<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1996
-------------
Commission File Number 1-9948
------
AMERICAN REALTY TRUST, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Georgia 54-0697989
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(214) 692-4700
--------------------------------
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.01 par value 6,740,328
- ---------------------------- -----------------------------
(Class) (Outstanding at July 30, 1996)
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been examined by
independent certified public accountants but in the opinion of the management
of American Realty Trust, Inc. (the "Company"), all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of consolidated
results of operations, consolidated financial position and consolidated cash
flows at the dates and for the periods indicated, have been included.
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- --------------
(dollars in thousands)
<S> <C> <C>
Assets
------
Notes and interest receivable
Performing.......................................... $ 51,385 $ 51,840
Nonperforming, nonaccruing.......................... 1,827 1,827
--------------- --------------
53,212 53,667
Less - allowance for estimated losses............... (3,926) (3,926)
--------------- --------------
49,286 49,741
Real estate held for sale, net of accumulated
depreciation ($5,098 in 1996 and 1995)............ 40,930 32,627
Less - allowance for estimated losses............... (3,328) (3,328)
--------------- --------------
37,602 29,299
Real estate held for investment, net of accumulated
depreciation ($3,344 in 1996 and $2,646 in 1995).. 31,087 30,125
Marketable equity securities, at market value....... 4,605 2,093
Cash and cash equivalents........................... 173 1,054
Investments in equity investees..................... 53,832 41,072
Other assets........................................ 7,941 8,649
--------------- --------------
$ 184,526 $ 162,033
=============== ==============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
<PAGE> 3
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- --------------
(dollars in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable......................... $ 91,475 $ 61,163
Margin borrowings.................................. 31,495 34,017
Accounts payable and other liabilities (including
$624 in 1996 and $4,584 in 1995 to affiliate).... 8,641 12,698
--------------- --------------
131,611 107,878
Minority interest.................................. 1,097 1,097
Commitments and contingencies
Stockholders' equity
Preferred stock, authorized 20,000,000 shares,
issued and outstanding
4,000 shares Series B, 10% cumulative, $2.00
par value.................................... 8 -
15,111 shares Series C, 10% cumulative, $2.00
par value.................................... 30 -
Common stock, $.01 par value; authorized
16,667,000 shares, issued and outstanding
6,740,328 shares in 1996 and 5,858,328 in 1995.... 67 59
Paid-in capital..................................... 68,584 66,719
Accumulated (deficit)............................... (16,871) (13,720)
--------------- --------------
51,818 53,058
--------------- --------------
$ 184,526 $ 162,033
=============== ==============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE> 4
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------------- ----------------------------------
1996 1995 1996 1995
--------------- --------------- ---------------- --------------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Income
Rents....................... $ 4,084 $ 3,684 $ 9,394 $ 9,091
Interest.................... 1,135 1,257 2,273 2,580
Other....................... 127 611 469 (39)
--------------- --------------- ---------------- --------------
5,346 5,552 12,136 11,632
--------------- --------------- ---------------- --------------
Expenses
Property operations......... 3,856 3,333 7,566 7,212
Interest.................... 3,270 1,999 6,416 3,756
Advisory and servicing fees
to affiliate............. 381 239 701 543
General and administrative.. 595 667 1,237 1,227
Depreciation and
amortization............. 453 402 890 842
Equity in (losses) of
real estate investees.... 1,530 1,699 2,420 2,959
Minority interest........... - 671 - 671
--------------- --------------- ---------------- --------------
10,085 9,010 19,230 17,210
--------------- --------------- ---------------- --------------
(Loss) before gain on sale of
real estate and extraordinary
gain........................ (4,739) (3,458) (7,094) (5,578)
Gain on sale of real estate.. 2,348 24 4,475 948
Extraordinary gain........... 247 12 260 327
--------------- --------------- ---------------- --------------
Net (loss)................... (2,144) (3,422) (2,359) (4,303)
Preferred dividend requirement (17) - (17) -
--------------- --------------- ---------------- --------------
Net (loss) applicable to
Common shares............... $ (2,161) $ (3,422) $ (2,376) $ (4,303)
=============== =============== ================ ==============
Earnings per share
(Loss) before extraordinary
gain..................... $ (.37) $ (.59) $ (.42) $ (.79)
Extraordinary gain.......... .04 - .04 .06
--------------- --------------- ---------------- --------------
Net (loss) applicable to
Common shares............ $ (.33) $ (.59) $ (.38) $ (.73)
=============== =============== ================ ==============
Weighted average Common share
used in computing earnings
per share................... 6,615,317 5,858,328 6,236,823 5,858,328
=============== =============== ================ ==============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
4
<PAGE> 5
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Series B Series C
Preferred Preferred Common Paid-in
Stock Stock Stock Capital
------------- ------------ ----------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1996.... $ - $ - $ 59 $ 66,719
Common stock issued......... - - 8 (8)
Series B Preferred stock
issued..................... 8 - - 392
Series C Preferred stock
issued..................... - 30 - 1,470
Common stock cash dividend
($.10 per share)........... - - - -
Redemption of share
purchase rights ($.015
per right per share)....... - - - -
Series B Preferred Stock
cash dividend distribu-
tion ($1.46 per share)..... - - - -
Series C Preferred Stock
stock dividend............. - - - 11
Net (loss).................. - - - -
------------- ------------ ----------- --------------
Balance, June 30, 1996...... $ 8 $ 30 $ 67 $ 68,584
============= ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Accumulated Stockholders'
(Deficit) Equity
---------------- ---------------
<S> <C> <C>
Balance, January 1, 1996.... $ (13,720) $ 53,058
Common stock issued......... - -
Series B Preferred stock
issued..................... - 400
Series C Preferred stock
issued..................... - 1,500
Common stock cash dividend
($.10 per share)........... (674) (674)
Redemption of share
purchase rights ($.015
per right per share)....... (101) (101)
Series B Preferred Stock
cash dividend distribu-
tion ($1.46 per share)..... (6) (6)
Series C Preferred Stock
stock dividend............. (11) -
Net (loss).................. (2,359) (2,359)
---------------- ---------------
Balance, June 30, 1996...... $ (16,871) $ 51,818
================ ===============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
<PAGE> 6
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------------
1996 1995
---------------- ---------------
(dollars in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Rents collected................................. $ 8,677 $ 9,437
Interest and dividends collected................ 2,250 3,054
Distributions received from equity investees'
operating cash flow.......................... 5,982 878
Payments for property operations................ (8,209) (6,702)
Interest paid................................... (3,688) (3,922)
Advisory and servicing fees paid to affiliate... (701) (543)
General and administrative expenses paid........ (1,274) (1,284)
Other........................................... (98) 228
---------------- ---------------
Net cash provided by operating activities.... 2,939 1,146
Cash Flows From Investing Activities
Collections on notes receivable................. 449 1,186
Funding of notes receivable..................... (100) -
Proceeds from sale of real estate............... 1,951 9,731
Proceeds from sale of marketable equity
securities................................... 17,122 3,061
Purchases of marketable equity securities....... (18,421) (9,870)
Investment in equity investees.................. (13,545) (5,546)
Purchases of real estate........................ (798) (14,076)
Earnest money deposits.......................... (1,865) -
Real estate improvements........................ (731) (1,026)
---------------- ---------------
Net cash (used in) investing activities...... (15,938) (16,540)
Cash Flows From Financing Activities
Proceeds from notes payable..................... 43,750 23,700
Payments on notes payable....................... (20,050) (14,401)
Deferred borrowing costs........................ (1,735) (1,200)
Net repayment of advances from affiliates....... (3,960) (1,059)
Margin (repayments) borrowings, net............. (6,281) 8,592
Proceeds from issuance of series B preferred
stock........................................ 400 -
Distributions to stockholders................... (6) -
---------------- ---------------
Net cash provided by financing activities.... 12,118 15,632
Net increase (decrease) in cash and cash
equivalents................................ (881) 238
Cash and cash equivalents, beginning of period.... 1,054 193
---------------- ---------------
Cash and cash equivalents, end of period.......... $ 173 $ 431
================ ===============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
<PAGE> 7
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------------
1996 1995
---------------- ---------------
(dollars in thousands)
<S> <C> <C>
Reconciliation of net (loss) to net cash provided
by operating activities
Net (loss)........................................ $ (2,359) $ (4,303)
Adjustments to reconcile net (loss) to net cash
provided by operating activities
Extraordinary gain............................. (260) (327)
Depreciation and amortization.................. 890 842
Gain on sale of real estate.................... (4,475) (948)
Distributions from equity investees' operating
cash flow.................................... 5,982 878
Equity in losses of investees.................. 2,420 2,959
Unrealized (gain) loss on marketable equity
securities................................... (663) 899
Decrease in accrued interest receivable........ 11 266
Decrease in other assets....................... 1,882 631
Increase (decrease) in accrued interest
payable...................................... 219 (260)
Increase (decrease) in accounts payable and
other liabilities............................ (843) 414
Other.......................................... 135 95
---------------- ---------------
Net cash provided by operating activities.... $ 2,939 $ 1,146
================ ===============
Schedule of noncash investing activities
Issuance of 15,000 shares of Series B Preferred
Stock with an aggregate liquidation value of
$1.5 million................................... $ 1,500 $ -
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
7
<PAGE> 8
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements of American Realty Trust,
Inc. and consolidated entities (the "Company") have been prepared in conformity
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Operating results for the six month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the Consolidated
Financial Statements and Notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K").
Shares and per share data have been restated for the two for one forward share
split effected January 2, 1996.
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.
The Company owns 76.8% limited partner interest in Syntek Asset Management,
L.P. ("SAMLP"), the general partner of National Realty, L.P. ("NRLP") and
National Operating, L.P. ("NOLP"), the operating partnership of NRLP. Gene E.
Phillips, a Director and Chairman of the Board of the Company until November
16, 1992, is a general partner of SAMLP, and until March 4, 1994, William S.
Friedman, a Director and President of the Company until December 31, 1992, was
also general partner of SAMLP.
NRLP, SAMLP and Messrs. Phillips and Friedman were among the defendants in a
class action lawsuit arising from the formation of NRLP. An agreement settling
such lawsuit for the above mentioned defendants became effective on July 5,
1990. The settlement agreement provided for, among other things, the
appointment of an NRLP oversight committee; the establishment of specified
annually increasing targets for five years relating to the price of NRLP's
units of limited partner interest; a limitation and deferral or waiver of
NRLP's reimbursement to SAMLP of certain future salary costs; a deferral or
waiver of certain future compensation to SAMLP; the required distribution to
unitholders of all of NRLP's cash from operations in excess of certain
renovation costs unless the NRLP oversight committee approves alternative uses
for such cash from operations; the issuance of unit purchase warrants to
members of the plaintiff class; and the contribution by the then individual
general partners of $2.5 million to NRLP over a four-year period. In
accordance with the indemnification provisions of SAMLP's agreement of limited
partnership, SAMLP agreed to indemnify Messrs. Phillips and Friedman, the
individual general partners, at the time, of SAMLP, for the $2.5 million
payment to NRLP. The final annual installment of principal and interest was
paid by SAMLP in May 1994.
The settlement agreement provides for the resignation and replacement of SAMLP
as general partner if the unit price targets are not met for two
8
<PAGE> 9
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)
consecutive anniversary dates. NRLP did not meet the unit price targets for
the first and second anniversary dates. On July 8, 1992, SAMLP notified the
NRLP oversight committee of the failure of NRLP to meet the unit price targets
for two successive years and that it expects to resign as general partner of
NRLP and NOLP.
The withdrawal of SAMLP as general partner would require NRLP to purchase
SAMLP's general partner interest (the "Redeemable General Partner Interest") at
its then fair value, and to pay certain fees and other compensation as provided
in the partnership agreement. Syntek Asset Management, L.P. ("SAMI"), the
managing general partner of SAMLP, has calculated the fair value of such
Redeemable General Partner Interest to be $36.2 million at June 30, 1996,
before reduction for the principal balance ($4.2 million at June 30, 1996) and
accrued interest ($5.7 million at June 30, 1996) on the note receivable from
SAMLP for its original capital contribution to the partnership.
In January 1995, NRLP, SAMLP and the NRLP oversight committee executed an
Implementation Agreement which provides for the nomination of a successor
general partner to succeed SAMLP and for the resolution of all related matters
under the class action settlement. On February 20, 1996, the parties to the
Implementation Agreement executed an Amended and Restated Implementation
Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the amended and restated Implementation Agreement, SAMLP shall receive
$12,471,500 from NRLP. This amount represents a compromise settlement of the
net amounts owed by NRLP to SAMLP upon SAMLP's withdrawal as general partner
and any amounts which SAMLP and its affiliates may owe to NRLP. This amount
shall be paid to SAMLP pursuant to a promissory note in accordance with the
terms set forth in the Amended and Restated Implementation Agreement.
