<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
AMERICAN REALTY TRUST, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PRELIMINARY STATEMENT FOR THE INFORMATION
OF THE SECURITIES AND EXCHANGE COMMISSION ONLY
AMERICAN REALTY TRUST, INC.
DALLAS, TEXAS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 28, 1998
The Annual Meeting of Stockholders of American Realty Trust, Inc. will be
held on Monday, December 28, 1998, at 2:00 p.m. at 10670 N. Central Expressway,
Suite 600, Dallas, Texas.
The purposes of the Annual Meeting are:
(1) to elect Directors;
(2) to approve our Director Stock Option Plan;
(3) to approve an amendment to the Company's Articles of
Incorporation; and
(4) to transact any other business that may properly come
before the meeting.
You must be a stockholder of record at the close of business on Monday,
November 23, 1998, to vote at the Annual Meeting.
Whether you plan to attend or not, please sign, date and return the
enclosed proxy card in the envelope provided. You may also attend and vote at
the Annual Meeting.
<PAGE> 3
Dated: November 25, 1998
BY ORDER OF THE BOARD OF DIRECTORS
------------------------------------
Robert A. Waldman
Secretary
<PAGE> 4
PRELIMINARY STATEMENT FOR THE INFORMATION
OF THE SECURITIES AND EXCHANGE COMMISSION ONLY
AMERICAN REALTY TRUST, INC.
DALLAS, TEXAS
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 28, 1998
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of American Realty Trust, Inc. (the "Company") of
proxies to be used at the Annual Meeting of Stockholders (the "Annual Meeting")
for a vote upon (1) the election of four Directors, (2) a proposal to approve
the Company's Director Stock Option Plan; (3) a proposal to authorize and
approve an amendment to the Company's Articles of Incorporation to increase the
number of authorized shares of special stock from 20,000,000 to 50,000,000; and
(4) the transaction of such other business as may properly come before the
meeting or any adjournments thereof. The Annual Meeting will be held at 2:00
p.m., Dallas time, on Monday, December 28, 1998 at 10670 North Central
Expressway, Suite 600, Dallas, Texas 75231.
The Company's financial statements for the year ended December 31,
1997 were audited by BDO Seidman. Representatives of BDO Seidman are expected
to be present at the Annual Meeting to respond to appropriate questions, and
such representatives will have an opportunity to make a statement if they
desire to do so. This Proxy Statement and the accompanying proxy are first
being mailed to Stockholders on or about November 25, 1998. The Annual Report
to Stockholders for the year ended December 31, 1997, has been mailed to all
Stockholders under separate cover.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997 AND OF THE EXHIBITS THERETO, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, MAY BE OBTAINED FREE OF CHARGE BY WRITING TO:
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<PAGE> 5
INVESTOR RELATIONS
AMERICAN REALTY TRUST, INC.
10670 NORTH CENTRAL EXPRESSWAY, SUITE 300
DALLAS, TEXAS 75231
STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding shares of the
Company's common stock (the "Shares") at the close of business on Monday,
November 23, 1998, (the "Record Date"), are entitled to vote at the Annual
Meeting and at any adjournments thereof. At the close of business on November
23, 1998 there were 10,755,584 Shares outstanding. Each holder is entitled
to one vote for each Share held on the Record Date.
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the Shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions noted thereon. As to the election of the four Directors (Proposal
One), Stockholders may choose to vote for the nominees or to withhold authority
for voting for any of the nominees. As to the proposal to approve the
Company's Director Stock Option Plan ("Proposal Two") and the proposal to
authorize and approve the amendment to the Articles of Incorporation to
increase the number of authorized Shares of Special Stock ("Proposal Three"),
Stockholders may choose to vote for, against or abstain from voting on each
such proposal. In the absence of other instructions, the Shares represented by
a properly executed and submitted proxy will be voted in favor of each of the
nominees for election to the Board of Directors and in favor of Proposal Two
and Proposal Three. The Board of Directors does not know of any other business
to be brought before the Annual Meeting. If, however, any other matters
properly come before the Annual Meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance with their
judgment on such matters.
VOTE REQUIRED FOR APPROVAL
Pursuant to Section 3.2 of the By-laws of the Company, election of any
Director requires the affirmative vote of a
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<PAGE> 6
plurality of the votes cast at a meeting of Stockholders at which a quorum is
present and voting. Pursuant to Section 14-2-725 of the Georgia Business
Corporation Code, Proposal Two must be adopted by the affirmative vote of a
plurality of the votes cast at the meeting. Pursuant to Section 14-2-1003 of
the Georgia Business Corporation Code, Proposal Three must be adopted by the
affirmative vote of a majority of the shares outstanding and entitled to vote
thereon. Abstentions and broker non-votes, if any, will not be included in
vote totals, and, as such, will have no effect on any proposal. Section 2.5 of
the By-laws of the Company provides that a majority of the outstanding Shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any such meeting.
As of November 1, 1998, management and affiliates held
7,246,820 Shares representing approximately 67.4% of the Shares
outstanding. Management intends to vote such Shares for each of the proposals
in accordance with the recommendation of the Board of Directors.
REVOCATION OF PROXIES
A proxy is enclosed herewith. Any Stockholder who executes and
delivers the proxy may revoke the authority granted thereunder at any time
prior to its use by giving written notice of such revocation to American Stock
Transfer and Trust Company, 40 Wall Street, 46th Floor, New York, New York
10005, or by executing and delivering a proxy bearing a later date. A
STOCKHOLDER MAY ALSO REVOKE A PROXY BY ATTENDING AND VOTING AT THE ANNUAL
MEETING.
FUTURE PROPOSALS OF STOCKHOLDERS
Any proposal intended to be presented by a Stockholder at the 1999
Annual Meeting of Stockholders of the Company must be received at the principal
office of the Company not later than March 31, 1999, in order to be considered
for inclusion in the Company's proxy statement and form of proxy for that
meeting.
