As filed with the Securities and Exchange Commission on June 29, 1998
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
American Mortgage Investors Trust
................................................................................
(Name of Registrant as Specified In Its Organizational Documents)
................................................................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
............................................................................
2) Aggregate number of securities to which transaction applies:
............................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
............................................................................
4) Proposed maximum aggregate value of transaction:
............................................................................
5) Total fee paid:
............................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
............................................................................
2) Form, Schedule or Registration Statement No.:
............................................................................
3) Filing Party:
............................................................................
4) Date Filed:
............................................................................
<PAGE>
AMERICAN MORTGAGE INVESTORS TRUST
625 Madison Avenue
New York, New York 10022
_______________, 1998
Dear Shareholders,
The Board of Trustees of American Mortgage Investors Trust (the
"Company") is asking you to consider and vote on the proposals described in the
enclosed Consent Statement. The Company is currently a closed-ended, finite-life
REIT that is not permitted to raise additional funds or invest in additional
mortgage investments. The Company was originally formed to issue shares of
beneficial interest to be held by investors until the Company's assets were
liquidated. As originally structured, the Company was not expected to fully
liquidate its assets and terminate until, at the earliest, between 2004 and
2009.
The Board of Trustees proposes that the Company's structure and
investment policy be changed so that the Company is converted into a publicly
traded, open-ended, infinite-life operating company. Upon such conversion, the
Company would have the opportunity to grow by raising additional funds through
the incurrence of a specified maximum amount of debt (see clause (iii) below)
and the issuance of additional securities, as needed, and using such funds,
along with repayments and disposition proceeds, to make additional investments.
The Board of Trustees believes that favorable origination and investment
opportunities currently exist with respect to various types of mortgages and
related investments, including affordable multifamily housing mortgages and
commercial mortgage backed securities. The Board of Trustees believes that by
converting the Company into a publicly traded, infinite-life REIT the Company
would have a legal and business structure which would enable it to take
advantage of such opportunities.
The Board of Trustees has been monitoring the performance of
infinite-life REITs that invest primarily in mortgage investments and whose
equity securities are listed on nationally recognized securities exchanges. The
Board of Trustees believes that the securities markets have fairly valued the
equity securities of such REITs and that the trading markets for such securities
have been active. The Board of Trustees proposes that the Company list its
shares of beneficial interest for trading on the American Stock Exchange so as
to provide the Company's shareholders with additional liquidity and to allow
shareholders the opportunity to take advantage of the active trading market for
REIT securities.
Specifically, the Board of Trustees' proposals include consideration
of amendments to the Company's Amended and Restated Declaration of Trust that
would:
(i) authorize the Company's Board of Trustees to immediately list the
Company's shares of beneficial interest for trading on the American Stock
Exchange;
(ii) clarify an ambiguity in the Declaration of Trust so as to confirm
the Board of Trustees' authority to issue various types of debt and equity
securities in addition to an unlimited
<PAGE>
amount of additional shares of beneficial interest which the Board of Trustees
is currently authorized to issue;
(iii) authorize the Company's Board of Trustees to incur permanent
debt up to an amount equal to 50% of the Company's Total Market Value (as
defined in the Consent Statement) measured at the time such debt is incurred and
to incur additional debt under a working capital line of credit, with the
proceeds of such permanent and other debt being used primarily to operate an
ongoing business and to acquire additional assets;
(iv) authorize the Company's Board of Trustees to reinvest proceeds
from repayments and the dispositions of the Company's assets;
(v) change the Company from a finite-life, closed-ended REIT to an
infinite-life REIT;
(vi) change the Company's investment policy to allow the Company to
acquire additional insured and a limited amount of uninsured mortgage
investments, including commercial mortgage backed securities, as well as to
originate, securitize and acquire such insured and uninsured mortgage
investments; and
(vii) make various conforming changes to the Declaration of Trust to
reflect the Company's new investment policy and other items discussed in the
Consent Statement.
In addition, shareholders will be asked to approve the adoption of an
incentive share option plan.
If the proposals are adopted, the Board of Trustees will (x) increase
the number of authorized shares of beneficial interest from 12,500,000 to
20,000,000 and, on an as needed basis, issue additional debt and equity
securities, the proceeds of which will be used to operate the Company as an
ongoing business and to acquire additional assets; and (y) amend the Advisory
Agreement between the Company and Related AMI Associates, Inc., the Company's
advisor (the "Advisor") to change the Advisory Agreement's fee structure to (a)
eliminate acquisition and disposition fees payable by the Company to the
Advisor, (b) provide that the Company will initially share with the Advisor
origination points paid by borrowers, with the Company thereafter receiving all
origination points, and (c) modify the annual asset management fee payable to
the Advisor. The effect of these three changes would be to, in most instances,
either eliminate or reduce the fees paid to the Advisor with respect to new
asset originations and acquisitions so as to make such fees comparable to fees
paid by other publicly traded infinite-life REITs with investment strategies
similar to the Company's new investment strategy. The actions described in
clauses (x) and (y) above do not require shareholder consent.
Upon the listing of the Company's shares of beneficial interest for
trading on the American Stock Exchange, the Board of Trustees intends to
eliminate the Company's share redemption plan and expects to adopt a new
dividend reinvestment plan. Such actions also do not require shareholder
consent.
The Advisor has voluntarily agreed to defer the payment of fees and
other payables, totaling $1,323,584 at March 31, 1998, which are currently due
to the Advisor by the Company. If the proposals are adopted, the payment of such
amounts will become subordinated to a minimum
<PAGE>
quarterly distribution to shareholders of approximately $.36 per share (which is
the Company's current quarterly per share distribution). If the proposals are
not adopted, then the Advisor will cause the Company to pay all such unpaid fees
and other payables to the extent the Company has sufficient funds available,
which could reduce the amount of funds available for distribution to
shareholders.
These proposals involve potential significant benefits and risks to
the Company's shareholders, as well as certain conflicts of interest with the
Company's advisor and affiliates. The accompanying Consent Statement, which you
are urged to read carefully, provides detailed information concerning the
proposals. The holders of shares of beneficial interest of record as of the
close of business on ____________, 1998 are entitled to vote with respect to the
proposals. Shareholders will be entitled to grant or withhold consent to all of
the proposals and will not be entitled to grant or withhold consent with respect
to individual proposals.
Whether or not the proposals are adopted by the Company's
shareholders, (i) Related AMI Associates, Inc. will continue to be the advisor
to the Company and will continue to manage the day-to-day operations of the
Company under the supervision of the Company's Board of Trustees, and (ii) the
Company will continue to operate so as to qualify as a REIT. If the proposals
are adopted, the Company's operations will remain unchanged except as
specifically provided for in the Consent Statement and shareholders will
continue to own shares of beneficial interest in the Company. However, upon
listing of the Company's shares on the American Stock Exchange, any existing
share certificates shall be deemed null and void and upon surrender of such
certificates to the Company, the Company will issue new share certificates to
shareholders. Those shareholders who did not previously ask that they be issued
certificates will automatically be issued new share certificates.
YOUR BOARD OF TRUSTEES (INCLUDING THE INDEPENDENT TRUSTEES)
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSALS. However, such
recommendation is subject to the conflicts of interests described in the Consent
Statement.
Shareholders may contact __________ at 212-421-5333 with respect to
any questions they may have with regard to the Consent Statement.
After you have reviewed the enclosed solicitation materials, please
complete and sign the Consent Form and return it by ___, 1998 in the enclosed
postage-paid envelope.
Sincerely,
J. Michael Fried
Chairman of the Board
<PAGE>
AMERICAN MORTGAGE INVESTORS TRUST
NOTICE OF CONSENT SOLICITATION
To the Shareholders of
American Mortgage Investors Trust:
Notice is hereby given that the Board of Trustees of American Mortgage
Investors Trust (the "Company") is soliciting the consent of the holders (the
"Shareholders") of shares of beneficial interest, par value $.01 per share, of
the Company (the "Shares") to the following proposals (collectively, the
"Proposals") all of which will be voted upon by Shareholders as a single
proposal:
I. To authorize an amendment to the Company's Amended and Restated
Declaration of Trust (the "Declaration of Trust") that would authorize
the Company's Board of Trustees to immediately list the Company's
Shares for trading on the American Stock Exchange;
II. To authorize an amendment to the Company's Declaration of Trust that
would clarify an ambiguity in the Declaration of Trust so as to
confirm the Board of Trustees' authority to issue various types of
debt and equity securities in addition to additional Shares which the
Board of Trustees is currently authorized to issue;
III. To authorize an amendment to the Declaration of Trust that would
authorize the Company's Board of Trustees to incur permanent debt up
to an amount equal to 50% of the Company's Total Market Value (as
defined in the Consent Statement) measured at the time debt is
incurred and to incur additional debt under a working capital line of
credit;
IV. To authorize an amendment to the Declaration of Trust that would
authorize the Company's Board of Trustees to reinvest proceeds from
repayments and dispositions of the Company's assets;
V. To authorize an amendment to the Declaration of Trust that would
change the Company from a finite-life, closed-ended REIT to an
infinite-life REIT;
VI. To authorize an amendment to the Declaration of Trust that would
change the Company's investment policy to allow the Company (either
directly or through one or more subsidiaries) (i) to originate,
securitize and acquire government insured mortgage loans, and to
acquire other investments of the types already authorized by the
Company's current investment policy (such as REMICs, CMOs and FHA,
GNMA, FNMA and FHLMC Pass Through Certificates), which investments,
will comprise approximately 40% of the Company's new investments, and
(ii) acquire and originate certain additional mortgage investments
which the Company was not permitted to acquire or originate under its
current investment policy, which include commercial mortgage backed
securities and mortgage derivatives, and to originate, securitize and
acquire uninsured mortgage loans, which investments will comprise no
<PAGE>
more than 60% of the Company's new investments. Mortgage loans that
are orginated with the intent of later securitizing such loans will be
accumulated without limit and will be categorized under either clause
(i) or (ii), as appropriate, when securitized;
VII. To authorize various conforming amendments to the Declaration of Trust
to reflect the Company's new investment policy and other items
discussed in the Consent Statement; and
VIII. To adopt an incentive share option plan.
If the Proposals are adopted, the Board of Trustees will (i) increase
the number of authorized Shares from 12,500,000 to 20,000,000 and issue, on an
as needed basis, additional debt and equity securities, the proceeds of which
would be used to operate the Company as an ongoing business and to acquire
additional assets, and (ii) amend the Advisory Agreement between the Company and
Related AMI Associates, Inc., the Company's advisor (the "Advisor") to change
the Advisory Agreement's fee structure to (a) eliminate the acquisition and
disposition fees currently payable to the Advisor, (b) provide that the Company
will initially share with the Advisor origination points with Company thereafter
receiving all origination points, and (c) modify the annual asset management fee
payable to the Advisor. The effect of these three changes would be to, in most
instances, either eliminate or reduce the fees paid to the Advisor with respect
to new assets originated or acquired by the Company so as to make such fees
comparable to fees paid by other publicly traded, open-ended infinite-life REITs
with investment strategies similar to the Company's new investment strategy. The
actions described in clauses (i) and (ii) above do not require Shareholder
consent.
Upon listing of the Company's Shares for trading on the American Stock
Exchange, the Board of Trustees intends to eliminate the Company's share
redemption plan and expects to adopt a new dividend reinvestment plan. Such
actions also do not require Shareholder consent.
Shareholders will be entitled to grant or withhold consent to all of
the Proposals and will not be entitled to grant or withhold consent with respect
to individual Proposals.
Under the terms of the Declaration of Trust, the consent of the
holders of a majority of the outstanding Shares entitled to vote and a majority
of the Board of Trustees, including the independent trustees, must be obtained
before the Proposals can be effected or implemented. The Board of Trustees has
unanimously approved the Proposals. In accordance with the Declaration of Trust,
none of the Advisor, the trustees nor their affiliates will vote their Shares
with respect to the Proposals, and the Shares held by the Advisor, the trustees
and their affiliates will not be included in determining the number of
outstanding Shares entitled to consent to the Proposals.
As of May 15, 1998, the Company had a total of 3,790,936 Shares
outstanding (excluding the 48,309 Shares held by the Advisor, the trustees and
their affiliates). The Board of Trustees of the Company has fixed the close of
business on _____, 1998 as the record date for the voting of the Shares. Only
Shareholders of record at that time are entitled to notice of the consent
solicitation and to vote their Shares with respect to the Proposals. The
deadline for returning the enclosed form of consent (the "Consent Form") is
______, 1998, which date may be extended to no later than ________, 1998 in the
discretion of the Board of Trustees. Consents are revocable by Shareholders at
any time prior to the date on which consents of Shareholders representing a
majority of
<PAGE>
the total eligible Shareholder vote become effective by delivering written
notice to the Company (c/o Related Capital Company: Attention ____, 625 Madison
Avenue, New York, New York 10022). After ______, 1998 and upon the Company's
receipt of consents from a majority of the total eligible Shareholder vote, the
Proposals shall be deemed adopted.
YOUR BOARD OF TRUSTEES (INCLUDING THE INDEPENDENT TRUSTEES)
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSALS. HOWEVER, SUCH
RECOMMENDATION IS SUBJECT TO THE CONFLICTS OF INTEREST DESCRIBED IN THE CONSENT
STATEMENT.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE CONSENT FORM
AND RETURN IT IN THE POSTAGE - PREPAID ENVELOPE PROVIDED.
By order of the Board of Trustees
J. Michael Fried
Chairman of the Board
______, 1998
<PAGE>
AMERICAN MORTGAGE INVESTORS TRUST
625 Madison Avenue
New York, New York 10022
-----------------
CONSENT STATEMENT
-----------------
INTRODUCTION
This Consent Statement is being furnished to all holders of shares of
beneficial interests ("Shareholders") in American Mortgage Investors Trust, a
Massachusetts business trust (the "Company") in connection with the solicitation
of consents by the Company's board of trustees (the "Board of Trustees"). This
Consent Statement sets forth several proposals advanced by the Company's Board
of Trustees requiring the consent of the Shareholders. The holders of shares of
beneficial interest, par value $.01 per share, of the Company (the "Shares") of
record as of the close of business on ___________, 1998 are entitled to give
their consent with respect to the proposals.
The Board of Trustees proposes several amendments to the Company's
Amended and Restated Declaration of Trust ("Declaration of Trust"). The Board of
Trustees believes that such amendments would be favorable to Shareholders
primarily because they would result in (i) the Company's Shares being listed for
trading on the American Stock Exchange, which would provide Shareholders with
the potential for significantly enhanced liquidity, and (ii) the Company being
converted into an infinite-life operating REIT which would provide Shareholders
with the opportunity to hold an investment in an active company with a legal and
operating structure that will enable it to effectively compete for investment
opportunities currently available in the market.
The amendments to the Company's Declaration of Trust would:
(i) authorize the Company's Board of Trustees to immediately list the
Company's Shares for trading on the American Stock Exchange;
(ii) clarify an ambiguity in the Declaration of Trust so as to confirm
the Board of Trustees' authority to issue various types of debt and equities
securities in addition to an unlimited amount of additional Shares which the
Board of Trustees is currently authorized to issue;
(iii) authorize the Company's Board of Trustees to incur permanent
debt up to an amount equal to 50% of the Company's Total Market Value (as
hereinafter defined) measured at the time such debt is incurred and to incur
additional debt under a working capital line of credit, the proceeds of such
permanent and other debt would be used primarily to operate the Company as an
ongoing business and to acquire additional assets;
i
<PAGE>
(iv) change the Company from a finite-life, closed-ended REIT to a
publicly traded, infinite-life REIT;
(v) authorize the Company's Board of Trustees to reinvest repayments
and proceeds from dispositions of the Company's assets;
(vi) change the Company's investment policy to allow the Company to
acquire additional insured and a limited amount of uninsured mortgage
investments, including commercial mortgage backed securities, as well as to
originate, securitize and acquire such insured and uninsured mortgage loans; and
(vii) make various conforming changes to the Declaration of Trust to
reflect the Company's new investment policy and other items discussed in this
Consent Statement.
In addition, Shareholders will be asked to approve the adoption of an
incentive share option plan (such proposal, together with the proposals listed
in clauses (i) through (vii) above, are collectively referred to herein as the
"Proposals"). The Company's current Declaration of Trust allows the Company's
Board of Trustees to grant options to purchase Shares to the Advisor without the
consent of Shareholders if such options (i) are issued on the same terms as
options sold to the general public, or (ii) do not exceed an amount equal to 10%
of the outstanding Shares on the date of grant.
If the Proposals are adopted, the Board of Trustees will (i) increase
the number of authorized Shares from 12,500,000 to 20,000,000 and issue, on an
as-needed basis, additional debt and equity securities, the proceeds of which
would be used primarily to operate the Company as an ongoing business and to
acquire additional assets; and (ii) amend the Advisory Agreement between the
Company and Related AMI Associates, Inc., a Delaware corporation (the "Advisor")
to change the Advisory Agreement's fee structure to (a) eliminate acquisition
and disposition fees payable to the Advisor, (b) provide that the Company will
initially share with the Advisor origination points paid by borrowers, with
Company thereafter receiving all origination points, and (c) modify the annual
asset management fee payable to the Advisor. The result of these three changes
would be to, in most instances, either eliminate or reduce the fees paid to the
Advisor with respect to new asset originations and acquisitions so as to make
such fees comparable to fees paid by other infinite-life REITs with investment
strategies similar to the Company's new investment strategy. The actions
described in clauses (i) and (ii) above do not require Shareholder consent.
Upon the listing of the Company's Shares for trading on the American
Stock Exchange the Board of Trustees intends to eliminate the Company's share
redemption plan and expects to adopt a new dividend reinvestment plan. Such
actions also do not require Shareholder consent.
The Advisor has voluntarily agreed to defer the payment of fees and
other payables totaling $1,323,584 at March 31, 1998 which are currently due to
the Advisor by the Company. If the Proposals are adopted, the payment of such
amounts will become subordinated to a minimum quarterly distribution to
Shareholders equal to approximately $.36 per Share (which is the Company's
current quarterly per Share distribution). If the Proposals are not adopted,
then the Advisor will cause the Company to pay all such unpaid fees and other
payables to the extent the Company has sufficient funds available which would
reduce the amount of funds available for distribution to Shareholders.
ii
<PAGE>
Approval by the holders of a majority of the outstanding Shares
entitled to vote and a majority of the Board of Trustees, including the
independent trustees, is required before the Proposals can be effected or
implemented. The Board of Trustees has unanimously approved the Proposals. In
accordance with the Declaration of Trust, none of the Advisor, the trustees nor
their affiliates will vote their Shares with respect to the Proposals, and the
Shares held by the Advisor, the trustees and their affiliates will not be
included in determining the number of outstanding Shares entitled to consent to
the Proposals. The Board of Trustees has established _____, 1998 as the record
date for the voting of Shares. Shareholders will be entitled to grant or
withhold consent to all of the Proposals but will not be entitled to grant or
withhold consent with respect to individual Proposals. The deadline for
returning the enclosed form of consent ("Consent Form") is ____, 1998, which
date may be extended to no later than ________, 1998 in the discretion of the
Board of Trustees.
Consents are revocable by the Shareholders at any time prior to the
date on which consents of Shareholders representing a majority of the total
eligible Shareholder vote become effective by delivering written notice to the
Company (c/o Related Capital Company, Attn: ______, 625 Madison Avenue, New
York, New York 10022). After _______, 1998 and upon the Company's receipt of
consents from Shareholders representing a majority of the total eligible
Shareholder vote, the Proposals shall be deemed adopted.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE CONSENT FORM
AND RETURN IT IN THE POSTAGE - PREPAID ENVELOPE PROVIDED. YOUR BOARD OF TRUSTEES
(INCLUDING THE INDEPENDENT TRUSTEE) UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE PROPOSALS. However, such recommendation is subject to the conflicts
of interest described in this Consent Statement.
This Consent Statement and the Consent Form are first being sent to
Shareholders on or about _______, 1998.
This transaction has not been approved or disapproved by the
Securities and Exchange Commission (the "Commission") or any state securities
commission nor has the Commission or any state securities commission passed upon
the fairness or merits of this transaction or the accuracy or adequacy of this
Consent Statement. Any representation to the contrary is a criminal offense.
The date of this Consent Statement is ________, 1998. No person is
authorized to give any information or to make any representation not contained
in this Consent Statement in connection with the solicitation of consents made
hereby, and, if given or made, any such information or representation should not
be relied upon as having been authorized by the Company or any other person. The
delivery of this Consent Statement shall not, under any circumstances, create
any implication that there has been no change in the information set forth
herein or in the affairs of the Company since the date of this Consent
Statement.
Available Information
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports,
iii
<PAGE>
proxy statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and may be available at the
following Regional Offices of the Commission: Midwest Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Northeast Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048. copies of such materials can be obtained at prescribed
rates from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a site on the World Wide Web portion of the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION ................................................................................. i
Available Information......................................................................... iii
SUMMARY............................................................................................ 1
RISK FACTORS....................................................................................... 12
Risk of Converting to an Infinite-Life REIT................................................... 12
Risks of Listing Shares on a National Securities Exchange..................................... 12
Issuance of Additional Shares................................................................. 12
Immediate Sales May Adversely Affect the Market Value of the Shares........................... 13
Yield Assessment Risk......................................................................... 13
Interest Rate Fluctuations Will Affect Value of Mortgage Assets, Net Income
and Common Stock.............................................................................. 13
Ownership of Non-Investment Grade Mortgage Assets Subject to Increased Risk of Loss........... 15
Risk of Loss on Mortgage Loans................................................................ 16
Reverse Repurchase Agreements................................................................. 17
Debt Increases Exposure to Loss............................................................... 17
Hedging Transactions Can Limit Gains and Increase Exposure to Losses.......................... 18
Dependence on Available Investments; Competition.............................................. 19
A Majority in Interest Will Bind All Shareholders............................................. 19
No Dissenters' Rights......................................................................... 19
CONFLICTS OF INTEREST.............................................................................. 20
DESCRIPTION OF THE NEW BUSINESS PLAN AND THE PROPOSALS............................................. 20
Introduction ................................................................................. 20
General Overview of the New Business Plan..................................................... 23
Proposal 1: Listing the Shares for Trading on the American Stock Exchange.................... 24
Proposal 2: Clarifying Certain Ambiguities Regarding the Board of Trustee's Authority
to Issue Additional Securities................................................... 25
Proposal 3: Borrowing........................................................................ 26
Proposal 4: Reinvestment of Repayments and Disposition Proceeds.............................. 28
Proposal 5: Converting From a Finite-Life REIT to an Infinite-Life REIT. .................... 29
Proposal 6: Changes to the Company's Investment Policy....................................... 29
Proposal 7: Additional Conforming Changes to the Declaration of Trust........................ 39
Proposal 8: Adoption of an Incentive Share Option Plan....................................... 40
Actions to Be Taken Upon Approval of the Proposals Which Do Not Require
Shareholder Consent.............................................................. 41
COMPARISON OF PROVISIONS OF DECLARATION OF TRUST BEING AMENDED
PURSUANT TO THE PROPOSALS.......................................................................... 47
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
CONDITIONS TO IMPLEMENTING
THE NEW BUSINESS PLAN.............................................................................. 53
COMPARISON OF BENEFITS AND DETRIMENTS OF
ALTERNATIVES TO THE PROPOSALS...................................................................... 53
FINANCIAL INFORMATION.............................................................................. 61
FEDERAL INCOME TAX CONSEQUENCES.................................................................... 61
CONSENT SOLICITATION PROCEDURES.................................................................... 63
EXPENSE OF SOLICITATION AND PROPOSALS.............................................................. 64
INCORPORATION BY REFERENCE......................................................................... 65
ADDITIONAL MATTERS................................................................................. 66
</TABLE>
vi
<PAGE>
ANNEXES
ANNEX A - GLOSSARY
ANNEX B - FINANCIAL INFORMATION
ANNEX C-1- SUMMARY OF AMENDMENTS
ANNEX C-2- SECOND AMENDED AND RESTATED DECLARATION OF TRUST
ANNEX D - INCENTIVE SHARE OPTION PLAN
vii
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Consent Statement constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. When used in this Consent Statement, the words
"estimate," "project," "anticipate," "expect," "intend," "believe," and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance and achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among other things, the following
factors, as well as those factors discussed elsewhere in the Company's filings
with the Commission: the successful implementation of the expanded investment
policy, changes in the real estate market, prevailing interest rates and general
economic conditions, the level of competition confronting the Company and other
factors referred to in this Consent Statement including, without limitation,
under the heading "RISK FACTORS."
viii
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Consent Statement and the annexes hereto. This summary is qualified in its
entirety by reference to the more detailed information and financial statements
contained or incorporated by reference in this Consent Statement. Shareholders
are urged to read this Consent Statement and the annexes hereto in their
entirety. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Glossary attached hereto as Annex A.
BACKGROUND; THE PROPOSALS
Background
American Mortgage Investors Trust (the "Company"), a Massachusetts
business trust, was formed on June 11, 1991. The Company has elected to be
treated as a real estate investment trust (a "REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"). As of March 31, 1998, 3,839,245 Shares of
beneficial interest ("Shares") (including 48,309 Shares held by the Advisor)
were issued and outstanding, and the Company holds mortgage investments totaling
$58,205,439 which were invested pursuant to the Company's current investment
policy. The Shares are not currently listed for trading on any national
securities exchange.
The Company was originally formed to issue Shares to be held by
investors until the Company's assets were liquidated. Under the Company's
current investment policy, the Company is not permitted to raise additional
equity, incur debt, reinvest repayment and disposition proceeds or acquire
additional assets. As originally structured, the Company was not expected to
fully liquidate its assets and terminate until, at the earliest, between 2004
and 2009.
The Board of Trustees believes that the Company's current structure
and investment policy have prevented it from both taking advantage of the
favorable investment opportunities that exist in the current mortgage investment
markets and from benefitting from the recent increased demand in the market for
REIT securities. The Board of Trustees has been monitoring the performance of
publicly traded infinite-life REITs that invest primarily in mortgage
investments and whose equity securities are listed on nationally recognized
securities exchanges. The Board of Trustees believes that the securities markets
have fairly valued the equity securities of such REITs and that the trading
market for such securities has been active.
The Board of Trustees has recently changed the Company's distribution
policy which had previously allowed the Company to sell a portion of its assets
to support distributions to holders of the Company's Shares ("Shareholders").
The Company's new distribution policy will phase out such sales and as a result,
the Board of Trustees believes that the Company's future distributions to
Shareholders will decrease significantly. The Board of Trustees believes that if
the Company's structure and investment policy are changed as described below,
the Company will have an opportunity to increase its earnings and, in turn,
possibly maintain and ultimately increase its distributions to Shareholders,
although there can be no assurance that such result will be achieved.
1
<PAGE>
For the reasons described above, the Board of Trustees proposes that
the Company list its Shares for trading on the American Stock Exchange so as to
provide the Company's Shareholders with additional liquidity and allow
Shareholders the opportunity to take advantage of the active trading market for
REIT securities. The Board of Trustees also proposes that the Company's
structure and investment policy be changed so that the Company is converted into
an infinite-life REIT that will have the opportunity to grow by raising
additional funds through the incurrence of debt and the issuance of additional
debt and equity securities and using such funds, along with repayments and
disposition proceeds, to make additional mortgage investments.
The Proposals
Specifically, the Board of Trustees' proposals (collectively, the
"Proposals") include:
A. Amendments: Amendments to the Company's Amended and Restated
Declaration of Trust that would:
(i) Authorize the Company's Board of Trustees to immediately list the
Company's Shares for trading on the American Stock Exchange.
(ii) Clarify an ambiguity in the Declaration of Trust so as to confirm
the Company's Board of Trustees' authority to issue various types of debt and
equity securities in addition to an unlimited amount of additional Shares which
the Board of Trustees is currently authorized to issue.
(iii) Authorize the Company's Board of Trustees to incur permanent
debt up to 50% of the Company's Total Market Value measured at the time such
debt is incurred and to incur additional debt under a working capital line of
credit, with the proceeds of such permanent and other debt being used primarily
to operate the Company as an ongoing business and to acquire additional assets.
(iv) Authorize the Company's Board of Trustees to reinvest proceeds
from repayments and dispositions of the Company's assets.
(v) Change the Company from a finite-life, closed-ended REIT to an
infinite-life REIT.
(vi) Change the Company's investment policy to allow the Company to
acquire additional insured and a limited amount of uninsured mortgage
investments, including commercial mortgage backed securities, as well as to
originate, securitize and acquire such insured and uninsured mortgage loans.
(vii) Make various conforming changes to the Declaration of Trust to
reflect the Company's new investment policy and other items discussed in the
Consent Statement.
B. Incentive Share Option Plan: Adoption of an incentive share option
plan. The Company's current Declaration of Trust allows the Company's Board of
Trustees to grant options to purchase Shares to the Advisor without the consent
of Shareholders if such options (i) are issued on the
2
<PAGE>
same terms as options sold to the general public, or (ii) do not exceed an
amount equal to 10% of the outstanding Shares on the date of grant.
C. Additional Changes Not Requiring Shareholder Consent: If the
Proposals are adopted, the Board of Trustees will (x) increase the number of
authorized Shares from 12,500,000 to 20,000,000 and issue, on an as-needed
basis, additional debt and equity securities, the proceeds of which will be used
to operate the Company as an ongoing business and to acquire additional assets,
and (y) amend the Advisory Agreement (the "Advisory Agreement") between the
Company and Related AMI Associates, Inc., the Company's advisor (the "Advisor")
to change the Advisory Agreement's fee structure to (a) eliminate acquisition
and disposition fees payable to the Advisor, (b) provide that the Company will
initially share with the Advisor origination points paid by borrowers, with the
Company thereafter receiving all origination points, and (c) modify the annual
asset management fee payable to the Advisor. The effect of these three changes
would be to, in most instances, either eliminate or reduce the fees paid to the
Advisor with respect to new asset originations and acquisitions so as to make
such fees comparable to fees paid by other publicly traded infinite-life REITs
with investment strategies similar to the Company's investment strategy. The
actions described in clauses (x) and (y) above do not require Shareholder
consent.
Upon the listing of the Company's Shares for trading on the American
Stock Exchange. The Board of Trustees intends to eliminate the Company's share
redemption plan and expects to adopt a new dividend reinvestment plan. Such
actions also do not require Shareholder consent.
REQUIRED CONSENT
Approval by the holders of a majority of the outstanding Shares
entitled to vote and a majority of the Board of Trustees, including the
independent trustees, is required before the Proposals can be effected or
implemented. The Board of Trustees has unanimously approved the Proposals. In
accordance with the Declaration of Trust, none of the Advisor, the trustees nor
their affiliates will vote their Shares with respect to the Proposals, and the
Shares held by the Advisor, the trustees and their affiliates will not be
included in determining the number of outstanding Shares entitled to consent to
the Proposals. The Board of Trustees has established _____, 1998 as the record
date for the voting of Shares. Shareholders will be entitled to grant or
withhold consent to all of the Proposals but will not be entitled to grant or
withhold consent with respect to individual Proposals. The deadline for
returning the enclosed form of consent ("Consent Form") is ____, 1998, which
date may be extended to no later than ________, 1998 by the Board of Trustees in
its discretion.
Consents are revocable by the Shareholders at any time prior to the
later of ____, 1998, or the date on which consents of Shareholders representing
a majority of the total eligible Shareholder vote become effective by delivering
written notice to the Company (c/o Related Capital Company, Attn: ______, 625
Madison Avenue, New York, New York 10022). After _________, 1998 and upon the
Company's receipt of favorable consents of a majority of the total eligible
Shareholder vote, the Proposals shall be deemed adopted.
3
<PAGE>
SIGNIFICANT ASPECTS OF THE NEW BUSINESS PLAN
General
The two primary objectives of the Board of Trustee's new business plan
are first to provide Shareholders with the potential for greater liquidity and
second to allow Shareholders the opportunity to hold an investment in a publicly
traded, infinite-life REIT that will have the opportunity to raise funds, and to
use such funds, together with repayment and disposition proceeds, to take
advantage of the favorable investment opportunities that the Board of Trustees
believes currently exist in the mortgage investment markets.
Liquidity
The Proposals offer Shareholders the opportunity for immediate
liquidity through the public trading expected to result from the listing of the
Shares on the American Stock Exchange, although there can be no assurance that a
trading market in the Shares will develop immediately, if at all. The Board of
Trustees believes that Shareholders desire more control over the timing of
liquidating their investment than they currently have. This is evidenced by the
number of Shares that Shareholders have offered to sell to the Company pursuant
to the Company's redemption plan. Currently there are 129,029 Shares offered by
Shareholders for redemption but the Company only has available proceeds to
redeem on average approximately 22,000 Shares per quarter. If the Shares are not
listed, the Shareholders will not receive a return of their capital until the
liquidation of the Company's assets, which is not expected to occur prior to, at
the earliest, between 2004 and 2009. By listing the Shares for trading on the
American Stock Exchange, Shareholders will have the opportunity to liquidate
their investment through the facilities of the American Stock Exchange and use
the proceeds thereof for investment, business or other purposes.
Although the Company could list the Shares if the Company remained a
finite-life REIT, because the securities markets have historically valued the
shares of infinite-life REITs more favorably than finite-life REITs, the Board
of Trustees believes that the Shares should be listed as shares of an
infinite-life REIT. If the Shares were so listed, the Shareholders would have
the opportunity to benefit from the market demand for REIT securities that the
Board of Trustees believes currently exists. Given the current market
environment, the Board of Trustees believes that it is now an opportune time to
list the Shares for trading on the American Stock Exchange and that it is
reasonable to expect that the Company's Shares will stabilize at a price
reflective of the Company's true value as an open-ended operating REIT. However,
the Board of Trustees anticipates that the liquidity benefit to Shareholders may
be temporarily adversely affected by a number of factors, including the
possibility that certain Shareholders needing immediate liquidity will sell
their Shares as soon as possible after the listing, putting downward pressure on
the market value of the Shares. For the near term, Shareholders may wish to
consider holding their Shares and focusing more on distributions and growth
rather than on liquidity.
4
<PAGE>
Fees to the Advisor
General
The Company's current fee structure was structured based on the
assumption that the Company (i) had a fixed amount of proceeds available for
investment, (ii) would invest such proceeds in certain mortgage investments
during its offering and acquisition stages, and (iii) would hold such
investments until the termination of the Company, which was not expected to
occur until, at the earliest, between 2004 and 2009. If the Proposals are
adopted and the new investment policy is implemented, the Advisor will be
required to take a more strategic and active approach in its management of the
Company's assets. The Advisor will be required to (a) acquire, originate and
manage an increasing number of assets, (b) determine optimal times in the market
for the disposition of the Company's assets, because assets will not, in many
instances, be held until maturity, and (c) determine when it will be appropriate
for the Company to raise additional funds and invest such funds in new assets.
The Board of Trustees believes that given the significant change in the
Company's investment policy and in the services that will be required from the
Advisor if the Proposals are approved, it is appropriate to restructure the fees
paid to the Advisor so that, with respect to new asset originations and
acquisitions, such fees are similar to the fees paid by other publicly traded,
infinite-life REITs that follow investment strategies similar to the proposed
investment strategy.
If the Proposals are adopted, certain fees that are currently payable
to the Advisor, such as acquisition and disposition fees, will be eliminated,
and the fee structure will also be changed so that the Company will initially
share with the Advisor all origination points paid by borrowers, with the
Company thereafter receiving all such origination points.
Payment of Fees if Proposals Are Not Approved
The Advisor has voluntarily agreed to defer the payment of fees and
other payables, totaling $1,323,584 at March 31, 1998, which are due to the
Advisor. If the Proposals are adopted, such amounts will become subordinated to
a minimum quarterly distribution to Shareholders ($.36 per Share, which is equal
to the current quarterly per Share distribution). If the Proposals are not
adopted, the Advisor intends to ask the Company to pay all such accrued and
unpaid fees and other payables.
Investment Policy
General
The Board of Trustees proposes that the Company be allowed to raise
additional funds through leveraging its portfolio of assets and issuing
additional debt and equity securities, as needed, and to use such funds,
together with repayment and disposition proceeds, to acquire additional mortgage
investments pursuant to the Company's new investment policy.
Expansion of Investment Categories
The Company's new investment policy will provide that the Company
(either directly or through one or more subsidiaries) (i) will originate,
securitize and acquire government insured mortgage loans and will acquire other
investments of the type already authorized by the Company's
5
<PAGE>
current investment policy (such as REMICs, CMOs and FHA, GNMA and FHLMC
Pass-Through Certificates), which investments, will comprise approximately 40%
of the Company's new investments, and (ii) will acquire certain additional
mortgage investments which the Company was not permitted to acquire under its
current investment policy, which include commercial mortgage backed securities
and mortgage derivatives, and will originate, securitize and acquire uninsured
mortgage loans, which investments will comprise no greater than 60% of the
Company's new investments. Mortgage loans that are originated with the intent of
later securitizing such loans will be accumulated without limit and will be
categorized under either clause (i) or (ii), as appropriate, when securitized.
The Company intends to focus its new investment activities primarily
on the purchase and origination of insured and uninsured multifamily, commercial
and residential term loans ("Mortgage Loans") and interests in multifamily and
commercial mortgage-backed securities ("CMBS"), with an emphasis primarily on
multifamily Mortgage Loans and CMBS. The Company may hold its Mortgage Loans or
utilize them as collateral to create its own CMBS.
The Company intends to focus a significant amount of its origination
and acquisition activity on Mortgage Loans secured by multifamily housing using
Federal Low Income Housing Tax Credits, pursuant to section 42 of the Code (the
"Section 42 Tax Credits"). The Advisor estimates that as much as 50% of all new
multifamily housing being developed in the United States utilizes the assistance
of Section 42 Tax Credits. In addition, the Advisor believes that rents for such
properties are generally 15% to 20% lower than the rents for competing
properties and that, due to the financial characteristics of many of the owners
of such properties and the negative tax consequences they suffer in the event
such properties default on their mortgage payments, mortgages secured by such
properties have a lower risk profile, especially during the first 12 years of
operations, than do market rate multifamily housing with similar levels of debt.
The Board of Trustees expects that a majority of the Mortgage Loans originated
by the Company will be secured by such properties and that the Company may,
either directly or through a qualified REIT subsidiary or a taxable subsidiary,
securitize such loans and retain subordinated interests in those
securitizations.
The Company will focus on the acquisition of subordinated interests
("Subordinated Interests") in CMBS because such Subordinated Interests offer the
potential of higher yields than relatively more senior classes of CMBS, but
carry greater credit and prepayment risk. The Advisor believes that a prudently
managed portfolio of Subordinated Interests in CMBS can produce attractive
returns in a variety of interest rate environments, but no assurance can be
given that such returns will be achieved.
The Company will take an opportunistic approach to its investments
and, accordingly, the Company may invest in assets other than insured and
uninsured Mortgage Loans and Subordinated Interests in CMBS. The Company may
invest in or provide loans used to finance construction ("Construction Loans"),
loans secured by real property and used as temporary financing ("Bridge Loans")
and loans secured by junior liens on real property ("Mezzanine Loans"). The
Company may also invest, for hedging and other purposes, in derivative mortgage
securities ("Mortgage Derivatives") such as interest only ("IO") strips,
principal only ("PO") strips, and other securities with significant exposure to
changes in mortgage prepayment rates.
6
<PAGE>
The Company also expects that a significant portion of its portfolio
will consist of investments authorized under its current investment policy such
as REMICs, CMOs, and GNMA, FHA and FHLMC Pass-Through Certificates; such
instruments together with mortgages authorized under the Company's current
investment policy are referred to as "Authorized Mortgage Investments."
Uninsured Mortgage Loans, Construction Loans, Bridge Loans, Mezzanine Loans,
Mortgage Derivatives and Subordinated Interests in CMBS, are collectively
referred to as "Proposed Mortgage Investments." Authorized Mortgage Investments
together with Proposed Mortgage Investments are collectively referred to as
"Mortgage Investments."
In general, with respect to any Construction Loans which the Company
acquires or originates, it will require that borrowers who apply for such loans
provide the Company with a letter of credit from a financial institution rated
at least A- by Standard & Poors (or an equivalent rating from another nationally
recognized rating agency) which letter of credit will secure construction
completion in an amount equal to 100% of the loan proceeds advanced by the
Company. The letters of credit will allow the Company to draw against them in
the event that the borrower has not completed construction by an agreed upon
completion date. Therefore, the Company will generally not take completion risk
associated with its Construction Loans.
Borrowing
The Company will finance the acquisition of its assets by issuing debt
and equity securities and by incurring both working capital and permanent debt.
The Company may incur Permanent Debt (as defined below) in an amount up to 50%
of the Company's Total Market Value measured at the time such debt is incurred
(the "Permanent Debt Limitation"). The Company may also incur debt under one or
more Working Capital Lines (as defined below) provided that such debt together
with the Permanent Debt does not exceed 100% of the Company's Total Market Value
measured at the time such debt is incurred (the "Debt Limitation").
The Board of Trustees anticipates that the Company will establish a
working capital line of credit or similar short term borrowing facility (a
"Working Capital Line") that will have terms of between 3 and 5 years. The Board
also anticipates that borrowings under the Working Capital Line(s) will be used
primarily to acquire or originate Mortgage Investments, a significant portion of
which will be Mortgage Loans which the Company or a subsidiary of the Company
will securitize. Proceeds from the Company's Permanent Debt will be used
primarily to acquire and originate Mortgage Investments, a significant portion
of which will be held as long term investments. However, the Company may, in the
near term, use a portion of the proceeds from borrowings under the Working
Capital Line(s) and Permanent Debt to support distributions to Shareholders and
to pay Advisor fees and operating expenses of the Company until the Company's
Mortgage Investments generate sufficient income to support Shareholder
distributions. The Company expects that it will employ leverage consistent with
the type of assets acquired and the desired level of risk in various investment
environments subject to the Debt Limitation. If the Company leverages its assets
up to the Permanent Debt Limitation, the Company's Permanent Debt-to-equity
ratio will be 1:1, which is significantly lower than the permanent
debt-to-equity ratios of other publicly traded REITs which are often in excess
of 3:1. The Company will incur permanent debt primarily with reverse repurchase
agreements, secured and unsecured loans, and the issuance of commercial paper
(collectively, the "Permanent Debt").
7
<PAGE>
Role of Advisor
The Advisor is an affiliate of Related Capital Company (Related
Capital Company and its affiliates referred to in this Consent Statement as
"Related"). Related is the third largest owner of multifamily housing in the
United States, according to a 1998 survey conducted by the National Multihousing
Council. Related is an organization with more than 750 employees and more than
800 properties located in 44 states. For over 25 years, Related has provided
debt and equity financing to multifamily real estate properties valued at over
$8 billion. The Advisor will use the management skills, relationships and
resources of Related in implementing the Company's new investment strategy.
The Advisor will select for investment those Mortgage Investments that
it believes are likely to generate the highest returns on capital invested,
after considering the amount and nature of anticipated cash flows from the
assets, the credit risk of the borrower, the Company's ability to pledge the
asset to secure collateralized borrowings, the capital requirements resulting
from the purchase and financing of the asset, the potential for appreciation and
the cost of financing, hedging and managing the asset. Prior to acquisition,
potential returns on capital employed will be assessed over the expected life of
the asset and in a variety of interest rate, yield spread, financing cost,
credit loss and prepayment scenarios. In managing the Company's portfolio, the
Advisor will continue the use of stringent credit standards and credit
monitoring procedures developed by Related and will also consider balance sheet
management and risk diversification issues. The Company will employ proprietary
risk management tools developed by Related to continually monitor the risks of
its assets and liabilities. Pursuant to such investment guidelines, the
Company's investments will be made based on the Advisor's assessment of
prevailing market conditions and the relative risks and returns available at the
time.
The Advisor will manage the credit risk associated with the Company's
investment portfolio by regularly monitoring the individual credit exposure
associated with each asset in its investment portfolio, diversifying its
portfolio of non-investment grade investments and maintaining a portion of its
assets in high quality investments. The Company may implement various hedging
strategies, primarily to protect itself from the effects of interest rate
fluctuations on its variable rate liabilities. However, hedging transactions may
be limited by the REIT provisions of the Code and the transaction costs
associated with entering into such hedging transactions.
