<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1997
Registration Statement No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-------------------------
AMERICAN REALTY TRUST, INC.
(Exact name of registrant as specified in its governing instrument)
GEORGIA 6513 54-0697989
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Address and telephone number of principal executive offices)
ROBERT A. WALDMAN, ESQ.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Name, address and telephone number of agent for service)
-------------------------
Copy to:
THOMAS R. POPPLEWELL, ESQ.
Andrews & Kurth L.L.P.
4400 Thanksgiving Tower
Dallas, Texas 75201
-------------------------
If any of the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
Proposed maximum Proposed maximum
Title of securities Amount being offering price aggregate Amount of
being registered registered per unit(1) offering price(1) registration fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Stock, 7,500,000 Shares $10.00 $75,000,000 $22,727.27
$2.00 par value
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, 5,250,000 Shares (2)
$0.01 par value
============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
(2) Common Stock of the Registrant, to be issued upon conversion of the
Preferred Stock being registered hereunder. Such shares of Common Stock
will, if issued, be issued for no additional consideration and therefore no
registration fee is required.
----------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
AMERICAN REALTY TRUST, INC.
-------------------------
CROSS REFERENCE SHEET TO FORM S-4
<TABLE>
<CAPTION>
Location in
Item Number and Caption Prospectus
----------------------- ----------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus................................................ Cover Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus........... Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information....................................................... *
4. Terms of the Transaction.......................................... Outside Front Cover Page
5. Pro Forma Financial Information................................... *
6. Material Contracts with the Company Being Acquired................ *
7. Additional Information Required for Reoffering by Persons
and Parties Deemed to be Underwriters............................. *
8. Interests of Named Experts and Counsel............................ *
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities........................................ *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants....................... *
11. Incorporation of Certain Information by Reference................. *
12. Information with Respect to S-2 or S-3 Registrants................ THE COMPANY, THE BUSINESS OF THE COMPANY,
SELECTED FINANCIAL DATA, MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, FINANCIAL
STATEMENTS
13. Incorporation of Certain Information by Reference................. INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
14. Information with Respect to Registrants other than
S-3 or S-2 Registrants............................................ *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies......................... **
16. Information with Respect to S-2 or S-3 Companies.................. **
17. Information with Respect to other than S-3 or S-2 Companies....... **
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations are to be
Solicited......................................................... **
</TABLE>
<PAGE> 3
19. Information if Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer........................... **
* Not applicable
** To be included in the Prospectus by means of a post - effective amendment.
<PAGE> 4
PROSPECTUS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1997
AMERICAN REALTY TRUST, INC.
PREFERRED STOCK
COMMON STOCK
American Realty Trust, Inc. (the "Company"), a Georgia corporation,
may offer from time to time shares of preferred stock, par value $2.00 per
share (the "Preferred Stock"), and in the event such Preferred Stock is
convertible, common voting stock, par value $.01 per share (the "Common Stock"),
into which such Preferred Stock is convertible having a public offering price of
up to an aggregate of $50,000,000 (or its equivalent based on the exchange rate
at the time of sale) in amounts, at prices and on terms to be determined at the
time of the offering. The Preferred Stock may be offered in separate series, in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each a "Prospectus Supplement").
The specific terms of the Preferred Stock and the Common Stock
(collectively, the "Offered Securities"), in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, the specific number of shares,
title, stated value and liquidation preference of each share, issuance price,
dividend rate (or method of calculation), dividend payment dates, any
redemption or sinking fund provisions and any conversion or exchange fund
provisions. The Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by the Prospectus Supplement.
The Offered Securities may be offered by the Company directly to one
or more purchasers, through agents designated from time to time by the Company
or to or through underwriters or dealers. If any agents or underwriters are
involved in the sale of any Offered Securities, their names, and any applicable
purchase price, fee, commission or discount arrangement between or among them,
will be set forth in, or will be calculable from, the description in the
Prospectus Supplement of the method and terms of the offering of such Offered
Securities. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
------------------
The date of this Prospectus is February 11, 1997
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports and other information with the Commission.
Reports and proxy and information statements filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission. The address of such Web site is
"http://www.sec.gov". In addition, reports, proxy statements and other
information concerning the Company (symbol: "ARB") can be inspected and copied
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005-2601, on which the shares of Common Stock of the Company are
listed.
The Company has filed with the Commission a Registration Statement
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the shares of Preferred Stock and Common
Stock of the Company. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Preferred Stock and Common
Stock, reference is made to the Registration Statement and to the exhibits
thereto. Statements contained herein concerning the provisions of certain
documents are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may be inspected without charge at the office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained from
the Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as filed with the Commission on March 30, 1996, as amended
by Form 10-K/A, as filed with the Commission on September 25, 1996.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996, as filed with the Commission on May 15, 1996, as amended
by Form 10-Q/A, as filed with the Commission on September 25, 1996.
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996, as filed with the Commission on August 15, 1996, as
amended by Form 10-Q/A, as filed with the Commission on September 25, 1996.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, as filed with the Commission on November 13, 1996.
5. The Company's Report on Form 8-K, dated December 18, 1996, as filed
with the Commission on January 15, 1997.
6. The Annual Report on Form 10-K for Continental Mortgage and Equity
Trust for the year ended December 31, 1995, as filed with the Commission on
March 22, 1996, as amended by Form 10-K/A, as filed with the Commission on
November 12, 1996.
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<PAGE> 6
7. The Quarterly Report on Form 10-Q for Continental Mortgage and
Equity Trust for the quarter ended March 31, 1996, as filed with the Commission
on May 14, 1996, as amended by Form 10-Q/A, as filed with the Commission on
November 12, 1996.
8. The Quarterly Report on Form 10-Q for Continental Mortgage and
Equity Trust for the quarter ended June 30, 1996, as filed with the Commission
on August 9, 1996, as amended by Form 10-Q/A, as filed with the Commission on
November 12, 1996.
9. The Quarterly Report on Form 10-Q for Continental Mortgage and
Equity Trust for the quarter ended September 30, 1996, as filed with the
Commission on November 13, 1996, as amended by Form 10-Q/A, as filed with the
Commission on November 15, 1996.
10. The Annual Report on Form 10-K for Income Opportunity Realty Trust
for the year ended December 31, 1995, as filed with the Commission on March 13,
1996.
11. The Quarterly Report on Form 10-Q for Income Opportunity Realty
Investors, Inc. for the quarter ended March 31, 1996, as filed with the
Commission on May 9, 1996.
12. The Quarterly Report on Form 10-Q for Income Opportunity Realty
Investors, Inc. for the quarter ended June 30, 1996, as filed with the
Commission on August 12, 1996.
13. The Quarterly Report on Form 10-Q for Income Opportunity Realty
Investors, Inc. for the quarter ended September 30, 1996, as filed with the
Commission on November 12, 1996.
14. The Annual Report on Form 10-K for Transcontinental Realty
Investors, Inc. for the year ended December 31, 1995, as filed with the
Commission on March 22, 1996, as amended by Form 10-K/A, as filed with the
Commission on September 6, 1996.
15. The Quarterly Report on Form 10-Q for Transcontinental Realty
Investors, Inc. for the quarter ended March 31, 1996, as filed with the
Commission on May 13, 1996, as amended by Form 10-Q/A as filed with the
Commission on September 6, 1996.
16. The Quarterly Report on Form 10-Q for Transcontinental Realty
Investors, Inc. for the quarter ended June 30, 1996, as filed with the
Commission on August 12, 1996, as amended by Form 10-Q/A, as filed with the
Commission on September 6, 1996.
17. The Quarterly Report on Form 10-Q for Transcontinental Realty
Investors, Inc. for the quarter ended September 30, 1996, as filed with the
Commission on November 12, 1996.
18. The Annual Report on Form 10-K for National Realty, L.P. for the
year ended December 31, 1995, as filed with the Commission on March 26, 1996.
19. The Quarterly Report on Form 10-Q for National Realty, L.P. for
the quarter ended March 31, 1996, as filed with the Commission on May 14, 1996.
20. The Quarterly Report on Form 10-Q for National Realty, L.P. for
the quarter ended June 30, 1996, as filed with the Commission on August 12,
1996.
21. The Quarterly Report on Form 10-Q for National Realty, L.P. for
the quarter ended September 30, 1996, as filed with the Commission on November
12, 1996.
Each document filed subsequent to the date of this Prospectus pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to termination
of the offering of the Preferred Stock shall be deemed to be incorporated by
-2-
<PAGE> 7
reference in this Prospectus and shall be part hereof from the date of filing
of such document. Any statement contained in a document that is deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is also deemed to be
incorporated by reference herein modifies or supersedes such statement, and any
statement contained in this Prospectus shall be deemed to be modified or
superseded to the extent that a statement contained in any subsequently filed
document that also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document described
above (other than exhibits). Requests for such copies should be directed to
American Realty Trust, Inc., 10670 North Central Expressway, Suite 300, Dallas,
Texas 75231, Attention: Investor Relations. The Company's telephone number is
(214) 692- 4700.
-3-
<PAGE> 8
RATIO OF EARNINGS TO FIXED CHARGES
The following table summarizes the ratio of the Company's earnings to
combined fixed charges and preferred stock dividends (the "Earnings to Combined
Fixed Charges Ratio") for each of the five fiscal years of the Company and for
the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 , YEAR ENDED DECEMBER 31,
------------- -----------------------------
1996 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS 1.71 1.33 1.13 * * *
</TABLE>
* Earnings were inadequate to cover fixed charges by $3,559,000, $6,199,000,
and $6,583,00 in 1993, 1992, and 1991 respectively.
USE OF PROCEEDS
Unless otherwise indicated in a Prospectus Supplement with respect to
the proceeds from the sale of the particular shares of Preferred Stock to which
such Prospectus Supplement relates, the Company plans to use the net proceeds
for working capital and general corporate purposes, including, among other
things, the development and acquisition of additional properties and other
acquisition transactions and the payment of certain outstanding debt.
THE COMPANY
The Company, a Georgia corporation, is the successor to a District of
Columbia business trust organized pursuant to a declaration of trust dated July
14, 1961. The business trust merged into the Company on June 24, 1988. The
Company invests in equity interests in real estate (including equity securities
of real estate-related entities), leases, joint venture development projects
and partnerships and finances real estate and real estate activities through
investments in mortgage loans. The Company has invested in private and open
market purchases in the equity securities of Continental Mortgage and Equity
Trust ("CMET"), Income Opportunity Realty Investors, Inc. ("IORI"),
Transcontinental Realty Investors, Inc. ("TCI") and National Realty, L.P.
("NRLP").
The Company's board of directors has broad authority under the
Company's governing documents to make all types of real estate investments,
including mortgage loans and equity real estate investments, as well as
investments in the securities of other entities, whether or not such entities
are engaged in real estate related activities.
Although the Company's board of directors is directly responsible for
managing the affairs of the Company and for setting the policies which guide
it, the day-to-day operations of the Company are performed by Basic Capital
Management, Inc. ("BCM" or the "Advisor"). BCM is a contractual advisor under
the supervision of the Company's board of directors. The duties of BCM include,
among other things, locating, investigating, evaluating and recommending real
estate and mortgage note investment and sales opportunities, as well as
financing and refinancing sources for the Company. BCM also serves as a
consultant in connection with the Company's business plan and investment policy
decisions made by the Company's board of directors.
BCM is a company owned by a trust for the benefit of the children of
Gene E. Phillips, the Chairman of the Board and a Director of the Company until
November 16, 1992. Gene Phillips served as a director of BCM until December 22,
1989 and as Chief Executive Officer of BCM until September 1, 1992. Gene
Phillips currently serves as a representative of the trust for the benefit of
his children which owns BCM and, in such capacity, Gene Phillips has
substantial contact with the management of BCM and input with respect to BCM's
performance of advisory services to the Company. Ryan T. Phillips and Mickey N.
Phillips, the son and brother, respectively, of Gene Phillips, are directors of
BCM and trustees of the trust for the benefit of the children of Gene Phillips,
which owns BCM. As of December 31, 1996, BCM owned 2,548,130 shares of the
Company's Common Stock, approximately 39.5% of the shares then outstanding. BCM
has been providing advisory services to the Company since February 6, 1989. BCM
also serves as advisor to CMET, IORI and TCI, and performs administrative
services for NLRP on a cost reimbursement basis.
-4-
<PAGE> 9
Since February 1, 1990, affiliates of BCM have provided property
management services to the Company. Currently, Carmel Realty Services, Ltd.
("Carmel, Ltd.") provides such property management services. Carmel, Ltd.
subcontracts with other entities for the provision of the property-level
management services to the Company at various rates. The general partner of
Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) Syntek West,
Inc. ("SWI"), of which Gene Phillips is the sole shareholder, (ii) Gene
Phillips and (ii) a trust for the benefit of the children of Gene Phillips.
Carmel, Ltd. subcontracts the property-level management of the Company's
hotels, shopping centers, one of its office buildings and the Denver
Merchandise Mart to Carmel Realty, Inc. ("Carmel Realty") which is owned by
SWI. Carmel Realty is entitled to receive property and construction management
fees and leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd.
The Company has no employees. Employees of BCM render services to the
Company.
The Company's principal offices are located at 10670 North Central
Expressway, Suite 300, Dallas, Texas 75231. The Company's telephone number is
(214) 692-4700.
THE BUSINESS OF THE COMPANY
GENERAL
The Company, a Georgia corporation, is the successor to a District of
Columbia business trust. The Company elected to be treated as a Real Estate
Investment Trust ("REIT") under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the "Code"), during the period June 1, 1987
through December 31, 1990. The Company allowed its REIT tax status to lapse in
1991.
The Company's primary business is investing in equity interests in
real estate (including equity securities of real estate-related entities),
leases, joint venture development projects and partnerships and financing real
estate and real estate activities through investments in mortgage loans,
including first, wraparound and junior mortgage loans.
The Company's business is not seasonal. The Company has decided to
pursue a balanced investment policy, seeking both current income and capital
appreciation. The Company's plan of operation is to continue, to the extent its
liquidity permits, to make equity investments in lower risk real estate such as
apartment complexes and residential development projects or equity securities
of real estate-related entities and to continue to service and hold for
investment its mortgage notes. The Company also intends to pursue higher risk,
higher reward investments, such as undeveloped land where it can obtain
financing of a significant portion of a property's purchase price. The Company
also continues to seek selected dispositions of certain of its assets where the
prices obtainable for such assets justify their disposition. The Company also
intends to pursue its rights vigorously with respect to mortgage notes
receivable that are in default.
The Company's board of directors has broad authority under the
Company's governing documents to make all types of real estate investments,
including mortgage loans and equity real estate investments, as well as
investments in the securities of other entities, whether or not such entities
are engaged in real estate related activities.
The Company's board of directors may devote available assets to
particular investments or types of investments, without restriction on the
amount or percentage of the Company's assets that may be so devoted to a single
investment or to any particular type of investment, and without limit on the
percentage of securities of any one issuer that the Company may acquire. The
Company's investment objectives and policies may be changed at any time by the
Company's board of directors without the approval of the Company's
shareholders. By allowing its REIT tax status to lapse in 1991, the Company
relieved itself of investment and operational restrictions imposed on REITs
under the Code.
The specific composition of the Company's real estate and mortgage
notes receivable portfolios from time to time depends largely on the judgment
of the Company's management as to changing investment opportunities and the
level of risk associated with specific investments or types of investments. The
Company's management intends to continue to maintain real estate and mortgage
notes receivable portfolios diversified by location and type of property.
-5-
<PAGE> 10
In addition to its equity investments in real estate and mortgage notes, the
Company has also invested in private and open market purchases of the equity
securities of CMET, IORI, TCI and NRLP.
REAL ESTATE
At December 31, 1995, approximately two-thirds of the Company's assets
were invested in real estate and the equity securities of real estate entities.
The Company has invested in real estate located throughout the continental
United States, either on a leveraged or nonleveraged basis. The Company's real
estate portfolio consists of properties held for investment, investments in
partnerships, properties held for sale and investments in equity securities of
CMET, IORI, TCI and NRLP.
The Company's real estate consists of raw land, commercial properties
(office buildings, shopping centers and a merchandise mart) and hotels. In
selecting new real estate investments, the location, age and type of property,
gross rents, lease terms, financial and business standing of tenants, operating
expenses, fixed charges, land values and physical condition are among the
factors considered. The Company may acquire properties subject to or assume
existing debt and may mortgage, pledge or otherwise obtain financing for its
properties. The Company's board of directors may alter the types of and
criteria for selecting new real estate investments and for obtaining financing
without a vote of the Company's shareholders.
A summary of the activity in the Company's owned real estate portfolio
during 1995 is as follows:
<TABLE>
<S> <C>
Owned properties in real estate portfolio at
January 1, 1995 .................................. 16*
Properties acquired through purchase .................. 2
Property acquired through settlement .................. 1
Properties released through settlement ................ (2)
Properties sold ....................................... (2)
Owned properties in real estate portfolio at
December 31, 1995 ................................ 15*
===
</TABLE>
* Includes two residential subdivisions with a total of 33
developed residential lots at January 1, 1995 and one
residential subdivision with 22 developed residential lots at
December 31, 1995.
Properties Held for Investment. Set forth below are the Company's
properties held for investment and the average annual rental rate for
commercial properties and the average daily room rate for hotels and occupancy
at December 31, 1995, 1994 and 1993 for commercial properties and average
occupancy during 1995, 1994 and 1993 for hotels.
-6-
<PAGE> 11
<TABLE>
<CAPTION>
Rent Per
Square Foot Occupancy
Rooms/ ----------- ---------
Property Location Square Footage 1995 1994 1993 1995 1994 1993
-------- -------- -------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Office Building
- ---------------
Rosedale Towers Minneapolis, MN 84,798 Sq. Ft. $13.16 $14.46 $14.00 90% 94% 92%
Shopping Center
- ---------------
Oak Tree Village Lubbock, TX 45,623 Sq. Ft. 7.34 * * 91% * *
Park Plaza Manitowoc, WI 105,507 Sq. Ft. 5.72 5.65 5.65 93% 93% 86%
Merchandise Mart
- ----------------
Denver Mart Denver, CO 509,008 Sq. Ft. 14.53 14.18 * 96% 97% *
Hotels
- ------
Inn at the Mart Denver, CO 156 Room 44.69 42.38 * 40% 42% *
Kansas City
Holiday Inn Kansas City, MO 196 Rooms 61.66 52.47 48.76 75% 75% 70%
</TABLE>
* Property was acquired in 1995 or 1994
Occupancy presented above is without reference to whether leases in
effect are at, below or above market rates.
In November 1995, the Company obtained the Oak Tree Village, a 42,000
square foot shopping center in Lubbock, Texas, as a portion of a settlement
with an insurance company. See "Mortgage Loans" below.
In May 1996, the Company purchased a 2,271 square foot single family
residence in Dallas, Texas for $266,000 in cash. In August 1996, the Company
financed the residence for $173,000. The Company received net financing
proceeds of $168,000 after the payment of various closing costs associated with
the financing. The loan bears interest at the prime rate plus 1%, currently
9.25% per annum, requires monthly principal and interest payments of $2,000 and
matures August 16, 2008.
Properties held for sale. In February 1995, the Company sold the
Boulevard Villas Apartments for $9.6 million. The Company initially treated the
sale as a financing transaction, the Company having provided the purchaser with
the $1.6 million down payment, by loaning a like amount, secured by a second
lien on an office building in Houston, Texas. In March 1995, the office
building was sold and the Company's loan was paid in full. The Company received
net cash of $3.4 million from the sale of the apartment complex, after the
payoff of $5.9 million in existing mortgage debt, recognizing a gain of
$924,000 on the sale. The Company paid a real estate brokerage commission of
$288,000 to Carmel Realty, an affiliate of BCM, the Company's advisor, based on
the $9.6 million sales price.
In May 1995, the Company purchased a 74.9 acre parcel of partially
developed land in Las Colinas, Texas for $13.5 million. The Company paid a real
estate brokerage commission of $405,000 to Carmel Realty based on the $13.5
million purchase price. In connection with the acquisition, the Company
borrowed $15.0 million under a term loan, which bears interest at the prime
rate plus 4%, (12.50% per annum at December 31, 1995), requires monthly
interest only payments, a 1% annual maintenance fee, principal reduction
payments of $1.5 million on the first day of November 1995 and May 1996 and
$3.0 million every six months thereafter commencing November 1996, with the
balance of principal and accrued but unpaid interest due at maturity on May 1,
1998. The term loan is secured by the land in Las Colinas, Texas, a
participation interest in two of the Company's notes receivable, land in
Atlanta, Georgia and a pledge of 586,800 NRLP units of limited partner interest
owned by the Company. The Company received net financing proceeds of $210,000
after the purchase of the land and payment of associated closing costs. In June
1995, the Company borrowed an additional $3.0 million from this lender
increasing the term loan principal balance to $18.0 million. The additional
$3.0 million borrowing was paid in full prior to its March 31, 1996 maturity
date, as discussed below.
In September 1995, the Company sold 6.9 acres of the 74.9 acre parcel
for $2.9 million in cash. In accordance with the provisions of the term loan,
the Company applied the $2.6 million net proceeds of the sale to pay down the
term loan. Such paydown was credited against the principal payments the Company
was otherwise required to make in 1995
-7-
<PAGE> 12
and 1996. The principal balance of the term loan was $15.5 million at December
31, 1995. The Company recognized a $1.5 million gain on the sale.
In March, 1996, the Company sold an additional 2.3 acres of the 74.9
acre parcel for $961,000 in cash. In accordance with the provisions of the term
loan, the Company applied the net proceeds of the sale, $891,000, to pay down
the term loan, $400,000 being applied to payoff 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 due in May
1996.
In October 1995, the Company purchased an additional tract of
partially developed land in Las Colinas, Texas, totaling 92.6 acres for $7.1
million. The Company paid a real estate brokerage commission of $212,000 to
Carmel Realty based on the $7.1 million purchase price. The Company paid
$959,000 in cash and borrowed the remaining $6.1 million. The mortgage bears
interest at the prime rate plus 5%, (13.50% at December 31, 1995), requires
monthly interest only payments through September 30, 1996, four quarterly
deferred commitment fee payments of $50,000 and $50,000 monthly principal
reduction payments beginning October 1, 1996. The principal balance, accrued
but unpaid interest and a $500,000 "maturity fee" is due at maturity on
December 1, 1996. The Company has an option to extend the maturity date to
October 1, 1997 if no event of default has occurred, written notice is given
prior to maturity and the principal balance of the loan has been reduced by
$2.1 million. The Company has also pledged to the lender, as additional
collateral for the loan, $2.0 million of newly issued shares of the Company's
Common Stock.
On February 13, 1996, the Company entered into a contract to sell 72.5
of the 92.6 acres for $12.9 million in cash. The contract calls for the sale to
close in two phases. The sale of the first phase closed in July, 1996. The
Company sold 32.3 acres of the 72.5 acres for $4.9 million in cash. The Company
applied the net proceeds of the sale, $4.7 million to pay down the term loan.
The Company recognized a gain of $2.0 million on the sale. The second phase is
to close on or before February 28, 1997.
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 of $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 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 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 balance 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,
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 July 1996, the Company purchased 568 acres of partially developed
land in Houston, Texas for $6.2 million. The Company paid $451,000 in cash and
obtained seller mortgage financing for $5.7 million. The loan bears interest at
9% per annum, requires a $500,000 principal and interest payment on November 1,
1996 and quarterly principal and interest payments of $145,000, thereafter. The
Company made the November 1, 1996 principal and interest payment. The loan
matures August 1, 1998. The Company paid a real estate brokerage commission of
$187,000 to Carmel Realty based on the $6.2 million purchase price. In
September 1996, the Company entered into a contract to sell the land for a
price in excess of the land's purchase price and carrying and estimated selling
costs. The sale, should it be consummated, would close on December 1, 1997.
In August 1996, the Company purchased a pool of assets for $3.1
million from Southmark Corporation ("Southmark"), consisting of a total of 151
acres of raw land in California, Indiana and Idaho, various percentage
interests, ranging from 15% to 45%, in five partnerships and trusts that hold
an unsecured note receivable with a principal balance of $3.4 million and
Southmark's 19.2% limited partnership interest in Syntek Asset Management, L.P.
("SAMLP"). To complete the acquisition, the Company borrowed an additional $3.0
million from the lender whose term loan is secured by the Company's 63.4 acres
of land in Las Colinas, Texas. The term loan was amended to increase
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<PAGE> 13
the loan amount from $10.9 million to $13.9 million. The $3.0 million advance
is secured by the 122 acres of raw land purchased in California and the 19.2%
limited partnership interest in SAMLP.
Also in August 1996, the Company purchased 280 acres of partially
developed land in Dallas County, Texas for $13.5 million. The Company paid $3.8
million in cash and borrowed the remaining $9.7 million as the third advance
under the term loan from the lender discussed above. The term loan was again
amended increasing the term loan amount from $13.9 million to $19.5 million
with an additional $4.0 million being loaned on an overline advance note. The
amendment also changed the principal reduction payments to $2.0 million in
November 1996 and $3.0 million on the last day of December 1996, March 1997,
June 1997, September 1997 and January 1998, and adds 240 acres of the 280 acres
of the land purchased as additional collateral on the term loan. All other
terms of the term loan remained unchanged. The Company paid a real estate
brokerage commission of $406,000 to Carmel Realty based on the $13.5 million
purchase price.
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, 12 additional lots have been sold for an aggregate gain of $24,000. At
September 30, 1996, 10 lots remained to be sold.
MORTGAGE LOANS
In addition to real estate, a substantial portion of the Company's
assets have been and are expected to continue to be invested in mortgage notes
receivable, principally those secured by income-producing real estate. The
Company's mortgage notes receivable consist of first, wraparound, and junior
mortgage loans.
In addition to originating its own mortgage loans, the Company has
acquired existing mortgage notes either directly from builders, developers or
property owners, or through mortgage banking firms, commercial banks or other
qualified brokers. BCM, in its capacity as a mortgage servicer, services the
Company's mortgage notes receivable.
The types of properties securing the Company's mortgage notes
receivable portfolio consisted of office buildings, apartment complexes,
shopping centers, single-family residences, hotels and developed land. The
Company's board of directors may alter the types of properties subject to
mortgages in which the Company invests without a vote of the Company's
shareholders.
The Company may invest in first mortgage loans, with either short-,
medium- or long-term maturities. First mortgage loans generally provide for
level periodic payments of principal and interest sufficient to substantially
repay the loan prior to maturity, but may involve interest-only payments or
moderate or negative amortization of principal and a "balloon" principal
payment at maturity. With respect to first mortgage loans, it is the Company's
general policy to require that the borrower provide a mortgagee's title policy
or an acceptable legal opinion of title as to the validity and the priority of
the mortgage lien over all other obligations, except liens arising from unpaid
property taxes and other exceptions normally allowed by first mortgage lenders
in the relevant area. The Company may grant to other lenders participations in
first mortgage loans originated by the Company.
The following discussion briefly describes the events that affected
previously funded first mortgage loans during 1995 and the first nine months of
1996.
In June 1991, the Company entered into an asset sales agreement with
an insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. Assets
transferred by the Company pursuant to the asset sales agreement included Oak
Tree Village Shopping Center in Lubbock, Texas, with a carrying value of $2.0
million prior to transfer, a $1.5 million senior participation in a second lien
mortgage note secured by the Las Vegas Plaza, a retail shopping center in Las
Vegas, Nevada, with a carrying value of $18.8 million prior to transfer, a
$315,000 participation in a first mortgage note secured by unimproved land in
Virginia Station, Virginia and a $799,000 participation in a second lien
mortgage note secured by the Country Club Apartments in Flagstaff, Arizona. In
return, the Company received a $1.9 million participation in a first mortgage
note secured by a hotel site in Lihue, Hawaii, a
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<PAGE> 14
$1.0 million first mortgage note secured by land in Maricopa County, Arizona, a
$118,000 first mortgage note secured by a single-family residence in Silver
Creek, Colorado and $1.5 million in cash. The asset sales agreement contained
put and guaranty provisions whereby, at any time, either party could demand
that the seller reacquire any asset sold pursuant to the terms of the asset
sales agreement for the consideration originally received. In March 1992, the
Company received payment in full on the $118,000 note secured by the
single-family residence in Silver Creek, Colorado.
In March 1992, the insurance company was placed in receivership and in
June 1992, the Company provided notice to the insurance company, under the
terms of the put and guaranty provisions of the asset sales agreement, of its
desire to divest itself of all assets received. The Receiver refused to allow
the enforcement of the put and guaranty provisions of the asset sales
agreement.
In March 1992, the Company recorded a provision for loss of $496,000
to reduce the $1.0 million note receivable secured by land in Maricopa County,
Arizona to its then estimated fair value. In June 1992, the Company foreclosed
on the land. In September 1992, the Company recorded the insubstance
foreclosure of the hotel site in Lihue, Hawaii, which secured a $1.9 million
first mortgage participation received by the Company. In March 1995, the
Company collected in full the second lien mortgage note secured by the Country
Club Apartments, but did not remit such amount to the insurance company.
A settlement between the Company and the Receiver was approved by the
court on February 15, 1995. Under the terms of the settlement, the insurance
company returned to the Company all of the assets which it received from the
Company, except for the participation in the first mortgage note secured by
unimproved land in Virginia Station, Virginia. In exchange, the Company
returned to the insurance company $1.0 million in cash and all the assets which
it received from the insurance company, other than the note secured by the
residence in Colorado which the Company had collected. The asset transfers and
the Company's cash payment were completed in the fourth quarter of 1995. The
Company incurred no loss on the settlement.
The borrower on a $1.7 million first mortgage note receivable secured
by land in Osceola, Florida, failed to pay the note on its November 1, 1993
maturity. The Company instituted foreclosure proceedings and was awarded a
summary judgment in January 1994. During 1994 and 1995, the borrower paid the
Company a total of $270,000 in nonrefundable fees to delay foreclosure on the
property until April 24, 1995. On April 21, 1995, the borrower filed for
bankruptcy protection. In July 1995, the Company filed a motion with the
bankruptcy court to lift the court's stay and allow the Company to proceed with
foreclosure. In September 1995, the bankruptcy court denied the Company's
motion to lift stay and the borrower was allowed to file a plan of
reorganization. The borrower failed to present a confirmable plan of
reorganization and the bankruptcy court converted the bankruptcy proceeding to
a Chapter 7 liquidation proceeding. On August 24, 1996, the bankruptcy court's
stay was lifted allowing the Company to proceed with foreclosure. The Company
expects to receive title to the property in December 1996. The note had a
principal balance of $1.6 million at September 30, 1996. The Company does not
expect to incur any loss resulting from foreclosing on the collateral property,
as its estimated fair value, less costs of sale, exceeds the carrying value of
the note.
In February 1996, the Company refinanced the $7.8 million of debt
collateralized by a mortgage note receivable with a balance of $18.3 million at
September 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 BCM a mortgage brokerage and
equity refinancing fee of $120,000 based upon the $12.0 million refinancing.
The Company may invest in wraparound mortgage loans, sometimes called
all-inclusive loans, made on real estate subject to prior mortgage
indebtedness. A wraparound mortgage note is a mortgage note having an original
principal amount equal to the outstanding balance under the prior existing
mortgage loan plus the amount actually advanced under the wraparound mortgage
loan. Wraparound mortgage loans may provide for full, partial or no
-10-
<PAGE> 15
amortization of principal. The Company's policy is to make wraparound mortgage
loans in amounts and on properties as to which it would otherwise make a first
mortgage loan.
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 September 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.
The Company may invest in junior mortgage loans. Such notes are
secured by mortgages that are subordinate to one or more prior liens either on
the fee or a leasehold interest in real estate. Recourse on such notes
ordinarily includes the real estate which secures the note, other collateral
and personal guarantees of the borrower.
The following discussion briefly describes the junior mortgage loans
funded in 1994 and the events that affected previously funded junior mortgage
notes during 1995 and the first nine months of 1996.
At December 31, 1995 and September 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, 1994, 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 1994 and received the
remaining $25,000 in 1995 as well as the required first and second quarterly
principal reduction payments totaling $50,000. The Company and the borrower
again agreed to extend the mortgage note receivable's maturity date to
September 1, 1997. The extension required an additional $90,000 principal
reduction payment payable in three equal monthly installments beginning
November 1, 1996. The monthly interest, quarterly principal reduction payments
of $24,000 and all other terms remain the same. The first $25,000 quarterly
principal reduction payment is due December 1, 1996. The principal balance of
the note was $179,000 at September 30, 1996 and the note is performing in
accordance with its amended 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 principal and accrued but
unpaid interest due on demand. The mortgage note receivable matures June 1,
1998.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS AND REAL ESTATE PARTNERSHIPS
The Company's investment in real estate entities includes (i) equity
securities of three publicly traded REITs (collectively the "Trusts"), CMET,
IORI and TCI, (ii) units of limited partner interest of NRLP, (iii) a general
partner interest in NRLP and NOLP, through its 96% limited partner interest in
SAMLP, the general partner of NRLP and NOLP, and (iv) interests in real estate
joint venture partnerships. Gene E. Phillips, Chairman of the Board and a
Director of the Company until November 16, 1992, served until May 1996 as a
director and Chief Executive Officer of SAMI, a company owned by BCM that
serves as SAMLP's managing general partner. Mr. Phillips is also a general
partner of SAMLP. BCM serves as advisor to the Trusts, and performs certain
administrative and management functions
-11-
<PAGE> 16
for NRLP and NOLP on behalf of SAMLP. At December 31, 1996, SAMLP, the general
partner of NRLP and NOLP, owned 26,475 shares of TCI. The Company owns a 96%
limited partnership interest in SAMLP which the Company consolidates for
financial statement purposes.
Since acquiring its initial investments in the equity securities of
the Trusts and NRLP in 1989, the Company has made additional investments in the
equity securities of these entities through private and open market purchases.
The aggregate carrying value (cost plus or minus equity in income or losses and
less distributions received) of such equity securities of the Trusts and NRLP
was $35.4 million at September 30, 1996 ($36.7 million at December 31, 1995)
and the aggregate market value of such equity securities was $75.7 million
($69.2 million at December 31, 1995). The aggregate investee book value of the
equity securities of the Trusts was $61 million at September 30, 1996 and $59.7
million at December 31, 1995. The Company's share of NRLP's revaluation equity
was $161.5 million at both September 30, 1996 and December 31, 1995.
In 1990, the Company's board of directors authorized and in May 1993
reaffirmed the expenditure by the Company of up to an aggregate of $17.0
million to acquire, in open market purchases, additional units of NRLP and
shares of the Trusts. In March 1995, the Company's board of directors increased
such authorization to $25.0 million. As of December 31, 1995, the Company had
expended $2.8 million to acquire additional units of NRLP and an aggregate of
$3.0 million to acquire additional shares of the Trusts, in open market
purchases, in accordance with these authorizations. The Company expects to make
additional investments in the equity securities of the Trusts and NRLP.
The purchases of the equity securities of the Trusts and NRLP were
made for the purpose of investment and were based principally on the opinion of
the Company's management that the equity securities of each were and are
currently undervalued. The determination by the Company to purchase additional
equity securities of the Trusts and NRLP is made on an entity-by-entity basis
and depends on the market price of each entity's equity securities relative to
the value of its assets, the availability of sufficient funds and the judgment
of the Company's management regarding the relative attractiveness of
alternative investment opportunities. Substantially all of the equity
securities of the Trusts and NRLP owned by the Company are pledged as
collateral for borrowings.
Each of the Trusts and NRLP own a considerable amount of real estate,
much of which, particularly in the case of NRLP, has been held for many years.
Because of depreciation, these entities may earn substantial amounts in periods
in which they sell real estate and will probably incur losses in periods in
which they do not. The Company's reported income or loss attributable to these
entities will differ materially from its cash flow attributable to them.
The Company does not have a controlling equity interest in any of the
Trusts and therefore it cannot, acting by itself, determine either the
individual investments or the overall investment policies of such investees.
However, due to the Company's equity investments in, and the existence of
common officers with, each of the Trusts, and that the Trusts have the same
advisor as the Company and that Mr. Paulson, an Executive Officer of the
Company, is also the President of the Trusts and BCM, the Company's advisor,
and the President and a director of SAMI, a Company owned by BCM that is the
managing general partner of SAMLP, the Company may be considered to have the
ability to exercise significant influence over the operating and investing
policies of these entities. The Company accounts for its investment in these
entities using the equity method. Under the equity method, the Company
recognizes its proportionate share of the income or loss from the operations of
these entities currently, rather than when realized through dividends or on
sale. 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 and NOLP. The carrying value of the Company's investment in these
entities, as set forth in the table below, is the original cost of each such
investment adjusted for the Company's proportionate share of each entity's
income or loss and distributions received.
