<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1997
--------------
Commission File Number 1-9948
AMERICAN REALTY TRUST, INC.
--------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Georgia 54-0697989
------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(214) 692-4700
-------------------------------
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's c1asses of
Common Stock, as of the latest practicable date.
Common Stock, $.01 par value 12,194,644
- ---------------------------- ------------------------------
(Class) (Outstanding at April 30, 1997)
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been examined by
independent certified public accountants but in the opinion of the management
of American Realty Trust, Inc. (the "Company"), all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of consolidated
results of operations, consolidated financial position and consolidated cash
flows at the dates and for the periods indicated, have been included.
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(dollars in thousands)
Assets
<S> <C> <C>
Notes and interest receivable
Performing ............................................ $ 50,660 $ 50,784
Nonperforming ......................................... 149 1,627
-------- --------
50,809 52,411
Less - allowance for estimated losses .................... (3,926) (3,926)
-------- --------
46,883 48,485
Real estate held for sale, net of accumulated
depreciation ($5,098 in 1997 and 1996) ................ 82,409 77,688
Real estate held for investment, net of accumulated
depreciation ($4,670 in 1997 and $4,234 in 1996) ...... 41,680 41,347
Marketable equity securities, at market value ............ 3,861 2,186
Cash and cash equivalents ................................ 713 1,254
Investments in equity investees .......................... 56,848 55,880
Other assets ............................................. 10,106 8,197
-------- --------
$242,500 $235,037
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE> 3
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(dollars in thousands)
Liabilities and Stockholders' Equity
<S> <C> <C>
Liabilities
Notes and interest payable ($9,078 in 1997 and
$8,973 in 1996 to affiliates) ..................... $129,660 $127,863
Margin borrowings .................................... 42,609 40,044
Accounts payable and other liabilities (including
$5,141 in 1997 to affiliate) ...................... 12,291 8,433
-------- --------
184,560 176,340
Minority interest .................................... 10,810 10,911
Commitments and contingencies
Stockholders' equity
Preferred Stock, $2.00 par value, authorized
20,000,000 shares, issued and outstanding
4,000 shares Series B ......................... 8 8
16,274 shares Series C ........................ 33 32
Common stock, $.01 par value; authorized
16,667,000 shares, issued 13,479,348 shares
in 1997 and 1996 .................................. 134 129
Paid-in capital ...................................... 68,642 68,601
Accumulated (deficit) ................................ (21,674) (20,978)
Treasury stock at cost, 1,284,704 shares in 1997
and 564,704 shares in 1996 ........................ (13) (6)
-------- --------
47,130 47,786
-------- --------
$242,500 $235,037
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 4
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------
1997 1996
------------- ------------
(dollars in thousands,
except per share)
<S> <C> <C>
Income
Rents ............................................ $ 5,908 $ 5,310
Interest ......................................... 1,121 1,138
Other ............................................ 470 342
------------ ------------
7,499 6,790
Expenses
Property operations .............................. 4,453 3,710
Interest ......................................... 5,204 3,146
Advisory and servicing fees to affiliate ......... 424 320
Incentive compensation to affiliate .............. 411 --
General and administrative ....................... 795 642
Depreciation ..................................... 547 437
Minority interest ................................ 372 --
------------ ------------
12,206 8,255
------------ ------------
(Loss) from operations .............................. (4,707) (1,465)
Equity in income of investees ....................... 280 678
Gain on sale of real estate ......................... 4,287 559
------------ ------------
(Loss) before extraordinary gain .................... (140) (228)
Extraordinary gain .................................. -- 13
------------ ------------
Net (loss) .......................................... (140) (215)
Preferred dividend requirement ...................... 50 --
------------ ------------
Net (loss) applicable to Common shares .............. $ (190) $ (215)
============ ============
Earnings per share
Net (loss) ....................................... $ (.01) $ (.02)
============ ============
Weighted average Common shares used in computing
earnings per share ............................... 12,194,644 11,716,656
============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 5
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended March 31, 1997
<TABLE>
<CAPTION>
Series B Series C
Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Capital (Deficit) Equity
---------- --------- ------ -------- -------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 .......... $ 8 $ 32 $ 129 $ (6) $ 68,601 $(20,978) $47,786
Dividends
Common Stock ................... -- -- -- -- -- (506) (506)
Series B Preferred Stock ....... -- -- -- -- -- (10) (10)
Series C Preferred Stock ....... -- 1 -- -- 39 (40) --
Treasury stock, at cost ........... -- -- 5 (7) 2 -- --
Net (loss) ........................ -- -- -- -- -- (140) (140)
-------- ------ ------- ------ -------- -------- --------
Balance, March 31, 1997 ........... $ 8 $ 33 $ 134 $ (13) $ 68,642 $(21,674) $47,130
======= ======= ======= ====== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 6
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1997 1996
-------- ----------
(dollars in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Rents collected .................................... $ 5,128 $ 5,384
Interest collected ................................. 1,127 1,123
Distributions received from equity investees'
operating cash flow ............................. 568 3,986
Payments for property operations ................... (5,386) (4,942)
Interest paid ...................................... (3,533) (2,438)
Advisory and servicing fees paid to affiliate ...... (424) (320)
General and administrative expenses paid ........... (870) (672)
Other .............................................. 437 207
-------- --------
Net cash provided by (used in) operating
activities .................................. (2,953) 2,328
Cash Flows From Investing Activities
Collections on notes receivable .................... 1,931 261
Proceeds from sale of real estate .................. 1,219 891
Acquisition of real estate ......................... (1,421) --
Proceeds from sale of marketable equity
securities ...................................... 469 8,830
Notes receivable funded ............................ (150) --
Purchase of marketable equity securities ........... (1,789) (7,939)
Earnest money deposits ............................. (2,557) --
Investment in real estate entities ................. (463) (210)
Real estate improvements ........................... (769) (273)
-------- --------
Net cash provided by (used in) investing
activities .................................. (3,530) 1,560
Cash Flows From Financing Activities
Proceeds from notes payable ........................ 5,867 12,000
Payments on notes payable .......................... (5,138) (10,912)
Deferred borrowing costs ........................... (707) (672)
Net advances (payments) to/from affiliates ......... 5,125 (2,998)
Common dividends paid .............................. (506) --
Preferred dividends paid ........................... (10) --
Minority interest .................................. (372) --
Margin borrowings (repayments), net ................ 1,683 (2,034)
-------- --------
Net cash provided by (used in) financing
activities .................................. 5,942 (4,616)
Net (decrease) in cash and cash equivalents ..... (541) (728)
Cash and cash equivalents, beginning of period ........ 1,254 1,054
-------- --------
Cash and cash equivalents, end of period .............. $ 713 $ 326
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE> 7
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1997 1996
--------- ----------
(dollars in thousands)
<S> <C> <C>
Reconciliation of net (loss) to net cash provided
by (used in) operating activities
Net (loss) ............................................ $ (140) $ (215)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities
Extraordinary gain ................................ -- (13)
Depreciation ...................................... 547 437
Gain on sale of real estate ....................... (4,287) (559)
Distributions from equity investees' operating
cash flow ...................................... 568 3,986
Equity in (income) of investees ................... (280) (678)
Unrealized (gain) on marketable equity
securities ..................................... (356) (629)
Decrease in accrued interest receivable ........... 35 49
Decrease in other assets .......................... 2,301 536
Increase in accrued interest payable .............. 48 60
(Decrease) in accounts payable and other
liabilities .................................... (1,208) (902)
Other ............................................. (181) 256
------- -------
Net cash provided by (used in) operating
activities ................................... $(2,953) $ 2,328
======= =======
</TABLE>
Schedule on noncash investing and financing
activities
Notes payable from acquisition of real estate.... $ 5,125 $ -
Stock dividends on Series C Preferred Stock...... 40 -
The accompanying notes are an integral part of these Consolidated Financial
Statements.
7
<PAGE> 8
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements of American Realty Trust,
Inc. and consolidated entities (the "Company") have been prepared in conformity
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Operating results for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the Consolidated Financial
Statements and Notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (the "1996 Form 10-K").
Certain balances for 1996 have been reclassified to conform to the 1997
presentation. Shares and per share data have been restated for the two for one
forward share splits effected January 2, 1996 and February 17, 1997.
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. Included in the asset pool was
Southmark's 19.2% limited partner 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 a general partner of SAMLP. As of March 31, 1997,
the Company owned approximately 54.6% of the outstanding limited partner units
of NRLP.
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
8
<PAGE> 9
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)
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 $40.2 million at March 31, 1997,
before reduction for the principal balance ($4.2 million at March 31, 1997) and
accrued interest ($6.4 million at March 31, 1997) on the note receivable from
SAMLP for its original capital contribution to the partnership.
In January 1995, NRLP, SAMLP, the NRLP oversight committee and William H.
Elliott executed an Implementation Agreement which provides for the nomination
of an entity controlled by Mr. Elliott as 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.
In April 1995, the Company's Board of Directors approved the Company's entering
into a comfort and indemnification letter whereby the Company would agree to
indemnify Mr. Elliott and any entity controlled by Mr. Elliott which is elected
to serve as the successor general partner of NRLP and NOLP. Such
indemnification will stand behind any indemnification to which Mr. Elliott or
any entity controlled by Mr. Elliott may be entitled to under the NRLP
partnership 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.
9
<PAGE> 10
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)
In September 1996, the Judge appointed to supervise the class action settlement
(the "Supervising Judge") entered an order granting tentative approval of the
Amended and Restated Implementation Agreement and the form of notice to be sent
to the original class members. 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.
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 third 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 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 existing settlement agreement, appointment of a receiver and
collateral relief with the court. The motion alleges that the settling
defendants had failed or refused to perform their obligations under the
existing settlement agreements. 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. 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 NRLP
Oversight Committee and (ii) vacate the Court's orders and renewed his prior
motions to compel enforcement of the Moorman Settlement Agreement, appoint a
receiver over the Partnership, and for collateral relief against the Company.