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<PAGE> 7
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
The following persons have been nominated to serve as Directors of the
Company: Karl L. Blaha, Roy E. Bode, Al Gonzalez and Cliff
Harris. Each of the four nominees is currently a Director of the Company and
has been nominated by the Board of Directors to serve for an additional term
until the next Annual Meeting of Stockholders or until his successor shall have
been duly elected and qualified. Each nominee has consented to being named in
this Proxy Statement as a nominee and has agreed to serve as a Director if
elected. When a proxy is properly executed and returned, the Shares
represented thereby will be voted in favor of the election of each of the
nominees, unless authority to vote for any such nominee is specifically
withheld. There will be no cumulative voting for the election of Directors.
If any nominee is unable to serve or will not serve (an event which is not
anticipated), then the person acting pursuant to the authority granted under
the proxy will cast votes for the remaining nominees and, unless the board of
Directors takes action to reduce the number of Directors, for such other
person(s) as he or she may select in place of such nominee(s).
The four nominees are listed below, together with their ages, terms of
service, all positions and offices with the Company or the Company's advisor,
Basic Capital Management, Inc. ("BCM"), other principal occupations, business
experience and directorships with other companies during the last five years or
more. The designation "Affiliated", when used below with respect to a
Director, means that the Director is an officer, director or employee of BCM,
or an officer of the Company. The designation "Independent", when used below
with respect to a Director, means that the Director is neither an officer of
the Company nor a director, officer or employee of BCM, although the Company
may have certain business or professional relationships with such Director, as
discussed below under "Certain Business Relationships and Related
Transactions".
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS
<TABLE>
<CAPTION>
AGE
---
<S> <C> <C>
KARL L. BLAHA: Director (Affiliated) (since 1996). 51
President (since October 1993) and
Executive Vice President and Director
of Commercial Management (April 1992
to October 1993).
</TABLE>
4
<PAGE> 8
Executive Vice President and Director of Commercial Management (April
1992 to August 1995) and Executive Vice President - Commercial Asset
Management (since July 1997) of BCM, Transcontinental Realty
Investors, Inc. ("TCI"), Continental Mortgage and Equity Trust
("CMET"), Income Opportunity Realty Investors, Inc. ("IORI") and
Syntek Asset Management, Inc. ("SAMI"), the managing general partner
of Syntek Asset Management, L.P. ("SAMLP"), which is the general
partner of National Realty, L.P. ("NRLP") and National Operating, L.P.
("NOLP") and a corporation owned by BCM; Director (since November
1998) of SAMI; Executive Vice President (October 1992 to July 1997) of
Carmel Realty, Inc. ("Carmel Realty"), a company affiliated with BCM
which provides real estate brokerage services and commercial property
management services; Executive Vice President and Director of
Commercial Management (April 1992 to February 1994) of National Income
Realty Trust ("NIRT") and Vinland Property Trust ("VPT"); Partner -
Director (August 1988 to March 1992) of National Real Estate
Operations of First Winthrop Corporation; and Corporate Vice President
(April 1984 to August 1988) of Southmark Corporation ("Southmark").
<TABLE>
<S> <C>
ROY E. BODE: Director (Independent) (since 1996). 50
Vice President of Public Affairs (since May 1992) of
University of Texas Southwestern Medical Center; Editor
(June 1988 to December 1991) of Dallas Times Herald; and
Executive Board Member (since October 1996) of Yellow
Rose Foundation for Multiple Sclerosis Research.
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C> <C>
AL GONZALEZ: Director (Independent) (since 1989). 61
President (since March 1991) of AGE Refining, Inc.;
President (January 1988 to March 1991) of Moody-Day
Inc.; owner and President of Gulf-Tex Construction
Company; owner and lessor of two restaurant sites in
Dallas, Texas; Director (since April 1990) of Avacelle, Inc.
("Avacelle"); and Director (1988 to 1992) of Greenbriar Corp.
On March 18, 1992, Avacelle filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code and
an Order confirming its Plan of Reorganization was entered
October 18, 1993 by the United States Bankruptcy Court,
Northern Division of Oklahoma. On April 22, 1997, Avacelle
again filed a voluntary petition under Chapter 11 of the
United States Bankruptcy Code.
CLIFF HARRIS: Director (Independent) (since 1997). 49
President (since 1995) of Energy Transfer Group, L.L.C.;
Project Development Vice President (1990 to 1995) of
Marsh & McLennan; Vice Chairman (1990-1997) of the Dallas
Rehabilitation Institute; Director (since 1992) of Court
Appointed Special Advocates; and Director (since 1989) of
the NFL Alumni Association.
</TABLE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH
OF THE NOMINEES NAMED ABOVE.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors held seventeen meetings during 1997.
For such year, no incumbent Director attended fewer than 75% of (i) the total
number of meetings held by the Board during the period for which he had been a
Director and (ii) the total number of meetings held by all committees of the
Board on which he served during the periods that he served.
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<PAGE> 10
The Board of Directors has an Audit Committee, the function of which
is to review the Company's operating and accounting procedures. The current
members of the Audit Committee are Messrs. Gonzalez (Chairman)and Bode. The
Audit Committee met three times during 1997.
The Company's Board of Directors does not have nominating or
compensation committees.
EXECUTIVE OFFICERS
The following persons currently serve as executive officers of the
Company: in addition to Karl L. Blaha, Bruce A. Endendyk, Executive Vice
President; Thomas A. Holland, Executive Vice President and Chief Financial
Officer; Steven K. Johnson, Executive Vice President - Residential Asset
Management; and Randall M. Paulson, Executive Vice President. Their positions
with the Company are not subject to a vote of Stockholders. The age, terms of
service, all positions and offices with the Company or BCM, other principal
occupations, business experience and directorships with other companies during
the last five years or more of Messrs. Endendyk, Holland and Paulson is set
forth below.
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS
<TABLE>
<CAPTION>
AGE
---
<S> <C>
BRUCE A. ENDENDYK: Executive Vice President (since 50
January 1995).
President (since January 1995) of Carmel Realty;
Executive Vice President (since January 1995) of BCM,
SAMI, CMET, IORI and TCI; Management Consultant (November
1990 to December 1994); Executive Vice President (January
1989 to November 1990) of Southmark; and President and Chief
Executive Officer (March 1988 to January 1989) of
Southmark Equities Corporation.
</TABLE>
7
<PAGE> 11
<TABLE>
<S> <C>
THOMAS A. HOLLAND: Executive Vice President and Chief 56
Financial Officer (since August
1995) and Senior Vice President and
Chief Accounting Officer (July
1990 to August 1995).