The Amended and Restated Implementation Agreement has been submitted to the
Judge appointed to supervise the class action settlement (the "Supervising
Judge") for tentative approval and approval of the notice to be sent to the
original class members. Upon final approval by the Supervising Judge, the
proposal to elect the successor general partner will be submitted to the NRLP
unitholders for a vote. In addition, the unitholders will vote upon amendments
to NRLP's partnership agreement which relate to the proposed compensation of
the successor general partner and other related matters.
The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in NRLP, shall not vote to remove the successor general
partner, except for removal with cause, for a period of 36 months from the date
the successor general partner takes office.
Upon approval by NRLP's unitholders, SAMLP shall resign as general partner of
NRLP and NOLP and the successor general partner shall take
9
<PAGE> 10
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)
office. If the required approvals are obtained, it is anticipated that the
successor general partner may be elected and take office during the fourth
quarter of 1996.
Upon the election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated. If the
successor general partner nominee is not elected, the existing settlement shall
remain in full force and effect and all of the provisions of the Amended and
Restated Implementation Agreement shall be voided, including the compromise
settlement referred to above.
NOTE 3. NOTES AND INTEREST RECEIVABLE
In February 1996, the Company refinanced the $7.8 million of debt
collateralized by a mortgage note receivable with a balance of $18.4 million at
June 30, 1996, which is secured by the Las Vegas Shopping Center in Las Vegas,
Nevada, for $12.0 million. The Company received net refinancing proceeds of
$2.3 million after the payoff of the existing debt, payment of closing costs
associated with the refinancing and making a $1.5 million paydown on the term
loan secured by land in Las Colinas, in exchange for that lender's release of
its participation interest in the note receivable. The new loan bears interest
at 15% per annum, requires monthly principal and interest payments of $152,000
and matures February 6, 1998. The Company paid Basic Capital Management, Inc.
("BCM"), the Company's advisor, a mortgage brokerage and equity refinancing fee
of $120,000 based upon the $12.0 million refinancing.
In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino property at foreclosure subject to first and
second lien mortgages totaling $10.0 million and a disputed third lien
mortgage. In June 1992, the Company sold the hotel and casino to the third
lien holder accepting as partial payment a $22.0 million wraparound mortgage
note receivable. The Company's wraparound mortgage note receivable had a
principal balance of $22.7 million at June 30, 1996.
In April 1996, the underlying liens relating to this wraparound mortgage note
receivable were refinanced for $16.8 million. The Company received net cash of
$11.2 million after the payoff of the two underlying liens then totaling $2.9
million, the payment of various closing costs associated with the refinancing
and making a $1.4 million paydown on the term loan secured by land in Las
Colinas, Texas, in exchange for that lender's release of its participation
interest in the wraparound note receivable. Such paydown was credited against
the term loan payments that would have otherwise been due in May and November
1996. The new loan bears interest at 16.5% per annum, requires monthly
interest only payments at a rate of 12.5% with the remaining 4% being deferred
and added to principal. The loan matures April 16, 1998. The Company paid BCM
a mortgage brokerage and equity refinancing fee of $168,000 based upon the
$16.8 million refinancing.
10
<PAGE> 11
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)
At June 30, 1996, the Company held a mortgage note receivable secured by a
third lien on a commercial property in South Carolina and personal guaranties
of several individuals. The borrower had failed to make the required payments
of principal and interest since December 1, 1994. The Company accelerated the
note and instituted foreclosure proceedings, as well as actions against the
guarantors of the note. Effective September 1, 1995, the note was extended to
September 1, 1996, requiring a $68,000 principal reduction payment with the
monthly interest, quarterly principal payments and all other terms remaining
the same. The Company received $43,000 of the required principal reduction
payment in 1995 and received the remaining $25,000 in 1996 as well as the
required first and second quarterly principal reduction payments totaling
$50,000. The principal balance of the note was $204,000 at June 30, 1996 and
the note is now performing in accordance with its terms.
In May 1996, the Company funded a $100,000 second lien mortgage secured by a
single family residence in Oklahoma City, Oklahoma. The mortgage note
receivable bears interest at 10% per annum with the principal and accrued but
unpaid interest being payable in a single installment on demand. The mortgage
note receivable matures June 1, 1998.
NOTE 4. REAL ESTATE
In March 1996, the Company sold 2.3 acres of the 74.9 acre Las Colinas land
parcel for $961,000 in cash. In accordance with the provisions of the term
loan secured by such parcel, the Company applied the net proceeds of the sale,
$891,000, to pay down the term loan, $400,000 being applied to pay off the
remaining balance owing on the $3.0 million principal payment due March 31,
1996, with the remaining $491,000 being applied against the principal payment
of $1.5 million otherwise due in May 1996. The Company recognized a gain of
$538,000 on the sale.
In October 1995, the Company purchased an additional 92.6 acre tract of
partially developed land in Las Colinas, Texas. In February 1996, the Company
entered into a contract to sell 72.5 acres for $12.9 million in cash. The
contract calls for the sale to close in two phases. The first phase was
scheduled to close on or before May 1996 but was extended to July 1996, and the
second phase is to close on or before December 1996. See NOTE 11. "SUBSEQUENT
EVENTS."
In May 1996, the Company sold an additional 2.3 acres of the 74.9 acre Las
Colinas land parcel for $941,000 in cash. The Company applied the net proceeds
of the sale of $864,000 to paydown the term loan secured by such parcel in
accordance with provisions of the loan. The net proceeds were applied toward
the $3.0 million principal payment otherwise due in November 1996. The Company
recognized a gain of $538,000 on the sale. At June 30, 1996, 63.4 acres
remained to be sold.
Also in May 1996, the Company purchased a 2,271 square foot single family
residence in Dallas, Texas for $266,000 in cash.
11
<PAGE> 12
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. REAL ESTATE (Continued)
In June 1996, the Company purchased 442 acres of partially developed land in
Denver, Colorado for $8.5 million. In connection with the acquisition, the
Company obtained purchase money financing for $7.5 million and issued 15,000
shares of the Company's Series C 10% cumulative preferred stock with an
aggregate liquidation value of $1.5 million. See NOTE 9. "PREFERRED STOCK."
The excess financing proceeds of $500,000 were applied to the various closing
costs associated with the acquisition in addition to $272,000 of such costs
which the Company paid in cash. The new loan bears interest at 15% per annum,
requires monthly interest only payments at a rate of 12% with the remaining 3%
being deferred and added to the principal of the loan. The principal balance,
accrued and unpaid interest and a $600,000 "maturity fee" is due at maturity on
June 1, 1998. The Company paid a real estate brokerage commission of $255,000
to Carmel Realty, Inc., an affiliate of Basic Capital Management, Inc. ("BCM"),
the Company's advisor, based on the $8.5 million purchase price.
Also in June 1996, the Company sold for $120,000 in cash a tract of land in
Midland, Michigan that was leased under a long-term land lease. The Company
recognized a gain of $44,000 on the sale.
In 1991, the Company purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas. Through December
31, 1995, 176 of the residential lots had been sold. During 1996, 8 additional
lots have been sold for an aggregate gain of $10,000. At June 30, 1996, 14
lots remained to be sold.
NOTE 5. INVESTMENT IN REAL ESTATE ENTITIES
The Company's investment in real estate entities at June 30, 1996, includes (i)
equity securities of three publicly traded real estate investment trusts
(collectively the "REITs"), Continental Mortgage and Equity Trust ("CMET"),
Income Opportunity Realty Investors, Inc., formerly Income Opportunity Realty
Trust (collectively "IORI") and Transcontinental Realty Investors, Inc.
("TCI"), (ii) units of limited partner interest of NRLP, (iii) a general
partnership interest in NRLP and NOLP, the operating partnership of NRLP,
through the Company's 76.8% limited partner interest in SAMLP and (iv)
interests in real estate joint venture partnerships. BCM, the Company's
advisor, serves as advisor to the REITs, and performs certain administrative
and management functions for NRLP and NOLP on behalf of SAMLP.
The Company accounts for its investment in the REITs, NRLP and the joint
venture partnerships under the equity method. The Company continues to account
for its investment in NRLP under the equity method due to the pending
resignation of SAMLP as general partner of NRLP. See NOTE 2. "SYNTEK ASSET
MANAGEMENT, L.P." Substantially all of the Company's equity securities of the
REITs and NRLP are pledged as collateral for borrowings. See NOTE 7. "NOTES
AND INTEREST PAYABLE."
12
<PAGE> 13
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. INVESTMENT IN REAL ESTATE ENTITIES (Continued)
The Company's investment in real estate entities, accounted for using the
equity method, at June 30, 1996 was as follows:
<TABLE>
<CAPTION>
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee June 30, 1996 June 30, 1996 June 30, 1996 June 30, 1996
- -------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NRLP 52.2% $ 10,838 $ * $ 36,004
CMET 38.9 13,971 30,503 16,301
IORI 27.5 2,706 6,272 4,305
TCI 29.1 8,818 25,214 11,823
-------------- -------------
36,333 $ 68,433
=============
General partner interest in
NRLP and NOLP 7,130
Other equity investees 10,369
--------------
$ 53,832
==============
</TABLE>
___________________
* At June 30, 1996, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity at December 31, 1995, was
$161.5 million. Revaluation equity is defined as the difference
between the appraised value of the partnership's real estate, adjusted to
reflect the partnership's estimate of disposition costs, and the amount of
the mortgage notes payable and accrued interest encumbering such property
as reported in NRLP's Annual Report on Form 10-K for the year ended
December 31, 1995.
The difference between the carrying value of the Company's investment and the
equivalent investee book value is being amortized over the life of the
properties held by each investee.
The Company's management continues to believe that the market value of each of
the REITs and NRLP undervalues their assets and the Company may, therefore,
continue to increase its ownership in these entities in 1996.
Set forth below is summarized combined results of operations for the real
estate entities the Company accounts for using the equity method for the six
months ended June 30, 1996:
<TABLE>
<S> <C>
Revenues.................................................... $ 105,153
Equity in (loss) of Partnerships............................ (297)
Property operating expenses................................. (68,710)
Depreciation................................................ (11,959)
Interest expense............................................ (31,497)
Provision for losses........................................ (1,579)
Gain on sale of real estate................................. 7,819
Extraordinary gain.......................................... 711
-------------
Net (loss).................................................. $ (359)
=============
</TABLE>
13
<PAGE> 14
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. INVESTMENT IN REAL ESTATE ENTITIES (Continued)
The Company's cash flow from the REITs and NRLP is dependent on the ability of
each of the entities to make distributions. In the first quarter of 1993, CMET
and IORI resumed regular quarterly distributions. NRLP resumed distributions in
the fourth quarter of 1993 and TCI resumed distributions in the fourth quarter
of 1995. In the first six months of 1996, the Company received aggregate
distributions of $6.0 million from the REITs and NRLP.
In the first six months of 1996, the Company purchased a total of $660,000 of
equity securities of the REITs and NRLP.
IORI was scheduled to begin liquidation of its assets prior to October 24,
1996. However, on March 15, 1996, IORI's stockholders approved a proposal to
convert IORI from a finite life business trust to a perpetual life corporation.
In April 1996, the Company purchased a 28% general partner interest in Campbell
Center Associates, Ltd. which in turn has a 56.25% interest in Campbell Centre
I, which owns a 413,175 square foot office building in Dallas, Texas. The
purchase price of the general partner interest was $550,000 in cash and a
$500,000 note, which bears interest at 8% per annum, requires monthly interest
only payments commencing in April 1997 and matures April 2000.
In January 1992, the Company entered into a partnership agreement with an
entity affiliated with the owner, at the time, of in excess of 14% of the
Company's outstanding shares of Common Stock, to acquire 287 developed
residential lots adjacent to the Company's other residential lots in Fort
Worth, Texas. The partnership agreement designates the Company as managing
general partner. The partnership agreement also provides each of the partners
with a guaranteed 10% return on their respective investments. Through December
31, 1995, 145 residential lots had been sold. In the first six months of 1996
an additional 38 lots were sold. At June 30, 1996, 117 lots remained to be
sold. Through June 30, 1996, each partner had received $117,000 in return of
capital distributions and $146,000 in profit distributions from the
partnership.
NOTE 6. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO
In the first quarter of 1994, the Company began purchasing equity securities of
entities other than those of the REITs and NRLP to diversify and increase the
liquidity of its margin accounts. In the first six months of 1996, the Company
purchased $18.4 million and sold $17.1 million of such securities. These
equity securities are considered a trading portfolio and are carried at market
value. At June 30, 1996, the Company recognized an unrealized increase in the
market value of its trading portfolio securities of $663,000. Also in the
first six months of 1996, the Company realized a net loss of $660,000 from the
sale of trading portfolio securities and received $45,000 in
14
<PAGE> 15
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO (Continued)
dividends. Unrealized and realized gains and losses on trading portfolio
securities are included in other income in the accompanying Consolidated
Statements of Operations.