Also on January 27, 1997, Robert
10
<PAGE> 11
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)
A. McNeil filed motions to (i) be installed as receiver for the
Partnership, (ii) vacate the Court's orders, and (iii) disband the NRLP
Oversight Committee.
A hearing on the motions to discharge or disband the Oversight Committee and to
vacate the Court's orders was held on March 21, 1997, and the Supervising Judge
ruled that neither Mr. McNeil nor Mr. Moorman had standing to bring the
motions. The Supervising Judge also set June 27, 1997 as the hearing date for
final approval of the Amended and Restated Implementation Agreement.
NOTE 3. NOTES AND INTEREST RECEIVABLE
The borrower on a $1.7 million 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 of the property until April
24, 1995. On April 25, 1995, the borrower filed for bankruptcy protection. On
August 24, 1996, the bankruptcy court's stay was lifted allowing the Company to
proceed with foreclosure. In February 1997, the Company sold its mortgage note
receivable for $1.8 million in cash. The Company recognized a gain of $171,000
on the sale.
NOTE 4. REAL ESTATE
In January 1997, the Company sold 3.0 acres of the Las Colinas I Land in Las
Colinas, Texas, for $1.2 million in cash. The Company recognized a gain of
$697,000 on the sale.
In January 1997, the Company purchased Scout land, 546 acres of undeveloped
land in Tarrant County, Texas, for $2.2 million. The Company paid $725,000 in
cash and obtained mortgage financing for the remaining $1.5 million of the
purchase price. The mortgage bears interest at 16% per annum, requires
quarterly interest payments of $61,000 beginning in April 1997, and matures in
January 2000. The Company paid a real estate brokerage commission of $135,000
to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of Basic Capital
Management, Inc. ("BCM"), the Company's advisor, based on the $2.2 million
purchase price of the property.
In October 1995, the Company purchased BP Las Colinas, a 92.6 acre parcel of
partially developed land in Las Colinas, Texas. In February 1996, the Company
entered into a contract to sell 72.5 acres of such parcel for $12.9 million.
The contract called for the sale to close in two phases. In July 1996, the
Company completed the first phase sale of 32.3 acres. In February 1997, the
Company completed the second phase sale of 40.2 acres for $8.0 million, of
which $7.2 million was paid in cash. Of the net sales proceeds of $6.9 million,
$1.5 million was used
11
<PAGE> 12
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. REAL ESTATE (Continued)
to payoff the underlying debt secured by the BP Las Colinas parcel, pay a
$500,000 maturity fee to the lender, make a $1.5 million principal paydown on
note secured by Parkfield land in Denver, Colorado with the same lender, and
$1.0 million was applied as a principal paydown on the term loan secured by the
Las Colinas I land parcel. In conjunction with the sale the Company provided
$800,000 in purchase money financing in the form of a six month unsecured loan.
The loan bears interest at 12% per annum, with all accrued but unpaid interest
and principal due at maturity. The Company recognized a gain of $3.4 million on
such sale, deferring an additional $800,000 of gain until the loan is paid in
full. The Company paid a real estate brokerage commission of $239,000 to Carmel
Realty based on the $8.0 million sales price of the property.
In March 1997, the Company purchased Katy Road land, 130.6 acres of undeveloped
land in Harris County, Texas, for $5.6 million. The Company paid $1.6 million
in cash with the seller providing purchase money financing for the remaining
$4.0 million of the purchase price. The mortgage bears interest at 9% per
annum, requires quarterly interest only payments of $92,000 and matures in
March 2000. The Company paid a real estate brokerage commission of $209,000 to
Carmel Realty based on the $5.6 million purchase price of the property.
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,
1996, 188 of the residential lots had been sold. In January 1997, one lot was
sold for a gain of $3,000. At March 31, 1997, 9 lots remained to be sold.
NOTE 5. INVESTMENTS IN EQUITY INVESTEES
Real estate entities. The Company's investment in real estate entities at March
31, 1997, 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. ("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 7. "MARGIN
BORROWINGS."
12
<PAGE> 13
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. INVESTMENTS IN EQUITY INVESTEES (Continued)
The Company's investment in real estate entities, accounted for using the
equity method, at March 31, 1997 was as follows:
<TABLE>
<CAPTION>
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee March 31, 1997 March 31, 1997 March 31, 1997 March 31, 1997
- -------- ------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
NRLP 54.6% $ 14,104 $ * $ 5,970
CMET 40.6 13,904 35,210 24,507
IORI 29.6 3,181 7,048 6,583
TCI 30.5 6,327 24,038 14,922
------------ -------------
37,516 $ 51,982
=============
General partner interest in
NRLP and NOLP 6,513
Other (1,382)
------------
$ 42,647
============
</TABLE>
- ------------------
* At March 31, 1997, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity at December 31, 1996, was
$181.5 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, 1996.
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 1997.
Other equity investees. The Company owns 80% of the common stock of an entity
which operates pizza parlors in California and Texas. Concurrent with its
purchase, the Company granted to an individual an option to purchase 36.25% of
the Company's interest, at any time for 36.25% of the Company's net investment.
The Company anticipates taking such entity public during 1997. Accordingly, the
Company believes its control of such entity is temporary and accounts for such
entity under the equity method.
13
<PAGE> 14
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. INVESTMENT IN EQUITY INVESTEES (Continued)
Set forth below is summarized results of operations for the Company's equity
investees for the three months ended March 31, 1997:
<TABLE>
Equity investee owned over 50%:
<S> <C>
Revenues......................................................... $33,666
Property operating expenses...................................... 22,603
Depreciation..................................................... 2,501
Interest expense................................................. 8,726
-------
Net (loss)....................................................... $ (164)
=======
</TABLE>
The Company's share of over 50% owned equity investees' losses was $174,000 for
the three months ended March 31, 1997.
<TABLE>
Equity investees owned less than 50%:
<S> <C>
Revenues......................................................... $28,625
Equity in (loss) of partnerships................................. 412
Property operating expenses...................................... 18,944
Depreciation..................................................... 4,140
Interest expense................................................. 8,233
-------
(Loss) before gains on sale of real estate and extraordinary
gains.......................................................... (2,280)
Gain on sale of real estate...................................... 3,249
Extraordinary gain............................................... --
-------
Net income....................................................... $ 969
=======
</TABLE>
The Company's share of less than 50% owned equity investees' loss before gain
on the sales of real estate was $525,000 for the three months ended March 31,
1997. The Company's share of equity investees gains on sale of real estate was
$979,000 for the three months ended March 31, 1997.
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 three months of 1997
the Company received aggregate distributions of $568,000 from the REITs and
NRLP.
In the first three months of 1997, the Company purchased a total of $173,000 of
equity securities of the REITs and NRLP.
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, 1996, 184 residential lots had been sold. In the first three months of 1997
no additional lots were sold. At March 31, 1997, 103 lots remained to be sold.
14
<PAGE> 15
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. INVESTMENT IN EQUITY INVESTEES (Continued)
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
Joint Venture, which owns a 413,175 square foot office building in Dallas,
Texas. In January 1997, the Company exercised its option to purchase an
additional 28% general partner interest in Campbell Center Associates, Ltd. The
purchase price was $300,000 in cash and a $750,000 note, which bears interest
at 8% per annum, requires monthly interest only payments commencing in April
1997 and matures in April 2000.
In July 1996, a newly formed limited partnership, of which the Company is 1%
general partner, purchased the Highway 380 Land, 580 acres of undeveloped land
in Collin County, Texas, for $5.7 million. 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 occur. In April 1997,
the Partnership sold 35 acres of the Highway 380 Land for $1.3 million in cash.
In accordance with the provisions of the partnership agreement the net sales
proceeds of $1.2 million were distributed to the limited partner.
NOTE 6. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO
Since 1994, the Company has been 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 three months of 1997, the Company purchased $1.8
million and sold $469,000 of such securities. These equity securities are
considered a trading portfolio and are carried at market value. At March 31,
1997, the Company recognized an unrealized increase in the market value of its
trading portfolio securities of $356,000. Also in the first three months of
1997, the Company realized a net gain of $7,000 from the sale of trading
portfolio securities and received $24,000 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 7. 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 7.0% to 11.0%. Margin borrowing totaled $42.6
million at March 31, 1997.
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
15
<PAGE> 16
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. MARGIN BORROWINGS (Continued)
at least 50% of the principal balance of the loan. As of March 31, 1997,
3,349,169 NRLP units with a market value of $58.6 million were pledged as
security for such loan.
NOTE 8. 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
three months ended March 31, 1997 or 1996.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Litigation. The Company is involved in various lawsuits arising in the ordinary
course of business. In the opinion of the Company's management, the outcome of
these lawsuits will not have a material impact on the Company's financial
condition, results of operations or liquidity.
NOTE 10. SUBSEQUENT EVENTS
In April 1997, the Company purchased McKinney Corners I, 30.4 acres of
undeveloped land in McKinney, Texas, for $3.5 million. The Company paid $1.0
million in cash and obtained mortgage financing for the remaining $2.5 million
of the purchase price. The loan bears interest at 14% per annum, requires
monthly interest only payments of $29,000 and matures in April 1998. The
Company paid a real estate brokerage commission of $208,000 to Carmel Realty
based on the $3.5 million purchase price of the property.
In April 1997, the Company purchased McKinney Corners II, 173.86 acres of
undeveloped land in McKinney, Texas, for $5.7 million. The Company paid
$700,000 in cash and obtained mortgage financing for the remaining $5.0 million
of the purchase price as a fourth advance under the term loan from the Las
Colinas I lender. The term loan was amended increasing the term loan amount
from $19.5 million to $24.5 million. The amendment also changed the required
principal reduction payments to $500,000 in June, July, September and October
1997 and $1.0 million in August and November 1997. The McKinney Corners II land
was added as additional collateral on the term loan. The Company paid a real
estate brokerage commission of $343,000 to Carmel Realty based on the $5.7
million purchase price of the property.
