THIS DOCUMENT IS A COPY OF THE FORM 10-KSB FILED ON APRIL 1, 2003
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 0-28378
AMREIT
(Name of small business issuer in its charter)
Texas 76-0410050
(State or other jurisdiction of I.R.S. Employer
Incorporation or organization) Identification No.)
8 Greenway Plaza, Suite 824
Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (713) 850-1400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Shares of
Common Stock
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days: Yes X No_____
Check if there is no disclosure of delinquent filers in response to Item
405 of Registration S-B is not contained in this form, and no disclosure will
be contained, to the best of issuer's knowledge, in definitive proxy or
informative statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $8.19 Million
Aggregate market value of the voting stock held by non-affiliates of the issuer:
$14.05 Million
State the number of fully diluted shares outstanding of the issuer's common
equity, as of the latest practicable date: 2,772,340 class A shares and
2,464,207 class B shares as of March 6, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Issuer incorporates by reference into Part III portions of its Proxy
Statement for the 2003 Annual Meeting of Shareholders.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
2
PART I
Item 1. Description of Business
General
AmREIT, formerly AmREIT, Inc. or American Asset Advisers Trust, Inc. (the
"Company"), was organized in the state of Texas on December 22, 2002,
and is structured as a Real Estate Investment Trust for federal income tax
purposes. Prior to the re-organization, AmREIT's predecessor was incorporated
in the state of Maryland in August 1993. AmREIT, like its predecessors, has
been an entrepreneurial real estate company with a primary focus on growing its
portfolio of national and regional tenant leased freestanding commercial
properties and frontage shopping centers, as well as growing its sponsorship
of high quality real estate investment products for the NASD independent
financial planning community within the United States. Through a wholly owned
subsidiary, the Company provides advisory and management services to ten real
estate limited partnerships.
The Company focuses on acquiring single tenant commercial properties and
frontage shopping centers that are located on irreplaceable corners or
out-parcel locations throughout the United States in strong commercial
corridors near traffic generators, such as major regional malls, power centers
and discount retailers. These properties, which attract a wide array of
established commercial tenants, offer attractive opportunities for dependable
monthly income and potential capital appreciation. In addition, management
believes that the location and design of its properties in this niche provide
flexibility in use and tenant selection and an increased likelihood of
advantageous re-lease terms.
The Company's revenues are substantially generated by corporate tenants such as
Washington Mutual, International House of Pancakes ("IHOP"), Chili's, TGI
Friday's, Texas Children's Pediatric Associates, Memorial Herman Hospital
System, Blockbuster, and Radio Shack. The Company operates in four primary
sectors: financial institutions and banks, restaurants, medical and general
retail.
AmREIT owns a real estate portfolio consisting of 46 properties located in 18
states. Its single tenant properties are located throughout the United States
and are primarily on lease to corporate tenants where the lease is the direct
obligation of the parent company, not just the local operator. In so doing, the
dependability of the lease payments is based on the strength and viability of
the entire company, not just the owned location. Properties that are acquired
by the Company are generally newly constructed or recently constructed as of
the time of acquisition. The multi-tenant shopping centers are primarily
located throughout Texas and are leased to national, regional and local
tenants. Supporting the real estate portfolio is an operating company
subsidiary of AmREIT that provides a complete range of services including
development, construction management, property management, brokerage and
leasing.
The Company's single tenant leases typically provide that the tenant bear
responsibility for substantially all property costs and expenses associated
with ongoing maintenance and operation of the property such as utilities,
property taxes and insurance. Some of the leases require that the Company be
responsible for roof and structural repairs. In these instances, the Company
normally requires warranties and/or guarantees from the related vendors,
suppliers and/or contractors to mitigate the potential costs of repairs during
the primary terms of the leases.
Because the Company's leases are entered into with the corporate, parent
tenant, they typically do not limit the Company's recourse against the tenant
and any guarantor in the event of a default, and for this reason are considered
by AmREIT to be "full-credit" leases, because they are supported by the assets
of the entire company, not just the individual store location.
3
AmREIT's investment sponsorship activities are conducted through created
entities for which AmREIT or a wholly-owned subsidiary of AmREIT is the
general partner, that buy and develop commercial real estate with proceeds
raised from third-party investors through the independent financial planning
community. AmREIT has an seventeen year track record of experience and
long-term relationships in the commercial real estate market - the basis of its
ability to sponsor real estate investment opportunities while creating fee
income and carried interests for AmREIT and its shareholders.
On July 23, 2002, the Company completed a merger of three of its affiliated
partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd., and
AAA Net Realty Fund XI, Ltd. (the "Affiliated Partnerships") into AmREIT. With
the merger of the Affiliated Partnerships, AmREIT increased its real estate
assets by approximately $24.3 million and issued approximately 2.6 million
Class B common shares to the limited partners in the Affiliated Partnerships.
Approximately $760 thousand in 8 year, interest only, subordinated notes were
issued to limited partners of the Affiliated Partnerships who dissented from
the merger. The acquired properties are unencumbered, single tenant, free
standing properties on lease to national and regional tenants, where the lease
is the direct obligation of the parent company. A deferred merger expense
was incurred by AmREIT in connection with the merger of the affiliated
partnerships, resulting in the issuance of shares to H. Kerr Taylor,
President and Chief Executive Officer of AmREIT, of 302,800 class A common
shares as constituting a portion of the deferred consideration owed to Mr.
Taylor for the acquisition of his advisory company to AmREIT in 1998.
A further description of the Company's business is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 6 of this Form 10-KSB.
The primary objectives of the Company are:
(1) To provide dependable, increasing monthly dividends to our shareholders;
(2) To provide long-term stockholder value through increased earnings and
share price;
(3) To be the partner of choice to America's finest companies in solving their
corporate real estate problems;
(4) To be the highest quality real estate investment product sponsor within
the U.S. serving the National Association of Securities Dealers ("NASD")
independent financial planning community. Creating balanced funds that
maximize growth and income to our partners by using a conservative,
actively managed, entrepreneurial approach to real estate investing.
This investment sponsorship approach further enhances our ability
to generate dependable,increasing monthly income and long-term stockholder
value to our shareholders; and
(5) To enhance our employees' lives by providing a career that calls them to
a higher plane of using their gifts, a corporate environment that allows
attainment of their individual needs of physical, mental and spiritual
well-being and a clear system of measurement that allows the Company to
attract and retain quality employees.
There is no assurance that these objectives can be achieved.
4
Properties
At December 31, 2002, the Company owned 46 properties leased to 24 different
tenants. These properties are located in the following states:
Number Geographical Concentration
State of Properties
-------------------------------- ------------------------------ -------------------------------
-------------------------------- ------------------------------ -------------------------------
Arizona 1 2.17%
Colorado 1 2.17%
California 2 4.35%
Delaware 1 2.17%
Georgia 2 4.35%
Kansas 3 6.52%
Louisiana 4 8.70%
Minnesota 1 2.17%
Missouri 3 6.52%
Mississippi 1 2.17%
New Mexico 1 2.17%
New York 1 2.17%
Oklahoma 1 2.17%
Oregon 2 4.35%
Tennessee 2 4.35%
Texas 17 36.96%
Utah 1 2.17%
Virginia 2 4.35%
------------------------------ -------------------------------
------------------------------ -------------------------------
Total 46 100.00%
Although the specific terms of each lease vary, a summary of the terms of the
leases is as follows:
The primary term of the leases ranges from ten to twenty-five years. All of the
leases also provide for one to four five-year renewal options. The leases are
primarily "triple-net" leases under which the tenants are responsible for the
property taxes, insurance and operating costs. Annual rental income ranges from
$41 thousand to $419 thousand. All of the leases provide for either percentage
rents based on sales in excess of certain amounts, periodic escalations in the
annual rental rates or both.
As of December 31, 2002, no single property accounted for more than 10% of the
Company's total assets. As of December 31, 2002, the following tenants
accounted for more than 10% of the Company's rental and property income:
International House of Pancakes was founded in July 1958 and operates over
1,100 restaurants in three countries and forty-five states. IHOP is a family
restaurant, serving breakfast, lunch and dinner. IHOP is a New York Stock
Exchange, publicly-held company with a current market capitalization over $460
million. For the twelve months ended December 31, 2002, system-wide sales were
up 9.9% to $1.5 billion, same store sales increased 0.7% over 2001 and reported
net income of $40.8 million which is a 1.4% increase over 2001.
5
Footstar, Inc. was founded in October 1996 and operates three distinct business
lines: Just For Feet, Footaction and Meldisco. The Just For Feet Superstores
division operate 95 locations, primarily in the southern portion of the United
States and is headquartered in Birmingham, AL. Footaction is headquartered in
Irving, Texas and operates 459 primarily mall based stores in 41 states, Puerto
Rico, and the U.S. Virgin Islands. The Company's Meldisco division is a leader
in the discount footwear segment, operating 5,532 leased footwear departments,
located in various discount stores, superstores and malls, including Wal-Mart.
Footstar had consolidated store sales of $1,146 million for the six months
ended June 29, 2002, compared to $1,166 million for the previous year. Footstar
reported total assets of $893 million and total liabilities of $610 million for
the six months ended June 29, 2002, compared to total assets of $955 million
and total liabilities of $614 million for the previous year. Footstar has not
reported financial statements or results of operations beyond June 29, 2002.
Financing - Borrowing Policies
The Company may incur unsecured and secured borrowings, as long as the total
amounts of such recourse borrowings do not exceed 55% of the Company's total
assets on a consolidated basis, as determined by the independent board of trust
managers. At December 31, 2002, the Company's total borrowings were
approximately 45.3% of the Company's total assets on a consolidated basis.
Competitive Conditions
The Company generally competes with other REIT's, real estate limited
partnerships and other investors, including, but not limited to, insurance
companies, pension funds and financial institutions involved in the
acquisition, leasing, financing and disposition of investments in net-leased
commercial properties.
Employees
At December 31, 2002, the Company had 18 full-time employees, two real estate
brokers and various part-time and seasonal personnel.
Item 2. Description of Property
At December 31, 2002, the Company owned 46 properties. The properties are
leased to 24 different tenants in 18 different states. Reference is made to the
Schedule III - Consolidated Real Estate Owned and Accumulated Depreciation
filed with this Form 10-KSB for a listing of the properties and their
respective costs.
Land - The Company's property sites, on which its leased buildings sit, range
from approximately 34,000 to 125,000 square feet, depending upon building size
and local demographic factors. Sites purchased by the Company are in high
traffic corridors and have been reviewed for traffic and demographic pattern
and history.
Buildings - The buildings are single and multi-tenant properties and are
located at "main and main" locations throughout the United States. They are
positioned for good exposure to traffic flow and are constructed from various
combinations of stucco, steel, wood, brick and tile. Buildings range from
approximately 2,350 to 24,000 square feet. Buildings are suitable for possible
conversion to various uses, although modifications may be required prior to use
for other operations.
6
Leases - The primary term of the leases ranges from ten to twenty-five years.
All leases also provide for one to four five-year renewal options. The
freestanding properties are primarily leased on a "triple-net" basis whereby
the tenants are responsible for the property taxes, insurance and operating
costs. Annual rental income ranges from $41 thousand to $419 thousand. All
leases provide for either percentage rents based on sales in excess of certain
amounts, periodic escalations in the annual rental rates or both.
Geographic Location - The properties are generally located within major
metropolitan areas (Standard Metropolitan Statistical Areas) with populations
that exceed 250,000.
As of December 31, 2002, the Company on a consolidated basis has invested debt
and equity resources of $71.8 million in properties. This includes land,
building and acquisition costs. A further description of the Company's
properties, including acquisition fees and certain acquisition expenses, is
included in Item 1 "Properties" and in Schedule III - Consolidated Real Estate
Owned and Accumulated Depreciation of this Form 10-KSB.
Item 3. Legal Proceedings
The Company does not have any material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to shareholders during the fourth quarter of the
fiscal year.
7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
As of March 6, 2003, there were approximately 863 record holders of 2,772,340
of the Company's class A common shares, net of 65,379 shares held in
treasury, AmREIT's class A common shares are listed on the American Stock
Exchange ("AMEX") and traded under the symbol "AMY." The following table sets
forth for the calendar periods indicated high and low sale prices per class A
common share as reported on the AMEX and the dividends paid per share for the
corresponding period since the commencement of trading on July 23, 2002.
Calendar Period High Low Dividends
2002
Third Quarter (from July 23, 2002)........................... $7.50 $6.20 $.095
Fourth Quarter............................................... $6.55 $6.15 $.100
2003
First Quarter (through March 6, 2003)........................ $6.65 $6.05 $.109
The payment of any future dividends by AmREIT is dependent upon applicable
legal and contractual restrictions, including the provisions of the class B
common shares, as well as its earnings and financial needs.
As of March 6, 2003, there were approximately 1,222 record holders of 2,464,207
of the Company's class B common shares. The class B common shares are not
listed on an exchange and there is currently no available trading market for
the class B common shares. The class B common shares do not have voting rights,
receive a fixed 8% cumulative and preferred dividend, and are convertible
into the class A common shares on a one-for-one basis at any time, at the
holder's option.
In October 2002, the Company changed from paying dividends quarterly to paying
dividends monthly on its class A common shares. The class B common shares were
issued in conjunction with the merger with the Affiliated Partnerships
in July 2002 and pays dividends quarterly. For the years ended December 31,
2002 and 2001, the Company paid dividends of $865,023 and $604,742,
respectively on its class A common shares and $865,293 for the year ended
December 31, 2002 on its class B common shares. A summary of the dividends by
period on the class A common shares are as follows:
Period Ended 2002 2001
------------ ---------- ----------
March 29 $ 161,541 $ 100,000
June 28 $ 169,637 $ 117,717
September 30 $ 257,166 $ 137,025
October 31 $ 81,747*
November 29 $ 93,533*
December 31 $ 101,399* $ 250,000 **
------- -------
$ 865,023 $ 604,742
* Amount indicated reflects the monthly amount due to the change from
quarterly dividends.
** Includes a special, fifth dividend included with the December 31,
2001 dividend. The regular quarterly dividend was $150,000 and the
special dividend was $100,000.
The change during 2002 from quarterly dividends to monthly dividends was a
change made to better align our dividends with our corporate objective of
dependable, increasing, monthly income. The dividends paid on its class A
common shares in 2002 represent an increase of approximately 28 percent per
share.
8
For the year, the Company repurchased primarily through open market
transactions, a total of 46,069 class A common shares at an average price of
$6.38 per share. These shares were repurchased through the share repurchase
program authorized by the board of trust managers.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward-Looking Statements
Certain information presented in this Form 10-KSB constitutes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Although the Company
believes that the expectations reflected in such forward-looking statements
are based upon reasonable assumptions, the Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include the following:
changes in general economic conditions, changes in real estate market
conditions, continued availability of proceeds from the Company's debt or
equity capital, the ability of the Company to locate suitable tenants for
its properties and the ability of tenants to make payments under their
respective leases.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the comparative summary of selected
financial data appearing elsewhere in this report. Historical results and
trends which might appear should not be taken as indicative of future
operations. The results of operations and financial condition of the Company,
as reflected in the accompanying statements and related footnotes, are subject
to management's evaluation and interpretation of business conditions, retailer
performance, changing capital market conditions and other factors, which could
affect the ongoing viability of the Company's tenants. Management believes the
most critical accounting policies in this regard are the accounting for lease
revenues (including the straight-line rent), the regular evaluation of whether
the value of a real estate asset has been impaired and the allowance for
doubtful accounts. Each of these issues requires management to make judgments
that are subjective in nature. Management relies on its experience, collects
historical data and current market data, and analyzes these assumptions in
order to arrive at what it believes to be reasonable estimates.
AmREIT, a real estate investment trust, is listed on the American Stock
Exchange (AMY) and is a pre-eminent sponsor of high quality real estate
investment opportunities to the financial planning community. The Company
researches, identifies and participates in real estate opportunities and works
hand in hand with the broker-dealer community to sponsor real estate investment
products and services.
For more than 17 years we have established a track record of investing in
commercial real estate leased primarily to corporate tenants in the retail,
financial services and banking, medical and restaurant sectors. AmREIT's real
estate team focuses on development, management, brokerage and ownership of
freestanding credit tenant leased ("CTL") and frontage shopping centers ("FSC")
that are located contiguous to major thoroughfares and traffic generators.
AmREIT's real estate customer list includes national and regional tenants such
as: Walgreen's, Goodyear Tire, Washington Mutual, IHOP, McDonald's, Herman
Hospital, Radio Shack, Sprint, Coldwell Banker, Guaranty Federal, Bennigan's,
Chili's, Texas Children's Hospital, Discount Tire, etc.
Liquidity and Capital Resources
Cash flow from operations has been the principal source of capital to fund the
Company's ongoing operations. The Company's issuance of common stock and the
use of the Company's credit facility have been the principal sources of capital
to fund its growth.
9
Net cash provided by operating activities increased from $1.64 million in 2001
to $3.73 million in 2002. The increase in cash provided by operating activities
was due primarily to the following components: (1) an increase in deferred
merger costs of $1.9 million in 2002, compared to $0 in 2001. The deferred
merger costs represent a charge to earnings taken for class A common
shares issued to H. Kerr Taylor as deferred consideration as a result of the
sale of his advisory company to AmREIT in June 1998. The merger of the
Affiliated Partnerships triggered a payment under the deferred consideration
agreement, and 302,281 class A common shares of AmREIT were issued and the
charge taken to earnings, which is the primary cause of the $659 thousand loss
in 2002, (2) a decrease in accounts receivable from during 2002 of $1.53
million compared to an increase in accounts receivable during 2001 of $388
thousand, and (3) an increase in deferred compensation of $0 in 2001 to $48
thousand in 2002. The increase in deferred compensation was due to restricted
shares issued to employees and the board of trust managers as compensation in
2002. The above changes are offset by the operating loss of $659 thousand in
2002 compared to an operating profit of $790 thousand in 2001. The primary
cause for the loss in 2002 is the $1.9 million charge to earnings for the
deferred acquisition costs.
Net cash used in investing activities increased by $12.94 million to $15.27
million in 2002 when compared to 2001. The increase was primarily due to an
increase in property acquisitions of $15.51 million to $18.95 million in 2002.
This increase is related to the purchase of seventeen IHOP properties purchased
during 2002 through a majority owned subsidiary. Eighty-three percent of the
$17.96 million aggregate purchase price was financed with 83% non-recourse
debt. This increase in net cash was partially offset by the proceeds from the
sale of the Office Max property located in Lake Jackson, Texas, which increased
$1.17 million from $2.52 million in 2001 to $3.69 million in 2002.
Net cash provided by financing activities increased $13.84 million in 2002 to
$13.82 million in 2002 when compared to 2001. The increase was primarily due
to: (1) proceeds from notes payable, which totaled $19.25 million in 2002
compared to $8.04 million in 2001, the proceeds of which were primarily used to
fund the acquisition of the seventeen IHOP properties purchased during 2002,
(2) a decrease in payments of notes payables from $6.54 million in 2001 to
$3.40 million in 2002, and (3) an increase in dividends paid from $605
thousand in 2001 to $1.73 million in 2002. The increase in dividends paid is a
result of a 28% increase in the dividends per share paid to holders of class A
shares, the issuance of additional class A common shares, and the dividends
paid on the issuance of class B shares in July 2002 pursuant to the merger
described below.
In order to continue to expand and develop its portfolio of properties and
other investments, the Company intends to finance future acquisitions and
growth through the most advantageous sources of capital available at the time.
Such capital sources may include proceeds from public or private offerings of
the Company's debt or equity securities, secured or unsecured borrowings from
banks or other lenders, acquisitions of the Company's affiliated entities or
other unrelated companies, or the disposition of assets, as well as
undistributed funds from operations.
On July 23, 2002, the Company completed a merger with the Affiliated
Partnerships, which increased the Company's real estate assets by approximately
$24.3 million. Pursuant to the merger, the Company issued approximately 2.6
million Class B common shares to the limited partners in the Affiliated
Partnerships. Approximately $760 thousand in 8 year, interest only,
subordinated notes were issued to limited partners of the Affiliated
Partnerships who dissented against the merger. The acquired properties are
unencumbered, single tenant, free standing properties on lease to national and
regional tenants, where the lease is the direct obligation of the parent
company. A deferred merger expense stemmed from stock issued to H. Kerr
Taylor, President and Chief Executive Officer, based on deferred consideration
that was approved by the stockholders in 1998 as a result of the sale of his
advisory company to AmREIT. Mr. Taylor was issued 302,281 Class A
common shares, which resulted in a charge to earnings in the third quarter 2002.
10
The Company's leases typically provide that the tenant bear responsibility for
substantially all property costs and expenses associated with ongoing
maintenance and operation, including utilities, property taxes and insurance.
In addition, the Company's leases generally provide that the tenant be
responsible for roof and structural repairs. Some of the tenants' leases
require the Company to be responsible for roof and structural repairs. In these
instances, the Company normally requires warranties and/or guarantees from the
related vendors, suppliers and/or contractors, to mitigate the potential costs
of repairs during the primary terms of the leases. Because many of the
properties which are subject to leases that place these responsibilities on the
Company are recently constructed, management anticipates that capital demands
to meet obligations with respect to these properties will be minimal for the
foreseeable future and can be met with funds from operations and working
capital. The Company may be required to use bank borrowing or other sources of
capital in the event of unforeseen significant capital expenditures.
In November 1998, the Company entered into an unsecured credit facility (the
"Credit Facility"), which is being used to provide funds for the acquisition of
properties and working capital, and repaid all amounts outstanding under the
Company's prior credit facility. Under the Credit Facility, which had an
original term of one year, and has been extended through April 2003, the
Company may borrow up to $20 million subject to the value of unencumbered
assets. The Company is working on a modification of the Credit Facility, and
the lender has agreed to extend the term by a period of fifteen months under
comparable terms and conditions. The Credit Facility contains covenants which,
among other restrictions, require the Company to maintain a minimum net worth,
a maximum leverage ratio, and specified interest coverage and fixed charge
coverage ratios. At December 31, 2002, the Lender waived these financial
covenant. The Credit Facility bears interest at an annual rate of LIBOR plus
a spread of 2.00%, which resulted in an effective interest rate of 3.4375% at
December 31, 2002. As of December 31, 2002, $11.76 million was outstanding
under the Credit Facility. The Company has approximately $8.24 million
availability under its line of credit, subject to use of proceeds approval by
the lender.
As of December 31, 2002, the Company owned 46 properties directly
and, since its inception, had invested $70.83 million, exclusive of any
minority interests, including certain acquisition expenses related to the
Company's investment in these properties. These expenditures resulted in a
corresponding decrease in the Company's liquidity.
Until properties are acquired by the Company, the Company's funds are held in
short-term, highly liquid investments which the Company believes to have
appropriate safety of principal. This investment strategy has allowed, and
continues to allow, high liquidity to facilitate the Company's use of these
funds to acquire properties at such time as properties suitable for acquisition
are located. At December 31, 2002, the Company's cash and cash equivalents
totaled $2.51 million.
The Company paid aggregate cash dividends to the holders of its class A and
class B common shares, as applicable, during 2002 and 2001, distributing a
total of $1.73 million and $605 thousand, respectively, for each such fiscal
year.
Inflation has had very little effect on income from operations. Management
expects that increases in store sales volumes due to inflation as well as
increases in the Consumer Price Index, may contribute to capital appreciation
of the Company properties. These factors, however, also may have an adverse
impact on the operating margins of the tenants of the properties.
Funds From Operations
Funds from operations (FFO) decreased $973 thousand to $6 thousand in 2002
from $979 thousand in 2001. The decrease in FFO is primarily due to the $1.90
million charge to earnings in the third quarter 2002 resulting from 302,281
class A common shares issued to Mr. Taylor, resulting from the merger of the
11
Affiliated Partnerships. The Company has adopted the National Association of
Real Estate Investment Trusts (NAREIT) definition of FFO. FFO is calculated as
net income (computed in accordance with generally accepted accounting
principles) excluding gains or losses from sales of depreciable operating
property, depreciation and amortization of real estate assets, and excluding
results defined as "extraordinary items" under generally accepted accounting
principles ("GAAP"). FFO should not be considered an alternative to cash flows
from operating, investing and financing activities in accordance with generally
accepted accounting principles and is not necessarily indicative of cash
available to meet cash needs. The Company's computation of FFO may differ from
the methodology for calculating FFO utilized by other equity REIT's and,
therefore, may not be comparable to such other REIT's. FFO is not defined by
GAAP and should not be considered an alternative to net income as an indication
of the Company's performance.
Below is the reconciliation of net income, which the Company believes is the
most comparable GAAP financial measure, to FFO in thousands:
2002 2001
----------------- -------------------
Net (loss) income $ (659) $ 791
Plus depreciation of real estate assets 617 442
Less loss (gain) on sale of real estate assets 48 (254)
----------------- -------------------
Total Funds From Operations * $ 6 $ 979
Cash dividends paid $ 1,730 $ 605
Dividends in excess of (less than) FFO * $ 1,724 $(374)
* Based on the adherence to the NAREIT definition of FFO, we have not added
back the $1.90 million charge to earnings in the third quarter 2002 resulting
from shares issued to Mr.Taylor. Adding this $1.90 million charge to earnings
back to earnings would result in $1.90 million adjusted funds from operations,
and dividends paid less than adjusted FFO of $170 thousand.
Cash flows from operating activities, investing activities, and financing
activities are presented below in thousands:
2002 2001
---------------------- ---------------------
Operating activities $ 3,729 $ 1,642
Investing activities (15,268) (2,333)
Financing activities 13,819 (18)
Results of Operations
Years Ended December 31, 2002 and 2001:
As of December 31, 2002 and 2001, the Company owned and leased 46 and 19
properties, respectively. During the years ended December 31, 2002 and
2001, the Company had revenues of: (1) $5.49 million and $3.29 million,
respectively, in rental income from operating leases and earned income from
direct financing leases, (2) $2.04 million and $2.03 million, respectively, in
service fee and other income, (3) $280 thousand and $342 thousand,
respectively, in management fee income, (4) $417 thousand and $20 thousand,
respectively, in income from non-consolidated affiliates and (5) $(48) thousand
and $254 thousand, respectively, in (loss) gain on sale of property.
The increase in gross revenue is primarily attributed to the merger of the
Affiliated Partnerships in July 2002 and the acquisition of the 17 IHOP
properties during 2002, which generated increases in both rental income from
operating leases and earned income from direct financing leases.
12
The Company sold an OfficeMax in Lake Jackson, Texas during 2002.
The Company recorded a loss on the sale of this property primarily due to the
write-off of accrued rental income.
The decrease in management fee income is primarily due to the merger of the
Affiliated Partnerships in July 2002, which resulted in a decrease in
management fees that had historically been paid from the Affiliated
Partnerships. The increase in income from non-consolidated affiliates is
primarily due to Company's interest in AmREIT Opportunity Fund and AmREIT
Income & Growth Fund. The Company is the general partner of AmREIT Opportunity
Fund and AmREIT Income & Growth Fund, and receives a profit interest in these
funds as certain investment objectives and returns are met for the third party
limited partners.
Service fees and other income increased based on: (1) additional asset
management and advisory fee income and commissions generated by an increase in
capital raised through the Company's direct participation investment funds and
(2) income earned in our non-consolidated affiliates, which are a result of the
Company's general partner interest's in its direct participation investment
funds.
General and administrative costs were $2.80 million in 2002 compared to $1.95
million in 2001. The increased general and administrative costs are primarily
related to: (1) property costs incurred due to a vacancy and required
maintenance at Copper Plaza, and (2) increase in the number of employees during
2002 as we built the management and facilitation teams, resulting in an
increase in personnel and benefit costs.
Legal and professional fees increased from $1.00 million in 2001 to $1.33
million in 2002. The primary increase was an increase in commission expense to
third party broker dealers as a result of an increase in capital raised through
the Company's direct participation investment funds and an increase in
transfer agent costs due to the issuance of 2.6 million class B common shares
as a result of the merger of the Affiliated Partnerships.
Interest expense was $1.77 million in 2002 compared to $1.06 million in 2001.
The increase in interest expense is due to the acquisition of seventeen IHOP
properties, which were purchased utilizing approximately $14.76 million in
non-recourse debt with an average interest rate of 7.85%. Included in interest
expense is $131 thousand and $8 thousand, respectively for 2002 and 2001, for
amortized loan acquisition costs.
Item 7. Financial Statements
(a) (1) Financial Statements
Independent Auditors' Report
Independent Auditors' Report
Consolidated Balance Sheet, December 31, 2002
Consolidated Statements of Operations for the
Years Ended December 31, 2002 and 2001
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 2002 and 2001
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002 and 2001
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2002 and 2001
(2) Financial Statement Schedules
Schedule III - Consolidated Real Estate Owned and Accumulated
Depreciation
13
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On December 12, 2002, the Registrant dismissed Deloitte & Touche LLP
as its independent public accountants, effective immediately. The change was
made by the Audit Committee of the board of trust managers of the Registrant.
Management sought and received proposals from three other independent public
accounting firms. These proposals were submitted from three other independent
public accounting firms. These proposals were submitted to the Registrant's
Audit Committee, which selected KPMG LLP as the Registrant's new auditors.
Deloitte & Touche's reports on the Registrant's consolidated financial
statements for the latest two fiscal years ended December 31, 2001 and December
31, 2000 did not contain an adverse opinion or disclaimer of opinion and were
not qualified as to uncertainty, audit scope or accounting principles. During
the Registrant's fiscal years ended December 31, 2001 and December 31, 2000 and
subsequent interim periods preceding the dismissal, there were no disagreements
with Deloitte & Touche on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Deloitte & Touche, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports. During the two most recent fiscal years and the
subsequent interim period through December 12, 2002, there were no reportable
events (as described in Regulation S-K Item 304 (a)(1)(v)).
On December 12, 2002, the Registrant engaged KPMG LLP to audit the
Registrant'sfinancial statements for the year ending December 31, 2002. During
the Registrant's two most recent fiscal years ended December 31, 2001and
December 31, 2000, and the subsequent interim period through December 12, 2002,
the Registrant did not consult with KPMG LLP regarding any of the matters or
events set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.
14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 10. Executive Compensation
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
Item 11. Security Ownership of Certain Beneficial Owners, Management and
Related Stockholder Matters
We are authorized to grant stock options up to an aggregate of 142.364 shares
of common stock outstanding at any time as incentive stock options (intended
to qualify under Section 422 of the Code) or as options that are not intended
to qualify as incentive stock options. All of our equity compensation plans
were approved by security holders. Information regarding our equity
compensation plans was as follows as December 31, 2002:
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
(a) (b) (c)
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
Number of securities remaining
available for future issuances
Number of securities to be under equity compensation
issued upon exercise of Weighted average exercise plans (excluding securities
Plan Category outstanding options price of outstanding options reflected in column (a)
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
Equity compensation plans - - 310,270
approved by security holders
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
Equity compensation plans not
approved by security holders - - -
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
---------------------------------- ---------------------------------- ----------------------------- --------------------------------
Item 12. Certain Relationships and Related Transactions
Reference is made to the Company's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14(a).
