| | | | |
| Q:
Record Date: | | When and where is the annual meeting? | A:
| | Our 2005 Annual MeetingThe shareholders of Shareholders will be held on Friday, June 3, 2005, at2:00 p.m. local time, at 1375 East Ninth Street, 20th Floor, One Cleveland Center, Cleveland, Ohio 44114. | | | |
| Q:
| | What are shareholders voting on? | A:
| | • Re-electionrecord of two trustees - Daryl J. Carter and Michael T. Oliver. | | | • Authorization for the trustees to effect a reverse share split. | | | | | | If a proposal other than the listed proposals are presented at the annual meeting, your signed proxy card gives authority to James C. Mastandrea and John J. Dee to vote on any additional proposal. | | | |
| Q:
| | Who is entitled to vote? | A:
| | Shareholdersour common shares as of the close of business on April 5, 2005, the record date, areFebruary 13, 2017 will be entitled to vote at the annual meeting. Each outstandingAnnual Meeting, or any adjournment thereof. A complete list of shareholders of record of our common share is entitled to one vote. 161,410 outstanding preferred shares are each entitled to 22.881 votes and 117,045 outstanding preferred shares are each entitled to 3.448 votes. | | | |
| Q:
| | How do shareholders vote? | A:
| | Sign and date each proxy card you receive and return it in the prepaid envelope. If you do not mark any selections, your proxy card will be voted in favor of the proposals. You have the right to revoke your proxy any time before the meeting by: | | | | | | • notifying our Chief Financial Officer, | | | • voting in person, or | | | • returning a later-dated proxy. | | | | | | If you return your signed proxy card, but do not indicate your voting preferences, John J. Dee and James C. Mastandrea will voteFORthe proposals on your behalf. | |
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| | |
| Q:
| | Who will count the vote? | A:
| | Representatives of American Stock Transfer & Trust Company, our transfer agent, will tabulate the votes. Ronald G. Jackson will be responsible for reviewing the vote count as inspector of election. | | | |
| Q:
| | What shares are included on the proxy card and what does it mean if a shareholder gets more than one proxy card? | A:
| | The number of shares printed on your proxy card(s) represents all your shares. Receipt of more than one proxy card means that your shares are registered differently and are in more than one account. Sign and return all proxy cards to ensure that all your shares are voted. | | | |
| Q:
| | What constitutes a quorum? | A:
| | As of the record date, 30,630,850 common shares, not including 2,859,765 common shares held in treasury, and 278,455 preferred shares, which are convertible to 4,096,793 common shares, were outstanding, and collectively, these shares, excluding the shares held in treasury, constitute all of the shares entitled to vote at the meeting. Each outstanding common shareAnnual Meeting is entitled to one vote. 161,410 preferred shares are each convertible into 22.881 common shares and 117,045 preferred shares are each convertible into 3.448 common shares. Each outstanding preferred share is entitled to one vote for each common share it is convertible into. A majority of the voting shares, present or represented by proxy, constitutes a quorum for the transaction of adopting proposals at the annual meeting. If you submit a properly executed proxy card, you will be considered part of the quorum. If you are present or represented by a proxy at the annual meeting and you abstain, your abstention will have the same effect as a vote against the proposal. “Broker non-votes” will not be part of the voting power present, but will be counted to determine whether or not a quorum is present. A “broker non-vote” occurs when a broker holding shares in “street name” indicates on the proxy that it does not have discretionary authority to vote on a particular matter. | | | |
| Q:
| | Who can attend the annual meeting? | A:
| | All shareholders as of the record date, April 5, 2005, can attend. | | | |
| Q:
| | What percentage of shares do the trustees and officers own? | A:
| | Together, they own approximately 56% of our common shares, 58% of our preferred shares and 60% of the shares entitled to vote at the annual meeting as of the record date. (See page 26 of this proxy statement for more details.) | | | |
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| | |
| Q:
| | Who is our largest principal shareholder? | A:
| | James C. Mastandrea, our Chairman of the Board, Chief Executive Officer and President, has the right to vote 15,816,537 common shares and 161,410 preferred shares which are each convertible into 22.881 common shares, or 56% of the shares entitled to vote at the annual meeting. The preferred shares and 12,233,738 of these common shares are held by Paragon Real Estate Development, LLC, of which Mr. Mastandrea is the managing member. | | | |
| Q:
| | When is a shareholder proposal due for the next annual meeting? | A:
| | In order to be considered for inclusion in next year’s proxy statement, shareholder proposals must be submitted in writing by December 19, 2005,available upon written request to John J. Dee, Senior Vice President and Chief Financial Officer, Paragon Real Estate Equity and Investment Trust, 1240 Huron2600 South Gessner Road, Suite 301, Cleveland, Ohio 44115,555, Houston, Texas 77063 and mustwill also be in accordance withavailable at the requirements of our bylaws and the provisions of Rule 14a-8 of the Securities Exchange Act of 1934. (See page 29 of this proxy statement for more details.)Annual Meeting. | | | | |
| Q:
| | How does a shareholder communicate with the Board of Trustees? | A:
Proxy Voting: | | Shareholders may send communications to our Board to John J. Dee, Senior Vice PresidentIt is important that your shares be represented and Chief Financial Officer, Paragon Real Estate Equity and Investment Trust, 1240 Huron Road, Suite 301, Cleveland, Ohio 44115. (See page 29 of this proxy statement for more details.)voted at the Annual Meeting. You can vote your shares in the following ways: | | | | |
| Q:
| | How does a shareholder nominate someone to be a trustee of Paragon Real Estate Equity and Investment Trust? | A:
| | Any shareholder may recommend any person as a nominee for trustee by writing to John J. Dee, Senior Vice President and Chief Financial Officer, Paragon Real Estate Equity and Investment Trust, 1240 Huron Road, Suite 301, Cleveland, Ohio 44115. Recommendations for next year’s annual meeting must be received no earlier than March 5, 2006 and no later than April 4, 2006, and must be in accordance with the requirements of our bylaws. (See page 18 of this proxy statement for more details.) | | | | |
● | Q:By Internet - visit the website listed on your proxy card and follow the instructions.
| | Who pays for the solicitation expenses? | A:
| | The expense of soliciting proxies, including the cost of preparing, printing and mailing the proxy materials, will be paid by us. In addition to solicitation of proxies by mail, solicitation may be made personally, by telephone and by facsimile, and we may pay persons holding shares for others their expenses for sending proxy materials to their principals. No solicitation will be made other than by our trustees, officers and employees. | | | | | ● | By Telephone - call the telephone number on your proxy card and follow the instructions. |
| | | ● | By Mail - fully complete and return the proxy card in the enclosed, postage paid envelope. | | | | ● | In Person - attend the Annual Meeting to vote in person. You can revoke a proxy at any time prior to its exercise at the Annual Meeting by following the instructions in this proxy statement. |
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YOUR VOTE IS IMPORTANT. PLEASE READ THE PROXY STATEMENT AND VOTE YOUR SHARES AS SOON AS POSSIBLE.
| | | | Sincerely, | | /s/ John J. Dee | | John J. Dee | | Secretary |
This proxy statement and accompanying proxy card are being mailed on or about March 31, 2017 to all shareholders entitled to vote.
Important notice regarding the availability of proxy materials for the 2017 Annual Meeting of Shareholders to be held on May 11, 2017:
This notice, the proxy statement, proxy card and our 2016 Annual Report on Form 10-K are available directly at our offices at 2600 South Gessner Road, Suite 555, Houston, Texas 77063 or at https://materials.proxyvote.com/721491.
Proposal One
Re-Election
TABLE OF CONTENTS
PILLARSTONE CAPITAL REIT
2600 South Gessner Road, Suite 555 Houston, Texas 77063 ——
PROXY STATEMENT
GENERAL This proxy statement is furnished in connection with the solicitation of Trustees Our declaration of trust provides that ourproxies by the Board of Trustees (the “Board”) of Pillarstone Capital REIT (“Pillarstone Capital”, “we”, “our”, “us” or the “Company”), to be used at our 2017 Annual Meeting of Shareholders (the “Annual Meeting”) and at any adjournments or postponements thereof. The Annual Meeting will have between threebe held on May 11, 2017. This proxy statement is first being sent to shareholders on or about March 31, 2017. Even if you sign the proxy card or voting instruction card in the form accompanying this Proxy Statement, vote by telephone, or vote on the Internet, you retain the power to revoke your proxy or change your vote. You can revoke your proxy or change your vote at any time before it is exercised at the Annual Meeting by providing written notice to our Corporate Secretary at: Pillarstone Capital REIT, Attention: Corporate Secretary, 2600 South Gessner Road, Suite 555, Houston, Texas 77063. You may change your vote by timely delivering a valid, later-dated proxy or a later-dated vote by telephone or on the Internet or by voting in person at the Annual Meeting. However, please note that if you would like to vote at the Annual Meeting and nine members divided into three classes servingyou are not the shareholder of record, you must request, complete, and deliver a proxy from your broker or other nominee. Unless so revoked, the shares represented by such proxy will be voted at the Annual Meeting and at any adjournment thereof in the manner specified. If no direction is made, the proxy will be voted in favor of each of the proposals described in this proxy statement.
The Company’s Annual Report to Shareholders on Form 10-K for staggered threethe year terms. ended December 31, 2016, including financial statements, is being mailed to shareholders with this proxy statement but does not constitute a part of this proxy statement. This proxy statement contains important information for you to consider when deciding how to vote on the matters to be brought before the Annual Meeting. Please read it carefully.
We are organized in the state of Maryland and our headquarter offices are located at 2600 South Gessner Road, Suite 555, Houston, Texas 77063. Our stock is quoted on the Over-The-Counter Bulletin Board (the “OTC Bulletin Board”) and on pink sheets with the symbol “PRLE” and our fiscal year ends December 31 of each year.
ABOUT THE ANNUAL MEETING
Who is soliciting my vote?
This solicitation is made on behalf of the Board. We will bear the costs of preparing, mailing and other costs of the proxy solicitation made by our Board. Our officers may solicit the submission of proxies authorizing the voting of shares in accordance with the Board’s recommendations. Such solicitations may be made by telephone, facsimile transmission or personal solicitation. No additional compensation will be paid to our officers or trustees for such services. We will, upon request, reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in sending proxy material to shareholders. We do not expect to engage a third party to assist us in the solicitation.
When and where is the Annual Meeting?
The Annual Meeting will be held on May 11, 2017at2:00 p.m. local time, at the Houston Marriott Westchase Hotel, located at 2900 Briarpark Drive, Houston, Texas 77042.
What is the purpose of the Annual Meeting?
The meeting will be our regular Annual Meeting. The following matters are scheduled for a vote at our Annual Meeting:
| | | (1) | to elect two Class III trustees to the Board of Trustees each to serve a three-year term ending at the annual meeting of shareholders in 2020 and until their respective successors, if any, are elected and qualify; and |
| | | (2) | to ratify the appointment of Pannell Kerr Forster of Texas, P.C. as our independent registered public accounting firm for the fiscal year ending December 31, 2017. |
As of the date of this Proxy Statement, we are not aware of any other matters that will be presented for consideration at the Annual Meeting.
How does the Board recommend I vote?
Unless you give other instructions through your proxy vote, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of our Board. For reasons set forth in more detail later in this proxy statement, the Board recommends a vote:
| | | (1) | “FOR” the election of the nominees for trustee set forth in this proxy statement; and |
| | | (2) | “FOR” the ratification of the appointment of Pannell Kerr Forster of Texas, P.C. as our independent registered public accounting firm for the fiscal year ending December 31, 2017. |
Who is entitled to vote at the Annual Meeting?
The Board has set February 13, 2017 as the record date for the Annual Meeting (the “Record Date”). All shareholders who owned our common shares at the close of business on the Record Date may attend and vote at the Annual Meeting. Each outstanding common share is entitled to one vote. As of the Record Date, 256,636 Class A Cumulative Convertible Preferred Shares (the “Preferred A Shares”) are outstanding and entitled to 53,610 votes and 244,444 restricted Class C Convertible Preferred Shares (the “Preferred C Shares”) are outstanding and entitled to 2,444,440 votes.
Who can attend the Annual Meeting?
All shareholders as of the Record Date, or their duly appointed proxies, may attend the Annual Meeting.
What do I need to present for admission to the Annual Meeting?
You will need to present proof of your record or beneficial ownership of common shares, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the Annual Meeting.
How many votes do I have?
As of the Record Date, 405,103 common shares, not including 38,130 common shares held in treasury, and 501,080 preferred shares, which are convertible to 2,498,050 common shares, were outstanding, and collectively, these shares, excluding the shares held in treasury, constitute all of the shares entitled to vote at the Annual Meeting. Each outstanding common share is entitled to one vote. 256,636 Preferred A Shares are convertible into 53,610 common shares and 244,444 Preferred C Shares are convertible into 2,444,440 common shares. Each outstanding preferred share is entitled to one vote for each common share into which it is convertible.
What constitutes a quorum?
A majority of our voting shares issued and outstanding and entitled to vote on the Record Date must be present, either in person or by proxy, for there to be a quorum at the Annual Meeting. As of the Record Date, 2,903,153 voting shares were outstanding and entitled to vote and, therefore, 1,451,577 shares must be present, either in person or by proxy, for there to be a quorum at the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained. Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Annual Meeting.
How do I vote?
Whether you plan to attend the Annual Meeting or not, we urge you to vote by proxy. All shares represented by valid proxies that we receive through this solicitation, and that are not revoked, will be voted in accordance with your instructions on the proxy card. You may specify whether your shares should be voted for or against all, some or none of the nominees for trustee and whether your shares should be voted for, against or abstain with respect to each of the other proposals. If you properly submit a proxy without giving specific voting instructions, your shares will be voted in accordance with the Board’s recommendations as noted above. Voting by proxy will not affect your right to attend the Annual Meeting.
If your shares are registered directly in your name through our stock transfer agent, American Stock Transfer & Trust Company, or you have stock certificates registered in your name, you may vote:
By mail. Please sign, date and promptly mail the enclosed proxy card in the postage-paid envelope that has been provided to you.
By Internet. Visit the website listed on your proxy card and follow the instructions.
By Telephone. Call the telephone number on your proxy card and follow the instructions.
In person at the meeting. If you attend the Annual Meeting, you may deliver a completed proxy card in person or you may vote by completing a ballot, which will be available at the Annual Meeting.
If you vote by Internet or telephone, do not return your proxy card. If your shares are held in “street name” (held in the name of a bank, broker or other holder of record), you will receive instructions from the holder of record. You must follow the instructions of the holder of record in order for your shares to be voted. Telephone and Internet voting also may be offered to shareholders owning shares through certain banks and brokers. If your shares are not registered in your own name and you plan to vote your shares in person at the Annual Meeting, you should contact your broker or agent to obtain a legal proxy or broker’s proxy card and bring it to the Annual Meeting in order to vote.
What is the difference between holding shares as a shareholder of record and as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares, a “shareholder of record.” This proxy statement, the notice of annual meeting, the proxy card, and a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 have been sent directly to you by us.
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in “street name.” This proxy statement, the notice of annual meeting, the proxy card, and a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 have been forwarded to you by your broker, bank or other holder of record who is considered, with respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record on how to vote your shares by using the voting instruction card included in the mailing or by following their instructions for voting by telephone or on the Internet, if available.
What if I receive more than one proxy card?
You may receive more than one proxy card if you hold our common shares in more than one account, which may be in registered form or held in street name. Please vote in the manner described above under “How do I vote?” for each account to ensure that all of your shares are voted.
May I change or revoke my proxy?
You have the right to revoke your proxy any time before the Annual Meeting. You may change or revoke your proxy in any one of the following ways:
giving written notice of such revocation to us in writing to Pillarstone Capital REIT, Attention: Corporate Secretary, 2600 South Gessner Road, Suite 555, Houston, Texas 77063 before the Annual Meeting;
attending the Annual Meeting and voting in person. Attending the Annual Meeting in person will not in and of itself revoke a previously submitted proxy. You must specifically request at the Annual Meeting that it be revoked; or
timely delivering a valid, later-dated proxy or a later-dated vote by telephone or on the Internet.
How many votes are needed to approve each proposal?
To be approved, Proposal No. 1 (election of trustees), the affirmative vote of a plurality of all the votes cast at the Annual Meeting at which a quorum is present is sufficient. If you vote “withhold” with respect to one or more nominees, your shares will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal. Broker non-votes will not be counted as votes cast and will have no effect on the result of the vote.
To be approved, Proposal No. 2 (ratification of the appointment of our independent registered public accounting firm) must receive the affirmative vote of a majority of all votes cast at the Annual Meeting, whether in person or by proxy (which means the number of votes cast FOR the proposal must exceed the number of votes cast AGAINST the proposal). In determining whether the proposal has received the requisite number of affirmative votes, abstentions and broker non-votes will have no impact because they will not be counted as votes cast.
