ý
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Preliminary
Proxy Statement
|
¨
|
Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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¨
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Definitive
Proxy Statement
|
¨
|
Definitive
Additional Materials
|
¨
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Soliciting
Material Pursuant to § 240.14a-12
|
Hartman
Commercial Properties REIT
|
(Name
of Registrant as Specified In Its Charter)
|
|
Allen
R. Hartman
|
Hartman
Management, L.P.
|
(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
|
ý
|
No
fee required.
|
¨
|
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|
||
|
|
(1)
|
Title
of each class of securities to which transaction applies:
|
|
(2)
|
Aggregate
number of securities to which transaction applies:
|
|
(3)
|
Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is
calculated and state how it was determined):
|
(4)
|
Proposed
maximum aggregate value of transaction:
|
|
(5)
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Total
fee paid:
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¨
|
Fee
paid previously with preliminary materials.
|
(1)
|
Amount
Previously Paid:
|
|
(2)
|
Form,
Schedule or Registration Statement No.:
|
(3)
|
Filing
Party:
|
|
(4)
|
Date
Filed:
|
· |
the
removal without cause of James C. Mastandrea, Chand Vyas, Jack
L.
Mahaffey, and Chris A. Minton from the Company's Board of Trustees
and any
other person or persons (other than the persons elected pursuant
to this
proposed action by written consent) elected or appointed to
the Board of
the Company prior to the effective date of these Proposals
to fill any
newly-created directorship or vacancy on the Board;
and
|
· |
the
appointment of Allen R. Hartman, Larry Bouffard, Lynch Butler,
Devinder N.
Mahajan , John G. Ostroot, and William M. Ramsey, to serve as members
of the Board to fill four of the newly-created vacancies and
two existing
vacancies on Board (the
"Nominees");
|
Thank
you for your support,
Allen
R. Hartman
Hartman
Management, L.P.
|
1. |
If
you hold your shares in your own name, please mark, sign, date
and mail
the enclosed WHITE consent card to D.F. King & Co., Inc in the
postage-paid envelope provided.
|
2. |
If
your shares are held in the name of a brokerage firm, bank nominees
or
other institution, only it can execute a consent representing
your shares
and only on receipt of your specific instructions. Accordingly,
you should
contact the person responsible for your account and give instructions
for
a WHITE consent card to be signed representing your shares. We
urge you to
confirm in writing your instructions to the person responsible
for your
account and provide a copy of those instructions to us in care
of D.F.
King & Co., Inc so that we will be aware of all instructions given and
can attempt to ensure that those instructions are
followed.
|
·
|
the
removal without cause of James C. Mastandrea, Chand Vyas, Jack L.
Mahaffey, and Chris A. Minton from the Company's Board of Trustees
and any
other person or persons (other than the persons elected pursuant
to this
proposed action by written consent) elected or appointed to the Board
of
the Company prior to the effective date of these Proposals to fill
any
newly-created directorship or vacancy on the
Board;
|
·
|
the
appointment of Allen R. Hartman, Larry A. Bouffard, Lynch Butler,
Devinder
N. Mahajan , John G. Ostroot, and William M. Ramsey, to serve as
a member
of the Board to fill four of the newly-created vacancies and two
existing
vacancies on Board (the
"Nominees");
|
QUESTIONS
AND ANSWERS ABOUT THIS CONSENT SOLICITATION
|
4
|
INFORMATION
CONCERNING ALLEN R. HARTMAN AND HARTMAN MANAGEMENT, L.P. AND THE
NOMINEES
|
4
|
ADDITIONAL
INFORMATION
|
12
|
PROPOSAL
NO. 1: REMOVAL OF JAMES C. MASTANDREA, CHAND VYAS, JACK L. MAHAFFEY,
AND
CHRIS A. MINTON FROM THE COMPANY'S BOARD OF TRUSTEES
|
13
|
PROPOSAL
NO. 2: ELECTION OF NOMINEES
|
13
|
VOTING
SECURITIES
|
15
|
APPRAISAL
RIGHTS
|
16
|
SOLICITATION
OF CONSENTS
|
16
|
CONSENT
PROCEDURE
|
16
|
REVOCATION
PROCEDURE
|
18
|
SPECIAL
INSTRUCTIONS
|
18
|
Q: |
WHO
IS MAKING THE SOLICITATION?
