylaws and as may from time
to time be assigned to them by the
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Trust Managers, by the Chairman, if one shall be elected, by the Chief
Executive Officer, if one shall be elected, by the President, or by the Chief
Financial Officer, and may sign, with any other proper officer, certificates
for shares of the Trust. At the request of the Chief Executive Officer,
President, Chief Financial Officer, or in their absence or disability, the Vice
President designated by the Chief Executive Officer or, in his absence, the
President (or in the absence of such designation, the Vice President with the
highest rank (i.e., executive, senior) and who, with those of similar rank,
has served the longest term of office with the Trust), shall perform the duties
and exercise the powers of the President.
SECTION 6.11 THE SECRETARY. The Secretary, when available, shall
attend all meetings of the Trust Managers and all meetings of the shareholders
and record all votes and the minutes of all proceedings in a book to be kept
for that purpose and shall perform like duties for the Trust Manager committees
when required. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Trust Managers as
required by law or these Bylaws, be custodian of the Trust records and have
general charge of the share books of the Trust and shall perform such other
duties as may be prescribed by the Trust Managers, by the Chief Executive
Officer, if one shall be elected, or by the President, if a Chief Executive
Officer is not elected, under whose supervision he shall be. The Secretary may
sign, with any other proper officer, certificates for shares of the Trust and
shall keep in safe custody the seal of the Trust, and, when authorized by the
Trust Managers, affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of the
Treasurer or an Assistant Secretary.
SECTION 6.12 ASSISTANT SECRETARIES. The Assistant Secretaries
shall perform such duties as are given to them by these Bylaws or as may from
time to time be assigned to them by the Trust Managers or by the Secretary. At
the request of the Secretary, or in his absence or disability, the Assistant
Secretary designated by the Secretary (or in the absence of such designation
the Assistant Secretary who has served the longest term of office with the
Trust), shall perform the duties and exercise the powers of the Secretary.
SECTION 6.13 THE TREASURER. The Treasurer shall have the custody
and be responsible for all Trust funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the Trust
and shall deposit all moneys and other valuable effects in the name and to the
credit of the Trust in such depositories as may be designated by the Trust
Managers. The Treasurer shall disburse the funds of the Trust as may be
ordered by the Trust Managers, taking proper vouchers for such disbursements,
and shall render to the Chief Executive Officer, if one shall be elected, the
President and the Trust Managers, at the regular meetings of the Trust
Managers, or whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Trust. The Treasurer may
sign, with any other proper officer, certificates for shares of the Trust. The
duties of the Treasurer may be divided by the Trust Managers, the Chairman or
by the Chief Executive Officer, between a Treasurer and a Chief Financial
Officer. In such event, the office of Chief Financial Officer shall be the
officer with the higher of the ranks as between the Chief Financial Officer and
the Treasurer, and the Treasurer shall report to the Chief Financial Officer.
The duties of the Chief Financial Officer shall include oversight of the
capitalization, including equity and debt, of the Trust as well as all public
reporting functions of the Trust.
SECTION 6.14 ASSISTANT TREASURERS. The Assistant Treasurers shall
perform such duties as are given to them by these Bylaws or as may from time to
time be assigned to them by the Trust Managers or by the Chief Financial
Officer, or in his absence or disability, the
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Treasurer. At the request of the Chief Financial Officer, or in his absence or
disability, the Treasurer, or in the absence or disability of both the Chief
Financial Officer and the Treasurer, the Assistant Treasurer designated by the
Chief Financial Officer, or in his absence or disability, by the Treasurer (or
in the absence of such designation, the Assistant Treasurer who has served the
longest term of office with the Trust), shall perform the duties and exercise
the powers of the Treasurer.
SECTION 6.15 TREASURER'S BOND. If required by the Trust Managers,
the Chief Financial Officer, Treasurer and any Assistant Treasurer shall give
the Trust a bond in such sum and with such surety or sureties as shall be
satisfactory to the Trust Managers for the faithful performance of the duties
of his office and for the restoration to the Trust, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his
control belonging to the Trust.
SECTION 6.16 SALARIES. The salary or other compensation of
officers shall be fixed from time to time by the Trust Managers. The Trust
Managers may delegate to any committee or officer the power to fix from time to
time the salary or other compensation of subordinate officers and agents
appointed in accordance with the provisions of Section 6.3.
SECTION 6.17 EXECUTION OF DOCUMENTS. Each officer of the Trust
and any one of them is authorized to execute on behalf of the Trust any
document or instrument of any nature whatsoever, provided that the execution by
the Trust of any such document or instrument shall have been previously
authorized by such action of the Trust Managers as may be required by statute,
the Declaration of Trust or these Bylaws.
ARTICLE VII
TRUST SHARES
SECTION 7.1 SHARE CERTIFICATES. (a) The certificates
representing shares of beneficial interest of the Trust shall be in such form,
not inconsistent with statutory provisions and the Declaration of Trust, as
shall be approved by the Trust Managers. The certificates shall be signed by
the Chairman, Chief Executive Officer, President or an Executive Vice President
and a Secretary or Assistant Secretary, or such other or additional officers as
may be prescribed from time to time by the Trust Managers. The signatures of
such officer or officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar,
either of which is other than the Trust itself or an employee of the Trust. In
case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer before such certificate
is issued, it may be issued with the same effect as if he were such officer at
the date of its issuance.
(b) In the event the Trust has, by its Declaration of Trust,
limited or denied the preemptive right of shareholders, there shall be set
forth on the face or back of the certificates, which the Trust shall issue to
represent beneficial interest, such legends or statements, if any, as shall be
required by applicable law or the Declaration of Trust or as may be approved by
the Trust Managers.
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(c) All certificates shall be consecutively numbered and the name
of the person owning the shares represented thereby, with the number of such
shares and the date of issue, shall be entered on the Trust's books.
(d) All certificates surrendered to the Trust shall be canceled,
and, except as provided in Section 7.2 with respect to lost, destroyed or
mutilated certificates, no new certificate shall be issued until the former
certificate for the same number of shares has been surrendered and canceled.
SECTION 7.2 LOST CERTIFICATES, ETC. The Trust Managers may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Trust alleged to have
been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. In
authorizing such issue of a new certificate or certificates, the Trust Managers
may, in their discretion and as a condition precedent to the issue thereof,
require the owner of such lost or destroyed certificate or certificates, or his
legal representative, to advertise or bond the same in such manner as the Trust
Managers shall require and/or indemnify the Trust as the Trust Managers may
prescribe.
SECTION 7.3 TRANSFER OF SHARES. Subject to any restrictions upon
transfer, upon surrender to the Trust or the transfer agent of the Trust of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer and satisfaction of the Trust
that the requested transfer complies with the provisions of applicable state
and federal laws and regulations, the Declaration of Trust and any agreements
to which the Trust is a party, the Trust shall issue or cause to be issued a
new certificate to the person entitled thereto, cancel or cause to be canceled
the old certificate and record the transaction upon its books.
SECTION 7.4 OWNERSHIP OF SHARES. The Trust shall be entitled to
treat and recognize the holder of record of any share or shares as the holder
in fact thereof and, accordingly, shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Texas.
SECTION 7.5 CLOSING OF TRANSFER BOOKS. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
by the Trust (other than a distribution involving a purchase or redemption by
the Trust of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose, the Trust Managers
may provide that the share transfer books shall be closed for a stated period
but not to exceed, in any case, sixty (60) days. If the share transfer books
shall be closed for the purpose of determining shareholders entitled to notice
of or to vote at a meeting of shareholders, such books shall be closed for at
least ten (10) days immediately preceding such meeting. In lieu of closing the
share transfer books, the Trust Managers may fix in advance a date as the
record date for any such determination of shareholders, such date in any case
to be not more than sixty (60) days and, in case of a meeting of shareholders,
not less than ten (10) days prior to the date on which the particular action
requiring such determination of shareholders is to be taken, and the
determination of shareholders on such record date shall apply with respect to
the particular action requiring the same notwithstanding any transfer of shares
on the books of the Trust after such record date.
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SECTION 7.6 DIVIDENDS. The Trust Managers may, from time to
time, declare, and the Trust may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by the Declaration of
Trust and by law, such dividends to be paid in cash or in property or in shares
of beneficial interests of the Trust, except no dividends shall be paid when
the Trust is insolvent or when the payment thereof would render the Trust
insolvent. When making a determination of whether to declare a dividend, the
Trust Managers shall make the determination consistent with their fiduciary
duties as Trust Managers.
SECTION 7.7 RESERVES. By resolution the Trust Managers may
create such reserve or reserves of the Trust as the Trust Managers from time to
time, in their absolute discretion, determine to be proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Trust, or for such other purpose as the
Trust Managers shall determine to be beneficial to the interest of the Trust.
The Trust Managers may modify or abolish any such reserve in the manner in
which it was created.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 DEFINITIONS. In this Article:
(a) "Indemnitee" means (i) any present or former Trust Manager or
officer of the Trust, (ii) any person who while serving in any of the
capacities referred to in clause (i) hereof served at the Trust's request as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another real estate investment trust or foreign or
domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, and (iii) any person nominated or
designated by (or pursuant to authority granted by) the Trust Managers or any
committee thereof to serve in any of the capacities referred to in clauses (i)
or (ii) hereof.
(b) "Official Capacity" means (i) when used with respect to a
Trust Manager, the office of Trust Manager of the Trust and (ii) when used with
respect to a person other than a Trust Manager, the elective or appointive
office of the Trust held by such person or the employment or agency
relationship undertaken by such person on behalf of the Trust, but in each case
does not include service for any other real estate investment trust or foreign
or domestic corporation or any partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise.
(c) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or proceeding,
and any inquiry or investigation that could lead to such an action, suit or
proceeding.
SECTION 8.2 INDEMNIFICATION. The Trust shall indemnify every
Indemnitee against all judgments, penalties (including excise and similar
taxes), fines, amounts paid in settlement and reasonable expenses actually
incurred by the Indemnitee in connection with any Proceeding in which he was,
is or is threatened to be named defendant or respondent, or in which he was or
is a witness without being named a defendant or respondent, by reason, in whole
or in part, of his serving or having served, or having been nominated or
designated to serve, in any of the
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capacities referred to in Section 8.1(a), if it is determined in accordance
with Section 8.4 that the Indemnitee (a) conducted himself in good faith, (b)
reasonably believed, in the case of conduct in his Official Capacity, that his
conduct was in the Trust's best interests and, in all other cases, that his
conduct was at least not opposed to the Trust's best interests, and (c) in the
case of any criminal proceeding, had no reasonable cause to believe that his
conduct was unlawful; provided, however, that in the event that an Indemnitee
is found liable to the Trust or is found liable on the basis that personal
benefit was improperly received by the Indemnitee the indemnification (i) is
limited to reasonable expenses actually incurred by the Indemnitee in
connection with the Proceeding and (ii) shall not be made in respect of any
Proceeding in which the Indemnitee shall have been found liable for willful or
intentional misconduct in the performance of his duty to the Trust. Except as
provided in the immediately preceding proviso to the first sentence of this
Section 8.2, no indemnification shall be made under this Section 8.2 in respect
of any Proceeding in which such Indemnitee shall have been (x) found liable on
the basis that personal benefit was improperly received by him, whether or not
the benefit resulted from an action taken in the Indemnitee's Official
Capacity, or (y) found liable to the Trust. The termination of any Proceeding
by judgment, order, settlement or conviction, or on a plea of nolo contendere
or its equivalent, is not of itself determinative that the Indemnitee did not
meet the requirements set forth in clauses (a), (b) or (c) in the first
sentence of this Section 8.2. An Indemnitee shall be deemed to have been found
liable in respect of any claim, issue or matter only after the Indemnitee shall
have been so adjudged by a court of competent jurisdiction after exhaustion of
all appeals therefrom. Reasonable expenses shall include, without limitation,
all court costs and all reasonable fees and disbursements of attorneys for the
Indemnitee.
SECTION 8.3 SUCCESSFUL DEFENSE. Without limitation of Section
8.2 and in addition to the indemnification provided for in Section 8.2, the
Trust shall indemnify every Indemnitee against reasonable expenses incurred by
such person in connection with any Proceeding in which he is a witness or a
named defendant or respondent because he served in any of the capacities
referred to in Section 8.1(a), if such person has been wholly successful, on
the merits or otherwise, in defense of the Proceeding.
SECTION 8.4 DETERMINATIONS. Any indemnification under Section
8.2 (unless ordered by a court of competent jurisdiction) shall be made by the
Trust only upon a determination that indemnification of the Indemnitee is
proper in the circumstances because he has met the applicable standard of
conduct. Such determination shall be made (a) by the Trust Managers by a
majority vote of a quorum consisting of Trust Managers who, at the time of such
vote, are not named defendants or respondents in the Proceeding; (b) if such a
quorum cannot be obtained, then by a majority vote of a committee of the Trust
Managers, duly designated to act in the matter by a majority vote of all Trust
Managers (in which designation Trust Managers who are named defendants or
respondents in the Proceeding may participate), such committee to consist
solely of two (2) or more Trust Managers who, at the time of the committee
vote, are not named defendants or respondents in the Proceeding; (c) by special
legal counsel selected by the Trust Managers or a committee thereof by vote as
set forth in clauses (a) or (b) of this Section 8.4 or, if the requisite quorum
of all of the Trust Managers cannot be obtained and such committee cannot be
established, by a majority vote of all of the Trust Managers (in which Trust
Managers who are named defendants or respondents in the Proceeding may
participate); or (d) by the shareholders in a vote that excludes the shares
held by Trust Managers that are named defendants or respondents in the
Proceeding. Determination as to reasonableness of expenses shall be made in
the same manner as the determination that indemnification is permissible,
except that if the determination that
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indemnification is permissible is made by special legal counsel, determination
as to reasonableness of expenses must be made in the manner specified in clause
(c) of the preceding sentence for the selection of special legal counsel. In
the event a determination is made under this Section 8.4 that the Indemnitee
has met the applicable standard of conduct as to some matters but not as to
others, amounts to be indemnified may be reasonably prorated.
SECTION 8.5 ADVANCEMENT OF EXPENSES. Reasonable expenses
(including court costs and reasonable attorneys' fees) incurred by an
Indemnitee who was or is a witness or was, is or is threatened to be made a
named defendant or respondent in a Proceeding shall be paid or reimbursed by
the Trust at reasonable intervals in advance of the final disposition of such
Proceeding, and without making any of the determinations specified in Section
8.4, after receipt by the Trust of (a) a written affirmation by such Indemnitee
of his good faith belief that he has met the standard of conduct necessary for
indemnification by the Trust under this Article VIII and (b) a written
undertaking by or on behalf of such Indemnitee to repay the amount paid or
reimbursed by the Trust if it shall ultimately be determined that he is not
entitled to be indemnified by the Trust as authorized in this Article VIII.
Such written undertaking shall be an unlimited obligation of the Indemnitee but
need not be secured and it may be accepted without reference to financial
ability to make repayment. Notwithstanding any other provision of this Article
VIII, the Trust may pay or reimburse expenses incurred by an Indemnitee in
connection with his appearance as a witness or other participation in a
Proceeding at a time when he is not named a defendant or respondent in the
Proceeding.
SECTION 8.6 EMPLOYEE BENEFIT PLANS. For purposes of this Article
VIII, the Trust shall be deemed to have requested an Indemnitee to serve an
employee benefit plan whenever the performance by him of his duties to the
Trust also imposed or imposes duties on or otherwise involved or involves
services by him to the plan or participants or beneficiaries of the plan.
Excise taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall be deemed fines. Action taken or omitted by
an Indemnitee with respect to an employee benefit plan in the performance of
his duties for a purpose reasonably believed by him to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Trust.
SECTION 8.7 OTHER INDEMNIFICATION AND INSURANCE. The
indemnification provided by this Article VIII shall (a) not be deemed exclusive
of, or to preclude, any other rights to which those seeking indemnification may
at any time be entitled under the Trust's Declaration of Trust, any law,
agreement or vote of shareholders or disinterested Trust Managers, or
otherwise, or under any policy or policies of insurance purchased and
maintained by the Trust on behalf of any Indemnitee, both as to action in his
Official Capacity and as to action in any other capacity, (b) continue as to a
person who has ceased to be in the capacity by reason of which he was an
Indemnitee with respect to matters arising during the period he was in such
capacity, and (c) inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 8.8 NOTICE. Any indemnification of or advance of
expenses to an Indemnitee in accordance with this Article VIII shall be
reported in writing to the shareholders of the Trust with or before the notice
or waiver of notice of the next shareholders' meeting or with or before the
next submission to shareholders of a consent to action without a meeting and,
in any case, within the twelve-month period immediately following the date of
the indemnification or advance.
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SECTION 8.9 CONSTRUCTION. The indemnification provided by this
Article VIII shall be subject to all valid and applicable laws, including,
without limitation, the Texas REIT Act, and, in the event this Article VIII or
any of the provisions hereof or the indemnification contemplated hereby are
found to be inconsistent with or contrary to any such valid laws, the latter
shall be deemed to control and this Article VIII shall be regarded as modified
accordingly, and, as so modified, shall continue in full force and effect.
SECTION 8.10 CONTINUING OFFER, RELIANCE, ETC. The provisions of
this Article VIII (a) are for the benefit of, and may be enforced by, each
Indemnitee of the Trust, the same as if set forth in their entirety in a
written instrument duly executed and delivered by the Trust and such Indemnitee
and (b) constitute a continuing offer to all present and future Indemnitees.
The Trust, by its adoption of these Bylaws, (x) acknowledges and agrees that
each Indemnitee of the Trust has relied upon and will continue to rely upon the
provisions of this Article VIII in becoming, and serving in any of the
capacities referred to in Section 8.1 hereof, (y) waives reliance upon, and all
notices of acceptance of, such provisions by such Indemnitees and (z)
acknowledges and agrees that no present or future Indemnitee shall be
prejudiced in his right to enforce the provisions of this Article VIII in
accordance with their terms by any act or failure to act on the part of the
Trust.
SECTION 8.11 EFFECT OF AMENDMENT. No amendment, modification or
repeal of this Article VIII or any provision of this Article VIII shall in any
manner terminate, reduce or impair the right of any past, present or future
Indemnitees to be indemnified by the Trust, nor the obligation of the Trust to
indemnify any such Indemnitees, under and in accordance with the provisions of
this Article VIII as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment, modification
or repeal, regardless of when such claims may be asserted.
ARTICLE IX
ADVISER AND OTHER AGENTS
SECTION 9.1 EMPLOYMENT OF ADVISER, AGENTS, ETC. The Trust
Managers shall be responsible for the general policies of the Trust and for
such general supervision of the business of the Trust conducted by its
officers, agents, employees, advisers, managers and independent contractors as
may be necessary or appropriate to insure that such business conforms to the
provisions of this Declaration. However, the Trust Managers are not, and shall
not be, required personally to conduct the business and affairs of the Trust.
The Trust Managers are empowered to retain an adviser (the "Adviser") and to
appoint, employ or contract with any person (including one or more of
themselves or any entity in which one or more of them may be affiliated) as the
Trust Managers deem necessary or appropriate for the transaction of the Trust's
business without regard to whether such authority is normally granted or
delegated by trustees. Any determination to retain an Adviser that is
affiliated with one or more of the Trust Managers, however, shall be valid only
if made or ratified with the approval of a majority of independent Trust
Managers. The term "Adviser", as used herein, shall mean initially FCA Corp,
or any affiliate thereof, but does not include any natural person who is a
direct employee of the Trust or FCA Corp or any independent contractor of the
Trust.
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It shall be the duty of the Trust Managers to evaluate the performance
of the Adviser before entering into or renewing an advisory contract and to
supervise the relationship of the Trust with the Adviser.
The Trust Managers shall determine the terms and compensation of the
Adviser and any other person with whom the Trust shall contract. The Trust
Managers may exercise broad discretion in allowing the Adviser to administer
the operations of the Trust and to implement the policies and principles of the
Trust as established by the Trust Managers. Such administration and
implementation shall be affected through the Trust's officers, some or all of
whose salaries may be paid, in whole, or in part, by the Adviser.
SECTION 9.2 TERM. The initial term of any agreement with the
Adviser shall be from the first day of the calendar quarter in which the
Trust's initial registration statement on Form S-11 is declared effective by
the Securities and Exchange Commission through December 31, 1998. Such
agreement (the "Advisory Agreement") shall renew automatically for five (5) one
year terms, provided, however, that each renewal shall be subject to a
determination by a majority of the independent Trust Managers that the
performance of the Adviser has been satisfactory, and provided, further, that
a majority of the Independent Trust Managers may terminate the Advisory
Agreement upon at least six (6) calendar months' prior written notice. In the
event of a termination of the Advisory Agreement by the Trust, other than for
cause, the Trust shall pay to the Advisor a termination fee equal to the
product of the (i) average of the Advisory Fee paid to the Advisor for the
three calendar months immediately preceding the termination date, and (ii)
twelve (12), less any sums paid to the Advisor on account of the Advisory Fee
for the calendar months, up to a maximum of six (6), following the giving of
the termination notice but prior to the effective date of such termination. The
Trust Managers may terminate the Advisory Agreement for cause at any time,
without notice or penalty. The Advisor may terminate the Advisory Agreement
upon at least six (6) calendar months' prior written notice. In the event of a
termination of the Advisory Agreement, the Adviser shall cooperate with the
Trust and shall take all reasonable steps requested by the Trust to make an
orderly transition of the advisory function.
SECTION 9.3 ACTIVITIES OF THE ADVISER. The Adviser may engage
in other activities, provided, however, that for so long as the Adviser is an
affiliate of the Trust, the Adviser shall not perform similar functions for any
real estate company whose primary function is to own and operate shopping
centers in the United States, but shall not otherwise be prohibited from
advising other real estate entities or engaging in other activities which
complement the Trust's investments. Except as in the preceding sentence
provided, nothing herein set forth shall prohibit, limit or restrict the right
of any director, officer, employee or shareholder of the Adviser, whether or
not such person is also a Trust Manager, officer or employee of the Trust, to
engage in any other business or render services of any kind to any other person
or entity. The Adviser, including any affiliate, may lend money to or
participate with the Trust in any investment, with or without remuneration,
provided, however, that neither the Adviser, nor any affiliate, shall invest or
participate in an investment in any shopping center (other than by way of a
loan or a foreclosure of a secured loan or deed given in lieu thereof) within
the United States.
SECTION 9.4 SERVICES TO BE PERFORMED BY THE ADVISER. During
such time as the Adviser is an affiliate of the Trust, the Advisory Agreement
may (i) provide for the payment by the Adviser of all salaries and bonuses, if
any, as well as payroll taxes and fringe benefits, for officers of the Trust,
(ii) make available, at its own cost, such other support personnel (other than
contract labor), as the Trust may require, (iii) supply the Trust with office
space and equipment, including telephones, facsimile and duplicating equipment,
and (iv) grant access to conference rooms and
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other amenities generally utilized by a company of similar size and business
activity as the Trust. The actual services to be provided by the Adviser to
the Trust, as well as the remuneration paid therefor, shall be determined by a
majority of the independent Trust Managers.
SECTION 9.5 COMPENSATION TO THE ADVISER. The Trust shall pay to
the Adviser during the initial term of the Advisory Agreement, a fee (the
"Advisory Fee") equal to 6.8% of the Trust's funds from operations, as adjusted
by adding back interest expense and the Advisory Fee (hereinafter sometimes
referred to as the "adjusted funds from operations").
After the initial term of the Advisory Agreement, a majority of the
independent Trust Managers shall fix the Advisory Fee payable to the Adviser,
provided, however, that Advisory Fee shall not exceed 6.8% of the Trust's
adjusted funds from operations. Such Advisory Fee shall be determined on the
basis of size, composition and profitability of the Trust and the amount of
similar compensation paid by other real estate entities owning and operating
portfolios of real estate that are similar in size, location and/or
profitability. Such compensation shall also take into account the quality and
extent of the services provided, the performance of the Trust's portfolio and
the degree of difficulty encountered in the markets where the Trust's
properties are located.
In addition to the Advisory Fee, the Trust shall establish an
incentive plan for the granting of shares of the Trust, options to purchase
such shares and/or other incentive compensation and may grant such shares,
options and/or other incentive compensation directly to the Trust Managers,
officers and other key employees and/or through the Adviser for the benefit of
the officers and other key personnel who are instrumental in the business,
affairs and success of the Trust. To the extent that such shares, options
and/or other incentive compensation are granted to the Adviser for the benefit
of officers and other key personnel who tend to the business, affairs and
success of the Trust, such shares, options and/or other incentive compensation
may be held by the Adviser and/or transferred directly to such officers and
other key personnel. Such shares, options and/or other incentive compensation
granted by the Trust to the Advisor may be in lieu of a portion (but not more
than 50%) of the Advisory Fee and/or in addition to the Advisory Fee.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 GENERAL POLICIES. The Trust intends to make
investments that are consistent with the applicable requirements of the
Internal Revenue Code of 1986, as amended, and the Texas REIT Act, as amended,
and related regulations with respect to the composition of the Trust's
investments and the derivation of its income.
SECTION 10.2 LIMITED LIABILITY OF SHAREHOLDERS. A shareholder
shall not be personally or individually liable in any manner whatsoever for any
debt, act, omission or obligation incurred by the Trust or the Trust Managers.
A shareholder shall be under no obligation to the Trust or to its creditors
with respect to such shares other than the obligation to pay to the Trust the
full amount of the consideration for which such shares were issued or to be
issued. Upon the payment of such consideration, such shares shall be fully
paid and non-assessable by the Trust.
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SECTION 10.3 WAIVER OF NOTICE. (a) Whenever, under the provisions
of applicable law or of the Declaration of Trust or of these Bylaws, any notice
is required to be given to any shareholder or Trust Manager, a waiver thereof
in writing signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent to the giving of
such notice.
(b) Attendance of a Trust Manager at a meeting shall constitute a
waiver of notice of such meeting except where a Trust Manager attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened.
SECTION 10.4 SEAL. If one be adopted, the Trust seal shall have
inscribed thereon the name of the Trust and shall be in such form as may be
approved by the Trust Managers. Said seal shall be kept in the custody of the
Secretary and may be used by causing it or a facsimile of it to be impressed or
affixed or in any manner reproduced.
SECTION 10.5 FISCAL YEAR. The fiscal year of the Trust shall be
fixed by resolution of the Trust Managers.
SECTION 10.6 CHECKS, NOTES, ETC. All checks or demands for money
and notes of the Trust shall be signed by such officer or officers or such
other person or persons as the Trust Managers may from time to time designate.
The Trust Managers may authorize any officer or officers or such other person
or persons to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Trust, and such authority may be general or
confined to specific instances.
SECTION 10.7 EXAMINATION OF BOOKS AND RECORDS. The Trust Managers
shall determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the Trust (except such as
may by statute be specifically opened to inspection) or any of them shall be
open to inspection by the shareholders, and the shareholders' rights in this
respect are and shall be restricted and limited accordingly.
SECTION 10.8 VOTING UPON SHARES HELD BY THE TRUST. Unless
otherwise ordered by the Trust Managers, the Chief Executive Officer, or if no
Chief Executive Officer shall be elected, the President, acting on behalf of
the Trust, shall have full power and authority to attend and to act and to vote
at any meeting of shareholders of any corporation or other entity in which the
Trust may hold shares and at any such meeting, shall possess and may exercise
any and all of the rights and powers incident to the ownership of such shares
which, as the owner thereof, the Trust might have possessed and exercised, if
present. The Trust Managers by resolution from time to time may confer like
powers upon any other person or persons.
SECTION 10.9 NUMBER, GENDER, ETC. Whenever the singular number is
used in these Bylaws and when required by the context, the same shall include
the plural, and the masculine gender shall include the feminine and neuter
genders. The term "person," as used herein and as the context requires shall
mean and include individuals, corporations, limited partnerships, general
partnerships, joint stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, or other entities and governments and agencies and political
subdivisions thereof.
24
<PAGE> 29
SECTION 10.10 ANNUAL AND QUARTERLY REPORTS. The Trust shall
furnish to its shareholders annual reports containing audited financial
statements with a report thereon by its independent accountants. The Trust
shall also furnish to its shareholders quarterly reports for each of the first
three quarters of each fiscal year containing unaudited financial information.
SECTION 10.11 INDEPENDENT COMMITTEE. If the Trust receives a bona
fide offer to purchase all or substantially all of the assets of the Trust, or
if the Trust receives a bona fide proposal for a merger transaction in which
the Trust will not be the surviving entity, the Trust Managers shall create a
committee consisting entirely of Independent Trust Managers (as defined in the
Declaration of Trust) who shall, consistent with their fiduciary duties, review
any such offer and make a recommendation to all of the Trust Managers.
ARTICLE XI
AMENDMENTS
SECTION 11.1 AMENDMENT OF BYLAWS. Except as otherwise provided by
applicable law or the Declaration of Trust, the power to alter, amend or repeal
these Bylaws or to adopt new Bylaws shall be vested in the Trust Managers and
(to the extent not inconsistent with the Texas REIT Act and the Declaration of
Trust and specified in the notice of the meeting) the shareholders. Such
action to amend the Bylaws shall be taken (i) with respect to all Bylaw
provisions, by the affirmative vote of a majority of the Trust Managers, or
(ii)(a) with respect to Section 2.5, Section 3.3, Section 3.4, Section 3.6,
Section 3.7 or Article XI of these Bylaws, by the affirmative vote of the
holders of two-thirds (2/3) of the Trust's outstanding shares, or (b) with
respect to all other Bylaws, by the affirmative vote of the holders of a
majority of the Trust's outstanding shares.
ARTICLE XII
SUBJECT TO ALL LAWS
The provisions of these Bylaws shall be subject to all valid and
applicable laws, including, without limitation, the Texas REIT Act as now or
hereafter amended, and in the event that any of the provisions of these Bylaws
are found to be inconsistent with or contrary to any such valid laws, the
latter shall be deemed to control and these Bylaws shall be deemed modified
accordingly, and, as so modified, shall continue in full force and effect.
25
<PAGE> 1
EXHIBIT 5.1
[LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P. LETTERHEAD]
February 12, 1998
United Investors Realty Trust
5847 San Felipe, Suite 850
Houston, Texas 77057
Gentlemen:
We have acted as securities counsel to United Investors Realty Trust, a
Texas real estate investment trust (the "Company"), in connection with the
Registration Statement on Form S-11 (Registration No. 333-29475)(the
"Registration Statement") filed with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended,
of 8,740,000 Common Shares of Beneficial Interest of the Company, no par value
per share (the "Common Shares").
We have made such legal and factual examinations and inquiries,
including an examination of originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable in connection with this opinion, including (a) the First
Amended and Restated Declaration of Trust of the Company and the First Amended
and Restated Bylaws of the Company, and (b) the Registration Statement. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of natural persons, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies, the authenticity of the originals of such
copies and the authenticity of telegraphic or telephonic confirmations of public
officials and others. As to facts material to our opinion, we have relied upon
certificates or telegraphic or telephonic confirmations of public officials and
certificates, documents, statements and other information of the Company or
representatives or officers thereof.
The opinions set forth herein are subject to the qualification that we
are admitted to practice law in the State of Texas and we express no opinion as
to laws other than the law of the State of Texas and the federal law of the
United States of America.
<PAGE> 2
United Investors Trust
February 12, 1998
Page 2
Based upon the foregoing, and subject to the Registration Statement
becoming effective, we are of the opinion that the Common Shares, when issued,
sold and delivered in the manner and for the consideration stated in the
Prospectus constituting part of the Registration Statement, will be validly
issued, fully paid and nonassessable.
We consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectus included in the Registration Statement, and to the
filing of this opinion as Exhibit 5.1 to the Registration Statement.
This opinion is rendered as of the date hereof, and we undertake no,
and disclaim any, obligation to advise you of any change in or any new
development that might affect any matters or opinions set forth herein.
This opinion is furnished by us to you as securities counsel to you in
connection with the subject public offering and is solely for your benefit and
not for the benefit of any other person. Without our prior written consent, this
opinion may not be used, circulated, quoted or otherwise referred to in whole or
in part for any other purpose.
Very truly yours,
/s/ LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
------------------------------------------------
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
<PAGE> 1
EXHIBIT 8.1
February 12, 1998
United Investors Realty Trust
5847 San Felipe, Suite 850
Houston, Texas 77057
Ladies and Gentlemen:
We have acted as counsel to United Investors Realty Trust (the
"Trust"), a Texas real estate investment trust, in connection with the
Registration Statement on Form S-11 (Registration No. 333-29475) (the
"Registration Statement") filed with the Securities and Exchange Commission in
connection with registration under the Securities Act of 1933, as amended, of
8,740,000 Common Shares of Beneficial Interest of the Trust, no par value per
share, the ("Common Shares") and the execution and delivery of the United
Investors Realty Trust Common Shares of Beneficial Interest Underwriting
Agreement (the "Agreement") dated on or around February 12, 1998, executed by
the Trust. Pursuant to Sections 5(b)(xviii)) and 5(b)(xix) of the Agreement, we
have been asked to provide an opinion on certain federal income tax matters
related to the Trust. Capitalized terms used in this letter and not otherwise
defined herein have the meaning set forth in the Registration Statement.
The opinions set forth in this letter are based on relevant provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder (including proposed and temporary
Regulations), and interpretations of the foregoing as expressed in court
decisions, the legislative history and existing administrative rulings and
practices of the Internal Revenue Service ("IRS") (including its practices and
policies in issuing private letter rulings, which are not binding on the IRS
except with respect to a taxpayer that receives such a ruling), all as of the
date hereof. These provisions and interpretations are subject to change, which
may or may not be retroactive in effect, that might result in modifications of
our opinion.
In rendering the following opinion, we have examined such statutes,
regulations, records, certificates and other documents as we have considered
necessary or appropriate as a basis for such opinion, including the following:
(1) the Agreement, (2) the Registration Statement; (3) the
<PAGE> 2
February 12, 1998
Page 2
Declaration of Trust and Bylaws of the Trust as amended to date (collectively,
the "Charter"); (4) certain written representations of the Trust contained in an
Officer's Certificate to Counsel for United Investors Realty Trust Regarding
Certain Income Tax Matters, dated on or about the date hereof (the "Officer's
Certificate"); (5) the Trust's tax returns and certain partnership returns of
partnerships in which the Trust had an interest for the tax years 1989-1996 (the
"Tax Returns"); and (6) certain real estate investment trust ("REIT") check
lists generated by the Trust's accountant (the "Accountant's Working Papers").
In our review, we have assumed, with your consent, that all of the
representations and statements set forth in the documents we reviewed are true
and correct, and all of the obligations imposed under such documents including
without limitation the Charter, have been and will be performed or satisfied in
accordance with their terms. In connection with rendering the opinion herein, we
have also assumed (without any independent investigation or review thereof)
that:
1. Each entity formed as a partnership under applicable state law,
in which the Trust owns a direct or indirect interest, is, for
federal income tax purposes, properly classified as a
partnership; and further, that each such entity has been
classified as a partnership for federal income tax purposes
during the entire period of its existence during which the Trust
has owned such direct or indirect interest therein.
2. The proposed issuance and sale to the underwriters as
contemplated in the Agreement and all actions described in the
Registration Statement will be consummated in accordance with the
Agreement and as described in the Registration Statement
(including satisfaction of all covenants and conditions to the
obligations of the parties without amendment or waiver thereof)
and completed in a timely fashion; the Trust will comply with all
reporting obligations required under the Code, and the Treasury
Regulations thereunder; and the Agreement and all other documents
and instruments referred to therein or in the Registration
Statement are valid and binding in accordance with their terms.
For purposes of rendering our opinion, we have not made an independent
investigation or audit of any of the facts set forth in any of the
above-referenced documents, including the Registration Statement, the Officer's
Certificate, the Tax Returns and the Accountant's Working Papers or with regard
to the assumptions set forth above. Consequently, we have relied upon your
<PAGE> 3
February 12, 1998
Page 3
representations and have assumed that the information presented in such
documents or otherwise furnished to us accurately and completely describes all
material facts relevant to our opinions. No facts have come to our attention,
however, that would cause us to conclude that such facts or documents are
inaccurate or incomplete in any material way.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations, warranties and assumptions or any change after the date hereof
in applicable law could adversely affect our opinion. No ruling has been (or
will be) sought from the IRS by the Trust as to the federal income tax matters
addressed in this opinion.
Based upon our examination of the foregoing items and subject to and
limited by the assumptions, exceptions, limitations and qualifications set forth
herein, we are of the opinion that the Trust has been organized in conformity
with the requirements for qualification as a REIT for federal income tax
purposes for the taxable year ending December 31, 1989, and has continued to
satisfy the requirements for qualification as a REIT through the date of this
opinion; and the Trust's anticipated investments and plan of operation ( which
plan includes complying with all of the REIT requirements described in the
Registration Statement) will enable it to continue to satisfy the requirements
for qualification as a REIT for federal income tax purposes; and the information
in the Registration Statement under the caption "Federal Income Tax
Considerations" fairly summarizes the federal income tax considerations that are
likely to be material to the Trust and a holder of a Common Share and, to the
extent that it constitutes matters of law or legal conclusions, is correct in
all material respects and presents fairly the information required to be
disclosed therein.
We assume no obligation to advise you of any changes in our opinion
subsequent to the delivery of this opinion letter. The Trust's qualification as
a REIT depends upon the Trust's ability to meet on a continuing basis, through
actual annual operating and other results, the various requirements under the
Code with regard to, among other things, the sources of its gross income, the
composition of its assets, the level of its distributions to stockholders, and
the diversity of its stock ownership. We have not undertaken to review or audit
the Trust's compliance with these requirements on a continuing basis.
Accordingly, no assurance can be given that the actual operating results of the
Trust, and the entities in which the Trust owns interests, the sources of their
income, the nature of their assets, the level of distributions to shareholders
and the diversity of stock ownership for any given taxable year has satisfied or
will satisfy the requirements under the Code for qualification and taxation as a
REIT.
An opinion of counsel merely represents counsel's best judgment with
respect to the probable outcome on the merits and is not binding on the IRS or
the courts. There can be no assurance that
<PAGE> 4
February 12, 1998
Page 4
positions contrary to our opinions will not be taken by the IRS, or that a court
considering the issues would not hold contrary to such opinions.
This opinion letter has been prepared pursuant to 5(b)(xviii)) and
5(b)(xix) of the Agreement. The opinion may not be used or relied upon by any
other person or for any other purpose and may not be disclosed, quoted, filed
with a governmental agency or otherwise referred to without our prior
written consent. Notwithstanding the foregoing we hereby consent to the reliance
by the underwriters named in Schedule A to the Agreement as if this opinion were
addressed to them. Further, notwithstanding the foregoing, we hereby consent to
the filing of this opinion letter as Exhibit 8.1 to the Registration Statement
and to the reference to this firm under the caption "Legal Matters" in the
Registration Statement. In giving such consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Sincerely yours,
/s/ LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
<PAGE> 1
EXHIBIT 10.1
FIRST
AMENDED AND RESTATED
ADVISORY AGREEMENT
BY
AND
BETWEEN
UNITED INVESTORS REALTY TRUST
AND
FCA CORP
DATED AS OF JUNE 9, 1997
<PAGE> 2
This First Amendment and Restatement of Advisory Agreement (the
"Agreement") by and between United Investors Realty Trust (the "Trust") and FCA
Corp (the "Advisor") has been executed on June 9, 1997. The effective date
(the "Effective Date") of this Agreement shall be the first day of the calendar
quarter in which the Trust's registration statement on Form S-11 has been
declared effective by the Securities and Exchange Commission.
WHEREAS, the Trust entered into an advisory agreement (the "Initial
Agreement") with UST Investment Advisors, Inc. ("UST") and the Advisor
(collectively, the "Initial Advisors") dated as of December 9, 1988, as
subsequently amended by instrument dated as of April 27, 1989, pursuant to
which UST withdrew as an advisor to the Trust.
WHEREAS, the Trust and the Advisor have determined to amend and
restate the Initial Agreement as heretofore amended on the terms and conditions
set forth hereinbelow.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency whereof is hereby
acknowledged by the parties, each to the other, the parties hereby amend and
restate the Initial Agreement so that it reads in its entirety as follows:
SECTION 1. DEFINITIONS.
(a) "Adjusted Funds from Operations" means net income of
the Trust excluding gains or losses from debt
restructuring and property sales plus real estate
related depreciation and amortization, as adjusted by
adding back interest expense and the Advisory Fee (as
determined in accordance with the provisions of
Section 5, below.)
(b) "Affiliate" means as to any Person, any other person
which directly or indirectly, controls, is controlled
by or is under common control with such Person,
including any officer, director, employee, partner or
trustee of such Person, but excluding any shareholder
of the Trust by reason of such shareholder's
beneficial ownership of less than 9.8 percent of the
voting shares of the Trust.
(c) "Gross Receipts" means the gross revenues generated
by the Trust during a particular period of time from
operations, including rents, percentage rents, tenant
reimbursements, interest and other income, but
excluding receipts from capital transactions
including sales, financings, refinancings and the
sale of equity securities.
(d) "Independent Trust Manager" means any Trust Manager
who is not an Affiliate of the Advisor or any
Affiliate of the Advisor.
(e) "Initial Term" means the term that commences with
the Effective Date and ends at 11:59 p.m., Houston
time, on December 31, 1998.
(f) "Officer" means any officer of the Trust as may be
elected or appointed by the Trust Managers, the
Chairman of the Trust Managers, the Chief Executive
Officer or the President of the Trust, or as
otherwise set forth in the Trust's Bylaws. An
officer of the Trust may also be an officer of the
Advisor or an Affiliate of the Advisor.
(g) "Person" means and includes any individual,
corporation, general partnership, limited
partnership, joint venture, land trust, common law
trust, business trust,
2
<PAGE> 3
limited liability company or other entity, as well as
any government and agency and political subdivision
thereof.
(h) "REIT" means a real estate investment trust as
defined in the Internal Revenue Code of 1986, as
amended (the "Code").
(i) "Real Estate Investment" means any direct or
indirect investment by the Trust in any interest in
Real Property (including leaseback arrangement), or
in any Person whose principal purpose is to make any
such investment(s).
(j) "Real Property" means land, right and/or interest in
land, leasehold interest, and any building,
structure, improvement, fixture and equipment and
furnishing located on or used in connection with the
land, right and/or interest in land, but excludes any
mortgage and any mortgage loan.
(k) "Securities" means any stock, shares, voting trust
certificates, bonds, debentures, notes or other
evidence of indebtedness or ownership, as well as any
warrants, rights or options to subscribe for, acquire
or purchase any of the foregoing.
(l) "Shares" means the shares of beneficial interest in
the Trust as described in the Trust's Declaration of
Trust.
(m) "Trust Managers" means, as of any particular time,
those persons holding office under the Declaration of
Trust as Trust Managers or successor or additional
trust manager, but shall exclude any officer,
representative, shareholder or agent of the Trust in
his position as such, provided, however, that nothing
herein shall be deemed to preclude any of the Trust
Managers from also serving as an officer,
representative or agent of the Trust or holding
Shares in the Trust.
SECTION 2. APPOINTMENT AS ADVISOR.
The Independent Trust Managers unanimously have appointed the
Advisor to serve as Advisor to the Trust on the terms and conditions set forth
below and the Advisor has accepted such appointment on such terms and
conditions.
SECTION 3. TERM; RENEWALS; TERMINATION
(a) The initial term (the "Initial Term") of this Agreement shall
commence on the Effective Date and shall end at 11:59 p.m., Houston time, on
December 31, 1998. This Agreement shall automatically be renewed for five (5)
successive one (1) year terms, provided, however, that prior to each renewal
term, a majority of Independent Trust Managers shall have reviewed the
performance of the Advisor for the term just ending and shall determine that
such performance has been satisfactory.
(b) In the event that (i) the Trust Managers determine that the
performance of the Advisor was not satisfactory as provided in Section 3 (a),
(ii) a majority of the Independent Trust Managers determine to cancel this
Agreement, or (iii) the Advisor shall elect to cancel this Agreement, then, in
any of such events, the party wishing to terminate this Agreement shall give at
least six (6) calendar months' prior written notice to the other party and upon
the expiration of such notice period, this Agreement shall terminate and be of
no further force or effect. In the event
3
<PAGE> 4
of a termination of this Agreement by the Trust, other than for cause, the
Trust shall pay to the Advisor a termination fee (the "Termination Fee") equal
to the product of the (i) average of the Advisory Fee paid or payable to the
Advisor for the three calendar months immediately preceding the effective date
of termination, and (ii) twelve (12), less any sums paid or payable to the
Advisor on account of the Advisory Fee for the calendar months, up to a maximum
of six (6), following the giving of the termination notice, but prior to the
effective date of such termination.
(c) Notwithstanding the provisions of Section 3 (b), the Trust may
terminate this Agreement for cause at any time without notice or payment of any
Termination Fee.
(d) In the event of a termination of this Agreement, for any
reason or no reason, the Advisor shall cooperate with the Trust and shall take
all reasonable steps requested by the Trust to make an orderly transition of
the advisory functions.
(e) In connection with such termination, the Advisor shall deliver
to the Trust, forthwith, all books and records of the operations and business
of the Trust as the Trust shall request, and shall retain all other books and
records pertaining to the operations and business of the Trust for a period of
five (5) years following such termination.
(f) In the event of a termination of this Agreement by the
Advisor, other than for cause, no Termination Fee shall be due or payable. In
the event that the Advisor shall terminate this Agreement for cause, the
Advisor shall be entitled to receive a termination fee equal to the Termination
Fee.
(g) All fees (including any fees payable on account of a
termination of this Agreement) payable hereunder shall be due and paid on or
before the expiration of the 10th day of the calendar month immediately
following the calendar month for which they are payable. In the event and to
the extent that the results of operations for the preceding month(s) are not
known by the 10th day of the month in which a fee is to be paid, payment shall
be estimated based on the last month (or three months in the case of a fee for
termination) and an adjustment shall be made to reflect the amount actually due
and payable as soon as is practicable, but no later than the 10th day of the
month following the date that such adjustments have been determined.
SECTION 4. DUTIES OF ADVISOR
(a) The primary duties of the Advisor shall be to use its
best efforts to administer the day-to-day operations of the Trust and to
implement the directives of the Trust Managers with respect to Property
operations, maintenance, rehabilitation, acquisitions, financings, refinancings
and dispositions. In connection therewith, the Advisor shall use its best
efforts to:
(i) perform necessary or appropriate administrative
functions in the management of the Trust;
(ii) serve as the Trust's investment and financial advisor
and in connection therewith, provide research,
economic and statistical data in support of the
Trust's investment and financial policies, and
monitor the trust's investments and financial
policies;
(iii) investigate, retain, replace and conduct relations on
behalf of the Trust with accountants, attorneys, real
estate brokers and property managers, investors,
4
<PAGE> 5
builders, developers, bankers and other lenders,
insurance underwriters, securities underwriters,
stock exchanges, registrars and transfer agents, the
Securities and Exchange Commission and state blue sky
commissions, public relations companies, appraisers,
engineers, and other professional entities whose
services the Trust may wish to retain;
(iv) maintain bank accounts for the Trust, and arrange for
fidelity bonds covering the personnel who handle
funds and other liquid assets of the Trust;
(v) administer such day-to-day bookkeeping and accounting
functions as are necessary or appropriate for the
proper management of the assets of the Trust;
(vi) contract for audits and prepare or cause to be
prepared such reports as may be required to comply
with governmental requirements;
(vii) obtain such services as may be necessary or
appropriate to acquire and dispose of trust assets,
collect and disburse Trust funds, and prosecute,
defend and settle Trust claims;
(viii) supervise and monitor the services of all
professionals and agents retained by or for the
benefit of the Trust to ensure that the Properties
are operated and the business of the Trust is
conducted in a prudent and businesslike manner; and
(ix) render advice and, where appropriate, assistance in
the conduct of the Trust's business and affairs.
(b) In connection with the performance of its duties under this
Agreement, the Advisor shall, at the request of the Trust, (i) provide for the
payment by the Advisor of all salaries, bonuses, if any, payroll taxes and
fringe benefits for all officers and other employees of the Trust and/or of the
Advisor who perform services for the Trust, (ii) make available, at its own
cost, such other support personnel (other than contract labor) as the Trust may
require, (iii) supply the Trust with office space and equipment, including
telephones, facsimile and duplicating equipment, and (iv) grant access to
conference rooms and other amenities generally utilized by a company of similar
size and business activity as the Trust.
(c) The Trust shall pay for the fees and expenses of its Trust
Managers and for its own direct and variable expenses that are identifiable
directly to the Trust's activities and operations. In this regard, the trust
will bear its own costs for long distance telephone and travel, postage,
printing costs and contract labor costs.
SECTION 5. COMPENSATION TO THE ADVISOR.
(a) During the Initial Term of this Agreement, the Trust shall pay
to the Advisor, as compensation for the Advisor's services performed hereunder,
a fee (the "Advisory Fee") in an amount equal to 6.8% of the Trust's Adjusted
Funds from Operations. Such Advisory Fee shall be paid to the Advisor monthly
in arrears on or before the 10th day of the calendar month immediately
following the calendar month for which it is payable. Adjustments shall be
made, monthly in arrears, to reflect any bad checks or similar debits to the
Gross Receipts actually received by or for the benefit of the Trust during the
preceding calendar month. In the event and to the extent that the results of
operations for the preceding month(s) are not known by the 10th day of the
month in which a fee is to be paid, payment shall be estimated based on the
last month (or three months in the case of a fee for termination). Adjustments
shall be made to reflect the amount actually due
5
<PAGE> 6
and payable as soon as is practicable, but no later than the 10th day of the
month following the date that such adjustments have been determined.
(b) The Advisory Fee payable to the Advisor during any renewal
term shall be fixed by a majority of the Independent Trust Managers and shall
be determined on the basis of the size, composition and profitability of the
Trust and the amount of similar compensation paid by other real estate entities
owning and operating portfolios of real estate similar in size, type, location
and/or profitability to that of the Trust. Such compensation shall also take
into account the quality and extent of the services provided. The performance
of the Trust's portfolio and the degree of difficulty encountered in the
markets where the Trust's properties are located. The Advisory Fee, however,
shall not exceed 6.8% of the Trust's Adjusted Funds from Operations per annum.
(c) In addition to the Advisory Fee, the Trust shall establish an
incentive plan for the granting of shares of the Trust, options to purchase
such shares and/or other incentive compensation and may grant such shares,
options and/or other incentive compensation directly to the Trust Managers,
officers and other key employees and/or through the Adviser for the benefit of
the officers and other key personnel who are instrumental in the business,
affairs and success of the Trust. To the extent that such shares, options
and/or other incentive compensation are granted to the Adviser for the benefit
of officers and other key personnel who tend to the business, affairs and
success of the Trust, such shares, options and/or other incentive compensation
may be held by the Adviser and/or transferred directly to such officers and
other key personnel. Such shares, options and/or other incentive compensation
granted by the Trust to the Advisor may be in lieu of a portion (but not more
than 50%) of the Advisory Fee and/or in addition to the Advisory Fee.
(d) The Trust shall not pay to the Advisor, or to any Affiliate of
the Advisor, any fee for the acquisition or disposition of any Real Property.
The preceding sentence shall not preclude the Trust from contracting with any
third party to act as its agent, broker or finder in connection with the
acquisition and/or disposition of Real Property and to pay reasonable fees or
commissions to such third parties in connection therewith. Nor shall the
foregoing preclude the Trust or the Advisor from hiring directly any
acquisition/disposition personnel whose compensation shall be based, in part,
on commissions earned from acquisition and/or disposition activities.
(e) The Advisor shall furnish to the Trust monthly, quarterly and
annual statements in form and content reasonably satisfactory to the Trust,
which statements reflect the computation of the Advisory Fee with respect to
the calendar month, quarter or year then ended.
(f) The Trust shall reimburse the Advisor for any necessary and
proper expenses which the Advisor incurs for the benefit of the Trust and with
respect to which the Trust is obligated hereunder to pay.
SECTION 6. OTHER ACTIVITIES OF THE ADVISOR.
(a) The Advisor may engage in business activities and advisory
services in addition to those set forth herein, either for its own account or
for the account of others. The Advisor shall not, however, perform similar
functions for any other real estate entity whose primary function is to own and
operate shopping centers in the United States.
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<PAGE> 7
(b) Except as expressly prohibited in Section 6 (a), nothing set
forth in this Agreement shall (i) prohibit the Advisor from advising other real
estate entities or engaging in other activities which complement the Trust's
investments, or (ii) prohibit , limit or restrict the right of any director,
officer, employee or shareholder of the Advisor, whether or not such person is
also a Trust Manager, officer , or employee of the Trust, to engage in any
other business or render services of any kind to any other person or entity.
(c) The Advisor, including any Affiliate, may lend money to or
participate with the Trust in any investment, with or without remuneration,
provided, however, that neither the Advisor nor any Affiliate shall invest or
participate in an investment in any shopping center (other than by way of a
loan or a foreclosure of a secured loan or deed given in lieu thereof) within
the United States.
SECTION 7. FIDUCIARY RELATIONSHIP.
The Advisor, as a result of its relationship with the Trust, stands in
a fiduciary relationship with the shareholders of the Trust.
SECTION 8. NO PARTNERSHIP OR JOINT VENTURE.
The Trust and the Advisor are not, and shall not be deemed to be,
partners or joint venturers with each other. Nothing herein contained shall be
construed to make them partners or joint venturers or to impose any liability
on either of them as if one of them was the partner or joint venturer with the
other.
SECTION 9. RECORDS.
The Advisor shall keep proper books of account and records relating to
the services performed hereunder. Such books and records shall be accessible
for inspection by or for the benefit of the Trust Managers upon reasonable
notice during regular business hours.
SECTION 10. REIT QUALIFICATION; VIOLATION OF LAW.
The Advisor shall refrain from any action which in its judgment, or in
the judgment of the Trust Managers after reasonable notice to the Advisor,
might adversely affect the qualification of the Trust as a REIT or which would
violate any law or regulation of any governmental body or agency having
jurisdiction over the Trust or its securities.
SECTION 11. BANK ACCOUNTS.
The Advisor may establish one or more bank accounts in its own name
and may deposit into and disburse from such accounts any money on behalf of the
Trust under such terms and conditions as a majority of the Independent Trust
Managers may approve, provided, that no funds in such accounts shall be
commingled with funds of the Advisor or any other Affiliate or client of
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the Advisor. The Advisor shall render a monthly accounting of such deposits
and payments to the Trust and to the auditors of the Trust.
SECTION 12. INFORMATION FURNISHED THE ADVISOR; CONFIDENTIALITY.
(a) The Trust is, or soon will be, a publicly traded REIT. As
such information regarding the Trust's operations, activities and intentions
may be confidential. The Advisor will treat such information as confidential
and proprietary and will not divulge or otherwise disclose such information to
others not affiliated with the Trust without the approval of an Independent
Trust Manager unless under a legal obligation to do so.
(b) Further, under applicable securities laws, the Advisor and its
directors, officers and other key employees may be deemed to be "Insiders" as
such term is used by the Securities and Exchange Commission. The Advisor will
use its best efforts to prevent its directors, officers and other key employees
from violating any applicable "Insider" restrictions.
(c) The Trust Managers shall keep the Advisor informed, in
writing, concerning investment and operating policies of the Trust and shall
make available to the Advisor a copy of (i) all financial statements prepared
by the Trust's independent certified public accountants, and (ii) such other
information regarding the policies and affairs of the Trust as the Advisor
shall reasonably request.
SECTION 13. DEFAULT.
At the option of the Trust, this Agreement shall automatically
terminate upon written notice from the Trust to the Advisor if any of the
following events shall occur:
(a) the Advisor shall fail to make any payment of money to or for
the benefit of the Trust after the expiration of five (5) business days after
receipt of written notice of such failure;
(b) the Advisor shall fail to cure (or shall have failed to
commence the curing of such failure and be diligently prosecuting the curing
of) any non-monetary default within thirty (30) days after receipt of written
notice of such failure; or
(c) the Advisor shall be adjudged bankrupt or insolvent by a court
of competent jurisdiction, or any order shall be made by such court for the
appointment of a receiver, liquidator or trustee of the Advisor of all or
substantially all of its property of the Advisor by reason of the foregoing, or
the Advisor shall file a voluntary petition in bankruptcy or for relief of
debtors, or shall consent to the appointment of a receiver, or shall make a
general assignment for the benefit of creditors, and in any of such events
such default shall not be eliminated within thirty (30) days after receipt of
written notice.
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SECTION 14. MISCELLANEOUS.
(a) Whenever action on the part of the Trust Managers is
contemplated hereunder, action by a majority of the Independent Trust Managers
shall constitute the action required hereunder.
(b) This Agreement shall not be modified, amended or terminated
except by written instrument duly executed by both parties hereto.
(c) This Agreement may not be assigned by the Advisor without the
prior written consent of a majority of the Independent Trust Managers. Any
assignment in violation of the preceding sentence shall be void ab initio.
(d) The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Texas.
(e) The Advisor assumes no responsibility under this Agreement
other than to render the services called for herein in good faith, and shall
not be responsible for any action of the Trust in following or declining to
follow any advice or recommendation of the Advisor. None of the Advisor, its
shareholders, directors, officers or employees shall be liable to the Trust,
the Trust Managers or the shareholders of the Trust or for the debts or
obligations of the Trust except (i) by reason of acts constituting bad faith,
willful misfeasance, gross negligence or reckless disregard of their duties, or
(ii) with respect to obligations of the Trust for which the Advisor has
expressly assumed an undertaking hereunder to pay to or on behalf of the Trust,
in which event the Advisor, but not any of its directors, officers or
employees, shall be liable.
(f) Any communications given hereunder shall be in writing
delivered at the address of the respective party at which that party most
recently has established as its principal office, or at such other address as a
party shall have specified to the other party. As of the effective date
hereof, the addresses of each party are as follows:
(i) If to the Trust: at its principal office at 5847 San Felipe,
Suite 850, Houston, Texas 77057, Attention: Chief Executive
Officer,
(ii) If to the Advisor: at its principal office at 5847 San Felipe,
Suite 850, Houston, Texas 77057, Attention: Chairman.
SECTION 15. EXCULPATION FROM PERSONAL LIABILITY.
This Agreement is made on behalf of the Trust by the Chief Executive
Officer, not individually but solely as an executive officer of the Trust. The
obligations of the Trust under this Agreement are not binding upon, nor shall
resort be had to, the private property of any of the Trust Managers,
shareholders, executive officers, officers, employees or agents of the Trust
personally, but bind only the Trust property.
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<PAGE> 10
IN WITNESS WHEREOF, each of the Trust and the Advisor has executed and
delivered this Agreement on their respective behalves on or as of the 9th day
of June, 1997.
TRUST: UNITED INVESTORS REALTY TRUST
By: /s/ LEWIS H. SANDLER
--------------------------------------
Lewis H. Sandler
Chief Executive Officer
ADVISOR: FCA CORP
By: /s/ ROBERT W. SCHARAR
--------------------------------------
Robert W. Scharar
Chairman
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<PAGE> 1
EXHIBIT 10.2
1997 SHARE INCENTIVE PLAN
OF
UNITED INVESTORS REALTY TRUST
1. Purposes.
The purpose of this Plan is to benefit the Company's shareholders by
encouraging high levels of performance by individuals who are key to the
success of the Company and to enable the Company to attract, motivate and
retain talented and experienced individuals essential to its continued success.
This is to be accomplished by providing such individuals an opportunity to
obtain or increase their proprietary interest in the Company's performance and
by providing such individuals with additional incentives to remain with the
Company.
2. Definitions
The following terms, as used herein, shall have the meaning specified:
"Advisor" means FCA Corp or any other Affiliate under contract with the Company
to provide advisory services to the Company on a full time basis.
"Affiliate" means any person or entity controlled by, under common control
with, or controlling the Company.
"Alternative Rights" shall have the meaning set forth in Section 6(a)(4).
"Award" means an award granted pursuant to Section 6 hereof.
"Board" means the Board of Trust Managers of the Company as it may be comprised
from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means the Committee as defined in Section 3.
"Company" means United Investors Realty Trust.
"Conjunctive Rights" shall have the meaning set forth in Section 6(a)(iv).
"Consummation Date" means the effective date of the Company's initial public
offering.
"Director" means any person who shall from time to time serve as a member of
the board of directors of any Affiliate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time.
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"Fair Market Value" means the closing price of the relevant security as
reported on the composite tape of New York Stock Exchange issues (or such other
reporting system as shall be selected by the Committee) on the relevant date,
or if no sale of the security is reported for such date, the next following day
for which there is a reported sale. The Committee shall determine the Fair
Market Value of any security that is not publicly traded, using such criteria
as it shall determine, in its sole discretion, to be appropriate for such
valuation.
"Independent Trust Manager" means any Trust Manager who is not also an employee
of the Company or any Affiliate; provided, that a Trust Manager who is a
Director or a consultant, or both, but is not an employee also shall mean an
"Independent Trust Manager".
"Initial Public Offering Price" means the per Share price of the Company's
Shares when first offered to the public in the Company's initial public
offering.
"Insider" means any person who is subject to Section 16 of the Exchange Act.
"Limited Rights" shall have the meaning set forth in Section 6(d).
"Option" means any option granted pursuant to Sections 6(a)(i).
"Participant" means any person who has been granted an Award pursuant to this
Plan.
"Performance Share Award" shall have the meaning set forth in Section 6(c).
"Performance Unit" shall have the meaning set forth in Section 6(c).
"Restricted Shares" means the Shares issued as a result of a Restricted Share
Award.
"Restricted Share Award" means a grant of the right to purchase Shares pursuant
to Section 6(b) hereof. Such Shares, when and if issued, shall be subject to
such transfer restrictions and risk of forfeiture as the Committee shall
determine at the time the Award is granted, until such specific conditions are
met. Such conditions may be based on continuing employment (or in the case of a
consultant, the continuing validity of the consultant's agreement with the
Company) or achievement of pre-established performance objectives, or both.
"Rights" shall have the meaning set forth in Section 6(a)(iv).
"Section 16" means Section 16 of the Exchange Act or any successor regulation
and the rules promulgated thereunder by the Securities and Exchange Commission
as they may be amended from time to time.
"Shares" means the common shares of beneficial interest of the Company, no par
value.
"Spread" means (i) with respect to Conjunctive Rights and Alternative Rights,
the excess of the Fair Market Value of one Share on the date of exercise of
such Rights over the purchase price per Share payable under the related Option
and (ii) with respect to Rights not granted in connection
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with an Option, the excess of the Fair Market Value of one Share on the date of
exercise of such Rights over the Fair Market Value of one Share on the date
such Rights were granted.
"Texas Act" shall mean the Texas Real Estate Investment Trust Act, as from time
to time amended.
"Trust Manager" means any person who shall from time to time be a member of the
Board of Trust Managers of the Company.
3. Administration and Interpretation
(a) Administration. The Plan shall be administered by a committee
which shall consist of two or more Independent Trust Managers,
each of who shall be a "disinterested person" within the
meaning of Rule 16b-3(c)(2) of the Exchange Act and an
"outside director" within in the meaning of Section 162(m) of
the Code and the regulations promulgated thereunder (the
"Committee"). The Board may from time to time remove and
appoint members of the Committee in substitution for, or in
addition to, members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee may
prescribe, amend and rescind rules and regulations for
administration of the Plan and shall have full power and
authority to construe and interpret the Plan. A majority of
the members of the Committee shall constitute a quorum, and
the acts of a majority of the members present at a meeting or
the acts of a majority of the members evidenced in writing
shall be the acts of the Committee. The Committee may correct
any defect or any omissions or reconcile any inconsistency of
the Plan or in any Award or grant made hereunder in the manner
and to the extent it shall deem desirable.
The Committee shall have the full and exclusive right to grant
all Awards under this Plan, which may be Options, Rights,
Limited Rights, Restricted Share Awards, Performance Units
and/or Performance Share Awards. In granting Awards, the
Committee shall take into consideration the contribution the
Advisor or the individual has made or may make to the success
of the Company or its Affiliates and such other factors as the
Committee shall determine. The Committee shall periodically
determine the Participants in the Plan and the nature, amount,
pricing, time and other terms of Awards to be made to such
individuals, except as provided in Section 6 of the Plan and
subject to the other terms and provisions of the Plan. The
Committee shall also have the authority to consult with and
receive recommendations from officers and other individuals of
the Company and its Affiliates with regard to these matters.
In no event shall any individual, his or her legal
representative, heirs, legatees, distributees or successors
have any right to participate in the Plan except to such
extent, if any, as the Committee shall determine.
The Committee may, from time to time in granting Awards under
the Plan, prescribe such other terms and conditions concerning
such Awards as it deems appropriate, including, without
limitation, the achievement of specific goals established by
the Committee, provided that such terms and conditions are not
more favorable to any individual than those expressly set
forth in the Plan. In addition, the Committee may
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authorize the making of loans to Participants to facilitate
the realization of the benefits of the Awards granted to them
including loans to the beneficiaries of any Awards made to the
Advisor and then assigned by the Advisor to such
beneficiaries. The terms and conditions of such loans,
including the granting of any forgiveness of the payment of
principal and/or interest thereunder, shall be determined by
the Committee. Such terms and conditions may vary from time to
time and with respect to Participants as the Committee, in its
sole and absolute discretion, shall determine.
The Committee may delegate to the officers of or individuals
associated with, the Company the authority to execute and
deliver such instruments and documents, to do all such acts
and things, and to take all such other steps deemed necessary,
advisable or convenient for the effective administration of
the Plan in accordance with its terms and purpose, except that
the Committee may not delegate any discretionary authority
with respect to substantive decisions or functions regarding
the Plan or Awards thereunder as these relate to Insiders,
including but not limited to decision regarding the timing,
eligibility, pricing, amount or other material term of such
Awards.
(b) Interpretation. The Committee shall have the power to
interpret and administer the Plan. All questions of
interpretation with respect to the Plan, the number of Shares
or other security, Rights, units or Options granted, and the
terms of any Award shall be determined by the Committee and
its determination shall be final and conclusive upon all
parties in interest. In the event of any conflict between an
Award and this Plan, the terms of this Plan shall govern. It
is the intent of the Company that this Plan and Awards
hereunder satisfy and be interpreted in a manner that, in the
case of Participants who are or may be Insiders, satisfies the
applicable requirements of Rule 16b-3 of the Exchange Act, so
that such person will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 and will not
be subjected to liability thereunder. If any provision of this
Plan or of any Award would otherwise frustrate or conflict
with the intent expressed in this Section 3(b), that provision
to the extent possible shall be interpreted and deemed amended
so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall
be deemed void as applicable to Insiders.
(c) Limitation on Liability. Neither the Committee nor any member
thereof shall be liable tor any act. omission,
interpretation. construction or determination made in
connection with the Plan in good faith. and the members of
the Committee shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss,
damage or expense (including counsel fees) arising therefrom
to the full extent as insureds under any directors' and
officers' (or similar) liability insurance coverage which the
Company may have in effect from time to time.
4. Eligibility.
The class of persons who are potential recipients of Awards
granted under this Plan consist of the (i) Independent Trust
Managers, (ii) officers and other key employees
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of the Company or any Affiliate and (iii) consultants to the
Company or any Affiliate, in each case (other than in the case
of clause (i)), as determined by the Committee from time to
time. The Independent Trust Managers, officers and other key
employees, eligible consultants and number of Shares subject
to each such Award, shall be determined by the Committee in
its sole discretion, subject, however, to the terms and
conditions of this Plan. Persons to whom Awards may be granted
include key employees who are also Trust Managers No Award may
be granted to an Independent Trust Manager other than in
accordance with Sections 6(a)(ii) and 6(b)
5. Shares Subject to Grants Under the Plan.
(a) Limitation on Number of Shares. The Shares subject to grants
of Awards shall be authorized but unissued Shares, and such
Shares, if any, held as "treasury stock" by the Company.
Subject to adjustment as hereinafter provided, the aggregate
number of Shares as to which Awards may be granted under the
Plan shall not exceed five million (5,000,000). The maximum
number of Shares which may be covered by outstanding Options
and Rights at any given time shall not exceed approximately
ten percent (10%) of the Shares outstanding at such time.
Further, the maximum number of Shares which may be covered by
Options and Rights granted to any Participant in any calendar
year shall not exceed two hundred fifty thousand (250,000).
Such limitation shall not apply to Options and Rights granted
to the Advisor for the benefit of officers, key employees or
consultants of the Company and/or the Advisor.
(b) Shares ceasing to be covered by an Award because of the
exercise of an Option or Right or the vesting of an Award
shall no longer be subject to any further grant under the
Plan. However, if any outstanding Option or Right, in whole or
in part, expires or terminates unexercised or is canceled or,
if any Award, in whole or in part, expires or is terminated or
forfeited, for any reasons prior to October 1, 2007, the
Shares allocable to the unexercised, terminated, canceled or
forfeited portion of such Award may again be made the subject
of grants under the Plan, provided, however, that if the
Participant receives the benefits of ownership of any Shares
(which includes the receipt of dividends, but does not include
the right to vote such Shares), such Shares may not again be
made the subject of grants under the Plan and provided,
further, that with respect to any Option or Right granted to
any Participant who is a "covered person" as defined in
Section 169(m) of the Code and the regulations promulgated
thereunder that is canceled. the number of Shares subject to
such Option and/or Rights shall continue to count against the
maximum number of Shares which may be the subject of Options
and/or Rights granted to such Participant.
(c) For the purposes of computing the total number of Shares
granted under the Plan, the following rules shall apply to
Awards payable in Shares or other securities, where
appropriate:
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(i) except as provided in (v) of this Section 5(c), each
Option shall be deemed to be the equivalent of the
maximum number of Shares that may be issued upon
exercise of the particular Option;
(ii) except as provided in (v) of this Section 5(c), each
other Share-based Award payable in some other
security shall be deemed to be equal to the number of
Shares to which it relates;
(iii) except as provided in (v) of this Section 5(c), where
the number of Shares available under the Award is
variable on the date it is granted, the number of
Shares shall be deemed to be the maximum number of
Shares that could be received under that particular
Award,
(iv) where Alternative Rights are granted in connection
with an Option, only the number of Shares subject to
the Option shall be counted, and any Shares as to
which such Option is canceled due to the exercise of
such Alternative Rights shall not again be available
for further grants under the Plan; and
(v) each Share awarded or deemed to be awarded under the
preceding subsections shall be treated as Shares,
even if the Award is for a security other than
Shares.
(d) Adjustments of Aggregate Number of Shares. The aggregate number of
Shares stated in Section 5(a) shall be subject to appropriate
adjustment, from time to time, in accordance with the provisions of
Section 7 hereof.
6. Awards.
(a) Options and Rights.
(i) Grants of Options.
(A) Options granted under the Plan may be either incentive stock
options ("ISOs") within the meaning of Section 422 of the Code
or non-qualified stock options. At the time an Option is
granted, the Committee may, in its discretion. designate
whether such Option (i) is to be an ISO or (ii) is not to be
treated as an ISO for purposes of this Plan and the Code. No
Option which is intended to qualify as an ISO shall be granted
under this Plan to any individual who? a the time of such
grant. is not an employee of the Company or an Affiliate.
(B) Notwithstanding any other provision of the Plan to the
contrary, to the extent that the aggregate Fair Market Value
(determined at the date an Option is granted) of the Shares
with respect to which an Option intended to be an ISO (and any
other ISO granted to the holder under this Plan or any other
plans of the Company or an
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Affiliate) first becomes exercisable during any calendar year
exceeds one hundred thousand dollars ($100,000), such Option
shall be treated as an Option which is not an ISO. Options
with respect to which no designation is made by the Committee
shall be deemed to be ISOs to the extent that the one hundred
thousand dollar ($100,000) limitation described in the
preceding sentence is met. This paragraph shall be applied by
taking Options into account in the order in which they are
granted.
(C) No ISO shall be granted to any person who, at the time of the
grant, owns Shares possessing more than ten percent (10%) of
the total combined voting power of the Company or an Affiliate
of the Company, unless (i) on the date such ISO is granted,
the Option price is at least one hundred ten percent (110%) of
the Fair Market Value per Share subject to the ISO and (ii)
such ISO by its term is not exercisable after the expiration
of five (5) years from the date such ISO is granted.
(D) The price per Share to be purchased pursuant to the exercise
of any Option shall be fixed by the Committee at the time of
grant, provided, however, that the purchase price per Share to
be purchased pursuant to the exercise of an ISO shall not be
less than the Fair Market Value of a Share on the date on
which the Option is granted. In addition, the Committee shall
designate the number of Shares, the terms and conditions
(which may include, without limitation, the achievement of
specific goals), with respect to Options granted under the
Plan Options may be granted by the Committee to any individual
eligible to receive the same at any time and from time to
time.
(E) The form of Option shall be as determined from time to time by
the Committee. A certificate of Option signed by the Chairman
of the Board, the President or an Executive Vice President and
attested by the Chief Financial Officer. Treasurer, an
Assistant Treasurer, Secretary or an Assistant Secretary of
the Company shall be delivered to each person to whom Options
are granted.
(ii) Options to Independent Managers.
(A) Each Independent Trust Manager who is elected to the Board
shall be granted an Option on the later to occur of the
Consummation Date or the date of his or her election to the
Board (the "Election Date"). Thereafter, each Independent
Trust Manager shall be granted an Option under the Plan on
each anniversary of the Election Date tor so long as the
individual remains an Independent Trust Manager. Each such
Option shall entitle the Independent Trust Manger to purchase
two thousand (2,000) Shares at a purchase
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price per Share equal to the Fair Market Value of a Share on
the date of grant, provided. however, with respect to any
Independent Trust Manager whose election is the same as the
Consummation Date, the exercise price under the Option granted
to such Independent Trust Manager shall be the Initial Public
Offering Price. Each Option granted in on or as of the
Consummation Date shall vest (and become immediately
exercisable) on January 1, 1999. Any Option granted after the
Consummation Date shall vest on the first anniversary date of
its grant date. Each Option granted pursuant to this Section
6(a)(ii) shall be exercisable for a period of five (5) years
from and after the vesting date of such Option.
(B) Notwithstanding the preceding, all or any part of a remaining
unexercised Options granted pursuant to this Section 6(a)(ii)
may be exercised (but in no event during the six-month period
commencing on the date of grant) in the event of the holder's
retirement from the Company and all Affiliates on or after his
or her 70th birthday, the holder's permanent disability
(within the meaning of Section 92(e)(3) of the Code), or the
holder's death, during the period beginning on the date of
such event and ending three months after the holder's
retirement or disability, or six months after the holder's
death, as the case may be, but in no event after the
expiration of the term of the Option. All or any part of any
remaining unexercised Options granted pursuant to this Section
6(a)(ii) also may be exercised (but in no event during the
six-month period commencing on the date of grant) upon the
occurrence of a Change in Control while the holder is serving
as a Trust Manager of the Company. Any Option granted pursuant
to this Section 6(a)(ii), to the extent unexercised, shall
terminate immediately upon the holder's ceasing to serve as a
Trust Manager of the Company (for reasons other than
retirement, permanent disability or death), except that the
holder shall have until the end of ninety (90) days following
the cessation of such service to exercise any unexercised
Option that he or she could have exercised on the day on which
such service terminated, provided that such exercise must be
accomplished prior to the expiration of the term of such
Option. Notwithstanding the preceding. if the service of any
holder of an Option granted pursuant to this Section 6(a)(ii)
shall be terminated because of the holder's (1) fraud or
intentional misrepresentation or (2) embezzlement,
misappropriation or conversion of assets or opportunities of
the Company or any Affiliate, then all such unexercised
Options of the holder shall terminate immediately upon such
termination of the holder's service
(C) Upon the exercise of any Option granted to this Section
6(a)(ii), payment of the full exercise price shall, except as
otherwise expressly provided in this Section 6(a)(ii)(C), be
made in cash. by check payable to the order of the Company. or
by delivery to the
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<PAGE> 9
Company of Shares which shall be valued at their Fair Market
Value on the date of exercise of the Option; provided,
however, that a holder may not use any Shares acquired
pursuant to the exercise of an Option granted under this Plan
or any other share option plan maintained by the Company or
any Affiliate unless the holder has beneficially owned such
Shares for at least six months. The Independent Trust Managers
are eligible to participate in any loan program adopted by the
Company to facilitate the exercise of Options by the grantees
thereof or their successors or assigns. Accordingly, the
exercise price paid by the Independent Trust Manager may be
paid, in whole or in part, from the proceeds of a loan from
the Company.
(D) No Option may be granted to an Independent Trust Manager
except in accordance with this Section 6(a)(ii).
Notwithstanding any other provisions of the Plan to the
contrary, the provisions of this Section 6(a)(ii) shall not be
amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income
Security Act or 1974, as amended, or the rules and regulates
promulgated thereunder.
(iii) Initial Option Grants. Notwithstanding any other provision of
the Plan to the contrary, each Affiliate, employee or
consultant named below shall be granted an Option prior to the
Consummation Date to purchase the indicated number of Shares:
FCA Corp, three hundred thousand (300,000) Shares, of which
forty thousand (40,000) Shares shall be held for the benefit of
Robert W. Scharar, forty thousand (40,000) Shares shall be held
for the benefit of Lewis H. Sandler, thirty-two thousand
(32,000) Shares shall be held for the benefit of Daniel M.
Jones, III and twenty-four thousand (24,000) Shares shall be
held for the benefit of Randall D. Keith. The balance of these
Shares shall be held for the benefit of officers, other key
employees, or consultants of the Advisor or an Affiliate. None
of such Options granted shall be an ISO. Each such Option shall
entitle the Affiliate or the beneficial owner, officer,
employee or consultant to purchase the specified number of
Shares at an exercise price per Share equal to the Initial
Public Offering Price. Each such Option shall have a duration
of five (5) years from the date of vesting and shall vest and
become exercisable cumulatively as to twenty-five percent (25%)
of the Shares on January 1 of each succeeding year commencing
on January 1, 1999. These Options may be granted either
directly to the beneficial owner or to the Advisor. If granted
to the Advisor, such Options may be assigned, from time to
time, by the Advisor to officers, other key employees and/or
to consultants of the Company or to an Affiliate.
(iv) Grants of Rights.
(A) The Committee shall have the authority in its discretion to
grant to any eligible person Rights which may be granted
separately or in
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connection with an Option (either at the time of grant or,
with respect to a nonqualified Option, at any time during the
term of the Option). Rights granted in connection with an
Option shall be granted with respect to the same number of
Shares then covered by the Option and may be exercised, as
determined by the Committee in its discretion at the time of
the grant of the Rights, either in conjunction with, or as an
alternative to, the exercise of the related Option; provided,
however, that Rights granted in connection with an ISO can
only be exercised as alternative to the exercise of the ISO.
(B) Rights granted in connection with an Option that entitle the
holder thereof to receive payment from the Company only if and
to the extent that the related Option is exercisable and is
exercised are referred to herein as "Conjunctive Rights". Upon
any exercise of an Option in respect of which Conjunctive
Rights shall have been granted, the holder of the Conjunctive
Rights shall be entitled to receive payment of an amount equal
to the product obtained by multiplying (i) the Spread, or such
percentage or portion of the Spread as shall be determined by
the Committee at the time of grant, by (ii) the number then
been so exercised. Notwithstanding any provision of the Plan
to the contrary? Conjunctive Rights may not be granted in
relation to an ISO.
(C) Rights granted in connection with an Option that entitle the
holder thereof to receive payment from the Company only if and
to the extent that the related Option is exercisable, by
surrendering the Option with respect to the number of Shares
as to which such Rights are then exercised are referred to
herein as "Alternative Rights". Notwithstanding the preceding,
any Alternative Rights that relate to an ISO may be exercised
only at such times that there is a positive Spread. Upon any
exercise of Alternative Rights, the holder thereof shall be
entitled to receive payment of an amount equal to the product
obtained by multiplying (i) the Spread, or such percentage or
portion of the Spread as shall be determined by the Committee
at the time of grant, by (ii) the number of Shares in respect
of which the Rights shall have then been so exercised.
(D) Rights granted without relationship to an Option shall be
exercisable at such rate as determined by the Committee. Such
Rights shall entitle the holder, upon the exercise thereof, to
receive payment from the Company of an amount equal to the
product obtained by multiplying (i) the Spread, or such
percentage or portion of the Spread as shall be determined by
the Committee at the time of grant, by (ii) the number of
Shares in respect of which the Rights shall have then been so
exercised.
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<PAGE> 11
(E) Notwithstanding anything contained herein, the Committee may,
in its sole discretion, limit the amount payable upon the
exercise of Rights. Any such limitation shall be determined as
of the date of grant and noted on the certificate evidencing
the grant of the Rights.
(F) Payment of the amount determined hereunder upon exercise of
any Rights shall be made solely in cash, or solely in Shares
valued at their Fair Market Value on the date of exercise of
the Rights, or in an combination of cash and Shares, as the
holder may elect, provided that any election by the holder
shall be subject to approval by the Committee. No fractional
Shares shall be issued by the Company, and settlement
therefore shall be made in cash.
(G) Notwithstanding any other provision of the Plan or of the
Rights, for purposes of determining the amount of the Spread
in the case of a holder of Rights who is an Insider, the
Committee, in its sole discretion, may designate a single Fair
Market Value per Share with respect to all such holders who
exercise Rights during any single ten ( 10) day period;
provided, however, that the Fair Market Value per Share
designated by the Committee during any such period shall in no
event be greater than the highest Fair Market Value per Share
on any day during such period or less than the lowest Fair
Market Value per Share on any day during such period.
(H) The form of Rights shall be as determined from time to time by
the Committee. A certificate of Rights signed by the Chairman
of the Board, Chief Executive Officer, President or an
Executive Vice President and attested by the Chief Financial
officer, Treasurer, Assistant Treasurer, Secretary or an
Assistant Secretary of the Company shall be delivered to each
person to whom Rights are granted.
(I) The Committee may fix such waiting periods, exercise dates or
other limitations as it shall deem appropriate with respect to
Rights granted under the Plan including, without limitation,
the achievement of specific goals; provided, however that each
Right granted hereunder shall be exercisable only upon consent
of the Committee.
(v) Payment of Option Exercise Price.
(A) Upon exercise of an Option, the full Option exercise price for
the Shares with respect to which the Option is being exercised
shall be payable to the Company (i) in cash or by a check
payable and acceptable to the Company or (ii) subject to the
approval of the Committee, by tendering to the Company Shares
owned by the holder having an aggregate Fair Market Value per
Share as of the date of exercise and tender which is not
greater than the full Option
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<PAGE> 12
purchase price for the Shares with respect to which the Option
is being exercised and by paying the remainder, if any, of the
Option purchase price as provided in (i) above, however, the
Committee may, upon confirming that the holder owns the number
of additional Shares being tendered, authorize the issuance of
a new certificate for the number of Shares being acquired
pursuant to the exercise of the Option less the number of
Shares being tendered upon the exercise and return to the
holder (or not require surrender of the certificate for the
Shares being tendered upon the exercise. The exercise price
may also be paid, in whole or in part, by application of the
proceeds of any loan made available by the Company to
facilitate the exercise of Options.
(B) Notwithstanding the preceding, a holder may not use any Shares
acquired pursuant to an Award granted under this Plan (or any
other plan maintained by the Company or any Affiliate) unless
the holder has beneficially owned such Shares tor at least six
(6) months. Payment instruments will be received subject to
collection. In addition to the foregoing methods of payment,
the full Option purchase price for Shares with respect to
which the Option is being exercised may be payable to the
Company by such other methods as the Committee may permit from
time to time.
(vi) Term. The term of each Option and Right shall be determined by
the Committee at the date of grant; provided, however, that
each Option that is an ISO shall, notwithstanding anything in
the Plan to the contrary, expire not more than ten (10) years
from the date the Option is granted (or five (5) years from the
date of grant to the extent required under Section 6(a)(i), or,
if earlier, the date specified in the certificate evidencing
the grant of such Option. An Option that is a nonqualified
stock option shall expire not more than ten (10) years from the
date the Option is granted, or if earlier, the date specified
in the certificate evidencing the grant of such Option. A Right
not granted in connection with an Option shall expire not more
than ten (10) years from the date the Right is granted or, if
earlier, the date specified in the certificate evidencing the
grant of the Right.
(vii) Vesting. The Committee shall determine the vesting schedule of
all Options granted, which schedule may vary from grant to
grant but shall not exceed five (5) years.
(viii) Termination of Employment or Relationship.
(A) In the event that a Participant's employment or relationship
with the Company and its Affiliates shall terminate, for
reasons other than (i) retirement pursuant to the retirement
plan or policy of the Company or one of its Affiliates
("retirement"). (ii) permanent disability as determined by the
Committee based on the opinion of a physician
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<PAGE> 13
selected or approved by the Committee ("permanent disability")
or (iii) death, the Participant's Options and Rights shall be
exercisable by him or her, subject to subsection (vi) above,
only within ninety (90) days after such termination, but only
to the extent the Option or Right was exercisable immediately
prior to such termination.
(B) If, however, any such termination is due to retirement or
permanent disability, the Participant shall have the right,
subject to the provisions of subsection (vi) above, to
exercise his or her Option and Rights at any time within the
three (3) month period commencing on the day next following
such termination. Whether any termination is due to retirement
or permanent disability, and whether an authorized leave of
absence on military or government service or for other reasons
shall constitute a termination for the purpose of the Plan,
shall be determined by the Committee.
