UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrantþx
Filed by a Party other than the Registranto¨
Check the appropriate box:
| x | Preliminary Proxy Statement | |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule | |
| ¨ | Definitive Proxy Statement | |
| ¨ | Definitive Additional Materials | |
| ¨ | Soliciting Material Pursuant to §240.14a-12 | |
INREIT Real Estate Investment Trust
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| x | No fee required. | |||
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
| (1) | Title of each class of securities to which transaction applies: | |||||
| (2) | Aggregate number of securities to which transaction applies: | |||||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||||
| (4) | Proposed maximum aggregate value of transaction: | |||||
| (5) | Total fee paid: | |||||
| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||
| (1) | Amount Previously Paid: | |||
| (2) | Form, Schedule or Registration Statement | |||
| (3) | Filing Party: | |||
| (4) | Date Filed: | |||
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of INREIT Real Estate Investment Trust (“Trust”), which will be held on Thursday, June 23, 2011,19, 2014, at 6:00 p.m., Central Standard Time, at the Holiday Inn located at 3803 13th13th Avenue South, Fargo, North Dakota 58103.
The enclosed Notice of Annual Meeting of Shareholders provides information regarding each business proposal to be voted on at the meeting. These proposals and the vote the Board of Trustees recommends are:
Proposal | Recommended Vote | |||
1. Election of | FOR | |||
2. | ||||
| FOR | ||||
3. Ratification of the appointment of | FOR | |||
4. To transact such other business as may properly come before the annual meeting or at any adjournment thereof. | FOR | |||
Please see the Notice of Annual Meeting of Shareholders, the Proxy Statement and form of Proxy, (collectively, the “Proxy Materials”) which follow this letter, as well as the 20102013 Annual Report. The Proxy Statement contains a more extensive discussion of each proposal, and therefore you should read the Proxy Statement carefully.
The annual meeting will also feature a report on the operations of the Trust, followed by a question and answer period. After the annual meeting, you will have the opportunity to speak informally with the trustees and officers of the Trust.
The Board encourages shareholders to attend the meeting in person. Whether or not you plan to attend the meeting, your vote is important regardless of the number of shares you own. We encourage you to vote by proxy so that your shares will be represented and voted at the annual meeting even if you cannot attend. If you attend the meeting, you may vote in person even if you have previously returned a proxy to us by mail.
| Sincerely, | ||||
/s/ Bruce W. Furness | ||||
| Bruce W. Furness | ||||
| Chairman | ||||
TO BE HELD ON JUNE 23, 2011
To the Shareholders of INREIT Real Estate Investment Trust:
The 20112014 Annual Meeting of Shareholders of INREIT Real Estate Investment Trust (“Trust”), will be held on Thursday, June 23, 2011,19, 2014, starting at 6:00 p.m., Central Standard Time, at the Holiday Inn located at 3803 13th13th Avenue South, Fargo, NDNorth Dakota 58103, for the following purposes:
| 1. | To elect |
| 2. |
| To ratify the |
| 3. | To ratify the appointment of |
| 4. | To transact such other business as may properly come before the annual meeting and any and all adjournments or postponements thereof, all in accordance with the accompanying Proxy Statement. |
These items are described in the proxy statement, which is part of this notice. We have not received notice of other matters that may properly be presented at the annual meeting.
Our Board of Trustees has chosen the close of business on May 18, 2011,April 15, 2014, as the record date for determining the shareholders entitled to notice of, and to vote at, the annual meeting and any adjournments or postponements thereof, all in accordance with the accompanying proxy statement.
IF YOU PLAN ON ATTENDING THE MEETING IN PERSON, PLEASE NOTIFY US BY CALLING(701) 353-2729 OR EMAILING BVANDERHAGEN@INREIT.COM, SO YOU MAY BEPRE-REGISTERED. OTHERWISE, MEETING CREDENTIALS MAY BE OBTAINED AT THE MEETING BY PERSONS IDENTIFYING THEMSELVES AS SHAREHOLDERS AS OF THE RECORD DATE. FOR A RECORD OWNER, POSSESSION OF A PROXY CARD WILL BE ADEQUATE IDENTIFICATION. FOR ABENEFICIAL-BUT-NOT-OF-RECORD OWNER, A COPY OF A BROKER’S STATEMENT SHOWING SHARES HELD FOR HIS OR HER BENEFIT ON APRIL 15, 2014, WILL BE ADEQUATE IDENTIFICATION.
| By Order of the Board of Trustees, | ||||
/s/ Bruce W. Furness | ||||
| Bruce W. Furness | ||||
| Chairman | ||||
Fargo, North DakotaMay *, 2011
2April 30, 2014
| 1 | |||||||
| 2 | |||||||
| 3 | |||||||
| 3 | |||||||
| 3 | |||||||
| 4 | |||||||
| 4 | |||||||
| 4 | |||||||
| 5 | |||||||
| 5 | |||||||
| 6 | |||||||
| 6 | |||||||
| 7 | |||||||
| 8 | |||||||
| 8 | |||||||
| 8 | |||||||
| 8 | |||||||
| 9 | |||||||
| 9 | |||||||
| 11 | |||||||
| 12 | |||||||
| 13 | |||||||
| 15 | |||||||
| 16 | |||||||
| 16 | |||||||
| 16 | |||||||
| 16 | |||||||
| 17 | |||||||
| 20 | ||||
| 20 | ||||
| 20 | ||||
| 21 | ||||
| 21 | ||||
| 22 | ||||
i
| 22 | |||||||
| 24 | ||||||
| A-1 | |||||||
PROXY STATEMENT
FOR THE 20112014 ANNUAL MEETING OF SHAREHOLERSSHAREHOLDERS TO BE HELD ON JUNE 23, 2011
This proxy statement and related documents are furnished by our Board of Trustees for the solicitation of proxies from the holders of our common shares of beneficial interest in connection with the annual meeting of shareholders to be held at the Holiday Inn located at 3803 13th Avenue South, Fargo, NDNorth Dakota 58103, on Thursday, June 23, 2011,19, 2014, at 6:00 p.m. Central Standard Time, subject to any adjournment or postponement thereof. The Notice of Annual Meeting of Shareholders, this Proxy Statement, form of Proxy and the annual reportAnnual Report will be mailed to shareholders starting on or about May 31, 2011.
Record Date and Share Ownership
Owners of record of common shares of beneficial interest at the close of business on May 18, 2011April 15, 2014 will be entitled to vote at the annual meeting or adjournments or postponements thereof. As of the close of business on May 18, 2011,April 15, 2014, there were outstanding *5,489,244.0153 common shares, which is the only class of securities of the Trust entitled to vote at the annual meeting (all such common shares being referred to herein as the “shares” and all holders thereof being referred to as our “shareholders”). Each share is entitled to one vote. There is no cumulative voting for the election of Trustees.
We will make available a list of holders of record of our shares as of the close of business on May 18, 2011April 15, 2014 for inspection during normal business hours at our offices, 2161711 Gold Drive South, Broadway, Suite 202, Minot, North Dakota 58701.100, Fargo, ND 58103. This list will also be available at the annual meeting. For information regarding security ownership by the Board of Trustees, management and by the beneficial owners of more than 5% of our securities, see “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.Management.”
Voting Shares
When the proxy materials are delivered, shareholders will receive a proxy card andpostage-paid return envelope. Shareholders can ensure that their shares are voted at the annual meeting by signing, dating and returning the proxy in the return envelope. All proxies are to be submitted either by mail or in person at the annual meeting. If shares are held in street name, such shareholders will receive instructions from their broker, bank or other nominee, that theyand such instructions must followbe followed to have their shares voted.
All properly executed written proxies delivered pursuant to this solicitation (and not revoked later) will be voted at the annual meeting in accordance with the instructions of the shareholder. Below is a list of the different votes shareholders may cast at the annual meeting pursuant to this solicitation.
In voting on the election of Trusteestrustees to serve until the next annual meeting of shareholders, or until their successors are duly elected and qualified, shareholders may vote in one of the following ways:
| 1. | in favor of a nominee, or | ||
| 2. | |||
1
| 1. | in favor of the proposal, | ||
| 2. | against the proposal, or | ||
| 3. | abstain from voting on the proposal. |
Shareholders should specify their choice for each matter on the proxy. If no specific instructions are given, proxies which are signed and returned will be votedFORthe election of the Trusteestrustees as set forth herein,FORthe approvalratification of the amendment to the Declaration of Trust to increase the number of authorized shares of beneficial interests,FORthe ratification of the approval of the Amended and Restated Declaration of Trust,FORthe ratification of the approval of the Amended and Restated Bylaws, andFORthe ratification of the appointment of Widmer Roel PCBaker Tilly Virchow Krause, LLP as our independent registered public accounting firm for the year ending December 31, 2011.
In addition, if other matters not described in this proxy statement are properly presented at the annual meeting, the persons named in the proxy will vote in accordance with their best judgment with respect to such matters. This includes a motion to adjourn or postpone the annual meeting to solicit additional proxies. We do not currently know of any other matters to be presented at the annual meeting.
Revocability
A shareholder submitting a proxy has the power to revoke it at any time prior to its exercise by voting in person at the annual meeting, by giving our SecretaryBrittaney van der Hagen, Investor Relations Coordinator, a written notice bearing a later date than the proxy or by giving a later dated proxy. Attendance at the annual meeting will not in itself constitute a revocation of a proxy. Any written notice revoking a proxy should be sent to our Secretary, Darla Iverson,Brittaney van der Hagen, Investor Relations Coordinator, at INREIT Real Estate Investment Trust, 2161711 Gold Drive South, Broadway, Suite 202, Minot,100, Fargo, ND 58701.
Quorum
A quorum of shareholders is required to hold an annual meeting. According to our bylaws, the holders of a majority of the outstanding shares entitled to vote at the annual meeting, represented in person or by proxy, constitute a quorum. If a shareholder has returned valid proxy instructions or attends the annual meeting in person, that shareholder’s shares will be counted for the purpose of determining whether there is a quorum, even if the shareholder wishes to abstain from voting on some or all matters introduced at the annual meeting. Abstentions and “brokernon-votes” (shares held by a broker, bank or other nominee that does not have authority, either express or discretionary, to vote on a particular matter) are counted for determining whether there is a quorum. If a quorum is not present, the annual meeting may be adjourned from time to time until a quorum is present.
Required Vote
A plurality of the holders of a majority of the shares outstanding and entitled to vote at the annual meeting of shareholdersvotes cast is required for the election of each Trusteethe trustees to serve until the next annual meeting of shareholders, or until such Trustee’s successor istheir successors are duly elected and qualified. For this proposal, abstentionsThis means the trustee nominee with the most votes for a particular slot is elected for that slot. Only votes “FOR” or “WITHHELD” affect the outcome. If you withhold your authority to vote for a particular nominee on your proxy card, your vote will have no effect on the outcome because only a plurality of votes actually cast is required to elect a trustee. A broker non-vote will also have no effect on the outcome for the same reason.
With respect to all other matters you may vote “FOR,” “AGAINST” or “ABSTAIN.” Shares voted by proxies will be voted in accordance with the specifications marked thereon, and, if no specification is made, will be voted “FOR” each matter. Shares represented by proxies that are marked “ABSTAIN” are considered shares entitled to vote on the particular matter and will have the same effect as a vote against the matter. A broker non-votesnon-vote will not have the effect of a vote against this proposal for each nominee.
particular matter.
2
If you were a shareholder as of the close of business on May 18, 2011,April 15, 2014, you may attend the annual meeting in person. If you want to vote your shares in person and your shares are held in street name, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.
Expenses of Solicitation
The expense of solicitation of proxies will be borne by us.us, which is estimated to be approximately $8,000. We have not retained a proxy solicitor to solicit proxies; however, we may choose to do so prior to the annual meeting. Proxies may also be solicited by certain of our Trustees,trustees, officers and other employees, without additional compensation, personally or by written communication, telephone or other electronic means. We are required to request brokers, banks and nominees who hold shares in their name to furnish our proxy material to beneficial owners of the shares and will reimburse such brokers, banks and nominees for their reasonableout-of-pocket expenses in so doing.
The Board of Trustees is not aware of any business other than the aforementioned matters that will be presented for consideration at the annual meeting. If other matters properly come before the annual meeting, it is the intention of the person(s) named in the enclosed proxy to vote thereon in accordance with his/their best judgment.
We are permitted to send only one copy of the Notice of Annual Meeting of Shareholders, Proxy Statement and annual reportAnnual Report to eligible shareholders who share a single address unless we have instructions to the contrary from any shareholder at that address. This practice, known as “householding,” reduces printing and mailing costs. If you or another shareholder of record sharing your address would like to receive an additional copy of the Notice of Annual Meeting of Shareholders, Proxy Statement and annual report,Annual Report, we will promptly deliver it to you upon your request in one of the following manners:
Attention: Darla Iverson
Brittaney van der Hagen
INREIT Real Estate Investment Trust216
1711 Gold Drive South Broadway,
Suite 202Minot,100
Fargo, ND 58701
If you are receiving multiple mailings at one address and would like to request householded mailings, you may do so by contacting Darla IversonMs. van der Hagen at(701) 837-1030.
353-2729.
3
Our consolidated financial statements for the year ended December 31, 20102013 are included in our Registration Statement on Form 1010-K filed with the Securities and Exchange Commission on March 10, 2011, as amended by Amendment No. 1 to Form 10 filed with the Securities28, 2014 and Exchange Commission on April 25, 2011, and for the first quarter ended March 31, 2011 are included in our QuarterlyAnnual Report onthat will be mailed to our shareholders either before or concurrent with this Proxy Statement. In addition, our Form 10-Q as filed with the Securities and Exchange Commission on May 16, 2011. Copies of the Form 10 and 10-Q10-K will be sent to our shareholders upon request. The Form 1010-K and Form 10-Qthe Annual Report do not form any part of the material for the solicitation of proxies.
The following table sets forth informationshows, as of May 9, 2011 regardingApril 15, 2014, the beneficial ownership of our common shares of the Trust and of limited partnership units of our operating partnership, which are exchangeable for common shares on aone-for-one basis or cash, at the option of the Trust, by (i) each(1) any person who is known toby us to beneficially ownbe the beneficial owner of more than 5% of ourthe outstanding common shares (ii)of the Trust, (2) each trustee and nominee for trustee of our Trusteesthe Trust, (3) each executive officer of the Trust and (iii) each(4) all of our namedthe trustees and executive officers and (iv) allof the Trustees and named executive officersTrust as a group. The calculation of the percentage of outstanding shares is based on 3,766,0955,489,244.0153 common shares outstanding on May 9, 2011, adjusted, where appropriate, for common shares beneficially owned but not yet issued as indicated under footnote no. 4.April 15, 2014. Except as otherwise indicated by footnote, and subject to community property laws where applicable, the personseach shareholder named in the table below havehas sole voting and investment power with respect to allsuch common shares shown as beneficially owned by them.
| Common Shares Beneficially Owned(2) | ||||||||
| Name of Beneficial Owner(1) | Number(3) | Percentage(4) | ||||||
| Peggy Becker | 13,532 | (6) | * | |||||
| Rex Ronald Carlson | 6,397 | (7) | * | |||||
| Clifford Fearing | 30,116 | (8) | * | |||||
| Bruce W. Furness | 16,532 | (9) | * | |||||
| James R. Hansen | 490,635 | (5)(10) | 12.02 | %(5) | ||||
| Timothy Hunt | 16,216 | (11) | * | |||||
| Darla Iverson | 282 | (12) | * | |||||
| Lawrence R. O’Callaghan | 28,936 | (13) | * | |||||
| Kenneth P. Regan | 1,400,668 | (5)(14) | 31.86 | %(5) | ||||
| Richard Savageau | 447,282 | (5)(15) | 10.98 | %(5) | ||||
| Earl S. Strinden | 11,143 | (16) | * | |||||
| James S. Wieland | 992,060 | (5)(17) | 23.75 | %(5) | ||||
| Peter J. Winger | 733 | (18) | * | |||||
| Lance R. Wolf | 36,162 | (19) | * | |||||
| All Trustees and Executive Officers as a group (14 individuals) | 3,593,694 | (5) | 66.01 | %(5) | ||||
Name of Beneficial Owner (1) | Common Shares Beneficially Owned (2) | Limited Partnership Units Beneficially Owned(2)(3)(4) | Percentage of Common Shares and Units(6) | |||||||||||||
| Number(4)(5) | Percentage(5) | |||||||||||||||
Clifford Fearing | 33,652 | (7) | * | 0 | * | |||||||||||
Bruce W. Furness | 37,639 | (8) | * | 99,966 | 1.72 | % | ||||||||||
James R. Hansen | 197,083 | (9) | 3.59 | % | 316,877 | 8.85 | % | |||||||||
Timothy Haugen | 31,793 | (10) | * | 7,112 | * | |||||||||||
Timothy Hunt | 22,880 | (11) | * | 8,775 | (11) | * | ||||||||||
Kenneth P. Regan | 130,000 | 2.37 | % | 1,754,620 | (12) | 19.65 | % | |||||||||
Richard Savageau | 153,088 | (13) | 2.79 | % | 162,004 | (13) | 8.18 | % | ||||||||
Angie D. Stock | 0 | * | 0 | * | ||||||||||||
Bradley J. Swenson | 10,984 | (10) | * | 0 | * | |||||||||||
James W. Wieland | 93,654 | (14) | 1.71 | % | 1,440,338 | (14) | 16.16 | % | ||||||||
Lance R. Wolf | 34,730 | (15) | * | 19,675 | * | |||||||||||
Peter J. Winger | 716 | (16) | * | 0 | * | |||||||||||
All Trustees and Executive Officers as a group (12 individuals) | 746,219 | 13.59 | % | 3,809,367 | 43.14 | % | ||||||||||
| * | ||
| (1) | Unless otherwise indicated, the address of each beneficial owner is |
4
| (2) |
| (3) | Upon the |
| (4) | Share and unit amounts have been rounded to the nearest whole number. |
| (5) | Each figure showing the number and percentage of outstanding common shares owned beneficially does not include the number of common shares which may be issued to the indicated persons pursuant to the Exchange Right. |
| (6) | Each figure showing the percentage of | |
| (7) | Shares consist of 25,601 shares held individually in |
| (8) | Shares held jointly with spouse. |
| (10) | Shares are held in an IRA account where the custodian has the power to vote such shares pursuant to the custodian agreement. |
| (11) | Shares |
| (13) | Shares consist of 63,518 shares owned individually, 74,923 shares held in an IRA where the | |
5
| (14) | Shares | |
| (15) | Shares | |
| (16) | Shares held jointly with spouse. |
6
7
8
9
10
11
Our Board of Trustees has determined that seven (7) of our twelvenine (9) current Trustees—Messrs.trustees-Messrs. Fearing, Furness, Hansen, Haugen, Hunt, Savageau and Wolf and Ms. Becker—areWolf-are independent under the standards of the Nasdaq Stock Market, and the majority of the members of our Audit Committee are independent pursuant to Rule10A-3 of the Securities and Exchange Act of 1934.
We operate under the direction of our Board of Trustees, the members of which are accountable to us and our shareholders as fiduciaries. The Board is responsible for the overall management and control of our affairs. Our Chairman of the Board, Earl S. Strinden, is not an independent Trustee, but our Vice Chairman of the Board, Bruce W. Furness, is an independent Trusteetrustee under the independence standards described above.
The Board has retained INREIT Management, LLC as our Advisor to manage ourday-to-day affairs and the acquisition and disposition of our investments, subject to the board’s supervision and approval. Kenneth P. Regan, our Chief Executive Officer; PeterBradley J. Winger,Swenson, our President and Secretary; and Angie D. Stock, our Chief FinancialAccounting Officer and Treasurer; and Darla Iverson, our Secretary,Treasurer are also officers, employees, owners or governors of our Advisor. Among others, such executive officers oversee our Advisor’sday-to-day operations with respect to us. However, when doing so, such executive officers are acting on behalf of our Advisor in performing the Advisor’s obligations under the Advisory Agreement. Generally, the only services performed by our executive officers in their capacity as executive officers are those required by law or regulation, such as executing documents as required by North Dakota law and providing certifications required by the federal securities laws.
Under our board leadership structure, in which the roles of Chief Executive Officer and Chairman of the Board are separate. The separation of offices allows the Chairman of the Board to focus on board management matters and allows the Chief Executive Officer, on behalf of the Advisor, to focus his attention on managing our business. We also believe the separation of offices ensuresmaintain the objectivity of the Board in its risk oversight role and management oversight role of the Advisor, specifically with respect to reviewing and assessing the Advisor’s performance.
Our Board of Trustees held four regularly scheduled meetings and no special meetings during 2010.2013. In 2010,2013, the Board of Trustees did not act by unanimous written consent in lieu of a meeting. During 2010,2013, all trustees attended 75% or more of the meetings of the Board of Trustees and committees to which they were assigned.
In order to control expenses, and in light of the fact that very fewa limited number of our shareholders attend our annual or special meetings of shareholders in person, we do not require trustees to attend shareholder meetings. Our trustees are invited, and frequently one or more of our trustees is in attendance at such meetings. At the 20102013 annual meeting of shareholders, tenseven of our trustees were present.
Our Board of Trustees next regular meeting is scheduled for June 19, 2014, prior to the annual shareholder meeting.
We have a standing Audit Committee, Nomination and Governance Committee, Disclosure Committee and Executive Committee, each of which is more fully described below.
Our entire Board of Trustees considers all major decisions concerning our business, including property acquisitions and dispositions. However, we have established an Audit Committee, so audit functions can be addressed in accordance with Section 3(a)(58)(A) of the Exchange Act. The more depth than may be possible at a full Board meeting, as well as a Nomination and Governance Committee, Disclosure Committee and Executive Committee.
