PRELIMINARY PROXY MATERIAL
Dated September 9, 1997
AMERICAN ASSET ADVISERS TRUST, INC.
Eight Greenway Plaza, Suite 824
Houston, Texas 77046
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER ___, 1997
TO THE SHAREHOLDERS OF AMERICAN ASSET ADVISERS TRUST, INC.:
A Special Meeting of the shareholders of American Asset
Advisers Trust, Inc. (the "Company") will be held at Eight Greenway
Plaza, Suite 824, Houston, Texas on ________, October ___, 1997 at
__:__ __.m., Local Time for the following purposes:
1. To approve certain amendments to the Company's Charter.
2. To approve certain amendments to the Company's Bylaws.
3. To transact such other business as may properly come
before the meeting or any adjournment thereof.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY APPROVED
THESE PROPOSALS AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF EACH
ITEM LISTED ON THIS NOTICE OF SPECIAL MEETING OF SHAREHOLDERS.
Shareholders of record at the close of business on September
___, 1997, are the only persons entitled to notice of and to vote
at the meeting.
Your attention is directed to the attached Proxy Statement.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING,
PLEASE FILL IN, SIGN, DATE AND MAIL THE ENCLOSED PROXY AS PROMPTLY
AS POSSIBLE IN ORDER TO SAVE THE COMPANY FURTHER SOLICITATION
EXPENSE. If you are present at the meeting, you may then revoke
your proxy and vote in person, as explained in the Proxy Statement
in the section entitled "SPECIAL MEETING OF SHAREHOLDERS - OCTOBER
___, 1997." A return envelope is enclosed for your convenience.
__________________________
H. Kerr Taylor, Secretary
Dated: September ___, 1997
PRELIMINARY PROXY MATERIAL
Dated September 9, 1997
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AMERICAN ASSET ADVISERS TRUST, INC.
Special Meeting of Shareholders - October ___, 1997
The undersigned shareholder of AMERICAN ASSET ADVISERS TRUST,
INC., a Maryland corporation, hereby acknowledges receipt of the Notice of
Special Meeting of Shareholders and Proxy Statement for the Special Meeting
of Shareholders to be held on Monday, October ___, 1997 at ___:00 p.m. Local
Time, at Eight Greenway Plaza, Suite 824, Houston, Texas (telephone no. (713)
850-1400, and hereby appoints H. Kerr Taylor and Larry Mangum, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at said
Special Meeting and at any adjournment or adjournments thereof, and to vote
all shares of Common Stock which the undersigned would be entitled to vote
if then and there personally present, on the matters set forth on the reverse
side.
Either of such attorneys or their substitutes has and may exercise all of
the powers of said attorneys-in-fact hereunder.
[SEE REVERSE SIDE]
________________________________________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
Recommendation [ X ] Please mark votes as in this example.
of the Board
of Directors
This Proxy will be voted as directed or, if no direction is
indicated, will be voted FOR proposals 1. and 2., inclusive,
below, and as said proxies deem advisable on such other
matters as may properly come before the meeting.
1. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS TO INCREASE NUMBER OF AUTHORIZED SHARES TO
110,000,000 SHARES, OF WHICH 10,000,000 ARE PREFERRED
SHARES.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO AMEND THE COMPANY'S CHARTER TO AUTHORIZE THE
CORPORATION TO INDEMNIFY ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS TO THE FULLEST EXTENT UNDER MARYLAND
LAW.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO AMEND THE COMPANY'S CHARTER TO LIMIT THE
LIABILITY OF THE COMPANY'S DIRECTORS AND OFFICERS TO
NONMONETARY DAMAGES.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO AMEND THE COMPANY'S CHARTER TO DEFINE, LIMIT,
AND/OR REGULATE CERTAIN POWERS OF THE CORPORATION, ITS
SHAREHOLDERS, DIRECTORS AND AGENTS.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO AMEND THE COMPANY'S CHARTER TO CLARIFY VOTE
OF SHAREHOLDERS REQUIRED FOR APPROVAL OF CERTAIN MATTERS
TO BE SIMPLE MAJORITY.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL TO AMEND THE COMPANY'S BYLAWS REGARDING
COMPENSATION OF DIRECTORS.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
7. PROPOSAL TO AMEND THE COMPANY'S BYLAWS RESPECTING
TRANSACTIONS INVOLVING THE PURCHASE OF PROPERTIES FROM,
AND THE SALE AND LEASE OF PROPERTIES TO, THE ADVISER,
A TRUSTEE ("DIRECTOR") OR ANY AFFILIATE OF SUCH PERSON.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
8. PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO DELETE
RESTRICTION REGARDING EQUITY INVESTMENTS.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
9. PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO REMOVE
RESTRICTIONS ON AMOUNTS OF UNSECURED AND SECURED
BORROWINGS BY THE COMPANY.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
10. PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO SPECIFY
CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
11. PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO DELETE OR
AMEND CERTAIN INCONSISTENT OR AMBIGUOUS PROVISIONS.
FOR [ ] FOR [ ] AGAINST [ ] ABSTAIN
(This proxy should be marked, dated, signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Signature: Date:
Signature: Date:
(Joint owners must each sign. Please sign exactly as your name(s) appear(s)
on this Proxy. When signing as an attorney, trustee, executor, administrator
or guardian, please give your full title. If signer is a corporation, please
sign the full corporation name and full title of signing officer.)
PRELIMINARY PROXY MATERIAL
Dated September 9, 1997
________________________________________
PROXY STATEMENT
________________________________________
AMERICAN ASSET ADVISERS TRUST, INC.
Eight Greenway Plaza, Suite 824
Houston, Texas 77046
SPECIAL MEETING OF SHAREHOLDERS - October ___, 1997
The enclosed Proxy is solicited by the Board of Directors of
American Asset Advisers Trust, Inc. (the "Board") in connection with the
Special Meeting of Shareholders (the "Special Meeting") of American Asset
Advisers Trust, Inc. (the "Company") to be held on October ___ 1997 at
__:00 __.M. at Eight Greenway Plaza, Suite 824, Houston, Texas, and at
any adjournments thereof. Giving the Proxy will not in any way affect
the stockholder's right to attend the Special meeting and to vote in
person. Any stockholder executing a Proxy has the power to revoke the
Proxy at any time before it is voted by (i) executing a subsequently
dated Proxy; (ii) filing a written request to revoke or amend his (or
her) Proxy with the Secretary of the Company at the principal executive
offices of the Company; or (iii) attending the Special Meeting and
revoking the Proxy prior to the start of the Special Meeting.
A Proxy with respect to the Company may be revoked before the
meeting by giving written notice of revocation to the Secretary of the
Company, or may be revoked at the Special Meeting, prior to voting.
Unless revoked, properly executed Proxies with respect to the Company
will be voted as indicated in this Proxy Statement. In instances where
choices are specified by shareholders in their Proxies, those Proxies
will be voted or the vote will be withheld in accordance with each
shareholder's choice. An "abstention" on any proposal will be counted
as present for purposes of determining whether a quorum of shares is
present at the Special Meeting with respect to the proposal on which the
abstention is noted, but will be counted as a vote "against" such
proposal. Should any other matters come before the meeting, it is the
intention of the persons named as proxies in the enclosed Proxy to act
upon them according to their best judgment.
Discretionary authority is provided in the Proxy as to any matters
not specifically referred to therein. Management is not aware of any
other matters which are likely to be brought before the Special Meeting.
However, if any such matters properly come before the Special Meeting,
it is understood that the Proxy holder or holders are fully authorized
to vote thereon in accordance with his or their judgment and discretion.
The cost of soliciting proxies will be borne by the Company. In
addition to the solicitation of proxies by use of the mails, certain
officers and regular employees (who will receive no compensation
therefore in addition to their regular salaries) may be used to solicit
proxies personally and/or by telephone or telegraph. In addition, banks,
brokers and other custodians, nominees and fiduciaries will be requested
to forward copies of the Proxy material to their principals and to
request authority for the execution of proxies. The Company will
reimburse such persons for their expenses in doing so.