Executive Vice President and Chief Financial Officer (since August
1995) and Senior Vice President and Chief Accounting Officer (July 1990
to August 1995) of BCM, SAMI, TCI, CMET and IORI; Secretary (since
February 1997) of TCI, CMET and IORI; and Senior Vice President and
Chief Accounting Officer (July 1990 to February 1994) of NIRT and VPT.
STEVEN K. JOHNSON: Executive Vice President - Residential
Asset Management (since August 1998). 41
Executive Vice President - Residential Asset Management (since August
1998) of BCM, SAMI, CMET, IORI and TCI; Chief Operating Officer
(January 1993 to August 1998) of Garden Capital, Inc.; Executive Vice
President (December 1994 to August 1998) of Garden Capital Management,
Inc.; Vice President (August 1991 to January 1993) of SHL Properties
Realty Advisors, Inc. and SHL Acquisition Corporation II and III; and
Vice President (August 1990 to August 1991) of BCM, SAMI, CMET, IORI,
TCI, NIRT and VPT.
RANDALL M. PAULSON: Executive Vice President (since 52
January 1995).
President (since August 1995) and Executive Vice President (January
1995 to August 1995) of SAMI, CMET, IORI and TCI and (October 1994 to
August 1995) of BCM; Director (August 1995 to November 1998) of SAMI;
Vice President (1993 to 1994) of GSSW, LP, a joint venture of Great
Southern Life and Southwestern Life; Vice President (1990 to 1993) of
Property Company of America Realty, Inc.; and President (1990) of
Paulson Realty Group.
</TABLE>
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<PAGE> 12
OFFICERS
Although not executive officers of the Company, the following persons
currently serve as officers of the Company: Robert A. Waldman, Senior Vice
President, General Counsel and Secretary; and Drew D. Potera, Vice President and
Treasurer. Their positions with the Company are not subject to a vote of
Stockholders. Their ages, terms of service, all positions and offices with the
Company or BCM, other principal occupations, business experience and
directorships with other companies during the last five years or more are set
forth below.
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS
<TABLE>
<CAPTION>
AGE
---
<S> <C>
ROBERT A. WALDMAN: Senior Vice President and General 46
Counsel (since January 1995),
Secretary (since December 1989)
and Vice President (January 1993
to January 1995).
Senior Vice President and General Counsel (since January 1995),
Vice President (since December 1990) and Secretary (December
1993 to February 1997) of CMET, IORI and TCI; Senior Vice
President and General Counsel (since November 1994), Vice
President and Corporate Counsel (November 1989 to November 1994)
and Secretary (since November 1989) of BCM; Senior Vice
President and General Counsel (since January 1995), Vice
President (April 1990 to January 1995) and Secretary (since
December 1990) of SAMI; and Vice President (December 1990 to
February 1994) and Secretary (December 1993 to February 1994)
of NIRT and VPT).
DREW D. POTERA: Vice President (since December 1996) 39
Treasurer (since August 1991) and
Assistant Treasurer (December 1990
to August 1991).
</TABLE>
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<PAGE> 13
Vice President (since December 1996) and Treasurer (since December
1990) of IORI, CMET and TCI; Vice President, Treasurer and Securities
Manager (since July 1990) of BCM; Vice President and Treasurer (since
February 1992) of SAMI; Treasurer (December 1990 to February 1994) of
NIRT and VPT; and Financial Consultant (June 1985 to June 1990) with
Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
In addition to the foregoing officers, the Company has several vice
presidents and assistant secretaries who are not listed herein.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
Under the securities laws of the United States, the Company's
Directors, executive officers, and any persons holding more than 10 percent of
the Company's Shares of Common Stock are required to report their ownership of
the Company's Shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission") and the New York Stock Exchange.
Specific due dates for these reports have been established and the Company is
required to report any failure to file by these dates during 1997. All of
these filing requirements were satisfied by the Company's Directors and
executive officers and 10 percent holders. In making these statements, the
Company has relied on the written representations of its incumbent Directors
and executive officers and its 10 percent holders and copies of the reports
that they have filed with the Commission.
THE ADVISOR
Although the Company's Board of Directors is directly responsible for
managing the affairs of the Company and for setting the policies which guide
it, the day-to-day operations of the Company are performed by BCM, a
contractual advisor under the supervision of the Company's Board of Directors.
The duties of the advisor include, among other things, investigating,
evaluating and recommending real estate and mortgage loan investment
opportunities as well as financing and refinancing sources for the Company.
The
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<PAGE> 14
advisor also serves as a consultant in connection with the Company's business
plan and investment policy decisions made by the Company's Board of Directors.
BCM has served as advisor to the Company since February 1989. BCM is
a company owned by a trust for the benefit of the children of Gene E. Phillips,
who served as the Chairman of the Board and a Director of the Company until
November 16, 1992. Gene E. Phillips also served as a director of BCM until
December 22, 1989 and as Chief Executive Officer of BCM until September 1,
1992. Ryan T. Phillips, the son of Gene E. Phillips and a Director of the
Company until June 1996, is also a director of BCM and a trustee of the trust
for the benefit of the children of Mr. Phillips which owns BCM. Mr. Blaha,
the President and a Director of the Company, serves as Executive Vice
President-Commercial Asset Management of BCM. Mr. Paulson, an Executive Vice
President of the Company, also serves as President of BCM, SAMI, CMET, IORI
and TCI.
Gene E. Phillips serves as a representative of the trust, for the
benefit of his children, which owns BCM and, in such capacity, has substantial
contact with the management of BCM and input with respect to BCM's performance
of advisory services to the Company. As of November 1, 1998, BCM owned
5,727,474 shares of the Company's Common Stock, approximately 53.3% of the
Shares then outstanding.
The Advisory Agreement provides for the advisor to receive monthly
base compensation at the rate of 0.125% (1.5% on an annualized basis) of the
average of the aggregate book value of the Company's assets invested in equity
interests in and loans secured by real estate before non-cash reserves (the
"Average Invested Assets").
On October 23, 1991, based on the recommendation of BCM, the Company's
Board of Directors approved a reduction in the advisor's base fee by 50%
effective October 1, 1991. This reduction remains in effect until the
Company's earnings for the four preceding quarters equals or exceeds $.50 per
share.