What is a “broker non-vote”?
If your shares are held in “street name” by a broker, your broker is the shareholder of record; however, the broker is required to vote the shares in accordance with your instructions. If you do not give instructions to your broker, the broker may exercise discretionary voting power to vote your shares with respect to “routine matters,” but not with respect to “non-routine” items. A broker non-vote occurs when a bank, broker or other nominee holding ordinary shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received voting instructions from the beneficial owner. The election of trustees is not considered to be a routine matter, but the proposal to ratify the appointment of Pannell Kerr Foster of Texas, P.C. as our independent registered public accounting firm is considered routine.
Who will count the vote?
Representatives of Broadridge ICS will tabulate the votes for the common shares and the Preferred A Shares. A representative of the Company will tabulate the votes for the Preferred C Shares and will be responsible as inspector of election for including such votes with the vote count provided by Broadridge ICS for the final vote count.
What percentage of shares do the Trustees and officers own?
As of the Record Date, the trustees and officers collectively own approximately 55.7% of our common shares, 62.9% of our Preferred A Shares, 94.9% of our Preferred C Shares and 89.4% of the shares entitled to vote at the Annual Meeting.
Who is our largest principal shareholder?
James C. Mastandrea, our Chairman of the Board, Chief Executive Office and President, has the right to vote 168,166 common shares and 161,410 Preferred A Shares which are convertible into 49,230 common shares, and 56,944 Preferred C Shares, which are convertible into 569,440 common shares. The Preferred A Shares and 163,117 of the common shares are held by Paragon Real Estate Development, LLC, of which Mr. Mastandrea is the managing member.
How does a shareholder communicate with the Board of Trustees?
Shareholders may send communications to our Board to Pillarstone Capital REIT, Attention: Corporate Secretary, 2600 South Gessner Road, Suite 555, Houston, Texas 77063. Our Corporate Secretary will review all communications made by this means and forward the communication to our Board or to any individual trustee to whom the communication is addressed.
How does a shareholder nominate someone to be a Trustee of Pillarstone Capital?
A shareholder may recommend a nominee for trustee by writing to Pillarstone Capital REIT, Attention: Corporate Secretary, 2600 South Gessner Road, Suite 555, Houston, Texas 77063. A nominee for trustee must qualify according to requirements established by the Board and be approved by our Nominating Committee. Recommendations for next year’s annual meeting must be received no earlier than December 1, 2017 and no later than December 31, 2017, and must be in accordance with the requirements of our Third Amended and Restated Bylaws (the “Bylaws”).
How and when may a shareholder submit a shareholder proposal for Pillarstone Capital’s 2018 annual meeting of shareholders?
In order for a shareholder proposal to be considered for inclusion in the proxy statement for the 2018 annual meeting of shareholders, written proposals submitted in accordance with the SEC’s Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) must be received by the Corporate Secretary at Pillarstone Capital REIT, 2600 South Gessner Road, Suite 555, Houston, Texas 77063, no later than December 1, 2017.
Pursuant to our Bylaws, for nominations and other business to be properly brought before an annual meeting by a shareholder (and not submitted for inclusion in the proxy statement for the 2018 annual meeting of shareholders but is instead sought to be presented directly at the 2018 annual meeting of shareholders), the shareholder must have given timely notice thereof in writing to our Corporate Secretary. Under our current Bylaws, to be timely for the 2018 annual meeting of shareholders, you must deliver proposals to our Corporate Secretary, in writing, not earlier than the 120th day nor later than 5:00 p.m., Central Time, on the 90th day prior to the first anniversary of the date of the proxy statement for the Annual Meeting. As a result, proposals, including trustee nominations, submitted pursuant to these provisions of our Bylaws must be received no earlier than December 1, 2017 and no later than 5:00 p.m., Central Time on December 31, 2017. We also advise you to review our Bylaws, which contain additional requirements about advance notice of shareholder proposals and trustee nominations, including the different notice submission date requirements in the event that the date for our 2018 annual meeting of shareholders is more than 30 days before or after May 11, 2018. A more detailed discussion regarding the submission of proposals for the 2018 annual meeting of shareholders is provided under "Corporate Governance - Shareholder Nominations for Trustee" below.
PROPOSAL NO. 1 - ELECTION OF TRUSTEES
Nominees for Election
Our Board currently consists of six members.membersand is divided into three classes. Each class consists of one-third of the total number of trustees, and each class serves for a three-year term. At this annual meeting,the Annual Meeting, you are entitled to elect two trustees to hold office until the 20082020 annual meeting orof shareholders and until their respective successors, if any, are duly elected and qualified. Nominees for re-election this year are qualify.
Daryl J. Carter and Michael T. Oliver. Each has consentedDennis H. Chookaszian are our current Class III trustees and their terms expire at the Annual Meeting. Mr. Carter and Mr. Chookaszian are standing for re-election at the Annual Meeting. Mr. Carter and Mr. Chookaszian were recommended for re-election to our Board by our Nominating Committee, were nominated for re-election by the Board and have accepted the nomination.
James C. Mastandrea and Daniel G. DeVos serve as our current Class I trustees until the 20082019 annual meeting orand until his successor is dulytheir respective successors, if any, are elected and qualified. Our other trustees arequalify. John J. Dee Daniel G. DeVos,and Paul T. Lambert and James C. Mastandrea. Mr. DeVos and Mr. Mastandrea will serve as our current Class II trustees until the 20062018 annual meeting orand until their respective successors, if any, are duly elected and qualified and Mr. Dee and Mr. Lambert will serve until the 2007 annual meeting or until their successors are duly elected and qualified. See pages 14-16 for more information.qualify.
If any trustee to be elected is unable to stand for re-election, the Board may, by resolution, provide for a lesser number of trustees or designate a substitute. In the latter event, shares represented by proxies may be voted for a substitute trustee. We need the affirmative vote of the holders of a plurality of our voting shares present or represented by proxy at the annual meetingAnnual Meeting to elect trustees. Abstentions and votes withheld for trustees will have the same effect as votes against.The Board of Trustees recommends thatIf you vote FOR Mr. Carter and Mr. Oliver.
Proposal Two
To authorize the board of Trustees, in its discretion,“withhold” with respect to amend
Paragon’s Declaration of Trust to effect a reverse share split of our
issued and outstanding commonone or more nominees, your shares without further approval or
authorization of our shareholders
Background
We are requesting shareholder approval to grant the Board of Trustees the authority to effect a reverse share split at one of four ratios: 1-for-20; 1-for-30; 1-for-50; or 1-for-75. Accordingly, the Board of Trustees has unanimously adopted a resolution seeking shareholder approval to amend Paragon’s Declaration of Trust, as amended and supplemented, to effect a reverse share split of Paragon’s common shares. If the reverse share split is approved by our shareholders, the Board of Trustees may subsequently effect, in its sole discretion, a reverse share split based upon any of those four ratios. Approval of this proposal by our shareholders would give the Board of Trustees authority to implement the reverse share split at any time prior to our 2006 annual meeting of shareholders.
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The Board believes that shareholder approval of these selected exchange ratios, rather than approval of a single ratio, or a different number of ratios, provides the Board with the necessary flexibility to consider relevant factors in making a decision as to whether, and at what ratio, to effect a reverse share split in order to achieve its intended purposes. Such determination will be based upon many factors, including existing and expected marketability and liquidity of our common shares, prevailing market trends and conditions and the likely effect of a reverse share split on the market price of the common shares. The Board of Trustees reserves the right, notwithstanding shareholder approval, and without further shareholder action, to abandon or delay the reverse share split, if at any time prior to implementation it determines, in its sole discretion, that a reverse share split would not be included in the best interests of the company and our shareholders. However, if the Board does not implement a reverse share split before the next annual meeting of shareholders, further shareholder approval would be required prior to implementing any reverse share split.
The text of the form of the Articles of Amendment to the Declaration of Trust, which would be filed with the Department of Assessments and Taxation of the State of Maryland to effect a reverse share split should the Board of Trustees elect to go forward in accordance with one of the approved ratios, is set forth in Annex A to this proxy statement. The text of the form of the Articles of Amendment accompanying the proxy statement is, however, subject to amendment to reflect any changes that may be required by the State of Maryland or that the Board may determine to be necessary or advisable ultimately to comply with applicable law and to effect a reverse share split.
The Board believes that approval of the reverse share split is in the best interests of Paragon and our shareholders and has unanimously recommended that the proposed Articles of Amendment be presented to our shareholders for approval.
Reasons For A Reverse Stock Split
As of April 5, 2005, Paragon’s total market value (based ondetermining the number of common shares outstanding and the market price for a common share at the close of business on that date) was approximately $6 million and the company had 30,630,850 common shares issued and outstanding. On that date, the closing price per share for our common shares on Amex was $0.18 and, during the 12 months prior, the price of our common shares fluctuated from a low of $0.06 to a high of $0.26 per share.
We believe that a reverse share split may benefit the company and our shareholders because the anticipated increased market price of our common shares will encourage investor interest and trading in, and enhance the marketability of, our common shares. We believe that many institutional investors view shares trading at low prices as unduly speculative in naturevotes cast and, as a result, avoid investing in these shares, eitherwill have no effect on this proposal. Broker non-votes will not be counted as a matter of preference or pursuant to specific institutional policies. In addition, because brokers’ commissions on lower-priced shares generally represent a higher percentage of the share price than commissions on higher-priced shares, the current per share price of our common shares can result in individual shareholders paying transaction costs (commissions, markups or markdowns) that constitute a higher percentage of the total share value than if the share price of our common shares was substantially higher. This difference in transaction costs may also limit the willingness of institutional
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investors to purchase our common shares. Trading in our common shares also may be adversely affected by a variety of policiesvotes cast and practices of brokerage firms that discourage individual brokers within those firms from dealing in low priced shares, such as the payment of brokers’ commissions and other costly, time consuming procedures. Similarly, many brokerage firms are reluctant to recommend low priced shares to customers and analysts as many brokerage firms do not provide coverage of low priced shares. The Board also believes that the decrease in the number of common shares outstanding after a reverse share split, and the anticipated increase in the price of the common shares, could generate interest in the common shares and promote greater liquidity for our shareholders. However, the reverse share split could adversely affect shareholders’ liquidity by reducing the number of shares available in the marketplace. In addition, Paragon’s aggregate market capitalization could be reduced to the extent that any increase in the market price of our common shares resulting from a reverse share split is proportionately less than the decrease in the number of common shares outstanding.
We may require additional capital to implement our primary focus of acquiring, owning and operating multifamily residential real estate. The Board of Trustees believes that the low per share market price of our common shares has had a negativewill have no effect on the potential ability of the company to raise capital. The Board anticipates that a reverse share split will result in a higher trading price for our common shares and, therefore, may facilitate capital raising in the future.
The price per share of our common shares is a function of various factors, including Paragon’s financial performance, developments in our markets, economic factors and general market conditions. Accordingly, there can be no assurance that the market price of our common shares after a reverse share split would increase in an amount proportionate to the decrease in the number of issued and outstanding shares, or would increase at all, that any increase can be sustained for a prolonged period of time or that a reverse share split would enhance the liquidity of, or investor interest in, our common shares.
Effects of a Reverse Stock Split
“Public Company” Status
Our common shares are currently registered under Section 12(g) of the Securities Exchange Act of 1934, and we are subject to the “public company” periodic reporting and other requirements of the Exchange Act. The proposed reverse share split would not affect our status as a public company or our registration under the Exchange Act, and the Board of Trustees does not intend for a reverse share split to be the first step in a “going private” transaction within the meaning of Rule 13e-3 of the Exchange Act.
Common Share Holdings
After the effective date of a reverse share split, each shareholder would own a reduced number of our common shares. However, a reverse share split would affect all of our shareholders uniformly and will not affect any shareholder’s percentage ownership, except to the extent that a reverse share split results in ownership of a fractional share as described below. For example, a holder of 1% of the voting power of the outstanding common shares immediately prior to a reverse share split would continue to hold 1% of the voting power of the outstanding common
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shares after the reverse share split. Proportionate voting rights and other rights and preferences of holders of our common shares would not be affected by a reverse share split, other than as a result of the payment of cash in lieu of fractional shares. For example, shareholders are not currently entitled to cumulative voting rights and will not be entitled to these rightsvote.
The following a reverse share split. Further, the number of shareholders of record would not be affected by a reverse share split, exceptinformation relates to the extent that any shareholder holding only a fractional share interest after completion of a reverse share split would receive cashnominees for such interest,election as discussed below.You should be aware that it is not possible to accurately predict the effect of a reverse share split on the market price for our common shares,trustees and the history of reverse share splits is varied. In particular, there isother trustees:
| | | | | | | Name | Age | Position | Class Designation | Term Expiration | | Daryl J. Carter | 61 | Trustee | Class III | 2017 | | Dennis H. Chookaszian | 73 | Trustee | Class III | 2017 | | James C. Mastandrea | 73 | President, Chief Executive Officer and Chairman of Board of Trustees | Class I | 2019 | | John J. Dee | 65 | Senior Vice President, Chief Financial Officer and Trustee | Class II | 2018 | | Daniel G. DeVos | 59 | Trustee | Class I | 2019 | | Paul T. Lambert | 64 | Trustee | Class II | 2018 |
There are no assurance that the price per share after a reverse share split will be proportionate to the price per share immediately prior to the reverse share split. In addition, there can be no assurance that the market price of the common shares immediately after a reverse share split will be maintained forfamily relationships between any period of time. Even if an increased share price can be maintained, a reverse share split may not achieve some or all of the other desired results. Further, because some investors may view a reverse share split negatively, there can be no assurance that the shareholders’ approval of the proposal or the actual implementation of a reverse share split by the Board of Trustees would not adversely affect the market price of our common shares.Odd-Lot Transactions
It is likely that some of our shareholders will own less than 100 shares following a reverse share split. A purchase or sale of less than 100 shares (an “odd lot” transaction) may result in incrementally higher trading costs through certain brokers, particularly full service brokers, and generally may be more difficult than a “round lot” sale. Therefore, shareholders who own less than 100 shares following a reverse share split may be required to pay somewhat higher transaction costs and may experience difficulties or delays selling common shares. The Board of Trustees believes, however, that these potential effects are outweighed by the benefits of the reverse share split.
Record Holders
As of April 5, 2005, there were approximately 300 shareholders of record of our common shares. Upon shareholder approval, if the Board elects to implement a reverse share split, shareholders owning fewer shares than the split ratio number selected by the Board (20, 30, 50 or 75) prior to the effectiveness of the reverse share split would cease to be shareholders, as they would be entitled to receive a cash payment in lieu of fractional shares.
Authorized but Unissued Shares; Potential Anti-Takeover Effects
Our Declaration of Trust presently authorizes 100 million common shares. A reverse share split would not change the number of authorized common shares designated by our Declaration of Trust. Therefore, because the number of issued and outstanding common shares would decrease, the number of shares remaining available for issuance by the company would increase. These additional shares would be available for issuance from time to time for corporate purposes such as issuances of common shares in connection with capital raising transactions and acquisitions of
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properties or companies, as well as for issuance upon conversion or exercise of securities such as preferred shares, convertible debt, warrants or options convertible into or exercisable for common shares. We believe that the availability of additional common shares will provide us with the flexibility to meet business needs as they arise, to take advantage of favorable opportunities and to respond effectively in a changing environment. For example, we may elect to issue common shares to raise equity capital, to make acquisitions through the issuance of shares, to establish strategic relationships with other companies, to adopt additional employee benefit plans or reserve additional shares for issuance under such plans, should the Board of Trustees determine it is advisable to do so, without the necessity of soliciting further shareholder approval, subject to applicable shareholder vote requirements under Maryland law and American Stock Exchange (“Amex”) rules. If we issue additional shares for any of these purposes, the aggregate ownership interest of our current shareholders, and the interest of each existing shareholder, would be diluted, possibly substantially.
The additional common shares that would become available for issuance if a reverse share split is effected could also be used by Paragon’s management to oppose a hostile takeover attempt or delay or prevent changes in control or changes in or removal of management, including transactions that are favored by a majority of shareholders or in which shareholders might otherwise receive a premium for shares over then current market prices. For example, without further shareholder approval, our Board of Trustees could sell common shares in a private transaction to purchasers who would oppose a takeover or favor the current Board of Trustees. Although the proposal for a reverse share split has been prompted by business and financial considerations as discussed above, shareholders nevertheless should be aware that approval of the proposal could facilitate future efforts by company management to deter or prevent a change in control of the company. The Board of Trustees has no plans to use any of the additional common shares that would become available following a reverse share split for any such purposes. Further, the Board of Trustees does not currently contemplate entering into any arrangements or recommending the adoption of any other provisions, such as supermajority voting requirements, that may have material anti-takeover consequences. However, any such anti-takeover effect of a reverse share split would be in addition to existing anti-takeover provisions of our Declaration of Trust and Amended and Restated Bylaws, as amended, which include (a) staggered terms of Paragon’s Board so that two annual meetings are needed to replace a majority of our Trustees; (b) advance notice provisions in our Bylaws, which limit the business that may be brought at an annual meeting and place procedural restrictions on the ability of shareholders to nominate Trustees; (c) provisions that limit shareholders’ ability to call special meetings or act by written consent; and (d) provisions that authorize the company to issue preferred shares that can be created and issued by the Board without prior shareholder approval, with rights senior to those of common shares.