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<PAGE> 17
<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 September 30, 1996 September 30, 1996 September 30, 1996 September 30, 1996
- -------- ------------------ ------------------ ------------------ ------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
NRLP 52.9% $ 10,682 $ * $ 41,865
CMET 39.0% 14,617 31,745 17,564
IORI 28.9% 2,765 6,247 4,503
TCI 29.6% 6,420 23,762 11,758
---------- -----------
34,484 $ 75,690
===========
General partner
interest in NRLP
and NOLP 8,847
Other equity
investees 11,004
----------
$ 54,335
==========
</TABLE>
- ------------
* At September 30, 1996 and December 31, 1995, 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.
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<PAGE> 18
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Nine Months Ended September 30, For the Years Ended December 31,
------------------------------ --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS DATA
Revenue ................................ $ 19,442 $ 18,698 $ 22,952 $ 23,070 $ 13,427 $ 11,481 $ 13,687
Expense ................................ 29,211 25,143 33,437 29,019 22,142 21,631 25,465
--------- --------- --------- --------- --------- --------- ---------
(Loss) before gain on sale
of real estate and
extraordinary gain ............ (9,769) (6,445) (10,485) (5,949) (8,715) (10,150) (11,778)
Gain on sale of real estate ............ 7,799 2,544 6,866 3,200 481 566 1,271
--------- --------- --------- --------- --------- --------- ---------
(Loss) before extraordinary gain ....... (1,970) (3,901) (3,619) (2,749) (8,234) (9,584) (10,507)
Extraordinary gain ..................... 381 758 783 323 3,807 -- 7,628
--------- --------- --------- --------- --------- --------- ---------
Net (loss) ............................. (1,589) (3,143) (2,836) (2,426) (4,427) (9,584) (2,879)
Preferred Dividend
Requirement ............................ (65) -- -- -- -- -- --
Redeemable Common Stock,
accretion of discount ......... -- -- -- -- (129) (258) --
--------- --------- --------- --------- --------- --------- ---------
(Loss) applicable to
Common Shares ................. $ (1,654) $ (3,143) $ (2,836) $ (2,426) $ (4,556) $ (9,842) $ (2,879)
========= ========= ========= ========= ========= ========= =========
PER SHARE DATA
(Loss) before extraordinary
gain .......................... (.32) (.67) $ (.61) $ (.45) $ (1.36) $ (1.95) $ (2.48)
Extraordinary Gain ..................... .06 .13 .13 .05 .63 -- 1.80
--------- --------- --------- --------- --------- --------- ---------
Net (loss) ............................. (.26) (.54) (.48) (.40) (.73) (1.95) (.68)
Redeemable Common Stock,
accretion of discount ......... -- -- -- -- (.02) (.05) --
--------- --------- --------- --------- --------- --------- ---------
(Loss) applicable to
Common shares ................. $ (.26) $ (--) $ (.48) $ (.40) $ (.75) $ (2.00) $ (.68)
========= ========= ========= ========= ========= ========= =========
Dividends per share .................... $ .10 $ -- $ -- $ -- $ -- $ -- $ --
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares
outstanding ................... 6,354,447 5,858,328 5,858,328 6,104,438 6,050,550 4,906,584 4,235,398
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable..... $ 49,293 $ 49,741 $ 45,664 $ 51,769 $ 72,808 $ 68,507
Real estate............. 88,999 59,424 47,526 52,437 45,317 52,654
Total assets............ 205,125 162,033 137,362 139,861 151,010 153,131
Notes and interest
payable................. 107,613 61,163 45,695 53,693 63,698 65,074
Shareholders'
equity.................. 51,932 53,058 55,894 56,120 60,476 70,221
Book value per share.... $ 7.71 $ 9.06 $ 9.54 $ 11.11 $ 11.88 $ 16.58
</TABLE>
- ---------------
Shares and per share data have been adjusted for the 2 for 1 forward Common
Stock split effected January 2, 1996.
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 provide
opportunities for capital appreciation as well as current income.
LIQUIDITY AND CAPITAL RESOURCES
General. Cash and cash equivalents at September 30, 1996 and December
31, 1995 aggregated $1.1 million. Although the Company anticipates that it will
generate excess cash flow from operations during 1996, as discussed below, such
excess cash is not expected to be sufficient to discharge all of the Company's
debt and interest payment obligations as they come due. 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 September 30, 1996 the Company has
paid a total of $10.9 million of such debt and refinanced an additional $12.1
million. The Company intends to either pay off, extend the maturity dates or
obtain alternate financing for the remaining $3.4 million of 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 1996. Such increase is expected to be derived from operations of the
Denver Merchandise Mart, the Kansas City Holiday Inn and the Oak Tree Village
Shopping Center. The Company also expects continued lot sales at its Texas
residential subdivisions and sales of its land holdings to generate additional
cash flow.
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.
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<PAGE> 20
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.
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.
Also in May 1996, the Company purchased a 2,271 square foot single
family residence in Dallas, Texas for $266,000 in cash. In August 1996, the
Company financed the residence for $173,000. The Company received net financing
proceeds of $168,000 after the payment of various closing costs associated with
the financing.
In June 1996, the Company purchased 442 acres of partially developed
land in Denver, Colorado for $8.5 million. In connection with the purchase, the
Company obtained purchase money financing of $7.5 million and issued 15,000
shares of the Company 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 ground 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 contributed 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 sell 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 release of its collateral interest in such
land.
In July 1996, the Company purchased 568 acres of partially developed
land in Houston, Texas for $6.2 million. The Company paid $451,000 in cash and
obtained seller mortgage financing for the remaining $5.7 million of the
purchase price.
In August 1996, the Company purchased a pool of assets for $3.1
million, from Southmark Corporation ("Southmark") consisting of raw land
totaling 151 acres in California, Indiana and Idaho, various percentage
interests, ranging from 15% to 45%, in five partnerships and trusts that hold
an unsecured note receivable with a principal balance of $3.4 million and
Southmark's 19.2% limited partnership interest in SAMLP. In connection with the
acquisition, the Company borrowed $3.0 million.
Also in August 1996, the Company purchased 280 acres of partially
developed land in Dallas County, Texas for $13.5 million. The Company paid $3.8
million in cash and borrowed the remaining $9.7 million of the purchase price.
On June 12, 1996, the Company's Board of Directors announced the
resumption of dividend payments at the initial rate of $.10 per share, per
quarter. Through September 30, 1996, the Company has paid dividends totaling
$.20 per share or $1.3 million.
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 paid on July 8, 1996 to shareholders of record on June 21, 1996.
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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, primarily investments in
partially developed and/or raw land, continue making additional investments in
real estate entities and marketable equity securities and fund or acquire
mortgage notes.
The Company expects that it will be necessary for it to sell $9.1
million and $23.0 million of such land in each of the next two years,
respectively, to satisfy the debt on land holdings as it matures. If the
Company is unable to sell at least the minimum amount of land to satisfy the
debt obligations on such land as it matures, the Company, if it was not able to
extend such debt, would either sell other of its assets to pay such debt or
return the property to the lender.
Notes Receivable. The Company has received $640,000 in principal
payments on its notes receivable in the nine months ended September 30, 1996.
At September 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 Company and the borrower have again agreed to extend the mortgage
note receivable's maturity date to September 1, 1997. The extension required an
additional $90,000 principal reduction payment payable in three equal monthly
installments beginning November 1, 1996. The monthly interest, quarterly
principal reduction payments of $25,000 and all other terms remain the same.
The first $25,000 quarterly principal reduction payment was due December 1,
1996. The principal balance of the note was $179,000 at September 30, 1996 and
the note is now performing in accordance with its terms.
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.
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. 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 mortgage debt secured by the Denver Merchandise Mart for $15.0
million. The Company received net refinancing proceeds of $7.8 million after
the payoff of the first and second lien debt, purchasing the ground lease on
Denver Merchandise Mart for $678,000 and payment of various closing costs
associated with the refinancing.
In August 1996, the Company refinanced the $2.4 million first lien
mortgage debt secured by the Rosedale Towers Office Building in Roseville,
Minnesota for $2.8 million. The Company received net refinancing proceeds of
$154,000 after the payoff of the first lien debt of $2.4 million and payment of
various closing costs associated with the refinancing. The Company also
received 282,352 shares of Common Stock of the Company that it had pledged as
additional collateral on the existing mortgage debt.
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Also in August 1996, the Company financed the previously unencumbered
Inn at the Mart in Denver, Colorado for $2.0 million to facilitate renovating
the property. The Company received net financing proceeds of $890,000 after the
payment of various closing costs associated with the financing and a $1.1
million renovation holdback. The lender advanced the $1.1 million renovation
holdback in December 1996.
In October 1996, the Company completed the sale of $1.1 million in
11-1/2% senior subordinated notes in a private placement.
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.
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, and the Company's trading portfolio and bear
interest rates ranging from 6.5% to 9.25%. Margin borrowing totaled $36.8
million at September 30, 1996.
In August 1996, the Company consolidated its existing NRLP margin debt
held by the various brokerage firms into a single loan of $20.3 million. The
loan is secured by the Company's NRLP units with a market value of at least 50%
of the principal balance. The Company received $1.9 million in cash after the
payment of $617,000 in various closing costs associated with the financing and
a $17.8 million holdback, pending the lender's receipt of the remaining NRLP
units as collateral. As of October 31, 1996, the Company had pledged 3,208,119
NRLP units with a market value of $39.8 million and the lender had released
$16.8 million of the holdback directly to the brokerage firms in payment of the
margin debt related to the NRLP units pledged. The lender received the final
200,600 NRLP units with a market value of $2.4 million in November 1996. These
NRLP units were being held as additional collateral on the term loan secured by
the Company's 63.4 acres of Las Colinas land and were released upon receipt of
a $2.0 million term loan paydown in November 1996.
Also in August 1996, the Company obtained a $2.0 million margin loan
from a financial institution secured by a pledge of $4.0 million of previously
unencumbered equity securities of the REITs owned by the Company and Common
Stock of the Company owned by BCM. The Company received $1,966,000 in net cash
after the payment of closing costs associated with the margin loan. The loan
bears interest at the prime rate plus 2.25%, currently 10.50% per annum,
requires monthly interest only payments and matures August 2, 1997.
In September 1996, the same lender made a second $2.0 million loan.
The second margin loan is secured by a pledge of $5.0 million previously
unencumbered equity securities of the REITs owned by the Company and Common
Stock of the Company owned by BCM. The Company received $1,970,000 in net cash
after the payment of closing costs associated with the margin loan. The margin
loan bears interest at the prime rate plus 2.25%, currently 10.50% per annum,
requires interest only payments and matures September 27, 1997.
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. 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 prior to such two year period.
The Company's cash flow from these investments is dependent on the
ability of each of the entities to make distributions. The Company received
distributions totaling $8.6 million in the first nine months of 1996 from the
REITs and NRLP.
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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, 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 ("Moorman Settlement Agreement"). 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 the Partnership of SAMLP and NOLP (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 was 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. On September 23, 1996, the Supervising Judge entered an
order granting tentative approval of the Amended and Restated Implementation
Agreement and the form of notice. On January 2, 1997, the Supervising Judge
entered an order granting tentative approval of additional matters relating to
the Amended and Restated Implementation Agreement. 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 third or fourth quarter of 1997.
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.
On September 3, 1996, Joseph B. Moorman filed a Motion for orders
Compelling Enforcement of the Moorman Settlement Agreement, Appointment of a
Receiver and Collateral Relief with the Superior Court of California in and
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for the County of San Mateo. The motion alleged that the settling defendants
had failed or refused to perform their obligations under the Moorman Settlement
Agreement. The motion requested that SAMLP be removed as general partner and a
receiver be appointed to manage the Partnership. The motion also requested that
the Company be ordered to deliver to the court all NRLP units which had been
purchased by the Company since August 7, 1991. A hearing was held on this
motion on October 4, 1996. On January 2, 1997 the Supervising Judge entered an
order denying the motion.
On January 27, 1997, Joseph B. Moorman filed motions to (i) discharge
the Oversight Committee, (ii) vacate the court's orders and renewed his prior
motions to (i) compel enforcement of the Moorman Settlement Agreement, (ii)
appoint a receiver over NRLP, and (iii) for collateral relief against the
Company. Also on January 27, 1997, Robert A. McNeil filed motions to (i) be
installed as receiver for NRLP, (ii) vacate the court's orders and (iii)
disband the Oversight Committee. A hearing on the motions to discharge or
disband the Oversight Committee and to vacate the court's orders has been
scheduled to be held on March 21, 1997.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995. For the three months ended September 30, 1996, the Company
reported net income of $770,000, compared to net income of $1.2 million for the
three months ended September 30, 1995. For the nine months ended September 30,
1996, the Company had a net loss of $1.6 million compared with a net loss of
$3.1 million for the nine months ended September 30, 1995. The primary factors
effecting the Company's three and nine month results are discussed in the
following paragraphs.
Rents increased from $5.2 million and $14.2 million for the three and
nine months ended September 30, 1995 to $5.3 million and $14.7 million for the
three and nine months ended September 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 the Denver Merchandise Mart, Kansas
City Holiday Inn and rents from a ground lease on land in Atlanta, Georgia.
Interest income from mortgage notes receivable decreased from $1.2
million and $3.8 million for the three and nine months ended September 30, 1995
to $1.1 million and $3.4 million for the three and nine months ended September
30, 1996. The decrease is due to the payoff of a mortgage note receivable in
February 1995 and $640, 000 in principal paydowns on the Company's notes
receivable in the nine months ended September 30, 1996. Interest income for the
remainder of 1996 is expected to approximate that of the third quarter.
Other income increased from $739,000 for the three months ended
September 30, 1995 to $824,000 for the three months ended September 30, 1996
and increased from $700,000 for the nine months ended September 30, 1995 to
$1.3 million for the nine months ended September 30, 1996. The increase in
other income for the three months ended September 30, 1996 is due to a $768,000
increase in gains from the sale of trading portfolio securities offset by a
$128,000 decrease in dividend income from trading portfolio securities and a
$556,000 increase in unrealized losses. The nine month improvement is due to
recognizing $598,000 of unrealized gains on trading portfolio securities in
1996 compared to a $408,000 unrealized loss in 1995 and an increase of $181,000
in preferred return distributions on a partnership interest. This is offset by
a $622,000 decrease in dividend income from trading portfolio securities.
Property operating expenses increased from $3.0 million and $10.2
million for the three and nine months ended September 30, 1995 to $3.6 million
and $11.2 million for the three and nine months ended September 30, 1996. Of
this increase, $267, 000 and $857, 000 for the three and nine months ended
September 30, 1996 is due to obtaining the Oaktree Shopping Center in November
1995 and the purchase of six parcels of land in 1995 and 1996.
Interest expense increased from $2.4 million and $6.1 million for the
three and nine months ended September 30, 1995 to $4.2 million and $10.7
million for the three and nine months ended September 30, 1996. The increases
are primarily attributable to debt refinancings and the debt incurred related
to the purchase of six parcels of land in 1995 and 1996 and the Oaktree
Shopping Center obtained in November 1995. The increase for the nine months
ended September 30, 1996 is offset by a $161,000 decrease in interest expense
due to the sale of the Boulevard Villa Apartments in February 1995. Interest
expense for the remainder of 1996 is expected to approximate that of the third
quarter.
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Advisory and mortgage servicing fees increased from $328,000 and
$871,000 for the three and nine months ended September 30, 1995 to $392,000 and
$1.1 million for the three and nine months ended September 30, 1996. The
increases are primarily attributable to the Company's increase in gross assets,
the basis for such fee.
General and administrative expenses increased from $382,000 and $1.6
million for the three and nine months ended September 30, 1995 to $618,000 and
$1.9 million for the three and nine months ended September 30, 1996. The
increases are primarily attributable to legal expenses incurred in 1996
relating to acquisitions and refinancings and an increase in advisor cost
reimbursements.
Depreciation and amortization of $429,000 and $1.3 million for the
three and nine months ended September 30, 1996 approximate the $416,000 and
$1.3 million for the three and nine months ended September 30, 1995.
Equity in losses of investees improved from a loss of $1.4 million and
$4.4 million for the three and nine months ended September 30, 1995 to a loss
of $702,000 and $3.1 million for the three and nine months ended September 30,
1996. The decrease in equity losses is attributable to a decrease in the
combined operating losses of the equity investees from a combined operating
loss of $4.5 million and $14.1 million for the three and nine months ended
September 30, 1995 to a combined operating loss of $3.1 million and $11.8
million for the three and nine months ended September 30, 1996. Such
improvement is generally attributable to improved occupancy and increased
rental rates.
For the nine months ended September 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 $3.3 million and $7.8 million for
the three and nine months ended September 30, 1996 compared to $1.6 million and
$2.5 million for the three and nine months ended September 30, 1995. For the
three months ended September 30, 1996, the Company recognized a $2.0 million
gain on the sale of 32.3 acres of the 92.6 acre tract of land in Las Colinas,
Texas, a $13,000 gain on the sale of four residential lots and a $1.3 million
gain representing the Company's equity share of the REITs gain on sale of real
estate. In the three months ended September 30, 1995, the Company recognized a
$1.5 million gain on the sale of 6.9 acres of partially developed land in Las
Colinas, Texas. The first nine months of 1996 includes an additional $1.1
million gain on the sale of 4.6 acres of land in Las Colinas, Texas, a $44, 000
gain on the sale of a parcel of land in Midland, Michigan, an $11,000 gain on
the sale of eight residential lots and a $3.3 million gain representing the
Company's equity share of the REITs' gain on the sale of real estate. The first
nine months of 1995 includes an additional $924,000 gain on the sale of
Boulevard Villas in February and a $24,000 gain on the sale of the final four
lots in a joint venture.
The Company reported extraordinary gains of $121,000 and $381,000 for
the three and nine months ended September 30, 1996 compared to $431,000 and
$758,000 for the three and nine months ended September 30, 1995. The
extraordinary gain for the three months ended September 30, 1996 represents the
Company's share of its equity investees' extraordinary gain from the early
payoff of debt. The first nine 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 and $247,000
represents the Company's share of an equity investee's extraordinary gain
relating to an insurance settlement from a fire loss. For the three and nine
months ended September 30, 1995, the extraordinary gains also represent the
Company's share of an equity investee's extraordinary gain from the early
payoff of debt.
1995 Compared to 1994. The Company reported a net loss of $2.8 million
in 1995 as compared to a net loss of $2.4 million in 1994. The primary factors
contributing to the increase in the Company's net loss are discussed in the
following paragraphs.
Net rental income (rents less property operating expenses) decreased
from $5.0 million in 1994 to $4.6 million in 1995. This decrease is primarily
attributable to the sale of four apartment complexes in November 1994 and the
sale of an additional apartment complex in February 1995 contributing a
combined $2.4 million to the decrease. Offsetting the decrease in part, is a
$1.2 million increase in net rental income from the Denver Merchandise Mart and
Inn at the Mart, acquired in the second quarter of 1994 and a $529,000 increase
at the Kansas City Holiday Inn due to increased room rates directly
attributable to the capital improvements made to the property in 1994. Net
rental income is expected
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to increase in 1995 from continued improvement at the Kansas City Holiday Inn
and on a full years operations of the Oak Tree Village Shopping Center acquired
in November 1995.
Interest income increased from $4.0 million in 1994 to $4.9 million in
1995. This increase is primarily attributable to the Continental Hotel
wraparound mortgage note receivable performing throughout 1994. Interest income
in 1996 is expected to approximate that of 1995.
Other income decreased from $1.1 million in 1994 to $154,000 in 1995.
This decrease is primarily attributable to the fourth quarter write down of the
Company's marketable equity securities trading portfolio by $98,000 due to a
decline in market value.
Interest expense increased from $7.9 million in 1994 to $8.9 million
in 1995. This increase is primarily due to a $1.2 million increase in margin
interest due to a $7.6 million increase in margin debt from December 1994 to
December 1995 and a $2.0 million increase due to the debt incurred in
connection with the Company's two land purchases in Las Colinas, Texas, during
1995. These increases are offset by a $1.5 million decrease due to a reduction
in debt as a result of the sale of four apartment complexes in November 1994
and an additional apartment complex in February 1995 and reductions in loan
principal balances. Interest expense is expected to increase in 1996 as a
result of a full years interest on the debt incurred in 1995 to purchase the
land in Las Colinas, Texas.
Advisory and mortgage servicing fees were comparable in 1995 and 1994
at $1.2 million as were general and administrative expense at $2.6 million in
1995 and 1994.
Depreciation increased from $1.6 million in 1994 to $1.7 million in
1995. This increase is primarily attributable to the 1994 acquisitions of the
Denver Merchandise Mart and the Inn at the Mart offset by the sale of four
apartment complexes in November 1994 and the sale of an additional apartment
complex in February 1995.
Equity in losses of investees increased from a loss of $2.5 million in
1994 to $5. 1 million in 1995. This increase in equity losses is primarily
attributable to an increase in the net loss of both IORI and TCI, resulting
from a $1.5 million writedown of a wraparound mortgage note receivable to the
balance of the underlying first lien mortgage by a partnership in which IORI
and TCI are sole partners.
Gains on the sale of real estate increased from $3.2 million in 1994
to $6.9 million in 1995. The 1995 gains are attributable to the Company's
equity share ($1.8 million) of NRLP's fourth quarter gain on the sale of two
apartment complexes, the Company's equity share ($2.5 million) of TCI's gain on
the sale of land in the third quarter and an apartment complex in the fourth
quarter of 1995, a $1.6 million gain recognized by the Company on the sale of
6.9 acres of partially developed land in Las Colinas, Texas, acquired by the
Company in May 1995 and a $924,000 gain recognized by the Company on the sale
of the Boulevard Villas Apartments in February 1995. The 1994 gains are
attributable to the Company's equity share ($1.9 million) of NRLP's fourth
quarter gain on the sale of two apartment complexes and the Company's equity
share ($895,000) of TCI's 1994 third quarter gain on the sale of an apartment
complex.
The Company reported $323,000 in extraordinary gains in 1994 compared
to $783,000 in extraordinary gains in 1995. The 1995 extraordinary gain is the
Company's equity share of TCI's extraordinary gain from the early payoff of
mortgage debt. In 1994, $273,000 of the extraordinary gain is the Company's
equity share of TCI's settlement of litigation with a lender and the remaining
$50,000 is due to a lender's forgiveness of a portion of a first mortgage, due
to the Company's early payoff of the second lien mortgage secured by the same
property.
1994 Compared to 1993. The Company reported a net loss of $2.4 million
in 1994 as compared to a net loss of $4.4 million in 1993. The primary factors
contributing to the decrease in the Company's net loss are discussed in the
following paragraphs.
Net rental income (rents less property operating expenses) increased
from $2.6 million in 1993 to $5.0 million in 1994. This increase is primarily
attributable to increases of $486,000 and $444,000 from Boulevard Villas
Apartments and the Kansas City Holiday Inn, respectively, both acquired in
1993, an increase of $1.1 million due to
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the acquisition of the Denver Merchandise Mart and Inn at the Mart, both of
which were acquired in March 1994, and an increase in the Company's other
commercial properties of $503,000 as a result of improved occupancy and rents.
These increases are offset by a decrease of $253,000 due to the sale of the
Culver City Shopping Center in August 1993.
Interest income decreased from $5.0 million in 1993 to $4.0 million in
1994. Of the decrease, $335,000 is attributable to the August 1993 Collecting
Bank settlement, $257,000 to the Continental Hotel and Casino note being
nonperforming prior to June 1994, $248,000 due to the nonperforming Osceola
land note receivable and $118,000 due to the Boulevard Villas note receivable
foreclosure in July 1993.
Equity in losses of investees decreased from a loss of $4.0 million in
1993 to a loss of $2.5 million in 1994. The decrease in equity losses is
primarily attributable to a $4.6 million reduction in NRLP's loss from
operations. At December 31, 1994, the Company owned approximately 48% of the
then outstanding units of limited partner interest in NRLP.
Interest expense increased from $6.5 million in 1993 to $7.9 million
in 1994. This increase is attributable to a $563,000 increase in interest from
property acquisitions and refinancings, an $879,000 increase in interest on
margin borrowings, and $319,000 due to an increase in the interest rate on the
Las Vegas Plaza underlying lien. These increases were offset in part by a
$314,000 reduction from the August 1993 sale of the Culver City Shopping
Center, $383,000 attributable to the 1993 Collecting Bank Settlement and
$219,000 due to payoffs of notes and principal reductions in 1993 and 1994.
Advisory and mortgage servicing fees in 1994 and 1993 were comparable
at $1.3 million.
General and administrative expenses increased from $1.8 million in
1993 to $2.6 million in 1994. The increase is primarily attributable to a
$259,000 increase in consulting fees relating to the Continental Hotel and
Casino and Las Vegas Plaza wraparound notes receivable, a $258,000 increase in
legal fees and a $146,000 increase in advisor cost reimbursements.
Depreciation and amortization expense increased from $1.1 million in
1993 to $1.6 million in 1994. The increase is attributable to the Denver
Merchandise Mart and Inn at the Mart, properties the Company acquired in March
1994, and a full year of depreciation on the properties the Company acquired in
March and July 1993.
The Company recorded no provision for losses in 1994 compared to $2.3
million in 1993. The 1993 provision for losses is comprised of a $2.0 million
reserve against the carrying value of undeveloped land in downtown Atlanta,
Georgia and a $300,000 reduction in the estimated fair value of the collateral
securing a mortgage note receivable.
Gains on sale of real estate increased from $481,000 in 1993 to $3.2
million in 1994. This increase is primarily attributable to the Company's
equity share ($895,000) of TCI's third quarter $2.2 million gain on the sale of
an apartment complex and the Company's equity share ($1.9 million) of NRLP's
fourth quarter gain on the sale of two apartment complexes.
The Company reported $3.8 million extraordinary gain in 1993 compared
to a $323,000 extraordinary gain in 1994. In 1993, $3.4 million of the
extraordinary gain represents the Company's equity share of NRLP's
extraordinary gain of $9.0 million from the acquisition at a discount of its
mortgage debt and $443,000 is due to a lender's forgiveness of a portion of a
first mortgage, upon the Company's early payoff of a second lien mortgage
secured by the same property. In 1994, $273,000 of the extraordinary gain is
the Company's equity share of TCI's settlement of litigation with a lender and
the remaining $50, 000 is due to a lender's forgiveness of a portion of a first
mortgage, due to the Company's early payoff of the second lien mortgage secured
by the same property.
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
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<PAGE> 28
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 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 as 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 No. 121 had no effect on the Company's net loss
for the nine months ended September 30, 1996, as the Company's one depreciable
asset classified as held for sale is fully depreciated and none of the
Company's other long lived assets are considered to be impaired.
DESCRIPTION OF THE CAPITAL STOCK
GENERAL
The Company is authorized by its Articles of Incorporation, as
amended, to issue up to 16,666,667 shares of Common Stock, $.01 par value per
share, and 20,000,000 shares of a special class of stock, $2.00 par value per
share (the "Special Stock"), which may be designated by the Company's board of
directors from time to time. The Preferred Stock to be offered hereunder will
be a series of the Special Stock.
COMMON STOCK
All shares of the Company's Common Stock are entitled to share equally
in dividends from funds legally available therefor, when declared by the
Company's board of directors, and upon liquidation or dissolution of the
Company, whether voluntary or involuntary (subject to any prior rights of
holders of the Special Stock), and to share equally in the assets of the
Company available for distributions to shareholders. Each holder of Common
Stock is entitled to one vote for each share held on all matters submitted to
the shareholders. There is no cumulative voting, redemption right, sinking fund
provision or right of conversion with respect to the Common Stock. The holders
of
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<PAGE> 29
Common Stock do not have any preemptive rights to acquire additional shares of
Common Stock when issued. All outstanding shares of the Company will be fully
paid and nonassessable. As of December 31, 1996, 6,739,540 shares of Common
Stock were issued and 6,457,188 shares were outstanding.
SPECIAL STOCK
The following is a description of certain general terms and provisions
of the Preferred Stock. The particular terms of any series of Preferred Stock
will be described in the applicable Prospectus Supplement.
Article 5 of the Articles of Incorporation of the Company, as amended,
authorizes the issuance of up to 20,000,000 shares of Special Stock in one or
more series with such preferences, limitations and rights as the Company's
board of directors determines. In particular, the board of directors may fix
and determine, among other things, the dividend payable with respect to such
shares of Special Stock (including whether and in what manner such dividend
shall be accumulated); whether such shares shall be redeemable, and if so, the
prices, terms and conditions of such redemption; the amount payable on such
shares in the event of voluntary or involuntary liquidation; the nature of any
purchase, retirement or sinking fund provisions; the nature of any conversion
rights with respect to such shares; and the extent of the voting rights, if
any, of such shares. Certain provisions of the Special Stock may, under certain
circumstances, adversely affect the rights or interests of holders of Common
Stock. For example, the Company's board of directors could, without shareholder
approval, issue a series of Special Stock with voting and conversion rights
which could adversely affect the voting power of the common shareholders. In
addition, the Special Stock may be issued under certain circumstances as a
defensive device to thwart an attempted hostile takeover of the Company.
The Prospectus Supplement relating to the series of Preferred Stock
being offered will describe its terms, including: (i) its title and stated
value; (ii) the number of shares offered, the liquidation preference per share
and the purchase price; (iii) the dividend rate(s), period(s) and/or payment
date(s) or method(s) of calculating dividends; (iv) whether dividends are
cumulative or non-cumulative and, if cumulative, the date from which dividends
accumulate; (v) the procedures for any auction and remarketing, if any; (vi)
the provisions for a sinking fund, if any; (vii) the provisions for redemption,
if applicable; (viii) any listing of such Preferred Stock on a securities
exchange; (ix) the terms and conditions, if applicable, for its conversion into
Common Stock, including the conversion price (or manner of calculation) and
conversion period; (x) voting rights, if any; (xi) its relative ranking and
preferences as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company; and (xii) any limitations on issuance
of any series of Preferred Stock ranking senior to or on a parity with such
series of Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company. The Prospectus
Supplement for such Preferred Stock will also include a discussion of any
material and/or special Federal income tax considerations applicable to such
Preferred Stock.
Through the date of this Prospectus, the Company has amended its
Articles of Incorporation to designate six series of the Special Stock as
explained below. Each series of Special Stock now outstanding ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
shares of Special Stock.
Series A Preferred Stock; Terminated Rights Plan. On April 11, 1990,
the board of directors of the Company designated 500,000 shares of the Series A
Cumulative Participating Preferred Stock (the "Series A Preferred Stock"),
adopted a preferred share purchase rights plan and approved the distribution to
shareholders of a dividend of one preferred share purchase right on each
outstanding share of the Company's Common Stock (the "Rights"). The rights plan
provided that one Right would be distributed to all shareholders of the Company
for each share of Common Stock owned of record by them as of April 23, 1990. In
addition, the rights plan required that the Company issue one Right with each
share of Common Stock that became outstanding thereafter so that all shares of
Common Stock would carry a Right. The Rights were primarily designed to assure
that all holders of Common Stock of the Company receive fair and equal
treatment in the event of any attempt to acquire the Company and to guard the
interest of such shareholders against partial tender offers, inadequate offers,
open market accumulations and other abusive or coercive tactics. The rights plan
was not adopted in response to any effort to acquire the Company, and the
Company has remained unaware of any such effort. On June 12, 1996, the board of
directors of the Company resolved to redeem the Rights held by the shareholders
of record as of June 21, 1996 at the redemption price of $.01 per Right. The
redemption price was paid on July 8, 1996.
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<PAGE> 30
The decision by the board of directors of the Company was based on a
determination that the rights plan was no longer necessary to protect the
Company and its shareholders from coercive tender offers.
The Series A Preferred Stock bears a cumulative quarterly dividend of
the greater of $1.00 per share or, subject to certain limitations, the sum of
100 times the aggregate per share amount of all cash dividends and 100 times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions (other than dividends payable in shares of Common Stock)
declared on the Common Stock since the immediately preceding quarter. The
Series A Preferred Stock has a liquidation preference of $100 per share plus
accrued and unpaid dividends. The Company may not redeem shares of the Series A
Preferred Stock. As of February 1, 1997, no shares of the Series A Preferred
Stock were issued and outstanding, and due to the redemption of the Rights,
none will be issued in the future.
Series B Preferred Stock. On April 3, 1996, the board of directors of
the Company designated 4,000 shares of Series B 10% Cumulative Preferred Stock
(the "Series B Preferred Stock") with a par value of $2.00 per share and a
preference on liquidation of $100 per share plus payment of accrued and unpaid
dividends. The Series B Preferred Stock is non-voting except as required by
law, and the Company is not required to maintain a sinking fund for such stock.
The Series B Preferred Stock is convertible, but only during a 30-day
period beginning May 8, 1998, into that number of shares of the Company's
Common Stock obtained by multiplying the number of shares being converted by
$100 and then dividing such sum by (in most instances) 90% of the simple
average of the daily closing price of the Common Stock for the 30 trading days
immediately preceding the conversion period on the market where the shares of
Common Stock of the Company are then regularly traded. 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 on the commencement of any liquidation,
dissolution or winding up of the Company.
The Series B Preferred Stock bears a cumulative dividend per share of
$10.00 per annum, payable quarterly in equal installments of $2.50. Dividends
on the Series B Preferred Stock are in preference to and with priority over
dividends upon the Common Stock. The Series B Preferred Stock ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
shares of Special Stock.
The Company may from time to time redeem any or all of the Series B
Preferred Stock upon payment of the liquidation value of $100 per share plus
all accrued and unpaid dividends. There is no restriction on the repurchase or
redemption of the Series B Preferred Stock by the Company while there is any
arrearage in payment of dividends except that at the time of such repurchase or
redemption the Company must pay all accrued and unpaid dividends on the shares
being redeemed. As of February 1, 1997, 4,000 shares of the Series B Preferred
Stock were issued and outstanding.
Series C Preferred Stock. The board of directors of the Company
designated 16,500 shares of Series C 10% Cumulative Preferred Stock (the
"Series C Preferred Stock") on May 23, 1996, with a par value of $2.00 per
share and a preference on liquidation of $100 per share plus all accrued and
unpaid dividends. The Series C Preferred Stock is non-voting except as required
by law. The Company is not required to maintain a sinking fund for such stock.
Each share of Series C Preferred Stock is convertible, but only during
a 90-day period beginning on November 25, 1998, into the number of shares of
Common Stock obtained by multiplying the number of shares being converted by
$100 and dividing the result by (in most instances) 90% of the then-recent
average trading price for the Common Stock.
The Series C Preferred Stock bears a cumulative dividend per share of
$10.00 per annum, payable quarterly in equal installments of $2.50. Dividends
on the Series C Preferred Stock are in preference to and with priority over
dividends upon the Common Stock. The Series C Preferred Stock ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
shares of Special Stock. The dividends for the first twelve months are to be
paid in additional shares of Series C Preferred Stock.
The Company may from time to time redeem any or all of the Series C
Preferred Stock upon payment of the liquidation value of $100 per share plus
all accrued and unpaid dividends. There is no restriction on the repurchase or
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<PAGE> 31
redemption of the Series C Preferred Stock by the Company while there is any
arrearage in payment of dividends except that at the time of such repurchase or
redemption the Company must pay all accrued and unpaid dividends on the shares
being redeemed. As of February 1, 1997, 15,877 shares of the Series C Preferred
Stock were issued and outstanding.
Series D Preferred Stock. The board of directors of the Company
designated 91,000 shares of Series D Cumulative Preferred Stock (the "Series D
Preferred Stock") on August 2, 1996, with a par value of $2.00 per share and a
preference on liquidation of $20.00 per share plus payment of accrued and
unpaid dividends. The Series D Preferred Stock is non-voting except as required
by law and is not convertible. The Company is not required to maintain a
sinking fund for such stock.
The Series D Preferred Stock has a cumulative dividend per share of
9.5% per annum of the $20.00 liquidation preference, payable quarterly in equal
installments of $0.475. Dividends on the Series D Preferred Stock are in
preference to and with priority over dividends upon the Common Stock. The
Series D Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.
