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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999
Registration No. 333-64723
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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
(214) 692-4700
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
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ROBERT A. WALDMAN
AMERICAN REALTY TRUST, INC.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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The Commission is requested to send copies of all communications to:
THOMAS R. POPPLEWELL ROBERT A. WALDMAN
Andrews & Kurth L.L.P. American Realty Trust, Inc.
1717 Main Street 10670 North Central Expressway
Suite 3700 Suite 300
Dallas, Texas 75201 Dallas, Texas 75231
(214) 659-4480 (214) 692-4700
Approximate date of commencement of proposed sale to the public: FROM TIME
TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT PURSUANT TO
RULE 415.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS PROPOSED AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING OFFERING REGISTRATION
REGISTERED REGISTERED PRICE PER UNIT(1) PRICE(1) FEE(3)
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<S> <C> <C> <C> <C>
Preferred Stock, $2.00 par value . . . . . . . . . 355,655 Shares $10.00 $3,556,550 $1,049.18
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value . . . . . . . . . . . (2)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
(2) The number of shares of Common Stock of the Registrant to be registered is
such currently indeterminate number of shares of Common Stock as may be
required for issuance upon conversion of the Preferred Stock being
registered hereunder. Such shares of Common Stock will, if issued, be
issued for no additional consideration and therefore no registration fee is
required.
(3) The Registrant has previously paid the $1,049.18 registration fee in
connection with this filing.
================================================================================
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION; DATED JANUARY 29, 1999
355,655 SHARES
AMERICAN REALTY TRUST, INC.
SERIES F CUMULATIVE CONVERTIBLE PREFERRED STOCK
COMMON STOCK
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This Prospectus, as appropriately amended or supplemented, may be used from
time to time principally by Henry W. Simon ("Simon"), John A. Doyle ("Doyle"),
The Richard and Betty Green Family Trust (the "Green Trust"), Lend Lease
Portfolio Management, Inc. ("LLPM"), Summit Venture, L.P. ("Summit"), and
Sutter Opportunity Fund, LLC ("Sutter", and together with Simon, Doyle, the
Trust, LLPM and Summit, the "Selling Security Holders") who have received
shares of Series F Cumulative Convertible Preferred Stock, par value $2.00 per
share and a stated liquidation value ("Liquidation Value") of $10.00 per share
(individually, an "ART Preferred Share" and collectively the "ART Preferred
Shares"), of American Realty Trust, Inc. ("ART") and who wish to offer and sell
such ART Preferred Shares in transactions in which they and any broker-dealer
through whom such shares are sold may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), as
more fully described herein. Simon, Doyle and the Green Trust received their
ART Preferred Shares as consideration for ART's acquisition of their respective
shares of stock in Garden Capital, Inc., Garden Capital Management, Inc. and
Garden Capital Realty, Inc. pursuant to a merger transaction. LLPM, Summit and
Sutter received their ART Preferred Shares as consideration for ART's
acquisition of their respective shares of beneficial interest of EQK Realty
Investors I pursuant to a merger transaction. ART will not receive any of the
proceeds from any such sales. Any commissions paid or concessions allowed to
any broker-dealer, and, if any broker-dealer purchases such shares as
principal, any profits received on the resale of such shares, may be deemed to
be underwriting discounts and commissions under the Securities Act. Printing,
certain legal and accounting, filing and other similar expenses of this
offering will be paid by ART. The Selling Security Holders will generally bear
all other expenses of this offering, including brokerage fees and any
underwriting discounts or commissions.
This Prospectus relates only to the resale of ART Preferred Shares by the
Selling Shareholders but also describes the shares of ART's common stock, par
value $0.01 per share (the "ART Common Shares") issuable upon conversion of the
ART Preferred Shares, as described herein.
As of December 31, 1998 there were 3,350,000 ART Preferred Shares
outstanding, [_____ of which are registered and available for unrestricted
trading on the New York Stock Exchange ("NYSE"). The ART Preferred Shares
offered hereby have been approved for trading on the NYSE. On _______, the
closing price of the ART Preferred Shares on the NYSE was $____ per share as
published in The Wall Street Journal on ________.]
ART has filed a registration statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "Commission") covering
up to 355,655 ART Preferred Shares and the ART Common Shares issuable on
conversion thereof. This Prospectus constitutes the Prospectus of ART filed as
part of the Registration Statement with respect to such ART Preferred Shares
and ART Common Shares.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF MATERIAL RISKS
THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS IN THE ART
PREFERRED SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 29, 1999.
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CERTAIN STATEMENTS UNDER CAPTION "RISK FACTORS" CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF ART TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD- LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:
GENERAL ECONOMIC AND BUSINESS CONDITIONS, WHICH WILL, AMONG OTHER THINGS,
AFFECT THE SUPPLY AND DEMAND FOR COMMERCIAL REAL ESTATE, AVAILABILITY AND
CREDIT WORTHINESS OF PROSPECTIVE TENANTS, LEASE RATES AND THE AVAILABILITY OF
FINANCING; ADVERSE CHANGES IN THE REAL ESTATE MARKETS INCLUDING, AMONG OTHER
THINGS, COMPETITION WITH OTHER COMPANIES, RISKS ASSOCIATED WITH REAL ESTATE
ACQUISITIONS; GOVERNMENTAL ACTIONS AND INITIATIVES; ENVIRONMENTAL/SAFETY
REQUIREMENTS; AND OTHER CHANGES AND FACTORS REFERENCED IN THIS PROSPECTUS AND
THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. WITH RESPECT TO ART, SUCH
FACTORS MAY ALSO INCLUDE: DIFFICULTY OF LOCATING SUITABLE REAL ESTATE
INVESTMENTS; ILLIQUIDITY OF REAL ESTATE INVESTMENTS; RISKS REGARDING THE ASSETS
OR OTHER PROPERTIES OWNED OR CONTROLLED BY ART; LIMITED CONTROL OF ENTITIES IN
WHICH INVESTMENTS ARE MADE; AND RISKS OF INVESTMENTS IN ART PREFERRED SHARES,
INCLUDING THE INABILITY TO ENFORCE REMEDIES. SEE "RISK FACTORS" HEREIN.
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AVAILABLE INFORMATION
ART is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, file
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports and proxy and information statements filed by ART with
the Commission pursuant to the informational requirements of the Exchange Act
may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants, including
ART, that file electronically with the Commission. The address of such Web
site is "http://www.sec.gov". In addition, reports, proxy statements and other
information concerning ART (symbol: "ARB") can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005- 2601, on which the ART Common Shares and the ART Preferred Shares
are currently listed.
ART has filed the Registration Statement with the Commission under the
Securities Act with respect to the ART Preferred Shares and the ART Common
Shares. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to ART, the ART Preferred Shares and the ART Common Shares, reference
is made to the Registration Statement and to the exhibits thereto and the
documents incorporated by reference herein. Statements contained herein
concerning the provisions of certain documents are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be
inspected without charge at the office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies thereof may be obtained from the
Commission upon payment of the prescribed fees.
No person has been authorized to give any information or make any
representation other than those set forth or incorporated by reference herein
and, if given or made, such information must not be relied upon as having been
authorized by ART or any of its affiliates. This Prospectus does not
constitute an offer to, or a solicitation of, any person in any jurisdiction in
which such offer or solicitation is unlawful.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus incorporates by reference documents not presented herein or
delivered herewith. ART will provide without charge to each person to whom a
copy of this Prospectus is delivered, upon the written or oral request of any
such person, a copy of any document described below (other than exhibits).
Requests for such copies should be directed
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to American Realty Trust, Inc., 10670 North Central Expressway, Suite 300,
Dallas, Texas 75231, Attention: Investor Relations, telephone number: (214)
692-4700.
The following documents, heretofore filed by ART with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein:
1. ART's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as filed with the Commission on March 30, 1998, as amended by ART's
Annual Report on Form 10-K/A, as filed with the Commission on November 24,
1998, as further amended by ART's Annual Report on Form 10-K/A Amendment No. 1,
as filed with the Commission on January 26, 1999.
2. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission on May 14, 1998, as amended by ART's
Quarterly Report on Form 10-Q/A, as filed with the Commission on November 24,
1998, as further amended by ART's Quarterly Report on Form 10-Q/A Amendment No.
1, as filed with the Commission on January 26, 1999.
3. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 14, 1998, as amended by ART's
Quarterly Report on Form 10-Q/A, as filed with the Commission on November 24,
1998, as further amended by ART's Quarterly Report on Form 10-Q/A Amendment No.
1, as filed with the Commission on January 26, 1999.
4. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 16, 1998, as
amended by ART's Quarterly Report on Form 10-Q/A, as filed with the Commission
on January 26, 1999.
5. ART's Current Report on Form 8-K dated May 1, 1998, as filed with the
Commission on June 25, 1998, as amended by ART's Current Report on Form 8-KA,
as filed with the Commission on July 16, 1998.
6. The Annual Report on Form 10-K for Continental Mortgage and Equity
Trust ("CMET") for the year ended December 31, 1997, as filed with the
Commission on March 20, 1998.
7. CMET's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998, as filed with the Commission on May 14, 1998.
8. CMET's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 11, 1998.
9. CMET's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 12, 1998.
10. CMET's Current Report on Form 8-K dated April 3, 1998, as filed with
the Commission on June 25, 1998.
11. CMET's Current Report on Form 8-K dated September 1, 1998, as filed
with the Commission on September 28, 1998.
12. The Annual Report on Form 10-K for Income Opportunity Realty
Investors, Inc. ("IORI") for the year ended December 31, 1997, as filed with
the Commission on March 20, 1998.
13. IORI's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998, as filed with the Commission on May 4, 1998.
14. IORI's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 5, 1998.
15. IORI's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 9, 1998.
16. IORI's Current Report on Form 8-K dated November 19, 1997, as filed
with the Commission on December 3, 1997, as amended by IORI's Current Report on
Form 8-K/A, as filed with the Commission on January 14, 1998, and as further
amended by IORI's Current Report on Form 8-K/A, as filed with the Commission on
August 5, 1998.
17. IORI's Current Report on Form 8-K dated December 30, 1997, as filed
with the Commission on January 9, 1998.
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18. The Annual Report on Form 10-K for Transcontinental Realty Investors,
Inc. ("TCI") for the year ended December 31, 1997, as filed with the Commission
on March 20, 1998, as amended by TCI's Annual Report on Form 10-K/A, as filed
with the Commission on January 27, 1999.
19. TCI's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, as filed with the Commission on May 4, 1998, as amended by TCI's
Quarterly Report on Form 10-Q/A, as filed with the Commission on January 27,
1999.
20. TCI's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 5, 1998, as amended by TCI's
Quarterly Report on Form 10-Q/A, as filed with the Commission on January 27,
1999.
21. TCI's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 12, 1998, as
amended by TCI's Quarterly Report on Form 10-Q/A, as filed with the Commission
on January 27, 1999.
22. TCI's Current Report on Form 8-K dated December 22, 1997, as filed
with the Commission on January 9, 1998, as amended by TCI's Current Report on
Form 8-K/A, as filed with the Commission on June 29, 1998.
23. TCI's Current Report on Form 8-K dated May 29, 1998, as filed with the
Commission on July 2, 1998, as amended by TCI's Current Report on Form 8-K/A,
as filed with the Commission on September 23, 1998.
24. TCI's Current Report on Form 8-K dated June 26, 1998, as filed with
the Commission on July 21, 1998, as amended by TCI's Current Report on Form
8-K/A, as filed with the Commission on October 16, 1998.
25. TCI's Current Report on Form 8-K dated September 21, 1998, as filed
with the Commission on September 28, 1998.
26. TCI's Current Report on Form 8-K dated October 20, 1998, as filed with
the Commission on December 4, 1998, as amended by TCI's Current Report on Form
8-K/A, as filed with the Commission on January 27, 1999.
27. The Annual Report on Form 10-K for National Realty, L.P. ("NRLP") for
the year ended December 31, 1997, as filed with the Commission on March 26,
1998, as amended by NRLP's Annual Report on Form 10-K/A, as filed with the
Commission on November 24, 1998, as further amended by NRLP's Annual Report on
Form 10-K/A Amendment No. 1, as filed with the Commission on January 25, 1999.