NOTE 7. NOTES AND INTEREST PAYABLE
In April 1996, the Company refinanced the $5.1 million first and second lien
debt related to the Denver Merchandise Mart in Denver, Colorado for $15.0
million. The new loan is secured by a first lien mortgage against the Denver
Merchandise Mart and a pledge of 632,000 newly issued shares of the Company's
common stock. See NOTE 8. "COMMON STOCK." The Company received net
refinancing proceeds of $4.8 million after the payoff of the first and second
lien debt totaling $5.1 million, a $3.0 million holdback pending the lender's
receipt of the collateral shares, which was funded to the Company in May 1996,
purchasing the ground lease on Denver Merchandise Mart for $678,000 and payment
of various closing costs associated with the refinancing. The new loan bears
interest at the prime rate plus 2.25%, currently 10.5% per annum, requires
monthly principal and interest payments of $142,000 and matures October 31,
1997. The Company paid BCM a mortgage brokerage and equity refinancing fee of
$150,000 based upon the $15.0 million refinancing.
The Company has margin arrangements with various brokerage firms which provide
for borrowing of up to 50% of the market value of the Company's marketable
equity securities. The borrowings under such margin arrangements are secured
by equity securities of the REITs, NRLP and the Company's trading portfolio and
bear interest rates ranging from 7.0% to 9.0%. Margin borrowings totaled $31.5
million at June 30, 1996.
NOTE 8. COMMON STOCK
At June 30, 1996 and December 31, 1995, there were authorized 16,667,000 shares
of common stock, par value $.01 per share, of which 6,740,328 and 5,858,328
shares were outstanding at the respective dates. The increase in common shares
outstanding is described below.
In April 1996, the Company issued 250,000 shares of common stock to ND
Investments, Inc., a wholly-owned subsidiary of the Company, which pledged the
shares as additional collateral for the loan secured by the 92.6 acres of
partially developed land in Las Colinas, Texas. See NOTE 4. "REAL ESTATE."
Also in April 1996, the Company issued 632,000 shares of common stock to Garden
Capital Merchandise Mart, Inc., a wholly-owned subsidiary of the Company, which
pledged the shares as additional collateral for the loan secured by the Denver
Merchandise Mart, in Denver, Colorado. See NOTE 7. "NOTES AND INTEREST
PAYABLE."
On June 12, 1996, the Company's Board of Directors announced the resumption of
the payment of dividends on the Company's Common Stock with the declaration of
a second
15
<PAGE> 16
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 8. COMMON STOCK (Continued)
quarter dividend of $.10 per share. The distribution totaling $674,000 was
paid on July 8, 1996 to stockholders of record on June 21, 1996. The
Company last paid dividends on May 15, 1990. Future distributions to
stockholders will be dependent upon the Company's realized income, financial
condition, capital requirements and other factors deemed relevant by the
Company's Board of Directors.
Also on June 12, 1996, the Company announced the redemption of the outstanding
share purchase rights for $.01 per right. As of the date of redemption, each
share of Common Stock represented 1.5 share rights. The redemption proceeds
totaling $101,000 were also distributed on July 8, 1996 to stockholders of
record on June 12, 1996. These rights were initially distributed to
stockholders on April 23, 1990.
NOTE 9. PREFERRED STOCK
In April 1996, the Company filed Articles of Amendment to its Articles of
Incorporation creating and designating a Series B 10% cumulative Preferred
Stock, par value $2.00 per share, out of the 20,000,000 shares authorized of a
special class of stock. The Series B Preferred Stock consists of a maximum of
4,000 shares, all of which were sold April 4, 1996 for $400,000 in cash in a
private transaction. Dividends are payable at a rate of $10.00 per year or
$2.50 per quarter to stockholders of record on the 15th day of each March,
June, September and December when and as declared by the Board of Directors of
the Company.
In June 1996, the Company filed Articles of Amendment to its Articles of
Incorporation creating and designating a Series C 10% cumulative Preferred
Stock, par value $2.00 per share, out of the 20,000,000 shares authorized of a
special class of stock. The Series C Preferred Stock consists of a maximum of
16,500 shares, of which 15,000 were issued on June 4, 1996 in connection with
the purchase of 442 acres of partially developed land in Denver, Colorado. See
NOTE 4. "REAL ESTATE." Dividends are payable at a rate of $10.00 per year or
$2.50 per quarter to stockholders of record on the 15th day of each March,
June, September and December when and as declared by the Board of Directors of
the Company. The dividends for the first four quarters are to be paid with
additional shares of Series C Preferred Stock. On June 30, 1996, the Company
issued 111 shares of Series C Preferred Stock to stockholders of record on June
15, 1996.
NOTE 10. INCOME TAXES
Financial statement income varies from taxable income principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated
losses. The Company had no taxable income or provision for income taxes in the
six months ended June 30, 1996.
16
<PAGE> 17
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 11. OTHER EQUITY INVESTMENTS
In April 1996, a newly formed subsidiary of the Company purchased for $10.7
million in cash 80% of the common stock of an entity which in turn had acquired
26 operating pizza parlors in various communities in California's San Joaquin
Valley. Concurrent with the purchase, the Company granted to an individual an
option to purchase 36.25% of the Company's subsidiary at any time for the
Company's net investment in such subsidiary. Additionally, the Company is in
negotiations with underwriters to take such subsidiary public. The Company
believes that such option will be exercised and that the subsidiary will become
publicly held within a year. Accordingly, the Company believes its control of
such subsidiary is temporary and therefore accounts for such subsidiary under
the equity method.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Litigation. The Company is involved in various lawsuits arising in the
ordinary course of business. In the opinion of the Company's management, the
outcome of these lawsuits will not have a material impact on the Company's
financial condition, results of operations or liquidity.
NOTE 13. SUBSEQUENT EVENTS
In July 1996, a newly formed limited partnership, of which the Company is 1%
general partner, acquired 580 acres of land located in Collin County, Texas for
$5.7 million in cash. The Company paid $100,000 in cash with the remaining
$5.6 million being paid by the limited partner. The partnership agreement
designates the Company as the managing general partner. The Partnership
agreement also provides that the limited partner receive a 12% preferred
cumulative return on its investment before any sharing of partnership profits.
Also in July 1996, the Company sold 32.3 acres of the 92.6 acre tract of
partially developed land in Las Colinas, Texas for $4.9 million in cash. In
accordance with the provisions of the term loan secured by such parcel, the
Company applied the net proceeds of the sale, $4.7 million, to paydown the term
loan in exchange for that lenders' partial release of its collateral interest
in such land. See NOTE 4. "REAL ESTATE." The Company will record a gain of
approximately $2.0 million on such sale.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
American Realty Trust, Inc. (the "Company") was organized in 1961 to provide
investors with a professionally managed, diversified portfolio of equity real
estate and mortgage loan investments selected to provides opportunities for
capital appreciation as well as current income.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
General. Cash and cash equivalents at June 30, 1996 aggregated $173,000,
compared with $1.1 million at December 31, 1995. Although the Company
anticipates that during the remainder of 1996 it will generate excess cash flow
from operations, as discussed below, such excess cash is not expected to be
sufficient to discharge all of the Company's debt obligations as they mature.
The Company will therefore continue to rely on externally generated funds,
including borrowings against its investments in various real estate entities,
mortgage notes receivable, the sale or refinancing of properties and, to the
extent available or necessary, borrowings from its advisor to meet its debt
service obligations, pay taxes, interest and other non-property related
expenses.
At December 31, 1995, notes payable totaling $26.4 million had scheduled
maturities during 1996. Through July 31, 1996 the Company has paid a total of
$10.4 million of such debt and refinanced an additional $9.6 million. The
Company intends to either pay off, extend the maturity dates or obtain
alternate financing for the remaining $6.4 million debt obligations that mature
during the remainder of 1996. There can be no assurance, however, that these
efforts to obtain alternative financing or debt extensions will be successful.
The Company expects an increase in cash flow from property operations during
the remainder of 1996. Such increase is expected to be derived from operations
of the Denver Merchandise Mart, the Inn at the Mart and the Oak Tree Village
Shopping Center. The Company also expects continued lot sales at its Texas
residential subdivisions and substantial sales of its Las Colinas, Texas land
and its Denver, Colorado land to generate additional cash flow. See NOTE 4.
"REAL ESTATE."
In March 1996, the Company sold 2.3 acres of the 74.9 acre parcel in Las
Colinas, Texas for $961,000 in cash. In accordance with the provisions of the
term loan, the Company applied the $891,000 net proceeds of the sale to pay
down the term loan.
In April 1996, a subsidiary of the Company purchased for $10.7 million in cash
80% of the common stock of an entity that had acquired 26 operating pizza
parlors in various communities in California's San Joaquin Valley. See NOTE
12. "OTHER INVESTMENTS."
Also in April 1996, the Company purchased a 28% general partner interest in
Campbell Center Associates, Ltd. for $550,000 in cash and a $500,000 four-year
note.
In May 1996, the Company sold an additional 2.3 acres of the 74.9 acre parcel
in Las Colinas, Texas for $941,000 in cash. In accordance with the provisions
of the term loan, the Company applied the $864,000 net proceeds of the sale to
paydown the term loan.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Also in May 1996, the Company purchased a 2,271 square foot single family
residence in Dallas, Texas for $266,000 in cash.
In June 1996, the Company purchased 442 acres of partially developed land in
Denver, Colorado for $8.5 million. In connection with the acquisition, the
Company obtained purchase money financing for $7.5 million and issued 15,000
shares of the Company's Series C 10% cumulative preferred stock with an
aggregate liquidation value of $1.5 million. The excess financing proceeds of
$500,000 was applied to the various closing costs associated with the
acquisition in addition to $272,000 of such costs paid by the Company.
Also in June 1996, the Company sold a tract of land that was leased under a
long-term land lease for $120,000 in cash.
In July 1996, a newly formed limited partnership of which the Company is the
general partner acquired 580 acres of land in Collin County, Texas for $5.7
million in cash. The Company paid $100,000 in cash with the remaining $5.6
million being paid by the limited partner.
In October 1995, the Company purchased 92.6 acres of partially developed land
in Las Colinas, Texas. In February 1996, the Company entered into a contract
to sale 72.5 of the 92.6 acres for $12.9 million in cash. In July 1996, the
Company closed the first phase of the contract selling 32.3 acres for $4.9
million in cash. In accordance with the provisions of the term loan, the
Company applied the $4.7 million net proceeds to paydown the term loan in
exchange for that lender's partial release of its collateral interest in such
land.
On June 12, 1996, the Company's Board of Directors announced the resumption of
dividend payments at the initial rate of $.10 per share. The distribution,
totaling 674,000, was payable on July 8, 1996 to stockholders of record on June
21, 1996.
Also on June 12, 1996, the Company announced the redemption of the share
purchase rights for $.01 per right. The redemption price, totaling $101,000,
was also paid on July 8, 1996 to stockholders of record on June 21, 1996.
The Company expects that funds from existing cash resources, collections on
mortgage notes receivable, sales or refinancing of real estate and/or mortgage
notes receivable, and borrowings against its investments in marketable equity
securities, mortgage notes receivable and to the extent available, borrowings
from the Company's advisor, will be sufficient to meet the cash requirements
associated with the Company's current and anticipated level of operations,
maturing debt obligations and existing commitments. To the extent that the
Company's liquidity permits or financing sources are available, the Company may
make investments in real estate, additional investments in real estate entities
and marketable equity securities and fund or acquire mortgage notes.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Notes Receivable. The Company has received $449,000 in principal payments on
its notes receivable in the six months ended June 30, 1996.
Loans Payable. In February 1996, the Company refinanced $7.8 million of debt
collateralized by a mortgage note receivable with a balance of $18.4 million
which is secured by the Las Vegas Shopping Center in Las Vegas, Nevada, for
$12.0 million. The Company received net cash of $2.3 million after the payoff
of the existing debt, payment of closing costs associated with the refinancing
and making a $1.5 million paydown on the term loan secured by land in Las
Colinas, Texas in exchange for that lender's release of its participation
interest in the note receivable. See NOTE 3. "NOTES AND INTEREST RECEIVABLE."
In April 1996, the Company refinanced the first and second lien mortgage debt
on its $22.0 million wraparound mortgage note receivable secured by the
Continental Hotel and Casino in Las Vegas, Nevada for $16.8 million. See NOTE
3. NOTES AND INTEREST RECEIVABLE. The Company received net cash of $11.2
million after the payoff of the two underlying liens totaling $2.9 million,
various closing costs associated with the refinancing and making a $1.4 million
paydown on the term loan secured by land in Las Colinas, Texas in exchange for
that lender's release of its participation interest in the note receivable.