|
A:
|
In
addition to the Nominees (who are Allen R. Hartman, Larry Bouffard,
Lynch
Butler, Devinder N. Mahajan , John G. Ostroot, and William M. Ramsey
the
participants in this consent solicitation (the “Participants")
are Allen R. Hartman and Hartman Management, L.P.
|
Allen
R. Hartman, age 54, founded the Hartman REIT in 1998 and served as
its
president, secretary and chairman of the Board of the Company until
October 2, 2006, when he was removed from his positions as Chief
Executive
Officer, Secretary and Chairman of the Board of Trustees of the Company.
Mr. Hartman is also the sole limited partner of the Company’s former
advisor and property manager, Hartman Management, L.P. (“Hartman
Management”),
as well as the president, secretary, manager and sole member of the
general partner of the Hartman Management. Since 1984, Mr. Hartman,
as an
individual general partner, has been the sponsor of 18 private limited
and
general partnerships that have invested in commercial real estate
in
Houston, San Antonio and Dallas, Texas. Mr. Hartman has over 30 years
of
experience in the commercial real estate
industry.
|
On
August 20, 1998, The Hartman REIT was formed as a real estate investment
trust, pursuant to the Texas Real Estate Investment Trust Act, to
consolidate and expand the real estate investment strategy of Mr.
Hartman
in acquiring and managing retail, office/warehouse and office properties.
In July 2004, The Hartman REIT changed its state of organization
from
Texas to Maryland pursuant to a merger of The Hartman REIT directly
with
and into a Maryland real estate investment trust formed for the sole
purpose of the reorganization and the conversion of each outstanding
common share of beneficial interest of the Texas entity into 1.42857
common shares of beneficial interest of the Maryland entity (now
The
Hartman REIT). The Hartman REIT serves as the general partner of
Hartman
REIT Operating Partnership, L.P. (the “Operating Partnership”), which was
formed on December 31, 1998, as a Delaware limited partnership. The
Hartman REIT currently conducts substantially all of its operations
and
activities through the Operating Partnership.
|
Limited
partners in the Operating Partnership holds limited partnership interests
(“OP Units”). In connection with the reorganization discussed above, OP
Unit holders received 1.42857 OP Units for each OP Unit previously
held.
Distributions to OP Unit holders are paid at the same rate per unit
as
dividends per share of The Hartman REIT. OP Units holders have the
right
to require the Operating Partnership to redeem their OP Units. The
redemption price is based upon the market value of the Shares, based
upon
the closing sales price of the Shares, if traded on a national exchange,
or an appraised value, if not so traded. Before any redemption, The
Hartman REIT may elect to purchase the OP Units for cash or by delivering
Shares at a ratio of one OP Unit for one Share. As of March 31, 2006,
there were 14,793,289 OP Units outstanding, of which The Hartman
REIT and
Mr. Hartman own 8,984,952 and 2,291,859.074 OP Units,
respectively.
|
In
addition to his OP Unit ownership, Mr. Hartman is the single largest
shareholder in the Company, owning beneficially 301,992.926 Shares
(approximately 3.2% of the outstanding Shares). As set forth in the
Company’s Proxy Statement, dated May 1, 2006, filed pursuant to Section
14(A) of the Securities Exchange Act of 1934, Mr. Hartman’s economic
interest in The Hartman REIT is approximately 22% of the outstanding
Shares. Therefore, Mr. Hartman has a substantial congruency of interest
with the other shareholders to maximize the long-term value of the
Shares.
|
Q: |
WHAT
ARE YOU ASKING THAT THE COMMON SHAREHOLDERS CONSENT TO?
|
A:
|
We
are asking you to act by written consent to approve the two Proposals.