15
PART IV
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) Exhibits
3.1 * Amended and Restated Declaration of Trust
3.2 * By-Laws, dated December 22, 2002.
10.1 Revolving Credit Agreement, dated November 6, 1998, by and among
AmREIT, Inc., certain lenders and Wells Fargo Bank, as the
Agent, relating to a $30,000,000 loan (included as Exhibit 10.1
of the Exhibits to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1998 and incorporated herein
by reference).
10.2 Amended and Restated Revolving Credit Agreement, effective
August 1, 2000, by and among AmREIT, Inc., certain lenders and
Wells Fargo Bank, as the Agent, relating to a $13,000,000 loan
(included as Exhibit 10.1 of the Exhibits to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998 and incorporated herein by reference).
21 Subsidiaries of the Company.
99.1 Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
-----------------------------------------------------------------------------
* Filed herewith
(b) Reports on Form 8-K
Current report on Form 8-K dated December 12, 2002 and filed
with the Commission on December 12, 2002 contained information
under Item 4 (Changes in Registrant's Certifying Accountant)
and Item 7 (Financial Statements, Pro Forma Financial
Information and Exhibits).
Current report on Form 8-K dated December 23, 2002 and filed
with the Commission on December 23, 2002 contained information
under Item 5 (Other Events).
16
Items 5, 6 and 7 of Part II and Item 13 of Part IV of this Form 10-KSB contain
the financial statements, financial statement schedule and other financial
information. No Annual Report or proxy material has yet been provided to
security holders with respect to 2001.
Item 14. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Executive Vice President of Finance have
reviewed and evaluated the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a
date within 90 days before the filing date of this annual report. Based on that
evaluation, the Chief Executive Officer and Executive Vice President of Finance
have concluded that our current disclosure controls and procedures are
effective and timely, providing them with material information relating to us
required to be disclosed in the reports we file or submit under the Exchange
Act.
Changes in Internal Controls
There have not been any significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation. We are not aware of any significant deficiencies or
material weaknesses, therefore no corrective actions were taken.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
on the 31st of March 2003 by the undersigned, thereunto duly authorized.
AmREIT, Inc.
/s/ H. Kerr Taylor
---------------------------
H. Kerr Taylor, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Issuer
and in the capacities and on the dates indicated.
/s/ H. Kerr Taylor March 31, 2003
---------------------------------------------
H. KERR TAYLOR
President, Chairman of the Board, Chief Executive
Officer and Director (Principal Executive Officer)
/s/ Robert S. Cartwright, Jr. March 31, 2003
---------------------------------------------
ROBERT S. CARTWRIGHT, JR., Director
/s/ G. Steven Dawson March 31, 2003
---------------------------------------------
G. STEVEN DAWSON, Director
/s/ Bryan L. Goolsby March 31, 2003
---------------------------------------------
BRYAN L. GOOLSBY, Director
/s/ Philip W. Taggart March 31, 2003
---------------------------------------------
PHILIP W. TAGGART, Director
/s/ Chad C. Braun March 31, 2003
---------------------------------------------
CHAD C. BRAUN, Executive Vice President
Finance and Secretary (Principal Accounting Officer)
18
FORM OF SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, H. Kerr Taylor, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-KSB of AmREIT;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the consolidated financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
i. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
ii. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
iii. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of trust managers (or persons performing the
equivalent functions):
i. all significant deficiencies in the design or operation of internal
controls which could aversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
ii. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 By:
-------------------------- --------------------------------------
H. Kerr Taylor, Chief Executive Officer
19
FORM OF SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, Chad C. Braun, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-KSB of AmREIT;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the consolidated financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
i. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
ii. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
iii. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of trust managers (or persons performing the
equivalent functions):
iv. all significant deficiencies in the design or operation of
internal controls which could aversely affect the registrant's ability
to record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls; and
v. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003 By:
--------------------------- --------------------------------------
Chad C. Braun, Chief Financial Officer
20
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 2002
AMREIT AND SUBSIDARIES
F-1
AMREIT AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report F-3
Independent Auditors' Report F-4
Consolidated Balance Sheet, December 31, 2002 F-5
Consolidated Statements of Operations for the Years Ended
December 31, 2002 and 2001 F-6
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 2002 and 2001 F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002 and 2001 F-8
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2002 and 2001 F-9 to F-22
FINANCIAL STATEMENT SCHEDULE:
Schedule III Consolidated Real Estate Owned and Accumulated
Depreciation for the Year Ended December 31, 2002 F-23
All other financial statement schedules are omitted as the required information
is either inapplicable or is included in the financial statements or related
notes.
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Trust Managers
AmREIT:
We have audited the accompanying consolidated balance sheet of AmREIT and
subsidiaries (the "Company") as of December 31, 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 2002. In connection with our audit of the
consolidated financial statements, we have also audited the related financial
statement schedule. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmREIT and
subsidiaries as of December 31, 2002, and the results of their operations and
their cash flows for the year ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
KPMG LLP
Houston, Texas
March 31, 2003
F-3
INDEPENDENT AUDITORS' REPORT
To the Board of Trust Managers
AmREIT
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of AmREIT (formerly AmREIT, Inc.) and
subsidiaries (the "Company") for the year ended December 31, 2001. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, AmREIT and subsidiaries results of operations and cash
flows for the year ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
March 15, 2002
F-4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMREIT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2002
2002
ASSETS
Property:
Land $18,945,607
Buildings 28,652,858
Furniture, fixtures and equipment 381,383
__________
47,979,848
Accumulated depreciation (2,136,376)
__________
Total property, net 45,843,472
Net investment in direct financing leases 23,405,324
Cash and cash equivalents 2,506,868
Accounts receivable 173,659
Accounts receivable - related party 68,934
Escrow deposits 120,466
Prepaid expenses, net 438,696
Other assets:
Preacquisition costs 1,765
Loan acquisition cost, net of $85,579 in accumulated amortization 249,572
Accrued rental income 360,062
Intangible lease cost 257,600
Investment in non-consolidated affiliates 549,335
__________
Total other assets 1,418,334
__________
TOTAL ASSETS $73,975,753
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $33,586,085
Accounts payable 1,126,219
Accounts payable - related party 206,123
Security deposit 33,930
Prepaid rent 6,177
___________
TOTAL LIABILITIES 34,958,534
___________
Minority interest 810,971
Shareholders' equity:
Preferred stock, $.01 par value, 10,001,000 shares authorized, none issued -
Class A Common stock, $.01 par value, 100,010,000 shares authorized,
2,772,340 shares issued and outstanding 27,723
Class B Common stock, $.01 par value, 3,000,000 shares authorized,
2,464,207 shares issued and outstanding 24,642
Capital in excess of par value 47,183,271
Accumulated distributions in excess of earnings (8,426,846)
Deferred compensation (205,353)
Cost of treasury stock, 65,379 shares (397,189)
___________
TOTAL SHAREHOLDERS' EQUITY 38,206,248
___________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $73,975,753
===========
See Notes to Consolidated Financial Statements.
F-5
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
2002 2001
Revenues:
Rental income from operating leases $ 3,687,094 $ 2,648,237
Earned income from direct financing leases 1,807,117 637,537
Service fees and other income 2,041,999 2,033,008
Management fees 279,910 342,349
Income from non-consolidated affiliates 416,904 20,743
(Loss) gain on sale of property (47,553) 254,013
Interest income 4,206 10,555
_________ _________
Total revenues 8,189,677 5,946,442
_________ _________
Expenses:
General operating and administrative 2,801,946 1,953,285
Legal and professional 1,332,188 1,002,776
Interest 1,774,973 1,063,574
Depreciation 666,307 464,308
Deferred merger costs 1,904,370 -
_________ _________
Total expenses 8,479,784 4,483,943
_________ _________
(Loss) income before federal income taxes and minority
interest in net income of consolidated joint ventures (290,107) 1,462,499
Federal income tax expense for taxable REIT subsidiary 60,656 144,420
Minority interest in net income of consolidated joint ventures (308,010) (527,571)
__________ _________
Net (loss) income (658,773) 790,508
Distributions paid to Class B shareholders (865,293) -
__________ _________
Net (loss) income available to Class A shareholders $(1,524,066) $ 790,508
========== =========
Net (loss) income per common share, basic and diluted (0.62) 0.34
========== =========
Common shares used to compute net (loss) and income
per share, basic and diluted 2,469,725 2,354,572
========== =========
See Notes to Consolidated Financial Statements.
F-6
AMREIT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 2002 and 2001
Capital in
Common Shares excess of
Number Amount par value
Balance at December 31, 2000 2,384,117 $ 23,841 $ 21,655,867
Net income - - -
Repurchase of common shares, Class A (24,723 shares) - - -
Distributions - - -
_________ ______ __________
Balance at December 31, 2001 2,384,117 23,841 21,655,867
_________ ______ __________
Net loss - - -
Issuance of common shares Class A 388,200 3,882 2,057,755
Issuance of common shares Class B, net of 124,750 that
converted to Class A 2,464,207 24,642 23,469,649
Issuance of restricted shares Class A - - -
Repurchase of common shares Class A (46,069 shares) - - -
Distributions - - -
_________ ______ __________
Balance at December 31, 2002 5,236,524 $52,365 $47,183,271
========= ====== ==========
Accumulated
distributions Defered Cost of
in excess of Compensation treasury
earnings Obligation shares Total
Balance at December 31, 2000 $ (6,223,523) $ - $ (127,467) $ 15,328,718
Net income 790,508 - - 790,508
Repurchase of common shares Class A (24,723 shares) - - (160,703) (160,703)
Distributions (604,742) - - (604,742)
_________ _________ ________ __________
Balance at December 31, 2001 (6,037,757) - (288,170) 15,353,781
_________ _________ ________ __________
Net loss (658,773) - - (658,773)
Issuance of common shares, Class A - - - 2,061,637
Issuance of common shares, Class B, net of 124,750 that
converted to Class A - - - 23,494,291
Issuance of restricted shares Class A - (205,353) 185,119 (20,234)
Repurchase of common shares Class A (46,069 shares) - - (294,138) (294,138)
Distributions (1,730,316) - - (1,730,316)
_________ _______ _______ __________
Balance at December 31, 2002 $(8,426,846) $ (205,353) $(397,189) $38,206,248
========= ======== ======= ==========
See Notes to Consolidated Financial Statements.
F-7
AMREIT AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years ended December 31,
2002 2001
Cash flows from operating activities:
Net (loss) income $ (658,773) $ 790,508
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Loss (gain) on sale of property 47,553 (254,013)
Depreciation and amortization 723,607 481,265
Increase in minority interest in net income of consolidated
joint ventures 308,010 527,571
Deferred merger costs 1,904,370 -
Decrease (increase) in accounts receivable 1,155,875 (89,921)
Decrease (increase)in accounts receivable - related party 378,494 (298,521)
Increase in prepaid expenses, net (170,028) (128,324)
(Decrease) increase in accounts payable (365,018) 821,168
Increase in accounts payable- related party 181,123 15,524
Cash receipts from direct financing leases
less than income recognized 282,805 (38,581)
Decrease (increase) in accrued rental income 32,095 (102,757)
Increase in prepaid rent 6,177 -
Increase in other assets (49,114) (81,545)
Increase in deferred compensation (48,086) -
_________ _________
Net cash provided by operating activities 3,729,090 1,642,374
_________ _________
Cash flows from investing activities:
Improvements to real estate (623,124) (432,276)
Acquisitions of real estate (18,951,523) (3,445,279)
Additions to furniture, fixtures and equipment (25,131) (37,061)
Distributions from (investment in) joint ventures 431,604 (729,958)
Proceeds from sale of property 3,692,544 2,520,259
Decrease (increase) in preacquisition costs 207,435 (208,576)
__________ _________
Net cash used in investing activities (15,268,195) (2,332,891)
__________ _________
Cash flows from financing activities:
Proceeds from notes payable 19,253,403 8,038,500
Payments of notes payable (3,399,277) (6,539,134)
Loan acquisition costs (38,035) (169,579)
Issuance of treasury stock 185,119 -
Purchase of treasury stock (294,138) (160,703)
Issuance of common stock (517,857) -
Retirement of common stock (106,500) -
Common dividends paid (1,730,316) (604,742)
Contributions from minority interests 809,971 -
Distributions to minority interests (343,514) (582,575)
__________ ___________
Net cash provided by (used in) financing activities 13,818,856 (18,233)
__________ ___________
Net increase (decrease) in cash and cash equivalents 2,279,751 (708,750)
Cash and cash equivalents at January 1 227,117 935,867
__________ ___________
Cash and cash equivalents at December 31 $ 2,506,868 $ 227,117
========== ===========
Supplemental schedule of noncash investing and financing activities
On July 23, 2002, the Company merged with three of its affiliated
partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd. and
AAA Net Realty Fund XI, Ltd. In conjunction with the merger, the Company
acquired $23,890,319 worth of property and issued 2,589,179 shares of Class
B common stock.
Supplemental schedule of cash flow information: Cash paid during the year
for:
Interest 1,691,927 1,063,574
Income taxes 133,841 -
See Notes to Consolidated Financial Statements.
F-8
AMREIT AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AmREIT, ("AmREIT" or the "Company") formally AmREIT, Inc., which was
incorporated in the state of Maryland in August 1993, is a real estate
investment trust ("REIT") based in Houston, Texas and is listed on the
American Stock Exchange (AMY). AmREIT was organized in the state of Texas on
December 22, 2002 and is a pre-eminent sponsor of real estate direct
participation programs to the financial planning community. For more than 17
years, the Company has established a track record of investing in commercial
real estate leased to parent companies in the retail, financial services and
banking, medical and restaurant sectors. AmREIT's real estate team focuses on
development, management, brokerage and ownership of freestanding credit tenant
leased ("CTL") and frontage shopping centers ("FSC") that are located
contiguous to major thoroughfares and traffic generators. AmREIT's customer
list includes national and regional tenants such as: Walgreens, Goodyear Tire,
Washington Mutual, IHOP, McDonald's, Herman Hospital, Radio Shack, Coldwell
Banker, Guaranty Federal, Bennigan's, Chili's, Texas Children's Pediatric
Associates, Discount Tire, etc.
AmREIT owns a real estate portfolio that consists of over 46 properties located
in 18 states. Its properties include single-tenant; free standing credit tenant
leased projects and multi-tenant frontage projects. The single tenant projects
are located from coast to coast and are primarily leased to corporate tenants
where the lease is the direct obligation of the parent companies. In so doing,
the dependability of the lease payments are based on the strength and viability
of the entire company, not just that location. The multi-tenant projects are
situated primarily throughout Texas. Supporting the real estate portfolio is an
operating company subsidiary of AmREIT that provides a complete range of
services including development, construction management, property management,
brokerage and leasing.
Through AmREIT's direct participation programs, it creates new investment
entities that buy and develop commercial real estate with proceeds raised from
third-party investors. AmREIT has extensive experience and long-term
relationships in the commercial real estate market - the basis of its ability
to sponsor real estate investment opportunities while creating fee income and
carried interests for AmREIT and its shareholders.
On July 23, 2002, the Company completed a merger with three of its affiliated
partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd., and
AAA Net Realty Fund XI, Ltd. With the merger of the affiliated partnerships,
AmREIT increased its real estate assets by approximately $24.3 million and
issued approximately 2.6 million Class B common shares to the limited
partners in the affiliated partnerships. Approximately $760 thousand in 8 year,
interest only, subordinated notes were issued to limited partners of the
affiliated partnerships who dissented against the merger. The acquired
properties are unencumbered, single tenant, free standing properties on lease
to national and regional tenants, where the lease is the direct obligation of
the parent company. This merger transaction triggered a payment under the
deferred consideration agreement between AmREIT and H. Kerr Taylor, President
and Chief Executive Officer. The deferred consideration agreement was approved
by the shareholders in 1998 as part of the sale of Mr. Taylor's advisory
company to AmREIT. In the agreement, Mr. Taylor would receive additional class
A common shares, in exchange for the sale of his advisory company, as AmREIT
F-9
issued additional capital. Mr. Taylor was issued approximately 302 thousand
Class A common shares, which resulted in a deferred merger expense of $1.9
million in the third quarter 2002. Under the deferred consideration agreement,
approximately 384 thousand shares remain to be issued to Mr. Taylor in the
event the Company issues additional shares prior to June 4, 2004, the
expiration date of the agreement.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of AmREIT, and its
wholly or majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
BASIS OF ACCOUNTING
The financial records of the Company are maintained on the accrual basis of
accounting whereby revenues are recognized when earned and expenses are
recorded when incurred.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist of demand deposits at commercial banks and money market
funds.
PROPERTY
Property is leased to others, primarily on a net lease basis, whereby the
operating expenses related to the properties, including property taxes,
insurance and common area maintenance are the responsibility of the tenant. The
leases are accounted for under the operating method or the direct financing
method in accordance with generally accepted accounting principles. Under the
operating lease method, the properties are recorded at cost. Rental income is
recognized ratably over the life of the lease and depreciation is charged based
upon the estimated useful life of the property. Under the direct financing
lease method, properties are recorded at their net investment. Unearned income
is deferred and amortized to income over the life of the lease so as to produce
a constant periodic rate of return.
Expenditures related to the development of real estate are carried at cost plus
capitalized carrying charges, acquisition costs and development costs. Carrying
charges, primarily interest and loan acquisition costs, and direct and indirect
development costs related to buildings under construction are capitalized as
part of construction in progress. The Company capitalizes acquisition costs
once the acquisition of the property becomes probable. Prior to that time, the
Company expenses these costs as acquisition expense.
Management reviews its properties for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets, including
accrued rental income, may not be recoverable through operations. Management
determines whether an impairment in value occurred by comparing the estimated
future cash flows (undiscounted and without interest charges), including the
residual value of the property, with the carrying cost of the individual
property. If impairment is indicated, a loss will be recorded for the amount by
which the carrying value of the asset exceeds its fair value.
F-10
DEPRECIATION
Buildings are depreciated using the straight-line method over an estimated
useful life of 39 years. Leasehold estate properties, where the Company owns
the building and improvements but not the related ground, therefore there is no
residual value beyond the lease, are depreciated over the life of the lease.
INVESTMENT IN NON-CONSOLIDATED AFFILIATES
AmREIT invested $250 thousand as a limited partner and $1,000 as a general
partner in AmREIT Opportunity Fund, Ltd. ("AOF"), which is accounted for using
the equity method. The limited partners have the right to remove and replace
the general partner by a vote of the limited partners owning two-thirds of the
outstanding units. AmREIT currently owns a 10.5% limited partner interest in
AOF. AOF was formed to develop, own, manage, and hold for investment and, or
resell property and to make or invest in loans for the development or
construction of property. Liquidation of AOF commenced in July of 2002. Based
on the general partner's analysis of owned real estate as of December 31, 2002,
none of the assets owned or in liquidation by AOF are impaired.
AmREIT invested $200 thousand as a limited partner and $1,000 as a general
partner in AmREIT Income & Growth Fund, Ltd. ("AIG") that is accounted for
using the equity method. The limited partners have the right to remove and
replace the general partner by a vote of the limited partners owning a majority
of the outstanding units. AmREIT currently owns an approximately 3.9% limited
partner interest in AIG. AIG was formed to develop, own, manage, and hold for
investment and, or resell property and to make or invest in loans for the
development or construction of property.
AmREIT invested $70 thousand as a limited partner in AmREIT CDP #27, LP that is
accounted for using the equity method. AmREIT CDP #27, LP was formed to acquire
commercial real property and to develop, operate, lease, manage, and or sell
real property. AmREIT CDP #27, LP purchased two IHOP properties in 2001 located
in Memphis, Tennessee and Tupelo, Mississippi. The Memphis, Tennessee property
was sold for a profit in the first quarter of 2002.
ARIC invested $122 thousand as a limited partner in AmREIT CDP SPE #33, Ltd.
that is accounted for using the equity method. AmREIT CDP SPE #33, Ltd. was
formed to acquire commercial real property and to develop, operate, lease,
manage, and or sell real property. In December 2001, AmREIT CDP #33, Ltd.
purchased three IHOP leasehold estate properties located in Houston, Texas,
Orem, Utah, and Hagerstown, Maryland.
AmREIT invested $330 thousand as a member in AmREIT CDP #31, LLC ("CDP 31")
that is accounted for using the equity method. CDP 31 was formed to acquire
commercial real property and to develop, operate, lease, manage, and or sell
real property. CDP 31 purchased two IHOP properties in 2001 located in
Cookeville, Tennessee and Scottsdale, Arizona. Both properties were sold during
the first quarter 2002, and CDP 31 does not own any real property as of
December 31, 2002.
OTHER ASSETS
Other assets include loan acquisition costs, net of accumulated amortization,
of $250 thousand. Loan acquisitions costs are incurred in obtaining property
financing and are amortized to interest expense on the effective interest
method over the term of the debt agreements. Accumulated amortization related
to loan acquisition costs as of December 31, 2002 totaled $86 thousand.
F-11
DEFERRED COMPENSATION
Deferred compensation includes stock grants to employees as a form of long term
compensation. The stock grants vest over a period of time not to exceed four
years. This allows the Company to align the interest of its employees with the
interest of our shareholders. As the stock grants vest, the Company will
amortize the vested portion to compensation expense. The expense will be
calculated by taking the number of shares vested multiplied by the market price
per share as determined on the vesting dates.
Effective January 1, 2003, AmREIT will adopt SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123".
STOCK ISSUANCE COSTS
Issuance costs incurred in the raising of capital through the sale of common
stock are treated as a reduction of shareholders' equity.
REVENUE RECOGNITION
Properties are primarily leased on a net lease basis. Revenue is recognized on
a straight-line basis over the terms of the individual leases. Service fees are
recognized when earned.
FEDERAL INCOME TAXES
AmREIT is qualified as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, and is, therefore, not subject to Federal income
taxes to the extent of dividends paid, provided it meets all conditions
specified by the Internal Revenue Code for retaining its REIT status, including
the requirement that at least 90% of its real estate investment trust taxable
income is distributed by March 15 of the following year.
AmREIT Realty Investment Corporation ("ARIC"), a wholly owned subsidiary of
AmREIT, is treated as a taxable REIT subsidiary for Federal income tax
purposes. As such, ARIC and its consolidated subsidiaries have recorded a
Federal income tax expense at December 31, 2002 of $61 thousand, which
represents the Federal income tax obligations on the consolidated taxable REIT
subsidiary's taxable net income. Additionally, in 2002, a deferred tax
liability of $28 thousand was established to record the taxes on certain
real estate assets of ARIC.
EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income to class A
common shareholders by the weighted average number of class A common shares
outstanding. Diluted earnings per share has been computed by dividing net
income (as adjusted) by the weighted average number of common shares
outstanding plus the weighted average number of dilutive potential common
shares.
The following table presents information necessary to calculate basic and
diluted earnings per share for the periods indicated:
For the Years Ended December 31,
BASIC AND DILUTED EARNINGS PER SHARE 2002 2001
Weighted average common shares outstanding (in thousands) 2,470 2,355
Basic and diluted (loss)/earnings per share * $(0.62) $0.34
------- -----
EARNINGS FOR BASIC AND DILUTED COMPUTATION
(Loss) earnings to Class A common shareholders (in thousands) * $(1,524) $791
====== ====
* For 2002, the loss of $1.524 million includes the charge taken against
earnings during the third quarter of $1.9 million, which was the market value
of the Class A common shares issued to H. Kerr Taylor, President & CEO, related
to the sale of his advisory company to AmREIT in 1998. The charge was for the
deferred merger cost due from this sale that was triggered by the issuance of
additional common stock as part of the merger with AmREIT's affiliated
partnerships during the third quarter of 2002.
F-12
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's consolidated financial instruments consist primarily of cash,
cash equivalents, accounts receivable and accounts and notes payable. The
carrying value of cash, cash equivalents, accounts receivable and accounts
payable are representative of their respective fair values due to the
short-term maturity of these instruments. The Company's total debt obligations
are $33.6 million, of which $13.42 million has variable rate terms and
therefore, the fair value is representative of its carry value. Approximately
$20.18 million has fixed rate terms, of which approximately $15.5 million was
entered into during 2002. Based on the dates that the debt obligations were
entered into and the pricing on current debt obligations, the Company believes
that the fair value of its fixed rate debt obligations is materially
representative of its carry value.
NEW ACCOUNTING STANDARDS
On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is
reason to suspect that their values have been diminished or impaired, these
assets must be tested for impairment, and write-downs may be necessary. The
Company implemented SFAS No. 141 on July 1, 2001. The adoption of this
Statement had no effect on the Company's consolidated financial position or
results of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets " was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company implemented SFAS No. 142 on January 1,
2002. The adoption of SFAS No. 142 did not have a material impact on our
consolidated financial position, results of operations, or cash flows.
F-13
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15,
2002. SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The adoption of SFAS No. 143 did not have a material
impact on our consolidated financial position, results of operations, or cash
flows.
On January 1, 2002, the company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses accounting
and reporting for the impairment or disposal of a segment of a business. More
specifically, this statement broadens the presentation of discontinued
operations to include a component of an entity whose operations and cash flows
can be clearly distinguished, opertionally and for financial reporting
purposes, from the rest of the entity. The adoption of SFAS No. 144 did not
have a material impact on our consolidated financial position, results of
operations, or cash flows.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The initial
recognition and measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002 and are not expected to
have a material effect on the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002, however, these disclosure
modifications are not applicable to the Company and adoption of SFAS 148 is not
anticipated to have a material impact on our consolidated financial position,
results of operations, or cash flows.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. The application of this Interpretation is not
expected to have a material effect on the Company's financial statements. The
Interpretation requires certain disclosures in financial statements issued
after January 31, 2003 if it is reasonably possible that the Company will
consolidate or disclose information about variable interest entities when the
Interpretation becomes effective.
Reclassification
Certain amounts in the 2001 consolidated financial statements have been
reclassified to conform to the presentation used in the 2002 consolidated
financial statements.
F-14
2. OPERATING LEASES
A summary of minimum future rentals to be received, exclusive of any renewals,
under noncancellable operating leases in existence at December 31, 2002 is as
follows:
2003 4,342,650
2004 4,260,343
2005 4,015,934
2006 3,994,020
2007 3,754,100
2008-2027 15,285,089
----------
$35,652,136
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in its direct financing leases at December 31,
2002 included:
Minimum lease payments receivable $ 61,306,182
Unguaranteed residual value 3,858,403
Less: Unearned income (41,759,261)
------------
$ 23,405,324
A summary of minimum future rentals, exclusive of any renewals, under the
noncancellable direct financing leases follows:
2003 2,444,944
2004 2,453,682
2005 2,462,421
2006 2,471,778
2007 2,605,857
2008 - 2027 48,867,500
-----------
Total $61,306,182
===========
4. INVESTMENT IN NON-CONSOLIDATED AFFILIATES
AmREIT owns interests in 5 limited liability companies or limited
partnerships, which are accounted for under the equity method since
AmREIT exercises significant influence. Our interests in these joint ventures
and limited partnerships range from 2% to 40%, which are primarily single and
multi-tenant net lease retail real estate assets. Combined condensed financial
information of these ventures (at 100%) is summarized as follows:
F-15
Combined Balance Sheet December 31, 2002
Assets
Property, net $ 8,698,634
Cash 4,172,585
Other assets 2,456,268
-------------
TOTAL ASSETS $15,327,487
===========
Liabilities and partners' capital
Notes payable $ 3,859,810
Other liabilities 493,454
Partners capital 10,974,223
------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $15,327,487
===========
Combined Statement of Operations
2002 2001
Total Revenue $ 2,624,850 $ 582,001
Expense
Interest 358,672 83,110
Depreciation and amortization 189,066 71,640
Other 188,834 188,598
-------------- ---------
TOTAL EXPENSE 736,572 343,348
-------------- ---------
NET INCOME $ 1,888,278 $ 238,653
============= ============
5. NOTES PAYABLE
In November 1998, the Company entered into an unsecured credit facility (the
"Credit Facility"), which is being used to provide funds for the acquisition of
properties and working capital, and repaid all amounts outstanding under the
Company's prior credit facility. Under the Credit Facility, which had an
original term of one year, and has been extended through April 2003, the
Company may borrow up to $20 million subject to the value of unencumbered
assets. The Company is negotiating with the Lender for an extension of the
Credit Facility, which would extend the maturity of the Credit Facility beyond
December 31, 2003. The Credit Facility contains covenants, which among other
restrictions, require the Company to maintain a minimum net worth and a maximum
leverage ratio. As of December 31, 2002, the Lender had waived these financial
covenants. The Credit Facility bears interest at an annual rate of LIBOR plus a
spread of 2.0% (3.4375% as of December 31, 2002). On December 31, 2002, $11.76
million was outstanding under the Credit Facility. Thus the Company has
approximately $8.24 million available under its line of credit subject to use
of proceeds by the lender.
In March 1999, the Company entered into a ten-year mortgage note, amortized
over 30 years, for $1 million with $968 thousand being outstanding at December
31, 2002. The interest rate is fixed at 8.375% with payments of principal and
interest due monthly. The note matures April 1, 2009 and as of December 31,
2002 the Company is in compliance with all terms of the agreement. The note is
collateralized by a first lien mortgage on property with an aggregate carrying
value of $1.179 million, net of $107 thousand of accumulated depreciation.
F-16
In February 2001, the Company entered into a ten-year mortgage note, amortized
over 20 years, for $1.35 million with $1.3 million being outstanding at
December 31, 2002. The interest rate is fixed at 8.25% with payments of
principal and interest due monthly. The note matures February 28, 2011 and as
of December 31, 2002 the Company is in compliance with all terms of the
agreement. The note is collateralized by a first lien mortgage on property,
which is accounted for as a direct financing lease with a net investment in
direct financing lease of $1 million and land of $741 thousand.
In October 2001, the Company entered into a ten-year mortgage note amortized
over 30 years, for $2.4 million with $2.378 million being outstanding at
December 31, 2002. The interest rate is fixed at 7.60% with payments of
principal and interest due monthly. The note matures November 1, 2011 and as of
December 31, 2002 the Company is in compliance with all terms of the agreement.
The note is collateralized by a first lien mortgage on property with an
aggregate carrying value of $3.967 million, net of $330 thousand of accumulated
depreciation.
In October 2001, the Company entered into a note payable for $1.658 million
with $1.658 million being outstanding at December 31, 2002. The interest rate
is equal to the thirty day LIBOR rate plus 280 basis points, but in no event
lower than 6.75%, which equated to 6.75% at December 31, 2002. The note matures
November 1, 2004 and as of December 31, 2002 the Company is in compliance with
all terms of the agreement. The note is collateralized by a first lien mortgage
on property, which is accounted for as a direct financing lease with a net
investment in direct financing lease of $1.33 million and land of $564
thousand.