Audit Committee currently consists of Board members Peggy Becker, Rex R. Carlson, Clifford Fearing, Timothy Hunt and Lance R. Wolf, and is chaired by Rex R. Carlson. Mr. Carlson has served as Chair of this committee from January 2008 to May 2008 and from May 2009 to the present. The majority of the members of the Audit Committee are independent trustees, as defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules and as defined by the Sarbanes-Oxley Act of 2002. The following members are deemed independent trustees: Ms. Becker and Messrs. Fearing, Hunt and Wolf. Our Board of Trustees has determined that we have one Audit Committee financial experts as defined in Item 407(d)(5)(ii) of Regulation S-K: Rex R. Carlson.
12
The Audit Committee currently consists of Board members Clifford Fearing, Timothy Haugen, Timothy Hunt and Lance R. Wolf, and is chaired by Mr. Hunt. Mr. Hunt has served as Chair of this committee from June 2011 to the present. The members of the Audit Committee charter is attachedare independent trustees, as Annex C.
The Audit Committee meets at least quarterly to review and approve the financial reports, and to discuss accounting, reporting and internal control matters, and review other pertinent matters as they arise. The Audit Committee also discusses auditing issues via telephone conference and during regularly scheduled Board meetings, as appropriate, after which time the conversations are incorporated into Board’s minutes. The committee held threefour meetings during 2010.
The text of Trustees next regular meeting is scheduled for June 23, 2011, after the annual shareholder meeting. This Board meeting will be the first regular meeting of the Board since the Board adopted the newour Audit Committee Charter. At this meeting, and with consideration given to the election of trusteesCharter is available on our website at the annual shareholder meeting, the board anticipates selecting members for this committee so that the majority of its members will be deemed independent.
The Nomination and Governance Committee’s primary functions are to assist the Board in overseeing company governance matters, including the development of company governance guidelines; periodic evaluation of the Board, its committees and individual trustees; identification and selection of trustee nominees; and oversight of our policies and practices relating to ethical and compliance issues. Prior to February 2011, this committee was previously known as the governance and nomination committee.
The committee is responsible for assessing the appropriate mix of skills and characteristics required of Board members and shall periodically review and recommend for approval by the Board any updates to the criteria as deemed necessary. Such criteria may include integrity, independence, diversity and extent of experience, length of service, number of other Board and committee memberships, leadership qualities and ability to exercise sound judgment. The committee will evaluateevaluates the qualifications of each trustee candidate against these criteria in making its recommendation to the Board concerning nominations for election or reelection as a trustee. A copy
The Nomination and Governance Committee currently consists of Board members Bruce Furness, James Hansen, Richard Savageau and James Wieland, and is chaired by Mr. Savageau. The current slate of trustee nominees was recommended to the Board of Directors by the Nomination and Governance Committee charter is attached as Annex D.
The Nomination and Governance Committee will meetmeets at least twice a year, and holdholds additional meetings when pertinent matters arise. This committee also discusses governance issues via telephone conference and during regularly scheduled Board meetings, after which time the conversations are incorporated into the Board’s minutes. The committee held one meetingthree meetings during 2010.
The text of Trustees next regular meeting is scheduled for June 23, 2011, after the annual shareholder meeting. This board meeting will be the first regular meeting of the board since the board adopted the newour Nomination and Governance Committee Charter. At this meeting, and with consideration given to the election of TrusteesCharter is available on our website at the annual shareholder meeting, the board anticipates selecting members for this committee so that the majority of its members will be deemed independent.
www.inreit.com.
13
The Disclosure Committee’s primary functions are to assist the Board in overseeing the integrity of our public filings and compliance with our public disclosure and reporting requirements. A copy of the
The Disclosure Committee chartercurrently consists of Board members Clifford Fearing and Lance R. Wolf, and is attached as Annex E.
The Disclosure Committee will meetmeets at least four times a year.year, in conjunction with audit committee meetings. This committee also discusses disclosure issues via telephone conference and during regularly scheduled Board meetings, after which time the conversations are incorporated into the Board’s minutes. The committee held four meetings during 2013.
The text of our Disclosure Committee was formed in 2011, and did not exist during 2010.
The Executive Committee’s primary functions are to assist the Board in handling matters which should not be postponed until the following scheduled meeting of the Board of Trustees, including in connection with capital expenditures, investments, acquisitions, dispositions and financing activities. Prior to February 2011, this committee was previously known as the executive acquisition committee. A copy of the Executive Committee charter is attached as Annex F.
The Executive Committee will meetcurrently consists of Board members Bruce W. Furness, James Hansen, Timothy Hunt, Richard Savageau and James S. Wieland, and is chaired by Mr. Furness.
The Executive Committee meets periodically when necessary or deemed desirable by the committee or the Chair of the Committee. The committee held three meetingsone meeting during 2010.
The text of our Executive Committee Charter is available on our website atwww.inreit.com.
The Board of Trustees next regular meeting is scheduled for June 23, 2011, after the annual shareholder meeting. This board meeting will be the first regular meetingmay determine to establish additional committees of the board sinceBoard in the board adoptedfuture.
Compensation Committee Interlocks and Insider Participation
We do not have a separate compensation committee, or other Board committee performing equivalent functions, as we do not compensate our executive officers. Therefore, there is no current or prior relationship to any other company required to be described under the new Executive Committee Charter. At this meeting,Securities and with consideration givenExchange Commission rules relating to the electiondisclosure of Trustees at the annual shareholder meeting, the board anticipates selecting members for this committee so that the majority of its members will be deemed independent.
When candidates for our Board of Trustees are considered, the Nomination and Governance Committee will consider all relevant experience and qualifications of the nominees, and each candidate is evaluated based upon various criteria including integrity, independence, diversity and extent of experience, length of service, number of other board or committee memberships, leadership qualities and the ability to exercise sound judgment. Additional considerations include:
| • | Representation of Shareholders. The candidate clearly recognizes the role of |
| • | Judgment and |
14
| • | Meaningful |
| • |
| • | Expertise. The candidate fulfills specific Board needs. The candidate makes his/her own individual expertise available to the Board. The candidate draws on relevant experience in addressing issues facing us. The candidate is willing to respond to appropriate requests of the Chief Executive Officer outside of Board meetings for advice and support. |
| • | Vision and |
| • | Professional Status. The candidate has standing and reputation in the business, professional and social communities in which we operate. The candidate appropriately represents us in all such communities. |
A role of the Nomination and Governance Committee is to review the qualifications and backgrounds of any candidates for our Board of Trustees, its current members, as well as the overall composition of the Board. Only members of the Nomination and Governance Committee who are deemed independent Trusteestrustees may perform the nomination responsibilities of the committee.
In the case of any trustee candidate, the questions of independence and financial expertise are important to determine what roles the candidate can perform, and the Nomination and Governance Committee will consider whether the candidate meets the applicable independence standards and the level of the candidate’s financial expertise. Any new candidates will be interviewed, and the Nomination and Governance Committee will approve the final nominations. Our chairmanChairman of the Board, acting on behalf of the Nomination and Governance Committee, will extend the formal invitation to the selected candidates.
15
The Nomination and Governance Committee will consider candidates proposed by our shareholders. Shareholders may nominate Trusteetrustee candidates for consideration by the Nomination and Governance Committee by writing to our Secretary, who will forward the nomination to the Chairman of the Nomination and Governance Committee. The shareholder will be required to comply with the requirements of theour Amended and Restated Bylaws if ratified by the shareholders, regarding time frames during which to submit trustee candidates and the submission process. The submission must provide, among other things, the candidate’s name, biographical data and qualifications, includingfive-year employment history with employer names and a description of the employer’s business; whether such individual can read and understand fundamental financial statements; other board memberships (if any); ownership of our shares or limited partnership units in our operating partnership; and such other information as is reasonably available and sufficient to enable the Nomination and Governance Committee to evaluate the minimum qualifications stated above under the section of this proxy statement entitled “Qualifications of Candidates for Election to the Board.” The submission must be accompanied by a written consent of the individual to stand for election if nominated by the Nomination and Governance Committee and to serve if elected by the shareholders. If a shareholder nominee is eligible, and if the nomination is proper, the Nomination and Governance Committee then will deliberate and make a decision as to whether the nominee will be approved and subsequently submitted to our shareholders for a vote. The Nomination and Governance Committee will not change the manner in which it evaluates candidates, including the applicable minimum criteria set forth above, on the basis of whether the candidate was recommended by a shareholder.
In 2011, our Board of Trustees adopted a policy of meeting in executive session, with only independent trustees being present, on a regular basis and at least two times each year. The Board of Trustees did not meetmet in executive session four times during 2010.
Our Board of Trustees believes that it is important for us to have a process whereby our shareholders may send communications to our Board. Accordingly, shareholders who wish to communicate with our Board of Trustees or a particular Trusteetrustee may do so by sending a letter to Darla Iverson, Secretary,Brittaney van der Hagen, Investor Relations Coordinator, at INREIT Real Estate Investment Trust, 2161711 Gold Drive South, Broadway, Suite 202, Minot,100, Fargo, ND 58701.58103. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Shareholder-Board“Shareholder-Board Communication” or “Shareholder-Trustee“Shareholder-Trustee Communication.” All such letters must identify the author as a shareholder and clearly state whether the intended recipients are all members of our Board of Trustees or only certain specified individual trustees. Ms. Iversonvan der Hagen copies all such letters and circulates them to the appropriate Trusteetrustee or Trustees.
Our Advisor is responsible for managing theday-to-day management of the risks we face, but the Board is actively involved in overseeing our risk management. The Board’s role in our risk oversight process includes receiving regular reports from our management and the Advisor, which include consideration of operational, financial, legal, regulatory and strategic risks facing us.we face. The Board does not view risk in isolation, as risks are considered in virtually every business decision made and as part of our business strategy. Accordingly, the Board also works to oversee risk through its consideration and authorization of significant matters, such as the adoption of basic policies such as the Code of Ethics and Insider Trading Policy; and through its oversight of the Advisor’s implementation of its duties. In addition, each of the Company’s Board committees considers risk within its area of responsibility, as follows:
16
During 2013, we paypaid: (i) each of our independent trustees, $800including the Chairman of the Board, $1,000 for each Board meeting the Trusteetrustee attends, in person or by phone. We pay(ii) the Chairman of the Board $1,200an additional $400 per Board meeting the Chairman chairs. We paychairs, and (iii) each member of our Audit Committee and Executive Committee $300a Board committee $400 for each Audit Committee or Executive Committee meeting as applicable, the Trustee attends in person or by phone. Other than as described above, we do not compensate Trustees for attendance at committee meetings. If a trustee is also an employee of our Advisor, we currently do not pay compensation for services rendered as a Trustee.attends. Our Trusteestrustees are also reimbursed for reasonableout-of-pocket expenses incurred in connection with attendance at meetings.
The chart below shows the amounts each trustee was paid for attending meetings during the year ended December 31, 2010.
Trustee | Board of Trustees | Audit Committee | Governance and Nomination Committee | Executive Committee | Disclosure Committee | Ad Hoc Committee | Total | |||||||||||||||||||||
Timothy Haugen | $ | 2,000 | $ | 800 | $ | 0 | $ | 0 | $ | 400 | $ | 0 | $ | 3,200 | ||||||||||||||
Timothy Hunt | 4,000 | 1,600 | 0 | 400 | 0 | 0 | 6,000 | |||||||||||||||||||||
Clifford Fearing | 4,000 | 1,200 | 0 | 0 | 800 | 0 | 6,000 | |||||||||||||||||||||
Richard Savageau | 4,000 | 0 | 800 | 400 | 0 | 0 | 5,200 | |||||||||||||||||||||
Bruce W. Furness | 5,600 | 0 | 800 | 400 | 0 | 0 | 6,800 | |||||||||||||||||||||
Lance R. Wolf | 4,000 | 1,600 | 0 | 0 | 1,200 | 0 | 6,800 | |||||||||||||||||||||
James R. Hansen | 4,000 | 0 | 800 | 400 | 0 | 0 | 5,200 | |||||||||||||||||||||
Kenneth P. Regan(1) | 4,000 | 0 | 0 | 0 | 0 | 0 | 4,000 | |||||||||||||||||||||
James S. Wieland | 4,000 | 0 | 800 | 0 | 0 | 0 | 4,800 | |||||||||||||||||||||
| $ | 37,600 | (2) | $ | 5,200 | $ | 3,600 | (2) | $ | 1,600 | $ | 3,200 | (2) | $ | 0 | $ | 51,200 | (2) | |||||||||||
| (1) | An employee of the Advisor. |
| (2) | Includes $2,000, $400 and $800 paid, respectively to a former trustee. |
In January 2014, the Nomination and Governance Committee modified the compensation for Fiscal Year 2010
| Fees | Nonqualified | |||||||||||||||||||||||||||
| Earned or | Non-Equity | Deferred | ||||||||||||||||||||||||||
| Paid in | Stock | Option | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||
| Cash | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Earl S. Strinden | $ | 5,300 | — | — | — | — | — | $ | 5,300 | |||||||||||||||||||
| Bruce W. Furness | $ | 4,500 | — | — | — | — | — | $ | 4,500 | |||||||||||||||||||
| Peggy Becker | $ | 3,800 | — | — | — | — | — | $ | 3,800 | |||||||||||||||||||
| Rex R. Carlson | $ | 5,700 | — | — | — | — | — | $ | 5,700 | |||||||||||||||||||
| Clifford Fearing | $ | 4,100 | — | — | — | — | — | $ | 4,100 | |||||||||||||||||||
| James R. Hansen | $ | 1,900 | — | — | — | — | — | $ | 1,900 | |||||||||||||||||||
| Timothy Hunt | $ | 4,400 | — | — | — | — | — | $ | 4,400 | |||||||||||||||||||
| Lawrence R. O’Callaghan | $ | 3,200 | — | — | — | — | — | $ | 3,200 | |||||||||||||||||||
Kenneth P. Regan(1) | $ | 0 | — | — | — | — | — | $ | 0 | |||||||||||||||||||
| Richard Savageau | $ | 3,200 | — | — | — | — | — | $ | 3,200 | |||||||||||||||||||
James S. Wieland(1) | $ | 0 | — | — | — | — | — | $ | 0 | |||||||||||||||||||
| Lance R. Wolf | $ | 2,500 | — | — | — | — | — | $ | 2,500 | |||||||||||||||||||
| Philip Gisi (2) | $ | 1,400 | — | — | — | — | — | $ | 1,400 | |||||||||||||||||||
Thomas Strinden(2) | $ | 1,600 | — | — | — | — | — | $ | 1,600 | |||||||||||||||||||
| Board Chairman – Board Meeting | 105 Shares/Meeting | |
| Trustee | 30 Shares/Meeting |
Non-independent Trustees will not receive compensation for their service on the Board or Committees.
As an externally advised trust, ourday-to-day operations are generally performed by our Advisor. Our President, Chief Executive Officer, Chief Accounting Officer, Treasurer and Secretary are also officers, employees, owners or governors of our Advisor. Among others, such executive officers oversee our Advisor’sday-to-day operations with respect to us. However, when doing so, such executive officers are acting on behalf of our Advisor in performing the Advisor’s obligations under the Advisory Agreement. Generally, the only services performed by our executive officers in their capacity as executive officers are those required by law or regulation, such as executing documents as required by North Dakota law and providing certifications required by the federal securities laws.
As of the date of this report, each of the persons below currently serves as one of our executive officers:
Name | Age* | Positions | Officer Since | |||||
Kenneth P. Regan | ||||||||
| 57 | Chief Executive Officer and Trustee | Trustee since January 2007 Appointed | ||||||
Angie D. Stock | 35 | Chief | ||||||
Bradley J. Swenson | 48 | President and Secretary | ||||||
17
| * | As of April 15, 2014 |
PeterBradley J. WingerSwensonhas served as our Chief Financial OfficerPresident since October 2007.December 2011. He has also served as the President and a governor of INREIT Management, LLC since August 2010. Mr. Swenson has more than 22 years of leadership and management experience in corporate governance, operational strategy, ethics and compliance, real estate and the law. Prior to joining the Advisor, Mr. Swenson practice law in both the public and private sectors. In 1999, he was appointed Assistant Special Counsel to investigate the FBIstand-off and fire at the Branch Davidian compound in Waco, Texas. Upon completion of the investigation in 2001, Swenson joined the law firm of Dorsey and Whitney where he served Of Counsel until joining Ulteig as General Counsel and Corporate Secretary in 2004. Mr. Swenson was later named Ulteig’s Chief FinancialOperating Officer serving in that role until 2010. Mr. Swenson received a B.A. degree in English from the North Dakota State University and a J.D. degree from the University of Denver, College of Law. Mr. Swenson currently serves or has held leadership positions on numerous boards including the Board of Directors for the NDSU Research and Technology Park, the Board of Directors for the National Center for Employee Ownership, the Board of Trustees for theF-M Symphony, the Board of Directors forF-M Chamber of Commerce, the Board of Directors of the Downtown Community Partnership, the Executive Board for the Northern Lights Council, the Advisory Board for the Center for Ethical Leadership at Concordia College, the Executive Committee of the NDSU Alumni Association, and the Editorial Boards for the North Dakota and Missouri Bars.
Angie D. Stock has served as our Chief Accounting Officer since September 2013. She has also served as the Chief Accounting Officer of INREIT Management, LLC, our Advisor, since April 2008. Mr. WingerSeptember 2013. Mrs. Stock is a Certified Management Accountant. He is an experienced manager with knowledge and experience in operations and accounting in food manufacturing, retail, and real estate. Mr. Winger’sPublic Accountant (CPA). Mrs. Stock’s professional work experience includes four10 years as an assistant plant manager at two large dairy product manufacturing plants in Minnesota owned by Dairy Farmerspublic accounting with a focus in financial auditing for public and private companies in a variety of America, the largest dairy cooperative in the U.S. Prior to joining the Trust, he was the owner of a family business, Winger Cheese, Inc., where he served as Production Manager from 1984 to 2000 and President from 2000 until 2007. Between 2003 and 2008, Mr. Winger also owned and operated Pac ‘N Ship, a retail shipping store. Mr. Wingerindustries. Mrs. Stock received a B.S. degree in Accounting from Minnesota State University Moorhead.
We have provided below certain information about the executive officers and Business AdministrationBoard of Governors of the Advisor.
Name | Age* | Position(s) | ||
James D. Echtenkamp | 58 | Governor | ||
Dale D. Lian | 57 | Governor | ||
Kenneth P. Regan | 57 | Chairman, Chief Executive Officer and Governor | ||
Angie D. Stock | 35 | Chief Accounting Officer | ||
Jon E. Strinden | 57 | Governor | ||
Bradley J. Swenson | 48 | President and Governor | ||
James S. Wieland | 62 | Governor | ||
Bradley S. Williams | 57 | Governor |
| * | As of April 15, 2014 |
The following is a summary of the background and business experience of the executive officers and governors of the Advisor other than Messrs. Swenson, Regan, Stock and Wieland (whose background and business experiences are described in connection with their status as a trustee or executive officer).
James D. Echtenkamp has served as a governor of INREIT Management, LLC since 2007. He is a partner and principal of GOLDMARK Property Management, Inc., one of our property managers. Prior, he practiced law with Arthur, Chapman & McDonough from St. John’s University (MN), and an MBA1983 through 1989. He also served as a tax consultant for Touche Ross & Co. from 1981 to 1983. Mr. Echtenkamp serves on the Board of Directors of Private Bank, Minnesota. Mr. Echtenkamp received a B.S.B.A degree in accounting from the University of Phoenix.
Darla IversonDale D. Lianhas served as our Secretary since April 2004. She also serves as an Investor Relations professional fora governor of INREIT Management, LLC our Advisor, since June 2003. Ms. IversonJanuary 2007. He is the President of GOLDMARK Development Corporation, which has over 24 yearsprovided development services to us from time to time. In this position, he oversees new construction and development and manages its financing and banking relationships. Prior, he was a certified public accountant with Charles Bailly and Co., Fargo, where he focused on tax and accounting for small businesses. He also serves on the Board of experience in the REIT business. Previously, she worked for Odell-Wentz & Associates, the advisor to InvestorsDirectors of GOLDMARK Property Management, Inc., GOLDMARK Schlossman Commercial Real Estate Services, Inc., both affiliates of the Advisor. Mr. Lian received a B.S. degree in Accounting from the University of North Dakota. He is a Certified Public Accountant (CPA) which license is currently inactive; and he maintains a real estate license in North Dakota. He also has a series 62 securities license and is a registered representative of Gardner Financial Services Inc. As of April 15, 2014, Mr. Lian owned 608.2081 shares of the Trust and 206,534.9800 limited partnership units, and Dale D. Lian, LLC owned 3,444.521 units, all of which may be exchanged for common shares of the Trust pursuant to the Exchange Right. 47,641 units owned by Mr. Lian are pledged to a bank as collateral.
Jon E. Strinden is a business consultant providing services to the energy, real estate and senior housing industries. Prior to opening his consulting practice, Mr. Strinden was an officer of Fredrikson & Byron, P.A. law firm. Mr. Strinden received a B.S.B.A. degree in Accounting and a J.D. degree from the University of North Dakota, School of Law. As of April 15, 2014, Mr. Strinden owned 40,003.7867 shares of the Trust, held in an IRA account, which the custodian has the power to vote such shares pursuant to the custodian agreement; and his spouse owned 4,143.981 shares of the Trust.