In April 1997, the Company sold 3.115 acres of the Las Colinas I land for $1.3
million in cash. The Company used $1.0 million of the sales proceeds as a
collateral escrow deposit in accordance with the provision of the Valley Ranch
land loan. The Company will recognize a
16
<PAGE> 17
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 10. SUBSEQUENT EVENTS (Continued)
gain of approximately $800,000 on the sale. The Company paid a real estate
brokerage commission of $38,000 to Carmel Realty based on the $1.3 million
sales price of the property.
-------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
American Realty Trust, Inc. (the "Company") was organized in 1961 to provide
investors with a professionally managed, diversified portfolio of equity real
estate and mortgage loan investments selected to provide opportunities for
capital appreciation as well as current income.
Liquidity and Capital Resources
General. Cash and cash equivalents at March 31, 1997 aggregated $713,000,
compared with $1.3 million at December 31, 1996. Although the Company
anticipates that during the remainder of 1997 it will generate excess cash flow
from property operations, as discussed below, such excess cash is not expected
to be sufficient to discharge all of the Company's debt obligations as they
mature. The Company will therefore continue to rely on externally generated
funds, including borrowings against its investments in various real estate
entities, mortgage notes receivable, the sale or refinancing of properties and,
to the extent available or necessary, borrowings from its advisor to meet its
debt service obligations, pay taxes, interest and other non-property related
expenses.
At December 31, 1996, notes payable totaling $36.0 million had either scheduled
maturities or required principal reduction payments during 1997. Through April
30, 1997 the Company has paid a total of $5.1 million of such debt. The Company
intends to either pay off, extend the maturity dates or obtain alternate
financing for the remaining $30.9 million debt obligations during the remainder
of 1997. There can be no assurance, however, that these efforts to obtain
alternative financing or debt extensions will be successful.
The Company expects an increase in cash flow from property operations
during the remainder of 1997. Such increase is expected to be derived
from operations of the Inn at the Mart, Kansas City Holiday Inn, Best
Western Oceanside Hotel, and Rosedale Towers Office Building. The
Company is also expecting continued lot sales at its Texas residential
subdivisions and substantial sales of the land to generate additional
cash flow. See NOTE 4. "REAL ESTATE."
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
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. The contract calls for
the sale to close in two phases. In July 1996, the Company completed the first
phase sale of 32.3 acres for $4.9 million in cash. In accordance with the terms
of the term loan secured by such property, the Company applied the net proceeds
of the sale, $4.7 million, to pay down the term loan, 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. In February 1997, the Company
completed the second phase sale of 40.2 acres for $8.0 million, of which $7.2
million was paid in cash. Of the net sales proceeds of $6.9 million, $1.5
million was used to payoff the underlying debt secured by the BP Las Colinas
parcel, pay a $500,000 maturity fee to the lender, make a $1.5 million
principal paydown on note secured by Parkfield land in Denver, Colorado with
the same lender, and $1.0 million was applied as a principal paydown on the
term loan secured by the Las Colinas I land parcel. In conjunction with the
sale the Company provided $800,000 in purchase money financing in the form of a
six month unsecured loan. The loan bears interest at 12% per annum, with all
accrued but unpaid interest and principal due at maturity. The Company
recognized a gain of $3.4 million on such sale, deferring an additional
$800,000 of gain until the loan is paid in full.
In January 1997, the Company sold 3.0 acres of the Las Colinas I Land in Las
Colinas, Texas, for $1.2 million in cash. The Company recognized a gain of
$697,000 on the sale.
In January 1997, the Company purchased Scout land, 546 acres of undeveloped
land in Tarrant County, Texas, for $2.2 million. The Company paid $725,000 in
cash and obtained mortgage financing for the remaining $1.5 million of the
purchase price. The mortgage bears interest at 16% per annum, requires
quarterly interest payments of $61,000 beginning in April 1997, and matures in
January 2000.
In March 1997, the Company purchased Katy Road land, 130.6 acres of undeveloped
land in Harris County, Texas, for $5.6 million. The Company paid $1.6 million
in cash and obtained seller financing for the remaining $4.0 million of the
purchase price. The mortgage bears interest at 9% per annum, requires quarterly
interest payments of $92,000 and matures in March 2000.
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, totaling $4.7
million at March 31, 1997, 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
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
the extent that the Company's liquidity permits or financing sources are
available, the Company may make investments in real estate, primarily
investments in developed, 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 $4.9 million,
$35.3 million and $10.3 million of such land during the remainder of 1997 and
in each of the next two years, respectively, to satisfy the debt on its land
holdings as they mature. 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 $131,000 in principal
payments in the three months ended March 31, 1997.
In February 1997, the Company sold its mortgage note receivable secured by land
in Osceola, Florida for $1.8 million in cash. The note receivable had a
principal balance of $1.6 million at December 31, 1996 and had been in default
since November 1993. See NOTE 3. "NOTES AND INTEREST RECEIVABLE." The Company
recognized a gain of $171,000 on the sale.
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 borrowings under such margin arrangements are secured by equity
securities of the REITs, NRLP and the Company's trading portfolio and bear
interest rates ranging from 7.0% to 11.0%. Margin borrowing totaled $42.6
million at March 31, 1997.
Equity Investments. During the fourth quarter of 1988, the Company began
purchasing shares of various Real Estate Investment Trusts (collectively, the
"REITs") 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. ("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.
Equity securities of the REITs and NRLP held by the Company may be deemed to be
"restricted securities" under Rule 144 of the Securities Act of 1933
("Securities Act"). Accordingly, the Company may be unable to sell such equity
securities other than in a registered public offering or pursuant to an
exemption under the Securities Act for a period of two years after they are
acquired. Such restrictions may reduce the Company's ability to realize the
full fair market value of such investments if the Company attempted to dispose
of such securities in a short period of time.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
The Company's cash flow from these investments is dependent on the ability of
each of the entities to make distributions. In the first quarter of 1993, CMET
and IORI resumed quarterly distributions. NRLP resumed distributions in the
fourth quarter of 1993 and TCI resumed distributions in the fourth quarter of
1995. The Company received distributions totaling $568,000 in the first three
months of 1997 from the REITs and NRLP.
The Company's management reviews the carrying values of the Company's
properties and mortgage note receivable at least annually and whenever events
or a change in circumstances indicate that impairment may exist. Impairment is
considered to exist if, in the case of a property, the future cash flow from
the property (undiscounted and without interest) is less than the carrying
amount of the property. For notes receivable impairment is considered to exist
if it is probable that all amounts due under the terms of the note will not be
collected. In those instances where impairment is found to exist, a provision
for loss is recorded by a charge against earnings. The Company's mortgage note
receivable review includes an evaluation of the collateral property securing
such 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, a
review of the property's cash flow, discussions with the manager of the
property and a review of properties in the surrounding area.
Commitments and Contingencies
In January 1995, NRLP, Syntek Asset Management, L.P. ("SAMLP"), the NRLP
oversight committee and William H. Elliott executed an Implementation Agreement
which provides for the nomination of an entity controlled by Mr. Elliott as
successor general partner to succeed SAMLP as general partner of NRLP and
National Operating, L.P. ("NOLP"), the operating partnership of NRLP, and for
the resolution of all related matters under the 1990 settlement of a class
action lawsuit. On February 20, 1996, the parties to the Implementation
Agreement executed an Amended and Restated Implementation Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as general partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.
In September 1996, the Judge appointed to supervise the class action settlement
(the "Supervising Judge") entered an order granting tentative approval of the
Amended and Restated Implementation Agreement and the
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Commitments and Contingencies (Continued)
form of notice to be sent to the original class members. 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'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 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. See NOTE 2. "SYNTEK
ASSET MANAGEMENT, L.P."
In April 1995, the Company's Board of Directors approved the Company's entering
into a comfort and indemnification letter whereby the Company would agree to
indemnify Mr. Elliott and any entity controlled by Mr. Elliott which is elected
to serve as the successor general partner of NRLP and NOLP. Such
indemnification will stand behind any indemnification to which Mr. Elliott or
any entity controlled by Mr. Elliott may be entitled to under the NRLP
partnership agreement.
On September 3, 1996, Joseph B. Moorman filed a Motion for Orders Compelling
Enforcement of the Moorman Settlement Agreement, Appointment to a Receiver and
Collateral Relief with the Court. The motion alleged that the settling
defendants had failed or refused to perform their obligations under the Moorman
Settlement Agreement and had breached the Moorman Settlement Agreement. The
motion also 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 in October 1996. In January 1997, the Supervising Judge entered an order
denying the motion.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Commitments and Contingencies (Continued)
On January 27, 1997, Joseph B. Moorman filed motions to (i) discharge the NRLP
Oversight Committee and (ii) vacate the Court's orders and renewed his prior
motions to compel enforcement of the Moorman Settlement Agreement, appoint a
receiver over the Partnership, and for collateral relief against the Company.
Also on January 27, 1997, Robert A. McNeil filed motions to (i) be installed as
receiver for the Partnership, (ii) vacate the Court's orders, and (iii) disband
the NRLP Oversight Committee.
A hearing on the motions to discharge or disband the Oversight Committee and to
vacate the Court's orders was held on March 21, 1997, and the Supervising Judge
ruled that neither Mr. McNeil nor Mr. Moorman had standing to bring the
motions. The Supervising Judge also set June 27, 1997 as the hearing date for
final approval of the Amended and Restated Implementation Agreement.