The table below illustrates the effect, as April 5, 2005, of a reverse share split at each of the proposed ratios, on our (i) common shares outstanding, (ii) authorized common shares reserved for issuance pursuant to options, warrants, conversion of our preferred shares or other arrangements, and (iii) our common shares which are neither outstanding nor reserved for issuance and are therefore available for issuance. The table does not take into account fractional shares.
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| | | | | | | | | | | Common Shares | | Common Shares | | Common Shares | | Reverse Split Ratio | | Outstanding | | Reserved for Issuance | | Available for Issuance | | No reverse split | | 30,630,850 | | 26,120,508 | | 43,248,642 | | 1:20 | | 1,531,543 | | 1,306,025 | | 97,162,432 | | 1:30 | | 1,021,028 | | 870,684 | | 98,108,288 | | 1:50 | | 612,617 | | 522,410 | | 98,864,973 | | 1:75 | | 408,411 | | 348,273 | | 99,243,315 |
No fractional common shares will be issued in connection with a reverse share split. Any holder who would otherwise receive a fractional common share as a result of a reverse share split will receive cash in lieu of the fractional share as explained more fully below in the section titled “Fractional Shares.”
Options, Warrants, Preferred Shares and Other Securities
All options, warrants, preferred shares and other securities entitling holders to purchase or receive Paragon’s common shares outstanding immediately prior to a reverse share split would be adjusted as a result of the reverse share split, as required by the specific terms of the relevant security. In particular, the exchange ratio for each security would be reduced, and the exercise price per share, if applicable, would be increased, in accordance with the terms of the security, based on the ratio of the reverse share split. Also, the number of shares reserved for issuance under any existing share option plans, share option agreements and warrant agreements would be reduced proportionately, based on the ratio of the reverse share split. There currently are 3.5 million shares authorized for issuance under our 2004 Stock Option Plan, of which 630,000 are subject to currently outstanding options. In the event that the shareholders approve and the Board of Trustees implements a reverse share split, the shares authorized pursuant to the 2004 Share Option Plan would be reduced in proportion to the exchange ratio actually adopted by the Board in connection with the reverse share split.
Fractional Shares
You will not receive fractional common shares as a result of the proposed reverse share split. Instead, shareholders who otherwise would be entitled to receive fractional shares will receive cash in an amount equal to the product obtained by multiplying the number of shares of
pre-reverse split common shares resulting in such fraction by the average of the closing sale price of the common shares as reported by Amex on the five trading days prior to the date the Articles of Amendment are filed with the State of Maryland.
You should be aware that, under the escheat laws of the jurisdictions where you reside, where the company is domiciled and where funds to pay cash for factional shares would be deposited, sums due for fractional shares that are not timely claimed may be required to be paid to the designated agent for such jurisdiction. Thereafter, shareholders otherwise entitled to receive such funds may have to seek to obtain them directly from the jurisdiction to which they were paid.
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Implementation and Exchange of Stock Certificates; Abandonment
If our shareholders approve the proposal and our Board of Trustees decides to implement a reverse share split, we will file Articles of Amendment to our Declaration of Trust with the State of Maryland. The reverse share split will become effective upon filing, or the effective date.
As of the effective date, each certificate representing our common shares outstanding before the reverse share split will be deemed to evidence ownership of the reduced number of our common shares resulting from the reverse share split, except that holders of unexchanged certificates will not be entitled to receive any dividends or other distributions payable by the company after the effective date until the surrender of old share certificates for exchange. All shares underlying options, warrants and other securities exchangeable or exercisable for or convertible into common shares, including preferred shares convertible into common shares, also automatically will be adjusted on the effective date.
Paragon’s transfer agent, American Stock Transfer & Trust Company, will act as the exchange agent for purposes of exchanging share certificates and disbursing cash in lieu of fractional shares subsequent to any reverse share split. Shortly after the effective date, you will receive written instructions requesting that you complete and return a letter of transmittal and surrender your old share certificates for new share certificates reflecting the adjusted number of shares as a result of the reverse share split and for any cash in lieu of fractional shares. Certificates representing common shares issued in connection with the reverse share split will continue to bear the same restrictive legends by the surrendered certificates representing the common shares outstanding prior to the reverse share split. No new certificates will be issued and no cash in lieu of fractional shares will be paid until all outstanding certificates, together with the properly completed and executed letter of transmittal, have been given to the exchange agent. Until surrendered, each certificate representing shares outstanding before the reverse share split would continue to be valid and would represent the adjusted number of shares, based on the ratio of the reverse share split.
Any shareholder whose share certificates are lost, destroyed or stolen will be entitled to a new certificate or certificates representing post-reverse share split shares upon compliance with the requirements that the company and its transfer agent customarily apply in connection with lost, destroyed or stolen certificates. Instructions as to lost, destroyed or stolen certificates will be included in the letter of instructions from the exchange agent.
Upon a reverse share split, we intend to treat shareholders holding our common shares in “street name” through a bank, broker or other nominee in the same manner as shareholders whose shares are registered in their names. Banks, brokers and other nominees will be instructed to effect the reverse share split for their beneficial holders holding our common shares in “street name.” However, such banks, brokers and other nominees may have different procedures than registered shareholders for processing the reverse share split. If you hold your shares in “street name” with a bank, broker or other nominee, and if you have any questions in this regard, we encourage you to contact your bank, broker or nominee.
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YOU SHOULD NOT DESTROY YOUR SHARE CERTIFICATES AND YOU SHOULD NOT SEND THEM NOW. YOU SHOULD SEND YOUR SHARE CERTIFICATES ONLY AFTER YOU HAVE RECEIVED INSTRUCTIONS FROM THE EXCHANGE AGENT AND IN ACCORDANCE WITH THOSE INSTRUCTIONS.
No service charges, brokerage commissions or transfer taxes will be payable by any holder of any certificate that, prior to approval of the reverse share split, represented any common shares, except that, if any certificates for common shares are to be issued in a name other than that in which the certificates for common shares surrendered are registered, the shareholder requesting the reissuance will be required to pay to the company any transfer taxes or establish to the satisfaction of the company that such taxes have been paid or are not payable and, in addition,
(a) the transfer must comply with all applicable federal and state securities laws, and (b) the surrendered certificate must be properly endorsed and otherwise be in proper form for transfer.
Even if our shareholders approve the reverse share split proposal, our Board of Trustees reserves the right to abandon or to delay a reverse share split, if at any time prior to implementation it determines, in its sole discretion, that a reverse share split would not be in the best interests of the company and our shareholders. If the Board does not implement a reverse share split before the 2006 annual meeting of shareholders, the reverse share split proposal approved by the shareholders at the 2005 annual meeting would be deemed abandoned and without further effect and further shareholder approval would be required prior to implementing a reverse share split.
No Appraisal Rights
Under Maryland law, our shareholders are not entitled to dissenters’ rights or rights of appraisal in connection with the implementation of a reverse share split or the payment of cash in lieu of fractional shares, and we will not independently provide our shareholders with any such rights.
Certain Federal Income Tax Consequences
The following is a summary of certain United States federal income tax consequences of a reverse share split. It does not address any state, local or foreign income or other tax consequences, which may vary significantly depending upon the jurisdiction and the status of the shareholder/taxpayer. It applies to you only if you held pre-reverse share split common shares, and if you hold your post-reverse share split common shares, as capital assets for tax purposes. This discussion does not apply to you if you are a member of a class of holders subject to special rules, such as (a) a dealer in securities or currencies, (b) a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings, (c) a bank, (d) a life insurance company, (e) a tax-exempt organization, (f) a person that owns common shares that are a hedge, or that are hedged, against interest rate risks, (g) a person who owns common shares as part of a straddle or conversion transaction for tax purposes or (h) a person whose functional currency for tax purposes is not the U.S. dollar. The discussion is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing, temporary and proposed regulations under the Internal Revenue Code, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. We have not sought and will not seek an opinion of counsel or a ruling from the Internal Revenue Service regarding the federal income tax consequences of a reverse share split.
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PLEASE CONSULT YOUR OWN TAX ADVISOR CONCERNING THE CONSEQUENCES OF A REVERSE SHARE SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
Tax Consequences to United States Holders of Common Shares
A United States holder is a shareholder who or that is: (a) a citizen or resident of the United States, (b) a domestic corporation, (c) an estate whose income is subject to United States federal income tax regardless of its source, or (d) a Trust, if a United States court can exercise primary supervision over the Trust’s administration and one or more United States persons are authorized to control all substantial decisions of the Trust. This discussion applies only to United States holders.
Other than with respect to any cash payments received in lieu of fractional shares discussed below, no gain or loss should be recognized by a shareholder upon the shareholder’s exchange of pre-reverse share split shares for post-reverse share split shares pursuant to a reverse share split. The aggregate tax basis of the post-reverse share split shares received (including any fraction of a new share deemed to have been received) will be the same as the shareholder’s aggregate tax basis in the pre-reverse share split shares that are exchanged.
In general, shareholders who receive cash in exchange for fractional share interests in the post-reverse share split shares will be deemed for federal income tax purposes first to have received the fractional share interests and then to have had those interests redeemed for cash. This treatment of cash payments received in lieu of fractional share interests assumes that payments represent the fractions resulting from the exchange rather than separately bargained for consideration. The shareholder’s holding period for the post-reverse share split shares will include the period during which the shareholder held the pre-reverse share split shares surrendered. The receipt of cash instead of a fractional common share by a United States holder will generally result in a taxable gain or loss equal to the difference between the amount of cash received and the holder’s adjusted federal income tax basis in the fractional share. Gain or loss will generally constitute a capital gain or loss. Capital gain of a noncorporate United States holder is generally taxed at a maximum rate of 15% when property is held more than one year.
Tax Consequences to Paragon
We do not expect to recognize any gain or loss as a result of a reverse share split.
Accounting Consequences
The par value of our common shares would remain unchanged at $0.01 per share after a reverse share split. As a result, on the effective date of a reverse share split, the stated capital on Paragon’s balance sheet attributable to common shares will be reduced proportionately, based on the ratio of the reverse share split, from its present amount, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced (net of any amounts paid in lieu of fractional shares). The net income or loss and net book value per share of common shares will not be affected because prior year earnings per share will be retroactively restated.
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Vote Required And Recommendation
The affirmative vote of the holders of a majority of the voting shares outstanding and entitled to vote at the annual meeting will be required to approve Proposal Two.
The Board of Trustees recommends that you vote “FOR” Proposal Two to authorize the Board of Trustees, in its discretion, to amend Paragon’s Declaration of Trust to effect a reverse share split of our issued and outstanding common shares without further approval or authorization of our shareholders.
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Board of Trustees and Executive Officers
The business experience, principal occupations and employment during the last five years of each of our trustees or executive officers and significant employees are set forth below.officers.
| | | | | | | Name | | Age | | Position | James C. Mastandrea | | | 61 | | | Chairman of the Board, Chief Executive Officer, President and Trustee | | | | | | | | John J. Dee | | | 54 | | | Senior Vice President, Chief Financial Officer and Trustee | | | | | | | | David R. Folsom | | | 40 | | | Vice President, Capital Markets | | | | | | | | Jack R. Kuhn | | | 57 | | | Senior Vice President - Chief Property Management and Development Officer | | | | | | | | Daryl J. Carter | | | 49 | | | Trustee | | | | | | | | Daniel G. DeVos | | | 47 | | | Trustee | | | | | | | | Paul T. Lambert | | | 52 | | | Trustee | | | | | | | | Michael T. Oliver | | | 62 | | | Trustee |
James C. Mastandrea
Class III Nominees to Serve Until the 2017 Annual Meeting of Shareholders:
Daryl J. Carterhas served as Presidenta trustee since June 2003. Mr. Carter founded and Chairman of the Board of Trustees since March 4, 2003 and as Chief Executive Officer since April 7, 2003. In May 1998, Mr. Mastandrea returned2007 has served as Chairman and Chief Executive Officer to MDC Realty Corporation, Chicago, Illinois, which he founded in 1978 and had used for the development of over $500 million ofAvanath Capital Management, LLC, an investment firm focused on urban-themed real estate projects until 1993.and mortgage investments. He is also a Managing Partner of McKinley-Avanath, a property management company focused on the affordable apartment sector. From July 19932005 to December 1993,2007, Mr. MastandreaCarter was an Executive Managing Director of Centerline Capital Group (“Centerline”), a subsidiary of Centerline Holding Company, a publicly traded company listed on the New York Stock Exchange (“NYSE”), and head of the Commercial Real Estate Group. From 2005 to 2007, he was also the President of First Union Real Estate Investments,American Mortgage Acceptance Corporation, a NYSE listedthen publicly-held, commercial mortgage lender that was externally managed by Centerline. Mr. Carter became part of Centerline when his company, Capri Capital Finance (“CCF”) was acquired by Centerline in 2005 and stayed with Centerline until 2006. Mr. Carter co-founded and served as Co-Chairman of both CCF and Capri Capital Advisors ( “Capri”) in 1992. He was instrumental in building Capri into a diversified real estate firm with $8 billion in real estate equity and debt investments under management. Prior to Capri, Mr. Carter was Regional Vice President at Westinghouse Credit Corporation in Irvine and a Second Vice President at Continental Bank in Chicago. Since 2009, Mr. Carter has served as a trustee of Whitestone REIT (NYSE), a publicly traded real estate investment trust headquartered in Cleveland, Ohio. From January 1994 until his departure in May 1998, he was(“REIT”) focused on Community Centered Properties™. He has also served as a director of Silver Bay Realty Trust Corp. (NYSE) since July 2013, a trustee of the Urban Land Institute, Executive Committee Member and Chairman of the National Multifamily Housing Council, and on the Visiting Committee of the M.I.T. Sloan School of Management. He is also a past Chairman of the Mortgage Bankers Association. Mr. Carter brings to our Board significant management experience and demonstrated leadership skills with financial and real estate entities.
Dennis H. Chookaszian has served as a trustee since June 2016. Mr. Chookaszian served as Chairman of Trusteesthe Financial Accounting Standards Advisory Council, which advises the Financial Accounting Standards Board, from January 2007 to December 2011. During his 27-year career with CNA Financial Corporation (“CNA”), Mr. Chookaszian held several management positions at CNA’s business unit and corporate levels. Mr. Chookaszian joined CNA in 1975 as Chief Financial Officer until 1990 when he became President. In 1992, he was named Chairman and Chief Executive Officer of First Union. During his tenure at First Union, Mr. MastandreaCNA Insurance Companies, and his management team substantially grew the assets of the company from $495 million at the beginning of 1994 to $934 million at the end of 1997, along with commensurate growth in net operating income and funds from operations. In 1999 Mr. Mastandrea formed Eagle’s Wings Aviation Corporation, where he served as Chief Executive Officer, to purchase a troubled aviation services business. At the time of the purchase, the business was in default on its debt obligations. Following the September 11, 2001 terrorist attacks, the business was further adversely affected. In March 2002, Eagle’s Wings filed for protection under Chapter 11 of the federal bankruptcy laws. Mr. Mastandrea has been the general partner of Hampton Court Associates, L.P. since its formation in 1983. Mr. Mastandrea is a director of Cleveland State University Foundation Board andbecame Chairman of CNA’s executive committee until he retired in 2001. Mr. Chookaszian currently serves on the nominating committee,boards of publicly-held CME Group Inc. (NASDQ: CME, formerly known as Chicago Mercantile Exchange Holdings Inc.), a directorU.S. financial exchange, since 2004; Career Education Corporation (NASDAQ: CECO), a postsecondary education provider, since 2002; Prism Technologies Group, Inc. (NASDAQ: PRZM), a firm that licenses and enforces patents, since 2003; and MacDonald Dettwiler and Associates Ltd. (TSX: MDA.TO), a global communications and information company, since 2005. Mr. Chookaszian is an adjunct Professor at University of Chicago Booth School of Business and teaches courses in corporate governance. He also teaches a course in international corporate governance at Cheung Kong University (China), at Shanghai Advance Institute of Finance (China), and at Indian Institute of Planning and Management (India). Mr. Chookaszian has a Bachelor of Science in chemical engineering from Northwestern University, a Master of Business Administration in finance from University of Chicago, and a memberMaster degree in economics from London School of the real estate committee of University Circle Inc., Cleveland, Ohio, and a member of Calvin College’s Business Alliance Board, Grand Rapids, Michigan.Economics. He is a memberCertified Public Accountant, Chartered Global Management Accountant, Certified Management Consultant, and Chartered Property Casualty Underwriter. Mr. Chookaszian has significant business, audit committee and teaching experience that adds significantly to the oversight and governance of National Associationthe Company.