Bradley S. Williams has served as a governor of INREIT Management, LLC since 2007. Mr. Williams is the President and a partner of GOLDMARK Property Management, Inc., one of our property managers, from 2005 to the present. In this position, he oversees the management of more than 13,000 units of multifamily housing and over one million square feet of commercial property. He is also a partner and member of LBW Management, LLC, a business operation consultant, from 2004 to the present. Prior, he was the Senior Vice President- Corporate Development for Varistar Corporation, awholly-owned subsidiary of Otter Tail Corporation (NASDAQ: OTTR), an electric services andnon-electric services (including plastics, manufacturing and health services) business, from 2000 to 2004. From 1999 to 2000, Mr. Williams was the Senior Vice President- Managing Director Europe for PepsiAmericas, Inc. (which has since been acquired byPepsi-Cola Metropolitan Bottling Company, Inc. (NYSE: PEP)). Mr. Williams began his tenure with Pohlad Beverage Group in 1981 at an operation located in Joplin, Missouri. From 1988 to 1999, he was part of the Senior Management Team for Pohlad and the President and Chief Operating Officer of Dakota Beverage Company, Inc. Mr. Williams is approximately a 10% owner and serves as a trustee of the Missouri Valley Real Estate Investment Trust, a publicly traded North Dakotaprivate REIT (Nasdaq: IREIT), between 1984 through 1987focusing on multifamily housing in South Central United States, and 1989 through 2003. She attended Capitol Commercial Collegeas a governor of such REIT’s advisor. Mr. Williams received a B.S.B.A. degree from Friends University in Bismarck, ND.
We are an externally advised trust and as such, although we have a Board of Trustees and executive officers responsible for our management, we have no paid employees. Our President, Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer and Secretary are all employees of our Advisor, and receive compensation directly from the Advisor. Our Chairman of the Board and Vice Chairman of the Board areis not employeesan employee of our Advisor and receivereceives compensation only for serving as trustees.
The following is a brief description of the fees and compensation that may be received by ourthe Advisor. The compensation payable to the Advisor is subject to the terms and conditions of the Advisory Agreement, which must be renewed on an annual basis.basis and approved by a majority of the independent trustees. As a result, such amounts may be increased or decreased in future renewals of the Advisory Agreement. The table listsAdvisory Agreement was last approved by the currentBoard and a majority of the independent trustees on March 27, 2014. The fees listed below reflect the fees payable to the Advisor under the Advisory Agreement as amended and restated.
18
Total Cost | Fee | |||||||
Formula | ||||||||
0 – 10M | 5.0 | |||||||
| 0M + 5.0% x (TC – 0M) | ||||||||
10M – 20M | 4.5 | % | .5M - .95M | .50M + 4.5% x (TC – 10M) | ||||
20M – 30M | % | .95M - 1.35M | .95M + 4.0% x (TC – 20M) | |||||
30M – 40M | 3.5 | % | 1.35M – 1.70M | 1.35M + 3.5% x (TC – 30M) | ||||
40M – 50M | ||||||||
| % | ||||||||
TC = Total Project Cost
The expenses listed below reflect the expenses incurred by the Advisor in connection with the services it provides to the Company and the Operating Partnership payable to the Advisor under the Advisory Agreement as amended and restated.
19
The table below sets forth information regarding compensation earned in or with respect to our fiscal years 20102013 and 20092012 by the Advisor.
| Nonqualified | ||||||||||||||||||||||||||||
| Non-Equity | Deferred | All Other | ||||||||||||||||||||||||||
| Fees Earned or | Stock | Option | Incentive Plan | Compensation | Compen- | |||||||||||||||||||||||
| Paid in Cash | Awards | Awards | Compensation | Earnings | sation | Total | ||||||||||||||||||||||
| Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| 2010 | $ | 1,937,822 | (1) | — | — | — | — | — | $ | 1,937,822 | ||||||||||||||||||
| 2009 | $ | 2,024,212 | (2) | $ | 2,024,212 | |||||||||||||||||||||||
Year | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
2013 | $ | 3,595,000 | (1) | — | — | — | — | — | $ | 3,595,000 | ||||||||||||||||||
2012 | $ | 1,974,000 | (2) | — | — | — | — | — | $ | 1,974,000 | ||||||||||||||||||
| (1) | Consists of management fees of | |
| (2) | Consists of management fees of |
We are subject to various conflicts of interest arising out of our relationship with our Advisor and its affiliates, some of whom serve as our executive officers and Trustees.trustees. These conflicts include the compensation arrangements between us and the Advisor under the Advisory Agreement, whereby the Advisor receives a management fee, acquisition fees, disposition fees, financing fees and property managementdevelopment fees when engaged as a property manager for our properties.
Under our Amended and Restated Declaration of Trust, we may not enter into any contract or transaction, including the purchase or sale of property to, the Advisor, Trusteestrustees or their affiliates unless a majority of our trustees as well as a majority of our independent Trustees who are not affiliated with the party to the transactiontrustees approve the transaction as fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties,parties. Our Amended and total considerationRestated Bylaws also provide our trustees, officers, employees and agents, in a personal capacity or in a capacity as an affiliate, employee or agent of any other person, may have business interests and engage in business activities similar and even competitive to or in addition to those relating to our business.
For more information on related party transactions described below and amounts paid, see the footnotes to our Consolidated Financial Statements included in our Annual Report on Form10-Kfor a property is not in excess of the value ofyear ended December 31, 2013 filed with the property if an acquisition is involved.
SEC.
20
The Advisor is owned in part (23.8158%(33%) by Kenneth Regan, our Chief Executive Officer and one of our trustees,trustees; (5%) by Bradley J. Swenson, our President and (23.8158%one of our trustees; and (33%) by James Wieland, one of our trustees, indirectly through Wieland Investments, LLLP, to which Mr. Wieland serves as the general partner. In addition, Messrs. Regan, Swenson and Wieland serve on the Board of Governors of the Advisor and Messrs. Regan and Wieland are substantial owners of limited partnership units in the operating partnership.
During 2010,2013, the Advisor earned $683,839$1,633,000 in advisory management fees, $1,737,000 in acquisition fees, $8,000 in disposition fees and $217,000 in financing fees.
Property Management Fees
Kenneth Regan, our Chief Executive Officer and one of our trustees, is an executive officer, chairman andco-owner of GOLDMARK Property Management. In addition, James Wieland, our trustee, and Dale Lian and James D. Echtenkamp, governors of our Advisor, serve on the Board and areco-owners or principals of GOLDMARK Property Management.
Brokerage Fees
GOLDMARK SCHLOSSMAN is affiliated with GOLDMARK Property Management, one of our property managers, which is owned by Kenneth Regan, our Chief Executive Officer and one of our trustees, James Wieland, our trustee, and Dale Lian, a governor of our Advisor, serve on the board and areco-owners of Goldmark Schlossman.GOLDMARK SCHLOSSMAN. GOLDMARK SCHLOSSMAN Commercial Real Estate Services, Inc. assisted in identifying prospective acquisitions for us, and received real estate brokerage commissions. During 2013, GOLDMARK SCHLOSSMAN Commercial Real Estate Services, Inc. earned $1,417,000 in real estate brokerage commissions.
Trustee Fees
During 2013, we paid $51,000 in trustee fees. There is no cash retainer paid to trustees. Instead, we pay trustees specific amounts for meetings attended. In addition, Kenneth Regan is the Chief Executive Officer of Goldmark Schlossman.
additional $400 per full Board meeting.
21
Under an operating lease agreement, we lease space to our Advisor, INREIT Management, LLC.
Under an operating lease agreement, we lease space to GOLDMARK Property Management, Inc. Kenneth Regan, our Chief Executive OfficerDuring 2013, we received rental income of $179,000.
Under an operating lease agreement, we lease space to GOLDMARK SCHLOSSMAN Commercial Real Estate Services. During 2013, we received rental income of $40,000.
Purchase of Properties
In January 2013, the operating partnership purchased a 38,932 square foot implement dealership in Redwood Falls, Minnesota for approximately $4.7 million. The purchase was financed with a combination of a $1.8 million loan, the issuance of limited partnership units valued at approximately $2.6 million and one of our trustees, James Wieland, our trustee, and Dale Lian and James D. Echtenkamp, governors of our Advisor, serve on the Board and are co-owners or principals of GOLDMARK Property Management.
In February 2013, the President and Chief Executive Officer of Edgewood Development Group, LLC. Edgewood Development Group, LLC is wholly owned by Edgewood Group, LLC, in which Mr. Gisi owns 14% and EMG Capital, LLLP (to which Mr. Gisi serves as the general partner) owns 60%.
In February 2013, the operating partnership purchased a 20 unit apartment complex in Fargo, North Dakota for approximately $740,000. The purchase was financed with the issuance of limited partnership units valued at approximately $740,000. The property was purchased from an entity affiliated with KennethMr. Regan, James Wieland, Dale Lian and James Echtenkamp, all of whom are governors of our Advisor. The approximate purchase price was $13,100,000.
In 2009, weFebruary 2013, the operating partnership purchased ana 12 unit apartment buildingcomplex in Fargo, NDNorth Dakota for approximately $714,000. The purchase was financed with the combination of a $263,000 loan and the issuance of limited partnership units valued at approximately $471,000. The property was purchased from the owners, which included James Wieland. The approximate purchase price was $750,000.
In February 2013, the operating partnership purchased a 30 unit apartment complex in Fargo, North Dakota for approximately $957,000. The approximate aggregate purchase price was $5,630,000.
In 2010, weFebruary 2013, the operating partnership purchased a 39 unit apartment complex in Fargo, North Dakota for approximately $1.0 million. The purchase was financed with the issuance of limited partnership units valued at approximately $985,000 and cash. The property was purchased from entities affiliated with Messrs. Regan and Wieland, related parties, who received cash of $51,000 and limited partnership units valued at approximately $389,000, respectively.
In February 2013, the operating partnership purchased a 15 unit apartment complex in Fargo, North Dakota for approximately $550,000. The purchase was financed with the issuance of limited partnership units valued at approximately $481,000 and cash. The property was purchased from an entity affiliated with Mr. Regan, a related party, who received cash of $69,000 and limited partnership units valued at approximately $110,000.
In February 2013, the operating partnership purchased a 25 unit apartment complex in Fargo, North Dakota for approximately $950,000. The purchase was financed with the combination of a $210,000 loan and the issuance of limited partnership units valued at approximately $772,000. The property was purchased from an entity affiliated with Mr. Regan, a related party, who received cash of $43,000 and limited partnership units valued at approximately $236,000.
In February 2013, the operating partnership purchased a 96 unit apartment complex in Grand Forks, North Dakota for approximately $4.4 million. The purchase was financed with the issuance of limited partnership units valued at approximately $4.4 million. The property was purchased from entities affiliated with Messrs. Regan and Wieland, related parties, who each received limited partnership units valued at approximately $828,000.
In May 2013, the operating partnership purchased a 132 unit apartment complex in Anoka, Minnesota for approximately $11.5 million. The purchase was financed with the issuance of limited partnership units valued at approximately $302,000 and cash.
In June 2013, the operating partnership purchased an 18 unit apartment buildingcomplex in West Fargo, ND alongNorth Dakota for approximately $756,000. The purchase was financed with the issuance of limited partnership units valued at approximately $677,000 and cash. The property was purchased from an entity affiliated with Mr. Regan, a related party, who received limited partnership units valued at approximately $151,000.
In June 2013, the operating partnership purchased a 12 unit apartment complex in Bismarck, North Dakota for approximately $636,000. The purchase was financed with the issuance of limited partnership units valued at approximately $636,000. The property was purchased from an entity affiliated with Mr. Regan, a related party, who received limited partnership units valued at approximately $159,000.
In June 2013, the operating partnership purchased a 59 unit apartment complex in Fargo, North Dakota for approximately $3.1 million. The purchase was financed with the issuance of limited partnership units valued at approximately $2.4 million and cash. The property was purchased from entities affiliated with Messrs. Regan and Wieland, related parties, who received limited partnership units valued at approximately $691,000 and $627,000, respectively.
In September 2013, the operating partnership purchased a 151 unit apartment complex in St. Louis Park, Minnesota for approximately $8.8 million. The purchase was financed with a combination of a $2.3 million loan, the issuance of limited partnership units valued at approximately $5.4 million and cash. The property was purchased from entities affiliated with Messrs. Regan, Wieland, Lian and Echtenkamp, whereby we ownFurness, related parties, who received limited partnership units valued at approximately $1.3 million, $973,000 and $943,000, respectively.
In October 2013, the operating partnership purchased a 81.25% ownership interest48 unit apartment complex in the buildingFargo, North Dakota for approximately $2.9 million. The purchase was financed with the remaining 19.75% ownership interest held byissuance of limited partnership units valued at approximately $2.0 million and cash. The property was purchased from entities affiliated with Messrs. Regan and Wieland, related parties, who each received limited partnership units valued at approximately $491,000, respectively.
In October 2013, the operating partnership purchased a 444 unit apartment complex in Little Canada, Minnesota for approximately $27.1 million. The purchase was financed with a combination of a $20.0 million loan, the issuance of limited partnership units valued at approximately $5.6 million and cash. The property was purchased from entities affiliated with Messrs. Regan, Wieland, Lian, Williams and Echtenkamp.Wolf, related parties, who received limited partnership units valued at approximately $995,000, $459,000, and $105,000, respectively.
In October 2013, the operating partnership purchased a 32,532 square foot implement dealership in Sioux City, Iowa for approximately $4.6 million. The approximate purchase price for our ownership interest was $6,624,000.
financed with a combination of a $1.8 million loan, the issuance of limited partnership units valued at approximately $2.6 million, and cash. The property was purchased from entities affiliated with Messrs. Regan and Wieland, related parties, who received limited partnership units valued at approximately $182,000 and $57,000, respectively.
22
In November 2013, the operating partnership purchased an 18 unit apartment complex in Fargo, North Dakota for approximately $900,000. The purchase was financed with the issuance of which Messrslimited partnership units valued at approximately $900,000 and cash. The property was purchased from entities affiliated with Messrs. Regan and Wieland, and Lian are owners. We completed the purchase on April 1, 2011.
Our Board of Trustees has approved, and we have adopted, a Code of Ethics and Business Conduct, which is comprised of the following:
While each component has a specific purpose, together they provide an integrated approach to the way we conduct our business. We recognize that adherence to the principles in the Code of Ethics is essential to our efforts to gain and keep the confidence and support of all of our shareholders, and to do what is legal and what is ethical. It is also necessary both to manage our business effectively and to meet the constantly changing needs of the marketplace. We believe Itit is a critical part of the way we do business.
Our Code of Ethics was filed with the SEC and is attached as Annex G. The Nomination and Governance Committee is responsible for overseeing theavailable on our website atwww.inreit.com. You may request a copy of our Code of Ethics.
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act requires our executive officers and Trusteestrustees and persons who own more than ten percent (10%) of our common stock to file initial reports of ownership (Form 3) and reports of changes in ownership (Form 4) with the Securities and Exchange Commission,Commission. As a matter of practice, our Advisor assists our trustees and to furnish copies of all such reports to us. As we were not subject to Section 16(a) until May 9, 2011, our executive officers with these reporting requirements, and trustees were nottypically files these reports on their behalf. We are required to disclose whether we have knowledge any person required to file such reports may have failed to do so in a timely manner.
Based solely on review of the copies of such forms furnished to us, we believe all of the trustees and executive officers of the Trust have timely satisfied their Section 16(a) reporting obligations for transactions that occurred duringthe fiscal year 2010.
ELECTION OF TRUST TO INCREASE THENUMBER OF AUTHORIZED SHARES OF BENEFICIAL INTEREST
Our shareholders are asked to act upon a proposal to approve an amendment toelect the Declaration of Trust to increase the number of authorized shares of beneficial interest from 1,000,000 shares, $0.01 par value per share, to 100,000,000 common shares, $0.01 par value per share, and 50,000,000 preferred shares, $0.01 par value per share. The amendment to the Declaration of Trust is located under Article V, Sections 5.1, 5.2 and 5.3 of the Amended and Restated Declaration of Trust, which was approved by thetrustee nominees. Our Board of Trustees on February 9, 2011 and is attached to this proxy statement as Annex A. Aspresently composed of May 18, 2011, there were * common shares outstanding, leaving a deficit in the number of authorized shares.
annual meeting.
23
A plurality of the party attempting to gain control of us could be diluted and render an unfavorable takeover attempt more difficult. However, in order to protect our status as a REIT, our current Declaration of Trust provides that after an initial public offering of our shares, no person may acquire more than 9.8% of our shares. Consequently,votes cast is required for the approvalelection of the proposed amendment may have little incremental effect in discouraging unsolicited takeover attempts.
Unless a contrary choice is specified, proxies solicited by our Board of Trustees will be votedFORthe approval of the amendment toelection of each of the Declarationtrustee nominees.
A shareholder has one vote per share for each trustee nominee. Cumulative voting does not apply in the election of Trust to increase thetrustees. Proxies may not be voted for a greater number of authorized shares of beneficial interest.
Our Board of Trustees recommends a vote FOR the approvaleach of the amendmenttrustee nominees to hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified.
Biographical and other information concerning our current trustees and the trustee nominees for election at the annual meeting is set forth below.
Name | Age* | Current Positions | Member Since | |||
Kenneth P. Regan | 57 | Chief Executive Officer and Trustee | July 2007 | |||
Bruce W. Furness | 74 | Chairman of the Board, Nomination and Governance Committee Member, Chair of Executive Committee | May 2008 | |||
Clifford Fearing | 70 | Trustee, Audit Committee Member, Disclosure Committee Member | March 2005 | |||
James R. Hansen | 68 | Trustee, Executive Committee Member, Nomination and Governance Committee Member | May 2010 | |||
Timothy Haugen | 58 | Trustee, Audit Committee Member | June 2013 | |||
Timothy Hunt | 63 | Trustee, Executive Committee Member, Chair of Audit Committee | May 2003 | |||
Richard Savageau | 79 | Trustee, Executive Committee Member Chair of Nomination and Governance Committee | May 2009 | |||
James S. Wieland | 62 | Trustee, Nomination and Governance Committee Member, Executive Committee Member | June 2007 | |||
Lance R. Wolf | 66 | Trustee, Audit Committee Member, Chair of Disclosure Committee | May 2010 |
| * | As of April 15, 2014 |
Kenneth P. Regan has served as a trustee since July 2007 and as our Chief Executive Officer since May 2007. He has also served as the Chief Executive Officer and Chairman of the Board of INREIT Management, LLC, our Advisor, since May 2007. Mr. Regan has over 31 years of experience in the real estate industry. In March 1981, he cofounded the GOLDMARK companies with James Wieland. Mr. Regan is the Chief Executive Officer, Chairman and co-owner of GOLDMARK Property Management, Inc., one of our property management firms. He is also an owner of GOLDMARK SCHLOSSMAN Real Estate Services, Inc. and GOLDMARK Development Corporation. During his service to the DeclarationGOLDMARK companies, Mr. Regan has been active in the acquisition, development, operation and management of multifamily and commercial real estate. Prior to co-founding the GOLDMARK companies, he began his real estate career in 1979 with Warner and Company, located in Fargo, ND. Prior to that, Mr. Regan worked as an Assistant National Bank Examiner for the OCC Division of the U.S. Treasury. He received a B.S.B.A. degree in Business Management from the University of North Dakota, and is a Certified Commercial Investment Member (CCIM), Certified Property Manager (CPM) and Graduate Realtors Institute (GRI). Mr. Regan is also a member of the FM Apartment Association, FM Area Association of Realtors and the National Association of Realtors.
Mr. Regan was nominated for election to the Board of Trustees because of his specific experience and expertise in property investment, management, brokerage and development. Mr. Regan’s knowledge of the investment real estate industry allows him to provide great insight to the Board. In addition, Mr. Regan’s past and continuing contributions to us as Trustee, Chief Executive Officer and INREIT investor, all provide many benefits to the Trust and its Board.
Bruce W. Furness has served as our Chairman of the Board since June 2011 and served as Vice Chairman of the Board from May 2008 to increaseJune 2011. Mr. Furness currently serves as the numberChair of authorized sharesour Executive Committee and as a member of beneficial interest.
our Nomination and Governance Committee. Previously, Mr. Furness served as the Vice President for business relations and development of the State Bank & Trust of Fargo from June 2006 through March 2008, when he was appointed interim Chief Executive Officer of the North Dakota Workforce Safety & Insurance Agency, until he retired in March 2009. Mr. Furness was elected to the Fargo City Commission in 1992, and served as the Mayor of the City of Fargo, ND from April 1994 to June 2006. He worked with the Greater North Dakota Association from 1992 through 1995. In addition, he was employed by International Business Machines (IBM) (NYSE: IBM) for 30 years, including management positions in several locations. Mr. Furness served as a director for Bell State Bank & Trust of Fargo, ND (and as a member of their audit committee) for 24 years. He currently serves as a director for Lake Agassiz Water Authority, City of Fargo Renaissance Zone Authority, Charism Neighborhood Support Centers, the FM Area Foundation and the Metro Sports Foundation. Mr. Furness received a Bachelor of Science degree in Mathematics from Jamestown College and a Master’s degree in Mathematics from Montana State University.
24
Mr. Furness was nominated for election to the Board of Trustees because of his specific governance and management experience and his expertise in the computer industry and municipal sector. Mr. Furness’ perspective on banking, business and real estate, his distinguished service to the City of Fargo as Mayor and the State of North Dakota as Interim Chief Executive Officer of the North Dakota Workforce Safety & Insurance agency allows him to provide great insight to the Board. In addition, Mr. Furness’ past and continuing contributions to us as Trustee, Chairman of the Board and INREIT investor all provide many benefits to the Trust and its Board.
Mr. Fearing was nominated for election to the Board of Trustees because of his specific accounting and health care industry knowledge. Mr. Fearing’s expertise in acquisitions, business and real estate allows him to provide great insight to the Board. In addition, Mr. Fearing’s past and continuing contributions to us as Trustee and INREIT investor provide many benefits to the Trust and its Board.
Mr. Hansen was nominated for election to the Board of Trustees because of his specific business operations and management knowledge across various industries. Mr. Hansen’s expertise in business and real estate allows him to provide great insight to the Board. In addition, Mr. Hansen’s past and continuing contributions to us as Trustee and INREIT investor provide many benefits to the Trust and its Board.