Beginning in April 2002, AAA CTL Notes, Ltd., a majority owned subsidiary of
AmREIT, began entering into non-recourse ten-year mortgages, amortized over 20
years, related to the purchase of seventeen IHOP properties. The following
table summarizes the terms of loan agreements and the property collateralizing
the non-recourse notes. As of December 31, 2002 the Company is in compliance
with all terms of the agreement. The non-recourse notes have
cross-collateralization and default provisions with each other.
F-17
Loan amount at Net investment in
Location Original loan December 31, Fixed direct financing
amount 2002 interest Date loan lease
(in thousands) (in thousands) rate matures (in thousands)
Shawnee, KS $ 751 $ 741 7.82% May 1, 2012 $ 889
El Paso, TX 760 751 7.82% May 1, 2012 897
Beaverton, OR 887 876 7.82% May 1, 2012 1,046
Rochester, NY 951 939 7.82% May 1, 2012 1,136
Baton Rouge, LA 1,250 1,235 7.82% May 1, 2012 1,460
Charlottesville, VA 630 622 7.82% May 1, 2012 749
Albuquerque, NM 767 747 7.82% May 1, 2012 887
Springfield, MO 1,030 1,019 7.82% June 1, 2012 1,208
Salem, OR 621 614 7.82% June 1, 2012 732
Roanoke, VA 712 706 7.89% July 1, 2012 845
Alexandria, LA 716 711 7.89% Aug. 1, 2012 855
Centerville, UT 1,242 1,233 7.89% Aug. 1, 2012 1,078
Memphis, TN 1,342 1,333 7.89% Aug. 1, 2012 1,088
La Verne, CA 745 741 7.89% Sept. 1, 2012 998
El Paso, TX 894 890 7.89% Sept. 1, 2012 1,156
Memphis, TN 777 773 7.89% Sept. 1, 2012 1,062
Parker, CO 835 831 7.89% Sept. 1, 2012 1,112
----------------- ----------------- --------------------
Total $14,910 $14,762 $17,198
================= ================= ====================
In July of 2002, the Company issued thirteen, 8 year subordinated, 5.47%
interest-only notes totaling $760 thousand, maturing July 2010. The notes,
which are callable by the Company at par plus accrued interest, were issued to
partners who dissented against the Company's merger with three affiliated
public partnerships.
Aggregate annual maturity of the notes payable for each of the following five
years ending December 31 are as follows:
(in thousands)
2003 $ 12,172
2004 447
2005 483
2006 522
2007 565
Thereafter 19,397
------------
$ 33,586
F-18
6. MAJOR TENANTS
The following schedule summarizes rental income by lessee for 2002 and 2001 (in
thousands):
2002 2001
International House of Pancakes $ 1,784 $ 510
Footstar, Inc. 735 713
OfficeMax, Inc. 509 518
Wherehouse Entertainment 381 378
Hollywood Entertainment Corp. 273 273
Sugar Land Imaging Affiliates Ltd. 264 217
Mattress Giant, Inc. 168 106
Washington Mutual 158 158
Radio Shack 109 109
Golden Corral (4) 167 0
Texas Children's Pediatrics (2) 137 0
Don Pablos 78 79
One Care Health Industries, Inc. (1) 57 204
Comp USA (4) 123 0
Baptist Memorial Hospital (4) 102 0
TGI Friday's (4) 83 0
Dr. Pucillo (4) 87 0
Pier 1 62 0
America's Favorite Chicken Co. (3) (4) 55 21
Blockbuster (4) 42 0
Waldenbooks (4) 38 0
Jack in the Box (4) 34 0
Goodyear (4) 25 0
Skewers 18 0
Hope Rehab 5 0
------- -------
Total $ 5,494 $ 3,286
======= =======
(1) One Care Health Industries, Inc. was a tenant at Copperfield Medical
Plaza. In April of 2002, AmREIT negotiated a lease buy out agreement
with One Care for approximately $190 thousand. As a result, AmREIT
immediately released approximately 75% of the available space to Texas
Children's Pediatrics and the Company has negotiated a lease for
balance of the space.
(2) Texas Children's Pediatrics entered into a long-term lease with
AmREIT, beginning in May 2002, at Copperfield Medical Plaza. The lease
was entered into as a result of the negotiated lease buy out by AmREIT
and One Care Health Industries, Inc.
(3) The America's Favorite Chicken Co. restaurant located in Atlanta
was sold by AmREIT during the first quarter 2001.
(4) Properties were purchased from three affiliated partnerships in
July 2002.
7. FEDERAL INCOME TAXES
The differences between net income for financial reporting purposes and taxable
income before distribution deductions relate primarily to temporary
differences, merger costs and potential acquisition costs which are expensed
for financial reporting purposes.
For income tax purposes, distributions paid to shareholders consist of ordinary
income, capital gains and return of capital as follows (in thousands):
2002 2001
-------- --------
Ordinary income $ - $ 6
Return of capital 1,730 143
Capital gain - 456
-------- --------
$ 1,730 $ 605
======== ========
F-19
8. RELATED PARTY TRANSACTIONS
See Note 4 regarding investments in non-consolidated affiliates.
On July 23, 2002, the Company completed a merger with three of its affiliated
partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd., and
AAA Net Realty Fund XI, Ltd. AmREIT accounted for this merger as a purchase,
whereby the assets of the partnerships have been recorded at fair market value.
AmREIT increased its real estate assets by approximately $24.3 million and
issued approximately 2.6 million shares of Class B common stock to the limited
partners in the affiliated partnerships as a result of the merger.
Approximately $760 thousand in 8 year, 5.47% interest only, subordinated notes
were issued to limited partners of the affiliated partnerships who dissented to
the merger. The acquired properties are unencumbered, single tenant, free
standing properties on lease to national and regional tenants, where the lease
is the direct obligation of the parent company. A deferred merger expense
stemmed from stock issued to H. Kerr Taylor, President and Chief Executive
Officer, based on a deferred consideration that was approved by the
stockholders in 1998. Mr. Taylor was issued 302 thousand shares of Class A
common stock, which resulted in a $1.9 million charge to earnings in the third
quarter 2002. As the Company raises additional equity, Mr. Taylor is eligible
to receive up to an additional 384 thousand shares of Class A common stock
pursuant to the deferred consideration agreement approved by the stockholders
in 1998 related to the sale of Mr. Taylor's advisory company to AmREIT.
The Company provides property acquisition, leasing, administrative and
management services for ten affiliated real estate limited partnerships that
are under common management (the "Partnerships"). The president and director of
the Company owns between 45% and 100% of the stock of the companies that serve
as the general partner of the Partnerships. Service fees of $245 thousand and
$335 thousand were paid by the Partnerships to the Company for 2002 and 2001
respectively.
As a sponsor of real estate investment opportunities to the NASD financial
planning broker dealer community, the Company maintains a 1% general partner
interest in the investment funds that it sponsors. The funds are typically
structured such that the limited partners receive 99% of the available cash
flow until 100% of their original invested capital has been returned and a
preferred return has been met. Once this has happened, then the general partner
begins sharing in the available cash flow at various promoted levels. The
Company also assigns a portion of this general partner interest in these
investment funds to its employees as long term, contingent compensation. In so
doing, the Company believes that it will align the interest of management with
that of the shareholders, while at the same time allowing for a competitive
compensation structure in order to attract and retain key management positions
without increasing the overhead burden.
On March 20, 2002, the Company formed AAA CTL Notes, Ltd. ("AAA"), a majority
owned subsidiary which is consolidated in the financial statements of AmREIT,
through which the Company purchased fifteen IHOP leasehold estate properties
and two IHOP fee simple properties.
Locke Liddell and Sapp, LLP acts as the Company's corporate attorneys. Bryan
Goolsby is the managing director of Locke Liddell and Sapp LLP and is a member
of the Company's board of trust managers. During 2002 and 2001, the Company
paid Locke Liddell and Sapp LLP approximately $777 thousand and $133 thousand,
respectively, for legal services rendered.
F-20
9. PROPERTY ACQUISITIONS AND DISPOSITIONS
During the third quarter, the Company purchased seventeen IHOP restaurant
properties. Fifteen of the properties are leasehold estate properties, whereby
the Company owns the physical improvements, but does not own the underlying
land. Two of the properties were purchased in fee simple. The total purchase
price was $17.25 million. The properties were purchased utilizing $2.34 million
cash and $14.91 million non-recourse, 10-year debt with an average
interest rate of 7.85%. Each lease agreement extends for a period of 18-25
years, however, the tenant has the ability to extend the primary term of the
lease for two to three additional terms of five years each. Additionally, each
lease is subject to a corresponding ground lease with the same term of 18-25
years and two to three additional terms of five years each. The Company
recorded $1.18 million in rental income during 2002 from properties acquired
in this transaction.
On July 23, 2002, the Company completed a merger with three of its affiliated
partnerships, AAA Net Realty Fund IX, Ltd., AAA Net Realty Fund X, Ltd., and
AAA Net Realty Fund XI, Ltd., which was accounted for as an acquisition. With
the merger of the affiliated partnerships, AmREIT increased its real estate
assets by approximately $24.3 million and issued approximately 2.6 million
shares of Class B common stock to the limited partners in the affiliated
partnerships. The class B common shares are not listed on an exchange and
there is currently no available trading market for the class B common shares.
The class B common shares do not have voting rights, receive a fixed 8%
cumulative and preferred dividend, and are convertible into the class A common
shares on a one-for-one basis at any time, at the holder's option.
Approximately $760 thousand in 8 year, interest only, subordinated notes were
issued to limited partners of the affiliated partnerships who dissented against
the merger. The acquired properties are unencumbered, single tenant, free
standing properties on lease to national and regional tenants, where the lease
is the direct obligation of the parent company.
The following selected unaudited pro forma consolidated statement of operations
for AmREIT and subsidiaries gives effect to the merger with its three
affiliated partnerships, which assumes that the merger occurred on January 1,
2002 and January 1, 2001, respectively. Additionally, we have presented a
summary of assets acquired and liabilities assumed as of the date of the
merger, July 23, 2002.
Pro Forma Consolidated Statement of Operations
For the Twelve Months Ended December 31,
(Unaudited)
2002 2001
Revenues
Rental income and earned income $ 6,399,475 $ 5,012,747
Other income 2,542,974 2,459,287
----------- -----------
Total Revenues 8,942,449 7,472,034
----------- -----------
Total Expense 8,806,471 6,811,762
----------- -----------
Proforma Income Before Minority Interest in Net Income of
Consolidated Joint Ventures 135,978 660,272
Federal Income Tax Expense from Non-Qualified Subsidiary (20,524) (144,420)
------------ ------------
Minority Interest in Net Income of Consolidated Joint Ventures (46,419) -
Pro Forma Net Income $ 69,035 $ 515,852
Distributions to Class B Shareholders (1,822,262) (1,915,992)
____________ ____________
Net (Loss) available to Class A Shareholders (1,753,227) (1,400,140)
Pro Forma Basic and Diluted (Loss)Per Share $ (0.65) $ (0.52)
============ ============
Pro Forma Weighted Average Common Shares Outstanding 2,691,580 2,706,961
F-21
Summary of Assets Acquired and Liabilities Assumed
As of July 23, 2002,
(Unaudited)
Assets
Buildings $ 16,330,088
Land 7,560,231
Accounts receivable 1,105,612
Prepaid expenses 15,757
-------------
TOTAL ASSETS $ 25,011,688
=============
Liabilities $ 132,630
Shareholders' equity
Class B common stock $ 24,879,058
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,011,688
=============
10. COMMITMENT
The Company has a one-year lease agreement for its office facilities through
December 31, 2003. Rental expense for the years ended December 31, 2002 and
2001 was $77 thousand and $71 thousand, respectively.
F-22
AmREIT and subsidiaries
SCHEDULE III - Consolidated Real Estate Owned and Accumulated Depreciation For
the year ended December 31, 2002
Cost at
Property Encum- Improve- Close of Year
Description brances Building Land ments Building
Properties Invested in
Under Operating Leases
Radio Shack Retail Store, Texas $ - $ 788,330 $ 337,856 $ - $ 788,330
Blockbuster Music Store, Missouri $ - $ 1,247,461 $ 534,483 $ - $ 1,247,461
OneCare Health Industries, Inc., Texas $ - $ 1,436,615 $ 534,086 $ - $ 1,436,615
Blockbuster Music Store, Kansas $ - $ 1,382,846 $ 592,648 $ - $ 1,382,846
Just For Feet Store, Arizona $ - $ - $ 1,214,046 $ - $ -
Bank United, Woodlands, Texas $ - $ - $ 562,846 $ - $ -
Bank United, Houston, Texas $ - $ - $ 851,973 $ - $ -
Just For Feet Store, Louisiana $ - $ 2,254,537 $ 966,230 $ - $ 2,254,537
Hollywood Video Store, Louisiana $ - $ 784,123 $ 443,544 $ - $ 784,123
Hollywood Video Store, Mississippi $ - $ 835,854 $ 450,000 $ - $ 835,854
OfficeMax, Delaware $ - $ 1,978,313 $ 870,480 $ - $ 1,978,313
Lake Woodlands Plaza $ - $ 2,832,540 $ 1,369,065 $ - $ 2,832,540
Sugar Land Plaza $ - $ 2,902,157 $ 1,280,043 $ - $ 2,902,157
Don Pablo's, Georgia $ - $ - $ 773,800 $ - $ -
IHOP, Topeka $ - $ - $ 450,984 $ - $ -
IHOP, Sugarland $ - $ - $ 740,882 $ - $ -
IHOP, St. Peters $ - $ - $ 564,096 $ - $ -
Jack in the Box $ - $ 504,230 $ 216,099 $ - $ 504,230
Baptist Memorial Health $ - $ 1,456,017 $ 624,006 $ - $ 1,456,017
Payless Shoe Source $ - $ 498,098 $ 212,907 $ - $ 498,098
Golden Corral $ - $ 1,097,215 $ 725,552 $ - $ 1,097,215
Golden Corral $ - $ 1,297,851 $ 556,221 $ - $ 1,297,851
TGI Friday's $ - $ 1,453,769 $ 623,043 $ - $ 1,453,769
Goodyear Tire $ - $ 376,172 $ 161,217 $ - $ 376,172
Guitar Center $ - $ 1,782,470 $ 763,917 $ - $ 1,782,470
Popeye's $ - $ 778,771 $ 333,758 $ - $ 778,771
Dr. Pucillo $ - $ 1,276,836 $ 547,214 $ - $ 1,276,836
Blockbuster Video $ - $ 688,091 $ 294,896 $ - $ 688,091
Pier One Imports $ - $ 1,000,562 $ 422,722 $ - $ 1,000,562
IHOP, Memphis $ - $ - $ 469,502 $ - $ -
IHOP, Centerville $ - $ - $ 457,492 $ - $ -
________________________________________________________________________________
Total $ - $ 28,652,858 $ 18,945,608 $ - $ 28,652,858
===============================================================================================================================
Properties Invested in Under
Direct Financing Lease
Just For Feet Store, Arizona $ - $ 2,848,151 $ - $ - $ 2,848,151
IHOP, Topeka $ - $ 993,774 $ - $ - $ 993,774
IHOP, Sugarland $ - $ 999,517 $ - $ - $ 999,517
IHOP, St. Peters $ - $ 1,331,121 $ - $ - $ 1,331,121
IHOP, Albuquerque $ - $ 886,692 $ - $ - $ 886,692
IHOP, Baton Rouge $ - $ 1,460,170 $ - $ - $ 1,460,170
IHOP, Beaverton $ - $ 1,045,672 $ - $ - $ 1,045,672
IHOP, Charlottesville $ - $ 748,859 $ - $ - $ 748,859
IHOP, El Paso #1934 $ - $ 896,644 $ - $ - $ 896,644
IHOP, Roanoke $ - $ 845,051 $ - $ - $ 845,051
IHOP, Rochester $ - $ 1,135,950 $ - $ - $ 1,135,950
IHOP, Salem $ - $ 731,642 $ - $ - $ 731,642
IHOP, Shawnee $ - $ 889,229 $ - $ - $ 889,229
IHOP, Springfield $ - $ 1,207,602 $ - $ - $ 1,207,602
IHOP, Alexandria $ - $ 854,837 $ - $ - $ 854,837
IHOP, Centerville $ - $ 1,077,649 $ - $ - $ 1,077,649
IHOP, Memphis #4462 $ - $ 1,088,114 $ - $ - $ 1,088,114
IHOP, La Verne $ - $ 997,980 $ - $ - $ 997,980
IHOP, El Paso #1938 $ - $ 1,156,194 $ - $ - $ 1,156,194
IHOP, Memphis #4482 $ - $ 1,098,749 $ - $ - $ 1,098,749
IHOP, Parker $ - $ 1,111,727 $ - $ - $ 1,111,727
________________________________________________________________________________
Total $ - $ 23,405,324 $ - $ - $ 23,405,324
===============================================================================================================================
F-23
Life on Which
Depreciation
Cost at in Latest Income
Close of Year Accumulated Date of Date Statement
Land Depreciation Construction Acquired is Computed
Properties Invested in
Under Operating Leases
Radio Shack Retail Store, Texas $ 337,856 $ 172,606 N/A 06-15-94 39 Years
Blockbuster Music Store, Missouri $ 534,483 $ 138,644 N/A 11-14-94 39 Years
OneCare Health Industries, Inc., Texas $ 534,086 $ 236,890 N/A 09-26-95 39 Years
Blockbuster Music Store, Kansas $ 592,648 $ 128,969 N/A 09-12-95 39 Years
Just For Feet Store, Arizona $ 1,214,046 N/A N/A 09-11-96 N/A
Bank United, Woodlands, Texas $ 562,846 N/A N/A 09-23-96 N/A
Bank United, Houston, Texas $ 851,973 N/A N/A 12-11-96 N/A
Just For Feet Store, Louisiana $ 966,230 $ 165,360 N/A 06-09-97 39 Years
Hollywood Video Store, Louisiana $ 443,544 $ 75,635 N/A 10-31-97 39 Years
Hollywood Video Store, Mississippi $ 450,000 $ 107,161 N/A 12-30-97 39 Years
OfficeMax, Delaware $ 870,480 $ 232,494 N/A 4-14-98 39 Years
Lake Woodlands Plaza $ 1,369,065 $ 288,585 N/A 6-3-98 39 Years
Sugar Land Plaza $ 1,280,043 $ 330,195 N/A 7-1-98 39 Years
Don Pablo's, Georgia $ 773,800 N/A N/A 12-18-98 N/A
IHOP, Topeka $ 450,984 N/A N/A 9-30-99 N/A
IHOP, Sugarland $ 740,882 N/A N/A 9-22-99 N/A
IHOP, St. Peters $ 564,096 N/A N/A 11-30-01 N/A
Jack in the Box $ 216,099 $ 6,003 N/A 7-23-02 39 Years
Baptist Memorial Health $ 624,006 $ 17,453 N/A 7-23-02 39 Years
Payless Shoe Source $ 212,907 $ 5,866 N/A 7-23-02 39 Years
Golden Corral $ 725,552 $ 13,109 N/A 7-23-02 39 Years
Golden Corral $ 556,221 $ 15,474 N/A 7-23-02 39 Years
TGI Friday's $ 623,043 $ 17,098 N/A 7-23-02 39 Years
Goodyear Tire $ 161,217 $ 4,498 N/A 7-23-02 39 Years
Guitar Center $ 763,917 $ 21,336 N/A 7-23-02 39 Years
Popeye's $ 333,758 $ 9,351 N/A 7-23-02 39 Years
Dr. Pucillo $ 547,214 $ 15,251 N/A 7-23-02 39 Years
Blockbuster Video $ 294,896 $ 8,174 N/A 7-23-02 39 Years
Pier One Imports $ 422,722 $ 12,000 N/A 7-23-02 39 Years
IHOP, Memphis $ 469,502 N/A N/A 7-26-02 N/A
IHOP, Centerville $ 457,492 N/A N/A 7-25-02 N/A
____________________________________________________________________
Total $ 18,945,608 $ 2,022,152
========================================================================
Properties Invested in Under
Direct Financing Lease
Just For Feet Store, Arizona $ - (1) N/A 09-11-96 N/A
IHOP, Topeka $ - (1) N/A 9-30-99 N/A
IHOP, Sugarland $ - (1) N/A 9-22-99 N/A
IHOP, St. Peters $ - (1) N/A 11-30-01 N/A
IHOP, Albuquerque $ - (1) N/A 4-23-02 N/A
IHOP, Baton Rouge $ - (1) N/A 4-23-02 N/A
IHOP, Beaverton $ - (1) N/A 4-16-02 N/A
IHOP, Charlottesville $ - (1) N/A 4-23-02 N/A
IHOP, El Paso #1934 $ - (1) N/A 4-16-02 N/A
IHOP, Roanoke $ - (1) N/A 6-21-02 N/A
IHOP, Rochester $ - (1) N/A 4-16-02 N/A
IHOP, Salem $ - (1) N/A 5-17-02 N/A
IHOP, Shawnee $ - (1) N/A 4-16-02 N/A
IHOP, Springfield $ - (1) N/A 5-17-02 N/A
IHOP, Alexandria $ - (1) N/A 7-18-02 N/A
IHOP, Centerville $ - (1) N/A 7-25-02 N/A
IHOP, Memphis #4462 $ - (1) N/A 7-26-02 N/A
IHOP, La Verne $ - (1) N/A 8-23-02 N/A
IHOP, El Paso #1938 $ - (1) N/A 8-23-02 N/A
IHOP, Memphis #4482 $ - (1) N/A 8-23-02 N/A
IHOP, Parker $ - (1) N/A 8-23-02 N/A
____________________________________________________________________
Total $ - (1)
=================================================================================================================
(1) The portion of the lease relating to the building of this property has been
recorded as a direct financing lease for financial reporting purposes.
Consequently, depreciation is not applicable.
F-24
(2) Transactions in real estate and accumulated depreciation during 2002, 2001
and 2000 for operating lease properties are summarized as follows:
Accumulated
Cost Depreciation
Balance at December 31, 1999 29,861,678 1,123,790
Acquisitions / additions 33,430 -
Depreciation expense - 435,259
__________ _________
Balance at December 31, 2000 29,895,108 1,559,049
Acquisitions / additions 1,351,201 -
Disposals (797,237) -
Depreciation expense - 439,652
__________ _________
Balance at December 31, 2001 $ 30,449,072 $ 1,998,701
Acquisitions / additions $ 20,024,562 $ -
Disposals $ (2,875,168) $ (238,591)
Depreciation expense $ - $ 262,042
__________ _________
Balance at December 31, 2002 $ 47,598,466 $ 2,022,152
(3) The aggregate cost of all properties for Federal Income Tax purposes is
$71,261,389 at December 31, 2002.
F-25
AMREIT AND SUBSIDIARIES
EXHIBIT INDEX
Description Exhibit No.
Certification pursuant to 18 U.S.C Section 1350 99.1
As adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 - H. Kerr Taylor, CEO
Certification pursuant to 18 U.S.C Section 1350 99.2
As adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 - Chad C. Braun, CFO
Amended and Restated Declaration of Trust 3.1
By-Laws, dated December 22, 2002 3.2
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AmREIT (the "Company") on Form
10-KSB for the period ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, H. Kerr Taylor, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ H. Kerr Taylor
H. Kerr Taylor
Chief Executive Officer
March 31, 2003
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of AmREIT (the "Company") on Form
10-KSB for the period ended December 31, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Chad C. Braun, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Chad C. Braun
Chad C. Braun
Chief Financial Officer
March 31, 2003
EXHIBIT 3.1
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
AmREIT
The undersigned, acting as the Trust Managers of a real estate
investment trust under the Texas Real Estate Investment Trust Act, as amended
(the "Texas REIT Act"), hereby adopt the following Declaration of Trust.
ARTICLE I
NAME
The name of the trust (the "Trust") is AmREIT. An assumed name
certificate setting forth such name has been filed in the manner prescribed by
law.
ARTICLE II
DURATION
The duration of the Trust is perpetual.
ARTICLE III
PURPOSES AND POWERS
The Trust is formed pursuant to the Texas REIT Act and has the
following as its purpose:
To purchase, hold, lease, manage, sell, exchange, develop, subdivide
and improve real property and interests in real property, and in
general, to carry on any other business and do any other acts in
connection with the foregoing and to have and exercise all powers
conferred by the laws of the State of Texas now or hereafter in force
upon real estate investment trusts formed under the Texas REIT Act, or
any successor statute, in each case as the same may be amended,
modified or supplemented from time to time, and to do any or all of
the things hereinafter set forth or set forth in the Texas REIT Act,
or any successor statute, in each case as the same may be amended,
modified or supplemented from time to time, to the same extent as
natural persons might or could do. The term "real property" and the
term "interests in real property" for the purposes stated herein shall
not include severed mineral, oil or gas royalty interests.
Without in any manner limiting the generality of the foregoing, and in
addition to all the powers conferred by the laws of the State of Texas now or
hereafter in force upon real estate investment trusts formed under the Texas
REIT Act, or any successor statute, in each case as the same may be amended,
modified or supplemented from time to time, the Trust shall have the power (i)
to acquire, hold, own, develop, construct, improve, maintain, operate, sell,
lease, transfer, encumber, convey, exchange and otherwise dispose of or deal
with real and personal property directly or through one or more subsidiaries or
affiliates; (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing; and (iii) in general, to possess
and exercise all the purposes, powers, rights and privileges granted to, or
conferred upon real estate investment trusts by the laws of the State of Texas
now or hereafter in force, and to exercise any powers suitable, convenient or
proper for the accomplishment of any of the purposes herein enumerated, implied
or incidental to the powers or purposes herein specified, or which at any time
may appear conducive to or expedient for the accomplishment of any such
purposes.
The foregoing shall, except where otherwise expressed, 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 this Declaration of Trust, or of any
amendment hereto or restatement hereof, and shall each be regarded as
independent, and shall each be construed as powers as well as purposes.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the initial principal office and place of business of
the Trust is 8 Greenway Plaza, Suite 824, Houston, Texas. The address of the
Trust's registered office is 8 Greenway Plaza, Suite 824, Houston, Texas, and
the name of its registered agent at that address is Charles C. Braun.
ARTICLE V
BOARD OF TRUST MANAGERS
Section 1. Trust Managers.
The names and business addresses of the Trust Managers are as follows:
Name Mailing Address
---- ---------------
H. Kerr Taylor 8 Greenway Plaza, Suite 824
Houston, Texas 77046
Robert S. Cartwright 8 Greenway Plaza, Suite 824
Houston, Texas 77046
G. Steven Dawson 8 Greenway Plaza, Suite 824
Houston, Texas 77046
Bryan L. Goolsby 8 Greenway Plaza, Suite 824
Houston, Texas 77046
Phillip W. Taggart 8 Greenway Plaza, Suite 824
Houston, Texas 77046
Section 2. Number of Trust Managers.
The number of Trust Managers of the Trust shall be five (5). From and
after the date hereof, the number of Trust Managers of the Trust shall be fixed
by, or in the manner provided in, the Bylaws of the Trust, and may be increased
or decreased from time to time in such a manner as may be prescribed by the
Bylaws, but in no event shall there be less than three (3) or more than nine
(9) Trust Managers.
2
ARTICLE VI
AUTHORIZED SHARES
Section 1. Total Capitalization.
The aggregate number of shares of beneficial interest of all classes
of shares of beneficial interest that the Trust shall have authority to issue
is One Hundred Thirteen Million (103,000,000) shares, consisting of (i) Ten
Million (10,000,000) preferred shares, par value $0.01 per share (the
"Preferred Shares") and (ii) Ninety-Three Million (93,000,000) common shares,
par value $0.01 per share, consisting of (x) Fifty Million (50,000,000) Class A
Common Shares (the "Class A Common Shares"), (y) Three Million (3,000,000)
Class B Common Shares (the "Class B Common Shares) and (z) Forty Million
(40,000,000) Common Shares (the "Common Shares"). The Preferred Shares, the
Class A Common Shares, the Class B Common Shares and the Common Shares are
sometimes referred to collectively herein as the "Equity Shares."
Section 2. Designation of Preferred Shares and Common Shares.
The Preferred Shares and undesignated Common Shares may be issued from
time to time in one or more series as authorized by the Board of Trust
Managers. Prior to the issuance of shares of each such series, the Board of
Trust Managers, by resolution, shall fix the number of shares to be included in
each series, and the terms, rights, restrictions and qualifications of the
shares of each series. The authority of the Board of Trust Managers with
respect to each series shall include, but not be limited to, determination of
the following:
(i) The designation of the series, which may be by
distinguishing number, letter or title.
(ii) The dividend rate on the shares of the series,
if any, whether any dividends shall be cumulative and, if so, from which
date or dates, and the relative rights of priority, if any, of payment of
dividends on shares of the series.
(iii) The redemption rights, including conditions and the
price or prices, if any, for shares of the series.
(iv) The terms and amounts of any sinking fund for the
purchase or redemption of shares of the series.
(v) The rights of the shares of the series in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Trust, and the relative rights of priority, if any, of payment
of shares of the series.
(vi) Whether the shares of the series shall be
convertible into shares of any other class or series, or any other security,
of the Trust or any other entity, and, if so, the specification of such other
class or series of such other security, the conversion price or prices or rate
or rates, any adjustments thereof, the date or dates on which such shares
shall be convertible and all other terms and conditions upon which such
conversion may be made.
3
(vii) Restrictions on the issuance of shares of the same
series or of any other class or series.
(viii) The voting rights, if any, of the holders of shares
of the series.
(ix) Any other relative rights, preferences and
limitations on that series.
Subject to the express provisions of any other series of Preferred
Shares then outstanding, and notwithstanding any other provision of this
Declaration of Trust, the Board of Trust Managers may increase or decrease (but
not below the number of shares of such series then outstanding) the number of
shares, or alter the designation or classify or reclassify any unissued shares
of a particular series of Preferred Shares or Common Shares, by fixing or
altering, in one or more respects, from time to time before issuing the shares,
the terms, rights, restrictions and qualifications of the shares of any such
series of Preferred Shares or Common Shares.
Section 3. Class A Common Shares.
A. Common Shares Subject to Terms of Preferred Shares. The
Class A Common Shares shall be subject to the express terms of any series of
Preferred Shares.
B. Dividend Rights. The holders of Class A Common Shares
shall be entitled to receive such dividends as may be declared by the Board
out of funds legally available therefore.
C. Liquidation Rights and Other Provisions. In the event of
any voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets, of the Trust, the aggregate assets available for
distribution to holders of Class A Common Shares shall be determined in
accordance with applicable law. Each holder of Class A Common Shares shall be
entitled to receive, ratably with each other holder of Class A Common Shares
that portion of such aggregate assets available for distribution as the number
of outstanding Class A Common Shares held by such holder bears to the total
number of (x) Class A Common Shares then outstanding, (y) the Class B Common
Shares then outstanding and (z) any other series of Common Shares then
outstanding that rank on a parity with the Class A Common Shares as to the
distribution of assets upon liquidation. Any amount available for distribution
in excess of the foregoing limitations shall be paid ratably to the holders of
Class A Common Shares.