In addition to base compensation, BCM or an affiliate of BCM, receives
the following forms of additional compensation:
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<PAGE> 15
(a) an acquisition fee for locating, leasing or
purchasing real estate for the Company in an amount equal to the
lesser of (i) the amount of compensation customarily charged in
similar arm's-length transactions or (ii) up to 6% of the costs of
acquisition, inclusive of commissions, if any, paid to nonaffiliated
brokers;
(b) a disposition fee for the sale of each equity
investment in real estate in an amount equal to the lesser of (i) the
amount of compensation customarily charged in similar arm's-length
transactions or (ii) 3% of the sales price of each property, exclusive
of fees, if any, paid to non-affiliated brokers;
(c) a loan arrangement fee in an amount equal to 1% of
the principal amount of any loan made to the Company arranged by BCM;
(d) an incentive fee equal to 10% of net income for the
year in excess of a 10% return on stockholders' equity, and 10% of the
excess of net capital gains over net capital losses, if any, realized
from sales of assets; and
(e) a mortgage placement fee, on mortgage loans
originated or purchased, equal to 50%, measured on a cumulative basis,
of the total amount of mortgage origination or placement fees on
mortgage loans made by the Company for the fiscal year.
The Advisory Agreement further provides that BCM shall bear the cost
of certain expenses of its employees, excluding fees paid to the Company's
Directors; rent and other office expenses of both BCM and the Company (unless
the Company maintains office space separate from that of BCM); costs not
directly identifiable to the Company's assets, liabilities, operations,
business or financial affairs; and miscellaneous administrative expenses
relating to the performance by BCM of its duties under the Advisory Agreement.
If and to the extent that the Company shall request BCM, or any
director, officer, partner or employee of BCM, to render services to the
Company other than those required to be rendered by BCM under the Advisory
Agreement, such additional services, if performed, will be compensated
separately on terms agreed upon
12
<PAGE> 16
between such party and the Company from time to time. The Company has
requested that BCM perform loan administration functions, and the Company and
BCM have entered into a separate agreement, as described below.
The Advisory Agreement automatically renews from year to year unless
terminated in accordance with its terms. The Company's management believes
that the terms of the Advisory Agreement are at least as fair as could be
obtained from unaffiliated third parties.
Pursuant to the Advisory Agreement, BCM is the loan
administration/servicing agent for the Company, under an agreement dated as of
October 4, 1989, and terminable by either party upon thirty days' notice, under
which BCM services most of the Company's mortgage notes and receives as
compensation a monthly fee of 0.125% of the month-end outstanding principal
balances of the loans serviced.
In 1997, the Company paid BCM and its affiliates $2.6 million in
advisory and mortgage servicing fees; $7.6 million in real estate brokerage
commissions; $592,000 in loan arrangement fees and $865,000 in property
management fees paid to subcontractors, other than Carmel Realty. In addition,
as provided in the Advisory Agreement, in 1997 BCM received cost reimbursements
from the Company of $1.8 million.
Situations may develop in which the interests of the Company are in
conflict with those of one or more Directors or officers of the Company in
their individual capacities or of BCM, or of their respective affiliates. In
addition to services performed for the Company, as described above, BCM
actively provides similar services as agent for, and advisor to, other real
estate enterprises, including persons and entities involved in real estate
development and financing, including CMET, TCI and IORI. BCM also performs
certain administrative services for NRLP on behalf of NRLP's general partner,
SAMLP. The Advisory Agreement provides that BCM may also serve as advisor to
other entities. As advisor, BCM is a fiduciary of the Company's public
investors. In determining to which entity a particular investment opportunity
will be allocated, BCM will consider the respective investment objectives of
each entity and the appropriateness of a particular investment in light of each
such entity's existing mortgage note and real estate portfolio and which entity
has had uninvested funds for the longest period of time. To the extent any
particular investment opportunity is appropriate to more than one such entity,
such investment opportunity will be allocated to the entity that has had
uninvested funds for the longest period of time or if appropriate, the
investment may be shared among various entities. See "Certain Business
Relationships and Related Party Transactions - Certain Business Relationships"
below.
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<PAGE> 17
The directors and principal officers of BCM are set forth below:
MICKEY N. PHILLIPS: Director
RYAN T. PHILLIPS: Director
RANDALL M. PAULSON: President
KARL L. BLAHA: Executive Vice President -
Commercial Asset Management
BRUCE A. ENDENDYK: Executive Vice President
THOMAS A. HOLLAND: Executive Vice President and
Chief Financial Officer
STEVEN K. JOHNSON: Executive Vice President -
Residential Asset Management
A. CAL ROSSI, JR.: Executive Vice President
COOPER B. STUART: Executive Vice President
CLIFFORD C. TOWNS, JR.: Executive Vice President -
Finance
DAN S. ALLRED: Senior Vice President -
Land Development
ROBERT A. WALDMAN: Senior Vice President,
General Counsel and Secretary
DREW D. POTERA: Vice President, Treasurer
and Securities Manager
Mickey N. Phillips is the brother of Gene E. Phillips, and Ryan T.
Phillips is the son of Gene E. Phillips. Gene E. Phillips serves as a
representative of the trust established for the benefit of his children which
owns BCM and, in such capacity, has substantial contact with the management of
BCM and input with respect to its performance of advisory services to the
Company. As of November 1, 1998, BCM owned 5,727,474 Shares of the
Company's Common Stock, 53.3% of the Company's then outstanding Shares.
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<PAGE> 18
PROPERTY MANAGEMENT
Since February 1, 1990, affiliates of BCM have provided property
management services to the Company. Currently, Carmel Realty Services, Ltd.
("Carmel, Ltd.") provides property management services for a fee of 5% or less
of the monthly gross rents collected on the properties under management.
Carmel, Ltd. subcontracts with other entities for the provision of the
property-level management services to the Company at various rates. The
general partner of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd.
are (i) First Equity Properties, Inc. ("First Equity"), which is 50% owned by
BCM (ii) Gene E. Phillips and (iii) a trust for the benefit of the children of
Gene E. Phillips. Carmel, Ltd. subcontracts the property-level management of
the Company's hotels, shopping centers, its office building and the Denver
Merchandise Mart to Carmel Realty, which is a company owned by First Equity.