The Company may from time to time after June 1, 2001 redeem any or all
of the Series D Preferred Stock upon payment of the liquidation value of $20.00
per share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series D Preferred Stock by the Company while
there is any arrearage in payment of dividends except that at the tine of such
repurchase or redemption the Company must pay all accrued and unpaid dividends
on the shares being redeemed. As of February 1, 1997, no shares of the Series D
Preferred Stock were issued and outstanding.
The Series D Preferred Stock is reserved for issuance upon the
conversion Class A units held by the limited partners of Ocean Beach Partners
L.P.
Series E Preferred Stock. On December 3, 1996, the Company's board of
directors designated 80,000 shares of Series E Cumulative Convertible Preferred
Stock (the "Series E Preferred Stock") with a par value of $2.00 per share and
a preference on liquidation of $100 per share plus payment of all accrued and
unpaid dividends. The Series E Preferred Stock is non-voting except as required
by law. The Company is not required to maintain a sinking fund for such stock.
The Series E Preferred Stock is convertible into that number of shares
of the Company's Common Stock obtained by multiplying the number of shares
being converted by $100, then adding all accrued and unpaid dividends on such
shares, then dividing such sum by (in most instances) 80% of the Common Stock's
then-recent average trading price for the 20 business days ending on the last
business day of the calendar week immediately preceding the date of conversion
on the principal stock exchange on which such Common Stock is then listed or
admitted to trading as determined by the Company. The schedule pursuant to
which shares of Series E Preferred Stock may be so converted is as follows: up
to 30,000 shares of the Series E Preferred Stock may be converted beginning as
of November 4, 1998 and thereafter; up to an additional 10,000 shares of the
Series E Preferred Stock may be converted beginning as of November 4, 1999; and
up to an additional 40,000 shares of the Series E Preferred Stock may be
converted beginning as of November 4, 2001.
The Series E Preferred Stock bears a cumulative dividend per share
equal to $10.00 per annum, payable quarterly in equal installments of $2.50 for
the period from date of issuance to November 4, 1999, and $11.00 per annum
($2.75 per quarter) thereafter. Dividends on the Series E Preferred Stock are
in preference to and with priority over dividends upon the Common Stock. The
Series E Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.
The Company may redeem any or all of the shares of Series E Preferred
Stock from time to time upon payment of $100.00 per share plus all accrued and
unpaid dividends. There is no restriction on the repurchase or redemption of
the Series E Preferred Stock by the Company while there is any arrearage in
payment of dividends except that at the time of such repurchase or redemption
the Company must pay all accrued and unpaid dividends on the shares being
redeemed. As of February 1, 1997, no shares of the Series E Preferred Stock
were issued and outstanding.
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<PAGE> 32
The Series E Preferred Stock is reserved for issuance upon the
conversion of Class A units held by the limited partners in the Valley Ranch
Limited Partnership.
Series F Preferred Stock. On January 14, 1997, the Company's Board of
Directors designated 200,000 shares of Series F Cumulative Convertible
Preferred Stock (the "Series F Preferred Stock") with a par value of $2.00 per
share and a preference on liquidation of $20.00 per share plus all accrued and
unpaid dividends. The Series F Preferred Stock is entitled to one vote per
share and votes together as one voting group on all matters submitted to a vote
of shareholders of the Company except as provided by law. The Company is not
obligated to maintain a sinking fund with respect to the Series F Preferred
Stock.
The Series F Preferred Stock may be converted at any time after
December 31, 2001 into that number of shares of the Common Stock obtained by
multiplying the number of shares to be converted by $20.00, then adding all
accrued and unpaid dividends on such shares, and then dividing such sum by 90%
of the Common Stock's then-recent average trading price for the 20 business
days ending on the last business day of the calendar week immediately preceding
the date of conversion on the principal stock exchange on which such Common
Stock is then listed or admitted to trading as determined by the Company.
The Series F Preferred Stock bears a cumulative dividend per share
equal to $1.30 per annum, payable quarterly in equal installments of $.325 for
1997, $1.40 per annum ($0.35 per quarter) for 1998, and $1.60 per annum ($0.40
per quarter) thereafter. Dividends on the Series F Preferred Stock are in
preference to and with priority over dividends upon the Common Stock. The
Series F Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.
The Company has no right to redeem the Series F Preferred Stock, but
each holder of the Series F Preferred Stock has the right to redeem one-half of
the shares owned by such holder upon the occurrence of certain events, provided
that such holder may redeem all of such holder's Series F Preferred Stock in
the event of a merger or consolidation in which the holders of the Series F
Preferred Stock are to receive securities of the survivor corporation or
combined corporation but only if the Company is not the survivor. The
redemption price is equal to $20.00 per share plus accrued but unpaid dividends
thereon. As of February 1, 1997, no shares of the Series F Preferred Stock were
issued and outstanding.
The description of the foregoing provisions of each series of the
Special Stock does not purport to be complete and is subject to and qualified
in its entirety by reference to the definitive Articles of Amendment of the
Articles of Incorporation relating to such series of Special Stock.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities offered hereby (1) through
underwriters or dealers; (2) through agents; (3) directly to purchasers; or (4)
through a combination of any such methods of sale. Any such underwriter, dealer
or agent may be deemed to be an underwriter within the meaning of the
Securities Act. The Prospectus Supplement relating to the Offered Securities
will set forth their offering terms, including the name or names of any
underwriters, dealers or agents, the purchase price of the Offered Securities
and the proceeds to the Company from such sale, any underwriting discounts,
commissions and other items constituting compensation to underwriters, dealers
or agents, any initial public offering price, any discounts or concessions
allowed or reallowed or paid by underwriters or dealers to other dealers, and
any securities exchanges on which the Offered Securities may be listed.
If underwriters or dealers are used in the sale, the Offered
Securities will be acquired by the underwriters or dealers for their own
account and may be resold from time to time in one or more transactions, at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, or at prices related to such prevailing market prices, or at
negotiated prices. The Offered Securities may be offered to the public either
through underwriting syndicates represented by one or more managing
underwriters or directly by one or more of such firms. Unless otherwise set
forth in the Prospectus Supplement, the obligations of underwriters or dealers
to purchase the Offered
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<PAGE> 33
Securities will be subject to certain conditions precedent and the underwriters
or dealers will be obligated to purchase all the Offered Securities if any are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid by underwriters or dealers to other dealers may be
changed from time to time.
Offered Securities may be sold directly by the Company or through
agents designated by the Company from time to time. Any agent involved in the
offer or sale of the Offered Securities in respect of which this Prospectus is
delivered will be named, and any commissions payable by the Company to such
agent will be set forth, in the Prospectus Supplement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will
authorize underwriters, dealers or agents to solicit offers by certain
specified institutions to purchase Offered Securities from the Company at the
public offering price set forth in the Prospectus Supplement pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject to any conditions set forth
in the Prospectus Supplement and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts. The underwriters and
other persons soliciting such contracts will have no responsibility for the
validity or performance of any such contracts.
Underwriters, dealers and agents may be entitled under agreements
entered into with the Company to indemnifications by the Company against
certain civil liabilities, including liabilities under the Securities Act, or
to contribution by the Company to payments they may be required to make in
respect thereof. The terms and conditions of such indemnification will be
described in an applicable Prospectus Supplement. Underwriters, dealers and
agents may be customers of, engage in transactions with, or perform services
for the Company in the ordinary course of business.
LEGAL MATTERS
Certain legal matters with respect to the Preferred Stock offered by
the Company will be passed upon for the Company by Holt Ney Zatcoff &
Wasserman, LLP, Atlanta, Georgia.
EXPERTS
The financial statements and schedules included and incorporated by
reference in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the period set forth in
their reports appearing elsewhere herein and in the registration statement, and
such reports are included herein in reliance upon the authority of said firm as
experts in auditing and accounting.
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<PAGE> 34
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements (Annual)
Report of Independent Accountants ................................... F-2
Consolidated Balance Sheets, December 31, 1995 and 1994 ............. F-3
Consolidated Statements of Operations, Three Years Ended
December 31, 1995, 1994 and 1993 .................. F-4
Consolidated Statements of Stockholders' Equity, Years Ended
December 31, 1995, 1994 and 1993 .................. F-5
Consolidated Statements of Cash Flows, Three Years Ended
December 31, 1995, 1994 and 1993 .................. F-6
Notes to Consolidated Financial Statements .......................... F-9
Consolidated Financial Statements (Interim)
Consolidated Balance Sheets, September 30, 1996 and December 31, 1995 F-28
Consolidated Statements of Operations, Nine Months Ended
September 30, 1996 and 1995 ....................... F-30
Consolidated Statement of Stockholders' Equity, Nine Months Ended
September 30, 1996 ................................ F-31
Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 1996 and 1995 ....................... F-32
Notes to Consolidated Financial Statements .......................... F-34
</TABLE>
F-1
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors of
American Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of
American Realty Trust, Inc. and Subsidiaries as of December 31, 1995 and 1994
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
We have also audited the schedules listed in the accompanying index. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of American Realty Trust, Inc. and Subsidiaries as of December 31,
1995 and 1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Also, in our opinion, the schedules referred to above present fairly,
in all material respects, the information set forth therein.
BDO Seidman, LLP
Dallas, Texas
March 29, 1996
F-2
<PAGE> 36
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1994
--------- ---------
(dollars in thousands)
<S> <C> <C>
Assets
Notes and interest receivable
Performing (including $9,422 in 1995 and
$6,127 in 1994 from affiliate) $ 51,840 $ 47,378
Nonperforming, nonaccruing 1,827 2,315
--------- ---------
53,667 49,693
Less - allowance for estimated losses (3,926) (4,029)
--------- ---------
49,741 45,664
Real estate held for sale, net of accumulated
depreciation ($5,098 in 1995 and $5,423
in 1994) 32,627 23,748
Less - allowance for estimated losses (3,328) (4,172)
--------- ---------
29,299 19,576
Real estate held for investment net of accumu-
lated depreciation ($2,646 in 1995 and $1,396
in 1994) 30,125 27,950
Marketable equity securities, at market value 2,093 1,309
Cash and cash equivalents 1,054 193
Investments in real estate entities 41,072 38,844
Other assets (including $3,336 in 1995 from
affiliate) 8,649 3,826
--------- ---------
$ 162,033 $ 137,362
Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable (including $8,556 in
1995 and $9,732 in 1994 due to affiliates) $ 61,163 $ 45,695
Margin borrowings 34,017 26,391
Accounts payable and other liabilities
(including $4,584 in 1995 and $1,505 in 1994
due affiliate) 12,698 8,921
--------- ---------
107,878 81,007
Minority interest 1,097 461
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value, authorized
16,666,667 shares; issued and outstanding
5,858,328 shares in 1995 and 1994 59 59
Paid-in capital 66,719 66,719
Accumulated (deficit) (13,720) (10,884)
--------- ---------
53,058 55,894
--------- ---------
$ 162,033 $ 137,362
--------- ---------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE> 37
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Income
Rents ........................................................ $ 17,869 $ 18,013 $ 7,885
Interests (including $506 in 1995, $366 in 1994 and $48 in
1993 from affiliates) ...................................... 4,929 3,959 4,984
Other ........................................................ 154 1,098 558
----------- ----------- -----------
22,952 23,070 13,427
Expenses
Property operations (including $1,200 in 1995, $899 in 1994
and $348 in 1993 to affiliates) ............................ 13,260 13,013 5,273
Interest (including $437 in 1995, $589 in 1994 and $1,029
in 1993 to affiliates) ..................................... 8,941 7,875 6,497
Advisory and servicing fees to affiliate ..................... 1,195 1,242 1,257
General and administrative (including $516 in 1995, $434 in
1994 and $288 in 1993 to affiliate) ........................ 2,554 2,562 1,819
Depreciation and amortization ................................ 1,691 1,620 1,130
Provision for losses ......................................... 2,300
Equity in losses of investees ................................ 5,123 2,529 4,014
Minority interest ............................................ 671 169 (159)
----------- ----------- -----------
33,435 29,010 22,131
(Loss) from operations ......................................... (10,483) (5,940) (8,704)
Income tax expense ............................................. 2 9 11
----------- ----------- -----------
(Loss) before gain on sale of real estate and extraordinary gain (10,485) (5,949) (8,715)
Gain on sale of real estate .................................... 6,866 3,200 481
----------- ----------- -----------
(Loss) before extraordinary gain ............................... (3,619) (2,749) (8,234)
Extraordinary gain ............................................. 783 323 3,807
----------- ----------- -----------
Net (loss) ..................................................... (2,836) (2,426) (4,427)
Redeemable Common Stock, accretion of discount ................. -- -- (129)
----------- ----------- -----------
Net (loss) applicable to Common shares ......................... $ (2,836) $ (2,426) $ (4,556)
=========== =========== ===========
Earnings per share
(Loss) before extraordinary gain ............................... $ (.61) $ (.45) $ (1.36)
Extraordinary gain ............................................. .13 .05 .63
----------- ----------- -----------
Net (loss) ..................................................... (.48) (.40) (.73)
Redeemable Common Stock, accretion of discount ................. -- -- (.02)
----------- ----------- -----------
Net (loss) applicable to Common shares ......................... $ (.48) $ (.40) $ (.75)
=========== =========== ===========
Weighted average Common shares used in computing
earnings per share .......................................... 5,858,328 6,104,438 6,050,550
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 38
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Accumulated
Common Stock Paid-in Earnings Stockholder's
Shares Amount Capital (Deficit) Equity
- ------------------------------------------------------------------------------------------
(dollars in thousands)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance
January 1, 1993 ... 5,089,562 $ 51 $ 64,327 (3,902) 60,476
- ------------------------------------------------------------------------------------------
Common Stock issued . 349,018 4 196 -- 200
- ------------------------------------------------------------------------------------------
Fractional Shares
reacquired ........ (252) -- -- -- --
- ------------------------------------------------------------------------------------------
Accretion of discount
on redeemable
Common Stock ...... -- -- -- (129) (129)
- ------------------------------------------------------------------------------------------
Common Stock
retired ........... (390,000) (4) 4 -- --
- ------------------------------------------------------------------------------------------
Net (loss) .......... -- -- -- (4,427) (4,427)
- ------------------------------------------------------------------------------------------
Balance
December 31, 1993 . 5,048,328 51 64,527 (8,458) 56,120
- ------------------------------------------------------------------------------------------
Reclassification of
Redeemable Common
Stock ............. 720,000 7 2,193 -- 2,200
- ------------------------------------------------------------------------------------------
Common Stock issued . 480,000 5 (5) -- --
- ------------------------------------------------------------------------------------------
Common Stock retired (390,000) (4) 4 -- --
- ------------------------------------------------------------------------------------------
Net (loss) .......... -- -- -- (2,426) (2,426)
---------- ---------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------
Balance
December 31, 1994 . 5,858,328 59 66,719 (10,884) 55,894
- ------------------------------------------------------------------------------------------
Net (loss) .......... -- -- -- (2,836) (2,836)
---------- ---------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------
Balance
December 31, 1995 . 5,858,328 $ 59 $ 66,719 $ (13,720) $ 53,058
---------- ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 39
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Rents collected ...................................... $ 18,473 $ 17,130 $ 8,317
Interest collected (including $399 in 1995, $366 in .. 4,845 3,829 4,584
1994 and $48 in 1993 from affiliates)
Distributions from equity investees' ................. 1,464 1,642 676
operating activities
Interest paid (including $19 in 1995, $213 in 1994 and (8,296) (4,286) (4,689)
$275 in 1993 to affiliate)
Payments for property operations
(including $1,200 in 1995, $899 in 1994 (13,442) (13,162) (6,122)
and $348 in 1993 to affiliate)
Advisory fee paid to affiliate ....................... (1,195) (1,242) (1,295)
General and administrative expenses paid
(including $516 in 1995, $434 in 1994
and $288 in 1993 to affiliate) ........ (2,448) (2,384) (1,517)
Litigation settlement ................................ (100) (750) --
Other ................................................ 500 235 91
---------- ---------- ----------
Net cash provided by (used in) operating
activities ............................ (199) 1,012 44
Cash Flows From Investing Activities
Collections on notes receivable
(including $394 in 1995 from affiliates) ............. 1,604 2,757 1,481
Purchase of marketable equity securities ............. (19,394) (16,518) --
Proceeds from sale of marketable equity securities ... 18,374 15,123 2,202
Deposit on acquisition of mortgage note receivable ... -- -- (300)
Notes receivable funded .............................. (3,295) (700) (609)
Proceeds from sale of real estate .................... 11,992 4,058 2,305
Return of capital distributions ...................... -- 514 --
Acquisition of real estate ........................... (21,394) -- --
Real estate improvements ............................. (1,802) (2,168) (2,013)
Investment in real estate entities ................... (7,169) (6,884) (3,976)
---------- ---------- ----------
Net cash (used in) investing
activities ................................ (21,084) (3,818) (910)
</TABLE>
- --------------------------------------------------------------------------------
F-6
<PAGE> 40
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Financing Activities
Proceeds from notes payable .................................... $ 36,211 $ 710 $ 15,677
Margin borrowings, net ......................................... 7,626 8,598 6,466
Proceeds from issuance of Common Stock ......................... -- -- 200
Payments on notes payable (including $990 in 1995,
$1,320 in 1994 and $384 in 1993 to affiliate) .............. (22,268) (5,151) (17,350)
Southmark settlement payments .................................. -- (435) (950)
Deferred borrowing costs ....................................... (2,475) -- --
Net collections (advances) to/from affiliates .................. 3,050 (1,566) (2,845)
---------- ---------- ----------
Net cash provided by financing activities................... 22,144 2,156 1,198
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ........... 861 (650) 333
Cash and cash equivalents, beginning of year ................... 193 843 510
---------- ---------- ----------
Cash and cash equivalents, end of year ......................... $ 1,054 $ 193 $ 843
========== ========== ==========
Reconciliation of net (loss) to net cash provided
by (used in) operating activities
Net (loss) ..................................................... $ (2,836) $ (2,426) $ (4,427)
Adjustments to reconcile net (loss) to net cash provided
by (used in) operating activities Extraordinary gain ....... (783) (323) (3,807)
Gain on sale of real estate .............. (6,866) (3,200) (481)
Depreciation and amortization ............ 1,691 1,620 1,130
Provision for losses ..................... -- -- 2,300
Equity in losses of investees ............ 5,123 2,529 4,014
Distributions from equity investees'
operating activities .................... 1,464 1,642 676
(Increase) decrease in accrued
interest receivable ..................... 79 (18) (1,588)
Decrease in other assets ................. 1,439 228 422
Increase (decrease) in accrued
interest payable ........................ (5) 575 1,954
Increase (decrease) in accounts
payable and other liabilities.......... 495 150 (148)
Other .................................... -- 235 --
---------- ---------- ----------
Net cash provided by (used in) operating
activities ........................... $ (199) $ 1,012 $ 45
========== ========== ==========
</TABLE>
F-7
<PAGE> 41
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For The Years Ended December 31,
1995 1994 1993
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Schedule of noncash investing activities
Acquisition of real estate financed by debt ................................ $ 21,394 $ 6,800 $ 5,400
Real estate sales financed by purchase money mortgages ..................... -- 1,400 --
Carrying value of real estate acquired through
foreclosure in satisfaction of notes receivable with
carrying value of $8,443 ................................................. -- -- 7,115
Carrying value of real estate securities acquired through
assumption of debt with a carrying value of
$6,080 in 1994 ........................................................... -- 9,810 --
Sale of real estate subject to debt ........................................ (5,878) -- (5,534)
Settlement of term loan obligation in exchange
for a note receivable participation with a carrying
value of $9,895 .......................................................... -- -- (9,863)
Carrying value of real estate obtained in satisfaction
of a receivable with a carrying value of $125 ............................ -- 125 --
Settlement with insurance company
Carrying value of real estate received ................................... 1,619 -- --
Carrying value of note receivable
participation received ....................................... 1,500 -- --
Carrying value of notes receivable
returned ..................................................... (32) -- --
Carrying value of real estate returned ................................... (2,183) -- --
</TABLE>
F-8
<PAGE> 42
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the most significant of which
are described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." These,
along with the remainder of the Notes to Consolidated Financial Statements, are
an integral part of the Consolidated Financial Statements. The data presented
in the Notes to Consolidated Financial Statements are as of December 31 of each
year and for the year then ended, unless otherwise indicated. Dollar amounts in
tables are in thousands, except per share amounts. For purposes of these Notes,
"ART" refers to American Realty Trust, Inc., and "the Company" refers to ART
and its consolidated entities.
Certain balances for 1993 and 1994 have been reclassified to conform to the
1995 presentation. Shares and per share data have been restated for the 2 for 1
forward Common Stock split effected January 2, 1996.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and company business. The Company is successor to a District of
Columbia business trust, that primarily invests in real estate and real
estate-related entities and purchases and originates mortgage loans.
Basis of consolidation. The Consolidated Financial Statements include the
accounts of the Company, and all majority-owned subsidiaries and partnerships
other than National Realty, L.P. ("NRLP"). The Company uses the equity method
to account for its investment in NRLP as control is considered to be temporary.
See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P." All significant intercompany
transactions and balances have been eliminated.
Accounting estimates. In the preparation of the Company's Consolidated
Financial Statements in conformity with generally accepted accounting
principles it was necessary for the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the Consolidated
Financial Statements and the reported amounts of revenues and expense for the
year then ended. Actual results could differ from these estimates.
Interest recognition on notes receivable. It is the Company's policy to cease
recognizing interest income on notes receivable that have been delinquent for
60 days or more. In addition, accrued but unpaid interest income is only
recognized to the extent that the net realizable value of the underlying
collateral exceeds the carrying value of the receivable.
Allowance for estimated losses. Valuation allowances are provided for estimated
losses on notes receivable and properties held for sale to the extent that the
investment in the notes or properties exceeds the Company's estimate of net
realizable value of the property or the collateral securing such note, or fair
value of the collateral if foreclosure is probable. In estimating net
realizable value, consideration is given to the current estimated collateral or
property value adjusted for costs to complete or improve, hold and dispose. The
provision for losses is based on estimates, and actual losses may vary from
current estimates. Such estimates are reviewed periodically, and any additional
provision determined to be necessary is charged against earnings in the period
in which it becomes reasonably estimable.
Foreclosed real estate held for sale. Foreclosed real estate is initially
recorded at new cost, defined as the lower of original cost or fair value minus
estimated costs of sale. After foreclosure, the excess of new cost, if any,
over fair value minus estimated costs of sale is recognized in a valuation
allowance. Subsequent changes in fair value either increase or decrease such
valuation allowance. See "Allowance for estimated losses" above. Properties
held for sale are depreciated in accordance with the Company's established
depreciation policies. See "Real estate and depreciation" below.
Annually, all foreclosed properties held for sale are reviewed by the
Company's management and a determination is made if the held for sale
classification remains appropriate. The following are among the factors
F-9
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
considered in determining that a change in classification to held for
investment is appropriate: (i) the property has been held for at least one
year; (ii) Company management has no intent to dispose of the property within
the next twelve months; (iii) property improvements have been funded, and (iv)
the Company's financial resources are such that the property can be held
long-term. The subsequent classification of property previously held for sale
to held for investment does not result in a restatement of previously reported
revenues, expenses or net (loss).
Investment in real estate entities. Because the Company may be considered to
have the ability to exercise significant influence over the operating and
investment policies of certain of its investees, the Company accounts for such
investments by the equity method. Under the equity method, the Company's
initial investment, recorded at cost, is increased by the Company's
proportionate share of the investee's operating income and any additional
investment and decreased by the Company's proportionate share of the investee's
operating losses and distributions received.
Real estate and depreciation. Real estate is carried at the lower of cost or
estimated net realizable value, except that foreclosed properties held for
sale, which are recorded at the lower of original cost or fair value minus
estimated costs of sale. Depreciation is provided by the straight-line method
over the estimated useful lives of the assets, which range from 10 to 40 years.
Present value premiums/discounts. The Company provides for present value
premiums and discounts on notes receivable or payable that have interest rates
that differ substantially from prevailing market rates and amortizes such
premiums and discounts by the interest method over the lives of the related
notes. The factors considered in determining a market rate for notes receivable
include the borrower's credit standing, nature of the collateral and payment
terms of the note.
Revenue recognition on the sale of real estate. Sales of real estate are
recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No.
66"). Until the requirements of SFAS No. 66 for full profit recognition have
been met, transactions are accounted for using either the deposit, the
installment, the cost recovery or the financing method, whichever is
appropriate.
Fair value of financial instruments. The Company used the following assumptions
in estimating the fair value of its notes receivable, marketable equity
securities and notes payable. For performing notes receivable, the fair value
was estimated by discounting future cash flows using current interest rates for
similar loans. For nonperforming notes receivable the estimated fair value of
the Company's interest in the collateral property was used. For marketable
equity securities fair value was based on the year end closing market price of
each security. The estimated fair values presented do not purport to present
amounts to be ultimately realized by the Company. The amounts ultimately
realized may vary significantly from the estimated fair values presented. For
notes payable the fair value was estimated using current rates for mortgages
with similar terms and maturities.
Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,
the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Earnings per share. Loss per share is computed based upon the weighted average
number of shares of Common Stock and redeemable Common Stock outstanding during
each year, adjusted for the two for one forward Common Stock 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 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.
F-10
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
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, Inc. ("SAMI"), the
managing general partner of SAMLP, has calculated the fair value of such
Redeemable General Partner Interest to be $36.2 million at December 31, 1995,
before reduction for the principal balance ($4.2 million at December 31, 1995)
and accrued interest ($4.4 million at December 31, 1995) 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 the 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.
Upon approval by NRLP's unitholders, SAMLP shall resign as general partner of
NRLP and NOLP and the successor general partner shall take office. If the
required approvals are obtained, it is anticipated that the successor general
partner may be elected and take office during the second or third 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.
F-11
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
<TABLE>
<CAPTION>
1995 1994
-------------------- -------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Notes Receivable
Performing (including $12,962
in 1995 and $10,930 in 1994
from affiliates) $ 60,121 $ 56,335 $ 54,032 $ 51,844
Nonperforming, nonaccruing 1,784 1,784 2,325 2,206
-------- -------- -------- --------
$ 61,905 58,119 $ 56,357 54,050
======== ========
Interest receivable 267 286
Unamortized premiums/
(discounts) (102) (26)
Deferred gains (4,617) (4,617)
-------- --------
$ 53,667 $ 49,693
======== ========
</TABLE>
The Company does not recognize interest income on nonperforming notes
receivable. For the years 1995, 1994 and 1993 unrecognized interest income on
such nonperforming notes receivable totaled $1.2 million, $2.0 million and $3.1
million, respectively.
Notes receivable at December 31, 1995, mature from 1996 to 2014 with interest
rates ranging from 6.0% to 12.9% and a weighted average rate of 8.8%. A small
percentage of these notes receivable carry a variable interest rate. Notes
receivable include notes generated from property sales which have interest
rates adjusted at the time of sale to yield rates ranging from 6% to 14%. Notes
receivable are generally nonrecourse and are generally collateralized by real
estate. Scheduled principal maturities of $38.4 million are due in 1996 of
which $1.8 million is due on nonperforming notes receivable.
Nonrecourse participations totaling $1.1 million and $2.6 million at December
31, 1995 and 1994, respectively, have been deducted from notes receivable.
In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. Assets
transferred by the Company pursuant to the asset sales agreement included a
retail shopping center in Lubbock, Texas with a carrying value of $2.0 million
prior to transfer, a $1.5 million senior participation in a second lien
mortgage note secured by the Las Vegas Plaza, a retail shopping center in Las
Vegas, Nevada, a $315,000 participation in a first mortgage note secured by
unimproved land in Virginia Station, Virginia and a $799,000 participation in a
second lien mortgage note secured by the Country Club Apartments, an apartment
complex in Flagstaff, Arizona. In return, the Company received a $1.9 million
participation in a first mortgage note secured by a hotel site in Lihue,
Hawaii, a $1.0 million first mortgage note secured by land in Maricopa County,
Arizona, a $118,000 first lien mortgage note secured by a single-family
residence in Silver Creek, Colorado and $1.5 million in cash. The asset sales
agreement contained put and guaranty provisions whereby, at any time, either
party could demand that the seller reacquire any asset sold pursuant to the
terms of the asset sales agreement
F-12
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
for the consideration originally received. In March 1992, the Company received
payment in full on the $118,000 note secured by the single-family residence in
Silver Creek, Colorado.
In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions, of the asset sales agreement, of its desire to
divest itself of all assets received. The Receiver refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
In June 1992, the Company foreclosed on the note receivable secured by land
in Maricopa County, Arizona, and recorded provision for loss of $845,000 to
reduce the land's carrying value to its then estimated fair value. During
September 1992, the Company recorded the foreclosure of the hotel site in
Lihue, Hawaii. In March 1995, the Company collected in full the second lien
mortgage note secured by the Country Club Apartments, but did not remit such
amount to the insurance company.
A settlement between the Company and Receiver was approved by the court on
February 15, 1995. Under the terms of the settlement, the insurance company
returned to the Company all of the assets which it received from the Company,
except for the participation in the first mortgage note secured by unimproved
land in Virginia Station, Virginia. In exchange, the Company returned to the
insurance company $1.0 million in cash and all the assets which it received
from the insurance company, other than the note secured by the residence in
Colorado which the Company had collected. The asset transfers and the Company's
cash payment were completed in the fourth quarter of 1995. The Company incurred
no loss on the settlement.
The borrower on a $1.7 million first mortgage note receivable secured by land
in Osceola, Florida failed to make the required principal payment on the note's
November 1, 1993 maturity. The Company instituted foreclosure proceedings and
was awarded a summary judgment in January 1994. During 1994 and 1995, the
borrower paid the Company a total of $270,000 in nonrefundable fees to delay
foreclosure of the property until April 24, 1995. On April 21, 1995, the
borrower filed for bankruptcy protection. In July 1995, the Company filed a
motion with the bankruptcy court to lift the court's stay and allow the Company
to proceed with foreclosure. In September 1995, the bankruptcy court denied the
Company's motion to lift stay and the borrower was allowed to file a plan of
reorganization. The bankruptcy court has set a hearing date of May 15, 1996,
for confirmation of the borrower's plan of reorganization. The note had a
principal balance of $1.6 million at December 31, 1995. The Company does not
expect to incur any loss if it is allowed to foreclose on the collateral
property as its estimated fair value exceeds the carrying value of the note.
The Company did not receive the payment due on October 1, 1991 on the first
mortgage note receivable secured by the 386 Ocean Parkway Co-op. In December
1993, the Company recorded a provision for loss of $300,000 to reduce the
carrying value of the note to the estimated fair value of the collateral
property. In February 1994, the Company agreed to reinstate and modify its note
in exchange for the pledge of additional collateral. The reinstated note
reduced the principal balance from $900,000 to $750,000, waived all defaults on
the note and extended the maturity date of the note to September 15, 1999. In
June 1994, the Company sold its mortgage note for $450,000 in cash. The Company
incurred no loss on the sale in excess of the amounts previously provided.
In March 1994, as partial consideration for the sale of a restaurant site in
Los Angeles, California, the Company provided $100,000 of purchase money
financing. See NOTE 4. "REAL ESTATE."
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
lienholder accepting as partial payment a $22.0 million wraparound mortgage
note receivable. The $22.0 million note bears interest at 11%, requires monthly
payments of $175,000, and has an extended maturity of December 31, 1995. The
Company recorded a deferred gain of $4.3 million in connection with the sale of
the hotel and casino resulting from the disputed third lien mortgage being
subordinated to the Company's wraparound mortgage note receivable. The Company,
the borrower and the underlying lienholder have again agreed to extend the
F-13
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
wraparound mortgage note receivable and underlying liens to July 1, 1996. A one
percent extension fee was added to the principal balance of the wraparound
note. The Company's modified wraparound note receivable continues to accrue
interest at 11% per annum with any unpaid interest being added monthly to the
principal balance. All other terms remained the same. The borrower is making
payments in accordance with the terms of the modified note. The Company's
wraparound mortgage note receivable had a principal balance of $22.7 million at
December 31, 1995.
In conjunction with the modification of the Company's wraparound mortgage
note receivable, the underlying lienholder has agreed to forebear exercising
its rights under the first and second liens on the condition that the Company
continue to remit to it the greater of either $175,000 or all sums received by
the Company. The Company remains in compliance with the terms of the
forbearance agreement. Also as discussed in NOTE 4. "REAL ESTATE", in November
1994, the Company sold its apartment complex in San Antonio, Texas, along with
its three apartment complexes in Biloxi, Mississippi to a newly formed
partnership in exchange for a 27% limited partner interest, $3.2 million in net
cash, a $100,000 certificate of deposit and second and third lien mortgages
totaling $1.3 million secured by the apartment complex in San Antonio, Texas.
Both notes require interest only payments and mature September 1, 2004.
At December 31, 1995, 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 has 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. Upon notice of acceleration, the borrowers had 30 days
to cure their default. 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 has received $43,000 of the required principal payment
and is to receive the remaining $25,000 on April 1, 1996. The principal balance
of the note was $279,000 at December 31, 1995. The Company expects to incur no
loss on this note in excess of reserves previously provided.
The Company holds a junior mortgage note receivable secured by the
Williamsburg Hospitality House in Williamsburg, Virginia, that is subject to
underlying liens totaling $11.7 million at December 31, 1995. In October 1993,
the first lien debt was restructured and split in three pieces. During 1995,
the Company advanced the borrower $3.3 million to payoff the second lien,
allowing the borrower to receive a $2.4 million discount offered by the lender
for early payoff of such lien. In conjunction with such advance, the Company
extended the maturity of its note to April 1, 1996. All other terms of the note
remained unchanged.
NOTE 4. REAL ESTATE
In February 1995, the Company sold the Boulevard Villas Apartments in Las
Vegas, Nevada, for $9.6 million. The Company initially treated the sale as a
financing transaction, the Company having provided the purchaser with its $1.6
million down payment, by loaning a like amount, secured by a second lien on an
office building in Houston, Texas. In March 1995, the office building was sold
and the Company's loan was paid in full. The Company received net cash of $3.4
million from the sale after the payoff of $5.9 million in existing mortgage
debt and the payment of various closing costs associated with the sale. The
Company recognized a gain of $924,000 on the sale.
In May 1995, the Company purchased a 74.9 acre parcel of partially developed
land in Las Colinas, Texas, for $13.5 million. In connection with the
acquisition, the Company borrowed $15.0 million under a term loan, which bears
interest at the prime rate plus 4%, (12.50% per annum at December 31, 1995),
requires monthly interest only payments, a 1% annual maintenance fee, principal
reduction payments of $1.5 million on the first day of November 1995 and May
1996 and $3.0 million every six months thereafter commencing November 1996,
with the balance of principal and accrued but unpaid interest due at maturity
on May 1, 1998. The loan is secured by the land in Las Colinas, Texas, a
participation interest in two of the Company's notes receivable, land in
Atlanta, Georgia and a pledge of 586,800 NRLP limited partner units owned by
the Company. The Company received net financing proceeds of $210,000 after the
purchase of the land and payment of associated closing costs. In June 1995, the
Company borrowed an additional $3.0
F-14
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
million from this lender increasing the term loan principal balance to $18.0
million. The additional $3.0 million borrowing was paid in full prior to its
March 31, 1996 maturity.
In September 1995, the Company sold 6.9 acres of the 74.9 acre parcel, for
$2.9 million in cash. In accordance with the provisions of the term loan, the
Company applied the net proceeds of the sale, $2.6 million, to pay down the
term loan. Such pay down was credited against the principal payments the
Company was otherwise required to make in 1995 and 1996. The principal balance
of the term loan was $15.5 million at December 31, 1995. The Company recognized
a $1.6 million gain on the sale. In February 1996, the Company refinanced the
$7.8 million of debt secured by its $18.0 million note receivable secured by
the Las Vegas Plaza Shopping Center in Las Vegas, Nevada, for $12.0 million,
paying $1.5 million of the net refinancing proceeds on the term loan balance
due by March 31, 1996. See NOTE 19. "SUBSEQUENT EVENTS." In March 1996, the
Company sold an additional 2.3 acres for $961,000 in cash. See NOTE 19.
"SUBSEQUENT EVENTS." The Company applied the net proceeds of the sale, $891,000
to pay down the term loan.