Also in April 1996, the Company refinanced $5.1 million of first and second
lien debt secured by the Denver Merchandise Mart for $15.0 million. The
Company received net refinancing proceeds of $4.8 million after the payoff of
the first and second lien debt, a $3.0 million holdback by the lender pending
its receipt of 632,000 newly issued shares of the Company's common stock which
was funded in May 1996, purchasing the ground lease on Denver Merchandise Mart
for $678,000 and payment of various closing costs associated with the
refinancing.
The Company has margin arrangements with various brokerage firms which provide
for borrowing up to 50% of the market value of the Company's marketable equity
securities. The borrowing under such margin arrangements are secured by equity
securities of the REITs, NRLP and the Company's trading portfolio and bear
interest rates ranging from 7.0% to 9.0%. Margin borrowing totaled $31.5
million at June 30, 1996.
Equity Investments. During the fourth quarter of 1988, the Company began
purchasing shares of various real estate investment trusts having the same
advisor as the Company, and units of limited partner interest in National
Realty, L.P. ("NRLP"). It is anticipated that additional equity securities of
NRLP and the REITs, Continental Mortgage and Equity Trust ("CMET"), Income
Opportunity Realty Investors, Inc., formerly Income Opportunity Realty Trust
(collectively "IORI") and Transcontinental Realty Investors, Inc. ("TCI"), will
be acquired in the future through open-market and negotiated transactions to
the extent the Company's liquidity permits.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Equity securities of the REITs and NRLP held by the Company may be deemed to be
"restricted securities" under Rule 144 of the Securities Act of 1933
("Securities Act"). Accordingly, the Company may be unable to sell such equity
securities other than in a registered public offering or pursuant to an
exemption under the Securities Act for a period of two years after they are
acquired. Such restrictions may reduce the Company's ability to realize the
full fair market value of such investments if the Company attempted to dispose
of such securities in a short period of time.
The Company's cash flow from these investments is dependent on the ability of
each of the entities to make distributions. In the first quarter of 1993, CMET
and IORI resumed quarterly distributions. NRLP resumed distributions in the
fourth quarter of 1993 and TCI resumed distributions in the fourth quarter of
1995. The Company received distributions totaling $6.0 million in the first
six months of 1996 from the REITs and NRLP.
On a quarterly basis, the Company's management reviews the carrying value of
the Company's mortgage notes receivable, properties held for sale and
periodically, but no less than annually, its properties held for investment.
Generally accepted accounting principles require that the carrying value of
such assets cannot exceed the lower of their respective carrying amounts or
estimated net realizable value. In the initial instance when the estimated net
realizable value of a mortgage note receivable or a property held for sale is
less than the carrying amount at the time of evaluation, a reserve is
established and a corresponding provision for loss is recorded by a charge
against earnings. A subsequent revision to estimated net realizable value
either increases or decreases such reserve with a corresponding charge against
or credit to earnings. In the case of properties held for investment the
carrying value of the property is written down and a provision for loss is
recorded. The estimate of net realizable value of the Company's mortgage note
receivable is based on management's review and evaluation of the collateral
property securing the mortgage note. The property review generally includes
selective property inspections, a review of the property's current rents
compared to market rents, a review of the property's expenses, a review of
maintenance requirements, discussions with the manager of the property and a
review of the surrounding area. See "Recent Accounting Pronouncement," below.
Commitments and Contingencies
In January 1995, NRLP, Syntek Asset Management, L.P. ("SAMLP") and the NRLP
oversight committee executed an Implementation Agreement which provides for the
nomination of a successor general partner to succeed SAMLP as general partner
of NRLP and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP and for the resolution of all related matters under the 1990 settlement of
a class action lawsuit. On February 20, 1996, the parties to the
Implementation Agreement executed an Amended and Restated Implementation
Agreement.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Commitments and Contingencies (Continued)
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as general partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.
The Amended and Restated Implementation Agreement has been submitted to the
Judge appointed to supervise the class action settlement (the "Supervising
Judge") for tentative approval and approval of the notice to be sent to the
original class members. Upon final approval by the Supervising Judge, the
proposal to elect the successor general partner will be submitted to the NRLP's
unitholders for a vote. In addition, the unitholders will vote upon amendments
to the NRLP's Partnership Agreement which relate to the proposed compensation
of the successor general partner and other related matters.
Upon approval by NRLP's unitholders, SAMLP shall withdraw as General Partner
and the successor general partner shall take office. If the required approvals
are obtained, it is anticipated that the successor general partner will be
elected and take office during the fourth quarter of 1996.
The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in NRLP shall not vote to remove the successor general
partner, except for removal with cause, for a period of 36 months from the date
the successor general partner takes office.
Upon election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated. If the
successor general partner is not elected, the existing class action settlement
shall remain in full force and effect and all of the provisions of the Amended
and Restated Implementation Agreement shall be voided, including the compromise
settlement of amounts owed by SAMLP and NRLP to each other. See NOTE 2.
"SYNTEK ASSET MANAGEMENT, L.P."
Results of Operations
For the three months ended June 30, 1996, the Company reported a net loss of
$2.1 million, compared to a net loss of $3.4 million for the three months ended
June 30, 1995. For the six months ended June 30, 1996, the Company had a net
loss of $2.4 million compared with a net loss of $4.3 million for the six
months ended June 30, 1995. The primary factors contributing to the Company's
net loss are discussed in the following paragraphs.
Rents increased from $3.6 million and $9.1 million for the three and six months
ended June 30, 1995 to $4.1 million and $9.4 million for the
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
three and six months ended June 30, 1996. The increases are principally due to
the Company obtaining the Oak Tree Village Shopping Center in November 1995
combined with increases in rents from Denver Merchandise Mart and rents from a
ground lease on land in Atlanta, Georgia.
Interest income from mortgage notes receivable decreased from $1.3 million and
$2.3 million for the three and six months ended June 30, 1995 to $1.1 million
and $2.3 million for the three and six months ended June 30, 1996. The
decrease is due to the payoff of a mortgage note receivable in February 1995.
Interest income for the remainder of 1996 is expected, on a quarterly basis, to
approximate that of the second quarter.
Other income decreased from $611,000 for the three months ended June 30, 1995
to $127,000 for the three months ended June 30, 1996 and improved from a loss
of $39,000 for the six months ended June 30, 1995 to income of $469,000 for the
six months ended June 30, 1996. The decrease in other income for the three
months ended June 30, 1996 is primarily due to a $312,000 decrease in dividend
income from the Company's trading portfolio securities in addition to a
$334,000 increase in losses from the sale of the Company's trading portfolio
securities. This is offset by an increase of $274,000 recognized in preferred
returns on a 50% partnership interest. The six month improvement is due to
recognizing $663,000 unrealized gains on the Company's trading portfolio
securities in 1996 compared to an $899,000 unrealized loss in 1995. This is
offset by a $390,000 decrease in dividend income and an increase of $744,000 in
losses from the sale of the Company's trading portfolio securities.
Property operating expenses increased from $3.3 million and $7.2 million for
the three and six months ended June 30, 1995 to $3.9 million and $7.6 million
for the three and six months ended June 30, 1996. Of this increase, $385,000
and $561,000 for the three and six months ended June 30, 1996 is due to
obtaining the Oaktree Shopping Center subsequent to June 30, 1995 and to the
acquisition of Las Colinas land in May 1995. In addition, for the three and
six months ended June 30, 1996 real estate taxes for the Denver Merchandise
Mart and Inn at the Mart increased $86,000 and $149,000, respectively.
Interest expense increased from $2.0 million and $3.8 million for the three and
six months ended June 30, 1995 to $3.3 million and $6.4 million for the three
and six months ended June 30, 1996. The increases are primarily attributable
to debt refinancings and the debt incurred related to the acquisition of one
parcel of land in May 1995 and two parcels of land and one commercial property
subsequent to June 30, 1995. The increase for the six months ended June 30,
1996 is offset by a $161,000 decrease in interest expense due to the Boulevard
Villa sale in February 1995. Interest expense for the remainder of 1996 is
expected, on a quarterly basis, to approximate that of the second quarter.
23
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Advisory and mortgage servicing fees increased from $239,000 and $543,000 for
the three and six months ended June 30, 1995 to $381,000 and $701,000 for the
three and six months ended June 30, 1996. The increases are primarily
attributable to the Company's increase in gross assets, the basis for such fee,
due to the acquisitions of one commercial property and three parcels of land in
1995 and 1996.
General and administrative expenses of $1.2 million for the six months ended
June 30, 1996 approximated those in 1995. For the three months ended June 30,
1996, general and administrative expenses decreased from $667,000 in 1995 to
$595,000 in 1996. The decrease is primarily attributable to consulting fees
incurred in 1995 in connection with the Company's notes receivables and hotels.
Depreciation and amortization expense of $453,000 and $890,000 for the three
and six months ended June 30, 1996 approximate the $402,000 and $842,000 for
the three and six months ended June 30, 1995.
Equity in losses of investees decreased from a loss of $1.7 million and $3.0
million for the three and six months ended June 30, 1995 to a loss of $1.5
million and $2.4 million for the three and six months ended June 30, 1996. The
decrease in equity losses is attributable to a decrease in the combined
operating losses of the REITs and NRLP from a combined operating loss of $5.6
million and $9.6 million for the three and six months ended June 30, 1995 to a
combined operating loss of $5.4 million and $8.9 million for the three and six
months ended June 30, 1996. Such improvement is generally attributable to
improved occupancy and increased rental rates.
For the three and six months ended June 30, 1995, the Company recognized
$671,000 of minority interest expense. The expense is attributable to the
termination of a joint venture partnership in which the Company held a 60%
interest in June 1995.
Gains on sale of real estate were $2.3 million and $4.5 million for the three
and six months ended June 30, 1996 compared to $24,000 and $948,000 for the
three and six months ended June 30, 1995. For the three months ended June 30,
1996 the Company recognized a $538,000 gain on the sale of 2.3 acres of Las
Colinas land, a $44,000 gain on the sale of a parcel of land in Midland,
Michigan, a $10,000 gain on the sale of eight residential lots and a $1.8
million gain representing the Company's equity share of the REITs gain on sale
of real estate. In the three months ended June 30, 1995, the Company
recognized a $24,000 gain on the sale of the final four lots in a joint
venture. The first six months of 1996 includes an additional $538,000 gain on
the sale of another 2.3 acres of land in Las Colinas, Texas and a $3.3 million
gain representing the Company's equity share of the REITs gain on the sale of
real estate. The first six months of 1995 includes an additional $924,000 gain
on the sale of Boulevard Villas in February.
24
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
The Company reported extraordinary gains of $247,000 and $260,000 for the three
and six months ended June 30, 1996 compared to $12,000 and $327,000 for the
three and six months ended June 30, 1995. The extraordinary gain for the three
months ended June 30, 1996 represents the Company's share of an equity
investee's extraordinary gain related to an insurance settlement from a fire
loss. The first six months of 1996 includes an additional extraordinary gain
of $13,000 which represents the Company's share of an equity investee's
extraordinary gain from the early payoff of debt. For the three and six months
ended June 30, 1995, the extraordinary gains also represent the Company's share
of an equity investee's extraordinary gain from the early payoff of debt.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the
air, and third parties may seek recovery from the Company for personal injury
associated with such materials.
The Company's management is not aware of any environmental liability relating
to the above matters that would have a material adverse effect on the Company's
business, assets or results of operations.
Inflation
The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of properties and, correspondingly, the
ultimate gains to be realized by the Company from property sales.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of".
The statement requires that long-lived assets be considered impaired "...if the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset." If impairment exists,
an impairment loss shall be recognized, by a charge against earnings, equal to
"...the amount by which the carrying amount of the asset exceeds the fair value
of the asset." If
25
<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncement (Continued)
impairment of a long-lived asset is recognized, the carrying amount of the
asset shall be reduced by the amount of the impairment, shall be accounted for
as the asset's "new cost" and such new cost shall be depreciated over the
asset's remaining useful life.
SFAS No. 121 further requires that long-lived assets held for sale "...be
reported at the lower of carrying amount or fair value less cost to sell." If
a reduction in a held for sale asset's carrying amount to fair value less cost
to sell is required, a provision for loss shall be recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held
for sale asset's fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the asset's
carrying amount when originally classified or held for sale. A corresponding
charge or credit to earnings is to be recognized. Long-lived assets held for
sale are not to be depreciated. The Company adopted SFAS No. 121 effective
January 1, 1996.
The adoption of SFAS had no effect on the Company's reported net loss for the
six months ended June 30, 1996, as the Company's one depreciable asset
classified as held for sale is fully depreciated.
