1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
AMERICAN REALTY TRUST, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
2
AMERICAN REALTY INVESTORS, INC.
DALLAS, TEXAS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 9, 2001
The 2001 Annual Meeting of Stockholders of American Realty Investors, Inc.
will be held on Monday, July 9, 2001, at 2:00 p.m. at 1800 Valley View Lane,
Suite 300, Dallas, Texas.
The purposes of the Annual Meeting are:
(1) to elect seven members of the Board of Directors; and
(2) to transact any other business that may properly come before the
meeting.
You must have been a stockholder of record at the close of business on May
24, 2001, to vote at the Annual Meeting.
Whether you plan to attend or not, please sign, date and return the
enclosed proxy card in the envelope provided. You may also attend and vote at
the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROBERT A. WALDMAN
Robert A. Waldman
Senior Vice President, General
Counsel and Corporate Secretary
Dated: May 28, 2001
3
AMERICAN REALTY INVESTORS, INC.
DALLAS, TEXAS
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 9, 2001
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of American Realty Investors, Inc. (the "Company") of
proxies to be used at the 2001 Annual Meeting of Stockholders (the "Annual
Meeting") for a vote upon (1) the election of seven directors; and (2) the
transaction of any other business as may properly come before the meeting or any
adjournments thereof.
The Annual Meeting will be held at 2:00 p.m., Dallas time, on Monday, July
9, 2001, at 1800 Valley View Drive, Suite 300, Dallas, Texas 75234.
The Company's financial statements for the year ended December 31, 2000,
were audited by BDO Seidman, LLP. Representatives of BDO Seidman are expected to
be present at the Annual Meeting to respond to appropriate questions, and the
representatives will have an opportunity to make a statement if they desire to
do so. This Proxy Statement and the form of proxy are being mailed to
stockholders beginning on or about May 28, 2001.
The Annual Report to Stockholders for the year ended December 31, 2000, was
previously mailed to all stockholders under separate cover.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2000, AND OF THE EXHIBITS THERETO, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, MAY BE OBTAINED FREE OF CHARGE BY WRITING TO:
INVESTOR RELATIONS
AMERICAN REALTY INVESTORS, INC.
1800 VALLEY VIEW LANE, SUITE 300
DALLAS, TEXAS 75234
STOCKHOLDERS ENTITLED TO VOTE
Only holders of record of issued and outstanding shares ("Shares") of the
Company's common stock (the "Common Stock") at the close of business on Monday,
May 24, 2001, (the "Record Date"), are entitled to vote at the Annual Meeting
and at any adjournments thereof. At the close of business on May 24, 2001, there
were 11,829,217 shares of Common Stock outstanding. Each holder is entitled to
one vote for each share held on the Record Date.
VOTING OF PROXIES
When the enclosed proxy is properly executed and returned, the shares
represented by the proxy will be voted at the Annual Meeting in accordance with
the instructions noted on the proxy. As to the election of the seven directors
(Proposal One), stockholders may choose to vote for all of the nominees or to
withhold authority for voting for any of the nominees. In the absence of other
instructions, the shares represented by a properly executed and submitted proxy
will be voted in favor of each of the nominees for election to the Board of
Directors. The Board of Directors does not know of any other business to be
brought before the Annual Meeting. If, however, any other matters properly come
before the Annual Meeting, it is the intention of the persons named in the
enclosed proxy to vote the proxy in accordance with their judgment on such
matters.
VOTE REQUIRED FOR APPROVAL
Article II Section 7 of the By-laws of the Company provides that the
nominees for director receiving the highest number of affirmative votes of
shares entitled to be voted, up to the number of directors to be elected by such
shares, shall be elected. Abstentions and broker non-votes, if any, will not be
included in vote totals,
1
4
and, as such, will have no effect on any proposal. Article II Section 5 of the
By-laws of the Company provides that a majority of the outstanding shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at any such meeting.
As of May 24, 2001, management and affiliates of the Company held of record
and beneficially 7,420,430 Shares representing approximately 62.7% of the shares
of Common Stock outstanding. Management intends to vote such shares for each of
the proposals in accordance with the recommendation of the Board of Directors.
REVOCATION OF PROXIES
A form of proxy is enclosed. Any stockholder who executes and delivers the
proxy may revoke the proxy at any time prior to its use by giving written notice
of the revocation to American Stock Transfer and Trust Company, 6201 15th
Avenue, Brooklyn, New York, New York 11219, or by executing and delivering a
proxy bearing a later date by mail or by Internet voting. A STOCKHOLDER MAY ALSO
REVOKE A PROXY BY ATTENDING AND VOTING AT THE ANNUAL MEETING.
FUTURE PROPOSALS OF STOCKHOLDERS
The Board of Directors currently consists of seven members and all
Directors are elected annually. Any proposal intended to be presented by a
stockholder at the 2002 Annual Meeting of Stockholders of the Company must be
delivered to the Company's Secretary at the Company's executive offices before
April 1, 2002.
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
The following persons have been nominated to serve as directors of the
Company: Karl L. Blaha, Roy E. Bode, Mark W. Branigan, Collene C. Currie, Cliff
Harris, Joseph Mizrachi and Richard D. Morgan. Each of the seven nominees is
currently a director of the Company and has been nominated by the Board of
Directors to serve for an additional term until the next Annual Meeting of
Stockholders or until his or her successor shall have been duly elected and
qualified. Each nominee has consented to being named in this Proxy Statement as
a nominee and has agreed to serve as a director if elected. When a proxy is
properly executed and returned, the shares represented thereby will be voted in
favor of the election of each of the nominees, unless authority to vote for any
nominee is specifically withheld. There will be no cumulative voting for the
election of directors. If any nominee is unable to serve or will not serve (an
event which is not anticipated), then the proxy holder will cast votes for the
remaining nominees and, unless the Board of Directors takes action to reduce the
number of directors, for such other person(s) as he or she may select in place
of such nominee(s).
The seven nominees are listed below, together with their ages, terms of
service, all positions and offices with the Company or the Company's advisor,
Basic Capital Management, Inc. ("BCM"), other principal occupations, business
experience and directorships with other companies during the last five years or
more. The designation "Affiliated", when used below with respect to a director,
means that the director is an officer, director or employee of BCM, or an
officer of the Company. The designation "Independent", when used below with
respect to a director, means that the director is neither an officer of the
Company nor a director, officer or employee of BCM, although the Company may
have certain business or professional relationships with such director, as
discussed below under "Certain Business Relationships and Related Transactions".