Only shareholders of record at the close of business on September
___, 1997 may vote at the Special Meeting or any adjournments thereof.
As of that date there were issued and outstanding approximately
__________ common shares of the Company. Each shareholder of the Company
is entitled to one vote for each share of the Company held. None of the
matters to be presented at the meeting will entitle any shareholder of
the Company to appraisal rights. In the event that Proxies which are
sufficient in number to constitute a quorum are not received by October
___, 1997, the persons named as Proxies may propose one or more
adjournments of the Special Meeting to permit further solicitation of
Proxies. Such adjournments will require the affirmative vote of the
holders of a majority of the shares present in person or by Proxy at the
Special Meeting. The persons named as proxies will vote in favor of such
adjournment.
It is anticipated that this Proxy Statement will first be mailed to
Shareholders on or about September ___, 1997.
ANNUAL REPORTS
The Annual Report to the Shareholders of the Company, containing
financial statements for the fiscal year ended December 31, 1996, was
mailed to shareholders on or about April 29, 1997.
PROPOSAL I
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION AND
BYLAWS TO INCREASE NUMBER OF AUTHORIZED SHARES TO 110,000,000
SHARES, OF WHICH 10,000,000 ARE PREFERRED SHARES.
At the special meeting, the shareholders of the Company will be
asked to approve an amendment to the Company's Articles of Incorporation
(the "Charter") to increase the authorized shares of the Company to
110,000,000, $.01 par value per share, 10,000,000 of which are shares of
preferred stock.
Proposal. To amend the Company's Articles of Incorporation ("the
Charter") and Bylaws as follows
1. To amend and restate Article V of the Company's Charter
in its entirety to read as follows:
2
"ARTICLE V
STOCK
Section 1. Authorized Shares. The total number of shares of stock
which the Corporation has authority to issue is 110,000,000 shares, of
which 100,000,000 are shares of Common Stock, $.01 par value per share
("Common Stock"), and 10,000,000 shares are shares of Preferred Stock
("Preferred Stock"), $.01 par value per share. The aggregate par value
of all authorized shares of stock having par value is $1,100,000.00.
Section 2. Voting Rights. Each share of Common Stock shall entitle
the holder thereof to one vote.
Section 3. Issuance of Preferred Stock. The Preferred Stock may
be issued, from time to time, in one or more series as authorized by the
Board of Directors (the "Board of Directors" or the "Board"). Prior to
issuance of shares of each series, the Board of Directors by resolution
shall designate that series to distinguish it from all other series and
classes of stock of the Corporation, shall specify the number of shares
to be included in the series and shall set the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as
to dividends or other distributions, qualifications and terms or
conditions of redemption. Subject to the express terms of any other
series of Preferred Stock outstanding at the time and notwithstanding
any other provision of the Charter, the Board may increase or decrease
the number of shares of, or alter the designation or classify or
reclassify, any unissued shares of any series of Preferred Stock by
setting or changing, in any one or more respects, from time to time
before issuing the shares, and the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications or terms or conditions of
redemption of the shares of any series of Preferred Stock.
Section 4. Charter and Bylaws. All persons who shall acquire stock
in the Corporation shall acquire the same subject to the provisions of
the Charter and the Bylaws of the Corporation."; and
2. To amend the Company's Bylaws by deleting in its entirety
Section 3.13(p) of Article III thereof, and to redesignate each
subsequent Section of Article III so that each such Section thereof is
then designated in numerical order.
Current Charter and Bylaw Provisions. The Articles currently
provide that the Company can issue up to 25,000,000 shares, $0.01 par
value, of stock, of which none are authorized as preferred stock.
Section 3.13(p) of the Company's current Bylaws provides that the
Company may not... "(p) issue securities senior to the common stock of
the Company."
Background and General Information. Currently, the Company is
authorized to issue up to 25,000,000 shares, $.01 par value per share,
all of which must be common stock. The Company is currently not
authorized to issue preferred stock. Management believes that it is in
the best interests of the Company to increase the amount of authorized
stock so as to allow the Board maximum flexibility in authorizing
additional shares of common stock as additional shares will need to be
issued as the Company grows in capital. The authorization of the
additional shares will give the Board maximum flexibility to issue
shares, both in public and private offerings, for cash as well as the
issuance of shares in whole or in part as consideration for the
acquisition of property and/or in merger or consolidation transactions
wherein the Company may achieve substantial benefits, including cost
savings by issuing shares directly for assets, rather than acquiring such
assets through the payment of cash.
3
If the proposal is approved, the potential capitalization of the
Company will differ from that presently authorized by the Charter and
Bylaws. Presently, the authorized capital stock of the Company will be
increased from 25,000,000 shares of Common Stock, with approximately
1,646,171 shares outstanding and approximately 604,952 shares reserved
for issuance as of August 26, 1997. If the proposal is approved, the
authorized capital stock of the Company will be 100,000,000 shares of
Common Stock par value $.01 per share and 10,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). No change in
the number of outstanding or reserved shares of Common Stock will occur
as a result of the approval of the proposal. The Board believes the
increase in the number of shares of Common Stock authorized for issuance
is necessary to allow for the issuance of shares in future public and
private offerings and to provide the Board with the flexibility to engage
in future financing transactions or other transactions which would be
beneficial to the stockholders of the Company without the delay inherent
in seeking the authorization to issue additional shares of Common Stock.
The amended Charter will provide that the Board may from time to
time issue and establish the terms and conditions of any shares of
authorized but undesignated Preferred Stock. The Board is empowered by
the Maryland General Corporate Law (the "MGCL") and the articles to fix
for each such series the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as
are permitted by Maryland law. Accordingly, if the Board so authorizes,
the holders of Preferred Stock may be entitled to vote separately as a
class in connection with approval of certain extraordinary corporate
transactions in circumstances where Maryland law does not ordinarily
require such a class vote, or might be given a disproportionately large
number of votes. Such Preferred Stock could also be convertible into a
large number of shares of Common Stock under certain circumstances or
have other terms which might make acquisition of a controlling interest
in the Company more difficult or more costly, including the right to
elect additional directors to the Board. Potentially, the Preferred
Stock could be used to create voting impediments or to frustrate persons
seeking to effect a merger or otherwise to gain control of the Company.
Also, the Preferred Stock could be privately placed with purchasers which
might side with the management of the Company in opposing a hostile
tender offer or other attempt to obtain control.
The Board believes it would be able to achieve even greater
flexibility by having the ability to issue preferred shares on such basis
and under such terms and conditions as it may determine from time to
time. The ability to so designate and issue preferred shares would give
the Board maximum flexibility to tailor the terms and conditions of such
preferred shares to meet the specific demands of investors and/or sellers
of properties.
If the proposal is approved, it is not the present intention of the
Board to seek stockholder approval prior to any issuance of the Preferred
Stock or Common Stock, except as required by law or regulation. As
discussed above, opportunities arise that require prompt action, and it
is the belief of the Board that the delay necessary for stockholder
approval of a specific issuance would be a detriment to the Company and
its stockholders. There will be no shares of Preferred Sock outstanding
immediately following approval of the proposal. The Board does not
intend to issue any Preferred Stock except on terms that the Board deems
to be in the best interests of the Company and its then existing
stockholders.
4
Section 3.13(p) will be deleted if the Proposal is approved, because
by its terms it may be interpreted as prohibiting the Company from
issuing Preferred Stock. This is because preferred stock as designated
by the Board would generally be senior to the Company's Common Stock in
rights to dividends and rights to distributions of the Company's assets
upon the Company's liquidation.
Consequences of Proposal. Because the Board of Directors has no
plans or understandings to issue a Preferred Stock, the proposed
amendment will not have an immediate effect on the Company or its
shareholders. However, in the future, the Board would be authorized,
without prior shareholder approval, to issue one or more classes or
series of Preferred Stock which would have preferential rights over the
common shareholders to dividends, assets upon liquidation, and/or other
matters, including voting rights. Management believes that the Board
would deem to issue such shares only in circumstances in which the Board
has determined that such issuance is in the best interests of the Company
and the shareholders under the circumstances then existing.