Timothy L. Haugen has served as one of our trustees since June 2013. Mr. Haugen currently serves on our Audit Committee. Mr. Haugen has over 37 years of experience in corporate and business accounting, is a Certified Public Accountant previously served as Vice President of Orthopedics and Sports Medicine for Sanford Health, Fargo, North Dakota. From 1988 to 2010, Mr. Haugen served as Administrator for the clinic and surgery center divisions of Orthopedic Associates where he was responsible for all administrative duties, including accounting, marketing, human resources, contracting, planning, payroll and accounts payable. Prior to his time with Orthopedic Associates, Mr. Haugen worked for St. Luke’s Hospital, as a Budget and Cost Accountant and for the State of North Dakota as a Tax Auditor. Mr. Haugen currently serves on the board of the Hospice of the Red River Valley and has previously served on the board for Vision Services of North Dakota and Community Living Services. Mr. Haugen received a B.S. degree in Business Administration from the University of North Dakota.
Mr. Haugen was nominated for election to the Board of Trustees because of his specific accounting and medical industry knowledge. Mr. Haugen’s expertise in business, financing and planning and construction allows him to provide great insight to the Board. In addition, Mr. Haugen’s past and continuing contributions to us as Trustee and INREIT investor provide many benefits to the Trust and its Board.
Timothy Hunt has served as one of our trustees since October 2003. Mr. Hunt currently serves as the Chair of our Audit Committee and as a member of our Executive Committee. Mr. Hunt has over 30 years of experience in healthcare administration. He has served as the Chief Executive Officer of Alexandria Clinic, PA, a 36-physician clinic in Alexandria, MN since 1990. Throughout his career as a hospital and clinic CEO he has gained experience in the planning and construction of multiple healthcare facilities. He is a fellow in the American College of Healthcare Administrators, and a past Board member of the Minnesota Medical Group Management Association. Mr. Hunt also serves as the administrator of a large, corporate retirement plan, and has experience in the investment and management of personal real estate income properties. Mr. Hunt received a Master’s degree in Healthcare Administration from the University of Minnesota.
Mr. Hunt was nominated for election to the Board of Trustees because of his specific executive management and healthcare administration knowledge. Mr. Hunt’s expertise in planning and construction of health care facilities allows him to provide great insight to the Board. In addition, Mr. Hunt’s past and continuing contributions to us as Trustee and INREIT investor provide many benefits to the Trust and its Board.
Richard Savageau has served as one of our trustees since May 2009. He currently serves as Chair of the Nomination and Governance Committee and is a member of the Executive Committee. Previously, Mr. Savageau served in various positions with Caterpillar, Inc. (NYSE: CAT) — Butler Machinery Company: President from 1986 through 1998, Executive Vice President from 1981 to 1986, Vice President & CFO from 1979 to 1981, General Manager I & I Division from 1975 to 1977 and Finance Manager from 1970 to 1975. He also served as the Finance Manager for General Motors Acceptance Corporation (now known as Ally Financial, Inc.), a wholly-owned subsidiary of General Motors Corporation, from 1960 to 1965. From 1965 to 1970, he was a Sales Executive with A.H. Robins Pharmaceutical. Mr. Savageau has served and currently serves on several boards, including St. Johns Hospital Fargo, Hospice of the Red River Valley, Riverview Seniors Living Center, Grow Parochial Fund, Associated Equipment Dealers, F-M Credit Manager, St. Anthony’s Parish and School, Dean Real Estate. More recently, he has presided over several commercial and residential real estate developments. Mr. Savageau received a B.S. degree in Science and Mathematics from North Dakota State University, and a degree in Education at the North Dakota State University. He also served in the U.S. Army in the Infantry Medical Corp.
Mr. Savageau was nominated for election to the Board of Trustees because of his specific executive leadership, real estate development and accounting knowledge. Mr. Savageau’s expertise in business and real estate allows him to provide great insight to the Board. In addition, Mr. Savageau’s past and continuing contributions to us as Trustee and INREIT investor provide many benefits to the Trust and its Board.
James S. Wieland has served as one of our trustees since June 2007. He currently serves on our Executive Committee and our Nomination and Governance Committee. Mr. Wieland also serves on the Board of Governors of INREIT Management, LLC, our Advisor, since January 2007, and is an owner of the Advisor, indirectly through Wieland Investments, of which Mr. Wieland is the general partner. Mr. Wieland has over 33 years of experience in property investment, management, brokerage and development. In March 1981, he cofounded the GOLDMARK companies with Kenneth Regan. Mr. Wieland is the Vice President and co-owner of GOLDMARK Property Management, Inc., one of our property managers, and is the President, Managing Partner and co-owner of GOLDMARK SCHLOSSMAN Real Estate Services, Inc. and Vice President and co-owner of GOLDMARK Development Corporation. During his service to the GOLDMARK companies, Mr. Wieland has been active in the acquisition, development, operation and management of multifamily and commercial real estate. Mr. Wieland currently serves and has served on various boards, including for Bell State Bank and Trust, Dakota Renaissance Ventures, Space Age Technology, Jamestown Community Hospital, North Dakota State University Team Makers, NDSU College of Business, Cass County Electric Cooperative, Northern Capital Trust, Production Publications, Inc. and the Walton Bean Cooperative. Mr. Wieland received a B.S. degree in Business Economics and a Master’s degree in Agricultural Economics from the North Dakota State University.
Mr. Wieland was nominated for election to the Board of Trustees because of his specific experience and expertise in property investment, management, brokerage and development. Mr. Wieland’s expertise in business and real estate allows him to provide great insight to the Board. In addition, Mr. Wieland’s past and continuing contributions to us as Trustee and INREIT investor provide many benefits to the Trust and its Board.
Lance R. Wolf has served as one of our trustees since May 2010. He currently serves as Chair of our Disclosure Committee and as a member of our Audit Committee. Currently, Mr. Wolf serves as the Executive Vice President and Director of Retail Banking of Gate City Bank since 2000, and chairs its Compliance Committee. Prior to that, he served in various positions with Gate City Bank or its affiliates: Senior Vice President and Director of Retail Banking at Gate City Federal Savings Bank from 1993 to 2000; Vice President of Gate City Federal Savings Bank from 1986 to 1993; Branch Coordinator from 1983 to 1993; and Branch Manager of Gate City Federal Savings Bank from 1979 to 1983. Mr. Wolf also serves on the Open Compliance Committee for the American Bankers Association and the Board of Regents of the University of Mary, Bismarck, ND. Mr. Wolf received a B.S. degree in physical education, biology and chemistry from the North Dakota State University.
Mr. Wolf was nominated for election to the Board of Trustees because of his specific regulatory compliance and retail banking knowledge. Mr. Wolf’s expertise in business and real estate allows him to provide great insight to the Board. In addition, Mr. Wolf’s past and continuing contributions to us as Trustee and INREIT investor provide many benefits to the Trust and its Board.
RATIFICATION OF THE APPROVAL OFBOARD’S AMENDMENT TO THE
AMENDED AND RESTATED DECLARATION OF TRUST
Our shareholders are asked to act upon a proposal to ratify the approval ofBoard’s amendment to the Amended and Restated Declaration of Trust whichamending Article III and Article X Section 10.3.2-.3. The Declaration, as amended, is attached to this proxy statement as Annex A. Under the terms of our Declaration of Trust, our Board of Trustees has the powerThe amendments to amend the Declaration of Trust, without shareholder approval, if the Trustees determine in good faith such revisions are necessary to conform to the requirements of the federal tax law provisions for REITs, or any requirements imposed by any state securities regulators and any other applicable laws or regulations.
The major objective in amending and restating our Declaration of Trust was to addbroaden investment authority to allow loans or investments to the limitations imposedSponsor, Advisor, a Trustee or Affiliate, subject to approval by a majority of the NASAA REIT GuidelinesTrustees (including a majority of the Independent Trustees) not otherwise interested in such transaction. The additional change was to update the Declaration to reference the current location of our principal office.
More specifically, the revisions include:
25
Ratification of the approvalBoard’s amendment to Article III and Article X Section 10.3.2-.3 of the Amended and Restated Declaration of Trust will require the affirmative vote of the holders of a majority of the outstanding shares entitled to vote at the annual meeting. For this proposal, abstentions and broker non-votes will have the effect of a vote against this proposal.
Unless a contrary choice is specified, proxies solicited by the Board of Trustees will be votedFORthe ratification of the approvalBoard’s amendment to Article III and Article X Section 10.3.2-.3 of the Amended and Restated Declaration of Trust.
Our Board of Trustees recommends a vote FOR the ratification of the approval of the Amended and Restated Declaration of Trust.
26
BAKER TILLY VIRCHOW KRAUSE, LLP
AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Widmer Roel PCBaker Tilly Virchow Krause, LLP (“Widmer Roel”Baker Tilly”) to serve as our independent registered public accounting firm for the year ending December 31, 2011,2014, subject to ratification by our shareholders. Baker Tilly audited our consolidated financial statements for the current fiscal year ending December 31, 2013. Widmer Roel hasPC audited our consolidated financial statements for the year ended December 31, 2010. Eide Bailly, LLP previously served as our accounting firm and audited our consolidated financial statements for the years ended December 31, 2008 and 2009. However, as Eide Bailly had previously assisted management with depreciation schedules and other financial report preparation, it did not qualify to provide independent audit services as required by the SEC in connection with our filing of the Registration Statement on Form 10 as filed with the SEC on March 31, 2011, as amended on Amendment No. 1 to Form 10 filed on April 25, 2011. Therefore, we engaged Widmer Roel to reaudit our consolidated financial statements for these periods.
Our shareholders are asked to act upon a proposal to ratify the appointment of Widmer RoelBaker Tilly as our independent registered public accounting firm for the year ending December 31, 2011.
2014.
27
Following a competitive bidding process undertaken by the Audit Committee of INREIT Board of Trustees, the Audit Committee approved the selection of Baker Tilly to serve as INREIT’s independent registered public accounting firm for the fiscal year ending December 31, 2013. Effective March 29, 2013, Baker Tilly was engaged as INREIT’s independent registered public accounting firm for the fiscal year ending December 31, 2013. At no time during the two fiscal years ended December 31, 2012 and Non-Audit Fees
Widmer Roel, PC (“Widmer Roel”), the Company’s prior independent registered public accounting firm, term ended on March 29, 2013. Widmer Roel’s reports on INREIT’s consolidated financial statements for each of the fiscal years 2010ended December 31, 2012 and 2009,December 31, 2011 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
During the two fiscal years ended December 31, 2012 and December 31, 2011 and the subsequent interim period through the date of dismissal, there were (1) no disagreements between INREIT and Widmer Roel on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to Widmer Roel’s satisfaction, would have caused Widmer Roel to make reference to the subject matter of the disagreement in connection with its report for such years; and (2) there were no reportable events as described in Item 304(a)(1)(v) of RegulationS-K.
The following table summarizes the fees we were billed for audit and non-audit services provided by Eide Bailly were as follows:
| 2010 | 2009 | |||||||
Audit Fees | $ | 40,000 | $ | 69,000 | ||||
Audit-Related Fees(review of registration statements and other SEC filings) | $ | 6,000 | $ | 1,950 | ||||
Tax Fees(tax-related services, including income tax advice regarding income taxes within the United States) | $ | 59,433 | $ | 75,855 | ||||
All Other Fees | $ | 0 | $ | 0 | ||||
Total Fees | $ | 105,433 | $ | 146,805 | ||||
| 2010 | 2009 | |||||||
Audit Fees | $ | 68,975 | $ | 0 | ||||
Audit-Related Fees(review of registration statements and other SEC filings) | $ | 0 | $ | 0 | ||||
Tax Fees(tax-related services, including income tax advice regarding income taxes within the United States) | $ | 0 | $ | 0 | ||||
All Other Fees | $ | 0 | $ | 0 | ||||
Total Fees | $ | 68,975 | $ | 0 | ||||
| 2012 | 2013 | |||||||
Audit Fees | $ | 108,000 | $ | 112,000 | ||||
Audit-Related Fees (review of registration statements and other SEC filings) | $ | 2,000 | $ | 2,000 | ||||
Tax Fees(tax-related services, including income tax advice regarding income taxes within the United States) | $ | 0 | $ | 0 | ||||
All Other Fees | $ | 0 | $ | 0 | ||||
|
|
|
| |||||
Total Fees | $ | 110,000 | $ | 114,000 | ||||
None of the services described above were approved pursuant to the exception provided in Rule2-01(c)(7)(i)(C) of RegulationS-X promulgated by the SEC.
The Audit Committee has a policy for thepre-approval of audit services, requiring its prior approval for all audit andnon-audit services provided by our independent registered public accounting firms.firm. Our independent registered public accounting firmsfirm may not provide certain prohibited services. The Audit Committee’s prior approval must be obtained before the scope or cost ofpre-approved services is increased.
Consistent with these policies and procedures, the Audit and Finance Committee approved all of the services rendered by Baker Tilly during fiscal year 2013 and Widmer Roel and Eide Bailly during fiscal years 2010 and 2009,year 2012, as described above.
28
Approval of the ratification of the appointment of Widmer Roel PCBaker Tilly Virchow Krause, LLP as our independent registered public accounting firm for the year ending December 31, 20112014 will require the affirmative vote of the holders of a majority of the shares outstanding andshares entitled to vote at the annual meeting. For this proposal, abstentions and broker non-votes will have the effect of a vote against this proposal.
Unless a contrary choice is specified, proxies solicited by our Board of Trustees will be voted FOR ratification of the appointment of Widmer Roel PCBaker Tilly Virchow Krause, LLP as our independent registered public accounting firm for the year ending December 31, 2011.
Our Board of Trustees recommends a vote FOR ratification of the appointment of Widmer Roel PCBaker Tilly Virchow Krause, LLP as our independent registered public accounting firm for the year ending December 31, 2011.2014.
The following Audit Committee Report shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The Audit Committee oversees our financial reporting process on behalf of our Board of Trustees. The committee is currently comprised of fivefour trustees. The committee is currently governed by our Audit Committee charter. A copy of the charter is attached as Annex C to this proxy statement. The majorityAll of the Audit Committee members are independent within the meaning of Rule 5605(a)(2) of the Nasdaq Marketplace Rules, and “independent,” as that term is defined in Section 10A of the Exchange Act. Management has the primary responsibility for the financial statements and the reporting process, including our systems of internal controls. In fulfilling its responsibilities, the committee reviewed the financial statements in the quarterly reports on Form 10,10-Q and the Annual Report on Form10-K with management, including a discussion of the quality and acceptability of our financial reporting and controls.
The committee reviewed with our independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of our audited financial statements with generally accepted accounting standards, their judgments as to the quality and acceptability of our financial reporting and such other matters as are required to be discussed with the committee under generally accepted auditing standards, including the matters required to be discussed by the statement on Auditing Standards No.61,Standard No.16, as adopted by the Public Company Accounting Oversight Board (“PCAOB”). In addition, the committee has discussed with the independent registered public accounting firm the auditors’ independence from management and us, including the matters in the registered public accounting firm’s written disclosures and the letter required by the applicable requirements of the PCAOB. Furthermore, the committee has considered whether the provision ofnon-audit services by the independent registered public accounting firm for the fiscal year ended December 31, 2010,2013, is compatible with maintaining their independence.
The committee also discussed with our independent registered public accounting firm the overall scope and plans for its audit. The committee met with members of the independent registered public accounting firm, with and without management present, to discuss the results of its examination, its evaluation of our internal controls and the overall quality of our financial reporting.
In reliance on the reviews and discussions referred to above, the committee recommended to our Board of Trustees that the audited financial statements be included in our Annual Report on Form10-K for the fiscal year ended December 31, 2010 be included in our Registration Statement on Form 10 filed2013 for filing with the SEC on March 31, 2011, as amended on Amendment No. 1 to Form 10 filed on April 25, 2011.SEC. The committee has appointed Widmer Roel, LPBaker Tilly Virchow Krause, LLP to serve as our principal independent public accountants for the year ending December 31, 2011.
2014.
29
In addition to the responsibilities discussed in the preceding paragraphs, the committee’s responsibilities include reviewing significant accounting policies, policy decisions and changes, along with significant accounting, reporting and operational issues. The committee also reviews corporate policies and significant instances (if any) of the lack of compliance with laws and regulations, ethics, conflicts of interest and the investigation of misconduct or fraud. The committee is responsible for the resolution of any disagreements between management and the independent registered public accounting firm regarding financial reporting, review and approval of the annual internal audit plan and reports of the internal audit function and the establishment of procedures to receive, retain and treat complaints andwhistle-blower information regarding questionable accounting or auditing matters.
The committee is pleased to submit this report to the shareholders with regard to the above matters.
Timothy Hunt, ChairmanPeggy Becker
Clifford Fearing
Timothy Hunt
Haugen
Lance R. Wolf
30
SHAREHOLDER NOMINATIONS AND PROPOSALS FOR 2015 ANNUAL MEETING
A shareholder who wishes to make a shareholder nomination or proposal to be considered for the 2015 annual meeting must deliver the notice specified under Article II, Section 11(a) of our Amended and Restated Bylaws. To be timely, a shareholder’s notice of the shareholder proposal or nominee must be in writing and received by our Secretary at our principal executive office no earlier than the 150th day nor later than 5:00 p.m., Central Time, on the 120th day prior to the first anniversary of the date of mailing of the notice for the 2014 annual meeting. However, if the date of the 2015 annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the 2014 annual meeting, timely notice must be received no earlier than the 150th day prior to the date of the 2015 annual meeting and not later than 5:00 p.m., Central Time, on the later of the 120th day prior to the date of the 2015 annual meeting or the tenth day after a public announcement of the date of the 2014 annual meeting is first made. A public announcement of a postponement or adjournment of an annual meeting shall not commence a new time period for the giving of a shareholder’s notice as described above.
Shareholders interested in submitting such a proposal or making a nomination are advised to contact knowledgeable counsel with regard to the detailed requirements of such securities rules and to review applicable requirements in our Amended and Restated Bylaws. Please see “Corporate Governance, Board of Directors and Committees- Shareholder Nominations” for more information on shareholder nominations.
The form of proxy and this proxy statement have been approved by our Board of Trustees and are being mailed and delivered to shareholders by its authority.
/s/ Kenneth P. Regan | ||||
| Kenneth P. Regan | ||||
| Chief Executive Officer | ||||
Fargo, North DakotaMay *, 2011
31April 30, 2014
THIRD AMENDED AND RESTATED DECLARATION OF TRUST
INREIT REAL ESTATE INVESTMENT TRUST
THIRD AMENDED AND RESTATED DECLARATION OF TRUST
ARTICLE I.
NAME
The name of the trust (which is hereinafter called the “Trust”) is: INREIT Real Estate Investment Trust.
ARTICLE II.
PURPOSES AND POWERS
The Trust may engage in any lawful business or activity for which trusts may be organized under the general laws of the State of North Dakota as now or hereafter in force (including, without limitation or obligation, engaging in business as a real estate investment trust under the Internal Revenue Code of 1986, as amended, or any successor statute), and shall possess all powers necessary to conduct any business in which it is authorized to engage, including but not limited to, all those powers expressly conferred upon real estate investment trusts by the North Dakota Century Code Chapter 10-34, as they may from time to time be amended, together with those powers implied therefrom.
ARTICLE III.
PRINCIPAL OFFICE IN NORTH DAKOTA AND RESIDENT AGENT
The address of the principal office of the Trust in the State of North Dakota is 2161711 Gold Drive South, Broadway, Suite 202, Minot,100, Fargo, North Dakota 58701.58103. The name and address of the commercial resident agent of the Trust is CT Corporation at 314 E. Thayer Ave., Bismarck, ND 58501.
ARTICLE IV.
DEFINITIONS
As used in this Charter, the following terms shall have the following meanings unless the context otherwise requires:
Acquisition Expenses shall mean any and all expenses incurred by the Trust, the Advisor, or any Affiliate of either in connection with the selection, acquisition or development of any Asset, whether or not acquired, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses and title insurance premiums.
Acquisition Fees shall mean any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including any fees or commissions paid by or to any Affiliate of the Trust or the Advisor) in connection with making or investing in Real Estate Related Assets or the purchase, development or construction of a Property, including real estate commissions, selection fees, Development Fees, Construction Fees, nonrecurring management fees, loan fees, points or any other fees of a similar nature. Excluded shall be Development Fees and Construction Fees paid to any Person not affiliated with the Sponsor in connection with the actual development and construction of a project.
Advisor or Advisors shall mean the Person or Persons, if any, appointed, employed or contracted with by the Trust pursuant to Section 8.1 hereof and responsible for directing or performing the day-to-day business affairs of the Trust, including any Person to whom such Advisor subcontracts all or substantially all of such functions.
Advisory Agreement shall mean the agreement between the Trust, the Operating Partnership, the Advisor and the other parties named therein pursuant to which the Advisor will direct or perform the day-to-day business affairs of the Trust.
-1-
| A-1 | Adopted by the Board of Trustees March 27, 2014 |
Aggregate Share Ownership Limit shall mean not more than 9.9% in value in the aggregate of the outstanding Shares.
Asset shall mean any Property, Real Estate Related Asset or other investment (other than investments in bank accounts, money market funds, marketable securities or other current assets) owned by the Trust, directly or indirectly through one or more of its Affiliates, and any other investment made by the Trust, directly or indirectly through one or more of its Affiliates.
Average Invested Assets shall mean, for any specified period, the average of the aggregate book value of the Assets of the Trust invested, directly or indirectly, in Real Estate and Real Estate Related Assets, before deducting depreciation, bad debts or other non-cash reserves, computed by taking the average of such values at the end of each month during such period.
Beneficial Ownership shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have the correlative meanings.
Board or Board of Trustees shall mean the board of trustees of the Trust.
Business Day shall mean any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions in New York City are authorized or required by law, regulation or executive order to close.
Bylaws shall mean the Bylaws of the Trust, as amended by the Amended and Restated Bylaws, and as may be amended further from time to time.
Charitable Beneficiary shall mean one or more beneficiaries of the Charitable Trust as determined pursuant to Section 6.2.6, 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)(1)(A), 2055 and 2522 of the Code.
Charitable Trust shall mean any trust provided for in Section 6.2.1.