INDUSTRY TRENDS
The Board of Trustees believes that fundamental changes are occurring
in the U.S. mortgage market, resulting in the shift of investment capital and
mortgage assets out of traditional lending and savings institutions and into the
development and growth of new forms of mortgage banking and mortgage investment
firms, including those that qualify as REITs under the Code. The Board of
Trustees believes that traditional mortgage investment companies, such as banks,
thrifts and insurance companies, provide less attractive investment structures
for investing in mortgage assets because of the costs associated with
regulation, infrastructure, and corporate level taxation. Additionally, with the
development of highly competitive national mortgage markets (which the Board of
Trustees believes is partly due to the expansion of government sponsored
enterprises such as GNMA, FNMA and FHLMC), local and regional mortgage
originators have lost market share to more efficient mortgage originators who
compete nationally. The growth of the secondary mortgage market,
8
<PAGE>
including new securitization techniques, has also resulted in financing
structures that can be utilized efficiently to fund leveraged mortgage
portfolios and better manage interest rate risk.
As a REIT, the Company can generally pass through earnings to
Shareholders without incurring an entity-level federal income tax, thereby
allowing the Company to pay higher dividends than institutions with similar
investments that are subject to federal income tax on their earnings. In
addition, recent changes to federal tax laws provide REITs with greater
flexibility to manage and hedge their floating rate liabilities. See "FEDERAL
INCOME TAX CONSEQUENCES - Taxation of the Company."
According to the Mortgage Market Statistical Annual for 1997, the U.S.
residential and commercial mortgage markets have experienced considerable growth
over the past 15 years, with total U.S. residential mortgage debt outstanding
growing from approximately $142 billion (multi-family) in 1980 to approximately
$312.6 billion (multi-family) in 1997. Federal Reserve figures estimate the
market for commercial and multifamily debt at $1.1 trillion, only 15% of which
has been pooled and issued in the form of mortgage backed securities. Currently,
$19.6 billion in CMBS has been issued in 1998, compared with $6.5 billion at
this time a year ago and $44 billion in total for last year. According to
Barron's, some forecasts call for $60 billion in new CMBS to be issued for the
full year of 1998. Barron's reports that REITs hold a small fraction of this
market; existing commercial mortgage REITs together have a combined market
capitalization of less than $5 billion.
SUMMARY RISK FACTORS
Shareholders should carefully consider the matters disclosed under
"RISK FACTORS" before deciding whether or not to approve the Proposals. The
following is a summary of the potential material risks and adverse consequences
to the Shareholders if the Board of Trustees new business plan is implemented
upon the Shareholder's adoption of the Proposals.
[bullet] Operation of the Company as an infinite-life REIT involves changing
the Shareholders' investment from an interest in a specified,
unleveraged pool of assets to an investment in an ongoing company that
is permitted to employ a specified amount of leverage and to invest in
a very broad variety of mortgage assets.
[bullet] Operation of the Company as an infinite-life REIT and listing of the
Shares for trading on the American Stock Exchange will subject the
Shareholders to the risks of fluctuations in the stock market.
[bullet] There is a risk that the Shares will trade at prices below the per
Share value of the Company's underlying assets.
[bullet] Shareholders will be subject to significant potential dilution from
future equity offerings, including offerings of preferred shares,
which may have an adverse effect on the market price of the Shares.
[bullet] The Advisor will generally receive a lower rate of annual fees;
however, the fees will be payable over a longer period of time than it
would have received if the REIT was not converted into an
infinite-life REIT. In addition, although all acquisition and
disposition fees will be eliminated, the annual asset management fee
the Advisor may receive under the new fee structure may be greater
than the annual fees the Advisor is currently receiving. If the
Advisory Agreement is renewed annually, the aggregate amount of fees
paid to the Advisor and its affiliates can be expected to
9
<PAGE>
exceed the aggregate amount of fees the Advisor and its affiliates
would have been entitled to receive had the Company terminated when
originally contemplated.
[bullet] The success of the Company's new business plan will depend upon the
availability of, and the Advisor's ability to, identify, complete and
realize investment opportunities. The Company will be competing for
investments with competitors that are larger and more established than
the Company.
[bullet] The Company, which currently has no debt, intends to incur debt, which
will subject the Company to interest rate risks and other risks
associated with debt.
[bullet] The Company intends to invest up to 60% of its new capital in assets
that are potentially riskier than the Authorized Mortgage Investments.
[bullet] The Company intends to invest a significant amount in Subordinated
Interests in CMBS, which are subject to greater risk of credit loss of
principal and non-payment of interest than investments in senior
investment grade securities.
[bullet] No specific assets have been identified for purchase by the Company in
connection with its new investment policy. Shareholders will not have
the opportunity to evaluate the manner in which such investments are
made or the economic merits of particular assets to be acquired. The
Advisor will exercise significant discretion in selecting new Mortgage
Investments.
[bullet] The yield on investments in Mortgage Loans and CMBS, particularly
Mortgage Derivatives such as IOs and POs, and thus the value of the
Company's Shares, will be sensitive to changes in prevailing interest
rates and changes in prepayment rates, which may result in a mismatch
between the Company's borrowing rates and asset yields and
consequently reduce or eliminate income derived from the Company's
investments.
[bullet] Delinquency and loss ratios on the Company's Mortgage Loans will be
affected by the performance of third-party servicers and special
servicers;
[bullet] If the Proposals are approved by the holders of a majority of the
Shares, all Shareholders will be bound by the decision of such
holders.
[bullet] Shareholders will have no appraisal, dissenters' or similar rights in
connection with the Proposals.
CONFLICTS OF INTEREST
Neither the Advisor nor any of its affiliates will receive direct
compensation in connection with the adoption of the Proposals.
However, if the Proposals are adopted, the Board of Trustees will
restructure the fees paid to the Advisor so that, with respect to new
originations and acquisitions, such fees are similar to the fees paid by other
infinite-life REITs with similar investment policies. The result of such
proposed restructuring is that the Advisor will receive a lower rate of annual
fees. However, the Advisor will receive fees over a longer period of time than
it would have if the REIT was not converted into an infinite-life REIT, and
although all acquisition and disposition fees will be eliminated, the annual
asset management fee the Advisor may receive under the new fee structure may be
greater than the annual fees the Advisor is currently receiving because such
fees may be based on a larger portfolio of assets. See "DESCRIPTION OF THE NEW
BUSINESS PLAN AND THE PROPOSALS" for an analysis of the Advisor's compensation
prior to, and after, adoption of the Proposals.
10
<PAGE>
The Company does not expect that the approval and implementation of
the Proposals and the Company's new business plan will have any specific Federal
income tax consequences to the Company's Shareholders. If the Proposals and the
Company's new business plan are implemented, the Company will continue to be
structured so as to preserve the Company's qualification as a REIT under Federal
income tax law. See "FEDERAL INCOME TAX CONSEQUENCES" for a discussion of the
tax consequences related to the adoption of the Proposals and implementation of
the new business plan.
TRANSACTION EXPENSES
If the Proposals are approved, the Transaction Expenses will be paid
by the Company. If the Proposals are not approved, Related will bear the
Transaction Expenses. The Company intends to borrow the funds necessary to pay
the Transaction Expenses.
11
<PAGE>
RISK FACTORS
While the Board of Trustees recommends approval of the Proposals, the
Company's Shareholders should carefully consider the following factors in
determining whether to approve the Proposals.
Set forth below are the risks associated with the Proposals and new
risks associated with the Company's plan to grow and expand its existing
portfolio through (i) the use of leverage and (ii) the acquisition of new
Authorized Mortgage Investments and Proposed Mortgage Investments that may
differ from the Mortgage Investments that are included in the existing
portfolio. This section does not review risks that exist only with respect to
the existing portfolio or the aspects of the Company's operations which are not
being raised as part of the Proposals.
Risk of Converting to an Infinite-Life REIT. If the Proposals are
adopted, rather than being a finite-life REIT that originates, acquires, holds
and sells mortgage investments and then dissolves within a specified period of
time, the Company may reinvest the proceeds of repayments and sales of Mortgage
Investments. The Company will be required to operate as a going concern rather
than as a static pool of assets. There is risk that the Company will not invest
the repayments and sales proceeds (along with any funds from capital raising and
leveraging activities) effectively and establish and maintain itself as a going
concern.
Risks of Listing Shares on a National Securities Exchange. If the
Shares are listed on the American Stock Exchange or another nationally
recognized securities exchange, the Shareholders will bear market risk arising
from fluctuations of stock prices of public companies generally. There is also
risk that the Company's Shares will trade at prices below the net per Share
value of the Company's underlying Mortgage Investments. In addition, if the
Shares are listed on the American Stock Exchange, there can be no assurance that
an active trading market will develop on such exchange. In the event that a
public market for the Shares exists, it is likely that the market price of the
Shares will be strongly influenced by any variation between the gross yield on
the Company's assets (net of credit losses) and prevailing market interest
rates, with any narrowing of the spread between yield and cost adversely
affecting the price of the Shares. In addition, since any positive spread
between the yield on its assets and the cost of its borrowings will not
necessarily be larger in high interest rate environments than in low interest
rate environments, the net income of the Company and, therefore, the dividend
yield on its Shares may be less attractive compared with alternative
investments, which could negatively affect the price of the Shares.
Issuance of Additional Shares. The issuance of additional Shares will
reduce the ownership percentage of existing Shareholders. The Company expects
that it may in the future increase its capital resources by making additional
offerings of equity and debt securities, including classes of preferred stock,
Shares, commercial paper, medium-term notes, CMOs and senior or subordinated
notes. All debt securities and other borrowings, as well as all classes of
preferred stock, will be senior to the Shares in a liquidation of the Company.
The effect of additional equity offerings may be the dilution of the equity of
Shareholders of the Company or the reduction of the price of Shares, or both.
The Company is unable to estimate the amount, timing or nature of additional
offerings as they will depend upon market conditions and other factors.
12
<PAGE>
Immediate Sales May Adversely Affect the Market Value of the Shares.
The liquidity benefit to Shareholders of listing the Shares for trading on the
American Stock Exchange may be temporarily adversely affected by a number of
factors, including the possibility that certain Shareholders needing immediate
liquidity will sell their Shares as soon as possible after listing, putting
downward pressure on the market value of the Shares. For the near term,
Shareholders may wish to consider holding their Shares and focusing more on
distributors and growth rather than on liquidity.
Yield Assessment Risk. Before making any investment, the Company will
consider the expected yield of the investment and the factors that may influence
the yield actually obtained on such investment. These considerations will affect
the Company's decision whether to purchase such an investment and the price
offered for such an investment. Despite the Advisor's experience in evaluating
potential investments, no assurances can be given that the Advisor or the
Company can make an accurate assessment of the yield to be produced by an
investment. Many factors beyond the control of the Company and the Advisor are
likely to influence the yield on the Company's Mortgage Investments, including,
but not limited to, competitive conditions in the local real estate market,
local and general economic conditions and the quality of management of the
underlying property.
Interest Rate Fluctuations Will Affect Value of Mortgage Assets, Net
Income and Common Stock.
General. Interest rates are highly sensitive to many factors,
including governmental monetary and tax policies, domestic and international
economic and political considerations and other factors beyond the control of
the Company. Interest rate fluctuations can adversely affect the income and
value of the Company's Shares in many ways and present a variety of risks,
including the risk of a mismatch between asset yields and borrowing rates,
variances in the yield curve and changing prepayment rates.
Interest Rate Mismatch Could Occur Between Asset Yields and Borrowing
Rates Resulting in Decreased Yield. The Company's operating results will depend
in large part on differences between the income from its assets (net of credit
losses) and its borrowing costs. The Company intends to fund a significant
portion of its assets with borrowings which have interest rates that reset
relatively rapidly, such as monthly or quarterly. The Company anticipates that,
in most cases, the income from its assets will respond more slowly to interest
rate fluctuations than the cost of its borrowings, creating a potential mismatch
between asset yields and borrowing rates. Consequently, changes in interest
rates, particularly short-term interest rates, may significantly influence the
Company's net income. Increases in these rates will tend to decrease the
Company's net income and market value of the Company's net assets. Interest rate
fluctuations that result in the Company's interest expense exceeding interest
income would result in the Company incurring operating losses.
Inverted Yield Curve Adversely Affects Income. The relationship
between short-term and long-term interest rates is often referred to as the
"yield curve". Ordinarily, short-term interest rates are lower than long-term
interest rates. If short-term interest rates rise disproportionately relative to
long-term interest rates (a flattening of the yield curve), the borrowing costs
of the Company may increase more rapidly than the interest income earned on its
assets. Because the Company's borrowings may bear interest at short-term rates
and its assets will primarily bear interest at medium-term to long-term rates, a
flattening of the yield curve will tend to decrease the Company's net income
13
<PAGE>
and market value of its net assets. Additionally, to the extent cash flows from
long-term assets that return scheduled and unscheduled principal are reinvested,
the spread between the yields of the new assets and available borrowing rates
may decline and also may tend to decrease the net income and market value of the
Company's net assets. It is also possible that short-term interest rates may
adjust relative to long-term interest rates such that the level of short-term
rates exceeds the level of long-term rates (a yield curve inversion). In this
case, borrowing costs may exceed the interest income and operating losses could
be incurred.
Prepayment Rates Can Increase, Thus Adversely Affecting Yields. The
value of the Company's assets may be affected substantially by prepayment rates
on Mortgage Investments. Prepayment rates on Mortgage Investments are influenced
by changes in current interest rates and a variety of economic, geographic and
other factors beyond the control of the Company, and consequently, such
prepayment rates cannot be predicted with certainty. To the extent the Company
originates Mortgage Loans, the Company expects that such Mortgage Loans will
have a measure of protection from prepayment in the form of prepayment lock-out
periods or prepayment penalties. However, such protection may not be available
with respect to Mortgage Investments which the Company acquires, but does not
originate. In periods of declining mortgage interest rates, prepayments on
Mortgage Investments generally increase. If general interest rates decline as
well, the proceeds of such prepayments received during such periods are likely
to be reinvested by the Company in assets yielding less than the yields on the
Mortgage Investments that were prepaid. In addition, the market value of
Mortgage Investments may, because of the risk of prepayment, benefit less from
declining interest rates than from other fixed-income securities. Conversely, in
periods of rising interest rates, prepayments on Mortgage Investments generally
decrease, in which case the Company would not have the prepayment proceeds
available to invest in assets with higher yields. Under certain interest rate
and prepayment scenarios the Company may fail to recoup fully its cost of
acquisition of certain investments.
The Company may acquire IOs or retain IOs originated by the Company or
a subsidiary, which are classes of CMBS that are entitled to payments of
interest, but not to (or only to nominal) payments of principal. The yield to
maturity of IOs is very sensitive to the rate of prepayments on the underlying
Mortgage Loans. If the rate of prepayments is faster than anticipated, the yield
on IOs will be negatively affected, and, in extreme cases, the IO investment
could become worthless. Some IOs bear interest at a floating rate that varies
inversely with (and often at a multiple of) changes in a specified interest rate
index ("Inverse IOs"). Therefore, the yield to maturity of an Inverse IO is
extremely sensitive to changes in the related index. The Company also expects to
invest in subordinated IOs ("Sub IOs"). Interest amounts otherwise allocable to
Sub IOs generally are used to make payments on more senior classes or to fund a
reserve account for the protection of senior classes until overcollateralization
occurs or the balance in the reserve account reaches a specified level. The
yield to maturity of Sub IOs is very sensitive not only to default losses but
also to the rate and timing of prepayment on the underlying loans. Under certain
interest rate and prepayment scenarios, the Company may fail to recoup fully the
cost of acquiring IOs, Inverse IOs and Sub IOs.
The Company also may acquire POs or retain POs originated by the
Company or a subsidiary, which are classes of CMBS that are entitled to payments
of principal, but not to payments of interest. The yield to maturity of POs and
on classes of CMBS, that are purchased at a discount to their principal balance
is very sensitive to changes in the weighted average life of such securities,
14
<PAGE>
which in turn is dictated by the rate of prepayments on the underlying Mortgage
Collateral, as hereinafter defined. In periods of declining interest rates,
rates of prepayment on Mortgage Loans generally increase, and if the rate of
prepayments is faster than anticipated, the yield on POs and securities
purchased at a discount will be positively affected. Conversely, the yield on
POs and securities purchased at a discount will be affected adversely by slower
than anticipated prepayment rates, which generally are associated with a rising
interest rate environment.
Ownership of Non-Investment Grade Mortgage Assets Subject to Increased
Risk of Loss.
General. The Company intends to acquire a significant amount of
non-investment grade mortgage assets, including unrated "first loss" credit
support Subordinated Interests in CMBS. A first loss security is the most
subordinate class in a structure and accordingly is the first to bear the loss
upon a default on restructuring or liquidation of the underlying collateral and
the last to receive payment of interest and principal. Such classes are subject
to special risks, including a substantially greater risk of loss of principal
and non-payment of interest than more senior, rated classes. The market values
of Subordinated Interests tend to be more sensitive to changes in economic
conditions than more senior, rated classes. As a result of these and other
factors, Subordinated Interests generally are not actively traded and may not
provide holders thereof with liquidity of investment.
The yield to maturity on Subordinated Interests of the type the
Company intends to acquire and originate will be extremely sensitive to the
default and loss experience of the underlying Mortgage Loans and the timing of
any such defaults or losses. Because these types of Subordinated Interests
generally have no credit support, to the extent there are realized losses on the
Mortgage Loans, the Company may not recover the full amount or, in extreme
cases, any of its initial investment in such Subordinated Interests.
When the Company acquires a Subordinated Interest in CMBS or retains a
Subordinated Interest in CMBS originated by the Company or a subsidiary, it
typically will be unable to obtain the right to service the underlying
performing Mortgage Loans (the "Mortgage Collateral"). To minimize its losses,
the Company will seek to obtain the rights to service the underlying Mortgage
Collateral in the event of a default (the servicing of defaulted Mortgage Loans
is referred to as "Special Servicing"), although in many cases it will not be
able to obtain Special Servicing rights on acceptable terms. If the Company does
acquire Special Servicing rights, then it will contract with Related Mortgage
Company ("RMC"), an affiliate of the Advisor, to perform the Special Servicing
functions, and thus the performance of the Company's investments will depend in
part on the services performed by RMC. If RMC is engaged by the Company to
perform Special Servicing, then the Advisor will endeavor to ensure that the
contract provides a market price, and evidence of the Advisor's analysis in this
regard will be provided to the Board of Trustees at the next quarterly Board
meeting. To the extent the Company does not obtain Special Servicing rights with
respect to the Mortgage Collateral underlying its CMBS, the servicer of the
Mortgage Collateral generally would be responsible to holders of the senior
classes of CMBS, whose interests may not be the same as those of the holders of
the subordinated classes. Accordingly, the Mortgage Collateral may not be
serviced in a manner that is most advantageous to the Company as the holder of a
subordinated class.
15
<PAGE>
Risk of Loss on Mortgage Loans.
General. The Company intends to acquire, accumulate and securitize
Mortgage Loans as part of its investment strategy. While holding Mortgage Loans,
the Company will be subject to risks of borrower defaults, bankruptcies, fraud
and losses and special hazard losses that are not covered by standard hazard
insurance. Also, the costs of financing and hedging the Mortgage Loans could
exceed the interest income on the Mortgage Loans. In the event of any default
under Mortgage Loans held by the Company, the Company will bear the risk of loss
of principal to the extent of any deficiency between the value of the Mortgage
Collateral and the principal amount of the Mortgage Loan. It may not be possible
or economical for the Company to securitize all of the Mortgage Loans that it
acquires, in which case the Company will continue to hold the Mortgage Loans and
bear the risks of borrower defaults, bankruptcies, fraud losses and special
hazard losses. Furthermore, the Company would expect to retain a Subordinated
Interest in securitizations of such Mortgage Loans, in which case it would
retain substantially all of these risks in a more concentrated form up to the
amount of its Subordinated Interest.
Multifamily and Commercial Loans Involve a Greater Risk of Loss than
Single Family Loans. Multifamily and commercial real estate lending is
considered to involve a higher degree of risk than single family residential
lending because of a variety of factors, including generally larger loan
balances, dependency for repayment on successful operation of the mortgaged
property and tenant businesses operating therein, and loan terms that include
amortization schedules longer than the stated maturity which provide for balloon
payments at stated maturity rather than periodic principal payments. In
addition, the value of multifamily and commercial real estate can be affected
significantly by the supply and demand in the market for that type of property.
Limited Recourse Loans May Limit the Company's Recovery to the Value
of the Mortgaged Property. The Company anticipates that a substantial portion of
the Mortgage Loans that it will acquire or originate may contain limitations on
the mortgagee's recourse against the borrower. In other cases, the mortgagee's
recourse against the borrower may be limited by applicable provisions of the
laws of the jurisdictions in which the mortgaged properties are located or by
the mortgagee's selection of remedies and the impact of those laws on that
selection. In those cases, in the event of a borrower default, recourse may be
limited to only the specific mortgaged property and other assets, if any,
pledged to secure the relevant Mortgage Loan. As to those Mortgage Loans that
provide for recourse against the borrower and its assets generally, there can be
no assurance that such recourse will provide a recovery in respect of a
defaulted Mortgage Loan greater than the liquidation value of the mortgaged
property securing that Mortgage Loan.
Volatility of Values of Mortgaged Properties May Adversely Affect the
Company's Mortgage Loans. Commercial and multifamily property values and net
operating income derived therefrom are subject to volatility and may be affected
adversely by a number of factors, including, but not limited to, national,
regional and local economic conditions (which may be adversely affected by plant
closings, industry slowdowns and other factors); local real estate conditions
(such as an oversupply of housing, retail, industrial, office or other
commercial space); changes or continued weakness in specific industry segments;
perceptions by prospective tenants, retailers and shoppers of the safety,
convenience, services and attractiveness of the property; the willingness and
ability of the property's owner to provide capable management and adequate
maintenance; construction quality, age
16
<PAGE>
and design; demographic factors; retroactive changes to building or similar
codes; and increases in operating expenses (such as energy costs).
Construction, Bridge and Mezzanine Loans Involve Greater Risks of Loss
than Loans Secured by Income Producing Properties. The Company may acquire
Construction Loans, Bridge Loans and Mezzanine Loans. These types of Mortgage
Loans are considered to involve a higher degree of risk than long-term senior
mortgage lending secured by income-producing real property due to a variety of
factors. In the case of Construction Loans, after construction has been
completed, such loans may contain limitations on a mortgagee's recourse against
the borrower. In the case of Mezzanine Loans, the factors would include, among
other things, that a foreclosure by the holder of the senior loan could result
in a Mezzanine Loan becoming unsecured. Accordingly, the Company may not recover
some or all of its investment in such Mezzanine Loans. In addition, Construction
Loans, Bridge Loans and Mezzanine Loans may have higher loan to value ratios
than conventional Mortgage Loans because of shared appreciation provisions.
Reverse Repurchase Agreements. Reverse repurchase agreements involve
sales by the Company of portfolio assets, concurrently with an agreement by the
Company to repurchase such assets at a later date at a fixed price. During the
reverse repurchase agreement period, the Company continues to receive principal
and interest payments on such portfolio assets and also has the opportunity to
earn a return on the collateral furnished by the counterparty to secure its
obligation to redeliver the securities.
Reverse repurchase agreements involve the risk that the market value
of the securities retained by the Company may decline below the price of the
securities the Company has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or become insolvent, the Company's use of the
proceeds of the agreement may be restricted pending a determination by the other
party or its trustee or receiver whether to enforce the Company's obligation to
repurchase the securities. In order to maintain its status as a REIT, the
Company may have to limit the amount of reverse repurchase agreements it will
hold.
Debt Increases Exposure to Loss. The Company expects to employ
leverage consistent with the type of assets acquired and the desired level of
interest rate risk in various investment environments, provided, however, that
the Company's overall leverage does not exceed the Debt Limitation and the
Company's Permanent Debt does not exceed the Permanent Debt Limitation. The
Company will leverage its assets primarily with working capital lines of credit,
reverse repurchase agreements, securitizations of its Mortgage Loans and secured
and unsecured loans, including the issuance of commercial paper. The terms of
such borrowings may provide for the Company to pay a fixed or adjustable rate of
interest, and may provide for any term to maturity that the Company deems
appropriate. There can be no assurance that the Company will be able to obtain
financing at borrowing rates below the asset yields of its Mortgage Investments.
The Company will face competition for financing sources that may limit the
availability of, and adversely affect the cost of funds to, the Company.
Debt can reduce the net income available for distributions to
Shareholders. If the interest income on the assets purchased with borrowed funds
fails to cover the cost of the borrowings,
17
<PAGE>
the Company will experience net interest losses and may experience net losses
and erosion or elimination of its equity.
The ability of the Company to achieve its investment objectives
depends to a significant extent on its ability to borrow money in sufficient
amounts and on sufficiently favorable terms to earn incremental returns. The
Company may not be able to achieve the amount of debt it believes to be optimal
due to decreases in the proportion of the value of its assets that it can borrow
against, decreases in the market value of the Company's assets, increases in
interest rates, changes in the availability of financing in the market,
conditions then applicable in the lending market and other factors. This may
cause the Company to experience losses or less profits than would otherwise be
the case.
A substantial portion of the Company's borrowings are expected to be
in the form of collateralized borrowings. If the value of the assets pledged to
secure such borrowings were to decline, the Company would be required to post
additional collateral, reduce the amount borrowed or suffer forced sales of the
collateral. If sales were made at prices lower than the carrying value of the
collateral, the Company would experience additional losses. If the Company is
forced to liquidate its assets to repay borrowings, there can be no assurance
that it will be able to maintain compliance with the REIT Provisions of the Code
regarding asset and source of income requirements.
Hedging Transactions Can Limit Gains and Increase Exposure to Losses.
The Company intends to enter into hedging transactions primarily to protect
itself from the effect of interest rate fluctuations on its floating rate debt
and also to protect its portfolio of mortgage assets from interest rate and
prepayment rate fluctuations. There can be no assurance that the Company's
hedging activities will have the desired beneficial impact on the Company's
results of operations or financial condition. Moreover, no hedging activity can
completely insulate the Company from the risks associated with changes in
interest rates and prepayment rates.
Hedging involves risk and typically involves costs, including
transaction costs. Such costs increase dramatically as the period covered by the
hedging increases and during periods of rising and volatile interest rates. The
Company may increase its hedging activity and, thus, increase its hedging costs,
during such periods when interest rates are volatile or rising. The incurrence
of such costs will limit the amount of cash available for distributions to
Shareholders. The Company intends generally to hedge as much of the interest
rate risk as the Advisor determines is in the best interests of the Shareholders
of the Company given the cost of such hedging transactions.
The REIT provisions of the Code may limit the ability of the Company
to hedge its assets and related Company borrowings. Any limitation on the
Company's use of hedging techniques may result in greater interest rate risk.
Hedging instruments often are not traded on regulated exchanges,
guaranteed by an exchange or its clearing house, or regulated by any U.S. or
foreign governmental authorities. Consequently, there are no requirements with
respect to record keeping, financial responsibility or segregation of customer
funds and positions. The business failure of a counter party with which the
Company has entered into a hedging transaction will most likely result in a
default. Default by a party with which the Company had entered into a hedging
transaction may result in the loss of unrealized
18
<PAGE>
profits and force the Company to cover its resold commitments, if any, as the
then current market price. Although generally the Company will seek to reserve
for itself the right to terminate its hedging positions, it may not always be
possible to dispose of or close out a hedging position without the consent of
the counterparty, and the Company may not be able to enter into an offsetting
contract in order to cover its risk. There can be no assurance that a liquid
secondary market will exist for hedging instruments purchased or sold, and the
Company may be required to maintain a position until exercise or expiration,
which could result in losses.
Dependence on Available Investments; Competition. The results of the
Company's future operations under the new business plan will be dependent upon
the availability of, as well as the Advisor's ability to identify, complete and
realize, investment opportunities. It may take considerable time for the Company
to find and consummate appropriate investments. In general, the availability of
desirable investment opportunities and the results of the Company's operations
will be affected by the level and volatility of interest rates, by conditions in
the financial markets and general economic conditions. No assurances can be
given that the Company will be successful in finding and then acquiring
economically desirable assets or that the assets, once acquired, will maintain
their economic desirability.
The Company is engaged in a highly competitive business. The Company
will be competing for investments with many recent entrants into the business,
including numerous public and private real estate investment vehicles, including
financial institutions (such as mortgage banks, pension funds and real estate
investment trusts) and other institutional investors, as well as individuals.
Mortgages, Subordinated Interests in CMBS and other investments are often
obtained through a competitive bidding process. In addition, the Company's
competitors may seek to establish relationships with the financial institutions
and other firms from which the Company intends to purchase such assets. Many of
the Company's anticipated competitors are significantly larger than the Company,
have established operating histories and procedures, may have access to greater
capital and other resources, may have management personnel with more experience
than the officers of the Company and may have other advantages over the Company
and the Advisor in conducting certain business and providing certain services.
A Majority in Interest Will Bind All Shareholders. Under the
Declaration of Trust and the requirements of Massachusetts law, if the Proposals
are approved by the holders of a majority of Shares and a majority of the Board
of Trustees (including, a majority of the independent trustees), all
Shareholders will be bound by the decision the holders of a majority of Shares.
No Dissenters' Rights. Under the Massachusetts law, holders will have
not appraisal, dissenters' or similar rights in connection with the proposals.
CONFLICTS OF INTEREST
Neither the Advisor nor any of its affiliates will receive direct
compensation in connection with the adoption of the Proposals.
If the Proposals are adopted, the Board of Trustees expects to
restructure the fees paid to the Advisor so that, with respect to new asset
originations and acquisitions, such fees are similar to
19
<PAGE>
the fees paid by other infinite-life REITs with similar investment policies. The
result of such proposed restructuring is that (i) although the Advisor will
receive a lower rate of annual fees, such fees will be paid, over a longer
period of time and assuming a larger portfolio of assets, such fees will
aggregate substantially more than they would have been paid if the REIT was not
converted into an infinite-life REIT, and (ii) although acquisition and
disposition fee will be eliminated, the annual asset management fee the Advisor
may receive under the new fee structure may be greater than the annual fees the
Advisor is currently receiving. See "DESCRIPTION OF THE NEW BUSINESS PLAN AND
THE PROPOSALS - Actions to Be Taken Upon Approval of the Proposals Which Do Not
Require Shareholder Consent - Changes in the Advisory Agreement's Fee Structure"
for an analysis of the Advisor's compensation prior to, and after, adoption of
the Proposals.
DESCRIPTION OF THE NEW BUSINESS PLAN AND THE PROPOSALS
THE FOLLOWING DESCRIPTIONS OF THE PROPOSALS DO NOT PURPORT TO BE COMPLETE AND
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE AMENDED
AND RESTATED DECLARATION OF TRUST ATTACHED TO THIS CONSENT STATEMENT AS ANNEX C,
AND THE COMPANY'S INCENTIVE SHARE OPTION PLAN (THE "INCENTIVE SHARE OPTION
PLAN") ATTACHED TO THIS CONSENT STATEMENT AS ANNEX D. SHAREHOLDERS ARE URGED TO
READ THE ANNEXES TO THIS CONSENT STATEMENT IN THEIR ENTIRETY.
Introduction
The Company is a business trust which was formed under the laws of the
State of Massachusetts on June 11, 1991. The Company has elected to be treated
as a real estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code").
The Company commenced its initial public offering (the "Offering") for
up to 10,000,000 shares of beneficial interest, par value $.01 per share, (the
"Shares") on March 29, 1993. The Offering was terminated as of November 30,
1994. During the Offering, a total of 3,809,601 Shares were sold to the public
either through the Offering or through the Company's dividend reinvestment plan
(the "Reinvestment Plan"), representing net proceeds available for investment of
approximately $68,245,560. Since the termination of the Offering, 273,005
additional Shares have been sold pursuant to the Reinvestment Plan and 291,670
Shares have been redeemed through the Redemption Plan. To date, all of the total
net proceeds available for investment have been invested by the Company in
Authorized Mortgage Investments.
The Company's initial investment policy was to acquire Authorized
Mortgage Investments with the expectation that such Authorized Mortgage
Investments would be repaid or sold within 7 to 12 years from the date the
Company acquired or originated them, and that the proceeds of such Authorized
Mortgage Investments would be distributed to Shareholders. The Company's
original intention was that after the end of the fifth calendar year following
the date on which 95% of the net proceeds were invested in permanent Authorized
Mortgage Investments, the operations of the Company would begin to wind down as
repayments and sales of Authorized Mortgage Investments occurred and would
terminate when the proceeds of the final Authorized Mortgage Investments were
received by the Company and distributed to the Shareholders.
20
<PAGE>
The Company adopted a distribution policy pursuant to which the
Company would attempt to maintain stable quarterly distributions of
approximately $.36 per Share to Shareholders during the Company's offering and
acquisition stages. Notwithstanding the Company's general investment strategy of
holding investments long-term as described above, the Company was permitted to
dispose of Mortgage Investments with a value of up to a maximum of 3% of the
gross proceeds from the Company's Offering in connection with its distribution
policy. As of March 31, 1998, the Company has disposed of Authorized Mortgage
Investments aggregating 2.44% of its gross proceeds from the Offering, which
funds were used to support the Company's distribution policy. Upon the Company's
completion of its offering and acquisition stages in 1997, the Board of Trustees
reviewed its distribution policy and decided that beginning in the first quarter
of 1998, the Company's distribution policy would be changed to more closely
reflect the Company's collection of cash or principal and interest payments. In
order to implement the new distribution policy, the Board of Trustees decided to
phase out the Company's practice of selling Authorized Mortgage Investments
prior to maturity and using the proceeds to support the Company's distributions
to Shareholders. The Board of Trustees expects that, as a result of this change
in the Company's distribution policy, the Company's distributions to its
Shareholders will decrease significantly.
Shortly after this change in the Company's distribution policy, the
Company's Advisor and Board of Trustees began to evaluate alternative means to
maintain stable distributions to Shareholders. During the course of such
evaluation, the Advisor and the Board of Trustees determined that the interests
of the Shareholders would be best served if the Company's structure and
investment policies were changed so as to provide Shareholders with an
opportunity (i) for liquidity, (ii) to own an interest in an ongoing entity with
the ability to grow, (iii) to participate in a broader range of mortgage
investments, and (iv) to maintain and ultimately increase quarterly
distributions. In early 1998, the Company met with representatives of the
principal broker-dealers who participated in the distribution of the Shares in
the Company's initial Offering (the "Placement Agents") to advise the Placement
Agents of and to outline the Company's proposed new business plan and to seek
their suggestions. The Company's management considered the comments and
suggestions made by the Placement Agents in structuring the new business plan
reflected by the Proposals. The Placement Agents have confirmed to the Company
that they support such new business plan and will inform Shareholders who are
their respective clients of their support of the new business plan and the
Proposals. The Company may reimburse the costs incurred by the Placement Agents
in supporting the new business plan and the Proposals.
Before the Board of Trustees may implement its new business plan for
the Company, several amendments are required to be made to the Company's Amended
and Restated Declaration of Trust (the "Declaration of Trust") and the
Shareholders must approve the adoption of the Incentive Stock Option Plan. As
set forth in greater detail below, such amendments require the consent of the
Shareholders. In order for the Board of Trustees to implement its new business
plan, the Board of Trustees is soliciting the consent of the Shareholders to the
following proposals (collectively, the "Proposals"):
I. To authorize an amendment to the Declaration of Trust that would
authorize the Company's Board of Trustees to immediately list the
Company's Shares for trading on the American Stock Exchange;
21
<PAGE>
II. To authorize an amendment to the Declaration of Trust that would
clarify an ambiguity in the Declaration of Trust so as to confirm the
Board of Trustees' authority to issue various types of debt and equity
securities in addition to an unlimited amount of additional Shares
which the Board of Trustees is currently authorized to issue;
III. To authorize an amendment to the Declaration of Trust that would
authorize the Board of Trustees to incur permanent debt up to 50% of
the Company's Total Market Value measured at the time such debt is
incurred, and to incur additional debt under Working Capital Line(s);
IV. To authorize an amendment to the Declaration of Trust that would
authorize the Company's Board of Trustees to reinvest proceeds from
repayments and dispositions of the Company's assets;
V. To authorize an amendment to the Declaration of Trust that would
change the Company from a finite-life, closed-ended REIT to an
open-ended infinite-life REIT;
VI. To authorize an amendment to the Declaration of Trust that would
change the Company's investment policy to allow the Company (i) to
originate and securitize and acquire government insured Mortgage Loans
and to acquire other investments of the type already authorized by the
Company's current investment strategy (such as REMICs, CMOs and FHA,
GNMA, FNMA and FHLML Pass-Through Certificates), which investments,
will comprise approximately 40% of the Company's new investments, and
(ii) to acquire and originate certain additional Mortgage Investments
which the Company was not permitted to acquire or originate under its
current investment strategy, which include CMBS and Mortgage
Derivatives and to originate, securitize and acquire uninsured
Mortgage Loans, which investments will comprise approximately 60% of
the Company's new investments. Mortgage Loans that are originated with
the intent of later securitizing such loans can be accumulated without
limit and will be categorized under either clause (i) or (ii), as
appropriate, when securitized;
VII. To authorize various conforming amendments to the Declaration of Trust
to reflect the Company's new investment policy and other items
discussed in this Consent Statement; and
VIII. To adopt the Incentive Share Option Plan.
If the Proposals are adopted, the Company will (i) increase the number
of authorized Shares from 12,500,000 to 20,000,000 and will issue, on an as
needed basis, additional debt and equity securities, the proceeds of which would
be used to operate the Company as an ongoing business and to acquire additional
assets, and (ii) amend the Advisory Agreement to change the Advisory Agreement's
fee structure to (a) eliminate the acquisition and disposition fees currently
payable to the Company's Advisor, (b) provide that the Company will initially
share with the Advisor origination points, with the Company thereafter receiving
all origination fees, and (c) modify the annual asset management fee
22
<PAGE>
payable to the Advisor. The effect of these three changes would be to, in most
instances, either eliminate or reduce the fees paid to the Advisor with respect
to new assets originated or acquired by the Company so as to make such fees
comparable to fees paid by other infinite-life REITs with investment strategies
similar to the Company's new investment policy. The actions described in clauses
(i) and (ii) above do not require Shareholder consent.
In addition, if the Proposals are adopted and the Shares are listed
for trading on the American Stock Exchange or another national securities
exchange, the Board of Trustees intends to terminate the Company's dividend
redemption plan (the "Redemption Plan") and expects to adopt a new dividend
reinvestment plan to replace the current Reinvestment Plan . These actions also
do not require Shareholder consent.
The current Declaration of Trust requires the Company to provide
Shareholders with an annual report. The Company's current practice has been to
provide Shareholders with quarterly reports. Whether or not the Proposals are
approved by Shareholders, in order to reduce expenses the Company intends to
begin providing Shareholders with semi-annual reports. Several public mortgage
REITs provide their shareholders with semi-annual reports rather than quarterly
reports. The Company will continue to file quarterly reports on Form 10-Q with
the Commission as required under the Exchange Act. This change to providing
Shareholders with semi-annual reports does not require Shareholder consent.
General Overview of the New Business Plan.
The two primary objectives of the Board of Trustees' new business plan
are first, to provide Shareholders with greater liquidity and second, to allow
Shareholders the opportunity to hold an investment in a publicly traded,
open-ended, infinite-life REIT that will have the ability to raise funds and use
such funds, along with any repayments and disposition proceeds, to take
advantage of the favorable investment opportunities that the Board of Trustees
believes currently exist in various types of Mortgage Investments, including
CMBS.
The Board of Trustees believes that the first objective will best be
achieved by converting the Company from a closed-ended, finite-life REIT to an
infinite-life REIT and then listing the Shares for trading on the American Stock
Exchange. By listing the Shares for trading on the American Stock Exchange,
Shareholders would be afforded greater liquidity than they currently have
because they could liquidate their investment in the Company through the
facilities of the American Stock Exchange and use the proceeds thereof for
investment, business and other purposes. Although the Shares could be listed on
the American Stock Exchange without converting the Company to an infinite-life
REIT, the Board of Trustees believes that the securities markets have generally
valued shares of infinite-life REITs more favorably than shares of finite-life
REITs. See "Proposal 1: Listing the Shares For Trading on the American Stock
Exchange," and "Proposal 5: Converting the Company from a Finite-Life REIT to an
Infinite-Life REIT."
The Company believes that the second objective will best be achieved
in two ways. First, by expanding the Company's current investment strategy to
allow the Company to invest in additional Mortgage Investments, including both
investments of the type authorized under the current investment policy, such as
insured Mortgage Loans, REMICs and CMOs, and investments of the type
23
<PAGE>
not authorized by the current investment policy, such as CMBS and Mortgage
Derivatives. Second, by leveraging the Company's assets and issuing additional
debt and equity securities on an as needed basis and using the proceeds thereof,
together with repayments and disposition proceeds, to make investments in
accordance with the Company's new investment policy. The Company believes that
favorable opportunities are available in the current market to invest in various
types of Mortgage Investments and to engage in origination and securitization
operations with respect to insured and uninsured Mortgage Loans. In the Board of
Trustees' opinion, it is in the Shareholders' best interest to change the
Company's investment policy and to permit the Company to raise additional funds
to take advantage of such opportunities. If the Company's investment policy is
so modified, the Board of Trustees believes it is appropriate to restructure the
fees paid to the Advisor to reflect such new investment policy. The fees payable
to the Advisor would be changed so that, with respect to new Mortgage
Investments, such fees are similar to the fees paid by other publicly traded,
infinite-life REITs that follow similar investment strategies. See "Actions to
Be Taken Upon Approval of the Proposals Which Do Not Require Shareholder Consent
- - Increasing the Number of Authorized Shares; Issuance of Additional Equity and
Debt Securities," "Actions to Be Taken Upon Approval of the Proposals Which Do
Not Require Shareholder Consent - Changes in the Advisory Agreement's Fee
Structure," and "Proposal 6: Changes to the Company's Investment Policy."
Proposal 1: Listing the Shares for Trading on the American Stock Exchange.
The Company's Board of Trustees proposes that the Company's
Declaration of Trust be amended to authorize the Board of Trustees to
immediately list the Shares for trading on the American Stock Exchange.
Presently, the Shareholders' access to liquidity is extremely limited.
The trading market for the Shares is highly illiquid and although Shareholders
may request that their Shares be redeemed by the Company for cash under the
Company's Redemption Plan, to date the Company has been unable to redeem a
significant portion of the Shares presented for redemption. Thus, unless the
Shares are listed for trading on the American Stock Exchange or another national
securities exchange, most Shareholders will not receive a return of their
original investment until the liquidation and distribution of the Company's
assets, which is not expected to occur prior to, at the earliest, between 2004
and 2009.
If the Shares are listed for trading on the American Stock Exchange,
the Shareholders will have the opportunity to liquidate their investment in the
Company through the facilities of the American Stock Exchange and use the
proceeds thereof for investment, business or other purposes. The Company could
achieve such liquidity without converting to an infinite-life REIT by listing
the Shares of the Company as a finite-life REIT on a national securities
exchange. However, historically, the trading prices of shares of finite-life
REITs have been lower than those of infinite-life REITs because while the
securities markets have valued infinite-life REITs favorably based on such
REITs' cash flows and growth prospects, finite-life REITs have been valued less
favorably because their cash flows are limited in duration. For this reason, the
Company believes that if the Company's Shares are to be listed for trading on
the American Stock Exchange, the Shares should be listed as shares of an
infinite-life REIT rather than as shares of an finite-life REIT.
24
<PAGE>
[The Company filed a listing application with the American Stock
Exchange on ________, 1998. Assuming the Proposals are approved by the
Shareholders, the American Stock Exchange has approved the listing of the
Shares, subject to notice of issuance.] In the unlikely event that the Company's
Shares are not listed for trading on the American Stock Exchange or another
national securities exchange, the current intent of the Board of Trustees is
that the Company will self-liquidate over time in accordance with its original
business plan.
The Board of Trustees believes that there is currently significant
investor demand for REIT securities, although there can be no assurance that
such demand will continue. Given the current market environment, the Board of
Trustees believes that it is now an opportune time to list the Shares for
trading on the American Stock Exchange and that, given the current market
environment, it is reasonable to expect that the Company's Shares will stabilize
at a price reflective of the Company's true value as a open-ended, operating
REIT. However, the Board of Trustees anticipates that the liquidity benefit to
Shareholders may be temporarily adversely affected by a number of factors,
including the possibility that certain Shareholders needing immediate liquidity
will sell their Shares as soon as possible after the listing, putting downward
pressure on the market value of the Shares. For the near term, Shareholders may
wish to consider holding their Shares and focusing more on distributions and
growth rather than on liquidity.