Proposal 1 seeks to remove four members of the Board of Trustees
named in
the proposal and Proposal 2 seeks to elect six individuals to fill
the
four vacancies resulting from Proposal 1 and the two existing vacancies
on
the Board. Each of the two Proposals is conditioned upon the approval
by
the common shareholders of the Company of the other Proposal. Thus,
we
will not be seeking the removal of the four persons named above from
the
Company’s current Board of Trustees unless the common shareholders also
approve the appointment of the six
Nominees.
|
Q: |
WHY
ARE YOU SOLICITING COMMON SHAREHOLDERS'
CONSENT?
|
A:
|
We
are soliciting your written consent for three
reasons:
|
·
|
We
believe that the current Board as constituted and the current management
team, with James C. Mastandrea, as Chairman and Chief Executive Officer
(collectively, the “Mastandrea Board”), are not the right trustees to
manage The Hartman REIT;
|
·
|
We
believe that the Mastandrea Board is not pursuing the most effective
plan
to protect and enhance your investment in The Hartman REIT;
and
|
·
|
We
believe that the long-term strategy formulated by the Hartman Parties is
the better alternative to enhance your shareholder
value.
|
Q: |
WHY
DO YOU BELIEVE THE MASTANDREA BOARD IS NOT THE RIGHT LEADERSHIP
TO MANAGE THE HARTMAN REIT?
|
A:
|
The
following examples from Mr. Mastandrea’s business record, among other
things, support our belief:
|
1.
|
The
Eagle Wings Bankruptcy. Eagle’s
Wings Aviation Corporation, an aviation services business, where
Mr.
Mastandrea served as Chief Executive Officer, was forced into receivership
in September 2001 and filed for protection under Chapter 11 of the
federal
bankruptcy laws, in March 2002.
|
2.
|
Mastandrea’s
conflicts of interest by concurrently serving as President & CEO of
two public companies.
The Company’s October 4, 2006 press release provides that “Mr.
Mastandrea also currently
serves as Chief Executive Officer, President and Chairman of the
Board of
Paragon Real Estate Equity and Investment Trust (OTC BB: symbol PRLE.OB)
(“Paragon”).” Paragon is headquartered in Cleveland, Ohio. The Hartman
REIT is headquartered in Houston, Texas. We believe that this situation
gives rise to a number of problems:
|
· |
Can
Mr. Mastandrea effectively serve as the President and CEO of two
public
companies located in distant locations at the same
time?
|
· |
Did
Mr. Mastandrea breach his fiduciary duties of loyalty and care
to the
Paragon shareholders by taking over management of the Hartman REIT
while
he was serving as President and CEO of
Paragon?
|
3. |
Mastandrea
has been compensated to serve as Paragon’s Chairman of the Board, Chief
Executive Officer and President until September 29,
2008.
|
4.
|
The
Withdrawn Paragon Registration Statement.
On
January 27, 2006, under Mr. Mastandrea’s leadership, Paragon issued a
Press Release, headlined “Paragon
Receives Decision from American Stock Exchange.”
This Press Release and SEC filings indicate that Paragon filed a
registration statement (SEC File No. 333-129219) in October 2005
to raise
$100 million in public equity. On January 20, 2006, approximately
three
months later, without selling any securities, Paragon’s registration
statement was withdrawn. Paragon’s failed strategy at being a successful
public company is evidenced in an April 12, 2006 Press release regarding
Messrs. Mastandrea and John J. Dee’s, a fellow director, employment with
Paragon:
|
5.
|
The
Paragon De-listing.
On September 20, 2005, during Mr. Mastandrea’s leadership, Paragon
was notified by the American Stock Exchange (“Amex”) that it was not in
compliance with the continued listing requirements of
Section 1003(a)(iii) of the Amex Company Guide due to shareholders’
equity of less than $6.0 million and losses from continuing
operations and net losses in its five most recent years. On or about
January 27, 2006, Paragon was de-listed from the Amex.
|
6.
|
Paragon’s
Market Value.