2
5
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS
AGE
---
Karl L. Blaha: Director (Affiliated) and President (since August 2000). 53
President (since September 1999), Executive Vice
President -- Commercial Asset Management (July 1997 to
September 1999) and Executive Vice President and Director of
Commercial Management (April 1992 to August 1995) of BCM,
Income Opportunity Realty Investors, Inc. ("IORI") and
Transcontinental Realty Investors, Inc. ("TCI"); Director
(since June 1996), President (since October 1993) and
Executive Vice President and Director of Commercial Asset
Management (April 1992 to October 1993) of American Realty
Trust, Inc. ("ART"), a wholly-owned subsidiary of the
Company; Director (since December 1998), President (since
August 1999) and Executive Vice President and Director of
Commercial Asset Management (January 1998 to August 1999) of
NRLP Management Corp. ("NMC"), the general partner of
National Realty, L.P. ("NRLP") and National Operating, L.P.
("NOLP"), a wholly-owned subsidiary of ARI; and Director
(since 1996) of First Equity Properties, Inc., which is 50%
owned by BCM.
Roy E. Bode: Director (Independent) (since August 2000). 53
Vice President for Public Affairs (since May 1992) of
University of Texas Southwestern Medical Center; Editor
(June 1988 to December 1991) of the Dallas Times Herald;
Executive Board Member (since October 1996) of Yellow Rose
Foundation for Multiple Sclerosis Research; and Director
(September 1996 to August 2000) of ART.
Mark W. Branigan: Director (Affiliated) (since September 2000) and Executive 46
Vice President and Chief Financial Officer (since August
2000).
Executive Vice President and Chief Financial Officer (since
August 2000), Vice President -- Director of Construction
(August 1999 to August 2000) and Executive Vice
President -- Residential Asset Management (January 1992 to
October 1997) of BCM, ART, IORI and TCI; and real estate
consultant (November 1997 to July 1999).
Collene C. Currie: Director (Independent) (since August 2000). 52
Chief Executive Officer (since January 2001) of c3
Solutions; Associate Director (since June 2000) of Cambridge
Technology Partners; Chief Financial Officer (since June
1998) of Energy Partners Alliance; Vice President and Senior
Relationship Manager (February 1996 to March 2000) of Bank
of America Private Bank (formerly NationsBank Private Client
Group of Dallas); Director of Marketing and Communications
(October 1993 to January 1996) of the Dallas Opera; and
Director (February 1999 to August 2000) of ART and (April
1998 to August 2000) of NMC.
Cliff Harris: Director (Independent) (since August 2000). 52
President (since 1995) of Energy Transfer Group, L.L.C.;
Project Development Vice President (1990 to 1995) of Marsh &
McLennan; Vice Chairman (1990 to 1997) of the Dallas
Rehabilitation Institute; Director (since 1992) of Court
Appointed Special Advocates; Director (since 1989) of the
NFL Alumni Association; and Director (August 1997 to August
2000) of ART.
3
6
AGE
---
Richard D. Morgan: Director (Independent) (since August 2000). 61
Founder and President (since 1989) of Tara Group, Inc.; and
Director (February 1999 to August 2000) of NMC.
Joseph Mizrachi: Director (Independent) (since August 2000). 55
Registered Investment Advisor and Principal and President
(since 1980) of PAZ Securities, Inc.; Chairman of the Board
(since 1980) of Midwest Properties Management, Inc.; and
Director (June 2000 to August 2000) of ART.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES NAMED ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held 18 meetings during 2000. For such year, no
incumbent director attended fewer than 75% of (1) the total number of meetings
held by the Board during the period for which he or she had been a director and
(2) the total number of meetings held by all committees of the Board on which he
or she served during the periods that he or she served.
The Board of Directors has an Audit Committee, the function of which is to
review the Company's operating and accounting procedures. The Board of Directors
has a Stock Option Committee the function of which is to administer the
Company's stock option plan. The members of the Stock Option Committee are
Messrs. Bode, Harris and Morgan. The Stock Option Committee did not meet in
2000.
The Company's Board of Directors does not have nominating or compensation
committees.
Audit Committee
The Audit Committee meets periodically with the independent auditors;
reviews annual financial statements and the independent auditors' work and
report thereon; reviews the independent auditors' report on internal controls
and related matters; selects and recommends to the Board of Directors the
appointment of the independent auditors; reviews the letter of engagement and
statement of fees which pertain to the scope of the annual audit and certain
special audit and non-audit work which may be required or suggested by the
independent auditors; receives and reviews information pertaining to internal
audits; directs and supervises special investigations; and performs any other
functions deemed appropriate by the Board of Directors. Members of the Audit
Committee are Roy E. Bode (Chairman), Collene C. Currie and Richard D. Morgan
each of whom is independent (as defined in Sections 303.01(B)(2)(a) and (3) of
the New York Stock Exchange's listing standards). The Board of Directors has
adopted a written charter for the Audit Committee, a copy of which is attached
to this Proxy Statement as Attachment A. The Audit Committee met four times
during 2000.
Audit Committee Report
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In
4
7
addition, the Committee has discussed with the independent auditors the
auditors' independence from management and the Company including the matters in
the written disclosures required by the Independence Standards Board.
The Committee discussed with the Company's independent auditors the overall
scope and plans for their audit. The Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The Committee has also recommended, subject to Board approval, the
selection of the Company's independent auditors.
Audit Committee
Roy E. Bode, Chairman
Collene C. Currie
Richard D. Morgan
Dated: March 29, 2001
EXECUTIVE OFFICERS
In addition to Karl L. Blaha and Mark W. Branigan, the following persons
currently serve as executive officers of the Company: Bruce A. Endendyk,
Executive Vice President; and David W. Starowicz, Executive Vice
President -- Acquisitions, Sales and Construction. Their positions with the
Company are not subject to a vote of stockholders. The age, terms of service,
all positions and offices with the Company or BCM, other principal occupations,
business experience and directorships with other companies during the last five
years or more of Messrs. Endendyk and Starowicz is set forth below.
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS
AGE
---
Bruce A. Endendyk: Executive Vice President (since August 2000). 52
Executive Vice President (since January 1995) of BCM, ART,
IORI and TCI; Executive Vice President (since January 1998)
of NMC; and Management Consultant (November 1990 to December
1994).