28. NRLP's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998, as filed with the Commission May 14, 1998, as amended by NRLP's
Quarterly Report on Form 10-Q/A, as filed with the Commission on January 25,
1999.
29. NRLP's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, as filed with the Commission on August 14, 1998, as amended by NRLP's
Quarterly Report on Form 10-Q/A, as filed with the Commission on January 25,
1999.
30. NRLP's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1998, as filed with the Commission on November 16, 1998, as
amended by NRLP's Quarterly Report on Form 10-Q/A, as filed with the Commission
on January 25, 1999.
31. The description of the Common Stock contained in ART's Registration
Statement under Section 12 of the Exchange Act and all amendments and reports
filed for the purpose of updating that description.
32. ART's Amendment No. 3 to the Registration Statement on Form S-4, as
filed with the Commission on December 2, 1998, and all amendments and reports
filed with the Commission in respect thereof.
Each document filed by ART subsequent to the date of this Prospectus
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
termination of the offering of all securities to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and shall be
part hereof from the date of filing of such document.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement herein or in any
other subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. Subject to the
foregoing, all information appearing in this Prospectus is qualified in its
entirety by the information appearing in the documents incorporated herein by
reference.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein or in the documents
incorporated herein by reference. Certain capitalized terms used herein may be
defined elsewhere in this Prospectus. Capitalized terms that are used but not
defined herein, will have the meanings assigned to such terms in this
Prospectus.
GENERAL
This Prospectus relates to the sale of ART Preferred Shares by Selling
Security Holders who have received ART Preferred Shares in connection with
acquisitions by ART of securities or assets held by such persons or their
transferees and who wish to offer and sell such ART Preferred Shares in
transactions in which they and any broker-dealer through whom such shares are
sold may be deemed to be "underwriters" within the meaning of the Securities
Act.
DESCRIPTION OF ART
ART, a Georgia corporation, is the successor to a District of Columbia
business trust organized pursuant to a declaration of trust dated July 14,
1961. The business trust merged into ART on June 24, 1988. ART elected to be
treated as a real estate investment trust ("REIT") under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), during the
period from June 1, 1989 through December 31, 1990. ART allowed its REIT
status to lapse in 1991.
ART's principal offices are located at 10670 North Central Expressway,
Suite 300, Dallas, Texas 75231. ART's telephone number is (214) 692-4700.
See "Description of ART."
BUSINESS OF ART
ART's primary business is investing in equity interests in real estate
(including equity securities of real estate- related entities), leases, joint
venture development projects and partnerships and financing real estate and
real estate activities through investments in mortgage loans, including first,
wraparound and junior mortgage loans. ART has invested in private and open
market purchases in the equity securities of Continental Mortgage and Equity
Trust ("CMET"), Income Opportunity Realty Investors, Inc. ("IORI"),
Transcontinental Realty Investors, Inc. ("TCI") and National Realty, L.P.
("NRLP"), each, an affiliate of ART.
ART's board of directors (the "ART Board") has broad authority under ART's
governing documents to make all types of real estate investments, including
mortgage loans and equity real estate investments, as well as investments in
the securities of other entities, whether or not such entities are engaged in
real estate related activities.
Although the ART Board is directly responsible for managing ART's affairs
and for setting the policies which guide it, the day-to-day operations of ART
are performed by Basic Capital Management, Inc. ("BCM"). BCM is a contractual
advisor under the supervision of the ART Board. The duties of BCM include,
among other things, locating, investigating, evaluating and recommending real
estate and mortgage note investment and sales opportunities, as well as
financing and refinancing sources for ART. BCM also serves as a consultant in
connection with ART's business plan and investment policy decisions made by the
ART Board.
ART's business is not seasonal. ART has decided to pursue a balanced
investment policy, seeking both current income and capital appreciation. ART's
plan of operation is to continue, to the extent its liquidity permits, to make
equity investments in lower risk real estate such as apartment complexes and
residential development projects or equity securities of real estate-related
entities and to continue to service and hold for investment mortgage loans.
ART also intends to pursue higher risk, higher reward investments, such as
undeveloped land where it can obtain financing of a significant portion of a
property's purchase price. In addition, ART will continue to seek selected
dispositions of certain of its assets where the prices obtainable for such
assets justify their disposition and will pursue its rights vigorously with
respect to mortgage notes receivable that are in default. For a detailed
description of ART's business, see "The Business of ART."
NEW YORK STOCK EXCHANGE LISTING OF ART PREFERRED SHARES
As of December 31, 1998 there were 3,350,000 ART Preferred Shares
outstanding,[ _____ of which are registered and available for unrestricted
trading on the NYSE. The ART Preferred Shares offered hereby have been
approved for trading on the NYSE. On _______, the closing price of the ART
Preferred Shares on the NYSE was $____ per share as published in The Wall
Street Journal on ________.]
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DESCRIPTION OF ART PREFERRED SHARES
The ART Board has designated and authorized the issuance of 15,000,000 ART
Preferred Shares with a par value of $2.00 per share and a preference on
liquidation equal to the Liquidation Value ($10.00 per share) plus the amount
of any accrued and unpaid dividends. The Liquidation Value plus such amount is
referred to as the "Adjusted Liquidation Value." The ART Preferred Shares are
non-voting except (i) as provided by law, (ii) with respect to an amendment to
ART's articles of incorporation or bylaws that would materially alter or change
the existing terms of the ART Preferred Shares, and (iii) at any time or times
when all or any portion of the dividends on the ART Preferred Shares for any
six quarterly dividends, whether or not consecutive, shall be in arrears and
unpaid. In the latter event, the number of directors constituting the ART
Board shall be increased by two and the holders of ART Preferred Shares, voting
separately as a class, shall be entitled to elect two directors to fill such
newly created directorships with each holder being entitled to one vote in such
election for each share of ART Preferred Shares held. ART is not obligated to
maintain a sinking fund with respect to the ART Preferred Shares.
The ART Preferred Shares are convertible, at the option of the holder, into
fully paid and nonassessable ART Common Shares at any time and from time to
time, in whole or in part, after the earliest to occur of (i) the August 15,
2003; (ii) the first business day, if any, occurring after a Quarterly Dividend
Payment Date (as defined below) on which dividends equal to or in excess of 5%
of the Liquidation Value (i.e., $0.50 per ART Preferred Share) are accrued and
unpaid, or (iii) ART becomes obligated to mail a statement, signed by an officer
of ART, to the holders of record of each of the ART Preferred Shares because of
a proposal by ART, to merge or consolidate with or into any other corporation
(unless ART is the surviving entity and holders of ART Common Shares continue to
hold such ART Common Shares without modification and without receipt of any
additional consideration), or to sell, lease, or convey all or substantially all
its property or business, or to liquidate, dissolve or wind up. The ART
Preferred Shares are convertible into that number of shares of ART Common Shares
obtained by multiplying the number of ART Preferred Shares being converted by
$10.00, then adding all accrued and unpaid dividends, then dividing such sum by
(in most instances) 90% of the simple average of the daily closing price of the
ART Common Shares for the 20 business days ending on the last business day of
the calendar week immediately preceding the date of conversion on the principal
stock exchange on which such ART Common Shares are then listed (the "Conversion
Price"). Notwithstanding the foregoing, ART, at its option, may elect to redeem
any ART Preferred Shares sought to be so converted by paying the holder of such
ART Preferred Shares cash in an amount equal to the Conversion Price.
The ART Preferred Shares bear a cumulative, compounded dividend per share
equal to 10% per annum of the Accumulated Liquidation Value, payable quarterly
on the 15th day of the month following the end of each calendar quarter (each,
a "Quarterly Dividend Payment Date"), and commencing accrual on the date of
issuance to and including the date on which the redemption price of such shares
is paid, whether or not such dividends have been declared and whether or not
there are profits, surplus or other funds of ART legally available for the
payment of such dividends. Dividends on the ART Preferred Shares are in
preference to and with priority over dividends upon the ART Common Shares.
Except as described in the following sentence, the ART Preferred Shares rank on
a parity as to dividends and upon liquidation, dissolution or winding up with
all other Special Stock (as defined herein under "Description of Capital Stock
of ART") issued by ART. ART will not issue any shares of Special Stock of
any series which are superior to the ART Preferred Shares as to dividends or
rights upon liquidation, dissolution or winding up of the corporation as long
as any ART Preferred Shares are issued and outstanding, without the prior
written consent of the holders of at least 66 2/3% of such ART Preferred Shares
then outstanding voting separately as a class. As of November 16, 1998, ART
had outstanding 3,350,000 ART Preferred Shares, 16,681 shares of Series C 10%
Cumulative Preferred Stock, and 1,000 shares of Series G 10% Cumulative
Convertible Preferred Stock.
ART may redeem any or all of the ART Preferred Shares at any time and from
time to time, at its option, for cash upon no less than 20 days nor more than
30 days prior notice thereof. The redemption price of ART Preferred Shares to
be redeemed shall be an amount per share equal to (i) 104% of the Adjusted
Liquidation Value of such shares during the period from August 16, 1998 through
August 15, 1999; and (ii)103% of the Adjusted Liquidation Value of such shares
at any time on or after August 16, 1999.
There is no established trading market for the ART Preferred Shares. [While
the ART Preferred Shares have been listed for trading on the NYSE, there can be
no assurance that an active market for the ART Preferred Shares will develop or
be sustained in the future on the NYSE or otherwise.] There is no assurance
that the ART Preferred Shares will have a market value at or near their
Adjusted Liquidation Value. See "Risk Factors -- ART Preferred Shares."
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RESALE RESTRICTIONS; MARKET AND TRADING INFORMATION
The ART Preferred Shares issued to LLPM may not be publicly offered or sold
other than in compliance with Rule 145 promulgated under the Securities Act.
Because the ART Preferred Shares are newly issued, there is not a public
market for the ART Preferred Shares. [While the ART Preferred Shares have been
listed for trading on the NYSE, there can be no assurance that the ART
Preferred Shares will continue to be so listed or that an active market for
the ART Preferred Shares will develop or be sustained in the future on such
exchange. Continued listing of the ART Preferred Shares on the NYSE will depend
upon the satisfaction of the NYSE's continued listing requirements with respect
to the ART Preferred Shares. Accordingly, no assurance can be given as to the
liquidity of, or trading for, the ART Preferred Shares. In addition, there is
no assurance that the ART Preferred Shares will have a market value at or near
their Liquidation Value.] See "Risk Factors -- ART Preferred Shares --
Possible Subsequent De-listing of the ART Preferred Shares" herein.
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RISK FACTORS
Potential purchasers of the ART Preferred Shares should consider the
following risk factors in connection with a determination of whether or not to
purchase the ART Preferred Shares. These factors are intended to identify the
significant sources of risk affecting an investment in the ART Preferred
Shares.
ART PREFERRED SHARES
Possible Subsequent De-listing of the ART Preferred Shares. As of November
16, there were 3,350,000 ART Preferred Shares issued and outstanding; however,
there is currently no established public market for the ART Preferred Shares.
[While the ART Preferred Shares have been listed for trading on the NYSE, there
can be no assurance that an active market for the ART Preferred Shares will
develop or be sustained in the future on such exchange. Continued listing of
the ART Preferred Shares on the NYSE will also depend upon the satisfaction of
the NYSE's listing requirements with respect to the ART Preferred Shares.
Although the NYSE has not established any minimum numerical criteria for the
listing of preferred stock, it has published certain numerical de-listing
criteria therefor. Pursuant to such criteria, the NYSE will consider
suspending or de-listing a series of preferred stock if the aggregate market
value of publicly- held shares of such preferred stock is less than $2,000,000
and the number of publicly-held shares of such preferred stock is less than
100,000. The aggregate number and aggregate value of the ART Preferred Shares
currently satisfy the NYSE listing requirements; however, since the ART
Preferred Shares are subject to conversion or redemption as described herein
under "Description of the Capital Stock of ART -- ART Preferred Shares," there
can be no assurance that the ART Preferred Shares will continue to satisfy the
NYSE's continued listing requirements. In addition, no assurance can be given
as to the liquidity of, or trading for, the ART Preferred Shares. The trading
price of ART Preferred Shares is likely to be below their Liquidation Value and
there is no assurance as to the price at which the ART Preferred Shares will
actually trade.]