Shareholder Approval. Under the Company's Charter and Bylaws, and
MGCL, approval of the shareholders of the Company requires the
affirmative vote of the holders of a majority of the outstanding Shares
of the Company. For this purpose, the term "majority of the outstanding
shares" means the vote of the holders of more than 50% of the Company's
outstanding shares eligible to vote as of the Record Date which are
present or represented by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S CHARTER AND BYLAWS.
If shareholders of the Company fail to approve this proposal, the
Board will immediately consider what action to take and could request the
shareholders of the Company to reconsider an amendment to the Articles
of Incorporation at a future time.
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO AUTHORIZE THE
CORPORATION TO INDEMNIFY ITS DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS TO THE FULLEST EXTENT UNDER MARYLAND LAW.
At the Special Meeting, the shareholders of the Company will be
asked to approve an amendment to Article XI of the Company's Charter to
broaden the powers of the corporation to indemnify its directors,
officers, employees and agents. The proposed amendment will also resolve
certain existing conflicts between the Company's Charter and Bylaws
regarding indemnification of such persons.
Proposal. To amend the company's Charter by amending and restating
Article XI thereof in its entirety to read as follows:
5
"ARTICLE XI
PROVISIONS OF DEFINING, LIMITING AND REGULATING CERTAIN
POWERS OF THE CORPORATION, ITS SHAREHOLDERS, DIRECTORS
AND AGENTS
Section 1. Indemnification. To the maximum extent permitted by
Maryland law in effect from time to time, the Corporation, without
requiring a preliminary determination of the ultimate entitlement to
indemnification, shall indemnify and may pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any
individual who is a present or former director or officer of the
Corporation or (ii) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served
another corporation, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee
of such corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise. The Corporation may, with the approval of its
Board of Directors, provide such indemnification and advancement of
expenses to a person who served as a predecessor of the Corporation in
any of the capacities described in (i) or (ii) above and to any employee
or agent of the Corporation or a predecessor of the Corporation."
Current Charter Indemnification Provisions. Currently, Article XI
of the Company's Charter states:
"The Corporation shall indemnify its directors, officers and
employees to the full extent provided by the General Laws of the State
of Maryland now or hereafter in force, including the advance of expenses
under the procedures provided by such laws; provided that such director,
officer or employee shall have determined, in good faith, that the course
of conduct which caused the loss or liability was in the best interests
of the Corporation and such liability or loss was not the result of
negligence or misconduct by such person."
Thus, the Company may currently indemnify its directors, officers,
employees and agents only so long as, among other things, the actions of
such persons for which they seek indemnification were taken in good faith
and do not constitute misconduct or negligence. The Charter currently
permits the Company to indemnify any person, including any director or
officer of the Company, who was or is a party, or is threatened to be
made a party, to any action or proceeding civil, criminal, administrative
or investigative by reason of the fact that such person is or was an
agent of the Company, and allow the company to advance to such persons
expenses related to such actions or proceedings, contingent on such
persons' commitment to repay any advances unless it is determined
ultimately that such persons are entitled to be indemnified. The Company
is not specifically authorized under the current Charter or its Bylaws
to enter into separate indemnity agreements with its directors and
officers.
Background and General Information. The Company's current Charter
indemnification provisions require a standard of conduct substantially
above that which is provided for indemnification under the MGCL,
comparable state laws, and the requirements of the securities laws of the
states in which the Company currently offers for sale its securities (the
"State Blue Sky Laws"). Also, the Company's Bylaws are currently in
conflict with the indemnification provisions in the Charter, in that they
allow for indemnification of the Company's directors, officers, employees
and agents so long as, among other things, the conduct for which
indemnification was taken in good faith and does not constitute willful
misconduct or gross negligence. Accordingly, the Company's Bylaws
currently provide for indemnification for mere negligence, so long as the
action taken was taken in good faith and was not taken in connection with
a breach of fiduciary duty. The Board believes that the proposed
amendment will bring the indemnification standards of the Company's
Charter in line with the MGCL and allow the Company to maintain its
compliance with the indemnification standards set forth in applicable
State Blue Sky Laws.
6
The Board has determined that the amendments to the Company's
Articles and Bylaws are necessary for the Company to attract qualified
and responsible persons to serve as outside directors of the Company and
also to attract qualified and capable employees and other agents to serve
the Company. If the Company is not able to indemnify such persons for
ordinary negligence, so long as they act in good faith and have not
breached their duty to the Company, the Board believes that the Company
will be unable to attract capable persons to serve as outside directors
or to provide services to the Company as an employee or agent. The Board
believes that the Company's ability to attract the service of such
persons only under such limited circumstances place it at a competitive
disadvantage with other companies and potential employers who can provide
broader indemnification to such persons.
The Proposed Amendment authorizes the Company to indemnify its
present and former officers and directors and to pay or reimburse
expenses in advance of the final disposition of the proceeding to the
maximum extent permitted from time to time by the laws of Maryland.
Under Maryland law, rights to indemnification and expenses are non-exclusive,
in that they need not be limited to those expressly provided
by statute. As a result of the proposed amendment, the Company will,
under Maryland law, except as limited by its Bylaws, be permitted to
indemnify its directors, officers, employees and other agents, within the
limits established by law and public policy, pursuant to an express
contract, bylaw provision, stockholder vote or otherwise, any or all of
which would provide indemnification rights broader than those currently
available under the Company's Charter.
Because the indemnification provisions of the Charter and Bylaws are
tied to applicable Maryland law, they may be modified by future changes
in such law without further stockholder action. Also, generally an
amendment or repeal of the Bylaw provision would be effective on a
prospective basis only and neither repeal nor modification of the Bylaw
provision would adversely affect rights to indemnification in effect at
the time of any act or omission which is the subject of a proceeding
against an indemnified person. The indemnification provisions of the
Charter are intended to apply to proceedings arising from acts or
omissions occurring before or after their respective adoption or
execution. There is presently no pending or already completed litigation
nor, to the best knowledge of the Company, is there any threatened
litigation to which the expanded nature of the coverage under the
indemnity agreements would apply.
The proposed amendment, subject to the Company's Bylaws, may permit
indemnification for liabilities arising under the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Board has been advised that, in the opinion of the SEC, indemnification
for liabilities arising under the Securities Act or the Exchange Act is
contrary to public policy and is therefore unenforceable, absent a
decision to the contrary by a court of appropriate jurisdiction.
The Proposed Amendment is permissive only and is not intended to
alter or change the degree of indemnification permissible under the
Company's current Bylaws. The Company's current Bylaws permit broader
indemnification than the Company's current Charter but in certain aspects
are more restrictive than the Proposed Amendment. For instance, the
Bylaws restrict the Company's ability to indemnify and advance expenses
7
to present and former directors and officers. The Bylaws also restrict
the Company's ability to provide indemnification and advance of expenses
to a present or former director or officer who served a predecessor of
the Company in such capacity, and to any employee or agent of the
Company. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred
by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer
was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper
personal benefit in money, property or services, or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. In addition, Maryland law
requires the Company, as conditions to advancing expenses, to obtain (i)
a written affirmation by the director or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by
the Company as authorized by the bylaws and (ii) a written statement by
or on his behalf to repay the amount paid or reimbursed by the Company
if it shall ultimately be determined that the standard of conduct was
not met.
Shareholder Approval. Under the Company's Charter and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S CHARTER.
In the event this proposal is not adopted, the Company will continue
its current practices of seeking to provide indemnification for and limit
the liability of its directors, officers and agents by contract. The
Board would likely in the future again seek shareholder approval for
these amendments. In the event the shareholders of the company fail to
approve this proposal, the board will immediately consider what action
to take and will likely request the shareholders of the company to
reconsider amending the company's charter to provide for the proposed
level of indemnification at a future meeting of shareholders.
PROPOSAL 3
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO LIMIT THE LIABILITY
OF THE COMPANY'S DIRECTORS AND OFFICERS TO NONMONETARY
DAMAGES.
