<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
American Realty Trust, Inc.
(Name of Registrant as Specified in Its Charter)
Robert A. Waldman, Secretary of American Realty Trust, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- - - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- - - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - - --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- - - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - - --------------------------------------------------------------------------------
(3) Filing party:
- - - --------------------------------------------------------------------------------
(4) Date filed:
- - - --------------------------------------------------------------------------------
- - - ---------------
(1)Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
AMERICAN REALTY TRUST, INC.
10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
TELEPHONE: (214) 692-4700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
To the Stockholders of American Realty Trust, Inc.:
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of American
Realty Trust, Inc. (the "Company") will be held at 2:00 p.m., Dallas time, on
Monday, December 19, 1994, at 10670 N. Central Expressway, Suite 600, Dallas,
Texas 75231, to consider and vote upon the following matters:
(1) the election of two Class III Directors of the Company for a
three-year term expiring in 1997; and
(2) the transaction of such other business as may properly come before
the Annual Meeting or any adjournments thereof.
Only Stockholders of record at the close of business on Monday, November
21, 1994, will be entitled to vote at the Annual Meeting. Stockholders are
cordially invited to attend the Annual Meeting in person.
Regardless of whether you plan to be present at the Annual Meeting, please
promptly date, mark, sign and mail the enclosed proxy to American Stock Transfer
and Trust Company in the envelope provided. Any Stockholder who executes and
delivers the proxy may revoke the authority granted thereunder at any time prior
to its use by giving written notice of such revocation to American Stock
Transfer and Trust Company, 40 Wall Street, 46th Floor, New York, New York
10005, or by executing and delivering a proxy bearing a later date. A
STOCKHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE ANNUAL
MEETING. Your vote is important, regardless of the number of shares of the
Company's common stock ("Shares") you own.
Dated: November 22, 1994
BY ORDER OF THE BOARD OF DIRECTORS
OF AMERICAN REALTY TRUST, INC.
/s/ ROBERT A. WALDMAN
Robert A. Waldman
Secretary
<PAGE> 3
IMPORTANT
YOU CAN HELP THE COMPANY AVOID THE NECESSITY AND EXPENSE OF SENDING
FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY.
IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING, PLEASE MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE
ANNUAL MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
FAILURE TO VOTE MAY SUBJECT THE COMPANY TO FURTHER EXPENSE
If your Shares are held in the name of a brokerage firm, nominee or other
institution, only it can vote your Shares. Please contact promptly the person
responsible for your account and give instructions for your Shares to be voted.
<PAGE> 4
AMERICAN REALTY TRUST, INC.
10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
TELEPHONE: (214) 692-4700
---------------------
PROXY STATEMENT
---------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 19, 1994
---------------------
GENERAL STOCKHOLDER INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of American Realty Trust, Inc. (the "Company") of proxies
to be used at the Annual Meeting of Stockholders (the "Annual Meeting") for a
vote upon (1) the election of two Class III Directors for a three-year term
expiring in 1997, and (2) the transaction of such other business as may properly
come before the meeting or any adjournments thereof. The Annual Meeting will be
held at 2:00 p.m., Dallas time, on Monday, December 19, 1994 at 10670 North
Central Expressway, Suite 600, Dallas, Texas 75231. The Company's financial
statements for the year ended December 31, 1993 were audited by BDO Seidman.
Representatives of BDO Seidman are expected to be present at the Annual Meeting
to respond to appropriate questions, and such representatives will have an
opportunity to make a statement if they desire to do so. This Proxy Statement
and the accompanying proxy are first being mailed to Stockholders on or about
November 22, 1994. The Annual Report to Stockholders for the year ended December
31, 1993, has been mailed to all Stockholders under separate cover.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1993 AND OF THE EXHIBITS THERETO, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, MAY BE OBTAINED FREE OF CHARGE BY WRITING TO:
INVESTOR RELATIONS
AMERICAN REALTY TRUST, INC.
10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding shares of the Company's
common stock (the "Shares") at the close of business on Monday, November 21,
1994, (the "Record Date"), are entitled to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on November 11, 1994 there were
2,929,164 Shares outstanding. Each holder is entitled to one vote for each Share
held on the Record Date. The Company has issued preferred share purchase rights
which do not entitle their holders to vote.
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted thereon. As to the election of the two nominees as Class III
Directors (Proposal One), Stockholders may choose to vote for both of the
nominees, withhold authority for voting for both of the nominees or withhold
authority for voting for any individual nominee. In the absence of other
instructions, the Shares represented by a properly executed and submitted proxy
will be voted in favor of both nominees for election to the Board of Directors.
The Board of Directors does not know of any other business to be brought before
the Annual Meeting. If, however, any other matters properly come before the
Annual Meeting, it is the intention of the persons named in the enclosed proxy
to vote such proxy in accordance with their judgment on such matters.
<PAGE> 5
VOTE REQUIRED FOR APPROVAL
Pursuant to Section 3.2 of the By-laws of the Company, election of any
Director requires the affirmative vote of a plurality of the votes cast at a
meeting of Stockholders at which a quorum is present and voting. Abstentions and
broker non-votes, if any, will not be included in vote totals, and, as such,
will have no effect on any proposal. Section 2.5 provides that a majority of the
outstanding Shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at any such meeting.
As of November 11, 1994, management and affiliates held 1,759,268 Shares
representing approximately 60.1% of the Shares outstanding. Management intends
to vote such Shares for the election of the two nominees for Class III Directors
in accordance with the recommendation of the Board of Directors.
REVOCATION OF PROXIES
A proxy is enclosed herewith. Any Stockholder who executes and delivers the
proxy may revoke the authority granted thereunder at any time prior to its use
by giving written notice of such revocation to American Stock Transfer and Trust
Company, 40 Wall Street, 46th Floor, New York, New York 10005, or by executing
and delivering a proxy bearing a later date. A STOCKHOLDER MAY ALSO REVOKE A
PROXY BY ATTENDING AND VOTING AT THE ANNUAL MEETING.
FUTURE PROPOSALS OF STOCKHOLDERS
Any proposal intended to be presented by a Stockholder at the 1995 Annual
Meeting of Stockholders of the Company must be received at the principal office
of the Company not later than March 31, 1995, in order to be considered for
inclusion in the Company's proxy statement and form of proxy for that meeting.
PROPOSAL ONE:
ELECTION OF CLASS III DIRECTORS
At the 1989 Annual Meeting of Stockholders, the Stockholders adopted an
amendment to the By-laws establishing three classes of Directors to serve for
staggered three-year terms. The terms of two of the Company's five
Directors -- the Class III Directors -- expire at the 1994 Annual Meeting.
NOMINEES
Ryan T. Phillips and Dale A. Crenwelge have been nominated to serve as
Class III Directors of the Company for new terms expiring in 1997. Mr. Phillips
is currently a Class III Director of the Company. The other current Class III
Director, Tilmon Kreiling, Jr., has chosen not to stand for reelection. Each of
the nominees has been nominated by the Board of Directors to serve for a
three-year term or until his successor shall have been duly elected and
qualified. Each nominee has consented to being named in this Proxy Statement as
a nominee and has agreed to serve as a Class III Director if elected. When a
proxy is properly executed and returned, the Shares represented thereby will be
voted in favor of the election of each of the nominees, unless authority to vote
for any such nominee is specifically withheld. There will be no cumulative
voting for the election of Class III Directors. If any nominee is unable to
serve or will not serve (an event which is not anticipated), then the person
acting pursuant to the authority granted under the proxy will cast votes for the
remaining nominee and, unless the Board of Directors takes action to reduce the
number of Class III Directors, for such other person(s) as he or she may select
in place of such nominee(s).