The Company adopted the Redemption Plan primarily to provide
Shareholders with liquidity. Under the Company's Redemption Plan, Shareholders
may present Shares to the Company to be redeemed for cash and, to the extent the
Company has sufficient net proceeds from the sale of Shares under the
Reinvestment Plan, the Company is required to redeem such Shares. To date, the
Company has been unable to redeem a significant portion of the Shares presented
for redemption. Therefore, since the Redemption Plan has not been successful in
providing Shareholders with meaningful liquidity and since, if the Proposals are
adopted and the Company's Shares are listed for trading on American Stock
Exchange, Shareholders will be afforded greater liquidity, the Board of Trustees
believes that the costs incurred by the Company in administrating the Redemption
Plan is not justified by the marginal benefits the Redemption Plan provides
Shareholders. For the reasons set forth above, the Board of Trustees will
terminate the Redemption Plan if the Company's Shares are listed for trading on
the American Stock Exchange and expects to adopt a new dividend reinvestment
plan. Such actions do not require Shareholder consent.
Proposal 2: Clarifying Certain Ambiguities Regarding the Board of Trustee's
Authority to Issue Additional Securities.
The Company's Board of Trustees proposes that the Declaration of Trust
be amended to clarify certain ambiguities with respect to the Board of Trustees'
authority to cause the Company to issue various types of debt and equity
securities. The Declaration of Trust currently allows the Board of Trustees to
issue an unlimited amount of additional Shares. Furthermore, the Declaration of
Trust also currently permits the Board of Trustees to issue "securities" of all
types (including debt and equity securities) but such authority could be
interpreted to be limited by the terms of the sections of the Declaration of
Trust relating to the issuance of Shares. In order to eliminate this ambiguity,
the Board of Trustees is proposing language which clarifies that it is
authorized to issue and unlimited amount of Shares and other securities. If the
Proposals are approved, the Board of Trustees will increase the number of
authorized Shares from 12,500,000 to 20,000,000. See "Actions to Be Taken Upon
25
<PAGE>
Approval of the Proposals Which Do Not Require Shareholder Consent - Increasing
the Number of Authorized Shares; Issuance of Additional Equity and Debt
Securities."
Proposal 3: Borrowing.
The Company's Board of Trustees proposes that the Declaration of Trust
be amended to authorize the incurrence by the Company of debt.
Incurring Debt. As of March 31, 1998, the Company held $58,205,439 of
Authorized Mortgage Investments. In order to raise additional funds for
investment, the Board of Trustees proposes that the Company's Declaration of
Trust be amended to allow the Company (excluding unconsolidated subsidiaries) to
incur Permanent Debt, excluding trade payables and the subordinated Advisor
fees, up to a maximum amount of 50% of the Company's Total Market Value measured
at the time the Permanent Debt is incurred (the "Permanent Debt Limitation") and
to incur debt under one or more Working Capital Lines, provided that such debt
together with the Permanent Debt does not exceed 100% of the Company's Total
Market Value measured at the time the debt is incurred, (the "Debt Limitation").
"Total Market Value" means the greater of (i) the sum of (a) the aggregate
market value of the Company's Shares and (b) the total leverage of the Company
excluding unconsolidated subsidiaries, and (ii) the aggregate value of the
Company's assets as determined by the Advisor based upon third party or
management appraisals and other criteria as the Board of Trustees shall
determine in its sole discretion.
If the Company leverages its assets up to the Permanent Debt
Limitation, the Company's Permanent Debt-to-equity ratio will be 1:1. which is
significantly lower of that of similar publicly traded REITs whose permanent
debt-to-equity ratios the Board of Trustees believes often exceed 3:1. The Board
of Trustees believes that the Company's more conservative debt policy will
provide the Company with additional funds for investment without subjecting the
Company to many of the additional risks inherent in mortgage REITs which operate
with a higher permanent debt-to-equity ratio. The Board of Trustees believes
that implementation of this conservative debt policy will allow the Company to
maintain an adequate capital base to protect against various business conditions
in which the Company's financing and hedging costs may exceed interest income
from its assets, although there can be no assurance that such adverse conditions
will not occur. See "RISK FACTORS - Debt Increases Exposure to Risk."
The Board of Trustees anticipates that the Company will establish a
Working Capital Line(s) that will have terms of between 3 and 5 years. The Board
also anticipates that borrowings under the Working Capital Line(s) will be used
primarily to acquire or originate Mortgage Investments, a significant portion of
which will be Mortgage Loans which the Company or a subsidiary will securitize.
The Board of Trustees also anticipates that the Company will incur Permanent
Debt with respect to Mortgage Investments that will not be subject to
securitizations and which will be held to maturity. The Company will incur
Permanent Debt primarily with reverse repurchase agreements, secured and
unsecured loans, and the issuance of commercial paper. Proceeds from the
Company's Permanent Debt will be used primarily to acquire and originate
Mortgage Investments, a significant portion of which will be held as long term
investments. The Company will pledge its assets as collateral security for its
repayment obligations under its borrowings under the Working Capital Line(s) and
Permanent Debt. Such financing may bear short term borrowing interest rates. The
Company
26
<PAGE>
intends to use the proceeds from such securitizations and borrowings to invest
in additional Mortgage Investments and, in turn, to borrow against such assets
and to repeat this process of borrowing and investing until it has leveraged its
portfolio of assets up to the Debt Limitation. However, the Company may, in the
near term, use a portion of the proceeds from such borrowings to support
distributions to Shareholders and to pay Advisor fees and operating expenses of
the Company until the Company's Mortgage Investments generate sufficient income
to support Shareholders' distributions.
The Advisor has conducted preliminary discussions with potential
lenders and believes, on the basis of these discussions, that it will be able to
obtain financing in amounts and at interest rates consistent with the Company's
financing objectives. However, the Company does not yet have any commitments
from lenders to provide such financing.
Reverse repurchase agreements are structured as sale and repurchase
obligations and have the economic effect of allowing a borrower to pledge
purchased mortgage assets as collateral securing short-term loans to finance the
purchase of such mortgage assets. Typically, the lender in a reverse repurchase
arrangement makes a loan in an amount equal to a percentage of the market value
of the pledged collateral. At maturity, the borrower is required to repay the
loan and the pledged collateral is released. Pledged mortgage assets continue to
pay principal and interest to the borrower. The reverse repurchase agreements
also would require the Company to deposit additional collateral (a "margin
call") or reduce its borrowings thereunder, if the market value of the pledged
collateral declines. This may require the Company to sell mortgage assets to
provide such additional collateral or to reduce its borrowings. The Company
intends to maintain an equity cushion sufficient to provide liquidity in the
event of interest rate movements and other market conditions affecting the
market value of the pledged mortgage assets. However, there can be no assurance
that the Company will be able to safeguard against being required to sell
mortgage assets in the event of a change in market conditions. In order to
maintain its REIT status, the Company may have to limit its use of reverse
repurchase agreements.
Hedging Activities. A substantial portion of the Company's cash flow
is expected to consist of the difference between the interest income generated
by its Mortgage Investments and the interest expense incurred with respect to
the Company's borrowings, net of hedging and other costs. The Company intends to
enter into hedging transactions to protect its investment portfolio from
interest rate fluctuations and other changes in market conditions. These
transactions may include interest rate swaps, the purchase or sale of interest
rate collars, caps or floors, options, Mortgage Derivatives and other hedging
instruments. These instruments may be used to hedge as much of the interest rate
risk as the Advisor determines is in the best interest of the Company's
Shareholders, given the cost of such hedges and the need to maintain the
Company's status as a REIT. The Advisor may elect to have the Company bear all
or a significant level of interest rate risk that could otherwise be hedged when
the Advisor believes, based on all relevant facts, that bearing such risk is
advisable. See "RISK FACTORS -- Hedging Transactions Can Limit Gains and
Increase Exposure to Losses."
Hedging instruments often are not traded on regulated exchanges,
guaranteed by an exchange or its clearing house, or regulated by any U.S. or
foreign governmental authorities. Consequently, there may be no requirements
with respect to record keeping, financial responsibility or segregation of
customer funds and positions. The Company will enter into these transactions
only with counterparties with long term debt rated "A" or better by at least one
nationally recognized rating
27
<PAGE>
agency. The business failure of a counterparty with which the Company has
entered into a hedging transaction will most likely result in a default, which
may result in the loss of unrealized profits and force the Company to cover its
resale commitments, if any, at the then current market price. Although generally
the Company will seek to reserve for itself the right to terminate its hedging
positions, it may not always be possible to dispose of or close out a hedging
position without the consent of the counterparty, and the Company may not be
able to enter into an offsetting contract in order to cover its risk. There can
be no assurance that a liquid secondary market will exist for hedging
instruments purchased or sold, and the Company may be required to maintain a
position until exercise or expiration, which could result in losses.
The Company intends to protect its asset portfolio against the effects
of significant interest rate fluctuations and to preserve the net income and
capital value of the Company. Specifically, the Company's asset acquisition and
borrowing strategies are intended to offset the potential adverse effects
resulting from the differences between fixed rates or other limitations on
coupon rate adjustment, such as interest rate caps, associated with its mortgage
assets and the shorter term predominantly variable nature of the Company's
related borrowings.
The Company's hedging activities are intended to address both income
and capital preservation. Income preservation refers to maintaining a stable
spread between yields from mortgage assets and the Company's borrowing costs
across a reasonable range of adverse interest rate environments. Capital
preservation refers to maintaining a relatively steady level in the market value
of the Company capital across a reasonable range of adverse interest rate
scenarios. To monitor and manage capital preservation risk, the Company will
model and measure the sensitivity of the market value of its capital (i.e., the
combination of its assets, liabilities and hedging positions) to various changes
in interest rates in various economic scenarios. The Company will not enter into
these types of transactions for speculative purposes.
The Company will focus its hedging activities on providing a level of
income and capital protection against reasonable interest rate risks. However,
no strategy can insulate the Company completely from changes in interest rates.
All hedging transactions will be subject to the consent of the Board of
Trustees.
The Company has not established specific policies as to the extent of
the hedging transactions in which it will engage. Any such specific policies
will be subject to the approval of the Board of Trustees.
Proposal 4: Reinvestment of Repayments and Disposition Proceeds
The Company's Board of Trustees proposes that the Company's
Declaration of Trust be amended to authorize the reinvestment of repayments from
Mortgage Investments and from the proceeds from dispositions of the Company's
assets.
The Company intends to hold most of the Authorized Mortgage
Investments currently held by the Company for another six to eleven years. If
the Proposals are adopted, upon the repayment or sale of the Authorized Mortgage
Investments currently held by the Company or any additional investments acquired
by the Company pursuant to its new investment strategy, the Board of
28
<PAGE>
Trustees may either distribute such proceeds to Shareholders or invest such
proceeds in additional Mortgage Investments, although the Board of Trustees
expects that such funds, in most instances, will be reinvested in Mortgage
Investments. In making such decisions, the Board of Trustees will consider the
then current market environment for Mortgage Investments.
Proposal 5: Converting From a Finite-Life REIT to an Infinite-Life REIT.
The Company's Board of Trustees proposes that the Company's
Declaration of Trust be amended to provide for the conversion of the Company
from a closed-ended, finite-life REIT to an open-ended, infinite-life REIT.
The Company now conducts its business with a view to the liquidation
of the Company's assets within the next six to eleven years. Under the Company's
Declaration of Trust, the Company is required to terminate by December 31, 2025.
The Company's Board of Trustees believes that favorable opportunities now exist
to develop a liquid trading market in the Company's Shares by listing the Shares
for trading on the American Stock Exchange, and to acquire additional Mortgage
Investments. If the Company were to remain a close-ended finite-life REIT, the
Company would not be able to take full advantage of such opportunities.
Proposal 6: Changes to the Company's Investment Policy.
The Company's Board of Trustees proposes that the Company's
Declaration of Trust be amended to change the Company's investment policy to
allow the Company (i) to originate, securitize and acquire Authorized Mortgage
Investments (i.e. government insured Mortgage Loans and acquire other
investments of the type already authorized by the Company's current investment
policy, (such as REMICs, CMOs, FHA, GNMA, FNMA and FHLMC Pass-Through
Certificates), which will, comprise approximately 40% of the Company's new
Mortgage Investments, and (ii) to originate and acquire the Proposed Mortgage
Investments which the Company was not permitted to acquire under its current
investment policy, which include uninsured CMBS and Mortgage Derivatives and to
originate, securitize and acquire uninsured Mortgage Loans, which investments
will comprise not more than 60% of the Company's new Mortgage Investments.
Mortgage Loans that are originated with the intent of later securitizing such
loans will be accumulated without limit and will be categorized under either
clause (i) or (ii), as appropriate, when securitized.
The Company's Current Investment Policy.
The Company's current investment policy allowed the Company during the
Company's offering and acquisition stages to invest the net proceeds of the
Offering primarily in Mortgages. "Mortgages" include, in the broad sense,
beneficial interests or participation interest in whole mortgages, mortgage
certificates, mortgage backed securities (including collateralized mortgage
obligations or "CMOs"), participation certificates backed by either a single
mortgage or a pool of mortgages or interests in pass-through entities which,
under the REIT provisions of the Code, would be considered to be qualifying real
estate assets for the purposes of the Company's qualification as a REIT (e.g.
REMICs which are real estate mortgage investment conduits as described in
sections 860A through 860G of the Code.) The Company invested principally in two
types of Mortgages: Originated Mortgages and Acquired Mortgages. Originated
Mortgages include: (i) any Mortgage originated by
29
<PAGE>
or on behalf of the Company or by another lender and sold to the Company prior
to the time it has been fully funded, the principal of which (excluding
participating interest payments and any Additional Loan) is eligible for
insurance by FHA and others under programs administered by HUD and shall also
include Ginnie Mae mortgage-backed securities and Pass-Through Certificates
backed by indebtedness secured by such a Mortgage; and (ii) any mortgage-backed
security guaranteed by Fannie Mae or Freddie Mac which is backed by a
conventional mortgage or mortgages originated by or on behalf of the Company.
Acquired Mortgages include: (i) any Mortgage which is a fully funded Mortgage
Loan made to an entity that owns a multifamily, primarily residential rental
project or health care facility (a "Development") insured by FHA and acquire by
or on behalf of the Company as a whole loan or a beneficial interest or a
participating interest therein or by a purchase of mortgage-backed securities or
Pass-Through Certificates backed by indebtedness secured by FHA insured Mortgage
Loans; and (ii) any mortgage-backed security guaranteed by Fannie Mae or Freddie
Mac which is backed by a conventional Mortgage or Mortgages and acquired by or
on behalf of the Company other than in connection with the origination of the
underlying Mortgage or Mortgages.
Both Originated Mortgages and Acquired Mortgages are either (i) Fannie
Mae certificates that are issued and guaranteed by Fannie Mae and backed by
conventional Mortgages, (ii) Freddie Mac participation certificates that are
issued and guaranteed by Freddie Mac and backed by conventional Mortgages; or
(iii) Mortgages insured by FHA, through programs administered by HUD, including
beneficial interests or participation in whole loans, and Ginnie Mae
mortgage-backed securities or participations and Pass-Through Certificates
therein.
The Company's current investment policy also permitted the Company
during the Company's offering and acquisition stages to invest in "Additional
Loans," which are non-interest bearing, uninsured loans made by the Company to
the developer or the sponsor of a Development (or the general partners or other
principals of the owner of the Development) in connection with a Mortgage Loan
made by the Company to an entity that owns a Development. The current policy
provides that no more than 7% of the net proceeds available for investment may
be invested in Additional Loans. Mortgages (including Originated Mortgages and
Acquired Mortgages) and Additional Loans are collectively referred to herein as
"Authorized Mortgage Investments."
As of March 31, 1998, the Company's portfolio consisted of (i) five
Originated Mortgages (excluding GNMA Pass-Through Certificates), (ii) five
uninsured Additional Loans, (iii) four GNMA Pass-Through Certificates, and (iv)
one REMIC.
The Company's Proposed Investment Policy.
A. General Strategy. The Advisor and the Company's Board of Trustees
believe that favorable opportunities exist to invest in various types of
Mortgage Investments. If the Proposals are adopted, the Company's investment
policy will be to maximize its net income by investing in a diversified
portfolio of insured and a limited amount of uninsured Mortgage Loans,
Subordinated Interests in CMBS and the other real estate related assets
described below. In creating and managing its investment portfolio, the Company
will utilize the Advisor's and Related's expertise and the significant business
relationships between the Advisor and Related, as well as unrelated participants
in the real estate industry. The Advisor, in its discretion, subject to the
supervision of the Board of Trustees and to the REIT provisions of the Code,
will evaluate and monitor the Company's assets and
30
<PAGE>
will determine how long such assets should be held in the Company's portfolio.
Thus, the Advisor will actively manage the Company's assets, and, unlike under
the Company's current investment policy, such assets may not be held to
maturity. Although the Company intends to manage its assets actively, it does
not intend to acquire, hold or sell assets in such a manner that such assets
would be characterized as dealer property for federal income tax purposes.
The Company intends to acquire the following types of investments: (i)
Authorized Mortgage Investments (which consist of Originated Mortgages, Acquired
Mortgages and Additional Loans), and (ii) Proposed Mortgage Investments which
are investments of the type not authorized by the Company's current investment
policy which will include Mortgage Loans that are not government insured, CMBS
(including Subordinated Interests in CMBS), fixed and adjustable rate Mortgage
Derivatives, including IOs and POs, Construction Loans, Bridge Loans, and
Mezzanine Loans (the Proposed Mortgage Investments together with the Authorized
Mortgage Investments, are collectively referred to as the "Mortgage
Investments"). Approximately forty percent (40%) of the Company's new Mortgage
Investments will consist of Authorized Mortgage Investments, and no more than
sixty percent (60%) of the Company's new Mortgage Investments will consist of
the Proposed Mortgage Investments described above. Mortgage Loans that are
originated with the intent of later securitizing such loans will be accumulated
without limit and will be categorized under either clause (i) or (ii), as
appropriate, when securitized. Consistent with the Company's policy of
maintaining its status as a REIT for federal income tax purposes, substantially
all of the Company's assets will consist of qualified REIT assets under the REIT
Provisions of the Code. See "Description of Mortgage Assets" for a description
of these instruments.
The Company will finance its assets with borrowings, issuances of debt
and equity securities (including preferred shares) and disposition proceeds and
expects that it will maintain a Permanent Debt-to-equity ratio of 1:1. The
Company will leverage its assets with Working Capital Line(s), and Permanent
Debt. See "Proposal 3: Borrowings."
The Company's policy is to acquire those Mortgage Investments which it
believes are likely to generate the highest returns on capital invested, after
considering the amount and nature of anticipated cash flows from the asset, the
Company's ability to pledge the asset to secure collateralized borrowings, the
capital requirements resulting from the purchase and financing of the asset, the
potential for appreciation and the costs of financing, hedging and managing the
asset. Prior to acquisition, potential returns on capital employed will be
assessed over the expected life of the asset and in a variety of interest rate,
yield spread, financing cost, credit loss and prepayment scenarios. In managing
the Company's portfolio, the Advisor also will consider balance sheet management
and risk diversification issues.
B. General Operating Policies; Services of Advisor and its Affiliates.
The operating policies of the Company will remain substantially unchanged. The
Board of Trustees will remain responsible for the management and control of the
Company (with certain decisions requiring the consent of the independent
trustees) and the Advisor will continue to be retained by the Company to select
investments and to supervise the day-to-day operations of the Company. The
Advisor is an affiliate of Related Capital Company (Related Capital Company and
its affiliates, referred to in this Consent Statement as "Related"). Related is
the third largest owner of multifamily housing in the United States, according
to the 1998 survey conducted by the National Multihousing Council and
31
<PAGE>
Related has more than 750 employees and more than 800 properties located in 44
states. Related and its predecessor companies have specialized in offering debt
and equity products to mid-market multifamily owners and developers for over 25
years and Related has provided debt and equity financing to properties valued at
over $8 billion. The Advisor will be able to use the management skills,
relationships and resources of Related to implement the Company's new investment
strategy.
C. Mortgage Origination. Related, as an experienced full service real
estate organization, has developed a comprehensive evaluation and acquisition
procedure which the Advisor will implement in its selection of the Company's new
investments. Since its inception, Related has provided over $8 billion of debt
and equity financing to finance over 925 properties representing over 126,000
units of multifamily housing. Each Mortgage Loan originated by the Company will
be subjected to in depth reviews by Related's real estate professionals. Such
reviews will encompass significant financial, market and other relevant
analysis.
D. Securitization. The Company also intends to originate, acquire and
accumulate Mortgage Loans for securitization. In a securitization, the
collateral (whether whole Mortgage Loans or CMBS) typically will be transferred
into a qualified REIT subsidiary, and that entity will issue non- REMIC CMOs.
The transaction may be structured either as debt or equity, with the issuer
retaining an equity interest in the collateral (debt transaction) or a
subordinated residual equity interest in the assets sold (equity transaction).
In a debt transaction, the principal balance of the collateral
(whether whole loans or CMBS) will exceed the principal balance of the CMOs.
Thus, once the CMOs are paid in full, the issuer will own the collateral free of
the lien of the CMO debt. During the period in which the Company is acquiring
Mortgage Loans for securitization, the Company is likely to borrow funds secured
by such loans pursuant to the Working Capital Line(s). The Company intends to
securitize Mortgage Loans primarily by issuing structured debt in non-REMIC
transactions. Under this approach, for accounting purposes, the securitized
Mortgage Loans will remain on the Company's balance sheet as assets and the debt
obligations (the CMOs) will appear as liabilities. The proceeds of
securitizations by the Company will be used to reduce preexisting borrowings
relating to such assets and to purchase additional assets. Issuing structured
debt in this manner locks in potentially less expensive, long-term, non-recourse
financing that better matches the terms of the Mortgage Loans and fixed-income
instruments serving as collateral for such debt.
The Company also may employ, from time to time to the extent
consistent with the REIT provisions of the Code, other forms of securitization
under which a "sale" of an interest in the Mortgage Loans occurs, and a
resulting gain or loss is recorded on the Company's balance sheet for accounting
purposes at the time of sale. In a "sale" securitization, only the net retained
interest in the securitized Mortgage Loans will remain on the Company's balance
sheet. The Company may elect to conduct certain of its securitization
activities, including such sales, through one or more taxable subsidiaries or
through "Qualified REIT Subsidiaries," as defined under the REIT provisions of
the Code, formed for such purpose. To the extent consistent with the REIT
provisions of the Code, such entity would elect to be taxed as a REMIC or a
Financial Asset Securitization Investment Trust ("FASIT"). "Sale" transactions
(along with various other activities) may be conducted through a taxable
subsidiary of the Company.
32
<PAGE>
The Company expects that it will retain interests in the underlying
Mortgage Loans which will be subordinated with respect to payments of principal
and interest on the underlying Mortgage Loans to the classes of securities
issued to investors in such securitizations. Accordingly, any losses incurred on
the underlying Mortgage Loans will be applied first to reduce the remaining
amount of the Company's retained interest, until reduced to zero. Thereafter,
the Company would have no further exposure to losses.
Typically, in connection with the creation of a new Mortgage Loan
securitization, the issuer generally will be required to enter into a master
servicing agreement with respect to such series of mortgage securities with an
entity acceptable to one or more nationally recognized rating agencies, that
regularly engages in the business of servicing Mortgage Loans (a "Master
Servicer"). The Company will attempt to acquire or retain the right to initiate,
direct or forbear foreclosure proceedings in connection with defaults on any of
the underlying Mortgage Loans and may retain Related Mortgage Company ("RMC"),
an affiliate of the Advisor, as a Special Servicer to maintain borrower
performance and to exercise available remedies, including foreclosure, at the
direction of the Company. Exercise of such rights may require the Company to be
responsible for advancing payments to investors in such securitizations as if
such default has not occurred.
E. Credit Risk Management. With respect to its assets, the Company
will be exposed to various levels of credit and special hazard risk, depending
on the nature of the underlying assets and the nature and level of credit
enhancements supporting such assets. The Company will originate or purchase
Mortgage Loans which meet minimum debt service coverage standards established by
the Company. With respect to the Company's acquisition of its current portfolio
of assets, the Advisor reviewed and monitored credit risk and other risks of
loss associated with such assets and the Advisor will perform the same services
with respect to all new investments made by the Company going forward. In
addition, the Advisor will seek to diversify the Company's portfolio of assets
to avoid undue geographic, issuer, industry and certain other types of
concentrations. The Company's Board of Trustees will monitor the overall
portfolio risk and review levels of provision for loss.
F. Asset/Liability Management. The Company will follow an interest
rate risk management policy intended to mitigate the negative effects of major
interest rate changes. The Company intends to minimize its interest rate risk
from borrowings both through hedging activities and by attempting to structure
the key terms of its borrowings to generally correspond (in the aggregate for
the entire portfolio, and not on an asset-by-asset basis) to the interest rate
and maturity parameters of its assets. See "Proposal 3: Borrowing - Hedging
Activities."
Description of Real Estate Related Assets.
A. Authorized Mortgage Investments and Uninsured Mortgages. The
Company intends to purchase additional Authorized Mortgage Investments which
will comprise approximately forty percent (40%) of the Company's new Mortgage
Investments. In selecting additional Authorized Mortgage Investments, the
Advisor will implement substantially the same procedures it used in acquiring
the assets currently held by the Company. With respect to Mortgage Loans, such
Mortgage Loans may be originated by the Company or purchased from various
suppliers of mortgage assets
33
<PAGE>
throughout the United States, such as savings and loan associations, banks,
mortgage bankers, home builders, insurance companies and other mortgage lenders.
The Company may acquire Mortgage Loans directly from third party originators and
from entities holding Mortgage Loans originated by others. The Board of Trustees
of the Company has not established any limit upon the geographic concentration
of Mortgage Loans to be acquired by the Company or the credit quality of
suppliers of mortgage assets.
In considering whether to acquire a pool of Mortgage Loans, the
Advisor will perform certain due diligence tasks on behalf of the Company that
reasonably may be expected to provide relevant and material information as to
the value of the Mortgage Loans within that pool and whether the Company should
acquire that pool.
The Advisor will select Mortgage Loans only at prices that are fair to
the Company and that meet the Company's investment criteria. In determining the
price of a Mortgage Loan, the Advisor will review and analyze a number of
factors. These factors include market conditions (market interest rates, the
availability of mortgage credit and economic, demographic, geographic, tax legal
and other factors). They also include the yield to maturity of the Mortgage
Loan, the liquidity of the Mortgage Loan, the limitations on the obligations of
the seller with respect to the Mortgage Loan, the rate and timing of payments to
be made with respect to the Mortgage Loan, the mortgaged property underlying the
Mortgage Loan, the risk of adverse fluctuations in the market values of that
mortgaged property as a result of economic events or governmental regulations,
the historical performance and other attributes of the property manager
responsible for managing the mortgaged property, relevant laws limiting actions
that may be taken with respect to loans secured by real property and limitations
on recourse against the obligors following realization on the collateral through
various means, risks of timing with respect to Mortgage Loan prepayments, risks
associated with geographic concentration of underlying assets constituting the
mortgaged property for the relevant Mortgage Loan, environmental risks, pending
and threatened litigation, junior liens and other issues relating to title, a
prior history of defaults by affiliated parties on similar and dissimilar
obligations, and other factors.
The Company will also acquire additional Authorized Mortgage
Investments which are not Mortgage Loans. Such Authorized Mortgage Investments
include (i) Additional Loans (up to 7% of the Company's total assets), (ii)
Pass-Through Certificates issued by FNMA, FHLMC and GNMA, (iii) FNMA
Certificates, (iv) FHLMC Certificates, (v) GNMA Certificates, (vi) CMOs, and
(vii) REMICs.
B. Mortgage Loans Secured by Multifamily Housing Using Section 42 Tax
Credits. The Company intends to focus a significant amount of its origination
and acquisition activity on Mortgage Loans secured by multifamily housing
("Section 42 Properties") using Federal Low Income Housing Tax Credits, pursuant
to section 42 of the Code (the "Section 42 Tax Credits"). The Company estimates
that as much as 50% of all new multifamily housing being developed in the United
States utilizes the assistance of Section 42 Tax Credits. In addition, the
Company believe that, due to the financial characteristics of many of the owners
of such properties and the negative tax consequences they suffer in the event
such properties default on their mortgage payments, mortgages secured by such
properties have a lower risk profile, especially during the first 12 years of
operations, than do market rate multifamily housing with similar levels of debt.
The Board of Trustees expects that a majority of the Mortgage Loans originated
by the Company will be secured by Section 42
34
<PAGE>
Properties and that the Company may securitize such loans and retain
subordinated interest in those securitizations.
C. Construction Financing, Bridge Financing and Loans Subject to Prior
Liens. The Company intends to only invest in or provide Construction Loans where
a Construction Loan is secured by a first lien mortgage, deed of trust or deed
to secure debt, as collateral security for the borrower's obligations with
respect to the Construction Loan. In addition, the Company intends to only make
a Construction Loan if such loan is secured by a letter of credit from a
financial institution rated at least A- by Standard & Poor's, which letter of
credit will secure construction completion in an amount equal to 100% of the
loan proceeds advanced by the Company. The letters of credit will allow the
Company to draw against them in the event that the borrower has not completed
construction by an agreed-upon date. In addition, the Company may invest in or
provide Mezzanine Loans to owners of real properties that are encumbered by
first lien mortgages, deeds of trust or deeds to secure debt, in which case the
Company's Mezzanine Loans generally will be secured by junior liens on the
subject properties. The policy of the Company is that, at the time of
origination of a Mezzanine Loan, the value of the subject property should exceed
the sum of the outstanding balances of the debt secured by the first lien and
the maximum amount contemplated to be advanced by the Company under the
Mezzanine Loan. With respect to Mezzanine Loans, the Company may receive not
only a stated fixed or variable interest rate on the loan, but also a percentage
of gross revenues and/or a percentage of the increase in the fair market value
of the property securing repayment of that Mezzanine Loan, payable upon maturity
or refinancing of the applicable Mezzanine Loan or upon the sale of the
property. The Company may also provide bridge financing, generally in the form
of secured loans, for the acquisition of Mortgage Loan portfolios.
D. Commercial Mortgage Backed Securities. The Company intends to
acquire CMBS, primarily non-investment grade classes, from various sources. MBS
typically are divided into two or more interests, sometimes called "tranches" or
"classes." The senior classes are often securities which, if rated, would have
ratings ranging from low investment grade "BBB" to higher investment grades "A,"
"AA" or "AAA." The junior, subordinated classes typically would include one or
more non-investment grade classes which, if rated, would have ratings below
investment grade "BBB." Such subordinated classes also typically include an
unrated higher-yielding, credit support class (which generally is required to
absorb the first losses on the underlying Mortgage Loans).
CMBS generally are issued either as collateralized mortgage
obligations (either "CMOs" or "CMO Bonds") or pass-through certificates
("Pass-Through Certificates"). CMO Bonds are debt obligations of special purpose
corporations, owner trusts or other special purpose entities secured by
commercial mortgage loans or CMBS. Pass-Through Certificates evidence interests
in trusts, the primary assets of which are Mortgage Loans. CMO Bonds and
Pass-Through Certificates may be issued or sponsored by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, investment banks and other entities. CMBS
are not guaranteed by an entity having the credit status of a governmental
agency or instrumentality and generally are structured with one or more of the
types of credit enhancement described below. In addition, CMBS may be illiquid.
See "RISK FACTORS - Risk from Ownership of Subordinated Interests in Pools of
Commercial Mortgage Loans."
35
<PAGE>
In most commercial mortgage loan securitizations, CMBS are issued in
multiple classes or tranches in order to obtain investment-grade ratings for the
senior classes and thus increase their marketability. Each class of CMBS may be
issued with a specific fixed or variable coupon rate and has a stated maturity
or final scheduled distribution date. Principal prepayments on the Mortgage
Loans comprising the mortgage collateral (i.e., mortgage pass-through securities
or pools of whole loans securing or backing a series of CMBS) ("Mortgage
Collateral") may cause the CMBS to be retired substantially earlier than their
stated maturities or final scheduled distribution dates, although, with respect
to commercial Mortgage Loans, there generally are penalties for or limitations
on the ability of the borrower to prepay the loan. Interest is paid or accrued
on CMBS on a periodic basis, typically monthly.
The credit quality of CMBS depends on the credit quality of the
underlying Mortgage Collateral. CMBS are backed generally by a limited number of
commercial or multifamily mortgage loans with larger principal balances than
those of single family mortgage loans. As a result, a loss on a single mortgage
loan underlying a CMBS will have a greater negative effect on the yield of such
CMBS, especially the Subordinated Interests in such CMBS.
Among the factors determining the credit quality of the underlying
mortgage loans will be the ratio of the mortgage loan balances to the value of
the properties securing the mortgage loans, the purpose of the mortgage loans
(e.g., refinancing or new purchase), the amount of the mortgage loans, their
terms and the geographic diversification of the location of the properties, and
the credit-worthiness of tenants. Moreover, the principal of and interest on the
underlying mortgage loans may be allocated among the several classes of a CMBS
in many ways, and the credit quality of a particular class results primarily
from the order and timing of the receipt of cash flow generated from the
underlying mortgage loans. Subordinated Interests carry significant credit
risks. Typically, in a "senior-subordinated" structure, the Subordinated
Interests provide credit protection to the senior classes by absorbing losses
from loan defaults or foreclosures before such losses are allocated to senior
classes. Moreover, typically, as long, as the more senior tranches of securities
are outstanding, all prepayments on the mortgage loans generally are paid to
those senior tranches, at least until the end of a lock-out period, which
typically is five years or more. In some instances, particularly with respect to
Subordinated Interests in commercial securitizations, the holders of
Subordinated Interests are not entitled to receive scheduled payments of
principal until the more senior tranches are paid in full or until the end of a
lock-out period. Because of this structuring of the cash flows from the
underlying Mortgage Loans, Subordinated Interests in a typical securitization
are subject to a substantially greater risk of non-payment than are those more
senior tranches. Accordingly, the Subordinated Interests are assigned lower
credit ratings, or no ratings at all. Neither Subordinated Interests nor the
underlying mortgage loans are guaranteed by agencies or instrumentalities of the
U.S. government or by other governmental entities and accordingly are subject,
among other things, to credit risks. See "Risk Factors--Risk from Ownership of
Subordinated Interests in Pools of Commercial Mortgage Loans."
Before acquiring Subordinated Interests from third parties, the
Advisor on behalf of the Company intends to perform certain credit underwriting
and stress testing to attempt to evaluate future performance of the Mortgage
Collateral supporting such CMBS, including (i) a review of the underwriting
criteria used in making Mortgage Loans comprising the Mortgage Collateral for
the CMBS, (ii) a review of the relative principal amounts of the loans, their
loan-to-value ratios as well as the Mortgage Loans' purpose and documentation,
(iii) where available, a review of the historical
36
<PAGE>
performance of the loans originated by the particular originator and (iv) some
level or re-underwriting the underlying mortgage loans, as well as selected site
visits. The Advisor will apply its experience in underwriting multifamily and
other commercial real estate to perform such testing. The Advisor's employees
have broad experience underwriting and Servicing various types of performing and
nonperforming income-producing real estate, including multifamily and retail
properties and in evaluating the projected financial performance of the
properties to determine their resiliency to a market downturn and applies
varying capitalization rates to assess collateral value.
Many of the Subordinated Interests that may be acquired by the Company
may not have been registered under the Securities Act but instead initially were
sold in private placements. Because Subordinated Interests acquired in private
placements have not been registered under the Securities Act, they will be
subject to certain restrictions on resale and, accordingly, will have more
limited marketability and liquidity.
Although there are some exceptions, most issuers of multi-class CMBS
elect to be treated, for federal income tax purposes, as REMICS. The Company may
acquire not only Subordinated Interests that are treated as regular interests in
REMICS, but also those that are designated as REMIC residual interests. Unlike
regular interests in REMICS, REMIC residual interests typically generate forms
of "phantom income" that bear no relationship to the actual economic income that
is generated by a REMIC.
As a result of the typical "senior-subordinated" structure, the
subordinated classes of CMBS will be extremely sensitive to losses on the
underlying Mortgage Loans. Accordingly, the holder of the Subordinated Interest
is particularly interested in minimizing the loss frequency (the percentage of
the loan balances that default over the life of the mortgage collateral) and the
loss severity (the amount of loss on defaulted Mortgage Loans, i.e., the
principal amount of the Mortgage Loan unrecovered after applying any recovery to
the expenses of foreclosure and accrued interest) on the underlying Mortgage
Loans.
Losses on the Mortgage Collateral underlying the Company's CMBS will
depend upon a number of factors, many of which will be beyond the control of the
Company or the applicable servicer. Among other things, the default frequency on
the Mortgage Collateral will reflect broad conditions in the economy generally
and real property, particularly economic conditions in the local area in which
the underlying mortgaged property is located, the loan-to-value ratio of the
Mortgage Loan, the purpose of the loan, and the debt service coverage ratio
(with respect to commercial and multifamily Mortgage Loans). The loss severity
on the Mortgage Collateral will depend upon many of the same factors described
above, and will also be influenced by certain legal aspects of Mortgage Loans
that underlie the CMBS acquired by the Company, including the servicer's ability
to foreclose on the defaulted Mortgage Loan and sell the underlying mortgaged
property. Various legal issues affect the ability to foreclose on a Mortgage
Loan or sell the mortgaged property. These legal issues may extend the time of
foreclosure proceedings or may require the expenditure of additional sums to
sell the underlying Mortgage Collateral, in either case increasing the amount of
loss with respect to the Mortgage Loans.
Unlike the owner of Mortgage Loans, the owner of Subordinated
Interests in CMBS ordinarily does not control the servicing of the underlying
Mortgage Loans. In this regard, the
37
<PAGE>
Company intends to attempt to negotiate for the right to cure any defaults on
senior CMBS classes and for the right to acquire such senior classes in the
event of a default or for other similar arrangements. The Company may also seek
to have RMC, acquire rights to service defaulted mortgage loans, including
rights to control the oversight and management of the resolution of such
Mortgage Loans by workout or modification of loan provisions, foreclosure, deed
in lieu of foreclosure or otherwise, and to control decisions with respect to
the preservation of the collateral generally, including property management and
maintenance decisions ("Special Servicing Rights") with respect to the Mortgage
Loans underlying CMBS in which the Company owns a Subordinated Interest. Such
rights to cure defaults and Special Servicing Rights may give the Company, for
example, some control over the timing of foreclosures on such Mortgage Loans
and, thus, may enable the Company to reduce losses on such Mortgage Loans. No
assurances can be made, however, that RMC or the Company will be able to acquire
such rights to cure, Special Servicing Rights or other similar arrangements or
that losses on the Mortgage Loans will not exceed the Company's expectations.
RMC is not currently a rated special but RMC intends to seek to become rated as
a special servicer. Until RMC can act as a rated special servicer, it will be
difficult to obtain Special Servicing Rights with respect to the Mortgage Loans
underlying Subordinated Interests in CMBS. Although the Company's strategy is to
purchase Subordinated Interests in CMBS from third parties at a price designed
to return the Company's investment and generate a profit thereon, there can be
no assurance that such goal will be met or, indeed, that the Company's
investment in a Subordinated Interest will be returned in full or at all. See
"RISK FACTORS--Risk from Ownership of Subordinated Interests in Pools of
Commercial Mortgage Loans."
The Company intends to purchase tranches of CMBS that are rated below
investment grade by one or more rating agencies ("BB" or "B" class) or are not
rated. The Company intends to acquire Subordinated Interests primarily through
private placements in the primary market but the Company may consider additional
secondary market purchases as they become available. The Company may pursue the
acquisition of performing and nonperforming (i.e., defaulted) Subordinated
Interests in CMBS.
E. Privately Issued Pass-Through Certificates. Privately issued
Pass-Through Certificates are structured similarly to the FNMA, FHLMC and GNMA
pass-through certificates and are issued by originators of and investors in
Mortgage Loans, including savings and loan associations, savings banks,
commercial banks, mortgage banks, investment banks and special purpose
subsidiaries of such institutions. Privately issued Pass-Through Certificates
are usually backed by a pool of conventional Mortgage Loans and are generally
structured with credit enhancement such as pool insurance or subordination.
However, privately issued Pass-Through Certificates are typically not guaranteed
by an entity having the credit status of FNMA, FHLMC or GNMA guaranteed
obligations.
F. Mortgage Derivatives. The Company may acquire Mortgage Derivatives,
including IOs, Inverse IOs, Sub IOs and floating rate derivatives, as market
conditions warrant. Mortgage Derivatives provide for the holder receive interest
only, principal only, or interest and principal in amounts that are
disproportionate to those payable on the underlying Mortgage Loans. Payments on
Mortgage Derivatives are highly sensitive to the rate of prepayments on the
underlying Mortgage Loans. In the event that prepayments on such Mortgage Loans
occur more frequently than anticipated, the rates of return on Mortgage
Derivatives representing the right to receive interest only or a
disproportionately large amount of interest, i.e., IOs would be likely to
decline. Conversely, the
38
<PAGE>
rates of return on Mortgage Derivatives representing the right to receive
principal only or a disproportional amount of principal, i.e., POs, would be
likely to increase in the event of rapid prepayments.
Some IOs in which the Company may invest, such as Inverse IOs, bear
interest at a floating rate that varies inversely with (and often at a multiple
of) changes in a specific index. The yield to maturity of an Inverse IO is
extremely sensitive to changes in the related index. The Company also may invest
in inverse floating rate Mortgage Derivatives which are similar in structure and
risk to Inverse IOs, except they generally are issued with a greater stated
principal amount than Inverse IOs.
Other IOs in which the Company may invest, such as Sub IOs, have the
characteristics of a subordinated interest. A Sub IO is entitled to no payments
of principal; moreover, interest on a Sub IO often is withheld in a reserve fund
or spread account to fund required payments of principal and interest on more
senior trenches of mortgage securities. Once the balance in the spread account
reaches a certain level, excess funds are paid to the holders of the Sub IO.
These Sub IOs provide credit support to the senior classes and thus bear
substantial credit risks. In addition, because a Sub IO receives only interest
payments, its yield is extremely sensitive to the rate of prepayments (including
prepayments as a result of defaults) on the underlying Mortgage Loans.
IOs can be effective hedging devices because they generally increase
in value as fixed-rate mortgage securities decrease in value. The Company also
may invest in other types of derivatives currently available in the market and
other Mortgage Derivatives that may be developed in the future if the Advisor
determines that such investments would be advantageous to the Company.
Future Modifications of the Company's New Investment Policy
The Declaration of Trust, as amended, will continue to provide that
any modifications to the Company's investment policy will require the consent of
the holders of a majority of the Shares. However, because the proposed new
investment policy permits investments in a very broad range of mortgage assets,
the Board of Trustees will have greater flexibility in making investments
without the need to either further expand the provisions of the Declaration of
Trust or obtain any additional consents from the Shareholders.
Proposal 7: Additional Conforming Changes to the Declaration of Trust
The Board of Trustees proposes that various conforming amendments be
made to the Declaration of Trust to reflect the Company's new investment policy
and the other items discussed in this Consent Statement. See "COMPARISON OF
PROVISIONS OF DECLARATION OF TRUST BEING AMENDED PURSUANT TO THE PROPOSALS" and
Second Amended and Restated Declaration of Trust attached to this Consent
Statement as Annex C.
Proposal 8: Adoption of an Incentive Share Option Plan
Upon the approval of the Proposals, the Company's Board of Trustees
will adopt the Incentive Share Option Plan, the purpose of which is to (i)
attract and retain qualified persons as trustees and officers of the Company and
(ii) to incentivize and more closely align the financial
39
<PAGE>
interests of the Advisor with the interests of the Shareholders by providing the
Advisor with a substantial financial interest in the Company's success (each, a
"Potential Optionee", and collectively, "Potential Optionees"). The Board of
Trustees will appoint a compensation committee (the "Compensation Committee")
which will be comprised of the independent trustees and which will be authorized
and directed to administer the Incentive Share Option Plan. Pursuant to the
Incentive Share Option Plan, if the Company's distributions per Share in the
immediately preceding calendar year exceeds $1.45 per Share in any calendar year
(i.e. the annual distributions for the fiscal year ended December 31, 1997), the
Compensation Committee will have the authority to issue options to purchase, in
the aggregate, that number of Shares which is equal to three percent (3%) of the
Shares outstanding as of December 31 of the immediately preceding calendar year,
provided, that the Compensation Committee may only issue, in the aggregate,
options to purchase a maximum number of Shares over the life of the Incentive
Stock Option Plan equal to ten percent (10%) of the Shares outstanding on the
date the Proposals are approved.
Subject to the limitations described in the preceding paragraph, if
the Compensation Committee does not grant the maximum number of options in any
year, then the excess of the number of authorized options over the number of
options granted in such year will be added to the number of authorized options
in the next succeeding year and will be available for grant to Potential
Optionees by the Compensation Committee in such succeeding year.