David W. Starowicz: Executive Vice President -- Acquisitions, Sales and 45
Construction (since March 2001) and Executive Vice
President -- Commercial Asset Management (August 2000 to
March 2001).
Executive Vice President -- Acquisitions, Sales and
Construction (since March 2001), Executive Vice
President -- Commercial Asset Management (September 1999 to
March 2001), Vice President (May 1992 to September 1999) and
Asset Manager (November 1990 to May 1992) of BCM, ART, IORI
and TCI.
OFFICERS
Although not an executive officer of the Company, Robert A. Waldman
currently serves as Senior Vice President, General Counsel and Secretary. His
position with the Company is not subject to a vote of stockholders. His age,
term of service, all positions and offices with the Company or BCM, other
principal
5
8
occupations, business experience and directorships with other companies during
the last five years or more are set forth below.
NAME, PRINCIPAL OCCUPATIONS,
BUSINESS EXPERIENCE AND DIRECTORSHIPS
AGE
---
Robert A. Waldman: Senior Vice President, Secretary and General Counsel (since 48
August 2000)
Senior Vice President and General Counsel (since January
1995), Vice President (December 1990 to January 1995) and
Secretary (from December 1993 to February 1997 and since
June 1999) of IORI and TCI; Senior Vice President and
General Counsel (since November 1994), Vice President and
Corporate Counsel (November 1989 to November 1994) and
Secretary (since November 1989) of BCM; and Senior Vice
President, Secretary and General Counsel (since January
1998) of NMC.
In addition to the foregoing officers, the Company has several vice
presidents and assistant secretaries who are not listed herein.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than 10 percent of the
Company's shares of Common Stock are required to report their ownership of the
Company's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission") and the New York Stock Exchange. Specific
due dates for these reports have been established and the Company is required to
report any failure to file by these dates during 2000. All of these filing
requirements were satisfied by the Company's directors and executive officers
and 10 percent holders. In making these statements, the Company has relied on
the written representations of its incumbent directors, executive officers and
10 percent holders and copies of the reports that they have filed with the
Commission.
THE ADVISOR
Although the Board of Directors is directly responsible for managing the
affairs of the Company and for setting the policies which guide it, the
day-to-day operations are performed by BCM under the supervision of the Board of
Directors. The duties of BCM include, among other things, investigating,
evaluating and recommending real estate and mortgage loan investment
opportunities as well as financing and refinancing sources. BCM also serves as a
consultant in connection with the Company's business plan and investment policy
decisions made by the Board of Directors.
BCM has served as advisor to the Company since February 1989. BCM is a
company owned by a trust for the benefit of the children of Gene E. Phillips. As
of May 24, 2001, BCM owned 6,218,058 shares of the Company's Common Stock,
approximately 52.6 percent of the shares then outstanding. Karl L. Blaha, the
President and a Director of the Company, serves as President of BCM, ART, NMC,
IORI and TCI.
The Advisory Agreement provides for the advisor to receive monthly base
compensation at the rate of 0.0625% per month (0.75% on an annualized basis) of
the average of the aggregate book value of the Company's assets invested in
equity interests in and loans secured by real estate before non-cash reserves
(the "Average Invested Assets").
In addition to base compensation, BCM or its affiliate or assignee,
receives the following forms of additional compensation:
(a) an acquisition fee for locating, leasing or purchasing real estate
for the Company in an amount equal to the lesser of (1) the amount of
compensation customarily charged in similar arm's-length
6
9
transactions or (2) up to 6% of the costs of acquisition, inclusive of
commissions, if any, paid to nonaffiliated brokers;
(b) a disposition fee for the sale of each equity investment in real
estate in an amount equal to the lesser of (1) the amount of compensation
customarily charged in similar arm's-length transactions or (2) 3% of the
sales price of each property, exclusive of fees, if any, paid to
non-affiliated brokers;
(c) a loan arrangement fee in an amount equal to 1% of the principal
amount of any loan made to the Company arranged by BCM;
(d) an incentive fee equal to 10% of net income for the year in excess
of a 10% return on stockholders' equity, and 10% of the excess of net
capital gains over net capital losses, if any, realized from sales of
assets; and
(e) a mortgage placement fee, on mortgage loans originated or
purchased, equal to 50%, measured on a cumulative basis, of the total
amount of mortgage origination or placement fees on mortgage loans made by
the Company for the fiscal year.
The Advisory Agreement further provides that BCM shall bear the cost of
certain expenses of its employees, excluding fees paid to the Company's
Directors; rent and other office expenses of both BCM and the Company (unless
the Company maintains office space separate from that of BCM); costs not
directly identifiable to the Company's assets, liabilities, operations, business
or financial affairs; and miscellaneous administrative expenses relating to the
performance by BCM of its duties under the Advisory Agreement.
If and to the extent that the Company shall request BCM, or any director,
officer, partner or employee of BCM, to render services to the Company other
than those required to be rendered by BCM under the Advisory Agreement, such
additional services, if performed, will be compensated separately on terms
agreed upon between such party and the Company from time to time.
The Advisory Agreement automatically renews from year to year unless
terminated in accordance with its terms. The Company's management believes that
the terms of the Advisory Agreement are at least as fair as could be obtained
from unaffiliated third parties.
Situations may develop in which the interests of the Company are in
conflict with those of one or more directors or officers of the Company in their
individual capacities or of BCM, or of their respective affiliates. In addition
to services performed for the Company, as described above, BCM actively provides
similar services as agent for, and advisor to, other real estate enterprises,
including persons and entities involved in real estate development and
financing, including TCI and IORI. The Advisory Agreement provides that BCM may
also serve as advisor to other entities.
As advisor, BCM is a fiduciary of the Company's public investors. In
determining to which entity a particular investment opportunity will be
allocated, BCM will consider the respective investment objectives of each entity
and the appropriateness of a particular investment in light of each such
entity's existing mortgage note and real estate portfolio and which entity has
had uninvested funds for the longest period of time. To the extent any
particular investment opportunity is appropriate to more than one such entity,
such investment opportunity will be allocated to the entity that has had
uninvested funds for the longest period of time or if
7
10
appropriate, the investment may be shared among various entities. See "Certain
Business Relationships and Related Party Transactions -- Certain Business
Relationships" below.