(C) If a Participant shall die while entitled to exercise an
Option or Rights, the Participant's estate, personal
representative or beneficiary, as the case may be, shall have
the right, subject to the provisions of subsection (vi) above,
to exercise the Option at any time within six (6) months from
the date of the holder's death.
(D) If the employment, consulting arrangement or service of any
Participant with the Company or an Affiliate shall be
terminated because of the Participant's violation of the
duties of such employment, consulting arrangement or service
with the Company or an Affiliate as her or she may from time
to time have, the existence of such violation shall be
determined by the Committee in its sole discretion (which
determination by the Committee shall be conclusive) all
unexercised Options of such Participant shall terminate of
such Participant's employment, consulting arrangement or
service with the Company and all Affiliates and a Participant
whose employment, consulting arrangement or service with the
Company and Affiliates is so terminated, shall have no right
after such termination to exercise any unexercised Option he
or she might have exercised prior to termination of his or her
employment, consulting arrangement or service with the Company
and Affiliates.
(ix) Options Granted by Other Corporations. Options may be granted
under the Plan from time to time in substitution for stock
options held by employees and directors of corporations who
become key employees or Trust Managers or Directors of the
Company or of any Affiliate as a result of any "corporate
transaction' as defined in the Treasury Regulations promulgated
under Section 494 of the Code.
(x) Reload Options
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<PAGE> 14
(A) An Option may, in the discretion of the Committee, include a
reload option rivet which shall entitle the holder, upon (i)
the exercise of such original Option prior to the holder's
termination of employment and (ii) payment of the appropriate
exercise price in Shares that have been owned by such holder
for at least six months prior to the date of exercise, to
receive a new Option (the "Reload Option") to purchase, at the
Fair Market Value per Share on the date of the exercise of the
original Option, the number of Shares equal to the number of
whole Shares delivered by the holder in the payment of the
exercise price of the original Option.
(B) A Reload Option may also allow that, upon the exercise of an
Option, the holder may receive a new Option to purchase at the
Fair Market Value per Share on the date of exercise of the
original Option, the number of Shares equal to the number of
whole Shares delivered by the holder in the payment of the
exercise price of the original Option. Such Reload Option
shall be subject to the same terms and conditions, except as
hereafter expressly provided, including expiration date, and
shall be exercisable at the same time or times as the original
Option with respect to which it is granted. Such Reload Option
may be exercised at a purchase price equal to the Fair Market
Value per Share on the date of the exercise of the original
Option. In no event shall any Reload Option be exercisable
within six months after its date of grant or after the
expiration of ten (10) years after the date of grant of the
original Option.
(b) Restricted Share Awards
(i) Awards of Restricted Shares. Restricted Share Awards may be
awarded by the Committee to any individual eligible to receive
the same, at any time and from time to time before October 1,
2007. In addition, and without limiting the generality of the
foregoing, the Committee shall grant to any individual who is
entitled to receive a bonus under the Company's cash bonus
incentive plan, a Restricted Share Award with respect to
Shares having a Fair Market Value on the date of the grant of
such Restricted Share Award equal to a specified percentage
determined by the Committee of the amount of such individual's
bonus, provided that such individual has made an irrevocable
election, at least six months prior to the date of the grant
of such Restricted Share Award, to receive such Restricted
Share Award in lieu of such bonus.
(ii) Purchase Price under Restricted Share Awards. The Purchase of
Restricted Shares to be purchased pursuant to a Restricted
Share Award shall be fixed by the Committee at the time of the
grant of the Restricted Share Award; provided however. that
such purchase price shall not be less than the par value per
Share of the Shares subject to the Restricted Share Award. The
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<PAGE> 15
Committee shall specify. within its discretion, the
time and manner in which payment of such purchase
price shall be paid.
(iii) Description of Restricted Shares. All Restricted
Shares purchased by an eligible person shall be
subject to the following conditions:
(A) Restricted Shares shall be subject to such
restrictions, terms and conditions as the
Committee may establish, which may include,
without limitation, "lapse" and "non-lapse"
restrictions (as such terms are defined in
regulations promulgated under Section 83 of
the Code) and the achievement of specific
goals;
(B) the Restricted Shares may not be sold,
exchanged, pledged, transferred, assigned or
otherwise encumbered or disposed of until the
terms and conditions set by the Committee at
the time of the grant of the Restricted Share
Award have been satisfied; and
(C) such certificate representing Restricted
Shares issued pursuant to this Plan shall
bear a legend making appropriate reference to
the following:
"The Shares represented by this certificate
have been issued pursuant to the terms of the
1997 Share Incentive Plan of United Investors
Realty Trust and may not be sold, pledged,
transferred, assigned or otherwise encumbered
in any manner except as is set forth in the
terms of such award dated
____________________________, ___________."
(iv) If a certificate representing Restricted Shares is
issued to an individual (whether or not escrowed as
provided below), the individual shall be the record
owner of such Shares and shall have all the rights of a
shareholder with respect to such Shares (unless the
Restricted Share Award specifically provides
otherwise), including the right to vote and the right
to receive dividends or other dividends made or paid
with respect to such Shares.
(v) In order to enforce the restrictions, terms and
conditions that may be applicable to a Participant's
Restricted Shares, the Committee may require the
Participant, upon the receipt of a certificate or
certificates representing such Shares, or at any time
thereafter, to deposit such certificate or
certificates, together with stock powers and other
instruments of transfer, appropriately endorsed in
blank, with the Company or an escrow agent designated
by the Company under an escrow agreement, which may be
a part of a Restricted Share Award, in such form as
shall be determined by the Committee.
(vi) After the satisfaction of the terms and conditions set
by the Committee with respect to Restricted Shares
issued to an individual, and provided the Restricted
Shares are not subject to a non-lapse restriction, a
new
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<PAGE> 16
certificate, without the legend set forth above. for
the number of Shares that are no longer subject to such
restrictions. terms and conditions shall be delivered
to the individual. If such terms and conditions are
satisfied as to a portion, but fewer than all, of such
Shares, the remaining Shares issued with respect to
such Award shall either be reacquired by the Company
or, if appropriate under the terms of the Award
applicable to such Shares, shall continue to be subject
to the restrictions, terms and conditions set by the
Committee at the time of Award.
(vii) Termination of Employment or Relationship. If the
employment or relationship with the Company and its
Affiliates of a holder of a Restricted Share Award is
terminated for any reason before satisfaction of the
terms and conditions for the vesting (within the
meaning of Section 83 of the Code) of all Shares
subject to the Restricted Share Award, the number of
Restricted Shares not theretofore vested shall be
reacquired by the Company and forfeited, and the
purchase price paid for such Shares by the holder shall
be returned to the holder. If Restricted Shares issued
shall be reacquired by the Company and forfeited as
provided above, the individual, or in the event of his
death, his personal representative, shall forthwith
deliver to the Secretary of the Company the
certificates representing such Shares, accompanied by
such instrument of transfer, if any, as may reasonably
by required by the Company.
(viii) In contemplation of the consummation of the Company's
initial public offering, the Company shall grant 2,000
Restricted Shares each to each of the Independent Trust
Managers and 69,000 Restricted Shares to the Advisor,
of which 10,000 Restricted Shares shall be for the
benefit of Robert W. Scharar, 10,000 Restricted Shares
shall be for the benefit of Lewis H. Sandler, 8,000
Restricted Shares shall be for the benefit of Daniel M.
Jones, III, and 6,000 Restricted Shares shall be for
the benefit of Randall E. Keith. The Restricted Shares
granted pursuant to this paragraph (H) shall be subject
to divestiture in the event that the recipient or
beneficiary ceases to be an Independent Trust Manager,
officer or other key employee of the Company or the
Advisor or an Affiliate other than as a result of
death, permanent disability, retirement after the age
of 70, dismissal other than for cause, or Change of
Control (as hereinafter defined) prior to the vesting
of the Restricted Shares. Each Restricted Share grant
shall vest and be free of any restrictions imposed by
the Company over a 24 month period with 25% of the
Restricted Shares granted to any person or entity
vesting in six (6) month increments commencing six
(6)months after the consummation of the Company's
initial public offering. In addition to being subject
to divestiture prior to vesting, the Restricted Shares
granted pursuant to this paragraph (viii) shall not be
transferable except by the Advisor or by operation of
law.
(ix) Each Independent Trust Manager who is elected for the
first time to the Board of Trust Managers shall also
receive a Restricted Share grant of
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<PAGE> 17
9,000 Shares effective as of the date of election to
the Board of Trust Managers. Such Restricted Share
grant shall be subject to divestiture and restrictions
on transfer similar to those set forth above in
paragraph (viii). except that the vesting shall be in
six (6) month increments commencing six (6) months
after the effective date of initial election to the
Board of Trust Managers.
(x) Holders of Restricted Shares granted pursuant to
paragraph (viii) or (ix), above, shall be entitled to
vote such Shares and to receive any dividends payable
on account of such Shares.
(xi) Consideration for the receipt of the Restricted Shares
shall be One Dollar ($1.00) per Share, payable by the
recipient (or beneficiary) as the Shares vest.
(c) Performance Units and Performance Share Awards
(i) Awards. Awards may be granted in the form of
Performance Units or Performance Share Awards.
Performance Units are units valued by reference to
designated criteria established by the Committee, other
than Shares. Performance Share Awards are Shares
expressed in terms of, or valued by reference to, a
Share. Awards of Performance Units and Performance
Share Awards shall refer to a commitment by the Company
to make a distribution to the Participant or to his or
her beneficiary depending on (i) the attainment of the
performance objectives and other conditions established
by the Committee and (ii) the base value of the
Performance Unit or Performance Share Award,
respectively, as established by the Committee.
(ii) Settlement. Settlement of Performance Units and
Performance Share Awards, in the sole discretion of the
Committee, may be in cash, loan proceeds, in Shares or
a combination thereof. The Committee may designate a
method of converting Performance Units into Shares,
including but not limited to a method based on the Fair
Market Value over a series of consecutive trading days.
Prior to the settlement of any Performance Unit or
Performance Share Award in Shares, the recipient of
such Award shall pay to the Company an amount of cash
equal to, at a minimum, the par value per Share
multiplied by the number of Shares to be issued.
(iii) No Rights as a Shareholder. Participants shall not be
entitled to exercise any voting rights or to receive
any interest or dividends with respect to Performance
Units or Performance Share Awards.
(d) Limited Rights
The Committee shall have the power to grant limited rights
("Limited Rights") which shall be a part of an Award. Limited
Rights shall provide for the automatic cash
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<PAGE> 18
payment to the holder of the Award equal to the Spread (or
other determination of the value of the Award as fixed by the
Committee) upon the occurrence of a Change in Control (as
defined in Section 8) on the date fixed by the Committee at
any time of the grant of such Limited Right. Limited Rights
may provided that Committee approval is not required for the
exercise of such Limited Right.
(e) Consideration for Awards
Subject to the requirements of the Texas Act, the Company
shall obtain such consideration for the grant of an Award
under this Section 6 as the Committee, in its discretion, may
determine.
7. Adjustment Provisions
If, prior to the complete exercise of any Option, or prior to the
expiration or lapse of all of the restrictions and conditions imposed
pursuant to a Restricted Share Award, there shall be declared and paid
a Share dividend upon the Shares or if the Shares shall be split up,
converted, exchanged, reclassified or in any way substituted for, then
(i) in the case of an Option, the Option, to the extent that it has
not been exercised, shall entitle the holder thereof upon the future
exercise of the Option to such number and kind of securities, cash or
other property subject to the terms of the Option to which he would
have been entitled had he actually owned the Shares subject to the
unexercised portion of the Option at the time of the occurrence of
such dividend, split-up, conversion, exchange, reclassification or
substitution, and the aggregate purchase price upon the future
exercise of the Option shall be the same as if the originally optioned
Shares were being purchased thereunder; and (ii) in the case of
restricted Shares issued pursuant to a Restricted Share Award, the
holder of such Award shall receive, subject to the same restrictions
and other conditions of such Award as determined pursuant to the
provisions of Section 6(b), the same securities or other property as
are received by the holders of the Company's Shares pursuant to such
dividend, split-up, conversion, exchange, reclassification or
substitution. Any fractional Shares or securities payable upon the
exercise of the Option as a result of such adjustment shall be payable
in cash based upon the Fair Market Value of such Shares or securities
at the time of such exercise. If any such event should occur, the
number of Shares with respect to which Awards remain to be issued, or
with respect to which Awards may be reissued, shall be adjusted in a
similar manner.
In addition to the adjustments provided for in the preceding
paragraph, upon the occurrence of any of the events referred to in
said paragraph prior to the complete exercise of any Rights or Limited
Rights, or prior the complete expiration of the vesting period with
respect to Performance Units or a Performance Share Award, the
Committee, in its sole discretion, shall determine the amount of cash
and/or number of Shares or other property to which the holder of the
Rights shall be entitled upon their exercise, or to which the holder
of the Performance Units or Performance Share Award shall be entitled
upon the expiration of the vesting period, so that there shall be no
increase or dilution in the cash and/or value of the Shares or other
property to which the holder of Rights or of Performance Units or a
Performance Share Award shall be entitled by reason of such events.
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<PAGE> 19
Notwithstanding any other provision of the Plan, in the event of a
recapitalization, merger, consolidation, rights offering. separation,
reorganization or liquidation, or any other change in the corporate
structure or outstanding Shares, the Committee may make such equitable
adjustments to the number of Shares and the class of Shares available
hereunder or to any outstanding Awards as it shall deem appropriate to
prevent dilution or enlargement of rights.
8. Acceleration.
Notwithstanding any other provision of the Plan to the contrary, all
or any part of any remaining unexercised Options and Rights granted to
any person may be exercised in the following circumstances (but in no
event, unless waived by the Committee, during the six (6) month period
commencing on the date granted) and all or any part of any other Award
not therefore vested, shall vest (a) with respect to Options or Rights
only, immediately upon (but prior to the expiration of the term of the
Option or Rights) retirement, (b) subject to the provisions of Section
6 hereof, upon the permanent disability or death of the holder, (c)
upon the occurrence of such special circumstance or event as in the
opinion of the Committee merits special consideration, or (d) upon a
Change in Control as defined below in which case the date on which
such immediate exercisability and accelerated vesting shall occur (the
"Acceleration Date") shall be the date of the occurrence of the Change
in Control.
A "Change in Control" shall be deemed to have occurred if
(a) any "person" (as such term is used in Section 13(2) and 14(d)
of the Exchange Act) (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company, or any company owned, directly or
indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of
Shares in the Company) together with its "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 of the
Exchange Act) makes a tender or exchange offer for, is or
becomes the "beneficial owner'' (as defined in Rule 13d-3
under the Exchange Act), or has become the beneficial owner
during the most recent twelve (12) month period ending on the
date of the most recent acquisition by such person directly or
indirectly, of securities of the Company representing forty
percent (40%) or more of the combined voting power of the
Company's then outstanding securities; or
(b) during any period of two (2) consecutive years (not including
any period prior to the effective date of this Plan),
individuals who at the beginning of such period constitute the
Board, and any new Trust Manager (other than a Trust Manager
designated by a person who has entered into an agreement with
the Company to effect a transaction described in clause (a),
(c) or (d) of this definition) whose election by the Board or
nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3rds) of the
Trust Managers then still in office who either were Trust
Managers at the beginning of the period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof; or
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<PAGE> 20
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other company other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than eighty percent (80%) of the
combined voting power of the voting securities of the Company
)or such surviving entity) outstanding immediately after such
merger or consolidation or (ii) a merger or consolidation
effected to implement a recapitalizations of the Company (or
similar transaction) in which no "person" as hereinabove
defined) acquires more than twenty-five percent (25%) of the
combined voting power of the Company's then outstanding
securities; or
(d) the shareholders of the Company adopt a plan of complete
liquidation of the Company or approve an agreement for the
sale, exchange or disposition by the Company of all or a
significant portion of the Company's assets. For purposes of
this clause (d), the term "the sale, exchange or disposition
by the Company of all or a significant portion of the
Company's assets" shall mean a sale or other disposition
transaction or series of related transactions involving assets
of the Company or any subsidiary of the Company (including the
stock of any subsidiary of the Company) in which the value of
the assets or stock being sold or otherwise disposed of (as
measured by the purchase price being paid therefore or by such
other method as the Board determines in appropriate in a case
where there is no readily ascertainable purchase price)
constitutes more than thirty-three and one-third percent
(33-1/3%) of the Fair Market Value of the Company (as
hereinafter defined). For purposes of the preceding sentence,
the "Fair Market Value of the Company" shall be the aggregate
market value of the outstanding shares of beneficial interest
of the Company (on a fully diluted basis) plus the aggregate
market value of the Company's other outstanding equity
securities. The aggregate market value of the Shares shall be
determined by multiplying the number of Shares (on a fully
diluted basis) outstanding on the date of the execution and
delivery of a definitive agreement with respect to the
transaction or series of related transactions (the
"Transaction Date") by the average closing price of the Shares
for the ten (10) trading days immediately preceding the
Transaction Date. The aggregate market value of any other
equity securities of the Company shall be determined in a
manner similar to that prescribed in the immediately preceding
sentence for determining the aggregate market value of the
Shares or by such other method as the Board shall determine is
appropriate.
Notwithstanding the foregoing (except as provided otherwise in an
Award), a Change in Control shall not be deemed to have occurred if,
prior to the time a Change in Control would otherwise be deemed to
have occurred pursuant to the above provisions, the Board determines
otherwise.
9. Participant's Agreement
If, at the time of the exercise of any Option or Right or the granting
or vesting of an Award, in the opinion of counsel for the Company, it
is necessary or desirable, in order to comply
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<PAGE> 21
with any then applicable laws or regulations relating to the sale of
securities, that the individual exercising the Option or Right or
receiving the Award shall agree to hold any Shares issued to the
individual for investment and without any present intention to resell
or distribute the same and that the individual will dispose of such
Shares only in compliance with such laws and regulations, the
individual will, upon the request of the Company, execute and deliver
to the Company a further agreement to such effect.
10. Withholding Taxes
No Option or Right may be exercised and no distribution of Shares
pursuant to an Award may be made under the Plan until appropriate
arrangements have been made by the holder with the Company for the
payment of any amounts that the Company may be required to withhold
with respect thereto, which arrangements may include the tender of
previously owned Shares or the withholding of Shares issuable pursuant
to such Award.
11. Termination of Authority to Make Grant
No Awards will be granted pursuant to this Plan after October 1, 2007.
12. Amendment and Termination
The Board may from time to time at any time alter. amend, suspend,
discontinue or terminate this Plan or, with the consent of an affected
holder, any outstanding Awards hereunder, provided, however that no
such action of the Board may, without the approval of the shareholders
of the Company, alter the provisions of the Plan or outstanding Awards
so as to (i) increase the maximum number of Shares which may be
subject to Awards under the Plan (except as provided in Section 5(b)
); or (ii) change the class of persons eligible to receive Awards, or
(ii) amend the Plan in any manner that would require shareholder
approval under Rule 16b-3 of the Exchange Act or under Section 1 62(m)
of the Code.
13. Preemption by Applicable Laws and Regulations
Notwithstanding anything in the Plan to the contrary, if, at any time
specified herein for the making of any determination or payment, or
the issuance or other distribution of Shares, any law, regulation or
requirement of any governmental authority having jurisdiction in the
premises shall require either the Company or the Participant (or the
Participant's beneficiary), as the case may be, to take any action in
connection with any such determination, payment. issuance or
distribution. the issuance or distribution of such Shares or the
making of such determination or payment, as the case may be, shall be
deferred until such action shall have been taken.
14. Change in Control Limitation
Notwithstanding any other provision in the Plan, to the extent that
the acceleration of exercisability or vesting of an Award under this
Plan following a Change in Control, when aggregated with other
payments or benefits to the Participant, whether or not payable
- 21 -
<PAGE> 22
pursuant to this Plan, would, as determined by tax counsel selected by
the Company, result in "excess parachute payments" (as defined in
Section 280G of the Code) such parachute payments or benefits provided
to the Participant under this Plan shall be reduced to the extent
necessary so that no portion thereof shall be subject to the excise
tax imposed by Section 4999 of the Code, but only if, by reason of
such reduction, the Participant's net after tax benefit shall exceed
the net after tax benefit if such reduction were not made. '`Net
after tax benefit" shall mean the sum of (i) all payments and benefits
which a Participant receives or is then entitled to receive that would
constitute a "parachute payment" within the meaning of Section 280G of
the Code, less (ii) the amount of federal income taxes payable with
respect to the payments and benefits described in (i) above calculated
at the maximum marginal income tax rate for the year in which such
payments and benefits shall be paid to the Participant (based upon the
rate for such year as set forth in the Code at the time of the first
payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i)
above by Section 4999 of the Code.
15. Miscellaneous.
(a) No Employee Contract. Nothing contained in the Plan shall he
construed as conferring upon any Participant the right to
continue in the employ, or as a Trust Manager, Director of or
consultant to the Company, the Advisor or any Affiliate
(b) Employment or Service with Affiliates. Employment by, or
service for, the Company for the purpose of this Plan shall be
deemed to include employment by, or service for, any
Affiliate.
(c) No Rights as a Shareholder. A Participant shall have no rights
as a shareholder with respect to Shares covered by the
Participant's Award until the date of issuance of such Shares
to the Participant pursuant thereto. No adjustment will be
made for dividends or other distributions or rights for which
the record date is prior to the date of such issuance
(d) Nonassignability. Except as otherwise expressly provided in
this paragraph (d), neither a Participant nor a Participant's
estate, personal representative or beneficiary shall have the
power or right to sell, exchange. pledge, transfer, assign or
otherwise encumber or dispose of such Participant's estate's.
personal representative's or beneficiary's interest arising
under the Plan nor shall such interest be subject to seizure
for the payment of a Participant's or beneficiary's debts
judgments alimony or separate maintenance or be transferable
by operation of the law in the event of a Participant's
estate's personal representative's or beneficiary's bankruptcy
or insolvency and to the extend any such interest arising,
under the Plan is awarded to a spouse pursuant to any divorce
proceeding such interest shall be deemed to be terminated and
forfeited, notwithstanding any vesting provisions or other
term herein or in such Award. The Advisor may from time to
time assign all or any portion of any Award that it receives
hereunder to any officer or other key employee of or
consultant to the Company the Advisor or any Affiliate. If
permitted under applicable securities and tax laws a
Participant may assign from time to time. all or any part of
an Award to a member of his or her immediate family
- 22 -
<PAGE> 23
to a trust for such member or to a recognized charitable
institution but only if prior to such assignment the Committee
has granted in writing its consent to such assignment;
provided however that an Independent Trust Manager shall not
be required to obtain such consent.
(e) Application of Funds. The proceeds received by the Company
from the sale of Shares pursuant to the Plan will be used for
its general business purposes.
(f) Governing Law; Construction. All rights and obligations under
the Plan shall be governed by and the Plan shall be construed
in accordance with the laws of the State of Texas without
regard to the principles of conflicts of laws. Titles and
headings to Sections herein are for purposes of reference only
and shall in no way limit define or Otherwise affect the
meaning or interpretation of any provisions of the Plan.
Adopted on September 8, 1997
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<PAGE> 1
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into as of the ___ day of _____________199_, by and between United Investors
Realty Trust, Texas real estate investment trust (the "Trust"), and the
undersigned trust manager and/or officer of the Trust (the "Indemnitee").
RECITALS
WHEREAS, it is essential to the Trust to retain and attract as trust
managers and officers the most capable persons available;
WHEREAS, the Indemnitee is trust manager and/or officer of the Trust;
WHEREAS, both the Trust and the Indemnitee recognize the increased
risk of litigation and other claims being asserted against trust managers and
officers of companies in today's environment;
WHEREAS, the Trust's Declaration of Trust (the "Declaration of Trust")
provides that the Trust will indemnify its trust managers and officers to the
full extent permitted by law, and the Indemnitee's willingness to serve as a
trust manager and/or officer of the Trust is based in part on the Indemnitee's
reliance on such provisions; and
WHEREAS, the Texas Real Estate Investment Trust Act, as amended (the
"Texas Statute") expressly recognizes that the indemnification provisions of
the Texas Statute are not exclusive of any other rights to which a person
seeking indemnification may be entitled under the Declaration of Trust or
Bylaws of the Trust, a resolution of the trust managers, an agreement or as
permitted or required by common law, and this Agreement is being entered into
pursuant to and in furtherance of the Declaration of Trust and Bylaws, as
permitted by the Texas Statute and as authorized by the Declaration of Trust
and the trust managers of the Trust (the "Trust Managers"); and
WHEREAS, in recognition of the Indemnitee's need for substantial
protection against personal liability in order to enhance the Indemnitee's
continued service to the Trust in an effective manner, and the Indemnitee's
reliance on the aforesaid provisions of the Declaration of Trust, and in part
to provide the Indemnitee with specific contractual assurance that the
protection promised by such provisions will be available to the Indemnitee
(regardless of, among other things, any amendment to or revocation of such
provisions or any change in the composition of the Trust Managers or any
acquisition or business combination transaction relating to the Trust), the
Trust wishes to provide in this Agreement for the indemnification of and the
advancement of expenses to the Indemnitee as set forth in this Agreement and,
to the extent insurance is maintained, for the continued coverage of the
Indemnitee under the Trust's trust managers' and officers' liability insurance
policies.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
<PAGE> 2
1. Indemnification.
(a) In accordance with the provisions of subsection (b) of this
Section 1, the Trust shall hold harmless and indemnify the Indemnitee against
any and all expenses, liabilities and losses (including, without limitation,
investigation expenses and expert witnesses' and attorneys' fees and expenses,
judgments, penalties, fines, ERISA excise taxes and amounts paid or to be paid
in settlement) actually incurred by the Indemnitee (net of any related
insurance proceeds or other amounts received by the Indemnitee or paid by or on
behalf of the Trust on the Indemnitee's behalf), in connection with any action,
suit, arbitration or proceeding (or any inquiry or investigation, whether
brought by or in the right of the Trust or otherwise, that the Indemnitee in
good faith believes might lead to the institution of any such action, suit,
arbitration or proceeding), whether civil, criminal, administrative or
investigative, or any appeal therefrom, in which the Indemnitee is a party, is
threatened to be made a party, is a witness or is participating (a
"Proceeding") based upon, arising from, relating to or by reason of the fact
that Indemnitee is, was, shall be or shall have been a trust manager and/or
officer of the Trust or is or was serving, shall serve, or shall have served at
the request of the Trust as a trust manager, officer, partner, trustee,
employee or agent ("Affiliate Indemnitee") of another foreign or domestic
corporation or non-profit corporation, cooperative, partnership, joint venture,
trust or other incorporated or unincorporated enterprise.
(b) In providing the foregoing indemnification, the Trust shall,
with respect to a Proceeding, hold harmless and indemnify the Indemnitee to the
fullest extent required by the Texas Statute and to the fullest extent
permitted by the Express Permitted Indemnification Provisions (as hereinafter
defined) of the Texas Statute. For purposes of this Agreement, the Express
Permitted Indemnification Provisions of the Texas Statute shall mean
indemnification as permitted by Section 9.20 of the Texas Statute or by any
amendment thereof or other statutory provisions expressly permitting such
indemnification which is adopted after the date hereof (but, in the case of any
such amendment, only to the extent that such amendment permits the Trust to
provide broader indemnification rights than said law required or permitted the
Trust to provide prior to such amendment).
(c) Without limiting the generality of the foregoing, the
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 1 for any expenses, liabilities and losses actually incurred in any
Proceeding initiated by or in the right of the Trust, provided that in the
event that the Indemnitee shall have been adjudged to be liable to the Trust or
shall have been adjudged liable on the basis that personal benefit was
improperly received by the Indemnitee, indemnification (i) is limited to
reasonable expenses actually incurred by the Indemnitee in connection with the
Proceeding; and (ii) shall not be made in respect of any Proceeding in which
the person shall have been found liable for wilful or intentional misconduct in
the performance of his duty to the Trust.
(d) If the Indemnitee is entitled under this Agreement to
indemnification by the Trust for some or a portion of the Indemnified Amounts
(as hereinafter defined) but not, however, for all of the total amount thereof,
the Trust shall nevertheless indemnify the Indemnitee for the portion thereof
to which Indemnitee is entitled.
2. Other Indemnification Arrangements. The Texas Statute and the
Declaration of Trust permit the Trust to purchase and maintain insurance or
furnish similar protection or make other
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<PAGE> 3
arrangements, including, without limitation, securing indemnification
obligations by granting a security interest or other lien on the assets of the
Trust and providing self insurance, a letter of credit, guaranty or surety bond
(collectively, the "Indemnity Arrangements") on behalf of the Indemnitee
against any liability asserted against him or incurred by or on behalf of him
in such capacity as a trust manager or officer of the Trust or as an Affiliate
Indemnitee, or arising out of his status as such, whether or not the Trust
would have the power to indemnify him against such liability under the
provisions of this Agreement or under the Texas Statute, as it may then be in
effect. The purchase, establishment and maintenance of any such Indemnity
Arrangement shall not in any way limit or affect the rights and obligations of
the Trust or of the Indemnitee under this Agreement except as expressly
provided herein, and the execution and delivery of this Agreement by the Trust
and the Indemnitee shall not in any way limit or affect the rights and
obligations of the Trust or the other party or parties thereto under any such
Indemnification Agreement. All amounts payable by the Trust pursuant to this
Section 2 and Section 1 hereof are herein referred to as "Indemnified Amounts."
3. Advance Payment of Indemnified Amounts.
(a) The Indemnitee hereby is granted the right to receive in
advance of a final, nonappealable judgment or other final adjudication of a
Proceeding (a "Final Determination") the amount of any and all expenses,
including, without limitation, investigation expenses, expert witness' and
attorneys' fees and other expenses expended or incurred by the Indemnitee in
connection with any Proceeding or otherwise expended or incurred by the
Indemnitee (such amounts so expended or incurred being referred to as "Advanced
Amounts").
(b) In making any written request for the Advanced Amounts, the
Indemnitee shall submit to the Trust a schedule setting forth in reasonable
detail the dollar amount expended or incurred and expected to be expended.
Each such listing shall be supported by the bill, agreement or other
documentation relating thereto, each of which shall be appended to the schedule
as an exhibit. In addition, before the Indemnitee may receive Advanced Amounts
from the Trust, the Indemnitee shall provide to the Trust (i) a written
affirmation of the Indemnitee's good faith belief that the applicable standard
of conduct required for indemnification by the Trust has been satisfied by the
Indemnitee, and (ii) a written undertaking by or on behalf of the Indemnitee to
repay the Advanced Amounts if it shall ultimately be determined that the
Indemnitee has not satisfied any applicable standard of conduct. The written
undertaking required from the Indemnitee shall be an unlimited general
obligation of the Indemnitee but need not be secured. The Trust shall pay to
the Indemnitee all Advanced Amounts within ten (10) business days after receipt
by the Trust of all information and documentation required to be provided by
the Indemnitee pursuant to this subsection (b).
4. Procedure for Payment of Indemnified Amounts.
(a) To obtain indemnification under this Agreement, the Indemnitee
shall submit to the Trust a written request for payment of the appropriate
Indemnified Amounts, including with such request such documentation and
information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification. The Secretary of the Trust shall, promptly upon receipt of
such a request for
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<PAGE> 4
indemnification, advise the Trust Managers in writing that the Indemnitee has
requested indemnification.
(b) The Trust shall pay the Indemnitee the appropriate Indemnified
Amounts unless it is established that the Indemnitee has not met any applicable
standard of conduct of the Express Permitted Indemnification Provisions. For
purposes of determining whether the Indemnitee is entitled to Indemnified
Amounts, in order to deny indemnification to the Indemnitee the Trust has the
burden of proof in establishing that the Indemnitee did not meet the applicable
standard of conduct. In this regard, a termination of any Proceeding by
judgment, order, settlement, conviction, pleading of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, does not
create a presumption that the Indemnitee did not meet the requisite standard of
conduct.
(c) Any determination that the Indemnitee has not met the
applicable standard of conduct required to qualify for indemnification shall be
made (i) either by the Trust Managers by a majority vote of a quorum consisting
of trust managers who were not parties to such action, suit or proceeding; or
(ii) or by independent legal counsel (who may be the outside counsel regularly
employed by the Trust), provided that the manner in which (and, if applicable,
the counsel by which) the right to indemnification is to be determined shall be
approved in advance in writing by both the highest ranking executive officer of
the Trust who is not party to such action (sometimes hereinafter referred to as
"Senior Officer") and by the Indemnitee. In the event that such parties are
unable to agree on the manner in which any such determination is to be made,
such determination shall be made by independent legal counsel retained by the
Trust especially for such purpose, provided that such counsel be approved in
advance in writing by both the said Senior Officer and Indemnitee and provided
further, that such counsel shall not be outside counsel regularly employed by
the Trust. The fees and expenses of counsel in connection with making said
determination contemplated hereunder shall be paid by the Trust, and if
requested by such counsel, the Trust shall give such counsel an appropriate
written agreement with respect to the payment of their fees and expenses and
such other matters as may be reasonably requested by counsel.
(d) The Trust will use its best efforts to conclude as soon as
practicable any required determination pursuant to subsection (c) above and
promptly will advise the Indemnitee in writing with respect to any
determination that the Indemnitee is or is not entitled to indemnification,
including a description of any reason or basis for which indemnification has
been denied. Payment of any applicable Indemnified Amounts will be made to the
Indemnitee within ten (10) days after any determination of the Indemnitee's
entitlement to indemnification.
(e) Notwithstanding the foregoing, the Indemnitee may, at any time
after sixty (60) days after a claim for Indemnified Amounts has been filed with
the Trust (or upon receipt of written notice that a claim for Indemnified
Amounts has been rejected, if earlier) and before three (3) years after a claim
for Indemnified Amounts has been filed, petition a court of competent
jurisdiction to determine whether the Indemnitee is entitled to indemnification
under the provisions of this Agreement, and such court shall thereupon have the
exclusive authority to make such determination unless and until such court
dismisses or otherwise terminates such action without having made such
determination. The court shall, as petitioned, make an independent
determination of whether the Indemnitee is entitled to indemnification as
provided under this Agreement, irrespective of any prior determination made by
the Trust Managers or independent counsel. If the court shall determine that
4
<PAGE> 5
the Indemnitee is entitled to indemnification as to any claim, issue or matter
involved in the Proceeding with respect to which there has been no prior
determination pursuant to this Agreement or with respect to which there has
been a prior determination that the Indemnitee was not entitled to
indemnification hereunder, the Trust shall pay all expenses (including
attorneys' fees) actually incurred by the Indemnitee in connection with such
judicial determination.
5. Agreement Not Exclusive; Subrogation Rights, etc.
(a) This Agreement shall not be deemed exclusive of and shall not
diminish any other rights the Indemnitee may have to be indemnified or insured
or otherwise protected against any liability, loss or expense by the Trust, any
subsidiary of the Trust or any other person or entity under any declaration of
trust, charter, bylaws, law, agreement, policy of insurance or similar
protection, vote of shareholders or Trust Managers, disinterested or not, or
otherwise, whether or not now in effect, both as to actions in the Indemnitee's
official capacity, and as to actions in another capacity while holding such
office. The Trust's obligations to make payments of Indemnified Amounts
hereunder shall be satisfied to the extent that payments with respect to the
same Proceeding (or part thereof) have been made to or for the benefit of the
Indemnitee by reason of the indemnification of the Indemnitee pursuant to any
other arrangement made by the Trust for the benefit of the Indemnitee.
(b) In the event the Indemnitee shall receive payment from any
insurance carrier or from the plaintiff in any Proceeding against the
Indemnitee in respect of Indemnified Amounts after payments on account of all
or part of such Indemnified Amounts have been made by the Trust pursuant
hereto, the Indemnitee shall promptly reimburse to the Trust the amount, if
any, by which the sum of such payment by such insurance carrier or such
plaintiff and payments by the Trust or pursuant to arrangements made by the
Trust to Indemnitee exceeds such Indemnified Amounts; provided, however, that
such portions, if any, of such insurance proceeds that are required to be
reimbursed to the insurance carrier under the terms of its insurance policy,
such as deductible or co-insurance payments, shall not be deemed to be payments
to the Indemnitee hereunder. In addition, upon payment of Indemnified Amounts
hereunder, the Trust shall be subrogated to the rights of the Indemnitee
receiving such payments (to the extent thereof) against any insurance carrier
(to the extent permitted under such insurance policies) or plaintiff in respect
of such Indemnified Amounts and the Indemnitee shall execute and deliver any
and all instruments and documents and perform any and all other acts or deeds
which the Trust deems necessary or advisable to secure such rights. Such right
of subrogation shall be terminated upon receipt by the Trust of the amount to
be reimbursed by the Indemnitee pursuant to the first sentence of this
subsection (b).
6. Insurance Coverage. In the event that the Trust maintains
trust managers' and officers' liability insurance to protect itself and any
trust manager or officer of the Trust against any expense, liability or loss,
such insurance shall cover the Indemnitee to at least the same extent as any
other trust manager or officer of the Trust.
7. Establishment of Trust. The Trust may, in its sole
discretion, create a trust (the "Indemnification Trust") for the benefit of the
Indemnitee and, to the extent such Indemnification Trust has been created, from
time to time upon written request of Indemnitee shall fund the Indemnification
Trust in an amount sufficient to satisfy any and all Indemnified Amounts
(including
5
<PAGE> 6
Advanced Amounts) which are actually paid or which Indemnitee reasonably
determines from time to time may be payable by the Trust under this Agreement.
The amount or amounts to be deposited in the Indemnification Trust pursuant to
the foregoing funding obligation shall be determined by the independent legal
counsel appointed under Section 4 hereof. If such Indemnification Trust is
established, the terms thereof shall provide that (i) the Indemnification Trust
shall not be revoked or the principal thereof invaded without the written
consent of the Indemnitee; (ii) the trustee of the Indemnification Trust (the
"Trustee") shall advance, within ten (10) business days of a request by the
Indemnitee, any and all Advanced Amounts to the Indemnitee (and the Indemnitee
hereby agrees to reimburse the Indemnification Trust under the circumstances,
under which the Indemnitee would be required to reimburse the Trust under
Section 3(b)(ii) hereof); (iii) the Trust shall continue to fund the
Indemnification Trust from time to time in accordance with the funding
obligations set forth above; (iv) the Trustee shall promptly pay to the
Indemnitee all Indemnified Amounts for which the Indemnitee shall be entitled
to indemnification pursuant to this Agreement; and (v) all unexpended funds in
the Indemnification Trust shall revert to the Trust upon a final determination
by a court of competent jurisdiction in a final decision from which there is no
further right of appeal that the Indemnitee has been fully indemnified under
the terms of this Agreement. The Trustee shall be chosen by the Indemnitee.
Nothing in this Section 7 shall relieve the Trust of any of its obligations
under this Agreement.
8. Continuation of Indemnity. All agreements and obligations of
the Trust contained herein shall continue during the period the Indemnitee is a
trust manager or officer of the Trust (or is serving at the request of the
Trust as an Affiliate Indemnitee) and shall continue thereafter for a period of
ten (10) years from the date the Indemnitee ceases to serve as a trust manager
or officer of the Trust or ceases to serve as an Affiliate Indemnitee
(whichever is later).
9. Notice and Defense of Claim. Indemnitee agrees promptly to
notify the Trust in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
expenses covered hereunder. Notwithstanding any other provision of this
Agreement, with respect to any such Proceeding or matter as to which Indemnitee
notifies the Trust of the commencement thereof:
(a) The Trust will be entitled to participate therein at its own
expense.
(b) Except as otherwise provided in this Section 9(b), to the
extent it desires, the Trust, jointly with any other indemnifying party
similarly notified, shall be entitled to assume the defense thereof, with
counsel reasonably satisfactory to Indemnitee. After notice from the Trust to
Indemnitee of its election to so assume the defense thereof, the Trust shall
not be liable to Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by Indemnitee in connection with the defense
thereof other than reasonable costs of investigation or as otherwise provided
below. Indemnitee shall have the right to employ his own counsel in such
Proceeding or matter, but the fees and expenses of such counsel incurred after
notice from the Trust of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Trust; (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Trust and Indemnitee in
the conduct of the defense of such action; or (iii) the Trust shall not in fact
have employed counsel to assume the
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<PAGE> 7
defense of such Proceeding or matter, in each of which cases the fees and
expenses of counsel shall be at the expense of the Trust. The Trust shall not
be entitled to assume the defense of any Proceeding or matter brought by or on
behalf of the Trust or as to which Indemnitee shall have made the conclusion
provided for in (ii) above.
(c) The Trust shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any Proceeding or matter
affected without its written consent. The Trust shall not settle any
Proceeding or matter in any manner that would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Trust nor
Indemnitee will unreasonably withhold their consent to any proposed settlement.
10. Defense Counsel. Indemnitee hereby agrees that in any
Proceeding in which Indemnitee and other past or present trust managers or
officers of the Trust (or its successor) who are entitled to indemnification
from the Trust are named defendants or respondents, Indemnitee and such other
past or present trust managers or officers shall collectively select one firm
of attorneys in any jurisdiction to defend all such defendants and respondents
in such Proceeding unless counsel for Indemnitee advises that there are issues
which may raise conflicts of interest between Indemnitee and such other
persons.
11. Indemnification for Negligence. TO THE EXTENT PERMITTED BY
THEN APPLICABLE LAW AND SUBJECT TO THE PROVISIONS OF THIS AGREEMENT, THE
PARTIES HERETO RECOGNIZE AND ACKNOWLEDGE THAT INDEMNITEE MAY BE INDEMNIFIED IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT IN PROCEEDINGS INVOLVING THE
NEGLIGENCE OF INDEMNITEE.
12. Successors; Binding Agreement. This Agreement shall be
binding on and shall inure to the benefit of and be enforceable by the Trust's
successors and assigns and by the Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. The Trust shall require any successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Trust, by
written agreement in form and substance reasonably satisfactory to the Trust
and to the Indemnitee, expressly to assume and agree to perform this Agreement
in the same manner and to the same extent that the Trust would be required to
perform if no such succession or assignment had taken place.
13. Enforcement. The Trust has entered into this Agreement and
assumed the obligations imposed on the Trust hereby in order to induce the
Indemnitee to act as a trust manager or officer, as the case may be, of the
Trust, and acknowledge that the Indemnitee is relying upon this Agreement in
continuing in such capacity. In the event the Indemnitee is required to bring
any action to enforce rights or to collect moneys due under this Agreement and
is successful in such action, the Trust shall reimburse the Indemnitee for all
of the Indemnitee's fees and expenses in bringing and pursuing such action.
The Indemnitee shall be entitled to the advancement of Indemnified Amounts to
the full extent contemplated by Section 3 hereof in connection with such
proceeding.
14. Severability. Each of the provisions of this Agreement is a
separate and distinct agreement independent of the others, so that if any
provision hereof shall be held to be invalid or
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<PAGE> 8
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of the other provisions hereof, which
other provisions shall remain in full force and effect, and, to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any section of this Agreement containing any such
provision held to invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held illegal, invalid
or unenforceable.
15. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
agreed to in writing signed by the Indemnitee and either the President and
Chief Executive Officer of the Trust or another officer of the Trust
specifically designated by the Trust Managers. No waiver by either party at
any time of any breach by the other party of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a wavier of similar or dissimilar provisions or conditions at
the same time or at any prior or subsequent times. No agreements or
representations, oral or otherwise, express or impled, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas, without giving effect to the principles of conflicts of laws thereof.
16. Notices. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, as follows:
If to the Indemnitee:
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
If to the Trust:
5847 San Felipe, Suite 850
Houston, Texas 77057
Attention: President
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
18. Effectiveness. This Agreement shall be effective as of the
date first above written.
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<PAGE> 9
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
UNITED INVESTORS REALTY TRUST
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
INDEMNITEE
-----------------------------------
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<PAGE> 1
EXHIBIT 10.4
- --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of January 30, 1998
between
UNITED INVESTORS REALTY TRUST,
a Texas Real Estate Investment Trust,
as Borrower
and
NOMURA ASSET CAPITAL CORPORATION,
as Lender
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I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Specific Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Index of Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.3 Principles of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
II. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.1 Maximum Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.2 Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.3 Second Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.4 Advance of Balance of Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1.5 No Reborrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Interest; Monthly Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2.2 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Loan Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3.1 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3.2 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3.3 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Release of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5.1 Making of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5.2 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5.3 Late Payment Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6.1 Structuring Fee on Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6.2 Payment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 Conditions to Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7.1 Conditions to Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7.2 Conditions to Second Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.7.3 Conditions to Final Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
III. TAX AND INSURANCE ESCROW FUND; CASH MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Tax and Insurance Escrow Fund Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Use of Tax and Insurance Escrow Fund after Default . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.4 Grant of Security Interest; Application of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 16
IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Borrower Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1.1 Organization; Sole Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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4.1.2 Proceedings; Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1.5 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1.6 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1.7 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1.8 No Bankruptcy Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1.9 Full and Accurate Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1.10 No Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1.11 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1.13 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1.14 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.15 Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.16 Utilities and Public Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.17 Not a Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.18 Separate Lots . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.19 Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.20 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.22 Use of Property; Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.23 Flood Zone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.24 Physical Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.25 Encroachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.26 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.27 Filing and Recording Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1.28 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1.29 Fraudulent Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1.30 Management Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1.31 Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1.32 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Borrower's Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Repairs; Maintenance and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.5 Performance of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.6 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.7 Cooperate in Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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5.9 Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9.1 Bookkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9.2 Monthly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.9.3 Reports Relating to Other Properties . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.9.4 Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.10 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.10.1 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.10.2 Environmental Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.10.3 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.11 Title to the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.12 Estoppel Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.13 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.14 Management Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.15 Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.16 Independent Trust Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Management Agreements; Advisory Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Change In Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 Debt Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.7 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.8 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
VII. INSURANCE; CASUALTY; AND CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1.1 Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.1.2 Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2.1 Notice; Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2.2 Collection of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 Application of Proceeds or Award. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.3.1 Application to Restoration or Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.3.2 Procedure for Application to Restoration . . . . . . . . . . . . . . . . . . . . . . . 32
VIII. DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2.1 Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2.3 Severance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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8.2.4 Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
IX. SPECIAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1 Permanent Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.2 Retention of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.2 Lender's Discretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.4 Modification, Waiver in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.5 Delay Not a Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.7 Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.10 Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.11 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.12 Remedies of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.13 Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.14 Prior Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.15 Offsets, Counterclaims and Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.16 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.17 Controlling Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.18 Conflict; Construction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.19 Brokers and Financial Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.20 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.21 Individuals Not Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.22 Cross-Default; Cross Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.23 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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SCHEDULES
Schedule 1 - List of Mortgaged Properties
Schedule 2 - List of Other Properties
Schedule 3 - Management Agreements
Schedule 4 - Allocation of Principal to Mortgaged Properties
Schedule 5 - Matters Regarding Representations
Schedule 6 - List of Major Leases
Schedule 7 - List of Environmental Reports
EXHIBITS
Exhibit I - Definitions of "Special Purpose Bankruptcy Remote Entity"
and "Independent Director"
Exhibit II - Terms of Mandatory Permanent Loan
Exhibit III - Terms of Preferred Equity Interest
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LOAN AGREEMENT
LOAN AGREEMENT dated as of January 30, 1998 between UNITED
INVESTORS REALTY TRUST, a Texas real estate investment trust (together with its
permitted successors and assigns, "BORROWER"), having an address at 5847 San
Felipe, Suite 850, Houston, Texas 77057, and NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation (together with its successors and assigns, "LENDER"),
having an address at 311 South Wacker Drive, Suite 5100, Chicago, Illinois
60606.
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
1.1 SPECIFIC DEFINITIONS. The following terms have the
meanings set forth below:
"ADVISOR": FCA Corp., a Texas corporation.
"ADVISORY AGREEMENT": that certain First Amended and Restated
Advisory Agreement by and between United Investors Realty Trust and FCA Corp.
dated as of June 9, 1997.
"AFFILIATE": as to any Person, any other Person that,
directly or indirectly, is in Control of, is Controlled by or is under common
Control with such Person or is a director or officer of such Person or of an
Affiliate of such Person.
"AFFILIATE OWNERS": Affiliates of Borrower through which
Borrower has indirect ownership in fee of the Other Properties.
"ASSIGNMENT OF LEASES": those certain Assignments of Leases
and Rents, each entered into as of the date hereof or as of the date of the
Second Advance, by Borrower for the benefit of Lender, with respect to a
Mortgaged Property.
"AUTOBAHN SUBORDINATE MORTGAGE": with respect to the
Mortgaged Property known as the Autobahn Shopping Center located in San
Antonio, Texas, a second mortgage lien securing a loan of not more than
$2,000,000 provided that the holder of such mortgage lien enters into a
subordination and intercreditor agreement with Lender satisfactory to Lender.
"BASE RATE": LIBOR plus 2.50% per annum.
"BUSINESS DAY": any day other than a Saturday, Sunday or any
other day on which national banks in New York are not open for business.
"BYLAWS": the First Amended and Restated Bylaws of United
Investors Realty Trust adopted as of June 1, 1997.
"CAPITAL EXPENSES": expenses that are required under GAAP to
be capitalized.
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"CODE": the Internal Revenue Code of 1986, as amended, any
successor statutes thereto, and applicable U.S. Department of Treasury
regulations issued pursuant thereto in temporary or final form.
"CONTROL": with respect to any Person, either (i) ownership
directly or through other entities of more than 50% of all beneficial equity
interest in such Person, or (ii) the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, through the ownership of voting securities, by contract or otherwise.
"CURRENT MONTH": as of any date of determination, the then
current calendar month.
"DEBT": the unpaid Principal, all interest accrued and unpaid
thereon, and all other sums due to Lender in respect of the Loan, or under any
Loan Document.
"DEBT SERVICE": with respect to any particular period,
interest payments under the Note in such period.
"DECLARATION OF TRUST": the Declaration of Trust of United
Investors Realty Trust adopted July 17, 1990.
"DEFAULT": the occurrence of any event under any Loan
Document which, with the giving of notice or passage of time, or both, would be
an Event of Default.
"DEFAULT RATE": a rate per annum equal to the lesser of (i)
the Maximum Rate, or (ii) 5% above the Interest Rate.
"DETERMINATION DATE": with respect to any Interest Period,
the date which is two Eurodollar Business Days prior to the commencement of
such Interest Period.
"ENVIRONMENTAL INDEMNITIES": those certain Environmental
Indemnities, each entered into as of the date hereof or as of the date of the
Second Advance, by Borrower for the benefit of Lender, with respect to a
Mortgaged Property.
"ENVIRONMENTAL REPORTS": the environmental reports for the
Mortgaged Properties delivered by Borrower to Lender prior to the date hereof,
which Environmental Reports are listed on Schedule 7 hereto.
"EURODOLLAR BUSINESS DAY": a Business Day on which banks in
the City of London, England are open for interbank or foreign exchange
transactions.
"FISCAL YEAR": each twelve month period commencing on January
1 and ending on December 31 during each year of the Term.
"GAAP": generally accepted accounting principles as in effect
in the United States of America as of the date of the applicable financial
report, applied on a consistent basis.
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"GOVERNMENTAL AUTHORITY": any court, board, agency,
commission, office or authority of any nature whatsoever for any governmental
unit (federal, state, county, district, municipal, city or otherwise) now or
hereafter in existence.
"INTEREST PERIOD": (i) the period from the date hereof
through February 10, 1998 and (ii) each period thereafter from an Interest
Period Commencement Date through an Interest Period Termination Date; except
that the Interest Period, if any, that would otherwise commence before and end
after the Maturity Date shall end on the Maturity Date.
"INTEREST PERIOD COMMENCEMENT DATE": the 11th day of each
calendar month (or such different day of each calendar month that Lender may
designate in its sole discretion by notice to Borrower given at least ten days
before such change is to take effect).
"INTEREST PERIOD TERMINATION DATE": the 10th day of each
calendar month (notwithstanding that the succeeding Payment Date may not be an
Interest Period Commencement Date because the day after such Interest Period
Termination Date is not a Business Day); provided, however, for the Interest
Period immediately prior to, and each Interest Period beginning after, the
effectiveness of a change in the day of the month that is to be the Interest
Period Commencement Date, the Interest Period Termination Date will be one day
earlier in the month than the day for the new Interest Period Commencement
Date.
"INTEREST RATE": a rate of interest equal to the lesser of
(i) the Maximum Rate or (ii) the Base Rate (or, when applicable pursuant to any
Loan Document, the Default Rate) from time to time in effect.
"IPO": the initial public offering of shares of Borrower as
registered with and approved by the United States Securities and Exchange
Commission.
"LEASE": any lease, or, to the extent of the interest therein
of Borrower, any sublease or sub-sublease, letting, license, concession or
other agreement (whether written or oral and whether now or hereafter in
effect) pursuant to which any person is granted a possessory interest in, or
right to use or occupy, any space in a Property, and every modification,
amendment or other agreement relating to and every guaranty or other agreement
entered into in connection with any such Lease.
"LEGAL REQUIREMENTS": (a) statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting all or part of any of the Properties or the construction,
use, alteration or operation thereof, whether now or hereafter enacted and in
force, and all permits, licenses and authorizations and regulations relating
thereto, and (b) all covenants, operating or other agreements, restrictions,
easements and encumbrances contained in any instrument, either of record or
known to Borrower, at any time in force affecting all or part of a Property,
including any that may (i) require repairs, modifications or alterations in or
to all or part of a Property, or (ii) in any way limit or condition the use and
enjoyment thereof, or (iii) require payments with respect thereto.
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<PAGE> 10
"LETTER AGREEMENT": the letter agreement with summary of
terms dated December 19, 1997, between Lender and Borrower.
"LIBOR": with respect to any Interest Period, the rate per
annum which is equal to the London Interbank Offered Rate reported from time to
time by Telerate News Service (page 3750), at which foreign branches of major
United States banks offer United States dollar deposits to other banks for a
one-month period in the London interbank market at approximately 11:00 a.m.,
London time, on the related Determination Date. If such interest rate shall
cease to be available from Telerate News Service, LIBOR shall be determined
from such financial reporting service as Lender shall reasonably determine and
use with respect to its other loan facilities on which interest is determined
based on LIBOR. If two or more such rates appear on Telerate page 3750 or
associated pages, the rate in respect of such Interest Period will be the
arithmetic mean of such offered rates, absent manifest error.
"LIEN": any mortgage, deed of trust, lien, pledge,
hypothecation, assignment, security interest or any other encumbrance, charge
or transfer of, on or affecting all or part of a Property or any interest
therein, or in Borrower, including any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, the filing of any financing statement, and
mechanic's, materialmen's and other similar liens and encumbrances.
"LOAN DOCUMENTS": this Agreement and all other documents,
agreements and instruments evidencing, securing or delivered to Lender in
connection with the Loan, including the following: (i) the Note, (ii) the
Mortgages, (iii) the Assignments of Leases, and (iv) the Environmental
Indemnities; as each of the Loan Documents may be (and references to any Loan
Document shall mean such document as it may be) amended, restated, replaced,
supplemented or otherwise modified from time to time.
"MAJOR LEASES": the Leases listed on Schedule 6 hereto.
"MANAGEMENT AGREEMENTS": the management agreements listed on
Schedule 3 hereto pursuant to which certain of the Mortgaged Properties are
managed.
"MANAGERS": the managers under the Management Agreements.
"MATURITY DATE": the date on which the final payment of
principal of the Note becomes due and payable as therein provided, whether at
the Stated Maturity Date or such earlier date pursuant to Lender's declaration
of acceleration in accordance with this Agreement or any other Loan Document,
Borrower's notice of prepayment in accordance with this Agreement, or
otherwise.
"MAXIMUM RATE": the maximum interest rate allowed by
applicable law in effect with respect to the Loan on the date for which a
determination of interest accrued hereunder is made, after taking into account
all fees, payments and other charges that are, under applicable law,
characterized as interest.
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"MORTGAGES": those certain Deeds of Trust, Assignments of
Leases and Rents, Security Agreements and Fixture Filings, each entered into as
of the date hereof or as of the date of the Second Advance, by Borrower for the
benefit of Lender, each encumbering with a first lien a shopping center
property which is security and collateral for the Loan.
"MORTGAGED PROPERTIES": the shopping center properties which
are or shall be subject to Mortgages, as listed on Schedule 1 hereto, which are
owned in fee by Borrower, directly or indirectly.
"NOTE": that certain Promissory Note in the amount of the
Loan, made by Borrower to Lender as of the date hereof to evidence the Loan.
"OFFICER'S CERTIFICATE": a certificate delivered to Lender by
Borrower which is signed by a senior executive or financial officer of
Borrower.
"OTHER CHARGES": with respect to a Mortgaged Property, all
ground rents, maintenance charges, impositions other than Taxes, and any other
charges, including vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Property, now or hereafter levied or assessed
or imposed against the Property or any part thereof.
"OTHER MORTGAGORS": the Affiliates of Borrower who have joined
in executing and delivering certain of the Mortgages.
"OTHER PROPERTIES": the shopping center properties listed on
Schedule 2 hereto which are owned in fee, or to be owned in fee pursuant to
existing purchase agreements, by Borrower directly or indirectly, on which
Lender shall not hold Mortgages.
"PAYMENT DATE": February 11, 1998, the first Business Day
after each Interest Period ending thereafter, and the Maturity Date.
"PERMITTED ENCUMBRANCES": with respect to the Mortgaged
Properties, (a) the Liens created by the Loan Documents, (b) Liens, if any, for
Taxes or Other Charges not yet payable or delinquent, (c) such other title and
survey exceptions as Lender approves in writing in Lender's sole discretion,
and (d) the Autobahn Subordinate Mortgage.
"PERSON": any individual, corporation, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"POST-CLOSING OBLIGATIONS LETTER": that certain letter
agreement dated the date hereof between Borrower and Lender pursuant to which
Borrower covenants to deliver to Lender certain Surveys and third-party
estoppels as listed therein.
"PROPERTY": any of the Mortgaged Properties or the Other
Properties.
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<PAGE> 12
"RENTS": all rents, rent equivalents, moneys payable as
damages or in lieu of rent or rent equivalents, royalties (including oil and
gas or other mineral royalties and bonuses), income, receivables, receipts,
revenues, deposits (including security, utility and other deposits), accounts,
cash, issues, profits, charges for services rendered, and other consideration
of whatever form or nature received by or paid to or for the account of or
benefit of Borrower or its agents or employees from any and all sources arising
from or attributable to a Mortgaged Property, including all receivables,
customer obligations, installment payment obligations and other obligations now
existing or hereafter arising or created out of the sale of a Mortgaged
Property or any Lease, and proceeds, if any, from business interruption or
other loss of income insurance.
"RESERVE FUNDS": the Tax and Insurance Escrow Fund and all
other reserves, if any, required hereunder.
"SERVICER": any entity appointed by Lender to service the
Loan, or its successor in interest.
"STATE": the state in which the particular Real Estate
Property is located.
"STATED MATURITY DATE": August 11, 1998.
"TAXES": all real estate and personal property taxes,
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against all or part of each Mortgaged Property.
"TERM": the entire term of this Agreement, which shall expire
upon repayment in full of the Debt and full performance of each and every
obligation to be performed by Borrower pursuant to the Loan Documents.
"TRANSFER": any sale, conveyance, transfer (other than a
Lease), assignment, mortgage or deed of trust (or any refinancing, restatement,
modification or extension thereof), pledge or grant of a security interest or
hypothecation (or any refinancing, restatement, modification or extension
thereof), whether voluntary or by operation of law or otherwise, of or in (i)
all or part of any of the Properties (including any legal or beneficial direct
or indirect interest therein), or (ii) any shares of Borrower by an Affiliate
of Borrower.
"TRUST MANAGERS": the individuals who are designated as the
Trust Managers of Borrower pursuant to Borrower's Declaration of Trust and
By-Laws and the Texas Real Estate Investment Trust Act.
"UCC": the Uniform Commercial Code as in effect in the State.
1.2 INDEX OF OTHER DEFINITIONS. The following terms are
defined in the sections or Loan Documents indicated below:
"Award" - 7.3.2
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"Casualty" - 7.1.3
"Casualty/Condemnation Prepayment" - 2.3.2
"Condemnation" - 7.3.1
"Environmental Laws" - 4.1.32
"Equipment" - Mortgages
"Event of Default" - 8.1
"Final Advance - 2.1.4
"Hazardous Substances" - 4.1.32
"Hedwig Property" - 2.3.1
"Improvements" - Mortgages
"Initial Advance" - 2.1.2
"Insurance Premiums" - 7.1.2
"Insured Casualty" - 7.2.2
"Lender's Consultant" - 5.10.1
"Licenses" - 4.1.24
"Loan" - 2.1
"Mandatory Permanent Loan" - 2.3.1
"NACC Permanent Loan" - 2.6.3(a)
"OCBA" - 5.9.1
"Payment Fee" - 2.3.2
"Policies" - 7.1.2
"Principal" - 2.1.1
"Remedial Work" - 5.10.2
"Required Records" - 5.9.6
"Restoration" - 7.4.1
"Second Advance" - 2.1.3
"Survey" - 2.7.1B(c)(viii)
"Tax and Insurance Escrow Fund" - 3.1
"Title Continuation" - 2.7.2C
"Title Insurer" - 2.7.1B(c)(vi)
"Title Policy" - 2.7.1B(c)(vi)
1.3 PRINCIPLES OF CONSTRUCTION. Unless otherwise
specified, (i) all references to sections and schedules are to those in this
Agreement, (ii) the words "hereof," "herein" and "hereunder" and words of
similar import refer to this Agreement as a whole and not to any particular
provision, (iii) all definitions are equally applicable to the singular and
plural forms of the terms defined, (iv) the word "including" means "including
but not limited to," and (v) accounting terms not specifically defined herein
shall be construed in accordance with GAAP.
II. GENERAL
2.1 THE LOAN.
2.1.1 MAXIMUM LOAN. Subject to the terms of this
Agreement, Lender shall make a loan (the "LOAN") to Borrower, in the aggregate
maximum principal amount (the "PRINCIPAL") of
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<PAGE> 14
up to $56,800,000 which shall mature on the Stated Maturity Date. The Loan
shall be evidenced by the Note and secured by the Mortgaged Properties, and
shall be recourse to Borrower.
2.1.2 INITIAL ADVANCE. Provided that Borrower has
satisfied the conditions set forth in Section 2.7.1, Lender shall make an
advance of the Loan on the date hereof to Borrower in the amount of $52,217,712
(the "INITIAL ADVANCE"). The proceeds of the Initial Advance shall be used
solely for (i) payment of the purchase money due to acquire the Mortgaged
Properties known as Southwest-Walgreens, Mason Park Center and Market at First
Colony, as listed on Schedule 1, (ii) payment of costs and expenses approved by
Lender incurred in connection with such acquisitions and the Loan, (iii)
payment and release of existing mortgage liens on the Mortgaged Properties
known as Twin Lakes, Autobahn, Bandera, El Campo and Centennial, as listed on
Schedule 1, and (iv) such other purposes approved by Lender.
2.1.3 SECOND ADVANCE. Within twenty-five (25) days
following the date of the Initial Advance, Lender shall make an advance of the
Loan to Borrower in the amount of $3,424,688 (the "SECOND ADVANCE"), provided
that Borrower has satisfied the conditions to such Second Advance set forth in
Section 2.7.2. The proceeds of the Second Advance shall be used solely for (i)
payment of the cash portion of the purchase price due to acquire the Other
Properties known as Hedwig Shopping Centers and Benchmark Crossing, as listed
on Schedule 2, and (iii) such other purposes approved by Lender.
2.1.4 ADVANCE OF BALANCE OF LOAN. Not later than March
10, 1998, Lender shall advance the balance of the Loan to Borrower in the
amount of $1,157,600 (the "FINAL ADVANCE"), provided that Borrower has
satisfied the conditions to such Final Advance, set forth in Section 2.7.3.
The proceeds of the Final Advance shall be used solely for (i) payment of the
cash portion of the purchase price due to acquire the Other Property known as
Rosemeade Shopping Center, as listed on Schedule 2, and (ii) such other
purposes approved by Lender.
2.1.5 NO REBORROWING. No amount repaid in respect of the
Loan may be reborrowed, except as otherwise expressly provided in the Mortgage.
2.2 INTEREST; MONTHLY PAYMENTS.
2.2.1 GENERALLY. From the date each Advance is made to but
not including the date of payment in full of the outstanding Principal,
Borrower shall pay interest on the outstanding Principal at the Interest Rate
on each Payment Date.
2.2.2 DEFAULT RATE. After the occurrence and during the
continuance of an Event of Default, the entire unpaid Principal shall bear
interest at the Default Rate, and shall be payable upon demand from time to
time, to the extent permitted by applicable law. Payment or acceptance of
interest at the Default Rate is not a permitted alternative to timely payment
and shall not constitute a waiver of any Default or Event of Default or an
amendment to this Agreement or any other Loan Document and shall not otherwise
prejudice or limit any rights or remedies of Lender.
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2.3 LOAN REPAYMENT.
2.3.1 REPAYMENT. Borrower shall repay the unpaid
Principal in full on the Maturity Date, together with (i) interest thereon to
(but excluding) the date of repayment, and (ii) the Payment Fee if applicable
pursuant to Section 2.6.3. Borrower shall have the right to prepay all, but
not a portion, of the Principal as set forth in Section 2.3.2 below. If the
Loan is not repaid on or prior to the Maturity Date, then, as set forth in the
Letter Agreement and subject to Section 9.1, Lender may require that the Loan
be repaid from the proceeds of (a) a permanent financing from Lender (a
"MANDATORY PERMANENT LOAN") secured by the Mortgaged Properties and the Other
Property known as the Hedwig Shopping Centers, as listed on Schedule 2, which
Other Property Borrower shall thereupon mortgage to Lender free and clear of
the existing mortgage lien thereon, and (b) Borrower's interest in the proceeds
of the sale, which Borrower shall cause, of the Other Property known as
University Mall, as listed on Schedule 2. Any Mandatory Permanent Loan shall
be on the terms and conditions set forth in Exhibit II hereto, and in
connection therewith Borrower shall transfer each Mortgaged Property, including
the Hedwig Property, to a Special Purpose Bankruptcy Remote Entity controlled
by Borrower, that shall become the borrower under the Mandatory Permanent Loan.
If the proceeds under clauses (a) and (b) are insufficient to repay the Loan in
full, Lender shall convert such unpaid portion to a preferred equity interest
in such permanent loan borrower and in Borrower on the terms and conditions set
forth on Exhibit III.
2.3.2 PREPAYMENTS. Borrower shall have the right to prepay
all (but not a part) of the Loan, upon at least fifteen (15) days' prior notice
to Lender. Notwithstanding the foregoing, the Loan is subject to mandatory
prepayment in certain instances of Insured Casualty or Condemnation (each a
"CASUALTY/CONDEMNATION PREPAYMENT"), in the manner and to the extent set forth
in Section 7.4. A voluntary prepayment and each Casualty/Condemnation
Prepayment (i) shall be made on a Payment Date, (ii) shall include all accrued
and unpaid interest on the Principal prepaid up to but not including such
Payment Date or, if not paid on a Payment Date, include interest that would
have accrued on the Principal prepaid to but not including the next Payment
Date, and (iii) shall include the Payment Fee if payable with respect to such
Principal pursuant to Section 2.6.2.
2.3.3 MANDATORY PREPAYMENTS. Borrower shall apply the
proceeds of any sales of new or additional issues of shares of Borrower,
whether sold in an IPO or otherwise, to prepay the Loan ("MANDATORY
PREPAYMENTS"). Borrower shall make such Mandatory Prepayments until the entire
outstanding Principal of the Loan is paid in full, unless Borrower elects by
notice to Lender to exclude from such Mandatory Prepayments the portion of the
Loan that Lender has theretofore agreed in writing with Borrower to convert to
a permanent loan. Each Mandatory Prepayment (i) shall be made on the Payment
Date next following the date of the sale of shares, (ii) shall include all
accrued and unpaid interest on the Principal prepaid up to but not including
such Payment Date, and (iii) shall include the Payment Fee pursuant to Section
2.6.2.
2.4 RELEASE OF PROPERTY. Lender shall, upon the written
request and at the expense of Borrower, upon payment in full of the Debt in
accordance herewith, release the Liens of the Mortgages if not theretofore
released. No repayment or prepayment of less than all of the Debt shall cause,
give rise to a right to require, or otherwise result in, the release of the
Liens of the Mortgages.
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2.5 PAYMENTS AND COMPUTATIONS.
2.5.1 MAKING OF PAYMENTS. Each payment by Borrower
hereunder or under the Note shall be made in funds settled through the New York
Clearing House Interbank Payments System or other funds immediately available
to Lender by 11:00 a.m., New York City time, on the date such payment is due,
to Lender by deposit to such account as Lender may designate by written notice
to Borrower. Whenever any payment hereunder or under the Note shall be stated
to be due on a day that is not a Business Day, such payment shall be made on
the first Business Day thereafter.
2.5.2 COMPUTATIONS. Interest payable hereunder or under
the Note shall be computed on the basis of the actual number of days elapsed
and a 360-day year.
2.5.3 LATE PAYMENT CHARGE. If any Principal, interest or
other sum due under any Loan Document is not paid by Borrower on the date on
which it is due, Borrower shall pay to Lender upon demand an amount equal to
the lesser of 5% of such unpaid sum or the maximum amount permitted by
applicable law, in order to defray the expense incurred by Lender in handling
and processing such delinquent payment and to compensate Lender for the loss of
the use of such delinquent payment. Such amount shall be secured by the Loan
Documents.
2.6 FEES.
2.6.1 STRUCTURING FEE ON INITIAL ADVANCE. On the date
hereof, Borrower shall pay to Lender a structuring fee equal to one percent
(1%) of the amount of the Principal.
2.6.2 PAYMENT FEES. On the date of each payment or
prepayment of Principal (whether before, on or after the Maturity Date),
Borrower shall pay to Lender a payment fee (the "PAYMENT FEE") if applicable as
follows:
A. No Payment Fee or other fee or premium will be
payable with respect to any portion of the Loan paid or prepaid from the
proceeds of (i) a Mandatory Permanent Loan or any other permanent financing
provided by Lender (collectively, "NACC PERMANENT FINANCING"), or (ii) a
Casualty/Condemnation Prepayment.
B. To the extent the Loan is paid or prepaid from a
source that is not a NACC Permanent Financing or a Casualty/Condemnation
Prepayment, Borrower shall pay a Payment Fee equal to (i) 1.75% of the amount
of the Loan paid or prepaid from such other source if such payment or
prepayment occurs within one hundred twenty (120) days after the date hereof,
and (ii) 2% of the amount of the Loan paid or prepaid from such other source if
such payment or prepayment occurs after the expiration of such one hundred
twenty (120) days.
2.7 CONDITIONS TO ADVANCES.
2.7.1 CONDITIONS TO INITIAL ADVANCE. Lender shall not be
obligated to make the Initial Advance hereunder unless the following conditions
shall have been satisfied or waived, in the sole and absolute discretion of
Lender:
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A. REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by Borrower in Article IV and the representations and
warranties made by Borrower in any other Loan Documents shall be true and
correct in all material respects.
B. RECEIPT OF ITEMS AND DOCUMENTS BY LENDER. Lender
shall have received and approved the following items and documents, duly
executed and in recordable form where applicable, in each case in form and
substance satisfactory to Lender:
(a) this Loan Agreement;
(b) the Note;
(c) with respect to each Mortgaged Property:
(i) the Mortgage;
(ii) the Environmental Indemnity;
(iii) the Assignment of Leases;
(iv) the Assignment of Agreements;
(v) such UCC-1 Financing Statements as Lender
shall deem necessary;
(vi) a mortgagee title insurance policy (a "TITLE
POLICY") marked paid in full, issued by a national title
insurance company licensed to do business in the State and
approved by Lender (a "TITLE INSURER") in the amount of the
Loan amount allocated to such Mortgaged Property as set forth
on Schedule 4 hereto, insuring Lender that the Mortgage is a
valid first lien on such Mortgaged Property, containing no
exceptions to coverage other than Permitted Encumbrances, and
which Title Policy is otherwise satisfactory to Lender;
(vii) an original current as-built survey prepared
by a surveyor licensed by the State and certified to Lender
and the Title Insurer and otherwise satisfactory to Lender and
the Title Insurer (a "SURVEY");
(viii) a certificate from a licensed surveyor or an
insurance broker that the Real Estate Property is not located
in a flood hazard plain as indicated on the Maps of the
Federal Emergency Management Agency;
(ix) an environmental report satisfactory to
Lender; and
(x) an engineering report satisfactory to Lender;
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(d) copies of (i) resolutions of the Trust Managers of
Borrower authorizing the transactions contemplated herein and the
execution by Borrower of this Agreement and the other Loan Documents
to which Borrower is a party, certified as true, correct and complete
by the Secretary of Borrower, (ii) incumbency certificates of the
officers of Borrower executing Loan Documents on behalf of Borrower,
(iii) the Declaration of Trust of Borrower, which shall be certified
as being true, correct and complete by the County Clerk of Harris
County, Texas and the Secretary of Borrower, (iv) the Bylaws, which
shall be certified as true, correct and complete by the Secretary of
Borrower, (v) a doing business certificate for each State in which
Borrower does business, each certified as being true, correct and
complete by the Secretary of State of such State, and (vi) good
standing certificates for Borrower issued by the Secretaries of State
of the States (other than Texas) in which Borrower does business;
(e) opinions of Texas counsel for Borrower and Arizona
and Tennessee counsel for Lender in form and substance satisfactory to
Lender;
(f) payment of Lender's counsel fees, and all other
Lender's expenses relating to the Loan then due and payable;
(g) payment in full of the Structuring Fee for the Loan;
(h) financial statements for Borrower satisfactory to
Lender;
(i) evidence that Borrower is able to pay its debts and
other obligations when due and has a positive net worth, determined in
a manner consistent with the most recent financial statements
delivered to Lender;
(j) the Insurance Policies for Borrower and each
Mortgaged Property then required to be in effect and delivered
pursuant to this Agreement and the Mortgages, together with evidence
that:
(i) all such Insurance Policies then have an
unexpired term of at least one (1) year;
(ii) the premiums for such unexpired term have
been paid in full; and
(iii) such Insurance Policies are in full force and
effect;
(k) a letter or report of Lender's insurance consultant
confirming that the Insurance Policies adequately protect Lender;
(l) a copy of each Management Agreement, certified as
true, correct and complete by Borrower;
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(m) copies of the Leases identified in Schedule 3, each
certified as true, correct and complete by Borrower, and estoppel
certificates from the tenants under such Leases;
(n) an appraisal of each Mortgaged Property satisfactory
in form and substance to Lender from an appraiser satisfactory to
Lender;
(o) an agreement executed by each Manager in form and
substance satisfactory to Lender pursuant to which the Manager agrees
(i) that Lender may terminate the Management Agreement at any time
during the continuation of an Event of Default, (ii) that Manager
will, at Lender's option following a foreclosure or transfer by
deed-in-lieu of foreclosure, recognize and attorn to Lender or its
designee as the successor owner under the Management Agreement, but
without any liability on the part of Lender or such designee for acts
or omissions of Borrower prior to the date of such foreclosure or
transfer and (iii) that the Manager's rights under the Management
Agreement are subject and subordinate to the Loan Documents; and
(p) such other documents, instruments, opinions and
approvals as Lender shall have reasonably requested.
C. NO CONDEMNATION. No part of any Mortgaged Property
shall have been condemned, or threatened with condemnation.
2.7.2 CONDITIONS TO SECOND ADVANCE. Lender shall not be
obligated to make the Second Advance unless the following conditions are
satisfied in the sole and absolute discretion of Lender, except to the extent
that Lender may elect (which election may be made without written or express
notice of such election) to waive any such conditions:
A. CONDITIONS TO FIRST ADVANCE. All conditions set
forth in Section 2.7.1 shall have been satisfied or waived in writing by
Lender.
B. REPRESENTATIONS AND WARRANTIES. On the date of the
Second Advance, the representations and warranties made by Borrower in Article
IV and the representations and warranties made by Borrower in any other Loan
Documents shall be true and correct on and as of the date of such Second
Advance with the same effect as if made on such date.
C. RECEIPT OF TITLE CONTINUATION. Lender shall have
received, in each case in form and substance satisfactory to Lender, an
endorsement to each Title Policy indicating that, since the Initial Advance,
there has been no change to the state of title to the Mortgaged Property that
is covered by such Title Policy and there are no Liens or exceptions not
theretofore approved by Lender as provided herein, which endorsement has the
effect of continuing such Title Policy to the date of the Second Advance (a
"TITLE CONTINUATION").
D. RECEIPT OF ESTOPPELS. Lender shall have received the
third party estoppels listed in the Post- Closing Obligation Letter.
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E. NO DEFAULT. On the date of such Second Advance, no
Default or Event of Default hereunder shall have occurred and be continuing and
no default of any of Borrower's obligations under any of the other Loan
Documents shall have occurred and be continuing.
2.7.3 CONDITIONS TO FINAL ADVANCE. Lender shall not be
obligated to make the Final Advance unless the following conditions are
satisfied in the sole and absolute discretion of Lender, except to the extent
that Lender may elect (which election may be made without written or express
notice of such election) to waive any such conditions:
A. CONDITIONS TO FIRST AND SECOND ADVANCES. All
conditions set forth in Section 2.7.1 and Section 2.7.2 shall have been
satisfied or waived in writing by Lender.
B. REPRESENTATIONS AND WARRANTIES. On the date of the
Final Advance, the representations and warranties made by Borrower in Article
IV and the representations and warranties made by Borrower in any other Loan
Documents shall be true and correct on and as of the date of such Second
Advance with the same effect as if made on such date.
C. RECEIPT OF TITLE CONTINUATIONS. Lender shall have
received, in each case in form and substance satisfactory to Lender, a Title
Continuation to each Title Policy continuing such Title Policy to the date of
the Final Advance.
D. RECEIPT OF SURVEYS. Lender shall have received the
Surveys listed in the Post-Closing Obligation Letter.
E. NO DEFAULT. On the date of such Final Advance, no
Default or Event of Default hereunder shall have occurred and be continuing and
no default of any of Borrower's obligations under any of the other Loan
Documents shall have occurred and be continuing.
III. TAX AND INSURANCE ESCROW FUND; CASH MANAGEMENT
3.1 TAX AND INSURANCE ESCROW FUND DEPOSITS. Borrower
shall pay to Lender on each Payment Date (i) one-twelfth (1/12) of the Taxes
that Lender estimates will be payable during the next twelve (12) months in
order to accumulate with Lender sufficient funds to pay all such Taxes for all
Mortgaged Properties at least thirty (30) days prior to their respective due
dates, and (ii) one-twelfth (1/12) of the Insurance Premiums that Lender
estimates will be payable for the renewal of the coverage afforded by the
Policies upon the expiration thereof in order to accumulate with Lender
sufficient funds to pay all such Insurance Premiums for all Mortgaged
Properties at least thirty (30) days prior to the expiration of the Policies
(the amounts in the foregoing clauses (i) and (ii) being called the "TAX AND
INSURANCE ESCROW FUND"). Lender will apply the Tax and Insurance Escrow Fund
to payments of Taxes and Insurance Premiums required to be made by Borrower
pursuant to Sections 5.2 and 7.1, or to reimburse Borrower for such amounts
upon presentation of evidence of payment and an Officer's Certificate in form
and substance satisfactory to Lender; subject, however, to Borrower's right to
contest Taxes in accordance with Section 5.2 In making any payment relating to
the Tax and Insurance Escrow Fund, Lender may do so according to any bill,
statement or estimate procured from the appropriate public office (with respect
to Taxes) or insurer or agent (with respect to Insurance Premiums), without
inquiry into the accuracy of such bill,
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statement or estimate or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof. If the amount of the Tax and
Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance
Premiums pursuant to Sections 5.2 and 7.1. Lender shall return any excess to
Borrower. If at any time Lender determines that the Tax and Insurance Escrow
Fund is not or will not be sufficient to pay the Taxes or Insurance Premiums
next coming due, Lender shall notify Borrower of such determination and
Borrower shall increase its monthly payments to Lender by the amount that
Lender reasonably estimates is sufficient to make up the deficiency at least
thirty (30) days prior to delinquency of the Taxes and/or expiration of the
Policies, as the case may be.
3.2 USE OF TAX AND INSURANCE ESCROW FUND AFTER DEFAULT.
Upon the occurrence and during the continuance of an Event of Default, Lender
may apply any sums in the Tax and Insurance Escrow Fund to the payment of the
Debt and/or to the payment of Taxes, Insurance Premiums, Capital Expenses,
leasing expenses approved by Lender and operating expenses approved by Lender,
in any order in its sole discretion. The Tax and Insurance Escrow Fund shall
not constitute a trust fund and may be commingled with other monies held by
Lender. Sums in the Tax and Insurance Escrow Fund shall be held by Lender in
an interest-bearing account at an institution selected by Lender. Earnings or
interest, if any, on the Tax and Insurance Escrow Fund shall become part of the
Tax and Insurance Escrow Fund and shall be disbursed as provided in this
Section 3. Lender shall not be liable for any loss sustained on the investment
of any funds constituting the Tax and Insurance Escrow Fund.
3.3 CASH MANAGEMENT. From and after the occurrence of an
Event of Default, upon the request of Lender, all Rents from each Mortgaged
Property shall be deposited by Borrower, within one Business Day after receipt,
into one or more accounts under the sole control of Lender at one or more banks
selected by Lender ("DEPOSIT ACCOUNTS"), and Borrower shall cause (where
practicable) all Rents to be transmitted directly by tenants to such Deposit
Accounts. Lender may apply any amounts in the Deposit Accounts to, in any
order in its sole discretion, the Debt and/or the payment of Taxes, Insurance
Premiums, Capital Expenses, leasing expenses approved by Lender and operating
expenses approved by Lender for the Mortgaged Properties or any of them.
3.4 GRANT OF SECURITY INTEREST; APPLICATION OF FUNDS. As
security for payment of the Debt and the performance by Borrower of all other
terms, conditions and provisions of the Loan Documents, Borrower hereby pledges
and assigns to Lender, and grants to Lender a security interest in, all
Borrower's right, title and interest in and to the Tax and Insurance Escrow
Fund and the Deposit Accounts, if any, and Rents held therein. Borrower shall
not, without obtaining the prior written consent of Lender, further pledge,
assign or grant any security interest in the Tax and Insurance Escrow Fund, and
the Deposit Accounts, if any, and Rents held therein, or permit any Lien to
attach thereto, or any levy to be made thereon, or any UCC-l Financing
Statements, except those naming Lender as the secured party, to be filed with
respect thereto. This Agreement is, among other things, intended by the
parties to be a security agreement for purposes of the UCC.
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IV. REPRESENTATIONS AND WARRANTIES
4.1 BORROWER REPRESENTATIONS. Borrower represents and
warrants as of the date hereof that, except to the extent (if any) disclosed on
Schedule 5 with reference to a specific subsection of this Section 4.1:
4.1.1 ORGANIZATION; SOLE PURPOSE. Borrower has been duly
organized as a Texas real estate investment trust and is validly existing, with
requisite power and authority, and all rights, licenses, permits and
authorizations, governmental or otherwise, necessary to own its properties and
to transact the business in which it is now engaged. Borrower is duly
qualified to do business and is in good standing in each jurisdiction where it
is required to be so qualified in connection with its properties, business and
operations. The primary business of Borrower is the ownership (directly or
indirectly) and the management, improvement, financing, leasing and operation
of the Mortgaged Properties and the Other Properties.
4.1.2 PROCEEDINGS; ENFORCEABILITY. Borrower has taken all
necessary action to authorize the execution, delivery and performance of the
Loan Documents. The Loan Documents have been duly executed and delivered by
Borrower and constitute legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, subject
to applicable bankruptcy, insolvency and similar laws affecting rights of
creditors generally, and general principles of equity. The Other Mortgagors
have taken all necessary action to authorize the execution and delivery of the
Mortgages to which they are parties, and such Mortgages constitute legal, valid
and binding obligations of the Other Mortgagors enforceable against the Other
Mortgagors in accordance with their respective terms, subject to applicable
bankruptcy, insolvency and similar laws affecting rights of creditors
generally, and general principles of equity.
4.1.3 NO CONFLICTS. The execution, delivery and
performance of the Loan Documents by Borrower will not conflict with or result
in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien (other than pursuant
to the Loan Documents) upon any of the property of Borrower pursuant to the
terms of, any agreement or instrument to which Borrower is a party or by which
its property is subject, nor will such action result in any violation of the
provisions of any statute or any order, rule or regulation of any Governmental
Authority having jurisdiction over Borrower or any of its properties; and any
consent, approval, authorization, order, registration or qualification of or
with any Governmental Authority required for the execution, delivery and
performance by any Borrower of the Loan Documents has been obtained and is in
full force and effect.
4.1.4 LITIGATION. There are no actions, suits or
proceedings at law or in equity by or before any Governmental Authority now
pending or threatened against or affecting Borrower, any Other Mortgagor or
Affiliate Owner or any of the Properties, which, if determined against
Borrower, such Other Mortgagor or Affiliate Owner or the Property, might
materially adversely affect the condition (financial or otherwise) or business
of Borrower or the condition or ownership of any of the Properties.