Reliance on ART Board to Declare Dividends on the ART Preferred Shares.
Although dividends will accrue cumulatively on the ART Preferred Shares from
the date of issuance, such dividends will not be paid unless and until they are
declared by the ART Board. Holders of ART Preferred Shares will not have the
authority to direct or compel the ART Board to declare dividends with respect
to the ART Preferred Shares. The ART Preferred Shares are non-voting except
(i) as provided by law, (ii) with respect to an amendment to ART's articles of
incorporation or bylaws that would materially alter or change the existing
terms of the ART Preferred Shares, and (iii) at any time or times when all or
any portion of the dividends on the ART Preferred Shares for any six quarterly
dividends, whether or not consecutive, shall be in arrears and unpaid. In the
latter event, the number of directors constituting the ART Board shall be
increased by two and the holders of ART Preferred Shares, voting separately as
a class, shall be entitled to elect two directors to fill such newly created
directorships with each holder being entitled to one vote in such election for
each share of ART Preferred Shares held.
Risks Associated with Conversion Feature. The ART Preferred Shares are
convertible into ART Common Shares as described herein under "Summary of Terms
- -- Description of ART Preferred Shares" and "Description of the Capital Stock
of ART -- ART Preferred Shares." The Articles of Amendment of ART's Articles
of Incorporation that authorize the ART Preferred Shares provide that a number
of authorized ART Common Shares sufficient to provide for the conversion of the
outstanding ART Preferred Shares as described herein shall at all times be
reserved for such conversion. However, the number of ART Common Shares into
which an ART Preferred Share is convertible is dependent upon the then-current
market price of the ART Common Shares. Therefore, if at the time a holder of
ART Preferred Shares seeks to convert such ART Preferred Shares, ART has failed
to reserve a sufficient number of authorized ART Common Shares to effect such
conversion and assuming that ART does not elect to redeem such ART Preferred
Shares as described herein, such holder would be unable to effect such
conversion. In addition to the ART Preferred Shares, ART has authorized and
issued other preferred stock that may be converted from time to time into ART
Common Shares. See "Description of the Capital Stock of ART." In the future,
ART expects to authorize and issue additional preferred stock or other
securities that may be converted from time to time into ART Common Shares.
Certain of the preferred stock that has been authorized by ART (including the
ART Preferred Shares) is, and securities that may be issued by ART in the
future may be, convertible into a number of ART Common Shares calculated by
reference to the price of ART Common Shares (i.e., the lower the price of the
ART Common Shares, the higher the number of ART Common Shares to be received
upon conversion of the applicable security). At any given time, a decrease in
the price of ART Common Shares below a certain level could result in the number
of authorized ART Common Shares being insufficient to provide for the
conversion of all of ART's convertible securities, including the ART Preferred
Shares. So long as management of ART and affiliates of ART own a majority of
the ART Common Shares, management expects that ART will have the ability to
increase the number of authorized ART Common Shares to a number sufficient to
provide for the conversion of its convertible preferred stock. However, there
can be no assurance that management and affiliates of ART will continue to own
a majority of the ART Common Shares. The actual basis for calculating the
number of ART Common Shares issuable upon conversion of ART's authorized
preferred stock is described under "Description of the Capital Stock of ART."
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Possibility that an Active Trading Market Will Not Exist for the ART Common
Shares when the ART Preferred Shares are Converted. In the event that ART
Preferred Shares are converted into ART Common Shares, there can be no
assurance as to the existence of an active trading market for the ART Common
Shares at the time of such conversion or that the trading price of the ART
Common Shares will not decline substantially after such conversion.
CORRELATION BETWEEN THE VALUE OF THE ART PREFERRED SHARES AND THE SUCCESS OF
ART'S BUSINESS
The value of the ART Preferred Shares at any given time will be
substantially dependent upon the success of ART's business. Set forth below is
a summary of potential risks relating to ART's business.
Recent Operating History. ART has experienced net losses of $2,428,000,
$5,554,000, $2,836,000, $2,426,000, and $4,427,000, respectively, for each of
the fiscal years ended December 31, 1997, 1996, 1995, 1994 and 1993, and ART
had an accumulated deficit at December 31, 1997 of $25,638,000. During the
nine months ended September 30, 1998, ART reported net income of $2,100,000 and
an accumulated deficit of $25,841,000 at September 30, 1998. During the nine
months ended September 30, 1998, ART paid a cumulative dividend of $0.15 with
respect to each ART Common Share. During 1997, ART paid a cumulative dividend
of $0.20 with respect to each ART Common Share, and during 1996, ART paid a
cumulative dividend of $0.15 with respect to each ART Common Share. From 1993
through 1995, ART paid no dividends in respect of the ART Common Shares. There
can be no assurance that ART will be able to pay dividends in respect of the
ART Preferred Shares or the ART Common Shares in the future.
Changes in ART's Policies Without Stockholder Approval. The investment,
financing, borrowing and distribution policies of ART and its policies with
respect to all other activities, growth, debt, capitalization and operations,
will be determined by the ART Board. Although it has no present intention to do
so, the ART Board may amend or revise these policies at any time and from time
to time at its discretion without a vote of the stockholders of ART. A change
in these policies could adversely affect the market price of the ART Preferred
Shares or the ART Common Shares. See "The Business of ART."
Investments in Real Property. Real property investments are subject to
varying degrees of risk and are relatively illiquid. Income from real property
investments and ART's resulting ability to pay dividends to its shareholders
may be adversely affected by a number of factors, including general economic
climate and local real estate conditions (such as oversupply of or reduced
demand for space and changes in market rental rates); the perceptions of
prospective tenants of the safety, convenience and attractiveness of ART's
properties; the ability of ART or the owner of such properties to provide
adequate management, maintenance and insurance; energy and supply shortages;
the ability to collect on a timely basis all rent from tenants and interest
from borrowers; the expense of periodically renovating, repairing and reletting
spaces; and increasing operating costs (including real estate taxes and
utilities) which may not be passed through to tenants. Certain significant
expenditures associated with investments in real estate (such as mortgage
payments, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in rental revenues from the
investment. If a property of ART is mortgaged to secure the payment of
indebtedness and if ART or an entity in which ART invests or to which it lends
is unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on the property or the exercise of other remedies by the
mortgagee. Real estate values and income from properties are also affected by
such factors as compliance with laws, including tax laws, interest rate levels
and the availability of financing.
Nature of Investments Made by ART May Involve High Risk; Illiquidity of
Real Estate Investments. ART may make investments in real estate-related
assets and businesses which have experienced severe financial difficulties,
which difficulties may never be overcome. Since such investments may involve a
high degree of risk, poor performance by any such investments could severely
affect the financial condition and results of operations of ART.
The illiquid nature of ART's real estate investments may limit the ability
of ART to modify its portfolio in response to changes in economic or other
conditions. Such illiquidity may result from the absence of an established
market for ART's investments as well as legal or contractual restrictions on
their resale by ART.
Difficulty of Locating Suitable Investments; Competition. Identifying,
completing and realizing on real estate investments has from time to time been
highly competitive, and involves a high degree of uncertainty. ART competes
for investments with many public and private real estate investment vehicles,
including financial institutions (such as mortgage banks, pension funds and
real estate investment trusts) and other institutional investors, as well as
individuals. There can be no assurance that ART will continue to be able to
locate and complete investments which satisfy ART's objectives or realize upon
their value or that it will be able to fully invest its available capital.
Many of those with whom ART competes for investments and its services are
far larger than ART, may have greater financial resources than ART and may have
management personnel with more experience than the officers of ART.
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General Investment Risks Associated With Acquisition Activities. From
time to time, ART will acquire existing properties to the extent that they can
be acquired on advantageous terms and meet ART's investment criteria.
Acquisitions of properties entail general investment risks associated with any
real estate investment, including the risk that investments will fail to
perform as expected, that estimates of the cost of improvements to bring an
acquired property up to standards established for the intended market position
may prove inaccurate and the occupancy rates and rents achieved may be less
than anticipated.
Dependence on Rental Income from Real Property. ART's cash flow, results
of operations and value of its assets would be adversely affected if a
significant number of tenants of ART's properties failed to meet their lease
obligations or if ART or the owner of a property in which ART has an interest
were unable to lease a significant amount of space on economically favorable
terms. In the event of a default by a lessee, the owner may experience delays
in enforcing its rights as lessor and may incur substantial costs in protecting
its investment. The bankruptcy or insolvency of a major tenant may have an
adverse effect on a property. At any time, a tenant may also seek protection
under the bankruptcy laws, which could result in rejection and termination of
such tenant's lease and thereby cause a reduction in the cash flow of the
property. If a tenant rejects its lease, the owner's claim for breach of the
lease would (absent collateral securing the claim) be treated as a general
unsecured claim. Generally, the amount of the claim would be capped at the
amount owed for unpaid pre-petition lease payments unrelated to the rejection,
plus the greater of one year's lease payments or 15% of the remaining lease
payments payable under the lease (but not to exceed the amount of three years'
lease payments). No assurance can be given that the properties in which ART has
an interest will not experience significant tenant defaults in the future.
Properties that Serve as Collateral for ART's Mortgage Notes Receivable. A
substantial portion of ART's assets have been invested in mortgage notes
receivable, principally those secured by income producing real estate. The
income producing real estate properties have included apartment complexes,
hotels, office buildings and shopping centers. Those properties are located in
the Mountain, Southeast and Southwest regions of the United States. Certain
geographic regions of the United States from time to time will experience
weaker regional economic conditions and housing markets, and, consequently,
will experience higher rates of loss and delinquency on mortgage loans
generally. Any concentration of loan assets in such a region may present risk
considerations in addition to those generally present for similar
mortgage-backed or asset-backed securities without such concentration.
Market values of apartment complexes can be affected significantly by the
supply and demand in the geographic market for such properties securing the
loan and, therefore, may be subject to adverse economic conditions. Market
values on apartment complexes may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender.
Governmental regulations such as rent control laws may impact the future cash
flow of the apartment complex.
Like any income producing property, the income generated by a hotel
property is subject to several factors such as local, regional and national
economic conditions and competition. However, because such income is primarily
generated by room occupancy and such occupancy is usually for short periods of
time, the level of such income may respond more quickly to conditions such as
those described above. Such sensitivity to competition may require more
frequent improvements and renovations than other properties. To the extent a
hotel is affiliated to, or associated with, a regional, national, or
international chain, changes in the public perception of such chain may have an
impact on the income generated by the related property. The hotel industry is
also generally seasonal. This will result in fluctuation in the income
generated by hotel properties.
The market value of properties such as office buildings and shopping
centers are subject to risks that, upon expiration, leases for space in the
office buildings and shopping centers may not be renewed, the space may not be
re-leased, or the terms of renewal or re-lease (including the cost of required
renovations or concessions to tenants) may be less favorable than current lease
terms.
Operating Risks of ART's Properties. The properties in which ART has an
interest are subject to operating risks common to the particular property type,
any and all of which may adversely affect occupancy or rental rates. Such
properties are subject to increases in operating expenses such as cleaning;
electricity; heating, ventilation and air- conditioning; elevator repair and
maintenance; insurance and administrative costs; and other general costs
associated with security, landscaping, repairs and maintenance. While
commercial tenants are often obligated to pay a portion of these escalating
costs, there can be no assurance that they will agree to pay such costs or that
the portion that they agree to pay will fully cover such costs. If operating
expenses increase, the local rental market may limit the extent to which rents
may be increased to meet increased expenses without decreasing occupancy rates.
To the extent rents cannot be increased or costs controlled, the cash flow of
ART and its financial condition may be adversely affected.