Charitable Trustee shall mean the Person unaffiliated with the Trust and a Prohibited Owner that is appointed by the Trust to serve as trustee of the Charitable Trust.
Charter shall mean the Declaration of Trust of the Trust, as amended by the FirstThird Amended and Restated Declaration of Trust, and as may be amended further from time to time.
Code shall mean the Internal Revenue Code of 1986, as amended, or any successor statute.
Common Share Ownership Limit shall mean not more than 9.9% (in value or in number of Common Shares, whichever is more restrictive) of the aggregate of the outstanding Common Shares of Beneficial Interest.
Common Shares shall mean common shares of beneficial interest of the Trust.
Competitive Real Estate Commission shall mean a real estate or brokerage commission paid for the purchase or sale of a Property that is reasonable, customary and competitive in light of the size, type and location of the Property.
-2-
| A-2 | Adopted by the Board of Trustees March 27, 2014 |
Constructive Ownership shall mean ownership of Shares by a Person, whether the interest in Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns,” “Constructively Owned” and “Constructively” (as the context requires) shall have the correlative meanings.
Contract Purchase Price shall mean the amount actually paid or allocated in respect of the purchase, development, construction or improvement of a Property or the amount of funds advanced with respect to a Mortgage, or the amount actually paid or allocated in respect of the purchase of other Assets, in each case exclusive of Acquisition Fees and Acquisition Expenses.
Development Fee shall mean a fee for the packaging of a Property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and financing for a specific Property, either initially or at a later date.
Distributions shall mean any distributions of money or other property, pursuant to Section 5.5 hereof, by the Trust to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.
Distributor shall mean, in connection with an Offering, any other Person selected by the Board of Trustees to act as an underwriter or a broker-dealer that is a member in good standing of FINRA or is exempt from the broker-dealer registration requirements, and that, in any case, enters into an agreement with the Trust to sell Shares. This shall also include any sub-distributors that such Distributor may engage by written agreement to sell the Shares in the Offering who shall either be a member in good standing of FINRA or exempt from the broker-dealer registration requirements.
Excepted Holder shall mean a Shareholder for whom an Excepted Holder Limit is created by Article VI or by the Board of Trustees pursuant to Section 6.1.7.
Excepted Holder Limit shall mean with respect to any Shareholder, the percentage limit established by the Board of Trustees pursuant to Section 6.1.7 for such Shareholder, subject to adjustment pursuant to Section 6.1.8.
Excess Amount shall mean the amount of the Total Operating Expenses exceeding the 2%/25% Guidelines where the Independent Trustees have made a finding that, based on such unusual and non-recurring factors that they deem sufficient, such additional expenses are justified.
FINRA shall mean the Financial Industry Regulatory Authority, Inc.
Gross Proceeds shall mean the aggregate purchase price of all Shares sold for the account of the Trust through an Offering, without deduction for Selling Commissions, volume discounts, any marketing support and due diligence expense reimbursement or Organization and Offering Expenses. For the purpose of computing Gross Proceeds, the purchase price of any Share for which reduced Selling Commissions are paid to a Distributor (where net proceeds to the Trust are not reduced) shall be deemed to be the full amount of the offering price per Share pursuant to the Prospectus for such Offering without reduction.
Indemnitee shall have the meaning as provided in Section 12.2(b) and (c) herein.
Independent Appraiser shall mean a Person with no material current or prior business or personal relationship with the Advisor or any of the Trustees (other than having contemporaneously or previously provided appraisal services with respect to any Properties or Assets of the Trust), and who is engaged to a substantial extent in the business of rendering opinions regarding the value of Real Property and/or other Assets of the type held by the Trust. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive evidence of being engaged to a substantial extent in the business of rendering opinions regarding the value of Real Property.
-3-
| A-3 | Adopted by the Board of Trustees March 27, 2014 |
Initial Date shall mean the effective date of the Form 10 filed by the Trust.
Initial Investment shall mean that portion of the initial capitalization of the Trust contributed by the Sponsor or its Affiliate in exchange pursuant to Section II.A. of the NASAA REIT Guidelines.
Invested Capital shall mean the amount calculated by multiplying the total number of Shares purchased by Shareholders by the issue price at the time of such purchase, reduced by the portion of any Distribution that is attributable to Net Sales Proceeds and by any amounts paid by the Trust to repurchase Shares pursuant to any Trust’s plan for the repurchase of Shares.
Joint Ventures shall mean those joint venture or partnership arrangements (excluding the Trusts’ general partnership interest in the Operating Partnership) in which the Trust or any of its subsidiaries is a co-venturer or general partner established to acquire or hold Assets.
Leverage shall mean the aggregate amount of indebtedness of the Trust for money borrowed (including purchase money mortgage loans) outstanding at any time, both secured and unsecured.
Listing shall mean the listing of the Common Shares on a national securities exchange, but shall not include the trading of the Common Shares on the over-the-counter markets. Upon such Listing, the Common Shares shall be deemed Listed.
Market Price on any date shall mean, with respect to any class or series of outstanding Shares, the Closing Price for such Shares on such date. The “Closing Price” on any date shall mean the last sale price for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Shares, in either case as reported on the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such Shares are listed or admitted to trading or, if such Shares are not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Shares selected by the Board of Trustees or, in the event that no trading price is available for such Shares or such trading is limited and not regular, the fair market value of Shares as determined in good faith by the Board of Trustees.
Mortgages shall mean, in connection with mortgage financing provided, invested in, participated in or purchased by the Trust, all of the notes, deeds of trust, security interests or other evidences of indebtedness or obligations, which are secured or collateralized by Real Property owned by the borrowers under such notes, deeds of trust, security interests or other evidences of indebtedness or obligations.
NASAA REIT Guidelines shall mean the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association on May 7, 2007 and in effect on the Initial Date.
NDCC shall mean Chapter 10-34 of the North Dakota Century Code, as amended from time to time.
-4-
| A-4 | Adopted by the Board of Trustees March 27, 2014 |
Net Asset Value shall mean the value as of the end of each Business Day determined by subtracting the Trust’s liabilities, including any fees payable to the Advisor or the Distributor, Organization and Offering Expenses and other expenses attributable to the Trust’s operations, from the Assets.
Net Asset Value Per Share shall mean the value per Share as of the end of each Business Day determined by dividing the Net Asset Value by the number of Common Shares of Beneficial Interest outstanding as of the end of business on such day prior to giving effect to any Share purchases or redemptions to be effected on such day.
Net Income shall mean for any period, the Trust’s total revenues applicable to such period, less the total expenses applicable to such period other than additions to reserves for depreciation, bad debts or other similar non-cash reserves. If the Advisor receives an incentive fee, Net Income, for purposes of calculating Total Operating Expenses, shall exclude the gain from the sale of the Trust’s Assets.
Net Sales Proceeds shall mean in the case of a transaction described in clause (i)(A) of the definition of Sale, the proceeds of any such transaction less the amount of selling expenses incurred by or on behalf of the Trust, including all real estate commissions, closing costs and legal fees and expenses. In the case of a transaction described in clause (i)(B) of the definition of Sale, Net Sales Proceeds means the proceeds of any such transaction less the amount of selling expenses incurred by or on behalf of the Trust, including any legal fees and expenses and other selling expenses incurred in connection with such transaction. In the case of a transaction described in clause (i)(C) of the definition of Sale, Net Sales Proceeds means the proceeds of any such transaction actually distributed to the Trust or the Operating Partnership from the Joint Venture less the amount of any selling expenses, including legal fees and expenses incurred by or on behalf of the Trust (other than those paid by the Joint Venture). In the case of a transaction or series of transactions described in clause (i)(D) of the definition of Sale, Net Sales Proceeds means the proceeds of any such transaction (including the aggregate of all payments under a Mortgage on or in satisfaction thereof other than regularly scheduled interest payments) less the amount of selling expenses incurred by or on behalf of the Trust, including all commissions, closing costs and legal fees and expenses. In the case of a transaction described in clause (i)(E) of the definition of Sale, Net Sales Proceeds means the proceeds of any such transaction less the amount of selling expenses incurred by or on behalf of the Trust, including any legal fees and expenses and other selling expenses incurred in connection with such transaction. In the case of a transaction described in clause (ii) of the definition of Sale, Net Sales Proceeds means the proceeds of such transaction or series of transactions less all amounts generated thereby which are reinvested in one or more Assets within 180 days thereafter and less the amount of any real estate commissions, closing costs, and legal fees and expenses and other selling expenses incurred by or allocated to the Trust or the Operating Partnership in connection with such transaction or series of transactions. Net Sales Proceeds shall also include any amounts that the Trust determines, in its discretion, to be economically equivalent to proceeds of a Sale. Net Sales Proceeds shall not include any reserves established by the Trust in its sole discretion.
Offering shall mean any offering and sale of Shares.
Operating Partnership shall mean INREIT Properties, LLLP, a North Dakota limited liability limited partnership, and any additional entities through which the Trust may own Assets.
Organization and Offering Expenses shall mean any and all costs and expenses incurred by and to be paid from the Assets of the Trust in connection with the formation, qualification and registration of the Trust, and the marketing and distribution of Shares, including, without limitation, total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys), expenses for printing, engraving, amending, supplementing and mailing, salaries of employees while engaged in sales activity, telephone and other telecommunications costs, all advertising and marketing expenses (including the costs related to investor and broker-dealer sales meetings), charges of transfer agents, registrars, trustees, escrow holders, depositories, experts, fees, expenses and taxes related to the filing, registration and qualification of the sale of the Shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees.
-5-
| A-5 | Adopted by the Board of Trustees March 27, 2014 |
Preferred Shares shall mean preferred shares of beneficial interests, of the Trust.
Prohibited Owner shall mean, with respect to any purported Transfer, any Person who, but for the provisions of Section 6.1, would Beneficially Own or Constructively Own Shares, and if appropriate in the context, shall also mean any Person who would have been the record owner of Shares that the Prohibited Owner would have so owned.
Property or Properties shall mean, as the context requires, any, or all, respectively, of the Real Property acquired by the Trust, directly or indirectly through joint venture arrangements or other partnership or investment interests.
Prospectus shall mean the same as that term is defined in Section 2(10) of the Securities Act, including a preliminary prospectus, an offering circular as described in Rule 256 of the General Rules and Regulations under the Securities Act, or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling Securities to the public.
Real Estate Related Asset shall mean any investments by the Trust or the Operating Partnership in (a) mortgage, mezzanine, bridge and other loans on Real Property, (b) equity securities such as common stocks, preferred stocks and convertible securities of public or private real estate companies, and (c) debt securities such as collateralized mortgage backed securities, commercial mortgages and other debt securities.
Real Property or Real Estate shall mean land; rights in land (including leasehold interests); any buildings, structures, improvements, furnishings, fixtures and equipment located on or used in connection with land and rights or interests in land; or mortgage foreclosures.
Reinvestment Plan shall have the meaning as provided in Section 5.10 herein.
REIT shall mean a corporation, trust, association or other legal entity (other than a real estate syndication) which is engaged primarily in investing in equity interests in real estate (including fee ownership and leasehold interests) or in loans secured by real estate or both as defined pursuant to the REIT Provisions of the Code.
REIT Provisions of the Code shall mean Sections 856 through 860 of the Code and any successor or other provisions of the Code relating to REITs (including provisions as to the attribution of ownership of beneficial interests therein) and the regulations promulgated thereunder.
Restriction Termination Date shall mean the first day after the Initial Date on which the Board of Trustees determines that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a REIT or that compliance with the restrictions and limitations on Beneficial Ownership, Constructive Ownership and Transfers of Shares set forth herein is no longer required in order for the Trust to qualify as a REIT.
Roll-Up Entity shall mean a partnership, REIT, corporation, trust or similar entity that would be created or would survive after the successful completion of a proposed Roll-Up Transaction.
Roll-Up Transaction shall mean a transaction involving the acquisition, merger, conversion or consolidation, either directly or indirectly, of the Trust and the issuance of securities of a Roll-Up Entity to the Shareholders. Such term does not include:
(a) a transaction involving Securities of the Trust that have been for at least twelve months listed on a national securities exchange or traded through FINRA’s Automated Quotation National Market System; or
-6-
(i) Shareholders’ voting rights;
Adopted by the | ||||
March 27, 2014 |
(ii) the term of existence of the Trust;
(iii) Sponsor or Advisor compensation; or
(iv) the Trust’s investment objectives.
Sale or Sales shall mean (i) any transaction or series of transactions whereby: (A) the Trust or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including the lease of any Property consisting of a building only, and including any event with respect to any Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (B) the Trust or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Trust or the Operating Partnership in any Joint Venture in which it is a co-venturer or partner; (C) any Joint Venture directly or indirectly (except as described in other subsections of this definition) in which the Trust or the Operating Partnership as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including any event with respect to any Property which gives rise to insurance claims or condemnation awards; (D) the Trust or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, conveys or relinquishes its interest in any Real Estate Related Asset or portion thereof (including with respect to any Mortgage, all payments thereunder or in satisfaction thereof other than regularly scheduled interest payments) of amounts owed pursuant to such Mortgage and any event which gives rise to a significant amount of insurance proceeds or similar awards; or (E) the Trust or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any other Asset not previously described in this definition or any portion thereof, but (ii) not including any transaction or series of transactions specified in clause (i) (A) through (E) above in which the proceeds of such transaction or series of transactions are reinvested by the Trust in one or more Assets within 180 days thereafter.
Securities shall mean any of the following issued by the Trust, as the text requires: Shares, any other share of beneficial interest, shares or other evidences of equity or beneficial or other interests, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire, any of the foregoing.
Securities Act shall mean the Securities Act of 1933, as amended from time to time, or any successor statute thereto.
Selling Commissions shall mean any and all commissions payable to underwriters or other broker-dealers in connection with the sale of Shares, including, without limitation, commissions payable to the Distributor.
Shares shall mean shares of beneficial interest of the Trust of any class or series, including Common Shares or Preferred Shares.
Soliciting Dealers shall mean those broker-dealers that are members in good standing of FINRA, or that are exempt from broker-dealer registration requirements, and that, in either case, enter into participating broker or other agreements with the Distributor to sell Shares.
Sponsor shall mean any Person: (a) directly or indirectly instrumental in organizing, wholly or in part, the Trust or any Person who will control, manage or participate in the management of the Trust, and any Affiliate of such Person; (b) taking the initiative, directly or indirectly, in founding or organizing the business or enterprise of the Trust, either alone or in conjunction with one or more other Persons, (c) receiving a material participation in the Trust in connection with the founding or organizing of the business of the Trust, in consideration of services or property, or both services and property, (d) having a substantial number of relationships and contacts with the Trust, (e) possessing significant rights to control the Trust’s Properties, (f) receiving fees for providing services to the Trust which are paid on a basis that is not customary in the industry or (g) providing goods or services to the Trust on a basis which was not negotiated at arm’s-length with the Trust. Does not include: (1) any Person whose only relationship with the Trust is that of an independent property manager of the Trust’s Assets and whose only compensation is as such; or (2) wholly independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services.
-7-
| A-7 | Adopted by the Board of Trustees March 27, 2014 |
Shareholders shall mean the holders of record of the Shares as maintained in the books and records of the Trust or its transfer agent.
Termination Date shall mean the date of termination of the Advisory Agreement.
Total Operating Expenses shall mean all costs and expenses paid or incurred by the Trust, as determined under generally accepted accounting principles, that are in any way related to the operation of the Trust or to the Trust’s business, including advisory fees. Does not include (a) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, Transfer, registration and Listing of the Shares; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) incentive fees paid in compliance with the NASAA REIT Guidelines; (f) Acquisition Fees and Acquisition Expenses, real estate commissions on the Sale of Property and other fees and expenses connected with the acquisition, disposition, and ownership of real estate interests, mortgage loans or other Property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of Property).
Transfer shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition, as well as any other event that causes any Person to acquire Beneficial Ownership or Constructive Ownership, or any agreement to take any such actions or cause any such events, of Shares or the right to vote or receive Distributions, including (a) the granting or exercise of any option (or any disposition of any option); (b) any disposition of any Securities or rights convertible into or exchangeable for Shares or any interest in Shares or any exercise of any such conversion or exchange right; and (c) Transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Shares; in each case, whether voluntary or involuntary, whether owned of record, Constructively Owned or Beneficially Owned and whether by operation of law or otherwise. The terms “Transferring” and “Transferred” shall have the correlative meanings.
Trust shall mean INREIT Real Estate Investment Trust.
Trustee shall mean of member of the Board of Trustees of the Trust.
2%/25% Guidelines are the limitations of the Trust’s obligation to reimburse the Advisor for the Total Operating Expenses incurred by the Advisor up to the greater of 2% of Average Invested Assets or 25% of Net Income for the four consecutive fiscal quarters then ended, in compliance with the NASAA REIT Guidelines.
Unimproved Real Property shall mean Property in which the Trust has an equity interest that was not acquired for the purpose of producing rental or other operating income, has no development or construction in process on such Property and no development or construction is planned in good faith to commence within one year on such Property.
-8-
SHARES OF BENEFICIAL INTEREST
Section 5.1.Authorized Shares. The Trust has authority to issue 100,000,000 Common Shares, $0.01 par value per share, and 50,000,000 Preferred Shares, $0.01 par value per share. The aggregate par value of all authorized Shares having par value is $1,500,000. All Shares shall be fully paid and nonassessable when issued. If Shares of one class are classified or reclassified into Shares of another class pursuant to this Article V, the number of authorized Shares of the former class shall be automatically decreased and the number of Shares of the latter class shall be automatically increased, in each case by the number of Shares so classified or reclassified, so that the aggregate number of Shares of all classes that the Trust has authority to issue shall not be more than the total number of Shares set forth in the first sentence of this Section. The Board of Trustees, with the approval of a majority of the entire Board and without any action by the Shareholders, may amend the Charter from time to time to increase or decrease the aggregate number of Shares or the number of Shares of any class or series that the Trust has authority to issue. The Board may, without any action by the holders of Shares, authorize the issuance from time to time of Shares of any class, whether now or hereafter authorized, or securities convertible into Shares of any class, whether now or hereafter authorized, for such consideration as the Board may deem advisable, subject to such restrictions or limitations, if any, as may be set forth in the Bylaws of the Trust and applicable laws of North Dakota.
| A-8 | Adopted by the Board of Trustees March 27, 2014 |
Section 5.2.Common Shares.
Section 5.2.1.Common Shares Subject to Terms of Preferred Shares. The Common Shares shall be subject to the express terms of any series of Preferred Shares.
Section 5.2.2.Description. Subject to the provisions of Article VI and except as may otherwise be specified in the terms of any class or series of Common Shares, each Common Share shall entitle the holder thereof to one vote per share on all matters upon which Shareholders are entitled to vote pursuant to Section 11.2 hereof. The Board may classify or reclassify any unissued Common Shares from time to time in one or more classes or series of Shares; provided, however, that the voting rights per Common Share (other than any publicly held Shares) sold in a private offering shall not exceed the voting rights which bear the same relationship to the voting rights of a publicly held Share as the consideration paid to the Trust for each privately offered Common Share bears to the book value of each outstanding publicly held Share.
Section 5.2.3.Rights upon Liquidation. 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 the Common Shares shall be determined in accordance with applicable law. Each holder of Common Shares of a particular class shall be entitled to receive, ratably with each other holder of Common Shares of such class, that portion of such aggregate Assets available for Distribution as the number of outstanding Common Shares of such class held by such holder bears to the total number of outstanding Common Shares of such class then outstanding.
Section 5.2.4.Voting Rights. Except as may be provided otherwise in the Charter, and subject to the express terms of any series of Preferred Shares, the holders of the Common Shares shall have the exclusive right to 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.
Section 5.3.Preferred Shares. The Board may classify any unissued Preferred Shares and reclassify any previously classified but unissued Preferred Shares of any series from time to time, in one or more classes or series of Shares; provided, however, that the voting rights per Preferred Share (other than any publicly held Shares) sold in a private offering shall not exceed the voting rights which bear the same relationship to the voting rights of a publicly held Share as the consideration paid to the Trust for each privately offered Preferred Share bears to the book value of each outstanding publicly held Share.
Section 5.4.Classified or Reclassified Shares. Prior to issuance of classified or reclassified Shares of any class or series, the Board by resolution shall: (a) designate that class or series to distinguish it from all other classes and series of Shares; (b) specify the number of Shares to be included in the class or series; (c) set or change, subject to the provisions of Article VI and subject to the express terms of any class or series of Shares outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other Distributions, qualifications and terms and conditions of redemption for each class or series; and (d) cause the Trust to file articles supplementary with the State of North Dakota as may be required. Any of the terms of any class or series of Shares set or changed pursuant to clause (c) of this Section 5.4 may be made dependent upon facts or events ascertainable outside the Charter (including determinations by the Board or other facts or events within the control of the Trust) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of Shares is clearly and expressly set forth in the articles supplementary or other charter document.
-9-
| A-9 | Adopted by the Board of Trustees March 27, 2014 |
Section 5.5.1. The Board of Trustees may from time to time authorize the Trust to declare and pay to Shareholders such dividends or Distributions, in cash, Shares or other Assets of the Trust or in Securities of the Trust or from any other source as the Board of Trustees in its discretion shall determine.
Section 5.5.2. The Board of Trustees shall endeavor to authorize the Trust to declare and pay such dividends and Distributions as shall be necessary for the Trust to qualify as a REIT under the Code; however, Shareholders shall have no right to any dividend or Distribution unless and until authorized by the Board and declared by the Trust.
Section 5.5.3. The exercise of the powers and rights of the Board of Trustees pursuant to this Section 5.5 shall be subject to the provisions of any class or series of Shares at the time outstanding.
Section 5.5.4. The receipt by any Person in whose name any Shares are registered on the records of the Trust or by his or her duly authorized agent shall be a sufficient discharge for all dividends or Distributions payable or deliverable in respect of such Shares and from all liability to see to the application thereof.