The two nominees for Class III Directors are listed below, together with
their ages, terms of service, principal occupations, business experience and
directorships with other companies during the last five years or more. The
designation "Affiliated", when used below with respect to a Director or nominee,
means that the individual is an officer, director or employee of the Company's
advisor, Basic Capital Management, Inc. ("BCM" or the "Advisor"), or an officer
of the Company. The designation "Independent", when used below with respect to a
Director or nominee, means that the individual is neither an officer of the
Company nor a director, officer or employee of BCM, although the Company may
have certain business or professional relationships with such Director, as
discussed below under "Certain Business Relationships and Related Transactions".
2
<PAGE> 6
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
- - - --------------------------------------------------------------------------------------- ---
<S> <C>
RYAN T. PHILLIPS: Director (Class III) (Affiliated) (since 1992) 25
President (since July 1994) of Signature Asset Management, Inc., a real estate
investment company in Dallas, Texas; Real Estate Investor (since January 1992); Real
Estate Analyst (1991 to 1993) with Kelley, Lundeen & Crawford in Dallas, Texas;
graduate of Southern Methodist University School of Business (May 1991); and Trustee of
a trust for the benefit of the children of Gene E. Phillips. Such trust is the 100%
beneficial owner of BCM, the advisor to the Company. Ryan T. Phillips is the son of
Gene E. Phillips, and has served as a director of BCM since February 1991.
DALE A. CRENWELGE: Nominee (Class III) (Independent) 36
President (since 1989) of Longhorn Consultants Commercial Real Estate Group, Inc. and
Crenwelge Commercial Consultants, Inc., real estate marketing and management firms;
and Assistant to the President (1985 to 1989) of Thompson Properties, a commercial real
estate development, brokerage, management and investment company.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES NAMED ABOVE.
The Class I and Class II Directors, whose terms do not expire this year,
are listed below, together with their ages, classes, terms of service, all
positions and offices with the Company or BCM, other principal occupations,
business experience and directorships with other companies during the last five
years or more. The designation "Affiliated", when used below with respect to the
Directors, means that the Director is an officer, director or employee of BCM or
an officer of the Company. The designation "Independent", when used below with
respect to a Director, means that the Director is neither an officer of the
Company nor a director, officer or employee of BCM, although the Company may
have certain business or professional relationships with such Director, as
discussed below under "Certain Business Relationships and Related Transactions".
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
- - - --------------------------------------------------------------------------------------- ---
<S> <C>
OSCAR W. CASHWELL: Director (Class I) (Affiliated) (since 1992); term as Director 67
expires in 1995.
President (since February 1994) of Continental Mortgage and Equity Trust, Income
Opportunity Realty Trust and Transcontinental Realty Investors, Inc.; President and
Director of Property and Asset Management (since January 1994) of BCM; Assistant to the
President, Real Estate Operations (July 1989 to December 1993) of BCM; President (since
February 1994) and Director (since March 1994) of Syntek Asset Management, Inc., the
managing general partner of Syntek Asset Management, L.P., which is the general partner
of National Realty, L.P. and National Operating, L.P. and a corporation owned by BCM;
and Assistant to the President, Real Estate Operations (March 1982 to June 1989) of
Southmark Corporation.
AL GONZALEZ: Director (Class II) (Independent) (since 1989); term as Director expires 58
in 1996.
President (since March 1991) of AGE Refining, Inc., a petroleum refining and marketing
firm; President (January 1988 to March 1991) of Moody-Day Inc., which sells and leases
construction equipment and supplies; owner and President of Gulf-Tex Construction
Company ("Gulf-Tex"); owner and lessor of two restaurant sites in Dallas, Texas;
Director (since April 1990) of Avacelle, Inc. ("Avacelle"); Director (1988 to 1992) of
Medical Resource Companies of America; and member (1987 to 1989) of the Dallas City
Council. On January 20, 1989, Gulf-Tex filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code which proceeding was dismissed on July 25, 1989 upon
the motion of Gulf-Tex. On March 18, 1992, Avacelle filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code and an Order confirming its Plan of
Reorganization was entered October 18, 1993 by the United States Bankruptcy Court,
Northern Division of Oklahoma.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
- - - --------------------------------------------------------------------------------------- ---
<S> <C>
G. WAYNE WATTS: Director (Class II) (Independent) (since 1984); term as Director 52
expires in 1996.
President (since December 1993) of Palmetto Industries, Inc., manufacturer of
industrial products; Director (since 1988) of International Operations of Harkness
International; Director (since 1987) of Southmark California; Marketing Manager (1985
to 1988) of Steel Heddle Manufacturing Company, a manufacturer and major supplier of
textile machinery and industrial replacement parts; Director of Syntek Finance
Corporation (1983 to 1989); Vice President of Sales and owner of Fountain Industries, a
manufacturer of automotive parts and assemblies and metal stampings (1989 to March
1994); and Director of Avacelle (since January 1994). On November 1, 1993, Fountain
Industries filed a voluntary petition under Chapter 11 of the United States Bankruptcy
Code. In January 1994, the Chapter 11 proceedings were converted to Chapter 7
liquidation proceedings.
</TABLE>
Separation of Certain Former Members of Management from Southmark
Corporation. Gene E. Phillips served as a Director and Chairman of the Board of
the Company until November 16, 1992. William S. Friedman served as President and
Director of the Company until December 31, 1992. Until January 17, 1989, Messrs.
Phillips and Friedman were directors and officers of Southmark Corporation
("Southmark"). Messrs. Phillips and Friedman entered into a series of agreements
(collectively, the "January Agreements"), which, among other things, involved
their resignation from their positions with Southmark and certain of its
affiliates. However, Messrs. Phillips and Friedman remained directors and
executive officers of the Company and certain other entities.
Although Gene E. Phillips no longer serves as an officer or director of BCM
or as a Director or officer of the Company, he currently serves as a
representative of the trust established for the benefit of his children which
owns BCM and, in such capacity, Mr. Phillips has substantial contact with
management of BCM and input with respect to its performance of advisory services
for the Company. Mr. Friedman no longer serves as an officer or director of BCM
or as a director or officer of the Company and has no involvement in the
management of the Company.
On July 12, 1989, the Company closed a set of related agreements
(collectively, the "Southmark Separation Agreements") with its then-largest
stockholder, Southmark, essentially terminating the Company's relationship with
Southmark and resulting in a substantial restructuring of the Company's balance
sheet.
On July 14, 1989, Southmark filed a voluntary petition of bankruptcy under
Chapter 11 of the United States Bankruptcy Code. Southmark requested that the
Bankruptcy Court appoint an examiner to investigate and review pre-Chapter 11
third-party transactions and relations and potential causes of action on behalf
of the Southmark bankruptcy estate and in September 1989, the court appointed an
examiner.
The examiner issued a series of five separate reports in Southmark's
bankruptcy proceeding. In his Final Report, filed on July 9, 1990, the examiner
recommended that Southmark pursue claims against Messrs. Phillips and Friedman
for their conduct that allegedly caused, in whole or in part, the losses
reported in the examiner's Final and Interim Reports.