______________________________
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Effective May 8, 1996, the Company filed Articles of Amendment to its Articles
of Incorporation creating and designating a Series B 10% Cumulative Preferred
Stock, par value $2.00 per share, out of the special class of stock, $2.00 par
value per share, of the Company, which series consists of a maximum of 4,000
shares, all of which were issued April 4, 1996. See NOTE 9. "PREFERRED STOCK"
of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS under ITEM 1. FINANCIAL
STATEMENTS. Pursuant to the terms of the Articles of Amendment creating and
designating such series, so long as any shares of the Series B 10% Cumulative
Preferred Stock remain outstanding, no dividend may be declared or paid and no
other distribution may be made on the Common Stock of the Company or any other
shares junior to the Series B 10% Cumulative Preferred Stock, except in shares
junior to the Series B 10% Cumulative Preferred Stock, unless all accumulated
dividends on the Series B 10% Cumulative Preferred Stock have been paid. Such
provision might be considered to be a limitation or qualification on another
class of securities.
Effective June 5, 1996, the Company filed an Articles of Amendment to its
Articles of Incorporation creating and designating a Series C 10% Cumulative
Preferred Stock, par value $2.00 per share, out of the special class of stock,
$2.00 par value per share, of the Company, which
26
<PAGE> 27
ITEM 2. CHANGES IN SECURITIES (Continued)
series consists of a maximum of 16,500 shares, of which 15,000 were issued on
June 4, 1996. See NOTE 9. "PREFERRED STOCK" of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS under ITEM 1. FINANCIAL STATEMENTS. Pursuant to the terms of the
Articles of Amendment creating and designating such series, so long as any
shares of the Series C 10% Cumulative Preferred Stock remain outstanding, no
dividend may be declared or paid and no other distribution may be made on the
Common Stock of the Company or any other shares junior to the Series C 10%
Cumulative Preferred Stock, except in shares junior to the Series C 10%
Cumulative Preferred Stock, unless all accumulated dividends on the Series C
10% Cumulative Preferred Stock have been paid. Such provision might be
considered to be a limitation or qualification on another class of securities.
ITEM 5. OTHER INFORMATION
See NOTE 8. "COMMON STOCK" and NOTE 9. "PREFERRED STOCK" of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS in PART I for information regarding the
issuance of securities and related transactions thereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed herewith or incorporated
by reference as indicated below.
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -------------------------------------------------------------------------------------------------
<S> <C>
3.0 Articles of Amendment setting forth the Certificate of Designations, Preferences and Relative
Participating or Optional or Other Special Rights and Qualifications, Limitations or Restrictions
Thereof of Special Stock, filed with the Secretary of State of Georgia on May 8, 1996.
3.1 Articles of Amendment setting forth the Certificate of Designations, Preferences and Relative
Participating or Optional or Other Special Rights and Qualifications, Limitations or Restrictions
Thereof of Special Stock, filed with the Secretary of State of Georgia on June 5, 1996.
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K as follows:
A Current Report on Form 8-K, dated June 12, 1996, was filed with
respect to Item 5. "Other Events", which reports on the resumption of
the payment of cash dividends, the redemption of share purchase rights
and the resignation of a member of the Company's Board of Directors.
27
<PAGE> 28
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN REALTY TRUST, INC.
Date: August , 1996 By: /s/ Karl L. Blaha
------------------------- ----------------------------------
Karl L. Blaha
President
Date: August , 1996 By: /s/ Thomas A. Holland
------------------------- ----------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
28
<PAGE> 29
AMERICAN REALTY TRUST, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Quarter ended June 30, 1996
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- --------------------------------------------------- ------
<S> <C> <C>
3.0 Articles of Amendment setting forth the Certificate 30
of Designations, Preferences and Relative
Participating or Optional or Other Special Rights
And Qualifications, Limitations or Restrictions
Thereof of Special Stock, filed with the Secretary
of State of Georgia on May 8, 1996.
3.1 Articles of Amendment setting forth the Certificate 42
of Designations, Preferences and Relative
Participating or Optional or Other Special Rights
And Qualifications, Limitations or Restrictions
Thereof of Special Stock, filed with the Secretary
of State of Georgia on June 5, 1996.
27.0 Financial Data Schedule 54
</TABLE>
29
<PAGE> 1
EXHIBIT 3.0
SECRETARY OF STATE DOCKET NUMBER : 961290831
BUSINESS INFORMATION AND SERVICES CONTROL NUMBER: 8725867
SUITE 315, WEST TOWER EFFECTIVE DATE: 05/08/1996
2 MARTIN LUTHER KING JR. DR. REFERENCE : 0045
ATLANTA, GEORGIA 30334-1530 PRINT DATE : 05/08/1996
FORM NUMBER : 0111
CT CORPORATION SYSTEM
RUDENE REMBERT
1201 PEACHTREE STREET, NE
ATLANTA, GA 30361
CERTIFICATE OF AMENDMENT
I, the Secretary of State and the Corporation Commissioner of the State of
Georgia, do hereby certify under the seal of my office that
AMERICAN REALTY TRUST, INC.
A DOMESTIC PROFIT CORPORATION
has filed articles of amendment in the office of the Secretary of State and has
paid the required fees as provided by Title 14 of the Official Code of Georgia
Annotated. Attached hereto is a true and correct copy of said articles of
amendment.
WITNESS my hand and official seal in the City of Atlanta and the State of
Georgia on the date set forth above.
[SEAL] /s/ LEWIS A. MASSEY
--------------------------------------
Lewis A. Massey
Secretary of State
<PAGE> 2
ARTICLES OF AMENDMENT OF THE ARTICLES OF
INCORPORATION OF AMERICAN REALTY TRUST, INC.
Setting Forth the
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE
PARTICIPATING OR OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF OF
SPECIAL STOCK
OF
AMERICAN REALTY TRUST, INC.
AMERICAN REALTY TRUST, INC., a corporation organized and
existing under the laws of the State of Georgia,
DOES HEREBY CERTIFY:
THAT, pursuant to the authority conferred upon the Board of Directors
by the Articles of Incorporation, as amended, of AMERICAN REALTY TRUST, INC.
(the "Corporation"), and pursuant to the provisions of Section 14-2-602 of the
Georgia Business Corporation Code (which section provides that no shareholder
action is required in order to effect these Articles of Amendment), said Board
of Directors, by unanimous written consent dated as of April 3, 1996, adopted
certain recitals and resolutions providing for the designations, preferences
and relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof, of a series of special
stock of the Corporation, specifically the Series B 10% Cumulative Preferred
Stock, which recitals and resolutions are as follows:
WHEREAS, Article Five of the Articles of Incorporation, as
amended, of the Corporation authorizes the Corporation to issue not
more than 16,666,667 shares of common voting stock, $0.01 par value
per share (the "Common Stock"), and 20,000,000 shares of a special
class of stock, $2.00 par value per share (the "Special Stock"), which
Special Stock may be issued from time to time in one or more series
and shall be designated as the Board of Directors may determine to
have such voting powers, preferences, limitations and relative rights
with respect to the shares of each series of the class of Special
Stock of the Corporation as expressly provided in a resolution or
resolutions providing for the issuance of such series adopted by the
Board of Directors which is vested with the authority in respect
thereof;
WHEREAS, 500,000 shares of such Special Stock has been
previously designated as the Series A Cumulative Participating
Preferred Stock prior to the date hereof, none of which are now issued
and outstanding; and
WHEREAS, the Board of Directors now desires to further amend
the Articles of Incorporation to designate an additional series of the
Special Stock;
<PAGE> 3
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the
authority granted to the Board of Directors by Article Five of the
Articles of Incorporation, as amended, the Board of Directors hereby
further amends the Articles of Incorporation to provide for the
issuance of one single series of Special Stock consisting of the
number of shares in such series as set forth below and, subject to the
provisions of Article Five of the Articles of Incorporation, as
amended, of the Corporation, hereby fixes and determines with respect
to such series the following designations, preferences and relative
participating, optional or other special rights, if any, and
qualifications, limitations or restrictions thereof:
1. Designation. The distinctive designation of such
series shall be the Series B 10% Cumulative Preferred Stock
and each share of the Series B 10% Cumulative Preferred Stock
shall have a par value of $2.00 per share and a preference on
liquidation under paragraph 6 below of up to $100 per share.
The Series B 10% Cumulative Preferred Stock is sometimes
referred to herein as the "Series B Preferred Stock."
2. Number of Shares. The number of shares which
shall constitute the Series B Preferred Stock shall be such
number as may actually be issued by the Corporation, not to
exceed a maximum of 4,000 shares, which number may be
decreased (but not below the number then outstanding), from
time to time by the Board of Directors, subject to the
provisions hereof.
3. Dividends and Dividend Rate. Holders of record on
the fifteenth day of each March, June, September and December
of each year of shares of the Series B Preferred Stock shall
be entitled to receive dividends, when and as declared by the
Board of Directors of the Corporation and to the extent
permitted under the Georgia Business Corporation Code,
payable quarterly on each March 31, June 30, September 30 and
December 31 of each year, beginning on June 30, 1996 (each a
"Dividend Reference Date" and, collectively, the "Dividend
Reference Dates"), in preference to and with priority over
dividends upon all "Junior Securities" (as defined in
paragraph 6 below). Except as otherwise provided herein,
dividends on each share of Series B Preferred Stock (a
"Share") will accrue (but not compound) cumulatively on a
daily basis at the rate per share of ten dollars ($10) per
annum ($2.50 per calendar quarter) from and including the
date of issuance to and including the date on which the
"Redemption Price" (as defined in paragraph 4 below) of such
Share is paid, whether or not such dividends have been
declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the
payment of such dividends. For purposes of this paragraph 3,
the date on which the Corporation initially issues any Share
is its date of
2
<PAGE> 4
issuance, regardless of the number of times transfer of such
Share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates that
may be issued to evidence such Share (whether by reason of
transfer of such Share or for any other reason). So long as
any Shares of Series B Preferred Stock are outstanding, the
Corporation will not declare or pay any dividends on Junior
Securities (other than dividends in respect of Common Stock
payable in shares of Common Stock) or make, directly or
indirectly, any other distribution of any sort in respect of
Junior Securities, or any payment on account of the purchase
or other acquisition of the Junior Securities, unless on the
date of such declaration in the case of a dividend, or on
such date of distribution or payment, in the case of such
distribution or other payment (a) all dividends on the Series
B Preferred Stock for all past quarter-yearly dividend
periods have been paid in full and the full dividends for the
then current quarter-yearly period shall have been paid or
declared in a sum sufficient for the payment thereof set
apart, and (b) after giving effect to such payment of
dividends, other distributions, purchase or redemption, the
aggregate capital of the Corporation applicable to all
capital stock of the Corporation then outstanding, plus the
earned and capital surplus of the Corporation shall exceed
the aggregate amount payable on involuntary dissolution,
liquidation or winding up of the Corporation on all Shares of
the Special Stock and all stock ranking prior to or on a
parity with the Series B Preferred Stock as to dividends or
assets outstanding after the payment of such dividends, other
distributions, purchase or redemption. Dividends shall not be
paid or declared and set apart for payment on any series of
Special Stock for any dividend period (including the Series B
Preferred Stock) unless dividends have been or are,
contemporaneously, paid and declared and set apart for
payment on all outstanding series of Special Stock entitled
thereto for all dividend periods terminating on the same or
earlier date. If at any time the Corporation pays less than
the total amount of dividends then accrued with respect to
the Series B Preferred Stock, such payment will be
distributed ratably among the then holders of Series B
Preferred Stock so that an amount equal is paid with respect
to each outstanding Share.