Pursuant to the Incentive Share Option Plan, the Compensation
Committee will not be authorized to grant any options until six months after the
Shares have been listed for trading on the American Stock Exchange. All options
granted by the Compensation Committee will have an exercise price equal to or
greater than the fair market value of the Shares on the date of the grant. The
maximum option term to be established by the Compensation Committee will be ten
(10) years from the date of grant. All stock options granted pursuant to the
Incentive Share Option Plan will vest immediately upon issuance.
If the holder of an option ceases to serve as a trustee or officer of,
or Advisor to, the Company for any reason (other than removal for "cause" as
defined in the Incentive Share Option Plan) options that have been previously
granted to such holder and that are vested as of the date such holder ceases to
serve as a director, officer, or Advisor may be exercised by such holder or such
holder's legal representative in accordance with and subject to the Incentive
Share Option Plan. If the holder of an option is removed as a director, officer
or employee or Advisor of the Company for cause, options that have been
previously granted to such holder and that have not been vested will be
forfeited and options that are vested as of the date of such cessation may be
exercised by such holder in accordance with and subject to the Incentive Share
Option Plan.
The Company intends to file with the Securities and Exchange
Commission, on or before 180 days after the date the Proposals are adopted by
the Shareholders, a Registration Statement on Form S-8 with respect to the
Shares to be issued pursuant to the Incentive Share Option Plan. Shares, if any,
issued pursuant to the Incentive Share Option Plan prior to the date on which
the Company's Registration Statement on Form S-8 becomes effective will be
restricted securities in the hands of the holders thereof. Shares to be issued
pursuant to the Incentive Share Option Plan after the date on which the
Company's Registration Statement on Form S-8 becomes effective, will be
registered under the Securities Act pursuant to such Form S-8.
40
<PAGE>
Actions to Be Taken Upon Approval of the Proposals Which Do Not Require
Shareholder Consent
Increasing the Number of Authorized Shares; Issuance of Additional Equity and
Debt Securities.
Upon the Shareholders' adoption of the Proposals, the Board of
Trustees will increase the number of authorized Shares from 12,500,000 to
20,000,000 and will issue, on an as needed basis, additional debt and equity
securities, the proceeds at which will be used to operate the Company as an
ongoing business and to acquire additional assets in accordance with the
Company's new investment policy.
The Declaration of Trust currently does not provide for a specified
number of authorized shares but it does provide that the Board of Trustees can
issue additional debt and equity securities although the original prospectus
used in the Offering contemplated that the authorized number of Shares was
12,500,000 and that no additional Shares would be offered upon completion of the
Offering. The Board of Trustees believes that an increase in the number of
authorized Shares is desirable in order to provide the Company with the
flexibility required in order to take advantage of opportunities that currently
exist in the markets to acquire Mortgage Investments. If the Proposals are
adopted, the Company will issue additional debt and equity securities as and
when needed to achieve its investment objectives, which securities may or may or
may not be offered pursuant to a registered public offering. The Board of
Trustees anticipates that the Company will first utilize the Working Capital
Line(s) or similar types of financing secured by its current portfolio of assets
to acquire Mortgage Investments, and may, at some later date, raise funds
through the issuance of debt and equity securities. If such offering of debt and
equity securities were pursued, it is contemplated that the proceeds would be
used principally to acquire Mortgage Investments. The Company currently has no
commitments to issue Shares or other debt and equity securities and has no
commitments to acquire any additional investments.
The issuance of additional Shares could have a substantial effect on
the interests and rights of current holders of the Shares. Issuance of
additional Shares will reduce the ownership percentage of existing holders of
Shares. On the other hand, following the issuance of additional Shares, the
Board of Trustees believes that there will be a broader distribution of, and
greater liquidity for, the Company's Shares, as well as the opportunity for
greater coverage of the Company by analysts within the investment community. See
"RISK FACTORS - Issuance of Additional Shares."
Change in the Advisory Agreement's Fee Structure.
General
Upon the Shareholders' approval of the Proposals, the Company's Board
of Trustees will amend the Advisory Agreement so as to change the Advisory
Agreement's fee structure as set forth below.
The Advisor's current fees were structured based on the assumption
that the Company would invest in the Authorized Mortgage Investments and would
terminate approximately six to eleven years after the completion of its
acquisition stage. If the Proposals are adopted resulting in the
41
<PAGE>
conversion of the Company into a publicly traded open-ended, infinite-life REIT
that will raise funds and invest such funds, along with disposition proceeds, in
additional Mortgage Investments, the Board of Trustees believes that it would
then be appropriate to restructure the fees paid by the Company to the Advisor
so that such fees associated with the new Mortgage Investments that are acquired
or originated by the Company are similar to the fees paid by other publicly
traded, infinite-life REITs that follow investment strategies similar to the
Company's new investment policy.
If the Proposals are adopted by the Shareholders, (i) the Advisor will
receive a lower rate of annual fees, however the fees will be payable over a
longer period of time and assuming a larger portfolio of assets, such fees will
aggregate substantially more than they would have if the REIT was not converted
into an infinite-life REIT, and (ii) although all acquisition and disposition
fees will be eliminated, the annual asset management fees payable to the Advisor
may be greater than the annual asset management fees currently being paid to the
Advisor. See "CONFLICTS OF INTEREST."
Current Structure; Fee Limitations
Under the terms of the current Advisory Agreement, since the Company
is currently in its operational stage, the Company pays the Advisor (i) an asset
management fee equal to .625% of Total Invested Assets, and (ii) reimbursements
for all operating expenses. Subject to increase by the Company's independent
trustees, the annual Total Operating Expenses of the Company (including fees and
reimbursements to the Advisor) may not exceed the greater of (i) 2% of the
Average Invested Assets of the Company or (ii) 25% of the Company's Net Income
(see the "Glossary" for definition of the foregoing capitalized terms) (the
"Operating Expense Limitation"). In addition, the Advisor receives distributions
of cash flow on the Shares owned by the Advisor on the same basis as
distributions of cash flow are made to other Shareholders. During the Company's
liquidation stage, the Advisor would be entitled to additional fees.
Proposed Revisions
Upon the Shareholders' approval of the Proposals, the Board of
Trustees will amend the Advisory Agreement to provide that the Advisor receive,
in place of the fees the Advisor is currently entitled to receive, the
following:
A. Asset Management Fee
(i) Existing Authorized Mortgage Investments. With respect to all
Authorized Mortgage Investments held by the Company prior to the date the
Proposals are approved by Shareholders, the Advisor will continue to receive an
annual asset management fee equal to .625% of the aggregate original amount
invested in such assets reduced, upon the receipt of repayments, sales proceeds,
FHA or other insurance or guarantee proceeds or payments whether or not
reinvested.
(ii) New Authorized Mortgage Investments. With respect to Authorized
Mortgage Investments acquired by the Company after the date the Proposals are
approved by Shareholders, the Advisor will receive an annual asset management
fee equal to .355% of the aggregate original amount invested in such assets
reduced, upon the receipt of repayments, sales proceeds, FHA or other
42
<PAGE>
insurance or guarantee proceeds or payments, by the original amount invested in
such asset which is not reinvested in another Authorized Mortgage Investment.
(iii) Investment Grade Proposed Mortgage Investment. With respect to
Proposed Mortgage Investments which are investment grade (i.e. rated "BB" or
higher), the Advisor will receive an annual asset management fee equal to .355%
of the aggregate original amount invested in such assets reduced, upon the
receipt of repayments, sales proceeds or insurance or guarantee proceeds or
payments, by the original amount invested in such asset which is not invested in
an investment grade Proposed Mortgage Investment.
(iv) Non-Investment Grade Proposed Mortgage Investments. With respect
to Proposed Mortgage Investments which are non-investment grade (i.e. rated "B"
or lower), the Advisor will receive an annual asset management fee equal to
.750% of the aggregate original amount invested in such assets reduced, upon the
receipt of repayments, sales proceeds or insurance or guarantee proceeds or
payments, by the original amount invested in such asset which is not reinvested
in a non-investment grade Proposed Mortgage Investment.
(v) Unrated Proposed Mortgage Investments. With respect to Proposed
Mortgage Investments which are not rated, the Advisor will receive an annual
asset management fee equal to 1.000% of the aggregate original amount invested
in such assets reduced, upon the receipt of repayments, sales proceeds or
insurance or guarantee proceeds or payments, by the original amount invested in
such asset which is not reinvested in unrated Proposed Mortgage Investments.
(vi) Annual Incentive Fee. Subject to a minimum annual distribution
being made to Shareholders of approximately $1.45 per Share, the Advisor will be
entitled to receive incentive compensation for each fiscal year in an amount
equal to the product of (A) 25% of the dollar amount by which (1)(a) Funds From
Operations of the Company (before the incentive fee) per Share (based on the
weighted average number of Shares outstanding) plus (b) gains (or minus losses)
from debt restructuring and sales of property per Share (based on the weighted
average number of Shares outstanding), exceed (2) an amount equal to (a) the
weighted average of the price per Share of the initial Offering (i.e. $20 per
Share) and the prices per Share of any secondary offerings by the Company
multiplied by (b) the Ten-Year U.S. Treasury Rate plus two percent per annum
multiplied by (B) the weighted average number of Shares outstanding during such
fiscal year. For any period less than a fiscal year during which the Advisory
Agreement is in effect, the incentive fee will be prorated according to the
proportion which such period bears to a full fiscal year.
"Funds From Operations" means net income (computed in accordance with
GAAP) excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and amortization on mortgage assets, and after adjustments for
unconsolidated partnerships and joint ventures. Funds From Operations does not
represent cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income as an indication of the
Company's performance or to cash flows as a measure of liquidity or ability to
make distributions. As used in calculating the Advisor's incentive compensation,
the term "Ten Year U.S. Treasury Rate" means the arithmetic average of the
weekly average yield to maturity for actively traded current coupon U.S.
Treasury fixed interest rate securities (adjusted to constant maturities of ten
years) published by the Federal Reserve Board during a fiscal year, or, if such
rate is not published by the Federal Reserve
43
<PAGE>
Board, any Federal Reserve Bank or agency or department of the federal
government selected by the Company. If the Company determines in good faith that
the Ten Year U.S. Treasury Rate cannot be calculated as provided above, then the
rate will be the arithmetic average of the per annum average yields to
maturities, based upon closing asked prices on each business day during a
quarter, for each actively traded marketable U.S. Treasury fixed interest rate
security with a final maturity date not less than eight nor more than twelve
years from the date of the closing asked prices as chosen and quoted for each
business day in each such quarter in New York City by at least three recognized
dealers in U.S. government securities selected by the Company.
B. Other Compensation and Reimbursements
(i) Operating Expenses. The Advisor will continue to be reimbursed for
all operating expenses, provided that such operating expenses do not exceed the
existing Operating Expense Limitation set forth in the current Declaration of
Trust.
(ii) Origination Points. The Advisory Agreement's fee structure will
also be changed so that with respect to the first $100 million of new Mortgage
Investments acquired by the Company, the Advisor will receive with respect to
each loan originated by the Company, a portion of the origination points paid by
borrowers equal to up to 1% of the principal amount of such Mortgage Investment
and the Company will receive the portion of the origination points paid by
borrowers in excess of 1% of the principal amount of such Mortgage Investment.
After the first $100 million of additional Mortgage Investments is acquired, the
Company will retain 100% of the origination points paid by borrowers. The
Company's current fee structure provides that such mortgage placement and
financing points are paid to the Advisor.
(iii) Distributions on Shares Owned by the Advisor. The Advisor will
continue to be entitled to receive distributions of cash flow on Shares owned by
the Advisor on the same basis as distributions of cash flow are made to other
Shareholders.
(iv) Additional Shares. To the extent that additional Shares are
issued by the Company, the Advisor will continue to receive an amount of Shares
equal to 1% of the Shares so issued by the Company. The Declaration of Trust
currently provides for the issuance of such Shares to the Advisor.
(v) Fees to be Eliminated/Deferred. The Advisor will not receive any
acquisition fees upon the Company's acquisition of additional Mortgage
Investments and will not receive any disposition fees (including the annual
incentive fee) upon a disposition of any of the Company's assets.
(vi) Special Servicer Fee. RMC will receive fees from the Company to
the extent that it acts as a special servicer with respect to the Mortgage Loans
underlying CMBS in which the Company owns a Subordinated Interest.
The Advisor has voluntarily deferred payments of fees and other
payables, totaling, $1,323,584 at March 31, 1998, which are currently due to the
Advisor by the Company. If the Proposals are adopted, the Advisor has agreed to
subordinate the payment of such amounts to the payment to the Shareholders of a
quarterly distribution equal to approximately $.36 per Share. If the
44
<PAGE>
Proposals are not adopted the Advisor will require the Company to pay all such
unpaid accrued fees and other payables to the extent the Company has sufficient
funds available.
Comparison of Fees.
The following table sets forth the historical compensation and
distribution paid by the Company to the Advisor and its affiliates for the
Company's last three fiscal years and for the three months ended March 31, 1998
(Historical) and the compensation and distributions that would have been paid in
the last three fiscal years and for the three months ended March 31, 1998 if the
Proposals had been in effect.
45
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1998 Year Ended December 31,
-------------- ----------------------------
1997 1996 1995
---- ---- ----
(Dollar amounts in thousands)
<S> <C> <C> <C> <C>
Historical:
Acquisition Fee(1) $ -- $ -- $ -- $ 421
Asset Management Fee(2) 90 367 376 340
Administrative Fee and Reimbursements(3) 20 110 138 191
---- ------ ------ ------
Subtotal 110 477 514 531
---- ------ ------ ------
Advisor's Distribution(4) 18 70 70 70
---- ------ ------ ------
Subordinated Incentive Fee from Dispositions -- -- -- --
---- ------ ------ ------
Total Historical $128 $547 $584 $1,022
==== ====== ====== ======
Pro Forma (Assuming No Leverage):
Acquisition Fee(6) $N/A $ N/A $ N/A $ N/A
Origination Points -- -- -- --
---- ------ ------ ------
Subtotal -- -- -- --
---- ------ ------ ------
Asset Management Fee(2) 82 333 348 331
Administrative Fee and Reimbursements(3) 20 110 138 191
Special Service(7) -- -- -- --
---- ------ ------ ------
Subtotal 102 443 486 522
---- ------ ------ ------
Advisor's Distribution(4) 18 70 70 70
---- ------ ------ ------
Annual Incentive Fee(8) -- -- -- --
---- ------ ------ ------
Subtotal 18 70 70 70
---- ------ ------ ------
Subordinated Incentive Fee from Dispositions(6) N/A N/A N/A N/A
---- ------ ------ ------
Total Pro Forma $120 $ 513 $ 556 $ 592
==== ====== ====== ======
Pro Forma (Assuming Maximum Leverage up to
the Debt Limitation)(9):
Acquisition Fee(6) $N/A $ N/A $ N/A $ N/A
Origination Points(10) -- -- -- 586
---- ------ ------ ------
Subtotal -- -- -- 586
---- ------ ------ ------
Asset Management Fee(2) 337 1,355 1,370 1,353
Administrative Fee and Reimbursements(3) 76 328 351 398
Special Service Fees(7) -- -- -- --
---- ------ ------ ------
Subtotal 413 1,683 1,721 1,751
---- ------ ------ ------
Advisor's Distribution(11) -- -- -- --
---- ------ ------ ------
Annual Incentive Fee(8) -- -- -- --
---- ------ ------ ------
Subtotal -- -- -- --
---- ------ ------ ------
Subordinated Incentive Fee from Dispositions(6) N/A N/A N/A N/A
---- ------ ------ ------
Total Pro Forma $413 $1,683 $1,721 $2,337
==== ====== ====== ======
</TABLE>
- -------------------------
(1) No Acquisition Fee was paid by the Company in the historical 1996, 1997 and
1998 table.
(2) Reflects the Asset Management Fee payable to the Advisor.
(3) Administration Fees and Reimbursements include all amounts paid by the
Company to the Advisor and their affiliates for administrative services, as
a reimbursement for general and administrative and overhead costs payable
by the Company, pursuant to the Trust Agreement.
(4) Reflects the distribution paid to the Advisor by virtue of Shares owned by
it.
(5) No Subordinated Incentive Fee from dispositions was payable to the Advisor
in the historical 1995, 1996 and 1997 tables and the three months ended
March 31, 1998 table.
(6) No Acquisition Fee or Disposition Fee will be paid to the Advisor pursuant
to the terms of the Proposals.
(7) Special Servicing Fee is payable in the event of a Mortgage Loan default
for which services are performed by the Advisor and its affiliates which
include oversight and management of the resolution of the Mortgage Loans.
The amount of this fee assuming no leverage and maximum leverage is not
determinable.
(8) Represents an annual interest in cash flow payable to the Advisor after the
investors have received a certain annual yield and a minimum annual
distribution equal to at least $1.45 per Share. Assuming no leverage, no
fee would have been paid in the Pro Forma
46
<PAGE>
while such assuming the effect of maximum leverage fee is not determinable
at this time. This fee is contingent upon, among other things, net income
the effects of new acquisitions.
(9) In determining the pro forma compensation payable with respect to assuming
Maximum Leverage by the Company subject to the Debt Limitation in the last
three fiscal years, the table does not attempt to specify the expected
types of assets to be acquired (i.e. Authorized Mortgage Investments or
Proposed Mortgage Investments) but rather assumes the asset type with the
largest fee payable. The table assumes (i) 100% unrated Mortgage
Investments with an Asset Management Fee of ranging from .355% to 1% from
proceeds determined under the Permanent Debt Limitation and (ii) 100% of
the proceeds from origination and securitization of insured and uninsured
Mortgage Loans secured by Section 42 Properties with an Asset Management
Fee of 1% from additional debt incurred under one or more working capital
line(s). All such borrowings are limited by the Debt Limitation(s) and the
Pro Forma assumes the borrowings were incurred and fully invested as of
January 1, 1995.
(10) Represents the origination points payable by the developer, and not the
Company, to the Advisor on origination and securitization of insured and
uninsured Mortgage Loans secured by Section 42 Properties.
(11) These distributions are based on cash flow including the new acquisitions
which is not determinable at this time.
COMPARISON OF PROVISIONS OF DECLARATION
OF TRUST BEING AMENDED PURSUANT TO THE PROPOSALS
The following is a comparison of the principal provisions of the
Amended and Restated Declaration of Trust and the existing Declaration of Trust.
The comparisons herein are summaries and do not purport to be complete and are
qualified in their entirety by reference to the form of the Amended and Restated
Declaration of Trust attached to this Consent Statement as Annex A.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Topic Existing Declaration of Trust Amended Declaration of
Trust
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stock Exchange Listing [bullet] No provision [bullet] The Trustees are
authorized to list the Shares
for trading on the
American Stock Exchange.
A vote of the majority of
the Trustees is required to
make any change to the
exchange on which Shares
are listed.
- ----------------------------------------------------------------------------------------------------------------------
Authorized Shares [bullet] The Company is authorized [bullet] Clarifies that the Board of
to sell and issue as many Trustees is authorized to
Shares as the Trustees shall issue an unlimited number
determine in their sole of securities (including
discretion. There is no limit Shares).
on the number of Shares
which may be issued.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Topic Existing Declaration of Trust Amended Declaration of
Trust
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowing [bullet] The Company is prohibited [bullet] The Company is permitted
from incurring indebtedness to incur debt, issue
except to satisfy REIT additional debt securities
distribution requirements. and to increase the leverage
of the Company's assets up
to 100% of the Trust's
Total Market Value.
Permanent Debt is limited
to 50% of Total Market
Value. Debt Limitation is
measured at the time debt is
incurred.
- ----------------------------------------------------------------------------------------------------------------------
Duration of Trust [bullet] The Company terminates on [bullet] The Company will continue
December 31, 2025, unless indefinitely, unless earlier
earlier terminated at any terminated.
time by the affirmative vote
of holders of a majority of
the outstanding Shares
entitled to vote thereon, or,
at any time after the tenth
anniversary of the Final
Closing Date by the
affirmative vote of a
majority of the Board of
Trustees, including a
majority of the independent
Trustees.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Topic Existing Declaration of Trust Amended Declaration of
Trust
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees/Compensation [bullet] Acquisition Fees ranging [bullet] Eliminated
from 2.0% to 4.0% of
Gross Proceeds
[bullet] Subordinated Incentive Fee [bullet] Eliminated
equal to 2.5% of
Disposition Proceeds
remaining after distribution
to Shareholders equal to
their Original Contribution
plus 10% per annum
[bullet] Non-accountable Expense [bullet] Eliminated
Allowance
[bullet] Asset Management Fee of [bullet] Asset Management Fee
.625% of Total Invested equal to .625% on existing
Assets Authorized Mortgage
Investments; .355% on
new Authorized Mortgage
Investments; .355% on
investment grade Proposed
Mortgage Investments;
.750% on non-investment
grade Proposed Mortgage
Investments; and 1.000%
on unrated Proposed
Mortgage Investments.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Topic Existing Declaration of Trust Amended Declaration of
Trust
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[bullet] None [bullet] Annual Incentive Fee equal
to the product of (A) 25%
of the dollar amount by
which (1)(a) Funds From
Operations of the Company
(before the incentive fee)
per Share (based on the
weighted average number
Shares outstanding) plus (b)
gains (or minus losses)
from debt restructuring and
sales of property per Share
(based on the weighted
average number of Shares
outstanding), exceed (2) an
amount equal to (a) the
weighted average of the
price per Share of the
initial Offering (i.e. $20
per Share) and the prices
per Share of any secondary
offerings by the Company
multiplied by (b) the Ten-
Year U.S. Treasury Rate
plus two percent per
annum, multiplied by (B)
the weighted average
number of shares
outstanding during such
year. The Advisor will not
receive this fee unless the
Shareholders have received
a minimum annual
distribution of $1.45 per
Share.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Topic Existing Declaration of Trust Amended Declaration of
Trust
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[bullet] Origination points of up to [bullet] Advisor and Company
1.5% of principal payable share origination points
by borrowers paid to the paid by borrowers with
Advisor respect to first $100 million
of new Mortgage
Investments (1% of
principal amount to
Advisor, balance to
Company). Thereafter,
100% of all origination
points will be earned and
retained by the Company.
[bullet] Reimbursement of all [bullet] No change
operating expenses
[bullet] None [bullet] RMC will receive fees
from the Company to the
extent that it acts as a
special servicer with
respect to the Mortgage
Loans underlying CMBS in
which the Company owns a
Subordinated Interest.
[bullet] Cap on Total Operating [bullet] No change
Expenses
[bullet] Issuance of Shares in an [bullet] No change
amount which will equal
(after such issuance) 1% of
the Shares of the Company.
- ----------------------------------------------------------------------------------------------------------------------
Investment Policies [bullet] Company is permitted to [bullet] In addition to Authorized
originate and acquire Mortgage Investments,
Authorized Mortgage Company is permitted to
Investments during the acquire or originate
Company's offering and uninsured Mortgage Loans,
acquisition stages. Construction Loans, Bridge
Loans, Mezzanine Loans,
Mortgage Derivatives and
Subordinated Interests in
CMBS. Investments may
be made on an ongoing
basis.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Topic Existing Declaration of Trust Amended Declaration of
Trust
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Incentive Share Option Plan [bullet] Trustees permitted to grant [bullet] No change. Trustees seek
options to purchase Shares approval of Incentive Share
to the Advisor and its Option Plan.
affiliates if the options (i)
are issued on same terms as
such options are sold to the
general public; (ii) do not
exceed an amount equal to
10% of the outstanding
Shares on the date of great;
or (iii) are issued pursuant
to a plan approved by the
Shareholders.
- ----------------------------------------------------------------------------------------------------------------------
Asset Holding Period [bullet] 10 to 12 years anticipated [bullet] No established holding
holding period period; proceeds of asset
sales and mortgage
repayments may be
reinvested.
- ----------------------------------------------------------------------------------------------------------------------
Acquisition Expenses [bullet] Amounts payable by the [bullet] As an operating company,
Trust for expenses related to the Company will be
the initial acquisition of directly responsible for all
assets were subject to acquisition expenses
limitations based upon the incurred in connection with
overall front-end fees which future asset acquisitions.
the Trust was permitted to
incur; generally capped at
approximately 1% of the
gross proceeds raised in the
initial offering
- ----------------------------------------------------------------------------------------------------------------------
Reports [bullet] Provides that annual reports [bullet] No change. The
will be given to Company's new policy will
Shareholders. The be to provide semi-annual
Company's current practice reports to Shareholders.
has been to provide
Shareholders with quarterly
reports
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
CONDITIONS TO IMPLEMENTING
THE NEW BUSINESS PLAN
The Company's new business plan as set forth in this Consent Statement
(including the actions set forth in the Proposals), will not be implemented,
even if the Shareholders approve the Proposals, unless the Shares are listed on
the American Stock Exchange or another nationally recognized stock exchange
acceptable to the Board of Trustees.
COMPARISON OF BENEFITS AND DETRIMENTS OF
ALTERNATIVES TO THE PROPOSALS
General
Prior to concluding that the Proposals should be presented to the
Shareholders, the Advisor, at the direction of the Board of Trustees, examined
the estimated values which could be derived from alternatives to the Proposals.
The alternatives examined by the Advisor were: (i) continuation of the Company
under the current Declaration of Trust and (ii) liquidation of the Company. In
order to determine whether the Proposals or one of these alternatives would be
more beneficial to the Shareholders, the Advisor compared the potential benefits
and detriments of the Proposals with the potential benefits and detriments of
each of the alternatives. Each of the Proposals and its alternatives have
potential benefits and detriments not present in the other alternatives. For the
reasons set forth below, the Advisor determined that the Proposals are more
beneficial to the Shareholders than either of the alternatives to the Proposals.
Summary of the Two Alternatives
Continuation of the Company Under the Current Declaration of Trust. An
alternative to the adoption of the Proposals and the implementation of the Board
of Trustees' new business plan would be to continue the Company in accordance
with its current Declaration of Trust and to hold its Authorized Mortgage
Investments for the originally contemplated time periods. The principal
advantages of continuing the Company as an unlisted finite-life REIT under the
current Declaration of Trust are that Shareholders (i) would not be subject to
the risk that the Company will not be able to maintain itself as an ongoing
operating company and (ii) will not bear the market risks arising from
fluctuations of stock prices for public companies generally. The Company could
follow its original investment strategy and dispose of its Mortgage Investments
in the next six to eleven years and the net liquidation proceeds would be
distributed to Shareholders in the liquidation of their investments. The primary
disadvantages with continuing the Company as an unlisted finite-life REIT are
that (i) as a result of the Company's new distribution policy, distributions to
Shareholders would decrease significantly, (ii) the Company would not be able to
raise additional funds (either through leveraging its portfolio or offering
additional Shares) and take advantage of favorable investment opportunities that
now exist in the market for Mortgage Investments, and (iii) the Shareholders
would not obtain the potential liquidity that might be afforded through the
listing of the Shares for trading on the American Stock Exchange. The Board of
Trustees believes that converting to a publicly traded infinite-life REIT is
fair to, and would be in the best interest of, the Shareholders because it will
facilitate (i) the raising of additional funds, the proceeds of which would be
used to acquire additional Mortgage Investments as described in this Consent
Statement, and (ii) the listing of the Shares for trading on the American Stock
Exchange.
53
<PAGE>
Liquidation. Liquidation is not currently considered to be a viable
option by the Advisor or the Board of Trustees. However, for comparison
purposes, the Advisor has analyzed this alternative and concluded that a
liquidation would not be as beneficial to the Shareholders as the Proposals
because, by comparison to conditions prevailing when most of the Company's
Mortgage Investments were originally acquired, market values have not increased
to a level sufficient to allow the Shareholders to obtain a return of their
original investment. Because the Advisor and the Board of Trustees believe these
conditions may improve over time, they believe that liquidation of the assets at
this time is premature and would not provide the Shareholders with their best
alternative to realize the optimum return on their investments. If the Company
were to liquidate, such liquidation would involve significant transaction costs
at the asset level such as selling commissions, legal fees, and other closing
costs associated with the disposition of such assets. In addition, there may be
additional costs associated with representations, warranties, and
indemnifications that purchasers generally require and which may result in
additional escrow costs. Further there would be potentially significant Company
administration and overhead costs in the winding down of the Company that are
largely independent of asset size and which could over an extended liquidation
period, reach disproportionately high levels in relation to revenues, thereby
reducing the portion of the proceeds available for distribution to the
Shareholders. Liquidation would, however, provide for the final liquidation of
the Shareholders' investments and a likely substantial distribution of cash
equal to net liquidation proceeds, though not at a level that would allow the
Shareholders to realize their original investment.
Comparison of Alternatives to the Proposals
General. To assist the Shareholders in evaluating the fairness of the
Proposals, the Advisor has compared the estimated market value of the Shares
with: (i) estimates of the value of the Shares under a "liquidation" scenario,
assuming that the Company's assets were sold at an assumed value based on
discounted cash flow analysis and followed by a distribution of net proceeds to
the Advisor and Shareholders in accordance with the Declaration of Trust; and
(ii) estimates of the value of the Shares on a "going concern" basis, assuming
that the Company's assets would be operated until December 31, 2007, followed by
the immediate liquidation of all assets for cash and the immediate distribution
of the proceeds in accordance with the Declaration of Trust. These valuation
estimates are subject to significant uncertainties, since the value of the
Shares, as well as the comparative estimated values, are based upon a number of
estimates, variables, assumptions and varying market conditions. Therefore, no
assurance can be given that the estimated values indicated could be realized and
actual realized values may be higher or lower than the estimates of such values.
The results of this comparative analysis are set forth below.
Shareholders should bear in mind that the estimated values assigned to the
Shares and alternative forms of consideration are based on a variety of
assumptions that have been made by the Advisor. These assumptions relate, among
other things to: (i) projections as to the Company's future income, expenses,
cash flow and other significant financial matters; (ii) the capitalization rates
that would likely be used by prospective buyers if the Company's assets were
liquidated; (iii) appropriate discount rates applied to expected cash flows in
computing the present value of the cash flows that may be received with respect
to the Shares; and (iv) selling costs and other expenses, costs, offsets and
contingencies attributable to the sale of assets and liquidation of the Company.
In addition these estimates are based upon certain information available to the
Advisor at the time the estimates were computed, and no assurance can be given
that the same conditions analyzed by the Advisor in arriving at the estimates of
value would exist at the time that the Proposals are implemented. The
assumptions used have been determined by the Advisor and, where appropriate, are
based upon current historical information regarding the Company and
54
<PAGE>
current real estate markets, and have been highlighted below to the extent
critical to the Advisor's conclusions. While the Advisor believes it has a
reasonable basis for the assumptions made, it is unlikely that all of the
assumptions employed by the Advisor will prove to be accurate in all material
respects and some assumptions used by the Advisor as to future events have been
selected to simplify the analysis and may not approximate the actual experience
of the Company. The estimated values of the Shares and alternative forms of
consideration would have been different had the Advisor made different
assumptions. No assurance can be given that such consideration would have been
realized through any of the alternatives described.
Summary of Comparative Valuation Alternatives
<TABLE>
<S> <C>
Current Market Value per Share (1) $15.73
Estimated Trading Value (2)
High Value $20.57
Low Value $13.09
Liquidation Value (3) $15.01
Going Concern Value (4) $14.56
</TABLE>
(1) Based on December 31, 1997 net asset value, which is the same amount as the
reinvestment price and redemption price established for the Reinvestment
and Redemption Plans.
(2) Estimated trading value is computed by capitalizing anticipated annual
distributions after giving effect to the adoption and implementation of the
Proposals, as determined by a range of yield rates for traded mortgage
REITs with attributes similar to those of the Company, ranging from 7%
(high) to 11% (low).
(3) Figure represents the amount that would be distributed if the Company sold
its assets in a bulk sale on March 31, 1998. This amount assumes that the
Company's participating Mortgages were sold at prices which took into
account the present value of the Mortgages and base interest at a 9%
discount rate and the present value of the equity loans and additional
interest at a 17% discount rate.
(4) Derived from discounted cash flows from the operation and sale of each
Company asset. For each asset it is assumed that it is held until the
December 31, 2007 followed by an immediate liquidation of assets for cash
and the immediate distribution of proceeds.
The operation and sale of the Company's assets does not take account
of market conditions or other factors that may affect liquidation strategies,
and it is unlikely that the operations of the Company as a going concern would
in fact follow such a format. An attempt has been made to estimate a specific
value, although the Advisor believes that there is a potential for a wide
variance from this value based on future developments in the economy generally,
conditions in the real estate markets and performance of individual assets.
Accordingly, there can be no assurance that actual value under this alternative
would not substantially exceed, or be less than, the value indicated in the
table.
Conclusion. The Advisor reached the following conclusions when
comparing the estimated potential values of the Shares with the estimated
potential values of the consideration which may be offered in the alternatives
to the Proposals: (i) it is not possible to assign a specific value to the
Shares or to predict accurately the prices at which the Shares will trade in the
market following the
55
<PAGE>
implementation of the Proposals; (ii) given the uncertainty as to the value of
the Shares, which is dependent in part upon the capital structure resulting from
the Proposals, it is appropriate to analyze the Shares as having a range of
potential values; (iii) the Shares, when traded, may trade at prices higher or
lower than the range of values estimated by the Advisor, depending upon a
variety of market conditions not susceptible to precise determination; (iv)
there are similar difficulties in establishing the value of the consideration
available to Shareholders from alternatives to the Proposals, with such values
also dependent upon a number of market conditions not susceptible to precise
determination; and (v) the assumptions used by the Advisor in establishing
values for the alternatives to the Proposals may not prove to be accurate, and
such consideration may have a value higher or lower than the values estimated by
the Advisor. Furthermore, aside from the assumed value of the Shares, adoption
of the Proposals may provide additional benefits to Shareholders because (a) the
Proposals entail other potential benefits to Shareholders (e.g. liquidity and
the potential impact on distributions) besides the market value of the Shares
which in the Advisor's opinion could outweigh the possibility that the value of
the Shares at the time of the adoption of the Proposals might be less than the
value of alternative consideration; (b) as market conditions change over time,
the range of possible values for the Shares may improve in relation to the
potential values for the alternatives to the Proposals; and (c) the upper end of
the range of estimated potential values for the Shares is equal to or higher
than the estimated value for such alternatives. Notwithstanding the
uncertainties in estimating the value of the Shares, the Advisor believes the
available information suggests that the adoption and implementation of the
Proposals is the more attractive alternative for the Shareholders.
Estimated Trading Value of Shares
The Advisor has estimated a range of possible values for the Shares,
which values were computed by capitalizing the December 31, 1997 pro forma
annual distribution per Share of the Company after the adoption and
implementation of the Proposals by yield rates of 7.0% and 11.0% based on a
range of average yields for a 52 week period ending June 24, 1998 for traded
mortgage real estate investment trusts ("Mortgage REITs"), which REITs are
comparable to the Company.
In order to estimate the market value at which the Shares will
initially trade on the American Stock Exchange, the Advisor analyzed data for
Mortgage REITs in connection with its determination of the range of estimated
trading values for the Shares. Such analysis included: (i) identification of
Mortgage REITs with portfolios and business plans which are comparable to that
of the Company upon the implementation of the Proposals ("Comparable Mortgage
REITs"); (ii) determination of the current trading value of the common stock and
annual distribution per share of such Comparable Mortgage REITs; (iii)
derivation of the distribution yield of each Comparable Mortgage REIT (equal to
the annual distribution rate per share divided by the trading value per share);
(iv) identification of a range of possible distribution yield based on all yield
rates falling between the highest and lowest distribution yields of each
Comparable Mortgage REIT; (v) determination of the pro forma annual distribution
per Share of the Company; and (vi) estimation of a possible range of trading
values for the Shares of the Company by a range determined by capitalizing (i.e.
dividing) the Company's December 31, 1997 pro forma annual distribution per
Share by the high and low distribution yield for the Comparable Mortgage REITs.
The following table sets forth data with regard to each Comparable
Mortgage REIT. These Mortgage REITs were identified by the Advisor as Mortgage
REITs which are engaged in businesses which are comparable to the Company (after
implementation of the Proposals) based on their asset holdings and business
plans. The table sets forth, for the 52 week period ended June 24,
56
<PAGE>
1998 each Comparable Mortgage REIT's average trading price, annual dividend per
share and annual dividend yield per share.
<TABLE>
<CAPTION>
Average 52
Week Stock Annualized
Mortgage REIT Price Dividend Yield
- ------------- ----- -------- -----
<S> <C> <C> <C>
CRIIMI MAE $15.69 $1.49 9.49%
IMPAC Mortgage Holdings $17.17 $1.86 10.83%
OCWEN Asset Investment Corp. $20.00 $1.37 6.85%
Average Yield 9.06%
</TABLE>
Based on the foregoing, the Advisor utilized a distribution yield of
7.0% to 11.0% to estimate the trading value of the Company's Shares. To
calculate the range of estimated trading values for each Share, the Advisor
capitalized (i.e. divided) the Company's annualized distribution based on
December 31, 1997 pro forma financials of $1.44 per Share by the foregoing
distribution yield rates, which resulted in a range of estimated trading values
per Share of between $20.57 and $13.09. The average or midpoint of the range of
estimated trading values per Share as calculated above ($20.57 to $13.09) is
approximately $16.83, somewhat higher than the price of $15.73 per Share of the
Company's Shares based on the current market value (defined as net asset value)
per Share of the Company.
The Advisor also compared the Company to Comparable Mortgage REITs in
terms of distribution yield for the 52-week period ending June 24, 1998.
Utilizing a distribution based on December 31, 1997 pro forma financials of
$1.44 per Share and the December 31, 1997 market value (defined as net asset
value) of $15.73 per Share, the Company's distribution yield was 9.15% which is
within the range of the dividend yields of Comparable Mortgage REITs and above
the average of yields of Comparable Mortgage REITs of 9.06%. Based on a
hypothetical Share value of $13.09, the Company's annual distribution yield is
11% and at a hypothetical Share value of $20.57, the Company's annual
distribution yield is 7.0%. These yields are generally within the yield ranges
established above from Comparable Mortgage REITs (6.85% to 10.83%).
The prices at which the Shares initially will trade will be affected
by, among other things, (i) the potential pent-up selling pressures as a result
of the historic illiquidity of investments in the Company; (ii) the Company's
lack of history as a publicly listed infinite-life operating company; (iii) the
unfamiliarity of institutional investors, financial analysts and broker-dealers
with the Shares of the Company and their prospects as an investment when
compared with other equity securities; and (iv) the historical financial
performance of the Company which may be viewed by some analysts as
disappointing.
It is impossible to predict how these factors will affect the price of
the Shares. For this reason, neither the data nor the Company's use of such
materials, should be regarded as an opinion of the Advisor or the Board of
Trustees as to the prices at which the Shares may trade following the adoption
and implementation of the Proposals and the Company's new business plan as
described herein. The range of estimated values shown for Shares is designed to
facilitate an analysis of the
57
<PAGE>
Proposals' feasibility and not to predict the future trading prices of the
Shares. Such prices may be either lower or higher than those in the range of
estimated values.
Liquidation
Although not considered to be a viable option at this time, an
alternative available to the Company is to proceed with an immediate liquidation
of the Company's assets with a corresponding distribution of the net liquidation
proceeds to the Shareholders in accordance with the Company's current
Declaration of Trust.
In order to estimate the liquidation value of the Shares with respect
to the Company, the Advisor assumed that the Company's assets were sold in a
bulk sale as of March 31, 1998 at the present values of the Company's Mortgage
Loans and the equity loans, based on discounting the stream of (i) base interest
payments utilizing a discount rate of 9% and (ii) additional interest and
contingent interest payments utilizing a discount rate of 17%, reflecting higher
risk in receiving those payments which are based solely on favorable property
operating performance. The Advisor believes that the resulting values reasonably
indicate the selling prices or values of the Mortgage Loans and equity loans
held by the Company. From these values, selling commissions and expenses and
Company level liquidation expenses were subtracted. Mortgage selling commissions
and expenses and Company level liquidation expenses were estimated to be
approximately 1.0% of the indicated value of the assets (Mortgage Loans, equity
loans and other investments). All of the Company's other assets, including
accounts receivable, undistributed cash and other assets or collateral that may
exist and be relevant to determining realization value in a liquidation, were
added to the net proceeds from the sale of the assets. Liabilities were then
subtracted, including accounts payable, amounts due the Advisor and affiliates
and other liabilities. The resulting net liquidation proceeds were then assumed
to be distributed to the Shareholders in accordance with the current Declaration
of Trust. The total amount distributed to Shareholders is the indicated
liquidation value for the Shares of the Company.
The following chart summarizes the Advisor's analysis of the estimated
liquidation value of the Company.
<TABLE>
<CAPTION>
Assets Liquidation Value
- ------ -----------------
<S> <C>
The Cove $ 6,726,111
Oxford at Greenridge 10,754,812
Town & Country IV 10,154,787
Columbiana Lakes 8,455,607
Stony Brook 8,825,577
Investments in GNMA Certificates (1) 11,602,252
-----------
Total $56,519,147
Sales Commission 0
Cost of Liquidation (565,191)
58
<PAGE>
Other Assets as of 3/31/98 3,061,866
Outstanding Liabilities as of 3/31/98 (1,375,049)
-----------
Total Liquidation Value $57,640,773
-----------
Shares Outstanding (2) 3,839,245
Liquidation Value per Share $ 15.01
-----------
</TABLE>
(1) Assumes realization of March 31, 1998 unrealized gain.
(2) Net Shares as of March 31, 1998
Going-Concern Value
The Advisor has estimated the going concern value of the Shares by
analyzing projected cash distributions generated by the Company's assets,
assuming the Company's assets would be held until the end of the calendar year
which is ten years following the date of the acquisition of the last Mortgage
Investment acquired by the Company (December 31, 2007), followed by the
immediate liquidation of all its assets for cash and the immediate distribution
of the net proceeds and other cash available for distribution to the
Shareholders.
In order to analyze the projected cash distributions with respect to
the Shares, the Advisor discounted the cash flow projections from the operations
of each property underlying the Company's Mortgage Loans, reflecting the amount
of interest, additional interest, and contingent interest that would be
generated by each of the Company's Mortgage Loans and other assets utilizing a
9% discount rate together with a 9.5% terminal capitalization rate at the
underlying property level to determine the amount of mortgage and participation
proceeds that would be due and payable to the Company upon a sale of the
underlying properties. For each asset, it was assumed that it would be held
until the end of the calendar year which is 10 years after the date of
acquisition of the last asset acquired (December 31, 2007), followed by the
immediate liquidation of all assets for cash. The resulting cash flows were then
adjusted for Company level administrative expenses, which were increased
annually at 3% and then discounted back to present value utilizing a 9% discount
rate.
Although the Advisor considers it unlikely that all assets could be
liquidated in a single transaction, this assumption was utilized for the
purposes of this going concern analysis. This approach does not take account of
future market conditions or other factors that may affect asset management
strategies and it is unlikely that the operation of the Company as a going
concern would, in fact, follow such a format. Should the assets be liquidated
over time in an extended liquidation of assets, even at prices equal or greater
to those projected, distributions of cash flow from operations to the
Shareholders might be further reduced because much of the Company's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. Therefore, for
simplification purposes, the sales are assumed to occur concurrently.
The value of the Shares on a going-concern basis is not intended to be
indicative of the prices at which Shares could be sold by Shareholders in the
currently illiquid secondary market, nor
59
<PAGE>
are such estimates intended to reflect the distributions payable with respect to
the Shares if the Company's assets were to be sold at their current fair market
values.
The following chart sets forth a summary of the results of the
Advisor's analysis with respect to the estimate of the going concern value of
the Company.
<TABLE>
<CAPTION>
Going Concern Value
- -------------------
<S> <C>
Present Value of Income $59,301,505
Present Value of Expenses (4,483,858)
-----------
Total Present Value 54,817,647
Other Assets 2,342,642
Liabilities (1,259,997)
-----------
Total Value $55,900,292
===========
Total Value per Share $ 14.56
</TABLE>
60
<PAGE>
FINANCIAL INFORMATION
See Appendix B for certain pro forma financial information for the
Company.
FEDERAL INCOME TAX CONSEQUENCES
The Company expects to continue to be treated as a real estate
investment trust for tax purposes, and therefore the tax consequences of such
status as previously disclosed to Shareholders in the Prospectus will continue
to apply. The following is a brief discussion of tax rules that apply to real
estate investment trusts generally and of the tax consequences attributable to
the Company's proposed business plan.