Possible Inability to Meet Payments on Debt Financing. ART's
debt-to-equity ratio, inclusive of margin debt, was 4.97 to 1 as of December
31, 1997, and 6.60 to 1 as of September 30, 1998. Under certain circumstances,
ART's cash flow may be insufficient to meet required payments of principal,
interest on its debt and dividend distributions. If a
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property is mortgaged to secure payment of indebtedness and ART is unable to
meet mortgage payments, the lender could foreclose upon the property, appoint a
receiver and receive an assignment of rents and leases or pursue other
remedies, all with a consequent loss of income and asset value to ART. If ART
defaults on secured indebtedness, the lender may foreclose and ART could lose
its entire investment in the security for such loan. Because ART may engage in
portfolio financings where several investments are cross-collateralized,
multiple investments may be subject to the risk of loss. As a result, ART
could lose its interests in performing investments in the event such
investments are cross- collateralized with poorly performing or nonperforming
investments. In addition, recourse debt may subject other assets of ART to risk
of loss. Any such losses would adversely affect ART's ability to make
distributions in respect of the ART Preferred Shares. Distributions in respect
of the ART Preferred Shares will be subordinate in right of payment to ART's
debt obligations which, as of September 30, 1998, have an aggregate outstanding
principal balance of approximately $426.3 million. Substantially all of ART's
mortgage notes receivable, real estate, equity security holdings in CMET, IORI,
TCI and NRLP and its trading portfolio of equity securities has been pledged to
secure ART's outstanding indebtedness. Such borrowings increase ART's risk of
loss because they represent a prior claim on ART's assets and require fixed
payments regardless of profitability. If ART defaults on such secured
indebtedness, the lender may foreclose on ART's assets securing such
indebtedness, and ART could lose its investment in the pledged assets.
Possible Inability to Refinance Existing Indebtedness. ART may not be
able to refinance existing indebtedness or the terms of such refinancing may
not be as favorable as the terms of current indebtedness and ART may not be
able to finance necessary capital expenditures for renovations and other
improvements on favorable terms or at all. If ART were unable to refinance its
indebtedness on acceptable terms, or at all, ART might be forced to dispose of
one or more of its properties on disadvantageous terms, which might result in
losses to ART and might adversely affect the cash available for distributions
to its shareholders. If interest rates or other factors at the time of the
refinancing result in higher interest rates upon refinancing, ART's interest
expense would increase, which would affect ART's ability to make distributions
to its shareholders. Substantially all of ART's real estate equity investments
utilize a leveraged capital structure, in which case a third party lender would
be entitled to cash flow generated by such investments prior to ART receiving a
return. As a result of such leverage, in addition to the risks described above,
ART would be subject to the risk that existing debt (which in most cases will
not have been fully amortized at maturity) will not be able to be refinanced or
that the terms of such refinancings will not be as favorable to ART and the
risk that necessary capital expenditures for such purposes as renovations and
other improvements will not be able to be financed on favorable terms or at
all. While such leverage may increase returns or the funds available for
investment by ART, it also will increase the risk of loss on a leveraged
investment. The organizational documents of ART do not contain any limitation
on the amount of indebtedness ART may incur. Accordingly, ART could become even
more highly leveraged than it currently is, thus resulting in an increase in
debt service that could increase the risk of default on ART's indebtedness.
Existing Debt Maturities. As of December 31, 1997, approximately $89.0
million of ART's outstanding indebtedness became due within the next twelve
months. ART had the option of extending the maturity dates with respect to
$18.3 million of such amount to April and June 1999. In April 1998, ART paid
off $5.0 million of such debt and refinanced the remaining $13.3 million with
the same lender, increasing the loan's principal balance by $1.7 million, and
extended the maturity date of such loan to April 2000. On an additional $19.5
million loan, the lender has extended such loan's maturity date to February
2000. In March 1998, ART made a $10.2 million paydown on this loan. In
addition, through September 30, 1998, ART paid off a total of $29.5 million of
the remainder of such maturing debt. ART anticipates that only a portion of
the principal of its indebtedness outstanding from time to time will be repaid
prior to maturity. ART may not have sufficient funds to repay such
indebtedness at maturity; it may therefore be necessary for ART to refinance
debt through additional debt financing or equity offerings. The lender on a
loan with a principal balance of $20.7 million at September 30, 1998, has
declared events of non-monetary default to have occurred and has demanded
repayment of the amounts owed to it. If ART is unable to refinance any of the
foregoing indebtedness on acceptable terms, ART may be forced to dispose of
properties on disadvantageous terms, which could result in losses to ART and
adversely affect the amount of cash available for further investment, to make
payments on its outstanding indebtedness or to make distributions in respect of
the ART Preferred Shares.
Rising Interest Rates on Variable Rate Debt. As of September 30, 1998,
approximately 15% and 85% of ART's indebtedness is subject to variable interest
rates and fixed interest rates, respectively. ART may incur indebtedness in
the future that also bears interest at a variable rate or may be required to
refinance its debt at higher rates. Accordingly, increases in variable
interest rates could increase ART's interest expense and adversely effect the
financial condition and results of operations of ART. In the event that ART's
financial condition and results of operations are adversely affected, the value
of the ART Preferred Shares will likely decline.
Covenants. Various debt obligations may require ART to comply with a
number of customary financial and other covenants on an ongoing basis. Failure
to comply with such covenants may limit ART's ability to borrow funds or may
cause a default under its then-existing indebtedness. Various ART debt
obligations contain specific covenants, which provide that if ART should be
declared in default of any of its debt obligations, and such default is not
cured in the time allowed, then the debt obligations containing such covenant
would also be declared in default, as a result of which, among other
consequences, all such debt would become due and payable.
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Lack of Control and Other Risks of Equity Investments in and with Third
Parties. ART may invest in shares or other equity interests of real estate
investment trusts or other entities that invest in real estate assets. In such
cases, ART will be relying on the assets, investments and management of the
real estate investment trust or other entity in which it is investing. Such
entities and their properties will be subject to the other risks affecting the
ownership and operation of real estate set forth herein.
ART may also co-invest with third parties through partnerships, joint
ventures or other entities, acquiring non- controlling interests in or sharing
responsibility for managing the affairs of a property, partnership, joint
venture or other entity and, therefore, will not be in a position to exercise
sole decision-making authority regarding the property, partnership, joint
venture or other entity.
Investments in partnerships, joint ventures, or other entities may, under
certain circumstances, involve risks which would not be present were a third
party not involved, including the possibility that ART's partners or
co-venturers might become bankrupt or otherwise fail to fund their share of
required capital contributions, that such partners or co- venturers might at
any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of ART, and that such
partners or co-venturers may be in a position to take action contrary to the
instructions or the requests of ART and contrary to ART's policies or
objectives. Such investments may also have the potential risk of impasse on
decisions, such as a sale, because neither ART nor the partner or co-venturer
would have full control over the partnership or joint venture. Consequently,
actions by such partner or co-venturer might result in subjecting properties
owned by the partnership or joint venture to additional risk. In addition, ART
may in certain circumstances be liable for the actions of its third-party
partners or co-venturers.
Investments in Non-Recourse Mortgage Loans. To the extent ART invests in
mortgage loans, such mortgage loans may or may not be recourse obligations of
the borrower and generally will not be insured or guaranteed by governmental
agencies or otherwise. In the event of a default under such obligations, ART
may have to foreclose its mortgage or protect its investment by acquiring title
to a property and thereafter making substantial improvements or repairs in
order to maximize the property's investment potential. Borrowers may contest
enforcement of foreclosure or other remedies, seek bankruptcy protection
against such enforcement and/or bring claims for lender liability in response
to actions to enforce mortgage obligations. Relatively high "loan-to-value"
ratios and declines in the value of the mortgaged property may prevent ART from
realizing an amount equal to its mortgage loan upon foreclosure.
ART may participate in loans originated by other financing institutions.
As a participant, ART may not have the sole authority to declare a default
under the mortgage or to control the management or disposition of the related
property or any foreclosure proceedings in respect thereof.
Any investments in junior mortgage loans which are subordinate to liens of
senior mortgages would involve additional risks, including the lack of control
over the collateral and any related foreclosure proceeding. In the event of a
default on a senior mortgage, ART may make payments to prevent foreclosure on
the senior mortgage without necessarily improving ART's position with respect
to the subject real property. In such event, ART would be entitled to share in
the proceeds only after satisfaction of the amounts due to the holder of the
senior mortgage.
Limitations on Remedies. Although ART will have certain contractual
remedies upon the default by borrowers under certain debt instruments, such as
foreclosing on the underlying real estate or collecting rents generated
therefrom, certain legal requirements (including the risks of lender liability)
may limit the ability of ART to effectively exercise such remedies.
The right of a mortgage lender to convert its loan position into an equity
interest may be limited or prevented by certain common law or statutory
prohibitions.
Possibility of Uninsured Loss on Uninsurable or Economically Uninsurable
Properties. ART carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the improved real property that it
owns, with policy specifications, insured limits and deductibles customarily
carried for similar properties. There are, however, certain types of losses
(such as losses arising from acts of war or relating to pollution) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, ART could lose its capital invested in a property, as well as the
anticipated future revenue from such property and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could adversely affect the financial condition and
results of operations of ART.
With respect to those properties in which ART holds an interest through a
mortgage, as well as those properties owned by entities to whom ART makes
unsecured loans, the borrowers will most likely be obligated to maintain
insurance on such properties and to arrange for ART to be covered as a named
insured on such policies. The face amount and scope of such insurance coverage
may be less comprehensive than ART would carry if it held the fee interest in
such property. Accordingly, in such circumstances, or in the event that the
borrowers fail to maintain required
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coverage, uninsured or underinsured losses may occur, which could have an
adverse impact on ART's cash flow or financial condition.
Costs of Compliance with the Americans with Disabilities Act and Similar
Laws. Under the Americans with Disabilities Act of 1980 (the "ADA"), places of
public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with ADA requirements could require both structural and non-structural changes
to the properties in which ART invests and noncompliance could result in
imposition of fines by the United States government or an award of damages to
private litigants. Although management of ART believes that its properties are
substantially in compliance with present requirements of the ADA, ART may incur
additional costs of compliance in the future. A number of additional Federal,
state and local laws exist which impose further burdens or restrictions on
owners with respect to access by disabled persons and may require modifications
to properties in which ART invests, or restrict certain further renovations
thereof. The ultimate amount of the cost of compliance with the ADA or other
such laws is not currently ascertainable. While such costs are not expected to
have a material effect on ART, they could be substantial. If required changes
involve greater expense than ART currently anticipates, ART's financial
condition and results of operations could be adversely affected.
Potential Environmental Liability Affecting ART. Under various Federal,
state and local environmental laws, ordinances and regulations, an owner of
real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances on such property. These laws often impose
environmental liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure properly to remediate such
substances, may adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Persons who arrange for
the disposal or treatment of hazardous or toxic substances may also be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
person. Certain laws impose liability for release of asbestos- containing
materials ("ACMs") into the air and third parties may seek recovery from owners
or operators of real properties for personal injury associated with ACMs. In
connection with the ownership (directly or indirectly through its lending
activities), operation, management and development of real properties, ART may
be considered an owner or operator of such properties or as having arranged for
the disposal or treatment of hazardous or toxic substances and, therefore,
potentially liable for removal or remediation costs, as well as for certain
other related costs, including governmental fines and injuries to persons and
property.
ART's management is not aware of any environmental matters affecting its
properties or investments that would have a material adverse effect on ART's
business, assets or results of operations.
No assurance can be given that existing environmental assessments with
respect to any of ART's properties reveal all environmental liabilities, that
any prior owner of a property did not create any material environmental
condition not known to ART, or that a material environmental condition does not
otherwise exist with respect to any one or more properties of ART.
Noncompliance with Other Laws. Real estate properties are also subject to
various Federal, state and local regulatory requirements, such as state and
local fire and life safety requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental
authorities or awards of damages to private litigants. ART believes that its
properties are currently in material compliance with all such regulatory
requirements. However, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed which would require
significant unanticipated expenditures by ART and could have an adverse effect
on ART's results of operations.