4.1.5 AGREEMENTS. Borrower is not a party to any agreement
or instrument or subject to any restriction which might adversely affect
Borrower or any of the Properties, or Borrower's business, properties,
operations or condition, financial or otherwise. Borrower is not,
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and the Other Mortgagors and Affiliate Owners are not, in default in any
material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Permitted Encumbrance or
any other agreement or instrument to which it is a party or by which it or any
of the Properties is bound.
4.1.6 TITLE. Upon the disbursement to Borrower of the
Initial Advance, Borrower and the Other Mortgagors (as applicable) shall have
good and indefeasible title in fee to all of the Mortgaged Properties, free and
clear of all Liens except the Permitted Encumbrances, and Borrower and the
Affiliate Owners (as applicable) have good and indefeasible title in fee to the
Other Properties. The Mortgages, when properly recorded in the appropriate
records, together with any UCC financing statements required to be filed in
connection therewith, will create (i) a valid, perfected first priority lien on
each such Mortgaged Property and (ii) perfected security interests in and to,
and perfected collateral assignments of, all personalty included in each
Mortgaged Property (including the Leases), all in accordance with the terms
thereof, in each case subject only to any applicable Permitted Encumbrances.
To the best of Borrower's knowledge, the Permitted Encumbrances do not
materially adversely affect the value or use of the Properties, or Borrower's
ability to repay the Loan. To the best of Borrower's knowledge, there are no
claims for payment for work, labor or materials affecting any Mortgaged
Property which are or may become a Lien prior to, or of equal priority with,
the Liens created by the Loan Documents.
4.1.7 SURVEY. To the best of Borrower's knowledge, the
Surveys delivered to Lender reflect all material matters affecting the
Mortgaged Properties or the title thereto.
4.1.8 NO BANKRUPTCY FILING. Neither Borrower nor any of
the Other Mortgagors or Affiliate Owners is contemplating either the filing of
a petition by it under any state or federal bankruptcy or insolvency law or the
liquidation of all or a major portion of its property, and Borrower has no
knowledge of any Person contemplating the filing of any such petition against
it, any Other Mortgagor or Affiliate Owner.
4.1.9 FULL AND ACCURATE DISCLOSURE. No statement of fact
made by Borrower in any Loan Documents contains any untrue statement of a
material fact or omits to state any material fact necessary to make statements
contained therein not misleading. There is no material fact presently known to
Borrower that has not been disclosed to Lender which adversely affects, or, as
far as Borrower can foresee, might adversely affect, the Properties or the
business, operations or condition (financial or otherwise) of Borrower.
4.1.10 NO PLAN ASSETS. Borrower is not an "employee benefit
plan," as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and
none of the assets of Borrower constitutes or will constitute "plan assets" of
one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101.
4.1.11 COMPLIANCE. As of the disbursement to Borrower of
the Initial Advance and the Final Advance, Borrower and the Properties and the
use thereof comply and will comply in all material respects with all applicable
Legal Requirements. To the best of Borrower's knowledge, Borrower is not in
default or violation of any order, writ, injunction, decree or demand of any
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Governmental Authority, the violation of which might materially adversely
affect the condition (financial or otherwise) or business of Borrower. To the
best of Borrower's knowledge, there has not been and shall never be committed
by Borrower or any other Person in occupancy of or involved with the ownership,
operation or use of any of the Properties any act or omission affording any
Governmental Authority the right of forfeiture as against the Property or any
part thereof or any monies paid in performance of Borrower's obligations under
any Loan Document.
4.1.12 CONTRACTS. To the best of Borrower's knowledge,
there are no service, maintenance or repair contracts affecting the Mortgaged
Properties that are not terminable on one month's notice or less without cause
and without penalty or premium. All service, maintenance or repair contracts
affecting the Mortgaged Properties have been entered into at arms-length in the
ordinary course of Borrower's (or to Borrower's knowledge, its predecessor's)
business and, to the best of Borrower's knowledge, provide for the payment of
fees in amounts and upon terms comparable to existing market rates.
4.1.13 FINANCIAL INFORMATION. To the best of Borrower's
knowledge, all financial data, including the statements of cash flow and income
and operating expense, that have been delivered to Lender in respect of the
Properties (i) are true, complete and correct in all material respects, (ii)
fairly represent the financial condition of Borrower on a consolidated basis
and of each of the Properties as of the date of such reports, and (iii) to the
extent prepared by an independent certified public accounting firm, have been
prepared in accordance with GAAP consistently applied throughout the periods
covered, except as disclosed therein. Borrower has no contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized
or anticipated losses from any unfavorable commitments that are known to
Borrower and reasonably likely to have a materially adverse effect on Borrower
or any of the Properties or the operation thereof, except as referred to or
reflected in such financial statements. Since the date of such financial
statements, there has been no materially adverse change in the financial
condition, operations or business of Borrower or any of the Properties from
that set forth in said financial statements.
4.1.14 CONDEMNATION. To the best of Borrower's knowledge,
no Condemnation or other proceeding has been commenced or, to Borrower's best
knowledge, is contemplated with respect to all or part of any of the Mortgaged
Properties or for the relocation of roadways providing access to any of the
Mortgaged Properties.
4.1.15 FEDERAL RESERVE REGULATIONS. No part of the proceeds
of the Loan will be used for the purpose of purchasing or acquiring any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or for any other purpose that would be inconsistent with
such Regulation U or any other Regulation of such Board of Governors, or for
any purpose prohibited by Legal Requirements or any Loan Document.
4.1.16 UTILITIES AND PUBLIC ACCESS. Each Mortgaged Property
has rights of access to public ways and is served by water, sewer, sanitary
sewer and storm drain facilities adequate to service it for its intended uses.
All public utilities necessary or convenient to the full use and enjoyment of
such Mortgaged Property are located in the public right-of-way abutting such
Mortgaged Property, and all such utilities are connected so as to serve such
Mortgaged Property
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without passing over other property. All roads necessary for the use of such
Mortgaged Property for its current purpose have been completed and dedicated to
public use and accepted by all Governmental Authorities.
4.1.17 NOT A FOREIGN PERSON. Borrower is not a "foreign
person" within the meaning of Section 1445(f)(3) of the Code.
4.1.18 SEPARATE LOTS. Each parcel comprising each Mortgaged
Property is a separate tax lot and is not a portion of any other tax lot that
is not a part of such Mortgaged Property.
4.1.19 ASSESSMENTS. To the best of Borrower's knowledge,
there are no pending or proposed special or other assessments for public
improvements or otherwise affecting any Mortgaged Property, or any contemplated
improvements to any Mortgaged Property that may result in such special or other
assessments.
4.1.20 ENFORCEABILITY. The Loan Documents are not subject
to, and Borrower has not asserted, any right of rescission, set-off,
counterclaim or defense, including the defense of usury. No exercise of any of
the terms of the Loan Documents, or any right thereunder, will render any Loan
Document unenforceable.
4.1.21 INSURANCE. Borrower has obtained and has delivered
to Lender insurance policies reflecting the insurance coverages, amounts and
other requirements set forth in this Agreement and the Mortgages.
4.1.22 USE OF PROPERTY; LICENSES. The Mortgaged Properties
are used exclusively as retail shopping centers, with appurtenant and related
uses. All certifications, permits, licenses and approvals, including
certificates of completion and occupancy permits and any applicable liquor
licenses required for the legal use, occupancy and operation of the Mortgaged
Properties (collectively, the "LICENSES"), have been obtained and are in full
force and effect. The use being made of each Mortgaged Property is in
conformity with the certificate of occupancy issued for such Mortgaged Property
and with all other Legal Requirements.
4.1.23 FLOOD ZONE. None of the Improvements is located in
an area as identified by the Federal Emergency Management Agency as an area
having special flood hazards.
4.1.24 PHYSICAL CONDITION. To the best of Borrower's
knowledge, the Mortgaged Properties, including all Improvements, parking
facilities, systems, Equipment and landscaping, are in good condition, order
and repair in all material respects and there exists no structural or other
material defect or damages to any of the Mortgaged Properties, whether latent
or otherwise. Borrower has not received notice from any insurance company or
bonding company of any defect or inadequacy in any of the Mortgaged Properties,
or any part thereof, which would adversely affect its insurability or cause the
imposition of extraordinary premiums or charges thereon or any termination of
any policy of insurance or bond.
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4.1.25 ENCROACHMENTS. All of the Improvements included in
determining the appraised value of each Mortgaged Property lie wholly within
the boundaries and building restriction lines of such Mortgaged Property, and
no improvement on an adjoining property encroaches upon such Mortgaged
Property, and no easement or other encumbrance upon such Mortgaged Property
encroaches upon any of the Improvements, so as to affect the value or
marketability of such Mortgaged Property, except those disclosed by the
applicable Title Insurance Policy.
4.1.26 LEASES. (a) To the best of Borrower's knowledge:
(i) each Major Lease is in full force and effect; (ii) the tenants under the
Major Leases have accepted possession of and are in occupancy of all of their
respective demised premises, have commenced the payment of rent under such
Leases, and Borrower has received no notice of and is not aware of any offsets,
claims or defenses to the enforcement thereof; (iii) all rents due and payable
under the Major Leases have been paid and no portion thereof has been paid for
any period more than thirty (30) days in advance; (iv) the rent payable under
each Major Lease is the amount of fixed rent set forth in the applicable Lease,
and there is no claim or basis for a claim by the tenant thereunder for an
adjustment to the rent; (v) to Borrower's best knowledge, no tenant has made
any claim against the landlord under the Major Leases which remains
outstanding, there are no defaults on the part of the landlord under any Major
Lease, and no event has occurred which, with the giving of notice or passage of
time, or both, would constitute such a default; (vi) to Borrower's best
knowledge, there is no present material default by the tenant under any Major
Lease; and (vii) Borrower does not hold any security deposits under the Major
Leases.
(b) None of the Leases contains any option to purchase or
right of first refusal to purchase a Mortgaged Property or any part thereof.
Neither the Leases nor the Rents relating to any Mortgaged Property have been
assigned or pledged except to Lender, and no other Person has any interest
therein except the tenants thereunder.
4.1.27 FILING AND RECORDING TAXES. All transfer taxes, deed
stamps, intangible taxes or other amounts in the nature of transfer taxes
required to be paid by any Person under applicable Legal Requirements in
connection with the transfer of any of the Properties to Borrower have been
paid (or will be paid as of the receipt by Borrower of the Initial Advance).
All mortgage, mortgage recording, stamp, intangible or other similar taxes
required to be paid by any Person under applicable Legal Requirements in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement of any of the Loan Documents have been paid.
4.1.28 INVESTMENT COMPANY ACT. Borrower is not (i) an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended; (ii) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended; or (iii)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
4.1.29 FRAUDULENT TRANSFER. Borrower and the Other
Mortgagors have not entered into the Loan or any Loan Document with the actual
intent to hinder, delay, or defraud any creditor,
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and Borrower has received reasonably equivalent value in exchange for its
obligations under the Loan Documents. Giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of Borrower's
assets exceeds and will, immediately following the execution and delivery of
the Loan Documents, exceed Borrower's total liabilities, including
subordinated, unliquidated, disputed or contingent liabilities. The fair
saleable value of Borrower's assets is and will, immediately following the
execution and delivery of the Loan Documents, be greater than Borrower's
probable liabilities, including the maximum amount of its contingent
liabilities or its debts as such debts become absolute and matured. Borrower's
assets do not and, immediately following the execution and delivery of the Loan
Documents will not, constitute unreasonably small capital to carry out its
business as conducted or as proposed to be conducted. Borrower does not intend
to, and does not believe that it will, incur debts and liabilities (including
contingent liabilities and other commitments) beyond its ability to pay such
debts as they mature (taking into account the timing and amounts to be payable
on or in respect of obligations of Borrower).
4.1.30 MANAGEMENT AGREEMENTS. Each Management Agreement is
in full force and effect. There is no default, breach or violation existing
thereunder, and no event has occurred (other than payments due but not yet
delinquent) that, with the passage of time or the giving of notice, or both,
would constitute a default, breach or violation thereunder, by either party
thereto. Borrower's (or the Other Mortgagor's, if applicable) rights under
such Management Agreement will not be adversely affected by the execution and
delivery of the Loan Documents, Borrower's (or the Other Mortgagor's, if
applicable) performance thereunder, the recordation of the Mortgage, or the
exercise of any remedies by Lender.
4.1.31 ADVISORY AGREEMENT. The Advisory Agreement is in
full force and effect. There is no default, breach or violation existing
thereunder, and no event has occurred (other than payments due but not yet
delinquent) that, with the passage of time or the giving of notice, or both,
would constitute a default, breach or violation thereunder, by either party
thereto. Borrower's rights under the Advisory Agreement will not be adversely
affected by the execution and delivery of the Loan Documents, Borrower's
performance thereunder, or the exercise of any remedies by Lender.
4.1.32 HAZARDOUS SUBSTANCES. To the best of Borrower's
knowledge, except as set forth in the Environmental Reports, (i) no Mortgaged
Property is in violation of any Legal Requirement pertaining to or imposing
liability or standards of conduct concerning environmental regulation,
contamination or clean-up, including the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Emergency Planning and Community Right-to-Know Act of 1986, the Hazardous
Substances Transportation Act, the Solid Waste Disposal Act, the Clean Water
Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking
Water Act, the Occupational Safety and Health Act, any state super-lien and
environmental clean-up statutes and all amendments to and regulations in
respect of the foregoing laws (collectively, "ENVIRONMENTAL LAWS"); (ii) no
Mortgaged Property is subject to any private or governmental Lien or judicial
or administrative notice or action or inquiry, investigation or claim relating
to hazardous, toxic, dangerous and/or regulated substances, wastes, materials,
raw materials which include hazardous constituents, pollutants or contaminants,
including asbestos, asbestos containing materials, petroleum, tremolite,
anthlophylite, actinolite, polychlorinated biphenyls and any other substances
or materials which are included under or regulated by
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Environmental Laws or which are considered by scientific opinion to be
otherwise dangerous in terms of the health, safety and welfare of humans
(collectively, "HAZARDOUS SUBSTANCES"); (iii) no Hazardous Substances are or
have been (including the period prior to Borrower's acquisition of each
Mortgaged Property) discharged, generated, treated, disposed of or stored on,
incorporated in, or removed or transported from any Mortgaged Property other
than in compliance with all Environmental Laws; (iv) no Hazardous Substances
are present in, on or under any nearby real property which could migrate to or
otherwise affect a Mortgaged Property; and (v) no underground storage tanks
exist on any Mortgaged Property.
4.2 SURVIVAL OF REPRESENTATIONS. All of the
representations and warranties in Section 4.1 and elsewhere in the Loan
Documents (i) shall survive for so long as any portion of the Debt remains
owing to Lender and (ii) shall be deemed to have been relied upon by Lender
notwithstanding any investigation heretofore or hereafter made by Lender or on
its behalf.
4.3 BORROWER'S KNOWLEDGE. For purposes of all
representations and warranties made to Borrower's knowledge, such Borrower's
knowledge shall include the knowledge of the Other Mortgagors and Affiliate
Owners (as applicable).
V. AFFIRMATIVE COVENANTS
Until the end of the Term, Borrower hereby covenants and
agrees with Lender that:
5.1 EXISTENCE. Borrower shall (i) do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its
existence, rights, and franchises, (ii) continue to engage in the business
presently conducted by it, (iii) obtain and maintain all Licenses, and (iv)
qualify to do business and remain in good standing under the laws of each
jurisdiction, in each case as and to the extent required for the ownership,
maintenance, management and operation of the Properties.
5.2 TAXES AND OTHER CHARGES. Subject to Lender's
obligations under Section 3.1, Borrower shall pay all Taxes and Other Charges
as the same become due and payable, and deliver to Lender receipts for payment
or other evidence satisfactory to Lender that the Taxes and Other Charges have
been so paid no later than thirty (30) days before they would be delinquent if
not paid (provided, however, that Borrower need not furnish such receipts for
payment of Taxes paid by Lender pursuant to Section 3.1). Borrower shall not
suffer and shall promptly cause to be paid and discharged any Lien against any
Mortgaged Property, and shall promptly pay for all utility services provided to
the Mortgaged Properties. After prior notice to Lender, Borrower, at its own
expense, may contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with due diligence, the amount or validity or
application of any Taxes or Other Charges (and the non-payment of such Taxes or
Other Charges will not constitute a Default), provided that (i) no Default or
Event of Default has occurred and remains uncured, (ii) such proceeding shall
suspend the collection of the Taxes or Other Charges, (iii) such proceeding
shall be permitted under and be conducted in accordance with the provisions of
any other instrument to which Borrower is subject and shall not constitute a
default thereunder, (iv) no part of or interest in such Mortgaged Property will
be in danger of being sold, forfeited, terminated, canceled or lost, (v)
Borrower shall have
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furnished such security as may be required in the proceeding, or as may be
requested by Lender, to insure the payment of any such Taxes or Other Charges,
together with all interest and penalties thereon, and (vi) Borrower shall
promptly upon final determination thereof pay the amount of such Taxes or Other
Charges, together with all costs, interest and penalties. Lender may pay over
any such cash deposit or part thereof held by Lender to the claimant entitled
thereto at any time when, in the judgment of Lender, the entitlement of such
claimant is established.
5.3 REPAIRS; MAINTENANCE AND COMPLIANCE. Borrower shall
cause each Mortgaged Property to be maintained in a good and safe condition and
repair and shall not, without Lender's prior consent, which Lender shall not
unreasonably withhold, remove, demolish or materially alter the Improvements or
Equipment (except for normal replacement of the Equipment). Borrower shall
promptly comply with all Legal Requirements. Borrower shall promptly repair,
replace or rebuild any part of a Mortgaged Property that becomes damaged, worn
or dilapidated and shall complete and pay for any Improvements at any time in
the process of construction or repair. Borrower shall continue to operate each
Property or cause each Property to be operated in the manner and at least to
the standard in effect on the date hereof.
5.4 LITIGATION. Borrower shall give prompt written
notice to Lender of any litigation or governmental proceedings pending or
threatened against Borrower, any Other Mortgagor or any Affiliate Owner which
might materially adversely affect Borrower's condition (financial or otherwise)
or business or any of the Properties.
5.5 PERFORMANCE OF OTHER AGREEMENTS. With respect to
each Property, Borrower shall observe and perform or cause to be observed and
performed each and every term to be observed or performed by it (or an Other
Mortgagor or Affiliate Owner, as applicable) pursuant to the terms of any
agreement or recorded instrument affecting or pertaining to such Property.
5.6 NOTICE OF DEFAULT. Borrower shall promptly
advise Lender of any material adverse change in Borrower's condition, financial
or otherwise, or of the occurrence of any Default or Event of Default of which
Borrower has knowledge.
5.7 COOPERATE IN LEGAL PROCEEDINGS. Borrower shall, and
shall cause the Other Mortgagors and Affiliate Owners (as applicable) to,
cooperate fully with Lender with respect to, and permit Lender, at its option,
to participate in, any proceedings before any Governmental Authority which may
in any way affect the rights of Lender under any Loan Document.
5.8 FURTHER ASSURANCES. Borrower shall, at Borrower's
sole cost and expense, (i) furnish to Lender all instruments, documents,
boundary surveys, footing or foundation surveys, certificates, plans and
specifications, appraisals, title and other insurance reports and agreements,
reasonably requested by Lender; (ii) execute and deliver to Lender such
documents, instruments, certificates, assignments and other writings, and do
such other acts necessary or desirable, to evidence, preserve and/or protect
the collateral at any time securing or intended to secure the Debt, as Lender
may reasonably require; and (iii) do and execute all and such further lawful
and reasonable acts, conveyances and assurances for the better and more
effective carrying out of the intents and purposes of the Loan Documents, as
Lender shall reasonably require from time to time.
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5.9 FINANCIAL REPORTING.
5.9.1 BOOKKEEPING. Borrower shall keep on a Fiscal Year
basis, in accordance with GAAP or Other Comprehensive Basis of Accounting
approved by Lender ("OCBA"), proper and accurate books, records and accounts
reflecting all of the financial affairs of Borrower (on a consolidated basis)
and each Property, including all items of income and expense whether such
income or expense is realized by Borrower or by any other Person, except
lessees under Leases who are not Affiliates of Borrower. Lender shall have the
right from time to time during normal business hours upon reasonable notice to
examine such books, records and accounts at the office of Borrower or other
Person maintaining them, and to make such copies or extracts thereof as Lender
shall desire. After an Event of Default, Borrower shall pay any costs incurred
by Lender to examine Borrower's accounting records, as Lender shall determine
to be reasonably necessary or appropriate in the protection of Lender's
interest.
5.9.2 MONTHLY REPORTS. Borrower shall furnish to Lender
within twenty-five (25) days after the end of each calendar month the following
items, accompanied by an Officer's Certificate certifying that such items are
true, correct, accurate, and complete and fairly present the financial
condition and results of the operations of Borrower and each Property in
accordance with GAAP or OCBA (subject to normal year-end adjustments) as
applicable: (i) monthly and year-to-date operating statements, noting net
operating income and other information necessary and sufficient under GAAP or
OCBA to fairly represent the financial position and results of operation of
Borrower and each Property during such calendar month, all in form satisfactory
to Lender; (ii) a balance sheet for each such month; (iii) a comparison of the
budgeted income and expenses and the actual income and expenses for each month
and year-to-date for Borrower and each Property, together with a detailed
explanation of any variances of 10% or more between budgeted and actual amounts
for such period and year-to-date; (iv) a statement of the actual Capital
Expenses made by Borrower during each calendar quarter as of the last day of
such calendar quarter; (v) a statement that Borrower has not incurred any
indebtedness other than as permitted under Section 6.8; and (vi) for each
Mortgaged Property occupancy rates, rent rolls (identifying the leased
premises, names of all tenants, units leased, monthly rental and all other
charges payable under each Lease, date to which paid, term of Lease, date of
occupancy, date of expiration, and material special provisions, concessions or
inducements granted to tenants) and a delinquency report for such Mortgaged
Property.
5.9.3 REPORTS RELATING TO OTHER PROPERTIES. To the extent
not delivered pursuant to Section 5.9.2, promptly after Borrower receives the
same, copies of all financial statements, income and expense statements,
operating reports and all other reports and statements which are furnished or
provided to Borrower by each Affiliated Owner.
5.9.4 OTHER REPORTS. Borrower shall furnish to Lender,
within ten (10) Business Days after written request, such further detailed
information with respect to the operation of each Property and the financial
affairs of Borrower as may be reasonably requested by Lender.
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5.10 ENVIRONMENTAL MATTERS.
5.10.1 HAZARDOUS SUBSTANCES. With respect to each Mortgaged
Property, so long as Borrower (or an Other Mortgagor) owns or is in possession
of the Property, Borrower shall (or shall cause the Other Mortgagor to) (i)
keep such Mortgaged Property free from Hazardous Substances and in compliance
with all Environmental Laws, (ii) promptly notify Lender if Borrower shall
become aware that (A) any Hazardous Substance is on or near such Mortgaged
Property, (B) such Mortgaged Property is in direct or indirect violation of any
Environmental Laws or (C) any condition on or near such Mortgaged Property
shall pose a threat to the health, safety or welfare of humans, (iii) remove
such Hazardous Substances and/or cure such violations and/or remove such
threats, as applicable, as required by law (or as shall be required by Lender
in the case of removal which is not required by law, but in response to the
opinion of a licensed hydrogeologist, licensed environmental engineer or other
qualified consultant engaged by Lender ("LENDER'S CONSULTANT")), promptly after
Borrower becomes aware of same, at Borrower's sole expense and (iv) comply with
all of the recommendations contained in the environmental report delivered to
Lender in connection with the origination of the Loan. Nothing herein shall
prevent Borrower from recovering such expenses from any other party that may be
liable for such removal or cure.
5.10.2 ENVIRONMENTAL MONITORING. With respect to each
Mortgaged Property, Borrower shall (or shall cause an Other Mortgagor which
owns or is in possession of such Property to) give prompt written notices to
Lender of (i) any proceeding or inquiry by any party with respect to the
presence of any Hazardous Substance on, under, from or about the Property, (ii)
all claims made or threatened by any third party against Borrower or the
Property relating to any loss or injury resulting from any Hazardous Substance,
and (iii) Borrower's (or such Other Mortgagor's) discovery of any occurrence or
condition on any real property adjoining or in the vicinity of the Property
that could cause the Property to be subject to any investigation or cleanup
pursuant to any Environmental Law. Borrower shall permit Lender to join and
participate in, as a party if it so elects, any legal proceedings or actions
initiated with respect to the Property in connection with any Environmental Law
or Hazardous Substance, and Borrower shall pay all reasonable attorneys' fees
and disbursements incurred by Lender in connection therewith. Upon Lender's
request, at any time and from time to time, Borrower shall provide an
inspection or audit of the Property prepared by a licensed hydrogeologist,
licensed environmental engineer or qualified environmental consulting firm
approved by Lender indicating the presence or absence of Hazardous Substances
on, in or near the Property. The cost and expense of such audit or inspection
shall be paid by Borrower not more frequently than once during the Term, unless
Lender, in its reasonable good faith judgment, determines that reasonable cause
exists for the performance of an environmental inspection or audit of the
Property, in which case such inspections or audits shall be at Borrower's sole
expense. If Borrower fails to provide any such inspection or audit within
thirty (30) days after such request, Lender may order same, and Borrower (for
itself and the Other Mortgagor, if applicable) hereby grants to Lender and its
employees and agents access to the Property and a license to undertake such
inspection or audit. The cost of such inspection or audit may be added to the
Debt and shall bear interest thereafter at the Default Rate until paid. If any
environmental site assessment report prepared in connection with such
inspection or audit recommends that an operations and maintenance plan be
implemented for any Hazardous Substance, Borrower shall cause such operations
and maintenance plan to be prepared and implemented at its expense upon request
of Lender. In the event that any investigation, site monitoring, containment,
cleanup, removal, restoration or other work of any kind is reasonably necessary
or desirable under an applicable
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Environmental Law ("REMEDIAL WORK"), Borrower shall (or shall cause the Other
Mortgagor, if applicable, to) commence and thereafter diligently prosecute to
completion all such Remedial Work within thirty (30) days after written demand
by Lender for performance thereof or such longer period as shall be reasonably
necessary, with the exercise of diligent efforts, to achieve such completion
(and, in any event, within such period of time as may be required under
applicable law). All Remedial Work shall be performed by contractors approved
in advance by Lender, and under the supervision of a consulting engineer
approved by Lender. All costs of such Remedial Work shall be paid by Borrower,
including Lender's reasonable attorneys' fees and disbursements incurred in
connection with the monitoring or review of such Remedial Work. Borrower will
not install or permit to be installed on the Property any underground storage
tank.
5.10.3 SURVIVAL. The obligations and liabilities of
Borrower under this Section 5.10 shall survive the Term and the exercise by
Lender of any of its rights or remedies under the Loan Documents, including the
acquisition of the Mortgaged Properties or any of them by foreclosure or a
conveyance in lieu of foreclosure.
5.11 TITLE TO THE PROPERTY. Borrower will warrant and
defend the title to each Mortgaged Property and the validity and priority of
the Lien of the Mortgage, subject only to Permitted Encumbrances, against the
claims of all Persons.
5.12 ESTOPPEL STATEMENT. After request by Lender,
Borrower shall within ten (10) Business Days after request furnish Lender with
a statement, duly acknowledged and certified, setting forth (i) the unpaid
Principal, (ii) the Interest Rate, (iii) the date interest was last paid, (iv)
any offsets or defenses to the payment of the Debt, and (v) that the Loan
Documents are valid, legal and binding obligations and have not been modified
or if modified, giving particulars of such modification. After request by
Lender (but no more frequently than once during the term of the Loan), Borrower
shall furnish to Lender (x) within ten (10) days, a certificate reaffirming all
representations and warranties of Borrower set forth in the Loan Documents as
of the date requested by Lender or, to the extent of any changes to any such
representations and warranties, so stating such changes, and (y) within thirty
(30) days, tenant estoppel certificates from each tenant under a Major Lease
(or any of them) in form and substance reasonably satisfactory to Lender,
subject to the terms of such tenant's lease.
5.13 PRINCIPAL PLACE OF BUSINESS. Subject to applicable
laws, Borrower shall not change its principal place of business without first
giving Lender thirty (30) days' prior notice.
5.14 MANAGEMENT AGREEMENTS. (a) Borrower shall (i) cause
each Mortgaged Property to be operated pursuant to the relevant Management
Agreement; (ii) promptly perform and observe all of the covenants required to
be performed and observed by it under the Management Agreement and do all
things necessary to preserve and to keep unimpaired its material rights
thereunder; (iii) promptly notify Lender of any default under the Management
Agreement of which it is aware; and (iv) promptly enforce the performance and
observance of all of the covenants and agreements required to be performed and
observed by Manager under the Management Agreement.
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(b) If an Event of Default shall be continuing, Borrower
shall, at the request of Lender, terminate all or any of the Management
Agreements and replace the respective Managers thereunder with managers
approved by Lender on terms and conditions satisfactory to Lender.
5.15 ADVISORY AGREEMENT. (a) Borrower shall (i) promptly
perform and observe all of the covenants required to be performed and observed
by it under the Advisory Agreement and do all things necessary to preserve and
to keep unimpaired its material rights thereunder; (ii) promptly notify Lender
of any default under the Advisory Agreement of which it is aware; and (iii)
promptly enforce the performance and observance of all of the covenants and
agreements required to be performed and observed by the Advisor under the
Advisory Agreement.
(b) If an Event of Default shall be continuing, Borrower
shall, at the request of Lender, terminate all of the responsibilities of the
Advisor with respect to the management and supervision of the Properties and
replace the Advisor as to such responsibilities with a supervising manager
approved by Lender on terms and conditions satisfactory to Lender.
5.16 INDEPENDENT TRUST MANAGER. If an Event of Default
shall be continuing, upon the request of Lender Borrower shall cause to be
designated an independent Trust Manager satisfactory to Lender who shall
satisfy the definition of "Independent Director" set forth in Exhibit I hereto
and whose affirmative vote shall be required to allow Borrower to take any
action of the kind requiring the vote of an "Independent Director" under the
definition of "Special Purpose Bankruptcy Remote Entity" set forth in Exhibit I
hereto.
VI. NEGATIVE COVENANTS
Until the end of the Term, Borrower covenants and agrees with
Lender that it will not, directly or indirectly:
6.1 MANAGEMENT AGREEMENTS; ADVISORY AGREEMENT. (a)
Without Lender's prior consent, not to be unreasonably withheld, and except as
set forth in Schedule 8 hereto: (i) surrender, terminate or cancel any
Management Agreement or otherwise replace any Manager (except pursuant to
Section 5.14(b)) or enter into any other management agreement in replacement of
or in addition to a Management Agreement or with respect to a Mortgaged
Property currently managed directly by Borrower; (ii) reduce or consent to the
reduction of the term of any Management Agreement; (iii) increase or consent to
the increase of the amount of any fees and charges under any Management
Agreement; or (iv) otherwise modify, change, supplement, alter or amend in any
material respect, or waive or release any of its rights and remedies under, any
Management Agreement;
(b) Without Lender's prior consent: (i) surrender,
terminate or cancel the Advisory Agreement or otherwise replace the Advisor or
enter into any other advisory agreement (except pursuant to Section 5.15(b));
(ii) reduce or consent to the reduction of the term of the Advisory Agreement;
(iii) increase or consent to the increase of the amount of any fees and charges
under the Advisory Agreement; or (iv) otherwise modify, change, supplement,
alter or amend in any material respect, or waive or release any of its rights
and remedies under, the Advisory Agreement;
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6.2 LIENS. Without Lender's prior consent, create,
incur, assume, permit or suffer to exist any Lien on any portion of any of the
Properties, or the legal or beneficial ownership interests in Borrower, except
Permitted Encumbrances;
6.3 DISSOLUTION. Dissolve, terminate, liquidate, merge
with or consolidate into another Person;
6.4 CHANGE IN BUSINESS. Enter into any line of business
other than the ownership and operation of the Properties and, subject to
Lender's consent, which shall not be unreasonably withheld, other similar
properties, or make any material change in the scope or nature of its business
objectives, purposes or operations, or undertake or participate in activities
other than the continuance of its present business;
6.5 DEBT CANCELLATION. Cancel or otherwise forgive or
release any claim or debt owed to Borrower by any Person, except for adequate
consideration and in the ordinary course of Borrower's business in its
reasonable judgment;
6.6 ASSETS. Purchase or own (directly or indirectly) any
property other than the Properties;
6.7 TRANSFERS. Without Lender's prior consent, make,
suffer or permit the occurrence of any Transfer, other than (i) the IPO,
subject to Section 2.3.3, and (ii) the transfer of the Centennial Shopping
Center in Austin, Texas from its present fee owner, which is an Affiliate of
Borrower, to Borrower; or
6.8 DEBT. Create, incur or assume or permit to be
created, incurred or assumed any indebtedness of any kind with respect to
Borrower, any Other Mortgagor, any Affiliate Owner, any Mortgaged Property or
any Other Property other than (i) the Debt, (ii) the assumption of first
mortgage debt in existence on the date hereof with respect to Other Properties,
(iii) the Autobahn Subordinate Mortgage, and (v) unsecured trade debt payable
within thirty (30) days. Without limitation of the foregoing, "indebtedness"
shall include preferred stock and contingent liabilities.
VII. INSURANCE; CASUALTY; AND CONDEMNATION
7.1 INSURANCE.
7.1.1 COVERAGE. Borrower, at its sole cost, for the mutual
benefit of Borrower and Lender, shall obtain and maintain during the Term the
following policies of insurance for each Mortgaged Property and, in the case of
(c), (d) and (f), also for Borrower:
(a) Property insurance insuring against loss or
damage by standard, "all-risk" perils, which shall (i) be in an amount
equal to the greatest of (A) the then full replacement cost of the
Property without deduction for physical depreciation and (B) such
amount as is necessary so that the insurer would not deem Borrower a
co-insurer under such
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policies, (ii) have deductibles no greater than $10,000, (iii) be paid
annually in advance and (iv) contain a "Replacement Cost Endorsement"
with a waiver of depreciation.
(b) Flood insurance if any part of the Mortgaged
Property is located in an area identified by the Federal Emergency
Management Agency as an area having special flood hazards and in which
flood insurance has been made available under the National Flood
Insurance Program, in an amount at least equal to the unpaid Principal
or the maximum limit of coverage available with respect to the
Mortgaged Property under such program, whichever is less.
(c) Comprehensive public liability insurance,
including broad form property damage, blanket contractual and personal
injuries (including death resulting therefrom) coverages and
containing minimum limits per occurrence of $1,000,000 and $2,000,000
in the aggregate for any policy year; together with at least
$10,000,000 excess and/or umbrella liability insurance for any and all
claims, including all legal liability imposed upon Borrower and all
court costs and attorneys' fees incurred in connection with the
ownership, operation and maintenance of the Mortgaged Property.
(d) Rental loss and/or business interruption
insurance in an amount equal to the greater of (i) the estimated Rents
for the next succeeding twelve (12)-month period or (ii) the projected
operating expenses and Debt Service for such period. The amount of
such insurance shall be increased from time to time during the Term as
and when the estimated or actual Rents increase.
(e) Insurance against loss or damage from (i)
leakage of sprinkler systems and (ii) explosion of steam boilers (if
applicable) air conditioning equipment, high pressure piping,
machinery and equipment, pressure vessels or similar apparatus now or
hereafter installed in any of the Improvements (without exclusion for
explosions), in an amount at least equal to $2,000,000.
(f) Worker's compensation insurance with respect
to any employees of Borrower, as required by any Legal Requirement.
(g) During any period of repair, renovation or
restoration, builder's "all-risk" insurance in an amount equal to not
less than the full insurable value of the Mortgaged Property, against
such risks (including fire and extended coverage and collapse of the
Improvements to agreed limits) as Lender may request, in form and
substance acceptable to Lender.
(h) Coverage to compensate for the cost of
demolition and the increased cost of construction for each Mortgaged
Property in an amount satisfactory to Lender.
(i) Such other insurance (including earthquake
insurance and hurricane insurance) as may from time to time be
reasonably required by Lender in order to protect its interests.
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7.1.2 POLICIES. All policies of insurance (the "POLICIES")
required pursuant to Section 7.1.1 shall (i) be issued by companies approved by
Lender and licensed to do business in the State, with a claims paying ability
rating of "AA" or better by Standard & Poor's Ratings Group; (ii) name Lender
and its successors and/or assigns as their interest may appear as the
mortgagee; (iii) contain a Non-Contributory Standard Lender Clause and a
Lender's Loss Payable Endorsement, or their equivalents, naming Lender as the
person to which all payments made by such insurance company shall be paid; (iv)
contain a waiver of subrogation against Lender; (v) be assigned and the
originals thereof delivered to Lender; (vi) contain such provisions as Lender
deems reasonably necessary or desirable to protect its interest, including
endorsements providing that neither Borrower, Lender nor any other party shall
be a co-insurer under the Policies and that Lender shall receive at least
thirty (30) days' prior written notice of any modification, reduction or
cancellation of any of the Policies; and (vii) be satisfactory in form and
substance to Lender and approved by Lender as to amounts, form, risk coverage,
deductibles, loss payees and insureds. Borrower shall pay the premiums for
such Policies (the "INSURANCE PREMIUMS") as the same become due and payable and
furnish to Lender evidence of the renewal of each of the Policies together with
(unless such Insurance Premiums have been paid by Lender pursuant to Section
3.1) receipts for or other evidence of the payment of the Insurance Premiums
reasonably satisfactory to Lender. If Borrower does not furnish such evidence
and receipts at least thirty (30) days prior to the expiration of any expiring
Policy, then Lender may, but shall not be obligated to, procure such insurance
and pay the Insurance Premiums therefor, and Borrower agrees to reimburse
Lender for the cost of such Insurance Premiums promptly on demand. Within
thirty (30) days after request by Lender, Borrower shall obtain such increases
in the amounts of coverage required hereunder as may be reasonably requested by
Lender, taking into consideration changes in the value of money over time,
changes in liability laws, changes in prudent customs and practices, and the
like.
7.2 CONDEMNATION.
7.2.1 NOTICE; RESTORATION. With respect to each Mortgaged
Property, Borrower shall promptly give Lender notice of the actual or
threatened commencement of any condemnation or eminent domain proceeding
affecting the Property (a "CONDEMNATION") and shall deliver to Lender copies of
any and all papers served in connection with such Condemnation. Following the
occurrence of a Condemnation, Borrower, regardless of whether an Award is
available, shall promptly proceed to restore, repair, replace or rebuild the
Property in accordance with Legal Requirements to the extent practicable to be
of at least equal value and of substantially the same character as prior to
such Condemnation.
7.2.2 COLLECTION OF AWARD. Lender is hereby irrevocably
appointed as Borrower's attorney-in-fact, coupled with an interest, with
exclusive power to collect, receive and retain any award or payment in respect
of a Condemnation (an "AWARD") and to make any compromise or settlement in
connection with such Condemnation. Notwithstanding any Condemnation (or any
transfer made in lieu of or in anticipation of such a Condemnation), Borrower
shall continue to pay the Debt at the time and in the manner provided for in
the Loan Documents, and the Debt shall not be reduced unless and until any
Award shall have been actually received and applied by Lender to expenses of
collecting the Award and to discharge of the Debt. Lender shall not be limited
to the interest paid on the Award by the condemning authority but shall be
entitled to receive out of the
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Award interest at the rate or rates provided in the Note. Subject to
applicable law, if the Mortgaged Property is sold, through foreclosure or
otherwise, prior to the receipt by Lender of such Award, Lender shall have the
right, whether or not a deficiency judgment on the Note shall be recoverable or
shall have been sought, recovered or denied, to receive all or a portion of the
Award sufficient to pay the Debt. Borrower shall cause any Award that is
payable to Borrower to be paid directly to Lender. Lender shall hold such
Award in an interest-bearing account and disburse such Award in accordance with
the terms hereof.
7.3 APPLICATION OF PROCEEDS OR AWARD.
7.3.1 APPLICATION TO RESTORATION OR DEBT. Subject to
applicable law, in the event of an Insured Casualty or Condemnation affecting a
Mortgaged Property, the proceeds of insurance or the Award, as the case may be
(after reimbursement of any expenses incurred by Lender), may, at the option of
Lender in Lender's sole discretion, be applied either (i) to reimburse Borrower
for the cost of restoring, repairing, replacing or rebuilding the Property (the
"RESTORATION"), in the manner set forth in Section 7.3.2, or (ii) to the
payment of the Debt. In any case, Borrower shall commence and diligently
prosecute the Restoration of such Mortgaged Property, and Borrower shall pay
(and if required by Lender, Borrower shall deposit with Lender in advance) all
costs of such Restoration in excess of the net proceeds of insurance or the
Award made available pursuant to the terms hereof.
7.3.2 PROCEDURE FOR APPLICATION TO RESTORATION. If
Borrower is entitled to reimbursement out of insurance proceeds or an Award
held by Lender, such proceeds or Award shall be disbursed from time to time by
Lender upon Lender being furnished with (i) evidence satisfactory to it of the
estimated cost of completion of the Restoration, (ii) funds or, at Lender's
option, assurances satisfactory to Lender that such funds are available,
sufficient in addition to the proceeds of insurance or Award to complete the
proposed Restoration, (iii) such architect's certificates, waivers of lien,
contractor's sworn statements, title insurance endorsements, bonds, plats of
survey and such other evidences of cost, payment and performance as Lender may
reasonably require and approve, and (iv) all plans and specifications for such
Restoration, such plans and specifications to be approved by Lender prior to
commencement of any work. No payment made prior to the final completion of the
Restoration shall exceed 90% of the value of the work performed from time to
time; funds other than the proceeds of insurance or Award shall be disbursed
prior to disbursement of such proceeds or Award; and at all times, the
undisbursed balance of such proceeds or Award remaining in the hands of Lender,
together with funds deposited for that purpose or irrevocably committed to the
satisfaction of Lender by or on behalf of Borrower for that purpose, shall be
at least sufficient in the reasonable judgment of Lender to pay for the cost of
completion of the Restoration, free and clear of all Liens or claims for Lien.
Any surplus that remains out of the insurance proceeds held by Lender after
payment of such costs of Restoration shall be paid to Borrower. Any surplus
that remains out of the Award received by Lender after payment of such costs of
Restoration shall, in the sole and absolute discretion of Lender, be retained
by Lender and applied to payment of the Debt or returned to Borrower.
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VIII. DEFAULTS
8.1 EVENTS OF DEFAULT. Each of the following events
shall constitute an "EVENT OF DEFAULT":
(a) any portion of the Debt is not paid when due;
(b) any of the Taxes or Other Charges are not
paid when due, subject to Borrower's right to contest Taxes in
accordance with Section 5.2;
(c) the Policies are not kept in full force and
effect, or are not delivered to Lender upon request;
(d) a Transfer occurs in violation of Section 6.7
or Borrower breaches or permits the breach of any other negative
covenant contained in Section 6;
(e) any representation or warranty made by
Borrower herein or in any other Loan Document, or in any report,
certificate, financial statement or other instrument, agreement or
document furnished by Borrower in connection with the Loan or any Loan
Document, shall be false or misleading in any material respect as of
the date the representation or warranty was made;
(f) Borrower or an Other Mortgagor or an
Affiliate Owner shall make an assignment for the benefit of creditors,
or shall generally not be paying its debts as they become due;
(g) a receiver, liquidator or trustee shall be
appointed for Borrower, an Other Mortgagor or an Affiliate Owner; or
Borrower shall be adjudicated a bankrupt or insolvent; or any petition
for bankruptcy, reorganization or arrangement pursuant to federal
bankruptcy law, or any similar federal or state law, shall be filed by
or against, consented to, or acquiesced in by, Borrower, an Other
Mortgagor or an Affiliate Owner; or any proceeding for the dissolution
or liquidation of Borrower, an Other Mortgagor or an Affiliate Owner
shall be instituted; provided, however, if such appointment,
adjudication, petition or proceeding was involuntary and not consented
to by Borrower or such Other Mortgagor Affiliate Owner (as the case
may be), only upon the same not being discharged, stayed or dismissed
within ninety (90) days;
(h) Borrower attempts to assign its respective
rights or interest under any Loan Document in contravention of any
Loan Document; provided that such an attempt shall not be an Event of
Default if the assignment is conditional upon obtaining Lender's
consent or is a Permitted Transfer;
(i) Borrower shall be in material default under
any other mortgage or security agreement covering any part of a
Property whether, in the case of the Mortgaged Properties, it be
superior or junior in Lien to the applicable Mortgage;
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(j) a Mortgaged Property becomes subject to any
mechanic's, materialman's or other Lien and such Lien is not bonded or
discharged within thirty (30) days after Borrower first receives
notice of such Lien, except a Lien for Taxes not then due;
(k) except as permitted hereunder, the actual or
threatened alteration, improvement, demolition or removal of any of
the Improvements without the prior consent of Lender which consent
shall not be unreasonably withheld;
(l) without Lender's prior consent, (i) the
Advisor resigns or is removed, or (ii) the ownership, management or
control of the Advisor is transferred to a person or entity that is
not an Affiliate of Borrower, or (iii) there is any material change in
the Advisory Agreement, or (iv) the Advisory Agreement is terminated.
(m) without Lender's prior consent, (i) the
Manager under a Management Agreement (or any successor management
agreement) resigns or is removed, or (ii) the ownership, management or
control of a Manager is transferred, other than to a person or entity
that is an Affiliate of Borrower, or (iii) there is any material
change in a Management Agreement (or any successor management
agreement);
(n) a default has occurred and continues beyond
any applicable cure period under the Management Agreement (or any
successor management agreement) if such default permits the Manager to
terminate the Management Agreement (or such successor management
agreement);
(o) Borrower (and the Other Mortgagors or
Affiliate Owners, as applicable) cease to operate any Property as a
retail shopping center or terminates such business for any reason
whatsoever;
(p) an Event of Default as defined or described
in any other Loan Document occurs; or any other event shall occur or
condition shall exist following the expiration of all applicable cure
periods, if the effect of such event or condition is to accelerate or
to permit Lender to accelerate the maturity of any portion of the
Debt;
(q) Borrower shall fail to pay when due any
deposit into the Tax and Insurance Escrow Fund;
(r) Borrower shall be in default under any term,
covenant or provision set forth herein which specifically contains a
notice requirement or grace period and such notice has been given and
such grace period has expired; or
(s) Borrower shall continue to be in Default
under any of the other terms, covenants or conditions of this
Agreement not specified in subsections (a) through (r) above, for ten
(10) days after notice to Borrower from Lender, in the case of any
Default which can be cured by the payment of a sum of money, or for
thirty (30) days after notice from Lender in the case of any other
Default; provided, however, that if such non-monetary Default is
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susceptible of cure but cannot reasonably be cured within such thirty
(30)-day period, and Borrower shall have commenced to cure such
Default within such thirty (30)-day period and thereafter diligently
and expeditiously proceeds to cure the same, such thirty (30)-day
period shall be extended for an additional period of time as is
reasonably necessary for Borrower in the exercise of due diligence to
cure such Default, such additional period not to exceed ninety (90)
days.
8.2 REMEDIES.
8.2.1 ACCELERATION. Upon the occurrence of an Event of
Default (other than an Event of Default described in paragraph (f), (g) or (h)
of Section 8.1) and at any time thereafter, in addition to any other rights or
remedies available to it pursuant to the Loan Documents or at law or in equity,
Lender may take such action, without notice or demand, that Lender deems
advisable to protect and enforce its rights against Borrower and in and to the
Mortgaged Properties, including declaring the Debt to be immediately due and
payable; and upon any Event of Default described in paragraph (f), (g) or (h)
of Section 8.1, the Debt shall immediately and automatically become due and
payable, without notice or demand, and Borrower hereby expressly waives any
such notice or demand, anything contained in any Loan Document to the contrary
notwithstanding.
8.2.2 REMEDIES CUMULATIVE. Upon the occurrence of an
Event of Default, all or any one or more of the rights, powers, privileges and
other remedies available to Lender against Borrower under the Loan Documents or
at law or in equity may be exercised by Lender at any time and from time to
time, whether or not all or any of the Debt shall be declared due and payable,
and whether or not Lender shall have commenced any foreclosure proceeding or
other action for the enforcement of its rights and remedies under any of the
Loan Documents. Any such actions taken by Lender shall be cumulative and
concurrent and may be pursued independently, singly, successively, together or
otherwise, at such time and in such order as Lender may determine in its sole
discretion, to the fullest extent permitted by law, without impairing or
otherwise affecting the other rights and remedies of Lender permitted by law,
equity or contract or as set forth in the Loan Documents. Without limiting the
generality of the foregoing, Borrower agrees that if an Event of Default is
continuing, (i) to the extent permitted by applicable law, Lender is not
subject to any "one action" or "election of remedies" law or rule, and (ii) all
liens and other rights, remedies and privileges provided to Lender shall remain
in full force and effect until (x) Lender has exhausted all of its remedies
against Borrower and the Mortgaged Properties and the Mortgaged Properties have
been sold and/or otherwise realized upon in satisfaction of the Debt, or (y)
the Debt has been paid in full. To the extent permitted by applicable law,
nothing contained in any Loan Document shall be construed as requiring Lender
to resort to any portion of the collateral for the satisfaction of any of the
Debt in preference or priority to any other portion, and Lender may seek
satisfaction out of all of the Mortgaged Properties or any portion thereof,
and/or otherwise against Borrower, in its sole and absolute discretion.
8.2.3 SEVERANCE. Subject to applicable law, Lender shall
have the right from time to time to sever the Note and the other Loan Documents
into one or more separate notes, mortgages and other security documents in such
denominations as Lender shall determine in its sole discretion for purposes of
evidencing and enforcing its rights and remedies. Borrower shall execute and
deliver
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to Lender from time to time, promptly after the request of Lender, a severance
agreement and such other documents as Lender shall request in order to effect
the severance described in the preceding sentence, all in form and substance
reasonably satisfactory to Lender. Borrower hereby absolutely and irrevocably
appoints Lender as its true and lawful attorney, coupled with an interest, in
its name and stead to make and execute all documents necessary or desirable to
effect such severance, Borrower ratifying all that such attorney shall do by
virtue thereof.
8.2.4 DELAY. No delay or omission to exercise any remedy,
right or power accruing upon an Event of Default shall impair any such remedy,
right or power or be construed as a waiver thereof, but any such remedy, right
or power may be exercised from time to time and as often as may be deemed
expedient. A waiver of one Default or Event of Default shall not be construed
to be a waiver of any subsequent Default or Event of Default or to impair any
remedy, right or power consequent thereon.
IX. SPECIAL PROVISIONS
9.1 PERMANENT LOAN. If the Debt is not paid in full
prior to the Maturity Date, then Lender shall have the right, at its sole
option (but shall have no obligation), to either (i) make the Mandatory
Permanent Loan to Borrower, to be applied to repay the Debt, or (ii) convert
the Loan into a permanent loan, which permanent loan (in either case) shall be
secured by all of the Mortgaged Properties and the Hedwig Property, as provided
in Section 2.3.1, and shall be on the terms set forth in Exhibit II. Borrower
shall, at its expense, execute and/or deliver such agreements (including
replacements or restatements of, or amendments to, one or more Loan Documents),
instruments, certificates, legal opinions, title insurance endorsements and
other documents, and shall take such other actions, as Lender shall reasonably
require in order to effectuate such permanent loan.
9.2 RETENTION OF SERVICER. Lender reserves the right to
retain the Servicer to act as its agent hereunder with such powers as are
specifically delegated to the Servicer by Lender, together with such other
powers as are reasonably incidental thereto. Borrower shall pay any reasonable
fees and expenses of the Servicer in connection with a release of the Property,
assumption or modification of the Loan or enforcement of the Loan Documents.
X. MISCELLANEOUS
10.1 SURVIVAL. This Agreement and all covenants,
agreements, representations and warranties made herein and in the certificates
delivered pursuant hereto shall survive the making by Lender of the Loan and
the execution and delivery to Lender of the Note, and shall continue in full
force and effect so long as all or any of the Debt is unpaid. All Borrower's
covenants and agreements in this Agreement shall inure to the benefit of the
respective legal representatives, successors and assigns of Lender.
10.2 LENDER'S DISCRETION. Whenever pursuant to this
Agreement, Lender exercises any right given to it to consent or withhold
consent or approve or disapprove, or any arrangement or term is to be
satisfactory to Lender, the decision of Lender to consent or withhold consent
or approve or disapprove or to decide whether arrangements or terms are
satisfactory or not
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satisfactory shall (except as is otherwise specifically herein provided) be in
the sole and absolute discretion of Lender (whether or not expressly so stated)
and shall be final and conclusive. Without limitation of the foregoing,
Borrower expressly agrees that a "reasonable" standard for Lender shall not be
implied but must be expressly stated in order for such standard to be
applicable.
10.3 GOVERNING LAW. (a) THIS AGREEMENT WAS NEGOTIATED IN
THE STATE OF NEW YORK, AND MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE
OF NEW YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE
DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A
SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY
APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE
PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS CREATED
PURSUANT TO THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO
THE LAW OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS LOCATED, IT BEING
UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE
LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY
OF ALL LOAN DOCUMENTS AND THE DEBT. TO THE FULLEST EXTENT PERMITTED BY LAW,
BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT
THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS
AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER
OR BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN
ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO SECTION 5-1402
OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND BORROWER WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER
DOES HEREBY DESIGNATE AND APPOINT NATIONAL REGISTERED AGENTS, INC., 440 9TH
AVENUE, 5TH FLOOR, NEW YORK, NEW YORK 10001 (ATTN: MADELINE DONAHUE), AS ITS
AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL
PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY
FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF
PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE OF
BORROWER MAILED OR DELIVERED TO
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BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO
LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT
ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN
OFFICE IN NEW YORK, NEW YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS
FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE
IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS
DISSOLVED WITHOUT LEAVING A SUCCESSOR.
10.4 MODIFICATION, WAIVER IN WRITING. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement or of any other Loan Document, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specific instance, and for the
purpose, for which given. Except as otherwise expressly provided herein, no
notice to or demand on Borrower shall entitle Borrower to any other or future
notice or demand in the same, similar or other circumstances.
10.5 DELAY NOT A WAIVER. Neither any failure nor any
delay on the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under any other Loan Document, shall operate as or
constitute a waiver thereof, nor shall a single or partial exercise thereof
preclude any other future exercise, or the exercise of any other right, power,
remedy or privilege. In particular, and not by way of limitation, by accepting
payment after the due date of any amount payable under any Loan Document,
Lender shall not be deemed to have waived any right either to require prompt
payment when due of all other amounts due under the Loan Documents, or to
declare a Default for failure to effect prompt payment of any such other
amount.
10.6 NOTICES. All notices, consents, approvals and
requests required or permitted hereunder or under any other Loan Document (a
"NOTICE") shall be given in writing and shall be effective for all purposes if
hand delivered or sent (i) by certified or registered United States mail,
postage prepaid, or (ii) by (A) expedited prepaid delivery service, either
commercial or United States Postal Service, with proof of attempted delivery,
and (B) telecopier (with answer back acknowledged), in any case addressed as
follows (or to such other address or Person as a party shall designate from
time to time by notice to the other party:
If to Lender:
Nomura Asset Capital Corporation
311 South Wacker Drive, Suite 5100
Chicago, Illinois 60606
Attention: John Burke
Telecopier: 312-408-9510
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with copies to:
Nomura Asset Capital Corporation
Two World Financial Center
Building B
New York, New York 10281
Attention: Barry Funt and Sheryl McAfee
Telecopier: 212-667-1567
and
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Stephen Gliatta, Esq.
Telecopier: 212-836-7156
If to Borrower:
United Investors Realty Trust
5847 San Felipe, Suite 850
Houston, Texas 77057
Attention: Randall D. Keith
Telecopier: 713-268-6005
with copies to:
United Investors Realty Trust
Suite 500
8080 North Central Expressway
Dallas, Texas 75206
Attention: Lewis H. Sandler
Telecopier: 214-360-3696
and:
James, Goldman & Haughland, P.C.
8th Floor
201 E. Main Street
El Paso, Texas 79901
Attention: Merton B. Goldman, Esq.
Telecopier: 915-541-6440
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a
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Business Day; or in the case of expedited prepaid delivery and telecopy, upon
the first attempted delivery on a Business Day.
10.7 TRIAL BY JURY. BORROWER HEREBY AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY
IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY
JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF
THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
BORROWER.
10.8 HEADINGS. The Section headings and Table of Contents
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
10.9 SEVERABILITY. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
10.10 PREFERENCES. To the extent Borrower makes a payment
to Lender, or Lender receives proceeds of any collateral, which is in whole or
part subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then,
to the extent of such payment or proceeds received, the Debt or part thereof
intended to be satisfied shall be revived and continue in full force and
effect, as if such payment or proceeds had not been received by Lender.
10.11 WAIVER OF NOTICE. Subject to applicable law,
Borrower shall not be entitled to any notices of any nature whatsoever from
Lender except with respect to matters for which this Agreement or any other
Loan Document specifically and expressly provides for the giving of notice by
Lender to Borrower and except with respect to matters for which Borrower is
not, pursuant to applicable Legal Requirements, permitted to waive the giving
of notice. Borrower hereby expressly waives the right to receive any notice
from Lender with respect to any matter for which no Loan Document specifically
and expressly provides for the giving of notice by Lender to Borrower.
10.12 REMEDIES OF BORROWER. Subject to applicable law, in
the event that a claim or adjudication is made that Lender or its agent,
including Servicer, has acted unreasonably or unreasonably delayed acting in
any case where by law or under any Loan Document, Lender or such agent, as the
case may be, has an obligation to act reasonably or promptly, Borrower agrees
that neither Lender nor its agents, including Servicer, shall be liable for any
monetary damages, and
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Borrower's sole remedy shall be to commence an action seeking injunctive relief
or declaratory judgment. Any action or proceeding to determine whether Lender
has acted reasonably shall be determined by an action seeking declaratory
judgment.
10.13 EXPENSES; INDEMNITY. (a) Borrower shall reimburse
Lender upon receipt of notice for all reasonable costs and expenses (including
reasonable attorneys' fees and disbursements) incurred by Lender in connection
with (i) the preparation, negotiation, execution and delivery of the Loan
Documents and the consummation of the transactions contemplated thereby and all
the costs of furnishing all opinions by counsel for Borrower; (ii) Borrower's
and Lender's ongoing performance under and compliance with the Loan Documents,
including confirming compliance with environmental and insurance requirements;
(iii) the negotiation, preparation, execution, delivery and administration of
any consents, amendments, waivers or other modifications of or under any Loan
Document and any other documents or matters requested by Lender; (iv) filing
and recording of any Loan Documents; (v) title insurance, surveys, inspections
and appraisals; (vi) enforcing or preserving any rights, in response to third
party claims or the prosecuting or defending of any action or proceeding or
other litigation, in each case against, under or affecting Borrower, the Loan
Documents, the Property, or any other security given for the Loan; and (vii)
enforcing any obligations of or collecting any payments due from Borrower under
any Loan Document or with respect to any of the Mortgaged Properties or in
connection with any refinancing or restructuring of the Loan in the nature of a
"work-out", or any insolvency or bankruptcy proceedings; provided, however,
that Borrower shall not be liable for the payment of any such costs and
expenses to the extent the same arise by reason of the gross negligence,
illegal acts, fraud or willful misconduct of Lender.
(b) Borrower shall indemnify and hold harmless Lender
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including the reasonable fees and
disbursements of counsel for Lender in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
Lender shall be designated a party thereto), that may be imposed on, incurred
by, or asserted against Lender (collectively, the "INDEMNIFIED LIABILITIES") in
any manner, relating to or arising out of or by reason of (i) any breach by
Borrower of its obligations under any Loan Document; (ii) any material
misrepresentation by Borrower contained in any Loan Document; (iii) the use or
intended use of the proceeds of the Loan; (iv) any information provided by or
on behalf of Borrower, or contained in any documentation approved by Borrower;
(v) any accident, injury to or death of persons or loss of or damage to
property occurring in, on or about any of the Properties or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;
(vi) any use, nonuse or condition in, on or about any of the Properties or on
adjoining sidewalks, curbs, adjacent property or adjacent parking areas,
streets or ways; (vii) performance of any labor or services or the furnishing
of any materials or other property in respect of any of the Properties; (viii)
the presence, disposal, escape, seepage, leakage, spillage, discharge,
emission, release, or threatened release of any Hazardous Substance on, from or
affecting any of the Properties; (ix) any personal injury (including wrongful
death) or property damage (real or personal) arising out of or related to such
Hazardous Substance; (x) any lawsuit brought or threatened, settlement reached,
or government order relating to such Hazardous Substance; (xi) any violation of
the Environmental Laws, which is based upon or in any way related to such
Hazardous
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Substance, including, without limitation, the costs and expenses of any
Remedial Work, attorney and consultant fees and disbursements, investigation
and laboratory fees, court costs, and litigation expenses; (xii) any failure of
any of the Properties to comply with any Legal Requirement; and (xiii) any
claim by brokers, finders or similar persons claiming to be entitled to a
commission in connection with any Lease or other transaction involving any of
the Properties or any part thereof under any Legal Requirement, or any
liability asserted against Lender with respect thereto; and (xiv) the claims of
any lessee of any portion of any of the Properties or any person acting through
or under any lessee or otherwise arising under or as a consequence of any
Lease; provided, however, that Borrower shall not have any obligation to Lender
hereunder to the extent that such Indemnified Liabilities arise from the gross
negligence, illegal acts, fraud or willful misconduct of Lender. To the extent
that the undertaking to indemnify and hold harmless set forth in the preceding
sentence may be unenforceable because it violates any law or public policy,
Borrower shall contribute the maximum portion that it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by Lender. Any amounts payable to Lender by reason of the
application of this paragraph shall become immediately due and payable and
shall bear interest at the Default Rate from the date loss or damage is
sustained by Lender until paid. The obligations and liabilities of Borrower
under this Section 10.13 shall survive the Term and the exercise by Lender of
any of its rights or remedies under the Loan Documents, including the
acquisition of any Mortgaged Property by foreclosure or a conveyance in lieu of
foreclosure.
10.14 PRIOR AGREEMENTS. This Agreement, the other Loan
Documents and the Letter Agreement contain the entire agreement of the parties
hereto and thereto in respect of the transactions contemplated hereby and
thereby, and all prior agreements among or between such parties, whether oral
or written, are superseded by the terms of this Agreement and the other Loan
Documents.
10.15 OFFSETS, COUNTERCLAIMS AND DEFENSES. Borrower hereby
waives the right to assert a counterclaim, other than a compulsory
counterclaim, in any action or proceeding brought against it by Lender or its
agents, including Servicer. Any assignee of Lender's interest in and to the
Loan Documents shall take the same free and clear of all offsets, counterclaims
or defenses that are unrelated to the Loan Documents which Borrower may
otherwise have against any assignor of such documents, and no such unrelated
offset, counterclaim or defense shall be interposed or asserted by Borrower in
any action or proceeding brought by any such assignee upon such documents, and
any such right to interpose or assert any such unrelated offset, counterclaim
or defense in any such action or proceeding is hereby expressly waived by
Borrower.
10.16 PUBLICITY. All news releases, publicity or
advertising by Borrower or its Affiliates through any media intended to reach
the general public, which refers to the Loan Documents, the Loan, Lender, or
the Servicer shall be subject to the prior written approval of Lender.
10.17 CONTROLLING AGREEMENT. Borrower and Lender intend at
all times to comply with applicable State law or applicable United States
federal law (to the extent that it permits Lender to contract for, charge,
take, reserve or receive a greater amount of interest than under State law) and
that this Section 10.17 shall control every other agreement in the Loan
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for
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under the Note or any other Loan Document, or contracted for, charged, taken,
reserved or received with respect to the Debt, or if Lender's exercise of the
option to accelerate the maturity of the Loan of any prepayment by Borrower
results in Borrower having paid any interest in excess of that permitted by
applicable law, then it is Borrower's and Lender's express intent that all
excess amounts theretofore collected by Lender shall be credited against the
unpaid Principal and all other Debt (or, if the Debt has been or would thereby
be paid in full, refunded to Borrower), and the provisions of the Loan
Documents immediately be deemed reformed and the amounts thereafter collectible
thereunder reduced, without the necessity of the execution of any new document,
so as to comply with the applicable law, but so as to permit the recovery of
the fullest amount otherwise called for thereunder. All sums paid or agreed to
be paid to Lender for the use, forbearance or detention of the Loan shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Loan until payment in full so
that the rate or amount of interest on account of the Debt does not exceed the
maximum lawful rate from time to time in effect and applicable to the Debt for
so loan as the Debt is outstanding. Notwithstanding anything to the contrary
contained in any Loan Document, it is not the intention of Lender to accelerate
the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest or any prepayment penalty or
premium, or to prevent any prepayment, at the time of such acceleration.
10.18 CONFLICT; CONSTRUCTION OF DOCUMENTS. In the event of
any conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that the Loan Documents
shall not be subject to the principle of construing their meaning against the
party that drafted them.
10.19 BROKERS AND FINANCIAL ADVISORS. Borrower hereby
represents that it has dealt with no financial advisors, brokers, underwriters,
placement agents, agents or finders in connection with the Loan. Borrower and
Lender hereby agree to indemnify and hold the other harmless from and against
any and all claims, liabilities, costs and expenses of any kind in any way
relating to or arising from a claim by any Person that such Person acted on
behalf of the indemnifying party in connection with the transactions
contemplated herein. The provisions of this Section 10.19 shall survive the
expiration and termination of this Agreement and the repayment of the Debt.
10.20 NO THIRD PARTY BENEFICIARIES. The Loan Documents are
solely for the benefit of Lender and the Borrower and nothing contained in any
Loan Document shall be deemed to confer upon anyone other than the Lender and
the Borrower any right to insist upon or to enforce the performance or
observance of any of the obligations contained therein.
10.21 INDIVIDUALS NOT LIABLE. No individual who from time
to time owns, directly or indirectly, any shares of beneficial interest in
Borrower, and no officers or employees of Borrower, Trust Managers,
shareholders of the Advisor or the Managers, or their officers and directors,
shall have any personal liability for payment of the Debt or performance of any
obligations of Borrower under the Loan Documents, whether on the basis of the
principles of "piercing the corporate veil" or otherwise (except in the event
and to the extent of fraud or the misappropriation or conversion of
42
<PAGE> 49
Borrower's funds or other property by such individual or other Person). The
foregoing shall not be construed to relieve Borrower of any personal liability
for payment of the Debt and performance of any obligations of Borrower under
the Loan Documents.
10.22 CROSS-DEFAULT; CROSS COLLATERALIZATION. Borrower
acknowledges that Lender has made the Loan to Borrower upon the security of its
collective interest in the Mortgaged Properties and in reliance upon the
aggregate of the Mortgaged Properties taken together being of greater value as
collateral security than the sum of the Mortgaged Properties taken separately.
Borrower agrees that the Mortgages are and will be cross-collateralized and
cross- defaulted with each other so that (i) an Event of Default under any of
the Mortgages shall constitute an Event of Default under each of the other
Mortgages which secure the Note; (ii) an Event of Default under the Note or
this Agreement shall constitute an Event of Default under each Mortgage; and
(iii) each Mortgage shall constitute security for the Note as if a single
blanket lien were placed on all of the Mortgaged Properties as security for the
Note.
10.23 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed by their duly authorized representatives, all as
of the day and year first above written.
UNITED INVESTORS REALTY TRUST,
a Texas real estate investment trust
By: /s/ LEWIS H. SANDLER
------------------------------------------
Name: Lewis H. Sandler
Title: President
NOMURA ASSET CAPITAL CORPORATION
By: /s/ JOHN M. BURKE
------------------------------------------
Name: John M. Burke
Title: Vice President
43
<PAGE> 1
EXHIBIT 10.5
PROMISSORY NOTE
$56,800,000 January 30, 1998
New York, New York
FOR VALUE RECEIVED, UNITED INVESTORS REALTY TRUST, INC., a
Texas corporation, having an office at 5847 San Felipe, Suite 850, Houston,
Texas 77057 ("Maker"), hereby promises to pay to NOMURA ASSET CAPITAL
CORPORATION ("Payee"), at the account of the Payee, the principal sum of
FIFTY-SIX MILLION EIGHT HUNDRED THOUSAND AND NO XX/100 DOLLARS ($56,800,000)(or
such lesser amount as shall equal the aggregate principal amount of the Advances
of the Loan Agreement hereinafter described), in lawful money of the United
States of America and in immediately available funds, on the dates and in the
principal amounts provided in the Loan Agreement, and to pay interest on the
unpaid principal amount of the Loan, at such office, in like money and funds,
for the period commencing on the date of the Initial Advance until the Loan
shall be paid in full, at the rates per annum and on the dates provided in the
Loan Agreement.
The date and amount of the each Advance made by Payee and
evidenced hereby shall be recorded by Lender on its books and, prior to any
transfer of this Note, endorsed by Payee on the schedule attached hereto or any
continuation thereof.
This Note is the Note referred to in the Loan Agreement (as
modified and supplemented and in effect from time to time, the "Loan Agreement")
dated as of the date hereof between Maker and Payee and evidences the Loan to be
made by Payee thereunder. Capitalized terms used in this Note without definition
have the respective meanings assigned to them in the Loan Agreement.
This Note may be prepaid in whole as expressly permitted and
on the terms set forth in the Loan Agreement.
<PAGE> 2
The Loan Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events, upon the terms and
conditions specified therein.
This Note is secured by, among other things, the Mortgages and
Assignments of Leases.
Any and all costs and expenses incurred or expended by the
Payee, including, without limitation, reasonable attorneys' fees and
disbursements, whether or not in connection with any action or proceedings, to
(a) protect and enforce any of its rights and remedies in connection with this
Note, or (b) recover and collect any indebtedness evidenced hereby, shall be due
and payable by the Maker to the Payee on demand together with interest thereon
at the Default Rate from the date incurred or expended by the payee to the date
paid or reimbursed by the Maker.
In connection with the payment in full of the Loan (whether
upon maturity or voluntary or mandatory prepayment), at the request of the Maker
and with the consent of the Payee, which shall not be unreasonably withheld,
this Note may be split into two or more notes in such principal amounts as
requested by the Maker, provided that the aggregate principal amount of such
split notes equals the principal sum of this Note. Each of such split notes
shall be identical to this Note except for the principal amount thereof.
The Maker and all sureties, endorsers, guarantors and other
parties ever liable for payment of any sums payable pursuant to the terms of
this Note, jointly and severally waive, to the extent permitted by law, demand,
presentment for payment, protest, notice of protest, notice of acceleration,
notice of intent to accelerate, diligence in collection, the bringing of any
suit against any party, and any notice of or defense on account of any
extensions, renewals, partial payment or changes in any manner of or in this
Note or any of the other Loan Documents or in any of their respective terms,
provisions, and covenants, or any releases or substitutions of any security, or
any delay, indulgence, or other act of any trustee or any holder hereof, whether
before or after maturity.
Maker has duly executed this Note as of the day and year first
above written.
MAKER
UNITED INVESTORS REALTY TRUST, a Texas
Real Estate Investment Trust
By:/s/ Lewis H. Sandler
------------------------------
Name: Lewis H. Sandler
Title: President
<PAGE> 1
EXHIBIT 10.6
Travelers Loan No. 205607
ASSUMPTION AND MODIFICATION AGREEMENT
THIS ASSUMPTION AND MODIFICATION AGREEMENT ("Agreement"), is made and
entered into this 19th day of November, 1996, but effective as of November 26,
1996 ("Effective Date"), by and among THE TRAVELERS INSURANCE COMPANY, a
Connecticut corporation ("Lender"), GEORGE I. BROWN, a single man, and GEORGE
I. BROWN, as Trustee of the Waipio Trust II (collectively, "Original
Borrower"), and PARK NORTHERN/CENTENNIAL PARTNERS, L.P., a Texas limited
partnership ("Assuming Borrower").
SECTION 1. RECITALS.
1.1 Original Borrower obtained a loan from Lender in the original
principal sum of THREE MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS
($3,400,000.00) (the "Loan"), pursuant to that certain Mortgage Loan
Application made by Original Borrower on September 5, 1990 and accepted by
Lender on September 25, 1990, as amended by the First Amendment to Mortgage
Loan Application dated November 6, 1990 (as amended, the "Loan Application").
1.2 The Loan is evidenced by that certain Note Secured by Deed of
Trust, dated November 9, 1990, made by Original Borrower and payable to the
order of Lender in the principal amount of $3,400,000.00 (the "Note"). There
is due and owing by Original Borrower to Lender under the Note as of November
20, 1996, the sum of $3,487,862.78, comprised of $3,332,332.04 of outstanding
principal, $7029.85 of accrued and unpaid interest due November 9, 1995,
$469,946.57 of accrued and unpaid default interest for the period commencing
November 9, 1995 and continuing through November 20, 1996 (less payments
received and held in a suspense account in the amount of $346,795.68), and
$25,350.00 in legal fees and costs.
1.3 Payment and performance of the Note is secured by, among other
things, that certain Deed of Trust and Security Agreement with Assignment of
Rents and Leases and Fixture Filing, dated November 9, 1990, executed by
Original Borrower, as Trustor, for the use and benefit of Lender, as
Beneficiary, recorded on November 9, 1990, at Recorder's No. 90-504083, in the
records of Maricopa County, Arizona (the "Deed of Trust"), covering the
property described therein (the "Property"), with a UCC-1 Financing Statement
dated November 9, 1990 and recorded on November 9, 1990, at Recorder's No.
90-504084, in the records of Maricopa County, Arizona and filed with the
Arizona Secretary of State on November 13, 1990, as File No. 643272 (the
"UCCs").
1.4 Original Borrower executed and delivered to Lender that
certain Hazardous Substance Indemnity Agreement dated November 9, 1990, with
respect to the Property (the "Environmental Indemnity").
<PAGE> 2
1.5 The Loan Application, the Note, the Deed of Trust, the UCCs,
the Environmental Indemnity and all other agreements, documents and instruments
evidencing, securing, or otherwise relating to the Loan, as modified herein,
are referred to individually as a "Loan Document" and collectively as the "Loan
Documents." Capitalized terms used and not otherwise defined herein shall have
the meaning set forth in the Note.
1.6 As a result of various defaults that have occurred and are
continuing under the Loan Documents, Lender has initiated a non-judicial
foreclosure of the Deed of Trust pursuant to the Notice of Trustee's Sale dated
March 28, 1996 and recorded on March 29, 1996 at Recorder's No. 96-0212143, in
the records of Maricopa County, Arizona (the "Trustee's Sale").
1.7 Original Borrower desires to convey, transfer and assign all
of its right, title and interest in and to the Property to Assuming Borrower
and Lender is willing to consent to such transfer upon the terms and conditions
herein contained. Assuming Borrower desires to assume the obligations of
Original Borrower under the Loan Documents and has requested that Lender modify
the Loan Documents as provided herein. Lender is willing to accept Assuming
Borrower as the obligor, trustor, assignor, indemnitor and debtor under the
Loan Documents, and agrees to make certain modifications in the Loan Documents
upon the terms and conditions herein contained.
NOW THEREFORE, in consideration of the recitals and the mutual
covenants contained in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Original Borrower, Assuming Borrower and Lender hereby agree, stipulate and
covenant as follows, notwithstanding anything to the contrary contained in the
Loan Documents:
SECTION 2. ASSUMPTION.
2.1 Assuming Borrower hereby assumes the obligation for payment of
the indebtedness evidenced by the Note and for the performance of all
covenants, conditions, provisions and agreements under the Loan Documents as
modified herein. This assumption has been agreed to by and between Original
Borrower and Assuming Borrower as part of the consideration for the conveyance,
transfer and assignment of the Property to Assuming Borrower.
2.2 Assuming Borrower hereby covenants, promises and agrees (i) to
pay the Note at the times, in the manner and in all other respects as therein
provided, as modified herein, and as it may be modified in writing between the
obligor and the holder thereof; (ii) to perform each and all of the covenants,
conditions, provisions and agreements in the Loan Documents, as modified
herein, to be performed by Original Borrower, at the time, in the manner and in
all other respects as therein provided; and (iii) to be bound by each and every
term, condition and provision of the Loan Documents, as modified herein, as
though such documents and instruments had originally been made, executed and
delivered by assuming borrower.
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<PAGE> 3
SECTION 3. CONSENT TO TRANSFER.
Lender hereby consents to the transfer of the Property by Original
Borrower to Assuming Borrower. Such consent shall in no way affect the
liability or obligations of Assuming Borrower under the Loan Documents and the
priority of any of Lender's liens and security interests in the Property. Such
consent shall not constitute a consent to any further transfer of the Property;
Lender specifically reserves all of its rights and remedies provided for in the
Loan Documents in the event of any such further transfer.
SECTION 4. MODIFICATION OF LOAN DOCUMENTS.
4.1 Upon Lender's receipt of the amount set forth in Section
8.1(b)(i) hereof, the Outstanding Principal Balance of the Note shall be equal
to $2,800,000.00.
4.2 The Interest Rate of the Note is hereby changed from nine and
five-eighths percent (9.625%) per annum to eight and thirty-seven one
hundredths percent (8.37%) per annum.
4.3 Interest and principal on the Note shall be payable in equal
monthly installments based upon a twenty (20) year amortization of the
Outstanding Principal Balance with interest at the Interest Rate (which
installments are estimated to be $24,069.16 per month), commencing on January
1, 1997 and on each Payment Date thereafter.
4.4 The Maturity Date of the Note is hereby extended from November
9, 1995 to December 1, 2006. The Outstanding Principal Balance, all accrued
and unpaid interest and all other amounts payable under the Note shall be due
and payable on the Maturity Date, as extended herein.
4.5 Each reference in the Loan Documents to any of the Loan
Documents is hereby amended to be a reference to such document as modified
herein.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Original Borrower and Assuming Borrower hereby represent, warrant and
covenant to Lender as follows:
5.1 Original Borrower, Assuming Borrower and its sole general
partner ("General Partner") hereby represent and warrant that they have
thoroughly read and reviewed the terms and provisions of this Agreement and are
familiar with same, that the terms and provisions contained herein are clearly
understood by them and have been fully and unconditionally consented to by
them, and that Original Borrower, Assuming Borrower and General Partner have
had full benefit and advice of counsel of their own selection, in regard to
understanding the terms, meaning and effect of this Agreement, and that this
Agreement has been entered into by Original Borrower, Assuming Borrower and
General Partner, respectively, freely, voluntarily, with full knowledge,
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<PAGE> 4
and without duress, and that in executing this Agreement, Original Borrower,
Assuming Borrower and General Partner are relying on no representations other
than as contained in the Loan Documents and herein, either written or oral,
express or implied, made to Original Borrower, Assuming Borrower or General
Partner by any other party hereto, and that the consideration received by
Original Borrower, Assuming Borrower and General Partner hereunder has been
actual and adequate.
5.2 Any written statement by Original Borrower or Assuming
Borrower to Lender in connection with the proposal for and closing of this
Agreement (a) shall be true and accurate in all material respects, and (b)
shall not omit any material facts or information that would make such statement
misleading in the context of Lender's evaluation of said proposal. If any such
statement fails to comply with the immediately preceding sentence, then the
same shall be as default under the Loan Documents, thereby entitling Lender to
exercise its rights to accelerate the Note. Assuming Borrower understands that
Lender is relying on such statements in entering into this Agreement.
5.3 The lien of the Deed of Trust is and shall remain an
enforceable and valid first lien against the Property. It is the intent of the
parties that upon recordation of a memorandum ("Memorandum") of this Agreement
the same shall merely supplement the terms and conditions of the Deed of Trust,
as provided herein, without in any way affecting the priority thereof. In the
event that for any reason whatsoever the lien of the Deed of Trust shall be
rendered inferior, junior or subordinate to any other claim, encumbrance or
interest to, against or in the Property, save and except as to the matters
expressly permitted by the terms and conditions of the Deed of Trust, as
modified herein, then and in such event, at the sole option of Lender, the
indebtedness evidenced by the Note may be accelerated and declared due and
payable immediately and forthwith. Further, the lien evidenced by the
Memorandum shall relate back to the date of the original recordation of the
Deed of Trust.
5.4 Original Borrower and Assuming Borrower have full power and
authority to execute, deliver and perform their obligations under this
Agreement, and this Agreement is binding upon and enforceable against Original
Borrower and Assuming Borrower in accordance with its terms.
5.5 Upon the effectiveness of the modifications contemplated by
this Agreement, there is no event of default hereunder or under the Note, the
Deed of Trust or any of the other Loan Documents, as each is amended hereby,
and no event exists which, with the giving of notice or the passage of time, or
both, would give rise to an event of default hereunder or thereunder.
SECTION 6. WAIVER, RELEASE AND INDEMNITY.
6.1 Original Borrower and Assuming Borrower each hereby ratifies,
reaffirms, acknowledges, and agrees that the Loan Documents represent valid,
enforceable and collectible obligations of Original Borrower and Assuming
Borrower, and that there are no existing claims,
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<PAGE> 5
defenses, personal or otherwise, or rights of setoff whatsoever with respect to
any of these documents or instruments.
6.2 Original Borrower and Assuming Borrower each hereby (a) waives
any claim that it might have to claim a preference with respect to any payments
made to Lender in accordance with the Loan Documents, as modified herein, in
any state or federal bankruptcy proceeding commenced by or against Original
Borrower or Assuming Borrower, and (b) agrees that if Original Borrower or
Assuming Borrower receives a distribution in any such bankruptcy proceeding of
funds paid by Original Borrower or Assuming Borrower to Lender in accordance
with the Loan Documents, as modified herein, and refunded by Lender as a result
of a preference claim, Original Borrower and Assuming Borrower shall deliver
such funds to Lender immediately upon written demand by Lender if so permitted
by the bankruptcy court.
6.3 As additional consideration of the modification of the Loan
Documents by Lender as herein set forth, Original Borrower, Assuming Borrower
and General Partner hereby release and forever discharge Lender, its agents,
servants, employees, directors, officers, attorneys, branches, affiliates,
subsidiaries, successors and assigns and all persons, firms, corporations, and
organizations in its behalf of and from all damage, loss, claims, demands,
liabilities, obligations, actions and causes of action whatsoever which
Original Borrower, Assuming Borrower or General Partner may now have or claim
to have against Lender, as of the Effective Date, whether presently known or
unknown, and of every nature and extent whatsoever on account of or in any way
touching, concerning, arising out of or founded upon the Loan Documents,
including but not limited to, all such loss or damage of any kind heretofore
sustained, or that may arise as a consequence of the dealings between the
parties up to and including the Effective Date. This agreement and covenant on
the part of Original Borrower, Assuming Borrower and General Partner is
contractual, and not a mere recital, and the parties hereto acknowledge and
agree that no liability whatsoever is admitted on the part of any party, except
the indebtedness herein stated under the Loan Documents, as herein modified,
and that all agreements and understandings among Original Borrower, Assuming
Borrower, General Partner and Lender are expressed and embodied in the Loan
Documents, as herein modified.
SECTION 7. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS.
7.1 Original Borrower and Assuming Borrower each hereby reaffirms
to Lender each of the representations, warranties, covenants and agreements of
Original Borrower and Assuming Borrower set forth in the Note, the Deed of
Trust and all other Loan Documents, as modified herein, with the same force and
effect as if each were separately stated herein and made as of the date hereof.
7.2 Original Borrower and Assuming Borrower each hereby
acknowledges and reaffirms its obligations under the Note, the Deed of Trust
and the other Loan Documents, as amended hereby, and agrees that any reference
made herein and therein to any of the Loan Documents shall be a reference to
such document as amended pursuant to this Agreement.
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<PAGE> 6
7.3 The Property shall remain in all respects subject to the lien,
charge and encumbrance of the Deed of Trust, as herein modified, and nothing
herein contained and nothing done pursuant hereto, shall affect the lien,
charge or encumbrance of the Deed of Trust, as herein modified, or the priority
thereof with respect to other liens, charges, encumbrances or conveyances, or
release or affect the liability of any party or parties whomsoever who may now
or hereafter be liable under or on account of the Loan Documents, as herein
modified.
7.4 Assuming Borrower agrees that it shall not amend its
partnership agreement and shall not transfer any general partnership interests
therein without the prior written consent of Lender.
7.5 Nothing in this Agreement or in any of the Loan Documents, as
modified herein, shall constitute Original Borrower, Assuming Borrower and
Lender as partners, joint venturers, or tenants in common, or require Lender to
participate in any costs, liabilities, expenses or losses of Original Borrower
or Assuming Borrower. The only relationship between Original Borrower,
Assuming Borrower and Lender is that of borrower and secured lender. Original
Borrower, Assuming Borrower and Lender agree that Assuming Borrower remains
solely in control of the Property, and that subject to the limitations set
forth in the Loan Documents, as modified herein, Assuming Borrower determines
the business plan for, and employment, management, leasing and operating
directions and decisions for, the Property and Assuming Borrower, and Lender
shall not in any event be deemed to be a "mortgagee-in-possession" as a result
of this Agreement.
7.6 Assuming Borrower shall grant to Lender a prior and valid
security interest in any and all accounts required to be established pursuant
to this Agreement, and the Loan Documents, as modified herein, shall constitute
a security agreement upon said accounts. Assuming Borrower agrees to execute
and deliver to Lender UCC financing statements evidencing such security
interest.