D. Voting Rights. Except as may be provided in this
Declaration of Trust, and subject to the express terms of any series of
Preferred Shares, the holders of Class A Common Shares shall have the exclusive
rightto vote on all matters (as to which a common shareholder shall be entitled
to vote pursuant to applicable law) at all meetings of the shareholders of the
Trust, and shall be entitled to one (1) vote for each Class A Common Share
entitled to vote at such meeting.
4
Section 4. Class B Common Shares.
A. Dividends. Subject to the preferential rights of any
series of Preferred Shares, holders of Class B Common Shares will be entitled
to receive, when and as declared by the Board of Trust Managers, out of funds
legally available for the payment of dividends, cumulative cash dividends in
an amount per Class B Common Share equal to $0.74 per annum. Dividends with
respect to the Class B Common Shares will be cumulative from the date of
original issuance (the "Issue Date") and will be payable quarterly in arrears
on March 31, June 30, September 30 and December 31 (each, a "Dividend Payment
Date"), beginning with a partial dividend payable on September 30, 2002, with
respect to the period from the Issue Date to such initial Dividend Payment
Date. Any dividend payable on the Class B Common Shares for any partial
dividend period after the initial dividend period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. Dividends payable
on the Class B Common Shares for each full dividend period will be computed by
dividing the annual dividend rate by four. Such dividends shall be cumulative
from the Issue Date, whether or not in any dividend period or periods such
dividends shall be declared or there shall be funds of the Trust legally
available for the payment of such dividends, and shall be payable quarterly
in arrears on the Dividend Payment Dates, commencing on the first Dividend
Payment Date after the Issue Date. Dividends will be payable to holders of
record as they appear in the shares records of the Trust at the close of
business on the applicable record date, which will be the fifteenth day of the
calendar month in which the applicable Dividend Payment Date falls or such
other date designated by the Board of Trust Managers for the payment of
dividends that is no more than thirty (30) nor less than ten (10) days prior
to the Dividend Payment Date. Holders of Series B Common Shares shall not be
entitled to any dividends, whether payable in cash, property or shares, in
excess of cumulative dividends, as herein provided, on the Class B Common
Shares. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Class B Common Shares that
may be in arrears.
If any Class B Common Shares are outstanding, no full dividends will
be declared or paid or set apart for payment on the Class A Common Shares for
any period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Class B Common Shares for all past dividend
periods and the then current dividend period. No interest, or sum of money in
lieu of interest, will be payable in respect of any dividend payment or
payments on Class B Common Shares which may be in arrears. Any dividend payment
made on Class B Common Shares will first be credited against the earliest
accrued but unpaid dividend due with respect to Class B Common Shares which
remains payable.
B. Liquidation Rights. In the event of any liquidation,
dissolution or winding up of the Trust, subject to the prior rights of any
series of Preferred Shares, the holders of Class B Common Shares will
share pro rata, with the holders of the Class A Common Shares and the
holders of any other series of Common Shares that rank on a parity with the
Class A Common Shares as to the distribution of assets upon liquidation,
the assets of the Trust remaining following the payment of all liquidating
distributions payable to holders of capital shares of the Trust with
liquidation rights senior to those of the common shares.
5
C. Redemption. The Class B Common Shares will not be
redeemable prior to July 16, 2005. On and after July 16, 2005, the Trust, at
its option(to the extent the Trust has funds legally available therefor) upon
not less than 30 nor more than 60 days' written notice, may redeem Class B
Common Shares, in whole or in part, at any time or from time to time, for, at
the option of the holder thereof, either cash at the redemption price per share
of $10.18, plus all accrued and unpaid dividends, if any, thereon (whether or
not earned or declared) to the date fixed for redemption or one Class A Common
Share.
Notwithstanding the foregoing, unless full cumulative dividends on all
Class B Common Shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, no Class B
Common Shares will be redeemed unless all outstanding Class B Common Shares are
simultaneously redeemed. The foregoing, however, will not prevent the purchase
or acquisition of shares of the Class B Common Shares pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding Class B
Common Shares. Unless full cumulative dividends on all outstanding Class B
Common Shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, the Trust will not
purchase or otherwise acquire directly or indirectly through a subsidiary or
otherwise, any Class B Common Shares.
If fewer than all of the outstanding Class B Common Shares are to be
redeemed, the number of shares to be redeemed will be determined by the Trust
and those shares may be redeemed pro rata from the holders of record of those
shares in proportion to the number of those shares held by the holders (as
nearly as may be practicable without creating fractional Class B Common Shares)
or any other equitable method determined by the Trust.
Class B Common Shares shall be redeemed by the Trust on the date
specified in a notice to the holders of the Class B Common Shares (the "Call
Date"). Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once a
week for two successive weeks commencing not less than 30 nor more than 60
days' prior to the redemption date. A similar notice will be mailed by the
Trust, postage prepaid, not less than 30 nor more than 60 days' prior to the
redemption date, addressed to the respective holders of record of Class B
Common Shares to be redeemed at their respective addresses as they appear on
the shares transfer records of the Trust. No failure to give notice or any
defect therein or in the mailing thereof will affect the validity of the
proceeding for the redemption of any Class B Common Shares except as to the
holder to whom notice was defective or not given. Each notice will state: (1)
the Call Date; (2) the redemption price; (3) the number of Class B Common
Shares to be redeemed; (4) the place or places where the Class B Common Shares
are to be surrendered for payment of the redemption price; (5) that dividends
on the shares to be redeemed will cease to accrue on the Call Date; and (6)
that any conversion rights will terminate at the close of business on the third
business day immediately preceding the Call Date. If fewer than all the Class B
Common Shares held by any holder are to be redeemed, the notice mailed to that
holder will also specify the number of Class B Common Shares to be redeemed
from that holder. Notice having been given as aforesaid, from and after the
Call Date (unless the Trust shall fail to issue and make available the number
of Class A Common Shares and/or amount of cash necessary to effect such
redemption, including all accumulated, accrued and unpaid dividends to the Call
Date, whether or not earned or declared), (i) except as otherwise provided
6
herein, dividends on the Class B Common Shares so called for redemption shall
cease to accumulate or accrue on the Class B Common Shares called for
redemption (except that, in the case of a Call Date after a dividend record
date and prior to the related Dividend Payment Date, holders of Class B Common
Shares on the dividend record date will be entitled on such Dividend Payment
Date to receive the dividend payable on such shares), (ii) said shares shall no
longer be deemed to be outstanding, and (iii) all rights of the holders thereof
as holders of Class B Common Shares shall cease (except the rights to receive
the Class A Common Shares and/or cash payable upon such redemption, without
interest thereon, upon surrender and endorsement of their certificates if so
required and to receive any dividends payable thereon). As promptly as
practicable after the surrender in accordance with said notice of the
certificates for any such shares so redeemed (properly endorsed or assigned for
transfer, if the Trust shall so require and if the notice shall so state), such
certificates shall be exchanged for certificates representing Class A Common
Shares and/or any cash (without interest thereon) for which such shares have
been redeemed in accordance with such notice.
Upon any redemption of Class B Common Shares, the Trust shall pay in
cash to the holder of such shares an amount equal to all accumulated, accrued
and unpaid dividends, if any, to the Call Date, whether or not earned or
declared. Immediately prior to authorizing any redemption of the Class B Common
Shares, and as a condition precedent for such redemption, the Trust, by
resolution of the Board of Trust Managers, shall declare a mandatory dividend
on the Class B Common Shares payable in cash on the Call Date in an amount
equal to all accumulated, accrued and unpaid dividends as of the Call Date on
the Class B Common Shares to be redeemed, which amount shall be added to the
redemption price. If the Call Date falls after a dividend payment record date
and prior to the corresponding Dividend Payment Date, then each holder of Class
B Common Shares at the close of business on such dividend payment record date
shall be entitled to the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the redemption of such shares prior to
such Dividend Payment Date. Except as provided above, the Trust shall make no
payment or allowance for accumulated or accrued dividends on Class B Common
Shares called for redemption.
D. Voting Rights. Holders of the Class B Common Shares will
not have any voting rights, except as set forth below or as otherwise from time
to time required by law. In any matter in which the Class B Common Shares may
vote, including any action by written consent, each Class B Common Share will
be entitled to one vote. The holders of Class B Common Shares may separately
designate a proxy for the vote to which the Class B Common Shares are entitled.
(1) If and whenever six (6) consecutive quarterly
dividends payable on the Class B Common Shares shall be in arrears (which
shall, with respect to any such quarterly dividend, mean that any such dividend
has not been paid in full), whether or not earned or declared, the number of
Trust Managers then constituting the Board of Trust Managers shall be increased
by two (2) and the holders of the Class B Common Shares shall be entitled to
elect the two (2) additional Trust Managers to serve on the Board of Trust
Managers, by the vote of a plurality of the votes by the holders of the Class B
Common Shares, at an annual meeting of shareholders or special meeting held in
place thereof, or at special meeting of the holders of the Class B Common
Shares called as hereinafter provided. Whenever all arrears in dividends on the
Class B Common Shares then outstanding shall have been paid and dividends
thereon for the current quarterly dividend period shall have been paid or
declared and set apart for payment, then the right of the holders of the Class
B Common Shares to elect such additional two (2) Trust Managers shall cease
7
(but subject always to the same provision of the vesting of such voting rights
in the case of any similar future arrearages in six (6) consecutive quarterly
dividends), and the terms of office of all persons elected as Trust Managers
by the holders of the Class B Common Shares shall forthwith terminate and the
number of the Board of Trust Managers shall be reduced accordingly. At any time
after such voting power shall have been so vested in the holders of Class B
Common Shares, the Secretary of the Trust may, and upon the written request
of any holder of Class B Common Shares (addressed to the Secretary at the
principal office of the Trust) shall call a special meeting of the holders of
the Class B Common Shares for the election of the two (2) Trust Managers to be
elected by them as herein provided, such call to be made by notice similar to
that provided in the Bylaws of the Trust for a special meeting of the
shareholders or as required by law. If any such special meeting required to be
called as above provided, shall not be called by the Secretary within twenty
(20) days after receipt of any such request, then any holder of Class B Common
Shares may call such meeting, upon the notice above provided, and for that
purpose shall have access to the share records of the Trust. The Trust Managers
elected at any such special meeting shall hold office until the next annual
meeting of the shareholders or special meeting held in lieu thereof if such
office shall not have previously terminated as above provided. If any vacancy
shall occur among the Trust Managers elected by the holders of the Class B
Common Shares, a successor shall be elected by the Board of Trust Managers,
upon the nomination of the then remaining Trust Managers elected by the holders
of the Class B Common Shares or the successor of such remaining Trust Manager,
to serve until the next annual meeting of the shareholders or special meeting
held in place thereof if such office shall not have previously terminated as
above provided.
So long as any Class B Common Shares are outstanding, the number of
Trust Managers shall at all times be such that the exercise, by the holders of
Class B Common Shares, of the right to elect Trust Managers under the
circumstance provided herein will not contravene any provisions of the Texas
REIT Act or the Declaration of Trust.
(2) So long as any Class B Common Shares are
outstanding, in addition to any other vote or consent of shareholders required
by law or by the Declaration of Trust, the affirmative vote of at lease
66 2/3% of the votes entitled to be case by the holders of the Class B Common
Shares, at the time outstanding, acting as a single class, given in person or
by proxy, either in writing without a meeting or by vote at any meeting called
for the purpose, shall be necessary for effecting or validating:
(a) Any sale of all or substantially all of
the assets of the Trust, any liquidation of the Trust or any amendment,
alteration or repeal of any of the provisions of the Declaration of Trust or the
Bylaws of the Trust that materially and adversely affects the voting powers,
rights or preferences of the holders of the Class B Common Shares; provided,
however, that the amendment of the provisions of the Declaration of Trust so as
to authorize or create, or to increase the authorized amount of, any shares of
any class or series ranking on a parity with the Class B Common Shares in the
distribution of assets on any liquidation, dissolution or winding up of the
Trust or in the payment of dividends shall not be deemed to materially
adversely affect the voting powers, rights or preferences of the holders of
Class B Common Shares; or
8
(b) The authorization or creation of, or the
increase in the authorized amount of, any shares of any class or series or any
security convertible into shares of any class or series ranking prior or senior
to the Class B Common Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Trust or in the payment of dividends;
provided, however, that no such vote of the holders of Class B Common Shares
shall be required if, at or prior to the time when such amendment, alteration
or repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Class B Common Shares at the time outstanding.
E. Conversion.
Holders of Class B Common Shares shall have the right to convert all
or a portion of such shares into Class A Common Shares, as follows:
(1) Subject to and upon compliance with the
provisions of this Section 4.E, a holder of Class B Common Shares shall have the
right, at such holder's option, at any time to convert such shares, in whole or
in part, into the number of fully-paid and non-assessable shares of authorized
but unissued Class A Common Shares obtained by dividing $9.25 by the
Conversion Price then in effect by surrendering such shares to be
converted in the manner provided herein; provided, however, that the
right to convert Class B Common Shares called for redemption shall terminate
at the close of business on the Call Date fixed for such redemption, unless
the Trust shall default in making payment upon such redemption. The initial
Conversion Price shall be $9.25, subject to adjustment as hereafter provided.
(2) In order to exercise the conversion right, the
holder of each Class B Common Share to be converted shall surrender the
certificate representing such share duly endorsed or assigned to the Trust or in
blank, at the office of the Trust, accompanied by written notice to the Trust
that the holder thereof elects to convert such share. Each share
surrendered for conversion shall be accompanied by instruments of transfer,
in form satisfactory to the Trust, duly executed by the holder or such holder's
duly authorized attorney and an amount sufficient to pay any transfer or
similar tax (or evidence reasonably satisfactory to the Trust demonstrating
that such taxes have been paid).
Holders of Class B Common Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares of the corresponding Dividend Payment Date notwithstanding the
conversion thereof following such dividend payment record date and prior to
such Dividend Payment Date. However, Class B Common Shares surrendered for
conversion during the period between the close of business on any dividend
payment record date and the opening of business on the corresponding Dividend
Payment Date (except shares converted after the issuance of notice of
redemption with respect to a Call Date during such period, such shares being
entitled to such dividend on the Dividend Payment Date) must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
Dividend Payment Date. Except as provided above, the Trust shall make not
payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the Class A Common Shares issued upon such
conversion.
9
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for Class
B Common Shares shall have been surrendered and such notice shall have been
received by the Trust as aforesaid (and, if applicable, payment of an amount
equal to the dividend payable on such shares shall have been received by the
Trust as above-described) and the person or persons in whose name or names any
certificate or certificates for Class A Common Shares shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date.
(3) No fractional Class A Common Share shall be
issued upon conversion. Instead any fractional share that would otherwise be
deliverable upon the conversion of Class B Common Shares, the Trust shall
pay to the holder of such share an amount in cash based upon the Market Price
(as defined in Section 5 of this Article VI) of the Class A Common Shares.
(4) The Conversion Price shall be adjusted from
time to time as follows:
(i) If the Trust shall after the Issue Date
(A) pay a dividend or make a distribution on any class or series of its capital
stock in Class A Common Shares, (B) subdivide its outstanding Class A Common
Shares into a greater number of shares, (C) combine its outstanding Class A
Common Shares into a smaller number of shares or (D) issue any shares of
capital stock by reclassification of its Class A Common Shares, the Conversion
Price in effect at the opening of business on the date following the date
fixed for the determination of a shareholder entitled to receive such dividend
or distribution or at the opening of business on the date following the day on
which such subdivision, combination or reclassification becomes effective, as
the case may be, shall be adjusted so that the holder of any Class B Common
Shares thereafter surrendered for conversion shall be entitled to receive the
number of Class A Common Shares (or fraction of a share) that such holder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Class B Common Shares been converted
immediately prior to the record date in the case of a dividend or distribution
or the effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this paragraph 4(i) shall
become effective immediately after the opening of business on the day next
following the record date (except as provided in paragraph 4(viii) below) in
the case of a dividend or distribution and shall become effective immediately
after the opening of business on the date next following the effective date in
the case of a subdivision, combination or reclassification.
(ii) If the Trust shall issue after the
Issue Date rights, options or warrants to all holders of Class A Common Shares
entitling them (for a period expiring within 45 days after the record date
described below in this paragraph 4(ii)) to subscribe for or purchase Class A
Common Shares at a price per share less than the Market Value per Class A
Common Share on the record date for the determination of shareholders entitled
to receive such rights or warrants, then the Conversion Price in effect at the
opening of business on the day next following such record date shall be
adjusted to equal the price determined by multiplying (A) the Conversion Price
in effect immediately prior to the opening of business on the day following
the date fixed for such determination by (B) a fraction, the numerator of which
10
shall be the sum of (x) the number of Class A Common Shares outstanding on the
close of business on the date fixed for such determination and (y) the number
of Class A Common Shares that the aggregate proceeds to the Trust from the
exercise of such rights or warrants for Class A Common Shares would purchase
at such Market Value, and the denominator of which shall be the sum of (xx)
the number of Class A Common Shares outstanding on the close of business on
the date fixed for such determination and (yy) the number of additional Class
A Common Shares offered for subscription or purchase pursuant to such rights
or warrants. Such adjustment shall become effective immediately after the
opening of business on the day next following such record date (except as
provided in paragraph 4(viii) below). In determining whether any rights or
warrants entitle the holders of Class A Common Shares to subscribe for or
purchase Class A Common Shares at less than such Market Value, there shall be
taken into account any consideration received by the Trust upon issuance and
upon exercise of such rights or warrants, the value of such consideration, if
other than cash, to be determined in good faith by the Board of Trust Managers.
(iii) If the Trust shall distribute to all
holders of its Class A Common Shares any shares of capital stock of the Trust
(other than Class A Common Shares), evidence of its indebtedness or assets
(including cash, but excluding regularly scheduled cash dividends) or rights
or warrants to subscribe for or purchase any of its securities (excluding those
rights and warrants issued to all holders of Class A Common Shares entitling
them for a period expiring within forty-five (45) days after the record date
referred to in paragraph 4(ii) above to subscribe for or purchase Class A
Common Shares, which rights and warrants are referred to in and treated under
such paragraph 4(ii) above) (any of the foregoing being hereinafter in this
paragraph 4(iii) called the "Distribution"), then in each such case the
Conversion Price shall be adjusted so that it shall equal the price determined
by multiplying (A) the Conversion Price in effect immediately prior to the
close of business on the date fixed for the determination of shareholders
entitled to receive such Distribution by (B) a fraction, the numerator of which
shall be the Market Value per Class A Common Share on the record date mentioned
below less the then fair market value (as determined by the Board, whose
determination shall be conclusive and described in a Board of Trust Managers
resolution), of the portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or warrants applicable to one
(1) Class A Common Share and the denominator of which shall be the Market
Value per Class A Common Share on the record date mentioned below. Such
adjustment shall become effective immediately at the opening of business on
the business day next following (except as provided in paragraph 4(viii) below)
the record date for the determination of shareholders entitled to receive such
Distribution. For the purposes of this paragraph 4(iii), the distribution of a
right or warrant to subscribe or purchase any of the Trust's securities, which
is distributed not only to the holders of the Class A Common Shares on the date
fixed for the determination of shareholders entitled to such Distribution of
such right or warrant, but also is distributed with Class A Common Shares
delivered to a person converting Class B Common Shares after such determination
date, shall not require an adjustment of the Conversion Price pursuant to this
paragraph 4(iii); provided that if on the date, if any, on which a person
converting Class B Common Shares such person would no longer be entitled to
receive such right or warrant with Class A Common Shares (other than as a
result of the termination of all such rights or warrants), a distribution of
such rights or warrants shall be deemed to have occurred and the Conversion
Price shall be adjusted as provided in this paragraph 4(iii) and such day shall
be deemed to be "the date fixed for the determination of the shareholders
entitled to receive such distribution" and "the record date" within the meaning
of the two preceding sentences.
11
(iv) No adjustment in the Conversion Price
shall be required unless such adjustment would require a cumulative increase
or decrease of at least 1% in such price; provided, however, that any
adjustments that by reason of this paragraph 4(iv) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment
until made. Notwithstanding any other provisions of this Section 4.E, the Trust
shall not be required to make any adjustment of the Conversion Price for the
issuance of any Class A Common Shares pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of the Trust and
the investment of additional optional amounts in Class A Common Shares under
such plan. Anything in this paragraph 4(iv) to the contrary notwithstanding,
the Trust shall be entitled, to the extent permitted by law, to make such
reductions in the Conversion Price, in addition to those required by this
paragraph 4(iv)), as it in its discretion shall determine to be advisable in
order that any share dividends, subdivision of shares, reclassification or
combination of shares, distribution of rights or warrants to purchase shares
or securities, or a distribution of other assets (other than cash dividends)
hereafter made by the Trust to its shareholders shall not be taxable, or if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
(v) If the Trust shall be a party to any
transaction (including, without limitation, a merger, consolidation, statutory
share exchange, issuer or self tender offer for all or a substantial portion
of the Class A Common Shares outstanding, sale of all or substantially all of
the Trust's assets or recapitalization of the Class A Common Shares, but
excluding any transaction as to which paragraph 4(i) of this Section 4.E
applies) (each of the foregoing being referred to herein as a "Transaction"),
in each case as a result of which Class A Common Shares shall be converted into
the right to receive stock, securities or other property (including cash or any
combination thereof), each Class B Common Share which is not converted into the
right to receive stock, securities or other property in connection with such
Transaction shall thereupon be convertible into the kind and amount of shares
of stock, securities and other property (including cash or any combination
thereof) receivable upon consummation of such Transaction by a holder of that
number of Class A Common Shares, or fraction thereof, into which one (1) Class
A Common Share was convertible immediately prior to such Transaction. The Trust
shall not be a party to any Transaction unless the terms of such Transaction
are consistent with the provisions of this paragraph 4(v), and it shall not
consent or agree to the occurrence of any Transaction until the Trust has
entered into an agreement with the successor or purchasing entity, as the case
may be, for the benefit of the holders of the Class B Common Shares that will
contain provisions enabling the holders of the Class B Common Shares that
remain outstanding after such Transaction to convert into the consideration
received by holders of Class A Common Shares at the Conversion Price in effect
immediately prior to such Transaction. The provisions of this paragraph 4(v)
shall similarly apply to successive Transactions.
12
(vi) If:
(1) the Trust shall authorize the
granting to the holders of the Class A Common Shares of rights or warrants to
subscribe for or purchase any shares of any class or series of capital stock
or any other rights or warrants; or
(2) the Trust shall authorize the
granting to the holders of the Class A Common Shares of rights or warrants to
subscribe for or purchase any shares of any class or series of capital stock
or any other rights or warrants; or
(3) there shall be any
reclassification of the Class A Common Shares or any consolidation or merger
to which the Trust is a party and for which approval of any shares of the Trust
is required, or a statutory share exchange, or an issuer or self tender offer by
the Trust for all or a substantial portion of its outstanding Class A Common
Shares (or an amendment thereto changing the maximum number of shares sought or
the amount or type of consideration being offered therefor) or the sale or
transfer of all or substantially all of the assets of the Trust as an entirety;
or
(4) there shall occur the voluntary
or involuntary liquidation, dissolution or winding up of the Trust, then the
Trust shall cause to be mailed to each holder of Class B Common Shares at such
holder's address as shown on the stock records of the Trust, as promptly as
possible, but at least fifteen (15) days prior to the applicable date
hereinafter specified, a notice stating (A) the record date for the payment of
such dividend, distribution or rights or warrants, or, if a record
date is not established, the date as of which the holders of Class A Common
Shares of record to be entitled to such dividend, distribution or rights or
warrants are to be determined or (B) the date on which such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up is expected to become effective, and the date as of
which it is expected that holders of Class A Common Shares of record shall be
entitled to exchange their Class A Common Shares for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up or (C) the date on which such tender offer commenced, the date on
which such tender offer is scheduled to expire unless extended, the
consideration offered and the other material terms thereof (or the material
terms of any amendment thereto). Failure to give or receive such notice or any
defect therein shall not affect the legality or validity of the proceedings
described in this Section 4.E.
(vii) Whenever the Conversion Price is
adjusted as herein provided, the Trust shall promptly prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion Price
and the effective date such adjustment becomes effective and shall mail such
notice of such adjustment of the Conversion Price to each holder of Class B
Common Shares at such holder's last address as shown on the stock records of
the Trust.
(viii) In any case in which paragraph 4 of this
Section 4.E provides that an adjustment shall become effective on the day next
following the record date for an event, the Trust may defer until the
occurrence of such event (A) issuing to the holder of any Class B Common
Shares converted after such record date and before the occurrence of such
event the additional Class A Common Shares issuable upon such conversion by
reason of the adjustment required by such event over and above the Class A
Common Shares issuable upon such conversion before giving effect to such
adjustment and (B) paying to such holder any amount of cash in lieu of any
fraction pursuant to paragraph 3 of this Section 4.E.
13
(ix) There shall be no adjustment of the
Conversion Price in case of the issuance of any capital stock of the Trust in
a reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 4.E. If any action or transaction would
require adjustment of the Conversion Price pursuant to more than one paragraph
of this Section 4.E, only one adjustment shall be made and such adjustment
shall be the amount of adjustment that has the highest absolute value.
(x) If the Trust shall take any action
affecting the Class A Common Shares, other than action described in this
Section 4.E, that in the opinion of the Board of Trust Managers would
materially adversely affect the conversion rights of the holders of Class B
Common Shares, the Conversion Price for the Class B Common Shares may be
adjusted, to the extent permitted by law, in such manner, if any, and at such
time as the Board of Trust Managers, in its sole discretion, may determine to
be equitable under the circumstances.
(xi) The Trust shall at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Class A Common Shares solely for the purpose of
effecting conversion of the Class B Common Shares, the full number of Class A
Common Shares deliverable upon the conversion of all outstanding Class B Common
Shares not theretofore converted into Class A Common Shares. For purposes of
this paragraph 4(xi), the number of Class A Common Shares that shall be
deliverable upon the conversion of all outstanding Class B Common Shares shall
be computed as if at the time of computation all such outstanding shares were
held by a single holder.
The Trust covenants that any Class A Common Shares issued upon
conversion of the Class B Common Shares shall be validly issued, fully-paid and
non-assessable.
Section 5. Restrictions on Ownership, Transfer, Acquisition and
Redemption of Shares.
A. Definitions. For purposes of Sections 4, 5 and 6
of this Article VI, the following terms shall have the following meanings:
"Acquire" shall mean the acquisition of Beneficial or Constructive
Ownership of Equity Shares by any means, including, without limitation, the
exercise of any rights under any option, warrant, convertible security, pledge
or other security interest or similar right to acquire shares, but shall not
include the acquisition of any such rights unless, as a result, the acquiror
would be considered a Beneficial Owner or Constructive Owner. The terms
"Acquires" and "Acquisition" shall have correlative meanings.
"Beneficial Ownership" shall mean ownership of Equity Shares by an
individual who would be treated as an owner of such shares under Section
542(a)(2) of the Code, either directly or constructively through the
application of Section 544, as modified by Section 856(h)(1)(B). For purposes
of this definition, the term "individual," also shall include any organization,
trust or other entity that is treated as an individual for purposes of Section
542(a)(2) of the Code. The terms "Beneficial Owner," "Beneficially Own,"
"Beneficially Owns" and "Beneficially Owned" shall have correlative meanings.
14
"Board of Trust Managers" shall mean the Board of Trust Managers of
the Trust.
"Bylaws" shall mean the Bylaws of the Trust, as the same are in effect
from time to time.
"Charitable Beneficiary" shall mean one (1) or more beneficiaries of
the Charitable Trust, provided that each such organization must be described in
Section 501(c)(3) of the Code and contributions to each such organization must
be eligible for deduction under each of Sections 170(b)(i)(A), 2055 and 2522 of
the Code.
"Charitable Trust" shall mean any trust provided for in paragraph A of
Section 6 of this Article VI.
"Closing Price" on any day shall mean the last sale price, regular way
on such day, or, if no such sale takes place on that day, the average of the
closing bid and asked prices, regular way, in either case as reported on the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the American Stock Exchange, or if the
affected class or series of Equity Shares is not so listed or admitted to
trading, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
(including the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System) on which the affected class or series
of Equity Shares is listed or admitted to trading or, if the affected class or
series of Equity Shares is not so listed or admitted to trading, the last
quoted price or, if not quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal automated quotation system then in use or, if the
affected class or series of Equity Shares is not so quoted by any such system,
the average of the closing bid and asked prices as furnished by a professional
market maker selected by the Board of Trust Managers making a market in the
affected class or series of Equity Shares, or, if there is no such market maker
or such closing prices otherwise are not available, the fair market value of
the affected class or series of Equity Shares as of such day, as determined by
the Board of Trust Managers in its discretion.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto. Reference to any provision of
the Code shall mean such provision as in effect from time to time, as the same
may be amended, and any successor provision thereto, as interpreted by any
applicable regulations as in effect from time to time.
"Common Shares Ownership Limit" shall mean 9.0 percent of the
outstanding common shares of the Trust, or, from and after the date hereof,
such greater percentage of the outstanding common shares of the Trust as the
Board of Trust Managers may establish pursuant to the authority expressly
vested in the Board of Trust Managers in paragraph K of this Section 5 (but in
no event to more than 9.9 percent of the outstanding Common Shares of the
Trust, as so adjusted), subject to the limitations contained in paragraph L of
this Section 5.
15
"Constructive Ownership" shall mean ownership of Equity Shares by a
Person who would be treated as an owner of such shares, either actually or
constructively, directly or indirectly, through the application of Section 318
of the Code, as modified by Section 856(d)(5) thereof. The terms "Constructive
Owner," "Constructively Own," "Constructively Owns" and "Constructively Owned"
shall have correlative meanings.
"Equity Shares" shall mean collectively shares of the Trust that are
either Common Shares or Preferred Shares.
"Excess Shares" shall mean collectively the Equity Shares deemed to be
transferred to a Charitable Trust for the benefit of a Charitable Beneficiary
pursuant to paragraph C of this Section 5.
"Existing Holder" shall mean collectively H. Kerr Taylor and any
sibling (whether by the whole or half blood), spouse, ancestor or lineal
descendant thereof (provided that in the event the definition of "Family"
pursuant to Section 544(a)(2) of the Code shall be amended, the foregoing
definition shall be deemed to be similarly amended).