The Final Report expressed the examiner's conclusion that (i) "poor
business practices [were] employed in the acquisition and management of many of
Southmark's subsidiaries," (ii) Southmark's real estate assets were overvalued
by as much as $800 million, (iii) repeated transactions by Southmark while it
was controlled by Messrs. Phillips and Friedman produced only paper or "phantom"
profits, (iv) the independent directors of Southmark were "basically yes men,"
(v) Southmark "engaged in many transactions with related entities" and these
transactions "often resulted in substantial benefits for Messrs. Phillips and
Friedman and their affiliates at Southmark's expense," and (vi) Messrs. Phillips
and Friedman as well as Southmark had "many business dealings with high-powered
figures, many of whom have been convicted, indicted or are under investigation
in connection with savings and loan fraud and were in a position to assist
[Messrs.] Phillips and
4
<PAGE> 8
Friedman in their numerous real estate ventures," and that the "number of
transactions between these individuals were . . . extensive."
Messrs. Phillips and Friedman have emphatically denied the examiner's
allegations, and believe that the examiner's Final Report contained material
factual errors and unsubstantiated allegations and misleading innuendos.
Moreover, based on the fact that the examiner made no attempt to depose or
interview them concerning his investigation, they believe the Final Report was
not based on an objective analysis and exemplified the examiner's abject
disregard of elementary fairness in eschewing the opportunity to consider facts
which refute his biased contentions.
Litigation Relating to Southmark Bankruptcy. During 1990 and 1991, several
adversary proceedings were initiated against the Company and others by Southmark
and its affiliates. On December 27, 1991, an agreement to settle all claims in
connection with the Southmark adversary proceedings was executed by Southmark
and the Company. The settlement covered all claims between Southmark and its
affiliates and Messrs. Phillips and Friedman, Syntek West, Inc. ("SWI"),
National Realty, L.P. ("NRLP"), Income Opportunity Realty Trust ("IORT"),
Transcontinental Realty Investors, Inc. ("TCI"), Continental Mortgage and Equity
Trust ("CMET"), National Income Realty Trust ("NIRT"), Vinland Property Trust
("VPT") and the Company. The final settlement of such litigation concluded all
suits in which the Company was a defendant. Pursuant to the settlement
agreement, Southmark received $13.2 million from the various settling
defendants.
The Company paid Southmark a total of $2,435,000 between 1992 and July
1994. In addition, on February 25, 1992, the Company assigned Southmark a 19.2%
limited partnership interest in Syntek Asset Management, L.P. ("SAMLP"), the
general partner of NRLP and National Operating, L.P. ("NOLP") the operating
partnership of NRLP, and the Company received Southmark's interest in Novus
Nevada, Inc. The Company has a three-year option, which expires on December 27,
1994, to reacquire the 19.2% interest in SAMLP for $2.4 million, less any
distributions received by Southmark. On May 1, 1992, the Company received from
Southmark land and a ground lease in Denver, Colorado, land in Forest Park,
Georgia, a mortgage note secured by land in Tabiena, Utah and a participation in
a mortgage note secured by a retail property in Forest Park, Georgia. The
Company believes these assets have an aggregate value at least equal to the
consideration the Company has paid to Southmark.
To secure the settlement payment obligations to Southmark, in February 1992
the Company issued 390,000 new Shares of its common stock to ATN Equity
Partnership ("ATN") which pledged such Shares to Southmark along with securities
of TCI and NRLP. ATN was a general partnership of which the Company, TCI and
NRLP were general partners. ATN was formed solely to hold title to the
securities issued by each partner and to pledge such securities to Southmark.
All of the collateral Shares have been released from the pledge and Shares have
been returned to the Company and cancelled. The Company also pledged to
Southmark its remaining limited partner interest in SAMLP. Such collateral was
also released concurrent with the final payment in July 1994.
In addition to the pledge of securities to Southmark, Messrs. Phillips and
Friedman, the Company and SWI each executed and delivered separate, final,
nonappealable judgments in favor of Southmark, each in the amount of $25.0
million. In the event of default, Southmark was entitled to entry of those
judgments and to recover from the parties an aggregate of $25.0 million, subject
to reduction for any amounts previously paid. The settlement obligations have
been met, and the judgments have been returned to the defendants.
On February 25, 1992, the Company entered into an agreement with Messrs.
Phillips and Friedman, SWI, CMET, NIRT, IORT and TCI relating to their
settlement of litigation with Southmark. Pursuant to the agreement, TCI obtained
the right to acquire four apartment complexes, five mortgage notes, two
operating commercial properties and four parcels of developed land from
Southmark and its affiliates.
Southmark Partnership Litigation. One of Southmark's principal businesses
was real estate syndication and from 1981 to 1987 Southmark raised over $500
million in investments from limited partners of several hundred partnerships.
The following two cases relate to and involve such activities.
5
<PAGE> 9
In an action filed in May 1992 in a Texas state court captioned HCW Pension
Real Estate Fund, et al. v. Phillips et al., the plaintiffs, fifteen former
Southmark related public limited partnerships, alleged that the defendants
violated the partnership agreements by charging certain administrative costs and
expenses to the plaintiffs. The complaint alleged claims for breach of fiduciary
duty, fraud and conspiracy to commit fraud and sought to recover actual damages
of approximately $12.6 million plus punitive damages, attorneys' fees and costs.
The defendants included, among others, Messrs. Phillips and Friedman. In October
1993, the court granted partial summary judgment in favor of Messrs. Phillips
and Friedman on the plaintiffs' breach of fiduciary duty claims. The plaintiffs'
filed a notice of non-suit dismissing their remaining claims against Messrs.
Phillips and Friedman on March 9, 1994.
In an action filed in January 1993 in a Michigan state court captioned Van
Buren Associates Limited Partnership, et. al. v. Friedman, et. al., the
plaintiff, a former Southmark sponsored limited sponsorship, alleges a claim for
breach of fiduciary duty in connection with the 1988 transfer of certain
property by the partnership. The plaintiff seeks damages in an unspecified
amount, plus costs and attorneys fees. The plaintiff also seeks to quiet title
to the property at issue. The defendants include, among others, Messrs. Phillips
and Friedman.
San Jacinto Savings Association. On November 30, 1990, San Jacinto Savings
Association ("SJSA"), a savings institution that was owned by Southmark since
1983 and for which Mr. Phillips served as a director from 1987 to January 1989,
was placed under conservatorship of the Resolution Trust Corporation ("RTC") by
federal banking authorities. On December 14, 1990, SJSA was converted into a
Federal Association and placed in receivership. The government has reportedly
alleged that SJSA's poor financial condition was attributable in part to "a
pattern of high-risk real estate investments made after Southmark bought it in
1983," and that it had "poor procedures for determining loss reserves and relied
'excessively' on deposits gathered through brokerage houses that enable[d] it to
grow rapidly." On November 26, 1993, the RTC filed lawsuits in Dallas and New
York City against Mr. Phillips, six former directors, auditors and lawyers of
SJSA, alleging that the auditors and former directors could and should have
stopped SJSA's poor lending practice during the period it was owned by Southmark
and that the former directors abdicated their responsibility for reviewing loans
during the same period. The Office of Thrift Supervision is also conducting a
formal examination of SJSA and its affiliates.