In October 1995, the Company purchased an additional tract of partially
developed land in Las Colinas, Texas, totaling 92.6 acres for $7.1 million. The
Company paid $959,000 in cash and borrowed the remaining $6.1 million. The
mortgage bears interest at the prime rate plus 5%, (13.50% at December 31,
1995), requires monthly interest only payments through September 30, 1996, four
quarterly deferred commitment fee payments of $50,000 and $50,000 monthly
principal payments beginning October 1, 1996. The principal balance, accrued
but unpaid interest and a $500,000 "maturity fee" is due at maturity on
December 1, 1996. The Company has an option to extend the maturity date to
October 1, 1997 if no event of default has occurred, written notice is given
prior to maturity and the principal balance of the loan has been reduced by
$2.1 million. The Company has also agreed to pledge to the lender, as
additional collateral for the loan, $2.0 million of newly issued shares of the
Company's Common Stock. On February 13, 1996, the Company entered into a
contract to sell 72.5 of the 92.6 acres for $12.9 million in cash. See NOTE 19.
"SUBSEQUENT EVENTS."
In November 1994, the Company sold its three Mississippi apartment complexes,
Watersedge III Apartments, Edgewater Garden Apartments, Chateau Bayou
Apartments, and its apartment complex in San Antonio, Texas, Mediterranean
Villa Apartments, to a newly formed limited partnership in exchange for, a 27%
limited partner interest in the partnership, $3.2 million in net cash, a
$100,000 certificate of deposit, and second and third liens totaling $1.3
million secured by the Mediterranean Villa Apartments. See NOTE 3. "NOTES AND
INTEREST RECEIVABLE." The Company has deferred any gain related to the property
sales due to the Company having a continuing ownership interest in the
properties, through its 27% limited partner interest in the owning partnership
and the Company also having the option to reacquire the properties at anytime
prior to September 2, 1997, and unwind the partnership under certain
circumstances. The deferred gain of $5.6 million is offset against the
Company's investment in the partnership in the accompanying Consolidated
Balance Sheets.
In March 1994, the Company sold a restaurant site in Los Angeles, California,
that was held for sale for $190,000. The Company received $90,000 in cash and
provided purchase money financing of $100,000. The Company recognized a gain of
$18,000 on the sale. See NOTE 3. "NOTES AND INTEREST RECEIVABLE."
Also in March 1994, the Company acquired for $26,000 in cash, all of the
capital stock of the corporate general partner of Merchandise Mart Associates,
Ltd. (" Mart, Ltd."). Concurrently, the Company also acquired all of the
capital stock of Garden Capital Merchandise Mart, Inc. ("GCMMI") for $1,000 and
the assumption of $271,000 in debt including $125,000 payable to the Company.
The GCMMI stock was purchased from individuals who also own the corporate
general partner of a limited partnership in which NOLP is a 99.3% limited
partner. (See NOTE 6. "INVESTMENTS IN REAL ESTATE ENTITIES.") The acquired
assets of GCMMI included a wraparound mortgage note receivable with a principal
balance of $33.4 million secured by the Denver Merchandise Mart, a 509,008
square foot merchandise mart in Denver, Colorado, title to the Inn at the Mart,
a 156 room hotel adjacent to the Denver Merchandise Mart, and parcels of land
contiguous to the Denver Merchandise Mart. In May 1992, the Company had
acquired title to land in Denver, Colorado subject to a ground lease to Mart,
Ltd. as lessee, for the operation of the Denver Merchandise Mart and a 2.9%
limited partner interest in Mart, Ltd. Effective April 1, 1994, the Company
F-15
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
recorded the acquisition of the Denver Merchandise Mart and the assumption of
underlying debt of $6.1 million. The Company acquired the wraparound mortgage
and the general partner of Mart, Ltd. with the intent of acquiring the Denver
Merchandise Mart, hence its classification as held for investment. See NOTE 8.
"NOTES AND INTEREST PAYABLE."
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, 1994, a total of 172 of the residential lots were sold for an
aggregate gain of $250,000. During 1995, an additional 4 lots were sold for
aggregate gain of $6,000. At December 31, 1995, 22 lots remained to be sold.
Also in 1991, the Company purchased all of the capital stock of a company
which owned a 60% interest in a joint venture which in turn owned 113 partially
developed residential lots in Denton, Texas. Through 1994, 109 of the
residential lots were sold for an aggregate gain of $992,000. During 1995, the
remaining 4 lots were sold for an aggregate gain of $24,000.
NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES
Activity in the allowance for estimated losses was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance January 1, $ 8,201 $ 9,913 $ 12,444
Provision for losses -- -- 2,300
Amounts charged off (947) (1,712) (3,159)
Amounts reclassified to
liabilities -- -- (1,672)
-------- -------- --------
Balance December 31, $ 7,254 $ 8,201 $ 9,913
======== ======== ========
</TABLE>
NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES
The Company's investment in real estate entities at December 31, 1995,
includes (i) equity securities of three publicly traded real estate investment
trusts (collectively the "Trusts"), 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 partner interest in NRLP and NOLP, the operating partnership of NRLP,
through its 76.8% limited partner interest in SAMLP and (iv) interests in real
estate joint venture partnerships. Gene E. Phillips, the Chairman of the Board
and a Director of the Company until November 16, 1992, is a general partner of
SAMLP, the general partner of NRLP and NOLP and a director and Chief Executive
Officer of SAMI. Randall M. Paulson, an executive officer of the Company,
serves as a director of SAMI and as President of the Trusts, SAMI and BCM. In
addition, BCM serves as advisor to the Trusts, and performs certain
administrative and management functions for NRLP and NOLP on behalf of SAMLP.
The Company accounts for its investment in the Trusts, NRLP and the joint
venture partnerships using the equity method as more fully described in NOTE 1.
"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investment in real estate
entities." 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 Trusts and NRLP
are pledged as collateral for borrowings. See NOTE 8. "NOTES AND INTEREST
PAYABLE."
F-16
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company's investment in real estate entities, accounted for using the
equity method, at December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Percentage of Equivalent
the Company's Carrying Value Investee Market Value of
Ownership at of Investment at Book Value at Investment at
December 31, December 31, December 31, December 31,
Investee 1995 1995 1995 1995
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
NRLP 52.1% $ 12,712 $ * $ 38,020
CMET 37.2 12,116 28,297 15,757
IORI 25.9 2,752 6,271 4,065
TCI 28.2 9,162 25,195 11,335
---------- -----------
36,742 $ 69,177
===========
General partner
interest in NRLP and NOLP 7,726
Other (3,396)
----------
$ 41,072
==========
</TABLE>
- ---------------
* At December 31, 1995, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $161.5 million
(unaudited). 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 Company's investment in real estate entities, accounted for using the
equity method, at December 31, 1994 was as follows:
<TABLE>
<CAPTION>
Percentage of Equivalent
the Company's Carrying Value Investee Market Value of
Ownership at of Investment at Book Value at Investment at
December 31, December 31, December 31, December 31,
Investee 1994 1994 1994 1994
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
NRLP 48.1% $ 13,727 $ * $ 31,623
CMET 33.9 11,389 26,723 14,850
IORI 21.0 2,285 5,378 3,267
TCI 24.6 78,332 22,909 9,782
--------- ---------
35,234 $ 59,522
=========
General partner
interest in NRLP and NOLP 7,791
Other (4,181)
---------
$ 38,844
=========
</TABLE>
- ---------------
* At December 31, 1994, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $144.9 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, 1994.
F-17
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company's management continues to believe that the market value of each
of the Trusts and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1995, as its liquidity
has permitted.
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 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, 1994, 73 of the residential lots owned by the partnership were sold. During
1995, an additional 72 lots were sold with 142 lots remaining to be sold at
December 31, 1995. Through December 31, 1995, each partner had received
$226,000 in return of capital distributions and $120,000 in profit
distributions from the partnership. See NOTE 8. "NOTES AND INTEREST PAYABLE".
In November 1994, the Company sold four apartment complexes to a newly formed
limited partnership in exchange for cash, a 27% limited partner interest in the
partnership and two mortgage notes receivable, secured by one of the properties
sold by the Company. In conjunction with the exchange transaction the Company
recorded a deferred gain of $5.6 million which is offset against the Company's
investment in the partnership. See NOTE 3. "NOTES AND INTEREST RECEIVABLE" and
NOTE 4. "REAL ESTATE."
In June 1995, the Company purchased the corporate general partner of a
limited partnership which owns apartment complexes in Illinois, Florida and
Minnesota, with a total of 900 units. The purchase price of the corporate
general partner was $628,000 in cash. The corporate general partner has a 1%
interest in the partnership which is subordinated to a priority return of the
limited partner.
Set forth below are summary financial data for equity investees owned over
50%:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Property and notes
receivable, net ........... $ 239,728 $ 253,067
Other assets ................. 53,202 37,073
Notes payable ................ (338,534) (337,544)
Other liabilities ............ (53,663) (44,419)
--------- ---------
Equity ....................... $ (99,267) $ (91,823)
========= =========
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues .......................... $ 110,892 $ 107,546 $ 103,044
Depreciation ...................... (10,268) (10,034) (10,168)
Interest .......................... (34,956) (34,145) (34,699)
Operating expenses ................ (69,572) (66,602) (65,972)
--------- --------- ---------
(Loss) before gains on sale of
real estate and extraordinary
gains .......................... (3,904) (3,235) (7,795)
Gains on sale of real estate ...... 7,701 8,252 --
Extraordinary gains ............... -- -- 9,046
--------- --------- ---------
Net income ........................ $ 3,797 $ 5,017 $ 1,251
========= ========= =========
</TABLE>
F-18
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company's equity share of:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
(Loss) before gains on sale of
real estate and extraordinary
gains .......................... (1,767) (1,279) (2,584)
Gains on sale of real estate ...... 1,884 1,923 --
Extraordinary gains ............... -- -- 3,364
------- ------- -------
Net income ........................ $ 117 $ 644 $ 780
======= ======= =======
</TABLE>
Set forth below are summary financial data for equity investees owned less than
50%:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Property and notes
receivable, net ........... $ 466,220 $ 427,384
Other assets ................. 61,697 52,454
Notes payable ................ (318,161) (253,714)
Other liabilities ............ (20,396) (28,608)
--------- ---------
Equity ....................... $ 189,360 $ 197,516
========= =========
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues .......................... $ 94,730 $ 74,093 $ 63,006
Depreciation ...................... (13,950) (10,276) (8,816)
Provision for losses .............. (541) (1,429) (1,094)
Interest .......................... (28,102) (20,264) (15,962)
Operating expenses ................ (65,471) (54,213) (47,003)
-------- -------- --------
(Loss) before gains on sale of
real estate and extraordinary
gains .......................... (13,334) (12,089) (9,869)
Gains on sale of real estate ...... 5,822 6,375 389
Extraordinary gains ............... 1,437 1,189 2,400
-------- -------- --------
Net (loss) ........................ $ (6,075) $ (4,525) $ (7,080)
======== ======== ========
</TABLE>
The Company's equity share of:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
(Loss) before gains on sale of
real estate and extraordinary
gains ........................... (3,356) (1,250) (1,430)
Gains on sale of real estate ....... 2,463 895 --
Extraordinary gains ................ 783 273 --
------- ------- -------
Net (loss) ......................... $ (110) $ (82) $(1,430)
======= ======= =======
</TABLE>
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 cash flow from the Trusts 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 in the fourth
quarter of 1993 and TCI in the fourth quarter of 1995. In 1995, the Company
received distributions from CMET, IORI
F-19
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
and TCI totaling $641,000 and $719,000 from NRLP. At December 31, 1995 the
Company accrued $3.3 million in NRLP distributions which were paid January 2,
1996. The Company received total distributions from CMET and IORI of $675,000
in 1994 and $1.4 million from NRLP in December 1994.
The Company's investments in the Trusts and NRLP were initially acquired in
1989. In 1995, the Company purchased an additional $6.5 million of equity
securities of the Trusts and NRLP.
NOTE 7. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO
In 1994, the Company began purchasing equity securities of entities other
than those of the Trusts and NRLP to diversify and increase the liquidity of
its margin accounts. In 1995, the Company purchased $19.4 million and sold
$18.4 million of such securities. These equity securities are considered a
trading portfolio and are carried at market value. At December 31, 1995, the
Company recognized an unrealized decline in the market value of the equity
securities in its trading portfolio of $998,000. In 1995, the Company realized
a net gain of $349,000 from the sale of trading portfolio securities and
received $852,000 in dividends and $238,000 in return of capital distributions
on such securities. At December 31, 1994, the Company recognized an unrealized
decline in the market value of the equity securities in its trading portfolio
of $242,000, realized a net loss of $101,000 from the sale of trading portfolio
securities and received $274,000 in dividends on such securities. Unrealized
and realized gains and losses in the trading portfolio are included in other
income in the accompanying Consolidated Statements of Operations.
NOTE 8. NOTES AND INTEREST PAYABLE
Notes and interest payable consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Notes payable
Mortgage Loans ............ $ 18,376 $ 22,086 $ 26,020 $ 26,239
Borrowings from financial
institutions ............. 27,052 29,945 7,929 9,298
Notes payable to affiliates 1,554 4,176 1,533 5,166
-------- -------- -------- --------
$ 46,982 56,207 $ 35,482 40,703
======== ========
Interest payable (including
$4,380 in 1995 and $4,566
in 1994 to affiliate) 4,956 4,992
-------- --------
$61,163 $ 45,695
======== ========
</TABLE>
Scheduled principal payments on notes payable are due as follows:
<TABLE>
<C> <C>
1996............................ $26,442
1997............................ 13,053
1998............................ 3,747
1999............................ 369
2000............................ 293
Thereafter...................... 12,303
-------
$56,207
=======
</TABLE>
F-20
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stated interest rates on notes payable ranged from 6.0% to 14% at December
31, 1995, and mature in varying installments between 1996 and 2007. At December
31, 1995, notes payable were collateralized by mortgage notes receivable with a
net carrying value of $18.5 million and by deeds of trust on real estate with a
net carrying value of $73.2 million.
In March 1995, the Company modified and extended a loan from a financial
institution with a principal balance of $7.8 million at December 31, 1995 and
collateralized by a note receivable with a principal balance of $17.1 million
at such date. On February 5, 1996, the loan was refinanced for $12.0 million.
See NOTE 19. "SUBSEQUENT EVENTS."
In March 1995, the Company exercised its option to extend the maturity date
of the loan secured by the Kansas City Holiday Inn, from March 1995 to March
1997. In April and October 1995, the Company refinanced the mortgage debt in
the amount of $6.0 million. The Company received net cash of $2.8 million after
the payoff of $2.9 million of existing mortgage debt and various closing costs
associated with the refinancing. The new mortgage bears interest at 9.45% per
annum, requires monthly principal and interest payments of $55,732 and matures
on November 1, 2005.
In May 1995, the Company obtained a $15.0 million term loan, the proceeds of
which were used to acquire 74.9 acres of partially developed land in Las
Colinas, Texas. In June 1995, the Company borrowed an additional $3.0 million
from this lender increasing the term loan balance to $18.0 million. See NOTE 4.
"REAL ESTATE." The principal balance of the loan was $15.5 million at December
31, 1995. The loan bears interest at the prime rate plus 4%, (12.50% per annum
at December 31, 1995), requires monthly interest only payments, a 1% annual
maintenance fee, principal reduction payments of $1.5 million on the first day
of November 1995 and May 1996 and $3.0 million every six months thereafter
commencing November 1996, with the balance of principal and accrued but unpaid
interest due at maturity on May 1, 1998. The loan is secured by the land in Las
Colinas, Texas, a participation interest in two of the Company's notes
receivable, land in Atlanta, Georgia and a pledge of 586,800 NRLP units of
limited partner interest owned by the Company. The Company received net
financing proceeds of $210,000 after the purchase of the land and payment of
associated closing costs. In June 1995, the Company borrowed an additional $3.0
million from this lender increasing the term loan principal balance to $18.0
million. The additional $3.0 million borrowing was paid in full prior to its
March 31, 1996 maturity.
In October 1995, the Company obtained $6.1 million of purchase money
financing in conjunction with the acquisition of an additional 92.6 acres of
partially developed land in Las Colinas, Texas. See NOTE 4. "REAL ESTATE." The
outstanding principal balance of this note was $6.5 million at December 31,
1995. The mortgage bears interest at the prime rate plus 5%, (13.50% at
December 31, 1995), requires monthly interest only payments through September
30, 1996, four quarterly deferred commitment fee payments of $50,000 and
$50,000 monthly principal reduction payments beginning October 1, 1996. The
principal balance, accrued but unpaid interest and a $500,000 "maturity fee" is
due at maturity on December 1, 1996. The Company has an option to extend the
maturity date to October 1, 1997 if no event of default has occurred, written
notice is given prior to maturity and the principal balance of the loan has
been reduced by $2.1 million.
Notes payable to affiliates at December 31, 1995 and 1994 include a $4.2
million note due to NRLP as payment for SAMLP's general partner interest in
NRLP. The note bears interest at 10% per annum compounded semi-annually and is
due at the earlier of September 2007, the liquidation of NRLP or the withdrawal
of SAMLP as general partner of NRLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT,
L.P."
In June 1992, the Company obtained a $3.3 million loan from the owner, at the
time, of in excess of 14% of the Company's outstanding shares of Common Stock.
The note was paid in full at its May 1995 maturity. The loan also provided for
the lender's participation in the proceeds from either the sale or refinancing
of the Company's land in Atlanta, Georgia, or to put his participation to the
Company in exchange for a payment of $623,000. On December 2, 1993, the lender
exercised his put and required full payment by the Company by January 2, 1996.
The Company paid its $623,000 put obligation in May 1995.
F-21
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company has margin arrangements with various brokerage firms which
provide for borrowings 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 Trusts, NRLP and the Company's trading
portfolio and bear interest rates ranging from 7.0% to 11.0%. Margin borrowings
were $34.0 million at December 31, 1995, and $26.4 million at December 31,
1994, 47% and 45%, respectively, of the market values of such equity securities
at such dates.
NOTE 9. REDEEMABLE COMMON STOCK
In June 1992, the Company sold 794,718 newly issued shares of its Common
Stock to Donald C. Carter for $2.0 million in cash. Terms of the sale agreement
provided Mr. Carter with the option of requiring the Company to reacquire up to
720,000 of the purchased shares at a price of $3.06 per share, a total of $2.2
million. The Company accredited the difference between the issuance price and
the redemption price using the "interest method". In December 1994, Mr. Carter
contributed his shares of the Company's Common Stock to a newly formed
partnership in which he is a limited partner. Concurrent with the share
contribution, the partnership rescinded the put provision of the original sales
agreement. Accordingly, as of December 31, 1994, the Company reclassified such
redeemable Common shares to stockholder's equity.
NOTE 10. RIGHTS PLAN
In April 1990, the Company adopted a Preferred Share Purchase Rights Plan
(the "Rights Plan") and approved the distribution to stockholders of a dividend
of one share purchase right (the "Rights") for each then outstanding share of
the Company's Common Stock. Each Right will entitle stockholders to purchase
one one-hundredth of a share of a new series of preferred stock at an exercise
price of $25.00. The Rights will generally be exercisable only if a person or
group (the "Adverse Group") increases its then current ownership in the Company
by more than 25% or commences a tender offer for 25% or more of the Company's
Common Stock. If any person or entity actually increases its then current
ownership in the Company by more than 25% or if the Company's Board of
Directors determines that any 10% stockholder is adversely affecting the
business of the Company, holders of the Rights, other than the Adverse Group,
will be entitled to buy, at the exercise price, the Common Stock of the Company
with a market value of twice the exercise price. Similarly, if the Company is
acquired in a merger or other business combination, each Right will entitle its
holder to purchase, at the Right's exercise price, the number of shares of the
surviving company having a market value of twice the Right's exercise price. In
connection with the one for three reverse Common Stock split effected in
December 1990, the Rights were proportionately adjusted so that each post-split
share certificate represented three Rights, each of which permitted the holder
thereof to purchase one one-hundredth of a preferred share for $25.00 under
such circumstances. The Rights expire in 2000 and may be redeemed at the
Company's option for $.01 per Right under certain circumstances. In connection
with the two for one forward Common Stock split effected January 2, 1996, the
Rights were again proportionately adjusted so that each post-split share
represents one and one-half Rights, each of which permit the holder thereof to
purchase one one-hundredth of a preferred share for $25.00 under such
circumstances.
On March 5, 1991, the Company's Board of Directors approved an amendment to
the Rights Plan. The amendment excludes the Company, the Company's
subsidiaries, and the Company's advisor or its officers and Directors from the
class of persons who may cause the Rights to become exercisable by increasing
their ownership of the Company's stock.
NOTE 11. ADVISORY AGREEMENT
Although the Company's Board of Directors is directly responsible for
managing the affairs of the Company and for setting the policies which guide
it, the day-to-day operations of the Company are performed by BCM, a
contractual advisor under the supervision of the Company's Board of Directors.
The duties of the advisor include,
F-22
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
among other things, locating, investigating, evaluating and recommending real
estate and mortgage loan investment and sales opportunities as well as
financing and refinancing sources for the Company. BCM as advisor also serves
as a consultant in connection with the Company's business plan and investment
policy decisions made by the Company's Board of Directors.
BCM has been providing advisory services to the Company since February 6,
1989. BCM is a company owned by a trust for the benefit of the children of Gene
E. Phillips. Mr. Phillips served as Chairman of the Board and as a Director of
the Company until November 16, 1992. Mr. Phillips also served as a director of
BCM until December 22, 1989, and as Chief Executive Officer of BCM until
September 1, 1992. Mr. Phillips serves as a representative of the trust for the
benefit of his children that owns BCM and, in such capacity, has substantial
contact with the management of BCM and input with respect to BCM's performance
of advisory services to the Company. Ryan T. Phillips, a Director of the
Company, is a director of BCM and a trustee of the trust that owns BCM. Oscar
W. Cashwell, a Director of the Company, serves as Executive Vice President of
BCM.
The Advisory Agreement provides that BCM shall receive base compensation at
the rate of 0.125% per month (1.5% on an annualized basis) of the Company's
Average Invested Assets. On October 23, 1991, based on the recommendation of
BCM, the Company's advisor, the Company's Board of Directors approved a
reduction in BCM's base advisory fee by 50% effective October 1, 1991. This
reduction remains in effect until the Company's earnings for the four preceding
quarters equals or exceeds $1.00 per share.
In addition to base compensation, the Advisory Agreement provides that BCM,
or an affiliate of BCM, receive an acquisition fee for locating, leasing or
purchasing real estate for the Company; a disposition fee for the sale of each
equity investment in real estate; a loan arrangement fee; an incentive fee
equal to 10% of net income for the year in excess of a 10% return on
stockholders' equity, and 10% of the excess of net capital gains over net
capital losses, if any; and a mortgage placement fee, on mortgage loans
originated or purchased.
The Advisory Agreement further provides that BCM shall bear the cost of
certain expenses of its employees not directly identifiable to the Company's
assets, liabilities, operations, business or financial affairs; and
miscellaneous administrative expenses relating to the performance by BCM of its
duties under the Advisory Agreement.
If and to the extent that the Company shall request BCM, or any director,
officer, partner or employee of BCM, to render services to the Company other
than those required to be rendered by BCM under the Advisory Agreement, such
additional services, if performed, will be compensated separately on terms
agreed upon between such party and the Company from time to time. The Company
has requested that BCM perform loan administration functions, and the Company
and BCM have entered into a separate agreement, as described below.
The Advisory Agreement automatically renews from year to year unless
terminated in accordance with its terms. The Company's management believes that
the terms of the Advisory Agreement are at least as fair as could be obtained
from unaffiliated third parties.
Since October 4, 1989, BCM has acted as loan administration/servicing agent
for the Company, under an agreement terminable by either party upon thirty
days' notice, under which BCM services the Company's mortgage notes and
receives as compensation a monthly fee of .125% of the month-end outstanding
principal balances of the mortgage notes serviced.
NOTE 12. PROPERTY MANAGEMENT
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under its management. Carmel,
Ltd. subcontracts with other entities for the property-level management
services to the Company at various rates. The general partner of Carmel,
F-23
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) Syntek West, Inc.
("SWI"), of which Mr. Phillips is the sole stockholder, (ii) Mr. Phillips and
(iii) a trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management of the Company's hotels, shopping
centers, one of its office buildings and the Denver Merchandise Mart to Carmel
Realty, Inc. ("Carmel Realty"), which is a company owned by SWI. Carmel Realty
is entitled to receive property and construction management fees and leasing
commissions in accordance with the terms of its property-level management
agreement with Carmel, Ltd.
NOTE 13. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
Fees and cost reimbursements to BCM, the Company's advisor, and its
affiliates were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Fees
Advisory and mortgage
servicing .................... $1,195 $1,242 $1,258
Brokerage commissions ........... 905 497 180
Property and construction
management and leasing
commissions* ................. 1,200 899 348
Loan arrangement ................ 95 25 102
------ ------ ------
$3,395 $2,663 $1,888
====== ====== ======
Cost reimbursements ............... $ 516 $ 434 $ 288
====== ====== ======
</TABLE>
* Net of property management fees paid to subcontractors, other than Carmel
Realty.
NOTE 14. 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. At December 31, 1995, the Company had a tax net operating loss
carryforward of $17.3 million expiring through 2009.
At December 31, 1995, the Company recognized a deferred tax benefit of $4.7
million due to tax deductions available to it in future years. However, due to,
among other factors, the Company's inconsistent earnings history, the Company
was unable to conclude that the future realization of such deferred tax
benefit, which requires the generation of taxable income, was more likely than
not. Accordingly, a valuation allowance for the entire amount of the deferred
tax benefit has been recorded.
The components of tax expense are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Income tax provision
Current .................... $ 2 $ 9 $ 11
====== ====== ======
</TABLE>
F-24
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A reconciliation of the federal statutory tax rate (34%) with the income tax
provision in the Consolidated Statements of Operations is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income tax at statutory rate ...... $(2,185) $ (825) $(1,450)
Carryforward of net operating
loss income tax benefit ......... 2,185 825 1,450
State income tax, net of
federal benefit ................. 2 9 11
------- ------- -------
Income tax provision .............. $ 2 $ 9 $ 11
======= ======= =======
</TABLE>
NOTE 15. EXTRAORDINARY GAIN
In 1995, the Company recognized an extraordinary gain of $783,000
representing its equity share of TCI's extraordinary gain due to the early
payoff of debt.
In 1994, the Company recognized an extraordinary gain of $273,000
representing its equity share of TCI's extraordinary gain from the settlement
of claims against it by a lender. The Company also recognized $50,000 from the
forgiveness of a portion of a first mortgage due to the early payoff of the
second mortgage.
In 1993, the Company recognized an extraordinary gain of $3.4 million
representing its equity share of NRLP's extraordinary gain of $9.0 million from
its acquisition at a discount of certain of its mortgage debt. The Company also
recognized an additional $443,000 from the forgiveness of a portion of a first
mortgage from the early payoff of a second mortgage.
NOTE 16. RENTS UNDER OPERATING LEASES
The Company's operations include the leasing of office buildings and shopping
centers. The leases thereon expire at various dates through 2006. The following
is a schedule of minimum future rents on non-cancelable operating leases as of
December 31, 1995:
<TABLE>
<C> <C>
1996.............................. $1,740
1997.............................. 1,450
1998.............................. 1,100
1999.............................. 775
2000.............................. 609
Thereafter........................ 1,982
------
$7,656
======
</TABLE>
NOTE 17. COMMITMENTS AND CONTINGENCIES
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.
F-25
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 18. QUARTERLY RESULTS OF OPERATIONS
The following is a tabulation of the Company's quarterly results of
operations for the years 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
1995 March 31, June 30, September 30, December 31,
- ---- --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue ........................... $ 6,080 $ 5,552 $ 7,06 $ 4,254
Expense ........................... 8,200 9,010 7,93 8,294
---------- ---------- ---------- ----------
(Loss) before gain
on sale of real estate
and extraordinary gain .......... (2,120) (3,458) (867) (4,040)
Gain on sale of
real estate ..................... 924 24 1,59 4,322
Extraordinary gain ................ 315 12 43 25
---------- ---------- ---------- ----------
Net income (loss) ................. $ (881) $ (3,422) $ 1,16 $ 307
========== ========== ========== ==========
Earnings per share
Income (loss) before extra-
ordinary gain ................... $ (.20) $ (.59) $ .13 $ .05
Extraordinary gain ................ .05 -- .07 .01
---------- ---------- ---------- ----------
Net income (loss) ................. $ (.15) $ (.59) $ .20 $ .06
========== ========== ========== ==========
</TABLE>
Expense includes equity in losses of investees of $1.3 million, $1.7 million,
$1.4 million and $754,000 in the first, second, third and fourth quarters of
1995, respectively.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
1995 March 31, June 30, September 30, December 31,
- ---- --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue ........................... $ 2,960 $ 5,685 $ 7,260 $ 4,636
Expense ........................... 4,529 6,946 7,844 7,171
---------- ---------- ---------- ----------
(Loss) before gain on sale
of real estate and extra-
ordinary gain ................... (1,569) (1,261) (584) (2,535)
Gain on sale of real estate ....... 176 57 910 2,057
Extraordinary gain ................ 36 14 273 --
---------- ---------- ---------- ----------
Net income (loss) ................. $ (1,357) $ (1,190) $ 599 $ (478)
========== ========== ========== ==========
Earnings per share
(Loss) before extra-
ordinary gain ................... $ (.23) $ (.19) $ (.05) $ (.08)
Extraordinary gain ................ .01 -- .05 --
---------- ---------- ---------- ----------
Net income (loss) ................. $ (.22) $ (.19) $ .10 $ (.08)
========== ========== ========== ==========
</TABLE>
Expense includes equity in losses of investees of $527,000, $545,000, $1.0
million and $415,000 in the first, second, third and fourth quarters of 1994,
respectively.
F-26
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 19. SUBSEQUENT EVENTS
In March 1995, the Company modified and extended a loan from a financial
institution with a principal balance of $7.8 million at December 31, 1995 and
collateralized by a note receivable with principal balance of $17.1 million at
such date. On February 5, 1996 the loan was refinanced for $12.0 million. The
Company received net cash of $1.8 million from the refinancing after the payoff
of the financial institution's debt and after 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 second lien on such note receivable. The new loan bears
interest at 15% per annum, requires monthly principal and interest payments of
$152,000, and matures January 31, 1998. See NOTE 8. "NOTES AND INTEREST
PAYABLE."
In May 1995, the Company purchased 74.9 acres of partially developed land in
Las Colinas, Texas, for $13.5 million. See NOTE 14. "REAL ESTATE." In March
1996, the Company sold 2.3 acres for $961,000 in cash, the net sales proceeds
of $891,000 were used to paydown the term loan. Also in March 1996, the Company
entered into a contract to sell an additional 2.2 acres for $923,000 in cash.
This sale is scheduled to close in April 1996.
In October 1995, the Company purchased an additional tract of 92.6 acres of
partially developed land in Las Colinas, Texas. On February 13, 1996, the
Company entered into a contract to sell 72.5 of the 92.6 acres for $12.9
million in cash. The contract calls for the sale to close in two phases. The
first phase is to close on or before May 23, 1996 but may be extended to July
24, 1996, and the second phase is to close on or before December 31, 1996.
F-27
<PAGE> 61
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(dollars in thousands)
<S> <C> <C>
Assets
Notes and interest receivable
Performing ........................................... $ 51,392 $ 51,840
Nonperforming, nonaccruing ........................... 1,827 1,827
----------- -----------
53,219 53,667
Less - allowance for estimated losses ................ (3,926) (3,926)
----------- -----------
49,293 49,741
Real estate held for sale, net of accumulated
depreciation ($5,098 in 1996 and 1995) ............ 60,403 32,627
Less - allowance for estimated losses ................ (3,328) (3,328)
----------- -----------
57,075 29,299
Real estate held for investment, net of accumulated
depreciation ($3,678 in 1996 and $2,646 in 1995) .. 31,924 30,125
Marketable equity securities, at market value ........ 1,947 2,093
Cash and cash equivalents ............................ 1,097 1,054
Investments in equity investees ...................... 54,335 41,072
Other assets (including $2,964 in 1996 from affiliate) 9,454 8,649
----------- -----------
$ 205,125 $ 162,033
=========== ===========
</TABLE>
F-28
<PAGE> 62
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEET - CONTINUED
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------- ---------
(dollars in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable ................................................. $ 107,613 $ 61,163
Margin borrowings .......................................................... 36,843 34,017
Accounts payable and other liabilities (including $123 in
1996 and $4,584 in 1995 to affiliate) ................................... 7,640 12,698
--------- ---------
152,096 107,878
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 .......................................................... --
15,489 shares Series C, 10% cumulative, $2.00
par value .......................................................... 31 --
Common stock, $.01 par value, authorized 16,667,000 shares,
6,739,540 shares in 1996 and 5,858,328 in 1995 issued .............. 68 59
Paid-in capital ............................................................ 68,623 66,719
Accumulated (deficit) ...................................................... (16,795) (13,720)
Treasury stock at cost, 282,352 shares ..................................... (3) --
--------- ---------
51,932 53,058
--------- ---------
$ 205,125 $ 162,033
========= =========
</TABLE>
F-29
<PAGE> 63
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 30, September 30,
------------- -------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Rents ....................................... $ 5,339 $ 5,154 $ 14,733 $ 14,245
Interest .................................... 1,143 1,173 3,416 3,753
Other ....................................... 824 739 1,293 700
----------- ----------- ----------- -----------
7,306 7,066 19,442 18,698
Expenses .................................... 5,339
Property operations ......................... 3,600 3,004 11,166 10,216
Interest .................................... 4,240 2,393 10,656 6,149
Advisory and servicing fees to affiliate .... 392 328 1,093 871
General and administrative .................. 618 382 1,855 1,609
Depreciation and amortization ............... 429 416 1,319 1,258
Equity in losses of investees ............... 702 1,410 3,122 4,369
Minority interest ........................... -- -- -- 671
----------- ----------- ----------- -----------
9,981 7,933 29,211 25,143
----------- ----------- ----------- -----------
(Loss) before gain on sale of real estate and
extraordinary gain .......................... (2,675) (867) (9,769) (6,445)
Gain on sale of real estate ................. 3,324 1,596 7,799 2,544
----------- ----------- ----------- -----------
Income (loss) before extraordinary gain ..... 649 729 (1,970) (3,901)
Extraordinary gain .......................... 121 431 381 758
----------- ----------- ----------- -----------
Net income (loss) ........................... 770 1,160 (1,589) (3,143)
Preferred dividend requirement .............. (48) -- (65) --
----------- ----------- ----------- -----------
Net income (loss) applicable to Common
shares ...................................... $ 722 $ 1,160 $ 1,654) $ (3,143)
=========== =========== =========== ===========
Earnings per share
Income (loss) before extraordinary gain ..... $ .09 $ .13 $ (.32) $ (.67)
Extraordinary gain .......................... .02 .07 .06 .13
----------- ----------- ----------- -----------
Net income (loss) applicable to Common
shares ...................................... $ .11 $ .20 $ (.26) $ (.54)
=========== =========== =========== ===========
Weighted average Common shares used in
computing earnings per share ................ 6,596,074 5,858,328 6,357,447 5,858,328
=========== =========== =========== ===========
</TABLE>
F-30
<PAGE> 64
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Series B Series C Common
Preferred Stock Preferred Stock Stock
------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Balance, January 1, 1996 $ -- $ -- $ 59
Common Stock issued ..... -- -- 9
Series B Preferred Stock
issued .................. 8 -- --
Series C Preferred Stock
issued .................. -- 30 --
Common Stock cash
dividend ................ -- -- --
($.20 per share)
Redemption of share
purchase rights ($.015
per right per share) . -- -- --
Series B Preferred Stock
cash dividend
($3.96 per share) .... -- -- --
Series C Preferred Stock
stock dividend ....... -- 1 --
Treasury stock, at cost . -- -- --
Net (loss) .............. -- -- --
----------- ----------- -----------
Balance, September 30,
1996 ................. $ 8 $ 31 $ 68
=========== =========== ===========
<CAPTION>
Treasury Paid-in Accumulated Stockholders'
Stock Capital (Deficit) Equity
------------- ------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ -- $ 66,719 $ (13,720) $ 53,058
Common Stock issued ..... -- (9) -- --
Series B Preferred Stock
issued .................. -- 392 -- 400
Series C Preferred Stock
issued .................. -- 1,470 -- 1,500
Common Stock cash
dividend ................ -- -- (1,320) (1,320)
($.20 per share)
Redemption of share
purchase rights ($.015
per right per share) . -- -- (101) (101)
Series B Preferred Stock
cash dividend
($3.96 per share) .... -- -- (16) (16)
Series C Preferred Stock
stock dividend ....... -- 48 (49) --
Treasury stock, at cost . (3) 3 -- --
Net (loss) .............. -- -- (1,589) (1,589)
----------- ----------- ----------- -----------
Balance, September 30,
1996 ................. $ (3) $ 68,623 $ (16,795) $ 51,932
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-31
<PAGE> 65
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------
1996 1995
-------- --------
(dollars in thousands
<S> <C> <C>
Cash Flows From Operating Activities
Rents collected ................................ $ 14,760 $ 15,228
Interest and dividends collected ............... 3,197 4,579
Distributions received from equity investees'
operating cash flow ........................... 8,626 1,219
Payments for property operations ................. (11,628) (11,220)
Interest paid .................................... (5,881) (6,154)
Advisory and servicing fees paid to affiliate .... (1,093) (871)
General and administrative expenses paid ......... (2,169) (1,626)
Other ............................................ 417 191
-------- --------
Net cash provided by operating activities ...... 6,229 1,346
Cash Flows From Investing Activities
Collections on notes receivable ................ 640 1,423
Notes receivable funded ........................ (100) (430)
Proceeds from sale of real estate .............. 6,740 12,312
Proceeds from sale of marketable equity
securities .................................... 22,564 11,307
Purchases of marketable equity securities ...... (21,271) (13,832)
Investment in equity investees ................. (14,219) (6,794)
Purchases of real estate ....................... (5,658) (14,076)
Earnest money deposits ......................... (526) --
Real estate improvements ....................... (1,901) (1,827)
-------- --------
Net cash used in) investing activities ........ (13,731) (11,917)
Cash Flows From Financing Activities
Proceeds from notes payable .................... 48,153 23,700
Payments on notes payable ...................... (29,486) (17,840)
Deferred borrowing costs ....................... (3,019) (1,200)
Net repayment of advances from affiliates ...... (7,530) (23)
Margin borrowings, net ......................... 464 6,896
Proceeds from issuance of Series B preferred
stock ......................................... 400 --
Deferred borrowing costs ....................... (3,019) (1,200)
Net repayment of advances from affiliates ...... (7,530) (23)
Margin borrowings, net ......................... 464 6,896
Proceeds from issuance of Series B preferred
stock ......................................... 400 --
Distributions to Stockholders .................. (1,437) --
-------- --------
</TABLE>
F-32
<PAGE> 66
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------
1996 1995
-------- --------
(dollars in thousands
<S> <C> <C>
Net cash provided by financing activities .... 7,545 11,533
Net increase in cash and cash equivalents .... 43 962
Cash and cash equivalents, beginning of period .. 1,054 193
-------- --------
Cash and cash equivalents, end of period ........ $ 1,097 $ 1,155
======== ========
Reconciliation of net (loss) to net cash provided
by operating activities
Net (loss) .................................... $ (1,589) $ (3,143)
Adjustments to reconcile net (loss) to net cash
provided by operating activities
Extraordinary gain ........................... (381) (758)
Depreciation and amortization ................ 1,319 1,258
Gain on sale of real estate .................. (7,799) (2,544)
Distributions from equity investees' operating
cash flow ................................. 8,626 1,219
Equity in losses of investees ................ 3,122 4,369
Unrealized (gain) loss on marketable equity
securities ................................ (598) 408
(Increase) decrease in interest receivable ... (93) 64
Decrease in other assets ..................... 2,151 955
Increase (decrease) in interest payable ...... 844 (173)
(Decrease) in accounts payable and
other liabilities ......................... (131) (475)
Other ........................................ 758 166
-------- --------
Net cash provided by operating activities . $ 6,229 $ 1,346
======== ========
Schedule of noncash financing activities
Issuance of 15,489 shares of Series C Preferred
Stock with a liquidation value of $1.5 million $ 31 $ --
</TABLE>
F-33
<PAGE> 67
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 nine month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
Certain balances for 1995 have been reclassified to conform to the 1996
presentation. 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.