4. Redemption. The Corporation may, at any time
after the issuance thereof and from time to time, at the
election of the Board of Directors of the Corporation redeem
any or all of the Series B Preferred Stock then outstanding
by written notice given not less than twenty (20) nor more
than sixty (60) days before the date fixed for redemption
(the "Redemption Date"). If mailed, such notice shall be
deemed to be delivered when deposited in the United States
Mail, postage prepaid, addressed to the
3
<PAGE> 5
holder of shares of Series B Preferred Stock at his address
as it appears on the stock transfer records of the
Corporation. Such notice shall set forth (a) the shares to be
so redeemed, (b) the date fixed for redemption, (c) the
applicable Redemption Price, and (d) the place at which the
holder(s) may obtain payment of the applicable Redemption
Price upon surrender of the share certificate(s). If less
than all shares of Series B Preferred Stock at any time
outstanding shall be called for redemption, such shares shall
be redeemed pro rata by lot drawn or other manner deemed fair
in the sole discretion of the Board of Directors to redeem
one or more such shares without redeeming all such shares of
Series B Preferred Stock. If such notice of redemption shall
have been so mailed, on or before the Redemption Date, the
Corporation may provide for payment of a sum sufficient to
redeem the applicable number of Series B Preferred Stock
called for redemption either (i) by setting aside the sum
required to be paid as the Redemption Price by the
Corporation, separate and apart from its other funds, in
trust for the account of the holder(s) of the shares of
Series B Preferred Stock to be redeemed or (ii) by depositing
such sum in a bank or trust company (either located in the
state where the principal executive office of the Corporation
is maintained, such bank or trust company having a combined
surplus of at least $20,000,000 according to its latest
statement of condition, or such other bank or trust company
as may be permitted by the Articles of Incorporation, as
amended, or by law) as a trust fund, with irrevocable
instructions and authority to the bank or trust company to
give or complete the notice of redemption and to pay, on or
after the Redemption Date, the applicable Redemption Price on
surrender of certificates evidencing the share(s) of Series B
Preferred Stock so called for redemption and, in either
event, from and after the Redemption Date (A) the share(s) of
Series B Preferred Stock deemed to be redeemed, (B) such
setting aside or deposit shall be deemed to constitute full
payment for such Share(s), (C) such Share(s) so redeemed
shall no longer be deemed to be outstanding, (D) the
holder(s) thereof shall cease to be a shareholder of the
Corporation with respect to such share(s), and (E) such
holder(s) shall have no rights with respect thereto except
the right to receive their proportionate share of the funds
set aside pursuant hereto or deposited upon surrender of
their respective certificates. Any interest on the funds so
deposited shall be paid to the Corporation. Any and all such
redemption deposits shall be irrevocable except to the
following extent: any funds so deposited which shall not be
required for the redemption of any shares of Series B
Preferred Stock because of any prior sale or purchase by the
Corporation other than through the redemption process,
subsequent to the date of deposit but prior to
4
<PAGE> 6
the Redemption Date, shall be repaid to the Corporation
forthwith and any balance of the funds so deposited and
unclaimed by the holder(s) of any shares of Series B
Preferred Stock entitled thereto at the expiration of one
calendar year from the Redemption Date shall be repaid to the
Corporation upon its request or demand therefor and after any
such repayment the holder(s) of the share(s) so called for
redemption shall look only to the Corporation for payment of
the Redemption Price thereof. In addition to the redemption
under this paragraph 4, the Corporation may redeem or
repurchase shares of the Series B Preferred Stock from any
holder(s) thereof who consents in writing to such redemption
and the provisions of this paragraph 4 will not apply to any
such consented redemption. All shares of Series B Preferred
Stock redeemed shall be cancelled and retired and no shares
shall be issued in place thereof, but such shares shall be
restored to the status of authorized but unissued shares of
Special Stock. The "Redemption Price" (herein so called)
shall be an amount equal to the "Liquidation Value" (as
defined in paragraph 6 below) of $100 per Share plus the
amount of all accrued but unpaid dividends thereon to the
Redemption Date, which shall include all cumulative dividends
in arrears and also the proportionate part of the dividend
accrued since the last Dividend Reference Date preceding the
Redemption Date and whether or not earned or declared, but
without interest.
5. Sinking Fund. The Corporation shall not be
required to maintain any so-called "Sinking Fund" for the
retirement on any basis of the Series B Preferred Stock.
6. Rights on Liquidation. In the event of any
liquidation, dissolution or winding-up of the Corporation,
and after paying and providing for the payment of all
creditors of the Corporation, the holders of shares of the
Series B Preferred Stock then outstanding shall be entitled,
before any distribution or payment is made upon any "Junior
Securities" (defined to be and mean the Common Stock and any
other equity security of any kind which the Corporation at
any time has issued, issues or is authorized to issue if the
Series B Preferred Stock has priority over such securities as
to dividends or upon liquidation), to receive a liquidation
preference in an amount in cash equal to the aggregate
Liquidation Value of all shares of Series B Preferred Stock
then outstanding, whether any such liquidation, dissolution
or winding up is voluntary or involuntary and the holders of
the Series B Preferred Stock shall not be entitled to any
other or further distributions of assets. The term
"Liquidation Value" shall be and mean, as of any particular
date, an amount per Share of Series B Preferred Stock equal
to the Redemption Price if such share were so redeemed in
accordance with the provisions of paragraph 5 above, but in
no event shall exceed $100
5
<PAGE> 7
per share, plus any accrued and unpaid cumulative dividends.
If, upon any dissolution, liquidation or winding-up of the
affairs of the Corporation, the net assets available for
distribution shall be insufficient to permit payment to the
holders of all outstanding shares of all series of Special
Stock of the amounts to which they respectively shall be
entitled, then the assets of the Corporation to be
distributed to such holders will be distributed ratably among
them based upon the amounts payable on the shares of each
such series of Special Stock in the event of voluntary or
involuntary dissolution, liquidation or winding-up, as the
case may be, in proportion to the full preferential amounts,
together with any and all arrearages to which they are
respectively entitled. Upon any such liquidation, dissolution
or winding-up of the Corporation, after the holders of
Special Stock have been paid in full the amounts to which
they are entitled, the remaining assets of the Corporation
may be distributed to the holders of Junior Securities,
including Common Stock, of the Corporation. The Corporation
will mail written notice of such liquidation, dissolution or
winding-up, not less than twenty (20) nor more than fifty
(50) days prior to the payment date stated therein to each
record holder of Series B Preferred Stock. Neither the
consolidation nor merger of the Corporation into or with any
other corporation or corporations, nor the sale or transfer
by the Corporation of all or any part of its assets, nor a
reduction of the capital stock of the Corporation, nor the
purchase or redemption by the Corporation of any shares of
its Special Stock or Common Stock or any other class of its
stock will be deemed to be a liquidation, dissolution or
winding-up of the Corporation within the meaning of this
paragraph 6.
7. Ranking. The Series B Preferred Stock shall rank
on a parity as to dividends and upon liquidation, dissolution
or winding up with all other shares of Special Stock issued
by the Corporation; provided, however, that the Corporation
shall not issue any shares of Special Stock of any series
which are superior to the Series B Preferred Stock as to
dividends or rights upon liquidation, dissolution or winding
up of the Corporation as long as any shares of the Series B
Preferred Stock are issued and outstanding, without the prior
written consent of the holders of a majority of such shares
of Series B Preferred Stock then outstanding voting
separately as a class.
8. Voting Rights. The holders of the shares of
Series B Preferred Stock shall only have the voting rights
specifically required by law under Section 14-2-1004 of the
Georgia Business Corporation Code, and shall have the
following additional voting rights subject to and after
compliance with any applicable laws and rules
6
<PAGE> 8
or actual requirements of any exchange upon which any
securities of the Corporation are listed:
(a) except as may otherwise be specifically
required by law under Section 14-2-1004 of the
Georgia Business Corporation Code, the holders of
the shares of Series B Preferred Stock shall not
have the right to vote such stock, directly or
indirectly, at any meeting of the shareholders of
the Corporation and such shares of stock shall not
be counted in determining the total number of
outstanding shares to constitute a quorum at any
meeting of shareholders;
(b) in the event that, under any
circumstance, the holders of the Series B Preferred
Stock are required by law to vote upon any matter,
the approval of such series shall be deemed to have
been obtained upon the affirmative vote of the
holders of only a majority of the shares of the
Series B Preferred Stock then outstanding;
(c) except as set forth herein, or as
otherwise provided by the Articles of Incorporation,
as amended, or by law, holders of the Series B
Preferred Stock shall have no special voting rights
and their consent shall not be required for the
taking of any corporate action.
9. Conversion Rights. The Series B Preferred Stock
may be converted at any time at the option of the holders
thereof during a thirty (30) calendar day period (the
"Conversion Period" as defined below) at the "Conversion
Price" (as defined below) in the manner hereinafter provided,
into fully paid and nonassessable Common Stock of the
Corporation by multiplying the number of Shares of Series B
Preferred Stock to be converted by $100 and dividing the
result by the Conversion Price; provided, however, that as to
any shares of Series B Preferred Stock which shall have been
called for redemption, the right of conversion shall
terminate at the close of business on the second full
business day prior to the date fixed for redemption and that,
on the commencement of any liquidation, dissolution or
winding up of the Corporation or the adoption by the
stockholders of the Corporation of any resolution authorizing
the commencement thereof, the right of conversion shall
terminate.
(a) For the purposes of this paragraph 9,
the following terms shall have the meanings ascribed
below:
(i) "Conversion Period" shall be a
period in time which commences at 7:00 a.m.
7
<PAGE> 9
local Dallas, Texas time on the day which
is two calendar years after the date of
original issuance of the first certificate,
issued by the Corporation, representing
shares of Series B Preferred Stock and
expire at 3:00 p.m. local Dallas, Texas time
on the thirtieth (30th) calendar day
thereafter.
(ii) "Conversion Price" shall be
and mean the amount determined (rounded
upward to the nearest cent) by multiplying
0.9 times the simple average of the daily
closing price of the Common Stock for the
thirty (30) trading days immediately
preceding the first day of the Conversion
Period on the market where the shares of
Common Stock of the Corporation are then
regularly traded (which is currently the
New York Stock Exchange, Inc.); provided,
however, if the shares of Common Stock of
the Corporation have not traded on such
market for at least thirty (30) days during
the six calendar months preceding the first
day of the Conversion Period, then such
average shall be of the actual number of
trading days in excess of three (3) as may
be available; provided further that if only
three or fewer trading days exist during
the six months immediately preceding the
first day of the Conversion Period, the
Conversion Price shall be equal to the
greater of (x) the Liquidation Value of $100
per share, or (y) the simple average of the
closing prices of the shares of Common Stock
during such shorter period of three or fewer
days on such market. The Conversion Price
shall not be subject to any adjustment for
the issuance of any shares of Common Stock
by the Corporation for any purpose.
(b) Upon any conversion, fractional shares
shall not be issued but any fractions shall be
adjusted by the delivery of one additional share of
Common Stock in lieu of any cash on the basis of the
"closing" market price for Common Stock at the close
of business on the date of conversion unless the
Board of Directors shall determine to adjust by the
issuance of fractional scrip certificates or in some
other manner. Upon any conversion, no adjustment
shall be made for dividends on the Series B Preferred
Stock surrendered for conversion or on the Common
Stock delivered (i.e., any dividends not previously
paid on the Shares of Series B Preferred Stock shall
be forfeited at the time of conversion). The
Corporation shall pay all issue taxes, if any,
incurred in respect to the issuance of Common Stock
on conversion, provided,
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<PAGE> 10
however, that the Corporation shall not be required
to pay any transfer or other taxes incurred by
reason of the issuance of such Common Stock in names
other than those in which the Series B Preferred
Stock surrendered for conversion may stand.
(c) Any conversion of Series B Preferred
Stock into Common Stock shall be made by the
surrender to the Corporation, at the office of any
Transfer Agent for the Common Stock, of the
certificate or certificates representing the Series
B Preferred Stock to be converted, duly endorsed or
assigned (unless such endorsement or assignment be
waived by the Corporation), together with a written
request for conversion.
(d) All Series B Preferred Stock which
shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding
and all rights with respect to such shares of stock,
including the rights, if any, to receive notices and
to vote, shall forthwith cease except only the
rights of the holders thereof to receive Common
Stock in exchange therefor. Any Series B Preferred
Stock so converted shall be permanently retired,
shall no longer be deemed outstanding and shall not
under any circumstances be reissued and the
Corporation may from time to time take such
appropriate corporate action as may be necessary to
reduce the authorized Series B Preferred Stock
accordingly.
(e) A number of authorized shares of Common
Stock sufficient to provide for the conversion of
the Series B Preferred Stock outstanding upon the
basis hereinbefore provided shall at all times be
reserved for such conversion. If the Corporation
shall propose to issue any securities or to make any
change in its capital structure which would change
the number of shares of Common Stock into which each
share of Series B Preferred Stock shall be
convertible as herein provided, the Corporation
shall at the same time also make proper provision so
that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved
for conversion of the outstanding Series B Preferred
Stock on the new basis.
(f) The term "Common Stock" as used in this
paragraph 9 shall mean stock of the class designated
as Common Stock of the Corporation on the date the
Series B Preferred Stock is created or stock of any
class or classes resulting from any reclassification
or reclassifications thereof, the
9
<PAGE> 11
right of which to share in distributions of both
earnings and assets is without limitation in the
Certificate of Incorporation (or other similar
documents) of the Corporation as to any fixed amount
or percentage and which are not subject to
redemption; provided, that if at any time there
shall be more than one such resulting class, the
shares of each such class then issuable on
conversion of the Series B Preferred Stock shall be
substantially in the proportion which the total
number of shares of stock of each such class
resulting from all such reclassifications bears to
the total number of shares of stock of all such
classes resulting from all such reclassifications.