Class II Nominees to Serve Until the 2018 Annual Meeting of Real Estate Investment Trusts (NAREIT), Pension Real Estate Association (PREA), and National Multifamily Housing Association (NMHA).14
Shareholders:
John J. Deehas served as a trustee andour Senior Vice President since March 4, 2003, and as Chief Financial Officer and a trustee since April 7, 2003. Since October 2006, Mr. Dee has also been Chief Operating Officer, Executive Vice President, and Corporate Secretary at Whitestone REIT (NYSE). Prior to Mr. Dee’s joining Paragon,Pillarstone Capital, from 2002 to 2003, he was Senior Vice President and Chief Financial Officer of MDC Realty Corporation, Cleveland, Ohio, an affiliate of MDC Realty Corporation, Chicago, Illinois.Illinois, a privately held residential and commercial real estate development company. From 2000 to 2002, Mr. Dee was Director of Finance and Administration for Frantz Ward, LLP,a Cleveland, Ohio a Cleveland-based law firm with approximately 100 employees.firm. From 1978 to 2000, Mr. Dee held various management positions with First Union Real Estate Investments (NYSE), most recently asincluding Senior Vice President and Chief Accounting Officer from 1996 to 2000. Mr. Dee is licensed as a CPA (non-practicing) in the State of Ohio.David R. Folsomjoined Paragon on March 7, 2005 as Vice President, Capital Markets Mr. Dee has a significant number of years of experience with the responsibility of raising funds in the capital markets. Previously, Mr. Folsom was an investment banker with the regional firm of BB&T Capital Markets, where he served in the Corporate Finance, Real Estate Securities, and Debt Capital Groups. At BB&T, Mr. Folsom participated in the execution of over 75 underwriting and financial advisory transactions, including lead managed and co-managed offerings of equity, preferred stock, and fixed income securities across a wide array of industries and sectors. He also assisted in the coordination of the marketing of the firm’s Low Income Housing Tax Credit product offering to institutional investors. Prior to joining BB&T, Mr. Folsom served for over 10 years as a commissioned U.S. Marine Corps Officer, including assignments in the Gulf War, U.S. operations in Panama, and was a Commanding Officer and an Aide-de-Camp to General Anthony Zinni, who later served as the Mid-East envoy in the Bush Administration. Mr. Folsom earned a Bachelor of Science degree from the U.S. Naval Academy and an MBA from Georgetown University. He is a member of the Beta Gamma Sigma Honor Society and was a Cox Foundation Scholar, where he completed post graduate work at La Sorbonne in Paris, France.
Jack R. Kuhnjoined Paragon as Senior Vice President and Chief Property Management and Development Officer on July 19, 2004. Mr. Kuhn’s responsibilities include overseeing all of Paragon’s property management and development activities. Prior to joining Paragon, from 1985 to June 2004, Mr. Kuhn was Executive Vice President and President of Forest City Commercial Management, a division of Forest City Enterprises (NYSE), which is a $5 billion diversifiedpublicly listed real estate developmentinvestment trusts and Management Company located in Cleveland, Ohio, with commercialadds exceptional experience and residential properties throughout the country. At Forest City, Mr. Kuhn was directly responsible for allskills of the propertyvalue to our management team and development properties in 13 states, particularly during Forest City’s substantial growth. Mr. Kuhn is a member of the Urban Land Institute (ULI), Builders Owners and Managers Association (BOMA), International Council of Shopping Centers (ICSC); and a board member of United Way, Shoes for Kids, and Salvation Army.
Daryl J. Carterhas served as a trustee since June 30, 2003. Mr. Carter is Co-Chairman and Chief Investment Officer of Capri Capital, Irvine, California, an affiliated company of Charter Mac Mortgage Capital. Capri Capital is a diversified real estate financial services firm thatBoard.
Mr. Carter co-founded in 1992. Capri Capital has $7 billion in assets under management, including investments in commercial mortgages, mezzanine capital, and equity investments in Fannie Mae, Freddie Mac and HUD/FHA programs, along with equity and mezzanine capital investments on behalf of various public, private and labor funds. Mr. Carter serves as a Director of Catellus Development Corporation (NYSE), San Francisco, California, a publicly held real15
estate investment trust. Mr. Carter is a member of the Pension Real Estate Association (PREA), a Trustee and Vice Chairman of the Urban Land Institute (ULI), a Board Member and Chair of the Finance Committee of the National Multifamily Housing Association (NMHA), and a member of the Commercial Board of Governors of the Mortgage Bankers Association.
Daniel G. DeVoshas served as a trustee since March 4, 2003. Mr. DeVos is Chairman of the Board and Chief Executive Officer of DP Fox Ventures, LLC, a diversified management enterprise with investments in real estate, transportation, and sports teams. In addition, Mr. DeVos is the majority owner of the Grand Rapids Rampage (AFL), Grand Rapids Griffins (AHL) and has ownership interests in the Orlando Magic (NBA). Mr. DeVos is a director of Alticor, Inc., the parent of Amway Corporation, located in Ada, Michigan, and the Orlando Magic (NBA). From 1994 to 1998, Mr. DeVos served as a trustee of First Union Real Estate Investments (NYSE).
Paul T. Lamberthas served as a trustee since November 1998. Mr. Lambert serves as the Chief Executive Officer of Lambert Capital Corporation. He served on the Board of Directors and was the Chief Operating Officer of First Industrial Realty Trust, Inc. (NYSE) ( “First Industrial”) from its initial public offering in October 1994 to the end ofthrough December 1995. Mr. Lambert was one of the largest contributors to the formation of First Industrial and one of its founding shareholders. Prior to forming First Industrial, Mr. Lambert was managing partner for The Shidler Group, a national private real estate investment company. Prior to joining The Shidler Group, Mr. Lambert was a commercial real estate developer with Dillingham Corporation and, prior to that, was a consultant with The Boston Consulting Group. Michael T. Oliver Mr. Lambert has served as a trustee of Whitestone REIT (NYSE) since March 2013. Mr. Lambert is an entrepreneur with significant experience in commercial real estate and financing of development projects providing the Board with his leadership skills to perform oversight functions as a trustee and member of several committees.
Class I Nominees to Serve Until the 2019 Annual Meeting of Shareholders:
James C. Mastandrea has been our Chairman, President and Chief Executive Officer since 2003. Mr. Mastandrea has over 40 years of experience in the real estate industry and 19 years serving in high level positions of publicly traded companies. Since 2006, he has also served as the President, Chief Executive Officer and Chairman of the Board of Trustees of Whitestone REIT (NYSE). In addition, since 1978, Mr. Mastandrea has served as the Chief Executive Officer/Founder of MDC Realty Corporation, a privately held residential and commercial real estate development company. From 1994 to 1998, Mr. Mastandrea served as Chairman and Chief Executive Officer of First Union Real Estate Investments (NYSE), a publicly traded real estate investment trust. Mr. Mastandrea also served in the U.S. Army as a Military Police Officer. Mr. Mastandrea is a director of Cleveland State University Foundation Board and a member of the investment committee. He regularly lectures to MBA students at the University of Chicago and instructs as an Adjunct Professor in the MBA program at Rice University in Houston, Texas, and also presents to institutional investors in the U.S. and Europe. Mr. Mastandrea’s significant experience in the commercial and residential real estate business, capital markets, and private and public companies as a real estate expert allows him to provide insight into various aspects of the economy and commercial real estate, which is of significant value to our Board.
Daniel G. DeVoshas served as a trustee since March 4, 2003. Since 1993, Mr. Oliver isDeVos has served as Chairman of the State InvestmentBoard and Chief Executive Officer of Real Estate and Private Equity Investments of the Alaska State Pension Board of the Alaska State Pension Fund, Juneau, Alaska,DP Fox Ventures, LLC, a position he has held since August 2000. Prior to joining the Alaska State Pension Board, Mr. Oliver was a consultant from March 1998 to July 2000 to MPAC Capital Markets, Seattle, Washington, and a consultant to several Asian governments concerning laws governing REITs. From April 1996 to March 1998,
Mr. Oliver was Chairman of RERC Capital Markets, LLC, Chicago, Illinois. From March 1987 to February 1996, he was Chairman of Heitman/PRA Securities Advisors, Inc. and President of its Real Estate Fund. Prior to March 1987 and since 1967, Mr. Oliver held positions at real estate companies raising capital and making directdiversified management enterprise with investments in real estate, transportation, fashion, sports, and at investment banking firms analyzingentertainment. Since 1999, Mr. DeVos has served as the President and Chief Executive Officer of Fox Motors, based in Grand Rapids, Michigan. He is a limited partner of the Chicago Cubs, a former owner of the Grand Rapids Griffins (AHL), has been a board member since 1991 and Chairman since 2011 of RDV Sports, Inc., the parent company of the Orlando Magic (NBA), and is a partner in CWD Real Estate Investments. Since 2004, he has served as a director and currently serves on the Audit Committee of Alticor, Inc., the parent of Amway Corporation, located in Ada, Michigan. From 2009 to 2013, Mr. DeVos served as a trustee of Whitestone REIT (NYSE) and in May 2013 became trustee emeritus. From 1994 to 1998, he served as a trustee of First Union Real Estate Investments (NYSE). Mr. DeVos has extensive and diverse business experience within and outside the real estate companiesindustry and raising capital.possesses exceptional leadership skills in business and non-profit management.
Recommendation of the Board of Trustees
The Board of Trustees recommends that the shareholders vote FOR the election of Daryl J. Carter and Dennis H. Chookaszian as Class III trustees until the 2020 annual meeting and until their respective successors, if any, are elected and qualify.
CORPORATE GOVERNANCE
Trustee Independence
Our common shares are currently traded on the OTC Bulletin Board. Accordingly, we are not subject to the rules of any national securities exchange that require a majority of a listed company’s trustees and specified committees of the board of trustees meet independence standards prescribed by such rules. However, the Board has affirmatively determined that noneeach of Messrs. Carter, Chookaszian, DeVos, and Lambert and Oliverdo not have a material relationship with ParagonPillarstone Capital that would interfere with the exercise of independent judgment and are independent“independent” as defined by theunder NYSE MKT listing standards, applicable rules of the American Stock Exchange.Code of Ethics
On January 14, 2004, our Board of Trustees adopted a code of conduct and ethics that applies to all officers, trustees and employees of Paragon, including our principal executive officer, principal financial officer and principal accounting officer. Upon written request, we will provide a copy of our Code of Conduct and Ethics without charge.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the our officers, trustees and persons who own more that 10% of our common shares to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, trusteesCommission (“SEC”) rules and greater than 10% shareholders are requiredthe standards prescribed by regulation to furnish us with copiesour Declaration of all Section 16(a) forms they file.
Separate Form 4s filed by Mr.Trust. Messrs. Mastandrea and Mr. Dee each reporting a grant of restricted shares and share options, were not filed on a timely basis. Based solely on revieware also executive officers of the copiesCompany and therefore are not considered to be independent according to these standards.
Governance Structure
We believe that the Company is better served by the combined Chairman/Chief Executive Officer type of leadership for setting and meeting the goals of the forms furnishedCompany’s strategic plan. By having a strong single leader, a company of our size can adapt to us,market changes faster with fewer levels of decision makers. It provides a cohesive vision and strategy for the Company and strong execution ability. This type of leadership model helps assure a clear and direct line of communication to the Board of any risks, challenges or written representations that no Annual Statements of Beneficial Ownership of Securities on Form 5 were required to be filed, we believe that all other Section 16(a) filing requirements applicable to our officers, trusteeskey management issues and greater than 10% shareholders were complied with in 2004.Attendanceopportunities.
Meetings and Committees of the Trustees at MeetingsBoard
Our trusteesBoard held eightfive meetings and acted by written consent seven times in 2004. All membersduring the fiscal year ended December 31, 2016. No trustee attended fewer than 75% of the meetings held during the period for which he served as a member of the Board of Trustees participated in at least 75% ofand the committees on which he served. We encourage all Board and applicable committee meetings in 2004 held while they served as trustees. Trustees are also strongly encouragedtrustees to attend theall meetings of shareholders, however, we do not have a formal policy regarding trustee attendance at our annual meetings of shareholders. Messrs. Dee and Mastandrea attended our 2016 annual meeting of shareholders either in person orand Mr. Lambert attended the meeting by teleconference. All trustees attended last year’s annualtelephone.
Our entire Board considers all major decisions concerning our business. Our Board has also established committees so that certain matters can be addressed in more depth than may be possible at a meeting either in person or by teleconference.of the entire Board. Our Board has established a standing Nominating Committee, Audit Committee and Management, Organization and Compensation Committee. Our Board’s committee membership is as follows, with the “X” denoting the members of Trustees Effective October 28, 2003,the respective committee:
| | | | | | | | | Name | | Nominating Committee | | Audit Committee | | Management, Organization, and Compensation Committee | | Non-Employee Trustees: | | | | | | | | Daryl J. Carter | | | | X | | Chairman | | Dennis H. Chookaszian | | | | Chairman | | | | Daniel G. DeVos | | Chairman | | X | | X | | Paul T. Lambert | | X | | X | | X | | Number of Meetings in 2016 | | 1 | | 4 | | 0 |
Our Board has adopted a formal written charter for each trustee whocommittee. The charters are available on the Corporate Governance page of our website at www.pillarstone-capital.com. The information contained on our website is not, an officerand should not be considered, a part of Paragon receives a retainerthis Proxy Statement. A copy of $5,000 annually, $500 for each meeting attended in person, $200 for each meeting attended via teleconference, 25,000 common share options which vest one year after issuance and expire 90 days aftercharter is available to shareholders free of charge upon written request to the term of the trustee ends and 50,000 restricted common shares that vest one year after issuance. Effective June 15, 2004, 100,000 common share options at an exercise price of $0.18 per share and 200,000 restricted common shares were issued to our non-management trustees.Trustees were paid approximately $27,000 for retainers andCompany’s Corporate Secretary at: Pillarstone Capital REI, Attention: Corporate Secretary, 2600 South Gessner Road, Suite 555, Houston, Texas 77063.
Audit Committee
The Audit Committee held four meetings in 2004.Committees of the Trustees
Audit Committee
Our audit committee2016 and consists of Mr. Carter, Mr. DeVos, Mr. Lambert and Mr. Oliver,Chookaszian, who serves as Chairman, and Messrs. Carter, DeVos and Lambert. Mr. Chookaszian also serves as the audit committee financial expert, as defined by the SEC. Each member of the audit committeeAudit Committee satisfies the independence standards and financial literacy requirements set forth inunder NYSE MKT listing standards and the applicable rules of Amex and the SEC. The audit committeeAudit Committee is directly responsible for engaging and reviewing the performance of our independent public auditors, oversees our accounting and financial reporting processes, considers and approves the range of audit and non-audit fees, reviews the adequacy of our internal accounting controls and procedures and resolves disagreements between management and our independent public
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auditors.
auditors. The audit committee held four meetings in 2004. See page 20 of this proxy statement for additional information regarding the audit committee.
Management, Organization and Compensation Committee
Our management, organizationManagement, Organization and compensation committeeCompensation Committee consists of Mr. Carter, who serves as Chairman, Mr.and Messrs. DeVos, Mr. Lambert and Mr. Oliver. During 2004,Lambert. Because the Company did not have any operations until December 8, 2016, this committee did not hold any meetings in 2016. The Management, Organization and acted by written consent four times. The committeeCompensation Committee makes recommendations and exercises all powers of the Board of Trustees in connection with certain compensation matters, including incentive compensation and benefit plans. TheThis committee administers, and has authority to grant awards under, our 2004 Share Optionthe 2016 Equity Plan.
Nominating ProcessCommittee
Our Nominating Committee consists of Mr. DeVos, who serves as Chairman, and Mr. Lambert. The Nominating Committee held one meeting during 2016. The Nominating Committee is responsible for identifying individuals qualified to become trustees and for evaluating potential or suggested trustee nominees. In order for an individual to qualify for nomination or election as a trustee, an individual, at the time of nomination, must have substantial expertise, experience or relationships relevant to the real estate business, which may include:
commercial real estate experience;
an in-depth knowledge of and working experience in finance or marketing;
capital markets or public company experience;
university teaching experience in a Master of Business Administration or similar program;
experience as a chief executive officer, chief operating officer or chief financial officer of a public or private company; or
public or private company board experience.
