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EXHIBIT 10.5
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Option Agreement") is made and
entered into on and as of the 17th day of December, 1998, but effective for all
purposes at the "Effective Date" (defined below) between TARRAGON REALTY
INVESTORS, INC., a Nevada corporation ("TRII"), which has its principal
executive offices located at 0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxx
00000 and XXXXXXX X. XXXXXXXX, an individual (herein called "Grantee") whose
office address is 000 Xxxx Xxxxxx, Xxxx Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000.
W I T N E S S E T H:
WHEREAS TRII and National Income Realty Trust are parties to that
certain Agreement and Plan of Merger dated June 5, 1998 (the "Merger Agreement")
which provides, subject to shareholder approval of each entity, for the
incorporation of NIRT, as a California corporation and the merger of that
California corporation, with and into TRII with TRII as the surviving entity;
WHEREAS, TRII, Tarragon Realty Advisors, Inc., a New York corporation
("TRA"), Grantee and Xxxx Xxxxxxxx are parties to that certain Stock Purchase
Agreement dated June 5, 1998 (the "Advisor Acquisition Agreement");
WHEREAS, the Merger Agreement has been approved by the respective
shareholders of TRII and NIRT, all conditions precedent in the Merger Agreement
have been satisfied, NIRT has been incorporated in the State of California under
the name National Income Realty Corporation and the Articles of Merger to
evidence the completion of the merger of NIRT have been filed with the Secretary
of State of Nevada, all of which is a condition precedent to the consummation of
the Advisor Acquisition Agreement;
WHEREAS, entry into an Employment Agreement between TRII and Grantee on
terms mutually agreeable to TRII and the Grantee (the "Employment Agreement") is
part of the consideration under, and a condition of, the Advisor Acquisition
Agreement;
WHEREAS, pursuant to such Employment Agreement, the entry into this
Option Agreement between TRII and Grantee in a form mutually acceptable is a
part of the consideration under the Advisor Acquisition Agreement;
WHEREAS, TRII and the Grantee desire to enter into this Option
Agreement in consideration of the Employment Agreement and the Advisor
Acquisition Agreement, all under the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises and covenants contained herein, and other good and valuable
consideration, the receipt, sufficiency and adequacy of which is hereby
acknowledged, including the consummation and closing of the Advisor Acquisition
Agreement, the parties hereto do hereby agree as follows:
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1. Adoption of Recitals. The parties hereto do hereby adopt and confirm
the foregoing recitals in the same manner as if fully re-copied herein for all
purposes.
2. Effective Date. The "Effective Date" of this Option Agreement is
November 24, 1998, which is the date of closing of the Advisor Acquisition
Agreement and the Effective Date of execution of the Employment Agreement.
3. Grant of Stock Options. Subject to the terms and conditions
contained herein, TRII hereby grants to Grantee separate options to purchase, a
total of 450,000 shares of TRII Common Stock, par value $0.01 per share (all
collectively the "Option Shares" and each an "Option Share") at an exercise
price of (i) $12.00 per share covering 250,000 shares, and (ii) $15.00 per share
covering 200,000 shares (each such price per share the "Applicable Purchase
Price"). There shall not be any requirement of this Option Agreement that
Grantee purchase any Option Share in any order and Grantee shall be free to
select and exercise this Option Agreement in portions in such manner as Grantee
deems appropriate which may consist of the lowest Applicable Purchase Price
first or last or in any combination desired by Grantee.
4. Period of Option. The "Option Period" shall be and mean the period
commencing on the date hereof and ending at 3:00 o'clock p.m. local Dallas,
Texas time on December 31, 2008 (the "Termination Time") and any portion of the
Option Shares unexercised after such Termination Time shall expire.
5. Exercise and Payment of Applicable Purchase Price. Grantee may
exercise his rights hereunder to purchase Option Shares as to the whole or any
part of the Option Shares (but not as to a fractional share of TRII Common
Stock) (a) by completing the Subscription Form, a copy of which is attached
hereto and made a part hereof (which written notice and subscription shall [i]
state the election to exercise the right and option to purchase and the number
of Option Shares and Applicable Purchase Price to which it is being exercised
and [ii] be signed by the person so exercising) and delivering such Subscription
Form to the Secretary of TRII; (b) by delivery to TRII of an investment letter
satisfactory to counsel for TRII which will restate the representations set
forth in paragraph 6 hereof; and (c) upon payment to TRII of the Applicable
Purchase Price for such portion of the Option Shares so purchased in cash or by
personal check or, at the option of Grantee, in TRII Common Stock theretofore
owned by Grantee (or by a combination of any of the foregoing). For purposes of
determining the amount if any, of the Applicable Purchase Price satisfied by
payment in shares of TRII Common Stock, such TRII Common Stock theretofore owned
shall be valued at its "Fair Market Value" on the date of exercise. For purposes
of this Option Agreement, the term "Fair Market Value" of a share of TRII Common
Stock on a particular date shall be the closing price of TRII Common Stock on
the business day immediately preceding such date, which closing price all be (i)
if the TRII Common Stock is listed or admitted for trading on any United States
National Securities Exchange, the last reported sale price of TRII Common Stock
on such
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exchange as reported in any newspaper of general circulation, (ii) if the TRII
Common Stock is quoted on the National Association of Securities Dealers, Inc.