At the special meeting, the Company's shareholders will be asked to
approve an amendment to the Charter whereby the liability of the
Company's directors and officers, in connection with their service in
such capacities, will be limited to nonmonetary damages to the extent
provided under the MGCL.
Proposal. To amend the Company's Charter by adding the following
provisions to Article XI thereof.
8
"Section ___. Limitation of Liability. To the maximum extent that
Maryland law in effect from time to time permits limitation of the
liability of directors and officers, no director or officer of the
Corporation shall be liable to the Corporation or its stockholders for
money damages. Neither the amendment nor repeal of this Article XI,
Section 2, nor the adoption or amendment of any other provision of the
Charter or Bylaws of the Corporation inconsistent with this Article XI,
Section 2, shall apply to or affect in any respect the applicability of
the preceding sentence with respect to any act or failure to act which
occurred prior to such amendment, repeal or adoption."
Current Charter Provisions. Currently, the Company's Charter does
not limit the liability of the Company's directors and officers to
nonmonetary damages.
Background and General Information. The MGCL and the corporate laws
of most other states with progressive corporate laws, including the state
of Delaware, provide that a corporation's charter may limit the liability
of its directors and officers to nonmonetary damages. The Company
believes that it is at a competitive disadvantage with such other
companies, including other real estate investment trusts ("REITs") in
attracting capable persons to serve as directors and officers of the
Company because it is unable to limit the liability of such persons to
nonmonetary damages.
The Corporation chose Maryland as its state of incorporation because
Maryland has adopted comprehensive and flexible corporate laws which are
revised regularly to meet changing business circumstances. As a result,
management believed and continues to believe that Maryland law provides
greater predictability in the Company's legal affairs. The Board
believes that the greater protection afforded by Maryland law is
beneficial to the Company by enhancing its ability to attract and retain
qualified personnel to serve as its officers and directors. The Board
has considered these potential disadvantages and has unanimously
concluded that the potential benefits of the proposed changes outweigh
its possible disadvantages.
Maryland law permits a corporation to limit the personal liability
of directors to the corporation or its shareholders for monetary damages
for breach of certain duties as a director. The MGCL law adopts a
self-governance approach by enabling a corporation to take advantage of these
provisions only if an amendment to the charter is approved by a majority
of the outstanding shares or the exculpatory language is included in the
original charter. The Company did not adopt such a provision in its
original charter.
The MGCL permits a Maryland corporation to limit the personal
monetary liability of its directors for their conduct as directors under
certain circumstances. Maryland law presently permits a corporation to
eliminate or limit the scope of personal liability of directors and
officers to the Maryland Company or its stockholders for monetary damages
other than; (i) to the extent that it is proved that the Director or
officer actually received an improper benefit or profit, or (ii) if a
judgment or other final adjudication is entered in a proceeding based on
a finding that the Director or officer's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the
cause of action adjudicated in the proceeding, or (iii) if a proceeding
is one brought by or in the right of the Corporation, indemnity may not
be made if a director is adjudged to be liable to the Corporation. The
MGCL permits a corporation to indemnify its directors, officers and
certain other parties against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service
to or at the request of the corporation, unless it is established that
the act or omission of the indemnified party was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or was
the result of active and deliberate dishonesty, (ii) the indemnified
party actually received an improper personal benefit, or (iii) in the
case of any criminal proceeding, the indemnified party had reasonable
cause to believe that the act or omission was unlawful. It is the
position of the SEC that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and
is unenforceable pursuant to Section 14 of the Securities Act of 1933,
as amended (the "Securities Act").
9
The Proposed Amendment provides that, to the maximum extent
permitted by Maryland law, directors and officers of the Maryland Company
shall not be liable to such company or its stockholders for monetary
damages. Because the circumstances under which liability for monetary
damages may be eliminated or limited are broader under Maryland law and
because Maryland law permits such liability of officers, as well as
directors, to be so eliminated or limited, the Company believes the
proposed Amendment provides greater protection for its directors and
officers than does its current charter.
The Proposed Amendment does not eliminate the directors' duty of
care to the Maryland Company and its stockholders. Although the Proposed
Amendment eliminates the monetary liability of directors for breaches of
the duty of care, it does not eliminate the duty of care itself or limit
other remedies available with regard to negligence by directors.
Accordingly, the adoption of the Proposed Amendment would not affect the
ability of stockholders to invoke equitable remedies, such as an
injunction or rescission, based upon breach of a director's duty of care.
A director would continue to be subject to liability for acts or
omissions involving active and deliberate dishonesty. The provision does
not affect a director's responsibilities under any other law, such as the
federal securities laws or state or federal environmental laws.
Because the provisions in the Proposed Amendment are tied to
applicable Maryland law, the limitations with respect to the liability
of directors could be expanded or otherwise modified by future changes
in such law without stockholder action.
Shareholders should recognize that the proposed amendments to the
Charter are designed to shield the directors, collectively and
individually, from suits by the Company or its stockholders for monetary
damages for negligence or gross negligence by the directors in failing
to satisfy the directors' duty of care. As a result, an action against
a director predicated on a breach of the duty of care would be available
only if the Company or its stockholders were able to establish that the
director received an improper benefit or profit or that the director's
action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated.
Consequently, the effect of such measures may be to limit or eliminate
an effective remedy which might otherwise be available to a stockholder
who is dissatisfied with the Board's decision. Although an aggrieved
stockholder could sue to enjoin or rescind an action taken or proposed
by the Board, such remedies may not be timely or adequate to prevent or
redress injury in all cases.
The Board believes that directors are motivated to exercise due care
in managing the Company's affairs primarily by concern for the best
interests of the Company and its shareholders rather than by the fear of
potential monetary damage awards. As a result, the Company believes that
the proposed amendment should allow the Board to continue its high
standard of corporate governance without any decrease in accountability
by directors to the Company and its shareholders.
There is no pending, or to the Company's knowledge, threatened
litigation to which any of its Directors is a party in which the rights
of the Company or its shareholders would be affected if the Company
already were subject to the provisions of the Proposed Amendment rather
than the current charter.
10
Consequences of Proposal. In the event the Company's Charter is
amended to limit the liability of directors and officers to nonmonetary
damages as proposed, this change will not have any immediate impact on
the Company. Management believes that the change in liability provisions
will allow it to attract capable directors and officers of the Company,
to the extent such officers are not otherwise employees of the Company.
Currently, the Company's officers are generally employees of the Company
and thus, the proposed amendment would impact such persons only to the
extent that it would prevent the Company or any other person, including
shareholders, from seeking monetary damages against such person solely
by reason of their service as an officer.
Shareholder Approval. Under the Company's Charter and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S CHARTER.
In the event the shareholders of the Company fail to approve this
proposal, the Board will immediately consider what action to take and
will likely request the shareholders of the Company to reconsider a
proposal limiting the liability of the Company's directors and officers
at a future meeting of shareholders.
PROPOSAL 4
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO DEFINE, LIMIT,
AND/OR REGULATE CERTAIN POWERS OF THE CORPORATION, ITS
SHAREHOLDERS, DIRECTORS AND AGENTS.
At the Special Meeting, the shareholders of the Company will be
asked to approve a group of amendments to the Charter which define, limit
and/or regulate the powers and duties of the Corporation and its
shareholders, directors and agents.
Proposal. To amend the Company's Charter by adding each of the
following provisions to Article XI thereof.
"Section ___. REIT Qualification. The Board of Directors shall use
its reasonable best efforts to cause the Corporation and its stockholders
to qualify for U.S. Federal income tax treatment in accordance with the
provisions of the Code applicable to a REIT. In furtherance of the
foregoing, the Board of Directors shall use its reasonable best efforts
to take such actions as are necessary, and may take such actions as in
its sole judgment and discretion are desirable, to preserve the status
of the Corporation as a REIT; provided, however, that if the Board of
Directors determines that it is no longer in the best interest of the
Corporation to continue to have the Corporation qualify as a REIT, the
Board of Directors may revoke or otherwise terminate the Corporation's
REIT election pursuant to Section 856(g) of the Code.