"Existing Holder Limit" shall mean initially 9.8 percent of the
outstanding Common Shares of the Trust, or, from and after the date hereof,
such lesser percentage of the outstanding Common Shares of the Trust as the
Board of Trust Managers may establish from time to time pursuant to the
authority expressly vested in the Board of Trust Managers in paragraph J of
this Section 5, subject to the limitations contained in paragraph L of this
Section 5. For purposes of the application of the Existing Holder Limit, the
Existing Holder shall be deemed to own the sum of (a) the Common Shares
Beneficially or Constructively Owned by the Existing Holder and (b) the Common
Shares the Existing Holder would Beneficially or Constructively Own upon
exercise of any conversion right, option or other right (without regard to any
temporal restrictions on the exercise thereof) to directly or indirectly
Acquire Beneficial or Constructive Ownership of Common Shares. For purposes of
determining the Existing Holder Limit, the Common Shares outstanding shall be
deemed to include the maximum number of shares that the Existing Holder may
Beneficially and Constructively Own pursuant to any conversion right, option or
other right (without regard to any temporal restrictions on the exercise
thereof). From and after the date hereof and prior to the Restriction
Termination Date, the Secretary of the Trust, or such other person as shall be
designated by the Board of Trust Managers, shall maintain and, upon request,
make available to the Existing Holder or the Board of Trust Managers, a
schedule which sets forth the then-current Existing Holder Limit.
"Market Price" on any day shall mean the average of the Closing Prices
for the ten (10) consecutive Trading Days immediately preceding such day (or
those days during such 10-day period for which Closing Prices are available).
"Ownership Limit" shall mean the Common Shares Ownership Limit or the
Preferred Shares Ownership Limit, or both, as the context may require.
"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
16
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock
company or other entity, or a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; but does
not include an underwriter which participated in a public offering of Equity
Shares for a period of sixty (60) days following the purchase by such
underwriter of such Equity Shares therein, provided that the foregoing
exclusion shall apply only if the ownership of such Equity Shares by an
underwriter or underwriters participating in a public offering would not cause
the Trust to fail to qualify as a REIT by reason of being "closely held" within
the meaning of Section 856(a) of the Code or otherwise cause the Trust to fail
to qualify as a REIT.
"Preferred Shares Ownership Limit" shall mean 9.9 percent of the
outstanding shares of a particular series of Preferred Shares of the Trust.
"Prohibited Owner" shall mean, with respect to any purported Transfer
or Acquisition or any other event or transaction which results in Excess Shares
being deemed transferred to a Charitable Trust, any Person who, but for the
provisions of Section 5, would Beneficially or Constructively Own such Excess
Shares, and if appropriate in the context, shall also mean any Person who would
have been the record owner of Excess Shares that the Prohibited Owner would
have so owned. The term "Prohibited Owner" shall include a Purported Beneficial
Holder, a Purported Beneficial Transferee, a Purported Record Holder and/or a
Purported Record Transferee, as the case may be
"Purported Beneficial Holder" shall mean, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Shares being deemed transferred to a Charitable Trust, the Person for
whom the applicable Purported Record Holder held the Equity Shares that were,
pursuant to paragraph C of this Section 5, automatically transferred to a
Charitable Trust upon the occurrence of such event or transaction. The
Purported Beneficial Holder and the Purported Record Holder may be the same
Person.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer or Acquisition which results in Excess Shares being deemed
transferred to a Charitable Trust, the purported beneficial transferee for whom
the Purported Record Transferee would have acquired Equity Shares if such
Transfer or Acquisition had been valid under paragraph B of this Section 5. The
Purported Beneficial Transferee and the Purported Record Transferee may be the
same Person.
"Purported Record Holder" shall mean, with respect to any event or
transaction other than a purported Transfer or Acquisition which results in
Excess Shares being deemed transferred to a Charitable Trust, the record holder
of the Equity Shares that were, pursuant to paragraph C of this Section 5,
automatically transferred to a Charitable Trust upon the occurrence of such an
event or transaction. The Purported Record Holder and the Purported Beneficial
Holder may be the same Person.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer or Acquisition which results in Excess Shares being deemed
transferred to a Charitable Trust, the record holder of the Equity Shares if
such Transfer had been valid under paragraph B of this Section 5. The Purported
Record Transferee and the Purported Beneficial Transferee may be the same
Person.
17
"REIT" shall mean a real estate investment trust under Sections 856
through 860 of the Code.
"Restriction Termination Date" shall mean the first day after the date
hereof on which the Board of Trust Managers and the shareholders of the Trust
determine that it is no longer in the best interests of the Trust to attempt,
or continue, to qualify as a REIT.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the affected class or series of Equity Shares is
listed or admitted to trading is open for the transaction of business or, if
the affected class or series of Equity Shares is not listed or admitted to
trading, shall mean any day other than a Saturday, Sunday or other day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.
"Transfer" shall mean any sale, transfer, gift, hypothecation,
assignment, devise or other disposition of a direct or indirect interest in
Equity Shares or the right to vote or receive dividends on Equity Shares
(including (i) the granting of any option (including any option to acquire an
option or any series of such options) or entering into any agreement for the
sale, transfer or other disposition of Equity Shares or the right to vote or
receive dividends on Equity Shares or (ii) the sale, transfer, assignment or
other disposition of any securities or rights convertible into or exchangeable
for Equity Shares, whether voluntary or involuntary, of record, constructively
or beneficially, and whether by operation of law or otherwise. The terms
"Transfers," "Transferred" and "Transferable" shall have correlative meanings.
"Trustee" shall mean the Person, unaffiliated with the Trust or any
Prohibited Owner, that is appointed by the Trust to serve as Trustee of the
Charitable Trust.
B. Ownership and Transfer Limitations.
(1) Notwithstanding any other provision of this
Declaration of Trust, except as provided in paragraph I of this Section 5 and
Section 7 of this Article VI, from and after the date hereof and prior to the
Restriction Termination Date, (a) no Person (other than the Existing Holder)
shall Beneficially or Constructively Own Common Shares in excess of the Common
Shares Ownership Limit; (b) the Existing Holder shall not Beneficially or
Constructively Own Common Shares in excess of the Existing Holder Limit; and
(c) no Person shall Beneficially or Constructively Own shares of any series of
Preferred Shares in excess of the Preferred Shares Ownership Limit.
(2) Notwithstanding any other provision of this
Declaration of Trust, except as provided in paragraph I of this Section 5 and
Section 7 of this Article VI, from and after the date hereof and prior to the
Restriction Termination Date, any Transfer, Acquisition, change in the capital
structure of the Trust, or other purported change in Beneficial or Constructive
Ownership of Equity Shares or other event or transaction that, if effective,
would result in any Person (other than the Existing Holder) Beneficially or
Constructively Owning Equity Shares in excess of the applicable Ownership Limit
shall be void ab initio as to the Transfer, Acquisition, change in the capital
structure of the Trust, or other purported change in Beneficial or Constructive
Ownership or other event or transaction with respect to that number of Equity
Shares which would otherwise be Beneficially or Constructively Owned by such
Person in excess of the applicable Ownership Limit, and none of the Purported
Beneficial Transferee, the Purported Record Transferee, the Purported
Beneficial Holder or the Purported Record Holder, as applicable, shall
acquire any rights in that number of Equity Shares.
18
(3) Notwithstanding any other provision of this
Declaration of Trust, except as provided in Paragraph I of this Section 5 and
in Section 7 of this Article VI, from and after the date hereof and prior to
the Restriction Termination Date, any Transfer, Acquisition, change in the
capital structure of the Trust, or other purported change in Beneficial or
Constructive Ownership of Common Shares and/or Preferred Shares or other event
or transaction that, if effective, would result in the Existing Holder
Beneficially or Constructively Owning (i) Common Shares in excess of the
Existing Holder Limit or (ii) Preferred Shares in excess of the Preferred
Shares Ownership Limit shall be void ab initio as to the Transfer, Acquisition,
change in the capital structure of the Trust, or other purported change in the
Beneficial or Constructive Ownership or other event or transaction with respect
to that number of Common Shares which otherwise would be Beneficially or
Constructively Owned by the Existing Holder in excess of the Existing Holder
Limit and/or that number of Preferred Shares which otherwise would be
Beneficially or Constructively owned by the Existing Holder in excess of the
Preferred Shares Ownership Limit, as the case may be, and the Existing Holder
shall acquire no rights in that number of Common Shares and/or Preferred Shares.
(4) Notwithstanding any other provision of this
Declaration of Trust, except as provided in Section 7 of this Article VI, from
and after the date hereof and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in the capital structure of the Trust, or other
purported change in Beneficial or Constructive Ownership (including actual
ownership) of Equity Shares or other event or transaction that, if effective,
would result in the Equity Shares being actually owned by fewer than one hundred
(100) Persons (determined without reference to any rules of attribution) shall
be void ab initio as to the Transfer, Acquisition, change in the capital
structure of the Trust, or other purported change in Beneficial or Constructive
Ownership (including actual ownership)or other event or transaction with respect
to that number of Equity Shares which otherwise would be owned by the
transferee, and the intended transferee or subsequent owner (including a
Beneficial or Constructive Owner) shall acquire no rights in that number of
Equity Shares.
(5) Notwithstanding any other provision of this
Declaration of Trust, except as provided in Section 7 of this Article VI, from
and after the date hereof and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in the capital structure of the Trust, or other
purported change in Beneficial or Constructive Ownership of Equity Shares or
other event or transaction that, if effective, would cause the Trust to fail to
qualify as a REIT by reason of being "closely held" within the meaning of
Section 856(h) of the Code or otherwise, directly or indirectly, would cause
the Trust to fail to qualify as a REIT shall be void ab initio as to the
Transfer, Acquisition, change in the capital structure of the Trust, or other
purported change in Beneficial or Constructive Ownership or other event or
transaction with respect to that number of Equity Shares which would cause the
Trust to be "closely held" within the meaning of Section 856(h) of the Code or
otherwise, directly or indirectly, would cause the Trust to fail to qualify as
a REIT, and none of the Purported Beneficial Transferee, the Purported Record
Transferee, the Purported Beneficial Holder or the Purported Record Holder shall
acquire any rights in that number of Equity Shares.
19
(6) Notwithstanding any other provision of this
Declaration of Trust, except as provided in Section 7 of this Article VI, from
and after the date hereof and prior to the Restriction Termination Date, any
Transfer, Acquisition, change in capital structure of the Trust, or other
purported change in Beneficial or Constructive Ownership of Equity Shares or
other event or transaction that, if effective, would (i) cause the Trust to own
(directly or Constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code and (ii) cause the Trust to fail to satisfy
any of the gross income requirements of Section 856(c) of the Code, shall be
void ab initio as to the Transfer, Acquisition, change in capital structure of
the Trust, or other purported change in Beneficial or Constructive Ownership or
other event or transaction with respect to that number of Equity Shares which
would cause the Trust to own an interest (directly or Constructively) in a
tenant that is described in Section 856(d)(2)(B) of the Code, and none of the
Purported Beneficial Transferee, the Purported Record Transferee, the
Purported Beneficial Holder or the Purported Record Holder shall acquire any
rights in that number of Equity Shares.
C. Deemed Transfer of Excess Shares.
(1) If, notwithstanding the other provisions
contained in this Article VI, at any time from and after the date hereof and
prior to the Restriction Termination Date, there is a purported Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in the Beneficial or Constructive Ownership of Equity Shares or other
event or transaction such that (i) any Person (other than the Existing Holder)
would Beneficially or Constructively Own Equity Shares in excess of the
applicable Ownership Limit or (ii) the Existing Holder would Beneficially or
Constructively Own Common Shares in excess of the Existing Holder Limit or any
series of Preferred Shares in excess of the Preferred Shares Ownership Limit,
then, except as otherwise provided in paragraph I of this Section 5, such
number of Equity Shares (rounded up to the next whole number of shares) in
excess of the applicable Ownership Limit or the Existing Holder Limit, as the
case may be, automatically shall be, without any further action on the part of
any Person, deemed to be Transferred to a Charitable Trust for the benefit of
a Charitable Beneficiary. Such deemed Transfer to the Charitable Trust shall
be effective as of the close of business on the business day prior to the date
of the purported Transfer, Acquisition, change in capital structure, or other
purported change in Beneficial or Constructive Ownership of Equity Shares or
other event or transaction described in clause (i) or (ii) of this subparagraph
(1) of this paragraph C and none of the Purported Beneficial Transferee, the
Purported Record Transferee, the Purported Beneficial Holder or the Purported
Record Holder shall acquire any rights in that number of Equity Shares. If the
Transfer to the Charitable Trust described in this subparagraph (1) of this
paragraph C, would not be effective for any reason to prevent the occurrence of
an ownership violation described in clause (i) or (ii) of this subparagraph (1)
of this paragraph C, then the purported Transfer, Acquisition, change in
capital structure, or other purported change in Beneficial or Constructive
Ownership of Equity Shares or other event or transaction described in clause
(i) or (ii) of this subparagraph (1) of this paragraph C that otherwise would
cause such violation, shall be void ab initio, and none of the Purported
Beneficial Transferee, the Purported Record Transferee, the Purported
Beneficial Holder or the Purported Record Holder shall acquire any rights in
that number of Equity Shares.
20
(2) If, notwithstanding the other provisions
contained in this Article VI, at any time from and after the date hereof and
prior to the Restriction Termination Date, there is a purported Transfer,
Acquisition, change in the capital structure of the Trust, or other purported
change in Beneficial or Constructive Ownership of Equity Shares or other event
or transaction which, if effective, would result in a violation of any of the
restrictions described in subparagraphs (2), (3), (4), (5) and (6) of paragraph
B of this Section 5 or, directly or indirectly, would for any reason cause the
Trust to fail to qualify as a REIT, then the number of Equity Shares (rounded
up to the next whole number of shares) being Transferred or Acquired or which
are otherwise affected by the change in capital structure or other purported
change in Beneficial or Constructive Ownership or other event or transaction
and which would result in a violation of any of the restrictions described in
subparagraphs (2), (3), (4), (5) and (6) of paragraph B of this Section 5 or,
directly or indirectly, would for any reason cause the Trust to fail to qualify
as a REIT, automatically shall be, without any further action on the part of
any Person, deemed to be Transferred to a Charitable Trust for the benefit of
a Charitable Beneficiary. Such deemed Transfer to the Charitable Trust shall
be effective as of the close of business on the business day prior to the date
of the purported Transfer, Acquisition, change in capital structure, or other
purported change in Beneficial or Constructive Ownership or other event or
transaction in violation of any of the restrictions described in subparagraphs
(2), (3), (4), (5) and (6) of paragraph B of this Section 5 and none of the
Purported Beneficial Transferee, the Purported Record Transferee, the Purported
Beneficial Holder or the Purported Record Holder shall acquire any rights in
that number of Equity Shares. If the Transfer to the Charitable Trust described
in this subparagraph (2) of this paragraph C(2), would not be effective for any
reason to prevent the violation of any of the restrictions described in
subparagraphs (2), (3), (4), (5) and (6) of paragraph B of this Section 5, then
the purported Transfer, Acquisition, change in capital structure, or other
purported change in Beneficial or Constructive Ownership or other event or
transaction in violation of any of the restrictions described in subparagraphs
(2), (3), (4), (5) and (6) of paragraph B of this Section 5, shall be void ab
initio, and none of the Purported Beneficial Transferee, the Purported Record
Transferee, the Purported Beneficial Holder or the Purported Record Holder
shall acquire any rights in that number of Equity Shares.
D. Remedies for Breach. If the Board of Trust Managers or
its designee shall at any time determine in good faith that a Transfer,
Acquisition, or change in the capital structure of the Trust or other purported
change in Beneficial or Constructive Ownership or other event or transaction has
taken place in violation of paragraph B of this Section 5 or that a Person
intends to Acquire or has attempted to Acquire Beneficial or Constructive
Ownership of any Equity Shares in violation of paragraph B of this Section 5,
the Board of Trust Managers or its designee shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer, Acquisition,
or change in the capital structure of the Trust, or other attempt to Acquire
Beneficial or Constructive Ownership of any Equity Shares or other event or
transaction, including, but not limited to, causing the Trust to redeem the
Equity Shares, refusing to give effect to such Transfer on the books of the
Trust or instituting injunctive proceedings with respect thereto; provided,
however, that any Transfer, Acquisition, change in the capital structure of the
Trust, attempted Transfer, or other attempt to Acquire Beneficial or
Constructive Ownership of any Equity Shares or event or transaction in violation
of subparagraphs (2), (3), (4), (5) or (6) of paragraph B of this Section 5 (as
applicable) shall be void ab initio and, where applicable, automatically shall
result in the Transfer to the Charitable Trust described in paragraph C of this
Section 5, irrespective of any action (or inaction) by the Board of Trust
Managers or its designee.
21
E. Notice of Restricted Transfer. Any Person who Acquires
or attempts to Acquire Beneficial or Constructive Ownership of Equity Shares in
violation of paragraph B of this Section 5 and any Person who would have
Beneficially or Constructively Owned Equity Shares that resulted in a Transfer
to the Charitable Trust pursuant to the provisions of Paragraph C of this
Section 5, immediately shall give written notice to the Trust, or, in the event
of a proposed or attempted Transfer or Acquisition or purported change in
Beneficial or Constructive Ownership, shall give at least fifteen (15) days
prior written notice to the Trust, of such event and shall promptly provide to
the Trust such other information as the Trust, in its sole discretion, may
request in order to determine the effect, if any, of such Transfer, attempted
Transfer, Acquisition, attempted Acquisition or other purported change in
Beneficial or Constructive Ownership on the Trust's status as a REIT.
F. Owners Required to Provide Information. From and
after the date hereof and prior to the Restriction Termination Date:
(1) Every Beneficial or Constructive Owner of more
than 5 percent, or such lower percentage or percentages as determined pursuant
to regulations under the Code or as may be requested by the Board of Trust
Managers in its sole discretion, of the outstanding shares of any class or
series of Equity Shares of the Trust annually shall, no later than January 30
of each calendar year, give written notice to the Trust stating (i) the name
and address of such Beneficial or Constructive Owner; (ii) the number of shares
of each class or series of Equity Shares Beneficially or Constructively Owned;
and (iii) a description of how such shares are held. Each such Beneficial or
Constructive Owner promptly shall provide to the Trust such additional
information as the Trust, in its sole discretion, may request in order to
determine the effect, if any, of such Beneficial or Constructive Ownership on
the Trust's status as a REIT and to ensure compliance with the applicable
Ownership Limit or the Existing Holder Limit and other restrictions set forth
herein.
(2) Each Person who is a Beneficial or Constructive
Owner of Equity Shares and each Person (including the shareholder of record) who
is holding Equity Shares for a Beneficial or Constructive Owner promptly shall
provide to the Trust such information as the Trust, in its sole discretion,
may request in order to determine the Trust's status as a REIT, to comply with
the requirements of any taxing authority or other governmental agency, to
determine any such compliance or to ensure compliance with the applicable
Ownership Limit or the Existing Holder Limit and other restrictions set forth
herein.
G. Remedies Not Limited. Nothing contained in this Article
VI except Section 7 hereof shall limit the scope or application of the
provisions of this Section 5, the ability of the Trust to implement or enforce
compliance with the terms thereof or the authority of the Board of Trust
Managers to take any such other action or actions as it may deem necessary or
advisable to protect the Trust and the interests of its shareholders by
preservation of the Trust's status as a REIT and to ensure compliance with the
applicable Ownership Limit or the Existing Holder Limit and other restrictions
set forth herein, including, without limitation, refusal to give effect to a
transaction on the books of the Trust.
22
H. Ambiguity. In the case of ambiguity in the application
of any of the provisions of this Section 5, including any definition contained
in paragraph A hereof, the Board of Trust Managers shall have the power and
authority, in its sole discretion, to determine the application of the
provisions of this Section 5 with respect to any situation, based on the facts
known to it.
I. Exceptions. The Board of Trust Managers, upon receipt
of a ruling from the Internal Revenue Service, an opinion of counsel,
or other evidence satisfactory to the Board of Trust Managers, in its sole
discretion, in each case to the effect that the restrictions contained in
subparagraphs (4), (5)and (6) of paragraph B of this Section 5 will not be
violated, may waive or change, in whole or in part, the application of the
applicable Ownership Limit with respect to any Person that is not an individual,
as such term is used in Section 542(a)(2)of the Code. In connection with any
such waiver or change, the Board of Trust Managers may require such
representations and undertakings from such Person or affiliates and may impose
such other conditions, as the Board of Trust Managers deems necessary,
advisable or prudent, in its sole discretion, to determine the effect, if
any, of the proposed transaction or ownership of Equity Shares on the Trust's
status as a REIT.
J. Reduction of Existing Holder Limit. The Board of Trust
Managers is hereby expressly vested with the full power and authority to reduce
the Existing Holder Limit as in effect from time to time on and after the date
hereof, with the written consent of H. Kerr Taylor or his successor-in-interest
or designee. No such reduction shall constitute or be deemed to constitute an
amendment of this Declaration of Trust, and shall take effect automatically
without any action on the part of any shareholder as of the date specified by
the Board of Trust Managers that is subsequent to the Board of Trust Managers
resolution approving and effecting such reduction.
K. Increase in Common Shares Ownership Limit. Subject to
the limitations contained in paragraph L of this Section 5, the Board of
Trust Managers is hereby expressly vested with the full power and authority
from time to time to increase the Common Shares Ownership Limit. No such
increase shall constitute or be deemed to constitute an amendment of this
Declaration of Trust, and shall take effect automatically without any action
on the part of any shareholder as of the date specified by the Board of Trust
Managers that is subsequent to the Board resolution approving and effecting
such reduction.
L. Limitations on Modifications.
(1) The Ownership Limit or a class or series of
Equity Shares may not be increased and no additional ownership limitations may
be created if, after giving effect to such increase or creation the Trust would
be "closely held" within the meaning of Section 856(h) of the Code (assuming
ownership of Equity Shares by all Persons (other than the Existing Holder)
equal to the greatest of (i) the actual ownership, (ii) the Beneficial
Ownership of Equity Shares by each Person, or (iii) the applicable
Ownership Limit with respect to such Person, and assuming the ownership
by the Existing Holder of Common Shares equal to the Existing Holder Limit
and shares of any series of Preferred Shares equal to the Preferred Shares
ownership Limit).
23
(2) Prior to any modification of the Ownership Limit
or the Existing Holder Limit with respect to any Person, the Board of Trust
Managers may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary, advisable or prudent, in its sole
discretion, in order to determine or ensure the Trust's status as a REIT.
(3) Neither the Common Shares Ownership Limit nor
the Preferred Shares Ownership Limit may be increased to a percentage that is
greater than 9.9 percent.
(4) The Existing Holder Limit may not be increased.
M. Legend. Each certificate for Equity Shares shall bear
substantially the following legend:
"The securities represented by this certificate are
subject to the restrictions on transfer and ownership for the
purpose of maintenance of the Trust's status as a real estate
investment trust (a "REIT") under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code").
Except as otherwise provided pursuant to the Declaration of
Trust of the Trust, no Person may Beneficially or
Constructively Own Common Shares of the Trust in excess of
9.0 percent (or such greater percent as may be determined by
the Board of Trust Managers of the Trust) of the outstanding
Common Shares (except in such circumstances as the Existing
Holder Limit shall apply); (ii) Beneficially or
Constructively Own shares of any series of Preferred Shares
of the Trust in excess of 9.9 percent of the outstanding
shares of such series of Preferred Shares; or (iii)
Beneficially or Constructively Own Common Shares or Preferred
Shares (of any class or series) which would result in the
Trust being "closely held" under Section 856(h) of the Code
or which otherwise would cause the Trust to fail to qualify
as a REIT. Any Person who has Beneficial or Constructive
Ownership, or who Acquires or attempts to Acquire Beneficial
or Constructive Ownership of Common Shares and/or Preferred
Shares in excess or in violation of the above limitations and
any Person who would have Beneficially or Constructively
Owned Equity Shares that resulted in a deemed Transfer to the
Charitable Trust (as described below), immediately must
notify the Trust in writing or, in the event of a proposed or
attempted Transfer or Acquisition or purported change in the
Beneficial or Constructive Ownership, must give written
notice to the Trust at least fifteen (15) days prior to the
proposed or attempted transfer, transaction or other event.
Any Transfer or Acquisition of Common Shares and/or Preferred
Shares or other event which results in violation of the
ownership or transfer limitations set forth in the
Declaration of Trust of the Trust shall be void ab initio and
the Purported Beneficial and Record Transferee shall not have
or acquire any rights in such Common Shares and/or Preferred
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Shares. If the transfer and ownership limitations referred to
herein are violated, the Common Shares or Preferred Shares
represented hereby, to the extent of violation of such
limitations, automatically will be deemed transferred to a
Charitable Trust for the benefit of a Charitable Beneficiary,
all as provided by the Declaration of Trust of the Trust. All
defined terms used in this legend have the meanings
identified in the Declaration of Trust of the Trust, as the
same may be amended from time to time, a copy of which,
including the restrictions on transfer, will be sent without
charge to each shareholder who so requests."
Section 6. Excess Share
A. Deemed Transfer. Upon any purported Transfer or other
event described in paragraph C of Section 5 that would result in a Transfer of
Equity Shares to a Charitable Trust, such Equity Shares shall be deemed to have
been Transferred to the Trustee as Trustee of a Charitable Trust for the
exclusive benefit of one (1) or more Charitable Beneficiaries. Such Transfer to
the Trustee shall be deemed to be effective as of the close of business on the
business day prior to the purported Transfer or other event that results in
the Transfer to the Charitable Trust pursuant to paragraph C of Section 5 of
this Article VI. The Trustee shall be appointed by the Trust and shall be a
Person unaffiliated with the Trust or any Prohibited Owner. Each Charitable
Beneficiary shall be designated by the Trust as provided in paragraph F of
this Section 6.
B. No Benefit. Equity Shares held by the Trustee shall be
issued and outstanding Equity Shares of the Trust. The Prohibited Owner shall
have no rights in the Equity Shares held by the Trustee. The Prohibited Owner
shall not benefit economically from ownership of any Equity Shares held in the
Charitable Trust by the Trustee, shall have no rights to dividends or other
distributions and shall not possess any rights to vote or other rights
attributable to the Equity Shares held in the Charitable Trust.
C. Voting Rights and Rights to Dividends. The Trustee
shall have all voting rights and rights to dividends or other distributions to
which such Equity Shares are entitled with respect to Equity Shares held in the
Charitable Trust, which rights shall be exercised for the exclusive benefit of
the Charitable Beneficiary. Any dividend or other distribution paid prior to
the discovery by the Trust that Equity Shares have been deemed Transferred to
the Trustee shall be retrieved and paid with respect to such Equity Shares to
the Trustee upon demand and any dividend or other distribution authorized but
unpaid shall be paid when due to the Trustee. Any dividends or distributions so
paid over to the Trustee shall be held in trust for the benefit of the
Charitable Beneficiary for distribution at such times as may be determined by
the Trustee. The Prohibited Owner shall have no voting rights with respect to
Equity Shares held in the Charitable Trust and, subject to Texas law, effective
as of the date that Equity Shares have been deemed Transferred to the Trustee,
the Trustee shall have the authority (at the Trustee's sole discretion) (i) to
rescind as void any vote cast, to the extent such Equity Shares are entitled to
vote, by a Prohibited Owner prior to the discovery by the Trust that Equity
Shares have been deemed Transferred to the Trustee and (ii) to recast such
vote, to the extent such Equity Shares are entitled to vote, in accordance with
the desires of the Trustee acting for the benefit of the Charitable
Beneficiary. Notwithstanding the provisions of this Section 6, until the Trust
has received notification that Equity Shares have been deemed Transferred into
a Charitable Trust, the Trust shall be entitled to rely on its Equity Share
Transfer and other shareholder records for purposes of preparing lists of
shareholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of shareholders.
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D. Disposition of Excess Shares. Within twenty (20) days
of receiving notice from the Trust that Equity Shares have been deemed
Transferred to the Charitable Trust, the Trustee of the Charitable Trust shall
sell the Equity Shares held in the Charitable Trust to a Person, designated by
the Trustee, whose ownership of the Equity Shares will not violate the
restrictions described in subparagraphs (2), (3), (4), (5) and (6) of paragraph
B of Section 5 of this Article VI or otherwise cause the Trust to fail to
qualify as a REIT. Upon such sale, the interest of the Charitable Beneficiary
in the Equity Shares sold shall terminate and the Trustee shall distribute the
net proceeds of the sale to the Prohibited Owner and to the Charitable
Beneficiary as provided in this paragraph D of Section 6. The Prohibited Owner
shall receive the lesser of (i) the price paid by the Prohibited Owner for the
Equity Shares or, if the Prohibited Owner did not give value for the Equity
Shares in connection with the event causing the Equity Shares to be held in the
Charitable Trust (e.g., in the case of a gift, devise or other such
transaction), the Market Price of the Equity Shares on the day of the event
causing the Equity Shares to be held in the Charitable Trust and (ii) the
price per Equity Share (net of costs of sales) received by the Trustee from the
sale or other disposition of the shares held in the Charitable Trust. Any net
sales proceeds in excess of the amount payable to the Prohibited Owner shall be
immediately paid to the Charitable Beneficiary. If, prior to the discovery by
the Trust that Equity Shares have been deemed Transferred to the Trustee, such
Equity Shares are sold by a Prohibited Owner, then (i) such Equity Shares shall
be deemed to have been sold on behalf of the Charitable Trust and (ii) to the
extent that the Prohibited Owner received an amount for such Equity Shares that
exceeds the amount that such Prohibited Owner was entitled to receive pursuant
to this paragraph (d), such excess shall be paid to the Trustee upon demand.
E. Purchase Right in Excess Shares. Excess Shares shall
be deemed to have been offered for sale to the Trust or its designee at a price
per share equal to the lesser of (i) the price per share in the transaction
that created such Excess Shares (or, in the case of a devise or gift or event
other than a Transfer or Acquisition which results in the Transfer of Excess
Shares to the Charitable Trust, the Market Price at the time of such devise
or gift or event other than a Transfer or Acquisition which results in the
Transfer of Excess Shares to the Charitable Trust) or (ii) the Market Price
of the Equity Shares exchanged for such Excess Shares on the date the Trust or
its designee accepts such offer. The Trust shall have the right to accept
such offer until the Trustee has sold the Equity Shares held in the Charitable
Trust pursuant to paragraph D of this Section 6. Upon such a sale to the
Trust, the interest of the Charitable Beneficiary in the Equity Shares sold
shall terminate and the Trustee shall distribute all net sales proceeds of
the sale to the Prohibited Owner.
F. Charitable Beneficiary Designation. By written notice
to the Trustee, the Trust shall designate one (1) or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Charitable
Trust such that (i) Equity Shares held in the Charitable Trust would not
violate the restrictions described in subparagraphs (2), (3), (4), (5) and (6)
of paragraph B of Section 5 of this Article VI, or otherwise cause the
Trust to fail to qualify as a REIT, and (ii) each such organization must fit
within the definition of a Charitable Beneficiary set forth in paragraph A
of Section 5.