Results of Operations
For the three months ended March 31, 1997, the Company reported a net loss of
$140,000, compared to a net loss of $215,000 for the three months ended March
31, 1996. The Company's 1997 net loss includes gains on the sale of real estate
of $4.3 million. The 1996 net loss includes an extraordinary gain of $13,000
and gains on sales of real estate of $559,000. Fluctuations in these and other
components of the Company's revenues and expenses between the 1996 and 1997
periods are described below.
Net rental income (rents less property operating expenses) decreased from $1.6
million for the three months ended March 31, 1996 to $1.5 million in the same
period of 1997. The decrease is principally due to operating expenses of the
Best Western Oceanside Hotel which was acquired in December 1996.
Interest income from mortgage notes receivable was $1.1 million for the three
months ended March 31, 1996 and the same period of 1997. Interest income for
the remaining quarters of 1997 is expected to approximate that of the first
quarter of 1997.
Other income improved from $342,000 for the three months ended March 31, 1996
to income of $470,000 in the same period of 1997. The increase is primarily due
to a $350,000 unrealized gain on the Company's trading portfolio securities.
See NOTE 6. "MARKETABLE EQUITY SECURITIES TRADING PORTFOLIO."
Interest expense increased from $3.1 million for the three months ended March
31, 1996 to $5.2 million in the same period of 1997. The increase is primarily
attributable to the debt incurred related to the acquisition of seven parcels
of land and one commercial property subsequent to March 1996. These increases
were offset in part by a
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
decrease of $491,000 due to the sale of 40.2 acres of the BP Las Colinas land
in February 1997. Interest expense is expected to increase as the Company
continues to acquire properties on a leveraged basis.
Depreciation expense increased from $437,000 for the three months ended March
31, 1997 to $547,000 in the same period of 1997. The increase is primarily
attributable to the purchase of Best Western Oceanside Hotel in December 1996.
Advisory and mortgage servicing fees increased from $320,000 for the three
months ended March 31, 1996 to $424,000 in the same period of 1997. The
increase is primarily attributable to the Company's increase in gross assets,
the basis for such fee, and is expected to increase as the Company acquires
additional properties.
General and administrative expenses increased from $642,000 for the three
months ended March 31, 1996 to $795,000 in the same period of 1997. The
increase is primarily attributable to legal fees and travel expenses incurred
in 1997 relating to pending acquisitions and refinancings, and increases in
advisor cost reimbursements.
Equity in income of investees decreased from $678,000 for the three months
ended March 31, 1996 to $280,000 in the comparable period of 1997. The decrease
in equity income is attributable to an increase in the combined operating
losses of the Company's equity investees from $264,000 for the three months
ended March 31, 1996 to $699,000 in the same period of 1997, offset by the
Company's equity share of the equity investees' gain on sale of real estate of
$1.6 million in 1996 and $979,000 in the same period of 1997.
In the three months ended March 31, 1997, the Company recognized a $697,000
gain on the sale of 3.0 acres of Las Colinas I land and $3.4 million on the
sale of 40.2 acres of BP Las Colinas land. In the three months ended March 31,
1996, the Company recognized a $538,000 gain on the sale of 2.3 acres of Las
Colinas I land.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the
air, and third parties may seek recovery from the Company for personal injury
associated with such materials.
23
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Environmental Matters (Continued)
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.
-----------------------------------
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on April 7, 1997, at such
meeting the Company's stockholders elected the following individuals as Class
II Directors of the Company:
<TABLE>
<CAPTION>
Shares Voting
-------------------------
Withheld
Director For Authority
-------------------- ------------ ----------
<S> <C> <C>
Roy E. Bode............................... 12,166,154 29,127
Al Gonzalez............................... 12,665,534 29,747
</TABLE>
The Directors whose terms did not expire in 1996 and therefore did not
stand for reelection were Oscar W. Cashwell, Class I Director and Karl
L. Blaha and Dale A. Crenwelge, Class III Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
3.0 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
Series C 10% Cumulative Preferred Stock, increasing the
number of authorized shares, dated April 21, 1997, filed
herewith.
24
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Restated 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 Series C 10% Cumulative Preferred Stock,
dated April 21, 1997, filed herewith.
10.0 Amended and Restated Advisory Agreement between American Realty
Trust, Inc. and Basic Capital Management, Inc., dated April 1,
1997, filed herewith.
27.0 Financial Data Schedule, filed herewith.
</TABLE>
(b) Reports on Form 8-K as follows:
None.
25
<PAGE> 26
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN REALTY TRUST, INC.
Date: May 15, 1997 By: /s/ Karl L. Blaha
------------------------- -----------------------------
Karl L. Blaha
President
Date: May 15, 1997 By: /s/ Thomas A. Holland
-------------------------- -----------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26
<PAGE> 27
AMERICAN REALTY TRUST, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Quarter ended March 31, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C>
3.0 Articles of Amendment of the Articles of 28
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 Series C 10% Cumulative Preferred Stock,
increasing the number of authorized shares, dated April 21,
1997.
3.1 Restated Articles of Amendment of the Articles of 30
Incorporation of American Realty Trust, Inc.
setting forth the Certificate of Designations,
Preferences and Relative Participating or Optional
or Other Special Rights, and Qualifications,
Limitation or Restrictions thereof of Special
Stock of Series C 10% Cumulative Preferred Stock,
dated April 21, 1997.
10.0 Amended and Restated Advisory Agreement between 41
American Realty Trust, Inc. and Basic Capital
Management, Inc., dated April 1, 1997.
27.0 Financial Data Schedule. 54
</TABLE>
27
<PAGE> 1
EXHIBIT 3.0
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
April 21, 1997, adopted a resolution providing for an increase in the maximum
number of shares which shall constitute the Series C 10% Cumulative Preferred
Stock, which resolution is as follows:
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 (i) amends the
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 - Series C 10% Cumulative Preferred Stock, dated
March 23, 1996, to provide for an increase in the maximum number of shares
which shall constitute the Series C 10% Cumulative Preferred Stock to
16,681 shares and (ii) adopts the attached Restated 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.
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<PAGE> 2
IN WITNESS WHEREOF, these Articles of Amendment are executed on
behalf of the Corporation by its President as of the 21st day of April, 1997.
AMERICAN REALTY TRUST, INC.
By: /s/ Karl L. Blaha
------------------------
Karl L. Blaha
President
29
<PAGE> 1
EXHIBIT 3.1
RESTATED
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 consents dated as of
May 23, 1996, and April 21, 1997, adopted certain recitals and resolutions
providing for the designations, preferences and relative participating,
optional or other special rights and qualifications, limitations or
restrictions thereof, of a series of special stock of the Corporation,
specifically the Series C 10% Cumulative Preferred Stock, which recitals and
resolutions are as follows:
WHEREAS, Article Five of the Articles of Incorporation,
as amended, of the Corporation authorizes the Corporation to issue not
more than 16,666,667 shares of common voting stock, $0.01 par value
per share (the "Common Stock"), and 20,000,000 shares of a special
class of stock, $2.00 par value per share (the "Special Stock"), which
Special Stock may be issued from time to time in one or more series
and shall be designated as the Board of Directors may determine to
have such voting powers, preferences, limitations and relative rights
with respect to the shares of each series of the class of Special
Stock of the Corporation as expressly provided in a resolution or
resolutions providing for the issuance of such series adopted by the
Board of Directors which is vested with the authority in respect
thereof;
WHEREAS, 500,000 shares of such Special Stock has been
previously designated as the Series A Cumulative Participating
Preferred Stock prior to the date hereof, none of which are now issued
and outstanding;
WHEREAS, 4,000 shares of such Special Stock has been
previously designated as the Series B 10% Cumulative Preferred Stock,
prior to the date hereof, all 4,000 shares of which are now issued and
outstanding; and
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<PAGE> 2
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 16,681 shares, which number may be
decreased (but not below the number then outstanding), from
time to time by the Board of Directors, subject to the
provisions hereof.
3. Dividends and Dividend Rate. Holders of record on
the fifteenth day of each March, June, September and December
of each year of shares of the Series C Preferred Stock shall
be entitled to receive dividends, when and as declared by the
Board of Directors of the Corporation and to the extent
permitted under the Georgia Business Corporation Code,
payable quarterly on each March 31, June 30, September 30 and
December 31 of each year, beginning on June 30, 1996 (each a
"Dividend Reference Date" and, collectively, the "Dividend
Reference Dates"), in preference to and with priority over
dividends upon all "Junior Securities" (as defined in
paragraph 6 below). The dividends for the first four quarters
after issuance of the Series C Preferred Stock shall be paid
by issuance of additional shares of Series C Preferred Stock
with a face amount equal to each quarterly dividend payment.