11
"Section ___. Related Party Transactions. Without limiting any
other procedures available by law or otherwise to the Corporation, the
Board of Directors may authorize any agreement, contract, arrangement or
transaction with any person, corporation, association, company, trust,
partnership (limited or general) or other organization, although one or
more of the directors or officers of the Corporation may be a party to
any such agreement or an officer, director, stockholder or member of such
other party, and no such agreement or transaction shall be invalidated
or rendered void or voidable solely by reason of the existence of any
such relationship if the existence is disclosed or known to the Board of
Directors, and the contract or transaction is approved by the affirmative
vote of a majority of the disinterested directors, even if they
constitute less than a quorum of the Board. Any director of the
Corporation who is also a director, officer, stockholder or member of
such other entity may be counted in determining the existence of a quorum
at any meeting of the Board of Directors considering such matter.
"Section ___. Authorization by Board of Stock Issuance. The Board
of Directors of the Corporation may authorize the issuance from time to
time of shares of its stock of any class, whether now or hereafter
authorized, or securities convertible into shares of its stock of any
class, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, subject to such restrictions or
limitations, if any, as may be set forth in the Charter or the Bylaws of
the Corporation or in the general laws of the state of Maryland.
"Section ___. Determinations by Board. The determination as to any
of the following matters, made in good faith by or pursuant to the
direction of the Board of Directors consistent with the Charter of the
Corporation and in the absence of actual receipt of an improper benefit
in money, property or services or active and deliberate dishonesty
established by a court, shall be final and conclusive and shall be
binding upon the Corporation and every holder of shares of its stock: the
amount of the net income of the Corporation for any period and the amount
of assets at any time legally available for the payment of dividends,
redemption of its stock or the payment of other distributions on its
stock; the amount of paid-in surplus, net assets, other surplus, annual
or other net profit, net assets in excess of capital, undivided profits
or excess of profits over losses on sales of assets; the amount, purpose,
time of creation, increase or decrease, alteration or cancellation of any
reserves or charges and the propriety thereof (whether or not any
obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged); the fair value, or any
sale, bid or asked price to be applied in determining the fair value, of
any asset owned or held by the Corporation; and any matters relating to
the acquisition, holding and disposition of any assets by the
Corporation.
"Section ___. Reserved Powers of Board. The enumeration and
definition of particular powers of the Board of Directors included in
this Article XI, shall in no way be limited or restricted by reference
to or inference from the terms of any other clause of this or any other
provision of the Charter of the Corporation, or construed or deemed by
inference or otherwise in any manner to exclude or limit the powers
conferred upon the Board of Directors under the general laws of the State
of Maryland as now or hereafter in force."
Current Charter Provisions. Currently, the Company's Charter does
not contain express provisions relating to the subject of the proposed
amendments.
Background and General Information. The Company's Charter is
currently silent as to the required efforts of the Board of Directors to
continue qualification of the Company as a REIT under the federal income
tax laws and regulations (the "REIT Provisions"), the standard of the
Board of Directors in authorizing dealings between the Company and
12
related parties, the standard of the Board of Directors in authorizing
share issuances, determinations by the Board of Directors of matters
within their purview under the MGCL, and certain powers not otherwise
enumerated which are reserved to the Board of Directors under the MGCL.
The Board believes that there is a strong basis under the MGCL and
applicable case law to assert that the standards and authorizations
embodied in the proposed amendment are currently available to the Board.
However, the Board believes that more certainty can be provided to the
Company's directors, and particularly its outside directors, regarding
the standards of their duties and responsibilities in acting in the
matters described. The Board has therefore proposed the amendments to
the Charter to provide more explicit statements as to their
responsibility to the Corporation under these circumstances and as a
basis upon which they can rely in fulfilling their duties as directors.
Management believes that the amendments to the Charter will better enable
the Company to attract capable persons to serve as outside directors of
the Company. Management believes that by providing for these standards
of care and conduct explicitly in the Charter, the Company's Charter will
be brought more in line with the charters of other publicly held
corporations organized under the laws of the states of Maryland and
Delaware.
Consequences of Amendment. Because the Company's Board of Directors
have to date observed the standards set forth in the proposed amendment
in acting upon each of the types of transactions which are described
therein, the Board of Directors does not anticipate that the approval of
the proposed amendment will have a material affect on the Board's conduct
of the affairs of the Corporation. However, management believes that if
the amendments are approved, the Company will be in a better position to
attract capable persons to serve as outside directors of the Company in
the future and will be more likely to retain the services of its current
outside directors.
Shareholder Approval. Under the Company's Charter and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S CHARTER.
In the event the shareholders of the Company fail to approve this
proposal, the Board will immediately consider what action to take and
would likely ask the Company's shareholders to reconsider this Proposal
or a similar proposal at a future meeting of shareholders.
PROPOSAL 5
PROPOSAL TO AMEND THE COMPANY'S CHARTER TO CLARIFY VOTE OF
SHAREHOLDERS REQUIRED FOR APPROVAL OF CERTAIN MATTERS TO BE
SIMPLE MAJORITY.
At the special meeting, the shareholders of the Company will be
asked to approve an amendment to the Company's Charter which clarifies
the required vote of the shareholders required in general to approve
13
certain fundamental matters ("Fundamental Matters"), including amendments
to the Charter, mergers and/or reorganizations involving the Company, and
the sale of all or substantially all of the Company's assets and/or the
dissolution and liquidation of the Company to a simple majority.
Proposal. To amend the Company's Charter by adding the following
provision as the last paragraph of Article IX thereof.
"Section ___. Stockholder Approval. Notwithstanding any provision
of law to the contrary, the affirmative vote of a majority of all votes
entitled to be cast on any matter or act requiring approval of the
stockholders of the Corporation, including, but not limited to, any
amendment of the Charter of the Corporation, and any consolidation,
merger, share exchange, transfer of assets or dissolution, shall be
sufficient, valid and effective, after due authorization, approval or
advice by the Board of Directors, to approve and authorize such matter
or act except as otherwise provided herein.
"Neither the amendment nor repeal of this Article, nor the adoption
or amendment of any other provision of the Bylaws or Charter of the
Corporation inconsistent with this Article, shall apply to or effect in
any respect the applicability of the preceding paragraph with respect to
any act or failure to act which occurred prior to such amendment, repeal
or adoption."
Current Provisions. Currently, Article IX of the Charter provides
as follows:
"The provisions of Subtitle 6, Section 3-601, 3-602 and 3-603, of the MD.
CORPS. & ASSN'S CODE ANN. (1985 and 1986 Suppl.) ("Special Voting
Requirements") shall not apply to the Corporation."
The MGCL provisions referenced in current Article IX provide, in
general, that in order to approve certain corporate actions, including
the amendment of the Company's Charter, a merger or reorganization
involving the Company, the Company's sale of all or substantially all of
its assets or the dissolution and liquidation of the Company, the Company
would be required to obtain the vote of the shareholders owning 2/3 or
more of the Company's outstanding shares eligible to vote on the matter.
The MGCL allows the Company's Charter to provide for a lesser vote on
these matters, but not less than a simple majority.
Background and General Information. The corporation laws of most
states and, based on management's review, most publicly held corporations
organized under the laws of the state of Maryland contain charters which
provide that the shareholders may approve these fundamental questions by
a simple majority vote. The Board believes that a requirement of a
simple majority vote to approve such fundamental issues will allow the
Company greater flexibility in considering and approving these issues.
The Board desires to amend the Charter to make it clear that only a
Majority Vote of the shareholders is required for such actions except as
expressly provided in the Charter or Bylaws. The requirement of a super
majority vote of at least 2/3 would allow a small minority of the
Company's shareholder to, in essence, veto proposed mergers or
consolidations, amendments of the Articles or other fundamental issues
which may otherwise be in the best interests of a substantial majority
(possibly more than 66%) of the Company's shareholders.