The directors and principal officers of BCM are set forth below:
Mickey N. Phillips: Director
Ryan T. Phillips: Director
Karl L. Blaha: President
Bruce A. Endendyk: Executive Vice President
Mark W. Branigan: Executive Vice President and Chief
Financial Officer
David W. Starowicz: Executive Vice President -- Acquisitions,
Sales and Construction
Rick D. Conley: Executive Vice President -- Marketing and
Promotion
Dan S. Allred: Senior Vice President -- Land Development
Michael E. Bogel: Senior Vice President -- Project Manager
Louis J. Corna: Senior Vice President -- Director of Tax
Robert A. Waldman: Senior Vice President, General Counsel
and Secretary
Mickey N. Phillips is the brother of Gene E. Phillips, and Ryan T. Phillips
is the son of Gene E. Phillips. As of May 24, 2001, BCM owned 6,218,058 shares
of the Company's Common Stock, 52.6% of the Company's then outstanding shares.
PROPERTY MANAGEMENT
Affiliates of BCM have provided property management services to the
Company. Currently, Triad Realty Services, Ltd. ("Triad") provides such property
management services for a fee of 5% or less of the monthly gross rents collected
on residential properties under its management and 3% or less of the monthly
gross rents collected on the commercial properties under its management. Triad
subcontracts with other entities for the provision of the property-level
management services to the Company at various rates. The general partner of
Triad is BCM. The limited partners of Triad are Gene E. Phillips and GS Realty,
Inc. ("GS Realty"), a related party. Triad subcontracts the property-level
management of 14 of the Company's commercial properties (office buildings,
shopping centers and a merchandise mart) and eight hotels to Regis Realty, Inc.
("Regis"), a related party, which is a company owned by GS Realty. Regis is
entitled to receive property and construction management fees and leasing
commissions in accordance with the terms of its property-level management
agreement with Triad.
REAL ESTATE BROKERAGE
Regis, a related party, also provides real estate brokerage services to the
Company and receives brokerage commissions in accordance with the Advisory
Agreement.
EXECUTIVE COMPENSATION
The Company has no employees, payroll or employee benefit plans and pays no
compensation to its executive officers. The directors and executive officers of
the Company who are also officers or employees of BCM are compensated by BCM.
Such affiliated directors and executive officers perform a variety of services
for BCM and the amount of their compensation is determined solely by the
advisor. BCM does not allocate the cash compensation of its officers among the
various entities for which it serves as advisor.
8
11
Director Compensation
The only direct remuneration paid by ARI is to those Directors who are not
officers or employees of BCM or its affiliated companies. Until December 31,
2000, each Independent Director was compensated at the rate of $20,000 per year,
plus $300 per Audit Committee meeting attended and the Chairman of the Audit
Committee received an annual fee of $500. Effective January 1, 2001, the annual
fee was increased from $20,000 to $45,000. In addition, each Independent
Director receives an additional fee of $1,000 per day for any special services
rendered outside of their ordinary duties as Director, plus reimbursement of
expenses. During 2000, $177,865 was paid to Independent Directors in total
Directors' fees for all services including the annual fee for service during the
period January 1, 2000 through December 31, 2000, and 2000 special service fees
as follows: Roy E. Bode, $52,669; Collene C. Currie, $54,825; Al Gonzalez (a
Director until April 2000), $10,000; Cliff Harris, $32,563; Joseph Mizrachi,
$10,000; and Richard D. Morgan, $17,809. Certain of the Directors have, from
time to time in the past, engaged, directly or indirectly in transactions with
the Company. See "Certain Business Relationships and Related Party
Transactions."
Independent Director Stock Option Plan
In January 1999, ART's stockholders approved the Director Stock Option Plan
("Director Plan") which provides for options to purchase up to 40,000 shares of
Common Stock. In August 2000, the Company acquired all of the outstanding common
stock of ART and the options under the Director Plan converted to options to
purchase the Common Stock of the Company. Options granted pursuant to the
Director Plan are immediately exercisable and expire on the earlier of the first
anniversary of the date on which a director ceases to be a director or ten years
from the date of grant. Each independent director was granted an option to
purchase 1,000 shares at an exercise price of $17.71 per share on January 11,
1999, the date the stockholders approved the Director Plan. On January 1, 2000,
each independent director was granted an option to purchase 1,000 shares at an
exercise price of $18.53 per share. Each independent director will be awarded an
option to purchase an additional 1,000 shares on January 1 of each year. At
December 31, 2000, 2000 options were exercisable at $17.71 per share and 3,000
options were exercisable at $18.53 per share.
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "1997 Plan") was originally
approved by the ART stockholders in January 1998. In August 2000, the Company
acquired all of the outstanding common stock of ART and the options under the
1997 Plan converted to options to purchase the Common Stock of the Company. The
1997 Plan is intended principally as an incentive for and as a means of
encouraging ownership of the Company's Common Stock, by eligible persons,
including certain directors and officers of the Company. 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 the Company or of any
parent or subsidiary of the Company, or to persons who fail to satisfy certain
criteria concerning ownership of less than 10 percent of the shares of the
Company. The 1997 Plan is administered by the Stock Option Committee, which
currently consists of three independent directors of the Company. 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. The Company receives no consideration
for the grant of an option.
STOCK OPTION GRANTS IN 2000
No options were granted under the 1997 Plan in 2000, however, pursuant to
the Agreement and Plan of Reorganization dated as of November 3, 1999, which
provided for the exchange of .91 shares of the Company for each one share of
ART, all outstanding ART options converted to options to purchase the Company's
9
12
Common Stock effective August 3, 2000. The following table sets forth certain
information for the executive officers of the Company relating to such stock
options under the Company's 1997 Stock Option Plan.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATE OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE PER FOR OPTION TERM(1)
OPTIONS EMPLOYEES SHARE EXPIRATION ---------------------
NAME GRANTED IN 2000(2) ($/SHARE) DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- ---------
Karl L. Blaha................. 20,000 6.73% $16.35 7/1/08 $205,600 $521,200
30,000 10.09% 18.53 12/1/09 349,500 885,900
Bruce A. Endendyk............. 15,000 5.058% 16.35 7/1/08 154,200 390,900
Mark W. Branigan.............. 0 0 0 N/A 0 0
David W. Starowicz............ 5,000 1.68% 16.35 7/1/08 51,400 130,300
---------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast future appreciation of the Company's
stock price. For the options expiring on July 1, 2008, the Company's per
share stock price would be $26.63 and $42.41 if increased 5% and 10%,
respectively, compounded annually over the 10 year option term. For the
options expiring on December 1, 2009, the Company's per share stock price
would be $30.18 and $48.06 if increased 5% and 10%, respectively, compounded
annually over the 10 year option term.