Additionally, an individual shall not have been convicted of a felony or sanctioned or fined for a securities law violation of any nature. The Nominating Committee in its sole discretion will determine whether a nominee satisfies the foregoing qualifications or possesses such other characteristics as deemed necessary by the Nominating Committee. Though we have no formal policy addressing diversity, the Nominating Committee will seek to recommend nominees to the Board that represent a diversity of Trusteesexperience, gender, race, ethnicity and age. Any individual who does not currently havesatisfy the qualifications above is not eligible for nomination or election as a nominating committee. Instead, the Board believes it is in the best intereststrustee.
The Nominating Committee performs a preliminary evaluation of the company to relypotential candidates primarily based on the insight and expertiseneed to fill any vacancies on our Board, the need to expand the size of all trustees in the nominating process. In accordance with Amex rules, theour Board has adopted a resolution regarding Paragon’s nominating process relating to the election of trustees.The Chairman of the Board generally recommends qualified candidates for trustee and candidates are approved by the entire Board of Trustees. Candidates are considered by the Chairman and the Boardneed to obtain representation in key disciplines and/or market areas. The Nominating Committee will seek to identify trustee candidates based on input provided by a number of Trustees accordingsources, including the Nominating Committee members and other members of our Board. The Nominating Committee also has the authority to their business and real estate experience, relationships, and knowledge that they can contributeconsult with or retain advisors to the company. Candidates must also possess a high degree of personal integrity and be willing to devote their time and efforts to Paragon. Candidates are considered without regard to age, race, color, sex, religion, disability or national origin. We docarry out its duties, though it has not useused a third party to locate or evaluate potential candidates for trustee. Once a potential candidate is identified as one who fulfills a specific need, the Nominating Committee performs a full evaluation of the potential candidate. This evaluation includes reviewing the potential candidate’s background information, relevant experience, willingness to serve, independence and integrity. In connection with this evaluation, the Nominating Committee may interview the candidate in person or by telephone. After completing its evaluation, the Nominating Committee makes a recommendation to the full Board as to the individuals who should be nominated by our Board. Our Board elects nominees recommended by the Nominating Committee to fill vacancies on our Board and nominates the nominees for election by shareholders after considering the recommendations and a report of the Nominating Committee. In addition to the above process, as part of an agreement approved by shareholders onin June 30, 2003, Mr. Mastandrea can appoint five trustees to the Board provided he remains as our Chairman and Chief Executive Officer. Mr. Mastandrea has not exercised this right.
It is the policy of the Board of Trustees to
Shareholder Nominations for Trustee
The Nominating Committee will consider nomineesfor nomination all individuals recommended by shareholders according toin the same criteria. A shareholder desiring to nominate amanner as all other trustee for election at our 2005 annual meeting of shareholders must deliver a notice,candidates provided that such recommendations are submitted in accordance with the requirements ofprocedures set forth in our bylaws,Bylaws. If a shareholder is recommending a candidate to serve on our Chief Financial Officer at our principal executive office no earlier than March 5, 2006, and no later than April 4, 2006. Such noticeBoard, the recommendation must include asthe information specified in our Bylaws, including the following:
(1) As to each personindividual whom the shareholder proposes to nominate for election or re-electionreelection that meets the criteria of serving as a trustee | • | the name, age, business address and residence address of the person, | | | • | the principal occupation or employment of the person, | | | • | the written consent of the person to be named in the proxy as a nominee and to serve as a trustee, | | | • | the class and number of our shares beneficially owned by the person, and | | | • | any other information relating to the person that is required to be disclosed in solicitations for proxies for election of trustees pursuant to Rule 14a under the Exchange Act; |
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as set forth in the qualifications of trustees section of our Bylaws (Article III, Section 3), all information relating to the proposed nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the proposed nominee as a trustee in an election contest (even if an election contest is not involved), or would otherwise be required in connection with the solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act and the rules thereunder (including the proposed nominee’s written consent to being named in the proxy statement as a nominee and to serving as a trustee if elected).
(2) As to any business that the shareholder proposes to bring before the meeting:
a description of the business; and
the shareholder’s reasons for proposing the business at the meeting and any material interest in the business of the shareholder or any shareholder associated person (as defined in our Bylaws), individually or in the aggregate, including any anticipated benefit from the proposal to the shareholder or the shareholder associated person.
(3) As to the shareholder giving the notice, | • | the name and record address of the shareholder, and | | | • | the class and number of our shares beneficially owned by the shareholder. |
We may require any proposed nominee and any shareholder associated person:
the class, series and number of all shares or other securities of Pillarstone Capital or any of its affiliates (also referred to furnish additional information reasonably requiredas Pillarstone Capital securities), if any, that are owned (beneficially or of record) by us to determine the eligibilityshareholder, proposed nominee or shareholder associated person, the date on which each Pillarstone Capital security was acquired and the investment intent of the acquisition, and any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of stock or other security) in any Pillarstone Capital securities of any person;
the record or "street name" holder for, and number of, any Pillarstone Capital securities owned beneficially but not of record by the shareholder, proposed nominee or shareholder associated person;
whether and the extent to servewhich the shareholder, proposed nominee or shareholder associated person, directly or indirectly (through brokers, nominees or otherwise), is subject to or during the last six months has engaged in any hedging, derivative or other transaction or series of transactions or entered into any other agreement, arrangement or understanding (including any short interest, any borrowing or lending of securities or any proxy or voting agreement), the effect or intent of which is to (i) manage for the Pillarstone Capital shareholder, proposed nominee or shareholder associated person the risk or benefit of changes in the price of (x) Pillarstone Capital securities or (y) any security of any entity that was listed in the peer group in the stock performance graph in the most recent annual report to shareholders of Pillarstone Capital or (ii) increase or decrease in the voting power of the shareholder, proposed nominee or shareholder associated person in Pillarstone Capital or any affiliate thereof (or, as applicable, in any peer group company) disproportionately to the person’s economic interest in the company securities (or, as applicable, in any peer group company); and
any substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with Pillarstone Capital), by security holdings or otherwise, of the shareholder, proposed nominee or shareholder associated person, in Pillarstone Capital or any affiliate thereof, other than an interest arising from the ownership of Pillarstone Capital’s securities where the shareholder, proposed nominee or shareholder associated person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series.
(4) As to the shareholder giving the notice, any shareholder associated person with an interest or ownership referred to in paragraphs (2) and (3) above and any proposed nominee:
the name and address of the shareholder, as they appear on our trustee.19
share ledger, and the current name and business address, if different, of each shareholder associated person and any proposed nominee;
Audit Committee Report
Our audit committee operates underthe investment strategy or objective, if any, of the shareholder and each shareholder associated person who is not an individual and a written charter setting forthcopy of the committee’s responsibilitiesprospectus, offering memorandum or similar document, if any, provided to investors or potential investors in the shareholder, each shareholder associated person and authority. This charter,any proposed nominee; and
to the extent known by the shareholder giving the notice, the name and address of any other shareholder supporting the nominee for election or reelection as a trustee or the proposal of other business on the date of the shareholder’s notice.
The foregoing description of our advance notice provisions is a summary and is qualified in its entirety by reference to the full text of our Bylaws, which were filed with the SEC as an appendixExhibit 3.1 to our 2004 proxy statement, was amendedCurrent Report on Form 8-K filed on December 13, 2016. Accordingly, we advise you to review our Bylaws for additional stipulations relating to advance notice of trustee nominations and restatedshareholder proposals. For a description of the applicable deadlines for shareholder proposals, see “Solicitation and Voting - How and when may I submit a shareholder proposal for Pillarstone Capital’s 2018 annual meeting of shareholders?”
Risk Oversight
It is the responsibility of the Board to approve a strategic business plan and select a chief executive officer to execute the strategic plan. While the Board is tasked with the responsibility to detect potential high level risks, management is tasked with managing risk on November 17, 2003a daily basis. Where possible, management, in conjunction with the Board, has defined high level risk controls to fully comply with new SEC rules and Amex listing requirements adopted pursuanthelp mitigate the most significant risks to the Sarbanes-Oxley ActCompany.
Code of 2002.Conduct and Ethics
Our Board has adopted a Code of Conduct and Ethics that applies to all officers, trustees and employees of Pillarstone Capital, including our principal executive officer, principal financial officer, principal accounting officer, and any person performing similar functions. We have posted our Code of Conduct and Ethics on the Corporate Governance page of our website at www.pillarstone-capital.com. If we amend or grant any waiver from a provision of our Code of Conduct and Ethics, we will promptly disclose such amendment or waiver in accordance with and if required by applicable law, including by posting such amendment or waiver on our website at the address above.
Compensation of Trustees
During the year ended December 31, 2016, trustees were not paid any compensation.
In lieu of cash payments for trustee fees, effective September 29, 2006, each trustee of the Company serving at that time received 12,500 Preferred C Shares for service as a trustee until September 29, 2008. The charter is reviewed and assessed annuallyshares are restricted until the latest to occur of: (a) a public offering by the Company sufficient to liquidate the shares, (b) an exchange of the Company’s existing shares for new shares, and (c) September 29, 2008. The shares were fully amortized by the original date in 2008.
In June 2003, our shareholders approved an agreement to issue additional common shares to Paragon Real Estate Development, LLC of which Mr. Mastandrea is the managing member and Mr. Dee is a member. In September 2006,Pillarstone Capital amended this agreement to include each of the trustees so that if a trustee brings a new transaction to Pillarstone Capital, he would receive additional common shares of Pillarstone Capital in accordance with a formula in the agreement. In January 2016, the non-employee trustees and Mr. Mastandrea agreed to make this agreement for only non-employee trustees. The agreement is intended to serve as an incentive for our trustees to increase the asset base, net operating income, funds from operations, and share value of Pillarstone Capital. The exact number of common shares that would be issued will be calculated in accordance with a formula in the agreement based on future acquisition, development or redevelopment transactions. Any of these transactions would be subject to approval by the members of our Board who are not receiving the additional common shares. We would issue our common shares only upon the closing of a transaction. The maximum number of common shares to be issued under the agreement is limited to a total value of $26 million based on the average closing price of our common shares for 30 calendar days preceding the closing of any transaction. The common shares will be restricted until we achieve the five-year pro forma income target for the acquisition, as approved by the Board, and an increase of 5% in Pillarstone Capital’s net operating income and funds from operations. The restricted shares would vest immediately upon any “shift in ownership,” as defined in the agreement.
PROPOSAL NO. 2 - RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee of the Board has appointed Pannell Kerr Forster of Texas, P.C. (“PKF”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2017. Boulay PLLP (“Boulay”) had acted as our independent public accountants from February 2, 2001 until January 19, 2017. Pillarstone Capital does not expect a representative from either PKF or Boulay to attend the Annual Meeting and, accordingly, no representative from PKF or Boulay is expected to make a statement or be available to respond to questions.
The Board asks shareholders to ratify the appointment of PKF as our independent registered public accounting firm. Shareholder ratification of the appointment of PKF as our independent registered public accounting firm is not required by our Bylaws or other governing documents. However, the Board is submitting the appointment of PKF to the shareholders for ratification as a matter of good corporate governance. If the appointment is not ratified, the Audit Committee will consider whether it is appropriate to select another registered public accounting firm. Even if the appointment is ratified, the Audit Committee in its discretion, may select a different registered public accounting firm at any time during the year if it determines that a change would be in the best interests of Pillarstone Capital and our shareholders.
The reports of Boulay on Pillarstone Capital’s consolidated financial statements for the fiscal years ended December 31, 2014 and December 31, 2015, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit committee.scope or accounting principle except as follows:
“The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the lack of revenue generating operations, the Company’s recurring net losses, negative cash flow from operations and accumulated deficit raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.”
During Pillarstone Capital’s fiscal years ended December 31, 2015 and 2016 and any subsequent period through the date of dismissal, (1) there were no disagreements with Boulay on any matter of accounting principles or practices, financial statement disclosure or auditing scope and procedure which, if not resolved to the satisfaction of Boulay, would have caused Boulay to make reference to the matter in its report and (2) there were no “reportable events” as that term is defined in Item 304 of Regulation S-K promulgated under the Exchange Act.
During Pillarstone Capital’s two most recent fiscal years, the subsequent interim periods thereto, and through the engagement date, neither Pillarstone Capital nor anyone on our behalf consulted PKF regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit committeeopinion that might be rendered on our consolidated financial statements; or (2) any matter regarding Pillarstone Capital that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
Recommendation of the Board of Trustees
The Board of Trustees recommends that the shareholders vote FOR approval the ratification of the Audit Committee’s appointment of Pannell Kerr Forster of Texas, P.C. as our independent registered public accounting firm.
AUDIT COMMITTEE REPORT
The Audit Committee assists the Board in fulfilling its responsibilityoverseeing matters relating to our accounting and financial reporting practices, the adequacy of overseeingour internal controls and the quality and integrity of our accounting, auditingfinancial statements, and financial reporting practices. The audit committee is directly responsible for the engagement of Paragon’s independent auditorselecting and reviews and approves all services performed for us byretaining the independent auditor. The audit committee also reviewsauditors. Our management is responsible for preparing our financial statements, and the independent auditor’s internal quality control procedures, reviews all relationships betweenauditors are responsible for auditing those financial statements. The Audit Committee does not provide any expert or special assurance as to our financial statements or any professional certification as to the independent auditor and Paragon in order to assessauditors’ work. The Audit Committee met four (4) times during the auditor’s independence, and monitors compliance with our policy regarding non-audit services, if any, rendered by the independent auditor. In addition, the audit committee ensures the regular rotation of the lead audit partner. The audit committee has also established procedures to receive and respond to complaints received by Paragon regarding accounting, internal accounting controls, or auditing matters and allows for the confidential, anonymous submission of concerns by employees.In connection with ouryear ended December 31, 2004,2016.
In fulfilling its oversight responsibilities, the Audit Committee reviewed our audited financial statements as of and for the audit committee reviewedyear ended December 31, 2016, and discussed the financial statementsthem with management. The audit committee also discussed withmanagement and PKF, our independent auditors, Boulay, Heutmaker, Zibell & Co. P.L.L.P., theaccounting firm. The Audit Committee discussed and reviewed with PKF all matters required to be discussed by the Statement on Auditing Standards No. 61, “Communicationas amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board (the “PCAOB”) on Rule 3200T.
The Audit Committee has received the written disclosures and the letter from PKF required by the applicable requirements of the PCAOB regarding communications with the Audit Committees.”In discharging its oversight responsibility as to the audit process, the audit committee obtained from our independent auditors a formal written statement describing all relationships between the independent auditorCommittee concerning independence and us that might bear on the auditors’ independence consistent with Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” andhas discussed with the auditors any relationships that may impact their objectivityPKF its independence from us and independence. In considering the auditors’ independence, the audit committee also considered whether the non-audit services performed by the auditors on our behalf were compatible with maintaining the independence of the auditors.
management.
Based on the audit committee’s review and discussions with management and our independent auditors,referred to above, the audit committeeAudit Committee recommended to the Board that our audited financial statements be included in our Annual Report on Form 10-KSB10-K for the year ended December 31, 2004, for filing2016.
Pillarstone Capital REIT Audit Committee
/s/ Dennis H. Chookaszian, Chairman /s/ Daryl J. Carter /s/ Daniel G. DeVos /s/ Paul T. Lambert
This report of the Audit Committee shall not be deemed “soliciting material” or to be “filed” with the SEC.Audit CommitteeSEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that the information be treated as soliciting material or specifically incorporate by reference into a document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
Michael T. Oliver
Daryl J. Carter
Daniel G. DeVos
PRINCIPAL ACCOUNTING FIRM FEES AND SERVICES
Principal Accounting Firm Fees and Services
The aggregate fees billed toby the company by our principal independent registered public accountant, Boulay, Heutmaker, Zibell & Co. P.L.L.P.,accounting firm (Boulay PLLP) to the Company for the fiscal years ended December 31, 20042016 and 20032015 are as follows: | | | | | | | | | | | Category | | Year | | Fees | | Audit Fees | | | 2004 | | | $ | 67,150 | | | | | 2003 | | | $ | 56,400 | | | | | | | | | | | | | Audit-Related Fees | | | 2004
2003 | | | $
$ | —
4,100 | | | | | | | | | | | | | Tax Fees | | | 2004 | | | $ | 6,900 | | | | | 2003 | | | $ | — | | | | | | | | | | | | | All Other Fees | | | 2004
2003 | | | $
$ | —
— | |
“Audit Fees” consists of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in quarterly reports, and services that are normally provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in connection with statutory and regulatory filings or engagements. “Audit-Related Fees” consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under “Audit Fees.” These services include consultations concerning financial accounting and reporting standards as well as services related to our proxy statement filings in the second quarter of 2003. “Tax Fees” consists of fees billed for professional services for federal and state tax compliance, tax advice and tax planning. “All Other Fees” consists of fees for products and services other than the services reported above.