Consequences of Proposal. The proposed amendment, if approved,
would require all future amendments to the Company's Charter, as well as
other fundamental issues, to be approved by a simple majority of the
Company's shareholders, rather than more than 2/3 of the shareholders,
as now required under the general provisions of the MGCL.
14
Shareholder Approval. Under the Company's Charter and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S CHARTER.
In the event the shareholders of the Company fail to approve this
proposal, the Board will immediately consider what action to take and
will likely request that the shareholders of the Company reconsider this
proposal or a similar proposal at a future meeting of shareholders.
PROPOSAL 6
PROPOSAL TO AMEND THE COMPANY'S BYLAWS REGARDING
COMPENSATION OF DIRECTORS.
At the Special Meeting, the shareholders of the Company will be
asked to amend the Company's Bylaws so as to confirm the Board's
authority to set their compensation based on attendance at any annual,
regular or special meeting or of any committee thereof.
Proposal. To amend the Company's Bylaws by amending and restating
Section 3.12 of Article III thereof in its entirety to read as follows:
"Section 3.12. Compensation of Directors. Directors shall not
receive any stated salary for their services as directors but, by
resolution of the Board of Directors, may receive fixed sums per year,
per meeting and/or for specified event or service to the Board of
Directors. Expenses of attendance and specified service, if any, may be
allowed to directors for attendance at each annual, regular or special
meeting of the Board of Directors or of any committee thereof; but
nothing herein contained shall be construed to preclude any directors
from serving the Corporation in any other capacity and receiving
compensation therefor."
Current Bylaw Provisions. Currently, Section 3.12 of Article III
of the Company's Bylaws provides:
"The Company shall pay each Director a fee of $500 for attendance
in person or by telephone at each regular or special meeting of the Board
of Directors. In addition, the Company shall reimburse the Directors for
their actual costs and travel expenses incurred in connection with their
duties as Directors of the Company."
Thus, Company's Bylaws currently require that directors receive a
fee of $500.00 per meeting but is silent as to the Board's authority in
its discretion, to increase such fee and/or to pay other compensation to
directors.
15
Background and General Information. Management believes that it
will be necessary to increase Board of Directors' compensation for
serving as such as the Company grows and must compete with other
companies, including REITs, for persons to serve as outside directors.
Moreover, the Company believes that it may be necessary in the future to
pay directors compensation or honorariums to consent to their nomination
or for additional services in connection with reviewing specified
corporate matters, including amendments to articles, corporate
acquisition and/or mergers.
Consequences of Proposal. Management believes that the Company's
current Bylaw provisions can be interpreted to provide for the Board of
Directors action in awarding compensation to its members in the manner
provided by the proposed amendment. However, such interpretation must
be by implication and the Board of Directors would receive a greater
degree of comfort, if not an express authorization, in considering items
of compensation in the future if the Company's Bylaws expressly provided
for such authorization.
Shareholder Approval. Under the Company's Bylaws and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S BYLAWS.
In the event the shareholders of the Company fail to approve this
proposal, the Board will immediately consider what action to take. Such
action could include obtaining independent legal counsel's opinion as to
the interpretation as to the amounts and kinds of compensation currently
provided for in the Company's Bylaws and/or a request that the
shareholders of the Company reconsider this proposed amendment or a
similar amendment at a future meeting of shareholders.
PROPOSAL 7
PROPOSAL TO AMEND THE COMPANY'S BYLAWS RESPECTING TRANSACTIONS
INVOLVING THE PURCHASE OF PROPERTIES FROM, AND THE SALE AND
LEASE OF PROPERTIES TO, THE ADVISER, A TRUSTEE ("DIRECTOR") OR
ANY AFFILIATE OF SUCH PERSON.
At the special meeting, the shareholders of the Company will be
asked to approve an amendment to the Company's Bylaws whereby the
provisions of the Bylaws respecting transactions involving the purchase
of property from the Adviser, a trustee or any affiliate thereof, are
permissible to the extent allowed under the NASAA Guideline provisions.
"Proposal. (j)(i) The Corporation shall not purchase property from
the Adviser, a Trustee, or any Affiliate of such person, unless a
majority of Trustees (including a majority of Independent Trustees) not
otherwise interested in such transaction approve the transaction as being
fair and reasonable to the Corporation and at a price to the Corporation
no greater than the cost of the asset to such Sponsor, Advisor, Trustee
16
or any Affiliate thereof, or if the price to the Corporation is in excess
of such cost, that substantial justification for such excess exists and
such excess is reasonable. In no event shall the cost of such asset to
the Corporation exceed its current appraised value. The foregoing
restrictions notwithstanding, the Corporation may acquire a property from
an Adviser or its Affiliate where such person is acting only to
facilitate the Corporation's purchase of the Property and such person
does not receive a profit from the transaction except for the receipt of
fees not otherwise prohibited under these Bylaws.
"(ii)(a) The Advisor, Trustee or any Affiliate thereof shall not
acquire assets from the REIT unless approved by a majority of Trustees
(including a majority of Independent Trustees), not otherwise interested
in such transaction, as being fair and reasonable to the REIT.
"(ii)(b) A REIT may lease assets to the Advisor, a Trustee or any
Affiliate thereof only if approved by a majority of Trustees (including
a majority of Independent Trustees), not otherwise interested in such
transaction, as being fair and reasonable to the REIT."
Current Bylaw Provisions. Currently, Section 3.13 of Article III
of the Company's Bylaws provides:
"All other transactions between the Company and the Advisor, a
Director, or any Affiliate thereof, shall require approval by a majority
of the Directors (including a majority of the Independent Directors) not
otherwise interested in such transactions as being fair and reasonable
to the Company and on terms and conditions not less favorable to the
Company than those available from unaffiliated third parties.
"The consideration paid for real property acquired by the Company
shall ordinarily be based on the fair market value of the Property as
determined by a majority of the Directors. In cases in which a majority
of the Independent Directors so determine, and in all cases in which
assets are acquired from the Advisor, Trust or Directors, or Affiliates
thereof, such fair market values shall be as determined by an Independent
Expert selected by the Independent Directors. Neither the Advisor, nor
Affiliates thereof shall originate loans or provide loan security."
Thus, currently the Company may not purchase property from the
Adviser, a trustee or any affiliate of such person unless a majority of
the trustees not otherwise interested in the transaction (including a
majority of disinterested trustees) approve the transactions. Also,
currently the Company's Bylaws prohibit sales or leases of property by
the Company to a director, the Adviser or any affiliate of such person.
Currently, Section 3.13(j) of Article III of the Company's Bylaws
provides that the Company shall not... "Sell any of its properties to the
Advisor, affiliates of the Advisor or any Director or affiliates of the
Company."
Background and General Information. Currently the Company's Bylaws
restrict transactions involving the purchase of property from American
Asset Advisers Realty Corp. (the "Adviser"), a Trustee (any director),
or any Affiliate of the foregoing persons. However, the language of the
current Bylaw provisions differs from that set forth in the NASAA
Guidelines. The Board believes that these differences have led and may
in the future lead to confusion between the Company and one or more
state securities agencies regarding the compliance of these Bylaw
provisions with the NASAA Guideline requirements. The Board believes
that by amending the Company's Bylaws to incorporate the language of the
restrictions regarding such transactions set forth in the NASAA
Guidelines, the Company can avoid such uncertainties in the future. The
17
NASAA Guidelines are the guidelines regarding the offerings by REITs
established by the North American Securities Administrators Association
("NASAA"), which guidelines have been adopted or are closely followed by
the securities law administrators of a number of states in which the
Company has or may seek to register the sale of its securities.
The Bylaws currently prohibit the Company from selling or leasing
property to the Adviser, a Director or any of their Affiliates, even
though such transactions are permissible, subject to the requirements of
full disclosure and fair dealing under both the MGCL and the NASAA
Guidelines. The Board believes there are certain circumstances where it
would be beneficial to the company to enter into such transactions under
the restrictions provided for in the proposal. The Board believes that
the proposed amendment will provide the Company the flexibility to use
such transactions to its advantage should the Board so determine.