Changes in Laws. Increases in real estate taxes, income taxes and service
or other taxes generally are not passed through to tenants under existing
leases and may adversely affect ART's cash flow from operations and its ability
to make distributions to shareholders. Similarly, changes in laws increasing
the potential liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which would adversely affect ART's
funds from operations and thus its ability to make payments on its outstanding
indebtedness and to make distributions to its shareholders.
Dependence on Key Personnel. ART will be dependent on the efforts of its
executive officers and the executive officers of BCM, an affiliate of and
advisor to ART. While ART believes that it and BCM could find replacements for
these key personnel, the loss of their services may have a temporary adverse
effect on the operations of ART. Only Randall M. Paulson, the President of
BCM, has an employment agreement with BCM. None of the other officers has
entered or is expected to enter into employment agreements with ART or BCM.
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<PAGE> 15
RATIO OF EARNINGS TO FIXED CHARGES
The following table summarizes the ratio of ART's earnings to combined
fixed charges and preferred stock dividends for each of the five fiscal years
of ART ended December 31, 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS * * * * *
</TABLE>
* Earnings were inadequate to cover fixed charges and preferred stock dividends
by $8,474,000, $4,819,000, $189,000, $1,390,000 and $4,923,000 in 1997, 1996,
1995, 1994 and 1993, respectively.
USE OF PROCEEDS
ART will not receive any of the proceeds from the sale of the ART Preferred
Shares by the Selling Security Holders.
SELLING SECURITY HOLDERS
Simon, Doyle, the Trust, LLPM, Summit and Sutter are the "Selling
Security Holders". None of the Selling Security Holders has had any position,
office, or other material relationship with ART, ART's predecessors or ART's
affiliates within the three years preceding this Prospectus.
Because this offering of ART Preferred Shares is not being
underwritten on a firm commitment basis, no estimate can be given as to the
number or percentage of ART Preferred Shares which will be held by the Selling
Security Holders upon termination of this offering. See "Plan of
Distribution."
The following table shows the names of the Selling Security Holders
and the number of ART Preferred Shares being offered by each of them. After
completion of the offering, assuming all of the ART Preferred Shares being
offered hereby are sold and assuming that the Selling Security Holders do not
acquire additional ART Preferred Shares, the Selling Security Holders will own
the number of ART Preferred Shares set forth below.
<TABLE>
<CAPTION>
Number of ART Number of ART Number of ART
Preferred Shares Owned Preferred Shares Preferred Shares Owned
Selling Security Holder Prior to the Offering Being Offered After This Offering
----------------------- --------------------- ------------- -------------------
<S> <C> <C> <C>
Simon 100,000 Up to 100,000 --
Doyle 50,000 Up to 50,000 --
The Trust 100,000 Up to 100,000 --
LLPM 50,566 Up to 50,566 --
Summit 27,507 Up to 27,507 --
Sutter 27,582 Up to 27,582 --
</TABLE>
PLAN OF DISTRIBUTION
This Prospectus, as appropriately amended or supplemented, may be used
from time to time principally by persons who have received ART Preferred Shares
in connection with acquisitions by ART of securities and assets held by such
persons, or their transferees, and who wish to offer and sell such ART
Preferred Shares (such persons are herein referred to as "Selling Security
Holders") in transactions in which they and any broker-dealer through whom such
shares are sold may be deemed to be Underwriters within the meaning of the
Securities Act. ART will receive none of the proceeds from any such sales.
There presently are no arrangements or understandings, formal or informal,
pertaining to the distribution of the ART Preferred Shares described herein.
Upon ART being notified by a Selling Security Holder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
of ART Preferred Shares bought through a block trade, special offering,
exchange distribution or secondary distribution, a supplemented
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<PAGE> 16
Prospectus will be filed, pursuant to Rule 424(b) under the Securities Act,
setting forth (i) the name of each Selling Security Holder and the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which the shares were sold, (iv) the commissions paid or the discounts
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information
set out in this Prospectus and (vi) other facts material to the transaction.
[Selling Security Holders may sell the ART Preferred Shares being
offered hereby from time to time in transactions (which may involve crosses and
block transactions) on the New York Stock Exchange ("NYSE"), in negotiated
transactions or otherwise, at market prices prevailing at the time of the sale
or at negotiated prices. Selling Security Holders may sell some or all of the
shares in transactions involving broker-dealers, who may act solely as agent
and/or may acquire shares as principal. Broker-dealers participating in such
transactions as agent may receive commissions from Selling Security Holders
(and, if they act as agent for the purchaser of such shares, from such
purchaser), such commissions computed in appropriate cases in accordance with
the applicable rules of the NYSE, which commissions may be at negotiated rates
where permissible under such rules. Participating broker-dealers may agree
with Selling Security Holders to sell a specified number of shares at a
stipulated price per share and, to the extent such broker-dealer is unable to
do so acting as an agent for the Selling Security Holder, to purchase as
principal any unsold shares at the price required to fulfill the
broker-dealer's commitment to Selling Security Holders. In addition or
alternatively, shares may be sold by Selling Security Holders and/or by or
through other broker-dealers in special offerings, exchange distributions or
secondary distributions pursuant to and in compliance with the governing rules
of the NYSE, and in connection therewith commissions in excess of the customary
commission prescribed by such governing rules may be paid to participating
broker-dealers, or, in the case of certain secondary distributions, a discount
or concession from the offering price may be allowed to participating
broker-dealers in excess of the customary commission. Broker-dealers who
acquire shares as principal may thereafter resell such shares from time to time
in transactions (which may involve crosses and block transactions and which may
involve sales to or through other broker-dealers, including transactions of the
nature described in the preceding two sentences) on the NYSE, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or
at negotiated prices, and in connection with such resales may pay to or receive
commissions from the purchaser of such shares.]
ART may agree to indemnify each Selling Security Holder as an
Underwriter under the Securities Act against certain liabilities, including
liabilities arising under the Securities Act. Each Selling Security Holder may
indemnify any broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act.
The Selling Security Holders may resell the shares offered hereby only
if such securities are qualified for sale under applicable state securities or
"blue sky" laws or exemptions from such registration and qualification
requirements are available.
DESCRIPTION OF ART
ART, a Georgia corporation, is the successor to a District of Columbia
business trust organized pursuant to a declaration of trust dated July 14,
1961. The business trust merged into ART on June 24, 1988. ART invests in
equity interests in real estate (including equity securities of real
estate-related entities), leases, joint venture development projects and
partnerships and finances real estate and real estate activities through
investments in mortgage loans. ART has invested in private and open market
purchases in the equity securities of CMET, IORI, TCI and NRLP.
The ART Board has broad authority under ART's governing documents to
make all types of real estate investments, including mortgage loans and equity
real estate investments, as well as investments in the securities of other
entities, whether or not such entities are engaged in real estate-related
activities.
Although the ART Board is directly responsible for managing the
affairs of ART and for setting the policies which guide it, the day-to-day
operations of ART are performed by BCM, an affiliate of and advisor to ART.
BCM is a contractual advisor under the supervision of the ART Board. The
duties of BCM include, among other things, locating, investigating, evaluating
and recommending real estate and mortgage note investment and sales
opportunities, as well as financing and refinancing sources for ART. BCM also
serves as a consultant in connection with ART's business plan and investment
policy decisions made by the ART Board.
BCM, an affiliate of and advisor to ART, is a company owned by a trust
for the benefit of the children of Gene E. Phillips, the Chairman of the Board
and a Director of ART until November 16, 1992. Gene E. Phillips served as a
director of BCM until December 22, 1989 and as Chief Executive Officer of BCM
until September 1, 1992. Gene E. Phillips currently serves as a representative
of the trust that owns BCM for the benefit of his children and, in such
capacity, Gene E. Phillips has substantial contact with the management of BCM
and input with respect to BCM's performance of advisory services to ART. Ryan
T. Phillips, the son of Gene E. Phillips and a Director of ART until June 4,
1996, is also a director of BCM and a trustee of the trust which owns BCM for
the benefit of the children of Gene E.
11
<PAGE> 17
Phillips. As of January 22, 1999, BCM owned 5,730,672 ART Common Shares,
representing approximately 53.3% of the ART Common Shares then outstanding.
BCM has been providing advisory services to ART since February 6, 1989. BCM
also serves as advisor to CMET, IORI and TCI. Karl L. Blaha, Randall M.
Paulson, Bruce A. Endendyk, Steven K. Johnson and Thomas A. Holland, executive
officers of ART, are also executive officers of CMET, IORI and TCI. Karl L.
Blaha also serves as a Director of ART and as the sole director of SAMI, the
managing general partner of Syntek Asset Management, L.P. ("SAMLP"), the
general partner of NRLP and National Operating, L.P. ("NOLP"), the operating
partnership of NRLP. On December 18, 1998, SAMLP withdrew as general partner
of NRCP and NOLP and NRLP Management Corp. ("NMC"), a wholly-owned subsidiary
of ART, was elected successor general partner. Mr. Blaha serves as a director
of NMC. Gene E. Phillips is also a general partner until December 18, 1998, of
SAMLP and served as a director and Chief Executive Officer of SAMI until May
15, 1996. SAMI is a company owned by BCM. BCM performs certain administrative
functions for NRLP and NOLP on a cost reimbursement basis.
Gene E. Phillips is the former chairman of Southmark Corporation
('Southmark"), a real estate syndicator and parent of San Jacinto Savings
Association ("San Jacinto"). As a result of a deadlock on Southmark's Board of
Directors, Mr. Phillips, among others, reached an agreement whereby he resigned
his positions with Southmark and certain of Southmark's subsidiaries and
affiliates in January 1989. Southmark filed a voluntary petition in bankruptcy
under Chapter 11 of the United States Bankruptcy Code in July 1989. In
November 1990, San Jacinto was placed under conservatorship of the Resolution
Trust Corporation (the "RTC") by federal banking authorities. In December
1990, San Jacinto was converted into a Federal Association and placed in
receivership. Mr. Phillips has been named as a defendant in a number of
lawsuits brought by the RTC and private plaintiffs in which the allegations
made against Mr. Phillips included breach of fiduciary duty and other
misconduct, which allegations were denied by Mr. Phillips. These actions have
been dismissed or settled. Mr. Phillips reviews proposals for the acquisition
or disposition of assets and provides advice to BCM's management on financing
transactions and other material business matters relating to the entities
advised by BCM. However, Mr. Phillips is not an officer or director of BCM or
any of the entities BCM advises.
Since February 1, 1990, affiliates of BCM have provided property
management services to ART. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services. Carmel, Ltd. subcontracts
with other entities for the provision of the property-level management services
to ART at various rates. The general partner of Carmel, Ltd. is BCM. The
limited partners of Carmel, Ltd. are (i) 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 ART's hotels, shopping centers, office buildings and the Denver Merchandise
Mart to Carmel Realty, Inc. ("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.
Affiliates of BCM are also entitled to receive real estate brokerage
commissions in accordance with the terms of the advisory agreement between ART
and BCM.
ART has no employees itself, but Pizza World Supreme, Inc., a
wholly-owned food service subsidiary of ART has approximately 790 employees as
of June 30, 1998. Employees of BCM render services to ART.
ART's principal offices are located at 10670 North Central Expressway,
Suite 300, Dallas, Texas 75231. ART's telephone number is (214) 692-4700.
EXECUTIVE COMPENSATION OF ART
ART itself has no employees, payroll or employee benefit plans and
pays no compensation to executive officers of ART. The Directors and executive
officers of ART who are also officers or employees of BCM are compensated by
BCM. Such affiliated Directors and executive officers of ART perform a variety
of services for BCM and the amount of their compensation is determined solely
by BCM. BCM does not allocate the cash compensation of its officers among the
various entities for which it serves as advisor.
The only direct remuneration paid by ART is to those Directors who are
not officers or employees of BCM or its affiliated companies (the "Independent
Directors"). Until April 1, 1998, ART compensated such Independent Directors
at a rate of $5,000 per year, plus $500 per meeting attended and $300 per Audit
Committee meeting attended. During 1997, $48,673 was paid to Independent
Directors in total Directors' fees for all meetings, as follows: Dale A.