(g) In case the Corporation shall propose at
any time during the Conversion Period:
(i) to pay any dividend on the
Common Stock outstanding payable in Common
Stock or to make any other distribution,
other than cash dividends, to the holders
of the Common Stock outstanding; or
(ii) to offer for subscription to
the holders of the Common Stock outstanding
any additional shares of any class or any
other rights or option; or
(iii) to effect any
re-classification or recapitalization of
the Common Stock outstanding involving a
change in the Common Stock, other than a
subdivision or combination of the Common
Stock outstanding; or
(iv) to merge or consolidate with
or into any other corporation, or to sell,
lease, or convey all or substantially all
its property or business, or to liquidate,
dissolve or wind up;
then, in each such case, the Corporation shall mail
to the holders of record of each of the shares of
Series B Preferred Stock at their last known post
office addresses as shown by the Corporation's
records a statement, signed by an officer of the
Corporation, with respect to the proposed action,
such statement to be so mailed at least ten (10)
days prior to the date of the taking of such action
or the record date for holders of the Common Stock
for the purposes thereof, whichever is earlier. If
such statement relates to any proposed action
referred to in clauses (iii) or (iv) of this
subparagraph 9, it shall set forth such facts with
respect thereto as shall reasonably be necessary to
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<PAGE> 12
inform the holders of the Series B Preferred Stock
and the holders of such stock as to the effect of
such action upon the conversion rights of such
holders.
10. Reacquired Shares. Any shares of Series B
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such
shares shall, upon cancellation, become authorized but
unissued shares of Special Stock and may be re-issued as part
of a new series of Special Stock subject to the conditions
and restrictions on issuance set forth in the Articles of
Incorporation, as amended, or as otherwise required by law.
IN WITNESS WHEREOF, these Articles of Amendment are executed on behalf
of the Corporation by its President as of the 4th day of April, 1996.
AMERICAN REALTY TRUST, INC.
By: /s/ KARL L. BLAHA
-----------------------------------
Karl L. Blaha
President
11
<PAGE> 1
EXHIBIT 3.1
SECRETARY OF STATE DOCKET NUMBER : 961570863
BUSINESS INFORMATION AND SERVICES CONTROL NUMBER: 8725867
SUITE 315, WEST TOWER EFFECTIVE DATE: 06/05/1996
2 MARTIN LUTHER KING JR. DR. REFERENCE : 0045
ATLANTA, GEORGIA 30334-1530 PRINT DATE : 06/05/1996
FORM NUMBER : 0111
CT CORPORATION SYSTEM
RUDENE REMBERT
1201 PEACHTREE STREET, NE
ATLANTA, GA 30361
CERTIFICATE OF AMENDMENT
I, the Secretary of State and the Corporation Commissioner of the State of
Georgia, do hereby certify under the seal of my office that
AMERICAN REALTY TRUST, INC.
A DOMESTIC PROFIT CORPORATION
has filed articles of amendment in the office of the Secretary of State and has
paid the required fees as provided by Title 14 of the Official Code of Georgia
Annotated. Attached hereto is a true and correct copy of said articles of
amendment.
WITNESS my hand and official seal in the City of Atlanta and the State of
Georgia on the date set forth above.
[SEAL] /s/ LEWIS A. MASSEY
---------------------------------
Lewis A. Massey
Secretary of State
<PAGE> 2
ARTICLES OF AMENDMENT OF THE ARTICLES OF
INCORPORATION OF AMERICAN REALTY TRUST, INC.
Setting Forth the
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE
PARTICIPATING OR OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF OF
SPECIAL STOCK
OF
AMERICAN REALTY TRUST, INC.
SERIES C 10% CUMULATIVE PREFERRED STOCK
AMERICAN REALTY TRUST, INC., a corporation organized and
existing under the laws of the State of Georgia,
DOES HEREBY CERTIFY:
THAT, pursuant to the authority conferred upon the Board of Directors
by the Articles of Incorporation, as amended, of AMERICAN REALTY TRUST, INC.
(the "Corporation"), and pursuant to the provisions of Section 14-2-602 of the
Georgia Business Corporation Code (which section provides that no shareholder
action is required in order to effect these Articles of Amendment), said Board
of Directors, by unanimous written consent dated as of May 23, 1996, adopted
certain recitals and resolutions providing for the designations, preferences
and relative participating, optional or other special rights and
qualifications, limitations or restrictions thereof, of a series of special
stock of the Corporation, specifically the Series C 10% Cumulative Preferred
Stock, which recitals and resolutions are as follows:
WHEREAS, Article Five of the Articles of Incorporation, as
amended, of the Corporation authorizes the Corporation to issue not
more than 16,666,667 shares of common voting stock, $0.01 par value
per share (the "Common Stock"), and 20,000,000 shares of a special
class of stock, $2.00 par value per share (the "Special Stock"), which
Special Stock may be issued from time to time in one or more series
and shall be designated as the Board of Directors may determine to
have such voting powers, preferences, limitations and relative rights
with respect to the shares of each series of the class of Special
Stock of the Corporation as expressly provided in a resolution or
resolutions providing for the issuance of such series adopted by the
Board of Directors which is vested with the authority in respect
thereof;
WHEREAS, 500,000 shares of such Special Stock has been
previously designated as the Series A Cumulative Participating
Preferred Stock prior to the date hereof, none of which are now issued
and outstanding;
WHEREAS, 4,000 shares of such Special Stock has been
previously designated as the Series B 10% Cumulative Preferred Stock,
prior to the date hereof, all 4,000 shares of which are now issued and
outstanding; and
<PAGE> 3
WHEREAS, the Board of Directors now desires to further amend
the Articles of Incorporation to designate an additional series of the
Special Stock;
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the
authority granted to the Board of Directors by Article Five of the
Articles of Incorporation, as amended, the Board of Directors hereby
further amends the Articles of Incorporation to provide for the
issuance of one single series of Special Stock consisting of the
number of shares in such series as set forth below and, subject to the
provisions of Article Five of the Articles of Incorporation, as
amended, of the Corporation, hereby fixes and determines with respect
to such series the following designations, preferences and relative
participating, optional or other special rights, if any, and
qualifications, limitations or restrictions thereof:
1. Designation. The distinctive designation of such
series shall be the Series C 10% Cumulative Preferred Stock
and each share of the Series C 10% Cumulative Preferred Stock
shall have a par value of $2.00 per share and a preference on
liquidation under paragraph 6 below of up to $100 per share.
The Series C 10% Cumulative Preferred Stock is sometimes
referred to herein as the "Series C Preferred Stock."
2. Number of Shares. The number of shares which
shall constitute the Series C Preferred Stock shall be such
number as may actually be issued by the Corporation, not to
exceed a maximum of 16,500 shares, which number may be
decreased (but not below the number then outstanding), from
time to time by the Board of Directors, subject to the
provisions hereof.
3. Dividends and Dividend Rate. Holders of record on
the fifteenth day of each March, June, September and December
of each year of shares of the Series C Preferred Stock shall
be entitled to receive dividends, when and as declared by the
Board of Directors of the Corporation and to the extent
permitted under the Georgia Business Corporation Code,
payable quarterly on each March 31, June 30, September 30 and
December 31 of each year, beginning on June 30, 1996 (each a
"Dividend Reference Date" and, collectively, the "Dividend
Reference Dates"), in preference to and with priority over
dividends upon all "Junior Securities" (as defined in
paragraph 6 below). The dividends for the first four quarters
after issuance of the Series C Preferred Stock shall be paid
by issuance of additional shares of Series C Preferred Stock
with a face amount equal to each quarterly dividend payment.
Except as otherwise provided herein, dividends on each share
of Series C Preferred Stock (a "Share") will accrue
cumulatively on a daily basis at the rate per share of ten
dollars ($10) per annum ($2.50 per calendar quarter) from and
including the date of issuance to and
2
<PAGE> 4
including the date on which the "Redemption Price" (as
defined in paragraph 4 below) of such Share is paid, whether
or not such dividends have been declared and whether or not
there are profits, surplus or other funds of the Corporation
legally available for the payment of such dividends. For
purposes of this paragraph 3, the date on which the
Corporation initially issues any Share is its date of
issuance, regardless of the number of times transfer of such
Share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates that
may be issued to evidence such Share (whether by reason of
transfer of such Share or for any other reason). So long as
any Shares of Series C Preferred Stock are outstanding, the
Corporation will not declare or pay any dividends on Junior
Securities (other than dividends in respect of Common Stock
payable in shares of Common Stock) or make, directly or
indirectly, any other distribution of any sort in respect of
Junior Securities, or any payment on account of the purchase
or other acquisition of the Junior Securities, unless on the
date of such declaration in the case of a dividend, or on
such date of distribution or payment, in the case of such
distribution or other payment (a) all dividends on the Series
C Preferred Stock for all past quarter-yearly dividend
periods have been paid in full and the full dividends for the
then current quarter-yearly period shall have been paid or
declared in a sum sufficient for the payment thereof set
apart, and (b) after giving effect to such payment of
dividends, other distributions, purchase or redemption, the
aggregate capital of the Corporation applicable to all
capital stock of the Corporation then outstanding, plus the
earned and capital surplus of the Corporation shall exceed
the aggregate amount payable on involuntary dissolution,
liquidation or winding up of the Corporation on all Shares of
the Special Stock and all stock ranking prior to or on a
parity with the Series C Preferred Stock as to dividends or
assets outstanding after the payment of such dividends, other
distributions, purchase or redemption. Dividends shall not be
paid or declared and set apart for payment on any series of
Special Stock for any dividend period (including the Series C
Preferred Stock) unless dividends have been or are,
contemporaneously, paid and declared and set apart for
payment on all outstanding series of Special Stock entitled
thereto for all dividend periods terminating on the same or
earlier date. If at any time the Corporation pays less than
the total amount of dividends then accrued with respect to
the Series C Preferred Stock, such payment will be
distributed ratably among the then holders of Series C
Preferred Stock so that an amount equal is paid with respect
to each outstanding Share.
4. Redemption. The Corporation may, at any time
after the issuance thereof and from time to time, at the
3
<PAGE> 5
election of the Board of Directors of the Corporation redeem
any or all of the Series C Preferred Stock then outstanding
by written notice given not less than twenty (20) nor more
than sixty (60) days before the date fixed for redemption
(the "Redemption Date"). If mailed, such notice shall be
deemed to be delivered when deposited in the United States
Mail, postage prepaid, addressed to the holder of shares of
Series C Preferred Stock at his address as it appears on the
stock transfer records of the Corporation. Such notice shall
set forth (a) the shares to be so redeemed, (b) the date
fixed for redemption, (c) the applicable Redemption Price,
and (d) the place at which the holder(s) may obtain payment
of the applicable Redemption Price upon surrender of the
share certificate(s). If less than all shares of Series C
Preferred Stock at any time outstanding shall be called for
redemption, such shares shall be redeemed pro rata by lot
drawn or other manner deemed fair in the sole discretion of
the Board of Directors to redeem one or more such shares
without redeeming all such shares of Series C Preferred
Stock. If such notice of redemption shall have been so
mailed, on or before the Redemption Date, the Corporation may
provide for payment of a sum sufficient to redeem the
applicable number of Series C Preferred Stock called for
redemption either (i) by setting aside the sum required to be
paid as the Redemption Price by the Corporation, separate and
apart from its other funds, in trust for the account of the
holder(s) of the shares of Series C Preferred Stock to be
redeemed or (ii) by depositing such sum in a bank or trust
company (either located in the state where the principal
executive office of the Corporation is maintained, such bank
or trust company having a combined surplus of at least
$20,000,000 according to its latest statement of condition,
or such other bank or trust company as may be permitted by
the Articles of Incorporation, as amended, or by law) as a
trust fund, with irrevocable instructions and authority to
the bank or trust company to give or complete the notice of
redemption and to pay, on or after the Redemption Date, the
applicable Redemption Price on surrender of certificates
evidencing the share(s) of Series C Preferred Stock so called
for redemption and, in either event, from and after the
Redemption Date (A) the share(s) of Series C Preferred Stock
deemed to be redeemed, (B) such setting aside or deposit
shall be deemed to constitute full payment for such Share(s),
(C) such Share(s) so redeemed shall no longer be deemed to be
outstanding, (D) the holder(s) thereof shall cease to be a
shareholder of the Corporation with respect to such share(s),
and (E) such holder(s) shall have no rights with respect
thereto except the right to receive their proportionate share
of the funds set aside pursuant hereto or deposited upon
surrender of their respective certificates. Any interest on
the funds so deposited
4
<PAGE> 6
shall be paid to the Corporation. Any and all such redemption
deposits shall be irrevocable except to the following extent:
any funds so deposited which shall not be required for the
redemption of any shares of Series C Preferred Stock because
of any prior sale or purchase by the Corporation other than
through the redemption process, subsequent to the date of
deposit but prior to the Redemption Date, shall be repaid to
the Corporation forthwith and any balance of the funds so
deposited and unclaimed by the holder(s) of any shares of
Series C Preferred Stock entitled thereto at the expiration
of one calendar year from the Redemption Date shall be repaid
to the Corporation upon its request or demand therefor and
after any such repayment the holder(s) of the share(s) so
called for redemption shall look only to the Corporation for
payment of the Redemption Price thereof. In addition to the
redemption under this paragraph 4, the Corporation may redeem
or repurchase shares of the Series C Preferred Stock from any
holder(s) thereof who consents in writing to such redemption
and the provisions of this paragraph 4 will not apply to any
such consented redemption. All shares of Series C Preferred
Stock redeemed shall be cancelled and retired and no shares
shall be issued in place thereof, but such shares shall be
restored to the status of authorized but unissued shares of
Special Stock. The "Redemption Price" (herein so called)
shall be an amount equal to the "Liquidation Value" (as
defined in paragraph 6 below) of $100 per Share plus the
amount of all accrued but unpaid dividends thereon to the
Redemption Date, which shall include all cumulative dividends
in arrears and also the proportionate part of the dividend
accrued since the last Dividend Reference Date preceding the
Redemption Date and whether or not earned or declared, but
without interest.