Under Mr. Mastandrea’s stewardship, the market value of Paragon’s stock
declined precipitously. From a high of $27.75 during the week of
June 9,
2003, Paragon’s shares have declined to $0.51 on November 21, 2006. The
following graph illustrates the almost (100%) decline of Paragon
stock
price during a period in when the S&P 500 Index increased by over
60%:
|
7.
|
Paragon’s
Losses.
Paragon’s Form 10-QSB, for the quarterly period ended September 30, 2006,
indicates losses of $(341,144) and $(858,999) for the nine month
period
ending September 30, 2006 and 2005,
respectively.
|
8.
|
Paragon
Is Now a Corporate Shell. As
of November 27, 2006, Paragon’s website http://prgreit.com/
described Paragon as an “an
American Stock Exchange-listed real estate company focused on acquiring,
owning and operating multi-family and commercial properties. Headquartered
in Cleveland, Ohio, the company is driven by a value-added business
plan…”
However, Note 3, Going Concern, to Paragon’s Form 10-QSB, for the
quarterly period ended September 30, 2006, indicates
otherwise:
|
9.
|
Disgruntled
First Union Shareholders Ousted Mastandrea.
Mr. Mastandrea was ousted by disgruntled shareholders of First Union
Real
Estate Equity and Mortgage Investments, where the Schedule 14A
Information, which was filed with the Securities and Exchange Commission,
provided :
|
·
|
“EXPENSES
AND SALARIES ARE WAY OUT OF LINE!” First Union “selectively forgets to
mention that the stock price of other REITs has increased, unlike
the
company [i.e. First Union]. Moreover, the Company’s dividend was cut, all
while salaries, benefits and other expenses have gone in the opposite
direction.”
|
·
|
The
dissident shareholders proxy Materials details in a section styled
“Mr.
Mastandrea has Personally Benefitted at the Expense of First Union
Shareholders,”
through significant option grants, restricted stock awards, “golden
parachutes” and Company-paid memberships in several exclusive Cleveland
social clubs.
|
·
|
Mr.
Mastandrea has continued to waste First Union’s “shareholder dollars on a
senseless lawsuit.” In the First Union case, Mr. Mastandrea secretly taped
a conversation between First Union’s lawyer and a third party. Ordering
that the secret tape, a federal magistrate said, that “[i]f
a party behaves unethically or unprofessionally”
it is not entitled to keep the material.
|
B:
|
We
believe that the current Board of Trustees has exposed the REIT to
significant liability. On October 13, 2006 the Management Agreement
was
terminated to be effective November 12, 2006. The Board of Directors
listed “numerous unresolved issues and conflicts of interest” between
Allen R. Hartman, Hartman Management and the Company. However, as
set
forth in the Hartman Parties’ Counterclaim filed in the Litigation, we
believe that Mr. Mastandrea has tortiously interfered with the Hartman
Parties’ contractual relationships, breached existing agreements and
exposed The Hartman REIT to significant legal liability. The Hartman
Parties’counter-claim filed in the Litigation seeks monetary damages for
breach of contract of the Advisory Agreement and the Management Agreement,
tortious interference with prospective relationships and civil conspiracy.
A copy of the Hartman Parties’ Original Counterclaim is available online
at www.hartmanmgmt.com.
|
Q: |
WHY
DO YOU BELIEVE THE HARTMAN TEAM IS THE BETTER
ALTERATIVE?
|
A:
|
Our
belief is based primarily upon the following three
factors:
|
·
|
Our
extensive history of providing consistent cash
returns;
|
·
|
Our
business strategy; and
|
·
|
Our
experience.
|
Q: |
WHAT
IS YOUR HISTORICAL TRACK RECORD?
|
·
|
Number
of Properties:
|
37
|
·
|
Total
Square feet:
|
3,121,033
|
·
|
Number
of Tenants:
|
767
|
·
|
Annual
Revenue:
|
$
32,000,000
|
·
|
Market
Value:
|
$
171,000,000
|
Q: |
WHAT
IS YOUR STRATEGY GOING FORWARD?
|
·
|
Continue
Our Operating Strategy.