automated quotation system ("NASDAQ") or any similar system of automated
assimilation of quotations of securities prices and common use, the mean between
the closing high bid and low asked quotations for such day of the TRII Common
Stock on such system or (iii) if neither clause (i) nor (ii) is applicable, a
value determined by any fair and reasonable means prescribed by the Board of
Directors of the Company. Any TRII Common Stock delivered in satisfaction of all
or a portion of the exercise price shall be appropriately endorsed for transfer
and assignment to TRII.
6. Securities Laws. At the time of any exercise of this Option
Agreement and purchase of any Option Shares, the Board of Directors of TRII
shall, as a condition precedent to the exercise hereof, require from the Grantee
(or in the event of Grantee's death, Grantee's legal representatives, legatees
or distributees) such written representations concerning Grantee's (or their)
intentions concerning retention or disposition of the shares of TRII Common
Stock being acquired by exercise under this Option Agreement and/or such written
covenants and agreements as to the manner of disposal of such shares as, in the
opinion of the Board of Directors of TRII, shall be necessary to ensure that any
disposition by such holder, legal representatives, legatees or distributees will
not involve a violation of the Securities Act of 1933, as amended or any similar
or superseding statute or statutes, or any other applicable statute or
regulation, as then in effect and TRII shall not be obligated to issue any
shares subject to this Option Agreement if such issuance would be in violation
of any statute, law, rule or regulation whether federal or state. In addition,
as a condition of any issuance of any stock certificate for Option Shares upon
exercise, the Board of Directors may obtain such agreements or undertakings, if
any, as it may deem reasonably necessary or advisable to assure compliance with
any provisions of this Option Agreement or any law or regulation including, but
not limited to, any of the following:
(a) a representation and warranty by the Grantee to TRII at
the time of exercise, that Grantee is acquiring the Option Shares to be
issued to him for investment and not with a view to , or for sale in
connection with the distribution of any such shares;
(b) a representation, warranty or agreement to be bound by any
legends that are, in the opinion of the Board of Directors, necessary
or appropriate to comply with the provisions of any securities law
deemed by the Board of Directors to be applicable to the issuance of
Option Shares and are endorsed upon the certificates representing such
shares.
7. Adjustment of Number of Shares. The Option Shares covered by this
Option Agreement are shares of the Common Stock of TRII, par value $0.01 per
share as presently constituted but, if, and whenever, prior to delivery by TRII
of any of the
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certificates representing Option Shares which are covered by this Option
Agreement, TRII shall effect a subdivision or consolidation of shares or any
other capital readjustment, the payment of a stock dividend or other increase or
reduction of the number of shares of TRII Common Stock outstanding without
receiving compensation therefore in money, services or property, the number of
shares of TRII Common Stock then remaining subject to this Option Agreement as
Option Shares hereunder shall (a) in the event of an increase of the number of
outstanding shares, be proportionately increased and the cash consideration
payable as the Applicable Purchase Price per Option Share shall be
proportionately reduced if appropriate, and (b) in the event of a reduction in
the number of outstanding shares, be proportionately reduced and the Applicable
Purchase Price consideration payable per Option Share shall be proportionately
increased, if appropriate.