7.7 The management agreement of CB Commercial Real Estate Group,
Inc. ("Manager"), the current manager of the Property, shall be in form and
content acceptable to Lender, shall be subordinated to the lien of the Loan
Documents, as modified herein, and, if required by Lender, shall be
collaterally assigned to Lender with the consent of Manager. Manager's right
to receive a management fee shall be subordinate and inferior to Lender's right
to receive payments under the Loan.
SECTION 8. CONDITIONS PRECEDENT.
8.1 The modifications set forth in this Agreement shall not be
binding upon Lender and Lender shall have the right to proceed with the
Trustee's Sale until each of the following conditions precedent are satisfied:
(a) Delivery to Lender of:
(i) Duly executed original of this Agreement.
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<PAGE> 7
(ii) Duly executed Memorandum of this Agreement.
(iii) Duly executed UCC-1s.
(iv) Duly executed Certification and Agreement
as to Ground Lease.
(v) An opinion of Assuming Borrower's counsel
acceptable to Lender and covering the following matters:
(1) the due authorization, execution,
validity, binding effect and enforceability of this
Agreement and all documents executed in connection
with this Agreement in accordance with their terms;
(2) the Note as modified herein
complies with applicable usury laws;
(3) the due organization and valid
legal existence of Assuming Borrower and General
Partner; and
(4) such other matters incident to the
transactions contemplated by this Agreement as Lender
may reasonably request.
(vi) Copy of Partnership Agreement of Assuming
Borrower, and all amendments thereto and restatements thereof,
certified by its general partner as being true, correct and
complete as of the date of this Agreement.
(vii) Non-Corporate Authorizations and such other
documents as Lender may require relating to the existence and
good standing of Original Borrower and Assuming Borrower, and
the authority of any person executing this Agreement or other
documents on behalf of Original Borrower and Assuming
Borrower.
(viii) A commitment from the title insurance
company that issued the Lender's ALTA extended coverage title
insurance policy in connection with the Note (the "Title
Policy") to issue a No. 10 endorsement, in form satisfactory
to Lender, to the Title Policy, insuring that the Deed of
Trust, as modified hereby, continues to be a first lien upon
the Property, as security for the Note, as modified herein,
subject only to those exceptions contained in the Title Policy
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<PAGE> 8
and to such additional exceptions as Lender has approved or
may specifically approve in writing.
(ix) A Phase I environmental audit of the Property
(including a detailed report on the asbestos contained
therein, if any) performed by a consultant and in form and
scope satisfactory to Lender. If, based on the environmental
audit, Lender determines that additional testing or
investigation should be performed on the Property, such
testing or investigation shall be performed prior to the
closing of the modifications contained herein. The
modifications contained herein shall be subject to Lender's
satisfaction that the Property is free of hazardous materials
and wastes.
(x) Evidence reasonably acceptable to Lender that
Assuming Borrower is solvent.
(xi) Evidence reasonably acceptable to Lender that
hazard, liability and rental interruption insurance in such
amounts and with such companies as Lender may require is in
force and effect for the Property.
(xii) Evidence reasonably acceptable to Lender that
all real estate taxes and assessments which are due and
payable with respect to the Property have been paid.
(b) Payment by Assuming Borrower of:
(i) $505,092.46 to be applied to the Outstanding
Principal Balance of the Note, plus all accrued and unpaid
interest under the Note from November 1, 1996 to the Effective
Date.
(ii) A Modification Fee in the amount of
$14,000.00.
(iii) All out-of-pocket costs, expenses, fees and
charges occurring in connection with or as a result of the
negotiation, preparation, and approval of this Agreement, and
the recording of the Memorandum, including, without
limitation, all attorneys' fees and title insurance premiums,
UCC searches, escrow, recording, and environmental
consultants' and appraisal fees and other expenses incurred by
or on behalf of Lender.
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<PAGE> 9
SECTION 9. GENERAL.
9.1 Notwithstanding anything to the contrary contained herein or
in any other instrument executed by Original Borrower, Assuming Borrower or
Lender, or in any other action or conduct undertaken by Original Borrower,
Assuming Borrower or Lender on or before the date hereof, the agreements,
covenants and provisions contained herein and in the agreements entered into
and executed by the parties as herein provided shall constitute the only
evidence of Lender's consent to modify the terms and provisions of the Note,
the Deed of Trust or any other Loan Documents. Accordingly, no express or
implied consent to any further modifications involving any of the matters set
forth in this Agreement or otherwise shall be inferred or implied by Lender's
execution of this Agreement. Further, Lender's execution of this Agreement
shall not constitute a waiver (either express or implied) of the requirement
that any further modification of the Note, the Deed of Trust or any other Loan
Document shall require the express written approval of Lender; no such approval
(either express or implied) has been given as of the date hereof.
9.2 Each provision of this Agreement and each provision of the
Note and all of the other Loan Documents, as modified hereby, shall be
interpreted so as to be effective and valid under applicable law, but if any
such provision shall in any respect be ineffective or invalid under such law,
such ineffectiveness or invalidity shall not affect the remainder of such
provision or the remaining provisions of such document. This Agreement shall
be effective as of the Effective Date.
9.3 This Agreement shall not be construed more strictly against
Lender merely by virtue of the fact that the same has been prepared by Lender
or its counsel, it being recognized that Original Borrower, Assuming Borrower
and Lender have contributed substantially and materially to the preparation of
this Agreement, and Assuming Borrower and Lender each acknowledges and waives
any claim contesting the existence and the adequacy of the consideration given
by the other party hereto in entering into this Agreement.
9.4 To the extent the terms of this Agreement conflict with the
terms of the Note, the Deed of Trust or any of the other Loan Documents, the
terms of this Agreement shall control.
9.5 This Agreement is to be construed and enforced according to
the laws of the State of Arizona, without regard to its conflict-of-laws
principles. In any action brought under or arising out of this Agreement or
any of the Loan Documents modified hereby, Original Borrower and Assuming
Borrower each hereby consents to the jurisdiction of any competent court within
the State of Arizona and hereby consents to service of process by any means
authorized by Arizona law.
9.6 This Agreement may be executed in any number of counterparts,
each of which counterparts shall for all purposes be deemed to be an original,
but all of which counterparts shall together constitute but one and the same
Agreement.
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<PAGE> 10
9.7 All notices to be served pursuant hereto shall be deemed
properly delivered personally or by Federal Express or comparable "over-night"
courier service (which shall be deemed received on the date of delivery
thereof), or served by United States certified or registered mail, postage
prepaid (which shall be deemed received on the third business day following the
postmark date thereof), to Original Borrower, Assuming Borrower and Lender at
the addresses set forth below or to such other addresses as said parties may
direct in writing:
If to Original Borrower, at:
George I. Brown
19 Hale Malia Place
Lahaina, Hawaii 96761
If to Assuming Borrower, at:
Park Northern/Centennial Partners, L.P.
5847 San Felipe, Suite 850
Houston, Texas 77057
Attention: Kenneth A. McGaw
If to Lender, at:
The Travelers Insurance Company
2121 North California Boulevard, Suite 1000
Walnut Creek, California 94596-8161
Attention: Guy McComb
and
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183-2030
Attention: Real Estate Investments
With a copy to:
Streich Lang, P.A.
Renaissance One
Two N. Central Avenue
Phoenix, Arizona 85004-2391
Attention: David L. Johnson
9.8 All words herein which are expressed in the neuter gender
shall be deemed to include the masculine, feminine and neuter genders and any
word herein which is expressed in the
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singular or plural shall be deemed, whenever appropriate in the context, to
include the plural and the singular.
9.9 This Agreement is made for the sole protection and benefit of
the parties hereto, and no other person or entity shall have any right of
action hereon.
9.10 Notwithstanding this or any prior forbearance, actual or
implied, of any nature by Lender, time is hereby declared to be of the essence
hereof, of the Note and of all Loan Documents, and Lender requires, and
Original Borrower and Assuming Borrower each agrees to, strict performance of
each and every covenant, condition, provision and agreement hereof, of the Note
and of all Loan Documents.
9.11 Except as provided herein, this Agreement shall be binding
upon and shall inure to the benefit of Original Borrower, Assuming Borrower and
Lender and their respective successors, assigns, grantees, heirs, executors,
personal representatives, and administrators.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto in manner and form sufficient to bind them, as of the day and year first
above written.
WITNESS/ATTEST: LENDER:
THE TRAVELERS INSURANCE
COMPANY, a Connecticut corporation
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By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
WITNESS/ATTEST: ORIGINAL BORROWER:
/s/ GEORGE I. BROWN
- -------------------------------- --------------------------------------
GEORGE I. BROWN, a single man
/s/ GEORGE I. BROWN
--------------------------------------
GEORGE I. BROWN, as Trustee of the
Waipio Trust II
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WITNESS/ATTEST: ASSUMING BORROWER:
PARK NORTHERN/CENTENNIAL PARTNERS, L.P.,
a Texas limited
partnership
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BY: UNITED INVESTORS REALTY TRUST, a
Texas real estate investment trust,
its general partner
By: /s/ LEWIS H. SANDLER
-------------------------------
Name: Lewis H. Sandler
-----------------------------
Title: President and CEO
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STATE OF _____________ )
) ss.
County of ___________ )
The foregoing instrument was acknowledged before me this _____ day of
_____________, 1996, by ____________________, the ______________________ of The
Travelers Insurance Company, a Connecticut corporation, on behalf of that
corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-------------------------------
Notary Public
My commission expires:
______________________
STATE OF _____________ )
) ss.
County of ____________ )
The foregoing instrument was acknowledged before me this _____ day of
_____________, 1996, by George I. Brown, a single man.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-------------------------------
Notary Public
My commission expires:
______________________
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<PAGE> 14
STATE OF _____________ )
) ss.
County of ____________ )
The foregoing instrument was acknowledged before me this _____ day of
_____________, 1996, by George I. Brown, as Trustee of the Waipio Trust II.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
----------------------------
Notary Public
My commission expires:
______________________
STATE OF _____________ )
) ss.
County of _____________ )
The foregoing instrument was acknowledged before me this _____ day of
___________, 1996, by ________________________, a ______________________ of
UNITED INVESTORS REALTY TRUST, a Texas real estate investment trust, General
Partner of PARK NORTHERN/CENTENNIAL PARTNERS, L.P., a Texas limited partnership,
on behalf of that partnership.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
----------------------------
Notary Public
My commission expires:
______________________
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<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE
$3,800,000.00 Houston, Texas
As of July 31, 1995
FOR VALUE RECEIVED, PFL-290 LIMITED PARTNERSHIP, a Texas limited
partnership, as maker, having its principal place of business at 6800 Texas
Commerce Tower, Houston, Texas 77002 ("Borrower"), hereby unconditionally
promises to pay to the order of RFG FINANCIAL, INC., a New York corporation, as
payee, having its principal place of business at 767 Fifth Avenue, New York,
New York 10153 ("Lender"), or at such other place as the holder hereof may from
time to time designate in writing, the principal sum of THREE MILLION EIGHT
HUNDRED THOUSAND AND 00/100 Dollars ($3,800,000.00), in lawful money of the
United States of America with interest thereon to be computed from the date of
this Note at the Applicable Interest Rate (defined below), and to be paid in
installments as follows:
1. PAYMENT TERMS
(a) A payment of interest only on August 1, 1995;
(b) A constant payment of $32,542.51 on the first day of
September, 1995 and on the first day of each calendar
month thereafter up to and including the first day of
July, 2005;
each of the payments to be applied as follows:
(i) First, to the payment of interest computed at the
Applicable Interest Rate.
(ii) The balance applied toward the reduction of the
principal sum;
and the balance of the principal sum and all accrued but unpaid interest thereon
shall be due and payable on the first day of August, 2005 (the
"Maturity Date"). Interest on the principal sum of this Note shall be
calculated on the basis of a three hundred sixty (360) day year based on twelve
(12) thirty (30) day months except that interest due and payable for a period
of less than a full calendar month shall be calculated by multiplying the
actual number of days elapsed in such period by a daily rate based on said
360-day year unless the Highest Lawful Rate (hereinafter defined) would thereby
be exceeded in which event, to the extent necessary to avoid exceeding the
Highest Lawful Rate, interest shall be computed on the basis of the actual
number of days elapsed in the applicable 365 or 366 calendar year in which such
interest accrued. The term "Loan Year" as used in this Note shall mean each
complete twelve (12) month period after the first day of the first full
calendar
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month following the date hereof (or the date hereof if the date hereof is the
first day of a calendar month).
2. INTEREST
The term "Applicable Interest Rate" as used in the Security Instrument
(defined below) and this Note shall mean a rate per annum from the date of this
Note through and including the Maturity Date of the lesser of nine and
one-quarter percent (9.25%) or the Highest Lawful Rate. The term "Highest
Lawful Rate" as used herein shall mean, on any day, the maximum nonusurious
interest rate stated on a per annum basis that at any time or from time to time
may be contracted for, taken, reserved, charged or received on the Debt
(defined below) under applicable federal or Texas law, whichever permits the
Highest Lawful Rate that are presently in effect or, to the extent allowed by
law, under such applicable laws that may hereafter be in effect and that allow
a higher maximum nonusurious interest rate than applicable laws now allow. On
each day, if any, that Chapter 1 of the Texas Credit Code establishes the
Highest Lawful Rate, the same shall be the "Indicated Rate Ceiling" as defined
herein.
3. DEFAULT AND ACCELERATION
(a) The whole of the principal sum of this Note, (b) interest,
default interest, late charges and other sums, as provided in this Note, the
Security Instrument or the Other Security Documents (defined below), (c) all
other monies agreed or provided to be paid by Borrower in this Note, the
Security Instrument or the Other Security Documents, (d) all sums advanced
pursuant to the Security Instrument to protect and preserve the Property
(defined below) and the lien and the security interest created thereby, and (e)
all sums advanced and costs and expenses incurred by Lender in connection with
the Debt (defined below) or any part thereof, any renewal, extension, or change
of or substitution for the Debt or any part thereof, or the acquisition or
perfection of the security therefor, whether made or incurred at the request of
Borrower or Lender (all the sums referred to in (a) through (e) above shall
collectively be referred to as the "Debt") shall without notice become
immediately due and payable at the option of Lender if any payment required in
this Note is not paid prior to the tenth (10th) day after the date when due or
on the Maturity Date or on the happening of any other default, after the
expiration of any applicable notice and grace periods, herein or under the
terms of the Security Instrument or any of the Other Security Documents
(collectively, an "Event of Default").
4. DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an Event of
Default, Lender shall be entitled to receive and Borrower shall pay interest on
the entire unpaid principal sum at a rate equal to the lesser of (a) five
percent (5 %) plus the Applicable Interest Rate and (b) the Highest Lawful Rate
(the "Default Rate"). The Default Rate shall be computed from the
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occurrence of the Event of Default until the earlier of the date upon which the
Event of Default is cured or the date upon which the Debt is paid in full.
Interest calculated at the Default Rate shall be added to the Debt, and shall
be deemed secured by the Security Instrument. This clause, however, shall not
be construed as an agreement or privilege to extend the date of the payment of
the Debt, nor as a waiver of any other right or remedy accruing to Lender by
reason of the occurrence of any Event of Default.
5. PREPAYMENT
(a) The principal balance of this Note may not be prepaid in whole
or in part prior to the sixth Loan Year. During the sixth Loan Year or any
time thereafter, provided no Event of Default exists, the principal balance of
this Note may be prepaid in whole, or in part, upon but not less than thirty
(30) days and not more than forty (40) days prior written notice to Lender
specifying the date on which prepayment is to be made (the "Prepayment Date")
and upon payment of (i) accrued interest to and including the Prepayment Date
together with a payment of all interest which would have accrued on the
principal balance of this Note to and including the first day of the calendar
month immediately following the Prepayment Date, if such prepayment occurs on a
date which is not the first day of a month (the "Shortfall Interest Payment"),
(ii) (A) in the event of a partial prepayment, all other sums then due under
this Note, the Security Instrument and the Other Security Documents, and (B) in
the event of a prepayment in whole, all other sums due under this Note, the
Security Instrument and the Other Security Documents, and (iii) the Prepayment
Consideration (defined below). Notwithstanding the foregoing, Borrower shall
have the additional privilege to prepay the entire principal balance of this
Note during the sixty (60) calendar days immediately preceding the Maturity
Date without any fee or consideration for such privilege provided (i) no Event
of Default exists, (ii) written notice of such prepayment is given by Borrower
to Lender in the manner set forth above and (iii) Borrower shall be required to
make the Shortfall Interest Payment, if applicable.
(b) The term "Prepayment Consideration" shall mean an amount equal
to the present value of a series of payments each equal to the Payment
Differential (hereinafter defined) and payable on the first day of each month
("Monthly Payment Date") from the date of prepayment through and including the
Maturity Date discounted at the Reinvestment Yield (hereinafter defined)
(monthly compounding) for the number of months remaining from the date of
prepayment to each such Monthly Payment Date. The term "Reinvestment Yield" as
used herein shall be equal to the yield on the U.S. Treasury issue (primary
issue) with a maturity date closest to, but not earlier than, the Maturity Date
with such yield being based on the bid price for such issue as published in The
Wall Street Journal in New York City, New York on a date fourteen (14) days
prior to the date of prepayment set forth in the prepayment notice (or, if such
bid price is not published on that date, the next preceding date
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<PAGE> 4
on which such bid price is so published and converted to a monthly compounded
nominal yield. In the event The Wall Street Journal ceases publication or
ceases to publish the bid price for such U.S. Treasury issues, Lender shall
select a comparable publication to determine such bid price. Absent manifest
error, the determination of the Reinvestment Yield and the calculation of the
Prepayment Consideration by Lender shall be binding on Borrower. The term
"Payment Differential" as used herein shall be equal to the product of (y) a
fraction, the numerator of which is the excess, if any, of a per annum interest
rate equal to the Applicable Interest Rate over the Reinvestment Yield
(expressed as a decimal percentage), and the denominator of which is 12, and
(z) the portion of the principal balance of this Note being prepaid on the
Prepayment Date.
(c) If any notice of prepayment is given under this Section 5, the
principal balance of this Note and the other sums required under this
prepayment section shall be due and payable on the Prepayment Date. Lender
shall not be obligated to accept any prepayment of the principal balance of
this Note unless it is accompanied by the prepayment fees and the Prepayment
Consideration due in connection therewith: Notwithstanding anything contained
in this Section 5 to the contrary, provided no Event of Default exists, no
prepayment fee shall be due in connection with a complete or partial prepayment
resulting from the application of insurance proceeds or condemnation awards
pursuant to Sections 3.3 and 3.6 of the Security Instrument, but Borrower shall
be required to make the Shortfall Interest Payment, if applicable.
(d) If following the occurrence of any Event of Default, Borrower
shall tender payment of an amount sufficient to satisfy the entire Debt at any
time prior to a judicial or nonjudicial foreclosure sale or sale pursuant to a
power of sale of any Property and prior to the time prepayment of the principal
balance of this Note is permitted hereunder, Borrower shall, in addition to the
entire Debt, also pay to Lender an amount equal to the sum of (i) interest
calculated as set forth in Subsection 5(a)(i) including the Shortfall Interest
Payment, (ii) prepayment fees equal to the present value of all interest
payments which would have accrued on the principal balance of this Note
outstanding as of the date of such tender at the Applicable Interest Rate from
the date of such tender to the first day prepayment is permitted pursuant to
this Note discounted at a rate equal to the Treasury Rate based on U.S.
Treasury constant maturities with maturity dates (one longer and one shorter)
most nearly approximating the date upon which prepayment is first permitted
pursuant to this Note, and (iii) a prepayment consideration equal to the
Prepayment Consideration which would have been payable to Lender pursuant to
Subsection 5(a)(iii) as of the first day of the sixth Loan Year based on the
Treasury Rate in effect as of the date of such tender. If at the time of such
voluntary or involuntary prepayment of this Note, prepayment of the principal
balance of the Loan is permitted, Borrower shall, in addition to the entire
Note, also pay to Lender the Shortfall Interest Payment, and the applicable
prepayment fees and the Prepayment Consideration set forth in Subsection 5(b)
above. An involuntary prepayment shall include any prepayment made in
connection with reinstatement of the Security Instrument under foreclosure
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proceedings, or exercise of a power of sale, any right of redemption exercised
by Borrower or any other party having a right to redeem or prevent foreclosure,
or which is made or occurs upon the consummation of any sale in foreclosure or
under exercise of a power of sale.
(e) Any permitted partial prepayments may be made only in
multiples satisfactory to Lender. Any permitted partial prepayment shall be
applied to the installments of principal last due under this Note and shall not
release Borrower from the obligation to pay the installments of interest and/or
principal next becoming due under this Note.
6. SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "Security Instrument" as used in this Note shall mean the
Deed of Trust and Security Agreement dated the date hereof in the principal sum
of $3,800,000.00 given by Borrower to (or for the benefit of) Lender covering
the fee estate of Borrower in certain premises (the "Property") located in
Harris County, State of Texas, and other property, as more particularly
described therein and intended to be duly recorded in said County. The term
"Other Security Documents" as used in this Note shall mean all and any of the
documents other than this Note or the Security Instrument now or hereafter
executed by Borrower and/or others and by or in favor of Lender, which wholly
or partially secure or guarantee payment of this Note. Whenever used. the
singular number shall include the plural, the plural number shall include the
singular, and the words "Lender" and "Borrower" shall include their respective
successors, assigns, heirs, executors and administrators.
All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents are hereby made part of this Note
to the same extent and with the same force as if they were fully set forth
herein.
7. SAVINGS CLAUSE
It is the intention of the parties hereto to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under any such applicable law, then, and in that event,
notwithstanding anything to the contrary in this Note, or in any other
instrument or agreement entered into in connection with or as security for this
Note, whether now existing or hereafter arising and whether written or oral, it
is agreed as follows:
(i) the aggregate of all interest and any other charges
constituting interest, or adjudicated as constituting interest, and that is
contracted for, charged or received under this Note, or under any of the
aforesaid instruments or agreements or otherwise in connection with this Note
(whether designated as interest, fees, late charges, payments or otherwise)
shall under no circumstances exceed the maximum amount of interest permitted by
any such applicable law and
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any excess shall be canceled automatically and, if theretofore paid, shall be
credited on this Note by Lender (or, if this Note has been paid in full,
refunded to Borrower); and
(ii) in the event that the maturity of this Note is
accelerated by reason of an Event of Default under this Note, or otherwise,
including, but not limited to voluntary prepayment by Borrower, then such
consideration that constitutes interest may never include more than the maximum
rate of interest permitted by any such applicable law computed from the dates
of each advance of the loan proceeds outstanding until payment. If from any
circumstance Lender shall ever receive interest or any other charges
constituting interest, the amount, if any, which would exceed the maximum rate
of interest permitted by such applicable law shall be applied to the reduction
of the principal amount owing on this Note or on account of any other principal
indebtedness of Borrower to Lender, and not to the payment of interest. If such
excessive interest exceeds the unpaid balance of principal hereof and such
other indebtedness, the amount of such excessive interest which exceeds the
unpaid balance of principal hereof and such other indebtedness shall be
refunded to Borrower.
All sums paid or agreed to be paid to Lender for the use, forbearance
or detention of the indebtedness evidenced hereby shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
actual rate or amount of interest on account of any such indebtedness is
uniform throughout the term thereof and does not exceed the applicable usury
ceiling.
8. LATE CHARGE
If any sum payable under this Note is not paid prior to the tenth
(10th) day after the date on which it is due, Borrower shall pay to Lender upon
demand an amount equal to the lesser of five percent (5 %) of the unpaid sum or
the maximum amount permitted by applicable law to defray the expenses incurred
by Lender in handling and processing the delinquent payment and to compensate
Lender for the loss of the use of the delinquent payment and the amount shall
be secured by the Security Instrument and the Other Security Documents.
9. NO ORAL CHANGE
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
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10. JOINT AND SEVERAL LIABILITY
If Borrower consists of more than one person or party, the obligations
and liabilities of each person or party shall be joint and several.
11. WAIVERS
Borrower and all others who may become liable for the payment of all
or any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment and
all other notices of any kind, except as set forth in the following paragraph
hereof. No release of any security for the Debt or extension of time for
payment of this Note or any installment hereof, and no alteration, amendment or
waiver of any provision of this Note, the Security Instrument or the Other
Security Documents made by agreement between Lender or any other person or
party shall release, modify, amend, waive, extend, change, discharge, terminate
or affect the liability of Borrower, and any other person or entity who may
become liable for the payment of all or any part of the Debt, under this Note,
the Security Instrument or the Other Security Documents. No notice to or demand
on Borrower shall be deemed to be a waiver of the obligation of Borrower or of
the right of Lender to take further action without further notice or demand as
provided for in this Note the Security Instrument or the Other Security
Documents. If Borrower is a partnership, the agreements herein contained shall
remain in force and applicable, notwithstanding any changes in the individuals
comprising the partnership, and the term "Borrower," as used herein, shall
include any alternate or successor partnership, but any predecessor partnership
and their partners shall not thereby be released from any liability. If
Borrower is a corporation, the agreements contained herein shall remain in full
force and applicable notwithstanding any changes in the shareholders
comprising, or the officers and directors relating to, the corporation, and the
term "Borrower" as used herein, shall include any alternative or successor
corporation, but any predecessor corporation shall not be relieved of liability
hereunder. (Nothing in the foregoing sentence shall be construed as a consent
to, or a waiver of, any prohibition or restriction on transfers of interests in
such partnership which may be set forth in the Security Instrument or any Other
Security Document.)
Notwithstanding the foregoing, Borrower shall be entitled to the
notices and cure periods as set forth in Section 10.1 of the Security
Instrument.
12. TRANSFER
Upon the transfer of this Note, Borrower hereby waiving notice of any
such transfer, Lender may deliver all the collateral mortgaged, granted,
pledged or assigned pursuant to the Security Instrument and the Other Security
Documents, or any part thereof, to the transferee who shall thereupon become
vested with all the rights herein or under applicable law given to Lender with
respect thereto, and Lender shall thereafter forever be relieved and fully
discharged from
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any liability or responsibility in the matter; but Lender shall retain all
rights hereby given to it with respect to any liabilities and the collateral
not so transferred.
13. WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN
EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE,
THIS NOTE, THE SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS
OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN
CONNECTION THEREWITH.
14. EXCULPATION
(a) Except as otherwise provided herein, Lender shall not enforce
the liability and obligation of Borrower to perform and observe the obligations
contained in this Note, the Security Instrument or the Other Security Documents
by any action or proceeding wherein a money judgment shall be sought against
Borrower or its partners, except that Lender may bring a foreclosure action,
action for specific performance or other appropriate action or proceeding to
enable Lender to enforce and realize upon this Note, the Security Instrument,
the Other Security Documents, and the interest in the Property, the Rents (as
defined in the Security Instrument) and any other collateral given to Lender
created by this Note, the Security Instrument and the Other Security Documents;
provided, however, that any judgment in any such action or proceeding shall be
enforceable against Borrower or its partners only to the extent of Borrower's
interest in the Property, in the Rents and in any other collateral given to
Lender. Lender, by accepting this Note and the Security Instrument, agrees that
it shall not, except as otherwise provided in Section 11.10 of the Security
Instrument, sue for, seek or demand any deficiency judgment against Borrower or
its partners in any such action or proceeding, under or by reason of or under
or in connection with this Note, the Other Security Documents or the Security
Instrument. The provisions of this Section shall not, however, (i) constitute a
waiver, release or impairment of any obligation evidenced or secured by this
Note, the Other Security Documents or the Security Instrument; (ii) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under the Security Instrument; (iii) impair the
rights of Trustee (as defined in the Security Instrument) and Lender from
exercising their right to sell the Property pursuant to the power of sale
granted in the Security Instrument; (iv) affect the validity or enforceability
of any indemnity, guaranty, master lease or similar instrument made in
connection with this Note, the Security Instrument, or the Other Security
Documents; (v) impair the right of Lender to obtain the appointment of a
receiver; (vi) impair the enforcement of the Assignment of Leases and Rents
executed in connection herewith; or (vii) impair the right of Lender to enforce
the provisions of Sections 13.2, 13.3 and 13.4 of the Security Instrument.
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<PAGE> 9
(b) Notwithstanding the provisions of this Section 14 to the
contrary, Borrower shall be personally liable to Lender for the Losses (as
defined in the Security Instrument) it incurs due to: (i) fraud or intentional
misrepresentation by Borrower, its partners or Guarantor (as deemed in the
Security Instrument) or any of their respective employees, officers, directors
or counsel, or by the appraiser, the environmental consultant or the
engineering company who have prepared and delivered to Lender, respectively,
the appraisal, the Environmental Report (as defined in the Security Instrument)
and the engineering report in connection with the execution and the delivery of
this Note, the Security Instrument or the Other Security Documents; (ii)
Borrower's misapplication or misappropriation of Rents received by Borrower
after written notice to Borrower of the occurrence of an Event of Default;
(iii) Borrower's misapplication or misappropriation of tenant security deposits
or Rents collected in advance; (iv) the misapplication or the misappropriation
of insurance proceeds or condemnation awards; (v) Borrower's failure to pay
Taxes (as defined in the Security Instrument), Insurance Premiums (as defined
in the Security Instrument), Other Charges (as defined in the Security
Instrument) (except to the extent that sums sufficient to pay such amounts have
been deposited in escrow with Lender pursuant to the terms of the Security
Instrument), charges for labor or materials or other charges at the time of
foreclosure that can create liens on the Property; (vi) Borrower's failure to
return or to reimburse Lender for all Personal Property (as defined in the
Security Instrument) taken from the Property by or on behalf of Borrower and
not replaced with Personal Property of the same utility and of the same or
greater value; (vii) any act of actual waste or arson by Borrower, any
principal, affiliate or general partner thereof or by any Indemnitor (as
defined in the Security Instrument) or Guarantor; (viii) any fees or
commissions paid by Borrower to any principal, affiliate or general partner of
Borrower, any Indemnitor or any Guarantor in violation of the terms of this
Note, the Security Instrument or the Other Security Documents; or (ix) Borrower
s failure to comply with the provisions of Section 4.2 or 7.1, or Article 12 or
13 of the Security Instrument.
(c) Notwithstanding the foregoing, the agreement of Lender not to
pursue recourse liability as set forth in Subsection (a) above SHALL BECOME
NULL AND VOID and shall be of no further force and effect (1) in the event of
Borrower's default under Section 3.11, 4.3, 8.1, 8.2, 8.3 or 8.4, of the
Security Instrument, (2) if the Property or any part thereof shall become an
asset in (i) a voluntary bankruptcy or insolvency proceeding, or (ii) an
involuntary bankruptcy or insolvency proceeding which has not been instituted
by Lender and which is not dismissed within ninety (90) days of filing or (3)
if an Event of Default described in Subsection 10.1(a), (b), (c), (o) or (t) of
the Security Instrument occurs and continues and Lender, its affiliate or
designee fails to obtain title to the Property pursuant to an exercise of a
power of sale, a consensual foreclosure or a conveyance in lieu of foreclosure,
within one hundred and eighty (180) days of notice to Borrower from Lender or
its agent of such Event of Default by reason of Borrower's or any Guarantor's
impeding or restricting any action to enforce the Security Instrument or
failing to deliver to Lender, its affiliate or designee a deed to the Property
in lieu of foreclosure which conveys title to the Property free and clear of
all liens, encumbrances and other title exceptions other than those, if any, to
which the Security Instrument is subject and subordinate.
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<PAGE> 10
(d) Nothing herein shall be deemed to be a waiver of any right
which Lender may have under Sections 506(a), 506(b), 1111(b) or any other
provisions of the U.S. Bankruptcy Code to file a claim for the full amount of
the indebtedness secured by the Security Instrument or to require that all
collateral shall continue to secure all of the indebtedness owing to Lender in
accordance with this Note, the Security Instrument and the Other Security
Documents.
15. AUTHORITY
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security Instrument and the Other Security Documents
and that this Note, the Security Instrument and the Other Security Documents
constitute valid and binding obligations of Borrower.
16. APPLICABLE LAW
This Note shall be deemed to be a contract entered into pursuant to
the laws of the State of New York and shall in all respects be governed,
construed, applied and enforced in accordance with applicable federal law and
the laws of the State of New York, without reference or giving effect to any
choice of law doctrine.
17. VENUE AND JURISDICTION
Borrower agrees to submit to personal jurisdiction in the State of New
York in any action or proceeding arising out of this Note. In furtherance of
such agreement, Borrower hereby agrees and consents that without limiting other
methods of obtaining jurisdiction, personal jurisdiction over Borrower in any
such action or proceeding may be obtained within or without the jurisdiction of
any court located in New York and that any process or notice of motion or other
application to any such court in connection with any such action or proceeding
may be served upon Borrower by registered or certif~ed mail to, or by personal
service at, the last known address of Borrower, whether such address be within
or without the jurisdiction of any such court. Borrower hereby agrees that the
venue of any litigation arising in connection with the indebtedness, or in
respect of any of the obligations of Borrower under this Note, shall, to the
extent permitted by law, be in New York County.
18. COUNSEL FEES
In the event that it should become necessary to employ counsel to
collect the Debt or to protect or foreclose the security therefor, Borrower
also agrees to pay all reasonable fees and expenses of Lender, including,
without limitation, reasonable attorney's fees for the services of such counsel
whether or not suit be brought.
- 10 -
<PAGE> 11
19. NOTICES
All notices or other written communications hereunder shall be deemed
to have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged, (ii) one (1) Business Day
(defined below) after having been deposited for overnight delivery with any
reputable overnight courier service, or (iii) three (3) Business Days after
having been deposited in any post office or mail depository regularly
maintained by the U.S. Postal Service and sent by registered or certified mail.
postage prepaid, addressed as follows:
If to Borrower: PFL-290 Limited Partnership
6800 Texas Commerce Tower
Houston, Texas 77002
Attention: Mr. Joseph W. Peacock and Mr. Thomas
V. Grieco
Facsimile No.: (713) 222-1614
With a copy to: Liddell, Sapp, Zivley, Hill & Lagoon, L.L.P.
600 Travis, 32nd Floor
Houston, Texas 77002
Attention: Stephen Jacobs, Esq.
Facsimile No.: (713) 223-3717
If to Lender: RFG Financial, Inc.
767 Fifth Avenue, 28th Floor
New York. New York 10153
Attention: Mr. Barry E. Breeman
Facsimile No.: (212) 421-4630
With a copy to: Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Joseph Philip Forte, Esq.
Facsimile No.: (212) 912-7751
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
"Business Day" shall mean a day upon which commercial banks are not
authorized or required by law to close in New York, New York.
- 11 -
<PAGE> 12
20. ENTIRE AGREEMENT
THIS NOTE, THE SECURITY INSTRUMENT AND THE OTHER SECURITY DOCUMENTS EMBODY THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LENDER AND THE OTHER RESPECTIVE
PARTIES HERETO AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND
THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF. Borrower has duly executed this Note as of the day
and year first above written.
PFL-290 LIMITED PARTNERSHIP, a Texas limited
partnership
By: UNITEG PFL-290, INC., a Texas
corporation and its general partner
By: /s/ Joseph W. Peacock
------------------------------------
Joseph W. Peacock
President
Pay to the order of
__________________________________
without recourse
RFG FINANCIAL, INC.,
a New York corporation
By: /s/ Barry E. Breeman
-------------------------------
Barry E. Breeman
President
- 12 -
<PAGE> 13
STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on July 28, 1995, by JOSEPH
W. PEACOCK, president of UNITEG PFL-290 INC., a Texas corporation which is the
sole general partner of PFL-290 LIMITED PARTNERSHIP, a Texas limited
partnership, on behalf of said corporation and said limited partners.
/s/ Donna L. Egan
------------------------------
Notary Public in and
for the State of Texas
My Commission expires:
9/24/96 Donna L. Egan
- --------------------- ------------------------------
Print Name of Notary
- 13 -
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
U.S. $1,300, 000 June 10, 1992
FOR VALUE RECEIVED, and at the times hereinafter specified, HEDWIG II,
INC., a Texas corporation ("Maker"), whose address is c/o Uniteg Management
Company, 6800 Texas Commerce Tower, Houston, Texas 77002, hereby promises to
pay to the order of Sun Life Insurance Company of America, a Maryland
corporation (hereinafter referred to, together with each subsequent holder
hereof, as "Holder"), at 11601 Wilshire Boulevard, Los Angeles, California
90025-1748, or at such other address as may be designated from time to time
hereafter by any Holder, the principal sum of ONE MILLION THREE HUNDRED
THOUSAND and no/100ths DOLLARS ($1,300,000.00), or so much thereof as shall
have been disbursed to or for the benefit of Maker, together with interest on
the principal balance outstanding from time to time, as hereinafter provided,
in lawful money of the United States of America.
The balance of principal outstanding from time to time under this
promissory note (this "Note") shall bear interest at the rate of 10.75% per
annum. Interest only shall be payable on July 1, 1992, in arrears, for the
period from and including the date hereof through and including June 30, 1992.
Commencing on August 1, 1992, and on the first day of each month thereafter
through and including June 1, 1999, combined payments of principal and interest
shall be payable, in arrears, in the amount of $12,139.00 each. The entire
outstanding principal balance, together with all accrued and unpaid interest
and all other sums due hereunder shall be due and payable in full on June 10,
1999.
During the first two (2) years after the date of this Note, Maker
shall have no right to prepay all or any part of this Note. At any time after
the second anniversary of the date of this Note, Maker shall have the right to
prepay the full principal amount of this Note and all accrued but unpaid
interest hereon as of the date of prepayment, provided that (a) Maker gives not
less than thirty (30) days' prior written notice to Holder of Maker's election
to prepay this Note, and (b) Maker pays a prepayment premium to Holder equal to
the greater of (i) one percent (11) of the outstanding principal amount of this
Note multiplied by the quotient of the number of full months remaining to
maturity of this Note divided by the number of full months comprising the term
of this Note or (ii) the Present Value of this Note (as defined below), less
the amount of principal being prepaid, calculated as of the prepayment date.
Holder shall notify Maker of the amount and basis of determination of the
prepayment premium. Holder shall not be obligated to accept any prepayment of
the principal balance of this Note unless such prepayment is accompanied by the
applicable prepayment premium and all accrued interest and other sums due under
this Note. In no event shall Maker be permitted to make any partial
prepayments of this Note. Notwithstanding the foregoing to the contrary, Maker
shall have no obligation to pay a prepayment premium in connection with
application by Holder of insurance or condemnation proceeds to the principal
balance hereof as permitted in the Deed of Trust (as hereinafter defined).
The "Present Value of this Note" with respect to any prepayment of
this Note, as of any date, shall be determined by discounting all scheduled
payments of principal and interest remaining to maturity of this Note,
attributed to the amount being prepaid, at the Discount Rate. If prepayment
occurs on a date other than a regularly scheduled payment date, the actual
number of days remaining from the prepayment date to the next regularly
scheduled payment date will be used to discount
<PAGE> 2
within such period.
The "Discount Rate" is the rate which, when compounded monthly, is
equivalent to the Treasury Rate, when compounded semiannually.
The "Treasury Rate" is the semi-annual yield on the Treasury Constant
Maturity Series with maturity equal to the remaining weighted average life of
this Note, for the week prior to the prepayment date, as reported in Federal
Reserve Statistical Release H.15 - Selected Interest Rates, conclusively
determined by Holder on the prepayment date. The rate will be determined by
linear interpolation between the yields reported in Release H.15, if necessary.
In the event Release H.15 is no longer published, Holder shall select a
comparable publication to determine the Treasury Rate.
Holder shall not be obligated actually to reinvest the amount prepaid
in any treasury obligations as a condition precedent to receiving any
prepayment premium.
Whenever any payment to be made under this Note shall be stated to be
due on a Saturday, Sunday or public holiday or the equivalent for banks
generally under the laws of the State of Texas (any other day being a "Business
Day"), such payment may be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest.
The entire balance of principal, interest, and other sums due upon the
maturity hereof, by acceleration or otherwise, shall bear interest from the
date due until paid at the greater of (a) 18` per annum and (b) a per annum
rate equal to 5` over the prime rate (for corporate loans at large United
States money center commercial banks) published in The Wall Street Journal on
the first business day of each month in which a default occurs or continues
(the "Default Rate"); provided, however, that (i) notwithstanding any other
provision of this Note, interest at the Default Rate shall be based on the
actual number of days in the then-current calendar year (whether 365 or 366);
(ii) neither the Default Rate nor any other interest rate under this Note shall
exceed the maximum non-usurious interest rate permitted by applicable state or
Federal law (the "Maximum Rate"); and (iii) the foregoing provision concerning
interest at the Default Rate shall be subject to the Usury Savings Clause,
hereinafter set forth. In the event The Wall Street Journal is no longer
published or no longer publishes such prime rate, Holder shall select a
comparable reference.
If any payment under this Note is not made within five (5) days
following the date when due, interest shall accrue at the Default Rate from the
date such payment was due until payment is actually made.
In addition to interest as set forth herein, Maker shall pay Holder a
late charge equal to four percent (4%) of any amounts due under this Note in
the event any such amount is not paid within five (5) days following the date
when due. The provisions of the foregoing sentence shall be subject to the
Usury Savings Clause, hereinafter set forth.
All payments hereunder shall be applied first to the payment of late
charges, if any, then to the payment of prepayment premiums, if any, then to
the repayment of any sums advanced by Holder for the payment of any insurance
premiums, taxes, assessments, or other charges against the property
- 2 -
<PAGE> 3
securing this Note (together with interest thereon at the Default Rate from the
date of advance until repaid), then to the payment of accrued and unpaid
interest, and then to the reduction of principal.
Payments under this Note shall be payable in immediately available
funds without setoff, counterclaim or deduction of any kind, and shall be made
by electronic funds transfer from a bank account established and maintained by
Maker for such purpose.
This Note is secured by a Deed of Trust, Security Agreement, Fixture
Filing, Financing Statement and Assignment of Leases and Rents of even date
herewith granted by Maker for the benefit of the named Holder hereof (the "Deed
of Trust"), encumbering certain property located in Houston, Texas, as more
particularly described in such Deed of Trust. Capitalized terms used herein
and not otherwise defined shall have the meanings set forth in the Deed of
Trust.
Each of the following shall constitute an "Event of Default''
hereunder and under the Deed of Trust and each other document securing or
executed in connection with this Note (collectively, the "Loan Documents"): (a)
any failure to pay when due any sum hereunder or failure to perform any
covenant or agreement herein contained; (b) any default or Event of Default
under any of the Loan Documents; or (c) any default or Event of Default under a
promissory note in the original principal amount of $2,400,000 of even date
herewith made by Hedwig III Joint Venture, a Texas joint venture ("Hedwig"), to
the order of Holder (the "Hedwig Note"), a Deed of Trust, Security Agreement,
Fixture Filing, Financing Statement, and Assignment of Leases and Rents of even
date herewith executed by Hedwig for the benefit of Holder securing the Hedwig
Note, or any other document securing or executed in connection with the Hedwig
Note. Upon the occurrence of any such Event of Default, the entire balance of
principal, accrued interest, and other sums owing hereunder shall, at the
option of Holder, become at once due and payable without notice or demand.
Maker hereby certifies and declares that all acts, conditions and
things required to be done and performed and to have happened precedent to the
creation and issuance of this Note, and to constitute this Note the legal,
valid and binding obligation of Maker, enforceable in accordance with the terms
hereof, have been done and performed and happened in due and strict compliance
with all applicable laws.
Maker and all parties now or hereafter liable for the payment hereof,
primarily or secondarily, directly or indirectly, and whether as endorser,
guarantor, surety, or otherwise, hereby severally (a) waive presentment,
demand, protest, notice of protest and/or dishonor, notice of intent or
election to accelerate, notice of acceleration, and all other demands or
notices of any sort whatever with respect to this Note, (b) consent to
impairment or release of collateral, extensions of time for payment, and
acceptance of partial payments before, at, or after maturity, (c) waive any
right to require Holder to proceed against any security for this Note before
proceeding hereunder (subject to the provisions hereof limiting Maker's
personal liability hereunder), (d) waive diligence in the collection of this
Note or in filing suit on this Note, and (e) agree to pay all costs and
expenses, including reasonable attorneys' fees, which may be incurred in the
collection of this Note or any part thereof or in preserving, securing
possession of, and realizing upon any security for this Note.
The provisions of this Note and of all agreements between Maker and
Holder, whether now existing or hereafter made, are hereby expressly limited so
that in no contingency or event whatever,
- 3 -
<PAGE> 4
whether by reason of acceleration of the maturity hereof, prepayment, demand
for payment or otherwise, shall the amount paid, or agreed to be paid, to
Holder for the use, forbearance, or detention of the principal hereof or
interest hereon, which remains unpaid from time to time, exceed the maximum
amount permissible under applicable law, it particularly being the intention of
the parties hereto to conform strictly to the Texas and Federal law, whichever
is applicable. If from any circumstance whatever, the performance or
fulfillment of any provision hereof or of any other agreement between Maker and
Holder shall, at the time performance or fulfillment of such provision is due,
involve or purport to require any payment in excess of the limits prescribed by
applicable law, then the obligation to be performed or fulfilled is hereby
reduced to the limit of such validity, and if from any circumstance whatever
Holder should ever receive as interest an amount which would exceed the highest
lawful rate, the amount which would be excessive interest shall be applied to
the reduction of the principal balance owing hereunder (or, at Holder's option,
be paid over to Maker) and shall not be counted as interest. To the extent
permitted by applicable law, determination of the legal maximum amount of
interest shall at all times be made by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of this
Note, all interest at any time contracted for, charged, or received from Maker
in connection with this Note and all other agreements between Maker and Holder,
so that the actual rate of interest on account of the indebtedness represented
by this Note is uniform throughout the term hereof. This paragraph shall be
referred to herein as the "Usury Savings Clause."
Maker warrants and represents to Holder that the loan evidenced by
this Note is for business, commercial, investment, or other similar purpose and
not primarily for personal, family, household, or agricultural use, as such
terms are used in Chapter One of the Texas Credit Code.
Except as expressly hereinafter set forth, the recourse of Holder with
respect to the obligations evidenced by this Note shall be solely to the
Property, Chattels, and Intangible Personalty (as such terms are defined in the
Deed of Trust). Notwithstanding anything to the contrary contained in this
Note or in any Loan Document, nothing shall be deemed in any way to impair,
limit or prejudice the rights of Holder (a) in foreclosure proceedings or in
any ancillary proceedings brought to facilitate Holder's foreclosure on the
Property or any portion thereof; (b) to recover from Maker damages or costs
(including without limitation reasonable attorneys' fees) incurred by Holder as
a result of waste by Maker; (c) to recover from Maker any condemnation or
insurance proceeds attributable to the Property which were not paid to Holder
or used to restore the Property in accordance with the terms of the Deed of
Trust; (d) to recover from Maker any rents, profits, security deposits,
advances, rebates, prepaid rents or other similar sums attributable to the
Property collected by or for Maker following an Event of Default under any Loan
Document and not properly applied to the reasonable fixed and operating
expenses of the Property, including payments of this Note; (e) to pursue the
personal liability of Maker under the provisions of Section 5.11 or 5.12 of the
Deed of Trust, including any indemnification provisions under such Sections;
(f) to exercise any specific rights or remedies afforded Holder under any other
provisions of the Loan Documents or by law or in equity (provided that Maker's
personal liability shall be limited as herein provided); (g) to recover from
Maker the amount of any taxes, assessments, and/or utility charges affecting
the Property, accruing prior to the date of foreclosure, that are either unpaid
by Maker or paid by Holder under the Deed of Trust; (h) to collect from Maker
any sums expended by Holder in fulfilling the obligations of Maker, as lessor,
under any leases affecting the Property to the extent that such obligations are
specifically and particularly described in such leases and contemplate
expenditure by the lessor of
- 4 -
<PAGE> 5
moneys thereof; (i) to recover from Maker any loss, cost, expense incurred by
Holder as the result of the execution, termination (excluding terminations
permitted without Beneficiary's consent by Section 5.3 of the Mortgage),
amendment or modification of any lease affecting the Property without the prior
written consent of Holder if such consent is required under the terms of the
Loan Documents; and (j) to pursue any personal liability of Maker under the
Environmental Indemnity Agreement. The agreement contained in this paragraph to
limit the personal liability of Maker shall become null and void and be of no
further force and effect in the event (i) that the Property or any part thereof
or any interest therein shall be further encumbered by a consensual lien
securing any obligation upon which Maker, or any general partner of Maker,
shall be personally liable for repayment, whether as obligor or guarantor; (ii)
of any breach or violation of Sections 5.4 or 5.5 of the Deed of Trust; or
(iii) of any fraud or material misrepresentation by Maker in connection with
the Property, the Loan Documents or the application made by Maker for the loan
evidenced by this Note.
If Article 1.04 of the Texas Credit Code is applicable to this Note,
and applicable Federal law does not permit a higher interest rate, the interest
rate ceiling applicable to the loan evidenced by this Note shall be the
"indicated rate ceiling," as defined in Article 1.04 of the Texas Credit Code.
If any provision hereof or of any other document securing or related
to the indebtedness evidenced hereby is, for any reason and to any extent,
invalid or unenforceable, then neither the remainder of the document in which
such provision is contained, nor the application of the provision to other
persons, entities, or circumstances, nor any other document referred to herein,
shall be affected thereby, but instead shall be enforceable to the maximum
extent permitted by law.
Each provision of this Note shall be and remain in full force and
effect notwithstanding any negotiation or transfer hereof and any interest
herein to any other Holder or participant.
Regardless of the place of its execution, this Note shall be construed
and enforced in accordance with the laws of the State of Texas and applicable
Federal law.
HEDWIG II, INC., a Texas corporation
By: /s/ Joseph W. Peacock
-------------------------------
Name: Joseph W. Peacock
-----------------------------
Title: Vice President
----------------------------
- 5 -
<PAGE> 1
EXHIBIT 10.9
PROMISSORY NOTE
U.S. $2,400,000 June 10, 1992
FOR VALUE RECEIVED, and at the times hereinafter specified, HEDWIG III
JOINT VENTURE, a Texas joint venture ("Maker"), whose address is c/o Uniteg
Management, 6800 Texas Commerce Tower, Houston, Texas 77002, hereby promises to
pay to the order of Sun Life Insurance Company of America, a Maryland
corporation (herein after referred to, together with each subsequent holder
hereof, as "Holder"), at 11601 Wilshire Boulevard, Los Angeles, California
90025-1748, or at such other address as may be designated from time to time
hereafter by any Holder, the principal sum of TWO MILLION FOUR HUNDRED THOUSAND
and no/100ths DOLLARS ($2,400,000), or so much thereof as shall have been
disbursed to or for the benefit of Maker, together with interest on the
principal balance outstanding from time to time, as hereinafter provided, in
lawful money of the United States of America.
The balance of principal outstanding from time to time under this
promissory note (this "Note") shall bear interest at the rate of 10.75% per
annum. Interest only shall be payable on July 1, 1992, in arrears, for the
period from and including the date hereof through and including June 30, 1992.
Commencing on August 1, 1992, and on the first day of each month thereafter
through and including June 1, 1999, combined payments of principal and interest
shall be payable, in arrears, in the amount of $22,407.32 each. The entire
outstanding principal balance, together with all accrued and unpaid interest and
all other sums due hereunder shall be due and payable in full on June 10, 1999.
During the first two (2) years after the date of this Note, Maker shall
have no right to prepay all or any part of this Note. At any time after the
second anniversary of the date of this Note, Maker shall have the right to
prepay the full principal amount of this Note and all accrued but unpaid
interest hereon as of the date of prepayment, provided that (a) Maker gives not
less than thirty (30) days' prior written notice to Holder of Maker's election
to prepay this Note, and (b) Maker pays a prepayment premium to Holder equal to
the greater of (i) one percent (1%) of the outstanding principal amount of this
Note multiplied by the quotient of the number of full months remaining to
maturity of this Note divided by the number of full months comprising the term
of this Note or (ii) the Present Value of this Note (as defined below), less the
amount of principal being prepaid, calculated as of the prepayment date. Holder
shall notify Maker of the amount and basis of determination of the prepayment
premium. Holder shall not be obligated to accept any prepayment of the principal
balance of this Note unless such prepayment is accompanied by the applicable
prepayment premium and all accrued interest and other sums due under this Note.
In no
<PAGE> 2
event shall Maker be permitted to make any partial prepayments of this Note.
Notwithstanding the foregoing to the contrary, Maker shall have no obligation to
pay a prepayment premium in connection with application by Holder of insurance
or condemnation proceeds to the principal balance hereof as permitted in the
Deed of Trust (as hereinafter defined).
The "Present Value of this Note" with respect to any prepayment of this
Note, as of any date, shall be determined by discounting all scheduled payments
of principal and interest remaining to maturity of this Note, attributed to the
amount being prepaid, at the Discount Rate. If prepayment occurs on a date other
than a regularly scheduled payment date, the actual number of days remaining
from the prepayment date to the next regularly scheduled payment date will be
used to discount within such period.
The "Discount Rate" is the rate which, when compounded monthly, is
equivalent to the Treasury Rate, when compounded semi annually.
The "Treasury Rate" is the semi-annual yield on the Treasury Constant
Maturity Series with maturity equal to the remaining weighted average life of
this Note, for the week prior to the prepayment date, as reported in Federal
Reserve Statistical Release H.15 - Selected Interest Rates, conclusively
determined by Holder on the prepayment date. The rate will be determined by
linear interpolation between the yields reported in Release H.15, if necessary.
In the event Release H.15 is no longer published, Holder shall select a
comparable publication to determine the Treasury Rate.
Holder shall not be obligated actually to reinvest the amount prepaid
in any treasury obligations as a condition precedent to receiving any prepayment
premium.
Whenever any payment to be made under this Note shall be stated to be
due on a Saturday, Sunday or public holiday or the equivalent for banks
generally under the laws of the State of Texas (any other day being a "Business
Day"), such payment may be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of payment
of interest.
The entire balance of principal, interest, and other sums due upon the
maturity hereof, by acceleration or otherwise, shall bear interest from the date
due until paid at the greater of (a) 18% per annum and (b) a per annum rate
equal to 5% over the prime rate (for corporate loans at large United States
money center commercial banks) published in The Wall Street Journal on the first
business day of each month in which a default occurs or continues (the
- 2 -
<PAGE> 3
"Default Rate"); provided, however, that (i) notwithstanding any other provision
of this Note, interest at the Default Rate shall be based on the actual number
of days in the then-current calendar year (whether 365 or 366); (ii) neither the
Default Rate nor any other interest rate under this Note shall exceed the
maximum non- usurious interest rate permitted by applicable state or Federal law
(the "Maximum Rate"); and (iii) the foregoing provision concerning interest at
the Default Rate shall be subject to the Usury Savings Clause, hereinafter set
forth. In the event The Wall Street Journal is no longer published or no longer
publishes such prime rate, Holder shall select a comparable reference.
If any payment under this Note is not made within five (5) days
following the date when due, interest shall accrue at the Default Rate from the
date such payment was due until payment is actually made.
In addition to interest as set forth herein, Maker shall pay Holder a
late charge equal to four percent (4%) of any amounts due under this Note in the
event any such amount is not paid within five (5) days following the date when
due. The provisions of the foregoing sentence shall be subject to the Usury
Savings Clause, hereinafter set forth.
All payments hereunder shall be applied first to the payment of late
charges, if any, then to the payment of prepayment premiums, if any, then to the
repayment of any sums advanced by Holder for the payment of any insurance
premiums, taxes, assessments, or other charges against the property securing
this Note (together with interest thereon at the Default Rate from the date of
advance until repaid), then to the payment of accrued and unpaid interest, and
then to the reduction of principal.
Payments under this Note shall be payable in immediately available
funds without setoff, counterclaim or deduction of any kind, and shall be made
by electronic funds transfer from a bank account established and maintained by
Maker for such purpose.
This Note is secured by a Deed of Trust, Security Agreement, Fixture
Filing, Financing Statement and Assignment of Leases and Rents of even date
herewith granted by Maker for the benefit of the named Holder hereof (the "Deed
of Trust"), encumbering certain property located in Houston, Texas, as more
particularly described in such Deed of Trust. Capitalized terms used herein and
not otherwise defined shall have the meanings set forth in the Deed of Trust.
Each of the following shall constitute an "Event of Default" hereunder
and under the Deed of Trust and each other document
- 3 -
<PAGE> 4
securing or executed in connection with this Note (collectively, the "Loan
Documents"): (a) any failure to pay when due any sum hereunder or failure to
perform any covenant or agreement herein contained; (b) any default or Event of
Default under any of the Loan Documents; or (c) any default or Event of Default
under a promissory note in the original principal amount of $1,300,000 of even
date herewith made by Hedwig II, Inc., a Texas corporation ("Hedwig"), to the
order of Holder (the "Hedwig Note"), a Deed of Trust, Security Agreement,
Fixture Filing, Financing Statement, and Assignment of Leases and Rents of even
date herewith executed by Hedwig for the benefit of Holder securing the Hedwig
Note, or any other document securing or executed in connection with the Hedwig
Note. Upon the occurrence of any such Event of Default, the entire balance of
principal, accrued interest, and other sums owing hereunder shall, at the option
of Holder, become at once due and payable without notice or demand.
Maker hereby certifies and declares that all acts, conditions and
things required to be done and performed and to have happened precedent to the
creation and issuance of this Note, and to constitute this Note the legal, valid
and binding obligation of Maker, enforceable in accordance with the terms
hereof, have been done and performed and happened in due and strict compliance
with all applicable laws.
Maker and all parties now or hereafter liable for the payment hereof,
primarily or secondarily, directly or indirectly, and whether as endorser,
guarantor, surety, or otherwise, hereby severally (a) waive presentment, demand,
protest, notice of protest and/or dishonor, notice of intent or election to
accelerate, notice of acceleration, and all other demands or notices of any sort
whatever with respect to this Note, (b) consent to impairment or release of
collateral, extensions of time for payment, and acceptance of partial payments
before, at, or after maturity, (c) waive any right to require Holder to proceed
against any security for this Note before proceeding hereunder (subject to the
provisions hereof limiting Maker's personal liability hereunder), (d) waive
diligence in the collection of this Note or in filing suit on this Note, and (e)
agree to pay all costs and expenses, including reasonable attorneys' fees, which
may be incurred in the collection of this Note or any part thereof or in
preserving, securing possession of, and realizing upon any security for this
Note.
The provisions of this Note and of all agreements between Maker and
Holder, whether now existing or hereafter made, are hereby expressly limited so
that in no contingency or event whatever, whether by reason of acceleration of
the maturity hereof, prepayment, demand for payment or otherwise, shall the
amount paid,
- 4 -
<PAGE> 5
or agreed to be paid, to Holder for the use, forbearance, or detention of the
principal hereof or interest hereon, which remains unpaid from time to time,
exceed the maximum amount permissible under applicable law, it particularly
being the intention of the parties hereto to conform strictly to the Texas and
Federal law, whichever is applicable. If from any circumstance whatever, the
performance or fulfillment of any provision hereof or of any other agreement
between Maker and Holder shall, at the time performance or fulfillment of such
provision is due, involve or purport to require any payment in excess of the
limits prescribed by applicable law, then the obligation to be performed or
fulfilled is hereby reduced to the limit of such validity, and if from any
circumstance whatever Holder should ever receive as interest an amount which
would exceed the highest lawful rate, the amount which would be excessive
interest shall be applied to the reduction of the principal balance owing
hereunder (or, at Holder's option, be paid over to Maker) and shall not be
counted as interest. To the extent permitted by applicable law, determination of
the legal maximum amount of interest shall at all times be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of this Note, all interest at any time contracted for, charged, or
received from Maker in connection with this Note and all other agreements
between Maker and Holder, so that the actual rate of interest on account of the
indebtedness represented by this Note is uniform throughout the term hereof.
This paragraph shall be referred to herein as the "Usury Savings Clause."
Maker warrants and represents to Holder that the loan evidenced by this
Note is for business, commercial, investment, or other similar purpose and not
primarily for personal, family, household, or agricultural use, as such terms
are used in Chapter One of the Texas Credit Code.
Except as expressly hereinafter set forth, the recourse of Holder with
respect to the obligations evidenced by this Note shall be solely to the
Property, Chattels, and Intangible Personalty (as such terms are defined in the
Deed of Trust). Notwithstanding anything to the contrary contained in this Note
or in any Loan Document, nothing shall be deemed in any way to impair, limit or
prejudice the rights of Holder (a) in foreclosure proceedings or in any
ancillary proceedings brought to facilitate Holder's foreclosure on the Property
or any portion thereof; (b) to recover from Maker damages or costs (including
without limitation reasonable attorneys' fees) incurred by Holder as a result of
waste by Maker; (c) to recover from Maker any condemnation or insurance proceeds
attributable to the Property which were not paid to Holder or used to restore
the Property in accordance with the terms of the Deed of Trust; (d) to recover
from Maker any rents, profits,
- 5 -
<PAGE> 6
security deposits, advances, rebates, prepaid rents or other similar sums
attributable to the Property collected by or for Maker following an Event of
Default under any Loan Document and not properly applied to the reasonable fixed
and operating expenses of the Property, including payments of this Note; (e) to
pursue the personal liability of Maker under the provisions of Section 5.11 or
5.12 of the Deed of Trust, including any indemnification provisions under such
Sections; (f) to exercise any specific rights or remedies afforded Holder under
any other provisions of the Loan Documents or by law or in equity (provided that
Maker's personal liability shall be limited as herein provided); (g) to recover
from Maker the amount of any taxes, assessments, and/or utility charges
affecting the Property, accruing prior to the date of foreclosure, that are
either unpaid by Maker or paid by Holder under the Deed of Trust (h) to collect
from Maker any sums expended by Holder in fulfilling the obligations of Maker,
as lessor, under any leases affecting the Property to the extent that such
obligations are specifically and particularly described in such leases and
contemplate expenditure by the lessor of moneys in the performance thereof; and
(i) to pursue any personal liability of Maker under the Environmental Indemnity
Agreement. The agreement contained in this paragraph to limit the personal
liability of Maker shall become null and void and be of no further force and
effect in the event (i) that the Property or any part thereof or any interest
therein shall be further encumbered by a consensual lien securing any obligation
upon which Maker, or any general partner of Maker, shall be personally liable
for repayment, whether as obligor or guarantor; (ii) of any breach or violation
of Sections 5.4 or 5.5 of the Deed of Trust; (iii) of any fraud or material
misrepresentation by Maker in connection with the Property, the Loan Documents
or the application made by Maker for the loan evidenced by this Note; or (iv) of
any execution, amendment, modification or termination of any lease of more than
2,000 square feet of leaseable space on the Property without the prior written
consent of Holder if such consent is required under the terms of the Loan
Documents.
If Article 1.04 of the Texas Credit Code is applicable to this Note,
and applicable Federal law does not permit a higher interest rate, the interest
rate ceiling applicable to the loan evidenced by this Note shall be the
"indicated rate ceiling," as defined in Article 1.04 of the Texas Credit Code.
If any provision hereof or of any other document securing or related to
the indebtedness evidenced hereby is, for any reason and to any extent, invalid
or unenforceable, then neither the remainder of the document in which such
provision is contained, nor the application of the provision to other persons,
entities, or circumstances, nor any other document referred to herein, shall be
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<PAGE> 7
affected thereby, but instead shall be enforceable to the maximum extent
permitted by law.
Each provision of this Note shall be and remain in full force and
effect notwithstanding any negotiation or transfer hereof and any interest
herein to any other Holder or participant.
Regardless of the place of its execution, this Note shall be construed
and enforced in accordance with the laws of the State of Texas and applicable
Federal law.
HEDWIG III JOINT VENTURE, a Texas
joint venture
By: UNITEG INVESTMENT COMPANY,
INC., a Texas corporation
By: /s/ Jody W. Peacock
-------------------------------------
Title: Executive Vice President
------------------------------
By: FINIAL HEDWIG II, INC., a
Delaware corporation
By: /s/ Susan S. Crane
------------------------------------
Title: Vice President
-----------------------------
By: H.A.D UNITEG LIMITED
PARTNERSHIP, a Texas limited
partnership
By: J.D. Holding, Inc., a
Delaware corporation, its
general partner
By:/s/ Susan S. Crane
-------------------------------------
Title: Secretary
----------------------------------
- 7 -
<PAGE> 1
EXHIBIT 10.10
DEED OF TRUST NOTE
$5,100,000.00 Houston, TEXAS
April 13, 1993
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
THE FRANKLIN LIFE INSURANCE COMPANY, an Illinois corporation ("Franklin"), the
principal sum of FIVE MILLION, ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($5,100,000.00), with interest from date at the rate of Nine and Three-Tenths
percent (9 3/10%) per annum on the unpaid balance until paid. Principal and
interest shall be payable at the office of The Franklin Life Insurance Company
in Springfield, Illinois, or at such other place as the holder hereof may
designate in writing, in monthly installments of FORTY-THREE THOUSAND, EIGHT
HUNDRED FIFTY-TWO AND NO/100 DOLLARS ($43,852.00), commencing on the first day
of May, 1993, and on the first day of each month thereafter until the principal
and interest are fully paid, except that the final payment of the principal and
interest, if not sooner paid, shall be due and payable on the first day of
April, 2018. Matured unpaid principal shall bear Eleven and Three-Tenths
percent (11 3/10%) interest per annum from date of maturity until paid.
Interest shall be calculated on the basis of a 360-day year of twelve
30-day months. Principal and interest are payable in lawful money of the United
States.
PREPAYMENT OPTION: Privilege is reserved to prepay any number of
ensuing principal installments, on any interest-paying date after the 12th loan
year (first loan year commences of even date with first obligatory installment
of principal), upon giving sixty (60) days prior written notice to the holder
hereof, by paying as a consideration therefor:
5% if paid after the 12th loan year,
4% if paid after the 13th loan year,
3% if paid after the 14th loan year,
2% if paid after the 15th loan year,
1% if paid after the 16th loan year,
0% if paid during the last 3 months of loan term
of the amount of principal so prepaid. Prepayments shall not reduce or postpone
regular payments but may accelerate the maturity date of this indebtedness.
In the event, and only in the event, that the borrower sells the
property, and Franklin is unwilling to allow the assumption of the loan by the
prospective purchaser, then this Deed of Trust Note will be open to prepayment
of its remaining principal by paying, in lieu of the premium described
hereinabove, as a consideration therefor:
10% if paid during the first 8 loan years
9% if paid after the 8th loan year
8% if paid after the 9th loan year
7% if paid after the 10th loan year
6% if paid after the 11th loan year
5% if paid after the 12th loan year
4% if paid after the 13th loan year
3% if paid after the 14th loan year
2% if paid after the 15th loan year
1% if paid after the 16th loan year
0% if paid during the last 3 months of loan term
of the amount of principal so prepaid.
In the event of default in the payment of any installment under this
Deed of Trust Note which continues for ten (10) days after written notice of
such default is given to the undersigned,
Page 1 of 2
<PAGE> 2
the entire principal sum and accrued interest shall at once become due and
payable at the option of the holder of this Deed of Trust Note. Failure to
exercise this option shall not constitute a waiver of the right to exercise it
at any other time.
In the event of default in the payment of this Deed of Trust Note, and
if the same is collected by an attorney at law, the undersigned hereby agree(s)
to pay all costs of collection, including a reasonable attorney's fee.
The undersigned, whether maker, surety, guarantor, endorser, or other
party hereto, agree to be jointly and severally bound, and hereby waive demand,
protest, and notice of demand, protest and nonpayment, and consent to any and
all renewals or extensions in the time of payment hereof.
It is expressly understood that the payee or any other holder hereof,
waives any right to a deficiency judgment against the maker of this Deed of
Trust Note or against maker's partners, directors, officers and shareholders
and that the liability of said maker on this Deed of Trust Note and against
maker's partners, directors, officers and shareholders is limited to the value
of said maker's right, title, and interest in and to the real property and
other property given under the Deed of Trust and the Assignment of Lease
securing this Deed of Trust Note; provided, however, that the maker of this
Deed of Trust Note shall be personally liable for the obligation to indemnify
under paragraph I(B) of the Addendum to said Deed of Trust.
This indebtedness is secured by a Deed of Trust of even date
herewith on real property located in Brazos County, Texas.
This Deed of Trust Note is to be construed under the laws of the State
of Texas.
UIRT/University Park - I, L.P., a Texas
corporation, General Partner
By: /s/ Marc S. Geller
----------------------------
Marc S. Geller, President
Page 2 of 2
<PAGE> 1
EXHIBIT 10.11
PROMISSORY NOTE
$550,000.00 Birmingham, Alabama
June 15, 1994
FOR VALUE RECEIVED, the undersigned, UIRT - I - MCMINN, INC., a
Tennessee corporation (hereinafter together with any subsequent obligor
hereunder collectively called "Borrower") hereby promises to pay to the order of
PROTECTIVE LIFE INSURANCE COMPANY (hereinafter together with any subsequent
holder hereof called "Lender") the principal sum of FIVE HUNDRED FIFTY THOUSAND
AND NO/100 DOLLARS ($550,000.00), with interest from the date of disbursement
until paid in full, on the unpaid principal balance from time to time hereunder,
at the rate of EIGHT AND ONE QUARTER PERCENT (8.25%) per annum SUBJECT TO
LENDER'S OPTION TO ADJUST THE INTEREST RATE AS HEREINAFTER SET FORTH, payable in
arrears, all payable in lawful money of the United States of America, which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment. Said principal and interest shall be payable as follows:
(a) Prepaid per diem interest from the date of disbursement until the
end of the month of disbursement shall be due and payable on the date
of disbursement.
(b) Installments of principal and interest of SEVEN THOUSAND TWO
HUNDRED THIRTY-ONE AND 77/100 DOLLARS ($7,231.77) (calculated on the
basis of a nine-year amortization of principal and interest) shall be
due and payable, commencing on the first day of August, 1994, and on
the first day of each month thereafter until the first day of July,
2003 ("Maturity Date") when the entire remaining principal balance,
plus accrued interest, shall be due and payable in full SUBJECT TO THE
OPTIONAL ACCELERATION RIGHTS OF LENDER HEREINAFTER SPECIFIED.
All payments shall be applied first to interest and then to principal,
except that if any advance made by Lender under the terms of any
instruments securing this Note is not repaid, or if any late charges or
other costs or amounts secured by the Loan Documents (as such term is
hereinafter defined) are due, any monies received, at the option of
Lender, may first be applied to repay such advance, late charge, cost
or amount, plus interest thereon, at the AfterMaturity Rate hereinafter
set forth, and the balance, if any, shall be then applied to interest
and then to principal. All such payments shall be payable in lawful
money of the United States and in immediately available funds and shall
be made at the office of Lender at its address at P.O. Box 2606,
Birmingham, Alabama 35202, or such other place and to such other
person(s) as Lender or any subsequent holder hereof may from time to
time
<PAGE> 2
designate in writing. Interest shall be calculated on the
basis of a 360-day year.
Borrower further agrees as follows:
1. Prepayment Privilege. Borrower shall have the privilege of
prepaying the debt evidenced and secured hereby only on the following terms and
conditions:
(a) Prepayment of this Note may be made by Borrower in full, but not in
part, on any installment payment date, upon ninety (90) days' prior written
notice by Borrower to Lender, upon condition that Borrower pay to Lender a
prepayment fee ("Prepayment Fee") equal to the Premium set forth in Paragraph 2
below.
(b) (i) If all or any portion of the balance hereof is paid or prepaid
prior to the Maturity Date for any reason (except a prepayment permitted under
the preceding subparagraph), including without limitation, refinancing, default,
acceleration, redemption (after foreclosure and sale), or otherwise (such
payment or prepayment being referred to as a "Prohibited Payment"), the same
shall constitute a default hereunder at Lender's option, and Lender shall have
the right to the Premium described in Paragraph 2 below. (ii) Without limiting
the foregoing, in the event of default hereunder and following acceleration of
maturity by Lender, a tender of payment of the amount necessary to satisfy the
entire unpaid principal balance declared due and payable shall be deemed to
constitute an attempted evasion of the aforesaid restrictions on the right of
prepayment and shall be deemed a voluntary prepayment hereunder in violation of
the terms hereof and such payment must therefore include the Premium described
in Paragraph 2 below. Provided, however, that no Prepayment Fee or Premium shall
be payable due to payment resulting from the application of condemnation or
casualty proceeds to a reduction of the indebtedness secured pursuant to the
Loan Documents OR A PAYMENT REQUIRED IF LENDER EXERCISES ITS OPTION TO
ACCELERATE THE INDEBTEDNESS SECURED HEREBY AS HEREINAFTER PROVIDED.
2. Prohibited Payments. (a) If prior to May 1, 2003, any prepayment as
set forth in Paragraph 1(a) above occurs ("permitted prepayment") or if any
default occurs under this Note or under any of the other Loan Documents, then
with such permitted prepayment or in the event of default upon acceleration by
Lender, Borrower shall be obligated to pay, in addition to any such amounts paid
or payable or prepaid or otherwise due under the Loan Documents, a "Premium"
determined as follows: (A) in the event of a permitted prepayment, the greater
of the amount determined pursuant to subparagraphs (i) and (iii) below; or (B)
in the event of any default, the greater of the amount determined pursuant to
subparagraphs (ii) and (iii) below:
- 2 -
<PAGE> 3
(i) one percent (1%) of the then unpaid principal balance;
(ii) ten percent (10%) of the then unpaid principal balance; or
(iii) one-twelfth (1/12th) of the "Annual Yield
Differential" (as defined hereinafter) multiplied
by the number of months (with prorations for
partial months) from THE DATE OF THE PERMITTED
PREPAYMENT OR the date of the event of default to
the Maturity Date. The term "Annual Yield
Differential" means (i) the interest rate under
this Note less (ii) the yield on the lowest
yielding United States Treasury Bill, Note or Bond
with a maturity closest to the Maturity Date as
published in The Wall Street Journal or similar
publication on the date which is seven days PRIOR
TO THE DATE OF THE PERMITTED PREPAYMENT OR the date
of the event of default, multiplied by the
outstanding principal balance of this Note on THE
DATE OF THE PERMITTED PREPAYMENT OR the date of
acceleration. The Annual Yield Differential shall
in no event be less than zero.
3. Nonrecourse. Notwithstanding any provision to the contrary contained
herein, or in any of the other Loan Documents, Borrower (if Borrower is a
partnership, then also each general partner jointly and severally, including all
parties who may be deemed to own a general partnership interest in any such
general partner) shall have no personal liability for the payment of the
principal, interest, prepayment fee or Premium, if any, provided for in this
Note; provided, however, that the foregoing shall not relieve Borrower (and any
general partner) from personal liability to Lender, to the extent of Lender's
damage, loss, liability, costs and expenses, plus interest at the After-Maturity
Rate thereon, for any: (a) failure by Borrower to perform the other obligations
contained in the Loan Documents including, but not limited to, the obligations
to prevent waste, keep the property free of any hazardous waste as required by
any applicable governmental authority, maintain insurance coverage, pay over
insurance and condemnation proceeds, and pay ad valorem taxes and assessments
with respect to the Property, (b) fraud or misrepresentation by Borrower (or any
general partner) to Lender prior to or during the term of this Note, (c)
misappropriation or conversion of any security for this Note, (d) collection of
rents, issues or profits from the Property in contravention of the terms and
provisions of the Loan Documents unless the same are applied to this Note, and
(e) obligation to indemnify Lender under any environmental indemnification
agreement executed in favor of Lender.
- 3 -
<PAGE> 4
4. After-Maturity Interest/Late Charge. Notwithstanding any provision
to the contrary herein, from and after the maturity of this Note (whether by
acceleration or otherwise), interest on principal and on unpaid interest and on
other amounts outstanding shall be computed at a rate (the "After-Maturity
Rate") equal to four percent (4%) above the rate of interest then applicable as
set forth hereinabove. Borrower further agrees to pay a "late charge" of four
percent (4%) of any amount due hereunder if such amount is paid more than ten
(10) days after the due date thereof, to cover the extra expense involved in
handling delinquent payments. These provisions shall not be deemed to excuse a
late payment or be deemed a waiver of any other rights Lender may have including
the right to declare the entire unpaid principal and interest immediately due
and payable.
5. Loan Documents. This Note is secured by real and personal property
located in McMinn County, Tennessee (the "Property") and by the following
documents executed by Borrower in favor of Lender and recorded in the official
real property records of said County:
(a) Deed of Trust and Security Agreement (the "Indenture");
(b) an Assignment of Rents and Leases (the "Assignment"); and
(c) UCC-1 Financing Statements recorded in said office and, if
applicable, in the office of the Secretary of State of
Tennessee.
The loan is also evidenced and secured by other documents, (including
but not limited to any environmental indemnity agreement and guaranty executed
in favor of Lender to further secure the loan). This Note, the Indenture, the
Assignment, and other said loan documents, including any extensions,
modifications or amendments thereto are referred to herein as the "Loan
Documents").
6. Acceleration. Time is of the essence. Upon the occurrence of an
event of default in any of the Loan Documents, then the entire principal sum
evidenced by this Note, together with all accrued and unpaid interest and
further together with all other sums due under this Note and the Loan Documents,
shall, at the option of Lender, become immediately due and payable without
further notice, demand or presentment for payment and any failure to exercise
said option shall not constitute a waiver of the right to exercise the same at
any other time.
7. Costs of Collection. Borrower agrees that if, and as often as, this
Note is given to an attorney for collection or to defend or enforce any of
Lender's rights hereunder, Borrower will pay to Lender its attorneys' fees,
together with all court costs and other expenses paid or incurred by Lender:
8. Maximum Legal Rate. Borrower and Lender agree that no
- 4 -
<PAGE> 5
payment of interest or other consideration made or agreed to be made by Borrower
to Lender pursuant to this Note or the other Loan Documents shall, at any time,
be in excess of the maximum rate of interest permissible by law. In the event
such payments of interest or other consideration provided for in this Note, the
Indenture, or any other instrument securing this Note shall result in an
effective rate of interest which, for any period of time, is in excess of the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice between or by any party
hereto, be applied to principal immediately upon receipt of such monies by
Lender with the same force and effect as though the payer had specifically
designated such and Lender had agreed to accept such extra payments as a
principal payment, without premium. This provision shall control every other
obligation of Borrower and Lender.
9. Miscellaneous. (a) With respect to any and all obligations, to the
extent allowed by law, Borrower waives the following: (1) all rights of
exemption of property from levy or sale under execution or other process for the
collection of debts under the Constitution or laws of the United States or of
any state thereof, (2) demand, presentment, protest, notice of dishonor, suit
against any party and all other requirements necessary to charge or hold
Borrower on any obligation, and (3) all statutory provisions and requirements
for the benefit of Borrower now or hereafter in force (to the extent that same
may be waived). Borrower agrees that any obligations of Borrower may, from time
to time, in whole or in part, be renewed, extended, modified, accelerated,
compromised, discharged or released by Lender, and any collateral, lien and/or
right of set-off securing any obligations may, from time to time, in whole or in
part, be exchanged, sold or released, all without notice to or further
reservations of rights against Borrower and all without in any way affecting or
releasing the liability of Borrower. Borrower agrees to pay all filing fees, and
taxes and all costs of collecting or securing or attempting to collect or secure
any obligations including but not limited to attorney's fees. Borrower agrees
that Lender will not be required first to resort to any other security pledged
or granted to Lender, but in the event of a default under any of the Loan
Documents, Lender may forthwith look to Borrower for payment hereunder or may
look to and realize upon any other security held by Lender, in any order Lender
chooses, until the entire debt is paid subject, however, to the provisions of
Paragraph 3 herein.
(b) The obligations and liabilities of Borrower under this Note are (to
the extent provided in Paragraph 3 herein) continuing, absolute, and
unconditional, and shall remain in full force and effect until this Note has
been paid in full and all obligations of Borrower have been discharged, without
regard to and without being released, discharged, impaired, modified or in any
way affected by,
- 5 -
<PAGE> 6
the occurrence from time to time of any event, circumstance or condition,
including without limitation any one or more of the following, whether or not
with notice to or consent of Borrower: (1) the invalidity or unenforceability of
any of the Loan Documents or any other agreement, (2) the failure or refusal to
give notice to Borrower of the occurrence of any event of default under any such
Loan Document or agreement (but without limiting any applicable stated notice
and cure periods), (3) any modification, amendment or supplement of any
obligation, covenant or agreement contained in any such Loan Document or other
agreement, (4) any assignment or transfer of any Loan Document or other
agreement or of any interest thereunder, (5) any consent, extension, indulgence
or other action or inaction (including without limitation any lack of diligence
or failure to mitigate damages) under, or in respect of, any Loan Document or
other agreement, or any exercise or non-exercise of any right, remedy, power or
privilege under, or in respect of, any such Loan Document or agreement, or (6)
the failure, omission, delay or lack of diligence on the part of Lender or any
assignee or successor thereto, to enforce, assert or exercise any right, power,
privilege or remedy conferred upon Lender by any Loan Document or other
agreement.
(c) Lender shall not by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies, and no waiver of any kind shall be
valid, unless in writing and signed by Lender. All rights and remedies of Lender
under the terms of this Note and under any statutes or rules of law shall be
cumulative and may be exercised successively or concurrently. Borrower agrees
that Lender shall be entitled to all the rights of a holder in due course of
negotiable instruments. Any provision of this Note which may be unenforceable or
invalid under any law shall be ineffective to the extent of such
unenforceability or invalidity only, without affecting the enforceability or
validity of any other provision hereof.
(d) All Lender's attorneys' fees and expenses which Borrower agrees to
pay under this Note and any of the other Loan Documents shall be the reasonable
fees and expenses incurred by Lender.
10. Governing Law. This instrument shall be governed and controlled as
to interpretation, enforcement, validity, construction, effect and in all other
respects by the laws, statutes and decisions of the State of Alabama and all
actions or proceedings arising directly, indirectly or otherwise in connection
herewith shall be litigated, at Lender's sole election, only in Jefferson
County, Alabama or in courts having a situs within the county and state where
the Property is located. The undersigned hereby consents and submits to the
jurisdiction of any local, state or federal court located therein, and hereby
waives any right to transfer or change the venue of any litigation brought
hereunder.
- 6 -
<PAGE> 7
11. JURY TRIAL WAIVER. RECOGNIZING THAT ANY DISPUTE ARISING
HEREUNDER WILL BE COMMERCIAL IN NATURE AND COMPLEX, AND IN ORDER TO MINIMIZE THE
COSTS INVOLVED IN THE DISPUTE RESOLUTION PROCESS, THE UNDERSIGNED HEREBY WAIVES
THE RIGHT TO A TRIAL BY JURY.
IN WITNESS WHEREOF, this instrument has been executed by the
undersigned under seal as of the date first above written.
"BORROWER"
UIRT - I - MCMINN, INC., a
Tennessee corporation
"WITNESSES"
/s/ W. Lance Hall By:/s/ Randall D. Keith
- ---------------------------- -----------------------------
/s/ Dennis B. Ragsdale Its: Vice President
- ---------------------------- --------------------------------
Borrower's Taxpayer
Identification/Social
Security Number: 76-0437305
Borrower's
Address:
5847 San Felipe, Suite 850
--------------------------------
Houston, Texas 77057-3005
--------------------------------
- 7 -
<PAGE> 1
EXHIBIT 10.12
Prepared by:
DONALD E. JACKSON
P. O. Box 167
Amarillo, Texas 79105-0167
PROMISSORY NOTE
$1,058,900.00 June 11, 1994
FOR VALUE RECEIVED, the undersigned, UIRT-W-MCMINN, INC., A TENNESSEE
CORPORATION, whose mailing address is 5847 SAN FELIPE, SUITE #850, HOUSTON,
TEXAS 77057, promises to pay to the order of CONSECO MORTGAGE CAPITAL, INC., A
DELAWARE CORPORATION, or its assigns, at its principal office located at 205
East Tenth Street, Amarillo, Potter County, Texas, or at such other place as may
be designated in writing by the holder of this Note, the principal sum of ONE
MILLION FIFTY EIGHT THOUSAND NINE HUNDRED AND NO/100 DOLLARS ($1,058,900.00), in
lawful money of the United States of America which shall be legal tender in
payment of all debts and dues both public and private at the time of payment,
and to pay interest on the advanced balance owing thereon from the date of
advancement until maturity at the rate of seven and five-eighths percent
(7.625%) per annum, payable monthly, in arrears. The interest will be calculated
on the basis of the actual number of days elapsed but computed as if each year
consisted of 360 days. Said Note is payable as follows:
The principal and interest shall be payable in 101 consecutive monthly
installments of $14,237.93 each, due and payable on the first day of each and
every calendar month hereafter, beginning on July 1, 1994, until paid in full,
notwithstanding anything to the contrary contained herein, all monies not
previously paid in accordance with the terms and provisions hereof shall be due
and payable on NOVEMBER 1, 2002. Installments as paid monthly to be applied
first in satisfaction of all interest due hereon, at the rate herein stated;
and, second, to the principal hereof.
The July 1, 1994, payment will be reduced by an amount equal to $224.28
times the number of days that elapse from June 1, 1994, up to, but not
including, the date of funding. All other payments will be in the amount of
$14,237.93.