We will continue the fundamental strategy of regional Texas focus,
diversification by property type and conservative capital management.
Our
principal objective will remain to invest in high quality properties
in
prime locations, then proactively manage, lease and develop ongoing
capital improvement programs to improve their long-term economic
performance. We remain committed to providing The Hartman REIT
shareholders with consistent cash distributions and increasing their
long-term shareholder value through assembling a diversified portfolio
of
quality properties.
|
·
|
Roll-up
Hartman Management into the Hartman REIT as a self-managed,
self-administered REIT with our new, fully integrated management
team.
We
intend to engage a qualified investment bank to assist in the roll-up
of
Hartman Management with The Hartman REIT. We intend to form a Special
Committee of the Board of Directors to obtain fairness opinions and
guidance from its own independent legal and financial advisors to
facilitate this process.
|
·
|
As
The Hartman’s REIT’s Single Largest Shareholder, Allen Hartman Has The
Most To Gain From A Strategy That Maximizes Long-Term Shareholder
Value
And Not Waste Corporate Assets. Allen
Hartman owns a beneficially 301,992.926 shares (approximately 3.2%
of
outstanding Shares) and through the Operating Partnership a potential
22%
interest, assuming that only Mr. Hartman’s OP Units are purchased and paid
for shares with Shares. As such, Mr. Hartman has a substantial congruency
of interest with the other shareholders.
|
Q: |
WHO
ARE THE HARTMAN NOMINEES?
|
A:
|
The
principal occupation and business experience of Allen R. Hartman,
Larry
Bouffard, Lynch Butler, Devinder N. Mahajan , John G. Ostroot, and
William
M. Ramsey are set forth under the section entitled "Proposal
No. 2 Election of Nominees,"
which we urge you to read.
|
Q: |
WHO
CAN ACT BY WRITTEN CONSENT ON THE
PROPOSALS?
|
A:
|
Common
shareholders on the "record date" for the solicitation are entitled
to act
by written consent on the Proposals. If the Board of Trustees of
the
Company sets a record date for common shareholders only common
shareholders as of that date are eligible to give written consent.
Such
date may be the date of the resolution fixing the record date but
may not
be more then ten days after such resolution. If no record date is
fixed by
the Board, the date for determining common shareholders entitled
to
consent shall be the first date on which a signed written consent
is
delivered to the Company, please see "Consent
Procedure"
on page 16.
|
Q: |
WHEN
IS THE DEADLINE FOR SUBMITTING
CONSENTS?
|
A:
|
We
urge you to sign, date and return your consent card as soon as possible
so
that the four directors we are seeking to remove are removed and
our
Nominees can be seated on the Board. In order for our Proposals to
be
adopted, the Company must receive written unrevoked consents signed
by a
sufficient number of common shareholders to adopt the Proposals within
60
calendar days of the date of the earliest dated consent delivered
to the
Company. Because the Proposals will become effective upon our delivery
to
The Hartman REIT of valid and unrevoked consent cards totaling more
than
50% of the outstanding Shares as of the record date, and because
this may
occur before the expiration of the 60-day period, WE URGE YOU TO
ACT
PROMPTLY to assure that your vote will
count.
|
Q: |
HOW
MANY CONSENTS MUST BE GRANTED IN FAVOR OF THE PROPOSALS TO
ADOPT THEM?
|
A:
|
These
Proposals will be adopted and become effective when properly completed,
unrevoked consents are signed and dated by the holders of a majority
of
the Shares outstanding on the record date for the solicitation as
set
forth in "Consent Procedure" on page 16, provided that such consents
are
delivered to the Company within 60 calendar days of the date of the
earliest dated consent delivered to the Company. The actual number
of
Shares necessary to approve the Proposals will depend on the number
of
Shares outstanding on the record date, as set forth in "Consent
Procedure"
on page 16.
|
Q: |
WHAT
SHOULD I DO TO CONSENT?
|
A:
|
Sign,
date and return the enclosed WHITE consent card today to D.F. King
&
Co., Inc. in the enclosed postage-paid envelope. For your consent
to be
valid, your consent card must be signed and
dated.
|
Q: |
WHAT
SHOULD I DO IF I DECIDE TO REVOKE MY
CONSENT?
|
A:
|
An
executed consent card may be revoked at any time before the action
authorized by the executed consent becomes effective by marking,
dating,
signing and delivering a written revocation. A revocation may be
in any
written form validly signed by the record holder as long as it clearly
states that the consent previously given is no longer effective.