8. Merger and/or Consolidation. Upon the merger of one or more entities
into TRII or upon a consolidation of TRII and one or more entities in which TRII
shall be the surviving entity, thereafter, upon any exercise under this Option
Agreement to purchase Option Shares, the Grantee shall, at no additional cost,
be entitled to receive in lieu of the number of shares of TRII Common Stock as
to which this Option Agreement shall then be so exercisable, the number and
class of shares of stock or other securities to which the Grantee would have
been entitled pursuant to the terms of any such agreement of merger or
consolidation if, immediately prior to such merger or consolidation, the Grantee
had been the holder of record of a number of shares of TRII Common Stock equal
to the number of Option Shares as to which this Option Agreement remains to be
so exercise provided, that anything contained herein to the contrary
notwithstanding,
(i) upon the dissolution or liquidation of TRII, or
(ii) upon any merger or consolidation where TRII is not
the surviving entity, or
(iii) if a sale of all or substantially all of the assets of TRII
occurs and it is contemplated that within a reasonable
period of time thereafter TRII will either be liquidated or
converted into a nonoperating entity or an extraordinary
dividend will be declared resulting in partial liquidation
of TRII, or
(iv) a merger or consolidation (other than a merger
effecting only a reincorporation of the entity in
another state or any other merger or consolidation in
which the equity owners of the surviving entity and
their proportionate interests therein immediately
thereafter the merger or consolidation are
substantially identical to the stockholders of TRII
and their proportionate interest therein immediately
prior to the merger or consolidation) in which TRII
is not the surviving entity (or survives only as a
subsidiary of another entity in a transaction in
which the stockholders of the parent of TRII and
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their proportionate interest therein immediate after the
transaction not substantially identical to the stock holders
of TRII and their proportionate interest therein immediately
prior to the transaction), or
(v) if a transaction occurs in which another entity becomes the
owner of 50% or more of the total combined voting power of
all classes of equity securities of TRII,
then, in any of such events, the Grantee shall be entitled to receive, upon
notice of exercise, in lieu of the number of Option Shares as to which this
Option Agreement remains unexercised, the number and class of shares of stock or
other securities, or the amount of cash, property or assets of the surviving or
resulting entity to which Grantee would have been entitled pursuant to the terms
of the agreement of merger or consolidation or dissolution or liquidation or
other transaction if immediately prior to such event the Grantee had been the
holder of record of the number of Option Shares then unexercised and there shall
be no further requirement that the Grantee upon exercise pay any sums of money
above the Applicable Purchase Price then in effect, if any, under this Option
Agreement.
9. No Affect on Capital Structure. The Option Shares covered by this
Option Agreement shall not affect the right of TRII or any of its subsidiaries
to reclassify, recapitalize or otherwise change their respective capital or debt
structure or to merge, consolidate, convey any or all of their respective
assets, dissolve, liquidate, windup, or otherwise reorganize.
10. Further Adjustments. Except as expressly provided in this Option
Agreement, the issuance by TRII of shares of stock of any class or any
securities convertible into shares of any class for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights,
warrants to subscribe therefore or upon conversion of shares or obligations of
TRII convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of Option
Shares subject to this Option Agreement.
11. Rights of Grantee. The Grantee shall not be deemed for any purpose
to be a stockholder of TRII with respect to any of the Option Shares, except to
the extent that an exercise shall have occurred under this Option Agreement with
respect to Option Shares. Except as provided in this Option Agreement, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date a stock certificate is issued to Grantee pursuant to an
exercise for Option Shares. The existence of this Option Agreement shall not
affect in any way the right or power of TRII or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in TRII's capital structure or its business or any merger or
consolidation of TRII or any issue of bonds, debentures, preferred or prior
preference securities ahead of or affecting the Option Shares or the rights
thereof or
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the dissolution or liquidation of TRII or any sale or transfer of all or any
part of its assets or business, or any other act or proceeding, whether of a
similar character or otherwise.
12. Limitation on Transferability. This Option Agreement is not
transferable by Grantee other than to a trust for the benefit of the immediate
family members of Grantee or a charitable organization, by will or the laws of
descent and distribution, and this Option Agreement may be exercised during the
lifetime of Grantee only by Grantee or, if Grantee is legally incapacitated, by
his guardian or legal representative, regardless of any community property
interest therein of Grantee's spouse or such spouse's successors-in-interest. In
the event of Grantee's death, the Option Shares shall be exercisable by
Grantee's executor, heirs or other legal representative under the same terms and
conditions of this Option Agreement. Except as stated above, this Option
Agreement and all rights granted hereunder shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to execution, attachment or similar process. Any
attempt to transfer, assign, pledge or hypothecate, or otherwise dispose of this
Option Agreement or such rights contrary to the provisions of this Option
Agreement, or upon levy or any attachment or similar process upon such Option
Agreement or such rights, such purported transfer shall become null, void and of
no force or effect. Notwithstanding any other provision of this Option Agreement
or the occurrence of any other event, including the death of Grantee, the Option
Period shall continue until the Termination Time and shall not be subject to
earlier termination by reason of any particular event. If Grantee dies during
the Option Period, the person or persons to whom his rights under this Option
Agreement shall pass, whether by will or by the applicable laws of descent and
distribution, may have and possess and exercise all rights under this Option
Agreement to the extent the Grantee was entitled to so exercise it on the date
of this death, for the balance of the Option Period.