Litigation Relating to Lincoln Savings and Loan Association, F.A. In an
action filed in the United States District Court for the District of Arizona on
behalf of Lincoln Savings and Loan Association, F.A. ("Lincoln") and captioned
RTC v. Charles H. Keating, Jr., et al., the RTC alleges that Charles H. Keating
and other persons, including Mr. Phillips, fraudulently diverted funds from
Lincoln.
The RTC alleges that Mr. Phillips aided and abetted the insider defendants
in a scheme to defraud Lincoln and its regulators; that Southmark, its
subsidiaries and affiliates, including SJSA, facilitated and concealed the use
of Lincoln funds to finance the sale, at inflated prices, of assets of Lincoln's
parent, American Continental Corporation ("ACC"), in return for loans from
Lincoln and participations in contrived transactions; that the insider
defendants caused Lincoln and its subsidiaries to loan substantial sums to
Southmark and its affiliates, and that in return, Mr. Phillips caused Southmark
to purchase ACC assets at inflated prices. The RTC alleges that Lincoln and/or
ACC engaged in three illegal transactions with Southmark or its affiliates while
Mr. Phillips was affiliated with Southmark.
The RTC alleges nine separate causes of action against Mr. Phillips,
including aiding and abetting the violation of, and conspiracy to violate,
federal and state RICO statutes, violations of Arizona felony statutes, common
law fraud, civil conspiracy and breach of fiduciary duty. The RTC seeks to
recover from the defendants more than $1 billion, as well as treble damages
under the federal RICO statute, punitive damages of at least $100 million and
attorneys' fees and costs. Trial of the RTC's claims against Mr. Phillips was
scheduled to begin in June 1993. However, the case was removed from the trial
docket to facilitate settlement negotiations.
It has also been reported that the Justice Department and the Securities
and Exchange Commission have been asked to investigate Lincoln's possible links
to Southmark.
6
<PAGE> 10
BOARD AND COMMITTEE MEETINGS
The Company's Board of Directors held six meetings during 1993. For such
year, no incumbent Director attended fewer than 75% of (i) the total number of
meetings held by the Board during the period for which he had been a Director
and (ii) the total number of meetings held by all committees of the Board on
which he served during the periods that he served, except that Messrs. Gonzalez
and Kreiling each attended only four of the Board meetings held in 1993.
The Board of Directors has an Audit Committee, the function of which is to
review the Company's operating and accounting procedures. The members of the
Audit Committee are G. Wayne Watts (Chairman) and Al Gonzalez. The Audit
Committee met twice during 1993.
The Board of Directors has a Stock Option Committee to administer its 1987
Stock Option Plan. The function of the Stock Option Committee is, among other
things, to determine which persons will be granted options, the number of Shares
to be covered by the options and the exercise period of the options within the
terms of the 1987 Stock Option Plan. The members of the Stock Option Committee
are G. Wayne Watts and Al Gonzalez. The Stock Option Committee did not meet in
1993.
In January 1993, the Board of Directors established an Executive Committee
to act as the liaison with the Advisor on the Company's business plan and
investment policy decisions. The members of the Executive Committee were G.
Wayne Watts, Ryan T. Phillips and Oscar W. Cashwell. The Executive Committee
held two formal meetings during 1993. In October 1993, the Board elected Karl L.
Blaha to serve as President of the Company. Mr. Blaha now performs the former
duties of the Executive Committee.
The Board of Directors does not have nominating or compensation committees.
EXECUTIVE OFFICERS
The following persons currently serve as executive officers of the Company:
Karl L. Blaha, President; Hamilton P. Schrauff, Executive Vice President and
Chief Financial Officer; and Thomas A. Holland, Senior Vice President and Chief
Accounting Officer. Their positions with the Company are not subject to a vote
of Stockholders. The age, terms of service, all positions and offices with the
Company or BCM, other principal occupations, business experience and
directorships with other companies during the last five years or more of Messrs.
Blaha, Schrauff and Holland is set forth below.
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
- - - -------------------------------------------------------------------------------------- ----
<S> <C>
KARL L. BLAHA: President (since October 1993) and formerly Executive Vice President 47
and Director of Commercial Management (from April 1992 to October 1993).
Executive Vice President and Director of Commercial Management (since April 1992) of
Syntek Asset Management, Inc. ("SAMI"), BCM, TCI, CMET and IORT; Executive Vice
President and Director of Commercial Management (April 1992 to February 1994) of NIRT
and VPT; Partner - Director of National Real Estate Operations of First Winthrop
Corporation (August 1988 to March 1992); Corporate Vice President of Southmark
Corporation (April 1984 to August 1988); and President of Southmark Commercial
Management (March 1986 to August 1988).
HAMILTON P. SCHRAUFF: Executive Vice President and Chief Financial Officer (since 59
October 1991).
Executive Vice President and Chief Financial Officer (since October 1991) of SAMI,
BCM, TCI, IORT and CMET; Executive Vice President and Chief Financial Officer (October
1991 to February 1994) of NIRT and VPT; Vice President Finance -- Partnership
Investments, Hallwood Group (December 1990 to October 1991); Vice President -- Finance
and Treasurer (October 1980 to October 1990) and Vice President -- Finance (November
1976 to September 1980) of Texas Oil & Gas Corporation; and Assistant
Treasurer -- Finance Manager (February 1975 to October 1976) of Exxon U.S.A.
</TABLE>
7
<PAGE> 11
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
- - - -------------------------------------------------------------------------------------- ----
<S> <C>
THOMAS A. HOLLAND: Senior Vice President and Chief Accounting Officer (since July 52
1990).
Senior Vice President and Chief Accounting Officer (since July 1990) of TCI, CMET,
IORT, BCM and SAMI; Senior Vice President and Chief Accounting Officer (July 1990 to
February 1994) of NIRT and VPT; Vice President and Controller of Southmark Corporation
(December 1986 to June 1990); Vice President -- Finance of Diamond Shamrock Chemical
Company (January 1986 to December 1986); Assistant Controller of Maxus Energy
Corporation (formerly Diamond Shamrock Corporation) (May 1976 to January 1986);
Trustee of Arlington Realty Investors (August 1989 to June 1990); and Certified Public
Accountant (since 1970).
</TABLE>
OFFICERS
Although not executive officers of the Company, the following persons
currently serve as officers of the Company: Drew D. Potera, Treasurer; and
Robert A. Waldman, Vice President and Secretary. Their positions with the
Company are not subject to a vote of Stockholders. Their ages, terms of service,
all positions and offices with the Company or BCM, other principal occupations,
business experience and directorships with other companies during the last five
years or more are set forth below.
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS AGE
- - - --------------------------------------------------------------------------------------- ---
<S> <C>
DREW D. POTERA: Treasurer (since August 1991) and formerly Assistant Treasurer 35
(December 1990 to August 1991).
Treasurer (since December 1990) of IORT, CMET and TCI; Vice President, Treasurer and
Securities Manager (since July 1990) of BCM; Treasurer (December 1990 to February 1994)
of NIRT and VPT; and Financial Consultant with Merrill Lynch, Pierce, Fenner & Smith,
Incorporated (June 1985 to June 1990).
ROBERT A. WALDMAN: Secretary (since December 1989) and Vice President (since January 42
1993).