Except as otherwise provided herein, dividends on each share
of Series C Preferred Stock (a "Share") will accrue
cumulatively on a daily basis at the rate per share of ten
dollars ($10) per annum ($2.50 per calendar quarter) from and
including the date of issuance to and
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<PAGE> 3
including the date on which the "Redemption Price" (as
defined in paragraph 4 below) of such Share is paid, whether
or not such dividends have been declared and whether or not
there are profits, surplus or other funds of the Corporation
legally available for the payment of such dividends. For
purposes of this paragraph 3, the date on which the
Corporation initially issues any Share is its date of
issuance, regardless of the number of times transfer of such
Share is made on the stock records maintained by or for the
Corporation and regardless of the number of certificates that
may be issued to evidence such Share (whether by reason of
transfer of such Share or for any other reason). So long as
any Shares of Series C Preferred Stock are outstanding, the
Corporation will not declare or pay any dividends on Junior
Securities (other than dividends in respect of Common Stock
payable in shares of Common Stock) or make, directly or
indirectly, any other distribution of any sort in respect of
Junior Securities, or any payment on account of the purchase
or other acquisition of the Junior Securities, unless on the
date of such declaration in the case of a dividend, or on
such date of distribution or payment, in the case of such
distribution or other payment (a) all dividends on the Series
C Preferred Stock for all past quarter-yearly dividend
periods have been paid in full and the full dividends for the
then current quarter-yearly period shall have been paid or
declared in a sum sufficient for the payment thereof set
apart, and (b) after giving effect to such payment of
dividends, other distributions, purchase or redemption, the
aggregate capital of the Corporation applicable to all
capital stock of the Corporation then outstanding, plus the
earned and capital surplus of the Corporation shall exceed
the aggregate amount payable on involuntary dissolution,
liquidation or winding up of the Corporation on all Shares of
the Special Stock and all stock ranking prior to or on a
parity with the Series C Preferred Stock as to dividends or
assets outstanding after the payment of such dividends, other
distributions, purchase or redemption. Dividends shall not be
paid or declared and set apart for payment on any series of
Special Stock for any dividend period (including the Series C
Preferred Stock) unless dividends have been or are,
contemporaneously, paid and declared and set apart for
payment on all outstanding series of Special Stock entitled
thereto for all dividend periods terminating on the same or
earlier date. If at any time the Corporation pays less than
the total amount of dividends then accrued with respect to
the Series C Preferred Stock, such payment will be
distributed ratably among the then holders of Series C
Preferred Stock so that an amount equal is paid with respect
to each outstanding Share.
4. Redemption. The Corporation may, at any
time after the issuance thereof and from time to time, at the
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<PAGE> 4
election of the Board of Directors of the Corporation redeem
any or all of the Series C Preferred Stock then outstanding
by written notice given not less than twenty (20) nor more
than sixty (60) days before the date fixed for redemption
(the "Redemption Date"). If mailed, such notice shall be
deemed to be delivered when deposited in the United States
Mail, postage prepaid, addressed to the holder of shares of
Series C Preferred Stock at his address as it appears on the
stock transfer records of the Corporation. Such notice shall
set forth (a) the shares to be so redeemed, (b) the date
fixed for redemption, (c) the applicable Redemption Price,
and (d) the place at which the holder(s) may obtain payment
of the applicable Redemption Price upon surrender of the
share certificate(s). If less than all shares of Series C
Preferred Stock at any time outstanding shall be called for
redemption, such shares shall be redeemed pro rata by lot
drawn or other manner deemed fair in the sole discretion of
the Board of Directors to redeem one or more such shares
without redeeming all such shares of Series C Preferred
Stock. If such notice of redemption shall have been so
mailed, on or before the Redemption Date, the Corporation may
provide for payment of a sum sufficient to redeem the
applicable number of Series C Preferred Stock called for
redemption either (i) by setting aside the sum required to be
paid as the Redemption Price by the Corporation, separate and
apart from its other funds, in trust for the account of the
holder(s) of the shares of Series C Preferred Stock to be
redeemed or (ii) by depositing such sum in a bank or trust
company (either located in the state where the principal
executive office of the Corporation is maintained, such bank
or trust company having a combined surplus of at least
$20,000,000 according to its latest statement of condition,
or such other bank or trust company as may be permitted by
the Articles of Incorporation, as amended, or by law) as a
trust fund, with irrevocable instructions and authority to
the bank or trust company to give or complete the notice of
redemption and to pay, on or after the Redemption Date, the
applicable Redemption Price on surrender of certificates
evidencing the share(s) of Series C Preferred Stock so called
for redemption and, in either event, from and after the
Redemption Date (A) the share(s) of Series C Preferred Stock
deemed to be redeemed, (B) such setting aside or deposit
shall be deemed to constitute full payment for such Share(s),
(C) such Share(s) so redeemed shall no longer be deemed to be
outstanding, (D) the holder(s) thereof shall cease to be a
shareholder of the Corporation with respect to such share(s),
and (E) such holder(s) shall have no rights with respect
thereto except the right to receive their proportionate share
of the funds set aside pursuant hereto or deposited upon
surrender of their respective certificates. Any interest on
the funds so deposited
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<PAGE> 5
shall be paid to the Corporation. Any and all such redemption
deposits shall be irrevocable except to the following extent:
any funds so deposited which shall not be required for the
redemption of any shares of Series C Preferred Stock because
of any prior sale or purchase by the Corporation other than
through the redemption process, subsequent to the date of
deposit but prior to the Redemption Date, shall be repaid to
the Corporation forthwith and any balance of the funds so
deposited and unclaimed by the holder(s) of any shares of
Series C Preferred Stock entitled thereto at the expiration
of one calendar year from the Redemption Date shall be repaid
to the Corporation upon its request or demand therefor and
after any such repayment the holder(s) of the share(s) so
called for redemption shall look only to the Corporation for
payment of the Redemption Price thereof. In addition to the
redemption under this paragraph 4, the Corporation may redeem
or repurchase shares of the Series C Preferred Stock from any
holder(s) thereof who consents in writing to such redemption
and the provisions of this paragraph 4 will not apply to any
such consented redemption. All shares of Series C Preferred
Stock redeemed shall be can celled and retired and no shares
shall be issued in place thereof, but such shares shall be
restored to the status of authorized but unissued shares of
Special Stock. The "Redemption Price" (herein so called)
shall be an amount equal to the "Liquidation Value" (as
defined in paragraph 6 below) of $100 per Share plus the
amount of all accrued but unpaid dividends thereon to the
Redemption Date, which shall include all cumulative dividends
in arrears and also the proportionate part of the dividend
accrued since the last Dividend Reference Date preceding the
Redemption Date and whether or not earned or declared, but
without interest.
5. Sinking Fund. The Corporation shall not be
required to maintain any so-called "Sinking Fund" for the
retirement on any basis of the Series C Preferred Stock.
6. Rights on Liquidation. In the event of any
liquidation, dissolution or winding-up of the Corpora tion,
and after paying and providing for the payment of all
creditors of the Corporation, the holders of shares of the
Series C Preferred Stock then outstanding shall be entitled,
before any distribution or payment is made upon any "Junior
Securities" (defined to be and mean the Common Stock and any
other equity security of any kind which the Corporation at
any time has issued, issues or is authorized to issue if the
Series C Preferred Stock has priority over such securities as
to dividends or upon liquidation), to receive a liquidation
preference in an amount in cash equal to the aggregate
Liquidation Value of all shares of Series C Preferred Stock
then outstanding, whether any such liquidation, dissolution
or winding up is voluntary or involuntary and the holders of
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<PAGE> 6
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 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.
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<PAGE> 7
8. Voting Rights. The holders of the shares of
Series C Preferred Stock shall only have the voting rights
specifically required by law under Section 14-2- 1004 of the
Georgia Business Corporation Code, and shall have the
following additional voting rights subject to and after
compliance with any applicable laws and rules or actual
requirements of any exchange upon which any securities of the
Corporation are listed:
(a) except as may otherwise be specifically
required by law under Section 14-2-1004 of the
Georgia Business Corporation Code, the holders of
the shares of Series C Preferred Stock shall not
have the right to vote such stock, directly or
indirectly, at any meeting of the shareholders of
the Corporation and such shares of stock shall not
be counted in determining the total number of
outstanding shares to constitute a quorum at any
meeting of shareholders;
(b) in the event that, under any
circumstance, the holders of the Series C Preferred
Stock are required by law to vote upon any matter,
the approval of such series shall be deemed to have
been obtained upon the affirmative vote of the
holders of only a majority of the shares of the
Series C Preferred Stock then outstanding;
(c) except as set forth herein, or as
otherwise provided by the Articles of Incorporation,
as amended, or by law, holders of the Series C
Preferred Stock shall have no special voting rights
and their consent shall not be required for the
taking of any corporate action.
9. Conversion Rights. The Series C Preferred Stock
may be converted at any time at the option of the holders
thereof during a ninety (90) calendar day period (the
"Conversion Period" as defined below) at the "Conversion
Price" (as defined below) in the manner hereinafter provided,
into fully paid and nonassessable Common Stock of the
Corporation by multiplying the number of Shares of Series C
Preferred Stock to be converted by $100 and dividing the
result by the Conversion Price; provided, however, that as to
any shares of Series C Preferred Stock which shall have been
called for redemption, the right of conversion shall
terminate at the close of business on the second full
business day prior to the date fixed for redemption and that,
on the commencement of any liquidation, dissolution or
winding up of the Corporation or the adoption by the
stockholders of the Corporation of any resolution authorizing
the commencement thereof, the right of conversion shall
terminate.
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<PAGE> 8
(a) For the purposes of this paragraph
9, the following terms shall have the meanings
ascribed below:
(i) "Conversion Period" shall be a
period in time which commences at 7:00 a.m.
local Dallas, Texas time on the day which
is thirty (30) calendar months after the
date of original issuance of the first
certificate, issued by the Corporation,
representing shares of Series C Preferred
Stock and expire at 3:00 p.m. local Dallas,
Texas time on the nintieth (90th) calendar
day thereafter.
(ii) "Conversion Price" shall be
and mean the amount determined (rounded
upward to the nearest cent) by multiplying
0.9 times the simple average of the daily
closing price of the Common Stock for the
three (3) trading days immediately
preceding the first day of the Conversion
Period on the market where the shares of
Common Stock of the Corporation are then
regularly traded (which is currently the
New York Stock Exchange, Inc.); provided,
however, if the shares of Common Stock of
the Corporation have not traded on such
market for at least thirty (30) days during
the six calendar months preceding the first
day of the Conversion Period, then such
average shall be of the actual number of
trading days in excess of three (3) as may
be available; provided further that if only
three or fewer trading days exist during
the six months immediately preceding the
first day of the Conversion Period, the
Conversion Price shall be equal to the
simple average of the closing prices of the
shares of Common Stock during such shorter
period of three or fewer days on such
market. The Conversion Price shall not be
subject to any adjustment for the issuance
of any shares of Common Stock by the
Corporation for any purpose.