13. Notices. Any notice or other communication required or permitted to
be given by this Option Agreement or any other document or instrument referred
to herein or executed in connection herewith must be given in writing (which may
be by telecopy, followed by mail or personal delivery) and must be personally
delivered or mail by prepaid, certified or registered mail, to the party to whom
such notice or communication is directed, at the address of such party set forth
opposite his or its name on the signature page to this Option Agreement. Subject
to the other provisions of this Option Agreement, any party may change its
address (or redesignate the person to whom such notice shall be delivered) for
purposes of this Option Agreement by giving notice of such change to the other
party pursuant to this provision. In all instances, any notice or other
communication required or permitted to be given by this Option Agreement shall
only be effective upon actual receipt thereof by the person intended to receive
same.
14. Modification or Waiver. This Option Agreement may be
amended, modified or superseded and any of the terms, covenants,
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representations, warranties or conditions herein may be waived, but only by a
written instrument executed by the parties hereto. No waiver of any nature, in
any one or more instances, shall be deemed to be or be construed as a further or
continued waiver of any condition or any breach of any other term, covenant,
representation or warranty in this Option Agreement. This Option Agreement and
each provision hereof may not waived, altered, amended or modified, except in
writing, duly executed by the parties hereto. Failure to exercise and no delay
in exercising any right or power hereunder shall operate as a waiver thereof.
15. Benefits. This Option Agreement shall inure to the benefit of and
be binding upon the Grantee, his heirs and personal representatives and TRII and
its successors and assigns. Subject to the limitations on transferability
contained in Section 12 hereof, no assignment or transfer of this Option
Agreement, whether voluntary or involuntary, by operation of law (including of
descent or distribution) shall vest in the assignee or transferee any interest
or right whatsoever in this Option Agreement.
16. Further Cooperation. To the extent that either TRII's or Grantee's
further approval or other action is deemed necessary or desirable by the other
party in order to effectuate the terms and conditions of this Option Agreement
and the matters set forth herein, the parties hereby agree to execute all
reasonable documents and take all action reasonably requested by the other party
to effectuate the terms and conditions of this Option Agreement.
17. Governing Law and Enforcement. This Option Agreement shall be
construed, enforced in accordance with and governed by the laws of the State of
Texas, the state in which it was negotiated, executed and delivered, without
regard to any principles of law involving conflicts of laws. Should any clause,
sentence, section or paragraph of this Option Agreement be judicially or
administratively declared to be invalid, unenforceable or void under the laws of
the State of Texas or the United States of America, or any agency or subdivision
thereof, such decision shall not have the effect of invalidating or voiding the
remainder of this Option Agreement and the parties hereto agree that the part or
parts of this Option Agreement so held to be invalid, unenforceable or void
shall be deemed to have been deleted herefrom and the remainder shall have the
same force and effect as if such part or parts had never been included herein.
In the event any party hereto shall fail or perform any of its obligations under
this Option Agreement, such party hereby agrees to pay all reasonable expenses,
including reasonable attorneys' fees, which may be incurred by any party hereto
which is successful in enforcing this Option Agreement.
18. Captions. The headings or captions of this Option Agreement have
been included for ease of reference only and are not to be considered in the
construction or interpretation of this Option Agreement or any clause contained
herein.
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19. Entire Agreement; Counterparts. This Option Agreement and the
agreements and documents referred to herein constitute the entire agreement
between the parties hereto concerning the subject matter hereof, and supersedes
all prior memoranda, correspondence, conversations and agreements. This Option
Agreement may be executed in several identical counterparts, and together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement
as of the date and year first above written.
Address for Notices
0000 Xxxxxxxxxx Xxxxxx XXXXXXXX REALTY INVESTORS,
Suite 200 INC.
Xxxxxx, Xxxxx 00000
(000) 000-0000
(000) 000-0000 (fax) By: /s/ Xxxxxxx Xxxxxxxxx
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Xxxxxxx Xxxxxxxxx,
Executive Vice
President, Corporate
Counsel and Secretary
000 Xxxx Xxxxxx GRANTEE:
Xxxx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
(000) 000-0000 (fax) /s/ Xxxxxxx X. Xxxxxxxx
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Xxxxxxx X. Xxxxxxxx
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SUBSCRIPTION FORM
TO: , Secretary Dated:
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Tarragon Realty Investors, Inc.
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The undersigned hereby irrevocably elects to exercise the right to
purchase _________ shares of Common Stock, par value $0.01 per share, of
Tarragon Realty Investors, Inc., or its successors evidenced by that certain
Stock Option Agreement dated ________ ___, 1998 between Tarragon Realty
Investors, Inc. and Xxxxxxx X. Xxxxxxxx (the "Option Agreement") and hereby
makes payment of $_________________ in payment of the "Applicable Purchase
Price" for such number of "Option Shares" designated above, calculated on the
basis of
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INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
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(Please typewrite or print in block letters)
Address:
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Signature:
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