Section 5.5.5. Distributions in kind shall not be permitted, except for Distributions of readily marketable securities, Distributions of beneficial interests in a liquidating trust established for the dissolution of the Trust and the liquidation of its Assets in accordance with the terms of the Charter or Distributions in which (a) the Board advises each Shareholder of the risks associated with direct ownership of the Assets, (b) the Board offers each Shareholder the election of receiving such in-kind Distributions, and (c) in-kind Distributions are made only to those Shareholders that accept such offer.
Section 5.6.Charter and Bylaws. The rights of all Shareholders and the terms of all Shares are subject to the provisions of the Charter and the Bylaws.
Section 5.7.No Issuance of Share Certificates.Certificates. The Board of Trustees may authorize the issuance of Shares without certificates. With respect to any Shares that are issued without certificates, a Shareholder’s investment shall be recorded on the books of the Trust. To Transfer the Shares, a Shareholder shall submit an executed form to the Trust, which form shall be provided by the Trust upon request. Such Transfer will also be recorded on the books of the Trust. Upon issuance or Transfer of Shares, the Trust will provide the Shareholder with information concerning his or her rights with regard to such Shares, as required by the Bylaws, the NDCC or other applicable law.
Section 5.8.Suitability of Shareholders. Until Listing, the following provisions shall apply:
Section 5.8.1.Investor Suitability Standards. Subject to suitability standards established by individual states, to become a Shareholder in the Trust, if such prospective Shareholder is an individual (including an individual beneficiary of a purchasing Individual Retirement Account), or if the prospective Shareholder is a fiduciary (such as a trustee of a trust or corporate pension or profit sharing plan, or other tax-exempt organization, or a custodian under a Uniform Gifts to Minors Act), such individual or fiduciary, as the case may be, must represent to the Trust, among other requirements as the Trust may require from time to time:
(a) that such individual (or, in the case of a fiduciary account, that the fiduciary account, beneficiary or the donor or grantor who directly or indirectly supplies the funds to purchase the Shares if the donor or grantor is the fiduciary) has a minimum annual gross income of $70,000 and a net worth (excluding home, home furnishings and automobiles) of not less than $70,000; or
(b) that such individual (or, in the case of a fiduciary account, that the fiduciary account, beneficiary or the donor or grantor who directly or indirectly supplies the funds to purchase the Shares if the donor or grantor is the fiduciary) has a net worth (excluding home, home furnishings and automobiles) of not less than $250,000.
The income and net worth standards above do not apply to participant-directed purchases under a 401(k) or other defined contribution plan where the authorized plan fiduciary has approved Common Shares or Preferred Shares as an available investment under such plan.
-10-
| A-10 | Adopted by the Board of Trustees March 27, 2014 |
Section 5.8.3.Minimum Investment. Subject to certain individual state requirements and the issuance of Shares under any Reinvestment Plan, no initial sale of Shares will be permitted of less than 100 shares.
Section 5.9.Repurchase of Shares. The Board may establish, from time to time, a program or programs by which the Trust voluntarily repurchases Shares from its Shareholders; provided, however, that such repurchase does not impair the capital or operations of the Trust. The Sponsor, Advisor, members of the Board or any Affiliates thereof may not receive any fees arising out of the repurchase of Shares by the Trust.
Section 5.10.Distribution Reinvestment Plans. The Board may establish, from time to time, a Distribution reinvestment plan or plans (each, a “Reinvestment Plan”). Under any such Reinvestment Plan, (a) all material information regarding Distributions to the Shareholders and the effect of reinvesting such Distributions, including the tax consequences thereof, shall be provided to the Shareholders not less often than annually, and (b) each Shareholder participating in such Reinvestment Plan shall have a reasonable opportunity to withdraw from the Reinvestment Plan not less often than annually after receipt of the information required in clause (a) above.
ARTICLE VI.
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 6.1.Shares.
Section 6.1.1.Ownership Limitations. Prior to the Restriction Termination Date, but subject to Section 6.3:
(a)Basic RestrictionsRestrictions..
(i) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Shares in excess of the Aggregate Share Ownership Limit, (2) no Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own Common Shares in excess of the Common Share Ownership Limit and (3) no Excepted Holder shall Beneficially Own or Constructively Own Shares in excess of the Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially Own or Constructively Own Shares to the extent that such Beneficial Ownership or Constructive Ownership of Shares would result in (A) the ownership of the Trust’s Shares causing the Trust to satisfy the stock ownership requirement for being a personal holding company under Section 542(a)(2) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), (B) the Trust being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or (C) otherwise failing to qualify as a REIT (including, but not limited to, Beneficial Ownership or Constructive Ownership that would result in the Trust owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Trust from such tenant would cause the Trust to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).
-11-
| A-11 | Adopted by the Board of Trustees March 27, 2014 |
(iv) Any Transfer of Shares that, if effective, would result in Shares being Beneficially Owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be voidabinitio,, and the intended transferee shall acquire no rights in such Shares.
(b) Transfer in Trust.Trust. If any Transfer of Shares occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning Shares in violation of Section 6.1.1(a)(i) (ii) or (iii);
(i) then that number of Shares the Beneficial Ownership or Constructive Ownership of which otherwise would cause such Person to violate Section 6.1.1(a)(i) (ii) or (iii) (rounded up to the nearest whole share) shall be automatically transferred to a Charitable Trust for the benefit of a Charitable Beneficiary, as described in Section 6.2, effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such Shares; or
(ii) if the Transfer to the Charitable Trust described in clause (i) of this section would not be effective for any reason to prevent the violation of Section 6.1.1(a)(i) (ii) or (iii), then the Transfer of that number of Shares that otherwise would cause any Person to violate Section 6.1.1(a)(i), (ii), or (iii) shall be voidabinitio,, and the intended transferee shall acquire no rights in such Shares.
Section 6.1.2.Remedies for Breach. If the Board of Trustees or its designee (including any duly authorized committee of the Board) shall at any time determine in good faith that a Transfer or other event has taken place that results in a violation of Section 6.1.1 or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any Shares in violation of Section 6.1.1 (whether or not such violation is intended), the Board of Trustees or its designee shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without limitation, causing the Trust to redeem Shares, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer or other event; provided, however, that any Transfers or attempted Transfers or other events in violation of Section 6.1.1 shall automatically result in the Transfer to the Charitable Trust described above, or, where applicable, such Transfer (or other event) shall be voidabinitio as provided above irrespective of any action (or non-action) by the Board of Trustees or its designee; provided further, however, that this Section 6.1.2 shall not require the Board of Trustees to redeem Shares or to void any prior redemptions of Shares.
Section 6.1.3.Notice of Restricted Transfer. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of Shares that will or may violate Section 6.1.1(a), or any Person who would have owned Shares but that resulted in a Transfer to the Charitable Trust pursuant to the provisions of Section 6.1.1(b), shall immediately give written notice to the Trust of such event, or in the case of such a proposed or attempted transaction, give at least 15 days prior written notice, and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer on the Trust’s status as a REIT.
Section 6.1.4.Owners Required To Provide Information. From the Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than 5% (or such lower percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding Shares, within 30 days after the end of each taxable year, shall give written notice to the Trust stating the name and address of such owner, the number of Shares and other Shares Beneficially Owned and a description of the manner in which such Shares are held. Each such owner shall provide to the Trust such additional information as the Trust may request in order to determine the effect, if any, of such Beneficial Ownership on the Trust’s status as a REIT and to ensure compliance with the Aggregate Share Ownership Limit, the Common Share Ownership Limit and the other restrictions set forth herein.
| A-12 | Adopted by the Board of Trustees March 27, 2014 |
(b) each Person who is a Beneficial Owner or Constructive Owner of Shares and each Person (including the Shareholder of record) who is holding Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust such information as the Trust may request, in good faith, in order to determine the Trust’s status as a REIT and to comply with requirements of any taxing authority or governmental authority or to determine such compliance.
-12-
Section 6.1.6.Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 6.1, Section 6.2 or any definition contained in Article IV, the Board of Trustees shall have the power to determine the application of the provisions of this Section 6.1 or Section 6.2 with respect to any situation based on the facts known to it. In the event Section 6.1 or 6.2 requires an action by the Board of Trustees and the Charter fails to provide specific guidance with respect to such action, the Board of Trustees shall have the power to determine the action to be taken so long as such action is not contrary to the provisions of Article V or Sections 6.1 or 6.2. Absent a decision to the contrary by the Board of Trustees (which the Board may make in its sole and absolute discretion), if a Person would have (but for the remedies set forth in Section 6.1.2) acquired Beneficial Ownership or Constructive Ownership of Shares in violation of Section 6.1.1, such remedies (as applicable) shall apply first to the Shares which, but for such remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person, pro rata among the Persons who actually own such Shares based upon the relative number of the Shares held by each such Person.
Section 6.1.7.Exceptions.
(a) Subject to Section 6.1.1(a)(ii), the Board of Trustees, in its sole discretion, may exempt (prospectively or retroactively) a Person from the Aggregate Share Ownership Limit and the Common Share Ownership Limit, as the case may be, and may establish or increase an Excepted Holder Limit for such Person if:
(i) the Board of Trustees obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual’s Beneficial Ownership or Constructive Ownership of such Shares will violate Section 6.1.1(a)(ii);
(ii) such Person does not, and represents that it will not, own, actually or Constructively, an interest in a tenant of the Trust, or a tenant of any entity owned or controlled by the Trust, that would cause the Trust to own, actually or Constructively, a 9.9% interest or greater (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and the Board of Trustees obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact. For this purpose, a tenant from whom the Trust, or an entity owned or controlled by the Trust, derives, and is expected to continue to derive, a sufficiently small amount of revenue such that, in the opinion of the Board of Trustees, rent from such tenant would not adversely affect the Trust’s ability to qualify as a REIT, shall not be treated as a tenant of the Trust; and
(iii) such Person agrees that any violation or attempted violation of such representations or undertakings, or other action which is contrary to the restrictions contained in Sections 6.1.1 through 6.1.6, will result in such Shares being automatically transferred to a Charitable Trust in accordance with Sections 6.1.1(b) and 6.2.
(b) Prior to granting any exception pursuant to Section 6.1.7(a), the Board of Trustees may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Trustees in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Trust’s status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of Trustees may impose such conditions or restrictions as it deems appropriate in connection with granting such exception.
(c) Subject to Section 6.1.1(a)(ii), an underwriter which participates in a public offering or a private placement of Shares, or securities convertible into or exchangeable for Shares, may Beneficially Own or Constructively Own Shares, or securities convertible into or exchangeable for Shares, in excess of the Aggregate Share Ownership Limit, the Common Share Ownership Limit or both such limits, but only to the extent necessary to facilitate such public offering or private placement.
-13-
| A-13 | Adopted by the Board of Trustees March 27, 2014 |
Section 6.1.8.Increase in Aggregate Share Ownership and Common Share Ownership Limits. Subject to Section 6.1.1, the Board of Trustees may from time to time increase the Common Share Ownership Limit and the Aggregate Share Ownership Limit for one or more Persons and decrease the Common Share Ownership Limit and the Aggregate Share Ownership Limit for all other Persons; provided, however, that the decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit will not be effective for any Person whose percentage ownership in Shares is in excess of such decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit until such time as such Person’s percentage of Shares equals or falls below the decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit, but any further acquisition of Shares in excess of the decreased Common Share Ownership Limit and/or Aggregate Share Ownership Limit will be in violation of the new Common Share Ownership Limit and/or Aggregate Share Ownership Limit and, provided further, that the new Common Share Ownership Limit and/or Aggregate Share Ownership Limit would not allow five or fewer Persons to Beneficially Own more than 49.9% in value of the outstanding Shares.
Section 6.1.9.Legend. Subsequent to the date of thisthe First Amended and Restated Declaration Trust, any certificate representing Shares shall bear substantially the following legend:
“The Shares represented by this certificate are subject to restrictions on Beneficial Ownership and Constructive Ownership and Transfer for the purpose, among others, of the Trust’s maintenance of its status as a REIT under the Code. Subject to certain further restrictions and except as expressly provided in the Trust’s Charter, (i) no Person may Beneficially Own or Constructively Own Common Shares of the Trust in excess of 9.8% (in value or number of Shares) of the outstanding Common Shares of the Trust unless such Person is an Excepted Holder (in which case the Excepted Holder Limit shall be applicable); (ii) no Person may Beneficially Own or Constructively Own Shares of the Trust in excess of 9.8% of the value of the total outstanding Shares of the Trust, unless such Person is an Excepted Holder (in which case the Excepted Holder Limit shall be applicable); (iii) no Person may Beneficially Own or Constructively Own Shares that would result in the ownership of Shares of the Trust causing the Trust to satisfy the stock ownership requirement for being a personal holding company under Section 542(a)(2) of the Code, the Trust being “closely held” under Section 856(h) of the Code or otherwise cause the Trust to fail to qualify as a REIT; (iv) no Person may Beneficially Own or Constructively Own shares of capital stock to the extent that such ownership would cause any income of the Trust that would otherwise qualify as “rents from real property” for purposes of Section 856(d) of the Code to fail to qualify as such; and (v) no Person may Transfer Shares if such Transfer would result in Shares of the Trust being owned by fewer than 100 Persons. Any Person who Beneficially Owns or Constructively Owns or attempts to Beneficially Own or Constructively Own Shares which cause or will cause a Person to Beneficially Own or Constructively Own Shares in excess or in violation of the above limitations must immediately notify the Trust. If any of the restrictions on Transfer or ownership are violated, the Shares represented hereby will be automatically transferred to a Charitable Trust for the benefit of one or more Charitable Beneficiaries. In addition, the Trust may redeem Shares upon the terms and conditions specified by the Board of Trustees in its sole discretion if the Board of Trustees determines that ownership or a Transfer or other event may violate the restrictions described above. Furthermore, upon the occurrence of certain events, attempted Transfers in violation of the restrictions described above may be voidabinitio. initio. All capitalized terms in this legend have the meanings defined in the Trust’s Declaration of Trust, as the same may be amended from time to time, a copy of which, including the restrictions on Transfer and ownership, will be furnished to each Shareholder on request and without charge. Requests for such a copy may be directed to the Secretary of the Trust at its principal office.”
Instead of the foregoing legend, the certificate may state that the Trust will furnish a full statement about certain restrictions on transferability to a Shareholder on request and without charge.
-14-
| A-14 | Adopted by the Board of Trustees March 27, 2014 |
Section 6.2.1.Ownership in Trust. Upon any purported Transfer or other event described in Section 6.1.1(b) that would result in a Transfer of Shares to a Charitable Trust, such Shares shall be deemed to have been transferred to the Charitable Trustee as trustee of a Charitable Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such Transfer to the Charitable 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 Section 6.1.1(b). The Charitable Trustee shall be appointed by the Trust and shall be a Person unaffiliated with the Trust and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Trust as provided in Section 6.2.6.
Section 6.2.2.Status of Shares Held by the Charitable Trustee. Shares held by the Charitable Trustee shall continue to be issued and outstanding Shares of the Trust. The Prohibited Owner shall have no rights in the Shares held by the Charitable Trustee. The Prohibited Owner shall not benefit economically from ownership of any Shares held in trust by the Charitable Trustee, shall have no rights to dividends or other Distributions and shall not possess any rights to vote or other rights attributable to the Shares held in the Charitable Trust.
Section 6.2.3.Dividend and Voting Rights.
(a) The Charitable Trustee shall have all voting rights and rights to dividends or other Distributions with respect to Shares held in the Charitable Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary.
(b) Any dividend or other Distribution paid prior to the discovery by the Trust that Shares have been transferred to the Charitable Trustee shall be paid with respect to such Shares to the Charitable Trustee upon demand and any dividend or other Distribution authorized but unpaid shall be paid when due to the Charitable Trustee. Any dividends or Distributions so paid over to the Charitable Trustee shall be held in trust for the Charitable Beneficiary.
(c) The Prohibited Owner shall have no voting rights with respect to Shares held in the Charitable Trust and, subject to North Dakota law, effective as of the date that Shares have been Transferred to the Charitable Trustee, the Charitable Trustee shall have the authority, at the Charitable Trustee’s sole discretion, (a) to rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Trust that Shares have been transferred to the Charitable Trustee and (b) to recast such vote in accordance with the desires of the Charitable Trustee acting for the benefit of the Charitable Beneficiary; provided, however, that if the Trust has already taken irreversible corporate action, then the Charitable Trustee shall not have the authority to rescind and recast such vote.
(d) Notwithstanding the provisions of this Article VI, until the Trust has received notification that Shares have been Transferred into a Charitable Trust, the Trust shall be entitled to rely on its 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.
Section 6.2.4.Sale of Shares by Charitable Trustee.
(a) Within 20 days of receiving notice from the Trust that Shares have been transferred to the Charitable Trust, the Charitable Trustee shall sell the Shares held in the Charitable Trust to a Person, designated by the Charitable Trustee, whose ownership of the Shares will not violate the ownership limitations set forth in Section 6.1.1(a).
(b) Upon such sale, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the Charitable Beneficiary as provided in this Section 6.2.4. The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the Shares or, if the Prohibited Owner did not give value for the Shares in connection with the event causing the Shares to be held in the Charitable Trust (e.g.(e.g., in the case of a gift, devise or other such transaction), the Market Price of the Shares on the day of the event causing the Shares to be held in the Charitable Trust and (2) the price per share received by the Charitable Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the Shares held in the Charitable Trust.
-15-
| A-15 | Adopted by the Board of Trustees March 27, 2014 |
(d) Any net sales proceeds in excess of the amount payable to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary.
(e) If, prior to the discovery by the Trust that Shares have been transferred to the Charitable Trustee, such Shares are sold by a Prohibited Owner, then (i) such 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 Shares that exceeds the amount that such Prohibited Owner was entitled to receive pursuant to this Section 6.2.4(b), such excess shall be paid to the Charitable Trustee upon demand.
Section 6.2.5.Purchase Right in Shares Transferred to the Charitable Trustee.
(a) Shares transferred to the Charitable Trustee shall be deemed to have been offered for sale to the Trust, or its designee, at a price per Share equal to the lesser of (a) the price per Share in the transaction that resulted in such Transfer to the Charitable Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (b) the Market Price on the date the Trust, or its designee, accepts such offer.
(b) The Trust may reduce the amount payable to the Prohibited Owner by the amount of dividends and Distributions which has been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Charitable Trustee pursuant to Section 6.2.3 of this Article VI. The Trust may pay the amount of such reduction to the Charitable Trustee for the benefit of the Charitable Beneficiary.
(c) The Trust shall have the right to accept such offer until the Charitable Trustee has sold the Shares held in the Charitable Trust pursuant to Section 6.2.4.
(d) Upon such a sale to the Trust, the interest of the Charitable Beneficiary in the Shares sold shall terminate and the Charitable Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.
Section 6.2.6.Designation of Charitable Beneficiaries. By written notice to the Charitable Trustee, the Trust shall designate one or more nonprofit organizations to be the Charitable Beneficiary of the interest in the Charitable Trust such that (a) Shares held in the Charitable Trust would not violate the restrictions set forth in Section 6.1.1(a) in the hands of such Charitable Beneficiary and (b) 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)(1)(A), 2055 and 2522 of the Code.
Section 6.3.Stock Exchange Transactions. Nothing in this Article VI shall preclude the settlement of any transaction entered into through the facilities of any national securities exchange. The fact that the settlement of any transaction occurs shall not negate the effect of any other provision of this Article VI and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VI.
Section 6.4.Enforcement. The Trust is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article VI.
Section 6.5.Non-Waiver. No delay or failure on the part of the Trust or the Board of Trustees in exercising any right hereunder shall operate as a waiver of any right of the Trust or the Board of Trustees, as the case may be, except to the extent specifically waived in writing.
-16-
| A-16 | Adopted by the Board of Trustees March 27, 2014 |
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
TRUST AND OF THE SHAREHOLDERS AND TRUSTEES
Section 7.1.Duties of Trustees. The Board of Trustees is responsible for setting the general policies of the Trust and for the general supervision of its business conducted by officers, agents, employees, advisors or independent contractors of the Trust. The Board of Trustees is not required personally to conduct the business of the Trust, and it may, but need not, appoint, employ or contract with any Person, including a Person Affiliated with any Trustee, as an Advisor, subject to Article VIII, and may grant or delegate such authority to the Advisor as the Board of Trustees may, in its sole discretion, deem necessary or desirable.
Section 7.2. .Number of Trustees and Vacancies. The number of Trustees of the Trust shall be 12, which number may be increased or decreased from time to time pursuant to the Bylaws; provided, however, that the total number of Trustees shall never be less than 7 nor more than 12. A majority of the Board of Trustees will be Independent Trustees except for a period of up to 60 days after the death, removal or resignation of an Independent Trustee pending the election of such Independent Trustee’s successor.
Except as may be provided by the Board of Trustees in setting the terms of any class or series of Shares, any and all vacancies on the Board of Trustees may be filled only by the affirmative vote of a majority of the remaining Trustees, even if the remaining Trustees do not constitute a quorum, and any Trustee elected to fill a vacancy shall serve for the remainder of the full term of the trusteeship in which such vacancy occurred. Notwithstanding the foregoing sentence, Independent Trustees shall nominate replacements for vacancies among the Independent Trustees’ positions, unless there are no remaining Independent Trustees to so fill a vacancy, in which case a majority vote of the remaining Trustees will be sufficient.
Section 7.3.Experience. Each Trustee shall have at least three years of relevant experience demonstrating the knowledge and experience required to successfully acquire and manage the type of Assets being acquired by the Trust. At least one of the Independent Trustees shall have three years of relevant real estate experience.
Section 7.4.Committees. The Board may establish such committees as it deems appropriate, in its discretion, provided that the majority of the members of each committee are Independent Trustees.
Section 7.5.Term. Except as may be provided by the Board of Trustees in setting the terms of any class or series of Shares, each Trustee shall hold office for one year, until the next annual meeting of Shareholders and until his or her successor is duly elected and qualifies. Trustees may be elected to an unlimited number of successive terms.