Vice President (since December 1990) and Secretary (since December 1993) of CMET, IORT
and TCI; Vice President, Corporate Counsel and Secretary (since November 1989) of
BCM; Vice President (December 1990 to February 1994) and Secretary (December 1993 to
February 1994) of NIRT and VPT; Director (February 1987 to October 1989), General
Counsel and Secretary (1985 to October 1989) of Red Eagle Resources Corporation (oil
and gas); Assistant General Counsel, Senior Staff Attorney and Staff Attorney (1981 to
1985) of Texas International Company (oil and gas); and Staff Attorney (1979 to 1981)
of Iowa Beef Processors, Inc.
</TABLE>
In addition to the foregoing officers, the Company has several vice
presidents and assistant secretaries who are not listed herein.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's Shares of Common Stock are required to report their ownership of the
Company's Shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission") and the New York Stock Exchange. Specific
due dates for these reports have been established and the Company is required to
report any failure to file by these dates during 1993. All of these filing
requirements were satisfied by the Company's Directors and executive officers
and ten percent holders. In making these statements, the Company has relied on
the written representations of its incumbent Directors and executive officers
and its ten percent holders and copies of the reports that they have filed with
the Commission.
8
<PAGE> 12
THE ADVISOR
Although the Company's Board of Directors is directly responsible for
managing the affairs of the Company and for setting the policies which guide it,
the day-to-day operations of the Company are performed by BCM, a contractual
advisor under the supervision of the Company's Board of Directors. The duties of
the advisor include, among other things, investigating, evaluating and
recommending real estate and mortgage loan investment opportunities as well as
financing and refinancing sources for the Company. The advisor also serves as a
consultant in connection with the Company's business plan and investment policy
decisions made by the Company's Board of Directors.
American Realty Advisors, Inc. ("ARA") was the advisor of the Company from
July 1, 1987 to February 6, 1989. In February 1989, the Company's Board of
Directors voted to retain BCM as the Company's advisor. BCM is a corporation
beneficially owned by a trust for the benefit of the children of Gene E.
Phillips, who served as the Chairman of the Board and a Director of the Company
until November 16, 1992. Ryan T. Phillips, the son of Gene E. Phillips and a
Director of the Company, is also a director of BCM and a trustee of the trust
which beneficially owns BCM. Mr. Cashwell, a Director of the Company, serves as
President of BCM. Mr. Gene E. Phillips served as a director of BCM until
December 22, 1989 and as Chief Executive Officer of BCM until September 1, 1992.
Mr. Gene E. Phillips serves as a representative of the trust which
beneficially owns BCM and, in such capacity, has substantial contact with the
management of BCM and input with respect to BCM's performance of advisory
services to the Company. As of November 11, 1994, BCM owned 1,147,851 Shares of
the Company's Common Stock, 39.2% of the Shares then outstanding.
BCM's principal business is providing real estate advisory services and
acting as agent for real estate enterprises. The Company formalized its
relationship with BCM by entering into a written advisory agreement effective as
of February 6, 1989 (as amended through the date hereof, the "Advisory
Agreement").
The Advisory Agreement provides for the advisor to receive monthly base
compensation at the rate of 0.125% (1.5% on an annualized basis) of the average
of the aggregate book value of the Company's assets invested in equity interests
in and loans secured by real estate before non-cash reserves (the "Average
Invested Assets").
On October 23, 1991, based on the recommendation of BCM, the Company's
Board of Directors approved a reduction in the advisor's base fee by 50%
effective October 1, 1991. This reduction remains in effect until the Company's
earnings for the four preceding quarters equals or exceeds $2.00 per share.
In addition to base compensation, the Advisory Agreement provides for the
following forms of compensation to be paid to BCM or an affiliate of BCM:
(a) an acquisition fee for locating, leasing or purchasing real estate
for the Company in an amount equal to the lesser of (i) the amount of
compensation customarily charged in similar arm's-length transactions or
(ii) up to 6% of the costs of acquisition, inclusive of commissions, if
any, paid to non-affiliated brokers;
(b) a disposition fee for the sale of each equity investment in real
estate in an amount equal to the lesser of (i) the amount of compensation
customarily charged in similar arm's-length transactions or (ii) 3% of the
sales price of each property, exclusive of fees, if any, paid to
non-affiliated brokers;
(c) a loan arrangement fee in an amount equal to 1% of the principal
amount of any loan made to the Company arranged by BCM;
(d) an incentive fee equal to 10% of net income for the year in excess
of a 10% return on stockholders' equity, and 10% of the excess of net
capital gains over net capital losses, if any, realized from sales of
assets made under contracts entered into after April 15, 1989;
and
9
<PAGE> 13
(e) a mortgage placement fee, on mortgage loans originated or
purchased, equal to 50%, measured on a cumulative basis, of the total
amount of mortgage origination or placement fees on mortgage loans made by
the Company for the fiscal year.
The Advisory Agreement further provides that BCM shall bear the cost of
certain expenses of its employees, excluding fees paid to the Company's
Directors; rent and other office expenses of both BCM and the Company (unless
the Company maintains office space separate from that of BCM); costs not
directly identifiable to the Company's assets, liabilities, operations, business
or financial affairs; and the cost of miscellaneous administrative expenses
relating to the performance by BCM of its duties under the Advisory Agreement.
If and to the extent that the Company shall request BCM, or any director,
officer, partner or employee of BCM, to render services to the Company other
than those required to be rendered by BCM under the Advisory Agreement, such
additional services, if performed, will be compensated separately on terms
agreed upon between such party and the Company from time to time. The Company
has requested that BCM perform loan administration functions, and the Company
and BCM have entered into a separate agreement, as described below.
The Advisory Agreement automatically renews from year to year unless
terminated in accordance with its terms. The Company's management believes that
the terms of the Advisory Agreement are at least as fair as could be obtained
from unaffiliated third parties.
Pursuant to the Advisory Agreement, BCM is the loan
administration/servicing agent for the Company, under an agreement dated as of
October 4, 1989, and terminable by either party upon thirty days' notice, under
which BCM services most of the Company's mortgage notes and receives as
compensation a monthly fee of 0.125% of the month-end outstanding principal
balances of the loans serviced.
Situations may develop in which the interests of the Company are in
conflict with those of one or more Directors or officers of the Company in their
individual capacities or of BCM, or of their respective affiliates. In addition
to services performed for the Company, as described above, BCM actively provides
similar services as agent for, and advisor to, other real estate enterprises,
including persons and entities involved in real estate development and
financing, including CMET, TCI and IORT. BCM also performs certain
administrative services for NRLP on behalf of NRLP's general partner, SAMLP. The
Advisory Agreement provides that BCM may also serve as advisor to other
entities. As advisor, BCM is a fiduciary of the Company's public investors. In
determining to which entity a particular investment opportunity will be
allocated, BCM will consider the respective investment objectives of each entity
and the appropriateness of a particular investment in light of each such
entity's existing mortgage note and real estate portfolio and which entity has
had uninvested funds for the longest period of time. To the extent any
particular investment opportunity is appropriate to more than one such entity,
such investment opportunity will be allocated to the entity that has had
uninvested funds for the longest period of time or if appropriate, the
investment may be shared among various entities. See "Certain Business
Relationships and Related Party Transactions -- Certain Business Relationships"
below.