Crenwelge, $15,400; Al Gonzalez, $13,100; and Cliff Harris, $5,333. Effective
April 1, 1998, ART 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 September 1997, the ART Board, including all of the Independent
Directors, approved ART's 1997 Stock Option Plan (the "Plan"). The Plan was
approved by the ART stockholders at ART's annual meeting on January 19, 1998.
The Plan is intended principally as an incentive for and as a means of
encouraging ownership of ART Common Shares,
12
<PAGE> 18
by eligible persons, including certain Directors and officers of ART. Options
may be granted either as incentive stock options (which qualify for certain
favorable tax treatment), or as non-qualified stock options. Incentive stock
options cannot be granted to, among others, persons who are not employees of
ART, or of any parent or subsidiary of ART, or to persons who fail to satisfy
certain criteria concerning ownership of less than 10% of the shares of ART.
The Plan is administered by the Stock Option Committee, which currently
consists of the three Independent Directors of ART. The exercise price per
share of an option will not be less than 100% of the fair market value per
share on the date of grant thereof. ART receives no consideration for the grant
of an option. As of October 30, 1998, there were 272,750 stock options
outstanding under the Plan.
THE BUSINESS OF ART
ART, a Georgia corporation, is the successor to a District of Columbia
business trust. ART elected to be treated as a REIT under Sections 856 through
860 of the Code, during the period July 1, 1987 through December 31, 1990. ART
allowed its REIT tax status to lapse in 1991.
ART's primary business is investing in equity interests in real estate
(including equity securities of real estate-related entities), leases, joint
venture development projects and partnerships and financing real estate and
real estate activities through investments in mortgage loans, including first,
wraparound and junior mortgage loans. The ART Board has broad authority under
ART's governing documents to make all types of real estate investments,
including mortgage loans and equity real estate investments, as well as
investments in the securities of other entities, whether or not such entities
are engaged in real estate-related activities. ART does not have a policy
limiting the amount or percentage of assets that may be invested in any
particular property or type of property or in any geographic area. ART's
governing documents do not contain any limitation on the amount or percentage
of indebtedness ART may incur.
ART, through its wholly owned subsidiary Pizza World Supreme, Inc.
("PWSI"), also operates and franchises pizza parlors featuring pizza delivery,
carry-out and dine-in under the trademark "Me-N-Ed's" in California and Texas.
The first Me-N-Ed's pizza parlor opened in 1962. At September 30, 1998, there
were 57 Me-N-Ed's pizza parlors in operation, consisting of 51 owned and six
franchised pizza parlors, seven of the owned pizza parlors were in Texas and
the remainder in California.
ART's businesses are not seasonal. With regard to real estate
investments, ART is seeking both current income and capital appreciation.
ART's plan of operation is to continue, to the extent its liquidity permits, to
make equity investments in income producing real estate such as apartment
complexes and commercial properties or equity securities of real estate-related
entities and to continue to service and hold for investment its mortgage notes.
ART also intends to pursue higher risk, higher reward investments, such as
developed, partially developed and undeveloped land where it can obtain
financing of substantially all of a property's purchase price. ART intends to
seek selected dispositions of certain of its assets, in particular certain of
its land holdings, where the prices obtainable for such assets justify their
disposition. ART intends to continue to service and hold for investment its
mortgage notes. ART also intends to pursue its rights vigorously with respect
to mortgage notes receivable that are in default.
ART may purchase or lease properties for long-term investment, develop
or redevelop its properties or sell such properties, in whole or in part, when
circumstances warrant. ART currently participates and may continue to
participate with other entities in property ownership, through joint ventures
or other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness that have priority over ART's equity
interest.
ART may repurchase or otherwise reacquire ART Common Shares, Special
Stock (as defined under "Description of the Capital Stock of ART -- General")
or other securities and may also invest in securities of other entities engaged
in real estate activities or securities of other issuers. ART may invest in the
securities of other issuers in connection with acquisitions of indirect
interests in real estate (normally general or limited partnership interests in
special purpose partnerships owning one or more properties). ART may in the
future acquire all or substantially all of the securities or assets of real
estate investment trusts, management companies or similar entities where such
investments would be consistent with its investment policies. ART may also
invest in securities of other issuers from time to time for the purpose of
exercising control. It is not intended that ART's investments in securities
will require it to register as an "investment company" under the Investment
Company Act of 1940, as amended, and it is intended that ART would divest
securities before any such registration would be required.
The ART Board may devote available assets to particular investments or
types of investments, without restriction on the amount or percentage of ART's
assets that may be so devoted to a single investment or to any particular type
of investment, and without limit on the percentage of securities of any one
issuer that ART may acquire. ART's investment objectives and policies may be
changed at any time by the ART Board without the approval of ART's stockholders.
See
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<PAGE> 19
"Risk Factors -- Correlation between the Value of the ART Preferred Shares and
the Success of ART's Business -- Changes in ART's Policies Without Stockholder
Approval."
To the extent that the ART Board determines to seek additional
capital, ART may raise such capital through additional equity offerings, debt
financing or retention of cash flow, or a combination of these methods. If the
ART Board determines to raise additional equity capital, it may, without
stockholder approval, issue additional ART Common Shares or Special Stock up to
the amount of its authorized capital in any manner (and on such terms and for
such consideration) as it deems appropriate, including in exchange for
property. Such securities may be senior to the outstanding ART Common Shares
and may include additional series of Special Stock (which may be convertible
into ART Common Shares). Existing stockholders of ART will have no preemptive
right to purchase shares in any subsequent offering of securities by ART, and
any such offering could cause a dilution of a stockholder's investment in ART.
To the extent that the ART Board determines to obtain additional debt
financing, ART intends to do so generally through mortgages on properties.
Such mortgages may be recourse, non-recourse or cross-collateralized. ART does
not have a policy limiting the number or amount of mortgages that may be placed
on any particular property, but mortgage financing instruments usually limit
additional indebtedness on such properties. ART may also borrow funds through
bank borrowings, publicly and privately placed debt instruments, or purchase
money obligations to the sellers of properties, any of which indebtedness may
be unsecured or may be secured by any or all of the assets of ART or any
existing or new property-owning entity in which ART holds an interest and may
have full or limited recourse to all or any portion of the assets of ART, or
any such existing or new property-owning entity.
ART may seek to obtain unsecured or secured lines of credit or may
determine to issue debt securities (which may be convertible into capital stock
or be accompanied by warrants to purchase capital stock), or to sell or
securitize its receivables. The proceeds from any borrowings may be used to
finance acquisitions, to develop or redevelop properties, to refinance existing
indebtedness or for working capital or capital improvements. ART also may
determine to finance acquisitions through the exchange of properties or
issuance of additional ART Preferred Shares, ART Common Shares, Special Stock
or other securities.
ART has made and may in the future make loans to joint ventures or
other entities in which it participates. ART does not intend to engage in (i)
trading, underwriting or agency distribution or sale of securities of other
issuers and (ii) the active trade of loans and investments, other than in
connection with acquisitions of additional interests in CMET, IORI, TCI and
NRLP.
Except as required under the Exchange Act, and the rules and
regulations of the NYSE, ART is not required to make annual or other reports to
its securityholders.
The specific composition of ART's real estate and mortgage notes
receivable portfolios from time to time depends largely on the judgment of
ART's management as to changing investment opportunities and the level of risk
associated with specific investments or types of investments. ART's management
intends to continue to maintain real estate and mortgage notes receivable
portfolios diversified by location and type of property. In addition to its
equity investments in real estate and mortgage notes, ART has also invested in
private and open market purchases of the equity securities of CMET, IORI, TCI
and NRLP.
DESCRIPTION OF THE CAPITAL STOCK OF ART
GENERAL
ART is authorized by its Articles of Incorporation, as amended, to
issue up to 100,000,000 ART Common Shares and 20,000,000 shares of a special
class of stock, $2.00 par value per share (the "Special Stock"), which may be
designated by the ART Board from time to time. The ART Preferred Shares are a
series of the Special Stock.
ART PREFERRED SHARES
On August 13, 1997, the ART Board designated and authorized the
issuance of a total of 7,500,000 ART Preferred Shares with a par value of $2.00
per share and a preference on liquidation of $10.00 per share plus payment of
accrued and unpaid dividends. On October 23, 1998, the ART Board authorized
the issuance of an additional 7,500,000 ART Preferred Shares, thereby
increasing the total number of authorized and issued ART Preferred Shares to
15,000,000. The ART Preferred Shares are non-voting except (i) as provided by
law, (ii) with respect to an amendment to ART's articles of incorporation or
bylaws that would materially alter or change the existing terms of the ART
Preferred Shares, and (iii) at any time or times when all or any portion of the
dividends on the ART Preferred Shares
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<PAGE> 20
for any six quarterly dividends, whether or not consecutive, shall be in
arrears and unpaid. In the latter event, the number of directors constituting
the board of directors of ART shall be increased by two and the holders of ART
Preferred Shares, voting separately as a class, shall be entitled to elect two
directors to fill such newly created directorships with each holder being
entitled to one vote in such election for each share of ART Preferred Shares
held. ART is not obligated to maintain a sinking fund with respect to the ART
Preferred Shares.
The ART Preferred Shares are convertible, at the option of the holder,
into ART Common Shares at any time and from time to time, in whole or in part,
after the earliest to occur of (i) August 15, 2003; (ii) the first business
day, if any, occurring after a Quarterly Dividend Payment Date (as defined
below), on which an amount equal to or in excess of 5% of the $10.00
liquidation value (i.e., $.50 per ART Preferred Share) is accrued and unpaid,
or (iii) when ART becomes obligated to mail a statement, signed by an officer
of ART, to the holders of record of each of the ART Preferred Shares because of
a proposal by ART at any time before all of the ART Preferred Shares have been
redeemed by or converted into ART Common Shares, to merge or consolidate with
or into any other corporation (unless ART is the surviving entity and holders
of ART Common Shares continue to hold such ART Common Shares without
modification and without receipt of any additional consideration), or to sell,
lease, or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up. The ART Preferred Shares are convertible into
that number of shares of ART Common Shares obtained by multiplying the number
of shares being converted by $10.00, then adding all accrued and unpaid
dividends, then dividing such sums by (in most instances) 90% of the simple
average of the daily closing price of the ART Common Shares for the 20 business
days ending on the last business day of the calendar week immediately preceding
the date of conversion on the principal stock exchange on which such ART Common
Shares are then listed (the "Conversion Price"). Notwithstanding the
foregoing, ART, at its option, may elect to redeem any ART Preferred Shares
sought to be so converted by paying the holder of such ART Preferred Shares
cash in an amount equal to the Conversion Price.
The ART Preferred Shares bear a cumulative, compounded dividend per
share equal to 10% per annum of the Adjusted Liquidation Value, payable on each
Quarterly Dividend Payment Date, and commencing accrual on the date of issuance
to and including the date on which the redemption price of such shares is paid,
whether or not such dividends have been declared and whether or not there are
profits, surplus or other funds of ART legally available for the payment of
such dividends. Dividends on the ART Preferred Shares are in preference to and
with priority over dividends upon the ART Common Shares. Except as provided in
the following sentence, the ART Preferred Shares rank on a parity as to
dividends and upon liquidation, dissolution or winding up with all other
Special Stock issued by ART. ART will not issue any shares of Special Stock of
any series which are superior to the ART Preferred Shares as to dividends or
rights upon liquidation, dissolution or winding up of the Corporation as long
as any ART Preferred Shares are issued and outstanding, without the prior
written consent of the holders of at least 66 2/3 %of such shares of the ART
Preferred Shares then outstanding voting separately as a class. As of November
16, 1998, the outstanding Special Stock of ART consisted of 3,350,000 ART
Preferred Shares, 16,681 shares of its Series C 10% Cumulative Preferred Stock
(as described below), and 1,000 shares of its Series G Cumulative Convertible
Preferred Stock (as described below).