(b) Upon any conversion, fractional shares
shall not be issued but any fractions shall be
adjusted by the delivery of one additional share of
Common Stock in lieu of any cash on the basis of the
"closing" market price for Common Stock at the close
of business on the date of conversion unless the
Board of Directors shall determine to adjust by the
issuance of fractional scrip certificates or in some
other manner. Upon any conversion, any dividends
accrued on the Series C Preferred Stock surrendered
for conversion not previously paid shall be paid at
the time of conversion. The
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<PAGE> 9
Corporation shall pay all issue taxes, if any,
incurred in respect to the issuance of Common Stock
on conversion, provided, however, that the
Corporation shall not be required to pay any
transfer or other taxes incurred by reason of the
issuance of such Common Stock in names other than
those in which the Series C Preferred Stock
surrendered for conversion may stand.
(c) Any conversion of Series C Preferred
Stock into Common Stock shall be made by the
surrender to the Corporation, at the office of any
Transfer Agent for the Common Stock, of the
certificate or certificates representing the Series
C Preferred Stock to be converted, duly endorsed or
assigned (unless such endorsement or assignment be
waived by the Corporation), together with a written
request for conversion.
(d) All Series C Preferred Stock which
shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding
and all rights with respect to such shares of stock,
including the rights, if any, to receive notices and
to vote, shall forthwith cease except only the
rights of the holders thereof to receive Common
Stock in exchange therefor. Any Series C Preferred
Stock so converted shall be permanently retired,
shall no longer be deemed outstanding and shall not
under any circumstances be reissued and the
Corporation may from time to time take such
appropriate corporate action as may be necessary to
reduce the authorized Series C Preferred Stock
accordingly.
(e) A number of authorized shares of Common
Stock sufficient to provide for the conversion of
the Series C Preferred Stock outstanding upon the
basis hereinbefore provided shall at all times be
reserved for such conversion. If the Corporation
shall propose to issue any securities or to make any
change in its capital structure which would change
the number of shares of Common Stock into which each
share of Series C Preferred Stock shall be
convertible as herein provided, the Corporation
shall at the same time also make proper provision so
that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved
for conversion of the outstanding Series C Preferred
Stock on the new basis.
(f) The term "Common Stock" as used in this
paragraph 9 shall mean stock of the class designated
as Common Stock of the Corporation on the date the
Series C Preferred Stock is created or
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<PAGE> 10
stock of any class or classes resulting from any
reclassification or reclassifications thereof, the
right of which to share in distributions of both
earnings and assets is without limitation in the
Certificate of Incorporation (or other similar
documents) of the Corporation as to any fixed amount
or percentage and which are not subject to
redemption; provided, that if at any time there
shall be more than one such resulting class, the
shares of each such class then issuable on
conversion of the Series C Preferred Stock shall be
substantially in the proportion which the total
number of shares of stock of each such class
resulting from all such reclassifications bears to
the total number of shares of stock of all such
classes resulting from all such reclassifications.
(g) In case the Corporation shall
propose at any time during the Conversion Period:
(i) to pay any dividend on the
Common Stock outstanding payable in Common
Stock or to make any other distribution,
other than cash dividends, to the holders
of the Common Stock outstanding; or
(ii) to offer for subscription to
the holders of the Common Stock outstanding
any additional shares of any class or any
other rights or option; or
(iii) to effect any
re-classification or recapitalization of
the Common Stock outstanding involving a
change in the Common Stock, other than a
subdivision or combination of the Common
Stock outstanding; or
(iv) to merge or consolidate with or
into any other corporation, or to sell,
lease, or convey all or substantially all
its property or business, or to liquidate,
dissolve or wind up;
then, in each such case, the Corporation shall mail
to the holders of record of each of the shares of
Series C Preferred Stock at their last known post
office addresses as shown by the Corporation's
records a statement, signed by an officer of the
Corporation, with respect to the proposed action,
such statement to be so mailed at least ten (10)
days prior to the date of the taking of such action
or the record date for holders of the Common Stock
for the purposes thereof, whichever is earlier. If
such statement relates to any proposed action
referred to in clauses (iii) or (iv) of this
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<PAGE> 11
subparagraph 9, it shall set forth such facts with
respect thereto as shall reasonably be necessary to
inform the holders of the Series C Preferred Stock
and the holders of such stock as to the effect of
such action upon the conversion rights of such
holders.
10. Reacquired Shares. Any shares of Series C
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such
shares shall, upon cancellation, become authorized but
unissued shares of Special Stock and may be re-issued as part
of a new series of Special Stock subject to the conditions
and restrictions on issuance set forth in the Articles of
Incorporation, as amended, or as otherwise required by law.
IN WITNESS WHEREOF, these Restated Articles of Amendment are executed
on behalf of the Corporation by its President as of the 21st day of April,
1997.
AMERICAN REALTY TRUST, INC.
By: /s/ Karl L. Blaha
------------------------
Karl L. Blaha
President
40
<PAGE> 1
EXHIBIT 10.0
AMENDED AND RESTATED
ADVISORY AGREEMENT
BETWEEN
AMERICAN REALTY TRUST, INC.
AND
BASIC CAPITAL MANAGEMENT, INC.
This AMENDED AND RESTATED ADVISORY AGREEMENT is made and entered into
as of this 1st day of April, 1997, between AMERICAN REALTY TRUST, INC., a
Georgia corporation (the "Company") and BASIC CAPITAL MANAGEMENT, INC. (the
"Advisor"), a Nevada corporation.
W I T N E S S E T H :
WHEREAS, the Advisor is the successor by merger to National
Realty Advisors, Inc., a Texas corporation;
WHEREAS, the Company and the predecessor of the Advisor entered into
an Advisory Agreement dated as of October 4, 1989;
WHEREAS, the Advisory Agreement has been amended by the parties by
amendments dated December 5, 1989, August 1, 1990 and October 1, 1991 and the
Company and the Advisor desire to restate the Advisory Agreement to incorporate
all three amendments;
WHEREAS, the Company desires to document its arrangement with the
Advisor and to continue to avail itself of the experience, sources of
information, advice and assistance of the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of
subject to the supervision of the Board of Directors (the "Directors") of the
Company, all as provided herein; and
WHEREAS, the Advisor is willing to continue to undertake to render
such services, subject to the supervision of the Directors, on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
1. Definitions. As used herein, the following terms
shall have the meanings set forth below:
(a) "Adjusted Net Income" for any period shall mean "the Net
Income of the Company increased by (i) depreciation on real estate and
(ii) dividends with respect to equity investments of the Company
accounted for on the equity method, determined on an accrual basis and
reduced by the Company's share of the income or loss for investments
accounted for on
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<PAGE> 2
the equity method, determined on an accrual basis and reduced by the
Company's share of the income or loss for investments, accounted for
on the equity method."
(b) "Affiliate" shall mean (i) any Person directly or
indirectly owning, controlling or holding with power to vote, five
percent (5%) or more of the outstanding voting securities of such
other Person; (ii) any person five percent (5%) or more of whose
outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote, by such other Person; (iii)
any Person directly or indirectly controlling, controlled by, or under
common control with, such other Person; or (iv) any officer, director,
partner, copartner, or employee of such other Person.
(c) "Average Invested Assets" for any period shall mean the
average of the aggregate book value of the assets of the Company
invested, directly or indirectly, in equity interests in and loans
secured by real estate, before reserves for depreciation or bad debts
or other similar non-cash reserves. This figure will be computed by
taking the average of such values at the end of each month during such
period.
(d) "Book Value" of an asset shall mean the value of such
asset on the books of the Company, before allowance for depreciation
or amortization.
(e) "Competitive Real Estate Commission" means that real
estate or brokerage commission paid for the purchase or sale of a
property which is reasonable, customary and competitive in light of
the size, type and location of such property.
(f) "Fiscal Year" shall mean any period for which an income
tax return is submitted by the Company to the Internal Revenue Service
and which is treated by the Internal Revenue Service as a reporting
period for the Company.
(g) "Mortgage" shall mean a mortgage, a deed of trust or any
other instrument creating a security interest in a Real Property.
(h) "Mortgage Loan" shall mean a loan evidenced by a
Mortgage.
(i) "Net Income" for any period shall mean total revenues
applicable to such period, less the expenses applicable to such period
other than additions to reserves for depreciation or bad debts or
other similar non-cash reserves.
(j) "Person" shall mean and include individuals,
corporations, limited partnerships, general partnerships, joint stock
companies or associations, joint ventures,
42
<PAGE> 3
associations, companies, trusts, banks, trust companies, land trusts,
business trusts, or other entities and governments and agencies and
political subdivisions thereof.
(k) "Real Property" shall mean improved and unimproved land,
improvements, furniture and fixtures located on or used in connection
with land, and any right or interest in any of the foregoing,
including a leasehold interest, an interest in air, subterranean or
mineral rights, but shall not include Mortgage Loans.
(l) "Company Property" shall mean, as of any particular time,
any and all property, real, personal or otherwise, tangible or
intangible, which is owned or held by the Company, including, but not
limited to, property which is transferred, conveyed or paid to the
Company, and all rents, income, profits and gains therefrom.