Carmel Realty is entitled to receive property and construction management fees
and leasing commissions in accordance with the terms of its property-level
management agreement with Carmel, Ltd.
REAL ESTATE BROKERAGE
Affiliates of BCM provide real estate brokerage services to the
Company and receive brokerage commissions in accordance with the Advisory
Agreement.
EXECUTIVE COMPENSATION
The Company has no employees, payroll or employee benefit plans and
pays no compensation to executive officers of the Company. The Directors and
executive officers of the Company who are also officers or employees of the
Company's Advisor are compensated by the Advisor. Such affiliated Directors
and executive officers of the Company perform a variety of services for the
Advisor and the amount of their compensation is determined solely by the
Advisor. BCM does not allocate the cash compensation of its officers among the
various entities for which it serves as advisor.
15
<PAGE> 19
The only direct remuneration paid by the Company is to those Directors
who are not officers or employees of BCM or its affiliated companies. Until
April 1, 1998, the Company compensated such Independent Directors at a rate of
$5,000 per year, plus $500 per Board of Directors meeting attended and $300 per
Committee meeting attended. During 1997, $48,673 was paid to Independent
Directors in total Directors' fees for all meetings, as follows: Roy E. Bode,
$14,900; Dale A. Crenwelge, $15,340; Al Gonzalez, $13,100; and Cliff Harris,
$5,333.
Effective April 1, 1998, the Company compensates Independent Directors
at the rate of $20,000 per year, plus $300 per Committee meeting attended. In
addition, the Chairman of the Audit Committee receives an annual fee of $500.
In July 1997, the Company's Board of Directors, including all of the
Independent Directors, approved the Company's 1997 Stock Option Plan (the
"Plan"). The Plan was approved by the Stockholders at the Company's Annual
Meeting held in January 1998. As of December 31, 1997, there were no stock
options outstanding under the Plan.
16
<PAGE> 20
Performance Graph
The following graph compares the cumulative total stockholder return on the
Company's shares of Common Stock with the Dow Jones Equity Market Index ("DJ
Equity Index") and the Dow Jones Real Estate Investment Index ("DJ Real Estate
Index"). The comparison assumes that $100 was invested on December 31, 1992, in
shares of the Company's Common Stock and in each of the indices and further
assumes the reinvestment of all dividends. Past performance is not necessarily
an indicator of future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[CHART]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
THE COMPANY 100.00 194.02 208.00 236.00 427.92 479.98
DJ EQUITY INDEX 100.00 109.95 110.76 152.49 187.63 251.34
DJ REAL ESTATE INDEX 100.00 117.07 111.35 137.60 184.73 220.96
</TABLE>
17
<PAGE> 21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management. The following table sets forth the
ownership of Shares of the Company's Common Stock, both beneficially and of
record, both individually and in the aggregate, for the Directors and executive
officers of the Company, as of the close of business on November 1, 1998.
<TABLE>
<CAPTION>
Amount and Nature
Name of of Beneficial Percent of
Beneficial Owner Ownership Class(1)
- ------------------- ---------------- ----------
<S> <C> <C>
Karl L. Blaha 7,244,056(2)(3) 67.4%
(5)
Roy E. Bode 0
Bruce A. Endendyk 7,244,056(2)(3) 67.4%
(5)
Al Gonzalez 0
Cliff Harris 0
Thomas A. Holland 7,246,820(2)(3) 67.4%
(4)(5)
Steven A. Johnson 7,244,056(2)(3) 67.4%
(5)
Randall M. Paulson 7,244,056(2)(3) 67.4%
(5)
All Directors and Executive 7,246,820(2)(3) 67.4%
Officers as a group (4)(5)
(8 persons)
</TABLE>
- -----------------------
(1) Percentage is based upon 10,755,584 Shares outstanding on November 1, 1998.
(2) Includes 820,850 Shares owned by CMET over which the executive officers of
the Company may be deemed to be beneficial owners by virtue of their
positions as executive officers of CMET. Also includes 195,732 Shares
owned by NOLP over which the executive officers of the Company may be
deemed to be beneficial owners by virtue of their positions as executive
officers of SAMI, the managing general partner of SAMLP, the general
partner of NOLP. The executive officers of the Company disclaim
beneficial ownership of such Shares.
(3) Includes 5,727,474 Shares owned by BCM over which the executive officers
of the Company may be deemed to be beneficial owners by virtue of their
positions as executive officers of BCM. The executive officers of the
Company disclaim beneficial ownership of such Shares.
18
<PAGE> 22
(4) Includes 2,432 Shares owned directly over which Thomas A. Holland and his
wife jointly hold voting and dispositive power, and an additional 332
Shares held by Mr. Holland in an individual retirement account.
(5) Includes 500,000 shares owned by ND Investments, Inc., a wholly-owned
subsidiary of the Company.
Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's Common Stock both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be the owner of more than 5% of the Shares of the
Company's Common Stock as of the close of business on November 1, 1998.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class(1)
- ------------------- ----------------- ----------
<S> <C> <C>
Basic Capital Management, Inc. 5,727,474 53.3%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Davister Corp./Nanook Partners, L.P. 1,669,436(2) 15.5%
10670 N. Central Expressway
Suite 501
Dallas, Texas 75231
Continental Mortgage and Equity Trust 820,850(3) 7.6%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Ryan T. Phillips 5,825,866(4) 54.2%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
</TABLE>
(1) Percentage is based on 10,755,584 Shares of Common Stock outstanding
on November 1, 1998.
19
<PAGE> 23
(2) Each of the directors of Davister Corp., Ronald F. Akin and Ronald F.
Bruce, may be deemed to be the beneficial owners of such Shares by
virtue of their positions as directors of Davister Corp. The
directors of Davister Corp. disclaim beneficial ownership of such
Shares.
(3) Each of the Trustees of CMET, Richard W. Douglas, Larry E. Harley, R.
Douglas Leonhard, Murray Shaw, Ted P. Stokely, Martin L. White and
Edward G. Zampa, may be deemed to be the beneficial owners of such
Shares by virtue of their positions as Trustees of CMET. The Trustees
of CMET disclaim such beneficiary ownership.