The directors and principal officers of BCM are set forth below:
Mickey Ned Phillips: Director
Ryan T. Phillips: Director
Oscar W. Cashwell: President and Director of Property and Asset
Management
Hamilton P. Schrauff: Executive Vice President and Chief Financial
Officer
Karl L. Blaha: Executive Vice President and Director of Commercial
Management
Clifford C. Towns, Jr.: Executive Vice President, Finance
Stephen R. Young: Executive Vice President, Acquisitions
Randall M. Paulson: Executive Vice President
10
<PAGE> 14
Thomas A. Holland: Senior Vice President and Chief Accounting Officer
Drew D. Potera: Vice President, Treasurer and Securities Manager
Robert A. Waldman: Vice President, Corporate Counsel and Secretary
Mickey Ned Phillips is the brother of Gene E. Phillips and Ryan T. Phillips
is the son of Gene E. Phillips. Gene E. Phillips serves as a representative of
the trust established for the benefit of his children which owns BCM and, in
such capacity, has substantial contact with the management of BCM and input with
respect to its performance of advisory services to the Company. As of November
11, 1994, BCM owned 1,147,851 Shares of the Company's Common Stock, 39.2% of the
Company's then outstanding Shares.
PROPERTY MANAGEMENT
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides property management services for a fee of 5% or less of the
monthly gross revenue of the properties under management. In many cases, Carmel,
Ltd. subcontracts with other entities for the provision of some of the
property-level management services to the Company at various rates. The general
partner of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i)
Syntek West, Inc. ("SWI"), of which Gene E. Phillips is the sole stockholder
(ii) Gene E. Phillips and (iii) a trust for the benefit of the children of Gene
E. Phillips. Carmel, Ltd. subcontracts the property-level management of the
Company's shopping center to Carmel Realty, Inc., which is owned by SWI.
EXECUTIVE COMPENSATION
The Company has no employees, payroll or employee benefit plans and pays no
compensation to executive officers of the Company. The Directors and executive
officers of the Company who are also officers or employees of the Company's
Advisor are compensated by the Advisor. Such affiliated Directors and executive
officers of the Company perform a variety of services for the Advisor and the
amount of their compensation is determined solely by the Advisor. BCM does not
allocate the cash compensation of its officers among the various entities for
which it serves as advisor.
The only direct remuneration paid by the Company is to those Directors who
are not officers or employees of BCM or its affiliated companies. The Company
compensates such Independent Directors at a rate of $5,000 per year, plus $500
per meeting attended and $300 per Audit Committee meeting attended. During 1993,
$35,450 was paid to Independent Directors in total Directors' fees for all
meetings, as follows: Al Gonzalez, $7,600; Tilmon Kreiling, Jr., $7,000; Ryan T.
Phillips, $8,100; G. Wayne Watts, $11,000; and David Kipper, a Director through
April 1993, $1,750.
In July 1987, the Company's Board of Directors, including all of the
Independent Directors, approved the Company's 1987 Stock Option Plan (the
"Plan"). The Plan was approved by the Stockholders at the Company's Annual
Meeting on June 8, 1988. The Plan was intended principally as an incentive for
and as a means of encouraging ownership of the Company's Common Stock, by
eligible persons, including certain Directors and officers of the Company.
Options may be granted either as incentive stock options (which qualify for
certain favorable tax treatment), or as non-qualified stock options. Incentive
stock options cannot be granted to, among others, persons who are not employees
of the Company, or to persons who fail to satisfy certain criteria concerning
ownership of less than 10% of the Company's Shares. The Plan is administered by
the Stock Option Committee, which currently consists of two Independent
Directors of the Company. The exercise price per share of an option will not be
less than 100% of the fair market value per share on the date of grant thereof.
The Company receives no consideration for the grant of an option. As of November
11, 1994, there were no stock options outstanding under the Plan.
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Shares of Common Stock with the Dow Jones Equity Market Index ("DJ
Equity Index") and the Dow Jones Real Estate Investment Index ("DJ Real Estate
Index"). The comparison assumes that $100 was invested on
11
<PAGE> 15
December 31, 1988 in the Company's Shares of Common Stock and in each of the
indices and further assumes the reinvestment of all dividends. Past performance
is not necessarily an indicator of future performance.
<TABLE>
<CAPTION>
Measurement Period DJ Equity DJ Real
(Fiscal Year Covered) The Company Index Estate Index
--------------------- ----------- --------- ------------
<S> <C> <C> <C>
1988 100 100 100
1989 37 131 89
1990 8 126 61
1991 21 152 79
1992 26 180 95
1993 97 198 120
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management. The following table sets forth the
ownership of Shares of the Company's Common Stock, both beneficially and of
record, both individually and in the aggregate, for the Directors and executive
officers of the Company, as of the close of business on November 11, 1994.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
---------------------------------------------- ------------------ ----------
<S> <C> <C>
All Directors and Executive Officers as a
group (9 persons)........................... 1,759,268(2)(3)(4)(5)(6)(7) 60.1%
</TABLE>
- - - ---------------
(1) Based on 2,929,164 Shares outstanding on November 11, 1994.
(2) Includes 204,522 Shares owned by CMET over which Oscar W. Cashwell may be
deemed to be the beneficial owner by virtue of his position as President of
CMET. Also includes 48,933 Shares owned by NOLP over which Mr. Cashwell may
be deemed to be the beneficial owner by virtue of his positions as
President and director of SAMI, the managing general partner of SAMLP, the
general partner of NOLP. Mr. Cashwell disclaims beneficial ownership of
such Shares.
(3) Includes 1,147,851 Shares owned by BCM over which Mr. Cashwell and Ryan T.
Phillips may be deemed to be the beneficial owners by virtue of their
positions as President and director, respectively, of BCM. Messrs. Cashwell
and Phillips each disclaim beneficial ownership of such Shares.
(4) Includes 24,583 Shares owned by the Gene E. Phillips Children's Trust, of
which Ryan T. Phillips is a beneficiary.
(5) Includes 445 Shares owned directly by Ryan T. Phillips.
(6) Includes 608 Shares owned directly over which Thomas A. Holland and his wife
jointly hold voting and dispositive power, and an additional 83 Shares held
by Mr. Holland in an individual retirement account.
(7) Includes 381,176 Shares issued to Rosedale Equities, Inc., a wholly-owned
subsidiary of the Company. Such Shares are pledged as additional collateral
for loans to the Company.
12
<PAGE> 16
Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's Common Stock both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be the owner of more than 5% of the Shares of the
Company's Common Stock as of the close of business on November 11, 1994.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
------------------------------------------------------ ------------------- ----------
<S> <C> <C>
Basic Capital Management, Inc......................... 1,147,851 39.2%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Donald C. Carter...................................... 417,359 14.2%
Sunninghill
Old Brookville, New York 11545
Rosedale Equities, Inc................................ 381,176 13.0%
10670 N. Central Expressway,
Suite 300
Dallas, Texas 75231
Continental Mortgage and Equity Trust................. 204,522 7.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Oscar W. Cashwell..................................... 1,401,306(2)(3) 47.8%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
Ryan T. Phillips...................................... 1,172,879(3)(4)(5) 40.0%
10670 N. Central Expressway
Suite 300 Dallas, Texas 75231
</TABLE>
- - - ---------------
(1) Based on 2,929,164 Shares of Common Stock outstanding on November 11, 1994.
(2) Includes 204,522 Shares owned by CMET over which Oscar W. Cashwell may be
deemed to be beneficial owner by virtue of his position as President of
CMET. Also includes 48,933 Shares owned by NOLP over which Mr. Cashwell may
be deemed to be the beneficial owner by virtue of his positions as
President and director of SAMI, the managing general partner of SAMLP, the
general partner of NOLP. Mr. Cashwell disclaims beneficial ownership of
such Shares.