The audit committee and the Board of Trustees have not yet determined the independent auditor for the year ending December 31, 2005. The independent auditor for the year ending December 31, 2004 was Boulay, Heutmaker, Zibell & Co. P.L.L.P., which has been the auditing firm since the year ending December 31, 2000. A new Board of Trustees was elected by shareholders at the June 30, 2003 annual meeting of shareholders and new management was appointed on March 3, 2003. Rather than change independent auditing firms when the new Board and new management became involved with Paragon in 2003, the audit committee and Board chose to continue with the previous auditing firm. During 2005, the audit committee will be reviewing proposals from other auditing firms and has engaged Boulay, Heutmaker, Zibell & Co. P.L.L.P. to continue the review of the quarterly financial reports in 2005. Representatives of Boulay, Heutmaker, Zibell & Co. P.L.L.P. will attend the annual meeting to answer appropriate questions and make statements if they desire.
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| | | | | | | | | | | | Category | | Year | | Fees | | % Approved by Audit Committee | | | | | | | | | Audit Fees (1) | | 2016 | | $ | 19,175 |
| | 100% | | | | 2015 | | $ | 19,910 |
| | 100% | | | | | | |
| | | | Audit-Related Fees | | 2016 | | $ | — |
| | | | | | 2015 | | $ | — |
| | | | | | | | |
| | | Tax Fees (2) | | 2016 | | $ | 1,650 |
| | 100% | | | | 2015 | | $ | 1,650 |
| | 100% | | | | | | |
| | | | All Other Fees | | 2016 | | $ | — |
| | | | | | 2015 | | $ | — |
| | | | (1) Audit fees include audits and reviews of required SEC filings. | | | | | (2) Tax fees include the preparation of the Federal tax return. |
Pre-Approval Policies and Procedures
Before the independent auditors are engaged by ParagonPillarstone Capital to render audit or permissible non-audit services, the audit committeeAudit Committee approves the engagement. The audit committeeAudit Committee also reviews the scope of any audit and other assignments given to our auditors to assess whether such assignments would affect their independence. The audit committeeAudit Committee approved the payment by us of all fees billed to us by Boulay Heutmaker, Zibell & Co. P.L.L.P.PLLP in 20042016 and 2003.22
2015.
COMPENSATION DISCUSSION AND ANALYSIS The Management, Organization and Compensation Committee (the “Committee”) administers the compensation program for the executive officers. The Committee is responsible for reviewing and recommending our compensation and employee benefit policies to the Board for its approval and implementation. The Committee reviews and recommends to the Board for approval the compensation for our Chief Executive CompensationOfficer, including salaries, bonuses and grants of awards under our equity incentive plans. The Committee and the Board review and act upon proposals by the Chief Executive Officer to determine the compensation for other executive officers. The Committee, among other things, reviews and recommends to the Board employees to whom awards will be made under our equity incentive plans, determines the number of options to be awarded, and the time, manner of exercise and other InformationSummary terms of the awards.
The intent of the compensation program is to align the executive’s interests with that of our shareholders, while providing incentives and competitive compensation for implementing and accomplishing our short-term and long-term strategic and operational goals and objectives.
Compensation Tableof Named Executive Officers
Because the Company has not had substantial operations, James C. Mastandrea did not receive any compensation for serving as our Chief Executive Officer, President and Chairman during the years ended December 31, 2016 and December 31, 2015. John J. Dee did not receive any compensation for serving as our Senior Vice President and Chief Financial Officer during the years ended December 31, 2016 and December 31, 2015. There were no other officers or employees of the Company in the past two fiscal years.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth the compensation paid to our James C. Mastandrea, our Chairmanstatus of the Board, Chief Executive Officer and President, for the years endedequity awards as of December 31, 2004, 2003, and 2002. No other officer earns more than $100,000 annually.2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Restricted Stock | | Securities Underlying | | Name | | Year | | Salary(1) | | Awards | | Options | | | | James C. Mastandrea | | | 2004 | | | $ | 60,000 | | | $ | 66,000 | (2) | | | 150,000 | (3) | | | | 2003 | | | $ | 49,615 | (4) | | $ | 1,044,117 | (5) | | | — | | | | | 2002 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards | | | | Number of Securities Underlying Unexercised Options | | Number of Securities Underlying Unexercised Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested(1) | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Name | | Exercisable | | Unexercisable | | | | | | | James C. Mastandrea | | — |
| | — |
| | — |
| | — |
| | 2,000 |
| | $ | 2,800 |
| | — |
| | John J. Dee | | — |
| | — |
| | — |
| | — |
| | 2,000 |
| | $ | 2,800 |
| | — |
|
| | | (1) | | No bonuses or other compensation were paid for the years ended December 31, 2004, 2003, and 2002. | | (2) | | Represents 300,000 restricted common shares issued on January 2, 2004. The value per share on the issue date was $0.22 per share. Half of the restricted shares vest in five years or earlier upon Paragon’s share price being equal to or exceeding $1.00 per share for 20 consecutive trading days.vested on the fifth anniversary of the issuance date. The remaining half of the restricted shareswill vest when funds from operations doubles compared to the four consecutive quarters preceding the grant date,has doubled or when Paragon’sPillarstone Capital’s share price is 50% higher compared to the average closingtrading price for the five trading days preceding the grant date. | | (3) | | Options were granted January 2, 2004 at an exercise price of $0.27 per common share, representing 110% of the average of the closing price for the common shares for 10 days preceding the grant date. The options vest one-third on each January 2 of 2005, 2006, and 2007, and are exercisable until January 2, 2009. | | (4) | | Amount represents base annual salary of $60,000 for the period from March 4, 2003 through December 31, 2003. | | (5) | | Represents 348,039 preferred shares issued on June 30, 2003 at a closing price of $3.00 per preferred share. Subsequent to the one-time incentive exchange offer to the preferred shares which concluded on June 30, 2003, the preferred shares were delisted from the American Stock Exchange in September 2003. Of the 348,039 preferred shares issued to Mr. Mastandrea, 267,334 preferred shares were converted into 6,116,869 common shares on June 30, 2003 and 80,705 preferred shares remain outstanding as of December 31, 2004 and are convertible into 1,846,611 common shares. The total of 7,963,480 common shares had a value of $955,618 based on the closing price of $0.12 per share on December 31, 2004. |
Option Grants In Last Fiscal Year
Options for 150,000 common shares were granted on January 2, 2004 to Mr. Mastandrea. One third of the options vest on each January 2nd of 2005, 2006, and 2007. The following table summarizes the terms of the grant.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
| | | | | | | | | | | | | | | | | | | | | | | % of Total | | | | | | | | Number of | | Options | | | | | | | | Securities | | Granted to | | | | | | | | Underlying | | Employees | | Exercise or | | | | | | Options | | in Fiscal | | Base | | Expiration | | Name | | Granted | | Year | | Price ($/Sh) | | Date | | James C. Mastandrea | | | 150,000 | | | | 26.1 | % | | $ | 0.27 | | | 1/2/2009 |
23
Option Value at Fiscal Year End
No named executive officer holds options.
Employment Agreements
On April 3, 2006, the Board authorized modifications to the employment agreement of Mr. Mastandrea. The following table summarizes the value of options held bymodification agreement allows Mr. Mastandrea at December 31, 2004, none of which were “in-the-money.”Aggregated Option Exercises in Last Fiscal Year
And FY-End Option Values
| | | | | | | | | | | | | | | Number of | | | | | | | | | Securities | | Value of | | | | | | | Underlying | | Unexercised | | | | | | | Unexercised | | In-The-Money | | | | | | | Options | | Options | | | Shares | | | | at FY End | | at FY-End | | | Acquired | | Value | | (#) | | ($) | | | on Exercise | | Realized | | Exercisable/ | | Exercisable/ | Name | | (#) | | ($) | | Unexercisable | | Unexercisable | James C. Mastandrea | | — | | — | | - / 150,000 | | - / - |
Employment Agreements
to devote time to other business and personal investments while performing his duties for Pillarstone Capital. The original employment agreement with James C.Mr. Mastandrea our Chairman of the Board, Chief Executive Officer and President, provides for an annual salary of $60,000 effective as of March 4, 2003 and in connection therewith, Mr. Mastandrea was appointed as Chief Executive Officer on April 7, 2003. The initial term of Mr. Mastandrea’s employment is for two years and may be extended for terms of one year through his 70th birthday. Mr. Mastandrea’s agreement was renewed for an additional year on April 7, 2005.year. Mr. Mastandrea’s base annual salary may be adjusted from time to time, except that the adjustment may not be lower than the preceding year’s base salary. The employment agreement provides that Mr. Mastandrea will be entitled to base salary and bonus at the rate in effect before any termination for a period of three years in the event that his employment is terminated without cause by us or for good reason by Mr. Mastandrea. Effective September 29, 2006, in lieu of an annual salary of $100,000, Mr. Mastandrea received 44,444 Preferred C Shares for his service as an officer of Pillarstone Capital through September 29, 2008. The shares were fully amortized by the original date in 2008.
Effective June 30, 2003, we issued 696,078 preferred shares valued at approximately $2.4 million to Mr.Messrs. Mastandrea and Mr. Dee pursuant to separate restricted share agreements. On June 30, 2003, 534,668 preferred shares were converted at a factor 22.881of 0.305 into 12,233,739163,116 common shares. Under the restricted share agreement for each of Mr. Mastandrea and Mr. Dee, the restricted shares vest upon the later of the following dates: | • | the date our gross assets exceed $50.0 million, or
50% of the restricted shares on March 4, 2004; 25% of the shares on March 4, 2005; and the remaining 25% of the shares on March 4, 2006.
The number of common shares and the conversion factor have been revised to reflect the 1-for-75 reverse split of the common shares that occurred in July 2006.
| | | | • | 50% of the restricted shares will vest on March 4, 2004; 25% of the shares will vest on March 4, 2005, and the remaining 25% of the shares will vest on March 4, 2006.Equity Compensation Plan Information |
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Equity Compensation Plan Information
| | | | | | | | | | | | | | | | | Number of | | | | | | | Number of securities | | | | | securities to be | | | Weighted- | | | remaining available for | | | | | issued upon | | | average exercise | | | future issuance under | | | | | exercise of | | | price of | | | equity compensation | | | | | outstanding | | | outstanding | | | plans (excluding | | | | | options, warrants | | | options, warrants | | | securities reflected in | | | Equity Compensation Plans Approved/ | | and rights | | | and rights | | | column (a)) | | | Not Approved by Security Holders | | (a) | | | (b) | | | (c) | | | Equity compensation plans approved by security holders | | | | | | | | | | | | | | Former Share Option Plan | | | | | | | | | | | | | | | | | | | | | | | | | Options for common shares | | | 54,387 | | | $ | 5.37 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | 2004 Share Option Plan
Restricted common shares | | | 1,100,000 | | | | — | | | | | | | Options for common shares | | | 780,000 | | | $ | 0.53 | | | | | | | | | | | | | | | | | | | | | 1,880,000 | | | $ | 0.22 | | | | 1,620,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity compensation plans not approved by security holders | | | | | | | | | | | | | | Common shares | | | | | | | | | | | | | | Warrants for common shares | | | 47,500 | | | $ | 5.37 | | | | | | | | | | | | | | | | | | | | | 1,547,500 | | | $ | 0.16 | | | | — | | | | | | | | | | | | | | | | Total all plans – Common shares | | | 3,481,887 | | | $ | 0.28 | | | | 1,620,000 | | | – Preferred shares | | | — | | | | — | | | | | |
| | | | | | | | | | | | Equity Compensation Plans Approved/ Not Approved by Security Holders | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | Equity compensation plans approved by security holders | | | | | | | | | | | | | | | | 2016 Equity Plan | | — |
| | $ | — |
| | 2,356,426 | | | | | | | | | | 2004 Share Option Plan | | | | | | | | Restricted common shares | | 5,333 |
| | $ | — |
| | | | Options for common shares | | 667 |
| | $ | 33.75 |
| | | | | | 6,000 |
| | $ | 3.75 |
| | n/a | | | | | | | | | | Equity compensation plans not approved by security holders | | | | | | | | Common shares | | 6,667 |
| | $ | — |
| | | | | | | | | | | | | | 6,667 |
| | $ | — |
| | -- | | | | | | | | | | Total all plans - Common shares | | 12,667 |
| | $ | 1.78 |
| | 2,356,426 |
In addition to the above plans, we entered intoJune 2003, our shareholders approved an agreement dated March 4, 2003 and approved by the shareholders on June 30, 2003 with Mr. Mastandrea, Mr. Dee andto issue additional common shares to Paragon Real Estate Development, LLC of which Mr. Mastandrea is the managing member and Mr. Dee is a member. Pursuant toIn September 2006,Pillarstone Capital amended this agreement we may issue up to $26.0 million in ourinclude each of the trustees so that if a trustee brings a new transaction to Pillarstone Capital, he would receive additional common shares of Pillarstone Capital in accordance with a formula in the agreement. In January 2016, the non-employee trustees and Mr. Mastandrea agreed to Paragon Real Estate Development, LLC in exchangemake this agreement for it and its members procuring future acquisition, development and re-development real estate transactions for Paragon’s benefit. Thisonly non-employee trustees. The agreement is intended to serve as an incentive for Mr. Mastandrea and Mr. Deeour trustees to increase our assets andthe asset base, net operating income, in the future.funds from operations, and share value of Pillarstone Capital. The exact number of common shares that would be issued to Paragon Real Estate Development, LLC will be calculated in accordance with a formula in the agreement based on the typefuture acquisition, development or redevelopment transactions. Any of project that they present to us. The formula for a particular real estate transactionthese transactions would be calculatedsubject to approval by dividing (i) estimated net operating income to be generated from the real estate transaction formembers of our Board who are not receiving the first year following its consummation by (ii) the capitalization rate used in the real estate transaction, less the “applicable basis point factor.” The “applicable basis point factor” is defined as: 75 basis points for the acquisition of an existing operating property, 87.5 basis points for the acquisition of a re-development property, and 100 basis points for the acquisition of a development property.additional common shares. We would issue our common shares to Paragon Real Estate Development, LLC only upon the closing of the real estatea transaction. For each transaction, Mr. Mastandrea would be allocated halfThe maximum number of the common shares and Mr. Dee wouldto be allocatedissued under the other half. Allagreement is limited to a total value of $26 million based on the average closing price of our common shares wouldfor 30 calendar days preceding the closing of any transaction. The common shares will be held by Paragon Real Estate Development, LLCrestricted until we achieve the five-year pro forma income target for the benefitacquisition, as approved by the Board, and an increase of its owners.25
5% in Pillarstone Capital net operating income and funds from operations. The restricted shares would vest immediately upon any “shift in ownership,” as defined in the agreement.