REIT Qualifications. The Internal Revenue Code defines a REIT as a
corporation, trust or association (i) that is managed by one or more directors
or trustees; (ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (iii) that would
be taxable as a domestic corporation, but for sections 856 through 860 of the
Internal Revenue Code; (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Internal Revenue Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding capital stock of which is owned,
directly or indirectly, by five or fewer individuals (as defined in the Internal
Revenue Code to include certain entities) during the last half of each taxable
year (the "5/50 Rule"); (vii) that makes an election to be a real estate
investment trust (or has made such election for a previous taxable year) and
satisfies all relevant filing and other administrative requirements established
by the IRS that must be met in order to elect and to maintain real estate
investment trust status; (viii) that uses a calendar year for federal income tax
purposes and complies with the recordkeeping requirements of the Internal
Revenue Code and Treasury Regulations promulgated thereunder; and (ix) that
meets certain other tests regarding the nature of its income and assets.
Although the Company believes that it has satisfied the requirements for REIT
status to date, qualification as a REIT involves the application of highly
technical and complex Internal Revenue Code provisions, for which there are only
limited judicial and administrative interpretations. If the Company fails to
qualify as a REIT in any tax year, it would be taxed as a regular domestic
corporation. Any such corporate tax liability could be substantial and would
reduce the amount of cash available for distribution to the Company's
stockholders. The determination of various factual matters and circumstances not
entirely within the Company's control may affect the Company's ability to
qualify as a real estate investment trust. For example, in order to qualify as a
REIT, at least 95% of the Company's gross income in any year must be derived
from qualifying sources, and the Company must pay dividends to Shareholders
aggregating annually at least 95% of its real estate investment trust taxable
income (excluding capital gains).
The Company intends to maintain its REIT status by carefully
monitoring its income, including income form hedging transactions, futures
contracts and sales of Mortgage Investments to comply with the 75% of income
test and the 95% of income test. In order to help insure its compliance with the
REIT requirements of the Code, the Company has adopted guidelines the effect of
which will be to limit the Company's ability to earn certain types of income,
including income from hedging, other than hedging income from qualified REIT
assets.
Characterization of Distributions, Gain and Loss. As long as the
Company qualifies as a REIT, distributions made to the Company's taxable U.S.
Shareholders out of current or
61
<PAGE>
accumulated earnings and profits (and not designated as capital gain dividends)
will be taken into account by such U.S. Shareholders as ordinary income and will
not be eligible for the dividends received deduction generally available to
corporations. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the Shareholder has held his Shares. 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 stock.
To the extent that such distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a Shareholder's Shares, such
distributions will be included in income as long-term capital gain (or
short-term capital gain if the Shares have been held for one year or less)
assuming the Shares are a capital asset in the hands of the Shareholder. In
addition, any distribution declared by the Company in October, November, or
December of any year and payable to a Shareholder of record on a specified date
in any such month shall be treated as both paid by the Company and received by
the Shareholder on December 31 of such year, provided that the distribution is
actually paid by the Company during January of the following calendar year.
Taxable distributions from the Company and gain from the disposition
of the Shares will not be treated as passive activity income and, therefore,
Shareholders generally will not be able to apply any "passive activity losses"
(such as losses from certain types of limited partnerships in which the
stockholder is a limited partner) against such income. In addition, taxable
distributions from the Company generally will be treated as investment income
for purposes of the investment interest limitations. Capital gains from the
disposition of Shares (or distributions treated as such) will be treated as
investment income only if the Shareholder so elects, in which case such capital
gains will be taxed at ordinary income rates. The Company will notify
Shareholders after the close of the Company's taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital, and capital gain.
In general, any gain or loss realized upon a taxable disposition of
the Shares by a Shareholder who is not a dealer in securities will be treated as
long-term capital gain or loss if the Shares have been held for more than one
year and otherwise as short-term capital gain or loss. However, any loss upon a
sale or exchange of Shares by a Shareholder who has held such Shares for six
months or less (after applying certain holding period rules), will be treated as
a long-term capital loss to the extent of distributions from the Company
required to be treated by such Shareholder as long-term capital gain. All or a
portion of any loss realized upon a taxable disposition of the Shares may be
disallowed if other Shares are purchased within thirty (30) days before or after
the disposition.
Hedging Activities. In order to comply with the 95% and 75% gross
income tests, the Company has limited and will continue to limit substantially
all of the assets that it acquires to Mortgage Investments or other securities
or obligations that are treated as obligations secured by mortgages on real
property or on interests in real property or to other qualified REIT assets. As
a result, the Company may limit the type of assets, including hedging contracts,
that it otherwise might acquire and, therefore, the type of income it otherwise
might receive, including income from hedging.
In order to comply with the REIT gross income tests, the Company has
monitored and will continue to monitor its income, including income from
dividends, warehouse lending, hedging transactions, futures contracts, servicing
and sales of Mortgage Investments, gains on the sale of securities, and other
income not derived from qualified REIT assets. The Company believes that the
62
<PAGE>
aggregate amount of any nonqualifying income in any taxable year has not
exceeded and will not exceed the limit on nonqualifying income under the gross
income tests.
Distribution Requirement. In general, the Company must distribute at
least 95% of its income each year to maintain its qualification as a REIT. The
Company's operations may generate taxable income in excess of cash flow.
Therefore, the Company's investment activities could have the effect of
requiring the Company to incur borrowings or liquidate a portion of its
portfolio at unfavorable times in order to distribute all of its taxable income
and thereby avoid corporate-level income tax and maintain its qualification as a
REIT.
Unrelated Business Taxable Income. In general, dividend income that a
tax-exempt entity receives from the Company should not constitute unrelated
business taxable income ("UBTI"). If, however, excess inclusion income were
realized by the Company and allocated to Shareholders, such income would not be
offset by net operating losses and, if the Shareholder is a tax-exempt entity,
is fully taxable as UBTI and, as to foreign Shareholders, would be subject to
federal income tax withholding without reduction pursuant to any otherwise
applicable income tax treaty. Excess inclusion income could be generated if the
Company were to acquire residual interests in one or more REMICs, and is the
excess of the income of the holder of a residual interest with respect to such
interest over the initial cost of such interest at 120% of the long-term federal
rate established by the IRS. The Company expects to arrange its securitizations
in a manner to avoid generating significant amounts of excess inclusion income.
Securitization Activities. The Company may conduct certain of its
activities, including securitization activities, through one or more taxable
subsidiaries or through qualified REIT subsidiaries formed for such purpose.
Income realized by the Company from a securitization could be subject to a 100%
tax as a "prohibited transaction."
Future Legislation. The rules dealing with federal income taxation are
constantly under review by the IRS, the Treasury Department and Congress. New
legislation or other provisions may be enacted, or new interpretations may be
adopted, which could adversely affect the taxation of the Company and its
stockholders. Recent proposals could, if enacted, prevent the Company from
utilizing a taxable subsidiary.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Consent Statement shall be deemed to be
modified or superseded for purposes of this Consent Statement to the extent that
a statement contained in this Consent Statement (or in any other subsequently
filed document that also is or is deemed to be incorporated by reference in this
Consent Statement) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Consent Statement.
CONSENT SOLICITATION PROCEDURES
This Consent Statement is being furnished to Shareholders in
connection with the solicitation of written consents ("Consents") to the matters
set forth in the Proposals. Shareholders will be entitled to either grant or
withhold consent to all of the Proposals and will not be entitled to grant or
withhold consent to individual Proposals. The Company is first sending this
Consent Statement and the accompanying Consent Form to Shareholders on or about
_____, 1998. The principal executive
63
<PAGE>
offices of the Company are located at 625 Madison Avenue, New York, New York
10022; its phone number is (212) 421-5333.
The close of business on _____, 1998 has been fixed as the record date
(the "Record Date") for determining which Shareholders are entitled to receive
notice of the Proposals and submit Consent Forms. The records of the Company
indicate that on the Record Date there were issued and outstanding 3,790,936
Shares (other than Shares held by the Advisor, the trustees and their
affiliates).
The deadline for returning the enclosed Consent Form is ____, 1998,
which date may be extended to no later than ________, 1998 by the Board of
Trustees in its discretion.
Consents are revocable by Shareholders at any time prior to the later
of ___, 1998 or the date on which Consents of Shareholders representing a
majority of the total eligible Shareholder vote become effective by delivering
written notice to the Company. All Shares held by a Shareholder will be voted as
specified by his or her Consent Form. A Shareholder who does not return his or
her Consent Form or who abstains will effectively have not consented to the
Proposals. If a Consent Form is completed and returned, but no box is marked
with respect to the Proposals, such Shareholder will be deemed to have consented
to the Proposals. Each Consent submitted by a Shareholder will be for four
months, unless earlier revoked. The Declaration of Trust requires that
Shareholders have a minimum of 20 days to respond to a vote without a meeting.
Therefore after _________, 1998 and upon the Company's receipt of consents of a
majority of the total eligible Shareholder vote, the Proposals shall be deemed
adopted.
Under the terms of the Declaration of Trust, the consent of
the holders of a majority of the outstanding Shares entitled to vote and a
majority of the Board of Trustees, including the independent trustees, must be
obtained before the Proposals can be effected or implemented. In accordance with
the Declaration of Trust, none of the Advisor, the trustees or their affiliates
will vote their Shares with respect to the Proposals, and the Shares held by the
Advisor, the trustees and their affiliates will not be included in determining
the number of Shares entitled to consent to the Proposals.
Issuance of New/Replacement Share Certificates
Most Shareholders hold uncertificated Shares although those
Shareholders who requested certificates were issued non-negotiable certificates
to evidence their interest in the Company. If the Shares are listed for trading
on the American Stock Exchange, all Shareholders that hold uncertificated Shares
will receive new share certificates representing their Shares and all
Shareholders who hold certificated Shares will, upon surrender of such share
certificates, receive new share certificates, representing their Shares. Any
currently issued share certificates that are not surrendered to the Company
shall be deemed null and void.
EXPENSE OF SOLICITATION AND PROPOSALS
The Company and its officers, trustees and employees may assist in
providing information to Shareholders in connection with any questions they may
have with regard to this Consent Statement. No commission or other remuneration
will be paid or given directly or indirectly for soliciting Consents, except for
the normal compensation paid to the officers of the Company and the employees of
the Advisor. The Board of Trustees may appoint a solicitation agent to assist
with the solicitation of Consents. Such solicitation will be paid customary
solicitation fees and reimbursement
64
<PAGE>
of expenses. The Company will bear the cost of this Consent Statement and the
cost of any solicitation of Shareholders in connection with the solicitation of
Consents. The Company will also reimburse brokers, custodians and other persons
holding stock in their names or in the names of their nominees for their
reasonable expenses incurred in forwarding proxy material to beneficial owners
of Shares. Furthermore, the Company has agreed to reimburse the costs incurred
by the Placement Agents in supporting the Company's new business plan and the
Proposals. The Company estimates that the following expenses (the "Transaction
Expenses") will be incurred as a result of the Proposals:
<TABLE>
<S> <C>
Filing Fees: $ 44,000
Legal and Accounting Fees: $280,000
Printing and Mailing Costs: $ 40,000
Solicitation Agent Expenses: $ 25,000
Other Transaction Costs $ 16,000
--------
Total $450,000
========
</TABLE>
If the Proposals are approved, the Transaction Expenses will be paid
by the Company. If the Proposals are not approved, Related will bear the
Transaction Expenses. The Company intends to borrow the funds necessary to pay
the Transaction Expenses.
INCORPORATION BY REFERENCE
This Consent Statement incorporates the following documents by
reference:
The Company's Annual Report, pursuant to Section 13 or 15(d) of the
Exchange Act, filed on Form 10-K for the fiscal year ended December 31,
1997.
All other reports filed pursuant to Section 13 or 15(d) of the Exchange Act
since the end of the fiscal year ended December 31, 1997 including:
The Company's Quarterly Report, pursuant to Section 13 or 15(d) of the
Exchange Act filed on Form 10-Q/A for the quarter ended March 31,
1998.
All documents filed after the date of this Consent Statement shall be
deemed to be incorporated by reference into this Consent Statement and copies of
these documents will be available without charge upon request to the Company at
its principal office.
65
<PAGE>
ADDITIONAL MATTERS
Questions and requests for assistance may be directed to and
additional copies of the Consent Statement and Consent Form may be obtained from
the Company c/o Related Capital Company, Attention: ________ 625 Madison Avenue,
New York, New York 10022 (212) 421-5333).
By order of the Board of Trustees
J. Michael Fried
Chairman of the Board
_______________, 1998
66
<PAGE>
ANNEX A
-------
GLOSSARY
"5/50 Rule" shall have the meaning set forth in "Federal Income Tax
Consequences."
"Acquired Guaranteed Mortgage Certificate" shall mean any mortgage-backed
security guaranteed by Fannie Mae or Freddie Mac which is backed by a
conventional mortgage or mortgages and acquired by or on behalf of the Company
other than in connection with the origination of the underlying Mortgage or
Mortgages.
"Acquired Insured Mortgage" shall mean (i) any Mortgage which is a fully funded
Mortgage Loan made to an entity that owns multifamily, primarily residential
rental project or health care facility (a "Development") insured by FHA and
acquired by or on behalf of the Company as a whole loan or a beneficial interest
or a participating interest therein or by a purchase of mortgage-backed
securities or pass-through certificates backed by indebtedness secured by FHA
insured Mortgage Loans.; and (ii) any mortgaged-backed securities guaranteed by
Fannie Mae or on behalf of the Company other than in connection with the
origination of the underlying Mortgage or Mortgages.
"Acquired Mortgage" shall mean either an Acquired Insured Mortgage or an
Acquired Guaranteed Mortgage Certificate.
"Additional Loans" shall mean non-interest bearing, uninsured loans made by the
Company to the developer or a sponsor of a Development (or the general partners
or other principals of the owner of the Development) in connection with a
Mortgage Loan made by the Company to an entity that owns a Development.
"Advisor" shall mean Related AMI Associates Inc.
"Advisory Agreement" shall mean the agreement between the Company and the
Advisor pursuant to which the Advisor will act as the investment advisor and
administrator of the Company.
"Asset Management Fee" shall mean the Asset Management Fee payable to the
Advisor under the provisions of the Advisory Agreement.
"Authorized Mortgage Investments" shall mean investments authorized under the
Company's current investment policy, which include Originated Mortgages,
Acquired Mortgages and Additional Loans (and within such terms are also included
REMICS, CMOs, GNMA, FHA and FHLMC Pass-Through Certificates).
"Board of Trustees" shall mean the board of trustees of the Company.
"Bridge Loan" shall mean a loan secured by junior liens and used as temporary
financing.
"CMBS" shall mean commercial mortgage backed securities.
"CMOs" or "CMO Bonds" shall mean debt obligations (bonds) that are
collateralized by Mortgage Loans or mortgage certificates other than Mortgage
Derivatives and Subordinated Interests in CMBS. CMOs are structured so that
principal and interest payments received on the collateral are sufficient to
make principal and interest payments on the bonds. Such bonds may be issued by
United States government agencies or private issuers in one or more classes with
fixed or variable interest rates,
A-1
<PAGE>
maturities and degrees of subordination that are characteristics designed for
the investment objectives of different bond purchasers.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Commission" shall mean the Securities and Exchange Commission.
"Company" shall mean American Mortgage Investors Trust.
"Comparable Mortgage REITs" shall mean Mortgage REITs with portfolios and
business plans which are comparable to that of the Company upon the
implementation of the Proposals.
"Compensation Committee" shall mean a committee appointed by the Board of
Trustees, authorized and directed to administer the Incentive Share Option Plan.
"Consent Form" shall mean the form on which Shareholders officially consent or
deny consent to this Consent Statement.
"Construction Loan" shall mean a loan, the proceeds of which are used to finance
the costs of construction or rehabilitation of real properties.
"Debt Limitation" shall mean indebtedness incurred by the Company, excluding
trade payables and the subordinated Advisor fees, up to a maximum of 100% of the
Company's Total Market Value, calculated as of the date the debt is incurred.
"Declaration of Trust" shall mean the Declaration of Trust of the Company as
amended and/or amended and restated from time to time.
"Development" shall mean a multi-family, primarily residential, rental project
or health care facility.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended.
"Fannie Mae" shall mean the Federal National Mortgage Association.
"FASIT" shall mean Financial Asset Securitization Investment Trust.
"FHA" shall mean the Federal Housing Administration.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FHLMC Certificates" means mortgage participation certificates issued by FHLMC,
either in certificate or book entry form.
"FNMA" or "Fannie Mae" shall mean the federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act (12 U.S.C., (S)1716 et seq.), formerly known as the
Federal National Mortgage Association.
"FNMA Certificates" or "Fannie Mae Certificates" means guaranteed mortgage
Pass-Through Certificates issued by Fannie Mae either in certified or book-entry
form.
"Freddie Mac" shall mean the Federal Home Loan Mortgage Corporation.
A-2
<PAGE>
"Funds From Operations" means net income (computed in accordance with GAAP)
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization on mortgage assets, and after adjustments for
unconsolidated partnerships and joint ventures. Funds From Operations does not
represent cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income as an indication of the
Company's performance or to cash flows as a measure of liquidity or ability to
make distributions.
"GNMA" shall mean Ginnie Mae Guaranteed FHA Insured Project Loans.
"GNMA Certificates" shall mean fully modified Pass-Through mortgage-backed
certificates guaranteed by GNMA and issued either in certificated or book-entry
form.
"Ginnie Mae" shall mean the Government National Mortgage Association.
"Hedging Transaction" shall mean those transactions entered into primarily to
protect the Company from the effect of interest rate fluctuations on its
floating rate debt and to protects its portfolio or Mortgage Investments from
interest rate and prepayment rate fluctuations.
"HUD" shall mean the United States Department of Housing and Urban Development.
"Incentive Share Option Plan" means the Company's incentive share option plan
attached hereto as Annex D.
"IOs" shall mean Mortgage Derivatives representing the right to receive interest
only or a disproportionately large amount of interest in relation to principal
payments.
"Inverse IOs." shall mean IOs that bear interest at a floating rate which varies
inversely (and often at a multiple of) changes in a specific index.
"Master Servicer" shall mean a nationally recognized agency that regularly
engages in the business of servicing Mortgage Loans.
"Mezzanine Loan" shall mean a loan that is subordinate to a lien on the related
real property.
"Mortgage Derivatives" shall mean mortgage securities that provide for the
holder to receive interest only, principal only, or interest and principal in
amounts that are disproportionate to those payable on the underlying Mortgage
Loans and may include other derivative instruments such as IO strips, PO strips
and other securities with significant exposure to changes in mortgage prepayment
rates.
"Mortgage Loan" shall mean uninsured and insured multifamily, commercial and
residential term loans secured by real property.
"Mortgage REITs" shall mean traded mortgage real estate investment trusts.
"Mortgages" shall mean, in a broad sense, beneficial interests or participation
interests in whole mortgages, mortgage certificates, mortgage-backed securities,
participation certificates backed by either a single mortgage or a pool of
mortgages or interests in pass-through entities which, under the REIT Provisions
of the Internal Revenue Code, would be considered to be qualifying real estate
assets for purposes of the Company's qualification as a REIT (e.g., regular
interests in real estate mortgage investment conduits ("REMICs")).
A-3
<PAGE>
"Mortgage Collateral" shall mean the principle payments on the Mortgage Loans
comprising the mortgage collateral (i.e. mortgage pass-through securities or
pools of whole loans securing or backing a series of CMBS).
"Mortgage Investments" shall mean the collective term for Proposed Mortgage
Investments and Authorized Mortgage Investments.
"Net Income" shall mean, for any period, total revenues applicable to such
period, less the expenses applicable to such period other than additions to
allowances or reserves for depreciation, amortization or bad debts or other
similar non-cash reserves; provided, however, that Net Income shall not include
the gain from Mortgage Prepayments, Sales or Insurance (as such terms are
defined in the Prospectus).
"Offering" shall mean the Company's initial public offering of Shares completed
as of November 30, 1993.
"Operating Expense Limitation" means the annual Total Operating Expenses of the
Company may not exceed the greater of (i) 2% of the Average Invested Assets of
the Company, or (ii) 25% of the Company's Net Income.
"Originated Guaranteed Mortgage Certificate" shall mean any mortgage-backed
security guaranteed by Fannie Mae or Freddie Mac which is backed by a
conventional mortgage or mortgages originated by or on behalf of the Company.
"Originated Insured Mortgage" shall mean (i) any Mortgage originated by or on
behalf of the Company or by another lender and sold to the Company prior to the
time it has been fully funded, the principal of which (excluding Participating
Interest Payments and any Additional Loan) is eligible for insurance by FHA and
others under programs administered by HUD and shall also include Ginnie Mae
mortgage-backed securities and Ginnie Mae pass-through certificates backed by
indebtedness secured by such a Mortgage; and (ii) any mortgage-backed security
guaranteed by Fannie Mae or Freddie Mac which is backed by a conventional
mortgagor mortgaged originated by or on behalf of the Company.
"Originated Mortgage" shall mean either an Originated Insured Mortgage or an
Originated Guaranteed Mortgage Certificate.
"Participating Interest Payments" shall mean interest payments to be paid in
connection with Originated Mortgages or Acquired Mortgages which payments are in
addition to the base rate of interest on an Originated Mortgage or Acquired
Mortgage and are calculated as a percentage of the cash flow, rentals, revenues
and/or appreciation of the underlying project.
"Pass-Through Certificates" shall mean securities (or interests therein) other
than Mortgage Derivatives and Subordinate Interests in CMBS evidencing undivided
ownership interests in a pool of Mortgage Loans, the holders of which receive a
"pass-through" of the principal and interest paid in connection with the
underlying Mortgage Loans in accordance with the holders, respective, undivided
interests in the pool. Pass-Through Certificates include GNMA, FNMA and FHLMC
Certificates, as well as other certificates evidencing interests in loans
secured by single-family properties.
"Permanent Debt" shall mean debt (other than debt incurred under the Working
Capital Line and trade payables) of the Company, which may be incurred with
reverse repurchase agreements, secured and unsecured loans, and the issuance of
commercial paper.
"Permanent Debt Limitation" shall mean Permanent Debt up to a maximum at 50% of
the Company's Total Market Value, measured as of the date the debt is incurred..
A-4
<PAGE>
"Person" shall mean and include individuals, corporations, limited partnerships,
general partnerships, limited liability companies, joint stock companies or
associations, joint ventures, companies, trusts, banks, trust companies, land
trusts, business trusts or other entities and governments and agencies and
political subdivisions thereof.
"Placement Agents" shall mean the broker-dealers who participated in the
distribution of the Shares in the initial Offering.
"POs" shall mean Mortgage Derivatives representing the right to receive
principal only or a disproportionate amount of principal.
"Potential Optionee" shall mean trustees and officers of the Company who are
entitled to participate in the Company's Incentive Share Option Plan.
"Proposals" shall mean the collective term for all the proposals considered in
this Consent Statement.
"Proposed Mortgage Investments" shall mean uninsured Mortgage Loans,
Construction Loans, Bridge Loans, Mezzanine Loans, Mortgage Derivatives, CMBS
Subordinated Interests (including Subordinated Interests in CMBS).
"Prospectus" shall mean the final prospectus of the Company in connection with
the initial registration of Shares filed with the Securities and Exchange
Commission on Form S-11, as amended.
"Record Date" shall mean the close of business on ____________________, 1998.
"Redemption Plan" shall mean the Company's redemption plan pursuant to which any
Shareholder who has acquired and owns "eligible shares" (as defined in the
Prospectus) may present such Shares to the Company for redemption.
"Reinvestment Plan" shall mean the Company's dividend reinvestment plan pursuant
to which Shareholders can elect to have their distributions reinvested in
additional Shares.
"REIT" shall mean a corporation or trust which qualifies as a real estate
investment trust as defined in Sections 856 to 860 of the Code.
"Related" shall mean Related Capital Company and its affiliates.
"REMIC" shall mean a real estate mortgage investment conduit described in
sections 860A through 860G of the Code.
"Reverse Repurchase Agreements" shall mean agreements which involve sales by the
Company of portfolio assets, concurrently with an agreement by the Company to
repurchase such assets at a later date at a fixed price.
"RMC" shall mean Related Mortgage Company, an affiliate of the Advisor.
"Section 42 Properties" shall mean multifamily housing which uses the assistance
of Section 42 Tax Credits.
"Section 42 Tax Credits" shall mean Federal Low Income Housing Tax Credits
pursuant to section 42 of the Code.
A-5
<PAGE>
"Shareholders" shall mean holders of the Shares.
"Shares" shall mean shares of beneficial interest, par value $.10 per share, of
the Company.
"Special Servicing" shall mean the servicing of defaulted Mortgage Loans,
including oversight and management of the resolution of such Mortgage Loans by
modification, foreclosure, deed in lieu of foreclosure or otherwise.
"Special Servicing Rights" shall mean those rights to control decisions with
respect to the preservation of the Company's collateral, including property
management and maintenance decisions.
"Sub IO" shall mean an IO with characteristics of Subordinated Interests which
are subordinated, meaning interest amount otherwise.
"Subordinated Interests" shall mean subordinated interests in CMBS and other
Mortgage Investments.
"Ten Year Treasury Rate" means the arithmetic average of the weekly average
yield to maturity for actively traded current coupon U.S. Treasury fixed
interest rate securities (adjusted to constant maturities of ten years)
published by the Federal Reserve Board during a fiscal year, or, if such rate is
not published by the Federal Reserve Board, any Federal Reserve Bank or agency
or department of the federal government selected by the Company.
"Total Market Value" shall mean the greater of (i) the sum of (a) the aggregate
market value of the Company's Shares and (b) the total leverage of the Company
excluding unconsolidated subsidiaries, and (ii) the aggregate value of the
Company's assets as determined by the Advisor based upon third party or
management appraisals or other criteria as the Board of Trustees shall determine
in its sole discretion.
"Total Operating Expenses" shall mean all operating, general and administrative
expenses of the Company as determined by generally accepted accounting
principles, exclusive of the expenses of raising capital, interest payments,
taxes, non-cash expenditures (i.e., depreciation, amortization, bad debt
reserve), and costs related directly to a specific Mortgage Investment by the
Company, such as expenses for originating, acquiring, servicing or disposing of
a Mortgage.
"Transaction Expenses" shall mean the filing fees, legal and accounting fees,
printing and mailing costs, solicitation agent expenses and other transaction
costs associated with the solicitation of Consents by the Board of Trustees.
"UBTI" shall mean unrelated business taxable income.
"Underwriting Group" shall mean Related's Real Estate Underwriting Group.
"Working Capital Line" shall mean indebtedness (i) which has a term of no longer
than five years and is utilized by the Company to acquire and originate Mortgage
Investments which are intended to be pooled as part of an issuance of CMOs or
pass-through certificates sponsored by the Company or its subsidiaries, the
proceeds of which will be used to repay such indebtedness, or (ii) used to pay
distributions to Shareholders and operating expenses, including without
limitation, fees to the Advisor.
A-6
<PAGE>
ANNEX B
FINANCIAL INFORMATION
Index to Financial Information
Page
Selected Financial Data
Pro Forma Financial Information
Introduction to Pro Forma Consolidated Financial Statements for the Three Months
Ended March 31 1998 and the Year Ended December 31, 1997
Pro Forma Consolidated Balance Sheet as of March 31, 1998
Pro Forma Consolidated Income Statements for the Three Months Ended March 31,
1998 and the Year Ended December 31, 1997
Notes to Pro Forma Financial Statements for the Three Months Ended March 31,
1998 and the Year Ended December 31, 1997
B-1
<PAGE>
American Mortgage Investors Trust
Selected Financial Data
The following table sets forth selected financial data on a pro forma basis and
a historical basis for the Company. The table should be read in conjunction with
the historical financial statements incorporated by reference and the unaudited
pro forma financial information and with the financial statements and notes
thereto of the Company included in this Appendix B.
The following unaudited pro forma operating and other data have been prepared to
reflect that the Proposals were adopted on January 1, 1997. The unaudited pro
forma balance sheet data has been prepared assuming that the adoption of the
Proposals and related transactions had occurred on March 31, 1998. In the
opinion of the Advisor, all adjustments necessary to reflect the effects of the
Proposals and related transactions have been made.
B-2
<PAGE>
AMERICAN MORTGAGE INVESTORS TRUST
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
--------------------------------------------------------------------------------------------------
1997
1993 (A) 1994 1995 1996 1997 Pro Forma
-------- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues $ 568,128 $ 3,635,436 $ 4,355,902 $ 4,424,815 $ 4,244,854 $ 4,244,854
Total expenses 215,789 1,015,734 1,208,770 1,137,184 699,039 1,182,636
Net income 352,339 2,619,702 3,147,132 3,287,631 3,545,815 3,062,218
Distributions to 414,161 4,839,766 5,566,609 5,569,283 5,575,532 5,544,635
shareholders
Earnings per weighted 0.37 0.72 0.82 0.86 0.92 0.80(C)
average shares
Distribution per shares .7548-.0159 1.4500-.1391 1.45 1.45 1.45 1.44
(D)
BALANCE SHEET
DATA:
Cash and cash 19,698,967 12,285,691 6,242,945 4,828,561 1,840,715 1,840,715
equivalents
Investment in REMIC 14,794,341 18,953,841 19,327,518 12,683,331 12,495,878 12,495,878
Certificates and
GNMA certificates
and FHA Insured
Project Loan
Investments in 18,338,566 33,284,852 39,497,133 45,049,596 46,792,853 46,792,853
mortgage loans
Total assets at book 55,086,936 65,041,319 65,517,610 63,147,215 61,645,922 61,659,422
value
Total liabilities 601,398 356,602 1,002,976 986,551 1,259,997 1,723,497(B)
Shareholders' equity 54,485,538 64,684,717 64,514,634 62,160,664 60,385,925 59,935,925
OTHER DATA (all amounts in dollars except for Ratios):
Net increase 19,548,941 (7,413,276) (6,042,746) (1,414,384) (2,987,846) (2,987,846)
(decrease) in cash and
cash equivalents
Net cash provided by 297,119 3,061,890 4,578,923 3,946,550 4,433,638 3,952,741
operating activities
Ratio of earnings to N/A N/A N/A N/A N/A 85.16
fixed charges
Ratio of earnings to 0.01 0.04 0.05 0.05 0.06 0.05
total assets
Book value per share 18.03 16.77 16.80 16.18 15.73 15.61
<CAPTION>
As of and for the
Three Months Ended March 31,
---------------------------------------------
1998
1997 1998 Pro Forma
---- ---- ---------
<S> <C> <C> <C>
OPERATING DATA:
Total revenues $ 1,080,669 $ 1,103,507 $ 1,103,507
Total expenses 163,001 143,400 151,912
Net income 917,668 960,107 951,595
Distributions to 1,403,764 1,403,165 1,395,328
shareholders
Earnings per weighted 0.24 0.25 0.25
average shares
Distribution per shares 0.36 0.36 0.36
(D)
BALANCE SHEET
DATA:
Cash and cash 3,784,312 2,423,043 2,423,043
equivalents
Investment in REMIC 12,231,180 11,602,252 11,602,252
Certificates and
GNMA certificates
and FHA Insured
Project Loan
Investments in 46,371,107 46,603,187 46,603,187
mortgage loans
Total assets at book 62,952,896 61,279,354 61,292,854
value
Total liabilities 1,056,353 1,375,049 1,838,549(B)
Shareholders' equity 61,896,543 59,904,305 59,454,305
OTHER DATA (all amounts in dollars except for Ratios):
Net increase (1,044,249) 582,328 582,328
(decrease) in cash and
cash equivalents
Net cash provided by 1,123,203 1,056,118 1,048,281
operating activities
Ratio of earnings to N/A N/A 105.61
fixed charges
Ratio of earnings to 0.01 0.02 0.02
total assets
Book value per share 16.04 15.60 15.49
</TABLE>
B-3
<PAGE>
(A) As of December 31, 1993 the Company was still in its offering and
acquisition period.
(B) Pro forma total liabilities reflect the accrual of the loan financing costs
expected to be incurred in connection with the adoption of the Proposals
totaling $450,000
(C) Pro Forma basic earnings per weighted average shares amount is after the
effect of a non-recurring costs of the proposals of $450,000. Without this
non-recurring charge, this amount would be $.91.
(D) Distribution in 1993 and 1994 received by shareholders varied depending on
the dates they became shareholders
B-4
<PAGE>
Pro Forma Financial Information
Introduction
The pro forma balance sheet has been prepared as if the Proposals were
adopted on March 31, 1998. The pro forma statements of operations of the Company
for the year ended December 31, 1997 and the three months ended March 31, 1998
have been prepared based on the historical financial statements of the Company
and assume that the Proposals were adopted January 1, 1997.
The pro forma financial statements are based upon available
information and upon certain assumptions, as set forth in the notes to pro forma
financial statements, that the Company believes are reasonable in the
circumstances.
These statements do not purport to represent what the Company's
financial position and results of operations (i) would actually have been if the
Proposals in fact had been adopted on such dates or at the beginning of such
periods or (ii) for any future date or period.
B-5
<PAGE>
American Mortgage Investors Trust
Pro Forma Balance Sheet
As of March 31, 1998
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma The Company
Company Adjustments Pro Forma
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Investments in loans $ 46,603 $ 46,603
Investment in REMIC and GNMA
Certificates and FHA Insured
Project Loan 11,602 11,602
Cash and cash equivalents 2,423 2,423
Organization costs 2 2
Deferred costs 10 $ 14(a) 24
Accrued interest receivable 639 639
------------ ------------
Total assets $ 61,279 $ 61,293
============ ============
LIABILITIES AND
SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses $ 51 $ 51
Loan payable -- 464(a) 464
Due to affiliates 1,323 1,323
------------ ------------
Total liabilities 1,374 1,838
------------ ------------
Shareholders' Equity:
Shares of beneficial interest;
$.10 par value; 12,500,000 shares
authorized; 4,109,670 shares issued
and outstanding 411 411
Treasury shares of beneficial interest;
$.10 par value; 270,425 shares (27) (27)
Additional paid - in capital 68,850 68,850
Accumulated deficit (9,464) (450)(a) (9,914)
Net unrealized gain (loss) on
marketable securities 135 135
------------ ------------
Total shareholders' equity 59,905 59,455
------------ ------------
Total liabilities and
shareholders' equity $ 61,279 $ 61,293
============ ============
</TABLE>
B-6
<PAGE>
American Mortgage Investors Trust
Pro Forma Income Statement
For the Three Months Ended March 31, 1998
Unaudited
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma The Company
Company Adjustments Pro Forma
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES
Interest Income:
Mortgage loans $ 846 $ 846
REMIC and GNMA Certificates
and FHA Insured Project Loan 233 233
Temporary investments 25 25
------------ ------------
Total revenues 1,104 1,104
------------ ------------
EXPENSES
General and administrative 30 30
General and administrative - related parties 110 $ (1)(b) 109
Interest -- 9(c) 9
Amortization 3 1(a) 4
------------ ------------
Total expenses 143 152
------------ ------------
Net income $ 961 $ 952
============ ============
Basic net income per
weighted average share $ 0.25 $ 0.25
============ ============
</TABLE>
B-7
<PAGE>
American Mortgage Investors Trust
Pro Forma Income Statement
For the Year Ended December 31, 1997
Unaudited
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma The Company
Company Adjustments Pro Forma
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES
Interest Income:
Mortgage loans $ 3,118 $ 3,118
REMIC and GNMA Certificates
and FHA Insured Project Loan 976 976
Temporary investments 151 151
------------ ------------
Total revenues 4,245 4,245
------------ ------------
EXPENSES
General and administrative 144 $ 450(a) 594
General and administrative - related parties 478 (5)(b) 473
Realized loss on sale of REMICs and
GNMAs and FHA Insured Project Loans 67 67
Interest -- 36(c) 36
Amortization 10 3(a) 13
------------ ------------
Total expenses 699 1,183
------------ ------------
Net income $ 3,546 $ 3,062
============ ============
Basic net income per
weighted average share $ 0.92 $ 0.80
============ ============
</TABLE>
B-8
<PAGE>
American Mortgage Investors Trust
Notes To Pro Forma Financial Statements
For The Three Months Ended March 31, 1998 and
The Year Ended December 31, 1997
(Dollars in thousands)
(a) Represents the additional financing obtained as a result of the costs
expected to be incurred in connection with the adoption of the Proposals.
These costs include legal, accounting, printing and related costs which are
expected to equal $450 and are expensed in the period incurred. The cost of
obtaining this additional financing equals $14 and will be deferred and
amortized over the term of the loan (5 years).
(b) Historically, the advisory agreement provided that the Advisor would
receive an asset management fee of .625% of total invested assets. If the
Proposals are adopted, the asset management fee for new acquisitions will
be restructured. During the 1997 year there were five new acquisitions of
Authorized Mortgage Investments totaling $3,871 and in accordance with the
new fee structure outlined in the Proxy Statement, the asset management fee
for these assets have been reduced to .355% of total invested assets.
(c) Represents interest expense at an assumed annual rate of 9% on the
financing of the costs expected to be incurred in connection with
implementing the Proposals.
B-9
<PAGE>
ANNEX C-1
INDEX TO AMENDMENTS
TO DECLARATION OF TRUST
* Does not include minor revisions made
regarding section reference changes
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SECTIONS BEING AMENDED TO REFLECT
PROPOSAL PROPOSAL
====================================================================================================================
<S> <C>
Proposal 1: Listing the Shares on Amex Article IV, Section 4.2 Authority of Trustees
4.2(b)(xxv)
- --------------------------------------------------------------------------------------------------------------------
Proposal 2: Clarifying Certain Article II - Definitions
Ambiguities re: Issuance of Securities 2.1(p)
2.1(rr)
2.1(ccc)
Article VIII, Section 8.1 Shares
8.1(b)
8.1(c)
8.1(d)
8.1(e)
- --------------------------------------------------------------------------------------------------------------------
Proposal 3: Borrowings Article II - Definitions
2.1(s)
2.1(pp)
2.1(jjj)
2.1(kkk)
2.1(ooo)
Article IV, Section 4.2 - Authority of Trustees
4.2(a)
4.2(b)(vi)
Article VII, Section 7.9 - Trust's Right to Borrow
Funds
7.9
- --------------------------------------------------------------------------------------------------------------------
Proposal 4: Reinvestment of Repayments Article IV, Section 4.2 - Authority of Trustees
and Disposition Proceeds 4.2(b)(i)
- --------------------------------------------------------------------------------------------------------------------
Proposal 5: Converting from a Finite-Life Article X, Section 10.3 - Termination of Trust
to Infinite-Life REIT 10.3
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SECTIONS BEING AMENDED TO REFLECT
PROPOSAL PROPOSAL
====================================================================================================================
<S> <C>
Proposal 6: Changes in the Company's Article II - Definitions
Investment Policy 2.1(f)
2.1(ee)
2.1(hh)
2.1(kk)
Article VII, Section 7.1 - General Statement of Policy
7.1
Article VII, Section 7.2 - Specific Investments
7.2
Article VII, Section 7.7 - Restrictions
7.7(k)
7.7(d)
Deleted Provisions
7.7(l) (issuance of shares on a deferred basis)
7.7(m) (issuance of debt securities)
7.7(n) (issuance of shares in a private offering)
7.7(q) (uninsured lending)
7.7(r) (investments in certain derivative securities)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SECTIONS BEING AMENDED TO REFLECT
PROPOSAL PROPOSAL
====================================================================================================================
<S> <C>
Proposal 7: Conforming Changes Article II - Definitions
2.1(r)
2.1(u)
2.1(dd)
Article IV, Section 4.1 - Number, Terms and
Qualifications
4.1
Article IV, Section 4.2 - Authority of Trustees
4.2(b)(xxiii)
4.2(b)(xxvi)
4.2(b)(xxvii)
Article VI, Section 6.2 - Advisor - Term
6.2
Article VIII, Section 8.2 - Certificates, Share Ledger
8.2
Article XIII, Section 13.1 - Approval of Conversion
Transactions
13.1
Deleted Provisions
4.8 (limitation on acquisition expenses)
8.10 (Redemption Plan)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
C-3
<PAGE>
- --------------------------------------------------------------------------------
ANNEX C-2
- --------------------------------------------------------------------------------
AMERICAN MORTGAGE INVESTORS TRUST
-----------------------------------------------------
SECOND
AMENDED AND RESTATED
DECLARATION OF TRUST
-----------------------------------------------------
Amended and Restated as of ____________ ___, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS........................................................................ 1
DECLARATION..................................................................... -2-
ARTICLE I - THE TRUST........................................................... -2-
SECTION 1.1 NAME........................................... -2-
SECTION 1.2 LOCATION....................................... -2-
SECTION 1.3 NATURE OF TRUST................................ -2-
ARTICLE II - DEFINITIONS........................................................ -3-
SECTION 2.1 DEFINITIONS.................................... -3-
ARTICLE III - MEETING OF SHAREHOLDERS...........................................-11-
SECTION 3.1 ANNUAL MEETINGS................................-11-
SECTION 3.2 OTHER MEETINGS.................................-11-
SECTION 3.3 VOTING.........................................-11-
SECTION 3.4 INSPECTORS OF ELECTION.........................-12-
SECTION 3.5 ACCESS TO RECORDS..............................-12-
SECTION 3.6 QUORUM.........................................-13-
SECTION 3.7 SPECIAL MEETINGS...............................-14-
SECTION 3.8 NOTICE OF ANNUAL AND SPECIAL MEETINGS
CALLED BY CERTAIN OR ALL OF THE TRUSTEES AND
SOLICITATION OF CONSENT WITHOUT MEETING...............................-14-
SECTION 3.9 BUSINESS TRANSACTED............................-15-
ARTICLE IV - TRUSTEES...........................................................-15-
SECTION 4.1 NUMBER, TERM AND QUALIFICATIONS................-15-
SECTION 4.2 AUTHORITY OF TRUSTEES..........................-16-
SECTION 4.3 RESIGNATIONS...................................-21-
SECTION 4.4 REMOVAL OF TRUSTEES............................-21-
SECTION 4.5 NEWLY CREATED TRUSTEESHIPS AND VACANCIES
............................................................-21-
SECTION 4.6 SUCCESSOR AND ADDITIONAL TRUSTEES..............-22-
SECTION 4.7 ACTIONS BY TRUSTEES............................-22-
SECTION 4.8 COMPENSATION...................................-22-
SECTION 4.9 ACTION WITHOUT MEETING.........................-22-
SECTION 4.10 TELEPHONIC MEETING............................-23-
SECTION 4.11 EXECUTIVE COMMITTEE...........................-23-
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V - OFFICERS............................................................-23-
SECTION 5.1 OFFICERS.......................................-23-
SECTION 5.2 OTHER OFFICERS AND AGENTS......................-23-
SECTION 5.3 CHAIRMAN OF THE BOARD..........................-23-
SECTION 5.4 PRESIDENT......................................-23-
SECTION 5.5 VICE-PRESIDENT.................................-24-
SECTION 5.6 TREASURER......................................-24-
SECTION 5.7 SECRETARY......................................-24-
SECTION 5.8 ASSISTANT TREASURERS AND ASSISTANT
SECRETARIES..................................-24-
ARTICLE VI - ADVISOR............................................................-24-
SECTION 6.1 EMPLOYMENT OF ADVISOR..........................-24-
SECTION 6.2 TERM...........................................-25-
SECTION 6.3 COMPENSATION...................................-26-
SECTION 6.4 OTHER ACTIVITIES OF ADVISOR....................-27-
SECTION 6.5 LIMITATION ON TOTAL OPERATING EXPENSES.........-27-
SECTION 6.6 LIMITATION ON REAL ESTATE COMMISSIONS..........-28-
SECTION 6.7 INITIAL INVESTMENT BY AFFILIATES OF THE
ADVISOR......................................-28-
ARTICLE VII - INVESTMENT POLICY.................................................-28-
SECTION 7.1 GENERAL STATEMENT OF POLICY....................-28-
SECTION 7.2 SPECIFIC INVESTMENTS...........................-30-
SECTION 7.3 REAL PROPERTY..................................-31-
SECTION 7.4 RESERVES.......................................-31-
SECTION 7.5 CHANGES IN INVESTMENT POLICIES AND OBJECTIVES
............................................................-31-
SECTION 7.6 UNINVESTED ASSETS..............................-31-
SECTION 7.7 RESTRICTIONS...................................-31-
SECTION 7.8 TRANSACTIONS BETWEEN THE TRUST AND
AFFILIATED PERSONS...........................-33-
SECTION 7.9 TRUST'S RIGHT TO BORROW FUNDS..................-33-
SECTION 7.10 REPORTS.......................................-33-
ARTICLE VIII - THE SHARES AND SHAREHOLDERS......................................-34-
SECTION 8.1 SHARES.........................................-34-
SECTION 8.2 CERTIFICATES; SHARE LEDGER.....................-35-
SECTION 8.3 TRANSFERS OF SHARES............................-35-
SECTION 8.4 SHAREHOLDERS' DISCLOSURES; REDEMPTION
OF SHARES...................................................-36-
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.5 RIGHT TO REFUSE TO TRANSFER SHARES.............-36-
SECTION 8.6 LEGAL OWNERSHIP OF ASSETS OF THE TRUST.........-36-
SECTION 8.7 SHARES DEEMED PERSONAL PROPERTY................-37-
SECTION 8.8 SHAREHOLDERS RECORD DATE.......................-37-
SECTION 8.9 DIVIDENDS......................................-37-
SECTION 8.10 DISTRIBUTION REINVESTMENT PLAN................-37-
ARTICLE IX - MISCELLANEOUS......................................................-38-
SECTION 9.1 SEAL...........................................-38-
SECTION 9.2 FISCAL YEAR....................................-38-
SECTION 9.3 CHECKS.........................................-38-
SECTION 9.4 NOTICE AND WAIVER OF NOTICE....................-38-
SECTION 9.5 SUCCESSORS IN INTEREST.........................-38-
SECTION 9.6 INSPECTION OF RECORDS..........................-38-
SECTION 9.7 SEVERABILITY...................................-39-
SECTION 9.8 APPLICABLE LAW.................................-39-
ARTICLE X - DURATION, AMENDMENT
AND TERMINATION PROCEDURE.............................................-39-
SECTION 10.1 DURATION OF TRUST.............................-39-
SECTION 10.2 AMENDMENT PROCEDURE...........................-39-
SECTION 10.3 TERMINATION OF TRUST..........................-40-
ARTICLE XI - EXCULPATION AND
INDEMNIFICATION AND OTHER MATTERS.....................................-40-
SECTION 11.1 LIMITATION OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OFFICERS WHO ARE PERFORMING
SERVICES ON BEHALF OF THE TRUST..................................-40-
SECTION 11.2 INDEMNIFICATION...............................-41-
SECTION 11.3 RIGHT OF TRUSTEES AND OFFICERS TO OWN
SHARES OR OTHER PROPERTY AND TO ENGAGE IN OTHER
BUSINESS.........................................................-42-
ARTICLE XII - EXCESS SHARES.....................................................-43-
SECTION 12.1 EXCESS SHARES.................................-43-
ARTICLE XIII - CONVERSION TRANSACTIONS..........................................-45-
SECTION 13.1 APPROVAL OF CONVERSION TRANSACTIONS...........-45-
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XIV - ROLL-UPS..........................................................-46-
SECTION 14.1 APPRAISALS....................................-46-
SECTION 14.2 SHAREHOLDER OPTIONS...........................-46-
SECTION 14.3 RESTRICTIONS..................................-46-
</TABLE>
-iv-
<PAGE>
SECOND
AMENDED AND RESTATED DECLARATION OF TRUST
OF
AMERICAN MORTGAGE INVESTORS TRUST
WHEREAS the Declaration of Trust of American Mortgage Investors Trust
was declared, executed and acknowledged in Boston, Massachusetts on June 11,
1991 by Carmela Laurella (the "Initial Trustee") and was thereafter filed in the
offices of the Secretary of the Commonwealth of Massachusetts (the "Original
Declaration of Trust"); and
WHEREAS the Original Declaration of Trust was amended and restated by
the Amended and Restated Trust Agreement dated as of March 29, 1993 filed in the
offices of the Secretary of State of the Commonwealth of Massachusetts (the
"First Amended and Restated Declaration of Trust");
WHEREAS the undersigned, being all of the presently incumbent
Trustees, desire to amend and restate the First Amended and Restated Declaration
of Trust to read in its entirety as set forth herein; and
WHEREAS the Trustees have unanimously approved amending the First
Amended and Restated Declaration of Trust pursuant to the proposals (the
"Proposals") as more fully described in the Consent Solicitation Statement dated
______________, 1998 ("Consent Statement") and distributed to all Shareholders
of record as of ______________, 1998;
WHEREAS the Proposals require the approval of Shareholder holding a
majority of the Shares entitled to vote and such approval was obtained;
WHEREAS the Trustees confirm and recite the recitals of the First
Amended and Restated Declaration of Trust, to wit:
A. The Trust has been formed for the purposes of raising capital and
utilizing such capital to invest in Mortgage Investments.