In August 1996, the Company purchased a pool of assets from Southmark
Corporation ("Southmark") for $3.1 million. See NOTE 4. "'REAL ESTATE."
Included in the asset pool was Southmark's 19.2% limited partnership interest
in Syntek Asset Management, L.P. ("SAMLP") . Such purchase increased the
Company's limited partner interest in SAMLP from 76.8% to 96%. SAMLP is 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
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, Inc. ("SAMI") , the
managing general partner of SAMLP, has calculated the fair value of such
Redeemable General Partner Interest to be $36.2 million at September 30, 1996,
before reduction for the principal balance ($4.2 million at September 30, 1996)
and accrued interest ($5.9 million at September 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
F-34
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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. On September 23, 1996, the Supervising Judge entered an
order granting tentative approval of the Amended and Restated Implementation
Agreement and the form of notice. However, the order reserved jurisdiction to
determine other matters which must be resolved prior to final approval. 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 office. If the
required approvals are obtained, it is anticipated that the successor general
partner may be elected and take office during the first quarter of 1997.
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.
On September 3, 1996, Joseph B. Moorman filed a Motion for Orders Compelling
Enforcement of the Moorman Settlement Agreement, Appointment of a Receiver and
Collateral Relief with the Superior Court of California in and for the County
of San Mateo. The motion alleges that the settling defendants had failed or
refused to perform their obligations under the Moorman Settlement Agreement.
The motion requested that SAMLP be removed as general partner and a receiver be
appointed to manage the Partnership. The motion also requested that the Company
be ordered to deliver to the court all NRLP units which had been purchased by
the Company since August 7, 1991. A hearing was held on this motion on October
4, 1996, and the court took the matter under submission. No ruling has been
made on this matter.
NOTE 3. NOTES AND INTEREST RECEIVABLE
February 1996, the Company refinanced the $7.8 million of debt collateralized
by a mortgage note receivable with a balance of $18.3 million at September 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.
F-35
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 September 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.
At September 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 Company and the borrower again agreed to extend the mortgage note
receivable's maturity date to September 1, 1997. The extension required an
additional $90,000 principal reduction payment payable in three equal monthly
installments beginning November 1, 1996. The monthly interest, quarterly
principal reduction payments of $25,000 and all other terms remain the same.
The first $25,000 quarterly principal reduction payment is due December 1,
1996. The principal balance of the note was $179,000 at September 30, 1996 and
the note is performing in accordance with its amended 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.
The borrower on a $1.7 million first-lien mortgage note receivable secured by
land in Osceola, Florida, failed to pay the note on its November 1, 1993
maturity. The Company instituted foreclosure proceedings and was awarded
summary judgment in January 1994. During 1994 and 1995, the borrower paid the
Company a total of $270,000 in nonrefundable fees to delay foreclosure of the
property until April 24, 1995. On April 21, 1995, the borrower filed for
bankruptcy protection. In July 1995, the Company filed a motion with the
bankruptcy court to lift the court's stay and allow the Company to proceed with
foreclosure. In September 1995, the bankruptcy court denied the Company's
motion to lift stay and the borrower was allowed to file a plan of
reorganization. The bankruptcy court set a hearing date of May 15, 1996 for
confirmation of the borrower's plan of reorganization. The borrower failed to
present a confirmable plan of reorganization and the bankruptcy court converted
the bankruptcy proceeding to a Chapter 7 liquidation proceeding. On August 24,
1996, the bankruptcy court's stay was lifted allowing the Company to proceed
with foreclosure. The Company expects to receive title to the property in
December 1996. The note had a principal balance of $1.6 million at September
30, 1996. The Company does not expect to incur any loss resulting from
foreclosing on the collateral property, as its estimated fair value, less costs
of sale, exceeds the carrying value of the note.
F-36
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 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 September 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. In August 1996, the Company
financed the residence for $173,000. The Company received net financing
proceeds of $168,000 after the payment of various closing costs associated with
the financing. The loan bears interest at the prime rate plus 1%, currently
9.25% per annum, requires monthly principal and interest payments of $2,000 and
matures August 16, 2008.
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 11. "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 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 balance 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. ("Carmel Realty"), an affiliate of 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 October 1995, the Company purchased a 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 closed in July 1996,
as discussed below, and the second phase is to close on or before December 31,
1996.
In July 1996, the Company completed the first phase sale of 32.3 acres of the
72.5 acres for $4.9 million in cash. The Company applied the net proceeds of
the sale, $4.7 million, to paydown the term loan, in accordance with its terms,
in exchange for that lenders, release of its collateral interest in the 32.3
acres sold. The Company recognized a gain of $2.0 million on such sale.
Also in July 1996, the Company purchased 568 acres of partially developed
land in Houston, Texas for $6.2 million. The Company paid $451,000 in cash and
obtained seller mortgage financing for $5 7 million. The loan bears interest at
9% per annum, requires a $500,000 principal and interest payment on November 1,
1996 and quarterly principal and interest payments of $145,000 thereafter. The
Company made the November 1, 1996 principal and interest payment. The loan
matures August 1, 1998. The Company paid a real estate brokerage commission of
$187,000 to Carmel Realty based on the $6.2 million purchase price. In
September 1996, the Company entered into a contract to
F-37
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
sell the land for a price in excess of the land's purchase price and carrying
and estimated selling costs. The sale, should it be consummated, would close on
December 1, 1997.
In August 1996, the Company purchased a pool of assets for $3.1 million from
Southmark, consisting of a total of 151 acres of raw land in California,
Indiana and Idaho, various percentage interests, ranging from 15% to 45%, in
five partnerships and trusts that hold an unsecured note receivable with a
principal balance of $3.4 million and Southmark's 19.2% limited partnership
interest in SAMLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P." To complete the
acquisition, the Company borrowed an additional $3.0 million from the lender
whose term loan is secured by the Company's 63.4 acres of land in Las Colinas,
Texas. The term loan was amended to increase the loan amount from $10.9 million
to $13.9 million. The $3.0 million advance is secured by the 122 acres of raw
land purchased in California and the 19.2% limited partnership interest in
SAMLP.
Also in August 1996, the Company purchased 280 acres of partially developed
land in Dallas County, Texas for $13.5 million. The Company paid $3.8 million
in cash and borrowed the remaining $9.7 million as the third advance under the
term loan from the lender discussed above. The term loan was again amended
increasing the term loan amount from $13.9 million to $19.5 million with an
additional $4.0 million being loaned on an overline advance note. The amendment
also changed the principal reduction payments to $2.0 million in November 1996
and $3.0 million on the last day of December 1996, March 1997, June 1997,
September 1997 and January 1998, and adds 240 acres of the 280 acres of the
land purchased as additional collateral on the term loan. All other terms of
the term loan remained unchanged. The Company paid a real estate brokerage
commission of $406,000 to Carmel Realty based on the $13.5 million purchase
price.
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, 12
additional lots have been sold for an aggregate gain of $24,000. At September
30, 1996, 10 lots remained to be sold.
NOTE 5. INVESTMENT IN REAL ESTATE ENTITIES
The Company's investment in real estate entities at September 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 96% 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 9. "MARGIN
BORROWINGS."
The Company's investment in real estate entities, accounted for using the
equity method, at September 30, 1996 was as follows:
F-38
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<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 September 30, 1996 September 30, 1996 September 30, 1996 September 3, 1996
-------- ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
NRLP 52.9% $ 10,682 $ * $ 41,865
CMET 39.0 14,617 31,745 17,564
IORI 28.9 2,765 6,247 4,503
TCI 29.6 6,420 23,762 11,758
--------- ---------
34,484 $ 75,690
=========
General partner interest in
NRLP and NOLP 8,847
Other equity investees 11,004
---------
$ 54,335
=========
</TABLE>
- ---------------
* At September 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 results of operations for the Company's equity
investees for the nine months ended September 30, 1996:
Equity investees owned over 50%:
<TABLE>
<S> <C>
Revenues ............................... $ 93,669
Property operating expenses ............ (60,760)
Depreciation ........................... (8,087)
Interest expense ....................... (26,019)
--------
Net (loss) ............................. $ (1,197)
========
</TABLE>
F-39
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company's share of over 50% owned equity investees' losses was $181,000
for the nine months ended September 30, 1996.
Equity investees owned less than 50%:
<TABLE>
<S> <C>
Revenues ........................................................ $ 75,110
Equity in (loss) of partnerships ................................ (246)
Property operating expenses ..................................... (51,770)
Depreciation .................................................... (10,647)
Interest expense ................................................ (22,337)
Provision for loss .............................................. (759)
--------
(Loss) before gains on sale of real estate and extraordinary
gains ........................................................ (10,649)
Gain on sale of real estate ..................................... 11,410
Extraordinary gain .............................................. 1,068
--------
Net income ...................................................... $ 1,829
========
</TABLE>
The Company's share of less than 50% owned equity investees, loss before gain
on sale of real estate and extraordinary gains was $2.9 million for the nine
months ended September 30, 1996. The Company's share of equity investees gains
on sale of real estate and extraordinary gains was $4.6 million and $381,000,
respectively, for the nine months ended September 30, 1996.
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 nine months of
1996, the Company received aggregate distributions of $8.6 million from the
REITs and NRLP.
In the first nine months of 1996, the Company purchased a total of $944,000
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 July 1996, a newly formed limited partnership, of which the Company is 1%
general partner, purchased 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 contributed 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.
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, 132 residential lots had been sold. In the first nine months of 1996
an additional 48 lots were sold. At September 30, 1996, 107 lots remained to be
sold. For the nine months ended September 30, 1996, each partner had received
$135,000 in return of capital distributions and $161,000 in profit
distributions from the partnership.
F-40
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6. OTHER EQUITY INVESTMENTS
In April 1996, a newly formed wholly-owned 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 by the first quarter of 1997. Accordingly, the Company
believes its control of such subsidiary is temporary and therefore accounts for
such subsidiary under the equity method.
NOTE 7. 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 nine months of 1996, the
Company purchased $21.3 million and sold $22.6 million of such securities.
These equity securities are considered a trading portfolio and are carried at
market value. At September 30, 1996, the Company recognized an unrealized
increase in the market value of its trading portfolio securities of $598,000.
Also in the first nine months of 1996, the Company realized a net loss of $5,
000 from the sale of trading portfolio securities and received $200,000 in
dividends. Unrealized and realized gains and losses on trading portfolio
securities are included in other income in the accompanying Consolidated
Statements of Operations.
NOTE 8. 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 10. "COMMON STOCK." The Company received net refinancing
proceeds of $7.8 million after the payoff of the first and second lien debt,
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.
In August 1996, the Company refinanced the $2.4 million first lien mortgage
secured by the Rosedale Towers Office Building in Roseville, Minnesota for $2.8
million. The Company received net refinancing proceeds of $154,000 after the
payoff of the existing mortgage debt and payment of various closing costs
associated with the refinancing. The Company also received 282,352 shares of
Common Stock of the Company that it had pledged as additional collateral on the
refinanced mortgage debt. Such shares are held as treasury stock by the
Company. The new loan bears interest at 9.05% per annum, requires monthly
principal and interest payments of $24,000 and matures August 16, 2006. The
Company paid BCM a mortgage brokerage and equity refinancing fee of $28,000
based upon the $2.8 million refinancing.
Also in August 1996, the Company financed the Inn at the Mart in Denver,
Colorado for $2.0 million to facilitate renovation of the property. The Company
received net financing proceeds of $890,000 after the payment of various
closing costs associated with the financing and a $1.1 million renovation
holdback. The Company expects the lender to advance the $1.1 million renovation
holdback by December 1996. The new loan bears interest at the prime rate plus
2.25%., currently 10.50% per annum and requires monthly interest only payments
through February 1, 1998. Commencing March 1, 1998, monthly payments of
interest plus a $3,000 principal paydown are required until maturity on
September 1, 2001. The Company paid BCM a mortgage brokerage and equity
refinancing fee of $9,500 based upon the $2.0 million financing net of the $1.1
million renovation holdback.
F-41
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In October 1996, the Company completed the sale of $1.1 million in 11-1/2%
senior subordinated notes in a private placement. The notes require interest to
be paid semi-annually on March 31 and September 30 of each year commencing
March 31, 1997 and are due on September 30, 1999, subject to the right of the
Company to call the notes for early redemption at no penalty or premium to the
Company.
NOTE 9. MARGIN BORROWINGS
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 6.5% to 9.25%. Margin borrowings
totaled $36.8 million at September 30, 1996.
In August 1996, the Company consolidated its existing NRLP margin debt held
by various brokerage firms into a single loan of $20.3 million. The loan is
secured by the Company's NRLP units with a market value of at least 50% of the
principal balance. The Company received $1.9 million in cash after the payment
of $617,000 in various closing costs associated with the financing and a $17.8
million holdback, pending the lender's receipt of the remaining NRLP units as
collateral. As of October 31, 1996, the Company had pledged 3,208,119 NRLP
units with a market value of $39.8 million and the lender had released $16.8
million of the holdback directly to the brokerage firms in payment of the
margin debt related to the NRLP units received. The lender is to receive the
final 200,600 NRLP units with a market value of $2.4 million in November 1996.
These NRLP units are currently being held as additional collateral on the term
loan secured by the Company's 63.4 acres of Las Colinas land and will be
released upon receipt of a $2.0 million term loan paydown in November 1996. See
NOTE 4. "REAL ESTATE." The $20.3 million margin loan bears interest at the 30
day LIBOR rate plus 4.50%, currently 9.94% per annum, requires monthly interest
only payments and matures the earlier of August 30, 1999 or the refinancing of
NRLP's secured debt. The Company paid BCM a mortgage brokerage and equity
refinancing fee of $203,300 based upon the $20.3 million financing.
Also in August 1996, the Company obtained a $2.0 million margin loan from a
financial institution secured by a pledge of $4.0 million of previously
unencumbered equity securities of the REITs owned by the Company and Common
Stock of the Company owned by BCM. The Company received $1,966,000 in net cash
after the payment of closing costs associated with the margin loan. The loan
bears interest at the prime rate plus 2.25%, currently 10.50% per annum,
requires monthly interest only payments and matures August 2, 1997.
In September 1996, the same lender made a second $2.0 million loan. The
second margin loan is secured by a pledge of $5.0 million previously
unencumbered equity securities of the REITs owned by the Company and Common
Stock of the Company owned by BCM. The Company received $1,970,000 in net cash
after the payment of closing costs associated with the margin loan. The margin
loan bears interest at the prime rate plus 2.25%, currently 10.50% per annum,
requires interest only payments and matures September 27, 1997.
NOTE 10. COMMON STOCK
At September 30, 1996 and December 31, 1995, there were authorized 16,667,000
shares of Common Stock, par value $.01 per share, of which 6,739,540 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 such
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 such shares as additional collateral for the loan
secured by the Denver Merchandise Mart, in Denver, Colorado. See NOTE 8. "NOTES
AND INTEREST PAYABLE."
F-42
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 quarter dividend of $.10 per share. The Company had last paid
dividends on May 15, 1990. The initial distribution totaling $674,000 was paid
on July 8, 1996 to stockholders of record on June 21, 1996. On September 30,
1996, the Company paid a third quarter dividend of $.10 per share totaling
$674,000 distributed to stockholders of record on September 13, 1996. 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 21, 1996. These rights were initially
distributed to stockholders on April 23, 1990.
NOTE 11. 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, and a liquidation value of $100 per share out
of the 20,000,000 shares authorized. 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. As of September 30, 1996, the Company has paid
dividends totaling $16,000 on the Series B Preferred Stock.
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, and a liquidation value of $100 per share out
of the 20,000,000 shares authorized. 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 and on September 30, 1996, the Company issued an
additional 378 shares of Series C Preferred Stock to stockholders of record on
September 15, 1996.
NOTE 12. 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
nine months ended September 30, 1996.
NOTE 13. 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.
[This space intentionally left blank.]
F-43
<PAGE> 77
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
--------------------
TABLE OF CONTENTS
PAGE
Available Information........................................1
Incorporation of Certain Information
by Reference............................................2
Ratio of Earnings to Fixed Charges...........................4
Use of Proceeds..............................................4
The Company..................................................4
The Business of the Company..................................5
Selected Financial Data.....................................14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..........................................15
Description of the Capital Stock............................24
Plan of Distribution........................................28
Legal Matters...............................................29
Experts.....................................................29
Index to Consolidated Financial
Statements.............................................F-1
Report of Independent Accountants...........................F-2
Consolidated Balance Sheets, December 31, 1995
and 1994...............................................F-3
Consolidated Statements of Operations, Three Years
Ended December 31, 1995, 1994 and 1993.................F-4
Consolidated Statements of Stockholders' Equity,
Years Ended December 31, 1995, 1994 and 1993...........F-5
Consolidated Statements of Cash Flows, Three Years
Ended December 31, 1995, 1994 and 1993.................F-6
Notes to Consolidated Financial Statements..................F-9
Consolidated Balance Sheets, September 30, 1996
and December 31, 1995..................................F-28
Statements of Operations, Nine Months Ended
September 30, 1996 and 1995............................F-30
Consolidated Statement of Stockholders' Equity,
Nine Months Ended September 30, 1996...................F-31
Consolidated Statements of Cash Flows, Nine Months
Ended September 30, 1996 and 1995......................F-32
Notes to Consolidated Financial Statements..................F-34
PREFERRED STOCK
COMMON STOCK
AMERICAN REALTY TRUST,
INC.
--------------------
PROSPECTUS
--------------------
FEBRUARY 11, 1997
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Thirteen of the Company's Articles of Incorporation provides that, to
the fullest extent permitted by Georgia law, as the same exists or may be
hereafter be amended, no director of the Company shall be personally liable to
the Company or the shareholders of the Company for monetary damages for breach
of the duty of care as a director, provided that Article Thirteen does not
limit or eliminate liability for (i) a breach of duty involving an
appropriation of a business opportunity of the Company; (ii) an act or omission
not in good faith or involving intentional misconduct or a knowing violation of
law; or (iii) a transaction from which the director derived an improper
personal benefit. In addition, a director's liability will not be limited as to
any payment of a dividend or approval of a stock repurchase that is illegal
under Section 14-2-640 of the Georgia Business Corporation Code.
Article Thirteen applies only to claims against a director arising out of his
or her role as a director and not, if he or she is also an officer, his or her
role as an officer or in any other capacity. In addition, Article Thirteen does
not reduce the exposure of directors to liability under Federal securities
laws.
The Bylaws of the Company require the Company to indemnify any person who, by
reason of the fact that he is or was a director of the Company, is made or is
threatened to be made a party to an action, including an action brought by the
Company or its shareholders. The Bylaws provide that the Company will indemnify
such person against reasonably incurred expenses (including, but not limited
to, attorneys' fees and disbursements, court costs, and expert witness fees),
and against any judgments, fines and amounts paid in settlement, provided that
the Company shall not indemnify such person under circumstances in which the
Georgia Business Corporation Code, as in effect from time to time, would not
allow indemnification.
The Bylaws of the Company give the board of directors the power to cause the
Company to provide to officers, employees, and agents of the Company all or any
part of the right to indemnification afforded to directors of the Company as
set forth in the Bylaws, subject to the conditions, limitations and obligations
therein, upon a resolution to that effect identifying such officer, employee or
agent and specifying the particular rights provided.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
*3.1 -- Articles of Incorporation
*3.2 -- Amendment to Articles of Incorporation dated September 15, 1989
*3.3 -- Articles of Amendment setting forth Certificate of Designation of
Series A Cumulative Participating Preferred Stock dated as of
April 11, 1990
*3.4 -- Articles of Amendment dated December 10, 1990 to Articles of
Incorporation
*3.5 -- Amended By-laws of American Realty Trust, Inc., dated December 11,
1991
*3.6 -- 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 on Restrictions
thereof of Special Stock of American Realty Trust, Inc. (Series B
10% Cumulative Preferred Stock) dated as of April 4, 1996
*3.7 -- 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 on Restrictions
thereof of Special Stock of American Realty Trust, Inc. (Series C
10% Cumulative Preferred Stock) dated as of June 4, 1996
II-1
<PAGE> 79
*3.8 -- 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 Series D Cumulative Preferred Stock of American Realty
Trust, Inc. dated as of August 2, 1996
*3.9 -- 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 Series E Cumulative Convertible Preferred Stock of
American Realty Trust, Inc. dated as of December 3, 1996
*3.10 -- 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 Series F Voting Cumulative Convertible
Preferred Stock of American Realty Trust, Inc. dated as of
January 14, 1997
*4.1 -- Instruments defining the rights of security holders (incorporated
in Exhibit 3.1)
*5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the legality of
the Preferred Stock being offered
**11.1 -- Statement re: computation of per share earnings
**12.1 -- Statement re: computation of ratios
**15.1 -- Letter re: unaudited interim financial information
*21.1 -- Subsidiaries of the registrant
*23.1 -- Consent of BDO Seidman LLP (American Realty Trust, Inc.)
*23.2 -- Consent of BDO Seidman (Continental Mortgage and Equity Trust)
*23.3 -- Consent of BDO Seidman (Income Opportunity Realty Investors,
Inc.)
*23.4 -- Consent of BDO Seidman (Transcontinental Realty Investors, Inc.)
*23.5 -- Consent of BDO Seidman (National Realty, L.P.)
*23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP (incorporated in
Exhibit 5.1)
#24.1 -- Power of Attorney
*29.1 -- Financial Data Schedule
- ----------
* Filed herewith.
** To be filed by amendment.
# Reference is made to the Power of Attorney contained on page II-4 of this
registration statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the change in volume and price represent no
II-2
<PAGE> 80
more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Company's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to Item 15, above, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 11th day of
February, 1997.
AMERICAN REALTY TRUST, INC.
By: /s/ KARL L. BLAHA
----------------------------------------
Karl L. Blaha
President (Principal Executive Officer)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert A.
Waldman his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ KARL L. BLAHA President (Principal Executive February 11, 1997
--------------------------- Officer) and Director
Karl L. Blaha
/s/ ROY E. BODE Director February 11, 1997
---------------------------
Roy E. Bode
/s/ OSCAR W. CASHWELL Director February 11, 1997
---------------------------
Oscar W. Cashwell
/s/ AL GONZALEZ Director February 11, 1997
---------------------------
Al Gonzalez
/s/ DALE A. CRENWELGE Director February 11, 1997
---------------------------
Dale A. Crenwelge
/s/ THOMAS A. HOLLAND Executive Vice President and February 11, 1997
--------------------------- Chief Financial Officer
Thomas A. Holland (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE> 82
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*3.1 -- Articles of Incorporation
*3.2 -- Amendment to Articles of Incorporation dated September 15, 1989
*3.3 -- Articles of Amendment setting forth Certificate of Designation of
Series A Cumulative Participating Preferred Stock dated as of
April 11, 1990
*3.4 -- Articles of Amendment dated December 10, 1990 to Articles of
Incorporation
*3.5 -- Amended By-laws of American Realty Trust, Inc., dated December 11,
1991
*3.6 -- 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 on Restrictions
thereof of Special Stock of American Realty Trust, Inc. (Series B
10% Cumulative Preferred Stock) dated as of April 4, 1996
*3.7 -- 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 on Restrictions
thereof of Special Stock of American Realty Trust, Inc. (Series C
10% Cumulative Preferred Stock) dated as of June 4, 1996
</TABLE>
<PAGE> 83
<TABLE>
<S> <C>
*3.8 -- 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 Series D Cumulative Preferred Stock of American Realty
Trust, Inc. dated as of August 2, 1996
*3.9 -- 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 Series E Cumulative Convertible Preferred Stock of
American Realty Trust, Inc. dated as of December 3, 1996
*3.10 -- 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 Series F Voting Cumulative Convertible
Preferred Stock of American Realty Trust, Inc. dated as of
January 14, 1997
*4.1 -- Instruments defining the rights of security holders (incorporated
in Exhibit 3.1)
*5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the legality of
the Preferred Stock being offered
**11.1 -- Statement re: computation of per share earnings
**12.1 -- Statement re: computation of ratios
**15.1 -- Letter re: unaudited interim financial information
*21.1 -- Subsidiaries of the registrant
*23.1 -- Consent of BDO Seidman LLP (American Realty Trust, Inc.)
*23.2 -- Consent of BDO Seidman (Continental Mortgage and Equity Trust)
*23.3 -- Consent of BDO Seidman (Income Opportunity Realty Investors,
Inc.)
*23.4 -- Consent of BDO Seidman (Transcontinental Realty Investors, Inc.)
*23.5 -- Consent of BDO Seidman (National Realty, L.P.)
*23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP (incorporated in
Exhibit 5.1)
#24.1 -- Power of Attorney
</TABLE>
- ----------
* Filed herewith.
** To be filed by amendment.
# Reference is made to the Power of Attorney contained on page II-4 of this
registration statement.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
AMERICAN REALTY TRUST, INC.
ONE
The name of the Corporation is American Realty Trust, Inc.
TWO
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
THREE
The Corporation shall have perpetual duration.
FOUR
The Corporation is organized to engage in any lawful business not
prohibited to corporations for profit under the laws of the State of Georgia.
The Corporation shall have all powers necessary to conduct such business and
engage in any such activities, including but not limited to, the powers
enumerated in the Georgia Business Corporation Code or any
<PAGE> 2
amendment thereto.
FIVE
The Corporation shall have authority exercisable by its Board of
Directors to issue not more than 100,000,000 shares of common voting stock,
$1.00 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
shall be designated as the Board of Directors may determine and which may be
issued in series by the Board of Directors as hereinafter provided.
Preferences, limitations, and relative rights with respect to the shares of
each class of stock of the Corporation shall be as hereinafter set forth:
(a) A holder of record of one or more shares of the Common Stock shall
have one (1) vote on any matter submitted to a shareholder vote for each share
of the Common Stock held. Holders of the Common Stock are entitled to the
entire voting power, all dividends declared, and all assets of the Corporation
upon liquidation, subject to the rights of holders of the Special Stock to such
voting power, dividends, and assets upon liquidation as provided in paragraph
(b) of this Article Five.
-2-
<PAGE> 3
(b) The Special Stock may be divided into and issued from time to time
in one or more series. All shares of the Special Stock shall be of equal rank
and shall be identical, except with respect to variations in the relative
rights and preferences as between different series which may be fixed and
determined by the Board of Directors as hereinafter provided pursuant to
authority which is hereby expressly vested in the Board of Directors; provided,
however, that each share of a given series of the Special Stock shall be
identical in all respects with the other shares of such series. Before any
shares of the Special Stock of a particular series are issued, the Board of
Directors shall fix and determine in the manner provided by law, the following
particulars with respect to the shares of such series:
(i) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased (except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but, not below the number of shares of such series then outstanding)
from time to time by the Board of Directors;
(ii) the dividend or rate of dividend payable with
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<PAGE> 4
respect to shares of such series, the times of payment of any dividend, whether
any such dividends shall be cumulative and, if so, the conditions under which
and the date from which dividends shall be accumulated;
(iii) whether the shares of such series shall be redeemable and, if so,
the time or times when, the price or prices at which, and the other terms and
conditions under which the shares of such series shall be redeemable;
(iv) the amount payable on shares of such series in the event of any
voluntary or involuntary liquidation, which shall not be deemed to include the
merger or consolidation of the Corporation or a sale, lease, or conveyance of
all or part of the assets of the Corporation;
(v) purchase, retirement, or sinking fund provisions, if any, for the
redemption or purchase of shares of such series;
(vi) the rights, if any, of the holders of shares of such series to
convert such shares into or exchange such shares for shares of the Common Stock
or shares of any other series of the Special Stock and the terms and conditions
of such conversion or exchange;
(vii) whether or not the shares of such series shall have voting rights
and the extent of such voting rights, if
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<PAGE> 5
any; and
(viii) any other rights or preferences permitted by law to be fixed and
determined.
SIX
No holder of shares of any class of capital stock of the Corporation shall have
the preemptive right to acquire unissued shares of any class of capital stock
of the Corporation, and the Corporation shall have the right to issue and to
sell to any person or persons any shares of its capital stock or any option
rights or any securities having conversion or option rights, without first
offering such shares, rights, or securities to any holders of shares of any
class of capital stock of the Corporation.
SEVEN
The Corporation shall have the authority to make, from time to time,
distributions of assets to the shareholders out of the capital surplus of the
Corporation, to the extent otherwise permitted by law.
-5-
<PAGE> 6
EIGHT
The Corporation shall have the authority to acquire for the Corporation
shares of its capital stock out of its unreserved and unrestricted earned
surplus and capital surplus available therefor as otherwise provided by law.
NINE
The shareholders may take any action required to be taken at a meeting
of the shareholders, or any action which may be taken at such a meeting,
without a meeting, if a written consent, setting forth the action to be taken,
is signed by persons who would be entitled to vote at a meeting those shares
having voting power to cast not less than the minimum number (or numbers, in
the case of voting by classes) of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote were present
and voted.
TEN
The Corporation shall not commence business until it shall have received
at least Five Hundred Dollars ($500.00) in payment for the issuance of shares
of capital stock.
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<PAGE> 7
ELEVEN
The initial registered office of the Corporation shall be at 55 Park
Place, Atlanta, Georgia 30335. The initial registered agent of the Corporation
shall be The Prentice-Hall Corporation System, Inc.
TWELVE
The initial Board of Directors shall consist of one member whose name
and address is as follows:
Gene E. Phillips
Southmark Corporation
1601 LBJ Freeway, Suite 800
Dallas, Texas 75234
THIRTEEN
No director of the Corporation shall be personally liable for monetary
damages to the Corporation or its shareholders for breach of the duty of care
or other duty as a director, except that such liability shall not be eliminated
for:
(a) any appropriation, in violation of the director's duties, of any
business opportunity of the Corporation;
(b) acts or omissions not in good faith or which involved intentional
misconduct or a knowing violation of law;
(c) liability under section 14-2-154 of the Georgia
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<PAGE> 8
Business Corporation Code or any amendment thereto; and
(d) any transaction from which the director derived an improper personal
benefit.
If at any time the Georgia Business Corporation Code is amended after
approval by the shareholders of this Article to authorize the further
elimination or limitation of the liability of a director, then the liability of
each director of the Corporation shall be eliminated or limited to the fullest
extent permitted by such Code, as so amended.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect the elimination or limitation of liability or
alleged liability pursuant hereto of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
FOURTEEN
The name and address of the incorporator is as follows:
James L. Smith, III
Trotter, Smith & Jacobs
2400 Gas Light Tower
235 Peachtree St., N.E.
Atlanta, Georgia 30303
-8-
<PAGE> 9
IN WITNESS WHEREOF, the undersigned executes these Articles of
Incorporation this the 24th day of November 1987.
/s/ James L. Smith, III
-------------------------
James L. Smith, III
-9-
<PAGE> 1
EXHIBIT 3.2
Amendment to the Articles of
Incorporation of American Realty Trust, Inc.
Pursuant to the Unanimous Written Consent of The Board of Directors of
American Realty Trust, Inc. (the "Corporation") dated July 21, 1989 and the
approval of the shareholders of the Corporation on August 14, 1989, such
shareholder approval being in accordance with Section 14-2-1003 of the Georgia
Business Corporation Code, the Articles of Incorporation of the Corporation are
hereby amended by deleting the first paragraph of Article Five in its entirety
and replacing it with the following:
The Corporation shall have authority exercisable by its Board of
Directors to issue not more than 50,000,000 shares of common
voting stock, $2.00 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 shall be designated as the
Board of Directors may determine and which may be issued in
series by the Board of Directors as hereinafter provided.
Preferences, limitations, and relative rights with respect to the
shares of each class of stock of the Corporation shall be as
hereinafter set forth:
The foregoing amendment with respect to the Common Stock of the
Corporation was approved to effect a one-for-two reverse split of the
Corporation's shares of Common Stock, $1.00 par value per share. Such split
will be implemented by requiring each holder of shares of Common Stock, $1.00
par value per share, to exchange his or her certificates representing such
shares for new certificates representing one share of Common Stock, $2.00 par
value per share, on the basis of two shares of Common Stock, $1.00 par value
per share, for one share
<PAGE> 2
of Common Stock, $2.00 par value per share. Share- holders who would otherwise
be entitled to receive fractional shares of Common Stock, $2.00 par value per
share, will receive cash in lieu thereof, computed at the average of the mean
of the high and low closing prices of the Common Stock, $1.00 par value per
share, as reported on the New York Stock Exchange Composite Tape for the 15
trading days immediately preceding the effective date of this Amendment.
The foregoing amendment to Article Five shall be effective at the close
of business on September 15, 1989.
IN WITNESS WHEREOF, I have hereunto set my hand.