No privilege is reserved to prepay this Note, either in whole or in
part, except as follows:
This Note cannot be prepaid in full or in part during the first five
(5) years. The right is reserved in the Makers hereof to prepay this Note in
full or in part on any principal paying date,
<PAGE> 2
commencing with the 6th year, by paying a premium on the then outstanding
principal balance prepaid as follows: during the 6th loan year at 5% and
reducing 1% per annum thereafter to a minimum of 2%, which percentage will
remain applicable until 120 days prior to the maturity of this Note. The
prepayment penalty will not apply to any payment made out of insurance or
condemnation proceeds, nor to a required prepayment pursuant to the proceeding
paragraph.
All past due principal and interest of this Note shall bear interest
from maturity at the rate of 18% per annum.
The holder of this Note may collect a late charge not to exceed an
amount equal to 4% of that portion of the monthly installment which is not paid
within fifteen (15) days from the due date thereof for the purpose of covering
the extra expenses involved in handling delinquent installments.
In the event there is a default in the payment of principal or
interest or of any installment due hereunder; or default in the performance or
observance of any obligation, term, covenant, agreement or condition contained
in the Note or the Deed of Trust, or any instrument now or hereafter evidencing
or securing the payment of this Note, either in whole or in part, or if the
Makers hereof should become insolvent, admit in writing an inability to pay
debts as they mature, make an assignment for the benefit of creditors, commit
an act of bankruptcy, file a petition in bankruptcy, be adjudicated bankrupt or
insolvent, petition or apply to any court or tribunal for any receiver or
trustee of the Makers to be appointed by any court or tribunal, such shall be
deemed to be an event of default, and should any such event of default listed
hereinabove in this paragraph continue uncorrected for a period of thirty (30)
days after written notice to Makers of such default then, and in any such
event, at the option of the holder hereof, this Note shall immediately become
due, payable and collectible, regardless of the date of maturity hereof, and
forthwith, without demand, notice of nonpayment, presentment, protest, notice
of dishonor, or any further action of any kind or nature, all of which are
expressly waived by the Makers hereof, and all endorsers, sureties, guarantors
and all other person who may become liable for all or any part of this
obligation, the holder hereof shall have the right to exercise any remedies
provided for by the State of Texas, and in the state in which the lands
securing payment of this Note is located. Written notice to Maker shall be
deemed to be given on the earlier of the second business day following the date
notice is deposited in the United States Mail by certified or registered mail,
return receipt requested, with proper amounts of postage affixed thereto, the
day following the date on which the
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<PAGE> 3
notice is delivered to a nationally recognized overnight courier (Federal
Express, United Parcel Service, or a similar courier), or the date on which the
notice is actually received. If the notice is delivered by electronic
transmission, the cure period commences upon the date the notice is delivered.
All notices will be addressed to the Maker hereof, UIRT-W-MCMINN, INC., at 5847
San Felipe, Suite #850, Houston, Texas 77057, or at such other address or
addresses as the Maker hereof may designate in writing to the holder hereof.
Provided, further, no delay or failure by holder hereof in exercising any of
its rights or remedies hereunder shall operate as a waiver thereof or preclude
the exercise thereof during the continuance of any default hereunder. If the
event of default is such that it cannot be cured within the thirty (30) day
period, the Noteholder shall not have the privilege of accelerating the
maturity hereof if Maker, or its successor, takes action within the thirty (30)
day period to start to cure the event of default and proceeds diligently and
without interruption until the event of default is fully cured. If, after
commencing to cure the default Maker ceases its efforts to cure, Noteholder
hereof may at that time exercise all of the remedies available to it.
In the further event there is a default under the terms of this Note,
the Deed of Trust and Security Agreement or any other document securing payment
of this Note, and as a result of such default, the holder hereof accelerates
the maturity of the indebtedness and if as a result of the acceleration the
Makers hereof or any person acting on behalf of or in concert with the Makers
hereof pays the Note in full or in part prior to its regularly scheduled
maturity dates or in the event the Note holder forecloses its lien upon the
property securing payment hereof, such payment made to the Note holder, either
by the Makers or some person, persons or corporation acting for and on behalf
of or in concert with the Makers hereof or by virtue of any foreclosure of the
lien securing payment of this Note shall be treated as a voluntary prepayment
and as such all unpaid balances paid before its regularly scheduled due date as
set forth in this Note shall be subject to a prepayment penalty equal to the
difference, if any, between the interest which would have accrued under this
Note and interest which would accrue at the rate of interest then being charged
by payee on loans in the amount then due hereunder, having a term equal to the
remaining term of this Note. In no event shall any amount paid as a prepayment
penalty ever be considered to be interest but shall be considered to be a
separate contractual payment made for the privilege of prepaying the Note prior
to its scheduled maturity date. Notwithstanding anything to the contrary, this
paragraph shall never be deemed to expand or grant to the Maker hereof of any
successor or assign of the Maker hereof the right or privilege of prepaying the
Note unless the same is otherwise
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<PAGE> 4
specifically granted or reserved in this document. After the expiration of five
(5) years the prepayment penalty set forth on Page 1 hereof will apply.
If, and as often as this Note is placed in the hands of an attorney
for collection after the same shall for any reason become due, or if collected
by legal procedures or through the probate or bankruptcy courts, or under
foreclosure or legal proceedings under the Deed of Trust, or any other
instrument now or hereafter securing this payment of this Note, Makers hereof
agree to pay to the holder hereof a reasonable attorney's fee, together with
all court costs and other expenses paid by such holder which shall be collected
as part of the principal hereof.
The undersigned Makers hereof expressly agree to remain and continue
bound for the payment of the principal and interest provided for by the terms
of this Note, notwithstanding any extension or extensions of the time of or for
the payment of said principal and/or interest, or any change or changes by way
of release, exchange or surrender of any collateral and/or real estate held as
security for this Note, and waives all and every kind of notice of such
extension or extensions, change or changes, and agrees that the same may be
made without the joinder of the undersigned Makers.
All Makers, endorsers, sureties and guarantors hereof, as well as all
persons to become liable on this Note, hereby jointly and severally waive
demand or presentment for the payment of this Note, notice of nonpayment
(except as set forth above), protest, notice of protest, suit, diligence or any
other action of defense on account of the extension of time of payment or
change in the method of payment of this Note, and consent to any and all
renewals and extensions of the time of payment hereof.
The records of the holder of this Note shall be prima facie evidence
of the amount owing on this Note, subject to evidence of payment by the Makers
hereof.
If for any reason the interest imposed upon monies owing under the
terms of this Note should be in excess of the amount allowed by law, then such
excess monies shall not be deemed to be usurious, or interest, and shall be
applied toward the reduction of principal to the extent principal monies are
owed, and any excess over and above principal monies owed shall be refunded to
borrower.
The loan evidenced by this Promissory Note was negotiated in the State
of Texas and it is understood and agreed by the Makers hereof that the laws of
the State of Texas will apply to this Note
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<PAGE> 5
and to the loan in all respects, except the laws of the State of Tennessee will
control and govern any foreclosure of the lien.
Payment of this Note is secured by a Deed of Trust and Security
Agreement on properties in the County of McMinn, State of Tennessee described
on the Exhibit "A" attached hereto. Payment is also secured by an Assignment of
Leases, Assignment of Rents, and a Financing Statement, all of which are
executed by the Makers hereof.
Notwithstanding anything to the contrary contained herein, the
liability of the Makers under this Note shall be enforceable only out of the
Deed of Trust and Security Agreement, and any other collateral for this Note
now or hereafter mortgaged, pledged or assigned in writing by the Makers to the
holder of this Note. The holder of this Note by accepting this Note agrees that
it will look solely to the Property and the rents, issues, and profits
therefrom for the payment of the indebtedness secured hereby, and all other
amounts required to be paid under the terms of the Loan Documents and any other
document executed in connection herewith and not to Maker, the partners of
Maker, or the officers, directors, or shareholders of Maker, except as provided
herein. The holder of this Note further agrees that in connection with any
action to foreclose or enforce any provisions of the Loan Documents or any
other document executed in connection herewith, the holder hereof will not seek
any deficiency judgment against Maker or the partners of Maker, or the
officers, directors, or shareholders of Maker; provided, however, that nothing
in this paragraph shall be, or be deemed to be, a release or impairment of said
indebtedness or the lien created by the Deed of Trust upon the Property or
preclude the holder hereof from suing upon this Note and foreclosing the Deed
of trust in case of any default or defaults hereunder or under the Deed of
Trust or from enforcing any of its rights, including any remedy of injunctive
or other equitable relief provided; the lien of any judgment against the Makers
in any proceeding instituted on, under, or in connection with this Note or said
Deed of Trust, or both, shall not extend to any property now or hereafter owned
by Makers or any partners of Makers other than the Property, and any other
security specifically assigned or pledged for the payment of this Note; and
provided further, however, Maker hereof and any partner of Maker shall be and
shall remain personally liable for the following:
(a) all loss, damage, cost, and expense, including, without
limitation, attorneys' fees, suffered by Noteholder as a
result of a breach of Maker's warranties and representations
of this Note or as a result of the intentional or negligent
waste of the Property;
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<PAGE> 6
(b) all rents, revenues, issues, and profits from the Property
received during the period of any default under this Note or
after acceleration of the indebtedness and other sums owing
under the note and the Deed of Trust; and not applied to
payment of the Note or other sums due under the Loan Documents
or to the payment of the normal operating expenses of the
Property;
(c) all rents from the Property collected more than one (1) month
in advance which are not earned at the time of the occurrence
of any event of default under the Deed of Trust; and which are
not applied to the payment of the Note or other sums due under
the Loan Documents or to the payment of normal operating
expenses of the Property;
(d) all insurance proceeds and condemnation awards in respect of
the Property which are not applied in accordance with the
provisions of the Deed of Trust;
(e) any and all of Noteholder/Mortgagee's costs, losses, expenses,
damages, or liabilities, including, without limitation, all
reasonable attorneys' fees, directly or indirectly arising out
of or attributable to the use, generation, storage, release,
threatened release, discharge, disposal, or presence on, under
or about the Property of any materials, waste, or substances
defined or classified as hazardous or toxic under federal,
state or local laws or regulations.
UIRT-W-MCMINN, INC.,
a Tennessee Corporation
By:/s/ Kenneth A. McGaw
------------------------------------
Kenneth A. McGaw, President
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<PAGE> 7
EXHIBIT "A"
TO INSTRUMENTS DATED JUNE 11, 1994 EXECUTED BY
UIRT-W-MCMINN, INC.,
A TENNESSEE CORPORATION IN FAVOR OF
CONSECO MORTGAGE CAPITAL, INC.,
A DELAWARE CORPORATION
SITUATED in District No. One (1) of McMinn County, Tennessee, within
the corporate limits of the City of Athens, Tennessee, and being known and
designated as the Wal-Mart Tax Lease Area as shown on the plat of record in
Cabinet B, Slide 92, in the McMinn County Register's Office, and being more
fully described as follows:
BEGINNING at an iron pin in the South line of Decatur Pike, said iron
pin being located 482 feet, more or less, in a Northwesterly direction from the
point of intersection of the South line of Decatur Pike and the West line of
Old Riceville Road; thence from said point of BEGINNING leaving Decatur Pike,
S.00 26'E., 116.50 feet to an iron pin corner to Pounders; thence S.44 08'E.,
156.30 feet to an iron pin in the line of Family Dollar; thence with said line,
S.00 26'E., 49.30 feet to an iron pin; thence continuing with said fine; S.33
11'E., 79.40 feet to an iron pin in the line of Old Riceville Road; thence with
the line of Old Riceville Road, S.45 52'W., 416.33 feet to a point; thence
leaving Old Riceville Road, a severance line, N.44 02'W., 273.24 feet to a
point; thence N.45 58'E., 4.67 feet to a point; thence N.43 35'W., 188.30 feet
to a point in the line of Davidson; thence with said line, N.43 39'E., 26.55
feet to an iron pin; thence N.32 23'E., 327.00 feet to an iron pin in the South
line of Decatur Pike; thence with the South line of Decatur Pike, N.89 23'E.,
268.20 feet to the point of BEGINNING.
The foregoing description was prepared from the survey of Richard E.
LeMay, R.L.S. No. 769. The Surveyor's address is 1508 Coleman Road, Knoxville,
Tennessee, 37909.
BEING part of the same property conveyed to Horne Properties I, Ltd.
by Deeds dated July 27, 1982, of record in Deed Book 9-H, Page 450, Deed Book
9-H, Page 452, Deed Book 9-H, Page 454, and Deed Book 9-H, Page 448, all in the
McMinn County Register's Office.
TOGETHER with easements established pursuant to Declaration of
Easements, Covenants and Restrictions recorded in Deed Book _____, Page _____,
in the McMinn County Register's Office.
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<PAGE> 1
EXHIBIT 10.13
NOTE SECURED BY DEED OF TRUST
$3,400,000.00 Phoenix, Arizona
November 9, 1990
THIS NOTE SECURED BY DEED OF TRUST ("Note") is made as of the 9th day
of November, 1990, by GEORGE I. BROWN, a single man, and GEORGE I. BROWN, as
Trustee of the Waipio Trust II, (collectively, "Borrower"), to the order of THE
TRAVELERS INSURANCE COMPANY, a Connecticut corporation ("Lender").
1. DEFINITIONS.
Borrower agrees that, for the purposes of this Note, the following
terms shall have the following respective meanings ascribed thereto.
1.1 "Dollars" shall mean dollars in lawful currency of The United
States of America.
1.2 "Default Rate" shall mean Four Percent (4%) per annum in excess of
the Interest Rate but not in excess of the maximum interest rate permitted by
law.
1.3 "Interest Rate" shall mean Nine and Five-Eighths Percent (9.625%)
per annum.
1.4 "Loan Year" shall mean the period of twelve(12) consecutive
calendar months next following the month in which all or any part of the
Original Principal Amount is first advanced by Lender to or for the benefit of
Borrower and each period of twelve (12) consecutive calendar months thereafter
to and including the Maturity Date; provided, however, if all or any part of the
Original Principal Amount is first advanced on the first day of a calendar
month, the Loan Year shall include the month in which the Original Principal
Amount is so advanced.
1.5 "Maturity Date" shall mean the fifth (5th) anniversary of the date
of this Note, or (except for purposes of Paragraph 2.2 hereof) such earlier date
the entire Outstanding Principal Balance and accrued and unpaid interest
thereon, and any other sums which are due and payable pursuant to the terms and
provisions of this Note, are due and payable by reason of the acceleration of
the maturity of this Note.
1.6 "Original Principal Amount" shall mean Three Million Four Hundred
Thousand And No/100 Dollars ($3,400,000.00).
1.7 "Outstanding Principal Balance" shall mean the aggregate of all
sums advanced by Lender to or for the benefit of Borrower hereunder and not
repaid.
1.8 "Payment Date" shall mean the first day of January, 1991 and the
first day of each month thereafter during the term hereof.
<PAGE> 2
1.9 "Term" shall mean the period of sixty (60) consecutive calendar
months next following the month in which all or any part of the Original
Principal Amount is first advanced by Lender to or for the benefit of Borrower;
provided, however, if all or any part of the Original Principal Amount is first
advanced on the first day of a calendar month, the Term shall include the month
in which the Original Principal Amount is so advanced.
2. PAYMENT OF INTEREST AND PRINCIPAL.
For Value Received, Borrower hereby promises to pay to the order of
Lender the principal amount of Three Million Four Hundred Thousand And No/100
Dollars ($3,400,000.00), together with interest as provided hereinbelow as
follows:
2.1 Payment of Interest and Principal.
(a) Interest shall accrue on the Outstanding Principal Balance
at the Interest Rate.
(b) Interest only on the Outstanding Principal Balance shall
be payable in arrears at the Interest Rate in equal monthly
installments on each Payment Date following the date hereof until the
end of the second (2nd) Loan Year. If at the date set forth above for
the first Payment Date, interest has accrued for a period of more than
thirty (30) days, said first monthly installment shall be increased to
the extent that the amount of interest accrued exceeds thirty (30)
days' interest.
(c) Interest and principal shall be payable in equal monthly
installments based upon a thirty (30) year amortization of the
Outstanding Principal Balance with interest at the Interest Rate (which
installments are estimated to be $28,899.64 per month), commencing on
the first day of the third (3rd) Loan Year and on each Payment Date
thereafter.
(d) The Outstanding Principal Balance shall be payable in full
on the Maturity Date.
2.2 Prepayment.
Upon thirty (30) days' prior written notice to Lender, Borrower may
prepay this Note in full (but not in part except by application of insurance and
condemnation proceeds) by paying, in addition to the Outstanding Principal
Balance hereof, interest accrued hereon and all other amounts due under this
Note and the Deed of Trust (as defined below), and a prepayment premium equal to
the greater of:
(i) An amount equal to the product of: (A) one
percent (1%) of the Outstanding Principal Balance thereof
multiplied by (B) the quotient of the number of full and
partial months remaining to the Maturity Date as of the
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<PAGE> 3
date prepayment will be made, divided by the number of
full and partial months comprising the Term, or;
(ii) An amount determined by: (A) multiplying the
amount, if any, by which the Interest Rate (payable monthly)
exceeds the Monthly Treasury Yield (as hereinafter defined),
by (B) the amount of the Outstanding Principal Balance hereof
as of the date prepayment will be made, and (C) dividing the
product thereof by twelve (12) to obtain the cash flow amount
to be received each month or partial month from the date
prepayment will be made to the Maturity Date; this series of
monthly cash flow amounts will then be (D) discounted to a
present value utilizing (i) a discount rate equal to the
Monthly Treasury Yield divided by twelve (12), and (ii) the
Number of Months Remaining to the Maturity Date (as
hereinafter defined) as of the date prepayment will be made.
The "Monthly Treasury Yield" is defined as the semi-annual yield or
average semi-annual yield available on United States Treasury instruments having
a maturity date closest to (before, on, or after) the Maturity Date, as reported
in the Wall Street Journal or similar publication on the fifth business day
preceding the date prepayment will be made, converted to a monthly equivalent
yield. The "Number of Months Remaining to the Maturity Date" is defined as the
number of months or partial months remaining to the Maturity Date as of the date
prepayment will be made, rounded to two decimal places.
No partial prepayment of this Note is permitted except in the event of
an application of insurance or condemnation proceeds. Notwithstanding the
foregoing, no prepayment premium shall be payable if Borrower voluntarily
prepays this Note in full within the last three (3) calendar months immediately
preceding the Maturity Date and on the date such prepayment is made Lender has
not exercised and is not entitled to exercise its acceleration rights under
Paragraph 3.2 hereof. Except as hereinabove set forth, no full or partial
prepayments of principal shall be allowed.
Borrower acknowledges that it possesses no right to prepay the Note
except as expressly provided herein. For the purposes of this Note, prepayment
shall mean any event whereby the debt evidenced by this Note is fully or
partially satisfied prior to its Maturity Date in any manner, whether
voluntarily or involuntarily (excluding scheduled payments required hereunder or
the receipt of insurance or condemnation proceeds) including, without
limitation, any payment after Default (as defined below), any payment after the
Maturity Date is accelerated, any payment by any holder of a subordinate
interest in the Premises (as defined below), any payment by any sale or transfer
pursuant to judicial order or trustee's sale under the Deed of Trust or deed in
lieu thereof, or any payment by sale or other method under any bankruptcy or
insolvency proceedings. Lender shall not be required to accept any prepayment if
it does not include payment of the required premium.
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<PAGE> 4
Upon acceleration of the maturity of this Note, the prepayment premium shall be
the amount that would be due if a voluntary prepayment were allowed and made at
the time of such acceleration. Borrower and Lender agree that if this Note is
prepaid for any reason (other than by application of insurance or condemnation
proceeds, which application shall not result in payment of a prepayment premium)
Lender shall receive the applicable prepayment premium as partial compensation
for the cost of reinvesting the prepayment proceeds and for the loss of the
contracted rate of return on this Note and that the amount of the applicable
prepayment premium is reasonable Borrower agrees that Lender shall not be
obligated, as a condition precedent to its receipt of the prepayment premium
provided for, to actually reinvest all or any part of the amount prepaid in any
Selected Treasury Instrument(s), or in any other United States Treasury
Instruments or obligations.
2.3 Default Interest. Subsequent to a Default, any principal or accrued
interest not paid when due shall bear interest at the Default Rate.
2.4 Principal and Interest at Maturity. The entire Outstanding
Principal Balance and accrued and unpaid interest thereon, and any and all other
sums which are due and payable pursuant to the terms and provisions of the Note,
the Deed of Trust or the other Loan Documents (as defined in the Deed of Trust)
shall be due and payable on the Maturity Date.
2.5 Calculation of Interest. All interest on this Note shall be
calculated on the basis of twelve 30-day months, provided, however, that for
portions of the Outstanding Principal Balance which are outstanding for less
than a full calendar month, interest on such portion of the Outstanding
Principal Balance shall be calculated on the basis of a 365-day year and the
actual number of days elapsed in any portion of a month for which interest may
be due on such portion of the Outstanding Principal Balance.
2.6 Application of Payments Prior to Default. Prior to the invocation
of the terms and provisions of Paragraph 3.2 hereof, all monies paid by Borrower
to Lender shall be applied in the following order of priority: (a) first, toward
repayment of all amounts advanced by Lender under the provisions of the Loan
Documents to protect and preserve the collateral (if any); (b) next, toward
payment of the "Tax and Insurance Deposits" required under Paragraph 9(a) of the
Deed of Trust (as hereinafter defined); (c) next, toward payment of all amounts
due and owing pursuant to Paragraph 3.5 hereof (if any); (d) next, toward
payment of all amounts due and owing pursuant to Paragraph 3.4 hereof (if any);
(e) next, toward payment of interest which has accrued on the Outstanding
Principal Balance and which is due and payable; (f) next, toward the payment of
all amounts due and owing pursuant to Paragraph 2.2 hereof (if any); and (g)
last, toward payment of the Outstanding Principal Balance.
2.7 Payments after Default. All unpaid interest that has accrued on the
Outstanding Principal Balance, whether prior or
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<PAGE> 5
subsequent to the occurrence of the Default, shall be paid at the time of, and
as a condition precedent to, the curing of the Default. While any Default
exists, Lender is expressly authorized to apply payments made to it as it may
elect against (1) any or all amounts, or portions thereof, then due and payable
hereunder, (2) the Outstanding Principal Balance, or (3) any combination
thereof.
2.8 Place of Payment. Payments and prepayments to be made under this
Note are to be made at such place as the legal holder of this Note may from time
to time in writing appoint, and, in the absence of such appointment, then at the
following address:
The Travelers Insurance Company
P. O. Box 01433
San Francisco, California 94139
Account No. 205607
3. SECURITY, DEFAULTS, AND REMEDIES.
3.1 Security for Payment. The payment of this Note is secured by, among
other things, a Deed of Trust and Security Agreement with Assignment of Rents
and Leases and Fixture Filing (the "Deed of Trust"), of even date herewith made
by Borrower, as Trustor, to American Title Insurance Company, as Trustee, in
favor of Lender, as Beneficiary, constituting a first lien on certain real
estate in the City of Phoenix, County of Maricopa, State of Arizona, commonly
known as Park Northern Shopping Center (the "Premises"). By this reference, the
Deed of Trust is incorporated by reference as if fully set forth herein.
3.2 Occurrence of Default; Acceleration of Maturity Date. It is agreed
that upon occurrence of any of the following events of default under this Note
(a "Default"):
(a) default in the payment of principal or interest when
due; or
(b) occurrence of a Prohibited Transfer under the Deed of
Trust (as defined therein); or
(c) default in the performance or observance of any other
covenant or agreement of Borrower contained herein which is not cured
within twenty (20) days after receipt by Borrower of written notice of
such default; or
(d) occurrence of any Default under the Deed of Trust (as
defined therein); or
(e) occurrence of any default under any secondary junior
financing obtained by Borrower, repayment of which is secured by a
security interest granted in any part or all of the Premises; or
(f) occurrence of any Default (as defined therein) under any
of the other Loan Documents,
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<PAGE> 6
then, at any time thereafter, at the election of the holder or holders hereof
and without additional notice to Borrower, the principal sum remaining unpaid
hereon, together with accrued interest thereon, shall become at once due and
payable at the place of payment as aforesaid, and Lender may proceed to exercise
any rights and remedies available to Lender under the Deed of Trust and the
other Loan Documents, and to exercise any other rights and remedies against
Borrower or with respect to this Note which Lender may have at law, in equity or
otherwise.
3.3 Nature of Remedies. The remedies of Lender as provided herein or in
the Deed of Trust or any of the other Loan Documents, shall be cumulative and
concurrent, and may be pursued singularly, successively or together, at the sole
discretion of Lender, and may be exercised as often as occasion therefor shall
arise. Failure of Lender, for any period of time or on more than one occasion,
to exercise its option to accelerate the Maturity Date of this Note shall not
constitute a waiver of the right to exercise the same at any time thereafter or
in the event of any subsequent Default. No act of omission or commission of
Lender, including specifically any failure to exercise any right, remedy or
recourse, shall be deemed to be a waiver or release of the same; any such waiver
or release is to be effected only through a written document executed by Lender
and then only to the extent specifically recited therein. A waiver or release in
connection with any one event shall not be construed as a waiver or release of
any subsequent event or as a bar to any subsequent exercise of Lender's rights
or remedies hereunder. Unless otherwise specifically set forth herein, notice of
the exercise of any right or remedy granted to Lender by this Note is not
required to be given.
3.4 Payment of Attorneys' Fees and Costs. If: (i) this Note or any Loan
Document is placed in the hands of an attorney for collection or enforcement or
is collected or enforced through any legal proceeding; (ii) if an attorney is
retained to represent Lender in any bankruptcy, reorganization, receivership, or
other proceedings affecting creditors' rights and involving a claim under this
Note or any of the Loan Documents; (iii) if an attorney is retained to protect
or enforce the lien of the Deed of Trust or any of the Loan Documents; or (iv)
if an attorney is retained to represent Lender in any other proceedings
whatsoever in connection with this Note, the Deed of Trust, any of the Loan
Documents or any property subject thereto, then Borrower shall pay to Lender all
reasonable attorneys' fees, costs and expenses incurred in connection therewith,
in addition to all other amounts due hereunder.
3.5 Late Charge. If any installment of interest or principal is not
paid when due, Borrower shall pay to Lender a late charge of Four Percent (4%)
of the amount so overdue in order to defray part of the expense incident to
handling such delinquent payment or payments. Such late charge shall be in
addition to and separate from any increase in interest due hereunder as a result
of calculation of interest due hereunder at the Default Rate.
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<PAGE> 7
4. OTHER GENERAL AGREEMENTS.
4.1 Notices. Any notice which any party hereto may desire or may be
required to give to any other party hereto shall be in writing, and shall be
deemed given (i) if and when personally delivered, (ii) upon receipt if sent by
a nationally recognized overnight courier addressed to a party at its address
set forth below, or (iii) on the third (3rd) business day after being deposited
in United States registered or certified mail, postage prepaid, addressed to a
party at its address set forth below, or at such other place as such party may
have designated to all other parties by notice in writing in accordance
herewith:
(a) If to Borrower: 19 Hale Malia Place
Lahaina, Hawaii 96761
and
To Property Manager: Coldwell Banker Commercial
Real Estate Services
2346 North Central Avenue
Phoenix, Arizona 85004
Attention: Laura Gigante
(b) If to Lender: The Travelers Insurance Company
2121 North California Boulevard
Suite 1000
Walnut Creek, California 94596
Attention: Regional Counsel
and
The Travelers Companies
5299 DTC Boulevard, Suite 810
Post Office Box 17480
Denver, Colorado 80217-0480
Attention: Thomas Karbowski
Notwithstanding anything contained herein to the contrary, any notice to
Borrower which is not also delivered to Property Manager for any reason shall
not be deemed to be ineffective. Except as otherwise specifically required
herein, notice of the exercise of any right or option granted to Lender by this
Note is not required to be given.
4.2 Governing Law and Other Agreements. Borrower agrees that: (i) this
instrument and the rights and obligations of the parties hereunder shall be
governed by the laws of the State of Arizona, including the conflict of law
principles of such state; (ii) the obligation evidenced by this Note is an
exempted transaction under the Truth In Lending Act, 15 U.S.C. Section 1601, et
seq.; (iii) the proceeds of the indebtedness evidenced by this Note will not be
used for the purchase of registered equity securities within the purview of
Regulation "U" issued by the Board of Governors of the
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<PAGE> 8
Federal Reserve System; and (iv) upon the Maturity Date, Lender shall not have
any obligation to refinance the indebtedness evidenced by this Note or to extend
further credit to Mortgagor.
4.3 Interpretation. The headings of sections and paragraphs in this
Note are for convenience only and shall not be construed in any way to limit or
define the content, scope, or intent of the provisions hereof. As used in this
Note, the singular shall include the plural, and masculine, feminine, and neuter
pronouns shall be fully interchangeable, where the context so requires. The
parties hereto intend and believe that each provision in this Note comports with
all applicable law. However, if any provision in this Note is found by a court
of law to be in violation of any applicable law, and if such court should
declare such provision of this Note to be unlawful, void or unenforceable as
written, then it is the intent of all parties to the fullest possible extent
that it is legal, valid and enforceable, that the remainder of this Note shall
be construed as if such unlawful, void or unenforceable provision were not
contained therein, and that the rights, obligations and interests of Borrower
and the holder hereof under the remainder of this Note shall continue in full
force and effect; provided, however, that if any provision of this Note which is
found to be in violation of any applicable law concerns the imposition of
interest hereunder, the rights, obligations and interests of Borrower and Lender
with respect to the imposition of interest hereunder shall be governed and
controlled by the provisions of Paragraph 4.5 hereof. Time is of the essence of
this Note.
4.4 Waiver. Borrower and any and all others who are now or may become
liable for all or part of the obligations of Borrower under- this Note
(collectively the "Obligors") agree to be jointly and severally bound hereby and
jointly and severally, to the extent permitted by law and, except as may be
limited by Section 4.7 below: (i) waive and renounce any and all redemption and
exemption rights and the benefit of all valuation and appraisement privileges
against the indebtedness evidenced by this Note or by any extension or renewal
hereof; (ii) waive presentment and demand for payment, notices of nonpayment and
of dishonor, protest of dishonor, and notice of protest; (iii) waive all notices
in connection with the delivery and acceptance hereof and all other notices in
connection with the performance, default, or enforcement of the payment hereof
or hereunder; (iv) waive any and all lack of diligence and delays in the
enforcement of the-payment hereof; (v) agree that the liability of each of
Obligors shall be unconditional and without regard to the liability of any other
person or entity for the payment hereof, and shall not in any manner be affected
by any indulgence or forbearance granted or consented to by Lender to any of
them with respect hereto; (vi) consent to any and all extensions of time,
renewals, waivers, or modifications that may be granted by Lender with respect
to the payment or other provisions hereof, and to the release of any security at
any time given for the payment hereof, or any part thereof, with or without
substitution, and to the release of any person or entity liable for the payment
hereof; and (vii) consent to the addition of any and all-other makers,
endorsers, guarantors, and other obligors for the payment hereof,
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<PAGE> 9
and to the acceptance of any and all other security for the payment hereof, and
agree that the addition of any such obligors or security shall not affect the
liability of any of Obligors for the payment hereof.
4.5 Rate of Interest. Borrower agrees to an effective rate of interest
that is the rate stated in Paragraph 1.3 above plus any additional rate of
interest resulting from any other charges in the nature of interest paid or to
be paid in connection with this Note.
4.6 Successors Lenders and Assigns. Upon any endorsement, assignment,
or other transfer of this Note by Lender or by operation of law, the term
"Lender," as used herein, shall mean such endorsee, assignee, or other
transferee or successor to Lender then becoming the holder of this Note. This
Note shall inure to the benefit of Lender and its successors and assigns and
shall be binding upon the undersigned and its successors and assigns. The terms
"Borrower" and "Obligors," as used herein, shall include the respective
successors, assigns, legal and personal representatives, executors,
administrators, devisees, legatees and heirs of Borrower and any other Obligors.
4.7 No Personal Liability. Without in any manner releasing, impairing
or otherwise affecting this Note, the Deed of Trust or any other instrument
securing this Note or the validity thereof or hereof or the lien thereof, there
is no personal liability of Borrower or any corporation, partnership,
individual, or firm which is a present or future partner of Borrower, or of any
present or future partner of Borrower, or any of their respective successors or
assigns, hereunder or under any of the other Loan Documents entered into for the
loan evidenced hereby, and no monetary or deficiency judgment shall be sought or
enforced against Borrower or any corporation, partnership, individual, or firm
which is a present or future partner or present or future constituent entity of
Borrower, or of any present or future partner of Borrower, or any of their
respective successors or assigns; provided, however, that a judgment may be
sought against Borrower to the extent necessary to enforce the rights of Lender
in, to, or against the Premises securing the indebtedness evidenced by this Note
and covered by the Deed of Trust and the other Loan Documents. Notwithstanding
any of the foregoing, nothing contained in this paragraph shall be deemed to
prejudice the rights of Lender: (1) to recover all loss, damage, cost and
expense (including attorneys fees) incurred by Lender as a result of breach of
Borrower's warranties, representations and covenants contained in Paragraph 36
or Paragraph 43 of the Deed of Trust, or in Paragraph 6(d) of that certain
Mortgage Loan Application executed by Borrower on September 25, 1990 (the
"Application") or as a result of intentional or negligent waste of the Premises;
(2) to recover all rents, revenues, issues and profits from the Premises (a)
received during the period of any default under the Loan Documents or after
acceleration of the indebtedness and other sums owing under the Loan Documents
and (b) not applied to payment of such indebtedness or other sums or to payment
of the normal operating expenses of the Premises; (3) to recover all rents from
the Premises collected more
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<PAGE> 10
than one (1) month in advance which are not earned at the time of occurrence of
any default under the Loan Documents and which are not applied to payment of the
aforesaid indebtedness or other sums or to payment of the normal operating
expenses of the Premises; (4) to recover all insurance proceeds and condemnation
awards in respect of the Premises which are not applied in accordance with the
provisions of the Loan Documents; and (5) to recover any portion of the
Transaction Fee (as defined in the Application) not paid as provided in the
Application. Borrower promises to pay to Lender all amounts described in clauses
(1) through (5) above on demand by Lender and agrees that it will be personally
liable for payment of all such sums.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of
the day and year first above written.
/s/ George I. Brown
-------------------------------
GEORGE I. BROWN, a single man
/s/ George I. Brown
--------------------------------
GEORGE I. BROWN, as Trustee of
the Waipio Trust II
BORROWER
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<PAGE> 1
EXHIBIT 10.14
EARNEST MONEY CONTRACT
THIS CONTRACT is made by and between BALOUS MILLER, JOHN K. MILLER,
DOUGLAS MILLER AND LOUIS VANCE (collectively, whether one or more, the "Seller")
and UNITED INVESTORS REALTY TRUST, a Texas real estate investment trust
("Buyer"). In consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Seller and Buyer agree as follows:
ARTICLE I
The Property
Subject to the terms and provisions of this Contract, Seller agrees to
sell to Buyer, and Buyer agrees to purchase from Seller, all of the following
described property (collectively, the "Property"):
(a) A certain tract of land located in Bexar County, Texas,
being described more fully on Exhibit "A" which is attached hereto and
incorporated herein by reference ( the "Land"). The Land also includes
any interest of Seller in and to (i) any strips or gores between the
property described on Exhibit "A" and all abutting properties and (ii)
any land lying in or under the bed of any street, alley, road or right
of way, opened or proposed, abutting or adjacent to the Land;
(b) Any and all buildings, fixtures, improvements, structures
and personal property situated on the Land;
(c) All rights in and to roads, rights-of-way, ingress and
egress easements relating to the Land, and all other rights of access
thereto;
(d) All mineral rights owned and held by Seller relating to
the Land, whether surface or subsurface, or otherwise;
(e) All site plans, surveys, soil and substrata studies, plans
and specifications, engineering plans and studies and other plans,
diagrams or studies of any kind, if any, in Seller's possession or
control which relate to the Land;
(f) All rights, privileges, tenements, hereditaments,
reversionary interests, appendages, appurtenances, riparian or littoral
rights belonging in or in anywise appertaining to the Land; and
(g) All rights, titles and interests of Seller in and to any
award or awards heretofore or hereafter made by any municipal, county,
state or federal authority or board to the present and all subsequent
owners of the Land.
<PAGE> 2
ARTICLE II
Purchase Price
2.1 Purchase Price. The total purchase price ("Purchase Price") for the
Property equals the sum of Three Million Two Hundred Twenty-Two Thousand Nine
Hundred and No/100 Dollars ($3,222,900.00), subject to adjustment as provided in
Section 3.2 hereof, payable in cash in full at Closing.
2.2 Earnest Money Deposit. On the date of this Contract, Buyer hereby
delivers to Alamo Title Company, 950 East Basse Road, San Antonio, Texas 78209,
Attn. Don Walker (the "Title Company"), the sum of $50,000.00 as Buyer's Earnest
Money Deposit (herein so called) which shall be held by the Title Company in
escrow in an interest-bearing account. Interest earned thereon shall be held for
the benefit of Buyer, provided that at the Closing, the earnest money deposit
and interest thereon shall be credited against the Purchase Price. If the
Closing is not held by reason of a Permitted Termination, the Earnest Money
Deposit and interest shall be returned to Buyer. If the Closing is not held for
any other reason, the Earnest Money Deposit shall be disbursed as provided for
herein and the interest shall be paid to the party otherwise entitled to receive
the Earnest Money Deposit.
ARTICLE III
Title, and Survey
3.1 Title Commitment. Seller shall, as soon as possible but not later
than fifteen (15) days from the date of this Contract, cause to be furnished to
Buyer a current standard Texas form of Commitment for Owner Policy of Title
Insurance (the "Title Commitment"), issued through the Title Company, describing
the Land (which legal description, unless and to the extent modified by the
survey prescribed in Section 3.2 below, shall be deemed incorporated into this
Contract), listing Buyer as the prospective named insured and showing as the
policy amount the Purchase Price for the Property. With regard to the standard
printed exceptions and other common exceptions generally included in the Title
Commitment:
(a) The exception for restrictive covenants shall be annotated
either "None of Record" or "None of Record except the Permitted
Exceptions, as provided in Section 3.3 hereof;
(b) The exception for area and boundaries shall be annotated
to show that upon receipt by the Title Company of a satisfactory survey
the exception will at the Closing be limited to "shortages in area";
(c) The exception for ad valorem taxes shall reflect only
taxes for the current year and shall be annotated "Not yet due and
payable";
(d) There shall be no exception for "visible and apparent
easements," for "public or private roads" or similar matters;
(e) There shall be no exception for "rights of parties in
possession"; and
(f) There shall be no exception for mineral reservations or
for oil or gas pipelines.
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<PAGE> 3
3.2 Survey. Seller agrees to deliver to Buyer a copy of its existing
survey of the Property within five days of the execution of this Contract.
Thereafter, Buyer agrees to cause to be prepared and furnished to Seller and the
Title Company either an update of the aforementioned existing survey of the
Property or a new survey, prepared by a Registered Public Surveyor (the
"Surveyor") acceptable to Seller and to the Title Company (the"Survey"). The
cost of the Survey shall be initially borne by the Buyer, but Seller will
reimburse Buyer for the cost of same (but only up to the amount of $2,000.00) if
the sale contemplated hereby is consummated. To the extent requested by Buyer,
the Surveyor shall:
(a) Mark and permanently monument all of the boundaries of the
Property with substantial iron stakes in a manner which is consistent
with the highest standards of the industry;
(b) Compute and certify in writing to the total area in gross
square feet of the Property;
(c) Compute and certify in writing to the area in square feet
net of each easement, encumbrance or servitude, if any, which affects
the Property and the total gross square feet of the Property;
(d) Prepare an on-the-ground Category 1-A survey of the
Property reflecting the perimeter of the Property, accurately
reflecting each and every easement, encumbrance or servitude affecting
the Property, all improvements or other structures situated thereon and
such other matters as would normally be reflected by a plat or survey
prepared in conformity with the highest standards of the industry;
(e) Prepare a current metes and bounds description of the
Property; and
(f) Certify on the Survey as follows:
"The undersigned does hereby certify that (i) this survey was
this day made upon the ground of the property reflected
hereon, for the benefit of and reliance by Seller, Buyer, and
the Title Company, (ii) the description contained hereon is
correct, (iii) the property has access to and from a dedicated
roadway as shown hereon, (iv) except as shown hereon, there
are no discrepancies, conflicts, shortages in area,
encroachments, improvements, overlapping of improvements,
set-back lines, easements, or roadways, (v) the total acreage
and the gross and net square footage shown hereon are correct,
(vi) none of the Property lies within the 100 year flood plain
or any special flood hazard area or general hazard area as
designated by governmental agency except as shown hereon and
(vii) there is no physical evidence of possession of the
property by any party except as shown hereon."
The Survey must be satisfactory to the Title Company so as to permit it to amend
the area and boundary exception in the Owner's Title Policy to be issued to
Buyer as required herein. Buyer, if it desires, shall provide the Surveyor with
a copy of this Section 3.2 when the survey is ordered. For the purposes of this
Contract, "net square feet" means the number of square feet contained within the
boundary lines of the Property, exclusive of all land lying within any existing
or proposed streets, roads,
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<PAGE> 4
alleys, rights-of-way, easements, creeks, flood plain, water course, boundary
dispute or encroachment on or affecting the Property. The Purchase Price for the
Property shall be adjusted at the time of Closing so that such Purchase Price
shall be an amount equal to Nine Dollars ($9.00) multiplied by the number of
total gross square feet shown by such Surveyor's certification.
3.3 Review of Title and Survey. Buyer shall have a period (the "Title
Review Period") ending fifteen (15) days after the date on which Buyer receives
the last to be received as among (i) the Title Commitment, (ii) legible true
copies of all instruments referred to in the Title Commitment and (iii) the
Survey required in Section 3.2 hereof, in which to notify Seller of any
objections Buyer has to any matters shown or referred to in the Title Commitment
or the Survey, but in no event shall the Title Review Period extend beyond the
expiration of the initial 40-day Feasibility Period. Any title encumbrances or
exceptions which are set forth in the Title Commitment or the Survey and to
which Buyer does not object on or prior to the last day of the Title Review
Period shall be deemed to be permitted exceptions to the status of Seller's
title (the "Permitted Exceptions"), provided, however, that none of the
exceptions prohibited in this Contract shall be Permitted Exceptions. With
regard to items to which Buyer does object within the Title Review Period,
Seller shall have a period of ten (10) days from the date of its receipt of
Buyer's objections in which to cure such objections. If Seller is unable or
unwilling to cure such objections or fails to notify Buyer of such cure within
the ten (10) day period, Buyer may at its option waive the objections not cured
(whereupon such objections shall become Permitted Exceptions) or terminate this
Contract by written notice to Seller within five(5) days after expiration of
said ten day period.
3.4 Reports. Within 5 days of the date of this Contract, Seller agrees
to furnish to Buyer copies of all site plans, surveys, environmental reports,
plans and studies in its possession which relate to the Property.
ARTICLE IV
Representations and Warranties
4.1 Representations and Warranties of Seller.
Seller, to its current actual knowledge and belief, no diligent inquiry
or assessments having been made by or on behalf of Seller, hereby represents and
warrants as of the date hereof and as of the Closing Date that:
(a) There are no contracts or agreements outstanding (whether
for sale, exchange or otherwise) which affect any portion of the
Property or its operation;
(b) The current ownership, operation, use and occupancy of the
Property does not violate any zoning, building, health, flood control,
fire or other law, ordinance, order or regulation or any restrictive
covenant. There are no violations of any federal, state, county or
municipal law, ordinance, order, regulation or requirement, affecting
any portion of the Property and no written notice of any such violation
has been issued by any governmental authority;
(c) There is no action, suit, proceeding or claim affecting
the Property or any portion thereof, nor affecting Seller or relating
to the ownership, operation, use or occupancy of the Property pending
or being prosecuted in any court or by or before any federal, state,
county, or municipal department, commission, board, bureau or agency or
other governmental
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<PAGE> 5
instrumentality nor is any such action, suit, proceeding or claim
threatened or being asserted. There is no proceeding pending or
presently being prosecuted for the reduction of the assessed valuation
of taxes or other assessments payable in respect of any portion of the
Property;
(d) No portion of the Property is the subject of any actual or
proposed condemnation or eminent domain proceeding, or any other
litigation or proceeding, (whether for widening of streets,
installation of utilities or otherwise affecting the Property or any
portion thereof, and Seller has not received any written notice that
any such proceeding is contemplated);
(e) There is ingress and egress, for vehicular and pedestrian
traffic, to and from the Property from a public street or streets;
(f) No Hazardous Material (as defined below) has been
installed, used, generated, manufactured, treated, handled, refined,
produced, processed, stored or disposed of, in, on or under the
Property, including without limitation, the surface and subsurface
waters of the Property except in compliance with Hazardous Material
Law, nor has any activity been undertaken on or adjacent to the
Property which would cause (i) the Property to become a hazardous
waste treatment, storage or disposal facility within the meaning of,
or otherwise bring the Property within, any Hazardous Material Law (as
defined below), (ii) a release or threatened release of Hazardous
Material from or on to the Property within the meaning of, or
otherwise bring the Property under, any Hazardous Material Law, or
(iii) the discharge of Hazardous Material which would require a permit
under any Hazardous Material Law. There are no conditions with respect
to the Property which would cause a violation or support a claim under
any Hazardous Material Law, and no underground storage tanks or
underground deposits of Hazardous Materials are located on the
Property. For purposes of this representation, "Hazardous Materials"
means and includes asbestos or any substance containing asbestos,
polychlorinated biphenyls, any explosives, radioactive materials,
chemicals known or suspected to cause cancer or reproductive toxicity,
pollutants, effluents, contaminants, emissions, infectious wastes, any
petroleum or petroleum-derived waste or product or related materials
and any items defined as hazardous, special or toxic materials,
substances or waste under any Hazardous Material Law, or any material
which shall be removed from the Property pursuant to any
administrative order or enforcement proceeding or in order to place
the Property in a condition that is suitable for ordinary use.
"Hazardous Material Laws" means and includes any present local, state,
federal or international law or treaty relating to public health,
safety or the environment including without limitation, the Resource
Conservation and Recovery Act, as amended ("RCRA"), 42 U.S.C. ss.6901
et seq., the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), 42 U.S.C. ss.9601 et seq., as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. ss.1801 et seq., the
Clean Water Act, 33 U.S.C. ss.1251 et seq., the Clean Air Act, as
amended 42 U.S.C. ss.7401 et seq., the Toxic Substances Control Act,
15 U.S.C. ss.2601 et seq., the Safe Drinking Water Act, 42 U.S.C.
ss.300f et seq., the National Environmental Policy Act, 42 U.S.C.
ss.4321 et seq., the Noise Control Act, 42 U.S.C. ss.4901 et seq., and
the Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
ss.11001 et seq., and the amendments, regulations, orders, decrees,
permits, licenses or deed restrictions now or hereafter promulgated
thereunder;
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<PAGE> 6
(g) Seller is not prohibited from consummating the
transactions contemplated in this Contract, by any law, regulation,
agreement, instrument, restriction, order or judgment;
(h) There are no adverse parties in possession of the Property
or of any part thereof and no parties in possession thereof except
Seller, and no party has been granted any license, lease, or other
right relating to the use or possession of the Property;
(i) There are no attachments, executions, assignments for the
benefit of creditors, receiverships, Conservatorship or voluntary or
involuntary proceedings in bankruptcy or pursuant to any other debtor
relief laws contemplated or filed by Seller or pending against Seller
or the Property;
(j) Seller will completely discharge at or prior to Closing
(whether or not payable in installments or otherwise) any liens,
charges, security interests or other encumbrances affecting the
Property, other than assessments levied by local municipal authorities;
(k) No part of the Property lies within the portion of a flood
plain which has been designated and established as an "area of special
flood hazard" or "special hazard area" (as defined in 44 CFR 59.1) by
the most recent Flood Hazard Boundary Map or Flood Insurance Rate Map
applicable to the Property and issued by the Federal Emergency
Management Agency in connection with the National Flood Insurance
Program;
(l) No portion of the Property has been designated or assessed
for "agricultural use" or as "qualified open space land" within the
meanings of Article VIII, section 1-d or section l-d-1 of the Texas
Constitution, or the statutes codified as Section 23.46 or 23.55 of the
Texas Property Tax Code, as amended, for any period of time during
which Seller has owned the Property;
(m) There are no surface or subsurface faults, fissures or
other major geological defects or flaws which detrimentally affect the
Property;
(n) Seller has full right, title and authority to enter into
this Contract, and that no other party has any right, option, interest,
or claim to all or any part of the Property, whether subject to earnest
money contract, option agreement, right of first refusal, reversionary
or future interests, or right of reverter; and
(o) Seller is not a foreign person or entity pursuant to the
Foreign Investment in Real Property Tax Act, or the Tax Reform Act of
1984, and Buyer is not obligated to withhold any portion of the
Purchase Price for the benefit of the Internal Revenue Service.
All of Seller's warranties and representations shall survive any inspection or
investigation made by or on behalf of Buyer, and the Closing of the transaction
contemplated herein, but shall expire for all purposes six (6) months after
Closing.
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<PAGE> 7
ARTICLE V
Conditions Precedent to Buyer's
Obligation to Close
5.1 Buyer's obligation to consummate the transactions contemplated
hereunder is conditioned upon satisfaction of each of the following conditions
at or prior to the Closing (or such earlier date as is specified with respect to
a particular condition):
(a) None of the representations and warranties of Seller set
forth in Article IV hereof shall be untrue or inaccurate in any
material respect.
(b) Seller shall not have failed to perform or comply with any
of its agreements or obligations in any material respect and within the
time periods provided herein.
(c) Buyer has the right to conduct a feasibility study (the
"Feasibility Study") of the Property during the Feasibility Period (as
herein defined). To this end, it is agreed and understood as follows:
(i) Buyer has the right to approve in its sole and absolute
discretion the condition of the Property and all aspects
associated with Buyer's proposed development of the Property,
including all environmental matters, financing, estimated
development, construction and operating costs of the Buyer's
proposed shopping center to be constructed on the Land (the
"Proposed Project"), within forty (40) days from the date
hereof (the "Feasibility Period"). Buyer has the right to
extend the Feasibility Period for an additional thirty (30)
days, as provided in the next subsection 5.1(c)(ii).
Inspections of the Property by Buyer or Buyer's
representatives are to be conducted in such a manner as not to
physically damage the Property or unreasonably interfere with
the usual operation of the Property by Seller.
(ii) In respect to the Feasibility Period or the right to
extend the Feasibility Period, it is agreed as follows:
(A) On or before the expiration date of the
Feasibility Period, Buyer has the option either to
(i) give written notice to the Seller and the Title
Company that it desires for this Contract to remain
in full force and effect, whereupon the entirety of
the Earnest Money Deposit becomes at risk and the
parties are to proceed to Closing; or (ii) give
notice to the Seller and the Title Company that it
exercises its right to extend the Feasibility Period
for an additional 30 days (the "Extended Feasibility
Period"), whereupon $25,000 of the Earnest Money
Deposit plus interest earned on such portion of the
Earnest Money Deposit, becomes at risk under the
terms of this Contract. If Buyer does not give any of
the two aforesaid written notices prior to the
expiration of the Feasibility Period, then the
entirety of the Earnest Money Deposit shall be
refunded to Buyer and the parties are released from
any further liability hereunder.
(B) If the Feasibility Period is extended under the
aforesaid terms, on or before the expiration of the
Extended Feasibility Period, Buyer has the option to
give written notice to the Seller and the Title
Company that it desires for this Contract to remain
in full force and effect, whereupon the entirety of
the Earnest Money Deposit becomes at risk under the
terms of this Contract and the parties are to proceed
to Closing. If Buyer does not give its written notice
prior to the expiration of the Extended Feasibility
Period, then Buyer instructs and
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<PAGE> 8
authorizes the Title Company to release $25,000 of
the Earnest Money Deposit plus interest earned on
such portion of the Earnest Money Deposit, to the
Seller immediately upon Seller's written demand (and
without the necessity of any additional release
executed by Buyer), and the remaining portion of the
Earnest Money Deposit shall be paid to Buyer and the
parties are released from any further liability
hereunder.
(iii) Seller sends hereby grants to Buyer the right to enter
upon the Property at any reasonable time during the term of
this Contract prior to Closing to make surface or subsurface
inspection thereof, or for other purposes incident to Buyer's
requirements relative to the acquisition and use of the
Property. The Property shall be restored to its present
condition after any tests, at Buyer's sole expense. Buyer
hereby indemnifies Seller against and agrees to defend and
hold Seller harmless from all claims, demands, causes of
action, and suits of any nature whatsoever, arising out of the
inspection of the Property incident to this paragraph, which
indemnity survives for a period of two years after the Closing
or termination of this Contract, notwithstanding anything
contained herein to the contrary. No such examination or
inspection shall be deemed to constitute a waiver or
relinquishment on the part of Buyer of his right to rely on
the covenants, representations, warranties or agreements
contained in this Contract.
(iv) Notwithstanding anything contained herein to the
contrary, if this Contract terminates by virtue of the
provisions of this Section 5.1(c), the Earnest Money Deposit
and interest thereon shall be paid as provided in this Section
5.1(c), less the sum of Fifty and No/100 Dollars ($50.00) (the
"Option Sum"), which is to be retained by the Seller as
consideration for this Contract, which consideration is deemed
earned as of the date of this Contract.
(d) No geological flaw, fault, or defect, soil condition or
other physical defect which would prevent the Buyer from developing the
Property as the Proposed Project in Buyer's reasonable judgment shall
have been discovered during the Feasibility Period.
If Buyer terminates this Contract, Buyer shall promptly deliver to Seller all
engineering data, environmental reports, site plans and all other due- diligence
materials relating to the Property.
ARTICLE VI
Closing
6.1 Time and Place of Closing. Provided that all of the conditions of
this Contract shall have been satisfied prior to or on the Closing Date (herein
so called), the Closing (herein so called) of this transaction shall take place
at the offices of the Title Company in San Antonio, Texas, thirty (30) days
after the expiration of the Feasibility Period or the Extended Feasibility
Period, if applicable, or the Title Review Period, whichever is later, or such
earlier date as may be specified by Buyer by not less than five (5) days advance
written notice to Seller.
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<PAGE> 9
6.2 Events of Closing. At the Closing:
(a) Seller shall deliver to Buyer the following:
(1) A Special Warranty Deed in form and substance
reasonably approved by the parties, but listing only the
Permitted Exceptions as exceptions to title, duly executed and
acknowledged by Seller, conveying to Buyer the Property in
indefeasible fee simple, free and clear of any lien,
encumbrance or exception other than the Permitted Exceptions;
(2) A standard Texas Owner's Policy of Title
Insurance issued by the Title Company conforming to the
requirements of Article III above insuring Buyer's title in
indefeasible fee simple in the amount of the Purchase Price
and containing no exceptions other than the Permitted
Exceptions;
(3) Tax certificates from all taxing authorities
having jurisdiction over the Property, showing payment of all
ad valorem taxes on said Property through the calendar year
preceding the Closing of this purchase and sale;
(4) Possession of the Property;
(5) A UCC search of the Property reflecting no
outstanding security interests affecting the Property;
(6) A written consent of all of the individuals
comprising the Seller in form and substance satisfactory to
Buyer and its counsel, which reflects the authorization of the
transactions herein by Seller and evidence of the authority of
the individual executing the closing documents to execute and
deliver this Contract and the documents provided for
hereunder;
(7) The affidavit in form and substance satisfactory
to Buyer that Seller is not a foreign person or entity subject
to the Foreign Investment in Real Property Tax Act or the Tax
Reform Act of 1984; and
(8) Such other evidence of the authority and
capacity of Seller and its representatives as Buyer or the
Title Company may reasonably require.
(b) Buyer shall deliver the following:
(1) The Purchase Price, as required pursuant to
Section 2.1 above, in immediately available funds, such as
wire transfer or by Buyer's certified or cashier's check, or
Title Company check in U.S. funds;
(2) A copy of a resolution of the Board of Trust
Managers of Buyer, certified under oath by an officer of Buyer
as being a true copy of minutes evidencing then currently
effect action by such board, reflecting, in form and substance
satisfactory to Seller and its counsel, the authorization of
the transactions herein by Buyer and the
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<PAGE> 10
authority of the officer or officers of Buyer to execute and
deliver this Contract and the documents provided for
hereunder; and
(3) Such other evidence of the authority and capacity
of Buyer and its representatives as the Seller or the Title
Company may reasonably require.
6.3 Expenses. Seller shall pay the cost of tax certificates, one-half
of the escrow fee charged by the Title Company, its share of the prorations as
set forth in Section 6.4 hereof, the premium for the Owner's Policy of Title
Insurance (excluding the fee for amending the area and boundary exception) and
its own attorneys' fees. Buyer shall pay its proportionate share of the
prorations as set forth in Section 6.4 hereof, one-half of the escrow fee
charged by the Title Company, the fee for amending the area and boundary
exception, the recording fees for its Special Warranty Deed, the cost of the
Survey (subject to Seller's reimbursement of up to $2,000.00 if Closing occurs),
the cost of the UCC search, and its own attorneys fees. Except as otherwise
provided in this Section, all other expenses hereunder shall be paid by the
party incurring such expenses. Additionally, any expenses, charges and fees of
closing, not specifically allocated herein or incurred by a specific party,
shall be borne by the parties according to general custom in San Antonio, Texas,
or, if no such custom exists, shall be borne equally between the parties.
6.4 Prorations. Rental income, if any, and personal property ad valorem
taxes, if any, prorated to the Closing, based upon actual calendar days
involved. Seller shall be responsible for all ad valorem taxes for any period
prior to and including the date of Closing. Buyer shall receive credit on the
amount of the cash payments to be made by Buyer pursuant hereto for the prorated
amount thereof chargeable to Seller. In connection with the proration of both
real and personal property ad valorem taxes, if actual tax figures for the year
of closing are not available at the Closing Date, a final proration of taxes
shall be made using tax figures from the current year. Seller shall, on or
before the Closing Date, furnish to Buyer and the Title Company all information
necessary to compute the prorations provided for in this Section. All special
taxes and assessments to the date of Closing, and any "roll-back" taxes
contemplated under Section 4.1(n), shall be paid by Seller.
In the event any property taxes levied against the Property have been
deferred pursuant to Section 23.46 or Section 23.55 of the Texas Property Tax
Code, as may be amended from time to time, or any similar law and this sale or
change in the use of the Property causes the amount of the deferred taxes to
become payable, Seller shall reimburse Buyer upon demand for the amount of such
deferred taxes plus any interest and penalty charged thereon. This Section 6.4
shall survive the Closing.
ARTICLE VII
Damage and Condemnation to Property
Seller agrees to give Buyer prompt written notice of any fire or
casualty affecting the Property between the date hereof and the Date of Closing
or of any actual or threatened taking or condemnation of all or any portion of
the Property. If prior to the Closing there occurs the taking or condemnation of
all or any portion of the Property, or notice of such action is delivered, or a
casualty shall occur that materially affects the Property, in such event Buyer
may at its option terminate this Contract by notice to Seller within twenty (20)
days after Buyer has received the notice referred to above or at the Closing,
whichever is earlier. If Buyer does not so elect to terminate this Contract,
then the Closing shall take place as provided herein but the amount of the
condemnation award or insurance proceeds actually
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<PAGE> 11
received by Seller shall be credited to the Purchase Price. All risk of loss
contemplated by this Article VII shall be borne by Seller until acceptance by
Buyer of delivery of Seller's deed at the Closing.
ARTICLE VIII
Termination, Default and Remedies
8.1 Permitted Termination. If this Contract is terminated by either
party pursuant to a right expressly given it to do so hereunder (a "Permitted
Termination"), except as otherwise expressly provided in Section 5.1 hereof, the
Earnest Money Deposit and interest thereon shall immediately be returned to
Buyer (less the Option Sum, as prescribed in Section 5.1(c)(v) hereof), and
neither party have any further rights or obligations hereunder, except as to the
indemnity given by Buyer in Section 5.1(c) hereof. Seller and Buyer are entitled
to any interest earned on the portion of the Earnest Money Deposit paid to them
under the provisions of Section 5.1(c)(ii).
8.2 Default by Seller. (a) Seller is in default hereunder upon the
occurrence of any one or more of the following events:
(1) Any of Seller's warranties or representations set
forth herein are untrue or inaccurate in any material respect; or
(2) Seller fails to meet, comply with or perform any covenant,
agreement, or obligation on its part required, within the time limits
and in the manner required in this Contract, for any reason other than
a Permitted Termination.
(b) If Seller defaults hereunder, Buyer may, at Buyer option, do any of
the following:
(1) Terminate this Contract by written notice delivered to
Seller at or prior to the Closing and receive a refund of the Earnest
Money Deposit and interest thereon;
(2) Enforce specific performance of this Contract against
Seller; or
(3) In addition to and not to the exclusion of the remedy in
subparagraph (1) immediately above, bring an action against Seller for
damages, provided, however, that this remedy shall be available to
Buyer only if Seller has conveyed or encumbered the Property in
violation of the terms hereof.
8.3 Default by Buyer. Buyer is in default hereunder if Buyer fails to
deliver at the Closing any of the items required of Buyer in Article VI hereof,
for any reason other than a default by Seller hereunder or a Permitted
Termination. If Buyer defaults hereunder, Seller, as Seller's sole and exclusive
remedy for such default, is entitled to terminate this Contract by written
notice to Buyer and retain Buyer's Earnest Money Deposit, it being agreed by
Buyer and Seller that such sum represents liquidated damages for a default of
Buyer hereunder because of the difficulty, inconvenience, and uncertainty of
ascertaining actual damages for such default.
8.4 Attorney's Fees. If it shall be necessary for either Buyer or
Seller to employ an attorney to enforce its rights pursuant to this Contract
because of the default of the other party, the defaulting party shall reimburse
the non-defaulting party for reasonable attorney's fees and court costs.
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<PAGE> 12
8.5 Escrow Instructions. If either party hereto becomes entitled to the
earnest money as liquidated damages, or upon termination of this Contract in
accordance with its terms, Buyer and Seller covenant and agree to deliver a
letter of instruction to the Title Company directing the disbursement of the
Earnest Money Deposit to the party entitled thereto. If either party hereto
fails or refuses to sign or deliver such an instruction letter when the other
party is entitled to a disbursement of the Earnest Money Deposit, then the party
so failing or refusing to sign or deliver such letter shall pay, upon the final
order of a court with appropriate jurisdiction stating that such other party is
entitled to a disbursement of the earnest money, all reasonable attorney's fees
and court costs incurred by the party so entitled to the Earnest Money Deposit
in connection with its recovery thereof.
ARTICLE IX
Interim Responsibilities of Seller
Seller agrees that during the period between the date of this Contract
and the Closing Date:
(a) Seller may not further encumber the Property in any manner
or permit or suffer the filing or attachment of any lien of mechanic's
or materialmen. If the Property becomes subject to any such liens or
encumbrances in contravention of this subparagraph (a), Buyer may elect
to terminate this Contract or to consummate the transactions
contemplated hereunder and apply the Purchase Price or so much thereof
as may be necessary to retire any such liens or encumbrances;
(b) Seller must maintain Seller's existing insurance coverage,
if any, with respect to the Property from the date hereof through the
Date of Closing or earlier termination of this Contract;
(c) Seller shall not file any restrictive covenants or impose,
by grant or otherwise, any deed restrictions affecting the Property,
grant any licenses, easements or other uses affecting the Property,
without Buyer's prior written consent; nor place or permit to be placed
on the Property any buildings, structure or other improvements, nor
remove or permit to be removed from the Property, any buildings,
structures, trees, shrubbery or other improvements of any kind
whatever, without Buyer's prior written consent; and
(d) Seller may not excavate or permit the excavation of the
Property and may not do or suffer to be done any act whereby the value
of any party of the Property may be lessened.
ARTICLE X
Brokerage Commission
Each party warrants to the other that neither of them nor their agents
or representatives have engaged or contacted any broker with respect to the
transaction contemplated herein, that no brokers have been involved with the
purchase and sale hereunder, and each party agrees to indemnify and hold the
other party harmless from any and all claims for brokerage fees arising out of
its actions. The provisions of this Article survive the Closing for a period of
two years thereafter.
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<PAGE> 13
ARTICLE XI
Miscellaneous
11.1 No Assumption of Seller's Liabilities. Buyer is acquiring only the
Property from Seller and is not the successor of Seller. Buyer does not assume
or agree to pay, or indemnify Seller or any other person or entity against, any
liability, obligation or expense of Seller or relating to the Property in any
way except only to the extent, if any, herein expressly and specifically
provided herein.
11.2 Notices. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing, and shall be deemed to be
delivered and received when actually received, or, if earlier and regardless of
whether actually received, upon deposit in a regularly maintained receptacle for
the United States mail, registered or certified, return receipt requested,
postage fully prepaid, addressed to the addressee at its address set forth
below:
If to Seller: c/o John K, Miller
430 South Santa Rosa
San Antonio, Texas 78207
With a copy to: Gresham, Davis, Gregory, Worthy & Moore
Attn. Richard L, Kerr
112 East Pecan, Ninth Floor
San Antonio, Texas 78205
(210) 226-4817
FAX: (210) 226-5154
If to Buyer: United Investors Realty Trust
Attn: Mr. Randall D. Keith
5847 San Felipe, Suite 850
Houston, Texas 77057
(713) 781-2858
FAX: (713) 268-6005
United Investors Realty Trust
Attn. Mr. Lewis Sandler
8080 North Central Avenue, Suite 500
Dallas, Texas 75206
(214) 360-3665
FAX: (214) 360-3696
With a copy to: James, Goldman & Haugland, P.C.
Attn: Merton B. Goldman, Esq.
8th Floor Texas Commerce Bank Bldg.
201 East Main
El Paso, Texas 79901
(915) 532-3911
FAX: (915) 541-6440
11.3 Survival. All warranties, representations, indemnities, and
agreements contained herein or arising out of the sale of the Property by Seller
to Buyer shall survive the Closing hereof for a period of six months thereafter,
unless a longer period is expressly stated herein.
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<PAGE> 14
11.4 Governing Law; Venue. The laws of the State of Texas govern the
validity, enforcement, and interpretation of this Contract. The obligations of
the parties are performable and exclusive venue for any legal action arising out
of this Contract lie in Bexar County, Texas.
11.5 Integration; Modification; Waiver. This Contract constitutes the
complete and final expression of the agreement of the parties relating to the
Property, and supersedes all previous contracts, agreements, and understandings
of the parties, either oral or written, relating to the Property. This Contract
cannot be modified, or any of the terms hereof waived, except by an instrument
in writing (referring specifically to this Contract) executed by the party
against whom enforcement of the modification or waiver is sought. The terms and
provisions of this Contract shall not merge with, be extinguished or otherwise
affected by any subsequent conveyance or instrument by or between the parties
hereto unless such instrument shall specifically so state and be signed by both
Buyer and Seller.
11.6 Counterpart Execution. This Contract may be executed in several
counterparts, each of which shall be fully effective as an original and all of
which together shall constitute one and the same instrument.
11.7 Headings; Construction. The headings which have been used
throughout this Contract have been inserted for convenience of reference only
and do not constitute matter to be construed in interpreting this Contract.
Words of any gender used in this Contract shall be held and construed to include
any other gender and words in the singular number shall be held to include the
plural, and vice versa, unless the context requires otherwise. If the last day
of any time period stated herein shall fall on a Saturday, Sunday, legal or
banking holiday, then the duration of such time period shall be extended so that
it shall end on the next succeeding day which is not a Saturday, Sunday, legal
or banking holiday.
11.8 Invalid Provisions. If any one or more of the provisions of this
Contract, or the applicability of any such provision to a specific situation,
shall be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Contract and
all other applications of any such provision shall not be affected thereby.
11.9 Binding Effect. This Contract shall be binding upon and inure to
the benefit of Seller and Buyer, and their respective heirs, personal
representatives, successors and assigns. Buyer may assign its rights hereunder,
but Buyer shall not be relieved of any duties and obligations hereunder. Except
as expressly provided herein, nothing in this Contract is intended to confer on
any person, other than the parties hereto and their respective heirs, personal
representatives, successors and assigns, any rights or remedies under or by
reason of this Contract.
11.10 Further Acts. In addition to the acts recited in this Contract to
be performed by Seller and Buyer, Seller and Buyer agree to perform or cause to
be performed at the Closing or after the Closing any and all such further acts
as may be reasonably necessary to consummate the transactions contemplated
hereby.
11.11 Date of Contract. The date of this Contract shall for all
purposes be the date of the execution hereof by the Title Company acknowledging
receipt of Buyer's Earnest Money Deposit.
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<PAGE> 15
11.12 Time. Time is of the essence in this Contract.
11.13 Expiration. This Contract shall be deemed to be null and void and
of no further force and effect unless it is fully executed and accepted by the
Title Company, together with the Earnest Money Deposit prior to the close of
business on October __, 1997.
SELLER:
/s/ BALOUS MILLER
---------------------------
Balous Miller
/s/ JOHN K. MILLER
---------------------------
John K. Miller
/s/ DOUGLAS MILLER
---------------------------
Douglas Miller
/s/ LOUIS VANCE
---------------------------
Louis Vance
Executed by Seller on the _______ day of ________________, 1997.
BUYER: UNITED INVESTORS REALTY TRUST
By: /s/ RANDALL D. KEITH
-----------------------------
Name: Randall D. Keith
------------------------
Title: Vice President
-----------------------
Executed by Buyer on the 8th day of October, 1997
RECEIPT OF BUYER'S EARNEST MONEY DEPOSIT
IN THE AMOUNT OF $50,000.00, ACKNOWLEDGED
ON THE 13th DAY OF OCTOBER, 1997
ALAMO TITLE COMPANY
By: /s/ DON WALKER by kp
--------------------------------
Title: President
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<PAGE> 16
EXHIBIT "A"
LEGAL DESCRIPTION
An 8.221 acre or 358,100 square foot tract of land out of the B.B.B. &
C.R.R. Survey Number 400, Abstract 99, County Block 4767, consisting of
a portion of the remainder of Lot 2, Block 1, New City Block 16841,
Kinchen Subdivision as recorded in Volume 8800, Page 19 of the Deed and
Plat Records of Bexar County, Texas. Also consisting of a portion of
the remainder of Lot 1, Block 1, New City Block 16841, Broken Oaks
Subdivision as recorded in Volume 8800, Pages 80 and 81 of the
aforesaid Records.
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<PAGE> 17
[PAPE-DAWSON LETTERHEAD]
FIELD NOTES
FOR
A 8.221 acre or 358,100 square foot, tract of land in the City of San Antonio,
out of the B.B.B. & C.R.R. Survey Number 400, Abstract 99, County Block 4767,
consisting of a portion of the remainder of Lot 2, Block 1, New City Block
16841, Kinchen Subdivision as recorded in Volume 8800, Page 19 of the Deed and
Plat Records of Bexar County, Texas. Also consisting of a portion of the
remainder of Lot 1, Block 1, New City Block 16841, Broken Oaks Subdivision as
recorded in Volume 8800, Pages 80 and 81 of the aforesaid Records. Said 8.221
acres being further described by metes and bound as follows:
BEGINNING: At a 1/2" iron rod with yellow cap marked "Pape-Dawson" found
for the southwest end of the curve return of the southeast line
of Huebner Oaks, variable width right-of-way at its intersection
with the northwest line of Huebner Road, a 110-foot wide
right-of-way. Same being the southeast corner of the remainder of
said Lot 2, Block 1, Kinchen Subdivision and the southeast corner
of the herein described tract;
THENCE: S 41 degrees 47'19"W along and with said northwest line of
Huebner Road, a distance of 217.44 feet to a 1/2" iron rod found
for the south corner of said remainder of Lot 2, Kinschen
Subdivision, same being the southeast corner of said remainder
of Lot 1, Broken Oaks Subdivision for an angle point of this
tract;
THENCE: S 40 degrees 46'11"W, continuing along and with said northwest
line, a distance of 387.92 feet to a 1/2" iron rod found for the
south corner of said remainder of Lot 1, Broken Oaks Subdivision.
Same being the east corner of Lot 3, Block 1, New City Block
16841, Batchelor Subdivision as recorded in Volume 8700, Page 233
of the aforementioned Deed and Plat Records and the south corner
of this tract;
THENCE: N 24 degrees 43'05"W, departing said northwest line of Huebner
Road, along and with said common line, passing the north corner
of said Lot 3, Batchelor Subdivision. Same being the northeast
corner of Lot 5, Block 1, New City Block 16841, Batchelor
Subdivision, Unit 2 as recorded in Volume 9504, Page 55 of said
Deed and Plat Records for a distance of 770.86 feet to a 1/2"
iron rod with yellow cap marked "Pape-Dawson" set in the
northeast line of said Lot 5 for the west corner of this tract;
THENCE: N 63 degrees 39'11"E, departing said common line and crossing
into said remainder of Lot 1, Broken Oaks Subdivision and
crossing into said remainder of Lot 2, Kinchen Subdivision, a
distance of 598.95 feet to a 1/2" iron rod with yellow cap marked
"Pape-Dawson" set for a point on a curve to the right in said
southwest line of Huebner Oaks for the north corner of this
tract;
- --------------------------------------------------------------------------------
EXHIBIT 'A'
<PAGE> 18
91'72-96
8,221 Acres
Page 2 of 2
THENCE: Continuing along and with said southwest line and curve to the
right, said curve having a radial bearing of S 68 degrees
39'24"W, a radius of 289,16 feet, a central angle of 26 degrees
20'43", a chord bearing and distance of S 08 degrees 10'15"E,
131.79 and an arc length of 132.96 feet to a 1/2" iron rod with
yellow cap marked "Pape-Dawson" found for a point of reverse
curvature;
THENCE: Continuing along and with said southwest line and a curve to the
left, said curve having a radius of 280.00 feet, a central angle
of 14 degrees 32'18", a chord bearing and distance of S 02
degrees 16'03"E, 70.86 and arc length of 71.05 feet to a 1/2"
iron rod with yellow cap marked "Pape-Dawson" found for a point
of compound curvature;
THENCE: Continuing along and with said southwest line and curve to the
left, said curve having a radius of 443.00 feet, a central angle
of 38 degrees 40'29", a chord bearing and distance of S 28
degrees 52'26"E, 293.38 and an arc length of 299.03 feet to a
1/2" iron rod with yellow cap marked "Pape-Dawson" found for a
point of tangency;
THENCE: S 48 degrees 12'41"E, continuing along and with said southwest
line, a distance of 25.00 feet to a 1/2" iron rod with yellow cap
marked "Pape-Dawson" found for a point of curvature to the right.
Same being the northwest end of the aforementioned curve return
for a southeast corner of this tract;
THENCE: Continuing along and with said southwest line and curve to the
right, said curve having a radius of 25.00 feet, central angle of
90 degrees 00'00", a chord bearing and distance of S 03 degrees
12' 41" E, 35.36 and an arc length of 39.27 feet to the POINT OF
BEGINNING. Containing 8.221 acres of land in the City of San
Antonio, Bexar County, Texas.
PREPARED BY: Pape-Dawson Consulting Engineers,Inc.
DATE: March 14, 1996
JOB NO.: 9172-96
DOC. ID.: 960314a1.Galvan/avs [SEAL]
<PAGE> 1
EXHIBIT 10.15
AGREEMENT FOR THE PURCHASE AND
SALE OF COMMERCIAL REAL ESTATE
THIS AGREEMENT FOR THE PURCHASE AND SALE OF COMMERCIAL REAL ESTATE
("Agreement") is entered into as of December 12, 1997 ("Effective Date")
between THE BOARD OF PENSION COMMISSIONERS OF THE CITY OF LOS ANGELES
("Seller") and UNITED INVESTORS REALTY TRUST, a Texas real estate investment
trust ("Buyer").
1. SALE OF PROJECT. Subject to the terms and conditions provided in this
Agreement, Seller agrees to sell and Buyer agrees to purchase all of Seller's
right, title and interest in and to the following described property
(collectively, the "Project"):
1.1 PROPERTY. The real property which is described on EXHIBIT A
attached hereto (the "Property").
1.2 BUILDING. The building which is located on the Property,
together with all other structures, fixtures and improvements owned by Seller
and located on the Property (the "Building").
1.3 EQUIPMENT. The items of equipment, furniture and other
personal property owned by Seller and located on the Property and used in
connection with the operation of the Property, excluding only those items
listed on EXHIBIT B attached hereto (the "Equipment").
1.4 LEASES. The leases, reservation agreements, other occupancy
agreements entered into by Seller with third parties for the use or occupancy
of space within the Building that are in effect as of the date of Seller's
execution of this Agreement and are listed in the schedule attached hereto as
EXHIBIT C (identifying the Tenants at the Project and providing certain
information with respect to the Leases delivered by Seller in accordance with
Section 4.7) or which are hereafter made in accordance with the provisions of
Section 5.1 (the "Leases").
1.5 SECURITY DEPOSITS. All security deposits, advance rentals and
similar deposits held by Seller at Closing in connection with the Leases (the
"Security Deposits").
1.6 SERVICE CONTRACTS. All service, maintenance and other
contracts entered into by Seller which relate to the maintenance or operation
of the Building or the Property that are in effect as of the date of Seller's
execution of this Agreement and listed in the schedule attached hereto as
Exhibit F or which are hereafter made in accordance with the provisions of
Section 5.1 (the "Service Contracts").
1.7 TRADE NAME. The name "Mason Park Centre" to the extent of any
proprietary rights of Seller therein.
2. PURCHASE PRICE. The purchase price to be paid by Buyer to Seller for
the Project is $15,200,000.00 (the "Purchase Price"). The Purchase Price will
be paid by Buyer in the following manner:
1
<PAGE> 2
2.1 EARNEST MONEY DEPOSIT. Within two business days after the
later of the date Buyer or Seller signs this Agreement, Buyer agrees to deposit
the sum of $100,000.00 with Chicago Title - Dallas Direct, having its
principal office at 350 N. St. Paul, Suite 250, Dallas, TX 75201 (the "Title
Company"), as earnest money and as a deposit toward payment of the Purchase
Price (the "Earnest Money Deposit"). The Earnest Money Deposit shall be
deposited in a federally insured interest-bearing account. All interest earned
thereon shall become part of the Earnest Money Deposit. If the purchase and
sale hereunder are consummated in accordance with the terms and conditions
hereof, the Earnest Money Deposit shall be applied to the Purchase Price at the
Closing (as defined below). In all other events, the Earnest Money Deposit
shall be disposed of by the Title Company as provided elsewhere in this
Agreement.
2.2 FUNDS AT CLOSING. At Closing, Buyer shall pay to Seller the
balance of the Purchase Price, which balance shall be paid in cash, by bank
cashier's check or other certified funds.
3. TITLE MATTERS.
3.1 PERMITTED EXCEPTIONS. Seller shall transfer and convey its
right, title and interest in the Project to Buyer subject to the exceptions,
restrictions and encumbrances listed on EXHIBIT D attached hereto (the
"Permitted Exceptions").
3.2 TITLE COMMITMENT AND SURVEY. Seller shall, no later than ten
days after the Effective Date, deliver to Buyer a title commitment issued by
the Title Company to insure title to the Property and improvements thereon in
the name of Buyer and in the amount of the Purchase Price (the "Title
Commitment"). The Title Commitment shall contain the express commitment of the
Title Company to issue a Texas Form T-1 Owner's Policy of the Title Insurance.
The Title Commitment shall be accompanied by legible (if available) copies of
all instruments listed in the Title Commitment as exceptions to title to the
Property. At Closing, Seller shall cause the Owner's Policy of Title Insurance
to be issued to Buyer pursuant to the Title Commitment. If Buyer desires any
extended coverage, such coverage shall be at Buyer's sole cost. Seller shall
deliver to Buyer as soon as it is available a copy of the most recent survey of
the Property within Seller's possession, updated to within six weeks of the
Effective Date (the "Survey").
3.3 DEFECTS OF TITLE. Except for the Permitted Exceptions, Buyer
shall have the right to object to any defect of title which appears in the
Title Commitment or Survey and which prevents the title to the Project from
being indefeasible or which materially adversely affects the use or value of
the Project (a "defect of title"). Any objection to a defect of title must be
in writing and must be received by Seller no later than ten days after Buyer
has received the Title Commitment and the Survey. Notwithstanding the
foregoing, if a defect of title not revealed in the Title Commitment or the
Survey is revealed in such documents only after the expiration of the
Inspection Period and such defect is not caused by Buyer, Buyer shall have
until ten days after the date of its discovery of the defect of title or the
date of Closing, whichever is earlier, to provide Seller with notice of its
objection to the defect of title. Buyer's failure to provide Seller with
written notice of an objection to any title matter appearing in the Title
Commitment or Survey within such periods of time shall be deemed to be a
waiver by Buyer of any objection it might otherwise have; and all such title
matters shall become additional "Permitted Exceptions." If
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Seller receives timely written notice from Buyer of a defect of title, Seller
shall have the right, in its sole discretion, to exercise any of the following
options, within 15 days of Seller's receipt of Buyer's objections to title: (a)
correct or cure the defect of title, (b) obtain title insurance over the defect
of title through title policy endorsement or otherwise, or (c) notify Buyer
that Seller does not intend to cure or insure over the defect of title. Seller
shall have the right, in its sole discretion, to extend the date of Closing for
a period of time not to exceed fifteen days in which to attempt to correct or
cure a defect of title. If Seller is unable or unwilling to cure or insure
over a defect of title, Buyer shall have the right to either (a) terminate this
Agreement and its obligations hereunder, or (b) waive its objection to the
defect of title. If Buyer elects to terminate this Agreement, Seller shall
return the Earnest Money Deposit to Buyer and neither party shall have any
further obligation hereunder. If Buyer elects to waive its objection to the
defect of title, the title matter objected to shall thereafter be considered a
"Permitted Exception." A defect of title, regardless of its disposition under
this Section, shall not result in a reduction of the Purchase Price.
4. INSPECTION.
4.1 INSPECTION PERIOD. Buyer shall have until Tuesday, December
30, 1997 (the "Inspection Period") in which to make such examinations, studies,
tenant credit checks, appraisals, inspections, engineering, environmental and
insurance underwriting tests and investigations (the "Inspections") of the
Project at Buyer's sole cost and expense as Buyer may deem advisable. Such
Inspections shall include review of the Property Information as defined in
Section 4.7. If written notice of any unsatisfactory condition, signed by
Buyer, is not received by Seller on or before the end of the Inspection Period,
the physical condition of the Project shall be deemed to be satisfactory to
Buyer, and all of Buyer's contingencies under this Agreement shall be deemed to
be waived. If written notice of any unsatisfactory condition other than the
environmental condition of the Property (which is covered in Section 4.3),
signed by Buyer, is given to Seller prior to the end of the Inspection Period,
then this Agreement shall terminate automatically, the Earnest Money Deposit
shall be returned to Buyer, and the parties shall have no further obligations
or liabilities under this Agreement except as specifically stated otherwise.
4.2 ACCESS TO THE PROPERTY. During the Inspection Period Buyer
and its designated agents shall have access to the Project during normal
business hours to conduct physical inspections of the Project, provided that
Seller has received at least 48 hours advance written notice prior to such
access. At Seller's election, Seller may have a representative present during
any such inspection. Neither Buyer nor any of its designated agents shall be
entitled to conduct any investigation that involves boring or penetration into
the Property or the Building, including but not limited to "Phase II"
environmental testing, without the express written consent of Seller, which
consent shall not be unreasonably withheld or delayed. In addition, if Buyer
conducts a Phase II test, the Buyer shall enter into the Access Agreement in
the form attached hereto as EXHIBIT K. Any request by Buyer to Seller for
permission to conduct any such intrusive testing shall be in writing and shall
be accompanied by a written scope of the intended work in sufficient detail to
allow Seller to reasonably evaluate the request. Buyer shall be exclusively
responsible for all costs and fees associated with its investigation and review
of the Property. Buyer agrees to conduct and to cause its representatives to
conduct their investigations in a manner that does not cause any damage, loss,
cost or expenses to, or claims against Seller or the Property. Buyer
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agrees to repair any damage or disturbance Buyer or its representatives shall
cause to the Property, and Buyer agrees to defend, indemnify and hold Seller
harmless from and against any and all liabilities and claims, including
reasonable attorneys' fees, arising by reason of performance of any of such
inspections. This indemnification shall survive termination of this Agreement.
4.3 SELLER'S RIGHT TO CURE. If (i) any Environmental Phase I Site
Assessment or Environmental Phase II Site Assessment obtained by Buyer with
respect to the Property reveals a Hazardous Substance (as defined below) on the
Property for which Seller is liable and recommends remediation in connection
therewith, and (ii) Buyer delivers a copy of such assessment to Seller prior to
the expiration of the Inspection Period, and (iii) Seller, within twenty (20)
days after its receipt of such assessment, delivers notice to Buyer stating
that Seller refuses to remediate such Hazardous Substance as described below,
then Buyer may either: (i) waive such matters and proceed to close the
transaction contemplated hereby; or (ii) terminate this Agreement by notice in
writing given to Seller within seven (7) days after Buyer receives Seller's
notice of its refusal to remediate, and receive a refund of the Earnest Money.