B. The Trustees desire that such Trust qualify as a "real estate
investment trust" under the REIT Provisions of the Internal Revenue Code.
C. The Trustees may hereafter acquire, hold, invest and dispose of
Trust assets as trustees in the manner provided in this Declaration of Trust.
<PAGE>
D. The beneficial interest in the Trust assets shall be divided into
one or more classes of transferable shares of beneficial interest, as provided
in this Declaration of Trust.
DECLARATION
NOW, THEREFORE, J. Michael Fried, residing at 6 Peter Cooper Road,
Apt. 29, New York, New York, Peter T. Allen, residing at 2224 Applewood Court,
Ann Arbor, Michigan and Arthur P. Fisch, residing at 25 Joralemon Street,
Brooklyn, New York (such persons and any successor to such persons and
additional persons, so long as they shall continue in or be admitted to office
in accordance with the terms of this Declaration of Trust, are hereinafter
together called the "Trustees"), hereby declare that they will hold all property
of every type and description which they may acquire as such trustees, together
with the proceeds thereof, in trust, to manage, hold and dispose of the same for
the benefit of the holders of record from time to time of the Shares being
issued and to be issued hereunder and in the manner and subject to the
provisions of this Declaration of Trust:
ARTICLE I - THE TRUST
SECTION 1.1 NAME. The name of the Trust created by this Declaration of
Trust shall be "AMERICAN MORTGAGE INVESTORS TRUST" (hereinafter called the
"Trust") and so far as may be practicable the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which name
(and the word "Trust" whenever used in this Declaration of Trust, except where
the context otherwise requires) shall refer to the Trustees in their capacity of
Trustees, and not individually or personally, and shall not refer to the
officers or Shareholders of the Trust or to the agents or employees of the Trust
or of such Trustees. Should the Trustees determine that the use of such name is
not practicable, legal or convenient, they may use such other designation or
they may adopt such other name for the Trust as they deem proper and the Trust
may hold property and conduct its activities under such designation or name,
subject, however, to the limitations contained in the next succeeding paragraph.
SECTION 1.2 LOCATION. The Trust shall maintain an office of record in
Boston, Massachusetts, initially at 84 State Street, care of The Prentice Hall
Corporation System, Inc. (the Trust's resident agent initially), in the City of
Boston, in the County of Suffolk, in the Commonwealth of Massachusetts and the
Trust may have such other offices or places of business as the Trustees may from
time to time determine as necessary or expedient.
SECTION 1.3 NATURE OF TRUST. The Trust shall be of the type commonly
termed a Massachusetts business trust; this Declaration of Trust and all
amendments
-2-
<PAGE>
hereto and restatements hereof shall be filed in all appropriate state and local
offices in the Commonwealth of Massachusetts in order to effectuate such intent.
The Trust is not intended to be, shall not be deemed to be, and shall not be
treated as, a general partnership, limited partnership, joint venture,
corporation or joint stock company. The Shareholders shall be beneficiaries and
their relationship to the Trustees shall be solely in that capacity in
accordance with the rights conferred upon them hereunder. The Trust is intended
to have the status of a "real estate investment trust" as that term is defined
in the REIT Provisions of the Internal Revenue Code and this Declaration of
Trust and all actions of the Trustees hereunder shall be construed in accordance
with such intent, unless and until the Trustees, including a majority of the
Independent Trustees, may determine that the maintenance of that status is no
longer in the best interests of the Shareholders or practicable.
ARTICLE II - DEFINITIONS
SECTION 2.1 DEFINITIONS. Capitalized terms not otherwise defined
herein shall have the meaning ascribed to such terms in the Consent Statement.
Whenever used in this Declaration of Trust, unless the context otherwise
requires, the terms defined in this Article II shall have the following
respective meanings:
(a) Acquired Guaranteed Mortgage Certificate. "Acquired Guaranteed
Mortgage Certificate" shall mean any mortgage-backed security guaranteed by
Fannie Mae or Freddie Mac which is backed by a conventional mortgage or
mortgages and acquired by or on behalf of the Trust other than in connection
with the origination of the underlying Mortgage or Mortgages.
(b) Acquired Insured Mortgage. "Acquired Insured Mortgage" shall mean
any Mortgage which is a fully funded mortgage loan insured by FHA and acquired
by or on behalf of the Trust as a whole loan or a beneficial interest or a
participating interest therein or by a purchase of mortgage-backed securities or
pass-through certificates backed by indebtedness secured by FHA insured mortgage
loans. Acquired Insured Mortgage shall not include Ginnie Mae mortgage-backed
securities or pass-through certificates backed by indebtedness secured by an
Originated Insured Mortgage.
(c) Acquired Mortgage. "Acquired Mortgage" shall mean either an
Acquired Insured Mortgage or an Acquired Guaranteed Mortgage Certificate.
(d) Acquisition Fees. "Acquisition Fees" shall mean the total of all
fees and commissions, however designated, paid by any party in connection with
the origination or acquisition of Mortgages and other Mortgage Investments by
the Trust. Included in the computation of such fees or commissions shall be any
real estate commission, selection fee, development fee, nonrecurring management
fee, or any fee of a similar nature, however designated.
-3-
<PAGE>
(e) Additional Loan. "Additional Loan" shall mean the non-interest
bearing loan made to the developer or a sponsor of a Development (or the general
partners or other principals of the owner of the Development) in connection with
a Mortgage Loan.
(f) Additional Mortgage Investments. "Additional Mortgage Investments"
shall mean the permanent investments of the Trust as described in the Consent
Statement, (other than the Original Mortgage Investments) which investments
shall include: Uninsured Mortgage Loans, Construction Loans, Bridge Loans,
Mezzanine Loans, Mortgage Derivatives and Subordinated Interests in CMBS.
(g) Advisor. "Advisor" shall mean the person(s) or entity responsible
for directing or performing the day-to-day business affairs of the Trust,
including a person or entity to which an Advisor subcontracts substantially all
such functions. Initially, the Advisor shall be Related AMI or anyone who
succeeds it in such capacity.
(h) Advisory Agreement. "Advisory Agreement" shall mean the agreement
between the Trust and the Advisor pursuant to which the Advisor will act as the
investment advisor and administrator of the Trust.
(i) Affiliate. "Affiliate" shall mean (i) any Person directly or
indirectly controlling, controlled by or under common control with another
Person, (ii) any Person owning or controlling 10% or more of the outstanding
voting securities or beneficial interests of such other Person, (iii) any
officer, director, trustee or general partner of such Person and (iv) if such
other Person is an officer, director, trustee or partner of another entity, then
the entity for which that Person acts in any such capacity.
(j) Affiliated Programs. "Affiliated Programs" shall mean Aegis
Realty, Inc., Capital Mortgage Plus L.P., any similar programs organized by the
Sponsor, any successors to such programs or a combination of such programs.
(k) Asset Management Fee. "Asset Management Fee" shall mean the Asset
Management Fee payable to the Advisor under the provisions of the Advisory
Agreement.
(l) Average Invested Assets. "Average Invested Assets" shall mean the
average of the aggregate Book Value of the assets of the Trust for any period
invested, directly or indirectly, in Mortgage Investments, before reserves for
depreciation or bad debts or other similar non-cash reserves computed by taking
the average of such values at the end of each month during such period.
(m) Book Value. "Book Value" shall mean the value of an asset or
assets of the Trust on the books of the Trust before provision for amortization
or depreciation, and
-4-
<PAGE>
before deducting any indebtedness or other liability in respect thereto, except
that no asset shall be valued at more than its fair value as determined by the
Board of Trustees.
(n) CMOs. "CMOs" shall mean collateralized mortgage obligations.
(o) Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended, or corresponding provisions of subsequent revenue laws.
(p) Common Shares. "Common Shares" shall mean any Shares classified or
reclassified as such by the Trustees.
(q) Competitive Commission. "Competitive Commission" shall have the
meaning ascribed to such term in Article VI, Section 6.6.
(r) Consent Statement. "Consent Statement" shall mean the Consent
Statement sent to Shareholders dated _______________, 1998.
(s) Debt Limitation. "Debt Limitation" shall mean (i) 100% of Total
Market Value (calculated at the time debt is incurred) with respect to Total
Trust Indebtedness and (ii) 50% of Total Market Value (calculated at the time
debt is incurred) with respect to Permanent Trust Indebtedness.
(t) Development. "Development" shall mean a multi-family, primarily
residential, rental project or health care facility.
(u) Excess Shares. "Excess Shares" shall have the meaning ascribed to
such term in Article XII, Section 12.1.
(v) Fannie Mae. "Fannie Mae" shall mean the Federal National Mortgage
Association.
(w) FHA. "FHA" shall mean the Federal Housing Administration.
(x) Freddie Mac. "Freddie Mac" shall mean the Federal Home Loan
Mortgage Corporation.
(y) Ginnie Mae. "Ginnie Mae" shall mean the Government National
Mortgage Association.
(z) HUD. "HUD" shall mean the United States Department of Housing and
Urban Development.
-5-
<PAGE>
(aa) Independent Expert. "Independent Expert" shall mean a person with
no current or prior business or personal relationship with the Advisor or the
Trustees and who is engaged, to a substantial extent, in the business of
rendering opinions regarding the value of assets of the type held by the Trust.
(bb) Independent Trustees. "Independent Trustees" shall mean the
Trustees who (i) are not affiliated, directly or indirectly, with the Advisor,
whether by ownership of, ownership interest in, employment by, any material
business or professional relationship with, or service as an officer or director
of the Advisor, or its Affiliates, (ii) do not serve as a director or trustee
for more than three other REITs organized by the Sponsor, and (iii) perform no
other services for the Trust except as Trustees. For this purpose, an indirect
relationship shall include circumstances in which a member of the immediate
family of a Trustee has one of the foregoing relationships with the Advisor or
the Trust.
(cc) Initial Investment. "Initial Investment" shall mean the $200,000
investment in Shares which the Advisor has made pursuant to Article VI, Section
6.7 of this Declaration of Trust.
(dd) IRS. "IRS" shall mean the Internal Revenue Service of the United
States of America.
(ee) Mortgage Investments. "Mortgage Investments" shall mean,
collectively, Original Mortgage Investments and Additional Mortgage Investments.
(ff) Mortgage Loan. "Mortgage Loan" shall mean the mortgage loan made
to the entity which owns a Development.
(gg) [Mortgage Prepayments, Sales or Insurance. "Mortgage Prepayments,
Sales or Insurance" shall mean any Trust transaction (other than the receipt of
base interest, Participating Interest Payments which were calculated on net cash
flow or other measure of the net rentals or revenues from a Development,
principal payments when due on a Mortgage or other Mortgage Investments, the
issuance of Shares, and payments by a borrower to the Advisor or an Affiliate in
respect of the Asset Management Fee in connection with a negotiated prepayment)
including, without limitation, Participating Interest Payments calculated on the
profits or proceeds realized upon the refinancing, sale or other disposition of
a Development, prepayments, sales, exchanges, foreclosures, or other
dispositions of Mortgages and other Mortgage Investments held by the Trust or
the receipt of insurance proceeds from the FHA or of guarantee proceeds from
Ginnie Mae, Fannie Mae or Freddie Mac or otherwise with respect to any Mortgage,
or any other disposition of Trust assets.]
(hh) Mortgages. "Mortgages" shall mean, in a broad sense, beneficial
interests or participation interests in whole mortgages, mortgage certificates,
mortgage-backed securities, participation certificates backed by either a single
mortgage or a pool of mortgages
-6-
<PAGE>
or interests in pass-through entities which, under the REIT Provisions of the
Internal Revenue Code, would be considered to be qualifying real estate assets
for purposes of the Trust's qualification as a REIT (e.g., REMICs).
(ii) Net Assets or Net Asset Value. "Net Assets" or "Net Asset Value"
shall mean the total assets of the Trust (other than intangibles) at cost before
deducting depreciation or other non-cash reserves less total liabilities of the
Trust, calculated at least quarterly on a basis consistently applied.
(jj) Net Income. "Net Income" shall mean, for any period, total
revenues applicable to such period, less the expenses applicable to such period
other than additions to allowances or reserves for depreciation, amortization or
bad debts or other similar non-cash reserves; [provided, however, that Net
Income shall not include the gain from Mortgage Prepayments, Sales or
Insurance.]
(kk) Original Mortgage Investments. "Original Mortgage Investments"
shall mean the permanent investments of the Trust as described in the
Prospectus, including investments in (i) Acquired Mortgages, (ii) Originated
Mortgages, (iii) other types of Mortgages (including interests in pass-through
entities such as regular interests in REMICs which, under the REIT Provisions of
the Code, are considered to be qualifying real estate assets for purposes of the
Trust's qualification as a REIT), (iv) Additional Loans and (v) subject to
restrictions imposed by certain provisions of the Code, CMOs collateralized by
mortgages insured by FHA or mortgage certificates guaranteed by Ginnie Mae,
Fannie Mae or Freddie Mac.
(ll) Originated Guaranteed Mortgage Certificate. "Originated
Guaranteed Mortgage Certificate" shall mean any mortgage-backed security
guaranteed by Fannie Mae or Freddie Mac which is backed by a conventional
mortgage or mortgages originated by or on behalf of the Trust.
(mm) Originated Insured Mortgage. "Originated Insured Mortgage" shall
mean a Mortgage originated by or on behalf of the Trust or by another lender and
sold to the Trust prior to the time it has been fully funded, the principal of
which (excluding Participating Interest Payments and any Additional Loan) is
eligible for insurance by FHA and others under programs administered by HUD and
shall also include Ginnie Mae mortgage-backed securities and Ginnie Mae
pass-through certificates backed by indebtedness secured by an Originated
Insured Mortgage.
(nn) Originated Mortgage. "Originated Mortgage" shall mean either an
Originated Insured Mortgage or an Originated Guaranteed Mortgage Certificate.
(oo) Participating Interest Payments. "Participating Interest
Payments" shall mean interest payments to be paid in connection with Originated
Mortgages or Acquired
-7-
<PAGE>
Mortgages which payments are in addition to the base rate of interest on an
Originated Mortgage or Acquired Mortgage and are calculated as a percentage of
the cash flow, rentals, revenues and/or appreciation of the underlying project.
(pp) Permanent Indebtedness. "Permanent Indebtedness" shall mean all
indebtedness of the Trust other than Working Capital Indebtedness, trade
payables and subordinated Advisor fees.
(qq) Person. "Person" shall mean and include individuals,
corporations, limited partnerships, general partnerships, limited liability
companies, joint stock companies or associations, joint ventures, companies,
trusts, banks, trust companies, land trusts, business trusts or other entities
and governments and agencies and political subdivisions thereof.
(rr) Preferred Shares. "Preferred Shares" shall mean any Shares
classified or reclassified as such by the Trustees.
(ss) Prospectus. "Prospectus" shall mean the final prospectus of the
Trust in connection with the initial registration of Shares filed with the
Securities and Exchange Commission on Form S-11, as amended.
(tt) Real Estate Investment Trust ("REIT") Provisions of the Internal
Revenue Code. "Real Estate Investment Trust Provisions of the Internal Revenue
Code" shall mean part II, subchapter M, chapter 1 of the Code, as now enacted or
hereafter amended, or successor statutes, other sections of the Code
specifically applicable to REITs and regulations and rulings promulgated
thereunder.
(uu) Reinvestment Plan. "Reinvestment Plan" shall mean the Trust's
dividend reinvestment plan pursuant to which Shareholders can elect to have
their distributions reinvested in additional shares.
(vv) REIT. "REIT" shall mean a corporation or trust which qualifies as
a real estate investment trust as defined in Sections 856 to 860 of the Code.
(ww) Related AMI. "Related AMI" shall mean Related AMI Associates,
Inc., a Delaware corporation.
(xx) REMIC. "REMIC" shall mean a real estate mortgage investment
conduit described in sections 860A through 860G of the Code.
(yy) Roll-Up. "Roll-Up" shall mean a transaction involving the
acquisition, merger, conversion or consolidation either directly or indirectly
of the Trust and the issuance of securities of a Roll-Up Entity. Such term does
not include:
-8-
<PAGE>
(i) a transaction involving securities of the Trust that have been for
at least 12 months listed on a national securities exchange or traded
through the National Association of Securities Dealers Automated Quotation
National Market System; or
(ii) a transaction involving the conversion to corporate or
association form of only the Trust if, as a consequence of the transaction,
there will be no significant adverse change in any of the following:
(a) Shareholders' voting rights;
(b) the term and existence of the Trust;
(c) Sponsor or Advisor compensation;
(d) the Trust's investment objectives.
(zz) Roll-Up Entity. "Roll-Up Entity" shall mean a partnership, real
estate investment trust, corporation, trust or other entity that would be
created or would survive after the successful completion of a proposed Roll-Up
transaction.
(aaa) Securities. "Securities" shall mean any instruments commonly
known as "securities," including stock, shares, voting trust certificates,
bonds, debentures, notes or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or any certificates of
interest, shares or participations, or warrants, options or rights to subscribe
to, purchase or acquire any of the foregoing.
(bbb) Shareholders. "Shareholders" shall mean holders of the Shares.
(ccc) Shares. "Shares" shall mean the beneficial interests of a
Shareholder in the Trust representing undivided beneficial interests in the
assets of the Trust, which may be evidenced by certificates, including, without
limitation, Common Shares and Preferred Shares.
(ddd) Shareholder List. "Shareholder List" shall have the meaning
ascribed to such term in Article III, Section 3.5.
(eee) Sponsor. "Sponsor" shall mean any Person directly or indirectly
instrumental in organizing, wholly or in part, the Trust or any Person who will
manage or participate in the management of the Trust and any Affiliate of any
such Person, but does not include (i) any person whose only relationship with
the Trust is that of an independent asset manager and whose only compensation
from the Trust is as such, and (ii) wholly independent third parties such as
attorneys, accountants and underwriters whose only compensation from the Trust
is for professional services.
-9-
<PAGE>
(fff) Total Assets of the Trust. "Total Assets of the Trust" shall
mean the value of all assets of the Trust as shown on the books of the Trust.
(ggg) Total Invested Assets. "Total Invested Assets" shall mean the
aggregate original amount invested in Mortgage Investments reduced, upon the
receipt of sales proceeds, FHA or other insurance or guarantee proceeds or
prepayments, by the original amount invested in the Mortgage Investment which is
not reinvested, except that in the case of a partial payment, Total Invested
Assets shall be reduced on a pro rata basis to the extent not reinvested.
(hhh) Total Operating Expenses. "Total Operating Expenses" shall mean
all operating, general and administrative expenses of the Trust as determined by
generally accepted accounting principles, exclusive of the expenses of raising
capital, interest payments, taxes, non-cash expenditures (i.e., depreciation,
amortization, bad debt reserve), and costs related directly to a specific
Mortgage Investment by the Trust, such as expenses for originating, acquiring,
servicing or disposing of a Mortgage.
(iii) Total Market Value. "Total Market Value" shall mean the greater
of (i) the sum of (x) the aggregate market value of the Trust's outstanding
Shares and (y) the Total Trust Indebtedness excluding unconsolidated
subsidiaries and (ii) the aggregate value of the Trust's assets as determined by
the Advisor based upon third-party or management appraisals and other criteria
as the Board of Trustees shall determine in its sole discretion.
(jjj) Total Trust Indebtedness. "Total Trust Indebtedness" shall mean,
collectively, Permanent Indebtedness and Working Capital Indebtedness.
(kkk) Trust. "Trust" shall mean the Massachusetts business trust
created pursuant to this Declaration of Trust.
(lll) Trustees. "Trustees" shall have the meaning ascribed to such
term in the heading of this Declaration of Trust and who collectively shall
constitute the Board of Trustees of the Trust.
(mmm) Unimproved Real Property. "Unimproved Real Property" shall mean
property which has the following three characteristics: (1) the property was not
acquired for the purpose of producing rental or other operating income, (2)
there is no development or construction in process on such land, and (3) no
development or construction on such land is planned in good faith to commence on
such land within one year.
(nnn) Working Capital Indebtedness. "Working Capital Indebtedness"
shall mean indebtedness (i) which has a term of no longer than five years and is
utilized by the Trust to acquire and originate Mortgage Investments which are
intended to be pooled as part of an
-10-
<PAGE>
issuance of CMOs or pass-through certificates sponsored by the Trust or its
subsidiaries, the proceeds of which will be used to repay such indebtedness, or
(ii) used to pay distributions to Shareholders and operating expenses, including
without limitation, fees to the Advisor.
ARTICLE III - MEETING OF SHAREHOLDERS
SECTION 3.1 ANNUAL MEETINGS. Annual meetings of Shareholders for the
election of Trustees and for such other business as may be stated in the notice
of the meeting shall be held at such place, either within or without the
Commonwealth of Massachusetts, and at such time and date not less than 30 days
after delivery of the annual report, but in no event later than June 30 of each
such year as the Board of Trustees, by resolution, shall determine. If the date
of the annual meeting shall fall upon a legal holiday, the meeting shall be held
on the next succeeding business day. At each annual meeting, the Shareholders
entitled to vote shall elect a Board of Trustees and may transact such other
Trust business as shall be stated in the notice of the meeting.
SECTION 3.2 OTHER MEETINGS. Meetings of Shareholders for any purpose
other than the election of Trustees may be held at such time and place, within
or without the Commonwealth of Massachusetts, as shall be stated in the notice
of the meeting.
SECTION 3.3 VOTING. Each Shareholder entitled to vote in accordance
with the terms and provisions of this Declaration of Trust shall be entitled to
one vote for each Share held by such Shareholder (i) at a meeting, in person, by
written proxy or by a signed writing or consent directing the manner in which he
desires that his vote be cast, which writing must be received by the Trustees
prior to such meeting or (ii) without a meeting, by a signed writing or consent
directing the manner in which he desires his vote to be cast, which writing must
be received by the Trustees prior to the date upon which the votes of the
Shareholders are to be counted. In connection with the foregoing, no proxy shall
be voted after six months from its date unless such proxy is coupled with an
interest sufficient in law to support an irrevocable power and provides for a
longer period and except that the Board of Trustees may prohibit the holders of
Excess Shares from voting the Excess Shares. Upon the demand of any Shareholder,
the vote for Trustees and upon any question before a meeting, the vote shall be
by ballot. All elections for Trustees shall be decided by plurality vote (at a
meeting or without a meeting, provided that at least a majority of the
outstanding Shares shall cast a vote in such election). Unless otherwise
provided by this Declaration of Trust, all other questions shall be decided by a
majority of the votes cast at a meeting at which a quorum is present or a
majority of outstanding Shares cast, without a meeting. Notwithstanding the
foregoing, none of the Advisor, the Trustees nor their Affiliates may vote any
Shares held by them, or consent, on matters submitted to the Shareholders
regarding:
(a) the removal of the Advisor, the Trustees or their Affiliates; or
-11-
<PAGE>
(b) any transaction between the Trust and the Advisor, the Trustees or
their Affiliates.
Shares held by the Advisor, the Trustees and their Affiliates shall not be
included in determining the number of outstanding Shares entitled to vote on the
matters discussed in (a) and (b) above, nor in the Shares actually voted
thereon.
SECTION 3.4 INSPECTORS OF ELECTION. The Board of Trustees, in advance
of any Shareholders' meeting or other Shareholder vote, may appoint one or more
inspectors to act at the meeting, any adjournment thereof or in connection with
any other Shareholder vote. If inspectors are not so appointed, the person
presiding at a Shareholders' meeting or the Chairman of the Board where there is
no meeting, may, and on the request of any Shareholder entitled to vote in
connection with a particular question, shall, appoint two inspectors. In case
any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board of Trustees in the case of a meeting, in advance
of the meeting or at that meeting by the person presiding thereat or, in the
case of a vote without a meeting, in advance of counting the vote. 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.
The inspectors shall determine the number of Shares outstanding and
the voting power of each, the Shares represented at the meeting, if applicable,
the existence of a quorum, if applicable, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all Shareholders.
On request of the person presiding at the meeting, if applicable, or any
Shareholder entitled to vote thereat or in connection with a particular
solicitation, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated and of the vote as certified by them.
SECTION 3.5 ACCESS TO RECORDS. Any Shareholder and any designated
representative thereof shall be permitted access to all records of the Trust at
all reasonable times, and may inspect and copy any of them. Inspection of the
Trust books and records by a state securities administrator shall be provided
upon reasonable notice and during normal business hours. In addition, with
respect to access to the list of Shareholders:
(a) An alphabetical list of the names, addresses, and business
telephone numbers of the Shareholders of the Trust along with the number of
shares held by each of them (the "Shareholder List") shall be maintained as a
part of the books and records of the Trust and shall be available for inspection
by any Shareholder or the Shareholder's designated agent at
-12-
<PAGE>
the home office of the Trust at 625 Madison Avenue, New York, New York, 10022,
or such other address as may be designated by the Trust, upon the request of the
Shareholder;
(b) The Shareholder List shall be updated at least quarterly to
reflect changes in the information contained therein;
(c) A copy of the Shareholder List shall be mailed to any Shareholder
requesting the Shareholder List within ten days of the request. The copy of the
Shareholder List shall be printed in alphabetical order, on white paper, and in
a readily readable type size (in no event smaller than 10-point type). A
reasonable charge for copy work may be charged by the Trust;
(d) The purposes for which a Shareholder may request a copy of the
Shareholder List include, without limitation, matters relating to Shareholders'
voting rights under the Declaration of Trust, and the exercise of Shareholders'
rights under federal proxy laws; and
(e) If the Advisor or the officers or Trustees of the Trust neglect or
refuse to exhibit, produce, or mail a copy of the Shareholder List as requested,
the Sponsor shall be liable to any Shareholder requesting the list for the
costs, including attorney's fees, incurred by that Shareholder for compelling
the production of the Shareholder List, and for actual damages suffered by any
Shareholder by reason of such refusal or neglect. It shall be a defense that the
actual purpose and reason for the requests for inspection or for a copy of the
Shareholder List is to secure such list of Shareholders or other information for
the purpose of selling such list or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as a Shareholder
relative to the affairs of the Trust. The Trust may require the Shareholder
requesting the Shareholder List to represent that the list is not requested for
a commercial purpose unrelated to the Shareholder's interest in the Trust. The
remedies provided hereunder to Shareholders requesting copies of the Shareholder
List are in addition to, and shall not in any way limit, other remedies
available to Shareholders under federal law, or the laws of any state.
Subject to the foregoing, with respect to certain solicitations made
by the Trust, the Trust may, with the consent of the Shareholder, mail
communications on behalf of any Shareholder at his expense who so requests in
writing and is entitled to vote on the same subject matter as the Trust's
solicitation.
SECTION 3.6 QUORUM. Except as otherwise required by law or by this
Declaration of Trust, the presence, in person or by proxy, of Shareholders
holding a majority of the outstanding Shares of the Trust entitled to vote,
shall constitute a quorum at all meetings of the Shareholders. In case a quorum
shall not be present at any meeting, a majority in interest of the Shareholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the
-13-
<PAGE>
meeting, until the requisite amount of Shares entitled to vote shall be present.
At any such adjourned meeting at which the requisite amount of Shares entitled
to vote shall be presented, any business may be transacted which might have been
transacted at the meeting as originally noticed; but only those Shareholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof.
SECTION 3.7 SPECIAL MEETINGS. Special meetings of the Shareholders may
be called by the Chairman of the Board, by the President, by a majority of the
Trustees or by a majority of the Independent Trustees, and shall be called by
any officer of the Trust upon written request of Shareholders holding in the
aggregate not less than 10% of the outstanding Shares of the Trust entitled to
vote at such meeting. The call of a special meeting shall state the nature of
the business to be transacted and that no other business shall be considered at
such meeting.
Upon receipt of a written request either in person or by registered
mail stating the purpose(s) of the meeting requested by Shareholders, the Trust
shall provide all Share holders, within ten (10) business days after receipt of
said request, written notice (either in person or by mail) of a meeting and the
purpose of such meeting to be held on a date not less than twenty (20) nor more
than sixty (60) days after receipt of said request (or as soon thereafter as the
applicable proxy rules may reasonably be complied with) for such meeting, at a
time and place convenient to the Shareholders.
The place, date and time of, as well as the record date for
determining the persons entitled to notice of and to vote at, any special
meeting, including any special meeting to be called at the request of the
holders of 10% or more of the Shares outstanding, shall be determined by the
Board of Trustees; provided, however, in the case of a special meeting to be
called at the request of the holders of 10% or more of the Shares outstanding,
if the Board of Trustees declines or fails to make any such determination within
ten business days of such request, then the officer calling such special meeting
shall at the time of such call designate the place, date and time of such
special meeting as well as the record date for determining persons entitled to
notice of and to vote at such meeting.
SECTION 3.8 NOTICE OF ANNUAL AND SPECIAL MEETINGS CALLED BY CERTAIN OR
ALL OF THE TRUSTEES AND SOLICITATION OF CONSENT WITHOUT MEETING. Written notice,
stating the place, date and time of the annual meeting or a special meeting not
called at the request of the Shareholders, and the general nature of the
business to be considered in the case of an annual meeting, or the specific
nature of the business to be considered in the case of a special meeting, shall
be given to each Shareholder entitled to vote thereat at his address as it
appears on the records of the Trust, not less than twenty (20) nor more than
sixty (60) days before the date of such meeting. In the case of a Shareholder
vote without a meeting, the date for responding to such solicitation and the
counting of the votes in connection therewith must occur no later than sixty
(60) days and no sooner than twenty (20) days after notice of such requested
vote is given.
-14-
<PAGE>
SECTION 3.9 BUSINESS TRANSACTED. No business other than that stated in
the notice shall be transacted at any meeting without the unanimous consent of
all the Shareholders entitled to vote thereat.
ARTICLE IV - TRUSTEES
SECTION 4.1 NUMBER, TERM AND QUALIFICATIONS. Not later than the time
when the Trust first has public Shareholders, the number of Trustees shall be
not less than three nor more than nine, as fixed from time to time by the Board
of Trustees, a majority of whom shall at all times be Independent Trustees
(except that in the event of death, resignation or removal of an Independent
Trustee, the requirement for such majority shall not be applicable for a period
of 60 days). Unless otherwise fixed by the Board of Trustees or the
Shareholders, the number of Trustees constituting the entire Board of Trustees
shall be three.
The Trustees shall be elected at the annual meeting of Shareholders.
Each Trustee shall serve a term of one year subject to his successor being
elected and qualified.
A Trustee shall be an individual at least 21 years of age who is not
under legal disability. A Trustee shall not be required to devote his full
business time and effort to the Trust. A Trustee shall qualify as such when he
has either signed this Declaration of Trust or agreed in writing to be bound by
it. No bond shall be required to secure the performance of a Trustee unless the
Trustees so provide or as required by law.
A Trustee must have at least three years of relevant experience
demonstrating the knowledge and experience required to successfully acquire and
manage Mortgage Investments. At least one Independent Trustee must have at least
three years of relevant real estate experience.
Nominations for the election of Trustees may be made by the Board of
Trustees or a committee appointed by the Board of Trustees or by any Shareholder
entitled to vote in the election of Trustees generally. However, any Shareholder
entitled to vote in the election of Trustees generally may nominate one or more
persons for election as Trustees at a meeting only if written notice of such
Shareholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Trust not later than (i) with respect to an election to be held
at an annual meeting of Shareholders, ninety days prior to the anniversary date
of the immediately preceding annual meeting, and (ii) with respect to an
election to be held at a special meeting of Shareholders for the election of
Trustees, the close of business on the tenth day following the date on which
notice of such meeting is first given to Shareholders. Each such notice shall
set forth: (a) the name and address of the Shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the Shareholder is a holder of
-15-
<PAGE>
record of Shares of the Trust entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or understandings
between the Shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the Shareholder; (d) such other information regarding each nominee
proposed by such Shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Trustees; and (e) the consent of each nominee to serve as a Trustee of
the Trust if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
SECTION 4.2 AUTHORITY OF TRUSTEES. (a) General Responsibilities and
Authority. Consistent with the duties and obligations of, and limitations on,
the Trustees as set forth herein, and under the laws of the Commonwealth of
Massachusetts, the Trustees are accountable to the Shareholders as fiduciaries
and are required to perform their duties in good faith and in a manner each
Trustee believes to be in the best interest of the Trust and its Shareholders,
with such care, including reasonable inquiry, as a prudent person in a like
position would use under similar circumstances. In addition, the Trustees shall
have a fiduciary duty to the Shareholders to review the relationship of the
Trust with the Advisor.
The Trustees shall have full, absolute and exclusive power, control,
management and authority over the Trust's assets and over the business and
affairs of the Trust to the same extent as if the Trustees were the sole owners
thereof in their own right. The enumeration of any specific power or authority
herein shall not be construed as limiting the aforesaid power or authority or
any specific power or authority. The Trustees shall have the power to enter into
commitments to make any investment, purchase or acquisition, or to exercise any
power authorized by this Declaration of Trust.
The Trustees shall establish written policies on investments and
borrowings and shall monitor the administrative procedures, investment
operations and performance of the Trust and the Advisor to assure that such
policies are carried out. Until modified by the Trustees, the Trust shall follow
the policies on investments and borrowings set forth in the Consent Statement.
(b) Specific Powers and Authorities. Subject only to the express
limitations contained in this Declaration of Trust and in addition to any powers
and authorities conferred by this Declaration of Trust or which the Trustees may
have by virtue of any present or future statute or rule of law, the Trustees
without any action or consent by the Shareholders shall have and may exercise at
any time and from time to time the following powers and authorities which may or
may not be exercised by them in their sole judgment and discretion and in such
manner and upon such terms and conditions as they may from time to time deem
proper:
-16-
<PAGE>
(i) To retain, invest and reinvest the capital or other funds of
the Trust (including, without limitation, repayments and disposition
proceeds from sales of the Trust's Mortgage Investments) in Mortgages
and other Mortgage Investments without regard to whether any such
Mortgages and other Mortgage Investments may mature before the
possible termination of the Trust, and to possess and exercise all the
rights, powers and privileges appertaining to the ownership of the
Trust assets.
(ii) For such consideration as they deem proper to invest in,
purchase or otherwise acquire for cash or other property and hold for
investment Mortgages secured by real property located in the United
States, and, in connection with any such investment in Mortgages,
acquire (i) the entire or any participating interest in rents, lease
payments or other income from, or the entire or any participating
interest in the profits from, or the entire or any participating
interest in the equity or ownership of, real property; and (ii) such
investments, either directly or, subject to Article VII, Section 7.1,
through joint ventures, partnerships, or other lawful combinations or
associations.
(iii) To sell, exchange, release, partition, assign, mortgage,
pledge, hypothecate, grant security interests in, encumber, negotiate,
convey, transfer or otherwise dispose of any and all of the assets of
the Trust by deeds, trust deeds, assignments, bills of sale,
transfers, leases, mortgages, financing statements, security
agreements and other instruments for any of such purposes executed and
delivered for and on behalf of the Trust or the Trustees by one or
more of the Trustees or by a duly authorized officer, employee, agent
or any nominee of the Trust.
(iv) To issue authorized Shares or other Securities, all without
the vote of or other action by the Shareholders, to such Persons for
such cash, property or other consideration (including Securities
issued or created by, or interests in any Person) at such time or
times and on such terms as the Trustees may deem advisable and to
purchase or otherwise acquire, hold, cancel, reissue, sell and
transfer the Shares or any of such Securities.
(v) To enter into contracts, obligations, and other agreements
for a term extending beyond the term of office of the Trustees and
beyond the possible termination of the Trust or for a lesser term.
(vi) To, subject to Article VII, Section 7.9, borrow money and
give negotiable or non-negotiable instruments therefor; to enter into
other obligations on behalf of the Trust; and to assign, convey,
transfer, mortgage, subordinate, pledge, grant security interests in,
encumber or hypothecate the assets of the Trust to secure any of the
foregoing.
-17-
<PAGE>
(vii) To lend money, whether secured or unsecured.
(viii) To create reserve funds for any purpose.
(ix) To incur and pay out of the Trust assets any charges or
expenses, and disburse any funds of the Trust, which charges, expenses
or disbursements are, in the opinion of the Trustees, necessary for or
incidental to or desirable for, and are incurred in connection with,
the carrying out of any of the purposes of the Trust or the conducting
of the business of the Trust, including without limitation taxes and
other governmental levies, charges and assessments of whatever kind or
nature, imposed upon or against the Trustees in connection with the
Trust or upon or against the Trust assets or any part thereof, and for
any of the purposes herein.
(x) To deposit funds or securities held by the Trust in banks,
trust companies, savings and loan associations and other depositories,
whether or not such deposits will draw interest, the same to be
subject to withdrawal on such terms and in such manner and by such
Person or Persons (including any one or more Trustees, officers,
agents or representatives) as the Trustees may determine.
(xi) To possess and exercise all the rights, powers and
privileges appertaining to the ownership of all or any interests in,
or mortgages or securities issued or created by, any Person, forming
part of the assets of the Trust, to the same extent that an individual
might, and, without limiting the generality of the foregoing, to vote
or give any consent, request or notice, or waive any notice, either in
person or by proxy or power of attorney, with or without power of
substitution, to one or more Persons, which proxies and powers of
attorney may be for meetings or action generally or for any particular
meeting or action, and may include the exercise of discretionary
powers.
(xii) To enter into joint ventures, general or limited
partnerships and any other lawful combinations or associations with
independent third parties or, subject: to Article VII, Section 7.1,
with Affiliated Programs.
(xiii) To elect, appoint, engage or employ such officers for the
Trust as the Trustees may determine, who may be removed or discharged
at the discretion of the Trustees, such officers to have such powers
and duties, and to serve such terms and at such compensation, as may
be prescribed by the Trustees; to engage or employ any Persons as
agents, representatives, employees, or independent contractors
(including, without limitation, real estate advisors, investment
advisors, transfer agents, registrars, underwriters,
-18-
<PAGE>
accountants, attorneys at law, real estate agents, managers,
appraisers, brokers, architects, engineers, construction managers,
general contractors or otherwise) in one or more capacities, and to
pay compensation from the Trust for services in as many capacities as
such Person may be so engaged or employed; and, except as prohibited
by law and subject to the supervision of the Trustees, to delegate any
of the powers and duties of the Trustees to the Advisor.
(xiv) To determine the proper accounting treatment for Trust
income, loss and capital.
(xv) To determine from time to time the value of all or any part
of the Trust assets and of any securities, assets, or other
consideration to be furnished to or acquired by the Trust, and from
time to time to revalue all or any part of the Trust assets in
accordance with such appraisals or other information as are, in the
Trustees' sole judgment, necessary and/or satisfactory.
(xvi) To collect, sue for, and receive all sums of money or other
assets coming due to the Trust, and to engage in, intervene in,
prosecute, join, defend, compound, compromise, abandon or adjust, by
arbitration or otherwise, any actions, suits, proceedings, disputes,
claims, controversies, demands or other litigation relating to the
Trust, the assets of the Trust or the Trust's affairs, to enter into
agreements therefor, whether or not any suit is commenced or claim
accrued or asserted and, in advance of any controversy, to enter into
agreements regarding arbitration, adjudication or settlement thereof.
(xvii) To renew, modify, release, compromise, extend,
consolidate, or cancel, in whole or in part, any obligation to or of
the Trust.
(xviii) To purchase and pay for out of the Trust assets insurance
contracts and policies insuring the Trust assets against any and all
risks and insuring the Trust and/or any or all of the Trustees, the
Shareholders, officers, employees, agents, investment advisors or
independent contractors of the Trust against any and all claims and
liabilities of every nature asserted by any Person arising by reason
of any action alleged to have been taken or omitted by the Trust or by
any such person as Trustee, Shareholder, officer, employee, agent,
investment advisor or independent contractor; provided, however, that
the Trustees may purchase and pay for out of Trust assets insurance
contracts and policies insuring independent contractors or agents,
only if such policies are customarily provided to independent
contractors or agents providing the services being rendered in the
locality where such services are being rendered; provided, further,
that limitations on the acquisition of insurance contracts or policies
shall not apply to the Advisor, unless otherwise restricted as set
forth in Article XI, Section 11.2(c).
-19-
<PAGE>
(xix) To adopt a fiscal year for the Trust, and from time to time
to change such fiscal year.
(xx) To adopt and use a seal (but the use of a seal shall not be
required for the execution of instruments or obligations of the
Trust).
(xxi) To make, perform, and carry out, or cancel and rescind,
contracts of every kind for any lawful purpose without limit as to
amount, with any Person, firm, trust, association, corporation,
municipality, county, parish, state, territory, government or other
municipal or governmental subdivisions. These contracts shall be for
such duration and upon such terms as the Trustees in their sole
discretion shall determine.
(xxii) To renew, modify, extend, consolidate or cancel, in whole
or in part, the Reinvestment Plan.