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G. Remedies Not Limited. Nothing contained in this
Article VI except Section 7 hereof shall limit the scope or application of the
provisions of this Section 6, the ability of the Trust to implement or enforce
compliance with the terms hereof or the authority of the Board of Trust
Managers to take any such other action or actions as it may deem necessary
or advisable to protect the Trust and the interests of its shareholders by
preservation of the Trust's status as a REIT and to ensure compliance with the
applicable Ownership Limits and the other restrictions set forth herein,
including, without limitation, refusal to give effect to a transaction on the
books of the Trust. Further, the Trust is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of
this Article VI. No delay or failure on the part of the Trust or the Board of
Trust Managers in exercising any right hereunder shall operate as a waiver
of any right of the Trust or the Board of Trust Managers as the case may be,
except to the extent specifically waived in writing.
Section 7. Settlements.
Nothing in Sections 5 and 6 of this Article VI shall preclude the
settlement of any transaction with respect to the Common Shares entered into
through the facilities of the American Stock Exchange.
Section 8. Issuance of Rights to Purchase Securities and Other
Property.
Subject to the rights of the holders of any series of Preferred
Shares, the Board of Trust Managers is hereby authorized to create and to
authorize and direct the issuance (on either a pro rata or non-pro rata basis)
by the Trust of rights, options or warrants for the purchase of Equity Shares
of the Trust as that term is defined in paragraph A of Section 5 of this
Article VI, other securities of the Trust, or shares or other securities of any
successor in interest of the Trust (a "Successor"), at such times, in such
amounts, to such persons, for such consideration (if any), with such form and
content (including without limitation the consideration for which any Equity
Shares of the Trust, other securities of the Trust, or shares or other
securities of any Successor are to be issued) and upon such terms and
conditions as it may, from time to time, determine, subject only to the
restrictions, limitations, conditions and requirements imposed by the Texas
REIT Act, other applicable laws and this Declaration of Trust. Without limiting
the generality of the foregoing, the authority granted hereby includes the
authority to adopt a "rights plan" or similar plan that treats shareholders in
a discriminatory or non pro rata manner, based upon the number of shares owned
thereby or otherwise.
Section 9. Severability.
If any provision of this Article VI or any application of any such
provision is determined to be void, invalid or unenforceable by any court
having jurisdiction over the issue, the validity and enforceability of the
remainder of this Article VI shall not be affected and other applications of
such provision shall be affected only to the extent necessary to comply with
the determination of such court.
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Section 10. Waiver.
The Trust shall have authority at any time to waive the requirements
that Excess Shares be deemed issued and outstanding in accordance with the
provisions of this Article VI if the Trust determines, based on an opinion of
nationally recognized tax counsel, that the fact that such Excess Shares are
deemed to be issued and outstanding, would jeopardize the status of the Trust
as a REIT (as that term is defined in paragraph A of Section 5 of this Article
VI).
Section 11. Management of Money and Property Received for Shares.
The Trust Managers shall manage all money and property received for
the issuance of shares for the benefit of the shareholders of the Trust.
Section 12. Commencement of Business.
The Trust will not commence business until it has received for the
issuance of shares of beneficial interest consideration of at least $1,000
value, consisting of any tangible or intangible benefit to the Trust, including
cash, promissory notes, services performed, contracts for services to be
performed, or other securities of the Trust.
ARTICLE VII
MATTERS RELATING TO THE POWERS OF THE TRUST AND ITS TRUST
MANAGERS AND SHAREHOLDERS
The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Trust and of the trust
managers and shareholders thereof:
Section 1. Matters Relating to the Board of Trust Managers.
A. Authority as to Bylaws. Except as provided in Section
2.E of this Article VII, the Trust Managers of the Trust shall have exclusive
authority to amend or repeal the Bylaws of the Trust, or to adopt new Bylaws.
B. Authority as to Share Issuances. The Board of Trust
Managers of the Trust may authorize the issuance, from time to time, of its
shares of beneficial interest of any class or series, whether now or hereafter
authorized, or securities convertible into shares now or hereafter authorized,
for such consideration as the Board of Trust Managers may deem advisable,
subject to such restrictions or limitations, if any, as may be set forth in
this Declaration of Trust or the Bylaws of the Trust or in the laws of the
State of Texas. The Board of Trust Managers may classify or reclassify any
unissued shares from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of the shares.
C. Manner of Election. Unless and except to the extent
that the Bylaws of the Trust shall so require, the election of trust managers
of the Trust need not be by written ballot.
D. Removal of Trust Managers. Subject to the rights of
the holders of any series of Equity Shares to elect additional trust managers
(or remove such additional trust managers, once elected) under specified
circumstances, any trust manager may be removed from office at any time, but
only for cause and only by the affirmative vote of the holders of 80 percent
of the then-outstanding Equity Shares entitled to vote generally in the
election of trust managers (the "Voting Shares"), voting together as a single
class.
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E. Permissible Criteria for Consideration of Best
Interests. In determining what is in the best interest of the Trust, a trust
manager of the Trust shall consider all of the relevant factors, which may
include (i) the immediate and long-term effects of the transaction on the
Trust's shareholders, including shareholders, if any, who do not participate
in the transaction; (ii) the social and economic effects of the transaction on
the Trust's employees, suppliers, creditors and customers and others dealing
with the Trust and on the communities in which the Trust operates and is
located; (iii) whether the transaction is acceptable, based on the historical
and current operating results and financial condition of the Trust; (iv)
whether a more favorable price could be obtained for the Trust's shares or
other securities in the future; (v) the future value of the Trust's securities;
(vii) any legal or regulatory issues raised by the transaction; and (viii) the
business and financial condition and earnings prospects of the other party or
parties to the proposed transaction including, without limitation, debt service
and other existing financial obligations, financial obligations to be incurred
in connection with the transaction, and other foreseeable financial objections
of such other party or parties.
F. Determination 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 Trust Managers consistent with the Declaration of Trust of the
Trust 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 Trust and
every holder of its shares: (i) the amount of the net income of the Trust for
any period and the amount of assets at any time legally available for the
payment of dividends, redemption of its shares or the payment of other
distributions on its shares; (ii) 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 shall have been
created shall have been paid or discharged); (iii) the fair value, or any
sale, bid or asked priced to be applied in determining the fair value, of
any asset owned or held by the Trust; and (iv) any matters relating to the
acquisition, holding and disposition of any assets by the Trust.
G. Reserved Powers of Board. The enumeration and
definition of particular powers of the Board of Trust Managers included in
this Article VII 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 Declaration of Trust of the Trust, or construed or deemed by inference or
otherwise in any manner to exclude or limit the powers conferred upon the
Board of Trust Managers under the laws of the State of Texas as now or
hereafter in force.
H. Alteration of Authority Granted to the Board of Trust
Managers. The affirmative vote of that proportion of the then-outstanding
Voting Shares necessary to approve an amendment to this Declaration of Trust
pursuant to the Texas REIT Act, voting together as a single class, shall be
required to amend, repeal or adopt any provision inconsistent with this
Section 1.
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I. REIT Qualification. The Board of Trust Managers shall
use its best efforts to cause the Trust and its shareholders to qualify for
U.S. federal income tax treatment in accordance with the provisions of the Code
applicable to REITs (as those terms are defined in paragraph A of Section 5 of
Article VI hereof). In furtherance of the foregoing, the Board of Trust
Managers shall use its best efforts to take such actions as are necessary, and
may take such actions as it deems desirable (in its sole discretion) to
preserve the status of the Trust as a REIT; provided, however, that in the
event that the Board of Trust Managers determines, in its sole discretion, that
it no longer is in the best interests of the Trust to qualify as a REIT, the
Board of Trust Managers shall take such actions as are required by the Code,
the Texas REIT Act and other applicable law, to cause the matter of termination
of qualification as a REIT (as that term is defined in paragraph A of Section 5
of Article VI) to be submitted to a vote of the shareholders of the Trust
pursuant to paragraph B of Section 2 of this Section VII.
Section 2. Matters Relating to the Shareholders.
A. Liability of Shareholders. A holder of Equity Shares,
or an owner of any beneficial interest in Equity Shares, of the Trust is not
under an, and shall not have any, obligation or liability of any nature
whatsoever to the Trust or to its obligees with respect to: (i) the Equity
Shares other than the obligation to pay to the Trust the full amount of the
consideration, fixed in compliance with the Texas REIT Act, for which the
Equity Shares were issued; (ii) any contractual obligation of the Trust on the
basis that the holder or owner is or was the alter ego of the Trust, or on the
basis of actual fraud or constructive fraud, a sham to perpetrate a fraud, or
other similar theory; or (iii) any obligation of the Trust on the basis of the
failure of the Trust to observe any formality, including the failure to (1)
comply with any requirement of the Texas REIT Act or of this Declaration of
Trust or of the Bylaws of the Trust; or (2) observe any requirement prescribed
by the Texas REIT Act or by this Declaration of Trust or the Bylaws of the
Trust for acts taken by the Trust, its Trust Managers, or its shareholders.
B. Termination of REIT Status. Anything contained in this
Declaration of Trust to the contrary notwithstanding, the affirmative vote of
the holders of a majority of the then-outstanding Voting Shares, voting as a
single class, and the approval of the Board of Trust Managers, shall be
required to terminate voluntarily the Trust's status as a REIT (as that term is
defined in paragraph A of Section 5 of Article VI).
C. No Cumulative Rights. Except as may be expressly
provided with respect to any class or series of Preferred Shares, shareholders
of the Trust shall not have cumulative voting rights in the election of trust
managers.
D. No Preemptive Rights. Except as may be expressly
provided with respect to any class or series of Preferred Shares, no holders of
shares of the Trust, of whatever class or series, shall have any preferential
right of subscription for the purchase of any shares of any class or series or
for the purchase of any securities convertible into shares of any class or
series of the Trust other than such rights, if any, as the Board of
Trust Managers, in its sole discretion, may determine, and for such
consideration as the Board of Trust Managers, in its sole discretion, may
fix; and except as may be expressly provided with respect to any class or
series of Preferred Shares, any shares of any class or series of convertible
securities which the Board of Trust Managers may determine to offer for
subscription to the holders of shares may, as the Board of Trust Managers shall
determine in its sole discretion, be offered to holders of any then-existing
class, classes or series of shares or other securities to the exclusion of
holders of any or all other then-existing classes or series of securities.
30
E. Authority as to Bylaws. The shareholders of the Trust
shall have no authority to amend or repeal the Bylaws of the Trust, or to adopt
new Bylaws unless (i) specifically authorized to do so by a resolution duly
adopted by the Board of Trust Managers, or (ii) any Bylaw duly adopted as
herein provided expressly vests authority in the shareholders of the Trust to
amend or repeal any such Bylaw, or provides that any such Bylaw may not be
amended or appealed without such approval of the shareholders of the Trust as
may be therein provided.
ARTICLE VIII
LIMITATION OF LIABILITY OF TRUST MANAGERS
No Trust Manager of the Trust shall be liable to the Trust for any
act, omission, loss, damage, or expense arising from the performance of his
duty under the Trust save only for his own willful misfeasance or willful
malfeasance or gross negligence.
In addition to, and in no respect whatsoever in limitation of, the
foregoing, the liability of each Trust Manager of the Trust for monetary
damages shall be eliminated to the fullest extent permitted under the laws of
the State of Texas, as the same exist or may be hereafter amended (but, in the
case of any such amendment, only to the extent that such amendment permits
broader elimination or limitation of liability of a Trust Manager than said law
permitted prior to such amendment), and no Trust Manager of the Trust shall be
liable to the Trust or its shareholders for monetary damages except to the
extent, and only to the extent, such elimination or limitation of liability is
expressly prohibited under the laws of the State of Texas, as the same exist or
may be hereafter amended (but, in the case of any such amendment, only to the
extent that such amendment permits broader elimination or limitation of
liability of a Trust Manager than said law permitted prior to such amendment).
If after the date hereof the laws of the State of Texas are amended to
authorize broader elimination or limitation of liability of a Trust Manager,
upon the effective date of such amendment the liability of a Trust Manager
shall without further act also be eliminated and limited to such broader extent
to the fullest extent not prohibited by the laws of the State of Texas as so
amended. The provisions of this Article VIII shall be deemed to be a contract
with each Trust Manager of the Trust who serves as such at any time while such
provisions are in effect, and each such Trust Manager shall be deemed to be
serving as such in reliance on the provisions of this Article VIII. No repeal
or amendment of this Declaration of Trust shall adversely affect any right or
any elimination or limitation of liability of a Trust Manager existing at the
time of the repeal or amendment.
ARTICLE IX
INDEMNIFICATION
Each person who is or was or who agrees to become a Trust Manager or
officer of the Trust, or each person who, while a Trust manager of the Trust,
is or was serving or who agrees to serve, at the request of the Trust, as a
Trust manager, director, officer, partner, joint venturer, employee or trustee
of another corporation, partnership, joint venture, trust, employee benefit
31
plan or other enterprise (including the heirs, executor, administrators or
estate of such person), shall be indemnified by the Trust, and shall be
entitled to have paid on his behalf or be reimbursed for reasonable expenses in
advance of final disposition of a proceeding, in accordance with the Bylaws of
the Trust, to the full extent permitted from time to time by the Texas REIT Act
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Trust to provide
broader indemnification rights than said law permitted the Trust to provide
prior to such amendment) or any other applicable laws presently or hereafter in
effect. The Trust shall have the power, with the approval of the Board of Trust
Managers, to provide such indemnification and advancement of expenses to any
employee or agent of the Trust, in accordance with the Bylaws of the Trust.
Without limiting the generality or the effect of the foregoing, the Trust may
enter into one or more agreements with any person which provide for
indemnification greater or different than that provided in this Article IX. Any
amendment or repeal of this Article IX shall not adversely affect any right or
protection existing hereunder immediately prior to such amendment or repeal and
shall not adversely affect any right or protection then existing pursuant to
any such indemnification agreement.
ARTICLE X
AMENDMENT
The Trust reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in its Declaration of
Trust and any other provisions authorized by the laws of the State of Texas at
the time in force may be added or inserted in the manner now or hereafter
prescribed herein or by applicable law, and all rights, preferences and
privileges of whatsoever nature conferred upon shareholders, trust managers or
any other persons whomsoever by and pursuant to this Declaration of Trust in
its present form or as hereafter amended are granted subject to the rights
reserved in this Article X; provided, however, that any amendment or repeal of
Articles VIII, IX or this Article X of this Declaration of Trust shall not
adversely affect any right or protection existing hereunder immediately prior
to such amendment or repeal.
ARTICLE XI
SPECIAL VOTING REQUIREMENTS
Section 1. Definitions.
A. In General. In this Article XI, the following words
have the meanings indicated.
B. Affiliates. "Affiliate," including the term
"affiliated person," means a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified person.
C. Associate. "Associate," when used to indicate a
relationship with any person, means:
32
(1) Any corporation or organization (other than the
corporation or a subsidiary of the corporation) of which such person is an
officer, director, or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities;
(2) Any trust or other estate in. which such
person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity; and
(3) Any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
director or officer of the corporation or any of its affiliates.
D. Beneficial Owner. "Beneficial owner," when used with
respect to any voting stock, means a person:
(1) That, individually or with any of its
affiliates or associates, beneficially owns voting stock, directly or
indirectly; or
(2) That, individually or with any of its
affiliates or associates, has:
(i) The right to acquire voting stock
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement, or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise; or (ii) The right to vote voting stock pursuant to any agreement,
arrangement, or understanding; or
(3) That has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting, or disposing of
voting stock with any other person that beneficially owns, or whose affiliates
or associates beneficially own, directly or indirectly, such shares of voting
stock.
E. Business Combination. "Business combination" means:
(1) Unless the merger, consolidation, or share
exchange does not alter the contract rights of the stock as expressly set forth
in the charter or change or convert in whole or in part the outstanding shares
of stock of the Trust, any merger, consolidation, or share exchange of the
Trust or any subsidiary with any interested shareholder or (ii) any other
corporation (whether or not itself an interested shareholder) which is, or
after the merger, consolidation, or share exchange would be, an affiliate of
an interested shareholder that was an interested shareholder prior to the
transaction;
(2) Any sale, lease, transfer, or other
disposition, other than in the ordinary course of business, in one transaction
or a series of transactions in any 12-month period, to any interested
shareholder or any affiliate of any interested shareholder (other than the
Trust or any of its subsidiaries) of any assets of the Trust or any subsidiary
having, measured at the time the transaction or transactions are approved by
the board of Trust Managers of the Trust, an aggregate book value as of the
end of the Trust's most recently ended fiscal quarter of 10 percent or more of
the total market value of the outstanding stock of the Trust or of its net
worth as of the end of its most recently ended fiscal quarter;
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(3) The issuance or transfer by the Trust, or any
subsidiary, in one transaction or a series of transactions, of any equity
securities of the Trust or any subsidiary which have an aggregate market value
of 5 percent or more of the total market value of the outstanding stock of the
Trust to any interested shareholder or any affiliate of any interested
shareholder (other than the Trust or any subsidiary) except pursuant to the
exercise of warrants or rights to purchase securities offered pro rata to all
holders of the Trust's voting stock or any other method affording substantially
proportionate treatment to the holders of voting stock;
(4) The adoption of any plan or proposal for the
liquidation or dissolution of the Trust in which anything other than cash will
be received by an interested shareholder or any affiliate of any interested
shareholder;
(5) Any reclassification of securities (including
any reverse stock split), or recapitalization of the Trust, or any merger,
consolidation, or share exchange of the Trust with any subsidiary which has
the effect, directly or indirectly, in one or a series of transactions, of
increasing by 5 percent or more of the total number of outstanding shares,
the proportionate a-mount of the outstanding shares of any class of equity
securities of the Trust or any subsidiary which is directly or indirectly
owned by any interested shareholder or any affiliate of any interested
shareholder; or
(6) The receipt by any interested shareholder or
any affiliate of any interested shareholder (other than the Trust or any
subsidiary) of the benefit, directly or indirectly (except proportionately as
a shareholder), of any loan, advance, guarantee, pledge, or other financial
assistance or any tax credit or other tax advantage provided by the Trust or
any of its subsidiaries.
F. Common Stock. "Common Stock" means any stock other than
preferred or preference stock.
G. Control. "Control," including the terms "controlling,"
"controlled by" and "under common control with," means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities,
by contract, or otherwise, and the beneficial ownership of 10 percent or more
of the votes entitled to be cast by an entity's voting stock creates a
presumption of control.
H. Corporation. "Corporation" includes a real estate
investment trust.
I. Equity Security. "Equity security" means:
(1) Any stock or similar security, certificate of
interest, or participation in sharing agreement, voting trust certificate, or
certificate of deposit for an equity security;
34
(2) Any security convertible, with or without
consideration, into an equity security, or any warrant or other security
carrying any right to subscribe to or purchase or equity security; or
(3) Any put, call, straddle, or other option or
privilege of buying an equity security from or selling an equity security to
another without being bound to do so.
J. Interested Shareholder. "Interested shareholder" means
any person (other than the Trust or any subsidiary) that:
(1) (i) Is the beneficial owner, directly or
indirectly, of 10 percent or more of the voting power of the outstanding
voting stock of the Trust; or
(ii) Is an affiliate or associate of the
Trust and at any time within the 2 year period immediately prior to the date
in question was the beneficial owner, directly or indirectly, or 10 percent or
more of the voting power of the then outstanding voting stock of the Trust.
(2) For the purpose of determining whether a person
is an interested shareholder, the number of shares of voting stock deemed to be
outstanding shall include shares deemed owned by the person through application
of subsection (d) of this section but may not include any other shares of voting
stock which may be issuable pursuant to any agreement, arrangement, or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
K. Market Value. "Market value" means:
(1) In the case of stock, the highest closing sale
price during the 30 day period immediately preceding the date in question of a
share of such stock on the composite tape for New York Stock Exchange-listed
stocks, or, if such stock is not quoted on the composite tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to
a share of such stock during the 30 day period preceding the date in question
on The Nasdaq Stock Market, or any other nationally recognized automated
quotation system then in use, or, if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the board of directors of the corporation in good faith; and
(2) In the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined by the board of directors of the corporation in good faith.
L. Subsidiary. "Subsidiary" means, unless the context
indicates otherwise, any Corporation of which voting stock having a majority
of the votes entitled to be cast is owned, directly or indirectly, by the Trust.
35
M. Voting Stock. "Voting stock" means shares of capital
stock of the Trust entitled to vote generally in the election of Trust Managers.
Section 2. Voting Requirements.
A. Unless an exemption under Section 3(c) or (d) of this
Article applies, the Trust may not engage in any business combination with any
interested shareholder or any affiliate of the interested shareholder for a
period of five (5) years following the most recent date on which the interested
shareholder became an interested shareholder.
B. Unless an exemption under Section 3 of this Article XI
applies, in addition to any vote otherwise required by law or this Declaration
of Trust, a business combination that is not prohibited by subsection (a) of
this Section 2 shall be recommended by the Board of Trust Managers and approved
by the affirmative vote of at least:
(1) 80 percent of the votes entitled to be cast by
outstanding shares of voting stock of the Trust, voting together
as a single voting group; and
(2) Two-thirds of the votes entitled to be cast by
holders of voting stock other than voting stock held by the interested
shareholder who will (or whose affiliate will) be a party to the business
combination or by an affiliate or associate of the interested shareholder,
voting together as a single voting group.
Section 3. When Voting Requirement Not Applicable.
A. For purposes of this Section 3:
(1) "Announcement date" means the first general
public announcement of the proposal or intention to make a proposal of the
business combination or its first communication generally to shareholders of
the Trust, whichever is earlier,
(2) "Determination date" means the most recent date
on which the interested shareholder became an interested shareholder, and
(3) "Valuation date" means:
(i) For a business combination voted upon
by shareholders, the latter of the day prior to the date of the shareholders,
vote or the day 20 days prior to the consummation of the business combination;
and
(ii) For a business combination not voted
upon by shareholders, the date of the consummation of the business combination.
B. The vote required by Section 2(b) of this Article XI
does not apply to a business combination as defined in Section 1(e)(1) of
this Article XI if each of the following conditions is met:
36
(1) The aggregate amount of the cash and the market
value as of the valuation date of consideration other than cash to be received
per share by holders of common stock in such business combination is at least
equal to the highest of the following:
(i) The highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers, fees) paid by
the interested shareholder for any shares of common stock of the same class or
series acquired by it within the 5-year period immediately prior to the
announcement date of the proposal of the business combination, plus an amount
equal to interest compounded annually from the earliest date on which the
highest per share acquisition price was paid through the valuation date at the
rate for 1-year United States Treasury obligations from time to time in effect,
less the aggregate amount of any cash dividends paid and the market value of
any dividends paid in other than cash, per share of common stock from the
earliest date through the valuation date, up to the amount of the interest; or
(ii) The highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers, fees) paid by
the interested shareholder for any shares of common stock of the same class or
series acquired by it on, or within the 5-year period immediately before, the
determination date, plus an amount equal to interest compounded annually from
the earliest date on which the highest per share acquisition price was paid
through the valuation date at the rate for 1-year United States Treasury
obligations from time to time in effect, less the aggregate amount of any cash
dividends paid and the market value of any dividends paid in other than cash,
per share of common stock from the earliest date through the valuation date, up
to the amount of the interest; or
(iii) The market value per share of common
stock of the same class or series on the announcement date, plus an amount
equal to interest compounded annually from that date through the valuation date
at the rate for 1-year United States Treasury obligations from time to time in
effect, less the aggregate amount of any cash dividends paid and the market
value of any dividends paid in other than cash, per share of common stock from
that date through the valuation date, up to the amount of the interest; or
(iv) The market value per share of common
stock of the same class or series on the determination date, plus an amount
equal to interest compounded annually from that date through the valuation date
at the rate for 1-year United States Treasury obligations from time to time in
effect, less the aggregate amount of any cash dividends paid and the market
value of any dividends paid in other than cash, per share of common stock from
that date through the valuation date, up to the amount of the interest; or
(v) The price per share equal to the market
value per share of common stock of the same class or series on the announcement
date or on the determination date, whichever is higher, multiplied by the
fraction of:
1. The highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers,
fees) paid by the interested shareholder for any shares of common stock of
the same class or series acquired by it within the 5-year period immediately
prior to the announcement date, over
37
2. The market value per share of
common stock of the same class or series on the first day in such 5-year period
on which the interested shareholder acquired any shares of common stock.
(2) The aggregate amount of the cash and the market
value as of the valuation date of consideration other than cash to be received
per share by holders of shares of any class or series of outstanding stock
other than common stock in the business combination is at least equal the
highest of the following (whether or not the interested shareholder has
previously acquired any shares of the particular class or series of stock):
(i) The highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers, fees) paid by
the interested shareholder for any shares of such class or series of stock
acquired by it: within the 5-year period immediately prior to the announcement
date of the proposal of the business combination, plus an amount equal to
interest compounded annually from the earliest date on which the highest per
share acquisition price was paid through the valuation date at the rate for
1-year United States Treasury obligations from time to time in effect, less the
aggregate amount of any cash dividends paid and the market value of any
dividends paid in other than cash, per share of the class or series of stock
from the earliest date through the valuation date, up to the amount of the
interest; or
(ii) The highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers, fees) paid by
the interested shareholder for any shares of such class or series of stock
acquired by it on, or within the 5-year period immediately prior to, the
determination date, plus an amount equal to interest compounded annually from
the earliest date on which highest per share acquisition price was paid through
the valuation date at the rate for 1-year United States Treasury obligations
from time to time in effect, less the aggregate amount of any cash dividends
paid and the market value of any dividends paid in other than cash, per share
of the class or series of stock from the earliest date through the valuation
date, to the amount of the interest; or
(iii) The highest preferential amount per
share to which the holders of shares of such class or series of stock are
entitled in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the corporation; or
(iv) The market value per share of such
class or series of stock on the announcement date, plus an amount equal to
interest compounded annually from that date through the valuation date at the
rate for 1-year United States Treasury obligations from time to time in effect,
less the aggregate amount of any cash dividends paid and the market value of
any dividends paid in other than cash, per share of the class or series of
stock from that date through the valuation date, up to the amount of the
interest; or
(v) The market value per share of such
class or series of stock on the determination date, plus an amount equal to
interest compounded annually from that date through the valuation at the rate
for 1-year United States Treasury obligations from time to time in effect,
less aggregate amount of any cash dividends paid and the market value of any
dividends paid in other than cash, per share of the class or series of stock
from that date through the valuation date, up to the amount of the interest; or
38
(vi) The price per share equal to the market
value per share of such class or series of stock on the announcement date or on
the determination date, whichever is higher, multiplied by fraction of:
(vii) The highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers, fees) paid
by the interested shareholder for any shares of any class of voting stock
acquired by it within the 5-year period immediately prior to the announcement
date, over
(viii) The market value per share of the same
class of voting stock on the first day in such 5-year period on which the
interested shareholder acquired any shares of the same class of voting stock.
(3) The consideration to be received by holders of
any class or series of outstanding stock is to be in cash or in the same form
as the interested shareholder has previously paid for shares of the same class
or series of stock. If the interested shareholder has paid for shares of any
class or series of stock with varying forms of consideration, the form of
consideration for such class or series of stock shall be either cash or the
form used to acquire the largest number of shares of such class or series of
stock previously acquired by it.
(4) (i) After the determination date and prior
to the consummation of such business combination:
1. There shall have been no
failure to declare and pay at the regular date therefor any full
periodic dividends (whether or not cumulative) on any
outstanding preferred shares of the Trust;
2. There shall have been:
A. No reduction in the
annual rate of dividends paid on any class or series of stock of the Trust
that is not preferred stock (except as necessary to reflect any subdivision
of the stock); and
B. An increase in such
annual rate of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization, reorganization
or any similar transaction which has the effect of reducing the number of
outstanding shares of the stock; and
3. The interested shareholder
did not become the beneficial owner of any additional. shares of stock of
the corporation except as part of the transaction which resulted in such
interested shareholder becoming an interested shareholder or by virtue of
proportionate stock splits or stock dividends.
39
(ii) The provisions of sub-paragraphs 1.
and 2. of subparagraph 4(i) above do not apply if no interested shareholder
or an affiliate or associate of the interested shareholder voted as a
director of the corporation in a manner inconsistent with such
sub-subparagraphs and the interested shareholder, within 10 days after any
act or failure to act inconsistent with such sub-subparagraphs,
notifies the board of Trust Managers of the Trust in writing that the
interested shareholder disapproves thereof and requests in good faith
that the board of Trust managers rectify such act or failure to act.
C. (1) The provisions of Section 2 of this Article XI
do not apply to business combinations that specifically, generally, or
generally by types, as to specifically identified or unidentified existing or
future interested shareholders or their affiliates, which have been approved or
exempted therefrom, in whole or in part, by resolution of the board of Trust
Managers of the Trust if involving transactions with a particular interested
shareholder or its existing or future affiliates, at any time prior to the
determination date.
(2) Unless by its terms a resolution adopted under
this subsection is made irrevocable, it may be altered or repealed by the board
of Trust Managers, but this shall not affect any business combinations that
have been consummated, or are the subject of an existing agreement entered
into, prior to the alteration or repeal.
D. The provisions of Section 2 of this Article XI do not
apply to any business combination of the Trust with an interested shareholder
that became an interested shareholder inadvertently, if the interested
shareholder: (1) as soon as practicable (but not more than 10 days after the
interested shareholder knew or should have known it had become an interested
shareholder) divests itself of a sufficient amount of the voting stock of the
corporation so that it no longer is the beneficial owner, directly or
indirectly, of 10 percent or more of the outstanding voting stock of the
corporation; and (2) would not at any time within the 5-year period preceding
the announcement date with respect to the business combination have been an
interested shareholder except by inadvertence.
ARTICLE XII
VOTING RIGHTS OF CERTAIN CONTROL SHARES
Section 1. Definitions.
A. In this Article XII, the following words have the
meanings indicated.
B. "Acquiring person" means a person who makes or proposes
to make a control share acquisition.
C. "Associate," when used to indicate a relationship with
any person, means:
(1) An "associate" as defined in Section 1(c) of
Article XI; or
(2) A person that:
(i) Directly or indirectly controls, or is
controlled by, or is under common control with, the person specified; or
40
(ii) Is acting or intends to act jointly or
in concert with the person specified.
D. (1) "Control shares" means shares of stock that,
except for this Article XII, would, if aggregated with all other shares of
stock of the Trust (including shares of which is excluded from "control share
acquisition" in subsection (e)(2) of this section) owned by a person or in
respect of which that person is entitled to exercise or direct the exercise of
voting power, except solely by virtue of a revocable proxy, entitle that
person, directly or indirectly, to exercise or direct the exercise of the
voting power of shares of stock of the Trust in the election of Trust Managers
within any of the following ranges of voting power:
(a) One-fifth or more, but less than
one-third of all voting power,
(b) One-third or more, but less than a
majority of all voting power, or
(c) A majority or more of all voting power.
(2) "Control shares" includes shares of stock of
the Trust only to the extent that the acquiring person, following the
acquisition of the shares, is entitled, directly or indirectly, to exercise
or direct the exercise of voting power within any level of voting power set
forth in this section for which approval has not been obtained previously
under Section 2 of this Article XII.