(4) Includes 5,727,474 Shares owned by BCM over which Ryan T. Phillips
may be deemed to be the beneficial owner by virtue of his position as
a director of BCM. Mr. Phillips disclaims beneficial ownership of
such Shares. Also, includes 98,332 Shares owned by the Gene E.
Phillips Children's Trust. Ryan T. Phillips is a beneficiary of such
trust.
CERTAIN BUSINESS RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies with Respect to Certain Activities. The By-laws of the
Company, as amended, provide, in accordance with Georgia law, that no contract
or transaction between the Company and one or more of its Directors or
officers, or between the Company and any other corporation, partnership,
association or other organization in which one or more of its Directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for that reason, or solely because the Director or officer
is present at or participates in the meeting of the Company's Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or her votes are counted for such purpose, if one or more of
the following three conditions are met: (i) the material facts as to his or her
interest and as to the contract or transaction are disclosed or are known to
the Company's Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative vote of
a majority of the disinterested Directors, even though the disinterested
Directors constitute less than a quorum; (ii) the material facts as to his or
her interest and as to the contract or
20
<PAGE> 24
transaction are disclosed or are known to the Stockholders entitled to vote
thereon, and the contract or transaction is specifically approved or ratified
in good faith by vote of such Stockholders; or (iii) the contract or
transaction is fair to the Company as of the time it is authorized, approved or
ratified by the Company's Board of Directors, a committee thereof, or the
Stockholders.
The Company's policy is to have such contracts or transactions
approved or ratified by a majority of the disinterested Directors of the
Company with full knowledge of the character of such transactions, as being
fair and reasonable to the Stockholders at the time of such approval or
ratification under the circumstances then prevailing. Such Directors also
consider the fairness of such transactions to the Company. Management believes
that, to date, such transactions have represented the best investments
available at the time and that they were at least as advantageous to the
Company as other investments that could have been obtained.
The Company expects to enter into future transactions with entities
the officers, trustees, directors or stockholders of which are also officers,
Directors or Stockholders of the Company if such transactions would be
beneficial to the operations of the Company and consistent with the Company's
then-current investment objectives and policies, subject to approval by a
majority of disinterested Directors as discussed above.
The Company does not prohibit its officers, Directors, Stockholders or
related parties from engaging in business activities of the types conducted by
the Company.
CERTAIN BUSINESS RELATIONSHIPS
As mentioned above, BCM is a corporation of which Messrs. Blaha,
Endendyk, Holland, Johnson and Paulson serve as executive officers. BCM is
beneficially owned by a trust for the benefit of the children of Gene E.
Phillips, trustee of which is Ryan T. Phillips. Ryan T. Phillips is the son of
Gene E. Phillips and serves as a director of BCM and served as a Director of
the Company until June 1996.
Mr. Paulson, an Executive Vice President of the Company, is the
President of CMET, IORI and TCI, and owes fiduciary duties to such entities as
well as to BCM under the applicable law. CMET, IORI and TCI have the same
relationship with BCM as does the
21
<PAGE> 25
Company. In addition, BCM has been engaged to perform certain administrative
functions for NRLP and NOLP. Gene E. Phillips is a general partner of SAMLP,
NRLP's and NOLP's general partner, and until May 1996, served as Chief
Executive Officer and director of SAMLP's managing general partner, SAMI. BCM
is the sole stockholder of SAMI. The Company owns a 96% limited partner
interest in SAMLP.
In March 1994, an entity affiliated with Ryan T. Phillips, a Director
of the Company until June 1996, advanced BCM $893,000 on an unsecured demand
note. The note bears interest at 10% per annum with interest only payable
monthly. In February 1998, an entity affiliated with Ryan T. Phillips advanced
BCM an additional $1.7 million also on an unsecured demand note. This note
bears interest at 7.5% per annum with interest only payable monthly.
BCM has advanced an entity affiliated with Ryan T. Phillips $1.1
million on an unsecured demand note. The note bore interest at 10% per annum
with interest only payable monthly. The note was paid in full in February
1998.
Since February 1, 1990, the Company has contracted with affiliates of
BCM for property management services. Currently, Carmel, Ltd. provides such
property management services. The general partner of Carmel, Ltd. is BCM. The
limited partners of Carmel, Ltd. are (i) First Equity, a company which is 50%
owned by BCM, (ii) Gene E. Phillips and (iii) a trust for the benefit of the
children of Gene E. Phillips. Carmel, Ltd. subcontracts the property-level
management of the Company's hotels, shopping centers, its office building and
the Denver Merchandise Mart to Carmel Realty, Inc., which is a company owned by
First Equity.
Affiliates of BCM provide brokerage services to the Company and
receive brokerage commissions in accordance with the Advisory Agreement.
The Company owns an equity interest in each of CMET, IORI, TCI, NRLP
and SAMLP. In addition, CMET and NRLP own a beneficial interest in the Company
and SAMLP owns a beneficial interest in TCI.
22
<PAGE> 26
RELATED PARTY TRANSACTIONS
At December 31, 1996, the Company held a mortgage note receivable
secured by an apartment complex in Merrillville, Indiana, with a principal
balance of $3.5 million. The property is owned by a subsidiary of Davister
Corp., a general partner in a partnership that owns approximately 15.6% of the
Company's outstanding shares of Common Stock. The note matured in December
1996. The Company and borrower agreed to extend the note's maturity date to
December 2000. As additional collateral for this loan, the Company received a
second lien mortgage on another property owned by the Borrower as well as the
Borrower's guarantee of the loan. In May 1997, the note plus accrued but
unpaid interest was paid in full.
BCM has entered into put agreements with certain holders of the Class
A limited partner units of Ocean Beach Partners, L.P. Such Class A units are
convertible into Series D Cumulative Preferred Stock of the Company. The put
price of the Series D Preferred Stock is $20.00 per share plus accrued but
unpaid dividends.
BCM has also entered into put agreements with the holders of the Class
A limited partner units of Valley Ranch Limited Partnership. Such Class A
units are convertible into Series E Cumulative Convertible Preferred Stock of
the Company which is further convertible into Common Stock of the Company. The
put price for the Class A units is $1.00 per unit and the put price for either
the Series E Preferred Stock or the Company's Common Stock is 80% of the
average daily closing price of the Company's Common Stock on the 20 previous
trading days.