Security Ownership of Management and Certain Beneficial Owners
BENEFICIAL HOLDINGS OF MAJOR SHAREHOLDERS, OFFICERS AND TRUSTEES
The following table includes certain information as of March 31, 2017 with respect to the beneficial ownership of our shares by: (i) each person known by us to own more than 5% in interest of the outstanding shares:shares; (ii) each of the trustees and each nominee for trustee;trustees; (iii) each of our executive officers; and (iv) all of the trustees and executive officers as a group. Except as otherwise noted, the person or entity named has sole voting and investment power over the shares indicated. The table shows ownership as of April 5, 2005. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Common Shares | | | | | Common Shares(2) | | | Preferred Shares(3) | | | and Units(2) (4) | | | Name and Address(1) | | Number | | | Percent(5) | | | Number | | | Percent(5) | | | Number | | | Percent(5) | | | | | James C. Mastandrea | | | 15,816,537 | (6) | | | 51.6 | % | | | 161,410 | (15) | | | 58.0 | % | | | 38,133,474 | (17) | | | 72.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Paragon Real Estate
Development, LLC | | | 12,233,738 | (7) | | | 39.9 | % | | | 161,410 | (15) | | | 58.0 | % | | | 15,926,960 | (18) | | | 46.4 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | John J. Dee | | | 3,057,799 | (8) | | | 10.0 | % | | | — | (16) | | | — | | | | 3,057,799 | (19) | | | 10.0 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Loeb Partners Corp. (9) | | | 3,135,349 | | | | 10.2 | % | | | — | | | | — | | | | 3,135,349 | | | | 10.2 | % | 61 Broadway
New York, NY 1006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Paul T. Lambert (10) | | | 2,483,619 | | | | 8.1 | % | | | — | | | | — | | | | 2,483,619 | | | | 8.1 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Jack R. Kuhn (11) | | | 552,000 | | | | 1.8 | % | | | — | | | | — | | | | 552,000 | | | | 1.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Daryl J. Carter (12) | | | 125,000 | | | | * | | | | — | | | | — | | | | 125,000 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | | | Daniel G. DeVos (12) | | | 125,000 | | | | * | | | | — | | | | — | | | | 125,000 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael T. Oliver (12) | | | 125,000 | | | | * | | | | — | | | | — | | | | 125,000 | | | | * | | | | | | | | | | | | | | | | | | | | | | | | | | | | All trustees and
current executive
officers as a group (13) | | | 17,268,537 | (14) | | | 55.9 | % | | | 161,410 | | | | 58.0 | % | | | 39,585,474 | (20) | | | 74.4 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Shares(2) | | Preferred A Shares(3) | | Preferred C Shares(4) | | Total Common Shares and Preferred Shares(5) | Name and Address(1) | | Number | | Percent(6) | | Number | | Percent(6) | | Number | | Percent | | Number | | Percent(6) | | James C. Mastandrea | | 219,420 |
| (7) | 48.8 | % | | 161,410 |
| (17) | 62.9 | % | | 56,944 |
| | 23.3 | % | | 838,090 |
| (19) | 78.4 | % | | Paragon Real Estate Development, LLC | | 163,117 |
| (8) | 40.3 | % | | 161,410 |
| (17) | 62.9 | % | | — |
| | — | % | | 212,347 |
| (20) | 46.7 | % | | Paul T. Lambert | | 87,086 |
| (9) | 19.4 | % | | — |
| | — | % | | 62,500 |
| | 25.6 | % | | 712,086 |
| (21) | 66.3 | % | | John J. Dee | | 19,177 |
| (10) | 4.6 | % | | — |
| (18) | — | % | | 12,500 |
| | 5.1 | % | | 144,177 |
| (22) | 26.4 | % | | Daryl J. Carter | | 26,665 |
| (11) | 6.2 | % | | — |
| | — | % | | 37,500 |
| | 15.3 | % | | 401,665 |
| (23) | 49.9 | % | | Daniel G. DeVos | | 42,795 |
| (12) | 9.6 | % | | — |
| | — | % | | 62,500 |
| | 25.6 | % | | 667,795 |
| (24) | 62.4 | % | Timothy D. O'Donnell 90 Broad Street New York, NY 10004 | | 32,207 |
| (13) | 8.0 | % | | — |
| | — | % | | — |
| | — | % | | 32,207 |
| | 1.0 | % | Mark Schurgin 9841 Airport Boulevard Los Angeles, CA 90045 | | 80,598 |
| (14) | 19.9 | % | | — |
| | — | % | | — |
| | — | % | | 80,598 |
| | 2.6 | % | All trustees and current executive officers as a group(15) | | 395,143 |
| (16) | 68.8 | % | | 161,410 |
| | 62.9 | % | | 231,944 |
| | 94.9 | % | | 2,763,813 |
| (25) | 93.9 | % |
* | | Indicates less than one percent | | | (1) | | Unless otherwise indicated, the address of all beneficial owners is our corporate headquartersaddress at 1240 Huron2600 South Gessner Road, Suite 301, Cleveland, Ohio 44115.555, Houston, Texas 77063. |
| | | (2) | | BasedPercentages based on 30,630,850405,103 common shares outstanding, not including 2,859,76538,130 shares held in treasury. For each individual trustee and executive officer, also includes common shares he has the right to acquire through share options and convertible notes payable. The options that are or will becomecurrently exercisable as of June 4, 2005.March 31, 2017 for all named persons is 667, and the common shares issuable upon conversion of notes payable as of March 31, 2017 for all named persons is 168,867. Percentages also include 6,667 restricted shares issuable to an independent third party that Mr. Mastandrea has the right to vote. |
| | | (3) | | BasedPercentages based on 278,455 preferred shares256,636 Preferred A Shares outstanding as of April 5, 2005,March 31, 2017, which convert to 4,096,79353,610 common shares as follows: 161,410 preferred sharesPreferred A Shares are each convertible into 22.8810.305 common shares and 117,045 preferred shares95,226 Preferred A Shares are each convertible into 3.4480.046 common shares. |
| | | (4) | Percentages based on 244,444 Preferred C Shares outstanding as of March 31, 2017, which convert to 2,444,440 common shares. Each Preferred C Share is convertible into 10 common shares. |
| | | (5) | Percentages based on 405,103 common shares outstanding, not including 38,130 shares held in treasury, and including 256,636 Preferred A Shares which convert to 53,610 common shares, 244,444 Preferred C Shares which convert to 2,444,440 common shares, and notes payable which are convertible into 168,867 common shares. For James C. Mastandreaeach individual trustee and executive officer, also includes common shares he has the right to acquire through share options that are currently exercisable as of March 31, 2017 and shares that are issuable upon conversion of notes payable as of March 31, 2017. Mr. Mastandrea’s percentage is calculated using a denominator that includes (i) 30,630,850405,103 common shares, not including 2,859,76538,130 shares held in treasury; (ii) 50,000 options; (iii) 278,455 preferred shares, which56,944 Preferred C Shares that convert to 4,096,793569,440 common shares; and (iii) 161,410 Preferred A Shares that convert to 49,230 common shares; (iv) 813,9386,667 restricted limited partnership units which may be converted into 18,623,715 common shares or cash, at our discretion, any time after July 1, 2007.issuable to an independent third party that Mr. Mastandrea has the right to vote; and (v) 44,590 common shares issuable upon conversion of notes payable due to Mr. Mastandrea. |
| | | (5) | (6) | The ownership percentspercentages total more than 100% due to more than one person or entity being considered the beneficial owner of the same shares, in accordance with SEC regulations for this table. |
| | (6) | (7) | Includes: (i) 2,308,619 common shares held by Mr. Lambert and 399,180 common shares held by a former trustee which each of Mr. Mastandrea and Mr. Dee has the right to vote; (ii) 500,0006,667 restricted common shares issuable to an independent third party whichthat Mr. Mastandrea has the right to vote; (iii) 12,233,738(ii) 163,117 common shares held by Paragon Real Estate Development, LLC, of which Mr. Mastandrea is the managing member; (iii) 2,000 common shares; (iv) 300,0002,000 restricted common shares; (v) 50,000 options;1,046 common shares and (vi) 25,00044,590 common shares.shares issuable upon conversion of notes payable. |
26
(7) | | | (8) | Mr. Mastandrea is the managing member of Paragon Real Estate Development, LLC and these shares are also included in Mr. Mastandrea’s common shares. |
| (8) | | Includes: (i) 2,308,619 common shares held by Mr. Lambert and 399,180 common shares held by a former trustee which each of Mr. Mastandrea and Mr. Dee has the right to vote; (ii) 300,000 restricted common shares; and (iii) 50,000 options. Does not include 12,233,738 common shares held by Paragon Real Estate Development, LLC, of which Mr. Dee is a member. | | | (9) | | Based solely on information in the Schedule 13D filed on February 11, 2005 with the SEC by Loeb Partners Corporation listing the following entities and quantities of shares owned: Loeb Arbitrage Fund 1,970,002 shares; Loeb Partners Corporation 148,480 shares; Loeb Offshore Fund Ltd. 184,967 shares; Robert Grubin 581,000 shares; and other affiliates of Loeb Partners Corporation 250,900 shares. The Schedule 13D reported an ownership percentage of 9.37% based on the number of common shares reported as outstanding in our most recently available filing, which included shares held in treasury. The ownership percentage reported in the table above is based on 30,630,850 common shares outstanding, which does not include shares held in treasury. | | (10) | | Includes: (i) 75,000667 options; (ii) 100,000 restricted common shares; (iii) 444,7555,929 common shares held by Lambert Equities II, LLC, of which Mr. Lambert is the controlling majority member and sole manager; (iii) 36,850 common shares; and (iv) 1,863,86443,640 common shares.shares issuable upon conversion of notes payable. |
| | | (11) | | Includes 500,000 restricted common shares, and 52,000 common shares. | | (12) | | Includes 100,000 restricted common shares and 25,000 options. | | (13) | | Includes seven named persons. | | (14) | (10) | Includes: (i) 2,308,6192,000 common shares (ii) 2,000 restricted commons shares and (iii) 15,177 common shares issuable upon conversion of notes payable. Does not include 163,117 common shares held by Paragon Real Estate Development, LLC, of which Mr. Lambert and 399,180Dee is a member. |
| | | (11) | Includes: (i) 2,000 common shares heldand (ii) 24,665 common shares issuable upon conversion of notes payable. |
| | | (12) | Includes: (i) 2,000 common shares and (ii) 40,795 common shares issuable upon conversion of notes payable. |
| | | (13) | Based solely on a Schedule 13G filed by a former trusteeMr. O’Donnell on February 2, 2016, which eachstates that Mr. O’Donnell has sole voting and dispositive power with respect to 25,860 common shares and shared voting and dispositive power with respect to 6,347 common shares. The 6,347 common shares are owned by Mr. O’Donnell’s spouse, as to which he disclaims beneficial ownership. |
| | | (14) | Includes: 80,598 common shares. Based solely on information on the Form 4 filed on January 19, 2017 with the SEC by Mr. Schurgin. |
| | | (15) | Includes five named persons who are trustees of Mr. Mastandrea and Mr. Dee has the right to vote; (ii) 500,000Pillarstone Capital. |
| | | (16) | Includes: (i) 6,667 restricted common shares issuable to an independent third party whichthat Mr. Mastandrea has the right to vote; (iii) 12,233,738(ii) 163,117 common shares held by Paragon Real Estate Development, LLC, of which Mr. Mastandrea is the managing member; (iii) 4,000 common shares; (iv) 1,500,0004,000 restricted common shares; (v) 250,000667 options; (vi) 47,825 common shares; and (vi) 77,000(vii) 168,867 common shares.shares issuable upon conversion of notes payable. |
| | | (15) | (17) | Represents shares held by Paragon Real Estate Development, LLC, of which Mr. Mastandrea is the managing member. Each preferred sharePreferred A Share is convertible into 22.8810.305 common shares. |
| | (16) | (18) | Does not include 161,410 preferred sharesPreferred A Shares held by Paragon Real Estate Development, LLC, of which Mr. Dee is a member. |
| | (17) | (19) | Includes: (i) 2,308,619 common shares held by Mr. Lambert and 399,180 common shares owned by a former trustee which each of Mr. Mastandrea and Mr. Dee has the right to vote; (ii) 500,0006,667 restricted common shares issuable to an independent third party whichthat Mr. Mastandrea has the right to vote; (iii) 12,233,738(ii) 163,117 common shares held by Paragon Real Estate Development, LLC, of which Mr. Mastandrea is the managing member; (iii) 2,000 common shares; (iv) 300,0002,000 restricted common shares; (v) 50,000 options; (vi) 18,623,715 common shares issuable upon the conversion of 813,938 limited partnership units of Paragon Real Estate, L.P., our operating partnership, held by Hampton Court Associates, L.P., of which Mr. Mastandrea is the general partner; (vii) 3,693,22249,230 common shares issuable upon conversion of 161,410 preferred sharesPreferred A Shares held by Paragon Real Estate Development, LLC; (vi) 569,440 common shares issuable upon conversion of 56,944 Preferred C Shares; (vii) 44,590 common shares issuable upon conversion of notes payable; and (viii) 25,0001,046 common shares. |
| | (18) | (20) | Includes 3,693,222(i) 163,117 common shares and (ii) 49,230 common shares issuable upon conversion of 161,410 preferred shares.Preferred A Shares. These shares are also included in Mr. Mastandrea’s total shares. |
| | (19) | (21) | Includes: (i) 2,308,619667 options; (ii) 625,000 common shares held by Mr. Lambert and 399,180issuable upon conversion of 62,500 Preferred C Shares; (iii) 43,640 common shares held by a former trustee which eachissuable upon conversion of Mr. Mastandreanotes payable; and Mr. Dee has the right to vote;(iv) 42,779 common shares. |
| | | (22) | Includes: (i) 2,000 common shares (ii) 300,0002,000 restricted common shares; (iii) 125,000 common shares issuable upon conversion of 12,500 Preferred C Shares; and (iii) 50,000 options.(iv) 15,177 common shares issuable upon conversion of notes payable. Does not include 12,233,738163,117 common shares or 161,410 preferred sharesPreferred A Shares held by Paragon Real Estate Development, LLC, of which Mr. Dee is a member. |
| | (20) | (23) | Includes: (i) 2,308,6192,000 common shares; (ii) 375,000 common shares held by Mr. Lambertissuable upon conversion of 37,500 Preferred C Shares; and 399,180(iii) 24,665 common shares owned by a former trustee which eachissuable upon conversion of Mr. Mastandreanotes payable. |
| | | (24) | Includes: (1) 2,000 common shares; (ii) 625,000 common shares issuable upon conversion of 62,500 Preferred C Shares; and Mr. Dee has the right to vote; (ii) 500,000(iii) 40,795 common shares issuable upon conversion of notes payable. |
| | | (25) | Includes: (i) 6,667 restricted common shares issuable to an independent third party whichthat Mr. Mastandrea has the right to vote; (iii) 12,233,738(ii) 163,117 common shares held by Paragon Real Estate Development, LLC, of which Mr. Mastandrea is the managing member; (iii) 4,000 common shares; (iv) 1,500,0004,000 restricted common shares; (v) 250,000667 options; (vi) 18,623,715 common shares issuable upon the conversion of 813,938 limited partnership units of Paragon Real Estate, LP, our operating partnership, held by Hampton Court Associates, LP, of which Mr. Mastandrea is the general partner; (vii) 3,693,22249,230 common shares issuable upon conversion of 161,410 preferred sharesPreferred A Shares held by Paragon Real Estate Development, LLC; (vii) 2,319,440 common shares issuable upon conversion of 231,944 Preferred C Shares; (viii) 168,867 common shares issuable upon conversion of notes payable and (viii) 77,000(ix) 47,825 common shares. |
27
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Company’s officers, trustees and persons who own more than 10% of our common shares to file reports of ownership and changes in ownership with the SEC. Officers, trustees and greater than 10% shareholders are required by regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on review of the copies of Form 4s filed by trustees reporting share transactions, grants of restricted shares and options furnished to us, or written representations that no Annual Statements of Beneficial Ownership of Securities on Form 5 were required to be filed, we believe that for the fiscal year ended December 31, 2016, all Section 16(a) filing requirements applicable to our officers, trustees and greater than 10% shareholders were complied with.
Certain Relationships and Related Transactions
Management Fees
We maintained
TRANSACTIONS WITH RELATED PERSONS Under SEC rules, a property management agreement with Hoyt Properties, Inc., an entity controlled by our former chairmanrelated person transaction is any transaction or any currently proposed transaction in which the Company was or is to be a participant, the amount involved exceeds the lesser of (i) $120,000 or (ii) one percent of the board, which served as property manageraverage of the commercial propertiesCompany’s total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest. A “related person” is a director, officer, nominee for director or a more than 5% shareholder since the beginning of our last completed fiscal year, and their immediate family members.
Under our Declaration of Trust, we may enter into any contract or transaction with our Trustees, officers, employees or agents (or any affiliated person), provided that in the case of any contract or transaction in which any of our Trustees, officers, employees or agents (or any affiliated person) have a material financial interest (i) the fact of the interest is disclosed or known to the following: (a) the Board, and the Board shall approve or ratify the contract or transaction by the affirmative vote of a majority of disinterested trustees, even if the disinterested trustees constitute less than a quorum, or (b) the shareholders entitled to vote, and the contract or transaction is authorized, approved or ratified by a majority of the votes cast by the shareholders entitled to vote other than the votes of shares owned of record or beneficially by the interested party; or (ii) the contract or transaction is fair and reasonable to us. In addition, our Nominating Committee manages risks associated with the independence of the Board and potential conflicts of interest.