Notwithstanding the foregoing, Seller shall have the right, but not the
obligation, to perform such environmental remediation. If Seller elects to
perform such remediation, then: (i) Seller shall provide written notice to
Buyer, within twenty (20) days after Seller's receipt of such assessment,
stating that Seller shall perform such remediation, (ii) on the completion of
such remediation, Seller shall obtain and deliver to Buyer a Texas Risk
Reduction Standard No. 2 (commercial standard) certificate of completion from
the State of Texas under its voluntary cleanup program that includes a release
of liability from the State of Texas in favor of Buyer for remediation of areas
covered by the certificate, and (iii) prior to commencement of the remediation,
Seller shall escrow with the Title Company an amount equal to 125% of the
estimated cost of the remediation as determined by Seller's engineer who will
oversee the remediation. Buyer acknowledges that any remediation by Seller may
be performed after Closing, and that the Closing of this transaction shall
proceed without any delay in accordance with this Agreement notwithstanding any
need for any such remediation. Buyer shall permit Seller and its
representatives and contractors to enter the Property after Closing, after
reasonable prior notice to Buyer, for any such remediation. Except as
described in this Section 4.3, and notwithstanding the provisions of Section
4.1, Buyer hereby waives any right to terminate this Agreement and receive a
refund of the Earnest Money due to the presence or threat of any Hazardous
Substances on the Property or the surrounding area. If Buyer does not
terminate this Agreement pursuant to this Section 4.3, Buyer shall conclusively
be deemed to have accepted the environmental condition of the Property. The
provisions of this Section 4.3 shall survive the Closing.
For purposes of this Agreement, the term "Hazardous Substance" shall
mean and include those elements or compounds which are contained on the list of
hazardous substances adopted by the United States Environmental Protection
Agency and the list of toxic pollutants designated by the Congress or the
Environmental Projection Agency under the Comprehensive Environmental Response,
Compensation and Liability Act, the Superfund Amendment and Reauthorization
Act, the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act, the Federal Environmental Pesticides Act, the Clean Water Act, the
Clean Air Act, the Texas Natural Resources Code, the Texas Water Code, the
Texas Solid Waste Disposal Act, the Texas Hazardous Substances Spill Prevention
and Control Act, any so-called state, federal or locate "Superfund" or
"Superlien" statute, or any other statute, law, ordinance, code, rule,
regulation,
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order or decree regulating, relating to or imposing liability (including strict
liability) or standards of conduct concerning any substances that are hazardous
to human health.
4.4 INSURANCE. Prior to any entry by Buyer or any of its
representatives onto the Property, Buyer shall provide to Seller evidence
satisfactory to Seller (including a certificate of insurance with appropriate
endorsements) that Buyer has in force adequate liability and worker's
compensation insurance with a combined single limit of not less than Two
Million Dollars ($2,000,000), naming Seller, Lowe Enterprises Colorado, Inc.,
and Transwestern Property Company ("Seller's Property Manager") as additional
insureds, to protect such additional insureds against any and all liability,
claims, demands, damages and costs (including reasonable attorneys' fees and
other litigation expenses) which may occur as a result of any activity of Buyer
or any of its representatives on the Property. In no event shall the amount of
insurance carried by Buyer limit or release Buyer's indemnification contained
in Section 4.2 above.
4.5 REPORTS. All information, irrespective of the form of
communication, provided to or obtained by Buyer or its officers, employees,
agents, contractors, representatives or advisors (collectively and
individually, "Buyer's Representatives"), whether prepared by or on behalf of
Seller, by third party consultants engaged by Buyer, Buyer's Representatives or
otherwise, in connection with Buyer's investigation of the Property, shall be
kept in strict confidence by Buyer and Buyer's Representatives. In the event
that Buyer does not complete the purchase of the Property for any reason, any
and all studies, reports and other documents provided to or obtained by Buyer
or Buyer's Representatives, excluding only financial reports and forecasts
generated internally by Buyer in connection with such investigation process,
together with any and all copies thereof, shall be deemed the property of and
shall immediately be delivered or returned to Seller without charge.
Notwithstanding any provision of this Agreement which refers to the termination
of this Agreement and the return of the Earnest Money Deposit to Buyer, such
Deposit shall not be returned to Buyer unless and until Buyer has fulfilled its
obligation to return to Seller the materials described in the preceding
sentence. This provision shall survive the termination of this Agreement.
4.6 TENANTS. In no event shall Buyer or Buyer's Representatives
be authorized to conduct any activities under this Agreement or otherwise which
would in any way interfere with or disturb any Tenant of the Property. Buyer
shall not communicate with any Tenant of the Property without Seller's express
written consent and Seller may have a representative present during any such
communication. Buyer's obligation to consummate the transaction contemplated
hereby is conditioned upon Buyer's receipt on or prior to Closing of each of
the following Tenant Estoppel Certificates in the form annexed hereto as
EXHIBIT D from: (i) the following Tenants, Palais Royal, Cinemark, Petco and
Walgreens (the "Anchor Tenants"), (ii) those Tenants that lease in the
aggregate at least 75% of the total remaining leased area of the Project (other
than the area leased by the Anchor Tenants) as of the date of this Agreement
(collectively, the "Minimum Tenant Estoppels"). Notwithstanding the foregoing,
however, if Buyer does not receive all the Minimum Tenant Estoppels by Closing
then Seller may, at its election in its sole discretion, substitute Seller's
certificate to such matters ("Landlord's Estoppel") in substantially similar
form as attached hereto as EXHIBIT L for any missing Minimum Tenant Estoppels
which exceed 40% of the total remaining leased area of the Project other than
the area leased by the Anchor Tenants. Seller may not substitute any Tenant
Estoppel Certificates for any Anchor Tenants.
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4.7 BOOKS. Beginning on December 1, 1997, and continuing through
the expiration of the Inspection Period, upon reasonable prior notice from
Buyer to Seller, Seller shall make available for Buyer's inspection at the
offices of Seller's Property Manager, 6671 Southwest Freeway, Suite 200,
Houston, Texas, 77074, all records, books, encumbrances, pledges, pleadings,
law suits, leases, material contracts and agreements, and all other documents,
items and materials relating to the Project (except for any agreements between
Seller's Property Manager and Seller and except for any privileged
communications, appraisals, and internal valuations) that are in the files
maintained by Seller's Property Manager (to the extent and only to the extent,
that Seller's Property Manager actually possesses such materials or
information), including, without limitation, the following: any inventory of
personalty, permits and other governmental licenses, site plans, construction
drawings, mechanical, electrical, structural, soils, roof, asbestos,
environmental and similar building inspection reports, "as built" plans and
specifications relating to the Property and Building, ad valorem tax statements
for the Property, and any notices of appraised value (collectively the
"Property Information").
Seller has furnished to Buyer a list of all tenant leases, service
contracts, equipment leases, warranties, management, maintenance, or other
agreements affecting the Property of which Seller has knowledge (as defined in
Section 6.1 below), together with copies of same, which copies, to Seller's
knowledge (as defined in Section 6.1 below), are true and complete.
Seller hereby expressly disclaims any warranties regarding the
accuracy, completeness, analysis or conclusions of any reports or other
information contained in its files (including Seller's Property Manager's
files), except as otherwise expressly provided in Section 6.1.
4.8 SELLER'S ACCESS. For a period of three years after the
Closing, Buyer shall allow Seller and its agents and representatives access
without charge to all files, records and documents delivered to Buyer at or
prior to the Closing, upon reasonable advance notice and at all reasonable
times, to examine and make copies of any such files, records and documents, at
Seller's expense.
5. SELLER'S COVENANTS PENDING CLOSING.
5.1 SELLER'S COVENANTS. From the Effective Date until the Closing
Date, Seller agrees, with respect to the Project that it will:
5.1.1 Operate the Project in a manner consistent with
historical practices of Seller and in accordance with all applicable laws;
5.1.2 Promptly notify Buyer in writing of any litigation,
arbitration or administrative hearing before any court or governmental agency
concerning or affecting the Project which is instituted after the Effective
Date and which comes to Seller's knowledge;
5.1.3 Following the expiration of the Inspection Period,
not terminate or modify any Lease or commence any judicial action against any
Tenant other than in the normal course of business without the prior written
consent of Buyer, which consent shall not be unreasonably withheld;
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5.1.4 Following the expiration of the Inspection Period,
not execute any new lease or agree to the terms of any lease renewal without
the prior written consent of the Buyer, which consent shall not be unreasonably
withheld;
5.1.5 Promptly notify Buyer in writing of any written
notice received from a Tenant of its election to vacate its leased premises or
terminate its Lease, or of any election by Seller to terminate any Lease or
commence any judicial action against any Tenant;
5.1.6 Not sell, exchange, transfer, assign, convey or
encumber or otherwise dispose of all or any part of the Property or Building
(except for leases permitted thereunder) or any interest therein, nor shall
Seller remove any material piece of Equipment unless Seller shall replace the
removed items with similar items of comparable quality;
5.1.7 Maintain the Project in its existing condition and
repair, except for normal wear and tear and casualty loss;
5.1.8 Following the expiration of the Inspection Period,
not, without the prior written consent of the Buyer, which will not be
unreasonably withheld, enter into or modify any service, maintenance or
management agreement which is not terminable on or before the Closing date;
5.1.9 Following the expiration of the Inspection Period,
not, without the prior written consent of Buyer, which will not be unreasonably
withheld, consent to any assignment or sublease or other encumbrance by a
Tenant of its interest, or any part thereof, in its Lease, except as may be
required by the terms of the Lease; or
5.1.10 With respect to any item in this Section 5 for which
Buyer's consent is required, Buyer shall be deemed to have given its consent to
any request of Seller to which Buyer has not rejected, in writing to Seller,
within five business days of Buyer's receipt of Seller's written request for
such consent, which rejection shall have been accompanied by a reasonably
detailed description of the reasons for such rejection.
5.2 BUYER'S DISAPPROVAL OF NEW LEASES. In the event that Buyer
timely disapproves a request for consent for the execution of a new
commercially reasonable lease, or a commercially reasonable modification,
termination, or extension of an exiting lease for which its consent is required
under this Section 5, within five business days thereafter, Buyer shall deposit
with the Title Company the sum of $50,000.00 (the "Additional Deposit"). The
Additional Deposit shall be nonrefundable to Buyer and shall remain the sole
property of Seller, except only in the event of a default by Seller under this
Agreement. Notwithstanding the foregoing, if the Closing occurs, Buyer shall
receive a credit towards the Purchase Price in the amount of the Additional
Deposit.
6. REPRESENTATIONS AND WARRANTIES.
6.1 REPRESENTATIONS AND WARRANTIES OF SELLER. In connection with
the following provisions and as referenced elsewhere in this Agreement, Buyer
agrees that notice or knowledge of Seller shall refer only to the conscious
actual knowledge of Seller's Property Manager, which shall exclude matters that
Seller or Seller's Property Manager would otherwise be considered to
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have constructive notice, matters that it might be claimed that Seller or
Seller's Property Manager should have known or in the exercise of reasonable
due diligence should have known, or matters that would create in Seller or
Seller's Property Manager any duty of inquiry. It is agreed that notices
issued by agencies, courts or administrative bodies that have not been actually
received by Seller or Seller's Property Manger shall not be considered to be
matters of which Seller or Seller's Property Manager have knowledge. In making
the following warranties and representations, Seller or Seller's Property
Manager shall not be required to make any independent investigation, to compel
any third party to make disclosures, or to obtain any information from any
third party. No imputation of knowledge or notice may be made except as
expressly described herein. Seller shall be deemed to have conscious actual
knowledge and possession only of those documents, instruments, or information
as are actually in the files of Seller's Property Manager as of this date.
Notwithstanding the foregoing, however, Seller agrees to cooperate with Buyer
in obtaining information reasonably requested by Buyer if Buyer lacks standing
to request same from any entity or body which possesses same.
Seller hereby represents and warrants to Buyer that, except as
otherwise disclosed in any exhibit attached hereto or in the Property
Information:
6.1.1 Except as expressly provided, Seller has the full
right, power, and authority to sell and convey to Buyer the Project as provided
in this Contract and to carry out Seller's obligations hereunder, and all
requisite action necessary to authorize Seller to enter into this Contract and
to carry out Seller's obligations hereunder has been, or on the Closing Date
will have been, taken;
6.1.2 To Seller's knowledge there are no adverse or other
parties in possession of the Project, or of any part thereof as lessees,
tenants at sufferance, or trespassers, except Tenants referenced in Exhibit C
or which are hereafter made in accordance with the provisions of Section 5.1;
6.1.3 Seller has not received written notice from any
governmental agency or insurance underwriter of any violation with respect to
the Project, which violation remains uncorrected. Without limiting the
generality of the foregoing, Seller notes a minor perc spill which has been
corrected in accordance with the State of Texas voluntary cleanup program and
for which a Texas Risk Reduction Standard No. 2 (commercial standard)
certificate of completion has been issued;
6.1.4 Seller has not received written notice of any pending
condemnation action with respect to all or any portion of the Project;
6.1.5 To Seller's knowledge there is no litigation pending,
affecting the Project other than as incurred in the normal course of business
or with respect to which Seller's insurance underwriter(s) is responsible (and
as listed in Exhibit M attached hereto);
6.1.6 This contract represents a valid and binding
obligation of the Seller enforceable in accordance with its terms;
6.1.7 The Seller has fee simple title to the Project;
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6.1.8 Seller is not a foreign person or entity pursuant to
the Foreign Investment in Real Property Tax Act, or the Tax Reform Act of 1984.
6.2 LIMITED SURVIVAL OF SELLER'S WARRANTIES. Notwithstanding
anything to the contrary contained herein, it is understood and agreed that the
representations and warranties of Seller in this Agreement and any that may be
contained in any Landlord Estoppels that may be delivered by Seller to Buyer
pursuant to Section 4.6 hereof shall survive the Closing for a period of one
hundred eighty (180) days following the Closing Date, and Seller shall have no
liability of any kind whatsoever for any breach thereof except to the extent
that a claim is asserted by Buyer against Seller within such one hundred eighty
(180) day period. For purposes of the foregoing sentence, Buyer shall have
asserted a claim against Seller if, prior to the expiration of said 180-day
period, Buyer shall have served Seller with written notice of Buyer's intent to
file a claim, together with a reasonably precise description of the factual and
contractual basis for such claim and the names of three mediators acceptable to
Buyer for mediation, as required below. If any of the representations or
warranties of Seller contained in Section 6 hereof are determined at any time
prior to the Closing Date to be untrue or unfulfilled to any material extent,
then Buyer, as its sole and exclusive remedy, may terminate this Agreement by
providing written notice of such termination to Seller within three business
days of such determination, in which event the Earnest Money Deposit shall be
returned to Buyer and thereafter neither Seller nor Buyer shall have any
further liabilities or obligations one unto the other. Should Buyer determine
following Closing that any of the warranties or representations of Seller set
out in this Agreement or in the Landlord Estoppels are untrue, Buyer and Seller
agree to submit to mediation any dispute regarding such warranty as a
prerequisite to the filing of any suit or action. Failure to submit to
mediation shall entitle Seller to abatement and dismissal of any action filed
until the required mediation occurs. The parties shall attempt to agree on the
mediator to be named, but in the event they cannot agree, the Chief District
Judge of the United States District Court for the Southern District of Texas,
Houston Division acting in his individual and not judicial capacity shall be
requested to name the mediator. The fees of any mediator shall be paid
one-half by each of Seller and Buyer. The provisions of this Section 6.2 shall
survive the Closing hereof.
6.3 BUYER'S REPRESENTATIONS. Buyer's representations and
warranties shall survive the Closing and shall not be merged therein. Buyer
represents, warrants, covenants, and agrees with Seller, as of the Effective
Date, that:
6.3.1 Except as otherwise hereinafter expressly provided,
Buyer has the full right, power, and authority to purchase the Project from
Seller as provided in this Contract and to carry out Buyer's obligations under
this Agreement, and all requisite action necessary to authorize Buyer to enter
into this Agreement and to carry out Buyer's obligations hereunder has been, or
on the Closing Date will have been, taken;
6.3.2 This contract represents the valid and binding
obligation of Buyer, enforceable in accordance with its terms;
6.3.3 Buyer acknowledges that Buyer has been advised in
writing that Buyer should have an abstract covering the Property examined by an
attorney of Buyer's own selection or that Buyer should be furnished with or
obtain a policy of title insurance.
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7. CONDITIONS PRECEDENT TO BUYER'S AND SELLER'S PERFORMANCE.
7.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. Buyer shall not
be obligated to consummate the transaction described in this Contract unless:
7.1.1 Seller shall have performed, observed and complied in
all material respects with all the covenants, agreements and conditions
required by this Agreement to be performed, observed and complied with by
Seller prior to or as of the Closing Date.
7.1.2 All representations and warranties made by Seller
hereunder shall be true, complete and accurate in all material respects as of
the Closing Date subject to the provisions of Section 6.2 above;
7.1.3 The Title Company shall be irrevocably committed to
deliver following Closing the Owner's Title Policy in the form described in
Section 3.2;
7.1.4 The Tenant Estoppel Certificates and/or Landlord's
Estoppels prescribed under Section 4.6 have been delivered to Buyer which
Tenant Estoppel Certificates and Landlord Estoppels shall substantially confirm
the information set forth in the Leases delivered pursuant to Section 4.7 of
this Agreement, as they may be modified in accordance with the terms of this
Agreement;
7.1.5 There shall be no material adverse change in matters
reflected in the Title Commitment or Survey.
7.2 FAILURE OF BUYER'S CONDITIONS PRECEDENT. In the event any of
the aforesaid conditions precedent shall not have been satisfied or shall not
exist on the date of Closing, then, unless Buyer shall have waived in writing
the satisfaction or existence of such condition precedent, in its election and
in its sole and subjective discretion, Buyer shall not be obligated to close
the transactions contemplated hereby, and Buyer shall be entitled to receive a
return of the Earnest Money Deposit. If the failure of any condition precedent
constitutes a default by Seller under this Agreement, Buyer shall have the
remedies provided by Subsection 14.2 below; otherwise, upon receipt of the
Earnest Money Deposit by Buyer, Buyer and Seller shall both be relieved of any
further liability or obligation hereunder.
7.3 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. Seller shall not
be obligated to consummate the transaction described in this Contract unless:
7.3.1 All representations and warranties made by Buyer
hereunder shall be true, complete and accurate in all material respects as of
the Closing Date;
7.3.2 Buyer shall have performed, observed and complied in
all material respects with all the covenants, agreements and conditions
required by this Agreement to be performed, observed and complied with by Buyer
prior to or as of the Closing Date.
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7.4 FAILURE OF SELLER'S CONDITIONS PRECEDENT. In the event any of
the aforesaid conditions precedent shall not have been satisfied or shall not
exist on the date of Closing, then, unless Seller shall have waived in writing
the satisfaction or existence of such condition precedent, in its election and
in its sole and subjective discretion, Seller shall not be obligated to close
the transactions contemplated hereby, and if the failure of any condition
precedent constitutes a default by Buyer under this Agreement, Seller shall
have the remedies provided by Subsection 14.1 below.
8. CLOSING.
8.1 CLOSING DATE. The closing of the purchase and sale of the
Project (the "Closing") shall be held on the 30th day after the expiration of
the Inspection Period unless the parties agree in writing on an earlier date,
or unless extended by Seller in accordance with Section 3.3. The Closing shall
occur at 10:00 a.m. at the offices of the Title Company.
8.2 BUYER'S OBLIGATIONS AT CLOSING. In addition to delivery of
the balance of the Purchase Price as described in Section 2.2, Buyer shall
execute and deliver the following to Seller at Closing:
8.2.1 An Assignment and Assumption of Leases and Service
Contracts in the form attached hereto as EXHIBIT F, pursuant to which Buyer
shall assume Seller's obligations under the Leases (including Seller's
obligations with respect to the Security Deposits) and the Service Contracts.
8.2.2 Such affidavits, instruments or agreements that may
be required by the Title Company in its issuance of the policy of title
insurance pursuant to the Title Commitment.
8.2.3 A statement which reflects the settlements and
prorations provided for in Section 6.
8.2.4 A certificate from Buyer certifying to Seller that
neither Buyer, nor any current officer, director or principal of Buyer, nor any
person currently in control of or under common control with Buyer: (i) is now,
or has ever been an employee or a relative of an employee of Seller, or a
trustee, agent, fiduciary or consultant of Seller or any of Seller's subsidies
listed in Schedule 8.2.4 to be attached hereto; (ii) now has, or has ever been
a relative of any of the known interested parties listed in Schedule 8.2.4; or
(iii) now has, or has ever had any personal or private commercial or business
relationship or affiliation with any of the known interested parties listed on
Schedule 8.2.4.
8.3 SELLER'S OBLIGATIONS AT CLOSING. Provided that Buyer performs
its obligations at Closing as set forth in Section 8.2, Seller shall execute
and deliver the following to Buyer at Closing:
8.3.1 A Special Warranty Deed in the form attached hereto
as EXHIBIT G conveying the Property and Building to Buyer, subject to the
Permitted Exceptions.
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8.3.2 A Bill of Sale in the form attached hereto as EXHIBIT
H conveying the Equipment to Buyer.
8.3.3 A counterpart of the Assignment and Assumption of
Leases and Service Contracts in the form attached hereto as EXHIBIT F assigning
the Leases and Service Contracts to Buyer.
8.3.4 The original Leases, or, if any original Leases are
not in Seller's possession or control, copies of any such Leases certified by
Seller as being true and correct;
8.3.5 An affidavit, in the form, or substantially in the
form, attached as EXHIBIT I, in compliance with Section 1445 of the Internal
Revenue code of 1986, as amended, and any regulations promulgated thereunder,
stating under penalty of perjury the Seller's United States identification
number and that Seller is not a "foreign person" as that term is defined in
Section 1445, duly executed and acknowledged by Seller;
8.3.6 A notice of sale in the form, or substantially in the
form, attached as EXHIBIT J (the "Tenant Notice Letter") for each of the
Tenants, duly executed by Seller.
8.3.7 If applicable, a Municipal Utility District notice,
substantially in the form attached hereto as EXHIBIT N.
8.3.8 A statement which reflects the settlements and
prorations provided for in Section 9.
8.3.9 Keys to the Building and possession of the Property.
9. SETTLEMENT AND PRORATIONS. The following items shall be prorated or
settled between Buyer and Seller at Closing:
9.1 TAXES AND ASSESSMENTS. Real property taxes and real property
assessments for the Property and the Building for the year of Closing, payable
in the following calendar year, shall be apportioned between Seller and Buyer
as of the date of Closing. Such apportionment shall be computed on the basis
of the most recent assessed valuation and mill levy information, and shall
constitute a final settlement. Buyer understands that it shall be solely
responsible for payment of all special assessments against the Property or the
Building which are assessed for improvements to the Property or the surrounding
land which are installed after the date of execution of this Agreement.
9.2 RENTS. Base rents, escalation or reimbursement payments for
real estate and personal property taxes, insurance premiums, CAM or other
operating expenses and charges, payable with respect to the Project for the
month of Closing shall be prorated as of the Closing Date. Percentage rents
for each Tenant obligated therefor shall be pro-rated on the basis of the
number of days lapsed during the Tenant's percentage rent period as of the
Closing Date and not on the basis of the amount of the Tenant's sales which
accrued during such percentage rent period as of the Closing Date. Such
prorations may not be capable of determination at the Closing Date, in which
event, such prorations shall be made within 90 days after Closing; provided,
however,
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that to the extent any Tenant required to pay percentage rent is not required
to report its sales within said 90-day period, then such proration shall be
made within thirty days following receipt by Buyer of such sales report. All
rents received by Seller under the Leases which are attributable to the period
of time prior to the date of Closing will be retained by Seller. All rents
received by Seller under the Leases which are attributable to the period of
time commencing as of the date of Closing and thereafter will be paid or
credited to Buyer. With respect to any Tenant ("Delinquent Tenant") who owes
rent and other charges which at Closing are more than 10 business days past
due, such past due rents and other charges ("Delinquencies") shall not be
prorated. Buyer shall remit such Delinquencies, if any, if, as and when
collected by Buyer. If a payment is received by Buyer from a Delinquent
Tenant, such payment shall be applied by Buyer first to the most recent rent
then due from such Tenant to Buyer, if any, then to any Delinquencies that are
owed to Seller. The right to receive and to collect all rents and profits,
delinquent or otherwise, shall be assigned by Seller to Buyer at Closing,
except that Seller shall retain the right to collect all Delinquencies from any
Tenants of the Project, including the right to sue any such Delinquent Tenant
in a collection action; provided, however, that following the Closing, Seller
shall not have any right to commence or pursue any eviction action against any
Delinquent Tenant. Buyer agrees to use reasonable efforts to collect all such
rents on Seller's behalf.
9.3 SECURITY DEPOSITS. Seller, at its option, shall either (a)
deliver funds in an amount equal to the Security Deposits to Buyer at Closing,
or (b) have the amount of the Security Deposits credited against the Purchase
Price. In either event, Buyer shall be deemed to have accepted a transfer of
the Security Deposits from Seller at Closing.
9.4 LEASING COMMISSIONS. Seller shall be responsible for the
payment of all leasing commissions and referral fees relating to Leases entered
into prior to the Effective Date, other than those commissions or fees due or
payable as a result of the exercise of renewal options or other options or
rights under existing Leases which are exercised on or after the Effective Date
or as a result of any Leases executed on or after the Effective Date and any
renewal, expansion or other modification of Leases executed on or after the
Effective Date, in each case, in accordance with this Agreement, which shall be
Buyer's responsibility (provided that each of those Leases which are in effect
on the date of this Agreement are listed on EXHIBIT C to this Agreement or are
otherwise disclosed to Buyer in writing prior to the end of the Inspection
Period). Buyer shall reimburse Seller at the Closing to the extent Seller has
paid any such leasing commissions or referral fees which are the responsibility
of Buyer. Each party agrees to indemnify, defend and hold the other harmless
from and against any and all liability for leasing commissions, referral fees
and other costs and expenses owed by that party under this Section.
9.5 TENANT IMPROVEMENTS AND OTHER EXPENSES. Seller shall be
responsible for the payment of all tenant improvement expenses (including all
hard and soft construction costs, whether payable to the contractor or to the
tenant), tenant allowances, moving expenses and other out-of-pocket costs which
are the obligation of the landlord under the Leases entered into prior to
Effective Date, except as set forth in the following sentence with respect to
renewal options or expansion options under those Leases. Buyer shall be
responsible for the payment of all such tenant improvement expenses, tenant
allowances, moving expenses and other out-of-pocket costs which are the
obligation of the landlord under (A) existing Leases relating to the renewal
periods or additional space under renewal options or expansion options under
the existing
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Leases exercised on or after the Effective Date (provided those Leases are
listed on EXHIBIT C) or (B) the Leases entered into on or after the Effective
Date. Buyer shall reimburse Seller at the Closing to the extent Seller has
paid any such expenses which are the obligation of Buyer. Seller shall in no
event be obligated to pay for any change orders or additions to the tenant
improvements or changes in the scope of the work or the specifications agreed
to by Buyer and issued on or after the Closing Date.
9.6 PAYMENTS UNDER SERVICE CONTRACTS. All amounts due and payable
under the Service Contracts through the date of Closing shall be paid by
Seller. All payments due and payable under the Service Contracts during the
period of time from and after the date of Closing shall be paid by Buyer. For
purposes of the foregoing sentences, all payments due and payable under the
Service Contracts shall be determined by prorating the amount of the contract
over the term of the Service Contract or the period to which such payment
applies. So, for example, if a Service Contract has a term of thirty days with
a payment of $300 to be paid on the first day of the term of the Service
Contract, then the $300 payment shall be treated as if it is due and payable at
$10/day over the term of the Service Contract. Seller shall receive a credit
for the portion of any prepaid amount under a Service Contract which is
attributable to the period of time after the date of Closing. All deposits
under any of the Service Contracts shall be retained by Seller as its exclusive
property or Seller may elect to assign such deposits to Buyer and receive a
credit for such amounts at Closing. Seller shall terminate its property
management agreement at the Project with TransWestern Property Company (the
"Seller's Property Manager") within thirty days of the Closing, and Seller
shall remain responsible for the payment of any fees owed to Seller's Property
Manager arising after the Closing.
9.7 PERSONAL PROPERTY AND SALES TAXES. All personal property
taxes assessed against the Equipment through the date of Closing shall be paid
by Seller. All personal property taxes assessed against the Equipment from and
after the date of Closing shall be paid by Buyer. Buyer shall pay all sales
and use taxes associated with sale of the Equipment by Seller to Buyer.
9.8 UTILITY CHARGES. All utility charges will be prorated as of
the date of Closing, and Seller shall pay all charges assessed through the date
of Closing if a final billing is available. If a final billing is unavailable,
Seller shall deposit with the Title Company an amount estimated by the Title
Company to be sufficient to pay the final billing when it becomes available,
with any excess amount to be refunded to Seller. Seller shall receive a credit
for the portion of any prepaid amount which is attributable to the period of
time after the date of Closing. All deposits paid to utilities shall be
retained by Seller as its exclusive property or Seller may elect to receive a
credit at Closing in the full amount of such deposits.
9.9 MISCELLANEOUS CLOSING COSTS. Seller shall pay the costs
associated with providing Buyer with the title insurance policy described in
subsection 3.2. All real estate recording and documentary fees payable in
connection with the purchase and sale of the Project shall be paid by Buyer.
Any fee for closing services which is charged by the Title Company shall be
shared equally by Seller and Buyer. Except as otherwise expressly provided in
this Agreement, Buyer and Seller shall pay their own fees and expenses incurred
in the preparation, execution and performance of their respective obligations
under this Agreement.
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10. CONDITION OF PROPERTY; DISCLAIMER OF WARRANTIES.
10.1 DISCLAIMER. Except only as otherwise explicitly provided
elsewhere in this Agreement, Buyer is relying solely on its own inspection and
examination in purchasing the Project; and is purchasing the Project on an
"AS-IS" basis with all faults and defects now known or hereafter discovered by
Buyer. Neither Seller nor any of its agents or representatives make any
representation or warranty to Buyer as to (a) the suitability of the Project
for Buyer's intended use, (b) the profitability of the operation of the
Project, or (c) any tax consequences, favorable or otherwise, resulting from
Buyer's acquisition or operation of the Project; and all such representations
and warranties are hereby expressly disclaimed by Seller. Any representations,
warranties or statements made by any agent or representative of Seller may not
be relied upon by Buyer and do not constitute a part of this Agreement. Buyer
acknowledges that Buyer has been given a reasonable opportunity to inspect and
investigate the Property, all improvements thereon, the Leases and all other
aspects relating to the Property, and Buyer is acquiring the Property based
solely upon Buyer's own investigations and inspections thereof, except as
expressly set forth herein. Buyer further acknowledges:
10.1.1 Buyer has, or by the expiration of the Inspection
Period will have, with the assistance of such experts as Buyer has deemed
appropriate, made its own independent investigations and studies, including
without limitation, a physical and environmental inspection, with respect to
the Property and all aspects thereof and it will be relying entirely thereon
and on the advice of its counsel, advisors and consultants concerning the
transaction contemplated in this Agreement. Buyer is not relying and shall not
rely on any investigation, study, projection or other information, economic or
otherwise, prepared by or on behalf of Seller, and;
10.1.2 Buyer has, or by the expiration of the Inspection
Period will have, with the assistance of such experts as Buyer has deemed
appropriate, examined and investigated the status of all circumstances
concerning the zoning, land use controls, building code compliance,
environmental regulations and other matters with respect to the Property.
10.2 BUYER'S ASSUMPTION OF RISKS. Upon Closing, Buyer shall assume
the risk that adverse matters, including but not limited to, construction
defects and adverse physical and environmental conditions, may not have been
revealed by Buyer's investigations. Buyer releases Seller and all of Seller's
agents and employees from, and waives all claims, demands, causes of action
(including causes of action in tort), losses, damages, liabilities, costs and
expenses (including reasonable attorneys' fees) of any and every kind or
character, known or unknown, for or attributable to, any latent or patent
structural, physical or environmental condition at the Property or Seller's
failure to disclose the same. The provisions of this Section 7 shall survive
the Closing or termination of this Agreement.
10.3 DPTA WAIVER. As to any claims or causes of action arising or
alleged to have arisen out of this Agreement or the subject matter hereof, to
the fullest extent allowed by Law Buyer hereby expressly waives all rights and
remedies under the Texas Deceptive Trade Practices Act (Texas Business and
Commerce Code Section 17.41 et seq.), other than Section 17.555 thereof.
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11. PUBLICITY AND CONFIDENTIALITY. The parties shall at all times keep
the transactions contemplated in this Agreement and any documents received from
each other pursuant to this Agreement confidential, except to the extent
necessary to (i) comply with applicable law and regulations, (ii) or to provide
information to such attorneys, accountants and other professionals as either
party deems necessary in connection with the transactions contemplated in this
Agreement. Any such disclosure to third parties shall indicate that the
information is confidential and should be so treated by the third party. No
press release or other public disclosure may be made by Buyer or Seller or any
of their agents concerning the transactions contemplated in this Agreement
except in a form approved by both Buyer and Seller. The provisions of this
Section 11 shall survive the Closing or termination of this Agreement.
12. LOSS OR CASUALTY. The Project shall be conveyed in its present
condition, ordinary wear and tear excepted. If the Project is damaged by fire
or other casualty prior to the time of Closing, then by delivery to Seller of
written notice of election within five days after receipt of written notice of
such damage or other casualty, Buyer may elect to either (a) terminate this
Agreement, or (b) to continue this Agreement in full force and effect, in which
case Seller shall assign to Buyer at Closing any and all insurance proceeds
resulting from such damage to the Project, not exceeding, however, the total
purchase price, and Buyer shall take title to the Project subject to such
damage. Notwithstanding the foregoing, in the event that the cost to repair
any such damage or other casualty is reasonably estimated by Seller to be less
than Three Hundred Thousand Dollars ($300,000), and provided further that
insurance proceeds are made available to Buyer, then Buyer shall have no right
to terminate this Agreement, Seller shall assign to Buyer at Closing any and
all insurance proceeds, and Buyer is entitled to a credit of any deductible
amount arising under Seller's insurance policy, and Buyer shall take title to
the Property subject to such damage or other casualty. If Buyer fails to
deliver written notice to Seller of Buyer's election hereunder within said
five-day period, Buyer shall be deemed to have elected to continue the
Agreement in full force and effect. Buyer shall be entitled to re-inspect the
Project prior to Closing to determine whether any event of casualty has
occurred since the last inspection by Buyer during the Inspection Period.
13. CONDEMNATION. If, between the date of this Agreement and Closing, any
portion of the Project is taken in condemnation, the parties agree as follows:
13.1 UNESSENTIAL PORTION OF PROJECT. If the portion of the Project
be taken in condemnation is not essential to the continued use of the Project,
the Agreement shall continue in full force and effect. In such event, the
Purchase Price shall be paid by Buyer at Closing without reduction, but Seller
shall assign its right, title and interests in and to any award and shall remit
to Buyer all awards received by Seller as a result of the condemnation.
13.2 ESSENTIAL PORTION OF PROJECT. If the portion of the Project
taken in condemnation is essential to the continued use of the Project, Buyer
and Seller shall both have the option to terminate this Agreement and their
respective obligations hereunder. The option to terminate contained in this
subsection must be exercised by written notice to the other party no later than
five days after the party first becomes aware of the condemnation. If either
party exercises its option to terminate in accordance with this subsection, the
Title Company shall return the Earnest Money Deposit to Buyer and neither party
shall have any further obligation hereunder. If neither
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party exercises its option to terminate as provided in this subsection, the
Agreement shall continue in full force and effect. In such event, the Purchase
Price shall be paid by Buyer at Closing without reduction, but Seller shall
assign its right, title and interests in and to any award and shall remit to
Buyer all awards received by Seller as a result of the condemnation.
14. DEFAULT AND REMEDIES. In the event of default by either party under
this Agreement, Buyer and Seller agree as follows:
14.1 DEFAULT BY BUYER. If Buyer shall default in the performance
of its obligations hereunder to purchase the Project, Seller shall have the
right to terminate this Agreement and to retain the Earnest Money Deposit as
its sole and exclusive remedy.
14.2 DEFAULT BY SELLER. If Seller shall default in the performance
of its obligations hereunder to sell the Project, Buyer shall have the right to
either (a) terminate this Agreement and to obtain the return of the Earnest
Money Deposit, or (b) enforce this Agreement through an action for specific
performance. Buyer hereby waives its right to recover damages from Seller,
including without limitation any loss of profits, consequential damages,
punitive damages or any other damages or losses suffered by Buyer in connection
with this Agreement. Notwithstanding the foregoing sentence, in the event that
Seller conveys the Project to a third party in breach of the terms of this
Agreement, and such conveyance occurs without Buyer's knowledge such that Buyer
is unable to enforce the Agreement through an action for specific performance,
then, and only in such circumstance, Buyer shall be entitled to sue Seller for
damages.
15. BROKERS. Seller represents and warrants to Buyer that no broker or
finder has been engaged by Seller other than Grubb & Ellis ("Broker") in
connection with any of the transactions contemplated by this Agreement. Seller
agrees to pay Broker a commission pursuant to a separate agreement between
Seller and Broker. Broker shall be solely responsible for paying a portion of
its commission to Aegis Realty Group, Inc. (San Antonio, Texas) ("Tenant's
Broker"), in accordance with an agreement between the two. Seller further
represents and warrants that no other person or entity now claims or will claim
any commission, finder's fee or other amounts by, through, under or as a result
of any relationship with Seller because of such transactions. Buyer represents
and warrants to Seller that Buyer has not engaged or dealt with any broker or
finder, other than Tenant's Broker, in connection with any of the transactions
contemplated by this Agreement. Buyer further represents that, other than
Tenant's Broker, no person or entity claims or will claim any commission,
finder's fee or other amounts by, through, under or as a result of any
relationship with Buyer because of such transactions. Each party agrees to
hold the other party harmless from and against any and all costs, expenses,
claims, losses or damages, including reasonable attorneys' fees, resulting from
any breach of the representations and warranties contained in this Section.
This hold harmless provision shall survive the closing or termination of this
transaction.
16. ASSIGNMENT. Buyer shall not have the right to assign all or any part
of its interest or rights under this Agreement without the prior written
consent of Seller except that Buyer may assign this Agreement to a title
holding company in which Buyer owns a majority equity interest. Except as
provided herein, any attempted assignment by Buyer without such prior written
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consent, including assignments that would otherwise occur by operation of law,
shall be without force or effect as against Seller.
17. MISCELLANEOUS.
17.1 NOTICES. All notices required or permitted under this
Agreement shall be given by registered or certified mail, postage prepaid, or
by hand delivery or recognized overnight delivery service, or by telecopy (so
long as the original follows by regular mail or other form of delivery
permitted hereunder within five business days) directed as follows:
If intended for SELLER, to: The Board of Pension Commissioners of the
City of Los Angeles
c/o Lowe Enterprises Colorado, Inc.
1475 Lawrence Street, Suite 210
Denver, Colorado 80202
Attn: Vicki Fitzgerald
Telephone: (303) 628-0800
Telecopy: (303) 628-0817
with a copy in each case to: Holland & Hart LLP
555 17th Street, Suite 2700
P.O. Box 8749
Denver, Colorado 80202
Attn: Shari R. Baker, Esq.
Telephone: (303) 295-8026
Telecopy: (303) 295-8261
and a copy in each case to: Morgan, Lewis & Bockius
300 South Grand Avenue, 22nd Floor
Los Angeles, California 90071
Attn: Dean Heller, Esq.
Telephone: (213) 612-2500
Telecopy: (213) 612-2554
and a copy in each case to: Chicago Title - Dallas Direct
350 N. St. Paul, Suite 250
Dallas, Texas 75201
Telephone: (214) 720-4000
Telecopy: (214) 720-1047
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If intended for BUYER, to: United Investors Realty Trust
5847 San Felipe, Suite 850
Houston, Texas 77057
Attn: Mr. Randall Keith, Chief Operating
Officer
Telephone: (713) 781-2858
Telecopy: (713) 268-6005
with a copy in each case to: Lewis H. Sandler, Esq.
United Investors Realty Trust
8080 North Central Expressway, Suite 400
Dallas, Texas 75206
Telephone: (214) 360-3665
Telecopy: (214) 360-3696
and a copy in each case to: James, Goldman & Haugland, P.C.
Attn: Merton B. Goldman, Esq.
8th Floor Texas Commerce Bank Bldg.
201 East Main
El Paso, Texas 79901
Telephone: (915) 532-3911
Telecopy: (915) 541-6440
Any notice delivered by mail in accordance with this paragraph shall be deemed
to have been duly given three days after the same is deposited in any post
office or postal box regularly maintained by the United States. Any notice
which is hand delivered or delivered by recognized overnight delivery service
shall be effective upon receipt by the party to whom it is addressed. Any
notice which is delivered by telecopy shall be effective upon receipt by the
sending party of written confirmation of receipt by the receiving telecopy
machine at the numbers shown above. Either party, by notice given as above,
may change the address or telecopy numbers to which future notices should be
sent.
17.2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, personal representatives, successors and permitted assigns.
Notwithstanding the foregoing, the provisions of this subsection shall not be
deemed to be a consent by Seller to any assignment of any interest or right of
Buyer under this Agreement, whether by operation of law or otherwise.
17.3 ENTIRE AGREEMENT. This Agreement, together with the exhibits
attached hereto, constitutes the entire agreement between Seller and Buyer, and
may not be modified in any manner except by an instrument in writing signed by
both parties.
17.4 HEADINGS. The section and subsection headings contained in
this Agreement are inserted only for convenient reference and do not define,
limit or proscribe the scope of this Agreement or any exhibit attached hereto.
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17.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts which together shall constitute one and the same instrument.
Facsimile signatures hereon shall for all purposes be regarded as originals;
however, the parties shall deliver original signed copies within five days of
delivery of by facsimile.
17.6 UNENFORCEABLE PROVISIONS. If any provision of this Agreement,
or the application thereof to any person or situation shall be held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to persons or situations other than those to which it shall have been
held invalid or unenforceable, shall continue to be valid and enforceable to
the fullest extent permitted by law.
17.7 TIME OF THE ESSENCE. Time is strictly of the essence with
respect to each and every term, condition, obligation and provision of this
Agreement, and the failure to timely perform any of the terms, conditions,
obligations or provisions hereunder by either party shall constitute a breach
of and a default under this Agreement by the party so failing to perform. In
calculating any period of time provided for in this Agreement, the number of
days allowed shall refer to calendar and not business days. If any day
scheduled for performance of any obligation hereunder shall occur on a weekend
or holiday, the time period allowed and day for performance shall be continued
to the next business day.
17.8 WAIVERS. No waiver by either party of any provision hereof
shall be effective unless in writing or shall be deemed to be a waiver of any
other provision hereof or of any subsequent breach by either party of the same
or any other provision.
17.9 ATTORNEYS' FEES AND COSTS. In the event of litigation between
Seller and Buyer arising out of the enforcement of or a default under this
Agreement, the prevailing party shall be entitled to judgment for court costs
and reasonable attorneys' fees in an amount to be determined by the court.
17.10 GOVERNING LAW; CONSTRUCTION OF AGREEMENT. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas. Exclusive venue for all matters arising hereunder shall lie in Harris
County, Texas. Seller and Buyer and their respective counsel have reviewed,
revised and approved this Agreement. Accordingly, the normal rule of
construction that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments
or exhibits hereto.
17.11 CONSIDERATION. Notwithstanding any other provision of this
Agreement, in the event that this Agreement is terminated for any reason and
Seller is not entitled to retain the Earnest Money Deposit, then $200.00 of the
Earnest Money Deposit shall be paid to Seller by Buyer as consideration for the
options given to Buyer in this Agreement.
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This AGREEMENT FOR THE PURCHASE AND SALE OF COMMERCIAL REAL ESTATE has
been executed as of the date first appearing above.
SELLER:
THE BOARD OF PENSION COMMISSIONERS
OF THE CITY OF LOS ANGELES
By: /s/ [ILLEGIBLE]
------------------------------
Its: General Manager
-----------------------------
BUYER:
UNITED INVESTORS REALTY TRUST,
a Texas real estate investment trust
By: /s/ [ILLEGIBLE]
------------------------------
Its: VP & COO
-----------------------------
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<PAGE> 1
EXHIBIT 10.16
CONTRACT OF SALE
between
DESERT PACIFIC PROPERTIES, L.L.C.
SELLER
AND
UNITED INVESTORS REALTY TRUST
BUYER
pertaining to the sale and purchase of
SOUTHWEST WALGREEN'S CENTER
PHOENIX, ARIZONA
<PAGE> 2
CONTRACT OF SALE
This Contract of Sale (the "Contract") is made and entered into by and
between DESERT PACIFIC PROPERTIES, L.L.C., an Arizona limited liability company
having its principal office at 4335 South Industrial Road, Suite 410, Las
Vegas, Nevada ("Seller"), and UNITED INVESTORS REALTY TRUST, a Texas real
estate investment trust having its principal office at 5847 San Felipe, Suite
850, Houston, Texas 77057 ("Buyer").
ARTICLE I
DEFINED TERMS
1.1 Definitions. As used herein, the following terms shall have the
meanings set forth below:
"Anchor Tenant" means any Tenant at the Project that (i) leases and
occupies 8,000 square feet or more at the Project, (ii) leases and occupies
more space than any other Tenant at the Project, or (iii) leases and occupies
space in at least 25 other shopping centers throughout the United States.
"Business Day" means any day other than a Saturday or Sunday on which
Federal Savings Banks in Phoenix, Arizona are open for business.
"Closing" means consummation of the purchase of the Project by Buyer
from Seller in accordance with the terms and conditions of Article VIII.
"Closing Date" means the date specified in Section 8.1 on which the
closing will be held.
"Contract Date" means the later of the two dates set forth immediately
above each of the signatures of the parties hereto, on the signature page
hereof.
"Delivery Date" means the date on which the last to be received of the
(1) Title Commitment in accordance with paragraph 4.1 herein; (2) the Survey in
accordance with paragraph 4.2 herein; and (3) the Ownership Documents required
by paragraph 5.2(a) herein, are received by Buyer.
"Earnest Money Deposit" means the moneys deposited by Buyer in escrow
with the Title Company at the time and in the amount specified in Section 3.2.
"Improvements" means the neighborhood shopping center (the "Shopping
Center") known as Southwest Walgreen's Center, containing approximately 84,000
square feet of improved retail space, located in Phoenix, Arizona, the fixtures
and other improvements now or hereafter situated upon the tract of land
described on Exhibit "A".
"Inspection Period" means the period commencing on the Delivery Date
and ending 30 days thereafter.
"Land" means that certain tract of land located in Maricopa County,
Arizona, and being more fully described on Exhibit "A", together with all
rights appurtenant thereto.
"Leases" means all currently effective leases for space in the
Improvements, including all amendments and modifications thereto and any and
all other agreements with Tenants.
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"Permitted Exceptions" means those exceptions or conditions that
affect or may affect title to the Project that are approved or deemed to be
approved by Buyer in accordance with Section 4.3 or Section 4.4.
"Personal Property" means (a) all tangible personal property owned by
Seller and located on, attached to, or used in connection with, the operation
of the Real Property (but not including any tangible personal property owned or
leased by Tenants), (b) Seller's interest in all personal property leases,
licenses, permits, plans, studies, and utility arrangements with respect to the
Real Property, (c) Seller's interest in all service, maintenance, management or
other contracts relating to the ownership or operation of the Real Property,
and (d) Seller's interest in all warranties and guaranties, if any, relating to
the Real Property.
"Project" means, collectively, the Real Property, the Leases, and the
Personal Property for the Shopping Center.
"Purchase Price" means the total consideration to be paid by Buyer to
Seller for the purchase of the Project.
"Real Property" means the Land and the Improvements for the Shopping
Center.
"Rent Roll" means a schedule for the Project identifying the Tenants
at the Project and providing certain information with respect to the Leases in
accordance with Section 5.2(a)(iii).
"Tenants" means those persons holding rights as tenants of the Shopping
Center.
"Title Company" means Safeco Land Title Company, having its principal
office at 8080 North Central Expressway, Suite 500, Dallas, Texas 75206,
Attention: Ms. Maggie Fielding, Executive Vice President and Escrow Officer.
"Title Underwriter" means Lawyer's Title Insurance Corporation.
"Trade Name" means the name "Walgreen's Southwest Center", as well as
any other name utilized in conjunction with the operation of the Project.
1.2 Other Defined Terms. Certain other defined terms shall have
the respective meanings assigned to them elsewhere in this Contract.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE
On the terms and conditions stated in this Contract, Seller hereby
agrees to sell and convey to Buyer, and Buyer hereby agrees to purchase and
acquire from Seller, the Project.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. The Purchase Price (herein so called) to be
paid by Buyer to Seller shall be Four Million Seven Hundred Fifty Thousand and
No/100 Dollars ($4,750,000.00). The Purchase Price, net of all prorations set
forth in this Contract, shall be payable to Seller through the Title Company at
the Closing in cash or in good federal funds.
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3.2 Earnest Money Deposit. Within three (3) business days after
the Contract Date, Buyer shall deliver the sum of Fifty Thousand and No/100
Dollars ($50,000.00) as an earnest money deposit (the "Earnest Money Deposit")
in cash to the Title Company. The Earnest Money Deposit shall thereafter be
held by the Title Company in escrow to be applied or disposed of by it as is
provided in this Contract. The Earnest Money Deposit shall be invested in
short-term commercial paper having a maturity of thirty (30) days or less and
rated P-1 by Moody's Investor Service, Inc. or A-1 by Standard & Poor's Corp.,
or in some other interest-bearing investment acceptable to the Buyer. All
interest earned thereon shall become part of the Earnest Money Deposit. If the
purchase and sale hereunder are consummated in accordance with the terms and
conditions hereof, the Earnest Money Deposit shall be applied to the Purchase
Price at the Closing. In all other events, the Earnest Money Deposit shall be
disposed of by the Title Company as provided elsewhere in this Contract.
ARTICLE IV
TITLE AND SURVEY AND INSPECTION
4.1 Title Commitment. Within three (3) days after the Contract
Date, Seller shall order, at its sole cost and expense, a current commitment
for Title Insurance for the Project (the "Title Commitment") countersigned by
the Title Company, as agent for the Title Underwriter, which Title Commitment
shall be furnished to Buyer. The Title Commitment shall contain the express
commitment of the Title Company to issue a standard coverage ALTA owner's title
insurance policy to the extent permitted by Arizona law for the Project, which
shall otherwise be in form and content satisfactory to Buyer. The Title
Commitment shall be accompanied by legible copies of all instruments that
create or evidence title exceptions affecting the Real Property.
4.2 Survey. Within three (3) days after the Contract Date, Seller
shall order, at its sole cost and expense, a survey for the Project (the
"Survey") to be furnished to Buyer. The Survey shall be a current, as-built
survey prepared by a registered surveyor licensed in the State of Arizona for
the Project. The Survey shall be dated no more than sixty (60) days prior to
the Contract Date and shall be certified to Buyer and the Title Company. The
Survey shall be a Category 1A, Condition II survey which shall satisfy the
requirements attached hereto as Exhibit "B" and shall otherwise be in form
satisfactory to the Buyer. The metes and bounds description of the Land
contained in the Survey shall be used for purposes of describing the Real
Property in the special warranty deed conveying title to the Real Property from
Seller to Buyer.
4.3 Review of Title Commitment and Survey. Buyer shall have a
period of thirty (30) days (the "Title Review Period") after Seller's delivery
to Buyer of both the Title Commitment and the Survey in accordance with
paragraphs 4.1 and 4.2 above, but in no event after December 17, 1997, in which
to review the Title Commitment and the Survey and give written notice to
specifying Buyer's objections (the "Objections"), if any, to the Title
Commitment and the Survey. If Buyer shall fail to give written notice of
Objections to Seller prior to the expiration of the Title Review Period, then
all exceptions to title shown on Schedules B and C of the Title Commitment
shall be deemed to be Permitted Exceptions.
4.4 Seller's Obligation to Cure; Buyer's Right to Terminate. If
Buyer shall have timely notified Seller in writing of Objections to the Title
Commitments or the Survey, then Seller may, but shall not be obligated to, at
any time prior to the expiration of the Inspection Period (the "Cure Period"),
give written notice ("Seller's Title Cure Notice") to Buyer of Seller's
intention to satisfy the Objections prior to December 22, 1997. If Seller fails
to timely give Buyer the Seller's Title Cure
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Notice, then Buyer shall have the option, prior to Closing, to either (i) waive
the unsatisfied Objections, in which event those unsatisfied Objections shall
become Permitted Exceptions, or (ii) terminate this Contract, in which event
the Earnest Money Deposit shall be returned to Buyer and Seller and Buyer shall
have no further obligations, one to the other, with respect to the subject
matter of this Contract.
4.5 Title Policies. At the Closing, Seller shall cause a standard
coverage ALTA owner's title insurance policy (the "Owner's Title Policy") to be
furnished to Buyer by the Title Company. The Owner's Title Policy shall be
issued by the Title Underwriter and shall insure that Buyer has good and
indefeasible fee simple title to the Project, subject only to the Permitted
Exceptions. The Owner's Title Policy shall contain no exceptions, other than
(i) rights of tenants in possession, as tenants only, (ii) visible and apparent
easements, and (iii) Permitted Exceptions. The basic premium for the ALTA
standard coverage shall be paid by Seller or, at Buyer's option, the cost of
the Owner's Title Policy shall be credited against the Purchase Price, in which
event the requirement for title insurance shall be waived. At Buyer's option
and cost, Seller shall deliver an extended coverage policy, together with such
endorsements as Buyer may require, so long as Buyer pays the incremental
increase to the premium for such policy. The tax exception shall be limited to
taxes for the year of Closing and subsequent years not yet due and payable and
subsequent assessments for prior years due to change in land usage or
ownership.
4.6 Inspection.
(a) Buyer shall have the right, during the Inspection Period, to
make such examinations, studies, tenant credit checks, appraisals, inspections,
engineering, environmental and insurance underwriting tests and investigations
(the "Inspections") of the Project as Buyer may deem advisable. Such
Inspections shall include, without limitation, review of current operating
statements, operating statements for the prior three calendar years, current
rent roll, true copies of the latest real estate tax bills, true and complete
copies of all service contracts affecting the Project, and any and all other
contracts and agreements relating to the Project. Seller shall cooperate with
Buyer in making available the Project for Buyer's Inspections, including any
and all books and records relating thereto. Buyer may also reinspect the
Project prior to Closing to verify that the Project has remained in the same
physical shape, ordinary wear and tear excepted, as the Project was during the
Inspection Period.
(b) If Buyer elects for this Contract to remain in full force and
effect beyond the Inspection Period, then Buyer, at its sole option, shall
deliver written notice (the "Notice to Continue") thereof to Seller and Title
Company, on or before the expiration of the Inspection Period, but in no event
after December 17, 1997. Once the Notice to Continue has been given, the
Earnest Money Deposit shall become at risk. If, however, Buyer does not timely
deliver the Notice to Continue, or if Buyer notifies Seller and Title Company
that Buyer has no further interest in purchasing the Project, then, in either
event, the Earnest Money Deposit shall be returned to Buyer, and thereafter
Seller and Buyer shall have no further obligations, one to the other, with
respect to the subject matter of this Contract.
(c) Buyer shall indemnify and hold harmless the Seller from and
against all loss, liability, damage, injury and claims resulting from Buyer's
testing or inspection of the Project; provided, however, this indemnity shall
not include, and shall specifically exclude, any loss, liability, damage etc.
arising out of or resulting from Seller's negligence, gross negligence or
willful misconduct and the discovery of any condition that may require
remediation under applicable environmental laws. This indemnity shall survive
the Closing or termination of this Contract for a period of six months, after
which this indemnity shall automatically terminate.
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ARTICLE V
REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS OF SELLER
5.1 Representations and Warranties of Seller. Seller's
representations and warranties set forth in this Contract are true and correct
in all material respects as of the Contract Date and will be true and correct
in all material respects on the Closing Date. Such representations and
warranties shall survive the Closing and shall not be merged therein. Seller
hereby represents and warrants to Buyer as follows:
(a) Seller has the full right, power, and authority to sell and
convey to Buyer the Project as provided in this Contract and to carry out
Seller's obligations hereunder, and all requisite action necessary to authorize
Seller to enter into this Contract and to carry out Seller's obligations
hereunder has been, or on the Closing Date will have been, taken;
(b) There are no adverse or other parties in possession of the
Project, or of any part thereof as lessees, tenants at sufferance, or
trespassers, except Tenants referenced in the Rent Roll to be delivered
pursuant to Section 5.2(a);
(c) Seller has not received written notice from any governmental
or quasi-governmental agency or insurance underwriter requiring or suggesting
that Seller should correct any condition with respect to the Project, which
condition remains uncorrected;
(d) Seller has not received written notice of any pending
condemnation action with respect to all or any portion of the Project and there
are no existing condemnation or other legal proceedings affecting the existing
use of the Project by any governmental authority having jurisdiction over or
affecting all or any part of the Project;
(e) There is no litigation pending or threatened, affecting the
Project other than as incurred in the normal course of business and with
respect to which Seller's insurance underwriter(s) is responsible or with
respect to which Seller shall indemnify and hold harmless Buyer from and after
the Closing Date;
(f) There are no unpaid assessments (governmental or otherwise)
for sewers, water, paving, electrical power or otherwise affecting the Project
(matured or unmatured) and no such assessments are threatened;
(g) This Contract constitutes a valid and binding obligation of
the Seller, enforceable in accordance with its terms;
(h) The Seller has good and indefeasible title to the Project,
free and clear of any claim, lien, encumbrance, easement, restriction or other
charge, other than the Permitted Exceptions;
(i) The current use of the Project complies with all currently
applicable zoning ordinances and governmental requirements;
(j) Except as expressly referred to herein, there are no licenses
or security interest against the Land, the Improvements, or the Personal
Property or against any other portion of the Project, nor are there any liens
or actions pending which would result in the creation of any lien
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against the Land, the Improvements or against any other portion of the Project,
including, but not limited to water, sewage, street paving, electrical or power
improvements, which give rise to any lien completed or in progress. At the
Closing, there will be no unpaid bills or claims in connection with any repair
of the Improvements or other work performed or material purchased in connection
with the Improvements;
(k) The Service Contracts, Leases and other agreements delivered
to Buyer pursuant to this Contract constitute all contracts, leases or
agreements affecting the Project (and the ownership and use thereof); the
Ownership Documents delivered pursuant to Section 5.2 herein are true and
correct copies of the originals and no other amendments or modifications exist
thereto; and no defaults, or events which with notice and/or passage of time
would constitute default, exist thereunder; and each of the Service Contracts
(as that term is defined in Section 5.2(a)(vi)) pertaining to the Project is
terminable without cause prior to the Closing Date;
(l) To Seller's best information, there are no circumstances
existing that would adversely affect the use or value of the Project as a
shopping center;
(m) No permission, approval or consent by any other person,
including any of partners, shareholders, directors or officers of any of the
Seller, or governmental authorities is required in order for Seller to
consummate this Contract;
(n) The existing water, sewer, gas and electricity lines, storm
sewer and other utility systems on the Land as of the date hereof are not
impaired and are sufficient to serve the Project for its current uses. All
existing utilities enter the Land through adjoining public streets or private
land in accordance with valid public or private easements that will inure to
the benefit of Seller and its successors and assigns. All of said utilities
have been installed and are operating, with all installation and connection
charges paid in full;
(o) Based on currently applicable taxes, Seller has paid all
taxes, charges, and assessments (special or otherwise) required to be paid to
any taxing authority with respect to the Project (except for taxes and
assessments for the current year not yet due and payable); and no action or
proceeding currently exists by a governmental agency or authority for the
assessment or collection of currently applicable taxes, charges, or assessments
with respect to the Project;
(p) The executed Leases, which are to be delivered by Seller to
Buyer at Buyer's principal office in accordance with the terms of this
Contract, are and shall be true and correct copies, and no Tenants are or shall
be entitled to any rebates, allowances, rent concessions or free rent for any
period subsequent to the Closing. All obligations and items of an inducement
nature to be performed by the Seller as landlord under any of the Leases or to
which Seller otherwise agreed to perform have been fully performed and no
commitments have been made to any Tenant for repairs or improvements other than
a general landlord requirement for normal maintenance in the future. No Leases
shall be further modified or amended without the prior written consent of
Buyer, which consent shall not be unreasonably withheld. Except as reflected
on the current Rent Roll to be delivered to Buyer pursuant to the provisions of
Section 5.2 below, no Tenant has given Seller notice of its intention to vacate
its leased premises prior to the end of the primary term (or any current
renewal or extended term). All of the Leases are in full force and effect
without current default by Seller or the respective Tenants. There are no
pending claims asserted by any past or present Tenants for offsets against rent
or any other claims (whether monetary or otherwise) made against Seller, as
landlord, under the Leases or otherwise. There are no fees or commissions
payable to any person or entity in regard to the Leases or the Project, except
as specifically set out in the Rent Roll;
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(q) All financial and operating statements, rent rolls, contracts,
agreements and books and records delivered by Seller to Buyer relating to
Seller and its business are true and correct in all respects; and there are no
omissions of any material facts relating thereon;
(r) The Project is not in violation of any applicable laws, rules,
regulations, ordinances, contracts or agreements, including, without
limitation, any and all state, local, city or federal environmental laws, rules
and regulations;
(s) Seller has full right, title and authority to enter into this
Contract, without the joinder or consent of any other party, and that no other
party has any right, option, interest, or claim to all or any part of the
Project, whether subject to earnest money contract, option agreement, right of
first refusal, reversionary or future interests, or right of reverter; and
(t) Seller is not a foreign person or entity pursuant to the
Foreign Investment in Real Property Tax Act, or the Tax Reform Act of 1986, and
Buyer is not obligated to withhold any portion of the Purchase Price for the
benefit of the Internal Revenue Service.
5.2 Covenants and Agreements of Seller. Seller covenants and
agrees with Buyer as follows:
(a) Within five (5) business days following the Contract Date,
Seller shall deliver to Buyer the following items (the "Ownership
Documents") with respect to the Project:
(i) To the extent that Seller has in its possession, copies of
"as-built" plans and specifications for the Improvements and copies of
the results of all physical inspections, all structural, mechanical,
engineering reports, soil reports and traffic studies that have been
prepared with respect to the Real Property, and a zoning verification
letter from the authorities of Phoenix, Arizona with copies of all
applicable zoning ordinances then in effect which apply to the
Project;
(ii) Current certificates of occupancy in the name of the Seller
and building permits (if available) for each building within the
Project, and, to the extent that Seller has in its possession, a
current phase I environmental report and ADA study;
(iii) Current Rent Roll for the Project, which Rent Roll shall set
forth with respect to each Tenant the following;
(A) the name and street or unit number of the Tenant;
(B) the term of the Tenant's Lease, its commencement and
expiration dates, any renewal terms or extensions and the base
rent and percentage rent, if any, payable thereunder;
(C) the amount of monthly base rent and percentage rent,
if any, payable by and portion of the Project's CAM and real
estate taxes and insurance premiums recoverable from each
Tenant and any other payments for which such Tenant is liable;
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(D) amount of prepaid rent and the amount of security and
other deposits due under the Lease and held by Landlord;
(E) the amount of any ongoing Lease commission
obligations, if any, and to whom such commission is owed and
copies of all brokerage commission agreements relating to the
Leases;
(F) any uncured defaults and the amounts of any unpaid
rents, percentage rents, and other payments past due
thereunder;
(G) the amount of any offsets or credits against rental,
if any; and
(H) any concessions granted to the Tenant, including,
without limitation, free rent, rental rebates or credits,
lease take-over arrangements, cash payments, and moving
allowances;
(iv) Copy of the most recent or current real estate and personal
property tax bills or other documentation showing the amount of
current real property taxes and the assessed value of the Project;
(v) A schedule setting forth property and liability insurance
coverage on or affecting the Project and the current premiums therefor
together with a written summary of all claims made against the
Project's insurance policies since January 1, 1995.
(vi) Copies of all existing service, maintenance, operations, and
management and other contracts relating to the management, operation
or maintenance of the Project (the "Service Contracts"), and any
commission agreements affecting the Project;
(vii) Copies of true and correct operating income and expense
statements with respect to the Project, accurately reflecting the
operating history of the Project for calendar years 1994, 1995 and
1996 and for year- to-date 1997, together with operating budgets for
calendar years 1997 and 1998, if available, for the Project;
(viii) A detailed summary of all capital expenditures for the
calendar years 1994, 1995 and 1996, and year-to-date 1997, together
with the capital expenditure budgets for calendar years 1997 and 1998,
if available, for the Project;
(ix) All warranties and guaranties currently in force, if any,
relating to the Project or any equipment, appliances or other
personalty located in or used on the Real Property and in the
possession of Seller or its agents;
(x) True and complete copies of all Leases, including all
amendments, extensions and modifications thereof; and
(ix) Such other information and/or documentation as Buyer shall
reasonably request;
All materials delivered by Seller to Buyer pursuant to this Section 5.2(a)
shall be held in confidence by Buyer and disclosed only to its attorneys,
accountants, and prospective lenders and
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securities underwriters and their respective attorneys. If the
parties fail to consummate the transaction described herein for any
reason other than the Seller's default, Buyer shall return to Seller
all materials delivered by or on behalf of Seller pursuant to or in
connection with this Contract.
(b) From the Contract Date until the Closing Date, Seller
undertakes and agrees, with respect to the Project, that it will:
(i) Operate and maintain the Project in a good and workmanlike
manner and in accordance with all applicable laws;
(ii) Promptly notify Buyer in writing of any litigation,
arbitration or administrative hearing before any court or governmental
agency concerning or affecting the Project which is instituted or
threatened after the Contract Date;
(iii) Following the expiration of the Inspection Period, not
terminate or modify any Lease or commence any judicial action against
any Tenant other than in the normal course of business without the
prior written consent of Buyer, which consent shall not be
unreasonably withheld;
(iv) Following the expiration of the Inspection Period, not execute
any new lease or agree to the terms of any lease renewal without the
prior written consent of the Buyer, which consent shall not be
unreasonably withheld;
(v) Promptly notify Buyer in writing of any notice received from a
Tenant of its election to vacate its leased premises or terminate its
Lease, or of any election by Seller to terminate any Lease or commence
any judicial action against any Tenant;
(vi) Not sell, exchange, transfer, assign, convey or encumber or
otherwise dispose of all or any part of the Project or any interest
therein, nor shall Seller remove any Personal Property unless Seller
shall replace the removed items with similar items of comparable
quality;
(vii) Maintain the Project in good condition and repair, except for
normal wear and tear, and Seller shall not in any manner neglect the
Project;
(viii) There will be no rental or other concessions of any nature
granted to any Tenant other than those set forth in the Leases and on
the Rent Roll delivered to Buyer pursuant to Section 5.2 (a)(iii),
above;
(ix) Promptly notify Buyer in writing if Seller discovers any
defect, error or omission in any of the Ownership Documents, detailing
the nature of the defect, error or omission;
(x) Not, without the prior written consent of the Buyer, enter
into or modify any Service Contracts which are not terminable without
cause on or before the Closing Date; or
(xi) Not, without the prior written consent of Buyer, consent to
any assignment or sublease or other encumbrance by a Tenant of its
interest, or any part thereof, in its Lease, except as may be required
by the terms of the Lease.
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5.4 Survival Beyond Closing. The representations, warranties
undertakings and agreements of Seller contained herein shall survive the
Closing and shall not be merged therein.
ARTICLE VI
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF BUYER
Buyer represents, warrants, covenants, and agrees with, Seller as of
the Contract Date, that, except as otherwise hereinafter expressly provided,
Buyer has the full right, power, and authority to purchase the Project from
Seller as provided in this Contract and to carry out Buyer's obligations under
this Contract, and all requisite action necessary to authorize Buyer to enter
into this Contract and to carry out Buyer's obligations hereunder has been, or
on the Closing Date will have been, taken.
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
7.1 Conditions Precedent to Buyer's Obligations. Buyer shall
not be obligated to consummate the transaction described in this Contract
unless:
(a) Seller shall have furnished or caused to be furnished to
Buyer all of the items required to be furnished by Seller under Section 5.2(a);
(b) Seller shall have performed in all material respects all of
the agreements, covenants and obligations contained in this Contract to be
performed or complied with by Seller on or prior to the Closing Date;
(c) All representations and warranties made by Seller hereunder
shall be true, complete and accurate in all material respects as of the Closing
Date;
(d) The Title Company shall be prepared to deliver at Closing the
Owner's Title Policy described in Section 4.5;
(e) UCC searches conducted by the Title Company within five (5)
days prior to the Closing Date shall show that none of the Personal Property
has been pledged, encumbered or transferred;
(f) No Anchor Tenant shall be in default under its Tenant Lease
and all Service Contracts will terminate as of the Closing Date, except to the
extent that Buyer has notified Seller in writing that it will accept an
assignment of such contracts, as contemplated by Section 8.2(a)(vi) hereof;
(g) Tenant Estoppel Certificates shall have been received by Buyer
from (i) all of the Anchor Tenants, and (ii) at least 85% (by number and square
footage at the Project), of the non-anchor tenants at the Project, which
Estoppel Certificates shall confirm the information set forth on the Rent Roll
delivered (A) as part of the Ownership Documents, as modified to reflect any
non-substantive changes thereto, or (B) with respect to Tenants who have
executed new leases since the Contract Date, as reflected on the Rent Roll to
be delivered in connection with the Closing; and as to the remaining 15% of the
non-anchor tenants, either Tenant Estoppel Certificates have been received by
Buyer or Seller has certified in writing the same information set forth in the
Estoppel Certificates as to such remaining non-anchor tenants;
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(h) If the Project is subject to any reciprocal easement
agreements, agreement of covenants, conditions and restrictions or similar
documents with adjacent landowners, Buyer shall have received an estoppel
certificate from the owner of the adjacent land, which estoppel certificate
shall be dated not more than 30 days prior to the Closing Date and shall state,
inter alia, that there are no defaults by Seller or claims against Seller
arising out of such documents and shall otherwise be in form and substance
reasonably acceptable to Buyer;
(i) There shall be no material change in the matters reflected in
the Title Commitment or Survey and all municipal and utility services shall be
available to the Project;
(j) No material changes shall have occurred or be threatened with
respect to the Project which would adversely affect the findings made during
the Inspection Period;
(k) The Improvements and Personal Property at the Project shall
be in the same or better condition as they were during the Inspection Period,
ordinary wear and tear excepted;
(l) There shall be no litigation pending or threatened that could
materially adversely affect the Project; and
(m) No Anchor Tenant shall have filed a petition under any
section of the Bankruptcy Code, as amended, or under any similar law or statute
of the United States or any State thereof, nor shall any Anchor Tenant have
been adjudged bankrupt or insolvent and no receiver or trustee shall have been
appointed for any Anchor Tenant or any of the assets of any Anchor Tenant, and
no Anchor Tenant shall "have gone dark" with respect to its space at the
Project or shall have notified Seller of its intention to do so.
7.2 Termination if Conditions Precedent not Satisfied or Waived.
If any of the conditions precedent to the performance of Seller's obligations
under this Contract have not been satisfied, waived, or deemed waived by the
Buyer within the time frame established herein or otherwise by the Closing
Date, then the Buyer may, at its option, by written notice delivered to the
obligated party and Title Company, terminate this Contract, in which event the
Earnest Money Deposit shall be returned to Buyer and thereafter Buyer and
Seller shall have no further obligations, one to the other, with respect to the
subject matter of this Contract, subject to the provisions of Article IX
hereof.
ARTICLE VIII
CLOSING
8.1 Date and Place of Closing. The Closing shall take place in
the offices of the Title Company. The Closing Date shall on December 29,
1997, or sooner, upon Buyer's request.
8.2 Items to be Delivered at or Prior to the Closing
(a) Seller. At the Closing, Seller shall deliver or cause to be
delivered to Buyer or the Title Company, the following items fully executed and
acknowledged where so indicated by all necessary parties in respect to the
Project:
(i) The Owner's Title Policy to Buyer, in the form
specified in Section 4.5 (unless waived by Buyer in accordance
with the provisions of Section 4.5);
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(ii) A special warranty deed, duly executed and
acknowledged by Seller, in the form of Exhibit "C", subject
only to the Permitted Exceptions;
(iii) The original Leases, or, if any original Leases are
not available, copies of any such Leases certified by Seller
as being true, correct and complete;
(iv) Duplicate originals of an assignment and assumption
of leases (the "Assignment of Leases") in the form attached
hereto as Exhibit "D", duly executed by Seller;
(v) A bill of sale and assignment in the form, attached
hereto as Exhibit "E", duly executed by Seller;
(vi) Duplicate originals of an assignment and assumption
of Service Contracts (the "Assignment of Service Contracts")
in the form or substantially the form, attached hereto as
Exhibit "F", duly executed by Seller;
(vii) An affidavit, in the form, or substantially in the
form, attached as Exhibit "G", in compliance with Section 1445
of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder, stating under penalty of
perjury the Seller's United States identification number and
that Seller is not a "foreign person" as that term is defined
in Section 1445, duly executed and acknowledged by Seller;
(viii) A notice of sale in the form, or substantially in the
form, attached hereto as Exhibit "H", (the "Tenant Notice
Letter") for each of the Tenants, duly executed by Seller and
Buyer;
(ix) A tenant estoppel letter in the form attached hereto
as Exhibit "I" from each Tenant at the Project, as prescribed
in Section 7.1(g), which estoppel letters shall be signed and
dated by each Tenant not more than 30 days prior to the
Closing Date;
(x) All keys or other access devices in the possession of
Seller or its agents to all locks located at the Project;
(xi) Originals of all Service Contracts, plans,
governmental approvals, and other contracts and agreements in
Seller's possession relating to the ownership and operation of
the Project;
(xii) Originals, to the extent available, and, if not
available, true and correct copies of all books and records
pertaining to the operation of the Project for the calendar
years 1994, 1995 and 1996, and for the year-to-date 1997, in
the possession of Seller or Seller's agent;
(xiii) Appropriate evidence of authorization and opinion of
Seller's counsel reasonably satisfactory to the Title Company
(if required by the Title Company) regarding the consummation
of the transaction contemplated by this Contract;
(xiv) Unless waived by Buyer, notices of cancellation, to
be effective within thirty days of the Closing Date, of all
Service Contracts affecting the Project;
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(xv) A reaffirmation certificate executed by Seller
wherein Seller reaffirms and confirms that the
representations and warranties of Seller set forth in this
Contract are true and such representations and warranties of
Seller remain true and correct as of the Closing Date;
(xvi) Letters to all utility companies advising of the
change of ownership of the Project and an assignment of any
deposits currently held by the utility company for the benefit
of the Seller;
(xvii) An Affidavit of Real Property Value; and
(xviii) Any other items reasonably requested by the Title
Company as administrative requirements for consummating the
Closing.
(b) Buyer. At the Closing, Buyer shall deliver or cause to be
delivered to Seller or the Title Company, the following items:
(i) The cash sum required by Section 3.1;
(ii) Duplicate originals of the Assignment of Leases duly
executed by Buyer;
(iii) Duplicate originals of the Assignment of Service
Contracts duly executed by Buyer;
(iv) Appropriate evidence of authorization reasonably
satisfactory to Seller and the Title Company for the
consummation of the transaction contemplated by this Contract;
(v) An Affidavit of Real Property Value; and
(vi) Any other items reasonably requested by the Title
Company as administrative requirements for consummating the
Closing.
8.3 Adjustments at Closing. Notwithstanding anything to the
contrary contained in this Contract or applicable law, the provisions of this
Section 8.3 shall survive the Closing. All income and obligations attributable
to days preceding the Closing Date shall be allocated to Seller, and all income
and obligations attributable to days from and after the Closing Date shall be
allocated to Buyer. Without limitation upon the foregoing, the following items
shall be adjusted or prorated between Seller and Buyer as set forth below:
(a) Ad valorem and personal property taxes relating to the Project
for the calendar year in which the Closing occurs shall be prorated between
Seller and Buyer as of the Closing Date based upon taxes actually paid by
Seller for the calendar year in which the Closing occurs, if Seller has paid
such taxes prior to Closing, and otherwise upon the ad valorem and personal
property taxes due assuming payment in December of the year of Closing. If the
actual amount of taxes for the calendar year in which the Closing shall occur
is not known as of the Closing Date, the proration shall be based on the amount
of taxes due and payable with respect to the Project using the latest assessed
value and tax rate. All other assessments affecting the Project, if any,
assessed prior to Closing Date, shall be paid by the Seller and if assessed
after the Closing Date, shall be paid by the Buyer.
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<PAGE> 15
(b) Base rents, escalation or reimbursement payments for real
estate and personal property taxes, insurance premiums, CAM or other operating
expenses and charges, payable with respect to the Project for the then current
month shall be prorated as of the Closing Date. Percentage rents for each
Tenant obligated therefor shall be pro-rated on the basis of the number of days
lapsed during the Tenant's percentage rent period as of the Closing Date and
not on the basis of the amount of the Tenant's sales which accrued during such
percentage rent period as of the Closing Date. Such proration may not be
capable of determination at the Closing Date, in which event, such prorations
shall be made post- Closing. Any rent concessions granted by the Seller to
Tenants for free rent, concessions or abatements, which apply to periods after
the Closing Date shall not be prorated but shall be credited to the Buyer.
With respect to any Tenant ("Delinquent Tenant") who owes rents and other
charges which at Closing are past due, such past due rents and other charges
("Delinquencies") shall not be prorated. Buyer shall remit such Delinquencies,
if any, if, as and when collected by Buyer, provided, however, that if a
payment is received by Buyer from a Delinquent Tenant, such payment may be
applied by Buyer first to any rents or other sums that are past due by such
Delinquent Tenant from and after the Closing Date. The right to receive and
collect all rents and profits, delinquent or otherwise, shall be assigned by
Seller to Buyer at Closing.
(c) All other income and ordinary operating expenses of the
Project, including, without limitation, public utility charges, maintenance,
management, and other service charges, and all other normal operating charges
shall be prorated at the Closing effective as of the Closing Date based upon
the best available information. The obligation of the parties to adjust,
post-Closing, and any operating expenses as of the Closing Date, shall, to the
extent unknown or not provided for at Closing, survive the Closing and shall be
paid by the party responsible therefor within ten (10) days after written
demand therefor has been made. Such demand shall include a copy of the
invoice(s) for which payment or reimbursement is sought.
8.4 Deferred Leasing Commissions. The amount of any unpaid
leasing commissions payable on account and over the term of existing Leases or
Leases entered into between the date hereof and the Closing Date shall either
be paid by the Seller or treated as a credit to Buyer. Commissions payable on
account of Leases which are subject to renewal at the option of the Tenant and
with respect to which the options have not been exercised prior to the Closing
Date shall not be covered by the preceding sentence.
8.5 Possession. Possession of the Project shall be delivered to
Buyer by Seller at the Closing, subject to the rights of the Tenants.
8.6 Costs of Closing. Each party shall be responsible for paying
the legal fees of its counsel in negotiating, preparing, and closing the
transaction contemplated by this Contract. Seller shall pay for the cost of
the Survey, title policy premium for a standard ALTA coverage, real estate tax
searches and current UCC searches and Tenant credit checks. Buyer shall pay
the balance of the Owner's Title Policy premium (including the premium for
endorsements required by Buyer), and for the cost of its own engineering and
environmental inspections. All sales, transfer, excise, transaction,
privilege, documentary stamp or similar taxes or fees, and all recording costs
and similar closing costs shall be paid by Seller in connection with the sale
and purchase of the Project under the terms hereof. The parties shall split
the cost of any title company escrow fees. Any other expenses that are incurred
by either party that are expressly identified herein as being the
responsibility of a particular party shall be paid by such party. All other
expenses shall be allocated between the parties in the customary manner for
sales of commercial real properties similar to the Project which are located in
Phoenix, Arizona.
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<PAGE> 16
8.7 Provisions of Article VIII to Survive Closing. The
provisions of this Article VIII shall survive the Closing.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Default of Buyer. If Buyer fails or refuses to consummate the
transaction contemplated by this Contract, for any reason other than
termination of this Contract by Buyer pursuant to a right to do so expressly
set forth in this Contract, then such event shall constitute a default by Buyer
hereunder and the Seller may, as the Seller's sole and exclusive remedy for
such default, either (i) bring an action against the Buyer for specific
performance of the Buyer's obligations under this Contract, or (ii) terminate
this Contract by giving written notice thereof to Buyer and the Title Company
at or prior to the Closing Date, whereupon the Title Company shall deliver the
Earnest Money Deposit (including the interest earned thereon) to the Seller
which shall constitute liquidated damages hereunder and thereafter neither
party hereto shall have any further rights or obligations hereunder. It is
agreed that the Earnest Money Deposit is a reasonable forecast of just
compensation for the harm that would be caused by such default, which the
parties agree is one that is incapable or very difficult of accurate
estimation, and that payment of the Earnest Money Deposit upon such default
shall constitute full satisfaction of Buyer's obligations hereunder.
9.2 Default of Seller. If Seller fails or refuses to consummate
the sale of the Project to Buyer pursuant to this Contract at the Closing or
fails to perform any of Seller's other obligations hereunder for any reason
other than Buyer's failure to perform Buyer's obligations under this Contract,
then Buyer may, as Buyer's sole and exclusive remedy for such default, either
(i) bring an action against the Seller for specific performance of the Seller's
obligations under this Contract, (ii) terminate this Contract by giving written
notice thereof to Seller and the Title Company at or prior to the Closing Date,
whereupon the Title Company shall deliver the Earnest Money Deposit (including
the interest earned thereon) to Buyer and thereafter neither party hereto shall
have any further rights or obligations hereunder, or (iii) receive the return
of the Earnest Money Deposit and prosecute an action for damages if Seller has
conveyed or hypothecated the Project to a third party in violation of the terms
hereof.
9.3 Earnest Money. In the event either Seller or Buyer becomes
entitled to the Earnest Money Deposit upon cancellation of this Contract in
accordance with its terms, such party may deliver a letter of instruction to
the Title Company directing disbursement of the Earnest Money Deposit to the
party entitled thereto. The party delivering such notice to the Title Company
shall concurrently deliver a copy of the notice to the other party hereto.
Upon the expiration of three (3) business days after its receipt of the letter
of instructions, the Title Company may deliver the Earnest Money Deposit to the
party as specified in the letter of instructions unless, within such three (3)
business day period, the Title Company shall have received a written objection
to such delivery from the other party hereto. In such event, the Title Company
shall not deliver the Earnest Money Deposit to either party unless it has a
written authorization to do so signed by both parties or a court order has been
issued by a court of competent jurisdiction to deliver the Earnest Money
Deposit to one of the parties hereto. The Title Company may deposit the
Earnest Money Deposit into a court of competent jurisdiction and thereafter
shall have no further interest in or responsibility for this Contract or for
the Earnest Money Deposit.
9.4 Indemnification of Title Company. Each party hereto hereby
indemnifies and holds harmless the Title Company from any loss, damage or claim
therefor arising out of or in connection with the receipt and disposition of
the Earnest Money Deposit in accordance with the instructions set
15
<PAGE> 17
forth in this Contract. These indemnities shall survive the termination of
this Contract or a closing pursuant hereto.
ARTICLE X
BROKERAGE COMMISSIONS
10.1 Amount. Seller hereby agrees to pay to Mr. Steven Davis of
Marcus and Millichap and Lawrence Thompson, and any other broker or finder and
responsible for introducing the parties hereto to each other for the purpose of
consummating the transaction contemplated hereby (the "Broker"), for Broker's
services in connection with this transaction, a commission pursuant to a
separate agreement between Seller and Broker.
10.2 Indemnity. Seller hereby represents and warrants to Buyer that
it has not contacted or entered into any agreement with any real estate broker,
agent, finder, or any other party in connection with this transaction, and that
Seller has not taken any action which would result in any real estate broker's,
finder's, or other fees or commissions being due or payable to any other party
with respect to the transaction contemplated hereby. Buyer hereby represents
and warrants to Seller that Buyer has not contracted or entered into any
agreement with any real estate broker, agent, finder, or other party in
connection with this transaction, other than as identified in Section 10.1, and
that Buyer has not taken any action which would result in any real estate
broker's, finder's, or other fees or commissions being due or payable to any
other party with respect to the transaction contemplated hereby. Each party
hereby indemnifies and agrees to hold the other party harmless from any loss,
liability, damage, cost, or expense (including, but not limited to, reasonable
attorneys' fees) resulting to the other party by reason of a breach of the
representation and warranty made by such party in this Section 10.2. The
indemnities set forth in this Section 10.2 shall survive the Closing.
ARTICLE XI
CASUALTY OR CONDEMNATION
(a) Seller agrees to give Buyer and Title Company prompt notice of
any fire or other casualty affecting the Project or of any actual or threatened
taking or condemnation of all or any portion of the Project. If, prior to the
Closing, there shall occur:
(i) damage to the Project caused by fire or other
casualty; or
(ii) a threatened or actual taking or condemnation of all
or any portion of the Project,
then, Buyer shall have the right to terminate this Contract by written notice
delivered to Seller within ten (10) days after Buyer has received notice from
Seller of that event or the date on which Buyer learns of that event, whichever
shall last occur. If Buyer terminates this Contract, the Earnest Money
Deposit shall be returned to Buyer and the parties shall have no further
obligations under this Contract, or to each other with respect to the subject
matter of this Contract. Notwithstanding the foregoing, in the event that the
cost of repairing or restoring such damage shall be covered by available
insurance and such cost shall be less than $100,000, then Buyer shall proceed
to Closing and Seller shall assign at Closing to Buyer its right, title and
interest in the insurance proceeds available to repair or restore the damage or
destruction and to any applicable rent loss insurance and, in addition, Seller
shall credit the Purchase Price with the amount of any deductible under such
insurance policy(s).