BCM has also entered into put agreements with the certain holders of
the Company's Series F Cumulative Convertible Preferred Stock. The put price
for the Series F Preferred Stock is $10.00 per share plus any accrued and
unpaid dividends for up to a maximum of 50,000 shares of Series F Preferred
Stock. On April 1, 1998 the holders exercised the put and BCM purchased the
50,000 shares.
In August 1996, the Company obtained a $2.0 million loan from a
financial institution secured by a pledge of equity securities of CMET, IORI
and TCI owned by the Company and Common Stock of the Company owned by BCM with
a market value at the time of $4.0 million. The Company received $2.0 million
in net cash after the payment of closing costs associated with the loan. The
loan was paid in full by the proceeds of a new $4.0 million loan from another
financial institution secured by a pledge of equity
23
<PAGE> 27
securities of CMET, IORI and TCI owned by the Company and Common Stock of the
Company owned by BCM with a market value at the time of $10.4 million. The
Company received $2.0 million in net cash after the payoff of the $2.0 million
loan.
In September 1996, the August 1996 lender made a second $2.0 million
loan. The second loan is also secured by a pledge of equity securities of the
CMET, IORI and TCI owned by the Company and Common Stock of the Company owned
by BCM with a market value of $9.1 million. The Company received $2.0 million
in net cash after payment of closing costs associated with the loan. The loan
matures in December 1998.
In January 1998, the December 1997 lender made a second $2.0 million
loan. This loan is also secured by a pledge of Common Stock of the Company
owned by BCM with a market value at the time of $4.7 million. The Company
received $2.0 million in net cash.
In 1997, the Company paid BCM and its affiliates $2.6 million in
advisory and mortgage servicing fees; $7.6 million in real estate brokerage
commissions; $592,000 in loan arrangement fees and $865,000 in property
management fees paid to subcontractors, other than Carmel Realty. In addition,
as provided in the Advisory Agreement, in 1997 BCM received cost reimbursements
from the Company of $1.8 million.
In October 1997, the Company entered into leases with BCM and Carmel
Realty for space at the Company's One Hickory Center Office Building, which is
currently under construction. The BCM lease, effective upon the completion of
the building, is for 50,574 square feet (approximately 50% of the building),
has a term of ten years and provides for annual base rent of $974,000 per year
for the first year or $19.25 per square foot increasing to $1.3 million in the
tenth year or $24.90 per square foot. The Carmel Realty lease, also effective
upon completion of the building, is for 25,278 square feet (approximately 25%
of the building) has a term of 15 years, and provides for annual base rent of
$487,050 per year for the first year or $19.25 per square foot increasing to
$964,000 in the fifteenth year or $38.15 per square foot.
Effective January 1, 1998, Carmel Realty entered into a master lease
for 23,813 square feet of space at the Company's Denver Merchandise Mart. The
lease has a term of three years and provides for annual rent of $358,000 or
$15.00 per square foot.
24
<PAGE> 28
PROPOSAL TWO:
APPROVAL OF DIRECTOR STOCK OPTION PLAN
BACKGROUND AND DESCRIPTION
The Board of Directors of the Company has reviewed various
arrangements for compensation of Directors, which do not include a program
enabling Directors who are not also officers or key employees of the Company or
its Advisor to participate in the Company's growth through stock ownership
except for purchases of Shares in the open market. The Board of Directors
believes that a program fostering share ownership by Directors who are
"independent" will promote the long-term financial success of the Company by
attracting and retaining outstanding Directors and providing incentives to such
Directors through grants of Share Options linked to continued improvements in
the Company's earnings.
On May 20, 1998, by unanimous vote of the Board of Directors, the
Company adopted the Directors Stock Option Plan (the "Plan") subject to
approval by the Stockholders of the Company at the next meeting of the
Stockholders, whether Annual or Special, by a majority of votes cast on such
Plan, provided that the total vote cast thereon represents over 50% in interest
of all voting securities of the Company entitled to vote thereon. The Company
does not presently have any formal bonus, profit sharing, pension, retirement,
stock option, stock purchase or deferred compensation plan for any of the
Directors except for the proposed Stock Option Plan.
The Plan will be effective on the date the Plan is approved by the
Stockholders at the Annual Meeting. The principal features of the Plan are
summarized below. THIS SUMMARY, WHICH CONTAINS ALL OF THE MATERIAL FEATURES OF
THE PLAN, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
PLAN WHICH IS ANNEXED AS APPENDIX TO THIS PROXY STATEMENT.
ADMINISTRATION AND ELIGIBILITY; ADJUSTMENT, AMENDMENT AND TERMINATION
25
<PAGE> 29
Because Options to be granted under the Plan are automatic and
non-discretionary, the Plan is largely self administered. To the extent
necessary, the Board of Directors is authorized to administer the Plan. In the
event of a stock dividend, stock split, stock combination or other reduction in
issued shares, merger, consolidation, recapitalization or sale or exchange of
all of the assets or dissolution of the Company, the Board of Directors is
required to adjust the number and type of shares authorized by the Plan and
subject to outstanding grants of Options, as well as Option prices of any
outstanding Stock Options, to prevent in enlargement or dilution of rights.
The Board of Directors may suspend or terminate the Plan at any time or amend
the Plan from time to time without Stockholder approval, but no amendment,
suspension or termination shall impair the rights of any Director under
outstanding Options. However, without Stockholder approval (to the extent
required by law or agreement) no amendment may be made which would (a)
materially increase the number of Shares issuable under the Plan (other than
pursuant to the adjustment provisions described above, (b) materially modify
the requirements as to eligibility for participation, or (c) materially
increase the benefits accruing to Directors under the Plan.
Eligibility for Options under the Plan is limited to Directors of the
Company who, at the time of grant of an Option, are not, and have not been for
at least one year, either an employee or officer of the Company or any of its
Affiliates. As of November 2, 1998, three of the four Directors are eligible
for Options under the Plan. The aggregate number of Shares under the Plan is
40,000 (subject to adjustments in order to prevent enlargement or dissolution as
described above). The Shares are traded on the New York Stock Exchange, Inc.
The following table sets forth the benefits or amounts that will be
received by or allocated to each of the following under the Plan, if it is
approved by the Stockholders and if such benefits or amounts are determinable.