(2) The Company has no employees. This percentage represents the percent of
total options received by conversion in 2000.
The following table presents certain information for the executive officers
of the Company relating to the exercise of stock options during 2000 and, in
addition, information relating to the valuation of unexercised stock options.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 12/31/00 AT 12/31/00(1)
ON VALUE --------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- -------- -------- ----------- ------------- ----------- -------------
Karl L. Blaha............... 0 0 14,000 36,000 0 $0
Bruce A. Endendyk........... 0 0 6,000 9,000 0 0
Mark W. Branigan............ 0 0 0 0 0 0
David W. Starowicz.......... 0 0 2,000 13,000 0 0
---------------
(1) Based on the closing price of the Company's shares of Common Stock on
December 29, 2000, of $13.625.
As of December 31, 2000, there were 225,750 options to purchase the
Company's shares outstanding under the 1997 Stock Option Plan of which 75,300
were vested and exercisable at $16.35 per share and 7,500 were vested and
exercisable at $18.53 per share.
10
13
Performance Graph
The following graph compares the cumulative total stockholder return on the
Company's shares (ART's shares prior to August 2000) of Common Stock with the
Dow Jones Equity Market Index ("DJ Equity Index") and the Dow Jones Real Estate
Investment Index ("DJ Real Estate Index"). The comparison assumes that $100 was
invested on December 31, 1995, in shares of Common Stock and in each of the
indices and further assumes the reinvestment of all dividends. Past performance
is not necessarily an indicator of future performance.
COMPARISON OF FIVE YEAR
CUMULATIVE TOTAL RETURN
GRAPH
----------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
----------------------------------------------------------------------------------------------------------------
The Company 100.00 181.31 203.38 234.02 243.71 206.98
---------------------------------------------------------------------------------------------------------------
DJ Equity Index 100.00 122.02 160.84 200.88 246.53 223.68
---------------------------------------------------------------------------------------------------------------
DJ Real Estate Index 100.00 134.61 158.95 125.39 118.72 151.39
---------------------------------------------------------------------------------------------------------------
11
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management. The following table sets forth the
ownership of shares of the Company's Common Stock, both beneficially and of
record, both individually and in the aggregate, for the directors and executive
officers of the Company, as of the close of business on May 24, 2001.
AMOUNT AND NATURE
NAME OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS(1)
---------------- ----------------- ----------
Karl L. Blaha............................................... 7,434,430(2)(3) 62.7%
(4)(5)
Roy E. Bode................................................. 458,000(4)(6) 62.7%
Mark W. Branigan............................................ 7,420,430 62.7%
Collene C. Currie........................................... 457,000(4)(7) 3.8%
Bruce A. Endendyk........................................... 7,426,430(2)(3) 62.7%
(4)(8)
Cliff Harris................................................ 458,000(4)(9) 3.8%
Joseph Mizrachi............................................. 456,000(4)(10) 3.8%
Richard D. Morgan........................................... 456,000(4)(11) 3.8%
David W. Starowicz.......................................... 7,422,430(3)(4)(12) 62.7%
All Directors and Executive Officers as a group (9
persons).................................................. 7,452,430(2)(3) 62.7%
(4)(13)
---------------
(1) Percentage is based upon 11,829,217 shares outstanding on May 24, 2001.
(2) Includes 746,972 shares owned by TCI over which the executive officers of
the Company may be deemed to be beneficial owners by virtue of their
positions as executive officers of TCI. The executive officers of the
Company disclaim beneficial ownership of such shares.
(3) Includes 6,218,458 shares owned by BCM over which the executive officers of
the Company may be deemed to be beneficial owners by virtue of their
positions as executive officers of BCM. The executive officers of the
Company disclaim beneficial ownership of such shares.
(4) Includes 455,000 shares owned by ND Investments, Inc., a wholly-owned
subsidiary of the Company over which the directors and executive officers
of the Company may be deemed to be beneficial owners by virtue of their
positions as directors and executive officers of the Company. The directors
and executive officers of the Company disclaim beneficial ownership of such
shares.
(5) Includes 14,000 shares that are subject to options exercisable as of May
24, 2001, or within 60 days thereafter.
(6) Includes 3,000 shares that are subject to options exercisable as of May 24,
2001, or within 60 days thereafter.
(7) Includes 2,000 shares that are subject to options exercisable as of May 24,
2001, or within 60 days thereafter.
(8) Includes 6,000 shares that are subject to options exercisable as of May 24,
2001, or within 60 days thereafter.
(9) Includes 3,000 shares that are subject to options exercisable as of May 24,
2001, or within 60 days thereafter.
(10) Includes 1,000 shares that are subject to options exercisable as of May 24,
2001, or within 60 days thereafter.
(11) Includes 1,000 shares that are subject to options exercisable as of May 24,
2001, or within 60 days thereafter.
(12) Includes 2,000 shares that are subject to options exercisable as of May 24,
2001, or within 60 days thereafter.
(13) Includes 32,000 shares that are subject to options exercisable as of May
24, 2001, or within 60 days thereafter.
12
15
Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's Common Stock both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be the owner of more than 5% of the shares of the
Company's Common Stock as of the close of business on May 24, 2001.
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------- ----------------- ----------
Basic Capital Management, Inc............................... 6,218,458 52.6%
1800 Valley View Lane
Suite 300
Dallas, Texas 75234
One Realco Corporation...................................... 1,519,186(2) 12.8%
16800 Dallas Parkway
Suite 220
Dallas, Texas 75248
Transcontinental Realty Investors, Inc...................... 746,972(3) 6.3%
1800 Valley View Lane
Suite 300
Dallas, Texas 75234
Ryan T. Phillips............................................ 6,246,060(4) 52.8%
1800 Valley View Lane
Suite 300
Dallas, Texas 75234
---------------
(1) Percentage is based on 11,829,217 shares of Common Stock outstanding on May
24, 2001.
(2) Each of the directors of One Realco Corporation, Ronald F. Akin and F. Terry
Shumate, may be deemed to be the beneficial owners of such shares by virtue
of their positions as directors of One Realco Corporation. The directors of
One Realco Corporation disclaim beneficial ownership of such shares.
(3) Each of the directors of TCI, R. Douglas Leonhard, Ted P. Stokely, Martin L.