2. Duties of the Advisor. The Advisor agrees to act on a
basis which is fair and reasonable to the Company and its shareholders in
selecting from among the particular investment opportunities that come to it;
provided, however, that the Advisor shall not be required to present to the
Company any particular investment opportunity which comes to it even if the
opportunity is one which, if presented to the Company, could be taken by the
Company. Subject to the terms of the Certificate of Incorporation and to the
supervision of the Directors, the Advisor shall:
(a) use its best efforts to present and recommend to the
Company a continuing and suitable investment program consistent with
the investment policies and objectives of the Company;
(b) administer the Company's day-to-day investment operations
and perform or supervise the performance of such other administrative
functions in connection with the management of the Company as may be
agreed upon by the Advisor and the Directors;
(c) serve as the Company's investment adviser and consultant
in connection with policy decisions to be made by the Directors and,
as requested, furnish reports to the Directors and provide research
and economic and statistical data in connection with the Company's
investments and investment policies;
(d) investigate, select and conduct relations on behalf of
the Company with consultants, borrowers, lenders, mortgagors and other
mortgage and investment participants, accountants, mortgage loan
originators, or brokers, correspondents and servicers, technical
advisers, attorneys, underwriters, brokers and dealers, corporate
fiduciaries,
43
<PAGE> 4
escrow agents, depositaries, custodians, agents for collection,
insurers, insurance agents, banks, builders and developers, and
persons acting in any other capacity deemed by the Directors necessary
or desirable, and enter into appropriate contracts with, employ,
retain and supervise services performed or to be performed by, any
such parties in connection with investments which have been or may be
acquired, sold or otherwise disposed of by the Company;
(e) consult with the Directors and present to them
opportunities to acquire Mortgage Loans and other investments
consistent with the investment policies and objectives of the Company
and furnish the Directors with advice and recommendations with respect
to the making, the acquiring (by purchase, investment, exchange or
otherwise), the holding and the disposition (through sale, exchange or
otherwise) of investments consistent with the policies and objectives
of the Company, commitments therefor, loans secured by the pledge of
mortgage loans as collateral, participations in any one of the
foregoing, or Government or other securities or other investments of,
or investments considered by, the Company;
(f) obtain for the Company such services as may be required
for property management, mortgage servicing, construction and
development loan disbursements and other activities relating to the
investment portfolio of the Company, and act as the attorney-in-fact
or agent of the Company in working with and supervising whomever is
selected to perform such services; provided, however, that nothing
herein shall be construed to require the Advisor to perform such
services itself;
(g) act as attorney-in-fact or agent of the Company in
acquiring and disposing of investments, disbursing and collecting the
funds of the Company, paying the debts and fulfilling the obligations
of the Company, and handling, prosecuting and settling of any claims
of the Company, including foreclosing and otherwise enforcing mortgage
and other liens securing investments, and exercise its own sound
discretion in doing so;
(h) assist in negotiations on behalf of the Company with
investment banking firms, securities brokers or dealers and other
institutions or investors for public or private sales of shares or
other securities of the Company or public offerings or private
placements by the Company of its securities, and obtain loans for the
Company, but in no event in such a way that the Advisor would be
deemed to be acting as a broker-dealer or underwriter;
(i) invest or reinvest any money of the Company;
44
<PAGE> 5
(j) provide office space and office equipment, the use of
accounting and computing equipment when required, and necessary
executive, clerical and secretarial personnel for the performance of
the foregoing services as Advisor;
(k) make reports to the Directors of its performance of the
foregoing services and furnish advice and recommendations with respect
to other aspects of the business and affairs of the Company from time
to time or at any time requested by the Directors;
(l) in general, inform the Directors of any factors which
come to its attention which would influence the policies of the
Company; and
(m) assist in the preparation of reports and other documents
necessary to satisfy the continuous reporting and other requirements
of any governmental bodies or agencies and to maintain effective
communications with stockholders of the Company.
3. Records. At all times, the Advisor shall keep proper
books of account and records relating to services performed hereunder, which
books of account and records shall be accessible for inspection by the Company
at any time during ordinary business hours.
4. Other Activities of Advisor.
(a) Nothing herein contained shall prevent the Advisor, or
any Affiliate of the Advisor, from acting as adviser to any other
person or entity even though such entity may have investment policies
similar to the Company; provided, however, that if, at any time, the
Advisor serves as adviser to more than one real estate entity
(including the Company) with similar investment policies, it will
offer loans and investments which are appropriate to more than one
such entity first to that entity which has had uninvested funds for
the longest period of time.
(b) Affiliates of the Advisor may serve as Directors,
officers, employees, agents, nominees or signatories for the Company.
When executing documents or otherwise acting in such capacities for
the Company, such persons shall use their respective titles in the
Company.
5. Additional Obligations of the Advisor.
Notwithstanding any other provision of this Agreement to the
contrary, the Advisor shall refrain from any action which, in its reasonable
judgment or any judgment of the Board of Directors of which the Advisor has
written notice would (a) violate any law,
45
<PAGE> 6
rule or regulation of any governmental body or agency having jurisdiction over
the Company or its securities or (b) cause the Company to be required to
register as an investment company under the Investment Company Act of 1940. If
any such action is ordered by the Board of Directors, the Advisor shall
promptly notify the Board of the Advisor's judgment that such action would
adversely affect such status or violate such law, rule or regulation or require
such registration and shall refrain from taking such action pending further
clarification or instruction from the Board of Directors.
6. Bond. The Advisor shall maintain a fidelity bond with a
responsible surety company in such amount as may be required by the Directors
from time to time, covering all officers, employees and agents of the Advisor
handling funds of the Company and any investment documents or records
pertaining to investments of the Company. Such bond shall inure to the benefit
of the Company in respect of losses of any such property from acts of such
persons through theft, embezzlement, fraud, negligence, error or omission or
otherwise (provided that such bond can be obtained for such acts at reasonable
expense), the premium for said bond to be at the expense of the Company.
7. Expenses of the Advisor. Without regard to the amount of
compensation received hereunder by the Advisor, the Advisor shall bear the
following expenses of the Company:
(a) all direct and indirect remuneration and all other
employment expenses of employees of the Advisor, including but not
limited to, salaries, wages, payroll taxes and the costs of employee
benefit plans, but not including fees paid to Directors affiliated
with the Advisor;
(b) rent, telephone, utilities, office furniture, equipment
and machinery and other office expenses of the Advisor and the
Company, except as any of such expenses relate to an office maintained
by the Company separate from the office of the Advisor;
(c) costs including but not limited to travel, marketing,
seminars, courier, business promotions, entertainment, advertising,
office supplies, etc. where such costs are not directly identifiable
to the Company's assets, liabilities, operations, business and
financial affairs; and
(d) miscellaneous administrative expenses relating to
performance by the Advisor of its duties hereunder.
8. Compensation. The Advisor shall be paid for services
rendered by it under this Agreement as follows:
46
<PAGE> 7
(a) Base Compensation. On or before the fifteenth (15th) day
of each calendar month, the Company shall pay to the Advisor .0625%
(.75% on an annualized basis) of Average Invested Assets of the
Company during the preceding month; provided however, that at such
time as the Company's earnings for the four preceding quarters equal
or exceed $.50 per share, the Base Compensation shall increase to
.125% (one and one-half percent on an annualized basis) of Average
Invested Assets of the Company during the preceding month.
(b) Incentive Compensation. In order to further reward the
Advisor for performance hereunder, the Company shall pay to the
Advisor on or before the ninetieth (90th) day after the close of each
Fiscal Year an incentive fee equal to ten percent (10%) of Net Income
for such Fiscal Year in excess of a ten percent (10%) return on
shareholders' equity. The Advisor shall also receive ten percent (10%)
of the excess, if any, of net capital gain over net capital loss, if
any, realized for sales of assets.
(c) Mortgage Placement Fee. For originating or purchasing
Mortgage Loans for the Company, the Advisor shall receive a mortgage
placement fee equal to fifty percent (50%), measured on a cumulative
basis, of the total amount of mortgage origination and placement fees
for Mortgage Loans advanced by the Company for the Fiscal Year.
(d) Mortgage Servicing Fee. If the Company determines to
retain the Advisor to service some or all of its Mortgage Loans, the
Company and the Advisor will enter into a Loan Servicing Agreement
specifying the rights and obligations of the parties with respect
thereto and providing for additional compensation to the Advisor, in
an amount to be specified therein, for performing such services.
(e) Acquisition Commission. For locating, leasing or
purchasing Real Property for the Company, the Advisor is to receive an
Acquisition Commission equal to the lesser of (i) up to 6% of costs of
acquisition, inclusive of commissions, if any, paid to nonaffiliated
brokers; or (ii) the compensation customarily charged in arm's-length
transactions by others rendering similar property acquisition services
as an ongoing public activity in the same geographical location and
for comparable property.
(f) Disposition Fees. For the sale of each equity investment
in Real Property, the Advisor shall receive a Disposition Fee equal to
the lesser of (i) 3% of the sales price of each property, exclusive of
fees, if any, paid to nonaffiliated brokers; or (ii) the compensation
customarily charged in arm's length transactions by others rendering
47
<PAGE> 8
similar services as an ongoing public activity in the same
geographical location for comparable property.
(g) Loan Arrangement Fee. For arranging any loans to the
Company, the Advisor shall receive a fee equal to 1% of the principal
amount of any such loan. For purposes of this Section 8(g) the
principal amount of any line of credit shall be the maximum
availability under such line.
9. Additional Services. If and to the extent that the Company
shall request the Advisor, or any director, officer, partner or employee of the
Advisor, to render services for the Company other than those required to be
rendered by the Advisor hereunder, such additional services, if performed, will
be compensated separately on terms agreed upon between such party and the
Company from time to time, subject to applicable law. In particular, but
without limitation, if the Company shall request that the Advisor perform
property management, mortgage servicing, loan disbursement or similar
functions, the Company and the Advisor shall enter into a separate agreement
specifying the obligations of the parties and providing for reasonable
additional compensation to the Advisor for performing such services.
10. Statements. The Advisor shall prepare, at the request of
the Directors, a statement showing the computation of the fee, if any, payable
with respect to any period so requested.