In addition to ART's redemption right in connection with conversions
of ART Preferred Shares as described above, ART may redeem any or all of the
ART Preferred Shares at any time and from time to time, at its option, for cash
upon no less than 20 days nor more than 30 days prior notice thereof. The
redemption price of the ART Preferred Shares shall be an amount per share equal
to (i) 104% of the Adjusted Liquidation Value during the period from August 16,
1998 through August 15, 1999; and (ii)103% of the Adjusted Liquidation Value at
any time on or after August 16, 1999. Each ART Preferred Share will be
convertible, at the option of the holder, into fully paid and nonassessable ART
Common Shares.
The ART Preferred Shares constitute a new issue of securities with no
established trading market. [While the ART Preferred Shares have been listed
for trading on the NYSE, there can be no assurance that an active market for
the ART Preferred Shares will develop or be sustained in the future on the
NYSE]. See "Risk Factors -- ART Preferred Shares -- Possible Subsequent
De-listing of the ART Preferred Shares."
ART COMMON SHARES
All of the ART Common Shares are entitled to share equally in
dividends from funds legally available therefor, when declared by the ART
Board, and upon liquidation or dissolution of ART, whether voluntary or
involuntary (subject to any prior rights of holders of the Special Stock), and
to share equally in the assets of ART available for distributions to
shareholders. Each holder of ART Common Shares is entitled to one vote for
each share held on all matters submitted to the shareholders. There is no
cumulative voting, redemption right, sinking fund provision or right of
conversion with respect to the ART Common Shares. The holders of ART Common
Shares do not have any preemptive rights to acquire additional ART Common
Shares when issued. All outstanding ART Common Shares are fully paid and
nonassessable. As of December 31, 1998, 10,758,624 ART Common Shares were
outstanding.
15
<PAGE> 21
SPECIAL STOCK
The following is a description of certain general terms and provisions
of the Special Stock, including the ART Preferred Shares, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock,
the Series G Preferred Stock and the Series H Preferred Stock.
Article 5 of the Articles of Incorporation of ART, as amended,
authorizes the issuance of up to 20,000,000 shares of Special Stock in one or
more series with such preferences, limitations and rights as the ART Board
determines. In particular, the ART Board may fix and determine, among other
things, the dividend payable with respect to such shares of Special Stock
(including whether and in what manner such dividend shall be accumulated);
whether such shares shall be redeemable, and if so, the prices, terms and
conditions of such redemption; the amount payable on such shares in the event
of voluntary or involuntary liquidation; the nature of any purchase, retirement
or sinking fund provisions; the nature of any conversion rights with respect to
such shares; and the extent of the voting rights, if any, of such shares.
Certain provisions of the Special Stock may, under certain circumstances,
adversely affect the rights or interests of holders of ART Common Shares. For
example, the ART Board could, without shareholder approval, issue a series of
Special Stock with voting and conversion rights which could adversely affect
the voting power of the common shareholders. In addition, the Special Stock
may be issued under certain circumstances as a defensive device to thwart an
attempted hostile takeover of ART.
Through the date of this Prospectus/Proxy Statement, ART has amended
its Articles of Incorporation to designate eight series of the Special Stock as
described below. Each series of Special Stock now outstanding ranks on a
parity as to dividends and upon liquidation, dissolution or winding up with all
other shares of Special Stock.
Series A Preferred Stock; Terminated Rights Plan. On April 11, 1990,
the ART Board designated 500,000 shares of the Series A Cumulative
Participating Preferred Stock (the "Series A Preferred Stock"), adopted a
preferred share purchase rights plan and approved the distribution to
shareholders of a dividend of one preferred share purchase right on each
outstanding ART Common Share. On February 27, 1997, ART filed articles of
amendment to its articles of incorporation reducing the number of authorized
shares of Series A Preferred Stock to zero and eliminating such designation.
Series B Preferred Stock. On April 3, 1996, the ART Board designated
4,000 shares of Series B Preferred Stock with a par value of $2.00 per share
and a preference on liquidation of $100 per share plus payment of accrued and
unpaid dividends. On May 27, 1998, ART filed articles of amendment to its
articles of incorporation reducing the number of authorized shares of Series B
Preferred Stock to zero and eliminating such designation.
Series C Preferred Stock. On May 23, 1996, the ART Board designated
16,681 shares of Series C Preferred Stock with a par value of $2.00 per share
and a preference on liquidation of $100 per share plus all accrued and unpaid
dividends.
ART redeemed all of the outstanding shares of Series C Preferred Stock
at their liquidation value of $100 per share plus all accrued and unpaid
dividends on November 24, 1998. On January 11, 1999, ART filed articles of
amendment to its articles of incorporation reducing the number of authorized
share of Series C Preferred Stock to zero and eliminating such designation.
Series D Preferred Stock. The ART Board designated 91,000 shares of
Series D Cumulative Preferred Stock (the "Series D Preferred Stock") on August
2, 1996, with a par value of $2.00 per share and a preference on liquidation of
$20.00 per share plus payment of accrued and unpaid dividends. The Series D
Preferred Stock is non-voting except as required by law and is not convertible.
ART is not required to maintain a sinking fund for such stock.
Each Share of Series D Preferred Stock has a cumulative dividend per
share of 9.50% per annum of the $20.00 liquidation preference, payable
quarterly in equal installments of $0.475. Dividends on the Series D Preferred
Stock are in preference to and with priority over dividends upon the ART Common
Shares. The Series D Preferred Stock ranks on a parity as to dividends and
upon liquidation, dissolution or winding up with all other shares of Special
Stock.
ART may from time to time after June 1, 2001 redeem any or all of the
Series D Preferred Stock upon payment of the liquidation value of $20.00 per
share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series D Preferred Stock by ART while there is
any arrearage in payment of dividends except that at the time of such repurchase
or redemption ART must pay all accrued and unpaid dividends on the shares being
redeemed. As of December 31, 1998, there were no shares of Series D Preferred
Stock issued or outstanding.
The Series D Preferred Stock is reserved for issuance upon the
conversion Class A units held by the limited partners of Ocean Beach Partners
L.P.
16
<PAGE> 22
Series E Preferred Stock. On December 3, 1996, the ART Board
designated 80,000 shares of Series E Cumulative Convertible Preferred Stock
(the "Series E Preferred Stock") with a par value of $2.00 per share and a
preference on liquidation of $100 per share plus payment of all accrued and
unpaid dividends. The Series E Preferred Stock is non- voting except as
required by law. ART is not required to maintain a sinking fund for such
stock.
Each share of Series E Preferred Stock is convertible into that number
of ART Common Shares obtained by multiplying the number of shares being
converted by $100, then adding all accrued and unpaid dividends on such shares,
then dividing such sum by (in most instances) 80% of the ART Common Share's
then-recent average trading price for the 20 business days ending on the last
business day of the calendar week immediately preceding the date of conversion
on the principal stock exchange on which such ART Common Shares are then listed
or admitted to trading as determined by ART. The schedule pursuant to which
shares of Series E Preferred Stock may be so converted is as follows: up to
30,000 shares of the Series E Preferred Stock may be converted beginning as of
November 4, 1998 and thereafter; up to an additional 10,000 shares of the
Series E Preferred Stock may be converted beginning as of November 4, 1999; and
up to an additional 40,000 shares of the Series E Preferred Stock may be
converted beginning as of November 4, 2001.
The Series E Preferred Stock bears a cumulative dividend per share
equal to $10.00 per annum, payable quarterly in equal installments of $2.50 for
the period from date of issuance to November 4, 1999, and $11.00 per annum
($2.75 per quarter) thereafter. Dividends on the Series E Preferred Stock are
in preference to and with priority over dividends upon the ART Common Shares.
The Series E Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.
ART may redeem any or all of the shares of Series E Preferred Stock
from time to time upon payment of $100.00 per share plus all accrued and unpaid
dividends. There is no restriction on the repurchase or redemption of the
Series E Preferred Stock by ART while there is any arrearage in payment of
dividends except that at the time of such repurchase or redemption ART must pay
all accrued and unpaid dividends on the shares being redeemed. As of December
31, 1998, there were no shares of Series E Preferred Stock issued or
outstanding.
The Series E Preferred Stock is reserved for issuance upon the
conversion of Class A units held by the limited partners in the Valley Ranch
Limited Partnership.
Series G Preferred Stock. On September 18, 1997, the ART Board
designated 11,000 shares of Series G Cumulative Convertible Preferred Stock
(the "Series G Preferred Stock") with a par value of $2.00 per share and a
preference on liquidation of $100 per share plus all accrued and unpaid
dividends. On May 27, 1998, ART filed articles of amendment to its articles of
incorporation increasing the number of authorized shares of Series G Preferred
Stock from 11,000 to 12,000. The Series G Preferred Stock is non-voting
except as required by the Georgia Business Code. The Georgia Business Code
grants the holders of the outstanding shares of a class the authority to vote
as a separate voting group on a proposed amendment if that amendment would
effect a detrimental reclassification of the existing shares, create a new
class with preferences over the existing shares, or cancel or otherwise affect
the rights to distributions and dividends. ART is not required to maintain a
sinking fund for such stock.
Each share of Series G Preferred Stock is convertible, but only after
October 6, 2000, into that number of ART Common Shares obtained by multiplying
the number of shares of Series G Preferred Stock being converted by $100 and
then dividing such sum by (in most instances) 90% of the simple average of the
daily closing price of the ART Common Shares for the 20 trading days ending on
the last trading day of the calendar week immediately preceding the conversion
on the market where the ART Common Shares are then regularly traded. The right
of conversion shall terminate upon receipt of the notice of redemption from ART
and on the earlier of (i) the commencement of any liquidation, dissolution or
winding up of ART or (ii) the adoption of any resolution authorizing the
commencement thereof. ART may elect to redeem the shares of Series G Preferred
Stock sought to be converted instead of issuing ART Common Shares.
The Series G Preferred Stock bears a cumulative dividend per share
equal to $10.00 per annum, payable in arrears in quarterly equal installments
of $2.50 on each Quarterly Dividend Payment Date, and commencing accrual on the
date of issuance to and including the date on which the redemption price of
such shares is paid. Dividends on the Series G Preferred Stock are in
preference to and with priority over dividends upon the ART Common Shares. The
Series G Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.
ART may redeem any or all of the shares of the Series G Preferred
Stock at any time and from time to time, at its option, for cash upon no less
than twenty (20) days nor more than thirty (30) days prior notice thereof. The
redemption price of the shares of the Series G Preferred Stock shall be an
amount per share equal to the $100 liquidation value plus all accrued and
unpaid dividends on such shares through the redemption date. The right of ART
to redeem shares of Series G Preferred Stock remains effective notwithstanding
prior receipt by ART of notice by any holder of Series G Preferred Stock of
such holder's intent to convert shares of Series G Preferred Stock. As of
December 31, 1998 there were 1,000 issued and outstanding shares of Series G
Preferred Stock.
17
<PAGE> 23
11,000 shares of Series G Preferred Stock have been reserved for
issuance upon the conversion of Class A units held by the limited partners in
Grapevine American, Ltd.
Series H Preferred Stock. On June 26, 1998, the ART Board designated
231,750 shares of Series H Cumulative Convertible Preferred Stock (the "Series
H Preferred Stock") with a par value of $2.00 per share and a preference on
liquidation of $10 per share plus all accrued and unpaid dividends. The
Series H Preferred Stock is non-voting except as required by the Georgia
Business Code. The Georgia Business Code grants the holders of the outstanding
shares of a class the authority to vote as a separate voting group on a
proposed amendment if that amendment would effect a detrimental
reclassification of the existing shares, create a new class with preferences
over the existing shares, or cancel or otherwise affect the rights to
distributions and dividends. ART is not required to maintain a sinking fund
for such stock.