E. (1) "Control share acquisition" means the
acquisition, directly or indirectly, by any person, of ownership of, or
the power to direct the exercise of voting power with respect to, issued and
outstanding control shares.
(2) "Control share acquisition" does not include
the acquisition of shares:
(a) Under the laws of descent and
distribution;
(b) Under the satisfaction of a pledge
or other security interest charged created in good faith and not for the
purpose of circumventing this Article; or
(c) Under a merger, consolidation, or share
exchange if the Trust is a party to the merger, consolidation, or share
exchange.
(3) Unless the acquisition entitles any person,
directly or indirectly, to exercise or direct the exercise of voting
power in the election of Trust Managers in excess of the range of voting
power previously authorized or attained under an acquisition that is
exempt under paragraph (2) of this subsection, "control share acquisition"
does not include the acquisition of shares of a corporation in good faith
and not for the purpose of circumventing this Article by or from:
41
(a) Any person whose voting rights have
previously been authorized by shareholders in compliance with this Article; or
(b) Any person whose previous acquisition
of shares of stock of the Trust would have constituted a control share
acquisition but for paragraph (2) of this subsection.
F. "Interested shares" means shares of a corporation in
respect of which any of the following persons is entitled to exercise or direct
the exercise of the voting power of shares of stock of the Trust in the
election of Trust Managers:
(1) An acquiring person;
(2) An officer of the Trust; or,
(3) An employee of the Trust who is also a
Trust Manager of the Trust.
G. "Corporation" includes a real estate investment trust.
H. "Person" includes an associate of the person.
Section 2. Voting Rights.
A. Approval by Shareholders. Control shares of the Trust
acquired in a control share acquisition have no voting rights except to the
extent approved by the shareholders at a meeting held under Section 4 of this
Article XII by the affirmative vote of two-thirds of all the votes entitled to
be cast on the matter, excluding all interested shares.
B. Acquisition of Shares; Voting Power. For the purposes
of Section 1(D) of this Article XII:
(1) Shares acquired within 90 days or shares
acquired under a plan to make a control share acquisition are considered to
have been acquired in the same acquisition; and
(2) A person may not be deemed to be entitled to
exercise or direct the exercise of voting power with respect to shares held
for the benefit of others if the person:
(a) Is acting in the ordinary course of
business, in good faith and not for the purpose of circumventing the provisions
of this section; and
(b) Is not entitled to exercise or to
direct the exercise of the voting power of the shares unless the person first
seeks to obtain the instruction of another person.
42
Section 3. Acquiring Person Statement.
Any person who proposes to make or who has made a control share
acquisition may deliver an acquiring person statement to the Trust at the
Trust's principal office. The acquiring person statement shall set forth all of
the following:
A. The identity of the acquiring person and each other
member of any group of which the person is a part for purposes of determining
control shares;
B. A statement that the acquiring person statement is
given under this Article XII;
C. The number of shares of the Trust owned (directly
or indirectly) by the acquiring person and each other member of any group;
D. The applicable range of voting power as set forth
in Section 1 of this Article XII; and
E. The control share acquisition has not occurred:
(1) A description in reasonable detail of the terms
of the proposed control share acquisition; and
(2) Representations of the acquiring person,
together with a statement in reasonable detail of the facts on which they are
based, that:
(a) The proposed control share acquisition,
if consummated, will not be contrary to law; and
(b) The acquiring person has the
financial capacity, through financing to be provided by the acquiring person
and any additional specified sources of financing required under Section 5
of this Article XII, to make the proposed control share acquisition.
Section 4. Special Meeting.
A. Request by Acquiring Person. Except as provided in
Section 5 of this Article XII, if the acquiring person requests, at the time of
delivery of an acquiring person statement, and gives a written undertaking to
pay the Trust's expenses of a special meeting, except the expenses of opposing
approval of the voting rights, within 10 days after the day on which the
corporation receives both the request and undertaking, the Trust Managers of
the Trust shall call a special meeting of shareholders of the Trust for the
purpose of considering the voting rights to be accorded the shares acquired or
to be acquired in the control share acquisition.
B. Bond. The Trust may require the acquiring person
to give bond, with sufficient surety, to reasonably assure the Trust that
this undertaking will be satisfied.
43
C. Time for Meeting. Unless the acquiring person agrees
in writing to another date, the special meeting of shareholders shall be held
within 50 days after the day on which the Trust has received both the request
and the undertaking.
D. Delay at Request of Acquiring Person. If the acquiring
person makes a request in writing at the time of delivery of the acquiring
person statement, the special meeting may not be held sooner than 30 days
after the day on which the Trust receives the acquiring person
statement.
E. In Absence of Request.
(1) If no request is made under subsection (a) of
this Section, the issue of the voting rights to be accorded the shares acquired
in the control shares acquisition may, at the option of the Trust, be presented
for consideration at any meeting of shareholders.
(2) If no request is made under subsection (a) of
this Section and the Trust proposes to present the issue of the voting rights
to be accorded the shares acquired is a control share acquisition for
consideration at any meeting of shareholders, the Trust shall provide the
acquiring person with written notice of the proposal not less than 20 days
before the date on which notice of the meeting is given.
Section 5. Calls.
A call of a special meeting of shareholders of the Trust is not
required to be made under Section 4(a) of this Article XII unless, at the time
of delivery of an acquiring person statement under Section 3 of this Article,
the acquiring person has:
A. Entered into a definitive financing agreement or
agreements with one or more responsible financial institutions or other
entities that have the necessary financial capacity, providing for any amount
of financing of the control share acquisition not to be provided by the
acquiring person; and
B. Delivered a copy of the agreements to the Trust.
Section 6. Notice of Meeting.
A. In General. If a special meeting of shareholders is
requested, notice of the special meeting shall be given as promptly as
reasonably practicable by the Trust to all shareholders of record as of the
record date set for the meeting, whether or not the shareholder is entitled
to vote at the meeting.
B. Contents. Notice of the special or annual meeting of
shareholders at which the voting rights are to be considered shall include or
be accompanied by the following:
(1) A copy of the acquiring person statement
delivered to the Trust under Section 3 of this Article XII; and
44
(2) A statement by the board of Trust Managers of
the Trust setting forth the position or recommendation of the board, or stating
that the board is taking no position or making no recommendation, with respect
to the issue of voting rights to be accorded the control shares.
Section 7. Redemption Rights.
A. Upon delivery of acquiring person statement. If an
acquiring person statement has been delivered on or before the 10th day after
the control share acquisition, the Trust at its option, shall have the right
to redeem any or all control shares, except control shares for which voting
have been previously approved under Section 2 of this Article XII, at any time
during a 60-day period commencing on the day of a meeting at which voting
rights are considered under Section 4 of this Article and are not approved.
B. In absence of delivery of acquiring person statement.
In addition to the redemption rights authorized under subsection (a) of this
Section 7, if an acquiring person statement has not been delivered on or before
the 10th day after the control share acquisition, the Trust, at its option,
shall have the right to redeem any or all control shares, except control shares
for which voting rights have been previously approved under Section 2 of this
Article XII, at any time during a period commencing on the 11th day after the
control share acquisition and ending 60 days after a statement has been
delivered.
C. Fair Value. Any redemption of control shares under
this section shall be at the fair value of the shares. For purposes of this
section, "fair value," shall be determined:
(1) As of the date of the last acquisition of
control shares by the acquiring person in a control share acquisition or, if a
meeting is held under Section 4 of this Article XII, as of the date of the
meeting; and
(2) Without regard to the absence of voting rights
for the control shares.
Section 8. Status as Dissenting Shareholders.
A. In General. Before a control share acquisition has
occurred, if voting rights for control shares are approved at a meeting
held under Section 4 of this Article XII and the acquiring person is
entitled to exercise or direct the exercise of a majority or more of all
voting power, all shareholders of the Trust (other than the acquiring
person) have the rights of dissenting shareholders as provided in Section
25.10 of the Texas REIT Act.
B. Trust Deemed Successor. For purposes of applying the
provisions of the Texas REIT Act to shareholders under this Section 8, the Trust
shall be deemed to be a successor in a merger and the date of the most recent
approval of voting rights referred to in subsection (a) of this Article XII
shall be deemed to be the date of filing of articles of merger for record as
therein provided.
C. Status to be Contained in Notice. The notice required
by Section 6 of this Article XII shall also state that shareholders (other than
the acquiring person) are entitled to the rights of dissenting shareholders
under the Texas REIT Act and shall include a copy the applicable provisions
thereof.
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D. Application of Texas REIT Act. For purposes of applying
the provisions of the Texas REIT Act to this Section:
(1) "Fair value" may not be less than the highest
price per share paid by the acquiring person in the control share acquisition;
and
(2) Sections 25.10(B) and 25.20(l)(a) of the Texas
REIT Act do not apply.
46
IN WITNESS WHEREOF, the undersigned executive officer of the Trust
does hereby execute this Amended and Restated Declaration of Trust as of the
27th day of December, 2002.
--------------------------------------
Charles C. Braun
Executive Vice President and Chief Financial Officer
47
THE STATE OF TEXAS
COUNTY OF HARRIS
I, ______________________________, a Notary Public in and for Harris
County, Texas, do hereby certify that on this 27th day of December, 2002,
personally before me appeared Charles C. Braun, who being by me first duly
sworn, declared that he is the person who signed the foregoing document as the
Executive Vice President and Chief Financial Officer and that the statements
therein contained are true.
-------------------------------------------
Notary Public in and for the State of Texas
48
EXHIBIT 3.2
BYLAWS
OF
AMREIT
TABLE OF CONTENTS
ARTICLE I OFFICES AND RECORDS.........................................................................1
SECTION 1.1 PRINCIPAL OFFICE..............................................................1
SECTION 1.2 ADDITIONAL OFFICES............................................................1
SECTION 1.3 BOOKS AND RECORDS.............................................................1
ARTICLE II SHAREHOLDERS................................................................................1
SECTION 2.1 ANNUAL MEETING................................................................1
SECTION 2.2 SPECIAL MEETINGS..............................................................1
SECTION 2.3 PLACE OF MEETING..............................................................2
SECTION 2.4 NOTICE OF MEETING.............................................................2
SECTION 2.5 MEETING WITHOUT NOTICE; WAIVER OF NOTICE......................................2
SECTION 2.6 QUORUM........................................................................2
SECTION 2.7 ADJOURNMENT...................................................................2
SECTION 2.8 PROXIES.......................................................................2
SECTION 2.9 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS................................3
SECTION 2.10 PROCEDURE FOR ELECTION OF TRUST MANAGERS......................................5
SECTION 2.11 VOTE OF SHAREHOLDERS..........................................................5
SECTION 2.12 OPENING AND CLOSING THE POLLS.................................................5
SECTION 2.13 INSPECTORS....................................................................5
SECTION 2.14 INFORMAL ACTION...............................................................6
ARTICLE III BOARD OF TRUST MANAGERS.....................................................................6
SECTION 3.1 GENERAL POWERS................................................................6
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS.............................................6
SECTION 3.3 COMPOSITION OF THE BOARD OF TRUST MANAGERS....................................7
SECTION 3.4 REGULAR MEETINGS..............................................................7
SECTION 3.5 SPECIAL MEETINGS..............................................................7
SECTION 3.6 NOTICE........................................................................7
SECTION 3.7 QUORUM........................................................................7
SECTION 3.8 PARTICIPATION BY CONFERENCE TELEPHONE.........................................8
SECTION 3.9 PRESUMPTION OF ASSENT.........................................................8
SECTION 3.10 ADJOURNMENTS..................................................................8
SECTION 3.11 INFORMAL ACTION...............................................................8
SECTION 3.12 VACANCIES.....................................................................8
SECTION 3.13 REMOVAL.......................................................................9
SECTION 3.14 COMMITTEES....................................................................9
ARTICLE IV OFFICERS...................................................................................10
SECTION 4.1 CATEGORIES OF OFFICERS.......................................................10
SECTION 4.2 ELECTION AND TERM OF OFFICE..................................................10
SECTION 4.3 CHAIRMAN OF THE BOARD........................................................11
SECTION 4.4 CHIEF EXECUTIVE OFFICER......................................................11
SECTION 4.5 PRESIDENT....................................................................11
SECTION 4.6 VICE PRESIDENTS..............................................................11
SECTION 4.7 SECRETARY....................................................................12
SECTION 4.8 TREASURER....................................................................12
SECTION 4.9 REMOVAL......................................................................12
SECTION 4.10 SALARIES.....................................................................12
SECTION 4.11 VACANCIES....................................................................13
SECTION 4.12 RESIGNATIONS.................................................................13
ARTICLE V SHARE CERTIFICATES AND TRANSFERS...........................................................13
SECTION 5.1 SHARE CERTIFICATES...........................................................13
SECTION 5.2 RECORD DATE AND CLOSING OF TRANSFER BOOKS....................................13
SECTION 5.3 REGISTERED SHAREHOLDERS......................................................14
SECTION 5.4 LOST CERTIFICATES............................................................14
ARTICLE VI MISCELLANEOUS PROVISIONS...................................................................14
SECTION 6.1 FISCAL YEAR..................................................................14
SECTION 6.2 DIVIDENDS....................................................................14
SECTION 6.3 DEBT LIMITATIONS.............................................................14
SECTION 6.4 SEAL.........................................................................15
SECTION 6.5 EXECUTION OF WRITTEN INSTRUMENTS.............................................15
SECTION 6.6 SIGNING OF CHECKS AND NOTES..................................................15
SECTION 6.7 VOTING OF SECURITIES HELD IN OTHER ENTITIES..................................15
SECTION 6.8 INDEMNIFICATION AND INSURANCE................................................15
ARTICLE VII AMENDMENTS.................................................................................20
i
BYLAWS
OF
AMREIT
ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1 PRINCIPAL OFFICE. The initial address of the principal
office of the Company in the State of Texas is 8 Greenway Plaza, Suite 824,
Houston, Texas 77046.
SECTION 1.2 ADDITIONAL OFFICES. The Company may have such other
offices, either within or without the State of Texas, as the Board of Trust
Managers from time to time may designate or as the business of the Company from
time to time may require.
SECTION 1.3 BOOKS AND RECORDS. The books and records of the Company
may be kept, either within or without the State of Texas, at such place or
places as the Board of Trust Managers from time to time may designate.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING. An annual meeting of the shareholders of
the Company shall be held each year on such date and at such time as may be
fixed by resolution of the Board of Trust Managers.
SECTION 2.2 SPECIAL MEETINGS. Subject to the rights of the holders of
any class or series of preferred shares of the Company ("Preferred Shares") to
elect additional trust managers under specified circumstances, special meetings
of the shareholders may be called only by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President, the Board of
Trust Managers pursuant to a resolution adopted by a majority of the total
number of trust managers constituting the whole Board of Trust Managers (the
"Whole Board"), or by written request to the Secretary by the holders of not
less than 25 percent of all of the shares then outstanding and entitled to vote
at such meeting (the "Voting Shares"); provided that (i) the Secretary shall
inform the shareholders requesting such meeting of the reasonably estimated cost
of preparing and disseminating notice thereof and shall not be required to give
such notice until the Company has received payment in such amount from such
shareholders and (ii) unless requested by holders of a majority of the Voting
Shares, the Secretary shall not be required to call a special meeting to
consider any matter which is substantially the same as a matter voted on at any
special meeting of the shareholders held during the twelve (12) months preceding
the request to call such new special meeting.
SECTION 2.3 PLACE OF MEETING. Meetings shall be held at the principal
office of the Company or at such other place, within or without the State of
Texas, as the Board of Trust Managers from time to time by resolution may
designate.
SECTION 2.4 NOTICE OF MEETING. Written or printed notice, stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be prepared and
delivered by the Company, not less than ten (10) days nor more than sixty (60)
days before the date of the meeting, personally or by mail, to each shareholder
of record entitled to vote at such meeting and to each shareholder or other
person, if any, entitled to notice of the meeting. If delivered by mail, such
notice shall be deemed to be delivered when deposited in the United States mail
with postage thereon prepaid, addressed to the shareholder at his or her address
as it appears on the share transfer books of the Company. If delivered
personally, such notice shall be deemed given when so delivered to the
shareholder as provided above and if by facsimile, such notice shall be deemed
given upon completion of the facsimile transmission to the shareholder as
provided above. Meetings may be held without notice if all shareholders entitled
to vote are present, or if notice is waived by those not present in accordance
with Section 2.5 of these Bylaws. Any previously scheduled meeting of the
shareholders may be postponed by resolution of the Board of Trust Managers upon
public notice given prior to the date scheduled for such meeting.
SECTION 2.5 MEETING WITHOUT NOTICE; WAIVER OF NOTICE. Either before or
after a shareholders' meeting, a shareholder may waive notice thereof by
executing a waiver of notice to be filed with the Company's records of
shareholder meetings. Any such written notice shall be deemed to be the
equivalent of notice pursuant to Section 2.4 hereof. Attendance at a
shareholders' meeting, either in person or by proxy, by a person entitled to
notice thereof shall constitute a waiver of notice of the meeting unless such
person attends for the sole and express purpose of objecting to the transaction
of business on the ground that the meeting was not lawfully called or convened.
SECTION 2.6 QUORUM. Except as otherwise provided by law or by the
Declaration of Trust of the Company, as the same may be amended or restated from
time to time (the "Declaration of Trust"), the holders of a majority of the
Voting Shares, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders, except that when specified business is to be voted on
by a class or series voting as a class, the holders of a majority of the shares
of such class or series shall constitute a quorum for the transaction of such
business.
SECTION 2.7 ADJOURNMENT. A meeting of shareholders convened on the date for
which it was called may be adjourned prior to the completion of business thereat
to a date not more than one hundred twenty (120) days after the record date of
the original meeting. Notice of a subsequent meeting held as a result of an
adjournment, other than by announcement at the meeting at which the adjournment
was taken, shall not be necessary. If a quorum is present or represented at such
subsequent meeting, any business may be transacted thereat which could have been
transacted at the meeting which was adjourned.
SECTION 2.8 PROXIES. At all meetings of shareholders, a shareholder
entitled to vote may vote in person or by proxy executed in writing thereby or
by his duly authorized attorney-in-fact. A proxy shall not be valid after eleven
(11) months from the date of its execution unless a longer period is expressly
stated therein. A proxy shall be revocable unless the proxy form states
conspicuously that the proxy is irrevocable and the proxy is coupled with an
interest. Each proxy must be filed with the Secretary of the Company or his
representative at or before the time of the meeting to which it relates.
2
SECTION 2.9 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
A. ANNUAL MEETING OF SHAREHOLDERS.
(1) Nominations of persons for election to the Board of Trust
Managers of the Company and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders (i) pursuant to
the Company's notice of meeting delivered pursuant to Section 2.4 of these
Bylaws; (ii) by or at the direction of the Chairman of the Board of Trust
Managers; or (iii) by any shareholder of the Company who is entitled to vote
at the meeting, who has complied with the notice procedures set forth in
clauses (2) and (3) of this Paragraph A and who was a shareholder of record at
the time such notice is delivered to the Secretary of the Company.
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to clause (iii) of
Paragraph A(1) of this Section 2.9, the shareholder must have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
office of the Company not less than seventy (70) days nor more than ninety
(90) days prior to the anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of an annual meeting is
advanced by more than thirty (30) days or delayed by more than sixty (60) days
from such anniversary date, to be timely notice by the shareholder must be so
delivered not earlier than the ninetieth (90th) day prior to such annual
meeting and not later than the close of business on the later of the seventieth
(70th) day prior to such annual meeting or the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made.
Such shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a trust manager,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of trust managers, or is otherwise
required, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended, or any successor statute thereto (the "Exchange Act"),
including such person's written consent to being named in the proxy statement
as a nominee and to serving as a trust manager if elected; (ii) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made (a) the name and address of such shareholder, as they appear on the
Company's share transfer books, and the name and address of such beneficial
owner; (b) the class or series and number of shares of beneficial interest of
the Company which are owned beneficially and of record by such shareholder and
such beneficial owner; and (c) the date or dates upon which the shareholder
acquired ownership of such shares.
3
(3) Notwithstanding anything in the second sentence of
Paragraph A(2) of this Section 2.9 to the contrary, in the event that the
number of trust managers to be elected to the Board of Trust Managers of the
Company is increased and there is no public announcement naming all of the
nominees for trust manager or specifying the size of the increased Board of
Trust Managers made by the Company at least seventy (70) days prior to the
first anniversary of the preceding year's annual meeting, a shareholder's
notice required by Paragraph A of this Section 2.9 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Company not later than the close of business on the tenth (10th)
day following the day on which such public announcement is first made by the
Company.
B. SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting pursuant to
Section 2.4 of these Bylaws. Nominations of persons for election to the Board
of Trust Managers may be made at a special meeting of shareholders at which
trust managers are to be elected pursuant to the Company's notice of meeting
(i) by or at the direction of the Board of Trust Managers or (ii) by any
shareholder of the Company who is entitled to vote at the meeting, who complies
with the notice procedures set forth in this Section 2.9 and who is a
shareholder of record at the time such notice is delivered to the Secretary of
the Company. Nominations by shareholders of persons for election to the Board
of Trust Managers may be made at such a special meeting of shareholders if the
shareholder's notice as required by Paragraph A(2) of this Section 2.9 shall be
delivered to the Secretary at the principal office of the Company not earlier
than the ninetieth (90th) day prior to such special meeting and not later than
the close of business on the later of the seventieth (70th) day prior to such
special meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Trust Managers to be elected at such meeting.
C. GENERAL.
(1) Only persons who are nominated in accordance with the
procedures set forth in this Section 2.9 shall be eligible to serve as trust
managers, and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section. Except as otherwise provided by law,
the Declaration of Trust or these Bylaws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or brought in accordance
with the procedures set forth in this Section 2.9 and, if any proposed
nomination or business is determined not to be in compliance herewith, to
declare that such defective nomination or proposal shall be disregarded.
(2) For purposes of this Section 2.9, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the Company with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
4
(3) Notwithstanding the foregoing provisions of this
Section 2.9, a shareholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with respect to
the matters set forth herein. Nothing in this Bylaw shall be deemed to affect
any rights of shareholders to request inclusion of proposals in the Company's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or to create any
additional rights with respect to any such inclusion.
SECTION 2.10 PROCEDURE FOR ELECTION OF TRUST MANAGERS. Subject to the
rights of the holders of any class or series of Preferred Shares to elect trust
managers under specified circumstances, and to the laws of the State of Texas,
each shareholder having the right to vote for the election of trust managers
shall, unless otherwise provided in the Declaration of Trust or by applicable
law, have the right to vote, in person or by proxy, the number of shares owned
by such shareholder for as many persons as there are to be elected and for whose
election such shareholder has the right to vote. Unless otherwise provided by
the Declaration of Trust, no shareholder shall have the right or be permitted to
cumulate his or her votes on any basis. Election of trust managers at all
meetings of the shareholders at which trust managers are to be elected may be by
voice vote, unless the chairman of the meeting shall order, or any shareholder
shall demand, that voting be by written ballot, and, except as otherwise
expressly provided with respect to the right of the holders of any series of
Preferred Shares to elect additional trust managers under specified
circumstances, a majority of the votes cast thereat shall elect the trust
managers. Voting on any other question or election may be by voice vote, unless
the chairman of the meeting shall order, or any shareholder shall demand, that
voting be by written ballot.
SECTION 2.11 VOTE OF SHAREHOLDERS. Subject to the rights of the
holders of any class or series of Preferred Shares to elect trust managers under
specified circumstances, and to the laws of the State of Texas, each shareholder
having the right to vote shall be entitled at every meeting of shareholders to
one (1) vote for every share standing in his or her name on the record date
fixed by the Board of Trust Managers pursuant to Section 5.2 of these Bylaws.
Except as otherwise provided by law, the Declaration of Trust, these Bylaws, any
resolution adopted by the Board of Trust Managers authorizing a series of
Preferred Shares, or any resolution adopted by a majority of the Whole Board,
all matters submitted to the shareholders at any meeting (other than the
election of trust managers) shall be decided by a majority of the votes cast
with respect thereto.
SECTION 2.12 OPENING AND CLOSING THE POLLS. The chairman of the
meeting shall fix, and announce at the meeting, the date and time of the opening
and the closing of the polls for each matter upon which the shareholders are to
vote at the meeting.
SECTION 2.13 INSPECTORS. At any meeting of shareholders, the chairman of
such meeting may, and upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting. Such inspector or inspectors shall
ascertain and report the number of shares represented at such meeting in person
or by proxy, based upon the determination of such inspector or inspectors of the
validity and effect of proxies, count all votes, report the results and perform
such other acts as are proper to conduct voting with impartiality and fairness
to all shareholders. Each report of inspectors shall be in writing and signed by
the inspector or, if there is more than one, by a majority of inspectors acting
at such meeting, in which event the report of the majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at a meeting and the results of voting thereat shall be prima
facie evidence thereof.
5
SECTION 2.14 INFORMAL ACTION. Any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting if the
following are filed with the Company's records of shareholder meetings:
(1) a unanimous written consent which sets forth the
action and is signed by each shareholder entitled to vote thereon; and
(2) a written waiver of any right to dissent signed by each
shareholder, if any, entitled to notice of the meeting but not entitled to vote
thereat.
ARTICLE III
BOARD OF TRUST MANAGERS
SECTION 3.1 GENERAL POWERS. The business and affairs of the Company
shall be managed by, or under the direction of, its Board of Trust Managers. In
addition to the powers and authorities expressly conferred by these Bylaws, the
Board of Trust Managers may exercise all such powers of the Company and do all
such lawful acts and things as are not by law or by the Declaration of Trust or
these Bylaws required to be exercised or done by the shareholders.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights
of the holders of any class or series of Preferred Shares to elect trust
managers under specified circumstances, the number of trust managers shall be
fixed from time to time pursuant to a resolution adopted by a majority of the
Whole Board, but shall consist of not more than nine (9) nor less than three (3)
trust managers who need not be residents of the State of Texas and need not hold
shares in the Company; provided that if, at any time, the Company has fewer than
three (3) shareholders, the number of trust managers may be less than three (3),
but not less than the number of shareholders. At all times as the Board of Trust
Managers shall consist of three (3) or more trust managers, the trust managers,
other than those who may be elected by the holders of any class or series of
Preferred Shares, shall be divided, with respect to the time for which they
severally hold office, into three (3) classes, as nearly equal in number as
possible, with the term of office of the first class to expire at the first
annual meeting of shareholders held after such division into classes, the term
of office of the second class to expire at the second annual meeting of
shareholders held after such division into classes and the term of office of the
third class to expire at the third annual meeting of shareholders held after
such division into classes. Each trust manager shall hold office until his or
her successor shall have been duly elected and qualified. At each annual meeting
of shareholders commencing with the first annual meeting held after such
division into classes, trust managers elected to succeed those trust managers
whose terms then expire shall be elected for a term of office to expire at the
third (3rd) succeeding annual meeting of shareholders after their election, with
each trust manager to hold office until his or her successor shall have been
duly elected and qualified.
6
SECTION 3.3 COMPOSITION OF THE BOARD OF TRUST MANAGERS. Except during
a period of vacancy or vacancies on the Board of Trust Managers, a majority of
the trust managers at all times shall be persons who are not affiliates (as that
term is defined in the next succeeding sentence) of the Company other than
affiliation solely by reason of service as a trust manager of the Company (the
"Independent Trust Managers"). For purposes of this Section 3.3, "affiliate"
shall mean, with respect to the Company, any individual who (i) directly or
indirectly controls, is controlled by or is under common control with, such
entity or (ii) any officer, director, trust manager, general partner or trustee
of such entity (other than a trust manager of the Company who otherwise would be
deemed to be an affiliate of the Company solely by reason of service as a trust
manager).
SECTION 3.4 REGULAR MEETINGS. A regular meeting of the Board of Trust
Managers to elect officers and consider other business shall be held without
notice other than this Section 3.4 immediately after, and at the same place as,
each annual meeting of shareholders. The Board of Trust Managers may, by
resolution, designate the time and place for additional regular meetings without
notice other than such resolution.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the Board of Trust
Managers shall be called at the request of the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or a majority
of the Board of Trust Managers. The person or persons authorized to call special
meetings of the Board of Trust Managers may fix the place and time of the
meeting.
SECTION 3.6 NOTICE. Notice of any special meeting shall be given to
each trust manager at his business or residence as recorded in the books and
records of the Company or at such other address as such trust manager may
designate in writing to the Secretary of the Company by mail, by telegram or
express courier, charges prepaid, by facsimile or telephonic communication. If
mailed, such notice shall be deemed adequately delivered if deposited in the
United States mails so addressed, with postage thereon prepaid, at least five
(5) days before the day of such meeting. If by telegram, such notice shall be
deemed adequately delivered if the telegram is delivered to the telegraph
company at least twenty-four (24) hours before the time set for such meeting. If
by express courier, the notice shall be deemed adequately given if delivered to
the courier company at least two (2) days before the day of such meeting. If by
telephone or facsimile, the notice shall be deemed adequately delivered if given
at least twelve (12) hours prior to the time set for such meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Trust Managers need be specified in the notice of such meeting,
except for amendments to these Bylaws as provided under Article VII hereof. A
meeting may be held at any time without notice if all the trust managers are
present or if those not present waive notice of the meeting in writing, either
before or after such meeting. Attendance of a trust manager at a meeting shall
constitute waiver of notice of that meeting unless he or she attends for the
sole and express purpose of objecting to the transaction of business on the
ground that the meeting was not lawfully called or convened.
SECTION 3.7 QUORUM. A number of trust managers equal to at least a
majority of the trust managers then in office shall constitute a quorum for the
transaction of business; provided, however, that if the Whole Board consists of
two or three trust managers, two trust managers shall constitute a quorum, if
the Whole Board consists of one trust manager, one trust manager shall
7
constitute a quorum and that in no event may less than one third (1/3) of the
Whole Board constitute a quorum. Anything else herein to the contrary
notwithstanding, if at any meeting of the Board of Trust Managers there shall be
less than a quorum present, a majority of the trust managers present may adjourn
the meeting from time to time without further notice. Except as may otherwise be
provided by the Declaration of Trust, these Bylaws or applicable law, the act of
the majority of the trust managers present at a meeting at which a quorum is
present shall be the act of the Board of Trust Managers. The trust managers
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal or departure of enough trust
managers to leave less than a quorum.
SECTION 3.8 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the
Board of Trust Managers, or any committee thereof, may participate in a meeting
of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 3.8 shall constitute presence in person at such meeting.
SECTION 3.9 PRESUMPTION OF ASSENT. A trust manager of the Company who
is present at a meeting of the trust managers at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent shall be entered in the minutes of the meeting or unless he
or she shall file a written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof.
SECTION 3.10 ADJOURNMENTS. Any meeting of the Board of Trust Managers
may be adjourned prior to the completion of business thereat. Notice of the
subsequent meeting held as a result of an adjournment, other than by
announcement at the meeting at which the adjournment is taken, shall not be
necessary. If a quorum is present at such subsequent meeting, any business may
be transacted thereat which could have been transacted at the meeting which was
adjourned.