(3) Includes 1,147,851 Shares owned by BCM over which Oscar W. Cashwell and Ryan
T. Phillips may be deemed to be the beneficial owners by virtue of their
positions as President and director, respectively, of BCM. Messrs. Cashwell
and Phillips disclaim beneficial ownership of such Shares.
(4) Includes 24,583 Shares owned by the Gene E. Phillips Children's Trust. Ryan
T. Phillips is a beneficiary of such trust.
(5) Includes 445 Shares owned by Ryan T. Phillips.
CERTAIN BUSINESS RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies with Respect to Certain Activities. The By-laws of the Company as
amended provide, in accordance with Georgia law, that no contract or transaction
between the Company and one or more of its Directors or officers, or between the
Company and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
that reason, or solely because the Director or officer is present at or
participates in the meeting of the Company's Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
her votes are counted for such purpose, if one or more of the
13
<PAGE> 17
following three conditions are met: (i) the material facts as to his or her
interest and as to the contract or transaction are disclosed or are known to the
Company's Board of Directors or the committee, and the Board or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested Directors, even though the disinterested Directors
constitute less than a quorum; (ii) the material facts as to his or her interest
and as to the contract or transaction are disclosed or are known to the
Stockholders entitled to vote thereon, and the contract or transaction is
specifically approved or ratified in good faith by vote of such Stockholders; or
(iii) the contract or transaction is fair to the Company as of the time it is
authorized, approved or ratified by the Company's Board of Directors, a
committee thereof, or the Stockholders.
The Company's policy is to have such contracts or transactions approved or
ratified by a majority of the disinterested Directors of the Company with full
knowledge of the character of such transactions, as being fair and reasonable to
the Stockholders at the time of such approval or ratification under the
circumstances then prevailing. Such Directors also consider the fairness of such
transactions to the Company. Management believes that, to date, such
transactions have represented the best investment alternatives available at the
time and were at least as advantageous to the Company as other investments that
could have been obtained.
The Company expects to enter into future transactions with entities the
officers, trustees, directors or stockholders of which are also officers,
Directors or Stockholders of the Company if such transactions would be
beneficial to the operations of the Company and consistent with the Company's
then-current investment objectives and policies, subject to approval by a
majority of disinterested Directors as discussed above.
The Company does not prohibit its officers, Directors, Stockholders or
related parties from engaging in business activities of the types conducted by
the Company.
CERTAIN BUSINESS RELATIONSHIPS
As mentioned above, BCM is a corporation of which Messrs. Cashwell, Blaha,
Schrauff, Holland, Potera and Waldman serve as officers. BCM is beneficially
owned by a trust for the benefit of the children of Gene E. Phillips, the
trustees of which are Mickey Ned Phillips and Ryan T. Phillips. Mickey Ned
Phillips and Ryan T. Phillips (a Director of the Company), brother and son,
respectively, of Gene E. Phillips, are also directors of BCM.
Mr. Cashwell is the President of CMET, IORT and TCI and owes fiduciary
duties to such entities as well as to BCM under applicable law. CMET, IORT and
TCI have the same relationship with BCM as does the Company. In addition, BCM
has been engaged to perform certain administrative functions for NRLP and NOLP.
Gene E. Phillips is a general partner of SAMLP, NRLP's and NOLP's general
partner, and is an officer and director of SAMLP's managing general partner,
SAMI. BCM is the sole stockholder of SAMI. The Company is a limited partner and
a 76.8% owner of SAMLP. Al Gonzalez, a Director of the Company, is the father of
Randall K. Gonzalez, who is a trustee or director of CMET, IORT and TCI, and
President and Managing Partner of TMC Realty Advisors, Inc. ("TMC"), an entity
which provided property-level management services to certain properties owned by
the Company until August 15, 1994. In 1993, TMC earned fees of $110,700 from the
Company for performing such services.
In August 1991, BCM funded a loan in the amount of $100,000 to Al Gonzalez.
The note was secured by a residence and bore interest at 2% above the prime
rate. The note matured on December 31, 1992. As of June 1, 1994, the note was
paid in full.
Since February 1, 1990, the Company has contracted with affiliates of BCM
for property management services. Currently, Carmel, Ltd. provides such property
management services. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) SWI, a company of which Gene E. Phillips is the
sole stockholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel, Ltd. subcontracts the property-level
management of the Company's shopping center to Carmel Realty, Inc., which is
owned by SWI.
Affiliates of BCM provide brokerage services to the Company and receive
brokerage commissions in accordance with the Advisory Agreement.
14
<PAGE> 18
As of November 11, 1994, BCM owned 1,147,851 Shares of the Company's Common
Stock, 39.2% of the Shares then outstanding.
The Company owns a beneficial interest in each of CMET, IORT TCI, NRLP and
SAMLP. In addition, CMET and NRLP own a beneficial interest in the Company and
SAMLP owns a beneficial interest in TCI.
RELATED PARTY TRANSACTIONS
In April 1990, SAMLP made a $1.4 million unsecured loan to Equity Health
and Finance Corporation ("Equity Health"), an entity affiliated with BCM. The
note bore interest at 12% per annum, originally matured on April 10, 1991 and
was extended to May 9, 1994. In June 1991, Equity Health merged into BCM, and
BCM assumed the note. The note was repaid in full in May 1994.
In 1990, SAMLP executed a settlement agreement in a class action lawsuit
arising from the formation of NRLP. Among other things, the settlement required
that Messrs. Phillips and Friedman make a capital contribution to NRLP of $2.0
million in the form of a promissory note which is guaranteed by SAMLP. In
addition, SAMLP paid $500,000 to NRLP under the settlement on behalf of Messrs.
Phillips and Friedman pursuant to certain indemnification provisions under the
SAMLP agreement of limited partnership and indemnified them for their
obligations under the $2.0 million promissory note. In May 1994 SAMLP made the
fourth and final annual installment of principal and interest on such note, in
the amount of $631,000.
In April 1991, the Company paid $208,000 in cash to acquire all of the
capital stock of a corporation which owned 181 developed residential lots
located in Fort Worth, Texas subject to $1.2 million of mortgage debt owed to
CMET. The loan was repaid in full in August 1993. CMET is an entity having the
same advisor as the Company. As of November 11, 1994, the Company owned
approximately 32.8% of CMET's outstanding shares of beneficial interest and CMET
owned approximately 7.0% of the outstanding Shares of the Company's Common
Stock.
In June 1992, the Company sold 397,359 newly issued Shares of its common
stock to Donald C. Carter, a private investor, for $1.9 million cash. Terms of
the sale agreement provide Mr. Carter with an option to require the Company to
reacquire up to 360,000 of the Shares at $6.11 per share, for a total of $2.2
million. Such option is exercisable by Mr. Carter for a two-year period expiring
in March 1995. To secure its payment obligations under the option agreement, the
Company assigned its interest in the $22 million note receivable secured by the
Continental Hotel and Casino in Las Vegas, Nevada. In addition, BCM and the
trust that beneficially owns BCM agreed to guarantee the Company's payment
obligation to purchase such Shares.