Shareholder Approval. Under the Company's Bylaws and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S BYLAWS.
In the event the shareholders of the Company fail to approve this
proposal, the Board will immediately consider what action to take and
could, in the future, ask the Company's shareholders to reconsider this
proposal or a similar proposal at a future meeting of shareholders.
PROPOSAL 8
PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO DELETE
RESTRICTION REGARDING EQUITY INVESTMENTS.
At the special meeting, the shareholders of the Company will be
asked to delete from the Company's Bylaws a provision restricting the
Company's investment in the equity securities of other issuers.
Proposal. To amend the Company's Bylaws by deleting Subsection
3.13(r) of Article III in its entirety and to redesignate each subsequent
Section of Article III of the Bylaws so that each Section thereof is
designated in numerical order.
Current Bylaw Provisions. Currently, Section 3.13(r) of Article III
of the Company's Bylaws provides that the Company shall not "Invest in
the securities of or interests in persons or other entities engaged in
real estate activities, except as otherwise permitted in connection with
permissible joint venture investments with another entity."
Background and General Information. Since the Bylaws of the Company
were adopted in 1994, a definite trend in the REIT industry has
developed, whereby REITs invest in one or more "management companies"
18
which conduct real estate related activities, primarily the providing of
real estate related services to persons other than the REIT. By
investing in such companies, the REITs are able to indirectly benefit
from the profits, if any, of such activities. However, under the current
REIT provisions, the income from such activities, if directly chargeable
to the REITs gross income, would not constitute qualified real estate
income and thus, would place the REIT at risk of incurring excise taxes
and/or disqualification as a REIT. However, under current REIT
provisions, if the REIT's investment in such entities constitutes a
minority equity investment, less than 10% of the voting common stock of
the management company and the investment REIT meets certain other
limitations, only the distributions or other income actually received by
the REIT, and not the total income of the management company, is taken
into account in determining whether such income would result in excise
taxes and/or disqualification under the REIT provisions. The Bylaw
provisions relating to joint venture investments in another entity
require, among other things, that the REIT's investment be on the same
terms and conditions as the other joint venture partners and that the
REIT have effective control over the joint venture entity. In order to
benefit from management corporation investments and to remain competitive
with other publicly held REITs, management recommends that the REIT's
Bylaws be amended to delete this current restriction on equity
investments. In doing so, management refers to Section 3.12(i) of
Article III of the Bylaws which requires that any investment by the REIT
in equity securities of another issuer, for a period in excess of 18
months, must be approved by a majority of the directors, including a
majority of the independent directors. Accordingly, any management
corporation investment which will by its nature, in general, be for a
period of more than 18 months, will require the approval of a majority
of the directors, including a majority of the independent directors.
Consequences of Proposal. In the event the proposed amendment to
the Bylaws is adopted and the restriction is deleted, the Company will
be able to make minority investments in management companies or other
issuers on such terms and conditions as the Company's Board of Directors
deems appropriate and in the best interests of the Company and the
shareholders. Management is presently considering investments in one or
more management companies and may in the future propose such an
investment for approval by the Board. However, if the proposed amendment
is adopted, no immediate affect is anticipated on the REIT's operating
procedures.
Shareholder Approval. Under the Company's Bylaws and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S BYLAWS.
In the event the shareholders of the Company fail to approve the
proposal, the Board will immediately consider what action to take and
will likely ask the shareholders of the Company to reconsider the
proposal or a similar proposal at a future meeting of shareholders.
19
PROPOSAL 9
PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO REMOVE
RESTRICTIONS ON AMOUNTS OF UNSECURED AND SECURED
BORROWINGS BY THE COMPANY.
At the special meeting, the shareholders of the Company will be
asked to amend the Company's Bylaws in order to delete provisions
restricting the maximum amount of unsecured borrowings and secured
borrowings by the Company.
Proposal. To amend the Company's Bylaws by:
a. deleting in their entirety the last two sentences of the
second paragraph following current Section 3.13(s) of Article III of the
Company's Bylaws; and
b. deleting in its entirety the third paragraph following
Section 3.13(s) of current Article III of the Bylaws.
Current Bylaw Provisions. Currently, the last two sentences of the
second paragraph following Section 3.13(s) of the Company's Bylaws
provide that "The Company shall not borrow on an unsecured basis if such
borrowing will result in an asset coverage of less than three hundred
(300%) percent. Asset Coverage' means the ratio which the value of the
total assets less liabilities, except indebtedness for unsecured
borrowings, bears to the aggregate amount of all unsecured borrowings."
Currently, the third paragraph following Section 3.13(s) of current
Article III of the Company's Bylaws provides that "The Company shall not
borrow an amount in excess of fifty (50%) percent of the purchase price
for the purpose of acquiring a property. The Company shall not borrow
in order to distribute the proceeds to Stockholders and thereby offset
under-performance by properties owned by the Company. However, the
Company shall be entitled to borrow in order to distribute proceeds to
its shareholders if determined to be necessary by its tax advisors in
order to maintain REIT status under the federal tax laws. The first $5
million in net offering proceeds from the Company's first public offering
shall be used to acquire properties on a debt-free basis."
Background and General Information. The Board believes that it is
in the best interest of the Company to remove this restriction on
unsecured borrowing so the Company may take advantage of unsecured credit
at lower effective costs pursuant to unsecured credit lines as compared
to individual loans secured by the Company's properties. The Company's
current plan is to use primarily unsecured credit line financing, rather
than secured financing, to provide additional funds to acquire real
estate assets. If the proposed amendment is not approved, the Company's
ability to utilize unsecured credit line financing may be substantially
limited and thus require the Company to use more costly and less flexible
secured financing facilities.
The Company's management believes the Company would have greater
flexibility to at least from time to time incur maximum leverage in
excess of 50% of its net assets.
20
Consequences of Proposal. In the event the proposed amendment is
approved, the Company will be free to incur unsecured borrowings and
secured borrowings, so long as the total amounts of such borrowings do
not exceed 300% of the Company's net assets on a consolidated basis. The
Company will be able to use increased leverage to finance the development
of properties pending its ultimate acquisition thereof, pursuant to
permanent financing.
If approved, this amendment would allow the Company to use
unsecured financing as together with or in place of secured financing to
provide funds for future real estate asset acquisitions. This amendment
would not change the current Bylaw restrictions on the Company's total
borrowings, both secured and unsecured, whereby such borrowings cannot
exceed three hundred (300%) percent of the Company's Net Assets on a
consolidated basis.
Shareholder Approval. Under the Company's Bylaws and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S BYLAWS.
In the event the shareholders of the Company fail to approve this
proposal, the Board will immediately consider what action to take and
will likely ask the shareholders to reconsider this proposal or a
similar proposal at a future meeting of shareholders.
PROPOSAL 10
PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO SPECIFY CERTAIN
RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
At the special meeting, the shareholders will be asked to approve
the addition of section 3.21 to Article III of the Company's Bylaws,
which provides that the directors shall not be required to devote their
full time to the affairs of the Company and that any director or officer,
employee or agent of the Company in his or her personal capacity as an
affiliate, employee or agent of any other person or otherwise may have
business interests or engage in business activities similar to or in
connection to those of, or relating to, the Company.
Proposal. To amend the Company's Bylaws by adding the following
provisions:
"Section 3.21 - Certain Rights of Directors, Officers, Employees and
Agents. The directors shall have no responsibility to devote their full
time to the affairs of the Corporation. Any director or officer,
employee or agent of the Corporation, in his personal capacity or in a
capacity as an affiliate, employee, or agent of any other person, or
otherwise, may have business interests and engage in business activities
similar to or in addition to those of or relating to the Corporation."
21
Current Bylaw Provisions. Currently, the Company's Bylaws are
silent as to the amount of time a director must devote to the affairs of
the Company or the ability of any director, officer, employee or agent
of the Company to have interests in other entities, conducting activities
in direct or indirect competition with those of the Company. To date,
the Company has followed, as required by the MGCL and applicable court
law interpretations, a policy whereby its directors do not have the
responsibility of devoting their full time to the affairs of the Company.