Each share of Series H Preferred Stock is convertible at the option of
the holders thereof in the following amounts at any time on or after the
respective dates (i) 25,000 shares on or after December 31, 2000, (ii) 25,000
shares on or after June 30, 2002, (iii) 25,000 shares on or after June 30,
2003, (iv) 25,000 shares on or after December 31, 2005, and (v) all remaining
outstanding shares on or after December 31, 2006 into that number of ART
Common Shares obtained by multiplying the number of shares of Series H
Preferred Stock being converted by $10 and then dividing such sum by (in most
instances) 90% of the simple average of the daily closing price of the ART
Common Shares for the 20 trading days ending on the last trading day of the
calendar week immediately preceding the conversion on the market where the ART
Common Shares are then regularly traded. The right of conversion shall
terminate upon receipt of the notice of redemption from ART and on the earlier
of (i) the commencement of any liquidation, dissolution or winding up of ART or
(ii) the adoption of any resolution authorizing the commencement thereof. ART
may elect to redeem the shares of Series H Preferred Stock sought to be
converted instead of issuing shares of ART Common Stock.
The Series H Preferred Stock bears a cumulative quarterly dividend per
share in an amount equal to (i) 7% per annum during the period from issuance to
June 30, 1999, (ii) 8% per annum during the period from July 1, 1999 to June
30, 2000, (iii) 9% per annum during the period from July 1, 2000 to June 30,
2001, and (iv) 10% per annum from July 1, 2001 and thereafter, in each case
calculated on the basis of the adjusted liquidation value of the Series H
Preferred Stock, payable in arrears in cash on each Quarterly Dividend Payment
Date, and commencing accrual on the date of issuance to and including the date
on which the redemption price of such shares is paid. Dividends on the Series
H Preferred Stock are in preference to and with priority over dividends upon
the ART Common Shares. The Series H Preferred Stock ranks on a parity as to
dividends and upon liquidation, dissolution or winding up with all other shares
of Special Stock.
ART may redeem all or a portion of the shares of the Series H
Preferred Stock issued and outstanding at any time after January 1, 1999 and
from time to time, at its option, for cash upon no less than twenty (20) days
nor more than thirty (30) days prior notice thereof. The redemption price of
the shares of the Series H Preferred Stock shall be an amount per share equal
to the sum of (i) (a) 105% of liquidation value during the period from issuance
through December 31, 1999; (b) 104% of liquidation value during the period from
January 1, 2000 through December 31, 2000; (c) 103% of liquidation value during
the period from January 1, 2001 through December 31, 2001; (d) 102% of
liquidation value during the period from January 1, 2002 through December 31,
2002; (e) 101% of liquidation value during the period from January 1, 2003
through December 31, 2003; and (f) 100% of liquidation value from January 1,
2004 and thereafter, and (ii) all accrued and unpaid dividends on such shares
through the redemption date. The right of ART to redeem shares of Series H
Preferred Stock remains effective notwithstanding prior receipt by ART of notice
by any holder of Series H Preferred Stock of such holder's intent to convert
shares of Series H Preferred Stock. As of December 31, 1998 there were no issued
or outstanding shares of Series H Preferred Stock.
The Series H Preferred Stock is reserved for issuance upon the
conversion of Class A units held by the limited partners in ART Palm, Ltd.
The description of the foregoing provisions of each series of the
Special Stock does not purport to be complete and is subject to and qualified
in its entirety by reference to the definitive Articles of Amendment of the
Articles of Incorporation relating to such series of Special Stock.
LEGAL MATTERS
Certain legal matters with respect to the ART Preferred Shares and the
Common Stock into which it is convertible have been passed upon for ART by Holt
Ney Zatcoff & Wasserman, LLP, Atlanta, Georgia.
18
<PAGE> 24
EXPERTS
The financial statements and schedules incorporated by reference in
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the period set forth in their reports
incorporated by reference herein and in the registration statement, and such
reports are incorporated by reference herein in reliance upon the authority of
said firm as experts in auditing and accounting.
19
<PAGE> 25
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ART.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF ART SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
- -----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Explanatory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Ratio of Earnings to Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Description of ART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Executive Compensation of ART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Business of ART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of the Capital Stock of ART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
PREFERRED STOCK
COMMON STOCK
AMERICAN REALTY TRUST,
INC.
------------------
PROSPECTUS
------------------
JANUARY 29, 1999
<PAGE> 26
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and expenses to
be incurred in connection with the issuance and distribution of the securities
offered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee $ 1,049.18
Blue Sky Fees and Expenses *
--------------
Legal Fees and Expenses *
--------------
Accounting Fees and Expenses *
--------------
Printing and Engraving Expenses *
--------------
Total $ *
==============
</TABLE>
* To be calculated at a later date.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Thirteen of the Articles of Incorporation of ART provides that, to
the fullest extent permitted by Georgia law, as the same exists or may be
hereafter be amended, no director of ART shall be personally liable to ART or
the shareholders of ART for monetary damages for breach of the duty of care as
a director, provided that Article Thirteen does not limit or eliminate
liability arising or based upon (i) a breach of duty involving an appropriation
of a business opportunity of ART; (ii) an act or omission not in good faith or
involving intentional misconduct or a knowing violation of law; or (iii) a
transaction from which the director derived an improper personal benefit. In
addition, a director's liability will not be limited as to any payment of a
dividend or approval of a stock repurchase that is illegal under Section
14-2-640 of the Georgia Business Corporation Code.
Article Thirteen applies only to claims against a director arising out of
his or her role as a director and not, if he or she is also an officer, his or
her role as an officer or in any other capacity. In addition, Article Thirteen
does not reduce the exposure of directors to liability under Federal securities
laws.
The Bylaws of ART require ART to indemnify any person who, by reason of the
fact that he is or was a director of ART, is made or is threatened to be made a
party to an action, including an action brought by ART or its shareholders.
The Bylaws provide that ART will indemnify such person against reasonably
incurred expenses (including, but not limited to, attorneys' fees and
disbursements, court costs, and expert witness fees), and against any
judgments, fines and amounts paid in settlement, provided that ART shall not
indemnify such person under circumstances in which the Georgia Business
Corporation Code, as in effect from time to time, would not allow
indemnification.
The Bylaws of ART give the ART Board the power to cause ART to provide to
officers, employees and agents of ART all or any part of the right to
indemnification afforded to directors of ART as set forth in the Bylaws,
subject to the conditions, limitations and obligations therein, upon a
resolution to that effect identifying such officer, employee or agent and
specifying the particular rights provided.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of ART pursuant
to the foregoing provisions, ART has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
<PAGE> 27
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1 -- Underwriting Agreement(2)
2.1 -- Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession(2)
3.1 -- Amended and 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
Series F Cumulative Convertible Preferred Stock of American
Realty Trust, Inc. dated as of October 23, 1998(5)
4.1 -- Instruments defining the rights of security holders (included in Exhibit 3.1)(5)
5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the legality of the
Preferred Stock being offered(1)
8.1 -- Opinion of Andrews & Kurth L.L.P. regarding tax matters(3)
12.1 -- Statement re: computation of ratios(2)
15.1 -- Letter re: unaudited interim financial information(2)
23.1 -- Consent of BDO Seidman, LLP (American Realty Trust, Inc.)(6)
23.2 -- Consent of BDO Seidman, LLP (Continental Mortgage and Equity Trust)(6)
23.3 -- Consent of BDO Seidman, LLP (Income Opportunity Realty Investors, Inc.)(6)
23.4 -- Consent of BDO Seidman, LLP (Transcontinental Realty Investors, Inc.)(6)
23.5 -- Consent of BDO Seidman, LLP (National Realty, L.P.)(6)
23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP(3)
24.1 -- Power of Attorney(7)
25.1 -- Statement of Eligibility of Trustee(2)
26.1 -- Invitation for Competitive Bids(2)
29.1 -- Financial Data Schedule(4)
</TABLE>
- ----------
(1) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement No. 333-21583 filed with the Commission
on September 8, 1997.
(2) Not applicable.
(3) Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-43777), as filed with the Commission on January 6, 1998 and
incorporated by reference therein.
(4) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1998, as filed with the Commission
on November 16, 1998 and incorporated by reference therein.
(5) Filed as an Exhibit to the Registrant's Amendment No. 3 to Registration
Statement on Form S-4 (No. 333-43777), as filed with the Commission on
December 2, 1998 and incorporated by reference therein.
(6) Filed herewith.
(7) Power of Attorney set forth on Page II-4 hereof.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value
II-2
<PAGE> 28
of securities would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the charges in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do
not apply if this Registration Statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(d) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the 1933 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(e) For the purpose of determining any liability under the 1933 Act, each
post-effective-amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Dallas, State of Texas,
on the 29th day of January, 1999.
AMERICAN REALTY TRUST, INC.
By: /s/ Karl L. Blaha
---------------------------------
Karl L. Blaha,
President (Principal Executive Officer)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Karl L.
Blaha his true and lawful attorney-in- fact and agent, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Amendment No. 2 to the Registration Statement, and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in- fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Karl L. Blaha President (Principal Executive January 29, 1999
------------------------------------------------- Officer) and Director
Karl L. Blaha
* Director January 29, 1999
-------------------------------------------------
Roy E. Bode
Director January 29, 1999
-------------------------------------------------
Collene C. Currie
* Director January 29, 1999
-------------------------------------------------
Al Gonzalez
Director January 29, 1999
-------------------------------------------------
Cliff Harris
* Executive Vice President and January 29, 1999
------------------------------------------------- Chief Financial Officer
Thomas A. Holland (Principal Accounting Officer)
</TABLE>
*By: /s/ Karl L. Blaha
----------------------------------------
Karl L. Blaha, Attorney-in-Fact
II-4
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1 -- Underwriting Agreement(2)
2.1 -- Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession(2)
3.1 -- Amended and 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
Series F Cumulative Convertible Preferred Stock of American
Realty Trust, Inc. dated as of October 23, 1998(5)
4.1 -- Instruments defining the rights of security holders (included in Exhibit 3.1)(5)
5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the legality of the
Preferred Stock being offered(1)
8.1 -- Opinion of Andrews & Kurth L.L.P. regarding tax matters(3)
12.1 -- Statement re: computation of ratios(2)
15.1 -- Letter re: unaudited interim financial information(2)
23.1 -- Consent of BDO Seidman, LLP (American Realty Trust, Inc.)(6)
23.2 -- Consent of BDO Seidman, LLP (Continental Mortgage and Equity Trust)(6)
23.3 -- Consent of BDO Seidman, LLP (Income Opportunity Realty Investors, Inc.)(6)
23.4 -- Consent of BDO Seidman, LLP (Transcontinental Realty Investors, Inc.)(6)
23.5 -- Consent of BDO Seidman, LLP (National Realty, L.P.)(6)
23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP(3)
24.1 -- Power of Attorney(7)
25.1 -- Statement of Eligibility of Trustee(2)
26.1 -- Invitation for Competitive Bids(2)
29.1 -- Financial Data Schedule(4)
</TABLE>
- ----------
(1) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement No. 333-21583 filed with the Commission
on September 8, 1997.
(2) Not applicable.
(3) Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-43777), as filed with the Commission on January 6, 1998 and
incorporated by reference therein.
(4) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1998, as filed with the Commission
on November 16, 1998 and incorporated by reference therein.
(5) Filed as an Exhibit to the Registrant's Amendment No. 3 to Registration
Statement on Form S-4 (No. 333-43777), as filed with the Commission on
December 2, 1998 and incorporated by reference therein.
(6) Filed herewith.
(7) Power of Attorney set forth on Page II-4 hereof.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 25,
1998, relating to the consolidated financial statements and schedules of
American Realty Trust, Inc. appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
January 28, 1999
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 6,
1998, relating to the consolidated financial statements and schedules of
Continental Mortgage and Equity Trust appearing in the Trust's Annual Report on
Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
January 28, 1999
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 6,
1998, relating to the consolidated financial statements and schedules of Income
Opportunity Realty Investors, Inc. appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
January 28, 1999
<PAGE> 1
EXHIBIT 23.4
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 12,
1998, relating to the consolidated financial statements and schedules of
Transcontinental Realty Investors, Inc. appearing in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
January 28, 1999
<PAGE> 1
EXHIBIT 23.5
Consent of Independent Certified Public Accountants
American Realty Trust, Inc.
Dallas, Texas
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 23,
1998, relating to the consolidated financial statements and schedules of
National Realty, L.P. appearing in the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Dallas, Texas
January 28, 1999