A later
dated consent card that is properly completed and delivered will
revoke
any earlier dated consent. The revocation may be delivered to the
Hartman
Parties, c/o D.F. King & Co., Inc., 48 Wall Street, New York, NY
10005. We will promptly deliver any revocations we receive to the
Company.
Although a revocation is effective if delivered to the Company, we
request
that either the original or photostatic copies of all revocations
of
consents be mailed or delivered to D.F. King & Co., Inc. at the
address set forth above, so that we will be aware of all revocations
and
can more accurately determine if and when valid consents of a majority
of
the outstanding Shares to the Proposals have been received for this
consent solicitation.
|
Q: |
WHOM
SHOULD I CALL IF I HAVE QUESTIONS ABOUT THE
SOLICITATION?
|
A: |
Please
call D.F. King & Co., Inc. at (800) 628-8532 (toll-free). Banks and
brokers may call
collect at (212) 269-5550.
|
·
|
has
had any relationship with the Company in any capacity other than
as a
shareholder;
|
·
|
has
any agreement, arrangement or understanding with respect to any future
employment by the Company or its
affiliates;
|
·
|
has
any agreement, arrangement or understanding with respect to future
transactions to which the Company or any of its affiliates will or
may be
a party, or have any material interest, direct or indirect, in any
transaction that has occurred since January 1, 2005 or any currently
proposed transaction, or series of similar transactions, which the
Company
or any of its affiliates was or is to be a party and in which the
amount
involved exceeds $60,000;
|
·
|
is,
and was not within the past year, party to any contract, arrangement
or
understandings with any person with respect to any securities of
the
Company, including but not limited to, joint ventures, loan or option
arrangements, puts or calls, guarantees against loans or guarantees
of
profit, division of losses or profits or the giving or withholding
of
proxies; or
|
·
|
is
a party adverse to the Company or any of its subsidiaries or has
a
material interest adverse to the Company or any of its subsidiaries
in any
material legal proceeding.
|
·
|
Each
of the Nominees acknowledge that he has agreed to stand for appointment
as
a director of the Company in connection with a consent solicitation
to
remove six directors of the Company and to appoint the
Nominees.
|
·
|
Hartman
Management, L.P. has agreed to pay the costs of the consent
solicitation.
|
·
|
Hartman
Management, L.P. has agreed to indemnify each Nominee from and against
any
losses incurred by the Nominee arising from any action relating to such
Nominee's role as a nominee, absent gross negligence or willful
misconduct.
|
BUY/SELL
|
DATE
|
AMOUNT
|
BUY
|
08/16/2006
|
1,000
|
09/02/2006
|
30,989.498
|
1.
|
The
removal without cause of James C. Mastandrea, Chand Vyas, Jack L.
Mahaffey, and Chris A. Minton from the Company's Board of Trustees
and any
other person or persons (other than the persons elected pursuant
to this
proposed action by written consent) elected or appointed to the Board
of
the Company prior to the effective date of these Proposals to fill
any
newly-created directorship or vacancy on the
Board;
|
o
|
o
|
o
|
Consent
|
Withhold
Consent
|
Abstain
|
2.
|
The
appointment of Allen R. Hartman, Larry A. Bouffard, Lynch Butler,
Devinder N. Mahajan, John G. Ostroot, and William M. Ramsey to serve
as members of the Board to fill four of the newly-created
vacancies and two existing vacancies on the Board (the
"Nominees");
|
o
|
o
|
o
|
Consent
|
Withhold
Consent
|
Abstain
|