11. Information Furnished to Advisor. The Directors shall at
all times keep the Advisor fully informed with regard to the investment policy
of the Company, the capitalization policy of the Company, and generally their
then current intentions as to the future of the Company. In particular, the
Directors shall notify the Advisor promptly of their intention to sell or
otherwise dispose of any of the Company's investments, or to make any new
investment. The Company shall furnish the Advisor with a copy of all financial
statements, a signed copy of each report prepared by independent certified
public accountants, and such other information with regard to its affairs which
the Advisor from time to time may reasonably request.
12. Expenses of the Company. Except as expressly otherwise
provided in this Agreement, the Company shall pay all expenses not assumed by
the Advisor; including, but not limited to:
(a) To the extent the Advisor is not required to pay such
expenses pursuant to Section 7 hereof, the salaries and other
employment expenses of the Directors of and personnel employed by the
Company and travel and related expenses of directors, officers and
employees of the Advisor and of Directors, officers and employees of
the Company relating to the business and financial affairs of the
Company;
48
<PAGE> 9
(b) the cost of borrowed money;
(c) taxes on income, taxes on property, assessments against
property, and all other taxes and applicable to the Company;
(d) legal, audit, accounting, underwriting, brokerage,
listing, registration and other fees, printing, engraving and other
expenses and taxes incurred in connection with the issuance,
distribution, transfer, registration and stock exchange listing of the
Company's securities;
(e) fees and expenses paid to independent advisers,
independent contractors, consultants (including investor relations
consultants), managers and other agents employed directly by the
Company (other than through the Advisor);
(f) to the extent not paid by borrowers from the Company,
costs of loan administration and mortgage servicing;
(g) expenses related to mortgage loans and connected with the
acquisition, disposition, leasing and ownership of investments,
including, to the extent not paid by others, but not limited to, legal
fees and other expenses of professional services; the costs of
foreclosure; costs of financings and refinancings; insurance premiums;
legal or accounting services; taxes; title and abstract expenses;
brokerage and sales commissions; maintenance, repair or improvement of
property; architectural and engineering fees; expenses of managing
real property equity interests and appraisal or inspection fees except
when performed by employees of the Advisor;
(h) expenses related to real estate equity interests owned by
the Company, including, but not limited to, insurance premiums; legal
or accounting services; architectural and engineering fees; appraisal
or inspection fees except when performed by employees of the Advisor;
taxes; title and abstract expenses; brokerage and sales commissions;
management fees and expenses; and costs of financings and
refinancings;
(i) other insurance as required by the Directors (including
Directors' liability insurance, if any);
(j) the expenses of dissolving the Company or of amending the
Articles of Incorporation or Bylaws of the Company or of merging the
Company with any other entity;
(k) expenses connected directly with payments to holders of
securities of the Company and other bookkeeping and clerical work
necessary in maintaining relations with holders of securities and the
investment community in general,
49
<PAGE> 10
including the cost of preparing, printing and distributing proxy
materials, reports to shareholders, news releases, and certificates
for securities, and any legal assistance related thereto;
(l) transfer agents', registrars', warrant agents', dividend
paying agents' and indenture trustees' fees and charges;
(m) advertising expenses incurred in seeking investments for
the Company; and
(n) all costs including but not limited to travel, marketing,
seminars, courier, business promotions, entertainment, advertising,
office supplies, etc. where such costs are directly attributable and
identifiable to the Company's assets, liabilities, operations,
business and financial affairs.
13. No Partnership or Joint Venture. The Company and the
Advisor are not partners or joint venturers with each other and nothing herein
shall be construed so as to make them such partners or joint venturers or
impose any liability as such on either of them.
14. Term of Agreement. This Agreement shall continue in force
for a period of twelve (12) months from April 1, 1997 and thereafter shall be
automatically renewed from year to year unless terminated in accordance with
the provisions of this Agreement;
15. Termination. Notwithstanding any other provision of this
Agreement to the contrary, this Agreement may be terminated by the Advisor
without penalty for any reason upon sixty (60) days' written notice to the
Company or may be terminated by the Company without penalty for any reason by
the Directors or by the holders of a majority in interest of the then
outstanding shares of the Company upon sixty (60) days' written notice to the
Advisor.
16. Assignment. The Advisor shall not assign this Agreement
without the written consent of the Company. The Company may terminate this
Agreement in the event of its assignment by the Advisor except in the event of
an assignment to a corporation, association, trust, or other successor
organization which may take over the property and carry on the affairs of the
Advisor, provided that following such assignment the entity which controlled
the operations of the Advisor immediately prior to the assignment shall control
the operations of the successor organization, including the performance of the
Advisor's duties under this Agreement, and it shall be bound by the same
restrictions by which it was bound prior to such assignment; however, if at any
time subsequent to such an assignment such entity shall cease to control the
operations of the successor organization, the Company may thereupon terminate
this
50
<PAGE> 11
agreement. Such an assignment or any other assignment of this Agreement by the
Advisor shall bind the assignee hereunder in the same manner as the Advisor is
bound hereunder. In addition, the Advisor may delegate, assign, or otherwise
discharge any of its obligations under this Agreement to or through any of its
wholly-owned subsidiaries or their wholly-owned subsidiaries, subject to the
same terms and conditions as are applicable to the Advisor itself under this
Agreement.
17. Default, Bankruptcy, etc. At the option solely of the
Directors, this Agreement shall be and become terminated immediately upon
written notice of termination from the Directors to the Advisor if any of the
following events shall occur:
(a) if the Advisor shall violate any provision of this
Agreement, and after notice of such violation shall not cure such
default within thirty (30) days;
(b) if the Advisor shall be adjudged bankrupt or insolvent by
a court of competent jurisdiction, or an order shall be made by a
court of competent jurisdiction for the appointment of a receiver,
liquidator or trustee of the Advisor or of all or substantially all of
its property by reason of the foregoing, or approving any petition
filed against the Advisor for its reorganization and such adjudication
or order shall remain in full force or unstayed for a period of thirty
(30) days; or
(c) if the Advisor shall institute proceedings for voluntary
bankruptcy or shall file a petition seeking reorganization under the
Federal bankruptcy laws, or for relief under any law for the relief of
debtors, or shall consent to the appointment of a receiver of itself
or all or substantially all its property, or shall make a general
assignment for the benefit of its creditors, or shall admit in writing
its inability to pay its debts generally as they become due.
The Advisor agrees that if any of the events specified in
subsections (b) or (c) of this Section 17 shall occur, it will give written
notice thereof to the Directors within seven (7) days after the occurrence of
such event.
18. Action Upon Termination. From and after the effective
date of expiration or termination of this Agreement, pursuant to Sections 14,
15, 16 or 17 hereof, the Advisor shall not be entitled to compensation for
further services hereunder but shall be paid all compensation accruing to the
date of expiration or termination. The Advisor shall forthwith upon any such
event:
(a) pay over the Company all monies collected and held
for the account of the Company pursuant to this Agreement;
51
<PAGE> 12
(b) as soon as possible, deliver to he Directors a full
accounting, including a statement showing all payments collected by it
and a statement of all monies held by it, covering the period
following the date of the last accounting furnished to the Directors;
(c) deliver to the Directors all property and documents of
the Company then in the custody of the Advisor; and
(d) cooperate with the Company and take all reasonable steps
requested by the Directors to assist the Directors in making an
orderly transition.
19. Advisor's Liability. The Advisor assumes no
responsibility under this Agreement other than to render the services called
for hereunder in good faith and to make decisions and advise courses of action
that it determines, in good faith, to be in the best interests of the Company,
and the Advisor shall not be responsible for any action of the Directors in
following or declining to follow any advice or recommendations of the Advisor.
Neither the Advisor nor its shareholders, directors, officers or employees
shall be liable to the Company, the Directors, the holders of securities of the
Company or to any successor or assign of the Company except by reason of acts
constituting bad faith, willful misfeasance, gross negligence or reckless
disregard of their duties.
20. Notices. Any notice, report or other communication
required or permitted to be given hereunder shall be in writing unless some
other method of giving such notice, report or other communication is accepted
by the party to whom it is given, and shall be given by being delivered or
being mailed, certified or registered mail, return receipt requested, to the
following addresses of the parties hereto:
The Directors and American Realty Trust, Inc.
The Company: 10670 North Central Expressway
Suite 300
Dallas, Texas 75231
Attn: President
The Advisor Basic Capital Management, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attn: President
Either part may at any time give notice in writing to the
other party of a change of its address for the purpose of this Section 20.
52
<PAGE> 13
21. Amendments. This Agreement shall not be changed,
modified, terminated or discharged in whole or in part except by an instrument
in writing signed by both parties hereto, or their respective successors or
assigns, or otherwise as provided herein.
22. Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
23. Governing Law. This Agreement has been prepared,
negotiated and executed in the State of Texas. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of the State of
Texas applicable to agreements made and to be performed therein.
24. Binding Effect. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns, subject to the provisions of Section 16 of this Agreement.
IN WITNESS WHEREOF, the Company and the Advisor have caused
this Agreement to be executed by their respective duly authorized officers as
of the day and year first above written.
AMERICAN REALTY TRUST, INC.
By: /s/ Karl L. Blaha
---------------------------------
Karl L. Blaha
President
BASIC CAPITAL MANAGEMENT, INC.
By: /s/ Randall M. Paulson
---------------------------------
Randall M. Paulson
President
53
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 713
<SECURITIES> 3,861
<RECEIVABLES> 50,809
<ALLOWANCES> (3,926)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 133,857
<DEPRECIATION> (9,768)
<TOTAL-ASSETS> 242,500
<CURRENT-LIABILITIES> 0
<BONDS> 129,660
0
41
<COMMON> 134
<OTHER-SE> 46,955
<TOTAL-LIABILITY-AND-EQUITY> 242,500
<SALES> 0
<TOTAL-REVENUES> 5,908
<CGS> 0
<TOTAL-COSTS> 4,453
<OTHER-EXPENSES> 547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,204
<INCOME-PRETAX> (140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