/s/ William S. Friedman
------------------------------
William S. Friedman
Vice President and Treasurer
American Realty Trust, Inc.
<PAGE> 1
EXHIBIT 3.3
FORM
of
ARTICLES OF AMENDMENT
setting forth the
CERTIFICATE OF DESIGNATIONS
of
SERIES A CUMULATIVE PARTICIPATING PREFERRED STOCK
of
AMERICAN REALTY TRUST, INC.
(Pursuant to Section 14-2-602(d) of the
Georgia Business Corporation Code)
--------------------
American Realty Trust, Inc., a corporation organized and existing under
the Georgia Business Corporation Code (hereinafter called the "Corporation"),
hereby certifies that these articles of amendment to the Articles of
Incorporation of the Corporation were duly adopted by the Board of Directors of
the Corporation as required by Section 14-2-602(d) of the Georgia Business
Corporation Code (which Section provides that no shareholder action is required
in order to effect these articles of amendment) at a meeting duly called and
held on April 11, 1990:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Articles of
Incorporation, the Board of Directors hereby amends the Articles of
Incorporation so as to create a series of the special class of stock, $2.00 par
value per share, of the Corporation and hereby states the designation and
number of shares, and fixes the relative rights, preferences, and limitations
thereof as follows:
Series A Cumulative Participating Preferred Stock:
1. Designation and Amount. The shares of such series shall be designated
as "Series A Cumulative Participating Preferred Stock" (the "Series A
Preferred Stock") and the number
<PAGE> 2
of shares constituting the Series A Preferred Stock shall be
500,000. Such number of shares may be increased or decreased
by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
2. Dividends and Distributions.
(A) The holders of shares of Series A Preferred Stock,
in preference to the holders of Common Stock, $2.00
par value per share (the "Common Stock"), of the
Corporation, and of any other junior stock, shall
be titled to receive, when, an and if declared by
the Board of Directors out of funds legally
available for the purpose, quarterly dividends
payable in cash and the fifteenth day of March,
June, September and December in each year (each
such date being referred to herein and a "Quarterly
Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater
of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable
in shares of Common Stock of a subdivision of the
outstanding shares of Common Stock (by
reclassification or otherwise), declared on the
Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Data, since
the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event
the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding
shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares
of Common Stock), then in each such case the amount
to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event
under clause M of the preceding sentence shall be
adjusted by multiplying such amount by, a fraction,
the numerator of which is the number of shares of
Common Stock outstanding immediately after such
event and the denominator of which in the Owner of
shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as
provided in paragraph (A) of this Section
immediately after it declares a dividend or
distribution on the Common Stock (other than a
dividend payable in shares of Common Stock);
provided that, in the event no dividend or
distribution shall have been declared on the Common
Stock during the period between any
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<PAGE> 3
Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a
dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable an each
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Preferred Stock
from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the
record date for the first Quarterly Dividend
Payment Date, in which case dividends on such
shares shall begin to accrue from the date of Issue
of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of
shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may
fix a record date for the determination of holders
of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution
declared thereon, which record date shall be not
more than 50 days prior to the date fixed for the
payment thereof.
3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Each share of Series A Preferred Stock shall
entitle the holder thereof to one hundred votes on
all matters submitted to a vote of the stockholders
of the Corporation. In the event the Corporation
shall at any time declare or pay any dividend on
the Common Stock payable in shares of comma stock,
or effect a subdivision or combination or
consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock)
then in each such came, the number of votes to
which holders of shares of Series A Preferred Stock
were entitled to immediately prior to such event
shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of
shares of Common Stock Outstanding immediately
after such event and the denominator of which is
the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the
Articles of Incorporation, in any other Certificate
of Designations creating a series of Preferred
Stock or any similar stock, or by law, the holders
of shares of Common Stock and any other capital
stock of the Corporation having general voting
rights shall vote together as one class on all
matters submitted to a vote of stockholders of the
Corporation.
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<PAGE> 4
(C) Except as set forth herein, or as otherwise
provided by the Articles of Incorporation or by
law, holders of Series A Preferred Stock shall have
no special voting rights and their consent shall
not be required (except to the extent they are
entitled to vote with holders of Common stock as
not forth herein) for taking any corporate action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred
Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid
dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make
any other distributions on any
shares of stock ranking junior
(either as to dividends or upon
liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make
any other distributions, on any
shares of stock ranking on a parity
(either as to dividends or upon
liquidation, dissolution or winding
up) with the Series A Preferred
Stock, except dividends paid ratably
on the Series A Preferred Stock and
all such parity stock on which
dividends are payable or in arrears
in proportion to the total amounts
to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of
any stock ranking junior (either as
to dividends or upon liquidation,
dissolution or winding up) to the
Series A Preferred Stock, provided
that the Corporation may at any time
redeem, purchase or otherwise
acquire shares of any such junior
stock in exchange for shares of any
stock of the Corporation ranking
junior (either as to dividends and
upon dissolution, liquidation or
winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise
acquire for consideration any shares
of Series A Preferred Stock, or any
shares of stock ranking on a parity
with the Series A Preferred Stock,
except in accordance with the terms
of the Articles of Incorporation and
with a purchase offer made in
writing or by publication (as
determined by the Board of
Directors) to all holders of such
shares upon such terms as the Board
of Directors, after consideration of
the respective annual dividend rates
and other relative rights and
preferences of the respective series
and classes, shall determine in good
faith will result in fair and
equitable treatment among the
respective series or classes.
-4-
<PAGE> 5
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire
for consideration any shares of stock of the
Corporation unless the Corporation could, under
Paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred
Stock subject to the conditions and restrictions on Issuance met
forth herein, in the Articles of Incorporation, or in any other
Certificate of Designations creating a series of Preferred Stock
or any similar stock or as otherwise required by law.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution
shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall
have received $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, provided that the holders
of abates of Series A Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth equal to 100 times the
aggregate amount to be distributed per share to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking
on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock
and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or affect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such
case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property,
then in any such case each share of Series A Preferred Stock
shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment
-5-
<PAGE> 6
hereinafter set forth, equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding Immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
8. Ranking. The Series A Preferred Stock shall tank on a parity as
to dividends and upon liquidation, dissolution or winding up with
all other Preferred Stock issued by the Corporation.
9. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
10. Fractional Shares. The Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of shares of
Series A Preferred Stock.
-6-
<PAGE> 7
IN WITNESS WHEREOF, this Article of Amendment is executed on behalf of
the Corporation by its Vice President and Treasurer and attested by its
Assistant Secretary as of the 11th day of April, 1990.
-------------------------------------
Vice President and Treasurer
Attest:
- ---------------------
Assistant Secretary
-7-
<PAGE> 8
(Form of Right Certificate)
Certificate No. R- ____________ Rights
NOT EXERCISABLE AFTER APRIL 23, 2000 OR EARLIER IF NOTICE OF REDEMPTION
IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR ANY ASSOCIATES OR AFFILIATES THEREOF (AS SUCH TERMS
ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THE RIGHT
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO IS, WAS OR
BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN
ACQUIRING PERSON (AS THOSE TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL
AND VOID IN THE CIRCUMSTANCES SPECIFIED IN THE RIGHTS AGREEMENT.](1)
Right Certificate
AMERICAN REALTY TRUST, INC.
This certifies that _________________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of April 12, 1990 (the "Rights Agreement")
between American Realty Trust, Inc., a Georgia corporation (the "Company"), and
American Stock Transfer and Trust Company (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date and prior to 5:00 P.M.
(New York City time) on the Expiration Date (as such terms are defined in the
Rights Agreement) at the principal office or such other office of the Rights
Agent designated for such purpose, or of its successors as Rights Agent, one
one-hundredth of a fully-paid, nonassessable share of Series A Cumulative
Participating Preferred Stock, $2.00 par value per share (the "Preferred
Shares"), of the Company, at a purchase price of $25 per one one-hundredth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the appropriate Form of Election to Purchase Shares duly
- -------------------------
(1) The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE> 9
executed. The number of Rights evidenced by this Right Certificate (and the
number of shares which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, have been determined as of April 11,
1990.
As provided in the Rights Agreement, the Purchase Price and the number
of one one-hundredths of a Preferred Share or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain
events, and in certain circumstances may be exercised to purchase securities of
issuers other than the Company.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above mentioned office of the Rights
Agent and are available free of charge upon written request from the Rights
Agent at:
American Stock Transfer and Trust Company
99 Wall Street
New York, New York 10005
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent, may be exchanged for another Right
Certificate or Right Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of one one-hundredths
of a Preferred Share on the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive, upon surrender hereof, another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Right Certificate my be redeemed by the Company at its option at a
redemption price of $.01 per light (payable in cash, shares of Common Stock or
other consideration) appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof.
Subject to the provisions of the Rights Agreement, the Right evidenced
by this Right Certificate (and the Rights Agreement itself) may be amended by
action of the Company's Board of Directors.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth, which may, at the election of the Company, be
evidenced by depositary receipts), but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.
-2-
<PAGE> 10
No holder of this Right Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of Preferred
Shares or of any other securities of the Company which any at any time be
issuable an the exercise hereof, not shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been Countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of April 23, 1990.
ATTEST: AMERICAN REALTY TRUST, INC.
By: By:
-------------------------------- ----------------------------------
Secretary Title:
Countersigned:
AMERICAN STOCK TRANSFER AND TRUST
COMPANY
By:
--------------------------------
Authorized Signature
-3-
<PAGE> 11
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED ________________ hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
DATED: , 19__
---------------------
-------------------------------------
Signature
Signature Guaranteed:
-4-
<PAGE> 12
Certificate
The undesigned hereby certifies by checking the appropriate boxes that:
(1) this Right Certificate is not being sold, assigned and
transferred by or on behalf of a Person who in or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such term are defined
in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: , 19__
---------------
--------------------------------------
Signature
Signature Guaranteed:
NOTICE
The signature of the foregoing Assignment must correspond to the name as
written upon the face of this Right Certificate in every particular, without
alteration or enlargement or any change whatsoever.
-5-
<PAGE> 13
FORM OF ELECTION TO PURCHASE SHARES
(To be executed if holder desires to exercise the Right Certificate)
To American Realty Trust, Inc.:
The undersigned hereby irrevocably elects to exercise ________ Rights
represented by this Right Certificate to purchase the Preferred Shares (or such
other securities of the Company or any other person) and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of Such Rights
shall be registered in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- --------------------------------------------------------------------------------
(Please print name and address)
Dated: , 19__
---------------------
-------------------------------------
Signature
Signature Guaranteed:
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<PAGE> 14
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Right Certificate[ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it[ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: , 19__
--------------- ------------------------------
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase must correspond to
the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
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<PAGE> 1
EXHIBIT 3.4
Articles of Amendment to the Articles of
Incorporation of American Realty Trust, Inc.
Pursuant to the Unanimous Written Consent of the Board of Directors of
American Realty Trust, Inc. (the "Corporation") dated October 29, 1990 and the
approval by holders of a majority of the outstanding shares of common stock of
the Corporation at the Corporation's annual meeting held on December 5, 1990,
such shareholder approval being in accordance with Section 14-2-1003 of the
Georgia Business Corporation Code, the Articles of Incorporation of the
Corporation, as previously amended to the date hereof, are hereby further
amended by deleting the first paragraph of Article Five in its entirety and
replacing it with the following:
The Corporation shall have authority exercisable by its
Board of Directors to issue not more than 16,666,667
shares of common voting stock, $.0l 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 shall be designated as the Board of
Directors may determine and which may be issued in series
by the Board of Directors as hereinafter provided.
Preferences, limitations, and relative rights with respect
to the shares of each class of stock of the Corporation
shall be as hereinafter set forth:
The foregoing amendment with respect to the Common Stock of the
Corporation was approved to effect a one-for-three reverse split of the
Corporation's shares of Common Stock, $2.00 par value per share, and a
reduction in the par value of each share of the Corporation's Common Stock to
$.01 per share. Such reverse split and par value reduction will be implemented
by requiring each holder of shares of Common Stock, $2.00 par value per share,
to exchange his or her certificates representing such shares for new
certificates representing one share of Common Stock, $.0l par value per share,
on the basis of three shares of Common stock, $2.00 par
<PAGE> 2
value per share, for one share of Common Stock, $.0l par value per share.
Shareholders who would otherwise be entitled to receive fractional shares of
Common Stock, $.0l par value per share, will receive cash in lieu thereof,
computed at the average of the mean of the high and low closing prices of the
Common Stock, $2.00 par value per share, as reported on the New York Stock
Exchange Composite Tape for the 15 trading days immediately preceding the
effective date of this Amendment.
The foregoing amendment to Article Five shall be effective at the close
of business on December 10, 1990.
IN WITNESS WHEREOF, I have hereunto set my hand.
--------------------------------
William S. Friedman
Vice President, Treasurer and
Acting Chief Financial Officer
American Realty Trust, Inc.
<PAGE> 1
EXHIBIT 3.5
AMENDED BY-LAWS
OF
AMERICAN REALTY TRUST, INC.
December 11, 1991
<PAGE> 2
AMENDED BY-LAWS
OF
AMERICAN REALTY TRUST, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE - OFFICES
Section 1.1 Registered Office and Agent 1
Section 1.2 Other Offices 1
ARTICLE TWO - SHAREHOLDERS' MEETINGS
Section 2.1 Place of Meetings 1
Section 2.2 Annual Meetings 1
Section 2.3 Special Meetings 1
Section 2.4 Notice of Meetings 1
Section 2.5 Quorum 2
Section 2.6 Voting of Shares 2
Section 2.7 Vote Required 2
Section 2.8 Proxies 2
Section 2.9 Presiding Officer 3
Section 2.10 Adjournments 3
Section 2.11 Action of Shareholders 3
Without a Meeting
ARTICLE THREE - THE BOARD OF DIRECTORS
Section 3.1 General Powers 3
Section 3.2 Number, Election and Term of Office 4
Section 3.3 Removal 4
Section 3.4 Vacancies 4
Section 3.5 Compensation - 4
Section 3.6 Committees of the Board of Directors 4
Section 3.7 Classes of Directors 5
ARTICLE FOUR - MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Regular Meetings 5
Section 4.2 Special Meetings 5
Section 4.3 Place of Meetings 5
Section 4.4 Notice of Meetings 5
Section 4.5 Quorum 5
Section 4.6 Vote Required for Action 6
Section 4.7 Participation by Conference Telephone 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.8 Action by Directors Without a Meeting 6
Section 4.9 Adjournments 6
ARTICLE FIVE - NOTICE AND WAIVER
Section 5.1 Procedure 6
Section 5.2 Waiver 7
ARTICLE SIX - OFFICERS
Section 6.1 Offices 7
Section 6.2 Election and Term 7
Section 6.3 Compensation 7
Section 6.4 Removal 7
Section 6.5 Chairman of the Board 8
Section 6.6 President 8
Section 6.7 Vice Presidents 8
Section 6.8 Secretary 8
Section 6.9 Treasurer 8
Section 6.10 Assistant Secretaries and Assistant
Treasurers 8
Section 6.11 Bonds 9
Section 6.12 Reimbursement by Officers 9
ARTICLE SEVEN - DIVIDENDS 9
ARTICLE EIGHT - SHARES
Section 8.1 Authorization and Issuance of Shares 9
Section 8.2 Share Certificates 10
Section 8.3 Rights of Corporation with Respect to
Register Transfer 10
Section 8.4 Transfers of Shares 10
Section 8.5 Duty of Corporation to Register
Transfer 10
Section 8.6 Lost, Stolen or Destroyed Certificates 11
Section 8.7 Fixing of Record Date 11
Section 8.8 Record Date if None Fixed 11
ARTICLE NINE - RELATED PARTY TRANSACTIONS
Section 9.1 Interested Directors and Officers 12
ARTICLE TEN - INDEMNIFICATION
Section 10.1 Indemnification of Directors 12
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 10.2 Indemnification of Officers and
Others 13
Section 10.3 Subsidiaries and Other
Organizations 13
Section 10.4 Determination 14
Section 10.5 Advances 14
Section 10.6 Non-Exclusivity 15
Section 10.7 Insurance 15
Section 10.8 Notice 15
Section 10.9 Security 15
Section 10.10 Amendment 16
Section 10.11 Agreements 16
Section 10.12 Continuing Benefits 16
Section 10.13 Successors 16
Section 10.14 Severability 17
Section 10.15 Additional Indemnification 17
ARTICLE ELEVEN - MISCELLANEOUS
Section 11.1 Inspection of Books and Records 17
Section 11.2 Fiscal Year 17
Section 11.3 Seal 17
ARTICLE TWELVE - AMENDMENTS
Section 12.1 Power to Amend by-laws 17
Section 12.2 Vote Required 18
</TABLE>
<PAGE> 5
AMENDED BY-LAWS
OF
AMERICAN REALTY TRUST, INC.
ARTICLE ONE
Offices
1.1 Registered Office and Agent. The Corporation will maintain a
registered office and will have a registered agent whose business office is
identical with such registered office.
1.2 Other Offices. In addition to its registered office, the
Corporation may have offices at such other place or places, within or without
the State of Georgia, as the Board of Directors may from time to time appoint
or as the business of the Corporation may require or make desirable.
ARTICLE TWO
Shareholders' Meetings
2.1 Place of Meetings. Meetings of the shareholders may be held at any
place within or without the State of Georgia as set forth in the notice
thereof, or if no place is so specified, at the registered office of the
Corporation.
2.2 Annual Meetings. The annual meeting of the shareholders will be
held on a date and at a time following the end of the corporation's fiscal year
as may be determined by the Board of Directors, for the purpose of electing
directors and transacting any and all business that may properly come-before
the meeting. The annual meeting may be combined with any other meeting of
shareholders, whether annual or special.
2.3 Special Meetings. Special meetings of the shareholders may be
called at any time by the Chairman of the Board, the President or the Board of
Directors; and shall be called by the Corporation upon the written request of
the holders of twenty-five per cent (25%) or more of all the shares of capital
stock of the Corporation entitled to vote in an election of directors.
2.4 Notice of Meetings. Unless waived as provided in Section 5.2,
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<PAGE> 6
a written or printed notice of each shareholders' meeting stating the place,
date and time of the meeting will be- delivered either personally or by mail to
each shareholder of record entitled to vote at such meeting, by or at the
direction of the Chairman of the Board, the President, the Secretary, or the
officer or persons calling the meeting, not less than ten (10) days nor more
than fifty (50) days before the meeting date. In the case of an annual meeting,
the notice of the meeting need not state the purpose or purposes of the
meeting. In the case of a special meeting, the notice of meeting will state
the purpose or purposes for which the meeting is called.
2.5 Quorum. At all meetings of the shareholders the holders of more
than one-half of the shares outstanding and entitled to vote, present in person
or by proxy, will constitute a quorum. The shareholders at a meeting at
which a quorum is once present may continue to transact business at the meeting
or at any adjournment thereof, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
2.6 Voting of Shares. A holder of common stock will be entitled to one
vote for each share held on each matter submitted to a vote at a meeting of
shareholders. A holder of special stock will have such voting rights, if any,
specified in the articles of incorporation and the Board of Directors
resolution designating the applicable series of special stock, or by law.
Voting on all matters will be by voice vote or by show of hands unless any
qualified voter, prior to the voting on any matter, demands vote by ballot, in
which case each ballot will state the name of the shareholder voting and the
number of shares voted by him, and if such ballot be cast by proxy, it will
also state the name of such proxy.
2.7 Vote Required. If a quorum is present, the vote of the holders
of the majority of the shares outstanding and entitled to vote that are
represented at the meeting will determine any matter coming before the meeting
unless a different vote is required by the Georgia Business Corporation
Code, by the articles of incorporation or by these by-laws.
2.8 Proxies. A shareholder entitled to vote pursuant to Section 2.6
may vote in person or by proxy executed in writing by the shareholder or by his
attorney-in-fact. A proxy will not be valid after eleven (11) months from the
date of its execution, unless a longer period is expressly stated herein. If
the validity of any
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<PAGE> 7
proxy is questioned it must be submitted to the secretary of the shareholders'
meeting for examination or to a proxy officer or committee appointed by the
person presiding at the meeting. The secretary of the meeting or, if appointed,
the proxy officer or committee will determine the validity or invalidity of any
proxy submitted and reference by the secretary in the minutes of the meeting to
the regularity of a proxy will be received as prima facie evidence of the facts
stated for the purpose of establishing the presence of a quorum at such meeting
and for all other purposes.
2.9 Presiding Officer. The Chairman of the Board (or another director
or officer selected by the Board of Directors) will serve as the chairman of
every shareholders' meeting unless some other person is elected by the
shareholders to serve as chairman. The chairman of the meeting will appoint
such persons as he deems required to assist with the meeting.
2.10 Adjournments. The holders of the majority of the voting shares
represented at a meeting, whether or not a quorum is present, may adjourn any
meeting to reconvene at a specific time and place. It will not be necessary
to give any notice of the reconvened meeting or of the business to be
transacted if the time and place of the reconvened meeting are announced at the
meeting that was adjourned.
2.11 Action of Shareholders Without a Meeting. Any action required or
allowed by the Georgia Business Corporation Code to be taken at a meeting of
the shareholders (whether annual or special), may be taken without a meeting if
written consent, setting forth the action to be taken, is signed by all
shareholders entitled to vote with respect to the subject matter thereof. Such
action may be taken without a meeting by less than unanimous written consent if
and in the manner provided for in the articles of incorporation. If action is
taken without a meeting by less than unanimous written consent, notice shall be
given within ten (10) days of the taking of such action to those shareholders
on the record date whose shares were not represented on the written consent.
For purposes of written consent by the shareholders, the record date
shall be the date when the consent is first executed and action shall be deemed
taken when executed by the last necessary signature. A consent given as
provided in this Section 2.11 will have the same force and effect as a vote at
a meeting of the shares represented on the executed consent called for the
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<PAGE> 8
purpose of considering the action authorized. No consent will be effective as
an approval of a plan of merger or consolidation unless in accordance with
applicable provisions of the Georgia Business Corporation Code.
ARTICLE THREE
The Board of Directors
3.1 General Powers. The business and affairs of the Corporation will
be managed by the Board of Directors. In addition to the powers and authority
expressly conferred upon it by these by-laws, the Board of Directors may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law, by any legal agreement among shareholders, by the
articles of incorporation or by these by-laws directed or required to be
exercised or done by the shareholders.
3.2 Number, Election and Term of Office. The number of directors of
the Corporation shall not be less than three (3) nor more than nine (9). The
number of directors may be decreased (if there is more than one director) or
increased from time to time by the Board of Directors by amendment of this
by-law, but no decrease will have the effect of shortening the term of an
incumbent director. Except as provided herein and in Section 3.4, the directors
whose terms have expired will be elected at each annual meeting of the
shareholders, or at a special meeting of shareholders called for purposes that
include the election of directors. Election of directors shall be by a
plurality of the shares voted at any meeting of the shareholders at which a
quorum is present and voting. Subject to the provisions of Section 3.7 of the
by-laws, each director, except in case of death, resignation, retirement,
disqualification, or removal, will serve for a term of three (3) years, until
the third succeeding meeting at which directors are elected and thereafter
until his successor has been elected and has qualified.
3.3 Removal. The entire Board of Directors or any individual director
may be removed from office with or without cause by the vote of the holders of
two-thirds of all of the shares of common stock entitled to vote at an election
of directors (unless applicable special stock provisions dictate otherwise).
Removal action may be taken at any shareholders' meeting with respect to which
notice of such purpose has been given, and a removed director's successor may
be elected at the same meeting to serve the un-expired term.
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<PAGE> 9
3.4 Vacancies. A vacancy occurring in the Board of Directors,
including vacancies occurring by reason of an increase in the number of
directors or by the removal of a director, may be filled for the un-expired
term and thereafter until the shareholders shall have elected a successor, by
the vote of a majority of the directors remaining in office.
3.5 Compensation. Directors may receive such compensation for their
services as directors as may from time to time be fixed by vote of the Board of
Directors or of the shareholders. A director may also serve the Corporation in
a capacity other than that of director and receive compensation, as determined
by the Board of Directors, for services rendered in such other capacity.
3.6 Committees of the Board of Directors. The Board of Directors by
resolution adopted by a majority of the full Board of Directors may designate
from among its members an executive committee and one or more other standing or
ad hoc committees, each-consisting of two or more directors. Except as
prohibited by law, each committee will have the authority set forth in the
resolution establishing such committee.
3.7 Classes of Directors. The Board of Directors shall consist of
three classes of directors, each of which shall have as nearly equal a number
of directors as possible. One class of directors shall be elected in each year.
The initial Class I directors shall serve until the third succeeding annual
shareholders' meeting. The initial Class II directors shall serve until the
next annual shareholders' meeting. The initial Class III directors shall serve
until the second succeeding annual shareholders' meeting. Commencing with the
annual meeting to be held in 1990 and at each annual meeting thereafter, only
the class of directors whose term expires at that annual meeting will be
elected. Such directors will be elected for a term of three years and until
their successors are elected and qualified.
ARTICLE FOUR
Meetings of the Board of Directors
4.1. Regular Meetings. Regular meetings of the Board of Directors
shall be held immediately after each annual meeting of the shareholders or any
meeting held in lieu thereof. In addition, the Board of Directors may schedule
other meetings to be held at regular intervals throughout the year.
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<PAGE> 10
4.2 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the President, or
any two directors in office at that time.
4.3 Place of Meetings. Directors may hold their meetings at any place
within or without the State of Georgia as the Board of Directors may from time
to time establish for regular meetings, or as set forth in the notice of
special meetings or (if such notice does not set forth a meeting place) at the
registered office of the Corporation.
4.4 Notice of Meetings. No notice will be required for any scheduled
regular meeting of the Board of Directors. Unless waived as provided in Section
5.2, if a special meeting has been called pursuant to Section 4.2, any officer
or director will give notice to each director of the special meeting stating
the date, time and place of the meeting. Such notice will be given either (a)
by mailing a notice of the meeting not later than the fifth day immediately
preceding the date of the meeting, or (b) by telephone, telegram, cablegram,
telecommunication, teletype, facsimile transmission or personal delivery not
later than the second day immediately preceding the date of the meeting.
4.5 Quorum. At meetings of the Board of Directors, a majority of the
directors then in office will constitute a quorum for the transaction of
business. If a quorum is not present at any meeting of directors, the directors
present may adjourn the meeting from time to time until a quorum is present,
without notice of the time and place that the meeting will be reconvened other
than announcement at the adjourned meeting.
4.6 Vote Required for Action. The vote of a majority of the
directors present and voting at the time of the vote, if a quorum is present at
the time, will be the act of the Board of Directors, unless the vote of a
greater number is required by the Georgia Business Corporation Code, the
articles of incorporation or these by-laws.
4.7 Participation by Conference Telephone. Members of the Board of
Directors, or members of any committee designated by the Board of Directors,
may participate in a meeting of the Board or of such committee by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can
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<PAGE> 11
hear each other. Participation in a meeting pursuant to this Section 4.7 will
constitute presence in person at such meeting.
4.8 Action by Directors Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any action
that may -be taken at a meeting of a committee of directors may be taken
without a meeting if a written consent, setting forth the action so taken, is
signed by all the directors, or all the members of the committee, as the case
may be, and filed with the minutes of the proceedings of the Board or the
committee. Such consent will have the same force and effect as a unanimous
vote of the Board of Directors or the committee.
4.9 Adjournments. A meeting of the Board of Directors, whether or not
a quorum is present, may be adjourned by a majority of the directors present to
reconvene at a specific time and place. It shall not be necessary to give
notice of the reconvened meeting or of the business to be transacted, other
than by announcement at the meeting that was adjourned. At any such reconvened
meeting at which a quorum is present, any business may be transacted that could
have been transacted at the meeting that was adjourned.
ARTICLE FIVE
Notice and Waiver
5.1 Procedure. Whenever these Bylaws require notice to be given to any
shareholder or director, the notice will be given as prescribed in Section 2.4
or 4.4, respectively. Whenever notice is given to a shareholder or director by
mail, the notice will be sent first class mail (or other United States mail in
the case of notices to shareholders if there are more than 500 shareholders
entitled to vote and if the notice is mailed not less than 30 days before the
meeting date) by depositing the notice in a post office or letter box in a
postage prepaid sealed envelope addressed to the shareholder or director at his
address as it appears on the books of the Corporation, and such notice will be
deemed to have been given at the time it is deposited in the mail. Notice will
be deemed to have been given by telegram or cablegram at the time notice is
filed with the transmitting agency.
5.2 Waiver. Notwithstanding Section 2.4 and 4.4, notice of a meeting
need not be given to any person who signs a waiver of notice either before or
after the meeting. Attendance at a meeting
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<PAGE> 12
will constitute a waiver of notice of such meeting and a waiver of any and all
objections to the place of the meeting, the time of the meeting, or the manner
in which the meeting has been called or convened, except where the person
states, at the beginning of the meeting, any such objection or objections to
the transaction of business.
ARTICLE SIX
Officers
6.1 Offices. The officers of the Corporation will be a President, a
Secretary and a Treasurer, each of whom will be elected or appointed by the
Board of Directors. The Board of Directors may also elect or appoint a Chairman
of the Board from among its members. The Board of Directors or the President
may from time to time create-and establish the duties of other officers and
elect or appoint other officers as it or he deems necessary for the efficient
management of the Corporation, including one or more Vice Presidents, one or
more Assistant Secretaries and one or more Assistant Treasurers. Any two or
more offices may be held by the same person, except the offices of President
and Secretary.
6.2 Term. Each officer will serve at the will of the Board of
Directors (or the President, if the President appointed such officer) and until
his successor has been elected and has qualified or until his earlier death,
resignation, removal, retirement or disqualification.
6.3 Compensation. The compensation of all officers of the
Corporation will be fixed by the Board of Directors or by a committee or
officer appointed by the Board of Directors. Officers may serve without
compensation.
6.4 Removal. Any officer (regardless of how elected or appointed) may
be removed by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby; and any officer appointed
by the President may be removed by the President whenever in his judgment the
best interests of the Corporation will be served thereby. Removal will be
without prejudice to the contract rights, if any, of the person removed.
6.5 Chairman of the Board. The Chairman of the Board (if there be one)
will call to order meetings of the shareholders and of the Board of Directors,
and will act as chairman of such meetings
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(unless another person is selected under Section 2.9 to act as chairman). The
Chairman of the Board will perform such other duties and have such other
authority as may from time to time be delegated by the Board of Directors.
6.6 President. In the absence of the Chairman of the Board, the
President shall perform the duties and exercise the powers of the Chairman of
the Board, specified in these by-laws. The President shall perform such other
duties and have such other powers as the Board of Directors may determine from
time to time.
6.7 Vice Presidents. The Vice President (if there be one) will, in the
absence or disability of the President, or at the direction of the Chairman of
the Board or the President, perform the duties and exercise the powers, whether
such duties and powers are specified in these by-laws or otherwise, of the
President. If the Corporation has more than one Vice President, the one
designated by the Board of Directors, the Chairman of the Board, or the
President will act in lieu of the President. Vice Presidents will perform such
other duties and have such other authority as may from time to time be
delegated by the Board of Directors or the President.
6.8 Secretary. The Secretary will be responsible for keeping accurate
records on the acts and proceedings of all meetings of shareholders, directors
and committees of directors. The Secretary will have authority to give all
notices required by law or these Bylaws. The Secretary will be responsible for
the custody of the corporate books, records, contracts and other documents.
The Secretary may affix the corporate seal to any lawfully executed documents
requiring it and will sign such instruments as may require the Secretary's
signature. The Secretary will perform such other duties and have such other
authority as may from time to time be delegated by the Board of Directors or
the President.
6.9 Treasurer. The Treasurer will be responsible for the custody of
all funds and securities belonging to the Corporation and for the receipt,
deposit or disbursement of such funds and securities under the direction of the
Board of Directors. The Treasurer will cause full and true accounts of all
receipts and disbursements to be maintained and will make such reports of the
same to the Board of Directors and President upon request. The Treasurer will
perform such other duties and have such other authority as may from time to
time be delegated by the Board of Directors or the President.
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<PAGE> 14
6.10 Assistant Secretaries and Assistant Treasurers. The Board of
Directors and the President each may appoint one or more persons to serve as
Assistant Secretary or Assistant Treasurer, or both. The Assistant Secretary
and Assistant Treasurer (or if there be more than one of either such officer,
the one so designated by the Board of Directors or the President) will, in the
absence or disability, or at the direction, of the Secretary or the Treasurer,
respectively, perform the duties and exercise the authority of those offices.
Each Assistant Secretary may affix the corporate seal to all necessary
documents and attest the signature of any officer of the Corporation. Each
Assistant Secretary and Assistant Treasurer will perform such other duties and
have such other authority as may from time to time be delegated by the Board of
Directors or the President.
6.11 Bonds. The Board of Directors may by resolution require any or
all of the officers, agents or employees of the Corporation to give bonds to
the Corporation, with sufficient surety or sureties, conditioned on the
faithful performance of the duties of their respective offices or positions,
and to comply with such other conditions as may from time to time be required
by the Board of Directors.
6.11 Reimbursement by Officers. Any payment made to an officer of the
Corporation, such as salary, commission, bonus, interest, rent or reimbursement
of expenses incurred by him, that is disallowed in whole or in part as a
deductible expense by the Internal Revenue Service, will be reimbursed by such
officer to the Corporation to the full extent of such disallowance. It will be
the duty of the Board of Directors to enforce payment of each such amount
disallowed. In lieu of payment by the officer, subject to the determination
of the Board of Directors, proportionate amounts may be withheld from such
officer's future compensation payments until the amount owed to the Corporation
has been recovered.
ARTICLE SEVEN
Dividends
Dividends upon the capital stock of the Corporation may be declared
by the Board of Directors, payable in cash, in property or in shares of the
corporation.
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ARTICLE EIGHT
Shares
8.1 Authorization and Issuance of Shares. The par value and the
maximum number of shares of any class of the Corporation that may be issued and
outstanding will be set forth from time to time in the articles of
incorporation of the Corporation. The Board of Directors may increase or
decrease the number of issued and outstanding shares of any class of the
Corporation's stock within the maximum authorized by the articles of
incorporation and the minimum requirements of the articles of incorporation or
Georgia law.
8.2 Share Certificates. The interest of each shareholder in the
Corporation will be evidenced by a certificate or certificates representing
shares of the Corporation which will be in such form as the Board of Directors
may from time to time adopt. Share certificates will be consecutively
numbered, will be in registered form, and will indicate the date of issue, and
all such information will be entered on the Corporation's books. Each
certificate will be signed by the Chairman of the Board, the President, or Vice
President and the Secretary or an Assistant Secretary and will be sealed with
the seal of the Corporation or a facsimile thereof; provided, however, that
where such certificate is signed by a transfer agent, or registered by a
registrar, the signatures of such officers may be facsimiles. In case any
officer or officers who has signed or whose facsimile signatures has been
placed upon a share certificate has ceased for any reason to be such officer or
officers of the Corporation before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if the person or
persons who signed such certificate or whose facsimile signatures has been used
thereon had not ceased to be such officer or officers.
8.3 Rights of Corporation with Respect to Registered Owners. Prior to
due presentation for transfer of registration of its shares, the Corporation
may treat the registered owner of the shares as the person exclusively entitled
to vote such shares, to receive any dividend or other distribution with respect
to such shares, and for all other purposes; and the Corporation will not be
bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, whether or not it has express or other notice
thereof, except as otherwise provided by law.
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8.4 Transfers of Shares. Transfers of shares of the Corporation will
be made in the share records of the Corporation only by the written direction
of the person named in the certificate or by his attorney (authorized by duly
executed power of attorney filed with the Secretary of the Corporation) or his
legal representative (who will furnish proper evidence of authority to transfer
such shares), and upon surrender of the certificate or certificates for such
shares properly endorsed (or accompanied by a properly endorsed instrument of
transfer) and subject to such other reasonable conditions and requirements as
may be required by the Corporation. The Corporation shall maintain at its
principal place of business or registered office a record of the names and
addresses of its shareholders and the number of shares held by each.
8.5 Duty of Corporation to Register Transfer. Notwithstanding any of
the provisions of Section 8.4 of these by-laws, the Corporation is under a duty
to register the transfer of its shares only if:
(a) the share certificate is endorsed by the appropriate person or persons;
(b) reasonable assurance is given that the endorsements are genuine and
effective;
(c) the Corporation has no duty to inquire into adverse claims or has
discharged any such duty;
(d) any applicable law relating to the collection of taxes has been complied
with;
(e) the transfer is in fact rightful or is to a bona fide purchaser; and
(f) the transfer is in compliance with applicable provisions of state and
federal securities laws and of any restrictive legends relating to such
laws that appear on the share certificate.