(xxiii) To acquire real property (or an interest therein) in the
event of a Mortgage foreclosure and perform all acts incidental to the
ownership of real property including, without limitation, entering
into leases for space located therein.
(xxiv) To cause the Trust to repurchase Shares from time to time
out of surplus funds of the Trust, if any, to further the business of
the Trust;
(xxv) To list the Shares on the American Stock Exchange or any
other exchange or market;
(xxvi) To, in connection with the leveraging of the Trust's
assets, cause the Trust to form and invest in subsidiaries and other
investment vehicles and transfer any or all of the Trust's assets to
such entities; provided, however, that such entities shall be operated
in a manner which is consistent with the provisions of this Trust
Agreement;
(xxvii) To adopt, implement and from time to time amend bylaws of
the Trust relating to the business and organization of the Trust that
are not inconsistent with the provisions of this Declaration of Trust;
and
(xxviii) To do all other such acts and things as are incident to
the foregoing, and to exercise all powers which are necessary or
useful to carry on the business of the Trust, to promote any of the
purposes for which the Trust is formed, and to carry out the
provisions of this Declaration of Trust.
-20-
<PAGE>
(c) Additional Powers. The Trustees shall additionally have and
exercise all the powers conferred by the laws of Massachusetts upon business
trusts or real estate investment trusts formed under such laws, insofar as such
laws are not in conflict with the provisions of this Declaration of Trust.
(d) Business Opportunities With Affiliated Programs. The Trustees
(including the Independent Trustees) shall periodically monitor the allocation
of Mortgage Investments among the Trust and the Affiliated Programs to insure
that the allocation method described in the Prospectus is being applied fairly
to the Trust.
(e) Suitable Investment Opportunities. Before any Trustee, including
any Independent Trustee, may take advantage of an investment opportunity that is
suitable for the Trust for their own account or present or recommend it to
others, they shall present such investment opportunity to the Trust if (i) such
opportunity is within the Trust's investment objectives and policies, (ii) such
opportunity is of a character which could be taken by the Trust, and (iii) the
Trust has the financial resources to take advantage of such opportunity.
SECTION 4.3 RESIGNATIONS. Any Trustee or other officer may resign at
any time. Such resignation shall be made in writing, and shall take effect at
the time specified therein, and if no time is specified, at the time of its
receipt by the Chairman of the Board or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 4.4 REMOVAL OF TRUSTEES. Any one or more of the Trustees may
be removed, but only for cause, by action of a majority of the Board of
Trustees. Any or all of the Trustees may be removed, with or without cause, by
the affirmative vote of the holders of a majority of the outstanding Shares
entitled to vote, subject to the provisions of Article III, Section 3.3 hereof.
A special meeting of the Shareholders for the purpose of removing a Trustee
shall be called by an officer of the Trust in accordance with the provisions of
Article III, Section 3.7 hereof.
SECTION 4.5 NEWLY CREATED TRUSTEESHIPS AND VACANCIES. Newly created
trusteeships resulting from an increase in the number of Trustees or vacancies
occurring in the Board of Trustees for any reason except the removal of Trustees
by Shareholders may be filled by vote of a majority of the Trustees then in
office, although less than a quorum exists. Vacancies occurring as a result of
the removal of Trustees by Shareholders shall be filled by the Shareholders. A
Trustee elected to fill a vacancy shall be elected to hold office for the
unexpired term of his predecessor. The Independent Trustees shall nominate
replacements for vacancies among the Independent Trustees' positions. Upon the
resignation or removal of any Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the conveyance of any Trust property held in his name, shall account
to the remaining Trustee or Trustees as they require for all property which he
holds as Trustee and shall thereupon be discharged as Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall perform
-21-
<PAGE>
the acts set forth in the preceding sentence and the discharge mentioned therein
shall run to such legal representative and to the incapacitated Trustee, or the
estate of the deceased Trustee, as the case may be. Notwithstanding anything to
the contrary contained in this Article IV, Section 4.5, the filling of vacancies
or newly created trusteeships on the Board of Trustees shall be subject to
compliance with the requirements of Section 4.1 of this Article IV.
SECTION 4.6 SUCCESSOR AND ADDITIONAL TRUSTEES. The right, title and
interest of the Trustees in and to the assets of the Trust shall also vest in
successor and additional Trustees upon their qualification, and they shall
thereupon have all the rights and obligations of Trustees hereunder. Such right,
title and interest shall vest in the Trustees whether or not conveyancing
documents have been executed and delivered pursuant to Section 4.5 of this
Article IV or otherwise.
SECTION 4.7 ACTIONS BY TRUSTEES. The Trustees may act with or without
a meeting. A quorum for all meetings of the Trustees shall be a majority of the
number of incumbent Trustees, provided that at least a majority of such number
are Independent Trustees. Unless specifically provided otherwise in this
Declaration, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present at such meeting if a quorum is present. Any
action of the Trustees taken without a meeting shall be taken pursuant to the
consent procedures set forth in Section 4.9 of this Article IV. Any agreement,
deed, mortgage, lease or other instrument or writing executed by any one or more
of the Trustees or by any one or more authorized persons shall be valid and
binding upon the Trustees and upon the Trust when authorized by action of the
Trustees.
SECTION 4.8 COMPENSATION. Independent Trustees shall be entitled to
receive compensation for serving as Trustees at the rate of $10,000 per year.
Additionally, Independent Trustees shall be reimbursed for travel expenses and
other out-of-pocket disbursements incurred in connection with attending any
meetings. Non-Independent Trustees shall not receive any compensation from the
Trust. Nothing herein contained shall be construed to preclude any
non-Independent Trustee from serving the Trust in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor. Independent
Trustees shall not perform any services for the Trust except as Trustees.
SECTION 4.9 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Trustees may be taken without a
meeting, provided prior to such action a written consent thereto is signed by a
majority of the Board of Trustees, and provided, further, at least a majority of
the consenting Trustees are Independent Trustees. Any such written consent shall
be filed with the minutes of proceedings of the Trustees.
SECTION 4.10 TELEPHONIC MEETING. All or any one or more Trustees may
participate in a meeting of the Trustees or any committee thereof by means of
conference telephone or similar communications equipment by means of which all
participants can hear
-22-
<PAGE>
each other and participation in a meeting pursuant to such communication shall
constitute presence in person at such meeting.
SECTION 4.11 EXECUTIVE COMMITTEE. The Trustees may appoint an
executive committee from among their number consisting of three or more members,
a majority of whom shall be Independent Trustees, which shall have such powers,
duties and obligations as the Trustees may deem necessary and appropriate,
including, without limitation, the power to conduct the business and affairs of
the Trust during periods between meetings of the Trustees. The Executive
Committee shall report its activities periodically to the Trustees.
ARTICLE V - OFFICERS
SECTION 5.1 OFFICERS. The officers of the Trust shall consist of a
Chairman of the Board, a President, a Treasurer and a Secretary, and shall be
elected by the Board of Trustees and shall hold office until their successors
are elected and qualified. In addition, the Board of Trustees may elect one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
it may deem proper. None of the officers of the Trust need be Trustees. The
officers shall be elected at the first meeting of the Board of Trustees after
each annual meeting. More than one office may be held by the same person.
SECTION 5.2 OTHER OFFICERS AND AGENTS. The Board of Trustees may
appoint such officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such power and perform such duties as
shall be determined from time to time by the Board of Trustees.
SECTION 5.3 CHAIRMAN OF THE BOARD. The Chairman of the Board of
Trustees, if one is elected, shall be the chief executive officer of the Trust
and shall preside at all meetings of the Board of Trustees. He shall have and
perform such other duties as from time to time may be assigned to him by the
Board of Trustees.
SECTION 5.4 PRESIDENT. The President shall be the chief operating
officer of the Trust and shall have the general powers and duties of supervision
and management usually vested in the office of President of a corporation. He
shall preside at all meetings of the Shareholders if present thereat, and in the
absence or non-election of the Chairman of the Board, at all meetings of the
Board of Trustees, and shall have general supervision, direction and control of
the business of the Trust. Unless the Board of Trustees shall authorize the
execution thereof in some other manner, he shall execute bonds, mortgages, and
other contracts on behalf of the Trust, and shall cause the seal to be affixed
to any instrument requiring it and when so affixed the seal shall be attested by
the signature of the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer.
-23-
<PAGE>
SECTION 5.5 VICE-PRESIDENT. Each Vice-President shall have such powers
and shall perform such duties as shall be assigned to him by the Board of
Trustees.
SECTION 5.6 TREASURER. The Treasurer shall have custody of the funds
and Securities of the Trust and shall keep a full and accurate account of
receipts and disbursements in books belonging to the Trust. He shall deposit all
moneys and other valuables In the name and to the credit of the Trust in such
depositories as may be designated by the Board of Trustees.
The Treasurer shall disburse the funds of the Trust as may be ordered
by the Board of Trustees, the Chairman of the Board or the President, taking
proper vouchers for such disbursements. He shall render to the President or
Board of Trustees at the regular meetings of the Board of Trustees, or whenever
they may request it, an account of all his transactions as Treasurer and of the
financial condition of the Trust. If required by the Board of Trustees, he shall
give the Trust a bond, at the Trust's expense, for the faithful discharge of his
duties in such amount and with such surety as the Board of Trustees shall
prescribe.
SECTION 5.7 SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of Shareholders and Trustees; and all other notices
required by law or by this Declaration of Trust, and in case of his absence or
refusal or neglect to do so, any such notice may be given by any person
thereunto directed by the Chairman of the Board, the President, or by the
Trustees or Shareholders, upon whose requisition the meeting is called as
provided in this Declaration of Trust. He shall record all the proceedings of
the meetings of the Trust and of Trustees in a book to be kept for that purpose.
He shall keep in safe custody the seal of the Trust, and when authorized by the
Board of Trustees, affix the same to any instrument requiring it, and when so
affixed, it shall be attested by his signature or by the signature of any
assistant secretary.
SECTION 5.8 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the Board of Trustees.
ARTICLE VI - ADVISOR
SECTION 6.1 EMPLOYMENT OF ADVISOR. The Board of Trustees is
responsible for the general policies of the Trust and for such general
supervision and management of the business of the Trust as may be necessary to
insure that such business conforms to the provisions of this Declaration of
Trust. However, the Board of Trustees and officers shall not be required
personally to conduct all the business of the Trust and consistent with their
ultimate responsibility as stated above, the Board of Trustees shall have the
power to appoint, employ or contract with any Person (including one or more of
the directors or officers
-24-
<PAGE>
or any corporation, partnership, or trust in which one or more of the Trustees
or officers may be directors, officers, stockholders, partners or trustees) as
the Board of Trustees may deem necessary or proper for the transaction of the
business of the Trust. The Board of Trustees, upon approval by a majority of the
Trustees (including a majority of the Independent Trustees), shall initially
employ Related AMI (herein referred to as the "Advisor") to advise the Trust, in
respect of the acquisition and disposition of investments by the Trust, and to
supervise other aspects of the business of the Trust, and the Trust may grant or
delegate such authority to the Advisor as the Board of Trustees may in its sole
discretion deem necessary or desirable without regard to whether such authority
is normally granted or delegated by the Board of Trustees, including, without
limitation, the power to delegate to the Advisor the authority (i) to cause the
Trust to enter into, or dispose of, investments (not involving Affiliates of the
Advisor, a Trustee, the Sponsor or Affiliates thereof unless expressly permitted
by Article VII, Section 7.1) and (ii) to defer any fees due to it under the
Advisory Agreement, without the approval of the Board of Trustees. The Board of
Trustees may, upon approval by a majority of the Trustees (including a majority
of the Independent Trustees), employ, or contract with any other Person to serve
as the Advisor, with the same rights, powers and limitations described herein in
substitution of Related AMI.
The Board of Trustees (subject to the provisions of Sections 6.2, 6.3,
6.4, and 6.5 of this Article) shall have the power to determine the terms of any
agreement with, and compensation of, the Advisor or any other Person whom they
may employ or with whom they may contract; provided, however, that any decision
to employ or contract with any Trustee or any Person of which a Trustee is an
Affiliate, shall be valid only if made, approved,or ratified by a majority of
the Trustees (including a majority of Independent Trustees) not otherwise
interested in such transaction as being fair and reasonable to the Trust and on
terms and conditions not less favorable to the Trust than those available from
unaffiliated third parties. The Board of Trustees may exercise broad discretion
in allowing the Advisor to administer and regulate the operations of the Trust,
to act as agent for the Trust, to execute documents on behalf of the Board of
Trustees, and to make executive decisions which conform to the general policies
and general principles previously established by the Board of Trustees.
SECTION 6.2 TERM. The Board of Trustees shall not enter into any
Advisory Agreement with the Advisor unless such contract has a term of no more
than one year. It shall be the duty of the Board of Trustees to evaluate the
performance of the Advisor before entering into or renewing any Advisory
Agreement with the Advisor. The criteria used by the Board of Trustees in its
evaluation of the Advisor shall be reflected in the minutes of the meeting of
Trustees. The Advisory Agreement with the Advisor shall be terminable (i)
without cause by the Advisor or (ii) with or without cause by a majority of the
Independent Trustees, each without penalty, and each upon 60 days' prior written
notice to the non- terminating party. In the event of the termination of the
Advisory Agreement with the Advisor, the Advisor will cooperate with the Trust
and take all reasonable steps requested to assist the Board of Trustees in
making an orderly transition of the advisory function. The Trustees shall
determine that any successor Advisor possesses sufficient qualifications (a) to
-25-
<PAGE>
perform the advisory function for the Trust and (b) to justify the compensation
provided for in its Advisory Agreement. [RELATED TO CONSIDER TERMINATION FEE]
SECTION 6.3 COMPENSATION. The Independent Trustees shall determine
from time to time but at least annually that the compensation which the Trust
contracts to pay to the Advisor is reasonable in relation to the nature and
quality of the services performed and that such compensation is within the
limits prescribed by the NASAA Statement of Policy regarding Real Estate
Investment Trusts in effect on the effective date of the Prospectus. Each
determination made by the Independent Trustees concerning the reasonableness of
the compensation paid to the Advisor shall be recorded in the minutes of the
meeting of Trustees and shall be based on the factors set forth below and such
other factors as the Independent Trustees deem relevant:
(a) the size of the advisory fee in relation to the size, composition
and profitability of the portfolio of the Trust;
(b) the success of the Advisor in generating opportunities that meet
the investment objectives of the Trust;
(c) the rates charged to other REITs and to investors other than REITs
by advisors performing similar services;
(d) additional revenues realized by the Advisor and its Affiliates
through their relationship with the Trust, including loan administration,
underwriting or broker commissions, servicing, engineering, inspection and other
fees, whether paid by the Trust or by others with whom the Trust does business;
(e) the quality and extent of service and advice furnished by the
Advisor;
(f) the performance of the investment portfolio of the Trust,
including income, conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations; and
(g) the quality of the portfolio of the Trust in relationship to the
investments generated by the Advisor for its own account.
The Independent Trustees shall review the performance of the Advisor
and the compensation paid to it by the Trust to determine that the provisions of
the contract with the Advisor are being carried out. The compensation that any
Advisor employed by the Trust shall be entitled to receive for serving as
investment advisor shall consist of the Asset Management Fee, payable as set
forth in the Advisory Agreement. The Advisor shall also be entitled to receive
reimbursement for all operating expenses described in Section 6.5 of this
Article. The Advisor shall also receive from the Trust, for services rendered to
the Trust, the
-26-
<PAGE>
additional compensation set forth in the Advisory Agreement, which compensation
shall include, but shall not be limited to, acquisition fees, property
management fees, mortgage servicing fees, incentive fees and Shares.
In the case of multiple Advisors, incentive fees paid to such Advisors
and Affiliates thereof shall be distributed by a proportional method reasonably
designed to reflect the value added to the Trust's assets by each respective
Advisor or Affiliate.
The Independent Trustees shall determine from time to time but at
least annually that the total fees and expenses of the Trust are reasonable in
light of the investment experience of the Trust, its Net Asset Value, its Net
Income, and the fees and expenses of other comparable advisors in real estate.
Each such determination shall be recorded in the minutes of the meeting of
Trustees.
SECTION 6.4 OTHER ACTIVITIES OF ADVISOR. The Advisor shall not be
required to administer the investment activities of the Trust as its sole and
exclusive function. The Advisor may have other business interests and may engage
in other activities similar or in addition to those relating to the Trust,
including the rendering of services and advice to other Persons (including
REITS) and the management of other investments (including investments of the
Advisor and its Affiliates). The Board of Trustees may request the Advisor to
engage in other activities which complement the Trust's investments and to
provide services requested by the borrowers or prospective borrowers from the
Trust, and the Advisor may receive compensation or commissions therefor from the
Trust or other Persons.
The Advisor shall seek out and present to the Trust whether through
its own efforts, or those of third parties retained by it, investment
opportunities consistent with the investment policies and objectives of the
Trust and such investment policies as the Trustees may adopt from time to time.
Except for the allocation of investment opportunities between the Trust and the
Affiliated Programs as set forth in the Prospectus, the Advisor shall be
obligated to present an investment opportunity to the Trust if (i) such
opportunity is of a character which could be taken by the Trust, (ii) such
opportunity is compatible with the Trust's investment objectives and policies
and (iii) the Trust has the financial resources to take advantage of such
opportunity before the Advisor may take advantage of such opportunity for its
own account or present or recommend it to others. Subject to the limitations
contained in this Paragraph, the Advisor shall be protected in taking for its
own account or recommending to others any such particular investment
opportunity.
SECTION 6.5 LIMITATION ON TOTAL OPERATING EXPENSES. The annual Total
Operating Expenses of the Trust may not exceed the greater of: (i) 2% of the
Average Invested Assets of the Trust or (ii) 25% of the Trust's Net Income. The
Independent Trustees have the fiduciary responsibility of limiting the Trust's
annual Total Operating Expenses to amounts that do not exceed the limitations
described above. The Independent Trustees may, however, determine that a higher
level of Total Operating Expenses is justified
-27-
<PAGE>
for such period because of unusual or non-recurring expenses. Any such finding
by the Independent Trustees and the reasons in support thereof shall be recorded
in the minutes of the meeting of Trustees. Within 60 days after the end of any
fiscal quarter of the Trust for which Total Operating Expenses (for the 12
months then ended) exceed 2% of the Average Invested Assets of the Trust or 25%
of the Trust's Net Income, whichever is greater, the Trust will send to
Shareholders a written disclosure of such fact. If the Independent Trustees
determine that such higher Total Operating Expenses are justified, such
disclosure will also contain an explanation of the Independent Trustees'
conclusion. In the event the Independent Trustees do not determine that such
excess expenses are justified, the Advisor will reimburse the Trust for the
excess amount within 60 days after the end of such period.
SECTION 6.6 LIMITATION ON REAL ESTATE COMMISSIONS. If the Trust
forecloses on a property servicing a Mortgage and sells such property, the Trust
may pay real estate brokerage fees which are reasonable, customary and
competitive, taking into consideration the size, type and location of the
property ("Competitive Commission"), which shall not in the aggregate exceed the
lesser of the Competitive Commission or an amount equal to 6% of the gross sales
price of the property. The amount of such fees payable to the Advisor, a
Trustee, a Sponsor or an Affiliate thereof shall not exceed the lesser of (i)
one-half of the Competitive Commission or (ii) three percent of the gross sales
price of a property and shall be paid only if such person provides a substantial
amount of services in the sales effort.
SECTION 6.7 INITIAL INVESTMENT BY AFFILIATES OF THE ADVISOR. Prior to
the initial public offering of Shares pursuant to the Prospectus, the Advisor
made an Initial Investment of $200,000 in the Trust by acquiring 10,000 Common
Shares. The Advisor may only sell Common Shares represented by this Initial
Investment through the market on which the Common Shares are normally traded.
ARTICLE VII - INVESTMENT POLICY
SECTION 7.1 GENERAL STATEMENT OF POLICY. The Trust intends to invest
in Mortgage Investments including: (i) Original Mortgage Investments and (ii)
Additional Mortgage Investments. Additional Mortgage Investments (other than
uninsured Mortgage Loans originated with the intent of later securitizing such
Mortgage Loans) may not comprise, in the aggregate, more than 60% of the Trust's
assets. The Trust will seek to obtain Originated Mortgages with Participating
Interest Payments and, to a lesser extent, Acquired Mortgages with Participating
Interest Payments. The Trust shall have the right to acquire or originate
Mortgages without first obtaining a real property appraisal, unless a majority
of the Independent Trustees determine that such an appraisal is necessary; if
obtained, any real property appraisals will be maintained in the Trust's books
and records for at least five years. The foregoing investments are intended to
be structured to comply with the Real Estate Investment Trust Provisions of the
Code. In addition to the investments referred to above, the Trust may, in the
discretion of the Board of Trustees or the Advisor, make the investments
-28-
<PAGE>
described in Section 7.2 below or such other investments that the Board of
Trustees or the Advisor deem in good faith to be consistent with the investment
objectives and policies of the Trust as set forth in the Consent Statement.
The Trust may make commitments to make investments consistent with the
foregoing policies. The Trust may also participate in joint ventures in
Mortgages with Affiliated Programs (subject to the terms of this Section 7.1)
and in investments with other unaffiliated investors, including unaffiliated
investors having investment policies similar to those of the Trust, on the same
or different terms. The Advisor may act as advisor to other investors, including
investors who have the same investment policies as the Trust.
The Independent Trustees shall review the investment policies of the
Trust with sufficient frequency and at least annually to determine that the
policies being followed by the Trust are in the best interests of its
Shareholders. Such determination by the Independent Trustees and the basis
therefor shall be recorded in the minutes of the meeting of Trustees.
The Trust may not enter into transactions with a Sponsor, the Advisor,
a Trustee or an Affiliate thereof, except as (i) specified below or (ii)
otherwise permitted by Sections 7.7 and 7.8 of this Article VII.
The Trust may invest in a joint venture with an Affiliated Program
provided (i) the Affiliated Program has similar investment objectives to those
of the Trust, (ii) such joint venture is approved by a majority of the Trustees,
including a majority of the Independent Trustees, not otherwise interested in
such transaction, as being fair and reasonable to the Trust and (iii) the
Trust's participation in such joint venture is on substantially the same terms
and conditions as those received by the other joint venturers. In the case of
participation with Affiliated Programs, the cost of generating such investments
will be shared ratably by the participating Affiliated Program and the Trust.
The Advisor or an Affiliate may purchase Mortgages or interests
therein in its own name or in the name of a nominee, a trust or a corporate
"nominee" or otherwise and hold title thereto for the purpose of facilitating
the acquisition of such Mortgages by the Trust or any other purpose related to
the business of the Trust; provided that in the event of the acquisition of such
a Mortgage by the Trust from the Advisor or its Affiliates, (i) the purchase
price paid by the Trust may not exceed the purchase price paid by the Advisor or
its Affiliates, including expenses of acquisition, appropriately reduced (a) to
reflect the results of any interest rate hedges placed by the Advisor or its
Affiliates on such Mortgages up to the date of acquisition by the Trust, (b) by
any mortgage payments received or accrued to the date of acquisition by the
Trust to the extent not paid over to the Trust and (c) by all closing costs and
Acquisition Fees paid by the Trust and (ii) no compensation or other benefit may
accrue to the Advisor or its Affiliates except as otherwise permitted herein and
except that they may be reimbursed for the costs incurred to carry the Mortgage
(which could include the transactional costs associated with interest rate
hedges on such Mortgages including, but not limited to,
-29-
<PAGE>
commodity brokerage commissions, exchange fees, etc.). If the Advisor or an
Affiliate has borrowed the funds to make or acquire such Mortgage, the carrying
costs payable by the Trust shall include the lesser of interest at the rate
charged or the rate which would have been charged for a comparable loan by Chase
Bank, N.A., New York, New York; if the Advisor or such Affiliate has used its
own funds to finance the Mortgage, the carrying costs payable by the Trust shall
include interest at a rate not in excess of that which would have been charged
by unrelated lending institutions or by Chase Bank, N.A., New York, New York to
the Advisor or such Affiliate for short-term borrowings. The Advisor or an
Affiliate may purchase other Mortgage Investments upon similar terms and
conditions.
The general purpose of the Trust is to acquire assets and to seek
income which qualifies under the Real Estate Investment Trust ("REIT")
Provisions of the Code. The Board of Trustees shall endeavor to make Mortgage
Investments (including investments yielding "qualified temporary investment
income" within the meaning of Section 856(c)(6)(D) of the Code) in such a manner
as to comply with the requirements of the REIT Provisions of the Code with
respect to the composition of the Trust's investments and the derivation of its
income; provided, however, that for a period of time during which the portfolio
of investments is being developed, the Trust's assets may be invested in
investments with income which does not qualify under the REIT Provisions of the
Code; and provided further, however, that up to seven percent of the Trust's
assets may be invested in Additional Loans, which are unsecured loans and which
therefore do not qualify as real estate assets under the REIT provisions of the
Code.
The investment objectives of the Trust are to: (i) preserve and
protect the Trust's invested capital, by investing principally in Mortgage
Investments (ii) provide quarterly distributions which may be increased over
time as a result of Participating Interest Payments, when obtainable, on
Originated Mortgages, based on the cash flow or revenues of the underlying
Development; and (iii) provide appreciation by investing in Acquired Mortgages
which present the possibility of early disposition or prepayment and investing
in Originated Mortgages and, to a lesser extent, Acquired Mortgages which may
generate Participating Interest Payments, when obtainable, based on the
increased value of the underlying Development upon its refinancing, sale or
other disposition.
SECTION 7.2 SPECIFIC INVESTMENTS. In addition to Mortgage Investments,
the Trust may invest (through a cash management account maintained at a trust
company or otherwise) its assets in investments such as: (a) securities issued,
insured or guaranteed by the United States government or government agencies,
(b) savings accounts, (c) certificates of deposit, (d) bank money market
accounts, (e) bankers' acceptances or commercial paper rated A-1 or better by
Moody's Investors Service, Inc., (f) money market funds (including money market
funds sponsored by the Sponsor or its Affiliates) having assets in excess of $50
million, (g) other short-term highly liquid investments with banks having a net
worth of at least $50 million, (h) investments which yield "qualified temporary
investment
-30-
<PAGE>
income" within the meaning of Section 856(c)(6)(D) of the Code, and (i) any
combination of the foregoing investments.
SECTION 7.3 REAL PROPERTY. To the extent the Trust invests in real
property, a majority of the Trustees shall determine the consideration paid for
such real property, based on the fair market value of the property. If a
majority of the Independent Trustees determine, or if the real property is
acquired from the Advisor, a Trustee, the Sponsors, or Affiliates thereof, such
fair market value shall be determined by a qualified independent real estate
appraiser selected by the Independent Trustees.
SECTION 7.4 RESERVES. The Trust may retain, as a permanent reserve,
any amounts which the Board of Trustees deems reasonable, in cash and in the
types of investments described above in Section 7.2 of this Article.
SECTION 7.5 CHANGES IN INVESTMENT POLICIES AND OBJECTIVES. Subject to
the investment restrictions in Sections 7.6 and 7.7 of this Article, a majority
of the Independent Trustees may alter any or all the above-described investment
policies if they determine such change to be in the best interests of the Trust.
A change in the investment objectives of the Trust shall require the prior
approval of a majority of the outstanding Shares entitled to vote thereon.
Subject to the preceding terms, the Board of Trustees shall endeavor to invest
the Trust's assets in accordance with the investment policies set forth in this
Article.
SECTION 7.6 UNINVESTED ASSETS. To the extent that the Trust has assets
not otherwise invested in accordance with Section 7.1 of this Article, the Board
of Trustees may invest such assets in the types of investments in which the
Trust is permitted to invest pursuant to Section 7.2 of this Article.
SECTION 7.7 RESTRICTIONS. The Board of Trustees shall not:
(a) invest in any foreign currency or bullion;
(b) invest in commodities or commodities futures contracts other than
interest rate futures, when used solely for hedging purposes;
(c) invest in real estate contracts of sale, unless such contracts of
sale are in recordable form and are appropriately recorded in the chain of title
and unless such investment is held as security for Mortgages made or acquired by
the Trust;
(d) engage in any short sale;
(e) invest in any security in any entity holding investments or
engaging in activities prohibited by this Declaration of Trust;
-31-
<PAGE>
(f) issue "redeemable equity securities" (as defined in Section
2(a)(32) of the Investment Company Act of 1940), "face amount certificates of
the installment type" as defined in Section 2(a)(15) thereof, or "periodic
payment plan certificates" as defined in Section 2(a)(27) thereof;
(g) invest more than 10% of its total assets in Unimproved Real
Property or mortgage loans on Unimproved Real Property;
(h) issue options or warrants to purchase its Shares to any Person
unless (i) the exercise price equals or exceeds the fair market value of the
Shares on the date of grant and (ii) the consideration received (which may
include services), in the judgment of the Independent Trustees, has a market
value equal or exceeding the value of such options or warrants on the date of
grant;
(i) issue options or warrants to purchase its Shares to the Advisor, a
Trustee, a Sponsor or an Affiliate thereof, unless such options or warrants (i)
are issued on the same terms as such options or warrants are sold to the general
public, (ii) do not exceed an amount equal to 10% of the outstanding Shares of
the Trust on the date of grant or (iii) issued pursuant to a plan approved by
the Shareholders;
(j) commingle the Trust funds with those of any other person or
entity, except that the use of a zero balance or clearing account shall not
constitute a commingling of Trust funds and that funds of the Trust and funds of
other entities sponsored by a Sponsor or its Affiliates may be held in an
account or accounts established and maintained for the purpose of making
computerized disbursements and/or short-term investments provided the Trust
funds are protected from claims of such other entities and creditors of such
other entities;
(k) [except for investments permitted by the Consent Statement, invest
in the equity securities of any non-governmental issuer, including other REITs
or limited partnerships for a period in excess of 18 months; and provided,
further, that all joint ventures with affiliates of the Advisor, a Trustee, a
Sponsor or Affiliate thereof must comply with the provisions of Section 7.1 of
this Article VII;]
(l) make or invest in any mortgage loans that are subordinate to any
mortgage or equity interest of the Advisor, Sponsor, a Trustee or Affiliates
thereof; provided, however, that the foregoing shall not prohibit loans to
subsidiaries of the Trust; or
(m) sell property to the Sponsor, the Advisor, a Trustee or Affiliate
thereof, except in connection with a joint venture with an Affiliated Program
permitted under Article VII, Section 1 if the Trust is required to grant the
Affiliated Program a right of first refusal.
-32-
<PAGE>
SECTION 7.8 TRANSACTIONS BETWEEN THE TRUST AND AFFILIATED PERSONS.
Except for joint ventures with Affiliated Programs as provided for in Article
VII, Section 7.1, or advisory arrangements with the Advisor as provided for in
Article VI, any transaction between the Trust and a Sponsor, the Advisor, a
Trustee or Affiliates thereof shall require approval by a majority of the
Trustees, including a majority of the Independent Trustees, not otherwise
interested in such transaction, as being fair and reasonable to the Trust and on
terms and conditions not less favorable to the Trust than those available from
unaffiliated third parties.
In the absence of fraud, no contract, act or other transaction between
the Trust and any other Person, or in which the Trust is interested, that is
described in the preceding paragraph, shall be invalid, void or voidable even
though (a) one or more of the Trustees or officers are directly or indirectly
interested in, or connected with, or are trustees, partners, directors, officers
or retired officers of such other Person, or (b) one or more of the Trustees or
officers of the Trust, individually or jointly with others, is a party or are
parties to or directly or indirectly interested in, or connected with, such
contract, act or transaction.
SECTION 7.9 TRUST'S RIGHT TO BORROW FUNDS. The Trust is authorized to
incur indebtedness up to the Debt Limitation.
The Trust shall not borrow funds from the Sponsor, the Advisor, a
Trustee or Affiliate thereof unless a majority of the Trustees, including a
majority of the Independent Trustees, not otherwise interested in such
transaction approve the transaction as being fair and reasonable and no less
favorable to the Trust than loans between unaffiliated lenders and borrowers
under the same circumstances.
SECTION 7.10 REPORTS. The Trust will mail or deliver, within 120 days
after the end of each fiscal year, to Shareholders as of a record date after the
end of the Trust's fiscal year and each other Person who becomes a Shareholder
between such record date and the date of mailing or delivery, an annual report
of the affairs of the Trust, including annual financial statements of the Trust
(balance sheet, statement of income or loss, statement of Shareholders' equity,
and statement of cash flows) accompanied by a report containing an opinion of
independent certified public accountants. Such information will be prepared on
an accrual basis in accordance with generally accepted accounting principles.
The Trust shall also include in its annual report (i) the ratio of the costs of
raising capital during the period to the capital raised, (ii) full disclosure of
all material terms, factors and circumstances describing any and all
transactions with the Advisor, a Trustee, a Sponsor or Affiliates thereof and of
fees, commissions, compensation and other benefits paid or accrued to the
Advisor, a Trustee, a Sponsor or Affiliates thereof for the fiscal year
completed, showing the aggregate amount paid or accrued to each recipient and
the services performed for such year (including fees or charges paid or accrued
to the Advisor, a Trustee, the Sponsor or Affiliates thereof by third parties
doing business with the Trust) and (iii) a statement on distributions to the
Shareholders and their sources. The Independent Trustees shall have the duty to
examine and comment in
-33-
<PAGE>
the annual report on the fairness of any such transactions with the Advisor, a
Trustee, the Sponsor or Affiliates thereof. The Trustees, including the
Independent Trustees, shall take reasonable steps to insure that the
requirements of this Section 10 are satisfied on a timely basis.
ARTICLE VIII - THE SHARES AND SHAREHOLDERS
SECTION 8.1 SHARES.
(a) Authorization of Shares. The Trust is authorized to sell and issue
as many Shares (including fractional shares) as the Trustees shall determine in
their sole discretion. A majority of the Trustees, including a majority of the
Independent Trustees, are authorized to determine from time to time the number
of such authorized Shares that will be sold and issued to the public or others.
The Shares may be issued for such consideration as the Trustees shall
determine, including upon the conversion of convertible debt, or by way of share
dividend or share split in the discretion of the Trustees. Except as otherwise
provided herein, all Shares shall have equal voting, dividend, distribution,
liquidation, redemption and other rights. Shares reacquired by the Trust may be
canceled by action of the Trustees. All Shares shall be fully paid and
non-assessable by or on behalf of the Trust upon receipt of full consideration
for which they have been issued or without additional consideration if issued by
way of share dividend, share split, or upon the conversion of convertible debt.
Unless otherwise permitted by the Trustees, the Shares shall not entitle the
holder to preference, preemptive, appraisal, conversion, or exchange rights of
any kind.
(b) Common Shares. Each Common Share shall entitle the holder thereof
to one vote. The Trustees may reclassify any unissued Common Shares from time to
time in one or more classes or series of beneficial interests.
(c) Preferred Shares. Preferred Shares shall not entitle the holder
thereof to vote unless the Trustees, in their sole discretion, determine to
grant voting rights to holders of Preferred Shares. The Trustees may classify
any unissued Preferred Shares and reclassify any previously classified but
unissued Preferred Shares of any series from time to time, in one or more series
of beneficial interests in the Trust.
(d) Classified or Reclassified Shares. Prior to issuance of classified
or reclassified Shares of any class or series, the Trustees by resolution shall:
(a) designate that class or series to distinguish it from all other classes and
series of Shares of the Trust; (b) specify the number of Shares to be included
in the class or series; and (c) set or change, subject to the express terms of
any class or series of Shares of the Trust outstanding at the time, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to
-34-
<PAGE>
dividends or other distributions, qualifications and terms and conditions of
redemption for each class or series.
(e) Trust Agreement and Bylaws. All Persons who shall acquire Shares
in the Trust shall acquire the same subject to the provisions of this
Declaration of Trust and the Trust's bylaws and shall be bound by the terms and
provisions of this Declaration of Trust and the Trust's bylaws.
SECTION 8.2 CERTIFICATES; SHARE LEDGER.
The ownership of Shares shall be recorded on the books of the Trust or
of a transfer or similar agent for the Trust. Certificates evidencing the Shares
shall be issued to Shareholders within a reasonable time after a written request
for such certificate is received by the Trust. The Trustees may make such rules
as they consider appropriate for the issuance of Share certificates, including
requiring the Shareholder requesting such issuance to pay the reasonable
expenses incurred in connection therewith, the use of facsimile signatures, the
transfer of Shares and similar matters. The record books of the Trust as kept by
the Trust or any transfer or similar agent shall be conclusive as to who are the
Shareholders and as to the number of Shares of the Trust held from time to time
by each such Shareholder.
No certificates for Shares shall be issued in place of any certificate
alleged to have been lost, destroyed or wrongfully taken, except, if and to the
extent required by the Board of Trustees, upon:
(i) production of evidence of loss, destruction or wrongful
taking;
(ii) delivery of a bond indemnifying the Trust and its agents
against any claim that may be made against it or them on account of
the alleged loss, destruction or wrongful taking of the replaced
certificate or the issuance of the new certificate;
(iii) payment of the expenses of the Trust and its agents
incurred in connection with the issuance of the new certificate; and
(iv) compliance with such other reasonable requirements as may be
imposed.
SECTION 8.3 TRANSFERS OF SHARES. Except as otherwise provided herein,
Shares shall be transferable on the records of the Trust upon presentment to the
Trust or a transfer agent of such evidence of the payment of transfer taxes and
compliance with other provisions of law as the Trust or its transfer agent may
require.
-35-
<PAGE>
SECTION 8.4 SHAREHOLDERS' DISCLOSURES; REDEMPTION OF SHARES. The
Shareholders shall upon demand disclose to the Trust in writing such information
with respect to direct and indirect ownership of the Shares as the Board of
Trustees deems necessary to comply with the provisions of the Code and the
regulations thereunder or to comply with the requirements of any other taxing
authority, including the provisions relating to qualification of the Trust as a
REIT. If the Board of Trustees shall at any time be of the opinion that direct
or indirect ownership of Shares of the Trust has or may become concentrated to
an extent which would prevent the Trust from qualifying as a REIT under the Real
Estate Investment Trust Provisions of the Code, and whether or not any Shares
are or may become Excess Shares under Article XII, the Board of Trustees shall
have the power by lot or other means deemed equitable by them to prevent the
transfer of Shares of the Trust and/or call for redemption a number of such
Shares sufficient in the opinion of the Board of Trustees to maintain or bring
the direct or indirect ownership of Shares of the Trust into conformity with the
requirements for REITs. The redemption price shall be (i) the last reported sale
price of the Shares on the last business day prior to the redemption date on the
principal national securities exchange on which the Shares are listed or
admitted to trading, or (ii) if the Shares are not so listed or admitted to
trading, the average of the highest bid and lowest asked prices on such last
business day as reported by the National Quotation Bureau Incorporated, the
NASDAQ National Quotation System or a similar organization selected by the Trust
for such purpose, or (iii) if not determinable as aforesaid, as determined in
good faith by the Board of Trustees. From and after the date fixed for
redemption by the Board of Trustees, the holder of any Shares so called for
redemption shall cease to be entitled to dividends, distributions, voting rights
and other benefits with respect to such Shares, except for the right to payment
of the redemption price fixed as aforesaid. For the purpose of this Section 8.4,
the term "ownership" of Shares shall be determined as provided in Section 544 of
the Code or any successor provision.
SECTION 8.5 RIGHT TO REFUSE TO TRANSFER SHARES. Whenever it is deemed
by them to be reasonably necessary to protect the tax status of the Trust, the
Board of Trustees may require a statement or affidavit from each Shareholder or
proposed transferee of Shares setting forth the number of Shares already owned
by him and any related person specified in the form prescribed by the Board of
Trustees for that purpose. If, in the opinion of the Board of Trustees, which
shall be conclusive, any proposed transfer would jeopardize the status of the
Trust as a REIT under the Real Estate Investment Trust Provisions of the
Internal Revenue Code, whether or not any Shares are or may become Excess Shares
under Article XII, the Trustees may refuse to permit such transfer. Any
attempted transfer for which the Trustees have refused their permission shall be
void and of no effect to transfer any legal or beneficial interest in the
Shares. All contracts for the sale or other transfer of Shares shall be subject
to this provision.
SECTION 8.6 LEGAL OWNERSHIP OF ASSETS OF THE TRUST. The legal
ownership of the assets of the Trust and the right to conduct the business of
the Trust are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other
-36-
<PAGE>
than beneficial interest in the Trust conferred by their Shares issued hereunder
and they shall have no right to compel any partition, division, dividend or
distribution of the Trust or any of the assets of the Trust.
SECTION 8.7 SHARES DEEMED PERSONAL PROPERTY. The Shares shall be
personal property and shall confer upon the holders thereof only the interest
and rights specifically set forth in this Declaration of Trust. The death,
insolvency or incapacity of a Shareholder shall not dissolve or terminate the
Trust or affect its continuity nor give his legal representative any rights
whatsoever, whether against or in respect of other Shareholders, the Trustees or
the assets of the Trust or otherwise.
SECTION 8.8 SHAREHOLDERS RECORD DATE. In order that the Trust may
determine the Shareholders entitled to notice of or to vote at any meeting of
Shareholders or any adjournment thereof, or to express consent to Trust action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Trustees may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting or other action. A determination of Shareholders of
record entitled to notice of or to vote at a meeting of Shareholders shall apply
to any adjournment of the meeting; provided, however, that the Board of Trustees
may fix a new record date for the adjourned meeting.
SECTION 8.9 DIVIDENDS. Subject to the provisions of this Declaration
of Trust, the Board of Trustees may, out of funds legally available therefor,
declare dividends, including deficiency dividends, if necessary, upon the Shares
of the Trust as and when it deems expedient. Before declaring any dividends
there may be set apart out of any funds of the Trust available for dividends,
such sum or sums as the Board of Trustees, from time to time in its discretion,
deems proper for working capital or as a reserve fund to meet contingencies or
for equalizing dividends or for such other purposes as the Trustees shall deem
conducive to the interests of the Trust. The Board of Trustees may declare a
consent dividend as long as the form of the actual and consent dividends for the
taxable year do not constitute a preferential distribution.
SECTION 8.10 DISTRIBUTION REINVESTMENT PLAN. The Trustees may adopt a
distribution reinvestment plan on such terms and conditions as shall be set
forth in the Prospectus, which plan may be amended from time to time by the
Trustees, provided, however, that such plan shall, at a minimum, provide for the
following:
(a) All material information regarding the distribution to the
Shareholder and the effect of reinvesting such distribution, including the tax
consequences thereof, shall be provided to the Shareholder at least annually;
and
-37-
<PAGE>
(b) Each Shareholder participating in the Reinvestment Plan shall have
a reasonable opportunity to withdraw from the Reinvestment Plan at least
annually after receipt of the information required in subparagraph (a) above.
ARTICLE IX - MISCELLANEOUS
SECTION 9.1 SEAL. The trust seal shall be circular in form and shall
contain the name of the Trust, the year of its creation and the words "TRUST
SEAL MASSACHUSETTS." Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or otherwise reproduced.
SECTION 9.2 FISCAL YEAR. The fiscal year of the Trust shall be
determined by resolution of the Board of Trustees.
SECTION 9.3 CHECKS. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
Trust shall be signed by such officer or officers, or agent or agents of the
Trust, and in such manner, as shall be determined from time to time by
resolution of the Board of Trustees.
SECTION 9.4 NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required by this Declaration of Trust to be given, except as otherwise set forth
herein, personal notice is not meant unless expressly stated, and any notice so
required shall be deemed to be sufficient if given by depositing the same in the
United States mail, postage prepaid, addressed to the person entitled thereto at
his address as it appears on the records of the Trust, and such notice shall be
deemed to have been given on the day of such mailing. Shareholders not entitled
to vote shall not be entitled to receive notice of any meetings or solicitation
of Shareholder consent without a meeting except as otherwise provided by
statute.
Whenever any notice is required to be given under the provisions of
any law, or under the provisions of this Declaration of Trust, a waiver thereon
in writing signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed proper notice.
SECTION 9.5 SUCCESSORS IN INTEREST. This Declaration of Trust shall be
binding upon and inure to the benefit of the undersigned Trustees and their
successors, assigns, heirs, distributees and legal representatives, and every
Shareholder and his successors, assigns, heirs, distributees and legal
representatives.
SECTION 9.6 INSPECTION OF RECORDS. Inspection of books and records
shall be permitted to the same extent as permitted under law applicable to
shareholders of a corporation organized in the Commonwealth of Massachusetts,
unless broader inspection rights
-38-
<PAGE>
have been granted to the Shareholders in Article III, Section 3.5, in which
event the Shareholders shall be entitled to such broader inspection rights.
SECTION 9.7 SEVERABILITY. If any provision of this Declaration of
Trust shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such jurisdiction and shall
not in any manner affect or render invalid or unenforceable such provision in
any other jurisdiction or any other provision of this Declaration of Trust in
any jurisdiction.