Moreover, directors, officers, employees and agents of the Company are
expected, and to the best knowledge of management have in the past, fully
disclosed any interests or relationships they may have in other entities
whose activities compete directly or indirectly with those of the
Company.
Background and General Information. Under the MGCL and employment
and agency laws generally, persons are not required to devote their full
time as directors of the Company unless otherwise required to do so.
Moreover, directors, officers, employees and agents of the Company have,
to varying extents, duties to disclose to the Company and its principal,
any activities which are in conflict with the interests of the Company,
including services or interests in other entities or persons whose
activities, directly or indirectly, compete with those of the Company.
Consequences of Proposal. The Company believes that the Company's
current policies regarding the service of its directors and the
permissible interests of its directors, officers, employees and agents,
are consistent with those set forth in the proposed amendment.
Accordingly, management believes that if the proposed amendment is
adopted, it will not affect in any material aspect, the current affairs
and practice of the Company. Moreover, the proposed amendment does not,
and will not, affect the Company's ability to restrict the activities or
interests of any director, officer, employee or agent, such as employment
contracts or independent contractor agreements, pursuant to individual
contracts. Accordingly, the Board does not believe that the proposed
amendment will have a practical impact on the Company's future
arrangements with its directors, officers, employees or agents. The
Board believes that the express provisions of the proposed amendment will
allow directors, officers, employees and agents a specific standard on
which to rely in conducting their affairs. Management believes that such
provisions will allow it to better compete with other publicly held REITs
and real estate companies in attracting capable persons as outside
directors, officers, employees and agents.
Shareholder Approval. Under the Company's Bylaws and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S BYLAWS.
In the event the shareholders of the Company fail to approve this
proposal, the Board will immediately consider what action to take and
could request the shareholders to reconsider this proposal or a similar
proposal at a future meeting of shareholders.
22
PROPOSAL 11
PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO DELETE OR AMEND
CERTAIN INCONSISTENT OR AMBIGUOUS PROVISIONS.
At the Special Meeting, the shareholders of the Company will be
asked to approve amendments to certain provisions of the Company's
Bylaws, which are either inconsistent with other provisions or ambiguous.
Proposal: To amend the Company's Bylaws by amending Section 3.13 of
Article III thereof as follows.
(a) to amend and restate Section 3.13(d) of Article III of
the Company's Bylaws in its entirety to read as follows: "(ii) Issue
equity securities which are redeemable at the election of the holder of
such securities"; and
(b) to amend Section 3.13(m) of Article III of the Company's
Bylaws by deleting such section in its entirety; and
(c) to amend Section 3.13(q) of Article III of the Company's
Bylaws by deleting such section.
Current Bylaw Provisions. Currently, Section 3.13(d) of Article III
of the Company's Bylaws provides that the Company shall not "issue
redeemable equity securities."
Currently, Section 3.13(m) of Article III of the Company's Bylaws
provides that the Company shall not "Acquire securities in any company
holding investment or engaging in activities in which the Company is
prohibited to invest or engage."
Currently, Section 3.13(q) of Article III provides that the Company
shall not "invest in the securities of other issuers for the purpose of
exercising control."
Background and General Information. Section 3.13(d) is included in
the Bylaws by the sponsors in order to comply with provisions of the
NASAA Guidelines which specifically prohibit the Company from issuing
redeemable equity securities. By not limiting the prohibition against
redeemable securities to only those equity securities redeemable by the
holders, not by the Company, the Board believes the current provision
could be interpreted as prohibiting the Company from issuing Preferred
Stock which are callable or redeemable at the election of the Company.
Such call provisions are typically contained in convertible Preferred
Stock in order that the Company may "force" conversion of such Preferred
Stock by calling such stock the redemption. Moreover, the Board believes
that the provisions contained in Preferred Stock, if issuable by the
Company, will be under the purview of the Board and should not be unduly
limited by the Company's Bylaws.
Section 3.13(q) is inconsistent with other permissible investments
under the Bylaws. For example, in order to invest in joint ventures,
Section 3.13(o) allows the Company to invest in joint ventures only so
long as the Company owns more than fifty (50%) percent of any joint
venture and the terms and conditions of its ownership are the same as the
other joint venture partners. Accordingly, the Company may invest in
23
joint ventures only if it owns a controlling interest in the equity
securities of the venture. In addition, the Company may, in the future,
wish to create wholly owned REIT subsidiaries or majority owned
partnerships, both of which would be significantly limited, if not
prohibited by current section 3.13(q). Management believes that its
ability to create and invest in the equity securities of wholly owned or
majority owned subsidiaries is important to the Company's ability to
acquire properties in the future on a tax advantaged basis and that this
ability will be necessary for the Company to successfully compete with
other REITs having the ability to hold controlling interest in subsidiary
corporations and partnerships.
Effect of Proposal. Management does not anticipate that any
significant change in the Company's activities will result if the
proposed Amendment to 3.13(d) is adopted. The Board believes that if
the Amendment is approved, ambiguities relating to the Company's issuance
of Preferred Stock containing customary provisions whereby the Company
may call the Preferred Stock for redemption will be more certain.
In the event that the proposed deletion of 3.13(q) is approved, the
Company will be able to organize and/or invest in majority and minority
owned subsidiary corporations and partnerships, subject to the other
provisions of the Bylaws, including restrictions on the Company's
investments in joint ventures. The Board believes that a substantial
ambiguity between the Bylaw provisions relating to permissible joint
venture agreements and the prohibitions of current Section 3.13(q)
prohibiting investment and equity securities for the purpose of
exercising control will be eliminated. The Board believes that this
amendment will allow it to better compete with other REITs having the
ability to create and/or invest in majority owned corporations and
partnerships for the purpose of acquiring and /or investing in real
property.
The Board does not anticipate any immediate change in the Company's
investment activities in the event the proposal to delete Section 3.13(m)
is approved. The Board does believe that the removal of this restriction
will allow the Company to invest in the equity securities of Companies
conducting activities which the REIT may not otherwise conduct directly
for its own benefit, such as the performance of real estate related
services to others. The Board believes this change will allow the
Company to take advantage of investment opportunities in "management
companies" on terms and conditions designed to increase the REIT's
revenues and/or funds from operations. Any such investments would be
subject to the other investment policies and restrictions of the Company,
including the requirement that any such investment be approved by the
Company's board of directors and any such investment involving the
advisor, a trustee or their affiliates would require, among other things,
the approval of the disinterested directors, including a majority of the
independent directors.
Shareholder Approval. Under the Company's Bylaws and the MGCL,
approval of the shareholders of the Company requires the affirmative vote
of the holders of a majority of the outstanding Shares of the Company.
For this purpose, the term "majority of the outstanding shares" means the
vote of the holders of more than 50% of the Company's outstanding shares
eligible to vote as of the Record Date which are present or represented
by proxy at the Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THIS
PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE IN
FAVOR OF THE PROPOSAL. UNLESS OTHERWISE INSTRUCTED, THE PROXIES WILL
VOTE IN FAVOR OF THE PROPOSAL TO AMEND THE COMPANY'S BYLAWS.
24
In the event this proposal is not approved, the Board may consider
other action including a request that the shareholders of the Company
reconsider this proposal or a similar proposal at a future meeting of
Shareholders.
SHAREHOLDER PROPOSALS
Any shareholder intending to submit to the Company a proposal for
inclusion in the Company's Proxy Statement and Proxy for the 1998 Annual
Meeting must submit such proposal so that it is received by the Company
no later than December 8, 1997.
DISCRETIONARY AUTHORITY
While the Notice of the Special Meeting of Shareholders calls for
the transaction of such other business as may properly come before the
meeting, the Board of Directors has no knowledge of any matters to be
presented for action by the shareholders other than as set forth above.
The enclosed Proxy gives discretionary authority, however, in the event
any additional matters should be presented.
SHAREHOLDERS ARE URGED TO IMMEDIATELY MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS,
_____________________________________________
H. Kerr Taylor, Secretary
September ___, 1997
Houston, Texas
25