White and Edward G. Zampa, may be deemed to be the beneficial owners of such
shares by virtue of their positions as directors of TCI. The directors of
TCI disclaim such beneficiary ownership.
(4) Includes 6,218,458 shares owned by BCM over which Ryan T. Phillips may be
deemed to be the beneficial owner by virtue of his position as a director of
BCM. Mr. Phillips disclaims beneficial ownership of such shares. Also,
includes 27,602 shares owned by the Gene E. Phillips Children's Trust. Ryan
T. Phillips is a beneficiary of such trust.
CERTAIN BUSINESS RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies with Respect to Certain Activities. Article ELEVENTH of the
Company's Articles of Incorporation provides that the Company shall not,
directly or indirectly, contract or engage in any transaction with (1) any
director, officer of employee of the Company, (2) any director, officer or
employee of the advisor, (3) the advisor or (4) any affiliate or associate (as
such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended) of any of the aforementioned persons, unless (a) the material facts
as to the relationship among or financial interest of the relevant individuals
or persons and as to the contract or transaction are disclosed to or are know by
the Company's Board of Directors or the appropriate committee thereof an (b) the
Company's Board of Directors or committee thereof determines that such contract
or transaction is fair to the Company and simultaneously authorizes or ratifies
such contract or transaction by the affirmative vote of majority of independent
directors of the Company entitled to vote thereon.
Article ELEVENTH defines an "Independent Director" as one who is neither an
officer or employee of the Company, nor a director, officer or employee of the
Company's advisor.
13
16
The Company's policy is to have such contracts or transactions approved or
ratified by a majority of the disinterested directors of the Company with full
knowledge of the character of such transactions, as being fair and reasonable to
the stockholders at the time of such approval or ratification under the
circumstances then prevailing. Such directors also consider the fairness of such
transactions to the Company. Management believes that, to date, such
transactions have represented the best investments available at the time and
that they were at least as advantageous to the Company as other investments that
could have been obtained.
The Company expects to enter into future transactions with entities the
officers, directors or stockholders of which are also officers, directors or
stockholders of the Company if such transactions would be beneficial to the
operations of the Company and consistent with the Company's then-current
investment objectives and policies, subject to approval by a majority of
disinterested directors as discussed above.
The Company does not prohibit its officers, directors, stockholders or
related parties from engaging in business activities of the types conducted by
the Company.
CERTAIN BUSINESS RELATIONSHIPS
BCM is a company of which Messrs. Blaha, Branigan, Endendyk and Starowicz
serve as executive officers. BCM is beneficially owned by a trust for the
benefit of the children of Gene E. Phillips.
Karl L. Blaha, President and a Director of the Company, serves as the
President of BCM, IORI and TCI, and owes fiduciary duties to such entities under
the applicable law. IORI and TCI have the same relationship with BCM as does the
Company.
The Company contracts with an affiliate of BCM for property management
services. Currently, Triad, an affiliate, provides such property management
services. The general partner of Triad is BCM. The limited partners of Triad are
Gene E. Phillips and GS Realty, a related party. Triad subcontracts the
property-level management of 14 of the Company's commercial properties (office
buildings, shopping centers and a merchandise mart) and eight of its hotels to
Regis, a related party, which is a company owned by GS Realty.
Regis, a related party, also provides brokerage services to the Company and
receives brokerage commissions in accordance with the Advisory Agreement.
The Company owns an equity interest in each of IORI and TCI. In addition,
TCI owns a beneficial interest in the Company.
RELATED PARTY TRANSACTIONS
BCM has entered into put agreements with certain holders of the Class A
limited partner units of Ocean Beach Partners, L.P. pursuant to which those
holders may require BCM to purchase shares of the Series D Cumulative preferred
Stock of the Company received by such holders upon conversion of their Class A
limited partner units. BCM is obligated to purchase shares of the Series D
Preferred Stock at $20.00 per share plus accrued but unpaid dividends.
BCM has also entered into put agreements with the holders of the Class A
limited partner units of Valley Ranch Limited Partnership pursuant to which
those holders may require BCM to purchase the Class A limited partner units or
require BCM to purchase shares of the Series B Preferred Stock or the Company's
Common Stock into which the Class A limited partner units may be converted. The
purchase price for the Class A units is $1.00 per unit and the purchase price
for either the Series B Preferred Stock of the Company or the Company's Common
Stock into which such Class A limited partner units may be converted is 80% of
the average daily closing price of the Company's Common Stock on the 20 trading
days preceding exercise of the put option. In March 1999, the Company reached
agreement with the holders of the Class A limited partner units of Valley Ranch
Limited Partnership to acquire all 8,000,000 outstanding Class A units thereof
for $1.00 per unit. 3,000,000 Class A limited partner units were purchased in
1999 and 1,000,000 units were purchased in January 2000. The Company is
obligated to purchase an additional 2,000,000 units in each of May 2001 and May
2002.
14
17
BCM has entered into put agreements with the holders of the Class A
membership interest units of ART Palm, L.L.C. to purchase the Class A units or
shares of the Series C Preferred Stock or Common Stock of the Company into which
such Class A units are convertible. The purchase price for shares of the Class A
units is $1.00 per unit and the purchase price for either the shares of Series C
Preferred Stock or the Company's Common Stock purchased following conversion
thereof is 90% of the average daily closing price of the Company's Common Stock
for the 20 trading days preceding exercise of the put option.
In October 1997, ART entered into leases with BCM and an affiliate of BCM,
for space at the One Hickory Centre Office Building, construction of which was
completed in December 1998. The BCM and affiliate leases, effective upon ART
obtaining permanent financing of the building, were for 75,852 sq. ft.
(approximately 75% of the building), had terms of ten and fifteen years and
provided for annual base rent of $19.25 per sq. ft. for the first year. In
January 2001, both leases were terminated, and the Company entered into a new
lease with BCM, effective October 1, 2000. The new lease is for 59,463 sq. ft.
(approximately 62% of the building), has a term of three years, and provides for
annual base rent of $1.3 million or $21.50 per sq. ft.
In 1998 and 1999, Garden Capital, L.P. ("GCLP"), an NRLP subsidiary
partnership, funded $124.4 million of a $125.0 million loan commitment to ART.