5. Sinking Fund. The Corporation shall not be
required to maintain any so-called "Sinking Fund" for the
retirement on any basis of the Series C Preferred Stock.
6. Rights on Liquidation. In the event of any
liquidation, dissolution or winding-up of the Corporation,
and after paying and providing for the payment of all
creditors of the Corporation, the holders of shares of the
Series C Preferred Stock then outstanding shall be entitled,
before any distribution or payment is made upon any "Junior
Securities" (defined to be and mean the Common Stock and any
other equity security of any kind which the Corporation at
any time has issued, issues or is authorized to issue if the
Series C Preferred Stock has priority over such securities as
to dividends or upon liquidation), to receive a liquidation
preference in an amount in cash equal to the aggregate
Liquidation Value of all shares of Series C Preferred Stock
then outstanding, whether any such liquidation, dissolution
or winding up is voluntary or involuntary and the holders of
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<PAGE> 7
the Series C Preferred Stock shall not be entitled to any
other or further distributions of assets. The term
"Liquidation Value" shall be and mean, as of any particular
date, an amount per Share of Series C Preferred Stock equal
to the Redemption Price if such share were so redeemed in
accordance with the provisions of paragraph 5 above, but in
no event shall exceed $100 per share, plus any accrued and
unpaid cumulative dividends. If, upon any dissolution,
liquidation or winding-up of the affairs of the Corporation,
the net assets available for distribution shall be
insufficient to permit payment to the holders of all
outstanding shares of all series of Special Stock of the
amounts to which they respectively shall be entitled, then
the assets of the Corporation to be distributed to such
holders will be distributed ratably among them based upon the
amounts payable on the shares of each such series of Special
Stock in the event of voluntary or involuntary dissolution,
liquidation or winding-up, as the case may be, in proportion
to the full preferential amounts, together with any and all
arrearages to which they are respectively entitled. Upon any
such liquidation, dissolution or winding-up of the
Corporation, after the holders of Special Stock have been
paid in full the amounts to which they are entitled, the
remaining assets of the Corporation may be distributed to the
holders of Junior Securities, including Common Stock, of the
Corporation. The Corporation will mail written notice of such
liquidation, dissolution or winding-up, not less than twenty
(20) nor more than fifty (50) days prior to the payment date
stated therein to each record holder of Series C Preferred
Stock. Neither the consolidation nor merger of the
Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of
all or any part of its assets, nor a reduction of the capital
stock of the Corporation, nor the purchase or redemption by
the Corporation of any shares of its Special Stock or Common
Stock or any other class of its stock will be deemed to be a
liquidation, dissolution or winding-up of the Corporation
within the meaning of this paragraph 6.
7. Ranking. The Series C Preferred Stock shall rank
on a parity as to dividends and upon liquidation, dissolution
or winding up with all other shares of Special Stock issued
by the Corporation; provided, however, that the Corporation
shall not issue any shares of Special Stock of any series
which are superior to the Series C Preferred Stock as to
dividends or rights upon liquidation, dissolution or winding
up of the Corporation as long as any shares of the Series C
Preferred Stock are issued and outstanding, without the prior
written consent of the holders of a majority of such shares
of Series C Preferred Stock then outstanding voting
separately as a class.
6
<PAGE> 8
8. Voting Rights. The holders of the shares of
Series C Preferred Stock shall only have the voting rights
specifically required by law under Section 14-2-1004 of the
Georgia Business Corporation Code, and shall have the
following additional voting rights subject to and after
compliance with any applicable laws and rules or actual
requirements of any exchange upon which any securities of the
Corporation are listed:
(a) except as may otherwise be specifically
required by law under Section 14-2-1004 of the
Georgia Business Corporation Code, the holders of
the shares of Series C Preferred Stock shall not
have the right to vote such stock, directly or
indirectly, at any meeting of the shareholders of
the Corporation and such shares of stock shall not
be counted in determining the total number of
outstanding shares to constitute a quorum at any
meeting of shareholders;
(b) in the event that, under any
circumstance, the holders of the Series C Preferred
Stock are required by law to vote upon any matter,
the approval of such series shall be deemed to have
been obtained upon the affirmative vote of the
holders of only a majority of the shares of the
Series C Preferred Stock then outstanding;
(c) except as set forth herein, or as
otherwise provided by the Articles of Incorporation,
as amended, or by law, holders of the Series C
Preferred Stock shall have no special voting rights
and their consent shall not be required for the
taking of any corporate action.
9. Conversion Rights. The Series C Preferred Stock
may be converted at any time at the option of the holders
thereof during a ninety (90) calendar day period (the
"Conversion Period" as defined below) at the "Conversion
Price" (as defined below) in the manner hereinafter provided,
into fully paid and nonassessable Common Stock of the
Corporation by multiplying the number of Shares of Series C
Preferred Stock to be converted by $100 and dividing the
result by the Conversion Price; provided, however, that as to
any shares of Series C Preferred Stock which shall have been
called for redemption, the right of conversion shall
terminate at the close of business on the second full
business day prior to the date fixed for redemption and that,
on the commencement of any liquidation, dissolution or
winding up of the Corporation or the adoption by the
stockholders of the Corporation of any resolution authorizing
the commencement thereof, the right of conversion shall
terminate.
7
<PAGE> 9
(a) For the purposes of this paragraph 9,
the following terms shall have the meanings ascribed
below:
(i) "Conversion Period" shall be a
period in time which commences at 7:00 a.m.
local Dallas, Texas time on the day which
is thirty (30) calendar months after the
date of original issuance of the first
certificate, issued by the Corporation,
representing shares of Series C Preferred
Stock and expire at 3:00 p.m. local Dallas,
Texas time on the nintieth (90th) calendar
day thereafter.
(ii) "Conversion Price" shall be
and mean the amount determined (rounded
upward to the nearest cent) by multiplying
0.9 times the simple average of the daily
closing price of the Common Stock for the
three (3) trading days immediately
preceding the first day of the Conversion
Period on the market where the shares of
Common Stock of the Corporation are then
regularly traded (which is currently the
New York Stock Exchange, Inc.); provided,
however, if the shares of Common Stock of
the Corporation have not traded on such
market for at least thirty (30) days during
the six calendar months preceding the first
day of the Conversion Period, then such
average shall be of the actual number of
trading days in excess of three (3) as may
be available; provided further that if only
three or fewer trading days exist during
the six months immediately preceding the
first day of the Conversion Period, the
Conversion Price shall be equal to the
simple average of the closing prices of the
shares of Common Stock during such shorter
period of three or fewer days on such
market. The Conversion Price shall not be
subject to any adjustment for the issuance
of any shares of Common Stock by the
Corporation for any purpose.
(b) Upon any conversion, fractional shares
shall not be issued but any fractions shall be
adjusted by the delivery of one additional share of
Common Stock in lieu of any cash on the basis of the
"closing" market price for Common Stock at the close
of business on the date of conversion unless the
Board of Directors shall determine to adjust by the
issuance of fractional scrip certificates or in some
other manner. Upon any conversion, any dividends
accrued on the Series C Preferred Stock surrendered
for conversion not previously paid shall be paid at
the time of conversion. The
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<PAGE> 10
Corporation shall pay all issue taxes, if any,
incurred in respect to the issuance of Common Stock
on conversion, provided, however, that the
Corporation shall not be required to pay any
transfer or other taxes incurred by reason of the
issuance of such Common Stock in names other than
those in which the Series C Preferred Stock
surrendered for conversion may stand.
(c) Any conversion of Series C Preferred
Stock into Common Stock shall be made by the
surrender to the Corporation, at the office of any
Transfer Agent for the Common Stock, of the
certificate or certificates representing the Series
C Preferred Stock to be converted, duly endorsed or
assigned (unless such endorsement or assignment be
waived by the Corporation), together with a written
request for conversion.
(d) All Series C Preferred Stock which
shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding
and all rights with respect to such shares of stock,
including the rights, if any, to receive notices and
to vote, shall forthwith cease except only the
rights of the holders thereof to receive Common
Stock in exchange therefor. Any Series C Preferred
Stock so converted shall be permanently retired,
shall no longer be deemed outstanding and shall not
under any circumstances be reissued and the
Corporation may from time to time take such
appropriate corporate action as may be necessary to
reduce the authorized Series C Preferred Stock
accordingly.
(e) A number of authorized shares of Common
Stock sufficient to provide for the conversion of
the Series C Preferred Stock outstanding upon the
basis hereinbefore provided shall at all times be
reserved for such conversion. If the Corporation
shall propose to issue any securities or to make any
change in its capital structure which would change
the number of shares of Common Stock into which each
share of Series C Preferred Stock shall be
convertible as herein provided, the Corporation
shall at the same time also make proper provision so
that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved
for conversion of the outstanding Series C Preferred
Stock on the new basis.
(f) The term "Common Stock" as used in this
paragraph 9 shall mean stock of the class designated
as Common Stock of the Corporation on the date the
Series C Preferred Stock is created or
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<PAGE> 11
stock of any class or classes resulting from any
reclassification or reclassifications thereof, the
right of which to share in distributions of both
earnings and assets is without limitation in the
Certificate of Incorporation (or other similar
documents) of the Corporation as to any fixed amount
or percentage and which are not subject to
redemption; provided, that if at any time there
shall be more than one such resulting class, the
shares of each such class then issuable on
conversion of the Series C Preferred Stock shall be
substantially in the proportion which the total
number of shares of stock of each such class
resulting from all such reclassifications bears to
the total number of shares of stock of all such
classes resulting from all such reclassifications.
(g) In case the Corporation shall propose at
any time during the Conversion Period:
(i) to pay any dividend on the
Common Stock outstanding payable in Common
Stock or to make any other distribution,
other than cash dividends, to the holders
of the Common Stock outstanding; or
(ii) to offer for subscription to
the holders of the Common Stock outstanding
any additional shares of any class or any
other rights or option; or
(iii) to effect any
re-classification or recapitalization of
the Common Stock outstanding involving a
change in the Common Stock, other than a
subdivision or combination of the Common
Stock outstanding; or
(iv) to merge or consolidate with
or into any other corporation, or to sell,
lease, or convey all or substantially all
its property or business, or to liquidate,
dissolve or wind up;
then, in each such case, the Corporation shall mail
to the holders of record of each of the shares of
Series C Preferred Stock at their last known post
office addresses as shown by the Corporation's
records a statement, signed by an officer of the
Corporation, with respect to the proposed action,
such statement to be so mailed at least ten (10)
days prior to the date of the taking of such action
or the record date for holders of the Common Stock
for the purposes thereof, whichever is earlier. If
such statement relates to any proposed action
referred to in clauses (iii) or (iv) of this
10
<PAGE> 12
subparagraph 9, it shall set forth such facts with
respect thereto as shall reasonably be necessary to
inform the holders of the Series C Preferred Stock
and the holders of such stock as to the effect of
such action upon the conversion rights of such
holders.
10. Reacquired Shares. Any shares of Series C
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such
shares shall, upon cancellation, become authorized but
unissued shares of Special Stock and may be re-issued as part
of a new series of Special Stock subject to the conditions
and restrictions on issuance set forth in the Articles of
Incorporation, as amended, or as otherwise required by law.
IN WITNESS WHEREOF, these Articles of Amendment are executed on behalf
of the Corporation by its President as of the 4th day of June, 1996.
AMERICAN REALTY TRUST, INC.
By: /s/ KARL L. BLAHA
-----------------------------------
Karl L. Blaha
President
11
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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0
38
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<TOTAL-LIABILITY-AND-EQUITY> 184,526
<SALES> 0
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