SECTION 9.8 APPLICABLE LAW. This Declaration has been executed,
acknowledged and delivered by the Trustees with reference to the statutes and
laws of the Commonwealth of Massachusetts, and the rights of all parties and the
construction and effect of every provision hereof shall be subject to and
construed according to the statutes and laws of said Commonwealth of
Massachusetts.
ARTICLE X - DURATION, AMENDMENT
AND TERMINATION PROCEDURE
SECTION 10.1 DURATION OF TRUST. Until the Trust terminates or is
terminated as provided in Section 10.3 below, the Trust shall continue in such
manner that the Trustees shall have all the powers and discretion, express and
implied, conferred upon them by law or by this Declaration.
SECTION 10.2 AMENDMENT PROCEDURE. This Declaration of Trust may be
amended by a majority of the Trustees, including a majority of the Independent
Trustees, with the approval of the holders of a majority of the outstanding
Shares entitled to vote, except that the amendment of the provision regarding
super-majority Shareholder approval of certain conversion ("roll-up")
transactions requires the vote of the holders of eighty percent (80%) of the
outstanding Shares. Notwithstanding the foregoing, a majority of the Trustees,
including a majority of the Independent Trustees, are authorized to alter or
repeal any provision of this Declaration of Trust, without the consent of the
Shareholders, (i) to the minimum extent necessary, based on an opinion of
counsel, to comply with the requirements of the provisions of the Internal
Revenue Code applicable to REITS, the regulations issued thereunder, and any
ruling on or interpretation of the Internal Revenue Code or the regulations
thereunder, (ii) to delete or add any provision of this Declaration of Trust
required to be so deleted or added by the staff of the Securities and Exchange
Commission or a state "blue sky" commissioner or such similar official, which
addition or deletion is deemed by such commissioner or official to be for the
benefit or protection of Shareholders, or (iii) to clarify any ambiguities or
correct any inconsistencies.
-39-
<PAGE>
SECTION 10.3 TERMINATION OF TRUST. (a) The Trust shall continue
perpetually, unless earlier terminated at any time by the affirmative vote of
holders of a majority of the outstanding Shares entitled to vote thereon. Upon
the termination of the Trust:
(i) The Trust shall carry on no business except for the purpose
of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration of
Trust shall continue until the affairs of the Trust shall have been
wound up, including the power to fulfill or discharge the contracts of
the Trust, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the remaining
assets of the Trust to one or more Persons at public or private sale
for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its
business.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities, and
refunding agreements as they deem necessary for their protection, the
Trustees shall convert, to the extent possible, the remaining assets
of the Trust to cash, and shall distribute such cash among the
Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to the
Shareholders as herein provided, the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the facts of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
ARTICLE XI - EXCULPATION AND
INDEMNIFICATION AND OTHER MATTERS
SECTION 11.1 LIMITATION OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND
OFFICERS WHO ARE PERFORMING SERVICES ON BEHALF OF THE TRUST. The Trustees and
officers, in incurring any debts, liabilities or obligations, or in taking or
omitting any other actions for or in connection with the Trust are, and shall be
deemed to be, acting as Trustees or officers of the Trust and not in their own
individual capacities. No Trustee or officer shall, nor shall any Shareholders,
be liable for any debt, claim, demand, judgment, decree, liability or obligation
of any kind of, against or with respect to the Trust, arising out of any action
taken or omitted for or on behalf of the Trust and the
-40-
<PAGE>
Trust shall be solely liable therefor and resort shall be had solely to the
assets of the Trust for the payment or performance thereof. The Shareholders
shall not be personally liable on account of any contractual obligation
undertaken by the Trust. Each Shareholder shall be entitled to pro rata
indemnity from the Trust estate if, contrary to the provision hereof, such
Shareholder shall be held to any such personal liability. All contracts to which
the Trust is a party shall include a provision that the Shareholders shall not
be personally liable on such contract.
SECTION 11.2 INDEMNIFICATION. (a) Subject to any limitations contained
herein, the Trust shall indemnify and hold harmless the Trustees, the Advisor,
and their Affiliates who are performing services on behalf of the Trust (all of
the foregoing being referred to as "Indemnified Parties" and each being referred
to as an "Indemnified Party") against any and all losses, claims, demands,
costs, damages, liabilities, joint and several, expenses of any nature
(including attorneys' fees and disbursements), and other amounts paid and
reasonably incurred by them in connection with or by reason of any act performed
or omitted to be performed by them in connection with the operation or business
of the Trust, provided, that, (i) the Trustee or Advisor has determined, in good
faith, that the course of conduct which caused the loss or liability was in the
best interests of the Trust, (ii) such liability or loss was not the result of
negligence or misconduct on the part of the Indemnified Party and (iii) such
indemnification or agreement to be held harmless is recoverable only out of the
assets of the Trust and not from the Shareholders.
The Trust shall not indemnify the Indemnified Parties for any
liability imposed by judgment, and costs associated therewith, including
attorneys' fees, arising from or out of a violation of state or federal
securities laws. Notwithstanding anything to the contrary in the preceding
paragraph, the Trust may indemnify the Indemnified Parties for settlements and
related expenses of lawsuits alleging securities law violations, and for
expenses incurred in successfully defending such lawsuits, only if: (a) a court
either (i) approves the settlement and finds that indemnification of the
settlement and related costs should be made, or (ii) approves indemnification of
litigation costs if there has been a successful defense, or (b) there has been a
dismissal with prejudice on the merits (without a settlement). Any person
seeking indemnification shall apprise the court of the published position of the
Securities and Exchange Commission, the Missouri Securities Division and the
Tennessee Securities Division with respect to indemnification for securities law
violations, before seeking court approval for indemnification.
(b) The indemnification provided by the provisions of this Article XI
shall continue for the period of time of service or for any matter arising out
of the term of service as to an Indemnified Party and shall inure to the benefit
of the heirs, executors and administrators of such a person.
(c) The Trust shall have the power to purchase and maintain insurance
on behalf of any person who is or was an Indemnified Party who performs services
on behalf of
-41-
<PAGE>
the Trust or is or was serving at the request of the Trust as a director,
trustee, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise in which the Trust has an interest against
any liability asserted against him or it and incurred by him or it in any such
capacity, or arising out of his or its status as such; provided, however, that
the Trust shall not incur the cost of any liability insurance which insures an
Indemnified Party who performs services on behalf of the Trust or is or was
serving at the request of the Trust as a director, trustee, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise in which the Trust has an interest against liability for which he or
it could not be indemnified under this Article XI.
(d) In the event a particular state holds a Shareholder personally
liable for claims against the Trust (such as tort claims, contract claims where
the underlying agreement does not specifically exclude Shareholder liability,
claims for taxes and certain statutory liability), the Shareholder will, upon
payment of any such liability, and in the absence of willful misconduct on his
part, be entitled to reimbursement from the general assets of the Trust, to the
extent such assets are sufficient to satisfy the claim.
(e) The provision of advances from the Trust to the Indemnified
Parties for legal expenses and other costs incurred as a result of a legal
action is permissible only if the following three conditions are satisfied:
(i) the legal action relates to the performance of duties or
services by the Indemnified Party on behalf of the Trust;
(ii) the legal action is initiated by a third party who is not a
Shareholder; and
(iii) the Indemnified Party undertakes to repay the advanced
funds to the Trust in cases in which such Indemnified Party would not
be entitled to indemnification hereunder.
SECTION 11.3 RIGHT OF TRUSTEES AND OFFICERS TO OWN SHARES OR OTHER
PROPERTY AND TO ENGAGE IN OTHER BUSINESS. Except as provided for in this
Declaration Trust, any Trustee or officer may acquire, own, hold and dispose of
Shares in the Trust, for his individual account, and may exercise all rights of
a Shareholder to the same extent and in the same manner as if he were not a
Trustee or officer. Subject to Article IV, Section 4.2(e), any Trustee or
officer may have personal business interests and may engage in personal business
activities, which interests and activities may include the acquisition,
syndication, holding, management, operation or disposition, for his own account
or for the account of others, of interests in real property or Persons engaged
in the real estate business, even if the same directly compete with the actual
business being conducted by the Trust; provided such interests or activities do
not have a material adverse effect on the business of the Trust. Subject to the
provisions of Article IV, Section 4.8, any Trustee or officer may
-42-
<PAGE>
be interested as trustee, officer, director, stockholder, partner, member,
advisor or employee, or otherwise have a direct or indirect interest in any
Person who may be engaged to render advice or services to the Trust, and may
receive compensation from such Person as well as compensation as Trustee,
officer or otherwise hereunder and no such activities shall be deemed to
conflict with his duties and powers as Trustee or officer. Notwithstanding
anything to the contrary contained in this Section 11.3, Independent Trustees
shall at all times limit their activities so that they at all times satisfy the
definition of Independent Trustees as set forth in Article II, Section 2.1
hereof.
ARTICLE XII - EXCESS SHARES
SECTION 12.1 EXCESS SHARES. (a) If, at any time, a Person (as defined
in (c) below only for purposes of this Article XII) shall be or become an Owner
(as defined in (c) below) of Shares of the Trust in excess of 9.8% of the
outstanding Shares entitled to vote (the "Limit"), those Shares of the Trust
most recently acquired by such Person which are in excess of the Limit,
including for this purpose Shares deemed owned through attribution, shall
constitute "Excess Shares." Excess Shares shall have the following
characteristics:
(i) holders of Excess Shares shall not be entitled to exercise
any voting rights with respect to such Excess Shares;
(ii) Excess Shares shall not be deemed to be outstanding for the
purpose of determining a quorum at the annual meeting or any special
meeting of Shareholders or for determining the number of outstanding
Shares for purposes of determining a "majority of the outstanding
Shares" in connection with a Shareholders' vote without a meeting;
(iii) any dividends or other distributions with respect to Excess
Shares which would have been payable in respect of Shares had they not
constituted "Excess Shares" shall be accumulated by the Trust and
deposited in a savings account in a New York bank (which may be the
Trust's dividend disbursing agent) for the benefit of, and be payable
to, the holder or holders of such Shares at such time as such Excess
Shares shall cease to be Excess Shares; and
(iv) Excess Shares shall be deemed to have been offered for sale
to the Trust or its designee at their fair market value for a period
of one hundred twenty (120) days from the date of (A) the transfer of
Shares which made the Shares Excess Shares if the Trust has actual
knowledge that such transfer creates Excess Shares or (B) if such
transfer is not actually known to the Trust, the determination by the
Trustees in good faith by resolution duly adopted that a transfer
creating Excess Shares has taken place (the "Offer Period"). Fair
-43-
<PAGE>
market value shall be determined as of the date of (A) or (B) above,
and shall be the price as determined in good faith by the Trustees,
provided, however, (1) if the Shares are listed on a national stock
exchange, the fair market value shall be the closing price on that
national stock exchange, or (2) if the Shares are not listed on a
national stock exchange but publicly quoted on the National Quotation
Bureau Incorporated's "pink sheets" or the NASDAQ National Quotation
System, then the fair market value shall be the closing bid price on
the applicable system.
The Trust may accept the deemed offer for Excess Shares by mailing by
registered mail (return receipt requested) a written notice to the record holder
of Excess Shares at the address appearing on the Trust's stock transfer records
stating the Trust's acceptance of the offer within the Offer Period. Payment for
Excess Shares shall be made by the Trust by check, subject to collection, within
30 days after acknowledgment of receipt of the above-described notice. After
notice has been sent, Excess Shares shall have no further rights beyond the
right to receive payment pursuant to this Paragraph.
(b) Each Person who becomes the Owner of Excess Shares is obliged
immediately to give or cause to be given written notice thereof to the Trust and
to give to the Trust such other information as the Trust may reasonably require
of such Person (i) with respect to identifying all Owners and amount of
Ownership of its outstanding Shares held directly or by attribution by such
Person, and (ii) such other information as may be necessary to determine the
Trust's status under the Code.
(c) For the purpose of determination to be made under this Article,
(i) A Person shall be considered to "Own," be the "Owner" or have
"Ownership" of Shares if he is treated as owner of such Shares for
purposes of part 11, subchapter M of the Code, including the
attribution of ownership provisions of Sections 542 and 544 of the
Code, or if such Person would have beneficial ownership of such Shares
as defined under Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Act") (all as in effect on the date of the formation of
the Trust);
(ii) "Person" includes an individual, corporation, partnership,
estate, trust, association, joint stock company or other entity and
also includes a group as that term is used for purposes of Section
13(d)(3) of the Act (as in effect on the date of the formation of the
Trust); and
(iii) In the case of an ambiguity in the application of any of
the provisions of (i) and (ii) above, the Trustees shall have the
power to determine for the purposes of this Article XII on the basis
of information known to them (A) whether any person owns Shares, (B)
whether any two or more individuals,
-44-
<PAGE>
corporations, partnerships, estates, trusts, associations or joint
stock companies or other entities constitute a Person, and (C) whether
any of the entities of (B) above constitute a group.
(d) If any provision of this Article XII or any application of any
such provision is determined to be invalid by any federal or state court having
jurisdiction over the issues, the validity of the remaining provisions shall not
be affected.
(e) Nothing contained in this Article XII shall limit the authority of
the Trustees to take such other action as they deem necessary or advisable to
protect the Trust and the interests of its Shareholders by preservation of the
Trust's status as a REIT under the Code, including, without limitation, those
provided in Sections 8.4 and 8.5 of Article VIII.
(f) All references in this Declaration of Trust to the vote of Shares
shall be deemed to include all Shares other than Excess Shares.
(g) Excess Shares shall be deemed to be of a class separate from the
class of Shares of beneficial interest provided in Article VII, Section 7.1
hereof, and upon any such Share of beneficial interest becoming an Excess Share,
it shall be deemed to have been automatically converted into a Share of such
class of Excess Shares; and upon a share ceasing to be held by a person in whose
hands it is no longer deemed to be an Excess Share, such share shall be deemed
to have been automatically converted into a share of class of Shares of
beneficial interest described in Article VII, Section 7.1 hereof.
ARTICLE XIII - CONVERSION TRANSACTIONS
SECTION 13.1 APPROVAL OF CONVERSION TRANSACTIONS. Notwithstanding any
provision to the contrary in this Declaration of Trust, and subject to the
restrictions on Roll-Ups described in Article XIV, Section 14.3 below, the
approval of the holders of eighty percent (80%) of the Shares and the unanimous
approval of the Independent Trustees shall be required for any exchange offer,
merger, consolidation or similar transaction involving the Trust in which the
Shareholders receive securities in a surviving entity having substantially
longer duration, materially different investment objectives and policies, or a
management compensation structure that is anticipated to provide significantly
greater management compensation, from that described in the Consent Statement,
except for any such transaction affected because of changes in applicable law,
or to preserve tax advantages for a majority in interest of the Shareholders.
-45-
<PAGE>
ARTICLE XIV - ROLL-UPS
SECTION 14.1 APPRAISALS. An appraisal of all the Trust's assets shall
be obtained from a competent Independent Expert in connection with a proposed
Roll-Up.
If the appraisal will be included in a prospectus used to offer the
securities of a Roll-Up Entity, the appraisal shall be filed with the Securities
and Exchange Commission and the states as an exhibit to the registration
statement for the offering of the Roll-Up Entity's Shares. The issuer of the
Roll-Up Entity's Shares shall be subject to liability for violation of Section
11 of the Securities Act of 1933 and comparable provisions under state laws for
any material misrepresentations or material omissions in the appraisal.
The Trust's assets shall be appraised on a consistent basis. The
appraisal shall:
(a) be based on an evaluation of all relevant information;
(b) indicate the value of the Trust's assets as of a date immediately
prior to the announcement of the proposed Roll-Up; and
(c) assume an orderly liquidation of the Trust's assets over a
12-month period.
The terms of the engagement of the Independent Expert shall clearly
state that the engagement is for the benefit of the Trust and its Shareholders.
A summary of the appraisal shall be included in a report to the Shareholders in
connection with the proposed Roll-Up.
SECTION 14.2 SHAREHOLDER OPTIONS. The person sponsoring the Roll- Up
shall offer to Shareholders who vote "no" on the proposed Roll-Up the choice of:
(a) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up; or
(b) one of the following choices:
(i) remaining as Shareholders of the Trust and preserving their
interests therein on the same terms and conditions as existed
previously; or
(ii) receiving cash in an amount equal to the Shareholders' pro
rata share of the appraised value of the net assets of the Trust.
SECTION 14.3 RESTRICTIONS. The Trust shall not participate in any
proposed Roll-Up which would:
-46-
<PAGE>
(a) result in the Shareholders having voting rights that are less than
those provided in this Declaration of Trust;
(b) result in the Shareholders having rights to receive reports that
are less than those provided in Article VII, Section 7.10 hereof;
(c) include provisions which would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the securities of the
Roll-Up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-Up Entity);
(d) limit the ability of an investor to exercise the voting rights of
its securities in the Roll-Up Entity on the basis of the number of the Trust's
Shares held by that investor;
(e) result in investors in the Roll-Up Entity having rights of access
to the records of the Roll-Up Entity that are less than those provided in
Article III, Section 3.5 hereof; or
(f) place the cost of the transaction on the Trust if the Roll-Up is
not approved by the Shareholders; provided, however, that nothing shall be
construed to prevent participation in any proposed Roll-Up which would result in
Shareholders having rights and restrictions comparable to those contained
herein.
-47-
<PAGE>
IN WITNESS WHEREOF, the undersigned Trustees of AMERICAN MORTGAGE
INVESTORS TRUST, have signed this Second Amended and Restated Declaration of
Trust as Trustees as of the date first above written.
--------------------------
Peter T. Allen
--------------------------
Arthur P. Fisch
--------------------------
J. Michael Fried
<PAGE>
Annex D
AMERICAN MORTGAGE INVESTORS TRUST
INCENTIVE SHARE OPTION PLAN
1. Purpose
The purpose of this plan (the "Plan") is to permit American Mortgage
Investors Trust, a Massachusetts business trust (the "Company") and its
subsidiaries and its advisor, Related AMI Associates, Inc., and any
successor advisor (the "Advisor") to attract and retain qualified persons
as trustees, officers and employees and to incentivize and more closely
align the financial interests of the Advisor with the interests of the
Company's shareholders by providing the Advisor with a substantial
financial interest in the Company's success.
Reference is made to the consent solicitation statement (the "Solicitation
Statement") dated _______, 1998, with respect to proposals to make certain
amendments to the Company's Declaration of Trust and to adopt the Plan as
set forth therein. All capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Solicitation Statement.
2. Types of Plan Benefits and Administration
(a) Types of Awards. Under the Plan, the Company may in its sole discretion
(subject to the terms of the Company's Second Amended and Restated
Declaration of Trust, as amended from time to time), grant with respect to
the Company's shares of beneficial interest, par value $.01 per share
("Shares") options ("Options") to the trustees, officers, and employees of
the Company or any of its subsidiaries (a "Subsidiary") and officers and
employees of the Advisor (the "Participants"), as authorized by action of
the Board of Trustees of the Company (or a committee designated by the
Board of Trustees). As used in the Plan, an "Award" shall mean an Option
and an "Award Owner" shall mean the owner of an Option. Options granted
pursuant to the Plan to Participants who are employees of the Company (or a
Subsidiary) may be either incentive stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or non-statutory options
("Non-Statutory Stock Options"), which are not intended to or do not meet
the requirements of Code Section 422. Options granted to Participants who
are not employees of the Company or a Subsidiary shall be only
Non-Statutory Stock Options.
(b) Administration. The Plan will be administered by a committee of the
Board of Trustees of the Company which shall be comprised solely of two or
more independent trustees and, if required for compliance with Section 16
of the Securities Exchange Act of 1934 (the "Exchange Act"), each of whom
is a "non-employee trustee" and, if required for compliance with Section
162(m) of the Code, each of whom is an "outside director" within the
meaning of such section (the "Committee"). For purposes of the Plan, a
person shall be deemed to be a "non-employee trustee" only if such person
would qualify as a "non-employee director" within the meaning of Rule 16b-3
of the Securities and Exchange Commission (the "SEC"). The Committee's
construction and interpretation of the terms and provisions of the Plan
shall be final and conclusive. Subject to Section 6(a), the Committee may
in
<PAGE>
its sole discretion grant Options to purchase Shares to Participants and
authorize the issuance of Shares upon exercise of such Options, as provided
in the Plan. The Committee shall have authority, subject to the express
provisions of the Plan, to construe the respective Award and Award
Agreements (as hereinafter defined) and the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms
and provisions of the respective Award Agreements, which need not be
identical; to advance the lapse of any waiting or installment periods and
exercise dates and to make all other determinations in the sole judgment of
the Committee necessary or desirable for the administration of the Plan.
The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Award or Award Agreement in the
manner and to the extent it shall deem expedient to carry the Plan into
effect, and such determination shall be in the sole and final judgement of
the Committee. No trustee, including any trustee who is a Committee member,
shall be liable for any action or determination taken or made under or with
respect to the Plan or any Award in good faith.
3. Eligibility
(a) Generally. Except as provided in paragraph (b) of this Section 3 and
Section 6(a) hereof, Awards shall be granted only to the Participants
selected by the Committee who are, at the time of grant, trustees, officers
or employees of the Company or a Subsidiary or officers or employees of the
Manager. A Participant who has been granted an Award may, if he or she is
otherwise eligible, be granted one or more additional Awards if the
Committee shall so determine.
(b) Incentive Stock Options. No person shall be granted any Incentive Stock
Option under the Plan unless, at the time such Option is granted, such
person is an employee of the Company or any Subsidiary, and such person
does not own, directly or indirectly, Shares of the Company possessing more
than 10% of the total combined voting power of all classes of equity
securities of the Company or of any Subsidiary (unless the requirements of
Section 6(g)(i) are satisfied).
4. Shares Subject to Plan
Subject to adjustment as provided in Sections 13 and 14 below, the maximum
number of Shares that may be issued and sold pursuant to Options granted
under the Plan is ten (10%) percent of the number of Shares issued and
outstanding on the date the Proposals are approved.
The Company shall reserve for issuance, for the purposes of the Plan, out
of its authorized but unissued Shares or out of Shares held in the
Company's treasury, or partly out of each, such number of Shares as shall
be determined, from time to time, by the Committee. If Options granted
under the Plan shall expire or terminate for any reason without having been
exercised in full, the Shares subject to the unexercised portions of such
Options shall again be available for subsequent Award grants under the
Plan. Shares issuable upon exercise of Options shall be subject to such
restrictions on transfer, repurchase rights or other restrictions as may be
determined by the Committee.
5. Form of Award Agreements
As a condition to the grant of an Option under the Plan, each recipient of
an Option shall execute an Award agreement ("Award Agreement"),
substantially in the form authorized by the Board of Trustees
D-2
<PAGE>
of the Company or in such other form not inconsistent with the Plan as
shall be specified by the Committee at the time such Option is granted.
6. Discretionary Grants of Awards to Participants
(a) Initial Restriction on Grant. The Compensation Committee may not grant
any options until six months after the Shares have been listed on the
American Stock Exchange.
(b) Share Limitation. Subject to the limitation set forth in Section 4, if
the Company's distributions per Share in the immediately preceding calendar
year exceed $1.45 per Share, the Committee will have the authority to issue
Options to purchase, in the aggregate, that number of Shares which is equal
to three (3%) percent of the Shares outstanding as of December 31 of the
immediately preceding calendar year. If the Committee does not grant the
maximum number of Options in any year, the excess of the number of
authorized Options which the Committee could have granted over the number
of Options actually granted in such year will be added to the number of
Options which the Committee is authorized to grant in the next succeeding
year and will be available for grant to Participants by the Committee in
such succeeding year.
(c) Purchase Price. The purchase price per Share issuable upon the exercise
of an Option granted pursuant to this Section 6 shall be the Fair Value (as
defined in Section 16 hereof) on the date that such Option is granted.
Notwithstanding anything to the contrary contained herein, in the case of
an Incentive Stock Option, the exercise price shall not be less than 100%
of the Fair Value of such stock at the date of grant of such Option, nor
less than 110% of the Fair Value in the case of Options described in
Section 6(g)(i).
(d) Exercise Period. Each discretionary Award to a Participant shall expire
on such date as the Committee shall determine, but in no event after the
expiration of ten (10) years from the date on which such Award is granted,
and in all cases each Award shall be subject to earlier termination as
provided in the Plan or in any Award Agreement.
(e) Vesting of Awards. An Award granted to a Participant may be exercised,
and payment shall be made upon exercise of such Award, only to the extent
that such Award has vested. Awards shall vest in accordance with the
schedule or terms set forth in the Award Agreement executed by the Award
Owner and a duly authorized Trustee or officer of the Company. The
Committee may accelerate the vesting of any Option granted pursuant to this
Section 6.
(f) Effect of Termination of Service. Upon termination of service of a
Participant, all Awards to such Participant to the extent not vested shall
be forfeited. No Award may be exercised unless, at the time of such
exercise, the Participant is, and continuously since the date of grant of
his or her Award has been, engaged by the Company, a Subsidiary or the
Manager, as the case may be, except that if and to the extent the Award
agreement or instrument so provides:
(g) if the Participant ceases to be engaged by the Company, a Subsidiary or
the Manager, as the case may be, for any reason other than death or
disability or a discharge for "cause" (as defined in (iv) below), the right
to exercise the Award, to the extent vested, shall terminate three (3)
months after
D-3
<PAGE>
such cessation (or within such other period as may be specified in the
Award Agreement or instrument);
(i) if the Participant dies while engaged by the Company or Subsidiary
or the Manager or within three (3) months after the Participant ceases to
be so engaged, the Awards may be exercised by the administrator of the
Participant's estate, or by the person to whom the Options are transferred
by will or the laws of descent and distribution, to the extent vested,
within the period of one (1) year after the date of death (or within such
other period as may be specified in the Award Agreement or instrument);
(ii) if the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Code) while engaged by the Company or Subsidiary or
the Manager, the Awards may be exercised, to the extent vested, within the
period of one (1) year after the date the Participant ceases to be engaged
by the Company or Subsidiary or the Manager because of such disability, or
within such other period as may be specified in the Award Agreement; and
(iii) if the Participant, prior to the expiration date of an Award
ceases his or her services with the Company or Subsidiary or the Manager,
as the case may be, because he or she is discharged for "cause" (as defined
below), the right to exercise an Option shall terminate immediately upon
such cessation of such services. "Cause" shall mean: willful misconduct in
connection with the Participant's performance of services for the Company
or Subsidiary or the Manager willful failure to perform his or her services
in the best interest of the Company or Subsidiary or the Manager, as the
case may be, as determined by the Committee, which determination shall be
conclusive;
provided, however, that in no event may any Award be exercised after the
expiration date of the Award. Any Award or portion thereof that is not
exercised during the applicable time period specified above (or any shorter
period specified in the Award Agreement or instrument) shall be deemed
terminated at the end of the applicable time period for purposes of Section
4 hereof.
(h) Incentive Stock Options. Options granted under the Plan that are
intended to be Incentive Stock Options shall be specifically designated as
intending to be Incentive Stock Options and shall be subject to the
following additional terms and conditions:
(i) 10% Shareholder. If any Participant to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
Option, the owner of equity securities possessing more than 10% of the
total combined voting power of all classes of equity securities of the
Company or any Subsidiary, then the following special provisions shall be
applicable to the Incentive Stock Option granted to such individual: (x)
the exercise price per Share subject to such Incentive Stock Option shall
not be less than 110% of the Fair Value (as defined in Section 16) of one
Share at the time of grant; and (y) the option exercise period shall not
exceed five years from the date of grant.
(ii) Dollar Limitation. Shares of the Company that are acquired
pursuant to the exercise of an Incentive Stock Option granted to a
Participant under the Plan shall be deemed to be acquired pursuant to the
exercise of an Incentive Stock Option under Code Section 422, only to the
extent that the aggregate Fair Value (determined as of the respective date
or dates of grant) of the Shares with respect to which such Incentive Stock
Option, and all other Incentive Stock Options that
D-4
<PAGE>
are granted to such Participant under the Plan (and under any other
incentive stock option plans of the Company or any Subsidiary), are
exercisable for the first time by such Participant in any one calendar
year, does not exceed $100,000. To effectuate the provisions of this
Section 6(g), the Committee may designate the Shares that are treated as
acquired pursuant to the exercise of an Incentive Stock Option by issuing a
separate certificate for such Shares and identifying such certificates as
Incentive Stock Option stock in its stock transfer records.
(iii) If a Participant makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any
Share or Shares issued to such Participant pursuant to the exercise of an
Incentive Stock Option within the two-year period commencing on the day
after the date of the grant or within the one-year period commencing on the
day after the date of transfer of such share or shares to the Participant
pursuant to such exercise, the Participant shall, within ten (10) days of
such disposition, notify the Company thereof, by delivery of written notice
to the Company at its principal executive office.
Except as modified by the preceding provisions of this Section 6(g),
all the provisions of the Plan applicable to Options shall be applicable to
Incentive Stock Options granted hereunder.
7. Method of Exercise
An Award Owner may exercise an Option granted pursuant to the Plan by
delivering to the Company at its main office written notice of exercise,
which notice shall specify the number of Shares with respect to which the
Option is being exercised, together with payment of the purchase price in
exchange for the Company's issuance and delivery of certificates therefor.
The purchase price for any Shares pursuant to the exercise of an Option
shall be paid in full upon such exercise by any one or a combination of the
following: (i) cash (by check), (ii) transferring fully paid Shares to the
Company with a Fair Value equal to the aggregate purchase price, or (iii)
by cash payments in installments or pursuant to a full recourse promissory
note, in either case, upon such terms as the Committee deems appropriate.
Notwithstanding the foregoing, the Committee shall have discretion to
determine at the time of grant of each Option or at any later date (up to
and including the date of exercise) the form of payment acceptable in
respect of the exercise of such Option. The written notice pursuant to this
Section 7 may also provide instructions to the Company that upon receipt of
the purchase price in cash from the Award Owner's broker or dealer,
designated as such on the written notice, in payment for any Shares
purchased pursuant to the exercise of an Option, the Company shall issue
such Shares directly to the designated broker or dealer. Any Shares
transferred to the Company as payment of the purchase price under an Option
shall be valued at their Fair Value on the day preceding the date of
exercise of such Option. If requested by the Committee, the Award Owner
shall deliver the related Award Agreement to the designated representative
of the Company who shall endorse thereon a notation of such exercise and
return such agreement to the Award Owner. No fractional Shares (or cash in
lieu thereof) shall be issued upon exercise of an Option and the number of
Shares that may be purchased upon exercise shall be rounded to the nearest
number of whole Shares.
8. Transferability of Awards
No Award granted under the Plan shall be assignable or transferable by the
Participant to whom it is granted, either voluntarily or by operation of
law, except by will or the laws of descent and
D-5
<PAGE>
distribution. During the life of the Participant, the Award shall be
exercisable only by or on behalf of such person. Notwithstanding the
foregoing and provided the Award Owner receives no consideration, the
Committee may permit Awards (other than Incentive Stock Options) to be
transferable to a member of the Award Owner's "immediate family," a trust
established by an Award Owner for the benefit of one or more members of
such Award Owner's "immediate family" or a partnership in which such
"immediate family" members are the only partners. The term "immediate
family" shall have the meaning of such term in Rule 16a-1 of the SEC.
9. General Restrictions
(a) Award Owner Representations. The Company may require a person to whom
an Award is granted, as a condition of exercising such Award, to:
(i) give such written assurances, in substance and form satisfactory
to the Company, as the Company deems necessary or appropriate in order to
comply with federal and applicable state securities laws, including,
without limitation, that such person is acquiring the Share subject to the
Award for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same; and
(ii) grant to the Company the right, which shall be for a price equal
to the Fair Value for such Shares and upon such other terms as the
Committee, in its sole discretion, prescribes, to repurchase from the Award
Owner any or all Shares acquired by such Award Owner through the exercise
of an Award which such Award Owner may at any time desire to sell, transfer
or otherwise dispose of.
Certificates representing Shares issued upon exercise of the Award shall
bear such legends as are deemed appropriate by legal counsel to the
Company, unless the Award Owner provides a written opinion of legal
counsel, satisfactory to the Company, that any such legend is not required.
(b) Compliance With Securities Laws.
(i) Each Award shall be subject to the requirement that, if at any
time counsel to the Company shall determine that the listing, registration
or qualification of such Award or the Shares subject to such Award upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with the grant or exercise of such Award or
the issuance or purchase of Shares thereunder, such Award shall not be
effective or may not be accepted or exercised in whole or in part (as
applicable) unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions acceptable to
the Committee. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration, qualification, consent
or approval.
(ii) The Company shall provide each Award Owner with such information,
statements, discussions and analyses with respect to the Company in such
manner and at such times as may be required under state or federal
securities laws.
D-6
<PAGE>
10. Rights as a Shareholder
The Award Owner shall have no rights as a shareholder with respect to any
Shares covered by the Award until the date upon which the share
certificates are issued to him or her for such Shares. Except as otherwise
expressly provided in the Plan, no adjustment shall be made for cash
dividends or other distributions or rights for which the record date is
prior to the date on which such share certificate is issued.
11. Recapitalization
In the event that the outstanding Shares of the Company are changed into or
exchanged for a different number or kind of shares or other securities of
the Company by reason of any recapitalization, reclassification, stock
split, stock dividend, combination or subdivision, an appropriate and
proportionate adjustment shall be made in the number and kind of shares
subject to the Plan and in the number, kind, and per share exercise price,
of shares subject to unexercised Options or portions thereof granted prior
to such adjustment. Any such adjustment to an outstanding Option shall be
made without change in the total price applicable to the unexercised
portion of such Option as of the date of the adjustment. No such adjustment
shall be made with respect to an Incentive Stock Option that would, within
the meaning of any applicable provisions of the Code, constitute a
modification, extension or renewal of any Option or a grant of additional
benefits to the holder of an Option.
12. Reorganization
In the event that:
(i) the Company is merged or consolidated with another entity or
person other than an Affiliate, and the Company is not a surviving entity,
or
(ii) all or substantially all of the assets or more than 20% of the
outstanding equity securities of the Company entitled to vote for trustees
is acquired by any other entity or person other than an Affiliate or an
entity or person or any Affiliate thereof owning 5% or more of the
outstanding voting stock of the Company or
(iii) there is a reorganization or liquidation of the Company,
the Committee, or the board of directors of any corporation assuming the
obligations of the Company, shall, as to outstanding Awards, either (x) in
the case of a merger, consolidation or reorganization of the Company, make
appropriate provision for the protection of any such outstanding Awards by
the substitution on an equivalent basis of appropriate shares or other
securities of the Company, or of the merged, consolidated or otherwise
reorganized corporation that will be issuable in respect of the Shares
(provided that no additional benefits shall be conferred upon Award Owners
as a result of such substitution), or (y) upon written notice to the Award
Owners, provide that all unexercised Awards must be exercised within a
specified number of days of the date of such notice or the unexercised
Awards will be terminated, or (z) upon written notice to the Award Owners,
provide that all unexercised Awards shall be purchased by the Company or
its successor within a specified number of days of the date of such notice
at a price equal to the value the Award Owners would have received
D-7
<PAGE>
if they then exercised all their Awards and immediately received full
payment in respect of such exercise, as determined in good faith by the
Committee.
Notwithstanding anything contained in the Plan or any Award Agreement to
the contrary, in the event of a reorganization or other event described
above which is also intended to constitute a Pooling Transaction (as
defined herein), the Committee shall take such actions, if any, which are
specifically recommended by an independent accounting firm retained by the
Company to the extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including but not limited to (i)
deferring the vesting, exercise, payment or settlement with respect to any
Option, (ii) providing that the payment or settlement in respect of any
Option be made in the form of cash, Shares or securities of a successor or
acquirer of the Company, or a combination of the foregoing and (iii)
providing for the extension of the term of any Option to the extent
necessary to accommodate the foregoing, but not beyond the maximum term
permitted for any Option. For purposes of this Plan, "Pooling Transaction"
means an acquisition of the Company in a transaction which is intended to
be treated as a "pooling of interests" under generally accepted accounting
principles.
13. No Special Rights
Nothing contained in the Plan or in any Award granted under the Plan shall
confer upon any Award Owner any right with respect to the continuation of
his or her service with the Company or Subsidiary or Manager, or interfere
in any way with the right of the Company, (or any Subsidiary), or the
Manager, as the case may be, subject to the terms of any separate agreement
to the contrary, at any time to terminate such service or to increase or
decrease the compensation of the Award Owner from the rate in existence at
the time of the grant of an Award. Whether an authorized leave of absence,
or absence in military or government service, shall constitute termination
or cessation of services for purposes of this Plan shall be determined by
the Committee.
14. No Special Trustee Rights
Nothing contained in the Plan or in any Award granted under the Plan shall
constitute evidence of any agreement or understanding, express or implied,
that a trustee has a right to continue as a trustee for any period of time.
15. Other Employee Benefits
The amount of any income deemed to be received by an Award Owner as a
result of the exercise of an Award or the sale of Shares received upon such
exercise will not constitute "compensation" or "earnings" with respect to
which any other benefits of such person are determined by the Company,
including without limitation benefits under any pension, profit sharing,
life insurance or salary continuation plan.
16. Definitions
(a) Affiliate. The term "Affiliate" shall mean a corporation or other
entity or person which, at the time of reference, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the Company.
D-8
<PAGE>
(b) Fair Value. The term "Fair Value" of a Share shall mean (i) if the
Shares are traded on a national securities exchange, the closing price for
such Shares on the day immediately preceding the date of determination or
if there is no closing price on such date, the last preceding closing
price, (ii) if the Shares are not traded on a national securities exchange,
the mean of the high bid and ask quotes of such Shares as reported in the
NASDAQ/NMS reports or the National Quotation Bureau Inc.'s pink sheets or
in the NASD Bulletin Board on the day immediately preceding the date of
determination or if there were no high bid and ask quotes on such date, the
last preceding day that there were, and (iii) if neither (i) or (ii) are
applicable, as determined in good faith by the Committee.
(c) Rule 16b-3. The term "Rule 16b-3" shall mean Rule 16b-3 of the SEC (or
any successor rule).
(d) Subsidiary. The term "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if, at the time
of the grant of the Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
17. Amendment of the Plan
(a) The Board of Trustees may at any time and from time to time modify or
amend the Plan in any respect, provided that, the Board of Trustees shall
not modify or amend the Plan without the approval of the shareholders of
the Company if such approval were required or desired for compliance with
(i) an exemption afforded by Rule 16b-3 or (ii) Section 422 of the Code.
The termination or any modification or amendment of the Plan shall not,
without the consent of an Award Owner, affect his or her rights under an
Award previously granted to him or her. With the consent of the Award
Owners affected, the Committee may amend outstanding Award agreements in a
manner not inconsistent with the Plan.
(b) Notwithstanding the provisions of Section 17(a), the Board of Trustees
shall have the right, but not the obligation, without the consent of the
Company's shareholders, to (i) amend or modify the terms and provisions of
the Plan and of any outstanding Incentive Stock Options granted under the
Plan to the extent necessary to qualify any or all such options for such
favorable federal income tax treatment (including deferral of taxation upon
exercise), as may be afforded incentive stock options under Section 422 of
the Code; and (ii) amend or modify the terms and provisions of the Plan and
of any outstanding Award granted under the Plan to the extent necessary to
comply with any securities law to which, in the opinion of counsel to the
Company, the Plan or Award is subject.
18. Withholding
At such times as an Award Owner recognizes taxable income in connection
with the receipt of Shares hereunder (a "Taxable Event"), the Award Owner
shall pay to the Company an amount equal to the federal, state and local
income taxes and other amounts as may be required by law to be withheld by
the Company in connection with the Taxable Event (the "Withholding Taxes")
prior to the issuance, or release from escrow, of such Shares. In
satisfaction of the obligation to pay Withholding Taxes to the Company, the
Committee may, in its discretion and subject to compliance with applicable
D-9
<PAGE>
securities laws and regulations, withhold Shares having an aggregate Fair
Value on the date preceding the date of such issuance equal to the
Withholding Taxes.
19. Effective Date and Duration of the Plan
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Trustees, but no award granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the
Company's shareholders within twelve months before or after the date of
such adoption. If such shareholder approval is not obtained within such
period, any Award previously granted under the Plan shall terminate and no
further Awards shall be granted. Subject to this limitation, Awards may be
granted under the Plan at any time after the effective date and before the
date fixed for termination of the Plan.
(b) Termination. The Plan shall terminate upon the earlier of (i)
_________, 2007, or (ii) the date on which all Shares available for
issuance under the Plan shall have been issued pursuant to the exercise of
Awards granted under the Plan. If the date of termination is determined
under (i) above, then Awards outstanding on such date shall continue to
have force and effect in accordance with the provisions of the instruments
evidencing such Awards.
20. Governing Law
The Plan and all Award agreements issued hereunder shall be governed by the
laws of the State of Massachusetts.
21. Expenses of Administration
All costs and expenses incurred in the operation and administration of this
Plan shall be borne by the Company.
D-10
<PAGE>
CONSENT FORM
This Consent Form is being solicited by the Board of Trustees of American
Mortgage Investors Trust, a Massachusetts business trust (the "Company").
The Board of Trustees requests that the Company's shareholders take the
action indicated below with respect to the following proposals (all as further
described in the Company's Consent Statement, dated ______, 1998):
I. To authorize an amendment to the Company's Amended and Restated
Declaration of Trust (the "Declaration of Trust") that would authorize the
Company's Board of Trustees to immediately list the Company's Shares for
trading on the American Stock Exchange;
II. To authorize an amendment to the Company's Declaration of Trust that would
clarify an ambiguity in the Declaration of Trust so as to confirm the
Board of Trustees' authority to issue various types of debt and equity
securities in addition to additional shares of beneficial interest which
the Board of Trustees is currently authorized to issue;
III. To authorize an amendment to the Declaration of Trust that would authorize
the Company's Board of Trustees to incur permanent debt up to an amount
equal to 50% of the Company's Total Market Value (as defined in the
Consent Statement) measured at the time debt is incurred and to incur
additional debt under a working capital line of credit;
IV. To authorize an amendment to the Declaration of Trust that would authorize
the Company's Board of Trustees to reinvest proceeds from repayments and
dispositions of the Company's assets;
V. To authorize an amendment to the Declaration of Trust that would change
the Company from a finite-life, closed-ended REIT to an infinite-life
REIT;
VI. To authorize an amendment to the Declaration of Trust that would change
the Company's investment policy to allow the Company (either directly or
through one or more subsidiaries) (i) to originate, securitize and acquire
government insured mortgage loans, and to acquire other investments of the
types already authorized by the Company's current investment policy (such
as REMICs, CMOs and FHA, GNMA, FNMA and FHLMC Pass Through Certificates),
which investments will comprise approximately 40% of the Company's new
investments, and (ii) acquire and originate certain additional mortgage
investments which the Company was not permitted to acquire or originate
under its current investment policy, which include commercial mortgage
backed securities and mortgage derivatives, and to originate, securitize
and acquire uninsured mortgage loans, which investments, will comprise no
more than 60% of the Company's new investments. Mortgage loans that are
originated with the intent of later securitizing such loans will be
accumulated without limit and will be categorized under either clause (i)
or (ii), as appropriate, when securitized;
VII. To authorize various conforming amendments to the Declaration of Trust to
reflect the Company's new investment policy and other items discussed in
the Consent Statement; and
VIII. To adopt an incentive share option plan.
Action Taken: Please mark one of the choices to take action with respect to the
Proposals.
CONSENT: ________ REFUSE TO CONSENT: _________ ABSTAIN: _________
The action taken pursuant to this Consent Form will apply to all Shares
held by you. If you do not return your Consent Form, you will be deemed to have
not consented to the Proposals. If the Consent Form is completed and returned,
but no line above is marked, you will be deemed to have consented to the
Proposals.
TO APPROVE THE PROPOSALS, PLEASE SIGN, DATE AND MAIL THIS CONSENT FORM TO
THE ADDRESS SET FORTH BELOW.
Please return this Consent Form by _________, 1998 in the postage paid
addressed envelope included with this mailing. If for any reason you do not have
an envelope, kindly send this card to the Company at c/o Related Capital
Company, Attention: _________________, 625 Madison Avenue, New York, New York
10022 or by facsimile at [212-593-5794.] If you have any questions, please
contact ______________ at ___________________.
Signature Instructions: For joint accounts, all joint owners should sign.
When signing as executor, administrator, trustee, guardian, etc., please give
full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership's name by authorized person.
Signature (Title if any)__________________________
Signature if jointly held_________________________
Print name of Shareholder_________________________
Date______________________________________________
(Very Important - Please write date of signature)