The loan was secured by second liens on six properties in Minnesota, Mississippi
and Texas and by a pledge of the stock of ART Holdings, Inc., a wholly-owned
subsidiary of the Company that owned 3,349,535 NRLP units of limited partner
interest, a pledge of the stock of NMC, the general partner of NRLP, a pledge of
678,475 NRLP units of limited partner interest owned by BCM, and a pledge of
283,034 NRLP units of limited partner interest owned by ART. The loan bore
interest at 12.0% per annum, required monthly payments of interest only and
would have matured in November 2003. In February and October 1999, ART made a
total of $1.1 million in paydowns on the loan. Upon the merger of ART and NRLP
into wholly owned subsidiaries of the Company in August 2000, this loan was
canceled.
In December 1998, in connection with the settlement of litigation relating
to the original formation of NRLP, NMC, a wholly-owned subsidiary and the
general partner to NRLP, agreed to reimburse NRLP for $12.2 million paid by NRLP
to settle such litigation. The loan bore interest at a variable rate and
required annual payments of accrued interest plus principal payments of $500,000
in each of the first three years, $750,000 in each of the next three years, $1.0
million in each of the next three years, with payment in full of the remaining
balance in the tenth year. The note was guaranteed by ART. The note was to
mature upon the earlier of the liquidation or dissolution of NRLP, NMC ceasing
to be general partner or March 31, 2009. Upon the merger of ART and NRLP into
wholly owned subsidiaries of the Company in August 2000, the loan was canceled.
In April 1999, the Company funded a $2.0 million loan commitment to
Lordstown, L.P. The loan is secured by a second lien on land in Ohio and
Florida, by 100% of the general and limited partner interest in Partners
Capital, Ltd., the limited partner of Lordstown, L.P., and a profits interest in
subsequent land sales. The loan bears interest at 14.0% per annum and matured in
March 2000. At December 2000, the loan remained unpaid. A corporation controlled
by Richard D. Morgan, is the general partner of Lordstown, L.P. Mr. Morgan
serves as a Director of the Company.
Also in April 1999, the Company funded a $2.4 million loan commitment to
261, L.P. The loan is secured by 100% of the general and limited partner
interest in Partners Capital, Ltd., the limited partner of 261, L.P., and a
profits interest in subsequent land sales. The loan bore interest at 14.0% per
annum and matured in March 2000. In August 2000, the loan was collected in full,
including accrued but unpaid interest. A corporation controlled by Richard D.
Morgan, is the general partner of 261, L.P. Mr. Morgan serves as a Director of
the Company.
In February 1999, a $5.0 million unsecured line of credit was funded to One
Realco Corporation ("One Realco") which owns approximately 12.8% of the
outstanding shares of the Company's Common Stock. All principal and interest are
due at maturity of this loan in February 2002, and the line of credit is
guaranteed by BCM, the Company's advisor. In March 2000, the line was modified
and extended, increasing the loan commitment to $11.0 million, and an additional
$1.2 million was funded. In exchange for the modification, the borrower paid all
accrued interest and pledged collateral consisting of a $10.0 million promissory
note secured
15
18
by the stock of World Trade Company, Ltd. ("World Trade"), which owns 80% of an
entity that owns a hotel in Sofia, Bulgaria. In July 2000, the line was again
modified, increasing the loan commitment to $15.0 million. In September 2000,
the line of credit with a then principal balance of $14.6 million was paid in
full, including accrued but unpaid interest. Subsequently, the Company acquired
100% of the stock of World Trade for $18.0 million. The unsecured line of credit
remains available to be drawn upon by One Realco.
In October 1999, GCLP funded a $4.7 million loan to Realty Advisors, Inc.,
the corporate parent of BCM. The loan is secured by a pledge of 100% of Realty
Advisors, Inc.'s interest in an insurance company. The loan bears interest at a
variable rate, currently 10.25% per annum and matures in November 2001. All
principal and interest are due at maturity.
In 1998, a loan commitment of $1.8 million was funded to Warwick of Summit,
Inc. ("Warwick"). The loan was secured by a second lien on a shopping center in
Rhode Island, by 100% of the stock of the borrower and by the personal guarantee
of the principal shareholder of the borrower. The loan bears interest at 14.0%
per annum and had a maturity date of December 2000. All principal and interest
were due at maturity. In December 1999, Warwick sold the property serving as
collateral for this loan and $810,000 of the net proceeds were paid to the
Company, of which $386,000 was applied to interest and the remaining $424,000
was applied to principal, reducing the principal balance to $1.7 million.
Additional payments of $377,000 were to be received from Warwick in 2000.
However, through December 31, 2000, only $50,000 had been received. The loan is
currently unsecured. Richard D. Morgan, a Warwick shareholder, serves as a
Director of the Company.
Beginning in 1997 through January 1999, a $1.6 million loan commitment was
funded to Bordeaux Investments Two, L.L.C. ("Bordeaux"). The loan is secured by
(1) a pledge by the holder thereof of a 100% interest in Bordeaux, which owns a
shopping center in Oklahoma City, Oklahoma; (2) a pledge by the holder thereof
of 100% of the stock of Bordeaux Investments One, Inc., which owns 6.5 acres of
undeveloped land in Oklahoma City, Oklahoma; and (3) the personal guarantees of
the Bordeaux members. The loan bears interest at 14.0% per annum. In November
1998, the loan was modified to allow payments based on monthly cash flow of the
collateral property and the maturity date was extended to December 1999. In the
second quarter of 1999, the loan was again modified, increasing the loan
commitment to $2.1 million and an additional $33,000 was funded. In the third
quarter of 1999, an additional $213,000 was funded. The property has had no cash
flow, therefore, interest on the loan ceased being accrued in the second quarter
of 1999. In October 1999, a $724,000 paydown was received, which was applied
first to accrued interest due of $261,000 then to principal, reducing the loan
balance to $1.4 million. In June 2000, the note was further modified, increasing
the loan commitment to $1.5 million, extending the maturity date to December
2000, and payments to net revenues of the shopping center. The loan was not
repaid at maturity. Richard D. Morgan, a Bordeaux member, serves as a Director
of the Company.
In 2000, the Company paid BCM and its affiliates $5.0 million in advisory
fees, $1.6 million in incentive fees, $1.2 million in real estate brokerage
commissions, $1.2 million in loan arrangement fees and $1.4 million in property
and construction management fees and leasing commissions, net of property
management fees paid to subcontractors, other than Regis. In addition, as
provided in the Advisory Agreement, in 2000 BCM received cost reimbursements
from the Company of $5.3 million.