Whitestone Operating Partnership Transaction
On December 8, 2016, the Company and Pillarstone Capital REIT Operating Partnership LP, a subsidiary and the operating partnership of the Company (the “Operating Partnership), entered into a Contribution Agreement (the “Contribution Agreement”) with Whitestone REIT Operating Partnership, L.P. (“Whitestone OP”), a subsidiary and the operating partnership of Whitestone REIT (NYSE) (“Whitestone”), pursuant to which Whitestone OP contributed to the Operating Partnership all of the equity interests in four of its wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower”, and together with CP Woodland, Industrial-Office and Whitestone Offices, the “Entities”) that own fourteen (14) real estate assets (the “Real Estate Assets” and, together with the Entities, the “Property”) for aggregate consideration of approximately $84.0 million, consisting of (1) approximately $18.1 million of Class A units representing limited partnership interests in the Operating Partnership (“OP Units”), issued at a price of $1.331 per OP Unit; and (2) the assumption of approximately $65.9 million of liabilities by the Operating Partnership, consisting of (a) approximately $15.4 million of Whitestone OP’s liability under that certain Amended and Restated Credit Agreement, dated as of November 7, 2014, as amended, among the Bank of Montreal, as Administrative Agent (the “Agent”), the lenders party thereto, BMO Capital Markets, Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, Whitestone OP, as borrower, and Whitestone and certain subsidiaries of Whitestone OP, as guarantors (as amended, the “Whitestone Credit Facility”); (b) an approximately $16.45 million promissory note (the “Whitestone Uptown Tower Promissory Note”) of Uptown Tower issued under that certain Loan Agreement, dated as of September 26, 2013, (as amended, the “Whitestone Uptown Tower Loan Agreement” and, together with the Whitestone Uptown Tower Promissory Note, the “Whitestone Uptown Tower Loan Documents”) between Uptown Tower, as borrower, and U.S. Bank National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender, and (c) an approximately $37.0 million promissory note (the “Whitestone Industrial-Office Promissory Note”) of Industrial-Office issued under that certain Loan Agreement, dated as of November 26, 2013 (the “Whitestone Industrial-Office Loan Agreement” and, together with the Whitestone Industrial-Office Promissory Note, the “Whitestone Industrial-Office Loan Documents”), between Industrial-Office, as borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Acquisition”). As a result of the Acquisition, Whitestone owns approximately 84% of the outstanding equity in the Operating Partnership.
Pursuant to the Contribution Agreement, the Company has agreed to file with the SEC on or prior to June 8, 2018, a shelf registration statement to register for sale under the Securities Act, the issuance of the common shares of beneficial interest in the Company (the “Common Shares”) that may be issued upon redemption of the OP Units issued pursuant to each of the Contribution Agreement and the OP Unit Purchase Agreement (as defined below) and the offer and resale of such Common Shares by the holders thereof. The parties have made certain customary representations, warranties and indemnifications to each other in the Contribution Agreement. In addition, pursuant to the Contribution Agreement, in the event of a Change of Control (as defined therein) of Whitestone, the Operating Partnership shall have the right, but not the obligation, to repurchase the OP Units issued thereunder from Whitestone OP at their initial issue price of $1.331 per OP Unit.
In connection with the agreement, Hoyt Properties managedAcquisition, on December 8, 2016, the day-to-day operationsCompany and the Operating Partnership entered into an OP Unit Purchase Agreement (the “OP Unit Purchase Agreement”) with Whitestone OP pursuant to which the Operating Partnership may require Whitestone OP to purchase up to an aggregate of properties$3.0 million of OP Units at a price of $1.331 per OP Unit over the two-year term of the OP Unit Purchase Agreement on the terms set forth therein. The parties have made certain customary representations, warranties and indemnifications to each other in the OP Unit Purchase Agreement. In addition, pursuant to the OP Unit Purchase Agreement, in the event of a Change of Control (as defined therein) of Whitestone, the Operating Partnership shall have the right, but not the obligation, to repurchase the OP Units issued thereunder from Whitestone OP at their initial issue price of $1.331 per OP Unit. As of March 15, 2017, Whitestone OP has not purchased any OP Units.
In connection with the Acquisition, on December 8, 2016, the Company and the Operating Partnership entered into a Tax Protection Agreement (the “Tax Protection Agreement”) with Whitestone OP pursuant to which the Operating Partnership agreed to indemnify Whitestone OP for certain tax liabilities resulting from its recognition of income or gain prior to December 8, 2021 if such liabilities result from a transaction involving a direct or indirect taxable disposition of all or a portion of the Property or if the Operating Partnership fails to maintain and allocate to Whitestone OP for taxation purposes minimum levels of liabilities as specified in the Tax Protection Agreement, the result of which causes such recognition of income or gain and Whitestone incurs taxes that must be paid to maintain its REIT status for federal tax purposes.
In connection with the Acquisition, (1) with respect to each Real Estate Asset (other than the Real Property Asset owned by usUptown Tower), Whitestone TRS, Inc. (“Whitestone TRS”), a subsidiary of Whitestone, entered into a Management Agreement with the Entity that owns such Real Estate Asset and received(2) with respect to Uptown Tower, Whitestone TRS entered into a Management Agreement with the Operating Partnership (collectively, the “Management Agreements”). Pursuant to the Management Agreements with respect to each Real Estate Asset (other than Uptown Tower), Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to such Real Estate Asset in exchange for (x) a monthly property management fee equal to 5.0% of the monthly revenues of such Real Estate Asset and (y) a monthly asset management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the respective Real Estate Asset based upon the purchase price allocations determined pursuant to the Contribution Agreement, excluding all indebtedness, liabilities, or claims of any nature) of such Real Estate Asset. Pursuant to the Management Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-day advisory and administrative services to the Operating Partnership in exchange for this service.(x) a monthly property management fee equal to 3.0% of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.
Mr. Mastandrea, our Chairman and CEO, also serves as the Chairman and Chief Executive Officer of Whitestone. Mr. Dee, our Senior Vice President, Secretary and Chief Financial Officer, also serves as the Chief Operating Officer and Corporate Secretary of Whitestone. In addition, Messrs. Carter and Lambert, two of our trustees, also serve as trustees of Whitestone. The terms of the Contribution Agreement, the OP Unit Purchase Agreement, the Tax Protection Agreement, the Management fees paidAgreements, and the Acquisition were determined through arm’s-length negotiations. The transactions contemplated by the Contribution Agreement, the OP Unit Purchase Agreement, the Tax Protection Agreement and the Management Agreements, including the Acquisition, were recommended by a special committee of the Board, consisting solely of disinterested trustees, and approved by the full Board.
For more information about the Acquisition, please see the Company’s Current Report on Form 8-K filed with the SEC on December 13, 2016.
Issuance of Convertible Notes to Hoyt PropertiesTrustees In November 2015, five Trustees of Pillarstone Capital loaned funds to Pillarstone Capital, each pursuant to a Convertible Note Purchase Agreement (the “Agreement”). Each trustee loaned the following face amounts that accrue interest at 10% per annum, which can be converted into common shares of Pillarstone Capital as of March 31, 2017, as follows: | | | | | | | | | | | | | | | | Trustee | | Face Amount | Accrued Interest | Total Face Amount and Accrued Interest | | Convertible into Common Shares | | Daryl J. Carter | | $ | 28,888 |
| $ | 3,941 |
| $ | 32,829 |
| | 24,665 |
| | Daniel G. DeVos | | $ | 47,780 |
| $ | 6,519 |
| $ | 54,299 |
| | 40,795 |
| | Paul T. Lambert | | $ | 51,112 |
| $ | 6,974 |
| $ | 58,086 |
| | 43,640 |
| | James C. Mastandrea | | $ | 52,224 |
| $ | 7,125 |
| $ | 59,349 |
| | 44,590 |
| | John J. Dee | | $ | 17,776 |
| $ | 2,425 |
| $ | 20,201 |
| | 15,177 |
| | Totals | | $ | 197,780 |
| $ | 26,984 |
| $ | 224,764 |
| | 168,867 |
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The convertible notes were $0issued effective November 20, 2015 and have a maturity date of three years.
The convertible notes can be called by Pillarstone Capital after six months, at which time the noteholder can choose to receive either the amount of the note plus any accrued but unpaid interest or the number of common shares determined by dividing the amount of the note plus any accrued but unpaid interest by the conversion price of $1.331. The noteholder has the option at any time to convert the note plus any accrued but unpaid interest into common shares based on the conversion price of $1.331.
ANNUAL REPORT ON FORM 10-K The Company will send, without charge, a copy of its Annual Report on Form 10-K for the fiscal year ended December 31, 20042016, including the financial statements and approximately $49,000 for the year ended December 31, 2003. On October 1, 2003, we sold our four commercial properties managed by Hoyt Properties. As a result, these management fees are included in discontinued operations.James C. Mastandrea, our Chairman of the Board, Chief Executive Officer and President, is the general partner of Hampton Court Associates and owns two companies which provide services to Richton Trail. Mid Illinois Realty Corp. manages Richton Trail and MDC Realty Corp. is reimbursed, at cost, for Richton Trial’s payroll related costs. The related property management fees included in years ended December 31, 2004 and 2003 were approximately $28,000 and $13,000, respectively. Reimbursement, at cost, for the payroll related costs paid and accrued for the years ended December 31, 2004 and 2003 were approximately $59,300 and $30,700, respectively. As Paragon acquires more properties, we intend to use local third party management companies until we are able to provide management services ourselves.
Leasing Commissions
During the year ended December 31, 2003, we paid a leasing commission of approximately $18,000 to Hoyt Properties in connection with two new leases for a total of approximately 21,000 square feet. On October 1, 2003 we sold our four commercial properties managed by Hoyt Properties. As a result, these leasing commissions, net of accumulated amortization are included in discontinued operations.
Rental Expense
During the year ended December 31, 2003, we recognized rental expense of approximately $8,000 related to office space leased from Hoyt Properties.
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Shareholder Proposals and Communications
A shareholder intending to present a proposal to be included in our proxyfinancial statement for our 2006 annual meeting of shareholders must deliver a proposal, in accordanceschedules, as filed with the requirements of our bylawsSEC, to any person whose proxy is being solicited, upon written request to John J. Dee, Senior Vice President and Rule 14a-8 of the Exchange Act, to our Chief Financial Officer, at 1240 HuronPillarstone Capital REIT, 2600 South Gessner Road, Suite 301, Cleveland, Ohio 44115555, Houston, Texas 77063.
DELIVERY OF PROXY MATERIALS TO SHAREHOLDERS SHARING AN ADDRESS
To reduce the expenses of delivering duplicate proxy materials, we may take advantage of the SEC’s “householding” rules that permit us to deliver only one set of proxy materials to shareholders who share an address, unless otherwise requested. If you share an address with another shareholder and have received only one set of proxy materials, you may request a separate copy of these materials at no later than December 19, 2005. Such notice must set forth ascost to each matter the shareholder proposes to bring before the meeting | • | a brief description of the business desired to be brought before the meetingyou by contacting us at Pillarstone Capital REIT, Attn.: John J. Dee, Senior Vice President and the reasons for conducting such business at the meeting, | | | • | the name and record address of the shareholder proposing such business, | | | • | the class and number of our shares that are beneficially owned by the shareholder, and | | | • | any material interest of the shareholder in such business. |
Paragon’s Board of Trustees also provides a process for our shareholders to send communications to the Board. Shareholders may mail any communications to our Chief Financial Officer, at 1240 Huron2600 South Gessner Road, Suite 301, Cleveland, Ohio 44115. The Chief Financial Officer will review all communications555, Houston, Texas 77063. For future annual meetings, you may request separate voting materials, or request that we send only one set of proxy materials to you if you are receiving multiple copies, by calling or writing to us at the phone number and forwardaddress given above.
WHERE YOU CAN FIND MORE INFORMATION You may read and copy any reports, statements or other information that we file with the SEC directly from the SEC. You may either: Read and copy any materials we have filed with the SEC at the SEC’s Public Reference Room maintained at 100 F Street, N.E., Washington, D.C. 20549; or
Visit the SEC’s website at www.sec.gov, which contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC.
OTHER BUSINESS
Management does not intend to bring any business before the Board of Trustees all communicationsAnnual Meeting other than solicitations for products or services or trivial or obscene items. Mail addressedthe matters referred to a particular trustee or committee ofin the Board will be forwarded to that trustee or committee. All other communications will be forwarded to the Chairman for the review of the entire Board.Other Matters
Our Board of Trustees isaccompanying notice and at this date has not awarebeen informed of any other matters tothat may be submitted topresented at the annual meeting.Annual Meeting by others. If, however, any other matters properly come before the annual meeting,Annual Meeting, it is the intention ofintended that the persons named in the accompanying proxy towill vote, the shares they represent as the Board of Trustees may recommend.
You are urged to sign and return your proxy card promptly to make certain your shares will be voted at the annual meeting. For your convenience, a return envelope is enclosed requiring no additional postage if mailed in the United States.
By Order of the Board of Trustees,
James C. Mastandrea
Chairman of the Board,
Chief Executive Officer and President
April 18, 2005
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Annex A
FORM OF
ARTICLES OF AMENDMENT
OF
DECLARATION OF TRUST
OF
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
Paragon Real Estate Equity and Investment Trust, a Maryland real estate investment trust (the “Trust”), hereby certifiespursuant to the State Department of Assessments and Taxation of Maryland:
FIRST:The Board of Trustees of the Trust, byproxy, in accordance with their unanimous written consent, duly adopted resolutions setting forth the proposed amendments of the Declaration of Trust of the Trust, as amended, restated and supplemented (the “Declaration of Trust”), declaring said amendment to be advisable and stating that said amendment be submitted to the shareholders of the Trust for their consideration at the Trust’s 2005 annual meeting of shareholders (the “Annual Meeting”). The resolution setting forth the proposed amendment is as follows:
“RESOLVED, that the Trust’s Declaration of Trust, as amended, restated and supplemented (the “Declaration of Trust”), be amended to effect a [20, or 30, or 50, or 75] to one reverse share split of the common shares of beneficial interest of the Trust by adding the following Section 5.10:
“Section 5.10Reverse Share Split of Common Shares. Each outstanding Common Share as of, 200___ (the “Effective Date”) shall be exchanged for [1/20th, or 1/30th, or 1/50th, or 1/75th] of a Common Share. Each certificate that prior to the Effective Date represented Common Shares shall then represent the number of Common Shares into whichbest judgment on such Common Shares are split hereby; provided, however, that each person holding of record a share certificate or certificates that prior to the Effective Date represented Common Shares shall receive, upon surrender of each such certificate or certificates, a new certificate or certificates representing the number of Common Shares to which such person is entitled. No new certificates representing fractional Common Shares will be issued. Instead, the Trust will pay the fair value, as determined in the good faith judgment of the Board of Trustees of the Trust, for Common Shares that would otherwise be converted into fractional Common Shares as a result of the reverse share split.”
SECOND: The Trust delivered notice of the Annual Meeting to all shareholders of the Trust as of the April 5, 2005 record date stating that the purpose of the meeting included consideration and approval of the proposed amendment; and
THIRD: Thereafter, said amendment of the Declaration of Trust was duly approved at the Annual Meeting by the vote required by Section 8-501 of the Corporations and Associations Article of the Maryland Code.
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IN WITNESS WHEREOF,the Trust has caused these Articles of Amendment to be signed by its duly elected officer as of the ___ day of, 200___.
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
31
(FRONT)
| | | | | | | | | | PROXY | | PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST | | PROXY | | | | | |
ANNUAL MEETING OF SHAREHOLDERS, FRIDAY, JUNE 3, 2005
1375 East Ninth Street, 20th Floor, One Cleveland Center, Cleveland, Ohio 44114
2:00p.m. local time
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints James C. Mastandrea and John J. Dee, or either one of them acting singly with full power of substitution, the proxy or proxies of the undersigned to attend the Annual Meeting of the Shareholders of Paragon Real Estate Equity and Investment Trust to be held on Friday, June 3, 2005, at 1375 East Ninth Street, 20th Floor, Cleveland, Ohio 44114, beginning at 2:00 p.m. local time, and any adjournments, and to vote all shares that the undersigned would be entitled to vote if personally present in the manner indicated below, and on any other matters properly brought before the annual meeting or any adjournments thereof, all as set forth in the April 18, 2005 Proxy Statement. The undersigned hereby acknowledges receipt of the Proxy Statement and Annual Report of Paragon Real Estate Equity and Investment Trust.
Unless otherwise marked, this proxy will be voted FOR all nominees and FOR the proposal, and in the discretion of the proxies on all other matters properly brought before the meeting.
(continued and to be signed on the reverse side)
(BACK)
The Board of Trustees recommends that you vote “for” all nominees and “for” the proposal.
Please sign, date and return promptly in the enclosed envelope. Please mark your vote in blue or black ink as shown herex
| | | 1.
| | Election of Daryl J. Carter and Michael T. Oliver as Trustees | | | FORo AGAINSTo | | | FOR, EXCEPT WITHHELD FROM THE FOLLOWING NOMINEE(S)o |
| | | | | |
| | | 2.
| | To authorize the Board of Trustees, in its discretion, to amend Paragon’s Declaration of Trust to effect a reverse share split of our issued and outstanding common shares without further approval or authorization of our shareholders | | | FORo AGAINSTo ABSTAINo |
This proxy may be revoked at any time prior to the voting hereof.
Signature
Signature if held jointlymatters.
28 Mark here if you plan to attend the meeting:o
| | Note: | Please sign exactly as your name or names appear on this proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |
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