Section 7.6.Fiduciary Obligations. The Trustees and the Advisor serve in a fiduciary capacity to the Trust and have a fiduciary duty to the Shareholders of the Trust, including, with respect to the Trustees, a specific fiduciary duty to supervise the relationship of the Trust with the Advisor.
Section 7.7.Extraordinary Actions. Notwithstanding any provision of law permitting or requiring any action to be taken or approved by the affirmative vote of the holders of Shares entitled to cast a greater number of votes, any such action shall be effective and valid if declared advisable by the Board of Trustees and taken or approved by the affirmative vote of holders of Shares entitled to cast a majority of all the votes entitled to be cast on the matter.
Section 7.8.Authorization by Board of Share Issuance. The Board of Trustees may authorize the issuance from time to time of Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Shares of any class or series, whether now or hereafter authorized, for such consideration as the Board of Trustees may deem advisable (or without consideration in the case of a stock split or stock dividend), subject to such restrictions or limitations, if any, as may be set forth in the Charter or the Bylaws. The issuance of Preferred Shares shall also be approved by a majority of Trustees not otherwise interested in the transaction (and a majority of independent Trustees), who shall have access, at the Trust’s expense, to the Trust’s legal counsel or to independent legal counsel.
Section 7.9.No Preemptive Rights. Except as may be provided by the Board of Trustees in setting the terms of classified or reclassified Shares pursuant to Section 5.4 or as may otherwise be provided by contract approved by the Board of Trustees, no holder of Shares shall have any preemptive right to purchase or subscribe for any additional Shares or any other security of the Trust which it may issue or sell.
-17-
| A-17 | Adopted by the Board of Trustees March 27, 2014 |
Section 7.10.1. The determination as to any of the following matters, made in good faith by or pursuant to the direction of the Board of Trustees consistent with the Charter, shall be final and conclusive and shall be binding upon the Trust and every holder of Shares:
(a) 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 Shares or the payment of other Distributions on Shares;
(b) the amount of paid-in surplus, Net Assets, other surplus, annual or other cash flow, funds from operations, net profit, Net Assets in excess of capital, undivided profits or excess of profits over losses on sales of Assets;
(c) the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof, whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged;
(d) any interpretation of the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or Distributions, qualifications or terms or conditions of redemption of any class or series of Shares;
(e) the fair value, or any sale, bid or asked price to be applied in determining the fair value, of any Asset owned or held by the Trust or any Shares;
(f) the number of Shares of any class of the Trust;
(g) any matter relating to the acquisition, holding and disposition of any Assets by the Trust;
(h) any conflict between the NDCC and the provisions in the NASAA REIT Guidelines; or
(i) any other matter relating to the business and affairs of the Trust or required or permitted by applicable law, the Charter or Bylaws or otherwise to be determined by the Board of Trustees.
Section 7.10.2. Provided, however, that any determination by the Board of Trustees as to any of the matters under Section 7.10.1 shall not render invalid or improper any action taken or omitted prior to such determination and no Trustee shall be liable for making or failing to make such a determination.
Section 7.10.3 Provided, further, that to the extent the Board of Trustees determines that the NDCC conflicts with the provisions in the NASAA REIT Guidelines, the NASAA REIT Guidelines shall control to the extent any provisions of the NDCC are not mandatory.
Section 7.11.REIT Qualification. The Board of Trustees shall use its reasonable best efforts to take such actions as are necessary or appropriate to preserve the status of the Trust as a REIT; however, if the Board of Trustees determines that it is no longer in the best interests of the Trust to continue to be qualified as a REIT, the Board of Trustees may revoke or otherwise terminate the Trust’s REIT election pursuant to Section 856(g) of the Code. The Board of Trustees also may determine that compliance with any restriction or limitation on stock ownership and Transfers set forth in Article VI is no longer required for REIT qualification.
Section 7.12.Removal of Trustees.Trustees. Subject to the rights of holders of one or more classes or series of Preferred Shares to elect or remove one or more Trustees, any Trustee, or the entire Board of Trustees, may be removed from office at any time, without the necessity for concurrence by the Trustees, but only by the affirmative vote of at least a majority of the Shares entitled to be voted generally in the election of Trustees.
| A-18 | Adopted by the Board of Trustees March 27, 2014 |
Section 7.13.Board Action with Respect to Certain Matters. A majority of the Independent Trustees must approve any Board action to which the following sections of the NASAA REIT Guidelines apply: II.A., II.C., II.F., II.G., IV.A., IV.B., IV.C., IV.D., IV.E., IV.F., IV.G., V.E., V.H., V.J., VI.A., VI.B.4, and VI.G.
Section 7.14.Cumulative Rights. No holder of Shares shall have the right to cumulative voting in the election of trustees.
-18-
ADVISOR
Section 8.1.Appointment and Initial Investment of Advisor. If the Board of Trustees appoints, employs or contracts with a Person, including a Person Affiliated with any Trustee, as an Advisor and grants or delegates such authority to the Advisor as the Board of Trustees may, in its sole discretion, deem necessary or desirable, the term of retention of any Advisor shall not exceed one year, although there is no limit to the number of times that a particular Advisor may be retained. The Advisor or any Affiliate which holds the Initial Investment may not sell this Initial Investment while the Advisor or its Affiliate serves as the Advisor, but may Transfer the Initial Investment to other Affiliates.
Section 8.2.Supervision of Advisor.
Section 8.2.1. The Board of Trustees shall evaluate the performance of the Advisor before entering into or renewing an Advisory Agreement, and the criteria used in such evaluation shall be reflected in the minutes of the meetings of the Board of Trustees.
Section 8.2.2. The Board of Trustees may exercise broad discretion in allowing the Advisor to administer and regulate the operations of the Trust, to act as agent for the Trust, to execute documents on behalf of the Trust and to make executive decisions that conform to general policies and principles established by the Board of Trustees.
Section 8.2.3. The Board of Trustees shall monitor the Advisor to assure that the administrative procedures, operations and programs of the Trust are in the best interests of the Shareholders and are fulfilled.
Section 8.2.4. The Independent Trustees are responsible for reviewing the fees and expenses of the Trust at least annually or with sufficient frequency to determine that the expenses incurred are reasonable in light of the investment performance of the Trust, its Net Assets, its Net Income and the fees and expenses of other comparable unaffiliated REITs. Each such determination shall be reflected in the minutes of the meetings of the Board.
Section 8.2.5. The Independent Trustees also will be responsible for reviewing, from time to time and at least annually, the performance of the Advisor and determining that compensation to be paid to the Advisor is reasonable in relation to the nature and quality of services performed and the investment performance of the Trust and that the provisions of the Advisory Agreement are being carried out. Specifically, the Independent Trustees will consider factors such as (a) the amount of the fee paid to the Advisor in relation to the size, composition and performance of the Assets, (b) the success of the Advisor in generating opportunities that meet the investment objectives of the Trust, (c) rates charged to other REITs and to investors other than REITs by advisors performing the same or similar services, (d) additional revenues realized by the Advisor and its Affiliates through their relationship with the Trust, including loan, administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether paid by the Trust or by others with whom the Trust does business, (e) the quality and extent of service and advice furnished by the Advisor, (f) the performance of the Assets, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations, and (g) the quality of the Assets relative to the investments generated by the Advisor for its own account. The Independent Trustees may also consider all other factors that they deem relevant, and the findings of the Independent Trustees on each of the factors considered shall be recorded in the minutes of the Board of Trustees.
Section 8.2.6. The Board of Trustees shall determine whether any successor Advisor possesses sufficient qualifications to perform the advisory function for the Trust and whether the compensation provided for in its contract with the Trust is justified.
Section 8.3.Fiduciary Obligations. The Advisor shall have a fiduciary responsibility and duty to the Trust and to the Shareholders.
| A-19 | Adopted by the Board of Trustees March 27, 2014 |
Section 8.4.Affiliation and Functions. The Board, by resolution or in the Bylaws, may provide guidelines, provisions or requirements concerning the affiliation and functions of the Advisor.
Section 8.5.Term and Termination. The Advisory Agreement shall have a term of no more than one year, subject to an unlimited number of successive one-year renewals upon mutual consent of the parties. Either a majority of the Independent Trustees or the Advisor may terminate the Advisory Agreement on 60 days’ written notice without cause or penalty, and, in such event, the Advisor will cooperate with the Trust and take all reasonable steps requested to assist the Board in making an orderly transition of the advisory function.
-19-
Section 8.7.Incentive Fees. If and as approved by the Board, the Trust may pay the Advisor an interest in the gain from the Sale of Assets, for which full consideration is not paid in cash or property of equivalent value, provided the amount or percentage of such interest is reasonable. Such an interest in gain from the Sale of Assets shall be considered presumptively reasonable if it does not exceed 15% of the balance of such net proceeds remaining after payment to Shareholders, in the aggregate, of an amount equal to 100% of the Invested Capital plus an amount equal to 6% of the Invested Capital per annum cumulative. In the case of multiple Advisors, such Advisor and any of their Affiliates shall be allowed such fees provided such fees are distributed by a proportional method reasonably designed to reflect the value added to the Trust’s Assets by each respective Advisor or any Affiliate.
Section 8.8.Organization and Offering Expenses Limitation. If and as approved by the Board, the Trust shall reimburse the Advisor and its Affiliates for Organization and Offering Expenses incurred by the Advisor or its Affiliates; provided, however, that the total amount of all Organization and Offering Expenses shall be reasonable and shall in no event exceed 15% of the Gross Proceeds of each Offering.
Section 8.9.Acquisition Fees and Expenses. If and as approved by the Board, the Trust may pay the Advisor and its Affiliates fees for the review and evaluation of potential investments in Assets; provided, however, that the total of all Acquisition Fees and Acquisition Expenses shall be reasonable and shall not exceed an amount equal to 6% of the Contract Purchase Price or, in the case of a Mortgage, 6% of the funds advanced; provided, however, that a majority of the Trustees, including a majority of the Independent Trustees, not otherwise interested in the transaction may approve fees and expenses in excess of this limit if they determine the transaction to be commercially competitive, fair and reasonable to the Trust.
Section 8.10.Reimbursement for Total Operating Expenses. Unless otherwise provided in any resolution adopted by the Board of Trustees, the Trust may reimburse the Advisor, at the end of each month, for Total Operating Expenses incurred by the Advisor; provided, however that the Trust shall not reimburse the Advisor at the end of any fiscal quarter for Total Operating Expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”) for such 12 month period. The Independent Trustees shall have the responsibility of limiting Total Operating Expenses to amounts that do not exceed the 2%/25% Guidelines unless they have made a finding that, based on such unusual and non-recurring factors that they deem sufficient, a higher level of expenses (an “Excess Amount”) is justified. Within 60 days after the end of any fiscal quarter of the Trust for which there is an Excess Amount which the Independent Trustees conclude was justified and reimbursable to the Advisor, there shall be sent to the Shareholders a written disclosure of such fact, together with an explanation of the factors the Independent Trustees considered in determining that such Excess Amount was justified. Any such finding and the reasons in support thereof shall be reflected in the minutes of the meetings of the Board of Trustees. In the event that the Independent Trustees do not determine that excess expenses are justified, the Advisor shall reimburse the Trust the amount by which the expenses exceeded the 2%/25% Guidelines.
Section 8.11.Reimbursement Limitation. The Trust shall not reimburse the Advisor or its Affiliates for services for which the Advisor or its Affiliates are entitled to compensation in the form of a separate fee.
-20-
| A-20 | Adopted by the Board of Trustees March 27, 2014 |
INVESTMENT OBJECTIVES AND LIMITATIONS
Section 9.1.Investment Objectives.
Section 9.1.1. The Trust’s primary investment objectives are: (a) to generate an attractive level of current income for distribution to the Shareholders; (b) to provide the Shareholders with the potential for long-term capital appreciation; and (c) to offer an investment option in which the per share price volatility is correlated to real estate as an asset class rather than traditional asset classes such as stocks and bonds.
Section 9.1.2. By resolution, the Board may change or otherwise amend the investment objectives of the Trust as provided in Section 9.1.1 herein only with the approval of a majority of the Shares entitled to vote as provided in Section 11.2 herein.
Section 9.1.3. The sheltering from tax of income from other sources is not an objective of the Trust.
Section 9.1.4. Subject to the restrictions set forth herein, the Board will use its reasonable best efforts to conduct the affairs of the Trust in such a manner as to continue to qualify the Trust for the tax treatment provided in the REIT Provisions of the Code unless and until the Board determines, in its sole discretion, that REIT qualification is not in the best interests of the Trust; provided, however, that no Trustee, officer, employee or agent of the Trust shall be liable for any act or omission resulting in the loss of tax benefits under the Code, except to the extent provided in Section 12.2 hereof.
Section 9.2.Review of Investment and Borrowing Policies. The Independent Trustees shall review the policies of the Trust regarding investments and borrowing with sufficient frequency (not less often than annually) to determine that the policies being followed by the Trust are in the best interests of its Shareholders. Each such determination and the basis therefor shall be set forth in the minutes of the meetings of the Board.
Section 9.3.Operation of Business. The Trust shall not engage in any material business activities or operations other than through the Operating Partnership or other direct or indirect subsidiaries of the Trust. Notwithstanding the foregoing, the Trust shall have the power to do all things related in any manner or incidental to (i) its status, powers, duties and responsibilities as the general partner of the Operating Partnership, (ii) its ownership interest in any direct or indirect subsidiaries of the Trust, (iii) capital raising, shareholder servicing and investment management activities, including, without limitation, activities related to the issuance and redemption of Securities, and (iv) its operation as a REIT, status as a North Dakota trust and compliance with all applicable laws, rules and regulations.
Section 9.4.Certain Permitted Investments. Unless and until such time as the Common Shares are Listed, the following investment limitations shall apply:
(a) The Trust may invest in Assets. The consideration to be paid for Real Property acquired by the Trust shall ordinarily be based on the fair market value of the Real Property as determined by a majority of Trustees. In cases in which a majority of Independent Trustees or a duly authorized committee so determines, and in all cases in which the transaction is with the Advisor, Sponsor, Trustees, or any Affiliates thereof, such fair market value shall be as determined by an Independent Appraiser selected by the Independent Trustees.
(b) The Trust may invest in Joint Ventures with the Sponsor, Advisor, one or more Trustees or any Affiliate, only if a majority of Trustees (including a majority of Independent Trustees) not otherwise interested in the transaction, approve such investment as being fair and reasonable to the Trust and on substantially the same terms and conditions as those received by the other joint venturers.
(c) The Trust may not invest in equity securities except to the extent that such investment is within the specific parameters set forth in the investment guidelines approved by a majority of Trustees (including a majority of Independent Trustees) as being fair, competitive and commercially reasonable.
| A-21 | Adopted by the Board of Trustees March 27, 2014 |
Section 9.5.Investment Limitations. In addition to other investment restrictions imposed by the Board of Trustees from time to time consistent with the Trust’s objective of qualifying as a REIT, the following investment limitations shall apply to the Trust until such time as the Common Shares are Listed:
(a) Not more than 10% of the Trust’s total Assets shall be invested in Unimproved Real Property or mortgage loans on Unimproved Real Property.
(b) The Trust shall not invest in commodities or commodity future contracts. This limitation is not intended to apply to futures contracts when used solely for hedging purposes in connection with the Trust’s ordinary business of investing in Real Estate and Mortgages.
-21-
(d) The Trust shall not invest in real estate contracts of sale, otherwise known as land sale contracts, unless such contracts of sale are in recordable form and appropriately recorded in the chain of title.
(e) The Trust shall not make or invest in any mortgage loans, including a construction loan, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including the loans of the Trust, would exceed an amount equal to 85% of the appraised value of the property as determined by appraisal unless substantial justification exists because of the presence of other underwriting criteria. For purposes of this subsection, the “aggregate amount of all mortgage loans outstanding on the property, including the loans of the Trust” shall include all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds 5% per annum of the principal balance of the loan.
(f) The Trust shall not invest in mortgage loans on real property that are subordinate to any mortgage or equity interest of the Advisor, any Trustee, the Sponsor or any Affiliate of the Trust.
(g) The Trust shall not issue (i) redeemable equity securities (except that Shareholders may offer their Common Shares to the Trust pursuant to any repurchase plan adopted by the Board on terms outlined in the Prospectus relating to any Offering, as such plan is thereafter amended in accordance with its terms); (ii) debt Securities unless the historical debt service coverage (in the most recently completed fiscal year) as adjusted for known changes is sufficient to properly service that higher level of debt; (iii) options or warrants to purchase the Trust’s Shares to the Advisor, Trustees, Sponsor or any Affiliate thereof except on the same terms as such options or warrants are sold to the general public. Options or warrants may be issued to Persons other than the Advisor, Trustees, Sponsor or any Affiliate thereof, but not at exercise prices less than the fair market value of the underlying Securities on the date of grant and not for consideration (which may include services) that in the judgment of the Independent Trustees has a market value less than the value of such option or warrant on the date of grant. Options or warrants issuable to the Advisor, Trustees, Sponsor or any Affiliate thereof shall not exceed 10% of the outstanding Shares on the date of grant; or (iv) equity Securities on a deferred payment basis or under similar arrangements.
(h) The aggregate Leverage shall be reasonable in relation to the Net Assets and shall be reviewed by the Board at least quarterly. The maximum amount of such Leverage in relation to Net Assets shall not exceed 300%. Notwithstanding the foregoing, Leverage may exceed such limit if any excess in borrowing over such level is approved by a majority of the Independent Trustees as appropriate. Any such excess borrowing shall be disclosed to Shareholders in the next quarterly report of the Trust following such borrowing, along with justification for such excess.
(i) The Trust will continually review its investment activity to attempt to ensure that it is not classified as an “investment company” under the Investment Company Act of 1940, as amended.
| A-22 | Adopted by the Board of Trustees March 27, 2014 |
(j) The Trust will not make any investment that the Trust believes will be inconsistent with its objectives of qualifying and remaining qualified as a REIT unless and until the Board determines, in its sole discretion, that REIT qualification is not in the best interests of the Trust.
(k) The Trust shall not engage in trading, except for the purpose of short-term investments.
(l) The Trust shall not engage in underwriting or the agency distribution of securities issued by others.
(m) The Trust shall not invest in the securities of any entity holding investments or engaging in activities prohibited by this Charter.
-22-
CONFLICTS OF INTEREST
Section 10.1.Sales and Leases to the Trust. The Trust may purchase or lease any Real Property from the Sponsor, the Advisor, a Trustee or any Affiliate thereof upon a finding by a majority of Trustees (including a majority of Independent Trustees) not otherwise interested in the transaction that such transaction is fair and reasonable to the Trust and at a price to the Trust no greater than the cost of the Asset to such Sponsor, Advisor, Trustee or Affiliate, or, if the price to the Trust is in excess of such cost, that substantial justification for such excess exists and such excess is reasonable. In no event shall the purchase price of any Property to the Trust exceed its current appraised value.
Section 10.2.Sales and Leases to the Sponsor, Advisor, Trustees or Affiliates. The Sponsor, Advisor, Trustee or Affiliate thereof may purchase or lease Assets from the Trust if a majority of Trustees (including a majority of Independent Trustees) not otherwise interested in the transaction determine that the transaction is fair, competitive and commercially reasonable to the Trust.
Section 10.3.Other Transactions.
Section 10.3.1. The Trust shall not engage in any other transaction with the Sponsor, the Advisor, a Trustee or any Affiliates thereof unless a majority of the Trustees (including a majority of the Independent Trustees) not otherwise interested in such transaction approve such transaction as fair and reasonable to the Trust and on terms and conditions not less favorable to the Trust than those available from unaffiliated third parties, other than transactions involving marketable securities at market prices consistent with the investment guidelines approved by a majority of the Trustees (including a majority of the Independent Trustees).
Section 10.3.2. The Trust shall not be permitted to make loans or investments to the Sponsor, the Advisor, a Trustee, or any Affiliates, thereof exceptincluding Mortgages pursuant to the terms of Section 9.4(c) hereof9.4, unless such loans or loans to wholly owned subsidiariesinvestments are approved by a majority of the Trust.Trustees (including a majority of the Independent Trustees) not otherwise interested in such transaction. In all cases, such transactions shall be commercially reasonable and on terms no less favorable to the Trust than such transactions between unaffiliated parties under the same circumstances.
Section 10.3.3. The Sponsor, Advisor, Trustees and any Affiliates thereof shall not make loans to the Trust, or to joint ventures in which the Trust is a co-venturer, unless approved by a majority of the Trustees (including a majority of the Independent Trustees) not otherwise interested in such transaction as fair, competitive, and commercially reasonable, and no less favorable to the Trust than comparable loans between unaffiliated parties.
Section 10.4.Review of Investment Opportunities. The Board of Trustees shall determine (not less often than annually) whether the method for the allocation of the acquisition of real properties between the Trust and other programs affiliated with the Sponsor or Advisor is fairly applied to the Trust.
| A-23 | Adopted by the Board of Trustees March 27, 2014 |
ARTICLE XI.
SHAREHOLDERS
Section 11.1.Meetings.
Section 11.1.1. There shall be an annual meeting of the Shareholders, to be held on such date and at such time and place as shall be determined by or in the manner prescribed in the Bylaws, at which the Trustees shall be elected and any other proper business may be conducted; provided that such annual meeting will be held upon reasonable notice and within a reasonable period (not less than 30 days) following delivery of the annual report.
Section 11.1.2. The holders of a majority of the Shares entitled to vote at such meeting who are present in person or by proxy at an annual meeting at which a quorum is present, may, without the necessity for concurrence by the Board, vote to elect the Trustees.
Section 11.1.3. A quorum shall be the presence in person or by proxy of Shareholders holding at least a majority of the Shares entitled to be voted at such meeting on any matter.
-23-
Section 11.2.Voting Rights of Shareholders.