8.6 Lost, Stolen or Destroyed Certificates. Any person claiming a
share certificate to be lost, stolen or destroyed will make an affidavit or
affirmation of the fact in such manner as the Board of Directors may require
and will, if the Board of Directors so requires, give the corporation a bond of
indemnity in form and amount, and with one or more sureties satisfactory to the
Board of Directors, as the Board of Directors may require, whereupon an
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appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
8.7 Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may fix in advance a date as the record date, such date to
be not more than 50 days (and, in the case of a shareholders' meeting, not less
than 10 days) prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
8.8 Record Date if None Fixed. Except as otherwise provided in these
Bylaws, if no record date is fixed as provided in Section 8.7, then the record
date for any determination of shareholders that may be proper or required by
law will be: the date on which notice is mailed, in the case of a shareholders'
meeting; the date on which the Board of Directors adopts a resolution declaring
a dividend, in the case of a payment of a dividend; and the date on which any
other action, the consummation of which requires a determination of
shareholders, is to be taken.
ARTICLE NINE
Related Party Transactions
9.1 Interested Directors and Officers. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or void-able
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if:
(a) The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the Board or the committee, and
the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors constitute less than
a quorum; or
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(b) The material facts as to his interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to
vote thereon, and the contract or transaction is specifically approved or
ratified in good faith by vote of such shareholders; or
(c) The contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified by the Board, a committee thereof,
or the shareholders.
Interested directors may be counted in determining the presence of a
quorum at a meeting of the Board or committee thereof which authorizes the
contract or transaction.
ARTICLE TEN
Indemnification
10.1 Indemnification of Directors. The Corporation shall indemnify and
hold harmless any person (an "Indemnified Person") who is or was a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the Corporation) by reason
of the fact that he is or was a director of the Corporation, against expenses
(including, but not limited to, attorneys' fees and disbursements, court costs
and expert witness fees), and against any judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding; provided, that no indemnification shall be made in
respect of expenses, judgments, fines and amounts paid in settlement
attributable to circumstances as to which under applicable provisions of the
Georgia Business Corporation Code as in effect from time to time, such
indemnification may not be authorized by action of the shareholders or
otherwise.
10.2 Indemnification of Officers and Others. The Board of Directors
shall have the power to cause the Corporation to provide to any person who is
or was an officer, employee, or agent of the Corporation all or any part of the
right to indemnification and other rights of the type provided under Sections
10.1, 10.5 and 10.11 of this Article Ten (subject to the conditions,
limitations and obligations specified therein), upon a resolution to that
effect identifying such officer, employee or agent (by position or name) and
specifying the particular rights provided, which may be
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different for each officer, employee or agent identified. Each officer,
employee or agent of the Corporation so identified shall be an "Indemnified
Person" for purposes of the provisions of this Article Ten.
10.3 Subsidiaries and Other Organizations. The Board of Directors shall
have the power to cause the Corporation to provide to any person who is or was
a director, officer, employee or agent of the Corporation who also is or was a
director, officer, trustee, general partner, employee or agent of a Subsidiary
(as defined below), or is or was serving at the Corporation's request in such a
position with any other organization, all or any part of the right to
indemnification and other rights of the type provided under Sections 10.1, 10.5
and 10.11 of this Article Ten (subject to the conditions, limitations and
obligations specified therein), with regard to amounts actually and reasonably
incurred by such person in connection with any threatened, pending or completed
action, suit, or proceeding by reason of the fact that he is or was a director,
officer, trustee, partner, employee or agent. The Board of Directors shall
exercise such power, if at all, through a resolution identifying the person or
persons to be indemnified (by position or name) and the Subsidiary or other
organization (by name or other classification), and specifying the particular
rights provided, which may be different for each of the directors, officers,
trustees, employees, partners and agents identified. Each person so identified
shall be an "Indemnified Person" for purposes of the provisions of this Article
Ten. As used in this Article Ten, "Subsidiary" shall mean (i) another
corporation, joint venture, trust, partnership or Un-incorporated business
association more than twenty percent (20%) of the voting capital stock or other
voting equity interest of which was, at or after the time the circumstances
giving rise to such action, suit or proceeding arose, owned, directly or
indirectly, by the Corporation, or (ii) a nonprofit corporation which receives
its principal financial support from the corporation or its subsidiaries.
10.4 Determination. Notwithstanding any judgment, order, settlement,
conviction or plea in any action, suit or proceeding of the kind referred to in
Section 10.1 of this Article Ten, an Indemnified Person shall be entitled to
indemnification as provided in such Section 10.1 unless a determination that
such Indemnified Person is not entitled to such indemnification shall be made
(i) by the Board of Directors by a majority vote of a quorum consisting of
directors who are not seeking the benefits of such indemnification; or (ii) if
such quorum is not obtainable, or, even if obtainable if
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a quorum of such disinterested directors so directs, in a written opinion by
independent legal counsel (which counsel may be the outside legal counsel
regularly employed or retained by the Corporation); or (iii) if a quorum cannot
be obtained under (i) above and in the absence of a written opinion by
independent legal counsel, by majority vote or consent of a committee duly
designated by the Board of Directors (in which designation interested
'directors may participate), consisting solely of one or more directors who are
not seeking the benefit of such indemnification. Provided, however, that
notwithstanding any determination pursuant to the preceding sentence, if such
determination shall have been made at a time that the members of the Board of
Directors, so serving when the events upon which such Indemnified Person's
liability has been based occurred, no longer constitute a majority of the
members of the Board of Directors, then such Indemnified Person shall
nonetheless be entitled to indemnification as set forth in such Section 10.1
unless the Corporation shall carry the burden of proving, in an action before
any court of competent jurisdiction, that such Indemnified Person is not
entitled to indemnification.
10.5 Advances. Expenses (including, but not limited to, attorneys'
fees and disbursements, court costs, and expert witness fees) incurred by the
Indemnified Person in defending any action, suit or proceeding of the kind
described in Section 10.1 hereof (or in Section 10.3 hereof if applicable to
such Indemnified Person) shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as set forth herein.
The Corporation shall promptly pay the amount of such expenses to the
Indemnified Person, but in no event later than ten (10) days following the
Indemnified Person's delivery to the Corporation of a written request for an
advance pursuant to this Section 10.5, together with a reasonable accounting of
such expenses; provided, that the Indemnified Person shall undertake and agree
to repay to the Corporation any advances made pursuant to this Section 10.5 if
it shall be determined pursuant to Section 10.4 that the Indemnified Person
is not entitled to be indemnified by the Corporation for such amounts. The
Corporation shall make the advances contemplated by this Section 10.5
regardless of the Indemnified Person's financial ability to make repayment. Any
advances and undertakings to repay pursuant to this Section 10.5 shall be
unsecured and interest-free.
10.6 Non-Exclusivity. The indemnification and advancement of
expenses provided by or granted pursuant to this Article Ten shall
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not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
resolution or agreement either specifically or in general terms approved by the
affirmative vote of holders of a majority of the shares entitled to vote
thereon, taken at a meeting, the notice of which specified that such by-law,
resolution, or agreement would be placed before the shareholders, both as to
action by a director, officer, employee, or agent in his official capacity and
as to action in another capacity while holding such office or position, except
that no such other rights, in respect to indemnification or otherwise, may be
provided or granted to a director, officer, employee, or agent pursuant to this
Section 10.6 by the Corporation with respect to circumstances as to which,
under applicable provisions of the Georgia Corporation Business Code as in
effect from time to time, indemnification may not be authorized by action of
the shareholders or otherwise.
10.7 Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or who is or was serving at the request
of the Corporation as a director, officer, trustee, partner, employee or agent
of a Subsidiary or of any other organization, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article Ten.
10.8 Notice. If any expenses or other amounts are paid by way of
indemnification, otherwise than by court order or action by the shareholders or
by an insurance carrier pursuant to insurance maintained by the Corporation,
the Corporation shall, not later than the next annual meeting of shareholders,
unless such meeting is held within three (3) months from the date of such
payment, and in any event, within fifteen (15) months from the date of such
payment, send by first class mail to its shareholders of record at the time
entitled to vote for the election of directors a statement specifying the
persons paid, the amount paid and the nature and status at the time of such
payment of the litigation or threatened litigation.
10.9 Security. The Corporation may designate certain of its assets as
collateral, provide self-insurance or otherwise secure its obligations under
this Article Ten, or under any indemnification agreement or plan of
indemnification adopted and entered into in
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accordance with the provisions of this Article Ten, as the Board of Directors
deems appropriate.
10.10 Amendment. Any amendment to this Article Ten which limits or
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to claims, actions, or proceedings based on
actions, events or omissions (collectively, "Post Amendment Events") occurring
after such amendment and after delivery of notice of such amendment to the
Indemnified Person so affected. Any Indemnified Person shall, as to any claim,
action, suit or proceeding based on actions, events or omissions occurring
prior to the date of receipt of such notice, be entitled to the right of
indemnification, advancement of expenses and other rights under this Article
Ten to the same extent as had such provisions continued as part of the by-laws
of the Corporation without such amendment. This Section 10.10 cannot be
altered, amended or repealed in a manner effective as to any Indemnified Person
(except as to Post Amendment Events) without the prior written consent of such
Indemnified Person. The Board of Directors may not alter, amend or repeal
any provision of this Article Ten in a manner that extends or enlarges the
right of any person to indemnification or advancement of expenses hereunder,
except with the approval of the holders of a majority of all the shares of
capital stock of the Corporation entitled to vote thereon at a meeting called
for such purpose.
10.11 Agreements. The provisions of this Article Ten shall be deemed
to constitute an agreement between the Corporation and each person entitled to
indemnification hereunder. In addition to the rights provided in this Article
Ten, the Corporation shall have the power, upon authorization by the Board of
Directors, to enter into an agreement or agreements providing to any person who
is or was a director, officer, employee or agent of the Corporation
indemnification rights substantially similar to those provided in this Article
Ten.
10.12 Continuing Benefits. The indemnification and advancement of
expenses provided by or granted pursuant to this Article Ten shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
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10.13 Successors. For purposes of this Article Ten, the terms "the
Corporation" or "this Corporation" shall include any Corporation, joint
venture, trust, partnership or un-incorporated business association which is
the successor to all or substantially all of the business or assets of this
corporation, as a result of merger, consolidation, sale, liquidation or
otherwise, and any such successor shall be liable to the persons indemnified
under this Article Ten on the same terms and conditions and to the same extent
as this Corporation.
10.14 Severability. Each of the Sections of this Article Ten, and
each of the clauses set forth therein, shall be deemed separate and
independent, and should any part of any such Section or clause be declared
invalid or unenforceable by any court of competent jurisdiction such invalidity
or un-enforceability shall in no way render invalid or unenforceable any other
part thereof or any other separate Section or clause of this Article Ten which
is not declared invalid or unenforceable.
10.15 Additional Indemnification. In addition to the specific
indemnification rights set forth herein, the Corporation shall indemnify each
of its directors and officers to the full extent permitted by action of the
Board of Directors without shareholder approval under the Georgia Business
Corporation Code or other laws of the State of Georgia as in effect from time
to time.
ARTICLE ELEVEN
Miscellaneous
11.1 Inspection of Books and Records. The Board of Directors will have
the power to determine which accounts, books and records of the Corporation
will be opened to the inspection of shareholders, except such as may by law be
specifically open to inspection, and will have power to fix reasonable rules
and regulations not in conflict with the applicable law for the inspection of
accounts, books and records that by law or by determination of the Board of
Directors will be open to inspection.
11.2 Fiscal Year. The Board of Directors is authorized to fix the
fiscal year of the Corporation and to change the same from time to time as it
deems appropriate.
11.3 Seal. The corporation seal will be in such form as the Board of
Directors may from time to time determine.
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ARTICLE TWELVE
Amendments
12.1 Power to Amend by-laws. The Board of Directors may amend or
repeal these by-laws or adopt new bylaws, but any bylaws adopted by the Board
of Directors may be amended or repealed, and new bylaws adopted, by the
shareholders. The shareholders may prescribe that any bylaw or bylaws adopted
by them will not be amended or repealed by the Board of Directors.
12.1 Vote Required. Action taken by the shareholders with respect to
bylaws will be taken by an affirmative vote of the holders of a majority of all
shares entitled to elect directors, and action by the Board of Directors with
respect to bylaws will be taken by an affirmative vote of a majority of all
directors then holding office.
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EXHIBIT 3.6
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
<PAGE> 2
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;
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,
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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 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
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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 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
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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 ):)an) 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 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
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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
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<PAGE> 7
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 B Preferred Stock. Neither the
consolidation nor merger of the Corporation into or with any other
corpo- ration 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
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<PAGE> 8
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 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
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<PAGE> 9
(the "Conversion Period" as defined below) at the "Conversion Price"
(as defined below) in the manner hereinafter provided, into fully paid
and non-assessable 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. 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
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<PAGE> 10
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, 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
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<PAGE> 11
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 right of which to share in
distributions of both earnings and assets is without limitation in the
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<PAGE> 12
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
re-capitalization 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,
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<PAGE> 13
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 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 canceled 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:
---------------------------
Karl L. Blaha
President
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<PAGE> 1
EXHIBIT 3.7
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;
<PAGE> 2
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
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.
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<PAGE> 3
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 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
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<PAGE> 4
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 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
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<PAGE> 5
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 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
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<PAGE> 6
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 off 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 can- celled
and retired and no shares shall be issued in palace 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, issuers or
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<PAGE> 7
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 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 corpo- ration 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
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<PAGE> 8
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.
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;
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<PAGE> 9
(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 non-assessable 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.
(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
ninetieth (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
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<PAGE> 10
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 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.
-10-
<PAGE> 11
(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.
-11-
<PAGE> 12
(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 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
re-capitalization 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
-12-
<PAGE> 13
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
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
canceled 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:
-------------------------------
Carl L. Blaha
President
-13-
<PAGE> 1
EXHIBIT 3.8
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
SERIES D CUMULATIVE PREFERRED STOCK
of
AMERICAN REALTY TRUST, INC.
(Pursuant to Section 14-2-602(d) of the
Georgia Business Corporation Code)
-------------------------
American Realty Trust, Inc., a corporation organized and existing under
the Georgia Business Corporation Code (hereinafter called the "Corporation"),
hereby certifies:
THAT, pursuant to the authority conferred upon the board of directors
(the "Board of Directors") by the articles of incorporation, as amended
("Articles of Incorporation") of the Corporation, and pursuant to Section 14-2-
602(d) of the Georgia Business Corporation Code (which Section provides that no
shareholder action is required in order to effect these articles of amendment),
the Board of Directors by unanimous written consent dated as of August 2, 1996,
duly adopted certain recitals and resolutions providing for the designations,
preferences and relative participating, optional or other special rights and
qualifications, limitations or other restrictions thereof, of a series of
special stock of the Corporation, specifically the Series D Cumulative
Preferred Stock, which recitals and resolutions are as follows:
WHEREAS, Article Five of the Articles of Incorporation 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
<PAGE> 2
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 have been previously
designated as the Series A Cumulative Participating Preferred Stock prior to
the date hereof, none of which are issued and outstanding;
WHEREAS, 4,000 shares of such Special Stock have been previously
designated as the Series B 10% Cumulative Preferred Stock prior to the date
hereof, all of which have been issued and are outstanding;
WHEREAS, 16,500 shares of such Special Stock have been previously
designated as the Series C 10% Cumulative Preferred Stock prior to the date
hereof, of which 15,111 have been issued and are 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.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority granted
to the Board of Directors by Article Five of the Articles of Incorporation, the
Board of Directors hereby further amends the Articles of Incorporation to
provide for the issuance of a 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, 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 and restrictions thereof:
1. Designation and Amount. The shares of such series shall be
designated as "Series D Cumulative Preferred Stock" (the "Series
D Preferred Stock") and each share of the Series D Preferred
Stock shall have a par value of $2.00 per share and a preference
on liquidation as specified in Paragraph 5 below. The number of
shares constituting the Series D Preferred Stock shall be 91,000.
Such number of shares may be increased or decreased by the Board
of Directors by filing articles of amendment as provided in the
Georgia Business Corporation Code; provided, that no decrease
shall reduce the number of shares of Series D Preferred Stock to
a number less then the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants.
2. Dividends and Distributions.
(A) The holders of shares of Series D Preferred Stock,
in preference to the holders of Common Stock and of
any Junior Securities (as defined in Paragraph 5,
below) and with such exceptions, if any, as set
forth below, shall be entitled to receive, when,
as, and if declared by the Board of Directors and
to the extent permitted under the Georgia Business
Corporation Code, out of funds legally available
for the purpose
-2-
<PAGE> 3
and in preference to and with priority over
dividends upon all Junior Securities, quarterly
dividends payable in cash on the last day of March,
June, September and December in each year (or if
such day is not a Business Day (as defined in
Paragraph 8(B) hereof) on the next following
Business Day) (each such date being referred to
herein as a "Quarterly Dividend Payment Date"),
commencing on the date of issuance of a share or
fraction of a share of Series D Preferred Stock, in
an amount per share (rounded to the nearest cent)
equal to 9.50% per annum of the Liquidation Value
(as defined in Paragraph 5, but excluding from such
Liquidation Value any accrued and unpaid dividends
and distributions thereon), assuming each year
consists of 360 days and each quarter consists of
90 days.
(B) Dividends shall begin to accrue (but not compound)
cumulatively on outstanding shares of the Series D
Preferred Stock from the date of issue of such
shares to and including the date on which the
Redemption Price (as defined in Paragraph 8(A),
below) of such shares 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 2,
the date on which the Corporation initially issues
any share of Series D Preferred Stock 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). Accrued but
unpaid dividends shall not bear interest and shall
not accrue dividends. Dividends paid on the shares
of Series D Preferred Stock in an amount less than
the total amount of such dividends at the time
accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among
all such shares at the time outstanding upon which
dividends have accrued. The Board of Directors may
fix a record date for the determination of holders
of shares of Series D Preferred Stock entitled to
receive payment of a dividend or distribution
declared thereon, which record date shall be not
more than 50 days prior to the date fixed for the
payment thereof.
(C) So long as any shares of the Series D 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
accrued dividends on the Series D Preferred Stock
for all past quarterly dividend periods in which
dividends accrued have been paid in full and the
full amount of accrued dividends for the then
current quarterly-yearly dividend periods have been
paid or declared and a sum sufficient for the
payment thereof set apart, and (b) after giving
effect to such payment of dividends, other
distributions,
-3-
<PAGE> 4
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 D Preferred Stock as to dividends or assets
outstanding after the payment of such dividends,
other distributions, purchase or redemption.
Dividends shall not be paid (in full or in part) or
declared and set apart for payment (in full or in
part) on any series of Special Stock (including the
Series D Preferred Stock) for any dividend period
unless all dividends, in the case dividends are
being paid in full on the Series D Preferred Stock,
or a ratable portion of all dividends, in the case
dividends are not being paid in full on the Series
D Preferred Stock, have been or are,
contemporaneously, paid or declared and set apart
for payment on all outstanding series of Special
Stock entitled thereto for each dividend period
terminating on the same or earlier date.
3. Voting Rights and Powers. The holders of the shares of Series D
Preferred Stock shall have only the following voting rights:
(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 D 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 the circumstances, the
holders of the Series D Preferred Stock are
required by law to vote upon any matter, the
approval of such series shall be deemed to have
been obtained only upon the affirmative vote of the
holders of a majority of the shares of the Series D
Preferred Stock then outstanding;
(C) Except as set forth herein, or as otherwise
provided by the Articles of Incorporation or by
law, holders of the Series D Preferred Stock shall
have no special voting rights and their consent
shall not be required for the taking of any
corporate action.
4. Reacquired Shares. Any shares of Series D Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be permanently retired and canceled promptly
after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Special
Stock and may be reissued as part of a new series of Special
Stock subject to the conditions and restrictions on issuance met
forth herein, in the Articles of Incorporation, or in any other
Certificates of Designations creating a series of Special Stock
or any similar stock or as otherwise required by law.
-4-
<PAGE> 5
5. Liquidation, Dissolution or Winding Up. Upon 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 D 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 D Preferred Stock has priority
over such securities as to dividends or upon liquidation,
dissolution or winding up), to receive a liquidation preference
in an amount in cash equal to $20.00 per share plus an amount
equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the
"Liquidation Value"), whether such liquidation is voluntary or
involuntary and the holders of the Series D Preferred Stock shall
not be entitled to any other or further distributions of the
assets. If, upon any liquidation, dissolution 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 amount 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 liquidation, dissolution 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 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 D
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 in 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 5.
6. Ranking. The Series D 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 D Preferred Stock as to dividends or rights upon
liquidation, dissolution or winding up of the Corporation as long
as any shares of the Series D Preferred Stock are issued and
outstanding, without the prior written consent of the holders of
a majority of such shares of Series D Preferred Stock then
outstanding voting separately as a class.
-5-
<PAGE> 6
7. Redemption at the Option of the Holder. The shares of Series D
Preferred Stock shall not be redeemable at the option of a holder
of Series D Preferred Stock.
-6-
<PAGE> 7
8. Redemption at the Option of the Corporation.
(A) The Corporation shall have the right to redeem all
or a portion of the Series D Preferred Stock issued
and outstanding at any time and from time to time
but only from and after June 1, 2001. The
redemption price of the Series D Preferred Stock
shall be an amount per share equal to the
Liquidation Value (the "Redemption Price").
(B) The Corporation may redeem all or a portion of any
holder's shares of Series D Preferred Stock by
giving such holder not less than twenty (20) days
nor more than sixty (60) days notice thereof prior
to the date on which the Corporation desires such
shares to be redeemed, which date shall be a
Business Day (defined herein to mean any day other
than a Saturday, a Sunday or a day on which banking
institutions in Dallas, Texas are authorized or
obligated by law or executive order to remain
closed) (the "Redemption Date"). Such notice shall
be written and shall be hand delivered or mailed,
postage prepaid, to the holder (the "Redemption
Notice"). 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 D Preferred Stock at his address
as it appears on the stock transfer records of the
Corporation. The Redemption Notice shall state:
(i) The total number of shares of
Series D Preferred Stock held by
such holder;
(ii) The total number of shares of the
holder's Series D Preferred Stock
that the Corporation intends to
redeem;
(iii) The Redemption Date and the
Redemption Price; and
(iv) The place at which the holder(s) may
obtain payment of the applicable
Redemption Price upon surrender of
the share certificate(s).
(C) If fewer than all shares of the Series D 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 D Preferred Stock. If such
Redemption Notice 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 shares of Series D
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 D
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
-7-
<PAGE> 8
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,
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 D
Preferred Stock so called for redemption and, in
either event, from and after the Redemption Date
(i) the share(s) of Series D Preferred Stock shall
be deemed to be redeemed, (ii) such setting aside
or deposit shall be deemed to constitute full
payment for such shares(s), (iii) such share(s) so
redeemed shall no longer be deemed to be
outstanding, (iv) the holder(s) thereof shall cease
to be a shareholder of the Corporation with
respect to such share(s), and (v) 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 D 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
D 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 of 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 8, the Corporation may redeem or
repurchase shares of the Series D Preferred Stock
from any holder(s) thereof who consents in writing
to any such consented redemption. All shares of
Series D Preferred Stock redeemed shall be canceled
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.
(D) On or before the Redemption Date, the holder who
shall redeem such Class D Preferred Stock hereunder
shall surrender the certificate or certificates
representing such shares to the Corporation by
mail, courier or personal delivery at the
Corporation's principal executive office or other
location so designated in the Redemption Notice,
and upon the Redemption Date the Redemption Price
shall be payable to the order of the person whose
name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate
shall be canceled and retired. In the event fewer
than all of the shares represented by such
certificates are redeemed, a new certificate shall
be issued representing the unredeemed shares.
-8-
<PAGE> 9
(E) If the Redemption Notice is not withdrawn prior to
one Business Day before the Redemption Date, and if
on or prior to the Redemption Date the Redemption
Price is either paid or made available for payment,
then notwithstanding that the certificates
evidencing any of the shares of the Class D
Preferred Stock so called for redemption have not
been surrendered, (i) all rights with respect to
such shares shall forthwith after the Redemption
Date cease and terminate, to the full extent
permitted by applicable law, except only the right
of the holders to receive the Redemption Price
without interest upon surrender of their
certificates therefor, and (ii) to the full extent
permitted by applicable law, such shares shall no
longer be deemed outstanding for any purpose.
9. Sinking Fund. The Corporation shall not be required to maintain
any so-called "sinking fund" for the retirement on any basis of
the Series D Preferred Stock.
10. Fractional Shares. The Series D Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of shares of
Series D Preferred Stock.
11. Notice. Any notice or request made to the Corporation in
connection with the Series D Preferred Stock shall be given, and
shall conclusively be deemed to have been given and received
three Business Days following deposit thereof in writing, in the
U.S. mails, certified mail, return receipt requested, duly
stamped and addressed to the Corporation at the following
address:
American Realty Trust, Inc.
10670 North Central Expressway
Suite 300
Dallas, Texas 75231
Attention: Robert A. Waldman
Senior Vice President and General Counsel
IN WITNESS WHEREOF, these Articles of Amendment are executed on behalf
of the Corporation by its Vice President and Treasurer and attested by its
Assistant Secretary as of the 2nd day of August, 1996.
-------------------------------------
[ ]
Vice President and Treasurer
Attest:
- ---------------------
[ ]
Assistant Secretary
-9-
<PAGE> 1
EXHIBIT 3.9
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
SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
AMERICAN REALTY TRUST, INC.
(Pursuant to Section 14-2-602(d) of the
Georgia Business Corporation Code)
-------------------------
American Realty Trust, Inc., a corporation organized and existing under
the Georgia Business Corporation Code (hereinafter called the "Corporation"),
hereby certifies:
THAT, pursuant to the authority conferred upon the board of directors
(the "Board of Directors") by the articles of incorporation, as amended
("Articles of Incorporation") of the Corporation, and pursuant to Section 14-2-
602(d) of the Georgia Business Corporation Code (which Section provides that no
shareholder action is required in order to effect these articles of amendment),
the Board of Directors by unanimous written consent dated as of December 3,
1996, duly adopted certain recitals and resolutions providing for the
designations, preferences and relative participating, optional or other special
rights and qualifications, limitations or other restrictions thereof, of a
series of special stock of the Corporation, specifically the Series E
Cumulative Convertible Preferred Stock, which recitals and resolutions are as
follows:
WHEREAS, Article Five of the Articles of Incorporation 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
<PAGE> 2
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 have been previously
designated as the Series A Cumulative Participating Preferred Stock prior to
the date hereof, none of which are issued and outstanding;
WHEREAS, 4,000 shares of such Special Stock have been previously
designated as the Series B 10% Cumulative Preferred Stock prior to the date
hereof, all of which have been issued and are outstanding;
WHEREAS, 16,500 shares of such Special Stock have been previously
designated as the Series C 10% Cumulative Preferred Stock prior to the date
hereof, of which 15,489 have been issued and are outstanding;
WHEREAS, 91,000 shares of such Special Stock have been previously
designated as the Series D Cumulative Preferred Stock prior to the date hereof,
none of which have been issued and are 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.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority granted
to the Board of Directors by Article Five of the Articles of Incorporation, the
Board of Directors hereby further amends the Articles of Incorporation to
provide for the issuance of a 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, 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 and restrictions thereof:
1. Designation and Amount. The shares of such series shall be
designated as "Series E Cumulative Convertible Preferred Stock"
(the "Series E Preferred Stock") and each share of the Series E
Preferred Stock shall have a par value of $2.00 per share and a
preference on liquidation as specified in Section 7 below. The
number of shares constituting the Series E Preferred Stock shall
be 80,000. Such number of shares may be increased or decreased
by the Board of Directors by filing articles of amendment as
provided in the Georgia Business Corporation Code; provided,
that no decrease shall reduce the number of shares of Series E
Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants.
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<PAGE> 3
2. Dividends and Distributions.
(A) The holders of shares of Series E Preferred Stock,
in preference to the holders of Common Stock and of
any Junior Securities (as defined in Section 6,
below) and with such exceptions, if any, as set
forth below, shall be entitled to receive, when,
as, and if declared by the Board of Directors and
to the extent permitted under the Georgia Business
Corporation Code, out of funds legally available
for the purpose and in preference to and with
priority over dividends upon all Junior Securities,
quarterly dividends payable in cash on the last
Business Day (unless otherwise provided, "Business
Day" herein shall mean any day other than a
Saturday, a Sunday or a day on which banking
institutions in Dallas, Texas are authorized or
obligated by law or executive order to remain
closed) of March, June, September and December in
each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a
share of Series E Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to (1)
10% per annum of the Liquidation Value (as defined
in Section 6 but excluding from such Liquidation
Value any accrued and unpaid dividends and
distributions thereon) for the period from November
4, 1996 to November 4, 1999, and (2) 11% per annum
of such Liquidation Value thereafter, assuming each
year consists of 360 days and each quarter consists
of 90 days.
(B) Dividends shall begin to accrue (but not compound)
cumulatively on outstanding shares of the Series E
Preferred Stock from the date of issue of such
shares to and including the date on which the
Redemption Price (as defined in Section 9(A),
below) of such shares 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 Section 2,
the date on which the Corporation initially issues
any share of Series E Preferred Stock 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). Accrued
but unpaid dividends shall not accrue dividends and
shall not accrue interest. Dividends paid on the
shares of Series E Preferred Stock in an amount
less than the total amount of such dividends at the
time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among
all such shares at the time outstanding upon which
dividends have accrued. The Board of Directors may
fix a record date for the determination of holders
of shares of Series E Preferred Stock entitled to
receive payment of a dividend or distribution
declared thereon, which record date shall be not
more than 50 days prior to the date fixed for the
payment thereof.
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<PAGE> 4
(C) So long as any shares of the Series E Preferred
Stock are outstanding, the Corporation will not
make, directly or indirectly, any distribution (as
such term is defined in the Georgia Business
Corporation Code) in respect of Junior Securities
unless on the date specified for measuring
distributions in Section 14-2-640(e) of the Georgia
Business Corporation Code (a) all accrued dividends
on the Series E Preferred Stock for all past
quarterly dividend periods have been paid in full
and the full amount of accrued dividends for the
then current quarterly dividend period has been
paid or declared in a sum sufficient for the
payment thereof set apart, and (b) after giving
effect to such distribution (i) the Corporation
would not be rendered unable to pay its debts as
they become due in the usual course of business,
and (ii) the Corporation's total assets would not
be less than the sum of its total liabilities plus
the amount that would be needed, if the Corporation
were to be dissolved at the time of the
distribution, to satisfy the preferential rights
upon dissolution of the holders of the Series E
Preferred Stock as provided in these Articles of
Amendment. Dividends shall not be paid (in full or
in part) or declared and set apart for payment (in
full or in part) on any series of Special Stock
(including the Series E Preferred Stock) for any
dividend period unless all dividends, in the case
dividends are being paid in full on the Series E
Preferred Stock, or a ratable portion of all
dividends, in the case dividends are not being paid
in full on the Series E Preferred Stock, have been
or are, contemporaneously, paid and declared and
set apart for payment on all outstanding series of
Special Stock entitled thereto for each dividend
period 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 E Preferred Stock, such payment will
be distributed ratably among the then holders of
Series E Preferred Stock so that an equal amount is
paid with respect to each outstanding share.
(D) Any dividend payment required to be made by the
Corporation hereunder but made by Basic Capital
Management, Inc. ("Basic") to holders of the Series
E Preferred Stock pursuant to the terms of the
Unpaid Preferred Return and Dividend Guaranty made
by Basic in favor of holders of the Class A Units
(as defined in the Second Amended and Restated
Agreement of Limited Partnership of Valley Ranch
Limited Partnership (the "Partnership Agreement"))
shall be treated by each recipient thereof as
payment by the Corporation of such dividend and
shall, after the expiration of any applicable
preference period established by applicable
bankruptcy laws, terminate the liability of the
Corporation for payment thereof, but shall not be
considered as paid by the Corporation for purposes
of applying any restrictions on the payment of
dividends by the Corporation under its Articles of
Incorporation or under applicable law.
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<PAGE> 5
3. Conversion Rights.
(A) The Series E Preferred Stock may be converted at
any time at the option of the holders thereof, upon
thirty (30) days prior written notice to the
Corporation in accordance with Section 12 below and
according to the Conversion Schedule (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 E
Preferred Stock (which number with respect to any
one conversion shall be no less than 1,000 or all
shares of Series E Preferred Stock held by any
holder thereof, whichever is less) to be converted
by $100.00 and adding all accrued and unpaid
dividends on such Preferred Stock to the date of
conversion and dividing the sum by the Conversion
Price; provided, however, that as to any shares of
Series E 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 earlier of (a) the
commencement of any liquidation, dissolution or
winding up of the Corporation by the filing with
the Secretary of the State of Georgia or with a
federal bankruptcy court or (b) the adoption by the
shareholders of the Corporation of any resolution
authorizing the commencement thereof, the right of
conversion shall terminate.
(B) For the purposes of this Section 3, the following
terms shall have the meanings ascribed below:
(i) "Conversion Schedule" shall be and mean the
schedule below, which sets forth the maximum
percentage of the number of shares of Series E
Preferred Stock that each holder of Series E
Preferred Stock may convert at those certain future
dates (which number with respect to any one
conversion shall be no less than 1,000 or all
shares of Series E Preferred Stock held by any
holder thereof, whichever is less), which total
number of shares so convertible by each holder (the
"Convertible Shares") shall be calculated based on
the sum of (x) the total number of shares of Series
E Preferred Stock then held by such holder, (y)
with respect to holders that are also the Class A
Limited Partners (as defined in the Partnership
Agreement), the total number of shares of Series E
Preferred Stock (excluding the shares described in
clause (x)) which such holder would be entitled to
hold if such holder fully exercised its right to
exchange its Class A Units (as defined in the
Partnership Agreement) for shares of Series E
Preferred Stock in accordance with the terms of the
Exchange Agreement (as defined in the Partnership
Agreement) and (z) the total number of shares of
Series E Preferred Stock already converted by such
holder:
(a) up to 37.50% of the original number of
Convertible Shares of each holder beginning
as of November 4, 1998, and thereafter;
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<PAGE> 6
(b) up to an additional 12.50% of the original
number of Convertible Shares of each holder
beginning as of November 4, 1999, and thereafter;
and
(c) up to an additional 50% of the original
number of Convertible Shares of each holder
beginning as of November 4, 2001, and thereafter.
(ii) "Conversion Price" shall be and mean the amount
obtained (rounded upward to the nearest cent) by multiplying 0.8
and the simple average of the daily closing price of the Common
Stock for the twenty Business Days ending on the last Business
Day of the calender week immediately preceding the date of
conversion on the New York Stock Exchange or, if the shares of
Common Stock are not then being traded on the New York Stock
Exchange, then on the principal stock exchange on which such
Common Stock is then listed or admitted to trading as determined
by the Corporation or, if the Common Stock is not then listed or
admitted to trading on any stock exchange, the average of the
last reported closing bid and asked prices on such days in the
over-the-counter market or, if no such prices are available, the
fair market value of the Common Stock, as determined by the Board
of Directors of the Corporation in its sole discretion. The
Conversion Price shall not be subject to any adjustment as a
result of the issuance of any additional shares of Common Stock
by the Corporation for any purpose. For purposes of calculating
the Conversion Price, the term "business day" shall mean a day on
which the exchange looked to for purposes of determining the
Conversion Price is open for business or, if no such exchange,
the term "business day" shall have the meaning given such term in
Section 2(A), above.
(C) Upon any conversion, fractional shares of Common Stock 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 unless
the Board of Directors shall determine to adjust by the issuance
of fractional scrip certificates or in some other manner. Any
accrued but unpaid dividends shall be convertible into shares of
Common Stock as provided for in Section 3, above. The
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
E Preferred Stock surrendered for conversion may stand.
(D) Any conversion of Series E Preferred Stock into Common Stock
shall be made by the surrender to the Corporation, at the office
of the Corporation set forth in Article 12 hereof, of the
certificate or certificates representing the Series E 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.
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<PAGE> 7
(E) A number of authorized shares of Common Stock sufficient to
provide for the conversion of the Series E 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 E 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 E Preferred
Stock on the new basis.