26
<PAGE> 30
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF SHARES
<S> <C> <C>
Karl L. Blaha, President and Director(2) -0- -0-
Executive Group -0- -0-
Non-executive Director Group(3) -0- 3,000
Non-executive Officer Employee Group(4) -0- -0-
</TABLE>
(1) The dollar value of the Options to be granted are not determinable at
this time. Options will be granted at fair market value of the Shares
on the date of grant and any benefit will depend upon a subsequent
increase in the fair market value of the Shares.
(2) All current executive officers, individually and as a group, are not
eligible for Options under the Plan.
(3) Group consists of Messrs. Bode, Gonzalez and Harris, each of whom is an
Independent Director and each of whom is eligible to receive an Option
to purchase 1,000 shares upon the approval of the Plan by the
Stockholders.
(4) All employees, including current officers, who are not executive
officers as a group are not eligible for Options under the Plan.
OPTIONS
Effective at the time of approval by the Stockholders of the Plan, each
Independent Director will automatically be awarded an Option to purchase 1,000
Shares. In addition, for each year such Director continues to serve as a
Director, he will be awarded an option covering 1,000 Shares on January 1 of
each year. All Options are to be granted at "fair market value" (as defined in
the Plan). All Options granted under the Plan will be exercisable for the
lesser of ten years or one year after a Director ceases to serve on the Board of
Directors for any reason, including death. Payment of the exercise price may be
made in cash, in Shares already owned by the individual for at least six months,
or with a combination of cash and Shares.
27
<PAGE> 31
FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised by its counsel that under existing law, a
recipient of a Stock Option granted under the Plan will not realize any taxable
income from the grant of such Option and the Company will not be entitled to
any tax deductions for income tax purposes. Upon the exercise of Options
granted under the Plan, the Optionee will realize taxable ordinary income equal
to the excess of the Fair Market Value of the Shares on the date the Option is
exercised over the Option price, and the Company will be entitled to a
corresponding deduction. The Company is entitled to a tax deduction at the
same time in the amount taxable to the individual, provided the Company timely
files the appropriate IRS Form 1099 for the individual.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
Stockholder approval of the Plan is not required under the Articles of
Incorporation or By-Laws. The Plan is being submitted for Stockholder approval
in order to meet the requirements of the New York Stock Exchange. The
affirmative vote of the holders of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting is required to approve
the Plan.
THE BOARD OF DIRECTORS RECOMMEND THE VOTE FOR ADOPTION AND APPROVAL OF
THE AMERICAN REALTY TRUST, INC. DIRECTOR STOCK OPTION PLAN.
28
<PAGE> 32
PROPOSAL THREE:
INCREASE IN NUMBER OF AUTHORIZED SHARES OF SPECIAL STOCK
The Board of Directors is recommending that Article Five of the
Articles of Incorporation of the Company be amended to increase the number of
authorized shares of Special Stock, $2.00 par value per share, from 20,000,000
shares to 50,000,000 shares. The affirmative vote of a majority of the shares
outstanding and entitled to vote is required to approve the proposal to amend
Article Five. Pursuant to this proposal, the first paragraph of Article Five
of the Articles of Incorporation would be deleted and replaced in its entirety
with the following:
"The Corporation shall have authority exercisable by its Board
of Directors to issue not more than 100,000,000 shares of
common voting stock, $.01 par value per share (the "Common
Stock"), and 50,000,000 shares of a special class of stock,
$2.00 par value per share (the "Special Stock"), which shall
be designated as the Board of Directors may determine and
which may be issued in series by the Board of Directors as
hereinafter provided. Preferences, limitation, and relative
rights with respect to the shares of each class of stock of
the Corporation shall be as hereinafter set forth:"
As of November 1, 1998, there were six series of the Company's Special
Stock, which had been designated by the Board of Directors. The total number of
shares designated in these series is 15,431,431. Although there are no pending
transactions which would require the issuance of any Special Stock in excess of
the amount currently authorized, the Board of Directors recommends that the
number of authorized shares be increased and thereby provide the Company with
the ability to issue such additional new shares of Special Stock should the
opportunity be presented in the future.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS APPROVE THE
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
SHARES OF SPECIAL STOCK AUTHORIZED FOR ISSUANCE BY THE COMPANY.
29
<PAGE> 33
SELECTION OF AUDITORS FOR 1998
The Company's auditors for the 1997 fiscal year were BDO Seidman. A
representative of BDO Seidman will attend the annual meeting. The Board of
Directors has selected BDO Seidman as the auditors for the Company for the
1998 fiscal year.
OTHER MATTERS
Management knows of no other matters that may properly be, or that are
likely to be, brought before the meeting. However, if any other matters are
properly brought before the meeting, the persons named in the enclosed proxy or
their substitutes will vote in accordance with their best judgment on such
matters.
FINANCIAL STATEMENTS
The audited consolidated balance sheets of the Company, in comparative
form as of December 31, 1997 and 1996, and the audited consolidated statements
of operations and consolidated statements of cash flows for the years ended
December 31, 1997, 1996 and 1995, are contained in the 1997 Annual Report to
Stockholders. However, such report and the financial statements contained
therein are not to be considered part of this solicitation.
SOLICITATION OF PROXIES
This Proxy Statement is furnished to Stockholders to solicit proxies
on behalf of the Directors of the Company. The cost of soliciting proxies will
be borne by the Company. Directors and officers of the Company may, without
additional compensation, solicit by mail, in person or by telecommunication.
In addition, the Company has retained Shareholder Communications Corporation
("SCC") to assist in the solicitation of proxies. An agreement with SCC
provides that it will distribute materials relating to the solicitation of
proxies, contact Stockholders to confirm receipt of materials and answer
questions relating thereto. SCC is to be paid a base fee of $2,000 plus
out-of-pocket expenses and is to be indemnified against certain liability
incurred as a result of the provision of such services.
30
<PAGE> 34
By Order of the Board of Directors
KARL L. BLAHA
President
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
ALL OF THE NOMINEES AND THAT YOU VOTE FOR PROPOSAL TWO AND PROPOSAL THREE ON
THE ENCLOSED PROXY. REGARDLESS OF HOW YOU WISH TO VOTE YOUR SHARES, YOUR BOARD
OF DIRECTORS URGES YOU TO PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED PROXY.
31