Section 11.2.1. Subject to the provisions of any class or series of Shares then outstanding and the mandatory provisions of any applicable laws or regulations, the Shareholders shall be entitled to vote (by a vote of the holders of a majority of the outstanding Shares), without the necessity for concurrence by the Board of Trustees, on the following matters as provided in this Charter: (a) election or removal of Trustees as provided in Sections 11.1, 7.5 and 7.12 hereof; (b) amendment of the Charter as provided in Article XIII hereof, (c) dissolution of the Trust and (d) such other matters with respect to which the Board of Trustees has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the Shareholders for approval or ratification. Except with respect to the foregoing matters, no action taken by the Shareholders at any meeting shall in any way bind the Board.
Section 11.2.2. Without the concurrence of Shareholders holding a majority of the outstanding Shares, the Board of Trustees may not: (a) amend the Charter, except for amendments which do not adversely affect the rights, preferences and privileges of the Shareholders including amendments to provisions relating to Trustee qualifications, fiduciary duty, liability and indemnification, conflicts of interest, investment policies or investment restrictions; (b) sell all or substantially all of the Trust’s Assets other than in the ordinary course of the Trust’s business or in connection with liquidation and dissolution; (c) cause the merger or reorganization of the Trust except as permitted by law; or (d) dissolve or liquidate the Trust.
Section 11.3.Voting Limitations on Shares Held by the Advisor, Trustees and Affiliates. With respect to Shares owned by the Advisor, Trustees, or any of their Affiliates, neither the Advisor, Trustees, nor any of their Affiliates may vote or consent on matters submitted to the Shareholders regarding the removal of the Advisor, Trustees or any of their Affiliates or any transaction between the Trust and any of them. In determining the requisite percentage in interest of Shares necessary to approve a matter on which the Advisor, Trustees and any of their Affiliates may not vote or consent, any Shares owned by any of them shall not be included.
Section 11.4.Right of Inspection. Any Shareholder and any designated representative thereof shall be permitted access to the records of the Trust to which it is entitled under applicable law at all reasonable times, and may inspect and copy any of them for a reasonable charge. Inspection of the Trust’s books and records by the office or agency administering the securities laws of a jurisdiction shall be provided upon reasonable notice and during normal business hours.
| A-24 | Adopted by the Board of Trustees March 27, 2014 |
Section 11.5.Access to Shareholder List.
Section 11.5.1. The Shareholder List shall be maintained as part of the books and records of the Trust and shall be available for inspection by any Shareholder or the Shareholder’s designated agent at the home office of the Trust upon the request of such Shareholder. The Shareholder List shall be updated at least quarterly to reflect changes in the information contained therein.
Section 11.5.2. A copy of the Shareholder List shall be mailed to any Shareholder so requesting within ten days of receipt of the request by the Trust. The copy of the Shareholder List shall be printed in alphabetical order, on white paper, and in a readily readable type size (in no event smaller than ten-point type). The Trust may impose a reasonable charge for copy work. A Shareholder may request a copy of the Shareholder List for reasons including, but not limited to, matters relating to Shareholders’ voting rights and the exercise of Shareholder rights under federal proxy laws.
-24-
Section 11.6.Reports.
Section 11.6.1. The Trust shall cause to be prepared and mailed or delivered to each Shareholder as of a record date after the end of the fiscal year and each holder of other publicly held Securities within 120 days after the end of the fiscal year to which it relates an annual report for each fiscal year that shall include:
(a) financial statements prepared in accordance with generally accepted accounting principles which are audited and reported on by independent certified public accountants;
(b) the ratio of the costs of raising capital during the period to the capital raised;
(c) the aggregate amount of advisory fees and the aggregate amount of other fees paid to the Advisor and any Affiliate of the Advisor by the Trust and including fees or charges paid to the Advisor and any Affiliate of the Advisor by third parties doing business with the Trust;
(d) the Total Operating Expenses of the Trust, stated as a percentage of Average Invested Assets and as a percentage of its Net Income;
(e) a report from the Independent Trustees that the policies being followed by the Trust are in the best interests of its Shareholders and the basis for such determination; and
(f) separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving the Trust, Trustees, Advisors, Sponsors and any Affiliate thereof occurring in the year for which the annual report is made. Independent Trustees shall be specifically charged with a duty to examine and comment in the report on the fairness of such transactions.
Section 11.6.2. In addition, the Trustees, including the Independent Trustees, are required to take reasonable steps to insure that the above requirements are met.
| A-25 | Adopted by the Board of Trustees March 27, 2014 |
ARTICLE XII.
LIABILITY LIMITATION AND INDEMNIFICATION
Section 12.1.Limitation of Shareholder Liability. No Shareholder shall be liable for any debt, claim, demand, judgment or obligation of any kind of, against or with respect to the Trust by reason of his being a Shareholder, nor shall any Shareholder be subject to any personal liability whatsoever, in tort, contract or otherwise, to any Person in connection with the Assets or the affairs of the Trust by reason of his being a Shareholder.
Section 12.2.Limitation of Trustee and Officer Liability.
(a) Subject to any limitations set forth under North Dakota law or in paragraph (b) below, no Trustee or officer of the Trust shall be liable to the Trust or its Shareholders for money damages. Neither the amendment nor repeal of this Section 12.2(a), nor the adoption or amendment of any other provision of the Charter or Bylaws inconsistent with this Section 12.2(a), shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
-25-
(i) The Indemnitee has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Trust.
(ii) The Indemnitee was acting on behalf of or performing services for the Trust.
(iii) Such liability or loss was not the result of (A) negligence or misconduct by the Trustees (excluding Independent Trustees), the Advisor or any of their Affiliates or (B) gross negligence or willful misconduct by the Independent Trustees.
(iv) Such agreement to hold harmless is recoverable only out of Net Assets and not from the Shareholders.
Section 12.3.Indemnification.
(a) Subject to any limitations set forth under North Dakota law or in paragraph (b) or (c) below, the Trust shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (i) any individual who is a present or former Trustee or officer of the Trust and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity, (ii) any individual who, while a Trustee or officer of the Trust and at the request of the Trust, serves or has served as a trustee, officer, partner or trustee of another trust, REIT, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (iii) the Advisor of any of its Affiliates acting as an agent of the Trust. The Trust may, with the approval of the Board of Trustees or any duly authorized committee thereof, provide such indemnification and advance for expenses to a Person who served a predecessor of the Trust in any of the capacities described in (i) or (ii) above and to any employee or agent of the Trust or a predecessor of the Trust. The Board may take such action as is necessary to carry out this Section 12.3(a). No amendment of the Charter or repeal of any of its provisions shall limit or eliminate the right of indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.
(b) Notwithstanding anything to the contrary contained in paragraph (a) above, the Trust shall not provide for indemnification of an Indemnitee for any liability or loss suffered by such Indemnitee, unless all of the following conditions are met:
(i) The Indemnitee has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Trust.
| A-26 | Adopted by the Board of Trustees March 27, 2014 |
(ii) The Indemnitee was acting on behalf of or performing services for the Trust.
(iii) Such liability or loss was not the result of (A) negligence or misconduct by the Trustees (excluding Independent Trustees), the Advisor or any of their Affiliates or (B) gross negligence or willful misconduct by the Independent Trustees.
(iv) Such agreement to hold harmless is recoverable only out of Net Assets and not from the Shareholders.
(c) Notwithstanding anything to the contrary contained in paragraph (a) above, the Trust shall not provide indemnification for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the Indemnitee, (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the Indemnitee; or (iii) a court of competent jurisdiction approves a settlement of the claims against the Indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which Securities of the Trust were offered or sold as to indemnification for violations of securities laws.
-26-
Section 12.5.Express Exculpatory Clauses in Instruments. Neither the Shareholders nor the Trustees, officers, employees or agents of the Trust shall be liable under any written instrument creating an obligation of the Trust by reason of their being Shareholders, Trustees, officers, employees or agents of the Trust, and all Persons shall look solely to the Trust’s assets for the payment of any claim under or for the performance of that instrument. The omission of the foregoing exculpatory language from any instrument shall not affect the validity or enforceability of such instrument and shall not render any Shareholder, Trustee, officer, employee or agent liable thereunder to any third party, nor shall the Trustees or any officer, employee or agent of the Trust be liable to anyone as a result of such omission.
ARTICLE XIII.
AMENDMENTS
The Trust reserves the right from time to time to make any amendment to the Charter, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the Charter, of any Shares. All rights and powers conferred by the Charter on Shareholders, Trustees and officers are granted subject to this reservation. Except for those amendments permitted to be made without Shareholder approval under North Dakota law or by specific provision in the Charter, including Section 11.2, any amendment to the Charter shall be valid only if approved by the affirmative vote of a majority of all Shares entitled to be voted on the matter, including without limitation, any amendment which would adversely affect the rights, preferences and privileges of the Shareholders (or any other amendment of the Charter that would have the effect of amending the same).
| A-27 | Adopted by the Board of Trustees March 27, 2014 |
ARTICLE XIV.
ROLL-UP TRANSACTIONS
Section 14.1.Roll-Up Transaction. In connection with any proposed Roll-Up Transaction, an appraisal of all of the Trust’s Assets shall be obtained from a competent Independent Appraiser. If the appraisal will be included in a Prospectus used to offer the securities of a Roll-Up Entity, the appraisal shall be filed with the Securities and Exchange Commission and the states as an exhibit to the registration statement for the offering. The Trust’s Assets shall be appraised on a consistent basis, and the appraisal shall be based on the evaluation of all relevant information and shall indicate the value of the Assets as of a date immediately prior to the announcement of the proposed Roll-Up Transaction. The appraisal shall assume an orderly liquidation of the Assets over a twelve-month period. The terms of the engagement of the Independent Appraiser shall clearly state that the engagement is for the benefit of the Trust and the Shareholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to Shareholders in connection with a proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction, the Person sponsoring the Roll-Up Transaction shall offer to Shareholders who vote against the proposed Roll-Up Transaction the choice of:
(a) accepting the securities of a Roll-Up Entity offered in the proposed Roll-Up Transaction; or
-27-
(i) remaining as Shareholders of the Trust and preserving their interests therein on the same terms and conditions as existed previously; or
(ii) receiving cash in an amount equal to the Shareholder’s pro rata share of the appraised value of the Net Assets of the Trust.
Section 14.2.Prohibited Roll-Up Transactions. The Trust is prohibited from participating in any proposed Roll-Up Transaction:
(a) which would result in the Shareholders having voting rights in a Roll-Up Entity that are less than the rights provided for in Sections VI.A, VI.B, VI.C., VI.D. and VI.E. of the NASAA REIT Guidelines;
(b) which includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-Up Entity (except to the minimum extent necessary to preserve the tax status of the Roll-Up Entity), or which would limit the ability of an investor to exercise the voting rights of its securities of the Roll-Up Entity on the basis of the number of Shares held by that investor;
(c) in which investor’s rights to access of records of the Roll-Up Entity will be less than those described in Sections 11.4 and 11.5 hereof; or
(d) in which any of the costs of the Roll-Up Transaction would be borne by the Trust if the Roll-Up Transaction is not approved by the Shareholders.
ARTICLE XV.
DURATION
The Trust shall continue perpetually unless dissolved pursuant to any applicable provision of the NDCC.
-28-
- 2 -
- 3 -
- 4 -
- 5 -
- 6 -
- 7 -
- 8 -
- 9 -
- 10 -
- 11 -
- 12 -
- 13 -
1
2
3
4
5
1
2
3
1
2
1
2
2
3
4
| A-28 | ||||
Adopted by the Board of | ||||
| Trustees March 27, 2014 |
PROXY
5
6
7
8
9
10
11
12
1
2
3
4
5
| Amount | ||||
| (Millions) | ||||
| 2011 | 12,377 | |||
| 2012 | 8,267 | |||
| 2013 | 44,706 | |||
| 2014 | 10,083 | |||
| 2015 | 49,888 | |||
| Thereafter | 66,850 | |||
| $ | 192,172 | |||
| Payment due by period (in thousands) | ||||||||||||||||||||
| Less than 1 | More than 5 | |||||||||||||||||||
| Contractual Obligations | Total | year | 1 – 3 years | 3 – 5 years | years | |||||||||||||||
| Long-Term Debt — Principal | $ | 192,172 | $ | 12,377 | 63,056 | $ | 49,889 | $ | 66,850 | |||||||||||
| Other Long-Term Liabilities | 2,455 | 1,091 | 1,059 | 305 | 0 | |||||||||||||||
| Total | 194,627 | 13,468 | 64,115 | 50,194 | 66,850 | |||||||||||||||
| N/P | 0 | — | 0 | — | — | |||||||||||||||
| Liabilities On Asset Held for Sale | — | — | — | — | .480 | |||||||||||||||
6
| Period Paid | Distribution Per Share | Total Distribution | ||||||
| First Quarter 2007 | $ | 0.171875 | $ | 170,231 | ||||
| Second Quarter 2007 | $ | 0.178750 | 204,861 | |||||
| Third Quarter 2007 | $ | 0.178750 | 348,843 | |||||
| Fourth Quarter 2007 | $ | 0.178750 | 377,115 | |||||
| First Quarter 2008 | $ | 0.178750 | 383,761 | |||||
| Second Quarter 2008 | $ | 0.183750 | 404,260 | |||||
| Third Quarter 2008 | $ | 0.183750 | 422,475 | |||||
| Fourth Quarter 2008 | $ | 0.183750 | 452,012 | |||||
| First Quarter 2009 | $ | 0.183750 | 462,592 | |||||
| Second Quarter 2009 | $ | 0.186250 | 477,085 | |||||
| Third Quarter 2009 | $ | 0.186250 | 492,777 | |||||
| Fourth Quarter 2009 | $ | 0.186250 | 507,275 | |||||
| First Quarter 2010 | $ | 0.186250 | 532,496 | |||||
| Second Quarter 2010 | $ | 0.192500 | 572,694 | |||||
| Third Quarter 2010 | $ | 0.192500 | 610,423 | |||||
| Fourth Quarter 2010 | $ | 0.192500 | 633,716 | |||||
| Twelve Months Ended | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| Total property revenues | $ | 43,437,785 | $ | 39,417,597 | ||||
| Total property expenses | (36,674,225 | ) | (33,309,123 | ) | ||||
| Total other expenses | (1,902,791 | ) | (1,757,195 | ) | ||||
| Total other income | 897,458 | 1,999,720 | ||||||
| Income from continuing operations | 5,758,224 | 6,350,999 | ||||||
| Income from discontinued operations | 1,854,351 | — | ||||||
| Net income | 7,612,575 | 6,350,999 | ||||||
| Net income attributable to noncontrolling interest | (5,740,308 | ) | (4,992,712 | ) | ||||
| Net income attributable to INREIT Real Estate Investment Trust | $ | 1,872,267 | $ | 1,358,287 | ||||
Distributions paid(1) | $ | 2,510,701 | $ | 9,311,211 | ||||
Distributions paid per Share(1) | 0.$.7700 | 0.$.7450 | ||||||
7
| Year ended December 31, | ||||||||
| 2010 | 2009 | |||||||
| Real estate taxes | $ | 4,822,036 | $ | 4,399,957 | ||||
| Property management fees | 3,344,295 | 3,235,665 | ||||||
| Repairs and maintenance | 4,147,014 | 3,970,801 | ||||||
| Utilities | 2,961,726 | 2,831,072 | ||||||
| Total property expenses | $ | 15,275,071 | $ | 14,437,495 | ||||
8
| Twelve Months Ended | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| General and administrative | 1,902,791 | 1,757,195 | ||||||
| Depreciation and amortization | 9,013,681 | 7,717,817 | ||||||
| Interest expense | 11,628,388 | 10,353,901 | ||||||
| Interest income | (250,058 | ) | (609,202 | ) | ||||
| Total other expenses | $ | 22,294,802 | $ | 19,219,711 | ||||
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| Number of properties owned and operated | 78 | 73 | ||||||
| Aggregate gross leasable area (sq. ft.) | 1,051,039 | 919,990 | ||||||
| Ending occupancy rate | 91.86 | % | 93.59 | % | ||||
| Total property revenues | $ | 39,417,597 | $ | 26,440,252 | ||||
| Total property expenses | (33,309,123 | ) | (22,308,420 | ) | ||||
| Total other expenses | (1,445,388 | ) | (849,750 | ) | ||||
| Total other income | 1,757,195 | 849,750 | ||||||
| Loss on impairment of assets | (311,807 | ) | -0- | |||||
| Net income before noncontrolling interest | 6,350,999 | 4,042,793 | ||||||
| Net income attributable to noncontrolling interest | (4,992,712 | ) | (2,991,080 | ) | ||||
| Net income attributable to INREIT Real Estate Investment Trust | $ | 1,358,287 | $ | 1,051,713 | ||||
Distributions paid per share(1) | .7450 | .7350 | ||||||
Distributions paid(1) | 2,009,633 | 1,741,339 | ||||||
9
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| Real estate taxes | $ | 4,399,957 | $ | 3,102,639 | ||||
| Property management fees | 3,235,665 | 1,879,146 | ||||||
| Repairs and maintenance | 3,970,801 | 2,661,428 | ||||||
| Utilities | 2,831,072 | 1,895,546 | ||||||
| Total property expenses | $ | 14,437,495 | $ | 9,538,759 | ||||
10
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| General and administrative | $ | 1,445,388 | $ | 849,750 | ||||
| Depreciation and amortization | 7,717,817 | 5,021,384 | ||||||
| Interest expense | 10,353,901 | 7,255,723 | ||||||
| Interest income | (609,202 | ) | (416,065 | ) | ||||
| Total other expenses | $ | 18,907,904 | $ | 12,710,792 | ||||
11
| 2010 Weighted | 2009 Weighted | 2008 Weighted | ||||||||||||||||||||||||||||||||||
| Avg. | Per | Avg. | Per | Avg. | Per | |||||||||||||||||||||||||||||||
| Shares | Share | Shares | Share | Shares | Share | |||||||||||||||||||||||||||||||
| and | and | and | and | and | and | |||||||||||||||||||||||||||||||
| Amount | Units(1) | Unit(2) | Amount | Units(1) | Unit(2) | Amount | Units(1) | Unit(2) | ||||||||||||||||||||||||||||
| Net Income attributable to | ||||||||||||||||||||||||||||||||||||
| INREIT Real Estate | �� | |||||||||||||||||||||||||||||||||||
| Investment Trust | $ | 1,872,267 | 3,190,716 | $ | 0.59 | $ | 1,358,287 | 2,659,825 | $ | 0.51 | $ | 1,051,713 | 2,322,468 | $ | 0.45 | |||||||||||||||||||||
| Add back: | ||||||||||||||||||||||||||||||||||||
| Noncontrolling Interest — OPU | 5,740,308 | 9,919,608 | 4,992,712 | 9,771,241 | 2,991,080 | 6,766,626 | ||||||||||||||||||||||||||||||
| Depreciation & Amortization | 9,243,310 | 7,717,817 | 5,021,384 | |||||||||||||||||||||||||||||||||
| Subtract: | ||||||||||||||||||||||||||||||||||||
| Gains on Asset Sales | (2,640,216 | ) | (1,390,517 | ) | (344,646 | ) | ||||||||||||||||||||||||||||||
| Funds from Operations (FFO) | $ | 14,215,669 | 13,110,324 | $ | 1.08 | $ | 12,678,299 | 12,431,066 | $ | 1.02 | $ | 8,719,531 | 9,089,094 | $ | 0.96 | |||||||||||||||||||||
12
13
OF SHAREHOLDERS TO BE HELD JUNE 23, 2010
This Proxy is solicited on behalf of the Board of Trustees of INREIT Real Estate Investment Trust (“INREIT”).
The undersigned, revoking all prior proxies, hereby appoints Kenneth P. ReganBradley J. Swenson and Peter J. Winger,Angie D. Stock, or either of them, as proxy or proxies, with full power of substitution and revocation, to vote all common shares of INREIT of record in the name of the undersigned at the close of business on May 18, 2011April 15, 2014 at the 20112014 Annual Meeting of Shareholders to be held on Thursday, June 23, 201119, 2014 at 66:00 p.m., Central Standard Time, at the Holiday Inn located at 3803 13th13th Avenue South, Fargo, North Dakota 58103, or any adjournment or postponements thereof, upon matters listed below. I authorize the proxy to vote as his discretion may dictate on the transaction of such other business as may properly come before the 20112014 Annual Meeting of Shareholders or any adjournment or postponements thereof.
Please mark, sign and date your proxy card and return it in thepostage-paid envelope we have provided or return it to INREIT Real Estate Investment Trust, 216 South Broadway, Suite 202, Minot, ND 58701, attention: Darla Iverson.
Proposal No. 1:
The Board of Trustees recommends that you vote “For” the following Trusteetrustee nominees.
Election of the following to the Board of Trustees until the next annual meeting and until their successors are duly elected and qualified:
01) Clifford Fearing | For | Withhold | ||||||||||
02) Bruce W. Furness | For | Withhold | ||||||||||
03) James R. Hansen | For | Withhold | ||||||||||
04) Timothy Haugen | For | Withhold | ||||||||||
05) Timothy Hunt | ||||||||||||
| Withhold | ||||||||||||
06) Kenneth P. Regan | For | Withhold | ||||||||||
07) Richard Savageau | For | Withhold | ||||||||||
08) James S. Wieland | ||||||||||||
| Withhold | ||||||||||||
09) Lance R. Wolf | For | |||||||||||
| Withhold | ||||||||||||
Proposal No. 2:
To ratify the approval ofBoard’s amendment to the Amended and Restated Declaration of Trust.
For | Against | |||||
To ratify the appointment of Widmer Roel PCBaker Tilly Virchow Krause, LLP to serve as independent registered public accounting firm for the year ending December 31, 2011.
For | Against | |||||
When signing as attorney, executor, administrator, trustee, or other fiduciary, please give full title as such. Joint owner should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
| Print Name of Shareholder | Number of Shares | ||
| Signature of Shareholder | Date | ||
| Signature of Joint Owner (if any) | Date | ||