(F) The term "Common Stock" shall mean stock of the class designated
as Common Stock of the Corporation on the date the Series E
Preferred Stock is created or 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 Articles of Incorporation 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 E
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 before all
shares of the Series E Preferred Stock have been redeemed by or
converted into Common Stock of the Corporation:
(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;
-7-
<PAGE> 8
then, in each such case, the Corporation shall mail to the
holders of record of each of the shares of Series E Preferred
Stock at their last known 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 thirty (30) 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 subsection G, it shall set forth such facts
with respect thereto as shall reasonably be necessary to inform
the holders of the Series E Preferred Stock as to the effect of
such action upon the conversion rights of such holders.
4. Voting Rights and Powers. The holders of the shares of Series E
Preferred Stock shall have only the following voting rights:
(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 E 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 the circumstances, the
holders of the Series E Preferred Stock are
required by law to vote upon any matter, the
approval of such series shall be deemed to have
been obtained only upon the affirmative vote of the
holders of a majority of the shares of the Series E
Preferred Stock then outstanding;
(C) Except as set forth herein, or as otherwise
provided by the Articles of Incorporation or by
law, holders of the Series E Preferred Stock shall
have no special voting rights and their consent
shall not be required for the taking of any
corporate action.
5. Reacquired Shares. Any shares of Series E Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever or surrendered for conversion hereunder shall no
longer be deemed to be outstanding and all rights with respect to
such shares of stock, including the right, if any, to receive
notices and to vote, shall forthwith cease except, in the case of
stock surrendered for conversion hereunder, rights of the holders
thereof to receive Common Stock in exchange therefor. All shares
of Series E Preferred Stock obtained by the Corporation shall be
retired and canceled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but
unissued shares of Special Stock and may be reissued as part of a
new series of Special Stock subject to the conditions and
restrictions on issuance set forth herein, in the Articles of
Incorporation, or in any other Certificates of Designations
creating a series of Special Stock or any similar stock or as
otherwise required by law.
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<PAGE> 9
6. Liquidation, Dissolution or Winding Up. Upon 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 E 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 E Preferred Stock has priority
over such securities as to dividends or upon liquidation,
dissolution or winding up), to receive a liquidation preference
in an amount in cash equal to $100.00 per share plus an amount
equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the
"Liquidation Value"), whether such liquidation is voluntary or
involuntary, and the holders of the Series E Preferred Stock
shall not be entitled to any other or further distributions of
the assets. If, upon any liquidation, dissolution 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 amount 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 liquidation, dissolution 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 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 E
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 in 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 Section 6.
7. Ranking. The Series E 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 E Preferred Stock as to dividends or rights upon
liquidation, dissolution or winding up of the Corporation as long
as any shares of the Series E Preferred Stock are issued and
outstanding, without the prior written consent of the holders of
a majority of such shares of Series E Preferred Stock then
outstanding voting separately as a class.
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<PAGE> 10
8. Redemption at the Option of the Holder. The shares of Series E
Preferred Stock shall not be redeemable at the option of a holder
of Series E Preferred Stock.
9. Redemption at the Option of the Corporation.
(A) The Corporation shall have the right to redeem all
or a portion of the Series E Preferred Stock issued
and outstanding at any time and from time to time.
The redemption price of the Series E Preferred
Stock shall be an amount per share equal to the
Liquidation Value (the "Redemption Price").
(B) The Corporation may redeem all or a portion of any
holder's shares of Series E Preferred Stock by
giving such holder not less than twenty (20) days
nor more than sixty (60) days notice thereof prior
to the date on which the Corporation desires such
shares to be redeemed, which date shall be a
Business Day (the "Redemption Date"). Such notice
shall be written and shall be hand delivered or
mailed, postage prepaid, to the holder (the
"Redemption Notice"). 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 E Preferred Stock at
his address as it appears on the stock transfer
records of the Corporation. The Redemption Notice
shall state:
(i) The total number of shares of
Series E Preferred Stock held by
such holder;
(ii) The total number of shares of the
holder's Series E Preferred Stock
that the Corporation intends to
redeem;
(iii) The Redemption Date and the
Redemption Price; and
(iv) The place at which the holder(s) may
obtain payment of the applicable
Redemption Price upon surrender of
the share certificate(s).
(C) If fewer than all shares of the Series E 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 E Preferred Stock. If such
Redemption Notice 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 shares of Series E
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 E
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
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<PAGE> 11
latest statement of condition, or such other bank
or trust company as may be permitted by the
Articles of Incorporation, 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 E Preferred Stock so called for
redemption and, in either event, from and after the
Redemption Date (A) the share(s) of Series E
Preferred Stock shall be deemed to be redeemed, (B)
such setting aside or deposit shall be deemed to
constitute full payment for such shares(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 E 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
E 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 of 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
Section 9, the Corporation may redeem or repurchase
shares of the Series E Preferred Stock from any
holder(s) thereof who consents in writing to any
such consented redemption. All shares of Series E
Preferred Stock redeemed shall be canceled 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.
(D) On or before the Redemption Date, the holder who
shall redeem such Series E Preferred Stock
hereunder shall surrender the certificate or
certificates representing such shares to the
Corporation by mail, courier or personal delivery
at the Corporation's principal executive office or
other location so designated in the Redemption
Notice, and upon the Redemption Date the Redemption
Price shall be payable to the order of the person
whose name appears on such certificate or
certificates as the owner thereof, and each
surrendered certificate shall be canceled and
retired. In the event fewer than all of the shares
represented by such certificates are redeemed, a
new certificate shall be issued representing the
unredeemed shares.
(E) If the Redemption Notice is not withdrawn prior to
one Business Day before the Redemption Date, and if
on or prior to the Redemption Date the Redemption
Price
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<PAGE> 12
is either paid or made available for payment, then
notwithstanding that the certificates evidencing
any of the shares of the Series E Preferred Stock
so called for redemption have not been surrendered,
(i) all rights with respect to such shares shall
forthwith after the Redemption Date cease and
terminate, to the full extent permitted by
applicable law, except only the right of the
holders to receive the Redemption Price without
interest upon surrender of their certificates
therefor, and (ii) to the full extent permitted by
applicable law, such shares shall no longer be
deemed outstanding for any purpose.
10. Sinking Fund. The Corporation shall not be required to maintain
any so-called "sinking fund" for the retirement on any basis of
the Series E Preferred Stock.
11. Fractional Shares. The Series E Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of shares of
Series E Preferred Stock.
12. Notice. Any notice or request made to the Corporation in
connection with the Series E Preferred Stock shall be given, and
shall conclusively be deemed to have been given and received
three Business Days following deposit thereof in writing, in the
U.S. mails, certified mail, return receipt requested, duly
stamped and addressed to the Corporation, to the attention of its
General Counsel, at its principal executive offices (which shall
be deemed to be the address most recently provided to the
Securities and Exchange Commission ("SEC") as its principal
executive offices for so long as the Corporation is required to
file reports with the SEC).
IN WITNESS WHEREOF, these Articles of Amendment are executed on
behalf of the Corporation by its President and attested by its Secretary as of
the 3rd day of December, 1996.
-------------------------------------
Karl L. Blaha
President
Attest:
- ---------------------
Robert A. Waldman
Secretary
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<PAGE> 1
EXHIBIT 3.10
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
SERIES F VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
AMERICAN REALTY TRUST, INC.
(Pursuant to Section 14-2-602(d) of the
Georgia Business Corporation Code)
------------------------------
American Realty Trust, Inc., a corporation organized and existing
under the Georgia Business Corporation Code (hereinafter called the
"Corporation"), hereby certifies:
THAT, pursuant to the authority conferred upon the board of directors
(the "Board of Directors") by the articles of incorporation, as amended (the
"Articles of Incorporation") of the Corporation, and pursuant to Section 14-
2-602(d) of the Georgia Business Corporation Code (which Section provides that
no shareholder action is required in order to effect these articles of
amendment), the Board of Directors by unanimous written consent dated as of
January 14, 1997, duly adopted certain recitals and resolutions providing for
the designations, preferences and relative participating, optional or other
special rights and qualifications, limitations or other restrictions thereof,
of a series of special stock of the Corporation, specifically the Series F
Voting Cumulative Convertible Preferred Stock, which recitals and resolutions
are as follows:
WHEREAS, Article Five of the Articles of Incorporation 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,
<PAGE> 2
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 have been previously
designated as the Series A Cumulative Participating Preferred Stock prior to
the date hereof, none of which are issued and outstanding;
WHEREAS, 4,000 shares of such Special Stock have been previously
designated as the Series B 10% Cumulative Preferred Stock prior to the date
hereof, all of which have been issued and are outstanding;
WHEREAS, 16,500 shares of such Special Stock have been previously
designated as the Series C 10% Cumulative Preferred Stock prior to the date
hereof, of which 15,877 shares have been issued and are outstanding;
WHEREAS, 91,000 shares of such Special Stock have been previously
designated as the Series D Cumulative Preferred Stock prior to the date hereof,
none of which have been issued or are outstanding;
WHEREAS, 80,000 shares of such Special Stock have been previously
designated as the Series E Cumulative Convertible Preferred Stock prior to the
date hereof, none of which have been issued or are outstanding;
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, the
Board of Directors hereby further amends the Articles of Incorporation to
provide for the issuance of a 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, 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 and restrictions thereof:
1. Designation and Amount. The shares of such series shall be designated
as "Series F Voting Cumulative Convertible Preferred Stock" (the
"Series F Preferred Stock") and each share of the Series F Preferred
Stock shall have a par value of $2.00 per share and a preference on
liquidation as specified in Section 6 below. The number of shares
constituting the Series F Preferred Stock shall be 200,000. Such
number of shares may be increased or decreased by the Board of
Directors by filing articles of amendment as provided in the Georgia
Business Corporation Code; provided, that no decrease shall reduce the
number of shares of Series F
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<PAGE> 3
Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or
warrants.
2. Dividends and Distributions.
(A) The holders of shares of Series F Preferred
Stock, in preference to the holders of Common
Stock and of any Junior Securities (as
defined in Section 6, below) and with such
exceptions, if any, as set forth below, shall
be entitled to receive, when, as, and if
declared by the Board of Directors and to the
extent permitted under the Georgia Business
Corporation Code, out of funds legally
available for the purpose and in preference
to and with priority over dividends upon all
Junior Securities, quarterly dividends
payable in cash on the fifteenth day
following the end of each calendar quarter
(each such date being referred to herein as a
"Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend
Payment Date after the first issuance of a
share or fraction of a share of Series F
Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to (1) 6
1/2% per annum of the Liquidation Value (as
defined in Section 6 but excluding from such
Liquidation Value any accrued and unpaid
dividends and distributions thereon) for the
period from January 1, 1997 to and including
December 31, 1997, (2) 7% per annum for the
period from January 1, 1998 to and including
December 31, 1998, and (3) 8% per annum of
such Liquidation Value thereafter, assuming
each year consists of 360 days and each
quarter consists of 90 days.
(B) Dividends shall begin to accrue (but not
compound) cumulatively on outstanding shares
of the Series F Preferred Stock from the date
of issue of such shares to and including the
date on which the Redemption Price (as
defined in Section 9(B), below) of such
shares 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
Section 2, the date on which the Corporation
initially issues any share of Series F
Preferred Stock 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). Accrued but unpaid
dividends shall not accrue dividends and
shall not accrue interest. Dividends paid on
the shares of Series F Preferred Stock in an
amount less than the total amount of such
dividends at the time accrued and payable on
such shares shall be allocated pro rata on a
share-by-share basis among all such shares at
the time outstanding upon which dividends
have accrued. The Board of Directors may fix
a record date for the determination of
holders of shares of Series F Preferred Stock
entitled to receive payment of a dividend or
distribution declared thereon, which record
date shall be not more than 50 days prior to
the date fixed for the payment thereof.
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<PAGE> 4
(C) So long as any shares of the Series F
Preferred Stock are outstanding, the
Corporation will not make, directly or
indirectly, any distribution (as such term is
defined in the Georgia Business Corporation
Code) in respect of Junior Securities unless
on the date specified for measuring
distributions in Section 14-2-640(e) of the
Georgia Business Corporation Code (a) all
accrued dividends on the Series F Preferred
Stock for all past quarterly dividend periods
have been paid in full and the full amount of
accrued dividends for the then current
quarterly dividend period has been paid or
declared and a sum sufficient for the payment
thereof set apart and (b) after giving effect
to such distribution (i) the Corporation
would not be rendered unable to pay its debts
as they become due in the usual course of
business and (ii) the Corporation's total
assets would not be less than the sum of its
total liabilities plus the amount that would
be needed, if the Corporation were to be
dissolved at the time of the distribution, to
satisfy the preferential rights upon
dissolution of the holders of the Series F
Preferred Stock as provided in these Articles
of Amendment. Dividends shall not be paid
(in full or in part) or declared and set
apart for payment (in full or in part) on any
series of Special Stock (including the Series
F Preferred Stock) for any dividend period
unless all dividends, in the case dividends
are being paid in full on the Series F
Preferred Stock, or a ratable portion of all
dividends, in the case dividends are not
being paid in full on the Series F Preferred
Stock, have been or are, contemporaneously,
paid and declared and set apart for payment
on all outstanding series of Special Stock
entitled thereto for each dividend period
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 F Preferred Stock,
such payment will be distributed ratably
among the then holders of Series F Preferred
Stock so that an equal amount is paid with
respect to each outstanding share.
3. Conversion Rights.
(A) The Series F Preferred Stock may be converted
at any time after December 31, 2001, at the
option of the holders thereof, upon thirty
(30) days prior written notice to the
Corporation in accordance with Section 12
below. Subject to the preceding sentence,
the Series F Preferred Stock shall be
converted at the Conversion Price (as defined
below) into fully paid and nonassessable
Common Stock of the Corporation by
multiplying the number of shares of Series F
Preferred Stock (which number with respect to
any one conversion shall be no less than
1,000 or all shares of Series F Preferred
Stock held by any holder thereof, whichever
is less) to be converted by $20.00 and adding
all accrued and unpaid dividends on such
Preferred Stock to the date of conversion and
dividing the sum by the Conversion Price;
provided, however, that, on the earlier of
(a) the commencement of any liquidation,
dissolution or winding up of the Corporation
by a filing with the Secretary of State of
the State of Georgia or with a federal
bankruptcy court or (b) the adoption by the
shareholders
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<PAGE> 5
of the Corporation of any resolution
authorizing the commencement thereof, the
right of conversion shall terminate.
(B) For the purposes of this Section 3, the term
"Conversion Price" shall be and mean the
amount obtained (rounded upward to the
nearest cent) by multiplying (i) 0.9 by (ii)
the simple average of the daily closing price
of the Common Stock for the twenty Business
Days ending on the last Business Day of the
calender week immediately preceding the date
of conversion on the New York Stock Exchange
or, if the shares of Common Stock are not
then being traded on the New York Stock
Exchange, then on the principal stock
exchange on which such Common Stock is then
listed or admitted to trading as determined
by the Corporation or, if the Common Stock is
not then listed or admitted to trading on any
stock exchange, the average of the last
reported closing bid and asked prices on such
days in the over-the-counter market or, if no
such prices are available, the fair market
value per share of the Common Stock, as
determined by the Board of Directors of the
Corporation in its sole discretion. The
Conversion Price shall not be subject to any
adjustment as a result of the issuance of any
additional shares of Common Stock by the
Corporation for any purpose. For purposes of
calculating the Conversion Price, the term
"Business Day" shall mean a day on which the
exchange looked to for purposes of
determining the Conversion Price is open for
business or, if no such exchange, the term
"Business Day" shall have the meaning given
such term in Section 9(E), below. (As an
example, if a holder has 100,000 shares of
Series F Preferred Stock (having no accrued
and unpaid dividends) and if the simple
average of the daily closing price of the
Common Stock for the twenty Business Days
ending on the last Business Day of the
calendar week immediately preceding the date
of conversion on the New York Stock Exchange
is $11.10, the Conversion Price would be 0.9
multiplied by $11.10 or $9.99. The number of
shares of Common Stock to be received upon
conversion of 100,000 shares of Series F
Preferred Stock would be (100,000 x $20.00) /
9.99 or 200,201 shares of Common Stock.)
(C) Upon any conversion, fractional shares of
Common Stock 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 unless the Board of
Directors shall determine to adjust by the
issuance of fractional scrip certificates or
in some other manner. Any accrued but unpaid
dividends shall be convertible into shares of
Common Stock as provided for in this Section
3. The 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 F Preferred Stock
surrendered for conversion may stand.
(D) Any conversion of Series F Preferred Stock
into Common Stock shall be made by the
surrender to the Corporation, at the office
of the Corporation set forth in Section 12
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<PAGE> 6
hereof, of the certificate or certificates
representing the Series F 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.
(E) A number of authorized shares of Common Stock
sufficient to provide for the conversion of
the Series F 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 F 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 F
Preferred Stock on the new basis.
(F) The term "Common Stock" shall mean stock of
the class designated as Common Stock of the
Corporation on the date the Series F
Preferred Stock is created or 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 Articles of
Incorporation 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 F 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 before all shares of the Series F
Preferred Stock have been redeemed by or
converted into Common Stock of the
Corporation:
(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
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<PAGE> 7
(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 F Preferred
Stock at their last known 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 thirty (30) 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
subsection G, it shall set forth such facts with respect
thereto as shall reasonably be necessary to inform the holders
of the Series F Preferred Stock as to the effect of such
action upon the conversion rights of such holders.
4. Voting Rights and Powers. The holders of shares of Series F
Preferred Stock shall have the following voting rights:
(A) Each share of Series F Preferred Stock shall
entitle the holder thereof to one vote on all
matters submitted to a vote of the
shareholders of the Corporation holding
Common Stock. In the event the Corporation
shall at any time declare or pay any dividend
on the Common Stock payable in shares of
common stock, or effect a subdivision or
combination or consolidation of the
outstanding shares of Common Stock (by
reclassification or otherwise than by payment
of a dividend in shares of Common Stock),
then in each such case, the number of votes
to which holders of shares of Series F
Preferred Stock were entitled immediately
prior to such event shall be adjusted by
multiplying such amount by a fraction, the
numerator of which is the number of shares of
Common Stock outstanding immediately after
such event and the denominator of which is
the number of shares of Common Stock that
were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the
Articles of Incorporation, in any other
Certificate of Designations creating a series
of Preferred Stock or any similar stock, or
by law, the holders of shares of Common Stock
and any other capital stock of the
Corporation having general voting rights
shall vote together as one voting group on
all matters submitted to a vote of
shareholders of the Corporation.
(C) Except as set forth herein, or as otherwise
provided by the Articles of Incorporation or
by law, holders of Series F Preferred Stock
shall have no voting rights and their consent
shall not be required (except to the extent
they are entitled to vote with holders of
Common Stock as set forth herein) for taking
any corporate action.
5. Reacquired Shares. Any shares of Series F Preferred Stock
purchased or otherwise acquired by the Corporation in any
manner whatsoever or surrendered for conversion hereunder
shall
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<PAGE> 8
no longer be deemed to be outstanding and all rights with
respect to such shares of stock, including the right, if any,
to receive notices and to vote, shall forthwith cease except,
in the case of stock surrendered for conversion hereunder,
rights of the holders thereof to receive Common Stock in
exchange therefor. All shares of Series F Preferred Stock
obtained by the Corporation shall be retired and canceled
promptly after the acquisition thereof. All such shares shall
upon their cancellation become authorized but unissued shares
of Special Stock and may be reissued as part of a new series
of Special Stock subject to the conditions and restrictions on
issuance set forth herein, in the Articles of Incorporation,
or in any other Certificates of Designations creating a series
of Special Stock or any similar stock or as otherwise required
by law.
6. Liquidation, Dissolution or Winding Up. Upon 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 F 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 F
Preferred Stock has priority over such securities as to
dividends or upon liquidation, dissolution or winding up), to
receive a liquidation preference in an amount in cash equal to
$20.00 per share plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Liquidation Value"),
whether such liquidation is voluntary or involuntary, and the
holders of the Series F Preferred Stock shall not be entitled
to any other or further distributions of the assets. If, upon
any liquidation, dissolution 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
amount 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 liquidation, dissolution
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 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 F 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 in 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
Section 6.
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<PAGE> 9
7. Ranking. The Series F 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 F Preferred Stock as to dividends or
rights upon liquidation, dissolution or winding up of the
Corporation as long as any shares of the Series F Preferred
Stock are issued and outstanding, without the prior written
consent of the holders of a majority of such shares of Series
F Preferred Stock then outstanding voting separately as a
class.
8. Redemption by the Corporation. The shares of Series F
Preferred Stock shall not be redeemable at the option of the
Corporation, except that the Corporation may redeem or
repurchase shares of the Series F Preferred Stock by mutual
written consent with any holder(s) thereof.
9. Redemption at the Option of the Holder.
(A) (i) Each holder of the Series F Preferred
Stock shall have the right to demand a
redemption of all or a portion of the Series
F Preferred Stock owned by such holder if a
quarterly dividend payment due to such holder
is not paid within fifteen (15) days after
the related Quarterly Dividend Payment Date.
(ii) Each holder of the Series F Preferred
Stock shall have the right to demand a
redemption of one-half of the shares of
Series F Preferred Stock owned by such holder
if a Determination (as defined below) is made
that (a) the original issuance of the Series
F Preferred Stock pursuant to the Agreement
and Plan of Reorganization (the
"Reorganization Agreement") between the
Corporation, American General Realty, Inc., a
Nevada corporation, Ferdinandi Investment
Ltd., a California Limited Partnership
("Ferdinandi Ltd."), and DeMera Investment
Company Ltd., a California Limited
Partnership ("DeMera Ltd."), dated and
effective as of January 1, 1997, did not
constitute a reorganization within the
meaning of Section 368(a)(1) of the Internal
Revenue Code of 1986 (the "Code"), or (b) the
transaction whereby one of the partners of
the holder obtained shares of stock in Pizza
World Supreme, Inc. effective as of April 1,
1996 did not constitute a transaction
described in Section 351 of the Code because
of the subsequent exchange of such shares for
Series F Preferred Stock pursuant to the
Reorganization Agreement. A "Determination"
means (a) a decision by the U.S. Tax Court,
or a judgment, decree, or other order by any
court of competent jurisdiction, which has
become final; (b) a closing agreement
executed by the Secretary of the U.S.
Treasury (or his authorized representative)
and by Thomas Ferdinandi, Ferdinandi Ltd.,
James DeMera, Jr. or DeMera Ltd. (or an
authorized representative of such signatory)
made under Section 7121 of the Code or any
similar provision of any statute superseding
the Code; or (c) an agreement executed by the
Secretary of the U.S. Treasury (or his
authorized representative) and
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<PAGE> 10
by Thomas Ferdinandi, Ferdinandi Ltd., James
DeMera, Jr. or DeMera, Ltd. (or an authorized
representative of such signatory) relating to
the liability of such persons or entities or
the entities' respective general partners or
limited partners for U.S. income taxes.
(iii) Each holder of the Series F Preferred
Stock shall have the right to demand a
redemption of all or a portion of the Series
F Preferred Stock owned by such holder within
ten (10) days of receipt of a notice relating
to any proposed action described in Section
3(G)(iv) which constitutes a merger or
consolidation in which the holders of the
Series F Preferred Stock are to receive
securities of the survivor corporation or
combined corporation but only if the
Corporation is not the survivor.
(B) Upon the occurrence of an event specified in
Section 9(A), the holder of the Series F
Preferred Stock may request a redemption of
all or a portion of such holder's shares of
Series F Preferred Stock, in the case of
Section 9(A)(i) or Section 9(A)(iii), or of
one half of such holder's shares of Series F
Preferred Stock, in the case of Section
9(A)(ii), by giving the Corporation notice
thereof. Such notice shall be written and
shall be hand delivered or mailed, postage
prepaid, to the Corporation (the "Redemption
Notice"). The Redemption Notice shall state
(i) the total number of shares of Series F
Preferred Stock held by such holder and (ii)
the total number of shares of the holder's
Series F Preferred Stock that the holder
intends to redeem as permitted hereunder. On
a Business Day determined by the Corporation
occurring within forty-five (45) days of the
receipt of such notice (the "Redemption
Date"), the Corporation shall redeem the
Series F Preferred Stock at a price per share
equal to the Liquidation Value (the
"Redemption Price"; with such term also being
deemed to refer to the total amount to be
paid to the holder(s) by the Corporation in
redemption of such holder(s)' shares if the
context so requires).
(C) On or before the Redemption Date the
Corporation may provide for payment of a sum
sufficient to redeem the applicable number of
shares of Series F Preferred Stock subject to
redemption either by (i) 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 F Preferred Stock to be redeemed or
(ii) 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, 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 F Preferred Stock so called for
redemption and, in either event, from and
after the Redemption Date (A) the share(s) of
Series F Preferred Stock shall be deemed to
be
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<PAGE> 11
redeemed, (B) such setting aside or deposit
shall be deemed to constitute full payment
for such shares(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 F
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 F 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 of the holder(s) of the
share(s) so called for redemption shall look
only to the Corporation for payment of the
Redemption Price thereof. All shares of
Series F Preferred Stock redeemed shall be
canceled 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.
(D) On or before the Redemption Date, the holder
who has demanded a redemption of Series F
Preferred Stock hereunder shall surrender the
certificate or certificates representing such
shares, duly endorsed or assigned (unless
such endorsement or assignment be waived by
the Corporation), to the Corporation by mail,
courier or personal delivery at the
Corporation's principal executive office, and
upon the Redemption Date the Redemption Price
shall be payable to the order of the person
whose name appears on such certificate or
certificates as the owner thereof, and each
surrendered certificate shall be canceled and
retired. In the event fewer than all of the
shares represented by such certificates are
redeemed, a new certificate shall be issued
representing the unredeemed shares.
(E) If the Redemption Notice is not withdrawn
prior to one Business Day (unless otherwise
provided, "Business Day" herein shall mean
any day other than a Saturday, a Sunday or a
day on which banking institutions in Dallas,
Texas are authorized or obligated by law or
executive order to remain closed) before the
Redemption Date, and if on or prior to the
Redemption Date the Redemption Price is
either paid or made available for payment,
then notwithstanding that the certificates
evidencing any of the shares of the Series F
Preferred Stock so called for redemption have
not been surrendered, (i) all rights with
respect to such shares shall forthwith after
the Redemption Date cease and terminate, to
the full extent permitted by applicable law,
except only the right of the holders to
receive the Redemption Price without interest
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<PAGE> 12
upon surrender of their certificates
therefor, and (ii) to the full extent
permitted by applicable law, such shares
shall no longer be deemed outstanding for any
purpose.
(F) Notwithstanding anything to the contrary in
this Section 9, the Corporation shall not be
required to redeem the shares of Series F
Preferred Stock if, and only to the extent
that, after giving effect to such redemption
(i) the Corporation would be rendered unable
to pay its debts as they become due in the
usual course of business or (ii) the
Corporation's total assets would be less than
the sum of its total liabilities plus the
amount that would be needed, if the
Corporation were dissolved at the time of the
redemption, to satisfy the preferential
rights upon dissolution of the holders of the
Series F Preferred Stock as provided in these
Articles of Amendment.
10. Sinking Fund. The Corporation shall not be required to
maintain any so-called "sinking fund" for the retirement on
any basis of the Series F Preferred Stock.
11. Fractional Shares. The Series F Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions
and to have the benefit of all other rights of holders of
shares of Series F Preferred Stock.
12. Notice. Any notice or request made to the Corporation in
connection with the Series F Preferred Stock shall be given,
and shall conclusively be deemed to have been given and
received three Business Days following deposit thereof in
writing, in the U.S. mails, certified mail, return receipt
requested, duly stamped and addressed to the Corporation, to
the attention of its General Counsel, at its principal
executive offices (which shall be deemed to be the address
most recently provided to the Securities and Exchange
Commission ("SEC") as its principal executive offices for so
long as the Corporation is required to file reports with the
SEC).
IN WITNESS WHEREOF, these Articles of Amendment are executed
on behalf of the Corporation by its President and attested by its Secretary as
of the 14th day of January, 1997.
-----------------------------
Karl L. Blaha
President
Attest:
- -------------------------------------------
Robert A. Waldman
Secretary
-12-
<PAGE> 1
EXHIBIT 5.1
HOLT NEY ZATCOFF & WASSERMAN, LLP
American Realty Trust, Inc.
As of February 11, 1997
Page 1
HOLT NEY ZATCOFF & WASSERMAN, LLP
ATTORNEYS AT LAW
100 GALLERIA PARKWAY, SUITE 600
ATLANTA, GEORGIA 30339-5911
TELEPHONE 770-956-9600 FACSIMILE 770-956-1490
Charles D. Vaughn
e-mail [email protected]
As of February 11, 1997
American Realty Trust, Inc.
10670 North Central Expressway
Suite 300
Dallas, Texas 75231
Re: Registration on Form S-4 under the Securities Act of 1933,
as amended (the "Act"), of an indeterminate number of shares of
the $2.00 Par Value Special Stock (the "Special Stock"), which
may be issued in series from time to time, of American Realty
Trust, Inc., a Georgia corporation ("ART")
Ladies and Gentlemen:
We have acted as counsel to ART with respect to the application and
interpretation of the Georgia Business Corporation Code (the "GBCC") in
connection with the preparation of the Registration Statement on Form S-4 (the
"Registration Statement") filed with the Securities and Exchange Commission
(the "SEC") under the Act relating to the offering from time to time of one or
more series of Special Stock (hereinafter referred to as "Preferred Shares"),
as set forth in the prospectus contained in the Registration Statement (the
"Prospectus") and as to be set forth in one or more supplements to the
Prospectus (each such supplement, a "Prospectus Supplement"). This Opinion
Letter is rendered at the request of ART to facilitate the registration of the
Preferred Shares on the Registration Statement.
This Opinion Letter is limited by, and is in accordance with, the
January 1, 1992 edition of the Interpretive Standards (the "Interpretive
Standards") Applicable to Legal Opinions to Third Parties in Corporate
Transactions adopted by the Legal Opinion Committee of the Corporate and
Banking Law Section of the State Bar of Georgia, which Interpretive Standards
are incorporated in this Opinion Letter by this reference.
<PAGE> 2
HOLT NEY ZATCOFF & WASSERMAN, LLP
American Realty Trust, Inc.
As of February 11, 1997
Page 2
In the capacity described above, we have considered such matters of law
and of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of ART,
certificates of officers and representatives of ART, certificates of public
officials and such other documents as we have deemed appropriate as a basis for
the opinions hereinafter set forth.
The opinions set forth herein are limited to the laws of the State of
Georgia.
Based upon the foregoing, as of this date, and subject to the
assumptions, limitations and qualifications set forth in the Interpretive
Standards and as set forth after the following numbered paragraphs, it is our
opinion that:
(1) ART is a corporation existing under the laws of the State of
Georgia.
(2) Each series of the Preferred Shares will be validly issued, fully
paid and nonassessable by ART when (i) the Registration Statement shall have
become effective under the Act; (ii) a Prospectus Supplement with respect to
such series shall have become effective under the Act; (iii) ART's Board of
Directors shall have duly adopted resolutions (the "Preferred Shares
Resolutions") authorizing the issuance and sale of such series as contemplated
in the Registration Statement, the Prospectus, and the applicable Prospectus
Supplement; (iv) Articles of Amendment of the Articles of Incorporation of ART
setting forth the terms of such series in accordance with the applicable
Preferred Shares Resolutions shall have been duly executed and filed with the
Secretary of State of the State of Georgia; and (v) certificates evidencing
such series shall have been duly issued in exchange for the consideration
specified in and as contemplated in the Prospectus, the applicable Prospectus
Supplement, and the applicable Preferred Shares Resolutions.
The opinions expressed herein are subject to the Interpretive Standards
and to the following assumptions, limitations and qualifications:
A. As to various questions of fact material to this opinion,
we have relied solely upon the statements and certifications of
Mr. Robert A. Waldman, Secretary of ART.
B. Other than as described in paragraph A above and elsewhere
herein, we have made no investigation regarding the accuracy or
truthfulness of any representations, warranties, statements of
fact or assumptions of fact contained in any documents, records,
instruments, letters or other writings examined by us, and we
express no opinion herein regarding the same.
<PAGE> 3
HOLT NEY ZATCOFF & WASSERMAN, LLP
American Realty Trust, Inc.
As of February 11, 1997
Page 3
C. Other than resolutions adopted by the Board of Directors
of ART that authorize the filing of the Registration Statement,
certified as true and correct by Mr. Waldman, we have not
examined the minute book of ART, and we assume that no
resolutions of the Board of Directors modifying the Bylaws of ART
or its procedures for issuing shares are in effect.
D. We did not assist ART in its incorporation and
organization, and we assume that it was duly organized.
E. We expressly note that our opinion in paragraph (2) does
not mean that: (a) the authorization and issuance of each series
of the Preferred Shares will comply with agreements by which ART
is bound; (b) the authorization and issuance of each series of
the Preferred Shares will comply with the fiduciary duties of the
directors of ART; (c) the authorization and issuance of each
series of the Preferred Shares will comply with any law other
than the GBCC (e.g., federal or state securities laws); (d) the
consideration received for each series of the Preferred Shares
will be adequate as a matter of fairness to ART and its
shareholders or that ART will receive a reasonably equivalent
value and fair equivalent value in good faith for each series of
the Preferred Shares; (e) holders of the Preferred Shares will be
immune from other types of liabilities, such as liability for
distributions in violation of Section 640 of the GBCC, or under
the "piercing the corporate veil" theory; or (f) the directors
will not have unfairly diluted the investment value of existing
shareholders of ART. Our opinion in paragraph (2) assumes that
each of items (a), (b), (c), (d), (e) and (f) is in fact true.
F. Our opinion in paragraph (2) is subject to the exceptions
stated in paragraphs 23(i) and 23(ii) of the Interpretive
Standards, which make exception for the effect of, respectively,
bankruptcy and general principles of equity, as more fully
described therein.
G. This opinion is limited to the particular matters and the
particular transactions described herein, and no opinion should
be inferred or implied beyond these particular matters or these
particular transactions. This opinion is being provided solely
for the benefit of ART, and no other person or entity shall be
entitled to rely hereon without the express written consent of
this firm. This opinion may not be quoted from, in whole or in
part, or otherwise be referred to in any financial statement or
other document, nor filed with or furnished to any person or
entity other than ART and Andrews & Kurth, L.L.P., including, but
not limited to, any governmental agency, without the prior
written consent of this firm; provided, however, that this
opinion may be attached as an exhibit to the Form S-4 and
<PAGE> 4
HOLT NEY ZATCOFF & WASSERMAN, LLP
American Realty Trust, Inc.
As of February 11, 1997
Page 4
delivered to the SEC therewith and our firm may be referenced
under the heading "Legal Matters" in the Prospectus.
Very truly yours,
HOLT NEY ZATCOFF & WASSERMAN, LLP
By: /s/ CHARLES D. VAUGHN
----------------------------------
Charles D. Vaughn, a partner
CDV:pg
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Syntek Asset Management, L.P., a 76.8% owned Delaware limited partnership, and
Consolidated Equity Properties, Inc., a wholly-owned Nevada corporation, are
"significant subsidiaries" of the Registrant (as such term is defined in Rule
1-02(v) of Regulation S-X). The remaining subsidiaries of the Company,
considered in the aggregate, would not constitute a "significant subsidiary".
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 29, 1996, relating to the
consolidated financial statements and schedules of American Realty Trust, Inc.
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
February 11, 1997
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March
21, 1996, relating to the consolidated financial statements and schedules of
Continental Mortgage and Equity Trust appearing in the Trust's Annual Report on
Form 10-K for the year ended December 31, 1995.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
February 11, 1997
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 1,
1996, relating to the consolidated financial statements and schedules of Income
Opportunity Realty Investors, Inc. (formerly Income Opportunity Realty Trust)
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
February 11, 1997
<PAGE> 1
EXHIBIT 23.4
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March
20, 1996, relating to the consolidated financial statements and schedules of
Transcontinental Realty Investors, Inc. appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
/s/ BDO SEIDMAN, L.L.P.
BDO Seidman, LLP
Dallas, Texas
February 11, 1997
<PAGE> 1
EXHIBIT 23.5
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March
21, 1996, relating to the consolidated financial statements and schedules of
National Realty, L.P. appearing in the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1995.
/s/ BDO SEIDMAN, L.L.P.
BDO Seidman, LLP
Dallas, Texas
February 11, 1997