In January 1992, the Company entered into a partnership agreement with an
entity affiliated with Mr. Carter to acquire 287 developed residential lots
adjacent to the Company's other residential lots in Fort Worth, Texas. The
Company paid $717,000 in cash for its 50% general partnership interest. The
partnership agreement designates the Company as managing general partner. The
partnership agreement also provides that the other general partner is guaranteed
a 10% return on its investment. As of September 30, 1994, 56 of the lots had
been sold, and 231 lots remained to be sold.
In June 1992, the Company obtained a $3.3 million loan from Mr. Carter. The
note bears interest at 10% and matures in May 1995. Interest payments are made
monthly in addition to ten quarterly principal payments of $330,000 each, which
commenced March 1, 1993. The note is collateralized by an assignment of the
Company's interest in a partnership which owns residential lots in Fort Worth,
Texas and the Company's interest in undeveloped land in downtown Atlanta,
Georgia. The loan also provides for Mr. Carter's participation in the proceeds
from either the sale or refinancing of the Atlanta land to the extent of 15.57%
of the net proceeds, as defined, in excess of $10 million. Mr. Carter also had
the right during a period beginning eighteen months from the date of the loan
and continuing ninety days thereafter to put his participation to the Company in
exchange for a payment of $623,000. On December 2, 1993, Mr. Carter exercised
his put which required full payment by the Company within 30 days. Mr. Carter
agreed to extend the payment date to January 2, 1995, and BCM and the trust that
beneficially owns BCM agreed to guarantee the Company's payment obligation.
15
<PAGE> 19
In September 1992, the Company agreed to sell its entire holdings in NIRT
to William S. Friedman, the President and a Trustee of NIRT, members of his
family and his affiliates. At the time, NIRT had the same advisor as the Company
and Mr. Friedman served as President of the Company. BCM resigned as advisor to
NIRT effective March 31, 1994. The agreement provided for the Company to sell
its 741,592 NIRT shares at the then market price of $6.875 per share. As of
December 31, 1993, the Company had transferred all of its NIRT shares to Mr.
Friedman and his affiliates in exchange for cash of $2.9 million, 42,260 limited
partner units of NRLP, 105,096 shares of CMET, 10,075 shares of IORT and 118,500
shares of TCI.
In 1993, the Company paid BCM and its affiliates $1.2 million in advisory
and mortgage servicing fees, $180,000 in real estate brokerage commissions,
$102,000 in loan arrangement fees and $45,000 in property management fees. In
addition, as provided in the Advisory Agreement, BCM received cost
reimbursements from the Company of $288,000 in 1993.
SELECTION OF AUDITORS FOR 1994
The Board of Directors has selected BDO Seidman to serve as the auditors
for the Company for the 1994 fiscal year. The Company's auditors for the 1993
fiscal year were BDO Seidman. A representative of BDO Seidman will attend the
annual meeting.
OTHER MATTERS
Management knows of no other matters that may properly be, or that are
likely to be, brought before the meeting. However, if any other matters are
properly brought before the meeting, the persons named in the enclosed proxy or
their substitutes will vote in accordance with their best judgment on such
matters.
FINANCIAL STATEMENTS
The audited consolidated balance sheets of the Company, in comparative form
as of December 31, 1993 and 1992, and the audited consolidated statements of
operations and consolidated statements of cash flows for the years ended
December 31, 1993, 1992 and 1991 are contained in the 1993 Annual Report to
Stockholders. However, such report and the financial statements contained
therein are not to be considered part of this solicitation.
SOLICITATION OF PROXIES
This Proxy Statement is furnished to Stockholders to solicit proxies on
behalf of the Directors of the Company. The cost of soliciting proxies will be
borne by the Company. Directors and officers of the Company may, without
additional compensation, solicit by mail, in person or by telecommunication. In
addition, the Company has retained Beacon Hill Partners ("Beacon Hill") to
assist in the solicitation of proxies. An agreement with Beacon Hill provides
that it will distribute materials relating to the solicitation of proxies,
contact Stockholders to confirm receipt of materials and answer questions
relating thereto. Beacon Hill is to be paid a base fee of $2,000 plus
out-of-pocket expenses and is to be indemnified against all liability incurred
as a result of any material omission or misstatement in any of the materials so
distributed.
By Order of the Board of Directors
/s/ KARL L. BLAHA
KARL L. BLAHA
President
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
BOTH OF THE NOMINEES ON THE ENCLOSED PROXY. REGARDLESS OF HOW YOU WISH TO VOTE
YOUR SHARES, YOUR BOARD OF DIRECTORS URGES YOU TO PROMPTLY SIGN, DATE AND MAIL
THE ENCLOSED PROXY.
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<PAGE> 20
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 19, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AMERICAN REALTY TRUST, INC.
The undersigned hereby appoints HAMILTON P. SCHRAUFF and ROBERT A. WALDMAN,
and each of them, Proxies with full power of substitution in each of them, in
the name, place and stead of the undersigned, to vote at the Annual Meeting of
Stockholders of AMERICAN REALTY TRUST, INC., to be held on Monday, December 19,
1994, at 2:00 p.m. (Dallas time), or at any adjournments thereof, according to
the number of votes that the undersigned would be entitled to vote if personally
present, upon the matters on the reverse side.
THE BOARD OF DIRECTORS OF AMERICAN REALTY TRUST, INC. RECOMMENDS A VOTE FOR
BOTH NOMINEES.
YOUR PROXY IS IMPORTANT. PLEASE INDICATE YOUR SUPPORT FOR THE BOARD OF
DIRECTORS BY MARKING THE BOX FOR ELECTION OF CLASS III DIRECTORS. PLEASE SIGN,
DATE AND MAIL THIS PROXY TODAY IN THE ENCLOSED ENVELOPE. IF NOT OTHERWISE
MARKED, YOUR PROXY WILL BE VOTED FOR THE ELECTION OF BOTH NOMINEES. THIS PROXY
REVOKES ALL PREVIOUS PROXIES.
-----------
SEE REVERSE
SIDE
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<PAGE> 21
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
WITHHOLD
1. Election of FOR AUTHORITY (1) Instruction: To withhold
Class III / / / / authority to vote for any
Directors: individual nominee, write that
nominee's name in the space
NOMINEES: Ryan T. Phillips and provided. When a proxy card is
Dale A. Crenwelge properly executed and returned, the
Shares represented thereby will be
For all nominees listed except as voted in favor of the election for
marked to the contrary below:(1) each of the nominees, unless
authority to vote for any such
- - - --------------------------------- nominee is specifically withheld.
There will be no cumulative voting
for the Class III Directors. If any
nominee is unable to serve or will
not serve (an event which is not
anticipated), then the person acting
pursuant to the authority granted
under the proxy will cast votes for
the remaining nominees and, unless
the Board of Directors takes action
to reduce the number of Class III
Directors, for such other person as
he or she may select in place of
such nominee.
2. Other Business: I Authorize
the aforementioned Proxies in their
discretion to vote upon such other
business as may properly come before
the Annual Meeting and any
adjournments thereof.
FOR AGAINST ABSTAIN
/ / / / / /
SIGNATURE__________________________________ DATED:_______________________, 1994
SIGNATURE (IF HELD JOINTLY)________________ TITLE______________________________
Please sign exactly as name appears herein. When Shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. When signing for a
corporation, please sign full corporate name by an authorized officer. When
signing for a partnership, please sign partnership name by an authorized person.
If Shares are held in more than one capacity, this proxy shall be deemed valid
for all Shares held in all capacities.
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY