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<PAGE> 18
(b) In the event of damage or destruction to the Project, Buyer
may postpone the Closing Date pending a determination of the nature and extent
of such damage or destruction and the availability and adequacy of insurance
proceeds. Such postponement shall be by written notice from Buyer to Seller
and Title Company and shall remain in effect for a period of ten (10) days (the
"Damages Determination Period") following Buyer's determination of the nature
and extent of the damage or destruction and the availability and adequacy of
insurance proceeds for repair or restoration.
(c) If the cost to repair or replace the damage is reasonably
estimated by the Seller's insurance adjuster to exceed $100,000, then at
Buyer's election and in its sole discretion, Buyer may elect to proceed with
the Closing and at the Closing, Seller shall assign to Buyer its right, title
and interest in the insurance proceeds available to repair or restore the
damage or destruction and to any applicable rent loss proceeds, and Seller
shall credit the Purchase Price with the amount of any deductible under such
insurance policy(s).
(d) In the event that Buyer fails to notify Seller and Title
Company of its intention to proceed to Closing and accept as assignment of the
insurance proceeds prior to the expiration of the Damage Determination Period,
the Contract shall automatically terminate and the Earnest Money Deposit shall
be returned to Buyer forthwith.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices, demands, requests, and other
communications required or permitted hereunder shall be in writing, and shall
be deemed to be delivered on receipt if delivered by hand, overnight delivery,
or by facsimile, or whether actually received or not, three (3) days after
having been deposited in a regularly maintained receptacle for the United
States mail, registered or certified, return receipt requested, postage
prepaid, addressed as follows:
<TABLE>
<S> <C>
If to Seller: Desert Pacific Properties, L.L.C.
4335 South Industrial Road, Suite 410
Las Vegas, Nevada 89103
Telephone: (702) 895-9999
Telecopy: (702) 895-7508
If to Buyer: United Investors Realty Trust
5847 San Felipe
Suite 850
Houston, Texas 77057
Attention: Randall Keith
Chief Operating Officer
Telephone: (713) 781-2858
Telecopy: (713) 268-6005
With a Copy to: Lewis H. Sandler, Esq.
United Investors Realty Trust
8080 North Central Expressway
Suite 400
Dallas, Texas 75206
Telephone: (214) 360-3665
</TABLE>
17
<PAGE> 19
Telecopy: (214) 360-3696
James, Goldman & Haugland, P.C.
Attn: Merton B. Goldman, Esq.
8th Floor Texas Commerce Bank Bldg.
201 East Main
El Paso, Texas 79901
(915) 532-3911
FAX: (915) 541-6440
12.2 Governing Law. This Contract is being executed and delivered,
and is intended to be performed, in the State of Arizona, and the laws of
Arizona shall govern the validity, construction, enforcement, and
interpretation of this Contract. This Contract is performable in, and the
exclusive venue for any action brought with respect hereto, shall lie in
Maricopa County, Arizona.
12.3 Entirety and Amendments. This Contract embodies the entire
agreement between the parties and supersedes all prior agreements and
understandings, if any, relating to the Project, and may be amended or
supplemented only by an instrument in writing executed by the party against
whom enforcement is sought.
12.4 Parties Bound. This Contract shall be binding upon and inure
to the benefit of Seller and Buyer, and their respective heirs, personal
representatives, successors and permitted assigns, but shall not inure to the
benefit of another party.
12.5 Saturday, Sunday or Legal Holiday. If any date set forth in
this Contract for the performance of any obligation by Buyer or Seller or for
the delivery of any instrument or notice should be on other than a Business
Day, the compliance with such obligations or delivery shall be deemed
acceptable on the next following Business Day.
12.6 Time is of the Essence. It is expressly agreed by Seller and
Buyer that time is of the essence with respect to this Contract.
12.7 Exhibits. The Exhibits which are referenced in, and attached
to, this Contract are incorporated in, and made a part of, this Contract for
all purposes. If one or more exhibits to be attached to this Agreement
according to the terms hereof are not so attached or are incomplete upon the
actual date of execution hereof, then all such missing or incomplete exhibits
must be prepared or completed by the Buyer prior to the expiration of the
Inspection Period; on or before the expiration of the Inspection Period, Seller
has the right to approve, in its sole discretion, the form and contents of each
such exhibit supplied by the Buyer pursuant to this paragraph and such approval
by Seller is a condition precedent to Buyer to the Closing.
12.8 Attorney's Fees. If either party hereto shall be required to
employ an attorney to enforce or defend the rights of such party hereunder, the
prevailing party shall be entitled to recover its reasonable attorney's fees
and costs.
12.9 Expiration of Offer. The execution by one party hereto and
delivery to the other party hereto of an executed counterpart of this Contract
shall constitute an offer to sell or purchase the Project, as may be the case,
upon the terms stated herein. If a counterpart of this Contract executed by
one party hereto without modification is not received by the other party hereto
within three (3) business days after the time and date of the execution by the
first, as indicated below, the offer contained in this Contract shall be null
and void.
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<PAGE> 20
12.10 Multiple Counterparts. This Contract may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same agreement, and either of the parties hereto may execute this Contract
by signing any such counterpart.
12.11 Severability. If any provision of this Contract shall, for
any reason, is held to violate any applicable law, and so much of this Contract
is held to be unenforceable, then the invalidity of such specific provision
shall not be held to invalidate any other provision of this Contract which
shall remain in full force and effect.
12.12 Assignment. This Contract may be assigned by Buyer to any
affiliated entity without the prior written consent of Seller.
12.13 Tax-Free Exchange. Seller may desire to consummate this
transaction in whole or in part as a tax deferred exchange pursuant to Section
1031 of the Internal Revenue Code. Upon written notification from Seller to
Buyer, Buyer agrees that the purchase price shall not be distributed to Seller
outright or otherwise, but shall be distributed to a "qualified person" (as
defined in Treasury Regulation Section 1.1031(k)-1(k)) pursuant to an agreement
between Seller and the qualified person which meets one of the safe harbors
contained in Treasury Regulation Section 1.1031(k). Seller shall be
responsible for ensuring that such agreement meets the requirements of a safe
harbor and shall provide Buyer with the name of the qualified person in writing
within a reasonable time before Closing. Buyer agrees to accommodate Seller in
effectuating a like-kind exchange of the Project in exchange for exchange
property selected by Seller, but in no event shall Buyer be required or
obligated to incur any costs, expenses or liability in connection with
accommodating Seller in effectuating a like-kind exchange.
EXECUTED by Buyer on the 21st day of November, 1997.
BUYER: UNITED INVESTORS REALTY TRUST, a Texas
real estate investment trust
By: /s/ RANDALL KEITH
----------------------------------
Randall Keith, Chief Operating
Officer
EXECUTED by Seller on the 26th day of November, 1997
SELLER: DESERT PACIFIC PROPERTIES, L.L.C., an
Arizona limited liability company
By: /s/ B. J. POOLE
----------------------------------
Name: B. J. Poole
--------------------------------
Title: CFO
-------------------------------
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<PAGE> 21
Receipt of a fully executed copy of the Contract and a check, subject to
collection for the Earnest Money Deposit received this 5th day of
December 1997.
TITLE COMPANY: SAFECO LAND TITLE COMPANY
By: /s/ MAGGIE FIELDING
-----------------------------------
Name: Maggie Fielding
---------------------------------
Title: Executive Vice President
--------------------------------
20
<PAGE> 22
Order No. 7-0672571
EXHIBIT "A"
Part of the Southeast quarter of Section 36, Township 3 North, Range 2 East
of the Gila and Salt River Base and Meridian, Maricopa County, Arizona,
more particularly bounded and described as follows:
COMMENCING at the Northeast corner of the Southeast quarter of said Section
36;
THENCE South 89 degrees 51 minutes 50 seconds West, a distance of 40.00
feet;
THENCE South 00 degrees 05 minutes 35 seconds West, 40.00 feet Westerly of
and parallel to the East line of said Section 36, a distance of 1741.79
feet to the Point of Beginning for the tract to be described;
THENCE continuing South 00 degrees 05 minutes 35 seconds West 40.0 feet
Westerly of and parallel to the East line of said Section 36, and being
along the existing right-of-way line of 19th Avenue, a distance of 712.65
feet;
THENCE North 89 degrees 57 minutes 32 seconds West, a distance of 150.00
feet (measured North 89 degrees 57 minutes 07 seconds West 150.25 feet);
THENCE South 00 degrees 05 minutes 35 seconds West, a distance of 150.00
feet (measured 149.97 feet) to a point on the existing Northerly
right-of-way line of Northern Avenue;
THENCE North 89 degrees 57 minutes 32 seconds West, (measured North 89
degrees 56 minutes 36 seconds West), 40.00 feet Northerly of and parallel
to the South line of said Section 36, and being along the existing
Northerly right-of-way line of Northern Avenue, a distance of 315.06 feet;
THENCE North 00 degrees 05 minutes 35 seconds (measured North 00 degrees 04
minutes 06 seconds East) and (measured North 00 degrees 25 minutes 09
seconds East) a distance of 90.00 feet (measured 89.89 feet) to a point of
curvature;
THENCE along a curve to the left, having a radius of 145.00 feet (measured
144.36 feet) and an interior angle of 45 degrees 00 minutes 00 seconds
(measured 45 degrees 13 minutes 58 seconds) a distance of 113.88 feet
(measured 113.97 feet) to a point of reverse curve;
THENCE along a curve to the right having a radius of 145.00 feet (measured
144.36 feet) and an interior angle of 45 degrees 00 minutes 00 seconds
(measured 45 degrees 13 minutes 58 seconds) a distance of 113.88 feet
(measured 113.97 feet) to a point of tangency;
THENCE North 00 degrees 05 minutes 35 seconds East (measured 00 degrees 06
minutes 55 seconds), a distance of 567.51 feet (measured 568.11 feet);
THENCE South 89 degrees 57 minutes 32 seconds East (measured South 89
degrees 52 minutes 45 seconds East), a distance of 550.00 feet (measured
550.04 feet) and measured 548.72 feet) to the Point of Beginning.
<PAGE> 1
EXHIBIT 10.17
CONTRACT OF SALE
between
ROSEMEADE PARK LIMITED PARTNERSHIP
SELLER
AND
UNITED INVESTORS REALTY TRUST
BUYER
pertaining to the sale and purchase of
ROSEMEADE PARK SHOPPING CENTER
CARROLLTON, TEXAS
<PAGE> 2
CONTRACT OF SALE
This Contract of Sale (the "Contract") is made and entered into by and
between ROSEMEADE PARK LIMITED PARTNERSHIP, a Texas limited partnership having
its principal office at c/o United Commercial Development, Inc., 7001 Preston
Road, Suite 225, Dallas, Texas 75205 ("Seller"), and UNITED INVESTORS REALTY
TRUST, a Texas real estate investment trust having its principal office at 5847
San Felipe, Suite 850, Houston, Texas 77057 ("Buyer").
ARTICLE I
DEFINED TERMS
1.1 Definitions. As used herein, the following terms shall have
the meanings set forth below:
"Anchor Tenant" means any Tenant at the Project that (i) leases and
occupies 8,000 square feet or more at the Project, (ii) leases and occupies
more space than any other Tenant at the Project, or (iii) leases and occupies
space in at least 25 other shopping centers throughout the United States (i.e.,
with the last alternative not being applicable to a franchisee unless the
franchisee itself leases and occupies space in at least 25 other shopping
centers throughout the United States).
"Business Day" means any day other than a Saturday or Sunday on which
Federal Savings Banks in Dallas, Texas are open for business.
"Closing" means consummation of the purchase of the Project by Buyer
from Seller in accordance with the terms and conditions of Article VIII.
"Closing Date" means the date specified in Section 8.1 on which the
closing will be held.
"Contract Date" means the later of the two dates set forth immediately
above each of the signatures of the parties hereto, on the signature page
hereof.
"Earnest Money Deposit" means the moneys deposited by Buyer in escrow
with the Title Company at the time and in the amount specified in Section 3.2.
"Improvements" means the neighborhood shopping center (the "Shopping
Center") known as Rosemeade Park Shopping Center, containing approximately
49,500 square feet of improved retail space, located in Carrollton, Texas, the
fixtures and other improvements now or hereafter situated upon the tract of
land described on Exhibit "A".
"Inspection Period" means the period commencing on the Contract Date
and ending thirty (30) days thereafter.
"Land" means that certain tract of land located in Denton County,
Texas, and being more fully described on Exhibit "A", together with all rights
appurtenant thereto.
<PAGE> 3
"Leases" means all currently effective leases for space in the
Improvements, including all amendments and modifications thereto and any and
all other agreements with Tenants.
"Permitted Exceptions" means those exceptions or conditions that
affect or may affect title to the Project that are approved or deemed to be
approved by Buyer in accordance with Section 4.3 or Section 4.4.
"Personal Property" means (a) all tangible personal property, if any,
owned by Seller and located on or attached to the Real Property (but not
including any tangible personal property owned or leased by Tenants), (b)
Seller's interest in all personal property leases, licenses, permits, plans,
studies, and utility arrangements with respect to the Real Property, (c)
Seller's interest in all service, maintenance, management or other contracts
relating to the ownership or operation of the Real Property, (d) Seller's
interest in all warranties and guaranties, if any, relating to the Real
Property and the Trade Names, and (e) Seller's interest, if any, in the Trade
Name.
"Project" means, collectively, the Real Property, the Leases, and the
Personal Property for the Shopping Center.
"Purchase Price" means the total consideration to be paid by Buyer to
Seller for the purchase of the Project.
"Real Property" means the Land and the Improvements for the Shopping
Center.
"Rent Roll" means a schedule for the Project identifying the Tenants
at the Project and providing certain information with respect to the Leases in
accordance with Section 5.2 (a)(iii).
"Tenants" means those persons holding rights as tenants of the
Shopping Center.
"Title Company" means Republic Title of Texas, Inc., having its
principal office at 300 Crescent Court, Suite 100, Dallas, Texas 75201,
Attention: Ms. Paulette Hubbard, Escrow Officer.
"Title Underwriter" means Lawyer's Title Insurance Corporation.
"Trade Name" means the name "Rosemeade Park Shopping Center", as well
as any other name utilized in conjunction with the operation of the Project.
1.2 Other Defined Terms. Certain other defined terms shall have
the respective meanings assigned to them elsewhere in this Contract.
2
<PAGE> 4
ARTICLE II
AGREEMENT OF PURCHASE AND SALE
On the terms and conditions stated in this Contract, Seller hereby
agrees to sell and convey to Buyer, and Buyer hereby agrees to purchase and
acquire from Seller, the Project.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. The Purchase Price (herein so called) to be
paid by Buyer to Seller shall be Four Million Six Hundred Thousand and No/100
Dollars ($4,600,000.00). The Purchase Price, net of all prorations set forth
in this Contract, shall be payable to Seller through the Title Company at the
Closing as follows:
(a) Buyer shall accept title to the Project subject to, without
assumption of, or agreement to pay or indemnifying Seller for (except for the
matters described in Section 5.3(a) hereof), the then current balance of that
certain first lien promissory note (the "Existing Note") as of the Closing
Date, which is described below, which note is secured by the following
described existing first lien created by that certain deed of trust (the
"Existing Lien") of even date therewith, to-wit:
Promissory Note in the original principal sum of $3,500,000, executed
by Seller, made payable to the order of HSA/Wexford Bancgroup, L.L.C.
(the "Lender"), dated as of November 10, 1997, secured by a deed of
trust to Peter S. Graf, Trustee, also dated as of November 10, 1997,
against the Project, such deed of trust having been recorded in the
Deed of Trust Records of Denton County, Texas.
(b) The difference between the Purchase Price and the aggregate
unpaid principal balance of the Existing Note as of the Closing Date, shall be
paid in cash to Seller at the Closing, subject to prorations and other credits
provided for in this Contract.
3.2 Earnest Money Deposit. Within three (3) business days after
the Contract Date, Buyer shall deliver the sum of Fifty Thousand and No/100
Dollars ($50,000.00) as an earnest money deposit (the "Earnest Money Deposit")
in cash to the Title Company. The Earnest Money Deposit shall thereafter be
held by the Title Company in escrow to be applied or disposed of by it as is
provided in this Contract. Provided that Buyer complies with the Title
Company's reasonable escrow requirements (e.g., supplying Buyer's taxpayer
identification number), the Earnest Money Deposit shall be deposited in an
interest-bearing account in a federally insured financial institution located
in Dallas County, Texas, reasonably acceptable to the Buyer. All interest
earned thereon shall become part of the Earnest Money Deposit. If the purchase
and sale hereunder are consummated in accordance with the terms and conditions
hereof, the Earnest Money Deposit shall be applied to the Purchase Price at the
Closing. In all other events, the Earnest Money Deposit shall be disposed of
by the Title Company as provided elsewhere in this Contract.
3
<PAGE> 5
ARTICLE IV
TITLE AND SURVEY AND INSPECTION
4.1 Title Commitment. Within three (3) days after the Contract
Date, Seller shall order, at its sole cost and expense, a current commitment
for Title Insurance for the Project (the "Title Commitment") countersigned by
the Title Company, as agent for the Title Underwriter, which Title Commitment
shall be furnished to Buyer. The Title Commitment shall contain the express
commitment of the Title Company to issue a Texas Form T-1 Owner's Policy of
Title Insurance to the extent permitted by Texas law for the Project, which
shall otherwise be in form and content consistent with paragraphs 4.3 and 4.4
below. The Title Commitment shall be accompanied by legible copies of all
instruments that create or evidence title exceptions affecting the Real
Property.
4.2 Survey. Within three (3) days after the Contract Date, Seller
shall order, at its sole cost and expense, a survey for the Project (the
"Survey") to be furnished to Buyer. The Survey shall be an update of the
October 1997 as-built survey prepared by Hannon Engineering Inc. for the
Project (Hannon File No. 962-105) (the "Existing Survey"), which Buyer
acknowledges having received prior to the Contract Date. The Existing Survey
shall be updated to a date subsequent to the Contract Date and shall be
certified to Buyer and the Title Company. The Survey certification shall be in
the same form as the certification on the Existing Survey. The metes and
bounds description of the Land contained in the Survey, if different from that
attached as Exhibit "A" hereto, shall be used for purposes of describing the
Real Property in the special warranty deed conveying title to the Real Property
from Seller to Buyer.
4.3 Review of Title Commitment and Survey. Buyer shall have a
period of fourteen (14) days (the "Title Review Period") after Seller's
delivery to Buyer of both the Title Commitment in accordance with paragraph 4.1
above, in which to review the Title Commitment and the Existing Survey and give
written notice to Seller specifying Buyer's objections (the "Objections"), if
any, to the Title Commitment and the Existing Survey; moreover, if the Survey
shows any encumbrances that were not shown on the Existing Survey, then as to
those encumbrances (and only those encumbrances) the Title Review Period shall
be extended to seven (7) days after Buyer's receipt of the Survey. If Buyer
shall fail to give written notice of Objections to Seller prior to the
expiration of the Title Review Period, then all exceptions to title shown on
Schedule B of the Title Commitment shall be deemed to be Permitted Exceptions.
Buyer agrees that the Existing Lien and the lien for 1998 ad valorem taxes
shall be Permitted Exceptions, and Seller agrees that no other lien (i.e.,
other than the Existing Lien and the lien for 1998 ad valorem taxes) shall be a
Permitted Exception.
4.4 Seller's Obligation to Cure; Buyer's Right to Terminate. If
Buyer shall have timely notified Seller in writing of Objections to the Title
Commitment or the Survey, then Seller may, but shall not be obligated to, at
any time prior to the expiration of the Inspection Period (the "Cure Period"),
give written notice ("Seller's Title Cure Notice") to Buyer of Seller's
intention to satisfy the Objections prior to Closing. If Seller fails to timely
give Buyer the Seller's Title Cure Notice, then Buyer shall have the option,
prior to the conclusion of the Inspection Period, to either (i) waive the
unsatisfied Objections, in which event those unsatisfied Objections shall
become Permitted Exceptions, or (ii) terminate this Contract, in which event
the Earnest Money Deposit shall be
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returned to Buyer and Seller and Buyer shall have no further obligations, one
to the other, with respect to the subject matter of this Contract; and in this
regard, if Buyer delivers a Notice to Continue pursuant to paragraph 4.6 below,
then Buyer shall conclusively be deemed to have elected alternative (i).
4.5 Owner's Title Policy. At the Closing, Seller shall cause a
standard T-1 form Owner's Policy of Title Insurance (the "Owner's Title
Policy") to be furnished to Buyer by the Title Company. The Owner's Title
Policy shall be issued by the Title Underwriter and shall insure that Buyer has
good and indefeasible fee simple title to the Project, subject only to (i)
rights of tenants in possession, as tenants only, (ii) visible and apparent
easements which are shown on the Survey, and (iii) the Permitted Exceptions.
At Buyer's option and cost, the "survey exception" in the Owner's Title Policy
shall be modified to read "shortages in area only". The tax exception shall be
limited to taxes for the year of Closing and subsequent years not yet due and
payable and subsequent assessments for prior years due to change in land usage
or ownership. The basic premium for the Owner's Title Policy shall be paid by
Seller or, at Buyer's option, the cost of the Owner's Title Policy shall be
credited against the Purchase Price, in which event the requirement for title
insurance shall be waived.
4.6 Inspection.
(a) Buyer shall have the right, during the Inspection Period, to
make such examinations, studies, tenant credit checks, appraisals, inspections,
engineering, environmental and insurance underwriting tests and investigations
(the "Inspections") of the Project as Buyer may deem advisable. Such
Inspections shall include, without limitation, review of current operating
statements, operating statements for calendar year 1997 and the prior two
calendar years (to the extent available), current rent roll, true copies of the
latest real estate tax bills, true and complete copies of all service contracts
affecting the Project, and any and all other contracts and agreements relating
to the Project. Seller shall cooperate with Buyer in making available the
Project for Buyer's Inspections, including any and all books and records
relating thereto. Buyer shall not inspect any Tenant's premises without being
accompanied by a representative of Seller. Buyer may also reinspect the
Project prior to Closing to verify that the Project has remained in the same
physical shape, ordinary wear and tear excepted, as the Project was during the
Inspection Period.
(b) If Buyer elects for this Contract to remain in full force and
effect beyond the Inspection Period, then Buyer, at its sole option, may
deliver written notice (the "Notice to Continue") thereof to Seller and Title
Company, on or before the expiration of the Inspection Period. Once the Notice
to Continue has been given, the Earnest Money Deposit shall become at risk.
If, however, Buyer does not timely deliver the Notice to Continue, or if Buyer
notifies Seller and Title Company that Buyer has no further interest in
purchasing the Project, then, in either event, the Earnest Money Deposit shall
be returned to Buyer, and thereafter Seller and Buyer shall have no further
obligations, one to the other, with respect to the subject matter of this
Contract.
(c) Buyer shall indemnify and hold harmless the Seller from and
against all loss, liability, damage, injury and claims resulting from Buyer's
testing or inspection of the Project; provided, however, this indemnity shall
not include, and shall specifically exclude, any loss, liability, damage
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etc. arising out of or resulting from Seller's negligence, gross negligence or
willful misconduct and the discovery of any condition that may require
remediation under applicable environmental laws. This indemnity shall survive
the Closing or termination of this Contract for a period of six months, after
which this indemnity shall automatically terminate.
ARTICLE V
REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS OF SELLER
5.1 Representations and Warranties of Seller; Disclaimer.
Seller's representations and warranties set forth in this Contract are true and
correct in all material respects as of the Contract Date and will be true and
correct in all material respects on the Closing Date. Such representations and
warranties, as they relate to facts that exist on the Closing Date, shall
survive the Closing and shall not be merged therein, except to the extent
actually known by Buyer to be incorrect as to the Closing Date. Seller hereby
represents and warrants to Buyer as follows:
(a) Seller has the full right, power, and authority to sell and
convey to Buyer the Project as provided in this Contract and to carry out
Seller's obligations hereunder, and all requisite action necessary to authorize
Seller to enter into this Contract and to carry out Seller's obligations
hereunder has been, or on the Closing Date will have been, taken; this Contract
constitutes a valid and binding obligation of Seller;
(b) Seller has no current actual knowledge of any adverse or other
parties in possession of the Project, or of any part thereof as lessees,
tenants at sufferance, or trespassers, except Tenants referenced in the Rent
Roll to be delivered pursuant to Section 5.2(a);
(c) Seller has not received written notice from any governmental
or quasi-governmental agency or insurance underwriter requiring or suggesting
that Seller should correct any condition with respect to the Project, which
condition remains uncorrected;
(d) Seller has not received written notice of any pending
condemnation action with respect to all or any portion of the Project, and
there is no existing condemnation or other legal proceedings relating to all or
any portion of the Project by any governmental authority having jurisdiction
over all or any part of the Project;
(e) There is no litigation pending against Seller or the Project
other than as may be incurred in the normal course of business and with respect
to which Seller's insurance underwriter(s) is responsible or with respect to
which Seller shall indemnify and hold harmless Buyer from and after the Closing
Date; and Seller has no current actual knowledge that any such litigation has
been threatened;
(f) Seller has no current actual knowledge of any unpaid
assessments (governmental or otherwise) for sewers, water, paving, electrical
power or otherwise which have been assessed against the Project;
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(g) At the Closing, there will be no unpaid bills or claims in
connection with any repair of the Improvements or other work performed or
material purchased in connection with the Improvements, or in the alternative
Seller shall indemnify Buyer from any such bill or claim;
(h) The Service Contracts, Leases and other agreements delivered
to Buyer pursuant to this Contract constitute all contracts, leases or
agreements affecting the Project (and the ownership and use thereof); the
Ownership Documents delivered pursuant to Section 5.2 herein are true and
correct copies of the originals and no other amendments or modifications exist
thereto; and each of the Service Contracts (as that term is defined in Section
5.2(a)(vi)) pertaining to the Project is terminable without cause prior to the
Closing Date;
(i) Based on currently applicable taxes known to Seller, Seller
has paid all taxes, charges, and assessments (special or otherwise) required to
be paid to any taxing authority with respect to the Project (except for taxes
and assessments for the current year not yet delinquent);
(j) The executed Leases, which are to be delivered to Buyer at
Buyer's principal office in accordance with the terms of this Contract, are and
shall be true and correct originals. No Leases shall be further modified or
amended in any material respect without the prior written consent of Buyer,
which consent shall not be unreasonably withheld or delayed. Except as may be
reflected on the current Rent Roll to be delivered to Buyer pursuant to the
provisions of Section 5.2 below, (1) no Tenant has given Seller notice of its
intention to vacate its leased premises prior to the end of the primary term,
(2) no Tenants are or shall be entitled to any rebates, allowances, rent
concessions or free rent for any period subsequent to the Closing, (3) all of
the Leases are in full force and effect without current default by Seller or,
to the knowledge of Seller, the respective Tenants, (4) All obligations and
items of an inducement nature to be performed by the Seller as landlord under
any of the Leases or to which Seller otherwise agreed to perform have been
fully performed and no commitments have been made to any Tenant for repairs or
improvements other than a general landlord requirement for normal maintenance
in the future; (5) there are no pending claims asserted by any past or present
Tenants for offsets against rent or any other claims (whether monetary or
otherwise) made against Seller, as landlord, under the Leases or otherwise; and
(6) there are no fees or commissions payable to any person or entity in regard
to the Leases or the Project;
(k) All financial and operating statements, rent rolls, contracts,
agreements and books and records delivered by Seller to Buyer relating to
Seller and its business are accurate and complete in all material respects;
(l) Seller has full right, title and authority to enter into this
Contract, without the joinder or consent of any other party, and that no other
party has any right, option, interest, or claim to all or any part of the
Project (i.e., except the Tenants' rights, as tenants only, under the Leases),
whether subject to earnest money contract, option agreement, right of first
refusal, reversionary or future interests, or right of reverter; and
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(m) Seller is not a foreign person or entity pursuant to the
Foreign Investment in Real Property Tax Act, or the Tax Reform Act of 1986, and
Buyer is not obligated to withhold any portion of the Purchase Price for the
benefit of the Internal Revenue Service.
BUYER ACKNOWLEDGES AND AGREES THAT EXCEPT AS EXPRESSLY STATED IN THIS CONTRACT,
SELLER HAS NOT MADE, DOES NOT MAKE -- AND, IN FACT, SPECIFICALLY DISCLAIMS --
ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES
OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR
WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A)
THE NATURE, QUALITY OR CONDITION OF THE PROJECT, (B) THE INCOME TO BE DERIVED
FROM THE PROJECT, (C) THE SUITABILITY OF THE PROJECT FOR ANY AND ALL ACTIVITIES
AND USES WHICH BUYER MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE
PROJECT OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY
APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E) THE HABITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROJECT, OR (F) ANY
OTHER MATTER WITH RESPECT TO THE PROJECT. SPECIFICALLY, AND WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, SELLER HAS NOT MADE, DOES NOT MAKE AND
SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING SOLID WASTE, AS DEFINED BY
THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, OR
THE DISPOSAL OR EXISTENCE, IN OR ON THE PROJECT, OF ANY HAZARDOUS SUBSTANCE, AS
DEFINED BY THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY
ACT OF 1980, AS AMENDED, AND APPLICABLE STATE LAWS, AND REGULATIONS PROMULGATED
THEREUNDER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT HAVING BEEN GIVEN THE
OPPORTUNITY TO INSPECT THE PROJECT, BUYER IS RELYING SOLELY ON ITS OWN
INVESTIGATION OF THE PROJECT AND NOT ON ANY INFORMATION PROVIDED OR TO BE
PROVIDED BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION
PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PROJECT WAS OBTAINED FROM A
VARIETY OF SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION
OR VERIFICATION OF SUCH INFORMATION. BUYER FURTHER ACKNOWLEDGES AND AGREES
THAT THE SALE OF THE PROJECT AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS, WHERE
IS" CONDITION AND BASIS "WITH ALL FAULTS," EXCEPT TO THE EXTENT EXPRESSLY
STATED OTHERWISE IN THIS CONTRACT.
5.2 Covenants and Agreements of Seller. Seller covenants and
agrees with Buyer as follows:
(a) Within five (5) business days following the Contract Date,
Seller shall deliver to Buyer the following items (the "Ownership Documents")
with respect to the Project:
(i) If and to the extent that Seller has in its
possession, copies of "as-built" plans and specifications for
the Improvements and copies of the results of all
environmental, physical inspections, all structural,
mechanical, engineering reports,
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soil reports and traffic studies that may have been prepared
with respect to the Real Property (if any);
(ii) Current certificates of occupancy in the name of the
Seller and building permits (if available) for each building
within the Project, and, to the extent that Seller has in its
possession, a current phase I environmental report and ADA
study;
(iii) Current Rent Roll for the Project, which Rent Roll
shall set forth with respect to each Tenant the following;
(A) the name and street or unit number of the Tenant;
(B) the term of the Tenant's Lease, its commencement
and expiration dates, any renewal terms or extensions and
the base rent and percentage rent, if any, payable
thereunder;
(C) the amount of monthly base rent and percentage
rent, if any, payable by and portion of the Project's CAM
and real estate taxes and insurance premiums recoverable
from each Tenant and any other payments for which such
Tenant is liable;
(D) amount of prepaid rent and the amount of security
and other deposits due under the Lease and held by
Landlord;
(E) the amount of any ongoing Lease commission
obligations, if any, and to whom such commission is owed
and copies of all brokerage commission agreements relating
to the Leases;
(F) any uncured defaults and the amounts of any
unpaid rents, percentage rents, and other payments past
due thereunder;
(G) the amount of any offsets or credits against
rental, if any; and
(H) any concessions granted to the Tenant, including,
without limitation, free rent, rental rebates or credits,
lease take-over arrangements, cash payments, and moving
allowances;
(iv) Copy of the most recent or current real estate and
personal property tax bills or other documentation showing the
amount of current real property taxes and the assessed value
of the Project;
(v) A schedule setting forth property and liability
insurance coverage on or affecting the Project and the current
premiums therefor together with a written summary of all
claims, if any, made against the Project's insurance policies
since January 1, 1997.
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(vi) Copies of all existing service, maintenance,
operations, and management and other contracts relating to the
management, operation or maintenance of the Project (the
"Service Contracts"), and any commission agreements affecting
the Project;
(vii) Copies of true and correct operating income and
expense statements with respect to the Project, accurately
reflecting the operating history of the Project for calendar
years 1995 and 1996 and for year-to-date 1997, together with
operating budgets for calendar year 1997 for the Project;
(viii) A detailed summary of all capital expenditures for the
calendar years 1995 and 1996, and year-to-date 1997, together
with the capital expenditure budgets for calendar year 1997
for the Project;
(ix) All warranties and guaranties currently in force, if
any, relating to the Project or any equipment, appliances or
other personalty located in or used on the Real Property and
in the possession of Seller or its agents; and
(x) True and complete copies of all Leases, including all
amendments, extensions and modifications thereof, and the
Existing Note and all instruments securing the Existing Note,
including the instruments evidencing the Existing Lien, and
all amendments, extensions and modifications thereof.
All materials delivered by Seller to Buyer pursuant to this Section 5.2(a)
shall be held in confidence by Buyer and disclosed only to its attorneys,
accountants, and prospective lenders and securities underwriters and their
respective attorneys. If the parties fail to consummate the transaction
described herein for any reason other than the Seller's default, Buyer shall
return to Seller all materials delivered by or on behalf of Seller pursuant to
or in connection with this Contract.
(b) Seller undertakes and agrees, with respect to the Project,
that it will:
(i) From the Contract Date until the Closing Date,
operate and maintain the Project in a manner consistent with
its current practices;
(ii) From the Contract Date until the Closing Date,
promptly notify Buyer in writing of any litigation,
arbitration or administrative hearing before any court or
governmental agency concerning or affecting the Project and
actually known by Seller, which is instituted or threatened
after the Contract Date, and any new leases, or assignments or
amendments to any existing Leases, and deliver copies thereof
to Buyer, prior to their execution by Seller;
(iii) From the tenth (10th) day prior to the expiration of
the Inspection Period until the Closing Date, not modify any
Lease in any material respect (ie., if such modification
changes the information set forth in the Rent Roll as to such
Lease), nor terminate any Lease for any reason other than a
Tenant's failure to pay rent, nor
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commence any judicial action against any Tenant other than in
the normal course of business without the prior written
consent of Buyer, which consent shall not be unreasonably
withheld or delayed;
(iv) From the tenth (10th) day prior to the expiration of
the Inspection Period until the Closing Date, not execute any
new lease or agree to the terms of any lease renewal without
the prior written consent of the Buyer, which consent shall
not be unreasonably withheld or delayed;
(v) From the Contract Date until the Closing Date,
promptly notify Buyer in writing of any notice received from a
Tenant of its election to vacate its leased premises or
terminate its Lease, or of any election by Seller to terminate
any Lease by reason of tenant's default or commence any
judicial action against any Tenant;
(vi) From the Contract Date until the Closing Date, not
sell, exchange, transfer, assign, convey or encumber or
otherwise dispose of all or any part of the Project or any
interest therein (except for new leases which Seller is
otherwise entitled to enter into under the terms hereof, or
Buyer is entitled to approve under subsection (iv) of this
section), nor shall Seller remove any Personal Property unless
Seller shall replace the removed items with similar items of
comparable quality;
(vii) From the Contract Date until the Closing Date,
maintain the Project in a condition and repair comparable to
its current condition and repair, except for normal wear and
tear;
(viii) From the Contract Date until the Closing Date, there
will be no rental or other concessions of any nature granted
to any Tenant other than those set forth in the Leases and on
the Rent Roll delivered to Buyer pursuant to Section 5.2
(a)(ii), above;
(ix) From the Contract Date until the Closing Date,
promptly notify Buyer in writing if Seller discovers any
material defect, error or omission in any of the Ownership
Documents, detailing the nature of the defect, error or
omission;
(x) From the Contract Date until the Closing Date, not,
without the prior written consent of the Buyer, enter into or
modify any Service Contracts which are not terminable without
cause on or before the Closing Date; or
(xi) From the tenth (10th) day prior to the expiration of
the Inspection Period until the Closing Date, not, without the
prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed, consent to any assignment or
sublease or other encumbrance by a Tenant of its interest, or
any part thereof, in its Lease, except as may be required by
the terms of the Lease.
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5.3 Agreements Concerning Existing Note.
(a) Notwithstanding anything to the contrary contained herein, in
the Existing Note, the Existing Lien, or in any other document or agreement
made or executed in connection herewith or therewith, it is agreed that Buyer
shall accept the Project subject to, but shall not assume, payment of the
Existing Note and performance of the agreements of the Existing Liens and any
other instrument securing the payment of the Existing Note; provided however,
Buyer agrees to assume all obligations under the Existing Note, Existing Lien
and other related documents for which Seller is obligated to perform or pay.
(b) At the Closing, Seller agrees to obtain from the holder of the
Existing Note (the "Lender") a Lender's Consent and Estoppel (herein so
called) signed by the Lender, confirming that it has no objection to the sale
to Buyer of the Project, subject to the unpaid principal balance of the
Existing Note as of the Closing Date, without the assumption of liability for
the payment of the Existing Note or any other instrument securing the Existing
Note. Further, the Lender's Consent and Estoppel shall state as of the date
not earlier than the first day of the month in which this Contract is closed,
the following:
(i) The unpaid balance of principal and accrued interest
on the Existing Note;
(ii) That there are no past due payments either of
principal or interest owing on the Existing Note;
(iii) That to the current actual knowledge of the Lender
(without any investigation), there are no uncured defaults
under the Existing Lien or any other instrument securing the
Existing Note;
(iv) That the Existing Note, the Existing Lien and all
other instruments securing the Existing Note are, to the
current actual knowledge of Lender (without any
investigation), presently in full force and effect;
(v) The amount of any impounds held by the Lender for
payment of insurance premiums or ad valorem taxes or other
expenses related to the Project and the Existing Lien securing
same; and
(vi) The amount of each monthly payment and the amount of
monthly impounds.
Buyer agrees to provide Lender with all available information
reasonably needed to obtain the Lender's Consent and Estoppel from the Lender.
(c) Buyer agrees to pay to Lender up to $17,500 of the transfer
fee or other costs charged by the Lender, in connection with its agreement to
permit the transfer of the Project to the Buyer and obtaining the Lender's
Consent and Estoppel, and Seller is obligated to pay any such fees or costs in
excess thereof.
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(d) Seller shall not, at any time, either prior to or after
Closing, alter, renew, rearrange, restructure or refinance any indebtedness
evidenced by the Existing Note or modify the Existing Note or any instrument
securing the Existing Note, without the prior written consent of Buyer; and
Seller shall neither accept nor request any extension, postponement, indulgence
or forgiveness of the Existing Note or the indebtedness evidenced thereby,
without the prior written consent of Buyer.
5.4 Survival Beyond Closing. All of the representations and
warranties deemed remade at Closing shall survive Closing but Buyer shall be
deemed to have waived any and all rights in respect to the breach thereof
unless Buyer gives written notice of the alleged breach thereof within six (6)
months following Closing and, further, Buyer shall have waived all rights with
respect to all matters specified in any such written notice unless Buyer has
instituted litigation in respect thereto within one (1) year following Closing.
ARTICLE VI
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF BUYER
Buyer represents, warrants, covenants, and agrees with, Seller as of
the Contract Date, that:
(a) Buyer has the full right, power, and authority to purchase the
Project from Seller as provided in this Contract and to carry out Buyer's
obligations under this Contract, and all requisite action necessary to
authorize Buyer to enter into this Contract and to carry out Buyer's
obligations hereunder has been, or on the Closing Date will have been, taken;
and
(b) Buyer acknowledges that Buyer has been advised in writing that
Buyer should have an abstract covering the Land examined by an attorney of
Buyer's own selection or that Buyer should be furnished with or obtain a policy
of title insurance.
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
7.1 Conditions Precedent to Buyer's Obligations. Buyer shall not
be obligated to consummate the transaction described in this Contract unless:
(a) Seller shall have furnished or caused to be furnished to Buyer
the Lender's Consent and Estoppel described in Section 5.3;
(b) Seller shall have performed in all material respects all of
the agreements, covenants and obligations contained in this Contract to be
performed or complied with by Seller on or prior to the Closing Date;
(c) All representations and warranties made by Seller hereunder
shall be accurate and complete (as to the items covered therein) in all
material respects as of the Closing Date;
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(d) The Title Company shall be prepared to deliver at Closing the
Owner's Title Policy described in Section 4.5;
(e) No Anchor Tenant shall be in default under its Tenant Lease
and all Service Contracts will terminate as of the Closing Date, except to the
extent that Buyer has notified Seller in writing that it will accept an
assignment of such contracts, as contemplated by Section 8.2(a)(vi) hereof;
(f) Tenant estoppel certificates or letters shall have been
received by Buyer from (i) all of the Anchor Tenants, and (ii) at least 75% (by
square footage at the Project), of the non-anchor tenants at the Project, which
estoppel certificates or letters shall confirm the Tenant-based information set
forth on the Rent Roll delivered (A) as part of the Ownership Documents, as
modified to reflect any non-substantive changes thereto, or (B) with respect to
Tenants who have executed new leases since the Contract Date, as reflected on
the Rent Roll to be delivered in connection with the Closing; and as to the
remaining 25% of the non-anchor tenants, either Tenant Estoppel Certificates
have been received by Buyer or Seller has certified in writing the same
information set forth in the Estoppel Certificates as to such remaining
non-anchor tenants; and
(g) There shall be no material change in the matters reflected in
the Title Commitment or Survey.
7.2 Termination if Conditions Precedent not Satisfied or Waived.
If any of the conditions precedent to the performance of Seller's obligations
under this Contract have not been satisfied, waived, or deemed waived by the
Buyer within the time frame established herein or otherwise by the Closing
Date, then the Buyer may, at its option, by written notice delivered to the
obligated party and Title Company, terminate this Contract, in which event the
Earnest Money Deposit shall be returned to Buyer and thereafter Buyer and
Seller shall have no further obligations, one to the other, with respect to the
subject matter of this Contract, subject to the provisions of Article IX
hereof.
ARTICLE VIII
CLOSING
8.1 Date and Place of Closing. The Closing shall take place in
the offices of the Title Company. The Closing Date shall be on the thirtieth
(30) day following the expiration of the Inspection Period unless another date
is mutually agreed upon in writing by Seller and Buyer.
8.2 Items to be Delivered at or Prior to the Closing.
(a) Seller. At the Closing, Seller shall deliver or cause to be
delivered to Buyer or the Title Company, the following items fully executed and
acknowledged where so indicated by all necessary parties in respect to the
Project:
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(i) A current commitment by the Title Company to promptly
deliver to Buyer an Owner's Title Policy, in the form
specified in Section 4.5 (unless waived by Buyer in accordance
with the provisions of Section 4.5);
(ii) A special warranty deed, duly executed and
acknowledged by Seller, in the form of Exhibit "C", subject
only to the Permitted Exceptions;
(iii) The original Leases, or, if any original Leases are
not available, copies of any such Leases certified by Seller
as being true, correct and complete;
(iv) Duplicate originals of an assignment and assumption
of leases (the "Assignment of Leases") in the form attached
hereto as Exhibit "D", duly executed by Seller;
(v) A bill of sale and assignment in the form, attached
hereto as Exhibit "E", duly executed by Seller;
(vi) Duplicate originals of an assignment and assumption
of Service Contracts (the "Assignment of Service Contracts")
in the form or substantially the form, attached hereto as
Exhibit "F", duly executed by Seller;
(vii) An affidavit, in the form, or substantially in the
form, attached as Exhibit "G", in compliance with Section 1445
of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder, stating under penalty of
perjury the Seller's United States identification number and
that Seller is not a "foreign person" as that term is defined
in Section 1445, duly executed and acknowledged by Seller;
(viii) A notice of sale in the form, or substantially in the
form, attached hereto as Exhibit "H", (the "Tenant Notice
Letter") for each of the Tenants, duly executed by Seller and
Buyer;
(ix) The Lender's Consent and Estoppel in the form, or
substantially in the form, prescribed in Section 5.3;
(x) Tenant estoppel certificates or letters as prescribed
in Section 7.1(g), which estoppel certificates or letters
shall be signed and dated by each Tenant not more than 30 days
prior to the Closing Date and shall be in forms reasonably
comparable to the form attached hereto as Exhibit "I";
provided, however, that for Anchor Tenants the forms may
instead be reasonably comparable to that attached hereto as
Exhibit "J";
(xi) All keys or other access devices in the possession of
Seller or its agents to all locks located at the Project;
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(xii) Originals of all Service Contracts (if any), copies
of loan documents pertaining to the Existing Note and the
Existing Lien; plans, governmental approvals, and other
contracts and agreements in Seller's possession relating to
the ownership and operation of the Project;
(xiii) Originals, to the extent available, and, if not
available, true and correct copies of all books and records
pertaining to the operation of the Project for the calendar
years 1995 and 1996, and for the year-to-date 1997, in the
possession of Seller or Seller's agent;
(xiv) Appropriate evidence of authorization and opinion of
Seller's counsel reasonably satisfactory to the Title Company
(if required by the Title Company) regarding the consummation
of the transaction contemplated by this Contract;
(xv) Unless waived by Buyer, notices of cancellation, to
be effective within thirty days of the Closing Date, of all
Service Contracts affecting the Project;
(xvi) A reaffirmation certificate executed by Seller
wherein Seller reaffirms and confirms that the
representations and warranties of Seller set forth in this
Contract are true and such representations and warranties of
Seller remain true and correct in all material respects as of
the Closing Date;
(xvii) Letters to all utility companies advising of the
change of ownership of the Project and an assignment of any
deposits currently held by the utility company for the benefit
of the Seller; and
(xviii) Any other items reasonably requested by the Title
Company as administrative requirements for consummating the
Closing.
(b) Buyer. At the Closing, Buyer shall deliver or cause to be
delivered to Seller or the Title Company, the following items:
(i) The cash sum required by Section 3.1;
(ii) Duplicate originals of the Assignment of Leases duly
executed by Buyer;
(iii) Duplicate originals of the Assignment of Service
Contracts duly executed by Buyer;
(iv) Appropriate evidence of authorization reasonably
satisfactory to Seller and the Title Company for the
consummation of the transaction contemplated by this Contract;
and
(v) Any other items reasonably requested by the Title
Company as administrative requirements for consummating the
Closing.
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8.3 Adjustments at Closing. Notwithstanding anything to the
contrary contained in this Contract or applicable law, the provisions of this
Section 8.3 shall survive the Closing. All income and obligations attributable
to days preceding the Closing Date shall be allocated to Seller, and all income
and obligations attributable to days from and after the Closing Date shall be
allocated to Buyer. Without limitation upon the foregoing, the following items
shall be adjusted or prorated between Seller and Buyer as set forth below:
(a) Ad valorem and personal property taxes relating to the Project
for the calendar year in which the Closing occurs shall be prorated between
Seller and Buyer as of the Closing Date based upon taxes actually paid by
Seller for the calendar year in which the Closing occurs, if Seller has paid
such taxes prior to Closing, and otherwise upon the ad valorem and personal
property taxes due assuming payment on December 31st of the year of Closing.
If the actual amount of taxes for the calendar year in which the Closing shall
occur is not known as of the Closing Date, the proration shall be based on the
amount of taxes due and payable with respect to the Project using the latest
assessed value and tax rate. All other assessments affecting the Project, if
any, assessed prior to Closing Date, shall be paid by the Seller and if
assessed after the Closing Date, shall be paid by the Buyer.
(b) Base rents, escalation or reimbursement payments for real
estate and personal property taxes, insurance premiums, CAM or other operating
expenses and charges, payable with respect to the Project for the then current
month shall be prorated as of the Closing Date. Percentage rents for each
Tenant obligated therefor shall be pro-rated on the basis of the number of days
lapsed during the Tenant's percentage rent period as of the Closing Date and
not on the basis of the amount of the Tenant's sales which accrued during such
percentage rent period as of the Closing Date. Such proration may not be
capable of determination at the Closing Date, in which event, such prorations
shall be made post-Closing. Any rent concessions granted by the Seller to
Tenants for free rent, concessions or abatements, which apply to periods after
the Closing Date shall not be prorated but shall be credited to the Buyer.
With respect to any Tenant ("Delinquent Tenant") who owes rents and other
charges which at Closing are past due, such past due rents and other charges
("Delinquencies") shall not be prorated. Buyer shall use good faith efforts to
collect Delinquencies and shall remit such Delinquencies, if any, if, as and
when collected by Buyer; provided, however, that if a payment is received by
Buyer from a Delinquent Tenant, such payment may be applied by Buyer first to
any rents or other sums that are past due by such Delinquent Tenant from and
after the Closing Date. The right to receive and collect all rents and
profits, delinquent or otherwise, shall be assigned by Seller to Buyer at
Closing.
(c) All other income and ordinary operating expenses of the
Project, including, without limitation, public utility charges, maintenance,
management, and other service charges, and all other normal operating charges
shall be prorated at the Closing effective as of the Closing Date based upon
the best available information. The obligation of the parties to adjust,
post-Closing, and any operating expenses as of the Closing Date, shall, to the
extent unknown or not provided for at Closing, survive the Closing and shall be
paid by the party responsible therefor within ten (10) days after written
demand therefor has been made. Such demand shall include a copy of the
invoice(s) for which payment or reimbursement is sought.
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(d) All obligations for tenant finish-out and other leasing
concessions, relating to Leases entered into between the Contract Date and the
Closing Date, shall be assumed by Buyer.
8.4 Deferred Leasing Commissions. The amount of any unpaid
leasing commissions payable on account and over the then current term of
existing Leases as of the Contract Date shall either be paid by the Seller or
treated as a credit to Buyer. Commissions payable on account of Leases which
are subject to renewal at the option of the Tenant and with respect to which
the options have not been exercised prior to the Closing Date shall not be
covered by the preceding sentence, nor shall leasing commissions for Leases
entered into between the Contract Date and the Closing Date; and the obligation
for all such commissions shall be assumed at Closing by Buyer.
8.5 Possession. Possession of the Project shall be delivered to
Buyer by Seller at the Closing, subject to the rights of the Tenants.
8.6 Costs of Closing. Each party shall be responsible for paying
the legal fees of its counsel in negotiating, preparing, and closing the
transaction contemplated by this Contract. Seller shall pay for the cost of
the Survey, the Title Policy basic premium and any real estate tax searches.
Buyer shall pay the additional Title Policy premium if it wishes the "survey
exception" to be modified. Buyer shall also pay for the cost of its own
engineering and environmental inspections and charges attributable to recording
the warranty deed. The parties shall be responsible for the payment of any
transfer fees and costs charged by the Lender, as provided in Section 5.3(c).
The parties shall split the cost of any title company escrow fees. Any other
expenses that are incurred by either party that are expressly identified herein
as being the responsibility of a particular party shall be paid by such party.
All other expenses shall be allocated between the parties in the customary
manner for sales of commercial real properties similar to the Project which are
located in Dallas County, Texas.
8.7 Provisions of Article VIII to Survive Closing. The provisions
of this Article VIII shall survive the Closing.
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ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Default of Buyer. If Buyer fails or refuses to consummate the
transaction contemplated by this Contract, for any reason other than
termination of this Contract by Buyer pursuant to a right to do so expressly
set forth in this Contract, then such event shall constitute a default by Buyer
hereunder and the Seller may, as the Seller's sole and exclusive remedy for
such default, either (i) bring an action against the Buyer for specific
performance of the Buyer's obligations under this Contract, or (ii) terminate
this Contract by giving written notice thereof to Buyer and the Title Company
at or prior to the Closing Date, whereupon the Title Company shall deliver the
Earnest Money Deposit (including the interest earned thereon) to the Seller
which shall constitute liquidated damages hereunder and thereafter neither
party hereto shall have any further rights or obligations hereunder. It is
agreed that the Earnest Money Deposit is a reasonable forecast of just
compensation for the harm that would be caused by such default, which the
parties agree is one that is incapable or very difficult of accurate
estimation, and that payment of the Earnest Money Deposit upon such default
shall constitute full satisfaction of Buyer's obligations hereunder.
9.2 Default of Seller. If Seller fails or refuses to consummate
the sale of the Project to Buyer pursuant to this Contract at the Closing or
fails to perform any of Seller's other obligations hereunder for any reason
other than Buyer's failure to perform Buyer's obligations under this Contract,
then Buyer may, as Buyer's sole and exclusive remedy for such default, either
(i) bring an action against the Seller for specific performance of the Seller's
obligations under this Contract, (ii) terminate this Contract by giving
written notice thereof to Seller and the Title Company at or prior to the
Closing Date, whereupon the Title Company shall deliver the Earnest Money
Deposit (including the interest earned thereon) to Buyer and thereafter neither
party hereto shall have any further rights or obligations hereunder, or (iii)
receive the return of the Earnest Money Deposit and prosecute an action for
damages if (but only if) Seller has conveyed or hypothecated the Project to a
third party in violation of the terms hereof.
9.3 Earnest Money. In the event either Seller or Buyer becomes
entitled to the Earnest Money Deposit upon cancellation of this Contract in
accordance with its terms, such party may deliver a letter of instruction to
the Title Company directing disbursement of the Earnest Money Deposit to the
party entitled thereto. The party delivering such notice to the Title Company
shall concurrently deliver a copy of the notice to the other party hereto.
Upon the expiration of three (3) business days after its receipt of the letter
of instructions, the Title Company may deliver the Earnest Money Deposit to the
party as specified in the letter of instructions unless, within such three (3)
business day period, the Title Company shall have received a written objection
to such delivery from the other party hereto. In such event, the Title Company
shall not deliver the Earnest Money Deposit to either party unless it has a
written authorization to do so signed by both parties or a court order has been
issued by a court of competent jurisdiction to deliver the Earnest Money
Deposit to one of the parties hereto. The Title Company may deposit the
Earnest Money Deposit into a court of competent jurisdiction and thereafter
shall have no further interest in or responsibility for this Contract or for
the Earnest Money Deposit.
9.4 Indemnification of Title Company. Each party hereto hereby
indemnifies and holds harmless the Title Company from any loss, damage or claim
therefor arising out of or in connection with the receipt and disposition of
the Earnest Money Deposit in accordance with the instructions
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set forth in this Contract. These indemnities shall survive the termination of
this Contract or a closing pursuant hereto.
ARTICLE X
BROKERAGE COMMISSIONS
10.1 Amount. If (but only if) this sale is consummated, Seller
hereby agrees to pay to Aegis Realty Group, Inc., San Antonio, Texas, Grubb &
Ellis, Dallas, Texas, and United Commercial Development, Inc., Dallas, Texas
(hereinafter referred to collectively as the "Brokers"), for the Brokers'
services in connection with this transaction, a commission pursuant to a
separate agreement between Seller and the Brokers.
10.2 Indemnity. Seller hereby represents and warrants to Buyer
that it has not contacted or entered into any agreement with any real estate
broker, agent, finder, or any other party in connection with this transaction,
and that Seller has not taken any action which would result in any real estate
broker's, finder's, or other fees or commissions being due or payable to any
other party with respect to the transaction contemplated hereby. Buyer hereby
represents and warrants to Seller that Buyer has not contracted or entered into
any agreement with any real estate broker, agent, finder, or other party in
connection with this transaction, other than the Brokers identified in Section
10.1, and that Buyer has not taken any action which would result in any real
estate broker's, finder's, or other fees or commissions being due or payable to
any other party with respect to the transaction contemplated hereby, except
such Brokers. Each party hereby indemnifies and agrees to hold the other party
harmless from any loss, liability, damage, cost, or expense (including, but not
limited to, reasonable attorneys' fees) resulting to the other party by reason
of a breach of the representation and warranty made by such party in this
Section 10.2. The indemnities set forth in this Section 10.2 shall survive the
Closing.
ARTICLE XI
CASUALTY OR CONDEMNATION
(a) Seller agrees to give Buyer and Title Company prompt notice of
any fire or other casualty affecting the Project or of any actual or threatened
taking or condemnation of all or any portion of the Project. If, prior to the
Closing, there shall occur:
(i) damage to the Project caused by fire or other
casualty; or
(ii) a threatened or actual taking or condemnation of all
or any portion of the Project,
then, Buyer shall have the right to terminate this Contract by written notice
delivered to Seller within ten (10) days after Buyer has received notice from
Seller of that event or the date on which Buyer learns of that event, whichever
shall last occur. If Buyer terminates this Contract, the Earnest Money
Deposit shall be returned to Buyer and the parties shall have no further
obligations under this Contract, or to each other with respect to the subject
matter of this Contract. Notwithstanding the foregoing, in the event that the
cost of repairing or restoring such damage shall be covered by
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available insurance and such cost shall be less than $100,000, then Buyer shall
proceed to Closing and Seller shall assign at Closing to Buyer its right, title
and interest in the insurance proceeds available to repair or restore the
damage or destruction and to any applicable rent loss insurance and, in
addition, Seller shall credit the Purchase Price with the amount of any
deductible under such insurance policy(s).
(b) In the event of damage or destruction to the Project in excess
of $100,000.00, Buyer may postpone the Closing Date for up to ten (10) days
pending a determination of the nature and extent of such damage or destruction
and the availability and adequacy of insurance proceeds. Such postponement
shall be by written notice from Buyer to Seller and Title Company and shall
remain in effect for up to ten (10) days (or a lesser period if ten days are
not needed for Buyer's determination of the nature and extent of the damage or
destruction and the availability and adequacy of insurance proceeds for repair
or restoration).
(c) If the cost to repair or replace the damage is reasonably
estimated by the Seller's insurance adjuster to exceed $100,000, then at
Buyer's election and in its sole discretion, Buyer may elect to proceed with
the Closing and at the Closing, Seller shall assign to Buyer its right, title
and interest in the insurance proceeds available to repair or restore the
damage or destruction and to any applicable rent loss proceeds, and Seller
shall credit the Purchase Price with the amount of any deductible under such
insurance policy(s).
(d) In the event that Buyer fails to notify Seller and Title
Company of its intention to proceed to Closing and accept as assignment of the
insurance proceeds within ten (10) days after the date of a damage or
destruction in excess of $100,000.00, then this Contract shall automatically
terminate and the Earnest Money Deposit shall be returned to Buyer forthwith.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices, demands, requests, and other
communications required or permitted hereunder shall be in writing, and shall
be deemed to be delivered on receipt if delivered by hand, overnight delivery,
or by facsimile, or whether actually received or not, three (3) days after
having been deposited in a regularly maintained receptacle for the United
States mail, registered or certified, return receipt requested, postage
prepaid, addressed as follows:
If to Seller: United Commercial Development, Inc.
7001 Preston Road, Suite 225
Dallas, Texas 75205
Attention: James S. Ziegler
Telephone: (214) 526-6262
Telecopy: (214) 523-0800
With a Copy to: James H. Wallenstein, Esq.
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Telephone: (214) 855-4308
Telecopy: (214) 855-4300
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If to Buyer: United Investors Realty Trust
5847 San Felipe, Suite 850
Houston, Texas 77057
Attention: Randall Keith
Chief Operating Officer
Telephone: (713) 781-2858
Telecopy: (713) 268-6005
With a Copy to: Lewis H. Sandler, Esq.
United Investors Realty Trust
8080 North Central Expressway, Suite 400
Dallas, Texas 75206
Telephone: (214) 360-3665
Telecopy: (214) 360-3696
James, Goldman & Haugland, P.C.
Attn: Merton B. Goldman, Esq.
8th Floor Texas Commerce Bank Bldg.
201 East Main
El Paso, Texas 79901
Telephone: (915) 532-3911
Telecopy: (915) 541-6440
12.2 Governing Law. This Contract is being executed and delivered,
and is intended to be performed, in the State of Texas, and the laws of Texas
shall govern the validity, construction, enforcement, and interpretation of
this Contract. This Contract is performable in, and the exclusive venue for
any action brought with respect hereto, shall lie in Dallas County, Texas.
12.3 Entirety and Amendments. This Contract embodies the entire
agreement between the parties and supersedes all prior agreements and
understandings, if any, relating to the project, and may be amended or
supplemented only by an instrument in writing executed by the party against
whom enforcement is sought.
12.4 Parties Bound. This Contract shall be binding upon and inure
to the benefit of Seller and Buyer, and their respective heirs, personal
representatives, successors and permitted assigns, but shall not inure to the
benefit of another party.
12.5 Saturday, Sunday or Legal Holiday. If any date set forth in
this Contract for the performance of any obligation by Buyer or Seller or for
the delivery of any instrument or notice should be on other than a Business
Day, the compliance with such obligations or delivery shall be deemed
acceptable on the next following Business Day.
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12.6 Time is of the Essence. It is expressly agreed by Seller and
Buyer that time is of the essence with respect to this Contract.
12.7 Exhibits. The Exhibits which are referenced in, and attached
to, this Contract are incorporated in, and made a part of, this Contract for
all purposes.
12.8 Attorney's Fees. If either party hereto shall be required to
employ an attorney to enforce or defend the rights of such party hereunder, the
prevailing party shall be entitled to recover its reasonable attorney's fees
and costs.
12.9 Expiration of Offer. The execution by one party hereto and
delivery to the other party hereto of an executed counterpart of this Contract
shall constitute an offer to sell or purchase the Project, as may be the case,
upon the terms stated herein. If a counterpart of this Contract executed by
one party hereto without modification is not received by the other party hereto
within three (3) business days after the time and date of the execution by the
first, as indicated below, the offer contained in this Contract shall be null
and void.
12.10 Multiple Counterparts. This Contract may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same agreement, and either of the parties hereto may execute this Contract
by signing any such counterpart.
12.11 Severability. If any provision of this Contract shall, for
any reason, is held to violate any applicable law, and so much of this Contract
is held to be unenforceable, then the invalidity of such specific provision
shall not be held to invalidate any other provision of this Contract which
shall remain in full force and effect.
12.12 Assignment. This Contract may be assigned by Buyer to (but
only to) any affiliated entity without the prior written consent of Seller.
12.13 DTPA Waiver. To the extent applicable and permitted by law
(and without admitting such applicability), Buyer hereby waives the provisions
of the Texas Deceptive Trade Practices-Consumer Protection Act, Chapter 17,
Subchapter E, Sections 17.41 through 17.63, inclusive (other than Section
17.555, which is not waived). Buyer represents and warrants to Seller that
Buyer is acquiring the Project for commercial or business use and has been and
will continue to be represented by legal counsel in connection with the
transactions contemplated herein.
12.14 Buyer is hereby advised that one of the parties comprising
Seller and/or an affiliate of such party is contemplating the purchase from
Cosmopolitan Lady of promissory notes which it receives from its members.
These promissory notes will likely originate in various locations of
Cosmopolitan Lady in the Dallas/Fort Worth Metroplex, which may or may not
include the Cosmopolitan Lady operation at the Project.
[ALL SIGNATURES ON THE NEXT PAGE]
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EXECUTED by Buyer on the 4th day of December, 1997.
BUYER:
UNITED INVESTORS REALTY TRUST,
a Texas real estate investment trust
By: /s/ RANDALL D. KEITH
----------------------------------------
Name: Randall D. Keith
--------------------------------------
Title: VP
-------------------------------------
EXECUTED by Seller on the 5th day of December, 1997.
SELLER:
ROSEMEADE PARK LIMITED PARTNERSHIP,
a Texas limited partnership
By: Beltline Country Club/Rosemeade
Corp., a Texas corporation,
its General Partner
By: /s/ JEFFREY G. MUNDY
-------------------------------
Jeffrey G. Mundy
Vice President
Receipt of a fully executed copy of the Contract and a check, subject to
collection for the Earnest Money Deposit received this 5th day of
December, 1997.
TITLE COMPANY:
REPUBLIC TITLE OF TEXAS, INC.
By: /s/ PAULETTE HUBBARD
----------------------------------------
Paulette Hubbard
Escrow Officer
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List of Attachments
Exhibit "A" - Description of Land
Exhibit "B" - [Intentionally Deleted]
Exhibit "C" - Form of Special Warranty Deed
Exhibit "D" - Form of Assignment of Leases
Exhibit "E" - Form of Bill of Sale and Assignment
Exhibit "F" - Form of Assignment of Service Contracts
Exhibit "G" - Non-Foreign Affidavit
Exhibit "H" - Form of Tenant Notice Letter
Exhibit "I" - First-Choice Form of Tenant Estoppel Letter
Exhibit "J" - Second-Choice Form of Tenant Estoppel Letter
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EXHIBIT "A"
DESCRIPTION OF LAND
TRACT 1:
LOT 1, BLOCK A
Being a tract of land out the J. M. Robinson Survey, Abstract No. 1120, and in
the City of Carrollton, Denton County, Texas and being all of Lot 1, Block A,
Rosemeade Park as recorded in Cabinet E, Plage 162 of the Plat Records of
Denton County, Texas and being more particularly described by metes and bounds
as follows:
COMMENCING at an "x" cut in concrete set at northwest intersection of the right
of way lines of Rosemeade Parkway (100' R.O.W.) and Marsh Lane (100' R.O.W.),
same being the southeast corner of Lot 3, Block A, Rosemeade Park;
THENCE North 89 degrees 55 minutes 00 seconds West with the north line of
Rosemeade Parkway and the south line of Lots 2 and 3, a distance of 600.48
feet, passing at 222.00 feet a found 1/2" iron rod at the southeast corner of
Lot 2, Block A to a found "x" cut in concrete at the southeast corner of said
Lot 1, Block A, same being the PLACE OF BEGINNING of the tract herein
described;
THENCE North 89 degrees 55 minutes 00 seconds West with the north line of
Rosemeade Parkway and the south line of Lot 1, a distance of 217.09 feet a
found 1/2" iron rod at the southwest corner of said Lot 1, Block A;
THENCE North 00 degrees 05 minutes 00 seconds East with the west boundary line
of said Lot 1, Block A for a distance of 274.47 feet to a 1/2" iron rod,
witnessed by a found "X" cut in concrete at a 9.5 feet offset in a westerly
direction, found for corner at the point of curvature of a curve to the right
having a central angle of 64 degrees 06 minutes 53 seconds, a radius of 50.00
feet and a tangent of 31.31 feet;
THENCE continuing along said west line of said Lot 1 and along said curve to
the right a distance of 55.95 feet to a 1/2" iron rod witnessed by a found "X"
cut in concrete at a 9.6 feet offset in a northwesterly direction, found at the
point of reverse curve of a curve to the left having a central angle of 23
degrees 44 minutes 11 seconds, a radius of 965.00 feet and a tangent of 202.80
feet;
THENCE continuing along said west line of said Lot 1 and along said curve to
the left a distance of 399.78 feet a 1/2" iron rod found at the northeast
corner of Lot 1, same being the northwest corner of Lot 2, Block A, Rosemeade
Park Addition;
THENCE South 00 degrees 05 minutes 00 seconds West with the common line of said
Lots 1 and 2 a distance of 179.48 feet to a found "X" cut in pavement for an
angle point in said line;
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THENCE South 89 degrees 55 minutes 00 seconds East with the common line of said
Lots 1 and 2 a distance of 18.00 feet to a found "x" cut in pavement, which
point lies 0.95 feet westerly from the west wall of an existing Kroger Store,
for an angle point in said line;
THENCE South 00 degrees 05 minutes 00 seconds West with the common line of said
Lots 1 and 2 a distance of 113.00 feet to a found "X" cut in pavement for an
angle point in said line;
THENCE North 89 degrees 55 minutes 00 seconds West with the common line of said
Lots 1 and 2 a distance of 142.91 feet to a found "X" cut in pavement for an
angle point in said line;
THENCE South 00 degrees 05 minutes 00 seconds West with the common line of said
Lots 1 and 2 a distance of 270.00 feet to the Point of Beginning and containing
2.522 acres of land more or less.
TRACT 2:
LOT 3, BLOCK A
Being a tract of land out the J. M. Robinson Survey, Abstract No. 1120, and in
the City of Carrollton, Denton County, Texas and being all of Lot 3a, Block A,
Rosemeade Park as recorded in Cabinet I, Page 275 of the Plat Records of Denton
County, Texas and being more particularly described by metes and bounds as
follows:
COMMENCING at an "x" cut in concrete set at northwest intersection of the right
of way lines of Rosemeade Parkway (100' R.O.W.) and Marsh Lane (100' R.O.W.),
same being the southeast corner of Lot 3b, Block A, Rosemeade Park as recorded
in Cabinet I, Slide 275 of the Plat Records of Denton County, Texas;
THENCE North 89 degrees 55 minutes 00 seconds West with the north line of
Rosemeade Parkway and the south line of said Lot 3b, a distance of 222.00 feet
to a found 1/2" iron rod at the southwest corner of said Lot 3b, same being
the southeast corner of Lot 2, Block A, Rosemeade Park Addition as recorded in
Cabinet E, Page 162 of the Plat Records of Denton County, Texas;
THENCE North 00 degrees 05 minutes 00 seconds East with the common line between
said Lots 2 and 3b for a distance of 160.00 feet to a found 1/2" iron rod at
the northwest corner of said Lot 3b, same being the southwest corner of Lot 3a,
Block A and being the PLACE OF BEGINNING of the herein described tract;
THENCE North 00 degrees 05 minutes 00 seconds East with the common line between
said Lots 2 and 3a for a distance of 122.00 feet to a found "X" cut in concrete
for an angle point in the common line between said Lots 2 and 3a; THENCE South
89 degrees 55 minutes 00 seconds East with the common line between said Lots 2
and 3a for a distance of 28.43 feet to a found "X" cut in concrete for an angle
point in said line;
THENCE North 00 degrees 05' 00' East with the common line between said Lots 2
and 3a for a distance of 269.27 feet to a found 1/2" iron rod at the northwest
corner of said Lot 3a, same being the northeast
27
<PAGE> 29
corner of said Lot 2 and being the point of curvature of a non-tangent curve to
the left having a central angle of 01 degrees 37' 25", a radius which bears
North 01 degrees 54' 41" East a distance of 975.00 feet and a tangent of 13.82
feet;
THENCE along the north line of said Lot 3a and along said curve to the left a
distance of 27.63 to a 1/2" iron rod found at the point of tangency of said
curve to the left; THENCE South 89 degrees 42' 44" East a distance of 167.91
feet with the north line of Lot 3 to a 1/2" iron rod found at the northeast
corner of said Lot 3b and being in the west right of way line of Marsh Lane;
THENCE South 00 degrees 17' 16" West with the east line of said Lot 3a and the
west right-of-way line of Marsh Lane (a 100' ROW) a distance of 390.18 feet to a
found 1/2" iron rod at the southeast corner of said Lot 3a, same being the
northeast corner of said Lot 3b;
THENCE North 89 degrees 55' 00" West with the common line of said Lots 3a and 3b
a distance of 222.57 feet to the Point of Beginning and containing 1.826 acres
of land more or less.
TRACT 3:
LOT 3B, BLOCK A
Being a tract of land out the J. M. Robinson Survey, Abstract No. 1120, and in
the City of Carrollton, Denton County, Texas and being all of Lot 3b, Block A
Rosemeade Park as recorded in Cabinet I, Page 275 of the Plat Records of Denton
County, Texas and being more particularly described by metes and bounds as
follows:
BEGINNING at an "x" cut in concrete set at northwest intersection of the right
of way lines of Rosemeade Parkway (100' R.O.W.) and Marsh Lane (100' R.O.W.),
same being the southeast corner of Lot 3b, Block A, Rosemeade Park;
THENCE North 89 degrees 55' 00" West with the north line of Rosemeade Parkway
and the south line of said Lot 3b, a distance of 222.00 feet to a found 1/2"
iron rod at the southwest corner of said Lot 3b, same being the southeast corner
of Lot 2, Block A, Rosemeade Park Addition as recorded in Cabinet E, Page 162 of
the Plat Records of Denton County, Texas;
THENCE North 00 degrees 05' 00" East with the common line between said Lots 2
and 3b for a distance of 160.00 feet to a found 1/2" iron rod at the northwest
corner of said Lot 3b, same being the southwest corner of Lot 3a, Block A as
recorded in Cabinet I, Page 275 of the Plat Records of Denton County, Texas;
THENCE South 89 degrees 55' 00" East with the common line between said Lost 3b
and 3a for a distance of 222.57 feet to a found 1/2" iron rod at the northeast
corner or said Lot 3b, same being the southeast corner of said Lot 3a;
28
<PAGE> 30
THENCE South 00 degrees 17' 16" West with the east line of said Lot 3b and the
west right-of-way line of Marsh Lane (a 100' ROW) a distance of 160.00 feet to
the Point of Beginning and containing 0.817 acres of land more or less.
29
<PAGE> 1
EXHIBIT 10.18
UNITED INVESTORS REALTY TRUST
5847 San Felipe
Suite 850
Houston, Texas 77057
November 25, 1997
By Fax (813) 725-2689
Town 'N Country Plaza of Tampa, Limited
&
Trustee James H. Shimberg
on behalf of Landowner
c/o Stuart S. Golding Company
27001 US Highway 19 North
Suite 2095
Clearwater, Florida 34621
Re: Town 'N Country Shopping Center (the "Property")
Gentlemen:
While reviewing our October 15, 1997 letter agreement (the "Agreement")
for purposes of amending our S-11 Registration Statement and referencing the
Agreement, therein, it occurs to me that Paragraph 4 is somewhat open-ended with
regard to timing. I trust that each of the three of you understands that UIRT
has not promised to maintain an Advisory Board forever; nor has UIRT promised to
grant, for an unlimited number of years, options covering 1,000 shares of common
stock per year to the three of you as a group.
We do not have an agenda with regard to the life of the Advisory Board.
Although the first year will be experimental, I hope that it will serve the
needs of UIRT and that UIRT's Board of Trust Managers will continue it from year
to year. Similarly, no options will be granted annually to anyone who is not
serving on the Advisory Board (or in your situation, as part of the "Group").
Thus, if the Advisory Board is discontinued after the first year or if you as a
Group decide that you no longer wish to participate, or if the Board of Trust
Managers, in its infinite wisdom (as only such Boards can have) that the Group
should no longer serve on the Advisory Board, then in any of such events, no
additional options will be granted to the Group. In any of such events however,
it seems to me that any options that have already been granted and are not yet
vested, should vest immediately and that you should have a period of ninety days
thereafter in which to exercise all vested options. The foregoing is not
intended to abrogate any rights granted in the Agreement with respect to a
merger or similar event in which UIRT is not the surviving entity.
Please forgive me for not focusing on these issues earlier. I trust
that the forgoing will not cause anyone any heartburn, but if you thing that I
am being unreasonable, please call me direct. Assuming that you are in agreement
with the foregoing, this letter will constitute an amendment to the Agreement.
<PAGE> 2
Accordingly, will you please indicate your approval in the space provided
hereinbelow and return a faxed copy to me at (214) 360-3696. Your early
attention to this will be greatly appreciated as a description of the Agreement
is going into the amended S-11 Registration Statement.
Very truly yours,
/s/ Lewis H. Sandler
Lewis H. Sandler
President and CEO
Approved:
Town 'N Country Plaza of Tampa, Limited
By: Town 'N Country Park, Inc.
its general partner
By: /s/ James H. Shimberg Date: 11/26/97
---------------------------------- -------------------
PSK Associates, Limited Partnership
its general partner
By: Stuart S. Golding Company
as agent
By:/s/ David J. Scher Date: 11/26/97
---------------------------------- -------------------
James H. Shimberg as Trustee for fee landowners
By:/s/ James H. Shimberg Date: 11/26/97
---------------------------------- -------------------
-2-
<PAGE> 3
UNITED INVESTORS REALTY TRUST
5847 SAN FELIPE
SUITE 850
HOUSTON, TEXAS 77057
OCTOBER 15, 1997
BY FAX: (813) 725-2689
Town N Country Plaza of Tampa, Limited
&
Trustee, James H. Shimberg
on Behalf of Landowner
c/o Stuart S. Golding Company
27001 US Highway 19 North
Suite 2095
Clearwater, Florida 34621
Re: Town 'N Country Shopping (the "Property")
Gentlemen:
Confirming our telephone conversations regarding the above-referenced
Property, you (as "Seller") have agreed to grant to United Investors Realty
Trust ("UIRT") and UIRT has agreed to acquire from Seller, an option (the
"Option") to purchase the fee estate and 100% of the groundlessee's estate in
the Property, on the terms and conditions set forth below. As consideration for
the Seller's granting of the Option, UIRT shall remit to Seller within five (5)
business days after receipt by UIRT of a fully executed duplicate original of
this letter agreement, the sum of five thousand dollars ($5,000), which sum (the
"Option Payment") shall be deemed earned by Seller upon receipt, but which
Option Payment shall be credited against the Purchase Price (defined below) in
the event that UIRT timely exercises the Option.
We have agreed that the current market value of the Property, including
the fee simple estate and the groundlease, is $4,918,000. If UIRT exercises its
option, it will purchase (i) the fee simple estate, subject to the groundlease,
but free and clear of any liens or mortgages, for a price of $250,000, all cash,
and (ii) the groundlessee's estate, free and clear of any liens or mortgages,
for a price of $4,668,000, all cash (collectively, the payments of (i) and (ii)
which aggregate the sum of $4,918,000, are hereinafter sometimes referred to as
the "Purchase Price" ). The Option may be exercised at any time on or after
January 1, 1998, but before July 1, 1998, upon fifteen (15) days' prior written
notice.
UIRT hereby agrees that the Property may be subjected to a five (5)
year first mortgage loan (the "Loan") in the maximum principal amount of
$2,500,000. The interest rate on the Loan shall not exceed 8.25% per annum. The
Loan may be amortized over a term of not less than 20 years and must be
prepayable at any time without premium, penalty or cost to UIRT. Assuming a
$2,500,000 first mortgage on the Property, upon exercise of the Option, UIRT
will pay Seller the sum of $2,418,000, all cash, for the Property, including the
fee and groundlessee estates. Closing adjustments will take into account any
reduction in the outstanding principal balance of the mortgage (i.e., the cash
portion of the Purchase Price will be increased by any reduction in the
principal balance outstanding on the Loan.)
<PAGE> 4
Purchase Price will also be adjusted by various closing adjustments
including, but not limited to pro-rations for rent, expenses, annualized CAM and
other expense recoveries, (the tax and/or insurance recoveries may have to be
pro-rated post closing as to some of the tenants), percentage rents based on the
percentage rent payable during the current lease year for each tenant (this may
be a post-closing pro-rata adjustment), tax and insurance deposits, if any, that
are held by the mortgagee and assignable and assigned to UIRT at Closing,
security deposits, rent concessions and persistent delinquencies, as well as
other pro-rations typically made in the Tampa area with respect to transactions
of a similar nature to the one contemplated herein. The Seller will pay for
title abstract charges and a title insurance policy in the amount of the
Purchase Price (as adjusted), a current (within 30 days of the date of a binding
purchase contract) survey, and ADA report, as well as transfer taxes or deed
stamps and any mortgagee consent or assumption fees or related costs and any
documentary stamps incurred in connection with the assumption (if required by
the mortgagee) of the mortgage. UIRT will be responsible for any costs incurred
with respect to an engineering study (or update), environmental study report (or
update), audit fees (for the S-11), and recording charges for the deeds and
recording charges for any mortgage assumption agreement. Each party will pay for
its own legal fees and will share in any purchase contract escrow fees. UIRT
will front the cost of the current survey (or survey updates), but the Seller
will reimburse UIRT for this cost at Closing, provided, however, that if Seller
obtains a survey in connection with its anticipated Loan on Town 'n Country,
UIRT will only be required to front the cost of the survey update for this
Property. UIRT would like the Seller to order such surveys or survey updates so
that we can take advantage of your local knowledge and expertise.
2. If any lease is replaced prior to Closing, we will adjust the
current market value (and Purchase Price) to reflect the replacement. Similarly,
if there is any rent concession (including base rent, CAM, real estate tax
and/or insurance premium reimbursement) the projected extension thereof beyond
the Closing Date will be a closing adjustment. Along the same lines, in the
event of any persistent delinquency (i.e., where a tenant is delinquent for two
consecutive months immediately prior to Closing or for any three months out of
the last twelve months immediately prior to Closing), there will be an equitable
adjustment to the Purchase Price (or the Seller may master-lease or otherwise
guaranty the rent payments for the duration of the lease term).
3. UIRT will not exercise the Option unless it has completed, by
February 15, 1998, its initial public offering of approximately $80,000,000.
4. Considering our anticipation of an ongoing relationship between the
parties, we welcome your suggestion that you have some input into the
substantive issues that UIRT will face after the IPO. In this regard, you had
suggested that you have some Board representation. Because of the inherent
conflict of interest that this poses, not to mention the example to other
prospective sellers that this poses, we propose to give the three of you (David
J. Scher, Loren M. Pollack and James H. Shimberg) as a group (the "Group") a
seat on UIRT's Advisory Board which UIRT is forming. The Advisory Board will
participate in all meetings, but its members will have no vote. You could
rotate, internally, the membership on this Board on an annual basis. UIRT will
grant to the Seller, options to purchase an aggregate of 3,000 shares of UIRT
common stock at the IPO price. These options will vest over a three year period
(so long as the Group, or any one of you, is on the Advisory Board) Each of you
will be entitled to exercise options for 333 shares per year commencing January
1, 1999. Thereafter, commencing January 1, 2002, 1,000 options per year will be
granted to the three of you as a group (to be allocated among you as you shall
direct) at an exercise price equal to the market price of UIRT's common stock on
the date of the grant. In the event of a merger or similar event pursuant to
which UIRT
-2-
<PAGE> 5
is not the surviving entity, all outstanding options will be deemed vested and
UIRT will purchase them at a price equal to the excess of the market price of
the shares immediately preceding the merger or similar event and the option
exercise price. UIRT will expect one member of your Group to attend all meetings
of the Trust Managers and will reimburse such member of the Advisory Board for
his or her expenses incurred in attending such meetings. If more than one of
your Group wishes to attend a Board Meeting, that will be fine, although only
one of you will be reimbursed. Although, an Advisory Board member will have no
vote, such member will not be subject to election by the shareholders. The
Advisory Board members will be appointed by the Trust Managers. I think that
with respect to our anticipated purchase of other properties owned by you and
the possibility of joint venture development with you, it is important that we
avoid any conflicts of interest, especially in the initial years of our public
format. Hopefully, the Advisory Board will serve our respective needs and
desires.
5. We understand that you own or control a number of additional
shopping centers in the central Florida area that you may have an interest in
either selling or exchanging for OP Units. We will be more than happy to explore
this with you after the completion of our IPO. Should we agree on a purchase
price for any or all of these properties, and you wish to exchange them for OP
Units, we will do so at a discount off of the UIRT market price of $0.25 per
share. In order to avoid any perception of manipulation, we propose to use the
average market price of the UIRT common stock for the 30 trading days
immediately prior to the acquisition.
6. With respect to the Twelve Oaks Shopping Center, I understand that
you have temporarily withdrawn this property from consideration for sale pending
your ability to find a replacement tenant for the Craft Depot lease. We respect
your decision on this maker and wish you Godspeed. When you have a new tenant in
place, we will be happy to revisit the acquisition of this center and the price
that we will be willing to pay for it. Should we go forward with this center. we
will also grant to your group an option for an additional 3,000 shares of UIRT
common stock. The option exercise price will be tied to the market price of the
stock at the time of the grant.
7. Upon timely remittance of the Option Payment, UIRT may conduct its
due diligence investigation of the Property. In connection therewith, UIRT may
inspect and make copies of Seller's books and records in so far as they pertain
to the operation and maintenance of the Property for the years 1994, 1995 and
1996 and year-to-date 1997. UIRT may also make, or cause its agents to make,
physical inspections of the Property. Seller shall remit to UIRT monthly a
current rent roll for the Property and agrees to keep UIRT informed on a current
basis regarding any new, modified, or canceled leases and rent concessions and
maintenance and capital expenditures.
Thanks again to each of you for your cooperation in this maker.
Sincerely,
/s/ Lewis H. Sandler
Lewis H. Sandler
President and CEO
-3-
<PAGE> 6
Approved:
Town 'N Country Plaza of Tampa, Limited
By: Town 'N Country Park, Inc.
its general partner
By: /s/ James H. Shimberg Date: 10/23/97
------------------------------- -------------------
PSK Associates, Limited Partnership
its general partner
By: Stuart S. Golding Company
as agent
By:/s/ David J. Scher Date: 10/23/97
------------------------------- -------------------
Name: David J. Scher
----------------------------- -------------------
Title: as Agent
---------------------------- -------------------
James H. Shimberg as Trustee for fee landowners
By:/s/ James H. Shimberg Date: 10/23/97
------------------------------- -------------------
Name: James H. Shimberg
---------------------------- -------------------
Title: Trustee
---------------------------- -------------------
cc: Rob Scharar
Randy Keith
Dan Jones
-4-
<PAGE> 1
EXHIBIT 10.19
CONTRACT OF SALE
pertaining to the sale and purchase of
THE MARKET AT FIRST COLONY,
SUGARLAND, TEXAS
THE HEDWIG SHOPPING CENTERS (PHASES I, II AND III),
HOUSTON, TEXAS
BENCHMARK CROSSING,
HOUSTON, TEXAS
<PAGE> 2
CONTRACT OF SALE
This Contract of Sale (the "Contract") is made and entered into by and
between MARKET AT FIRST COLONY JOINT VENTURE and HEDWIG II JOINT VENTURE, both
Texas joint ventures, PFL-290 LIMITED PARTNERSHIP and R&R HEDWIG I LIMITED
PARTNERSHIP, both Texas limited partnerships, and HEDWIG II, INC., a Texas
corporation, all having their principal office at 6800 Texas Commerce Tower,
Houston, Texas ("Sellers"), and UNITED INVESTORS REALTY TRUST, a Texas real
estate investment trust having its principal office at 5847 San Felipe, Suite
850, Houston, Texas 77057 ("Buyer").
ARTICLE I
DEFINED TERMS
1.1 Definitions. As used herein, the following terms shall have
the meanings set forth below:
"Anchor Tenant" means any Tenant at any of the Projects that (i)
leases and occupies 8,000 square feet or more at such Project, (ii) leases
and occupies more space than any other Tenant at such Project, or (iii) leases
and occupies space in at least 25 other shopping centers throughout the United
States.
"Business Day" means any day other than a Saturday or Sunday on which
Federal Savings Banks in Houston, Texas are open for business.
"Closing" means consummation of the purchase of the Projects by Buyer
from Sellers in accordance with the terms and conditions of Article VIII.
"Closing Date" means the date specified in Section 8.1 on which the
closing will be held.
"Contract Date" means the later of the two dates set forth on the
signature page hereof.
"Delivery Date" means the date on which the last to be received of the
(1) Title Commitment in accordance with paragraph 4.1 herein; (2) the Surveys
in accordance with paragraph 4.2 herein; and (3) the Ownership Documents
required by paragraph 5.2(a) herein, are received by Buyer.
"Earnest Money Deposit" means, collectively, the moneys deposited by
Buyer in escrow with the Title Company at the time and in the amount specified
in Section 3.2, as the Initial Earnest Money Deposit, and under Section 4.6(b),
as the Second Earnest Money Deposit.
"Improvements" means the following neighborhood shopping centers (the
"Shopping Centers"): (i) the shopping center known as The Market at First
Colony, containing approximately 94,241 square feet of improved retail space,
in Fort Bend County, Texas, the fixtures and other improvements now or
hereafter situated upon the tract of land described on Exhibit "A-1"; (ii) the
shopping center known as The Hedwig Shopping Centers, containing approximately
69,554 square feet of improved retail space, in Houston, Texas, the fixtures
and other improvements now or hereafter situated upon the tract of land
described on Exhibit "A-2"; (iii) the shopping center known as Benchmark
Crossing, containing approximately 58,384 square feet of improved retail space,
in Houston, Texas, the fixtures and other improvements now or hereafter
situated upon the tract of land described on Exhibit "A-3".
1
<PAGE> 3
"Inspection Period" means the period commencing on the Contract Date
and ending 30 days thereafter.
"Land" means all of those certain tracts of land located in Harris
County, Texas, and being more fully described on Exhibits "A-1", "A-2" and
"A-3", together with all rights appurtenant thereto.
"Leases" means all leases for space in the Improvements, including all
amendments and modifications thereto and any and all other agreements with
Tenants.
"Permitted Exceptions" means those exceptions or conditions that
affect or may affect title to the Projects that are approved or deemed to be
approved by Buyer in accordance with Section 4.3 or Section 4.4.
"Personal Property" means (a) all tangible personal property owned by
Sellers and located on, or attached to, the operation of the Real Property (but
not including any tangible personal property owned or leased by Tenants), (b)
Sellers' rights, titles, and interests in all personal property leases,
licenses, permits, plans, studies, and utility arrangements with respect to the
Real Property, (c) Sellers' rights, titles and interests in all service,
maintenance, management or other contracts relating to the ownership or
operation of the Real Property, and (d) Sellers' rights, titles and interests
in all warranties and guaranties, if any, relating to the Real Property, and
the Trade Names.
"Projects" means, collectively, the Real Property, the Leases, and the
Personal Property for the Shopping Centers.
"Purchase Price" means the total consideration to be paid by Buyer to
Sellers for the purchase of the Projects.
"Real Property" means the Land and the Improvements.
"Rent Rolls" means a schedule for each of the Projects identifying the
Tenants at the Projects and providing certain information with respect to the
Leases in accordance with Section 5.2 (a)(iii).
"Tenants" means those persons holding rights as tenants of the Shopping
Centers.
"Title Company" means Safeco Land Title Company, having its principal
office at 8080 North Central Expressway, Suite 500, Dallas, Texas 75206,
Attention: Ms. Maggie Fielding, Executive Vice President and Escrow Officer.
"Title Underwriter" means Lawyer's Title Insurance Corporation.
"Trade Name" means the names "The Market at First Colony", "The Hedwig
Shopping Centers" , and "Benchmark Crossing", as well as any other name
utilized in conjunction with the operation of the Projects.
1.2 Other Defined Terms. Certain other defined terms shall have
the respective meanings assigned to them elsewhere in this Contract.
1.3 Interpretation. Notwithstanding anything contained herein to
the contrary, it is understood and agreed that Schedule I sets forth the
specific portion of the Projects owned by the
2
<PAGE> 4
respective parties comprising the Sellers. In this regard, it is agreed and
understood that each party comprising the Sellers joins in this Contract only
for the purpose of agreeing hereto with regard to the portion of the Projects
owned by it, and that each covenant, agreement, representation and warranty
made herein by Sellers are several and relate, as to each Seller, to the
portion of the Projects owned by such Seller.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE
On the terms and conditions stated in this Contract, Sellers hereby
agree to sell and convey to Buyer, and Buyer hereby agrees to purchase and
acquire from Sellers, the Projects.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. The Purchase Price (herein so called) to be
paid by Buyer to Sellers shall be Twenty Four Million One Hundred Thousand and
No/100 Dollars ($24,100,000.00). The Purchase Price, net of all prorations set
forth in this Contract, shall be payable to Sellers through the Title Company
at the Closing as follows:
(a) Buyer shall assume (subject to the limitations on liability
contained in the applicable loan instruments), the then current balance of
those certain first lien promissory notes (the "Existing Notes") as of the
Closing Date, which are described on Schedule II annexed hereto, which notes
are secured by existing first liens created by those certain deeds of trust
(the "Existing Liens") of even date therewith, also described on Schedule II.
(b) The difference between the Purchase Price and the aggregate
unpaid principal balance of the Existing Notes shall be paid in cash to Seller
at the Closing, subject to prorations and other credits provided for in this
Contract.
3.2 Earnest Money Deposit. Within three (3) business days after
the Contract Date, Buyer shall deliver the sum of Fifty Thousand and No/100
Dollars ($50,000.00) as an initial earnest money deposit (the "Initial Earnest
Money Deposit") in cash to the Title Company. The Initial Earnest Money
Deposit and the Second Earnest Money Deposit, which is referred to in Section
4.6(b), shall thereafter be held by the Title Company in escrow to be applied
or disposed of by it as is provided in this Contract. The Earnest Money
Deposit shall be invested in short-term commercial paper having a maturity of
thirty (30) days or less and rated P-1 by Moody's Investor Service, Inc. or A-1
by Standard & Poor's Corp., or in some other interest-bearing investment
acceptable to the Buyer. All interest earned thereon shall become part of the
Earnest Money Deposit. If the purchase and sale hereunder are consummated in
accordance with the terms and conditions hereof, the Earnest Money Deposit
shall be applied to the Purchase Price at the Closing. In all other events,
the Earnest Money Deposit shall be disposed of by the Title Company as provided
elsewhere in this Contract.
ARTICLE IV
TITLE AND SURVEY AND INSPECTION
4.1 Title Commitment. Within three (3) days after the Contract
Date, Sellers shall order, at their sole cost and expense, a current commitment
for Title Insurance for each of the Projects (the
3
<PAGE> 5
"Title Commitment") countersigned by the Title Company, as agent for the Title
Underwriter, which Title Commitment shall be furnished to Buyer. The Title
Commitment shall be in Texas standard form. The Title Commitment shall be
accompanied by legible copies of all instruments that create or evidence title
exceptions affecting the Real Property.
4.2 Surveys. Sellers shall provide to Buyer, within three (3)
business days following the Contract Date, copies of the most recent surveys of
the Property in the Sellers' possession and control (the "Surveys"). Buyer
shall have the right, at Buyer's sole cost and expense but subject to
reimbursement by Sellers as hereinafter provided, to obtain updates of the
Surveys (any such updates being herein called the "Updated Surveys") meeting
the requirements of Exhibit "B" attached hereto. Sellers agree to provide
Buyer a credit at Closing against the cash portion of the Purchase Price in an
amount equal to the costs incurred by Buyer in obtaining the Updated Surveys,
such reimbursement obligation not to exceed, however, $750 per Project ($3,750
in the aggregate). The metes and bounds description of the Land contained in
the Updated Surveys, once approved by Sellers and Buyer, shall be used for
purposes of describing the Real Property in the special warranty deed conveying
title to the Real Property from Sellers to Buyer.
4.3 Review of Title Commitment and Survey. Buyer shall have a
period ending on the 20th day after the Contract Date (the "Title Review
Period"), in which to review the Title Commitment and the Surveys and give
written notice to Sellers specifying Buyer's objections (the "Objections"), if
any, to the Title Commitment and the Surveys. If Buyer shall fail to give
written notice of Objections to Sellers prior to the expiration of the Title
Review Period, then all exceptions to title shown on Schedules B and C of the
Title Commitment shall be deemed to be Permitted Exceptions.
4.4 Sellers' Obligation to Cure; Buyer's Right to Terminate. If
Buyer shall have timely notified Sellers in writing of Objections to the Title
Commitments or the Surveys, then Sellers may, but shall not be obligated to, at
any time prior to the expiration of the Inspection Period (the "Cure Period"),
give written notice ("Sellers' Title Cure Notice") to Buyer of Sellers'
intention to satisfy the Objections prior to Closing. If Sellers fail to timely
give Buyer the Sellers' Title Cure Notice, then Buyer shall elect, prior to the
end of the Inspection Period to either (i) waive the unsatisfied Objections, in
which event those unsatisfied Objections shall become Permitted Exceptions, or
(ii) terminate this Contract, in which event the Earnest Money Deposit shall be
returned to Buyer and Sellers and Buyer shall have no further obligations, one
to the other, with respect to the subject matter of this Contract. Failure by
Buyer to give the Notice to Continue during the Inspection Period under Section
4.6(b), shall also constitute evidence of Buyer's election under clause (i) of
the immediately preceding sentence.
4.5 Title Policies. At the Closing, Sellers shall cause a
standard T-1 form Owner's Policy of Title Insurance (the "Owner's Title
Policy") to be furnished to Buyer by the Title Company. The Owner's Title
Policy shall be issued by the Title Underwriter and shall insure that Buyer has
good and indefeasible fee simple title to the Projects, subject only to the
Permitted Exceptions. The Owner's Title Policy shall contain no exceptions,
other than (i) the standard printed exceptions, (ii) rights of tenants in
possession, as tenants only, (iii) visible and apparent easements, as shown on
the Updated Surveys, and (iv) Permitted Exceptions. At Buyer's option and
cost, the "survey exception" in the Owner's Title Policy shall be modified to
read "shortages in area only". The tax exception shall be limited to taxes for
the year of Closing and subsequent years not yet due and payable and subsequent
assessments for prior years due to change in land usage or ownership. The
basic premium for the Owner's Title Policy shall be paid by Sellers.
4
<PAGE> 6
4.6 Inspection.
(a) Buyer shall have the right, during the Inspection Period, to
make such examinations, studies, tenant credit checks, appraisals, inspections,
engineering, environmental and insurance underwriting tests and investigations
(the "Inspections") of the Projects as Buyer may deem advisable. Such
Inspections shall include, without limitation, review of current operating
statements, operating statements for the prior three calendar years, current
rent rolls, true copies of the latest real estate tax bills, true and complete
copies of all service contracts affecting the Projects, and any and all other
contracts and agreements relating to the Projects. Sellers shall cooperate
with Buyer in making available for Buyer's Inspections each of the Projects.
Notwithstanding any other provision of this Contract, at least three business
days prior to performing any such inspection or study of any of the Projects
which will involve the intrusive or destructive sampling or analysis of any
portion of such Projects or their improvements, including without limitation
any soil, water or groundwater on or under the Projects ("Phase II
Investigation"), Buyer shall provide to Sellers a detailed description of the
work to be performed during the Phase II Investigation. During the three (3)
business day period after receipt of Buyer's description, Sellers shall have
the right to object to any portion of the proposed Phase II Investigation, and
Buyer shall refrain from performing any such portion which Sellers decide in
its reasonably exercised discretion may represent an unreasonable risk of
injury or damage to persons or property on or near the Projects. Sellers or
its representatives shall have the right, but not the obligation, to observe
any and all activities of Buyer or its representative during the performance of
Phase II Investigation activities. Sellers shall have the right, but not the
obligation, to obtain half of any samples which Buyer may obtain during the
Phase II Investigation.
(b) If Buyer elects for this Contract to remain in full force and
effect beyond the Inspection Period, then Buyer shall deliver written notice
(the "Notice to Continue") thereof to Sellers and Title Company, together with
the sum of Fifty Thousand and No/100 Dollars ($50,000.00) as an additional
earnest money deposit (the "Second Earnest Money Deposit"), in cash to the
Title Company, on or before the expiration of the Inspection Period. The Second
Earnest Money Deposit shall be held and applied as provided in Section 3.2
hereof. Once the Notice to Continue has been given and the Second Earnest
Money has been deposited, the entirety of the Earnest Money Deposit shall
become at risk. If, however, Buyer does not timely deliver the Notice to
Continue or deposit the Second Earnest Money, or if Buyer notifies Sellers and
Title Company prior to the end of the Inspection Period that Buyer has no
further interest in purchasing the Projects, then, in either event, the Earnest
Money Deposit shall be returned to Buyer, and effective as of the last day of
the Inspection Period, Sellers and Buyer shall have no further obligations, one
to the other, with respect to the subject matter of this Contract, except as
otherwise set forth herein.
(c) Buyer shall indemnify, defend, and hold harmless each of the
Sellers from and against all loss, liability, damage, injury and claims
resulting from Buyer's testing or inspection of the Projects; provided,
however, this indemnity shall not include, and shall specifically exclude, any
loss, liability, damage etc. arising out of or resulting from Sellers'
negligence (except as provided below), gross negligence or willful misconduct
and the discovery of any condition that may require remediation under
applicable environmental laws (so long as the same is not negligently handled
by Buyer after such discovery). In the event the transaction described in this
Contract shall not close, Buyer shall restore the Property to its prior
condition, if changed due to the inspections performed by Buyer or at its
request, and shall provide Sellers with the copies of the results of any
studies and inspections made by the Buyer. All inspections and studies shall
be at Buyer's sole expense. NOTWITHSTANDING THE FOREGOING, THE INDEMNITY BY
BUYER OF SELLERS SHALL APPLY TO SELLERS' NEGLIGENCE TO THE EXTENT, BUT NO
FURTHER , THAT SELLERS'
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NEGLIGENCE IS BASED UPON SELLERS' ENTRY INTO THIS CONTRACT, THE GRANT OF
INSPECTION AND ENTRY RIGHTS TO BUYER OR SELLERS' FAILURE TO MONITOR OR
SUPERVISE BUYER'S, ITS AGENTS', CONTRACTORS', OR EMPLOYEES' ACTIVITIES ON THE
PROPERTY. This indemnity shall survive the Closing or termination of this
Contract. Notwithstanding any contrary provision hereof and Buyer's
indemnification obligations (and Sellers' rights to enforce the same) shall,
notwithstanding any contrary provision hereof, in no way be limited by the
limitations, if any, on Sellers' remedies set forth in Section 9.1 hereof, each
of the Sellers to have all rights and remedies in the enforcement of Buyer's
indemnification obligations.
ARTICLE V
REPRESENTATIONS, WARRANTIES, COVENANTS,
AND AGREEMENTS OF SELLERS
5.1 Representations and Warranties of Sellers. Sellers'
representations and warranties set forth in this Contract are true and correct
in all material respects as of the Contract Date. Sellers hereby represent and
warrant to Buyer as follows:
(a) Except as hereinafter expressly provided and subject to
consent of the holders of the Existing Notes, Sellers have the full right,
power, and authority to sell and convey to Buyer each Project as provided in
this Contract and to carry out Sellers' obligations hereunder, and all
requisite action necessary to authorize Sellers to enter into this Contract and
to carry out Sellers' obligations hereunder has been, or on the Closing Date
will have been, taken;
(b) To the best of Sellers' knowledge, there are no adverse or
other parties in possession of the Projects, or of any part thereof as lessees,
tenants at sufferance, or trespassers, except Tenants referenced in the Rent
Rolls to be delivered pursuant to Section 5.2(a);
(c) To the best of Sellers' knowledge, Sellers have not received
written notice from any governmental or quasi-governmental agency or insurance
underwriter requiring or suggesting that Sellers should correct any condition
with respect to the Projects, which condition remains uncorrected;
(d) Sellers have not received written notice of any pending
condemnation action with respect to all or any portion of the Projects and, to
the best of Sellers' knowledge, there are no existing condemnation or other
legal proceedings affecting the existing use of the Projects by any
governmental authority having jurisdiction over or affecting all or any part of
the Projects;
(e) There is no litigation pending or, to the best of Sellers'
knowledge, threatened, affecting any of Projects other than as incurred in the
normal course of business and with respect to which Sellers' insurance
underwriter(s) is responsible;
(f) This Contract constitutes a valid and binding obligation of
the Sellers, enforceable in accordance with its terms;
(g) There are no actions pending which would result in the
creation of any lien against the Land, the Improvements or against any other
portion of the Projects. At the Closing, there will be no unpaid bills or
claims in connection with any repair of the Improvements or other work
performed or material purchased in connection with the Improvements (other than
repairs conducted in the ordinary course of business and for which Sellers
shall remain responsible);
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(h) The contracts, Leases and agreements delivered to Buyer by
Sellers pursuant to this Contract constitute all contracts, leases or
agreements affecting the Projects (and the ownership and use thereof), other
than the Permitted Exceptions; the Ownership Documents delivered pursuant to
paragraph 5.2 herein are true and correct copies of the originals; no other
amendments or modifications exist thereto, and there are no omissions of any
material facts relating thereto; and, to the best of Sellers' knowledge, no
defaults, or events which with notice and/or passage of time would constitute
default, exist thereunder;
(j) Based on currently applicable taxes, Sellers have paid all
taxes, charges, and assessments (special or otherwise) required to be paid to
any taxing authority with respect to the Projects (except for taxes and
assessments for the current year not yet due and payable); and, no action or
proceeding currently exists by a governmental agency or authority for the
assessment or collection of currently applicable taxes, charges, or assessments
with respect to the Projects;
(k) The executed Leases, which are to be inspected by the Buyer at
Sellers' principal office in accordance with the terms of this Contract, are
and shall be true and correct originals, and no Tenants are or shall be
entitled to any rebates, allowances, rent concessions or free rent for any
period subsequent to the Closing. All obligations and items of an inducement
nature to be performed by the Sellers prior to Closing as landlord under the
Leases or to which Sellers otherwise agreed to perform have been fully
performed and no commitments have been made to any Tenant for repairs or
improvements other than a general landlord requirement for normal maintenance
in the future. Except as reflected on the current Rent Roll to be delivered to
Buyer pursuant to the provisions of Section 5.2 below, no Tenant has given
Sellers notice of its intention to vacate its leased premises prior to the end
of the primary term (or any current renewal or extended term). To the best of
Sellers' knowledge, all of the Leases are in full force and effect without
current default by either Sellers or the respective Tenants. There are no fees
or commissions payable to any person or entity in regard to the Leases or the
Projects except as specifically set out in the Rent Roll;
(m) None of the Sellers is a foreign person or entity pursuant to
the Foreign Investment in Real Property Tax Act, or the Tax Reform Act of 1984,
and Buyer is not obligated to withhold any portion of the Purchase Price for
the benefit of the Internal Revenue Service.
The continued validity in all respects of the representations,
warranties and covenants set forth in the above paragraph both at the time same
are made and as of the Closing, shall be a condition precedent to Buyer's
obligations hereunder. If, however, any representation or warranty above is
known by Buyer, prior to the Closing, to be untrue, Buyer may, as Buyer's sole
and exclusive remedy on account thereof, either (i) terminate this Contract
and the Earnest Money shall be refunded to Buyer, and neither party shall have
any further rights or obligations pursuant to this Contract, or (ii) waive its
objections and close the transaction with no reduction in the Purchase Price.
All of the representations and warranties deemed remade at Closing
shall survive Closing but Buyer shall be deemed to have waived any and all
rights in respect to the breach thereof unless Buyer gives written notice of
the alleged breach thereof within six (6) months following Closing and,
further, Buyer shall have waived all rights with respect to all matters
specified in any such written notice unless Buyer has instituted litigation in
respect thereto within one (1) year following Closing.
For purposes hereof, "to the best of Sellers' knowledge" means the
actual knowledge of Joseph W. Peacock without having made any independent
investigation or examination.
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EXCEPT AS MAY BE SPECIFICALLY STATED IN THE DEED, THE OTHER CLOSING
DOCUMENTS, OR THIS CONTRACT, SELLERS HEREBY SPECIFICALLY DISCLAIM ANY WARRANTY,
GUARANTY, OR REPRESENTATION, ORAL OR WRITTEN, PAST, PRESENT, OR FUTURE, OF, AS
TO, OR CONCERNING (I) THE NATURE AND CONDITION OF THE PROPERTY, INCLUDING,
WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY, AND THE SUITABILITY THEREOF,
FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY ELECT TO CONDUCT THEREON,
(II) THE NATURE AND EXTENT OF ANY RIGHT-OF-WAY, ENCUMBRANCE, RESERVATION,
CONDITION, OR OTHERWISE, (III) THE COMPLIANCE OF THE PROPERTY OR THE OPERATION
THEREOF WITH ANY LAWS, RULES, ORDINANCES, OR REGULATIONS OF ANY GOVERNMENT OR
OTHER BODY, (IV) ANY ENVIRONMENTAL CONDITIONS WHICH MAY EXIST ON THE PROPERTY,
INCLUDING, WITHOUT LIMITATION, THE EXISTENCE OR NON-EXISTENCE OF PETROLEUM
PRODUCTS, PETROLEUM RELATED PRODUCTS, "HAZARDOUS SUBSTANCES", "HAZARDOUS
MATERIALS", "TOXIC SUBSTANCES", OR "SOLID WASTE" AS SUCH TERMS ARE DEFINED IN
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED BY SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF 1986, THE
RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, AND THE HAZARDOUS MATERIALS
TRANSPORTATION ACT, AND STATE ENVIRONMENTAL LAWS, AND THE REGULATIONS
PROMULGATED PURSUANT TO SUCH LAWS, ALL AS AMENDED (ALL OF THE FOREGOING BEING
REFERRED TO AS THE "HAZARDOUS WASTE LAWS"), AND (V) THE FINANCIAL EARNING
CAPACITY OR HISTORY OR EXPENSE HISTORY OF THE OPERATION OF THE PROPERTY. THE
CONVEYANCE OF THE PROPERTY IS MADE ON AN "AS-IS" BASIS, AND BUYER EXPRESSLY
ACKNOWLEDGES THAT, IN CONSIDERATION OF THE AGREEMENTS OF SELLERS HEREIN, EXCEPT
AS OTHERWISE SPECIFIED HEREIN OR IN THE DEED OR OTHER CLOSING DOCUMENTS,
SELLERS MAKE NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, OR ARISING BY
OPERATION OF LAW, INCLUDING, BUT IN NO WAY LIMITED TO, ANY WARRANTY OF
CONDITION, TENANTABILITY, HABITABILITY, MERCHANTABILITY, OR FITNESS FOR A
PARTICULAR PURPOSE OF THE PROPERTY. BUYER ACKNOWLEDGES, WARRANTS AND
REPRESENTS TO SELLERS THAT NO REPRESENTATIONS HAVE BEEN MADE BY SELLERS, ITS
AGENTS ,BROKERS, OR EMPLOYEES IN ORDER TO INDUCE BUYER TO ENTER INTO THIS
TRANSACTION OTHER THAN AS EXPRESSLY STATED HEREIN. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, BUYER ACKNOWLEDGES, WARRANTS, AND REPRESENTS TO
SELLERS THAT NEITHER SELLERS NOR SELLERS' AGENTS, BROKERS OR EMPLOYEES HAVE
MADE ANY REPRESENTATION OR STATEMENT TO BUYER CONCERNING THE PROPERTY'S
INVESTMENT POTENTIAL OR RESALE AT ANY FUTURE DATE, AT A PROFIT OR OTHERWISE,
NOR HAVE SELLERS OR SELLERS' AGENTS, BROKERS OR EMPLOYEES RENDERED ANY ADVICE
OR EXPRESSED ANY OPINION TO BUYER REGARDING ANY INCOME TAX CONSEQUENCES OF
OWNERSHIP OF THE PROPERTY.
BUYER ACKNOWLEDGES THAT ANY REPORTS SUPPLIED OR MADE AVAILABLE BY
SELLERS, WHETHER WRITTEN OR ORAL, OR IN THE FORM OF MAPS, SURVEYS, PLATS, SOIL
REPORTS, ENGINEERING STUDIES, ENVIRONMENTAL STUDIES, OR OTHER INSPECTION
REPORTS PERTAINING TO THE PROPERTY ("REPORTS") ARE BEING DELIVERED TO BUYER ON
AN "AS-IS/WHERE-IS" BASIS SOLELY AS A COURTESY AND THAT SELLERS HAVE NEITHER
VERIFIED THE ACCURACY OF ANY STATEMENTS OR OTHER INFORMATION THEREIN CONTAINED,
NOR ANY METHOD USED TO COMPILE THE REPORTS OR THE QUALIFICATIONS OF THE
PERSON(S) PREPARING THE REPORTS AND SELLER
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MAKES NO REPRESENTATION, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW AS
TO THE ACCURACY, COMPLETENESS OR OTHER ASPECT OF THE REPORTS.
BUYER ACKNOWLEDGES THAT THE PROVISIONS OF THE TWO PRECEDING PARAGRAPHS
ARE INTEGRAL ASPECTS OF THE ECONOMIC TERMS OF THE PURCHASE AND SALE DESCRIBED
HEREIN AND THAT SELLERS WOULD NOT HAVE AGREED TO SELL THE PROPERTY TO BUYER ON
THE TERMS OF THIS CONTRACT IF THE PARTIES HAD NOT AGREED TO THE PROVISIONS OF
SUCH PARAGRAPHS.
5.2 Covenants and Agreements of Sellers. Sellers covenant and
agree with Buyer as follows:
(a) Within five (5) business days following the Contract Date,
Sellers shall deliver to Buyer the following items (the "Ownership Documents")
with respect to the Projects:
(i) To the extent that Sellers have the same in their
possession, copies of "as-built" plans and specifications for
the Improvements and copies of the results of all physical
inspections, all structural, mechanical, engineering reports,
soil reports and traffic studies that have been prepared with
respect to the Real Property;
(ii) If Sellers are in possession of the same, current
certificates of occupancy in the name of the and building
permits (if available) for each building within the Projects;
(iii) Current Rent Rolls for each of the Projects, which
Rent Roll shall set forth with respect to each Tenant the
following;
(A) the name and street or unit number of the
Tenant;
(B) the term of the Tenant's Lease, its
commencement and expiration dates, any renewal terms
or extensions and the base rent and percentage rent,
if any, payable thereunder;
(C) the amount of monthly base rent and
percentage rent, if any, payable by and portion of
each Project's CAM and real estate taxes and
insurance premiums recoverable from each Tenant and
any other payments for which such Tenant is liable;
(D) amount of prepaid rent and the amount of
security and other deposits due under the Lease and
held by Landlord;
(E) the amount of any ongoing Lease commission
obligations, if any, and to whom such commission is
owed and copies of all brokerage commission
agreements relating to the leases;
(F) the amounts of any unpaid rents, percentage
rents, and other payments past due thereunder;
(G) the amount of any offsets or credits against
rental, if any; and
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(H) any concessions granted to the Tenant
applicable to periods after Closing, including,
without limitation, free rent, rental rebates or
credits, lease take-over arrangements, cash payments,
and moving allowances;
(iv) Copy of the most recent or current real estate and
personal property tax bills or other documentation showing the
amount of current real property taxes and the assessed value
of the Projects;
(v) Copies of all existing service maintenance,
operations, and management and other contracts relating to the
operation of the Projects (the "Service Contracts"), and any
commission agreements affecting the Projects;
(vi) Copies of true and correct operating income and
expense statements with respect to the Projects, accurately
reflecting the operating history of the Projects for calendar
years 1994, 1995 and 1996 and for year-to-date 1997, if
available, for the Projects;
(vii) A detailed summary of all capital expenditures for
the Projects for the calendar years 1994, 1995 and 1996, and
year-to-date 1997, if available, for the Projects;
(viii) All warranties and guaranties currently in force, if
any, relating to the Projects or any equipment, appliances or
other personalty located in or used on the Real Property and
in the possession of Sellers or their agents; and
(ix) True and complete copies of all Leases, including all
amendments, extensions and modifications;
All materials delivered by Sellers to Buyer pursuant to this
Section 5.2(a) shall be held in confidence by Buyer and
disclosed only to its attorneys, accountants, and prospective
lenders and securities underwriters and their respective
attorneys. If the parties fail to consummate the transaction
described herein for any reason other than the Sellers'
default, Buyer shall return to Sellers all materials delivered
by or on behalf of Sellers pursuant to or in connection with
this Contract.
(b) From the Contract Date until the Closing Date, Sellers
undertake and agree, with respect to the Projects, that they will:
(i) Operate and maintain the Projects consistent with its
past practices;
(ii) Promptly notify Buyer in writing of any litigation,
arbitration or administrative hearing before any court or
governmental agency concerning or affecting the Projects which
is instituted or threatened after the Contract Date;
(iii) Following the expiration of the Inspection Period,
not terminate or modify any Lease or commence any judicial
action against any Tenant other than in the normal course of
business without the prior written consent of Buyer, which
consent shall not be unreasonably withheld;
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(iv) Following the expiration of the Inspection Period,
not execute any new lease or agree to the terms of any lease
renewal without the prior written consent of the Buyer, which
consent shall not be unreasonably withheld;
(v) Promptly notify Buyer in writing of any notice
received from a Tenant of its election to vacate its leased
premises or terminate its Lease, or of any election by Sellers
to terminate any Lease or commence any judicial action against
any Tenant;
(vi) Not sell, exchange, transfer, assign, convey or
encumber or otherwise dispose of all or any part of the
Projects or any interest therein (other than leases executed
in accordance with this Contract), nor shall Sellers remove
any Personal Property unless Sellers shall replace the removed
items with similar items of comparable quality;
(vii) Promptly notify Buyer in writing if Sellers discover
any defect, error or omission in any of the Ownership
Documents, detailing the nature of the defect, error or
omission;
(viii) Not, without the prior written consent of the Buyer,
enter into or modify any service, maintenance or management
agreement which is not terminable on or before the Closing
Date (except in the ordinary course of business and then only
if the same can be terminated upon 30 days' notice without
premium or fee); or
(ix) Following the expiration of the Inspection Period,
not, without the prior written consent of Buyer, consent to
any assignment or sublease or other encumbrance by a Tenant of
its interest, or any part thereof, in its Lease, except as may
be required by the terms of the Lease.
5.3 Agreements Concerning Existing Notes.
(a) As provided above, Buyer shall assume the unpaid balance as of
the Closing Date on the Existing Notes; provided, that, such assumption shall
be made subject to the limitations on liability of the borrower, if any,
contained as of the date hereof in the loan documentation evidencing the
Existing Notes, and every reference herein to "assumption" of the Existing
Notes shall mean and refer to assumption subject to such limitations on
liability. Buyer shall apply for assumption approval within five (5) days
following the Contract Date and shall make reasonable effort to obtain the
same. Sellers agree to cooperate with and assist Buyer, at no cost or expense
to Sellers, in securing such approval. In that regard, Buyer shall deliver to
the various holders of the Existing Notes (and, if requested, to their
respective correspondents) such financial information and other documents as
may be requested by such holders in order to evaluate the request for the
assumption. Buyer shall pay all costs and expenses of the assumption approval
and assumptions including, without limitation, all assumption fees, attorneys'
fees of lenders' counsel, and other related costs.
(b) Notwithstanding anything to the contrary contained herein, if
on the Closing Date, Buyer has not received a consent from the holder of an
Existing Note to the assumption ("Lender's Consent"), then Buyer shall proceed
to Closing as to the specific Projects for which Lender's Consents have been
obtained or none is required (including for this purpose, those Projects which,
by the terms of this Contract, are intended to be conveyed not subject to deed
of trust liens granted by Sellers) and this Contract shall
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terminate as to those Projects for which Lender's Consents are required but
have not been obtained; provided, however, Buyer reserves the right to prepay
any of the Existing Notes in their entirety (if permitted under the terms of
Existing Notes and Existing Liens) for which a Lender's Consent was not
received, provided further, however, Buyer shall be responsible for and shall
pay all prepayment penalties and fees arising as a consequence thereof. In
such event, it is agreed that, solely for purposes of this Section 5.3, the
Purchase Price for each of the Projects shall be as follows:
Hedwig Phase I - $ 1,800,000
Hedwig Phase II - $ 2,000,000
Hedwig Phase III - $ 2,900,000
Benchmark (290) - $ 5,600,000
First Colony - $11,800,000
The terms and conditions of this Contract shall govern as to the
remaining Projects.
(c) Sellers shall not, at any time prior to Closing, alter, renew,
rearrange, restructure or refinance any indebtedness evidenced by the Existing
Notes or modify the Existing Notes or any instrument securing the Existing
Notes without the prior written consent of Buyer; and Sellers shall neither
accept nor request any extension, postponement, indulgence or forgiveness of
the Existing Notes or the indebtedness evidenced thereby without the prior
written consent of Buyer.
ARTICLE VI
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF BUYER
Buyer represents, warrants, covenants, and agrees with Sellers, as of
the Contract Date, that:
(a) Except as otherwise hereinafter expressly provided, Buyer has
the full right, power, and authority to purchase the Projects from Sellers as
provided in this Contract and to carry out Buyer's obligations under this
Contract, and all requisite action necessary to authorize Buyer to enter into
this Contract and to carry out Buyer's obligations hereunder has been, or on the
Closing Date will have been, taken;
(b) Buyer represents that it has arranged the financing necessary
to acquire the Projects; and
(c) Buyer acknowledges that Buyer has been advised in writing that
Buyer should have an abstract covering the Land examined by an attorney of
Buyer's own selection or that Buyer should be furnished with or obtain a policy
of title insurance.
ARTICLE VII
CONDITIONS PRECEDENT TO BUYER'S AND SELLERS' PERFORMANCE
7.1 Conditions Precedent to Buyer's Obligations. Buyer shall not
be obligated to consummate the transaction described in this Contract unless:
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(a) Sellers shall have furnished or caused to be furnished to
Buyer all of the items required to be furnished by Sellers under Section 5.2(a)
and shall have cooperated with Buyer in order to obtain the Lender's Consents;
(b) Sellers shall have performed in all material respects all of
the agreements, covenants and obligations contained in this Contract to be
performed or complied with by Sellers on or prior to the Closing Date;
(c) All representations and warranties made by Sellers hereunder
shall be true, complete and accurate in all material respects as of the Closing
Date; and
(d) Tenant Estoppel Certificates shall have been received by Buyer
from (i) all of the Anchor Tenants, and (ii) at least 80% (by number and square
footage at the Projects), of the non-anchor tenants at the Projects, which
Estoppel Certificates shall confirm the information set forth on the Rent Rolls
delivered (A) as part of the Ownership Documents, as modified to reflect any
non-substantive changes thereto, or (B) with respect to Tenants who have
executed new leases since the Contract Date, as reflected on the Rent Rolls to
be delivered in connection with the Closing; and as to the remaining 20% of the
non-anchor tenants, either Estoppel Certificates have been received by Buyer or
Seller has certified in writing the same information set forth in the Estoppel
Certificates as to such remaining non-anchor tenants.
7.2 Conditions Precedent to Seller's Obligations. The obligation
of the Sellers to consummate the sale contemplated hereby is conditioned upon
the release of Sellers of all liabilities and obligations under the Existing
Notes arising after the date of Closing evidenced by an instrument executed by
the holders of the Existing Notes in form and substance satisfactory to the
Sellers (the "Release"), and which is delivered at or prior to Closing.
7.3 Termination if Conditions Precedent not Satisfied or Waived.
If any of the conditions precedent to the performance of a party's obligations
under this Contract have not been satisfied, waived, or deemed waived by such
party within the time frame established herein or otherwise by the Closing
Date, then such party may, at its option, by written notice delivered to the
other party and Title Company, terminate this Contract, in which event the
Earnest Money Deposit shall be returned to Buyer and thereafter Buyer and
Sellers shall have no further obligations, one to the other, with respect to
the subject matter of this Contract, except as otherwise provided for herein.
ARTICLE VIII
CLOSING
8.1 Date and Place of Closing. The Closing shall take place in
the offices of the Title Company. The Closing Date shall be on the thirtieth
(30) day following the expiration of the Inspection Period.
8.2 Items to be Delivered at or Prior to the Closing
(a) Sellers. At the Closing, Sellers shall deliver or cause to be
delivered to Buyer or the Title Company, the following items fully executed and
acknowledged where so indicated by all necessary parties in respect to each of
the Projects:
(i) The Owner's Title Policies to Buyer, in the form
specified in Section 4.5;
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(ii) A special warranty deed, duly executed and
acknowledged by Sellers, in the form of Exhibit "C", subject
only to the Permitted Exceptions;
(iii) The original Leases, or, if any original Leases are
not available, copies of any such Leases certified by Sellers
as being true, correct and complete;
(iv) Duplicate originals of an assignment and assumption
of leases (the "Assignment of Leases") in the form attached
hereto as Exhibit "D", duly executed by Sellers;
(v) A bill of sale and assignment in the form, attached
hereto as Exhibit "E", duly executed by Sellers;
(vi) Duplicate originals of an assignment and assumption
of Service Contracts (the "Assignment of Service Contracts")
in the form or substantially the form, attached hereto as
Exhibit "F", duly executed by Sellers;
(vii) An affidavit, in the form, or substantially in the
form, attached as Exhibit "G", in compliance with Section 1445
of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder, stating under penalty of
perjury the Sellers' United States identification number and
that Sellers are not a "foreign person" as that term is
defined in Section 1445, duly executed and acknowledged by
Sellers;
(viii) A notice of sale in the form, or substantially in the
form, attached hereto as Exhibit "H", (the "Tenant Notice
Letter") for each of the Tenants, duly executed by Sellers and
Buyer;
(ix) All keys or other access devices in the possession of
Sellers or their agents to all locks located at the Projects;
(x) Originals of all Service Contracts, plans,
governmental approvals, and other contracts and agreements in
Sellers' possession relating to the ownership and operation of
the Projects;
(xi) True and correct copies of all books and records
pertaining to the operation of the Projects for the calendar
years 1994, 1995 and 1996, and for the year-to-date 1997, in
the possession of Sellers or Sellers' agent;
(xii) Appropriate evidence of authorization reasonably
satisfactory to the Title Company (if required by the Title
Company) regarding the consummation of the transaction
contemplated by this Contract;
(xiii) Unless waived by Buyer, notices of cancellation, to
be effective within thirty days of the Closing Date, of all
management contracts affecting the Projects;
(xiv) A reaffirmation certificate executed by Sellers
wherein Sellers reaffirm and confirm the representations and
warranties of Sellers set forth in this Contract are true and
remain true and correct as of the Closing Date;
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(xvi) Letters to all utility companies advising of the
change of ownership of the Projects and an assignment of any
deposits currently held by the utility company for the benefit
of the Sellers;
(xvii) Execute and deliver notices of restrictions (if
applicable under the codes of the City of Houston) and
municipal utility and similar tax district notices; and
(xiii) Any other items reasonably requested by the Title
Company as administrative requirements for consummating the
Closing.
(b) Buyer. At the Closing, Buyer shall deliver or cause to be
delivered to Sellers or the Title Company, the following items:
(i) The cash sum required by Section 3.1;
(ii) Duplicate originals of the Assignment of Leases duly
executed by Buyer;
(iii) Duplicate originals of the Assignment of Service
Contracts duly executed by Buyer;
(iv) Appropriate evidence of authorization reasonably
satisfactory to Sellers and the Title Company for the
consummation of the transaction contemplated by this Contract;
(v) Join with Sellers in executing and delivering the
notices of restrictions and municipal utility and similar tax
district notices; and
(vi) Any other items reasonably requested by the Title
Company as administrative requirements for consummating the
Closing.
8.3 Adjustments at Closing. Notwithstanding anything to the
contrary contained in this Contract or applicable law, the provisions of this
Section 8.3 shall survive the Closing. All income and obligations attributable
to days preceding the Closing Date shall be allocated to Sellers, and all
income and obligations attributable to days from and after the Closing Date
shall be allocated to Buyer. Without limitation upon the foregoing, the
following items shall be adjusted or prorated between Sellers and Buyer as set
forth below:
(a) Ad valorem and personal property taxes relating to the
Projects for the calendar year in which the Closing occurs shall be prorated
between Sellers and Buyer as of the Closing Date based upon taxes actually paid
by Sellers for the calendar year in which the Closing occurs, if Sellers have
paid such taxes prior to Closing, and otherwise upon the ad valorem and
personal property taxes due assuming payment in December of the year of
Closing. If the actual amount of taxes for the calendar year in which the
Closing shall occur is not known as of the Closing Date, the proration shall be
based on the amount of taxes due and payable with respect to the Projects using
the latest assessed value and tax rate. All other assessments affecting the
Projects, if any, assessed prior to Closing Date, shall be paid by the Sellers
and if assessed after the Closing Date, shall be paid by the Buyer.
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<PAGE> 17
(b) Base rents, escalation or reimbursement payments by Tenants
for real estate and personal property taxes, insurance premiums, CAM or other
operating expenses and charges, payable with respect to the Project for the
then current month shall be prorated as of the Closing Date. Percentage rents
for each Tenant obligated therefor shall be pro-rated on the basis of the
number of days lapsed during the Tenant's percentage rent period as of the
Closing Date and not on the basis of the amount of the Tenant's sales which
accrued during such percentage rent period as of the Closing Date. Such
proration may not be capable of determination at the Closing Date, in which
event, such prorations shall be made post-Closing. Any rent concessions
granted by the Sellers to Tenants for free rent, concessions or abatements,
which apply to periods after the Closing Date shall not be prorated but shall
be credited to the Buyer. With respect to any Tenant ("Delinquent Tenant") who
owe rents and other charges which at Closing are past due, such past due rents
and other charges ("Delinquencies") shall not be prorated. Buyer shall remit
such Delinquencies, if any, if, as and when collected by Buyer, provided,
however, that if a payment is received by Buyer from a Delinquent Tenant, such
payment may be applied by Buyer first to any rents or other sums that are past
due by such Delinquent Tenant at the time of receipt from and after the
Closing Date. Buyer shall also pay to Sellers in cash at Closing the amount of
all deposits with utility companies and an amount equal to escrows for taxes
and insurance (and reserve for replacements) held by the holders of the
Existing Notes.
(c) All other income and ordinary operating expenses of the
Project, including, without limitation, public utility charges, maintenance,
management, and other service charges, and all other normal operating charges
shall be prorated at the Closing effective as of the Closing Date based upon
the best available information. The obligation of the parties to adjust,
post-Closing, and any operating expenses as of the Closing Date, shall, to the
extent unknown or not provided for at Closing, survive the Closing and shall be
paid by the party responsible therefor within ten (10) days after written
demand therefor has been made. Such demand shall include a copy of the
invoice(s) for which payment or reimbursement is sought.
8.4 Deferred Leasing Commissions. The amount of any unpaid
leasing commissions payable on account and over the term of existing Leases or
Leases entered into between the date hereof and the Closing Date shall either
be paid by the Sellers or treated as a credit to Buyer. Commissions payable on
account of Leases which are subject to renewal at the option of the Tenant and
with respect to which the options have not been exercised prior to the Closing
Date shall not be covered by the preceding sentence.
8.5 Possession. Possession of the Projects shall be delivered to
Buyer by Sellers at the Closing, subject to the rights of the Tenants.
8.6 Costs of Closing. Each party shall be responsible for paying
the legal fees of its counsel in negotiating, preparing, and closing the
transaction contemplated by this Contract. Sellers shall pay its share of the
cost of the Updated Surveys, as provided in Section 4.2 hereof, the Title
Policy premium, real estate tax searches and current UCC searches. Buyer shall
pay for the remaining portion of the cost of the Updated Surveys, the cost of
its own engineering and environmental inspections, charges attributable to
recording the warranty deed, and transfer fees and costs charged by the
Lender(s) as provided in Section 5.3. The parties shall split the cost of any
title company escrow fees. Any other expenses that are incurred by either party
that are expressly identified herein as being the responsibility of a
particular party shall be paid by such party. All other expenses shall be
allocated between the parties in the customary manner for sales of real
property similar to the Projects in Houston, Texas.
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8.7 Provisions of Article VIII to Survive Closing. The provisions
of this Article VIII shall survive the Closing.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 Default of Buyer. If Buyer fails or refuses to consummate the
transaction contemplated by this Contract, for any reason other than
termination of this Contract by Buyer pursuant to a right to do so expressly
set forth in this Contract, then such event shall constitute a default by Buyer
hereunder and the Sellers may, as the Sellers' sole and exclusive remedy for
such default, either (i) bring an action against the Buyer for specific
performance of the Buyer's obligations under this Contract, or (ii) terminate
this Contract by giving written notice thereof to Buyer and Title Company at or
prior to the Closing Date, whereupon the Title Company shall deliver the
Earnest Money Deposit (including the interest earned thereon) to the Sellers
which shall constitute liquidated damages hereunder and thereafter neither party
hereto shall have any further rights or obligations hereunder. It is agreed
that the Earnest Money Deposit is a reasonable forecast of just compensation
for the harm that would be caused by such default, which the parties agree is
one that is incapable or very difficult of accurate estimation, and that
payment of the Earnest Money Deposit upon such default shall constitute full
satisfaction of Buyer's obligations hereunder.
9.2 Default of Sellers. If Sellers fail or refuse to consummate
the sale of the Projects to Buyer pursuant to this Contract at the Closing or
fails to perform any of Sellers' other obligations hereunder for any reason
other than Buyer's failure to perform Buyer's obligations under this Contract
or a right granted to Sellers hereunder excusing their performance, then
Buyer may, as Buyer's sole and exclusive remedy for such default, either (i)
bring an action against the Sellers for specific performance of the Sellers'
obligations under this Contract; provided, that in so doing Buyer shall be
deemed to have elected to accept the Properties subject to all matters of
record (each of which shall be a Permitted Exception) except that Seller shall
be obligated to cure the effects of any voluntary conveyance of interests
(other than leases) made after the Contract Date by Seller (provided, however,
nothing contained herein is construed as a modification, or waiver by Buyer, of
Sellers' representations and warranties contained herein), or (ii) terminate
this Contract by giving written notice thereof to Sellers and Title Company at
or prior to the Closing Date, whereupon the Title Company shall deliver the
Earnest Money Deposit (including the interest earned thereon) to Buyer and
thereafter neither party hereto shall have any further rights or obligations
hereunder and in which case Buyer shall receive the return of the Earnest Money
Deposit.
9.3 Earnest Money. In the event either Sellers or Buyer becomes
entitled to the Earnest Money Deposit upon cancellation of this Contract in
accordance with its terms, such party may deliver a letter of instruction to
the Title Company directing disbursement of the Earnest Money Deposit to the
party entitled thereto. The party delivering such notice to the Title Company
shall, concurrently deliver a copy of the notice to the other party hereto.
Upon the expiration of three (3) business days after its receipt of the letter
of instructions, the Title Company may deliver the Earnest Money Deposit to the
party as specified in the letter of instructions unless, within such three (3)
business day period, the Title Company shall have received a written objection
to such delivery from the other party hereto. In such event, the Title Company
shall not deliver the Earnest Money Deposit to either party unless it has a
written authorization to do so signed by both parties or a court order has been
issued by a court of competent jurisdiction to deliver the Earnest Money
Deposit to one of the parties hereto. The Title Company may deposit the
Earnest Money Deposit into a court of
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competent jurisdiction and thereafter shall have no further interest in or
responsibility for this Contract or for the Earnest Money Deposit.
9.4 Indemnification of Title Company. Each party hereto hereby
indemnifies and holds harmless the Title Company from any loss, damage or claim
therefor arising out of or in connection with the receipt and disposition of
the Earnest Money Deposit in accordance with the instructions set forth in this
Contract. These indemnities shall survive the termination of this Contract or
a closing pursuant hereto.
ARTICLE X
BROKERAGE COMMISSIONS
10.1 Indemnity. Sellers hereby represent and warrant to Buyer that
they have not contacted or entered into any agreement with any real estate
broker, agent, finder, or any other party in connection with this transaction,
and that Sellers have not taken any action which would result in any real estate
broker's, finder's, or other fees or commissions being due or payable to any
other party with respect to the transaction contemplated hereby. Seller has
entered (or will enter) into a separate agreement with Arthur Andersen,
Certified Public Accountants, for the payment of a consulting fee and hereby
agrees to indemnify and hold Buyer harmless from any claims by said party or
anyone claiming by, through, or under such party (excluding, however, any claim
of Southwest Securities). Buyer hereby represents and warrants to Sellers that
Buyer has not contracted or entered into any agreement with any real estate
broker, agent, finder, or other party in connection with this transaction, other
than as identified in Section 10.1, and that Buyer has not taken any action
which would result in any real estate broker's, finder's, or other fees or
commissions being due or payable to any other party with respect to the
transaction contemplated hereby. Each party hereby indemnifies and agrees to
hold the other party harmless from any loss, liability, damage, cost, or expense
(including, but not limited to, reasonable attorneys' fees) resulting to the
other party by reason of a breach of the representation and warranty made by
such party in this Section 10.1. The indemnities set forth in this Section
10.1 shall survive the Closing.
ARTICLE XI
CASUALTY OR CONDEMNATION
(a) Notwithstanding any contrary provision of the Texas Property
Code, Sellers agree to give Buyer and Title Company prompt notice of any fire
or other casualty affecting any of the Projects or of any actual or threatened
taking or condemnation of all or any portion of any such Projects. If, prior
to the Closing, there shall occur:
(i) damage to any of the Projects caused by fire or other
casualty; or
(ii) a threatened or actual taking or condemnation of all
or any portion of any of the Projects,
then, Buyer shall have the right to terminate this Contract as to the affected
Project only by written notice delivered to Sellers within ten (10) days after
Buyer has received notice from Sellers of that event or the date on which Buyer
learns of that event, whichever shall last occur. If Buyer terminates this
Contract, a ratable portion of the Earnest Money Deposit shall be returned to
Buyer and the parties shall have no further obligations under this Contract in
respect to such Project, and the Purchase Price shall be reduced by the portion
of the Purchase Price allocated to that Project as set forth in Section 5.3
above. Notwithstanding the foregoing, in the event that the cost of
18
<PAGE> 20
repairing or restoring such damage shall be covered by available insurance and
such cost shall be less than $100,000 per Project, then Buyer shall proceed to
Closing and Sellers shall assign at Closing to Buyer their right, title and
interest in the insurance proceeds available to repair or restore the damage or
destruction and to any applicable rent loss insurance and, in addition, Sellers
shall credit the Purchase Price with the amount of any deductible under such
insurance policy(s) attributable to the affected Project.
(b) If the cost to repair or replace the damage is reasonably
estimated by the Sellers' insurance adjuster to exceed $100,000 per Project,
then at Buyer's election, and in its sole discretion, Buyer may elect to
proceed with the Closing and at the Closing Sellers shall assign to Buyer their
right, title and interest in the insurance proceeds available to repair or
restore the damage or destruction and to any applicable rent loss proceeds, and
Sellers shall credit the Purchase Price with the amount of any deductible under
such insurance policy(s).
(c) In the event that Buyer fails to notify Sellers and Title
Company of its intention to proceed to Closing and accept as assignment of the
insurance proceeds, the Contract shall automatically terminate and the Earnest
Money Deposit shall be returned to Buyer forthwith.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices, demands, requests, and other
communications required or permitted hereunder shall be in writing, and shall
be deemed to be delivered on receipt if delivered by hand, overnight delivery,
or by facsimile, or whether actually received or not, three (3) days after
having been deposited in a regularly maintained receptacle for the United
States mail, registered or certified, return receipt requested, postage
prepaid, addressed as follows:
If to Sellers: c/o Uniteg Management Company, Inc.
Attn. Joseph W. Peacock, President
6800 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Telephone: (713) 222-6900
Telecopy: (713) 222-1614
With a Copy to: Stephen Jacobs, Esq.
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Texas Commerce Tower, Suite 3200
Houston, Texas 77002-3095
Telephone: (713) 226-1382
Telecopy: (713) 223-3717
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If to Buyer: United Investors Realty Trust
5847 San Felipe
Suite 850
Houston, Texas 77057
Attention: Randall Keith
Chief Operating Officer
Telephone: (713) 781-2858
Telecopy: (713) 268-6005
With a Copy to: Lewis H. Sandler, Esq.
United Investors Realty Trust
8080 North Central Expressway
Suite 400
Dallas, Texas 75206
Telephone: (214) 360-3665
Telecopy: (214) 360-3696
James, Goldman & Haugland, P.C.
Attn: Merton B. Goldman, Esq.
8th Floor Texas Commerce Bank Bldg.
201 East Main
El Paso, Texas 79901
(915) 532-3911
FAX: (915) 541-6440
12.2 Governing Law. This Contract is being executed and delivered,
and is intended to be performed, in the State of Texas, and the laws of Texas
shall govern the validity, construction, enforcement, and interpretation of
this Contract. This Contract is performable in, and the exclusive venue for
any action brought with respect hereto, shall lie in Harris County, Texas.
12.3 Entirety and Amendments. This Contract embodies the entire
agreement between the parties and supersedes all prior agreements and
understandings, if any, relating to the project, and may be amended or
supplemented only by an instrument in writing executed by the party against
whom enforcement is sought.
12.4 Parties Bound. This Contract shall be binding upon and inure
to the benefit of Sellers and Buyer, and their respective heirs, personal
representatives, successors and permitted assigns, but shall not inure to the
benefit of another party.
12.5 Saturday, Sunday or Legal Holiday. If any date set forth in
this Contract for the performance of any obligation by Buyer or Sellers or for
the delivery of any instrument or notice should be on other than a Business
Day, the compliance with such obligations or delivery shall be deemed
acceptable on the next following Business Day.
12.6 Time is of the Essence. It is expressly agreed by Sellers and
Buyer that time is of the essence with respect to this Contract.
12.7 Exhibits. The Exhibits which are referenced in, and attached
to, this Contract are incorporated in, and made a part of, this Contract for
all purposes.
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<PAGE> 22
12.8 Attorney's Fees. If either party hereto shall be required to
employ an attorney to enforce or defend the rights of such party hereunder, the
prevailing party shall be entitled to recover its reasonable attorney's fees
and costs.
12.9 Expiration of Offer. The execution by one party hereto and
delivery to the other party hereto of an executed counterpart of this Contract
shall constitute an offer to sell or purchase the Project, as may be the case,
upon the terms stated herein. If a counterpart of this Contract executed by
one party hereto without modification is not received by the other party hereto
within three (3) business days after the time and date of the execution by the
first, as indicated below, the offer contained in this Contract shall be null
and void.
12.10 Multiple Counterparts. This Contract may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same agreement, and either of the parties hereto may execute this Contract
by signing any such counterpart.
12.11 Severability. If any provision of this Contract shall, for
any reason, is held to violate any applicable law, and so much of this Contract
is held to be unenforceable, then the invalidity of such specific provision
shall not be held to invalidate any other provision of this Contract which
shall remain in full force and effect.
12.12 Assignment. This Contract may not be assigned, in whole or in
part, by Buyer.
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<PAGE> 23
EXECUTED by Buyer on the 2nd day of December, 1997.
BUYER: UNITED INVESTORS REALTY TRUST,
a Texas real estate investment trust
By: /s/ RANDALL D. KEITH
-----------------------------------------
Randall D. Keith, its Vice-President
EXECUTED by Sellers on the 2nd day of December, 1997
SELLERS: R & R HEDWIG 1 LIMITED PARTNERSHIP
By: Venida, Inc.
Its: General partner
By: /S/ JOSEPH W. PEACOCK
------------------------------------------
Joseph W. Peacock, President
HEDWIG II, INC.
By: /S/ JOSEPH W. PEACOCK
------------------------------------------
Joseph W. Peacock, President
HEDWIG III JOINT VENTURE
By: Uniteg Investment Company, Inc.
Its: Managing Venturer
By: /S/ JOSEPH W. PEACOCK
------------------------------------------
Joseph W. Peacock, President
PFL-290 LIMITED PARTNERSHIP
By: Uniteg PFL-290, Inc.
Its: General Partner
By: /S/ JOSEPH W. PEACOCK
------------------------------------------
Joseph W. Peacock, President
22
<PAGE> 24
THE MARKET AT FIRST COLONY-JOINT VENTURE
By: Uniteg Investment Company, Inc.
Its: Managing Venturer
By: /s/ JOSEPH W. PEACOCK
------------------------------------------
Joseph W. Peacock, President
Receipt of a fully executed copy of the Contract and a check, subject to
collection for the Earnest Money Deposit received this 5th day of December,
1997.
TITLE COMPANY: SAFECO LAND TITLE COMPANY
By: /s/ MAGGIE FIELDING
---------------------------------
Name: Maggie Fielding
-------------------------------
Title: Executive Vice President
------------------------------
23
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List of Attachments
Schedule I - List of Sellers
Schedule II - Description of Existing Notes and Existing Liens
Exhibit "A-1" - Description of Land-The Market at First Colony
Exhibit "A-2" - Description of Land-The Hedwig Shopping Centers
Exhibit "A-3" - Description of Land-Benchmark Crossing
Exhibit "B" - Survey Requirements
Exhibit "C" - Form of Special Warranty Deed
Exhibit "D" - Form of Assignment of Leases
Exhibit "E" - Form of Bill of Sale and Assignment
Exhibit "F" - Form of Assignment of Service Contracts
Exhibit "G" - Non-Foreign Affidavit
Exhibit "H" - Form of Tenant Notice Letter
Exhibit "I" - Form of Tenant Estoppel Letter
24
<PAGE> 26
EXHIBIT "A-1"
DESCRIPTION OF THE LAND (FIRST COLONY)
<PAGE> 27
November 12, 1997
Job No. 1091-7008-008
DESCRIPTION OF
2.194 ACRES
TRACT "M-1" OF THE
PROPOSED REPLAT OF THE MARKET AT FIRST COLONY
COMMERCIAL RESERVE "M"
Being 2.194 acres of land located in the Elijah Alcorn League, Abstract 1,
City of Sugar Land, Fort Bend County, Texas, also being a portion of Commercial
Reserve "M" of THE MARKET AT FIRST COLONY, COMMERCIAL RESERVE "M", a
subdivision of record in Slide No. 1299A, Plat Records, Fort Bend County, Texas
(F.B.C.P.R.), more particularly being a portion of that certain called 7.370
acre tract conveyed to The Market at First Colony Joint Venture by instrument
of record in Volume 2227, Page 794, Official Records, Fort Bend County, Texas
(F.B.C.O.R.) and said 2.194 acres being more particularly described by metes
and bounds as follows (all bearings referenced to the Texas Coordinate System,
South Central Zone);
BEGINNING at the northwest corner of that certain called 0.728 acre tract
conveyed to Second Convenience Stores Properties Corp. by instrument of record
in Volume 2034, Page 1959, Official Records, Fort Bend County, Texas, said
0.728 acre being the residue of Commercial Reserve "N" of THE MARKET AT FIRST
COLONY, a subdivision of record in Slide Nos. 889B and 890A, Plat Records,
Fort Bend County, Texas, also being the most westerly southwest corner of
aforementioned Commercial Reserve "M" and in the easterly right-of-way line of
Williams Trace Boulevard (100 feet wide);
Thence, with the common line of said Williams Trace Boulevard and
Commercial Reserve "M", North 20 degrees 45' 59" East, 251.98 feet to a point
for corner, the beginning of a curve;
Thence, continuing with said common line of Williams Trace Boulevard and
Commercial Reserve "M", 147.37 feet along the arc of a tangent curve to the
left having a radius of 2150.00 feet, a central angle of 03 degrees 55' 38" and
a chord that bears North 18 degrees 48' 10" East, 147.34 feet to the southwest
corner of Commercial Reserve "P-1" of THE MARKET AT FIRST COLONY COMMERCIAL
RESERVES C, C-3, L, M, P and P-1, a subdivision of record in Slide Nos. 919B
and 920A, Plat Records, Fort Bend County, Texas, said Commercial Reserve "P-1"
conveyed to Moeby Realty Corporation by instrument of record in Volume 2038,
Page 1908, Official Records, Fort Bend County, Texas;
Page 1 of 2
<PAGE> 28
2.194 Acres November 12, 1997
Job No. 1091-7008-008
Thence, leaving the easterly right-of-way line of Williams Trace
Boulevard, with the common line of said Commercial Reserves "M" and "P-1",
South 69 degrees 14' 01" East, 239.38 feet to a point for corner;
Thence, leaving said common line, South 20 degrees 45' 59" West, 246.73
feet to a point for corner;
Thence, North 69 degrees 14' 01" West, 9.83 feet to a point for corner;
Thence, South 20 degrees 45' 59" West, 93.50 feet to a point for corner;
Thence, South 69 degrees 14' 01" East, 32.91 feet to a point for corner;
Thence, South 20 degrees 45' 59" West, 78.63 feet to a point for corner;
Thence, North 69 degrees 14' 01" West, 67.41 feet to a point for corner on
the easterly line of aforementioned Commercial Reserve "N", same being a
westerly line of said Commercial Reserve "M";
Thence, with the common line of said Commercial Reserve "M" and "N", North
20 degrees 45' 59" East, 19.63 feet to the northeast corner of said Commercial
Reserve "N", also being a re-entrant corner of said Commercial Reserve "M";
Thence, continuing with the common line of said Commercial Reserves "M"
and "N", North 69 degrees 14' 01" West, 190.00 feet to the POINT OF BEGINNING
and containing 2.194 acres of land.
LJA Engineering & Surveying, Inc.
Page 2 of 2
<PAGE> 29
January 11, 1996
Job No. 68523.002
DESCRIPTION OF
0.655 ACRE(28,553 SQUARE FEET)
COMMERCIAL RESERVE "G" OUT OF
THE MARKET AT FIRST COLONY PARTIAL REPLAT
Being 0.655 acre(28,553 square feet) of land located in the Elijah Alcorn
League, Abstract No. 1, Fort Bend County, Texas, also being all of Commercial
Reserve "G" of The Market at First Colony Partial Replat, a subdivision of
record in Slide Nos. 897A and 897B, Plat Records, Fort Bend County, Texas, more
particularly being all of that certain tract of land conveyed to The Market of
First Colony Joint Venture by instrument of record in Volume 2325, Page 1347,
of the Official Records of Fort Bend County, Texas, said 0.655 acre (28,553
square feet) being more particularly described by metes and bounds as follows
(bearings referenced to the Texas Coordinate System,South Central Zone):
BEGINNING at a chiseled "X" in concrete found marking the southwest corner
of a forementioned Commercial Reserve "G", same being the most southerly
southeast corner of Commercial Reserve "K-4" of The Market at First Colony
Reserve K-3 and K-4, a subdivision of record in Slide No. 940B, Plat Records,
Fort Bend County, Texas and in the northeasterly right-of-way line of Texas
State Highway No. 6(130.00 feet wide);
Thence, with the easterly and southerly lines of said Commercial Reserve
"K-4", the following three(3) course:
1. North 06 degrees 43'48" East, 87.62 feet to a chiseled "X" in concrete
found for corner;
2. North 20 degrees 45'59" East, 80.00 feet to a chiseled "X" in
concrete found for corner;
3. South 69 degrees 14'01" East, 178.52 feet to a chiseled "X" in
concrete set for corner;
Thence, leaving said southerly line of Commercial Reserve "K-4", South 20
degrees 45'59" West, 165.00 feet to a 1/2 inch iron rod found for corner in the
aforementioned northeasterly right-of-way line of Texas State Highway No. 6;
Page 1 of 2
<PAGE> 30
January 11, 1996
Job No. 68523.002
0.655 Acre
Thence, with said northeasterly right-of-way line, North 69 degrees 14'01"
West, 157.27 feet to the POINT OF BEGINNING and containing 0.655 acre(28,553
square feet) of land.
This description is based on a boundary survey and plat prepared by the
undersigned date January 11, 1996.
RUST LICHLITER/JAMESON
/S/ KEITH W. MONROE
- ---------------------------
Keith W. Monroe
Registered Professional Land Surveyor
Texas Registration No.4797 [SEAL]
Page 2 of 2
<PAGE> 31
January 16, 1996
Job NO. 68523.002
DESCRIPTION OF
5.889 ACRES
(THE MARKET AT FIRST COLONY
COMMERCIAL RESERVE "C")
Being 5.889 acres of land located in the Elijah Alcorn League, Abstract
No. 1, Fort Bend County, Texas, also being all of Commercial Reserve "C" of THE
MARKET AT FIRST COLONY COMMERCIAL RESERVES C,C-3, L, M, P, and P-1, a
subdivision of record in Slide Nos. 919B and 920A, Plat Records, Fort Bend
County, Texas more particularly being a portion of those certain tracts of land
conveyed to The Market at First Colony Joint Venture by instrument of record in
Volume 2227, Page 794, Official Records, Fort Bend County, Texas and said 5.889
acres being more particularly described by metes and bounds as follows (all
bearings referenced to the Texas Coordinate System, South Central Zone);
BEGINNING at a 1/2 inch iron rod found marking the southwest corner of
aforementioned Commercial Reserve "C", same being the southeast corner of
Commercial Reserve "D" of THE MARKET AT FIST COLONY, a subdivision of record
in Slide No's. 897A and 897B, Plat Records, Fort Bend County, Texas and in the
northeasterly right-of-way line of Texas State Highway No. 6 (130.00 feet wide);
Thence, with the easterly line of Commercial Reserve "D", North 20 decrees
45' 59" East, at 196.00 feet pass a nail in a concrete curb found marking the
common east corner of said Commercial Reserve "D" and Commercial Reserve "J" of
aforementioned THE MARKET OF FIRST COLONY and continue with the easterly line
of said Commercial Reserve "J", in all, a distance of 536.87 feet to a 1/2 inch
iron rod found making the common north corner of said Commercial Reserve "C" and
"J";
Thence, with the northerly line of THE MARKET AT FIRST COLONY COMMERCIAL
RESERVES, C, C-3, L, M, P and P-1 the following eight (8) courses:
1. South 87 degrees 32' 00" East, 8.24 feet to a 1/2 inch iron rod found
for corner;
2. North 87 degrees 47' 43" East, 49.65 feet to a 1/2 inch iron rod found
for corner;
Page 1 of 3
<PAGE> 32
5.889 Acres January 16, 1996
Job No. 68523.002
3. North 86 degrees 48' 10" East, 52.88 feet to a 1/2 inch iron rod found
for corner;
4. North 84 degrees 45' 00" East, 50.29 feet to a 1/2 inch iron rod found
for corner;
5. North 82 degrees 21' 16" East, 18.72 feet to a 1/2 inch iron rod found
for corner;
6. North 82 degrees 42' 40" East, 99.84 feet to a 1/2 inch iron rod found
for corner;
7. South 07 degrees 17' 20" East, 111.31 feet to a 1/2 inch iron rod
found for corner;
8. South 69 degrees 14' 01" East, 122.68 feet to a 5/8 inch iron rod
found marking the northwest corner of Commercial Reserve "C-2" of
aforementioned THE MARKET AT FIRST COLONY, same being the most
northerly northeast corner of aforementioned Commercial Reserve "C";
Thence, with the westerly line of said Commercial Reserve "C-2", the
following five (5) courses:
1. South 20 degrees 45' 59" West, 168.00 feet to a point for corner;
2. South 69 degrees 14' 01" East, 103.04 feet to a P.K. nail found for
corner;
3. South 20 degrees 45' 59" West, 111.50 feet to a chiseled "X" on a
concrete curb found for corner;
4. North 69 degrees 14' 01" West, 116.98 feet to a chiseled "X" in
concrete found for corner;
5. South 20 degrees 45' 59" West, 94.00 feet to a chiseled "X" in
concrete found for corner in the north line of Commercial Reserve
"C-3" of aforementioned THE MARKET AT FIRST COLONY COMMERCIAL
RESERVES, C, C-3, L, M, P and P-1;
Page 2 of 3
<PAGE> 33
5.889 Acres January 16,1996
Job No. 68523.002
Thence, leaving said westerly line of Commercial Reserve "C-2", with the
northerly line of said Commercial Reserve "C-3", North 69 degrees 14'01" West,
6.00 feet to a chiseled "X" in concrete found for corner, same being the
northwest corner of said Commercial Reserve "C-3";
Thence, with the westerly line of said Commercial Reserve "C-3", South 20
degrees 45'59" West, 186.50 feet to a 1/2 inch iron rod found marking the
southwest corner of said Commercial Reserve "C-3", same being in the
aforementioned northeasterly right-of-way line of Texas State Highway No. 6;
Thence, with said northeasterly right-of-way line of Texas State Highway
No. 6, North 69 degrees 14' 01" West, 406.72 feet to the POINT OF BEGINNING and
containing 5.889 acres of land.
This description is based on a boundary survey and plat prepared by the
undersigned dated January 16, 1996.
RUST LICHLITER/JAMESON
/s/ KEITH W. MONROE
- -----------------------------
Keith W. Monroe
Registered Professional Land Surveyor [STATE OF TEXAS LAND SURVEYOR SEAL]
Texas Registration No. 4797
Page 3 of 3
<PAGE> 34
January 11, 1996
Job No. 68523.002
DESCRIPTION OF
0.981 ACRE (42,713 SQUARE FEET)
(THE MARKET AT FIRST COLONY
COMMERCIAL RESERVE "C-1")
Being 0.981 acre (42,713 square feet) of land located in the William
Stafford League, Abstract No. 89, Fort Bend County, Texas, also being all of
Commercial Reserve "C-1" out of THE MARKET AT FIRST COLONY, a subdivision of
record in Slide Nos. 897A and 897B, Plat Records, Fort Bend County, Texas, more
particularly being a portion of those certain tracts of land conveyed to the
The Market at First Colony Joint Venture, by instrument of record in Volume
2227, Page 794, Official Records, Fort Bend County, Texas and said 0.981 acre
(42,713 square feet) being more particularly described by metes and bounds as
follows (all bearings referenced to the Texas Coordinate System, South Central
Zone);
BEGINNING at a 1/2 inch iron rod found marking the common east corner of
Commercial Reserves "A" and "C-1" of aforementioned THE MARKET AT FIRST COLONY,
same being in the westerly right-of-way line of Settlers Way Boulevard (100.00
feet wide);
Thence, with the common line of said Commercial Reserve "C-1" and Settlers
Way Boulevard, along the arc of a curve to the left from which the radius point
bears South 67 degrees 35' 16" East, said curve being subtended by a central
angle of 01 degrees 38' 45", having a radius of 2050.00 feet, and an arc length
of 58.88 feet to a 1/2 inch iron rod found for corner;
Thence, continuing with the common line of said Commercial Reserve "C-1"
and Settlers Way Boulevard, South 20 degrees 45' 59" West, 124.63 feet to a 5/8
inch iron rod found marking the common east corner of said Commercial Reserve
"C-1" and Commercial Reserve "C-2" out of said THE MARKET AT FIRST COLONY;
Thence, leaving said common line of Commercial Reserve "C-1" and Settlers
Way Boulevard, with a northerly line of said Commercial Reserve "C-2", North 69
degrees 14' 01" West, 190.00 feet to a chiseled "X" on a concrete light
standard found for corner, same being the most southerly southwest corner of
said Commercial Reserve "C-1";
Page 1 of 2
<PAGE> 35
0.981 Acre January 11, 1996
Job No. 68523.002
Thence, with an easterly line of said Commercial Reserve "C-2", the
following five (5) courses:
1. North 20 degrees 45' 59" East, 49.00 feet to a chiseled "X" in
concrete found for corner;
2. North 69 degrees 14' 01" West, 65.00 feet to a chiseled "X" in the
concrete found for corner;
3. North 20 degrees 45' 59" East, 112.64 feet to a point for corner;
4. South 69 degrees 14' 01" East, 50.85 feet to a chiseled "X" in the
concrete found for corner;
5. North 20 degrees 45' 59" East, 41.86 feet to a 1/2 inch iron rod
found marking the common west corner of aforementioned Commercial Reserves "A"
and "C-1";
Thence, with the common line of Commercial Reserves "A" and "C-1", South
24 degrees 14' 01" East, 28.28 feet to a 1/2 iron rod found for corner;
Thence continuing with said common line, South 69 degrees 14' 01" East,
185.00 feet to the POINT OF BEGINNING and containing 0.981 acre (42,713 square
feet) of land.
This description is based on a boundary survey and plat prepared by the
undersigned dated January 11, 1996.
RUST LICHLITER/JAMESON
/s/ KEITH W. MONROE
- ------------------------------------- [SURVEYOR'S STAMP]
Keith W. Monroe
Registered Professional Land Surveyor
Texas Registration No. 4797
Page 2 of 2
<PAGE> 36
EXHIBIT "A-2"
DESCRIPTION OF THE LAND (THE HEDWIG SHOPPING CENTERS)
<PAGE> 37
Hedwig II
Legal Description
Lot B-2, "RESUBDIVISION" - TRACT 'B' - TARGET PLACE, a subdivision lying wholly
within the Isaac Bunker Survey, A-121 Harris County, Texas, as recorded in
Volume 331, Page 55, Map Records, Harris County, Texas, and more particularly
described by metes and bounds as follow:
BEGINNING at an iron rod marking the northeast corner of said
"Resubdivision - Tract 'B' - Target Place", also northeast corner of Lot
B-2 and the original "Target Place" and the point of intersection of the
south right-of-way line of Interstate Highway No. 10 (Katy Freeway) and the
west line of Mustang Lane in the City of Hedwig Village, Texas;
THENCE S-1 degrees 05' W with said west right-of-way line of Mustang Lane a
distance of 235.00 feet to an iron rod at the southeast corner of Lot B-2;
THENCE N 88 degrees 25' W a distance of 190.00 feet to an iron rod at the
southwest corner of Lot B-2;
THENCE N 00 degrees 27' E a distance of 235.04 feet to an iron rod at the
northwest corner of Lot B-2 lying in the south right-of-way line of
Interstate Highway No. 10;
THENCE S 88 degrees 25' E with said south right-of-way of Interstate Highway
No. 10 a distance of 192.60 feet to the PLACE OF BEGINNING,
Containing 44,954 square feet of land, more or less.
<PAGE> 38
HEDWIG III
LEGAL DESCRIPTION
Being 1.8366 acres (80,001.46 Sq. Ft.) of land in the Issac Bunker Survey
Abstract 121, Harris County, Texas, and being Tract "C" out of Target Place, a
subdivision in Harris County, Texas, according to the map or plat thereof
recorded in Volume 196, Page 22 of the Harris County Map Records, with said
1.8366 acres being more particularly described by metes and bounds as follows:
COMMENCING for reference at a point from which a found 5/8-inch iron rod lies
North 01 degrees 05' 00" East 0.13 feet, said point being the intersection of
the north right-of-way line of Gaylord Drive (based on a width of 60 feet) and
the west right-of-way line of Mustang Lane (based on a width of 60 feet), said
point also being the southeast corner of said Target Place;
THENCE North 01 degrees 05' 00" East a distance of 66.75 feet to a set 5/8-inch
iron rod marking the southeast corner of said Tract "C" and the herein described
tract;
THENCE North 89 degrees 33' 00" West a distance of 285.75 feet to a set
5/8-inch iron rod marking the southeast corner of said Tract "C" and the herein
described tract;
THENCE North 00 degrees 27' 00" East a distance of 278.48 feet to a set
5/8-inch iron rod marking the northwest corner of said Tract "C" and the herein
described tract;
THENCE South 89 degrees 33' 00" East a distance of 288.82 feet to a set
5/8-inch iron rod located in the said west right-of way line of Mustang Lane,
said 5/8-inch iron rod marking the northeast corner of said Tract "C" and the
herein described tract;
THENCE South 01 degrees 05' 00" West a distance of 278.49 feet along the said
west right-of-way line of Mustang Lane to the POINT OF BEGINNING and containing
1.8366 acres (80,001.46 Sq. Ft.) of land.
<PAGE> 39
EXHIBIT "A-3"
DESCRIPTION OF THE LAND (BENCHMARK CROSSING)
<PAGE> 40
LEGAL DESCRIPTION
BENCHMARK CROSSING SHOPPING CENTER
BEING 6.5704 acres (286,195 square feet) of land, more or less, out of Block 2,
Reserve "B", Northwest Crossing, Section One (1), a subdivision in the Joseph
Says Survey, A-127, Harris County, Texas, according to the map or plat thereof
recorded in Volume 216, Page 103, of the Map Records of Harris County, Texas,
and being all of a tract of land containing 7.464 acres (325,121 square feet),
more particularly described by metes and bounds as follows, to-wit:
BEGINNING at a point marked by a 5/8 inch iron rod on the Westerly
right-of-way line of Hollister Road at the Southeasterly end of the 10 foot cut
back of the most Easterly Northeast corner of said Reserve "B");
THENCE in a Southerly direction, along the Westerly right-of-way line of
Hollister Road, with a curve to the right whose radius is 1909.86 feet and
central angle is 18 43' 31" and whose chord bears South 11 48' 33" West, a
distance, measured along the arc of said curve, of 624.17 feet to a 5/9 inch
iron rod at a point of tangent;
THENCE South 21 10' 18" West, continuing along the Westerly right-of-way
line Hollister Road, a distance of 120.85 feet to a 5/8 inch iron rod at a
point of curve;
THENCE in a Southwesterly direction, with a curve to the right whose radius
is 5 feet and central angle is 100 00' 41", a distance of 43.64 feet to a 5/8
inch iron rod at a point of tangent on the Northeast right-of-way line of the
Northwest Freeway (U.S. Highway 290);
THENCE North 58 49' 01" West, along the Northeast right-of-way line of the
Northwest Freeway (U.S. Highway 290), a distance of 439.74 feet to a 5/8 inch
rod at a point for corner;
THENCE North 11 10' 59" East, a distance of 552.83 feet to a 5/8 inch rod
at a point for corner of the Southerly right-of-way line of West Tidwell Road,
100 feet wide;
THENCE in an Easterly direction, along the Southerly right-of-way line of
West Tidwell Road, with a curve to the right whose radius is 2814.79 feet and
central angle is 4 12' 32", a distance of 206.78 feet to a 5/8 inch iron rod at
a point of tangent;
THENCE South 85 52' 33" East, continuing along the Southerly right-of-way
line of West Tidwell Road, a distance of 260.57 feet to a 5/8 inch iron rod at
an angle point;
THENCE South 41 47' 23" East, a distance of 14.37 feet to the PLACE OF
BEGINNING and containing 7.464 acres (325,121 square feet) of land;
SAVE AND EXCEPT a 0.8936 acre (38,926 square feet) portion thereof more
particularly described b metes and bounds as follows, to-wit;
COMMENCING at a point marked by a 5/8 inch iron rod
on the Westerly right-of way line of Hollister Road
at the Southeasterly end of the 10 foot cut back for
the most Easterly Northeast corner of said Reserve
"B";
THENCE in a Southerly direction along the Westerly right-of-way line of
Hollister Road, with a curve to the right whose radius is 1909.86 feet, central
angle is 17 21' 44", and whose chord bears South 11 07' 39" West, a distance
measured along the arc of said curve of 578.74 feet to a 5/8 inch iron rod at a
point for the PLACE of BEGINNING for the herein described tract;
<PAGE> 41
THENCE in a Southerly direction continuing along the Westerly
right-of-way line of Hollister Road, with a curve to the right whose radius is
1909.86 feet, central angle is 1 21' 47" and whose chord bears South 20 29' 24"
West, a distance measured along the area of said curve of 45.43 feet to a 5/8
inch iron rod at a point of tangent;
THENCE South 21 10' 18" West, continuing along the Westerly right-of-way
line of Hollister Road, a distance of 120.85 feet to a 5/8 inch iron rod at a
point of curve;
THENCE in a Southwesterly direction with a curve to the right whose radius
is 25 feet and central angel is 100 00' 41" a distance of 43.64 feet to a 5/8
inch iron rod at a point of tangent on the Northeast right-of-way line of the
Northwest Freeway (U.S. Highway 290), 300 feet wide;
THENCE North 31 10' 59" East, a distance of 193.00 feet to a 5/8 iron rod
at a point for corner;
THENCE South 58 49' 01" East, a distance of 185.18 feet to the PLACE OF
BEGINNING and containing 0.8936 acres (38,926 square feet) of land;
AND CONTAINING IN ALL, 6.5704 acres (286,195 square feet) of Land, more or less.
<PAGE> 1
EXHIBIT 11.1
Statement Regarding Computation
of Earnings per Share
<TABLE>
Year Ended December 31,
------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Common Shares of beneficial
interest outstanding-beginning of year 837,489 834,397 834,397
Issuance of common shares of beneficial
interest during the year 77,400 3,092
------- ------- -------
Common shares of beneficial
interest outstanding-end of year 914,889 837,489 834,397
Adjustment for days outstanding
(360 days/year) of currently issued shares
during the year (2,396) (3,088)
Restatement for issuance of stock to officers
and the Investment Manager in 1997 75,000 75,000
------- ------- -------
Weighted averages shares outstanding
during the year 912,493 909,401 909,397
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 16.1
December 17, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the statements made by United Investors Realty Trust (copy
attached), which has been filed with the Commission, pursuant to Item 11(i) of
Form S-11, as part of the Company's Amendment No. 1 to Form S-11. We agree with
the statements concerning our Firm in such Amendment No. 1 to Form S-11.
However, we have no basis to agree or disagree with the statements made about
events subsequent to our dismissal.
Very truly yours,
/s/ COOPERS & LYBRAND, L.L.P.
- -----------------------------
Coopers & Lybrand L.L.P.
Houston, Texas
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
UIRT - Bandera Festival, Inc.
UIRT - I - McMinn, Inc.
UIRT - W - McMinn, Inc.
UIRT - University Park, Inc.
UIRT - University Park - I, L.P.
United Investors Pembroke, Inc.
UIRT I - Centennial, Inc.
Park Northern/Centennial Partners, L.P.
<PAGE> 1
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 11, 1997 on the financial statements and
schedule of United Investors Realty Trust and Subsidiaries and the Statements
of Revenue and Certain Expenses for Benchmark Crossing, Hedwig Centers, Market
at First Colony, Mason Park, Rosemeade Park, Southwest Walgreens, Town &
Country, and University Mall in Amendment No. 2 to the Registration Statement
(Form S-11 No. 333-29475) for the Registration of 7,600,000 common shares of
beneficial interest.
Ernst & Young LLP
Houston, Texas
February 11, 1998
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trust Manager of
United Investors Realty Trust hereby constitutes and appoints Lewis H. Sandler
and Daniel M. Jones, III and each of them, with full power to act without the
other and with full power of substitution and resubstitution, my true and lawful
attorneys-in-fact with full power to execute in my name and on my behalf in the
capacity indicated below any and all amendments (including post-effective
amendments and amendments thereto) to the Registration Statement on Form S-11
and to file the same, with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission and hereby
notify and confirm all that such attorneys-in-fact, or either of them or their
substitutes shall lawfully do or cause to be done by virtue hereof.
/s/ Ira T. Wender
----------------------------------------
Ira T. Wender, Trust Manager
December 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF UNITED INVESTORS REALTY TRUST. AS OF DECEMBER 31,
1997 AND THE RELATED STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY FOR THE
YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AMENDMENT
NO. 2 TO FORM S-11 (NO. 333-29475) FOR UNITED INVESTORS REALTY TRUST.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 346,149
<SECURITIES> 0
<RECEIVABLES> 839,467
<ALLOWANCES> 41,771
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,734,731
<DEPRECIATION> 4,861,957
<TOTAL-ASSETS> 39,286,969
<CURRENT-LIABILITIES> 4,654,253
<BONDS> 25,138,899
1,068,226
0
<COMMON> 8,345,077
<OTHER-SE> (1,490,484)
<TOTAL-LIABILITY-AND-EQUITY> 39,286,969
<SALES> 0
<TOTAL-REVENUES> 6,175,853
<CGS> 0
<TOTAL-COSTS> 4,374,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,435,538
<INCOME-PRETAX> (771,716)
<INCOME-TAX> 0
<INCOME-CONTINUING> (771,716)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (771,716)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.85)
</TABLE>