SECTION 3.11 INFORMAL ACTION. If all of the trust managers consent in
writing to any action required or permitted to be taken at a meeting of the
Board of Trust Managers or a committee thereof and the writing or writings
evidencing such consent is or are filed by the Secretary of the Company with the
minutes of proceedings of the Board of Trust Managers or such committee, the
action shall be as valid as though it had been taken at a meeting of the Board
or committee.
SECTION 3.12 VACANCIES. Except as otherwise provided in this Section
3.12, subject to the rights of the holders of any class or series of Preferred
Shares to elect additional trust managers under specified circumstances, unless
the Board of Trust Managers otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, or other cause relating to a
then-existing Board position shall be filled by the affirmative vote of a
majority of the remaining trust managers, though less than a quorum of the Board
of Trust Managers, and newly created trust managerships resulting from an
increase in the authorized number of trust managers shall be filled by the
affirmative vote of a majority of the Whole Board and, in either event, trust
managers so chosen shall hold office for a term expiring at the annual meeting
of shareholders at which the term of office of the class to which they have been
elected expires and until such trust manager's successor shall have been duly
elected and qualified. No decrease in the number of authorized trust managers
8
constituting the Whole Board shall shorten the term of any incumbent trust
manager. Vacancies on the Board of Trust Managers due to the removal of a trust
manager may be filled by the shareholders at an annual or special meeting called
for that purpose, and trust managers so chosen shall hold office for a term
expiring at the annual meeting of shareholders at which the term of office of
the class to which they have been elected expires and until each such trust
manager's successor shall have been duly elected and qualified. The appointment
or election of a successor trust manager shall be considered an amendment to the
Declaration of Trust.
SECTION 3.13 REMOVAL. Subject to the rights of the holders of any
class or series of Preferred Shares to elect additional trust managers under
specified circumstances, any trust manager, or the entire Board of Trust
Managers, may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of at least 80 percent of the then
outstanding Voting Shares, voting together as a single class.
SECTION 3.14 COMMITTEES. The Board of Trust Managers, by resolution or
resolutions passed by a majority of the Whole Board, may designate from among
the members of the trust managers one or more committees which, to the extent
provided in such resolution or resolutions, shall have and may exercise all of
the authority of the Board of Trust Managers in the business and affairs of the
Company to the extent consistent with the Texas Real Estate Investment Trust
Act, as amended from time to time, or any successor statute thereto (the "Texas
REIT Act"), except the power to amend the Declaration of Trust, to approve a
plan of merger or share exchange, to declare dividends or distributions on
shares, to amend these Bylaws, to issue shares except in the manner and to the
extent prescribed by the Declaration of Trust, these Bylaws or any resolution
designating the committee, to fill vacancies in the trust managers or in the
committee, to elect or remove officers of the Company or members of the
committee, to fix the compensation of any member of the committee, to recommend
to the shareholders any action requiring shareholder approval, or to approve any
merger, consolidation or share exchange which does not require shareholder
approval, each committee to consist of two (2) or more trust managers of the
Company, including, without limitation the following committees:
(1) An Executive Committee, which shall have such authority
as shall be delegated by the Board of Trust Managers,
including, without limitation, authority to acquire and
dispose of real property and to execute contracts and
agreements on behalf of the full Board of Trust Managers
including, without limitation, those relating to the
incurrence of debt by the Company or subsidiaries thereof,
and shall advise the Board of Trust Managers from time to
time with respect to such matters as the Board of Trust
Managers shall direct.
(2) An Audit Committee, which shall consist of Outside Trust
Managers (as defined below). The Audit Committee shall make
recommendations concerning the engagement of independent
public accountants, review with the independent public
accountants the plans and results of each audit engagement,
professional services provided by the independent public
accountants, review the independence of the independent
public accountants, consider the range of audit and
non-audit fees and review the adequacy of the Company's
internal accounting controls.
9
(3) An Executive Compensation Committee, which shall
determine compensation for the Company's executive officers
and shall administer any share incentive or other
compensation plans adopted by the Company.
For purposes of this Section 3.14, "Outside Trust Managers" shall mean trust
managers who are not (i) officers or former officers of the Company or any
subsidiary thereof; (ii) employees of the Company or any subsidiary or division
thereof; (iii) relatives of an executive officer; (iv) holders of more than five
(5) percent of the Voting Shares of the Company or any subsidiary thereof; (v)
members of any organization acting as an adviser, consultant, legal counsel or
in a similar capacity with respect to the Company and receiving compensation
therefor on an ongoing basis from the Company, in addition to trust managers
fees; or (vi) with reference to any particular transaction, interested trust
managers within the meaning of Section 4.20 of the Texas REIT Act or any
successor provision thereto. The Board of Trust Managers may designate one or
more trust managers as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee. Unless the Board
of Trust Managers shall provide otherwise, the presence of one-half (1/2) of the
total membership of any committee of the Board of Trust Managers shall
constitute a quorum for the transaction of business at any meeting of such
committee and the act of a majority of those present shall be the act of such
committee. Each committee shall keep regular minutes of its proceedings and
report the same to the full Board of Trust Managers when so requested.
ARTICLE IV
OFFICERS
SECTION 4.1 CATEGORIES OF OFFICERS. The elected officers of the
Company shall consist of a Chairman of the Board, a Chief Executive Officer, a
President, one or more Executive Vice Presidents or Vice Presidents, a Secretary
and a Treasurer. Such other officers, assistant officers, agents and employees
as the Board of Trust Managers may from time to time deem necessary may be
elected by the Board of Trust Managers or appointed by the Chairman of the
Board. The Chairman of the Board and the Vice Chairman of the Board shall be
chosen from among the trust managers. Two or more offices may be held by the
same person, except that a person may not concurrently serve as the President
and a Vice President or Executive Vice President. Each officer chosen or
appointed in the manner prescribed by the Board of Trust Managers shall have
such powers and duties as generally pertain to his or her office or offices,
subject to the specific provisions of this Article IV. Such officers also shall
have such powers and duties as from time to time may be conferred by the Board
of Trust Managers or by any committee thereof authorized to do so.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Company shall be elected annually by the Board of Trust Managers at the regular
meeting of the Board of Trust Managers held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as is convenient. Each officer
shall hold office until his or her successor shall have been duly elected and
shall have qualified, or until his or her death or until he or she shall resign
or be removed from office.
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SECTION 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the shareholders and of the Board of Trust Managers.
The Chairman of the Board shall be responsible for general management of the
affairs of the Company and shall perform all duties incidental to the office
which may be required by law, and all such other duties as may properly be
required by the Board of Trust Managers. Except where by law the signature of
the Chief Executive Officer or the President is required, the Chairman of the
Board shall possess the same power as the Chief Executive Officer and the
President to sign all certificates, contracts, and other instruments of the
Company which may be authorized by the Board of Trust Managers. The Chairman of
the Board shall make such reports to the Board of Trust Managers and the
shareholders as are properly required by the Board of Trust Managers. The
Chairman of the Board shall see that all orders and resolutions of the Board of
Trust Managers and of any committee thereof are carried into effect.
SECTION 4.4 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall act in a general executive capacity and shall assist the Chairman of the
Board in the administration and operation of the Company's business and general
supervision of its policies and affairs. The Chief Executive Officer may, in the
absence of or because of the inability to act of the Chairman of the Board,
perform all duties of the Chairman of the Board and, in the absence of or
because of the inability to act of the Chairman of the Board and the Vice
Chairman of the Board, preside at all meetings of shareholders and of the Board
of Trust Managers. The Chief Executive Officer may sign, alone or with the
Secretary or any assistant secretary or any other officer of the Company
properly authorized by the Board of Trust Managers, certificates, contracts and
other instruments of the Company as authorized by the Board of Trust Managers.
SECTION 4.5 PRESIDENT. The President shall be the chief operating
officer of the Company, shall act in a general executive capacity and shall
assist the Chairman of the Board and the Chief Executive Officer in the
administration and operation of the Company's business and general supervision
of its policies and affairs. The President may, in the absence of or because of
the inability to act of the Chairman of the Board and the Chief Executive
Officer, perform all duties of the Chairman of the Board and, in the absence of
or because of the inability to act of the Chairman of the Board, the Vice
Chairman of the Board and the Chief Executive Officer, preside at all meetings
of shareholders and of the Board of Trust Managers. The President may sign,
alone or with the Secretary or any assistant secretary or any other officer of
the Company properly authorized by the Board of Trust Managers, certificates,
contracts and other instruments of the Company as authorized by the Board of
Trust Managers.
SECTION 4.6 VICE PRESIDENTS. The Vice President or Vice Presidents,
if any, including any Executive Vice Presidents, shall perform the duties of the
Chief Executive Officer and the President in the absence or disability of both
the Chief Executive Officer and the President, and shall have such powers and
perform such other duties as the Board of Trust Managers or the Chairman of the
Board from time to time may prescribe.
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SECTION 4.7 SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of shareholders and trust managers and all other
notices required by law, by the Declaration of Trust or by these Bylaws, and in
case of his or her absence or refusal or neglect so to do, any such notice may
be given by any person thereunto directed by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or the Board
of Trust Managers, upon whose request the meeting is called, as provided in
these Bylaws. The Secretary shall record all the proceedings of the meetings of
the Board of Trust Managers, any committees thereof and the shareholders of the
Company in a book or books to be kept for that purpose, and shall perform such
other duties as from time to time may be prescribed by the Board of Trust
Managers, the Chairman of the Board, the Chief Executive Officer or the
President. The Secretary shall have custody of the seal, if any, of the Company
and shall affix the same to all instruments requiring it, when authorized by the
Board of Trust Managers, the Chairman of the Board, the Chief Executive Officer
or the President, and shall attest to the same.
SECTION 4.8 TREASURER. The Treasurer shall have custody of all
Company funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Company. The Treasurer
shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be designated by the Board of
Trust Managers. The Treasurer shall disburse the funds of the Company in such
manner as may be ordered by the Board of Trust Managers, the Chairman of the
Board, the Chief Executive Officer or the President, taking proper vouchers for
such disbursements. The Treasurer shall render to the Chairman of the Board, the
Chief Executive Officer, the President and the Board of Trust Managers, whenever
requested, an account of all his or her transactions as Treasurer and of the
financial condition of the Company. If required by the Board of Trust Managers,
the Treasurer shall give the Company a bond for the faithful discharge of his or
her other duties in such amount and with such surety as the Board of Trust
Managers shall prescribe. The Treasurer also shall perform such duties and have
such powers as the Board of Trust Managers from time to time may prescribe.
SECTION 4.9 REMOVAL. Any officer elected by the Board of Trust
Managers or appointed in the manner prescribed hereby may be removed by a
majority of the members of the Whole Board whenever, in their judgment, the best
interests of the Company would be served thereby. No elected or appointed
officer shall have any contractual rights against the Company for compensation
by virtue of such election or appointment beyond the date of the election or
appointment of his or her successor, his or her death, resignation or removal,
whichever event shall first occur, except as otherwise provided in an employment
or similar contract or under an employee deferred compensation plan.
SECTION 4.10 SALARIES. The Board of Trust Managers shall fix the
salaries of the Chairman of the Board, the Chief Executive Officer and the
President of the Company, or may delegate the authority to do so to a duly
constituted Executive Compensation Committee. The salaries of other officers,
agents and employees of the Company may be fixed by the Board of Trust Managers,
by a committee of the Board, by the Chairman of the Board or by another officer
or committee to whom that function has been delegated by the Board of Trust
Managers or the Chairman of the Board.
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SECTION 4.11 VACANCIES. Any newly created office or vacancy in any
office because of death, resignation or removal shall be filled by the Board of
Trust Managers or, in the case of an office not specifically provided for in
Section 4.1 hereof, by or in the manner prescribed by the Board of Trust
Managers. The officer so selected shall hold office until his or her successor
is duly selected and shall have qualified, unless he or she sooner resigns or is
removed from office in the manner provided in these Bylaws.
SECTION 4.12 RESIGNATIONS. Any trust manager or officer, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary, and such resignation shall be deemed to be effective
as of the close of business on the date said notice is received by the Chairman
of the Board, the Chief Executive Officer, the President or the Secretary. No
action shall be required of the Board of Trust Managers or the shareholders to
make any such resignation effective.
ARTICLE V
SHARE CERTIFICATES AND TRANSFERS
SECTION 5.1 SHARE CERTIFICATES. Each shareholder shall be entitled to
a certificate or certificates, in a form approved by the Board of Trust Managers
and consistent with the Texas REIT Act, which shall represent and certify the
number, kind and class of shares owned by him or her in the Company. Each
certificate shall be signed by the Chairman of the Board, the Chief Executive
Officer or a Vice President, and by the Secretary or the Treasurer (or an
assistant secretary or assistant treasurer, if any) and, pursuant to resolutions
of the Board of Trust Managers, any such signature may be in facsimile. In case
any officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed on, a certificate has ceased to hold such office
before the certificate is issued, it nevertheless may be issued by the Company
with the same effect as if he or she held such office at the date of issue.
SECTION 5.2 RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Trust Managers may fix, in advance, a date as the record date for the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders, or shareholders entitled to receive payment of any dividend or
distribution or the allotment of any rights, or the shareholders entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or in order to make a determination of shareholders for any other proper
purpose. The record date may not be prior to the close of business on the day
the record date is fixed. Such record date shall not be prior to the close of
business on the day such date is fixed and not more than sixty (60) days, and in
case of a meeting of shareholders, not less than ten (10) days, prior to the
date on which the particular action requiring such determination of shareholders
is to be taken. The stock transfer books of the Company may not be closed for a
period longer than twenty (20) days.
If no record date is fixed and the Company's stock transfer books are
not closed, the determination of shareholders entitled to notice of, or to vote
at, a meeting of shareholders shall be at the close of the business on the day
on which notice of the meeting is mailed. If no record date is fixed, the record
date for determining shareholders for any purpose other than that specified in
the preceding sentence shall be at the close of business on the day on which the
resolution of the Board of Trust Managers relating thereto is adopted.
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When a determination of shareholders of record entitled to notice of,
or to vote at, any meeting of shareholders has been made as provided in this
Section 5.2, such determination shall apply to any future meeting in respect of
an adjournment thereof, unless the trust managers fix a new record date under
this section for such future meeting.
SECTION 5.3 REGISTERED SHAREHOLDERS. The Company shall be entitled to
treat the holder of record of shares as the holder in fact and, except as
otherwise provided by the laws of the State of Texas, shall not be bound to
recognize any equitable or other claim to or interest in the shares.
Shares of the Company shall be transferred on its books only upon the
surrender to the Company of the share certificates duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, and upon
presentation of adequate evidence of the validity of the transfer under this
Section 5.3 and the laws of the State of Texas. In that event, the surrendered
certificates shall be canceled, new certificates issued to the person entitled
to them and the transaction recorded on the books of the Company.
SECTION 5.4 LOST CERTIFICATES. The Board of Trust Managers may direct
a new certificate to be issued in place of a certificate alleged to have been
destroyed or lost if the owner makes an affidavit that it is destroyed or lost.
The Board, in its discretion, may, as a condition precedent to issuing the new
certificate, require the owner to give the Company a bond as indemnity against
any claim that may be made against the Company on the certificate allegedly
destroyed or lost.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 FISCAL YEAR. The fiscal year of the Company shall begin
on the first (1st) day of January and end on the thirty-first (31st) day of
December of each year.
SECTION 6.2 DIVIDENDS. The Board of Trust Managers may from time to
time declare, and the Company may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and the Declaration
of Trust.
SECTION 6.3 DEBT LIMITATIONS. The trust managers shall review the
borrowings of the Company quarterly for reasonableness in relation to the
Company's net assets. The Company shall not incur recourse indebtedness if,
after giving effect to the incurrence thereof, aggregate recourse indebtedness,
secured and unsecured, would exceed fifty-five percent (55%) of the Company's
Net Asset Value on an unconsolidated basis. For this purpose, the term "Net
Asset Value" means the Company's total assets (less intangibles) value based on
market capitalization rates and current year rental income, before deducting
depreciation or other non-cash reserves, less total liabilities, as calculated
in good faith by the trust managers at the end of each quarter on a basis
consistently applied.
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SECTION 6.4 SEAL. The seal of the Company, if any, shall have
inscribed thereon the name of the Company and shall be in such form as may be
approved by the Board of Trust Managers. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
SECTION 6.5 EXECUTION OF WRITTEN INSTRUMENTS. Contracts, deeds,
documents, and other instruments shall be executed by the Chairman of the Board,
the Chief Executive Officer, the President or a Vice President and attested by
the Secretary or an assistant secretary, unless the Board of Trust Managers
shall designate other authorized signatories or other procedures for their
execution.
SECTION 6.6 SIGNING OF CHECKS AND NOTES. Checks, notes, drafts, and
demands for money shall be signed by such person or persons as may be designated
by the Board of Trust Managers, the Chairman of the Board, the Chief Executive
Officer or the President.
SECTION 6.7 VOTING OF SECURITIES HELD IN OTHER ENTITIES. In the
absence of other arrangements by the Board of Trust Managers, securities issued
by any other trust, corporation, partnership or other entity and owned or
controlled by this Company may be voted at any securityholders' meeting of such
other entity by the Chairman of the Board of this Company or, if he or she is
not present at the meeting, by the Chief Executive Officer, the President or any
Vice President of this Company, and in the event none of the Chairman of the
Board, the Chief Executive Officer, the President or any Vice President is to be
present at a meeting, the securities may be voted by such person as the Chairman
of the Board and the Secretary of the Company shall, by duly executed proxy,
designate to represent the Company at the meeting.
SECTION 6.8 INDEMNIFICATION AND INSURANCE.
A. DEFINITIONS. In this Section 6.8:
(1) "COMPANY" includes any domestic or foreign predecessor
of the Company in a merger, consolidation, or other transaction in which the
liabilities of the predecessor are transferred to the Company by operation of
law and in any other transaction in which the Company assumes the liabilities
of the predecessor but does not specifically exclude liabilities that are the
subject of this Section 6.8.
(2) "INDEMNITEE" means (i) any present or former Trust
Manager, officer, employee or agent of the Company, (ii) any person who while
serving in any of the capacities referred to in clause (i) hereof served at the
Company's request as a director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of another real estate
investment trust or foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
and (iii) any person nominated or designed by (or pursuant to authority granted
by) the Trust Managers or any committee thereof to serve in any of the
capacities referred to in clause (i) or (ii) hereof.
(3) "OFFICIAL CAPACITY" means (i) when used with respect
to a Trust Manager, the office of Trust Manager of the Company and (ii) when
used with respect to a person other than a Trust Manager, the elective or
appointive office of the Company held by such person or the employment or
agency relationship undertaken by such person on behalf of the Company, but
in each case does not include service for any other real estate investment
trust or foreign or domestic corporation or any partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other enterprise.
15
(4) "PROCEEDING" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or proceeding,
and any inquiry or investigation that could lead to such an action, suit or
proceeding.
B. INDEMNIFICATION. The Company shall indemnify every
Indemnitee against all judgments, penalties (including excise and similar
taxes), fines, amounts paid in settlement and reasonable expenses actually
incurred by the Indemnitee in connection with any Proceeding in which he was,
is or is threatened to be named defendant or respondent, or in which he was or
is a witness without being named a defendant or respondent, by reason, in whole
or in part, of his serving or having served, or having been nominated or
designated to serve, in any of the capacities referred to in Section 6.8.A(1),
if it is determined in accordance with Section 6.8.D that the Indemnitee (a)
conducted himself in good faith, (b)reasonably believed, in the case of conduct
in his Official Capacity, that his conduct was in the Company's best interests
and, in all other cases, that his conduct was at least not opposed to the
Company's best interests, and (c) in the case of any criminal proceeding, had
no reasonable cause to believe that his conduct was unlawful; provided,
however, that in the event that an Indemnitee is found liable to the Company
or is found liable on the basis that personal benefit was improperly received
by the Indemnitee the indemnification (i) is limited to reasonable expenses
actually incurred by the Indemnitee in connection with the Proceeding and (ii)
shall not be made in respect of any Proceeding in which the Indemnitee shall
have been found liable for willful or intentional misconduct in the performance
of his duty to the Company. Except as provided in the immediately preceding
proviso to the first sentence of this Section 6.8.B, no indemnification shall
be made under this Section 6.8.B in respect of any Proceeding in which such
Indemnitee shall have been (x) found liable on the basis that personal benefit
was improperly received by him, whether or not the benefit resulted from an
action taken in the Indemnitee's Official Capacity, or (y) found liable to the
Company. The termination of any Proceeding by judgment, order, settlement or
conviction, or on a plea of nolo contendere or its equivalent, is not of itself
determinative that the Indemnitee did not meet the requirements set forth in
clauses (a), (b) or (c) in the first sentence of this Section 6.8.B. An
Indemnitee shall be deemed to have been found liable in respect of any claim,
issue or matter only after the Indemnitee shall have been so adjudged by a
court of competent jurisdiction after exhaustion of all appeals therefrom.
Reasonable expenses shall include, without limitation, all court costs and all
fees and disbursements of attorneys for the Indemnitee.
C. SUCCESSFUL DEFENSE. Without limitation of Section
6.8.B and in addition to the indemnification provided for in Section 6.8.B,
the Company shall indemnify every Indemnitee against reasonable expenses
incurred by such person in connection with any Proceeding in which he is
a witness or a named defendant or respondent because he served in any of the
capacities referred to in Section 6.8.A(1), if such person has been wholly
successful, on the merits or otherwise, in defense of the Proceeding.
16
D. DETERMINATIONS. Any indemnification under Section 6.8.B
(unless ordered by a court of competent jurisdiction) shall be made by the
Company only upon a determination that indemnification of the Indemnitee is
proper in the circumstances because he has met the applicable standard of
conduct. Such determination shall be made (a) by the Trust Managers by a
majority vote of a quorum consisting of Trust Managers who, at the time of
such vote, are not named defendants or respondents in the Proceeding; (b) if
such a quorum cannot be obtained, then by a majority vote of a committee of the
Trust Managers, duly designated to act in the matter by a majority vote of all
Trust Managers (in which designation Trust Managers who are named defendants or
respondents in the Proceeding may participate), such committee to consist
solely of two (2) or more Trust Managers who, at the time of the committee
vote, are not named defendants or respondents in the Proceeding; (c) by special
legal counsel selected by the Trust Managers or a committee thereof by vote as
set forth in clauses (a) or (b) of this Section 6.8.D or, if the requisite
quorum of all of the Trust Managers cannot be obtained and such committee
cannot be established, by a majority vote of all of the Trust managers (in
which Trust Managers who are named defendants or respondents in the Proceeding
may participate); or (d) by the shareholders in a vote that excludes the shares
held by Trust Managers that are named defendants or respondents in the
Proceeding. Determination as to reasonableness of expenses shall be made in
the same manner as the determination that indemnification is permissible,
except that if the determination that indemnification is permissible is made
by special legal counsel, determination as to reasonableness of expenses must
be made in the manner specified in clause (c) of the preceding sentence for
the selection of special legal counsel. In the event a determination is made
under this Section 6.8.D that the Indemnitee has met the applicable standard
of conduct as to some matters but not as to others, amounts to be indemnified
may be reasonably prorated.
E. ADVANCEMENT OF EXPENSES. Reasonable expenses (including
court costs and attorneys' fees) incurred by an Indemnitee who was or is a
witness or was, is or is threatened to be made a named defendant or respondent
in a Proceeding shall be paid or reimbursed by the Company at reasonable
intervals in advance of the final disposition of such Proceeding, and without
making any of the determinations specified in Section 6.8.D, after receipt by
the Company of (a) a written affirmation by such Indemnitee of his good faith
belief that he has met the standard of conduct necessary for indemnification
by the Company under this Section 6.8 and (b) a written undertaking by or on
behalf of such Indemnitee to repay the amount paid or reimbursed by the Company
if it shall ultimately be determined that he is not entitled to be indemnified
by the Company as authorized in this Section 6.8. Such written undertaking
shall be an unlimited general obligation of the Indemnitee but need not be
secured and it may be accepted without reference to financial ability to make
repayment. Notwithstanding any other provision of this Section 6.8, the Company
may pay or reimburse expenses incurred by an Indemnitee in connection with his
appearance as a witness or other participation in a Proceeding at a time when
he is not named a defendant or respondent in the Proceeding.
F. ENFORCEMENT. If a claim under paragraph B of this
Section 6.8 is not paid in full by the Company within thirty (30) calendar
days after a written claim has been received by the Company, the claimant may
at any time thereafter (but prior to payment of the claim) bring suit against
the Company to recover the unpaid amount of the claim and, if successful, in
whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
17
if any, has been tendered to the Company) that the claimant has not met the
standards of conduct which make it permissible under the Texas REIT Act for the
Company to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Company. Neither the failure of the
Company (including its Board of Trust Managers, independent legal counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Texas REIT Act, nor an actual determination by the Company (including its Board
of Trust Managers, independent legal counsel or stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
G. PROCEDURE UPON A CHANGE IN CONTROL. Following any
"change in control" of the Company of the type required to be reported under
Item 1 of Form 8-K promulgated under the Exchange Act, any determination as to
entitlement to indemnification shall be made by independent legal counsel
selected by the claimant, which such independent legal counsel shall be
retained by the Board of Trust Managers on behalf of the Company.
H. EMPLOYEE BENEFIT PLANS. For purposes of this Section
6.8, the Company shall be deemed to have requested an Indemnitee to serve an
employee benefit plan whenever the performance by him of his duties to the
Company also imposed or imposes duties on or otherwise involved or involves
services by him to the plan or participants or beneficiaries of the plan.
Excise taxes assessed on an Indemnitee with respect to an employee benefit
plan pursuant to applicable law shall be deemed fines. Action taken or omitted
by an Indemnitee with respect to an employee benefit plan in the performance
of his duties for a purpose reasonably believed by him to be in the interest
of the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Company.
I. AUTHORIZATION TO PURCHASE INSURANCE. The Company may
purchase and maintain insurance, at its expense, on its own behalf and on
behalf of any person who is or was a trust manager, officer, employee or agent
of the Company or who while a trust manager, officer, employee or agent of
the Company is or was serving at the request of the Company as a trust
manager, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise,
or employee benefit plan, against any liability asserted against and
incurred by such person in any such capacity or arising out of such person's
position, whether or not the Company would have the power to indemnify such
person against such expense or liability under the Texas REIT Act.
J. OTHER INDEMNIFICATION AND INSURANCE. The
indemnification provided by this Section 6.8 shall (a) not be deemed
exclusive of, or to preclude, any other rights to which those seeking
indemnification may at any time be entitled under the Company's Declaration
of Trust, any law, agreement or vote of shareholders or disinterested Trust
Managers, or otherwise, or under any policy or policies of insurance
purchased and maintained by the Company on behalf of an Indemnitee,
both as to action in his Official Capacity and as to action in any
other capacity, (b) continue as to a person who has ceased to be in the
capacity by reason of which he was an Indemnitee with respect to matters
arising during the period he was in such capacity, and (c) inure to the
benefit of the heirs, executors and administrators of such a person.
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K. NOTICE. Any indemnification of or advance of expenses
to an Indemnitee in accordance with this Section 6.8 shall be reported
in writing to the shareholders of the Company with or before the notice or
waiver of notice of the next shareholders' meeting or with or before the next
submission to shareholders of a consent to action without a meeting and,
in any case, within the twelve-month period immediately following the
date of the indemnification or advance.
L. CONSTRUCTION. The indemnification provided by this
Section 6.8 shall be subject to all valid and applicable laws, including,
without limitation, the Texas REIT Act, and, in the event this Section
6.8 or any of the provisions hereof or the indemnification contemplated
hereby are found to be inconsistent with or contrary to any such valid laws,
the latter shall be deemed to control and this Section 6.8 shall be
regarded as modified accordingly, and, as so modified, shall continue in
full force and effect.
M. CONTINUING OFFER, RELIANCE, ETC. The provisions of this
Section 6.8 (a) are for the benefit of, and may be enforced by, each Indemnitee
of the Company, the same as if set forth in their entirety in a written
instrument duly executed and delivered by the Company and such Indemnitee and
(b) constitute a continuing offer to all present and future Indemnitees. The
Company, by its adoption of these Bylaws, (x) acknowledges and agrees that each
Indemnitee of the Company has relied upon and will continue to rely upon the
provisions of this Section 6.8 in becoming, and serving in any of the
capacities referred to in Section 6.8.A(1) hereof, (y) waives reliance upon,
and all notices of acceptance of, such provisions by such Indemnitees and (z)
acknowledges and agrees that no present or future Indemnitee shall be
prejudiced in his right to enforce the provisions of this Section 6.8 in
accordance with their terms by any act or failure to act on the part of the
Company.
N. INDEMNIFICATION OF SHAREHOLDERS. The Company shall
indemnify each shareholder against any claim or liability to which the
shareholder may become subject by reason of being or having been a shareholder.
The Company shall reimburse each shareholder for all legal and other expenses
reasonably incurred by such shareholder in connection with any such claim or
liability.
O. AUTHORITY TO FURTHER INDEMNIFY. The Company may, to
the extent authorized from time to time by the Trust Managers, grant rights
of indemnification and rights to be paid by the Company the expenses
incurred in defending any proceeding in advance of its final disposition
to any employee or agent of the Company to the fullest extent of the provisions
of this Section 6.8 with respect to the indemnification and advancement of
expenses of Trust Managers and officers of the Company.
P. EFFECT OF AMENDMENT. No amendment, modification or
repeal of this Section 6.8 or any provision of this Section 6.8 shall in any
manner terminate, reduce or impair the right of any past, present or future
Indemnitees to be indemnified by the Company, nor the obligation of the
Company to indemnify any such Indemnitees, under and in accordance with
the provisions of this Section 6.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may be asserted.
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ARTICLE VII
AMENDMENTS
These Bylaws may be amended, added to, rescinded or repealed at any
meeting of the Board of Trust Managers or of the shareholders, provided that
notice of the proposed change was given (i) in the case of a meeting of the
shareholders, in the notice of the meeting given pursuant to Section 2.4 of
these Bylaws and (ii) in the case of a meeting of the Board of Trust Managers,
in a notice given pursuant to Section 3.4 or 3.6 hereof, as the case may be;
provided, however, that, in the case of amendments by shareholders, except as
otherwise specifically required by law, notwithstanding any other provisions of
these Bylaws or the Declaration of Trust or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the Voting Shares
required by law, the Declaration of Trust or these Bylaws with respect to any
class or series of Preferred Shares, the affirmative vote of the holders of that
proportion of the Voting Shares necessary to approve an amendment to the
Company's Declaration of Trust pursuant to such Declaration of Trust and the
Texas REIT Act, voting together as a single class, shall be required to alter,
amend or repeal any provision of these Bylaws.
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