In 2000, the Company paid a related party $1.2 million in mortgage
brokerage and equity refinancing fees, $139,000 in property acquisition fees,
$5.7 million in real estate brokerage commissions and $2.0 million in property
and construction management fees and leasing commissions, net of property
management fees paid to subcontractors, other than affiliates of BCM.
SELECTION OF AUDITORS FOR 2001
The Company's auditors for the 2000 fiscal year were BDO Seidman, LLP. A
representative of BDO Seidman will attend the Annual Meeting. On the
recommendation of the Audit Committee, the Board of Directors has selected BDO
Seidman as the auditors for the Company for the 2001 fiscal year. They will have
an opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
16
19
ASSURANCE FEES
The aggregate fees billed by BDO Seidman, LLP, the Company's independent
auditors, for all assurance professional services rendered for the year ended
December 31, 2000 were $480,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed to the Company by BDO Seidman, LLP for
professional services rendered for information technology services relating to
financial information systems design and implementation for the year ended
December 31, 2000.
ALL OTHER FEES
The aggregate fees billed for services rendered to the Company by BDO
Seidman, LLP, other than the services described above under "Audit Fees" and
"Financial Information Systems Designed and Implementation Fees," for the year
ended December 31, 2000 were $328,000.
OTHER MATTERS
Management knows of no other matters which may be presented for
consideration at the meeting. However, if any other matters are properly brought
before the meeting, the persons named in the enclosed proxy or their substitutes
will vote in accordance with their best judgment on such matters.
FINANCIAL STATEMENTS
The 2000 Annual Report to Stockholders, including audited financial
statements, has previously been mailed to stockholders under separate cover.
SOLICITATION OF PROXIES
This Proxy Statement is furnished to stockholders to solicit proxies on
behalf of the directors of the Company. The cost of soliciting proxies will be
borne by the Company. Directors and officers of the Company may, without
additional compensation, solicit by mail, in person or by telecommunication. In
addition, the Company has retained Georgeson Shareholder Communications, Inc.
("GSC") to assist in the solicitation of proxies. An agreement with GSC provides
that it will distribute materials relating to the solicitation of proxies,
contact stockholders to confirm receipt of materials and answer questions
relating thereto. GSC is to be paid a base fee of $5,000.00 plus out-of-pocket
expenses and is to be indemnified against certain liability incurred as a result
of the provision of such services.
By Order of the Board of Directors
/s/ KARL L. BLAHA
KARL L. BLAHA
President
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR ALL OF THE NOMINEES ON THE ENCLOSED PROXY. REGARDLESS OF HOW YOU WISH TO
VOTE YOUR SHARES, YOUR BOARD OF DIRECTORS URGES YOU TO PROMPTLY SIGN, DATE AND
MAIL THE ENCLOSED PROXY.
17
20
ATTACHMENT A
AMERICAN REALTY INVESTORS, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee of the Board of Directors is a committee appointed by
the Board:
- To review the adequacy of corporate financial reporting, accounting
systems and controls;
- To assure that the Company generates financial statements that are
complete, accurate, consistently prepared and not materially misleading;
and
- To secure compliance with the Company's internal policies, standards of
business conduct, and external regulatory requirements.
MEMBERSHIP
The Audit Committee shall be comprised of at least three directors all of
whom are independent directors who shall be given full access to and will
encourage full and free interchange among the Company's Board of Directors,
President, Chief Financial Officer, other Company executives and the designated
certified public accountants. Members of the Audit Committee are expected to be
financially literate, informed and vigilant in pursuing their duties.
RESPONSIBILITIES
The Audit Committee's specific responsibilities are to:
- Recommend selection of the firm of independent certified public
accountants to audit the financial statements of the Company for the
fiscal year and review the compensation for their services and the
proposed scope of the annual examination.
- Ensure that the auditors are accountable to the Audit Committee of the
Board of Directors.
- Review with the firm of independent certified public accountants and
Company management:
1. the results of the audit for that year end;
2. the Company's annual financial statements and related
footnotes;
3. the effectiveness and adequacy of the Company's financial and
accounting organization and financial reporting system;
4. the effectiveness and adequacy of the Company's internal
control environment; and
5. the adequacy of financial controls and effectiveness of the
data processing system.
- Require a written statement confirming the independence of the certified
public accountants, including assessing the impact and extent of
non-audit services they also are providing.
- Provide oversight responsibility for the audit engagement.
- Inquire of management and the independent accountants about significant
risks or exposures.
- Assess the steps management has taken to minimize such risks to the
Company.
- Review with Company legal counsel and tax executives, the legal and
regulatory matters that may have a material impact on the Company's
financial statements.
A-1
21
- Review with Company management:
1. The annual audit plan and any changes to it; and
2. Significant audit findings during the year and management's
responses thereto.
- Meet with the independent accountants at least once per year in separate
private sessions to discuss any matters that the Audit Committee or these
groups believe should be discussed with the Audit Committee.
In performing these duties the Audit Committee should
- Convene at least four times each fiscal year.
- Report its activities to the Board at least once a year.
- Review earnings results each quarter prior to release.
- Annually review the charter of the Audit Committee of the Board of
Directors.
- Complete Committee Questionnaire on Audit Committee member independence.
A-2
22
Please Detach and Mail in the Envelope Provided
A PLEASE MARK YOUR
[X] VOTES AS IN THE
EXAMPLE.
FOR all nominees WITHHOLD
(except as marked AUTHORITY
to the contrary to vote for all nominees PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY
below) listed below
FOR AGAINST ABSTAIN
1. ELECTION 2. OTHER BUSINESS: I AUTHORIZE the [ ] [ ] [ ]
OF [ ] [ ] aforementioned proxies in their
DIRECTORS: discretion to vote upon such other
Nominees: Karl L. Blaha business as may properly come
Mark W. Branigan before the Annual Meeting and any
Collene C. Currie adjournments thereof.
Roy E. Bode
Cliff Harris
Joseph Mizrachi
Richard D. Morgan
When a proxy card is properly executed and returned, the
Instruction: To withhold authority Shares represented thereby will be voted in favor of the
to vote for any individual election for each of the nominees, unless authority to vote
nominee, write that nominee's for any such nominee is specifically withheld. There will be
name in the space below. no cumulative voting for the election of Directors. If any
nominee is unable to serve or will not serve (an event which
----------------------------------- is not anticipated), then the person acting pursuant to the
authority granted under the proxy will cast votes for the
remaining nominees and, unless the Board of Directors takes
action to reduce the number of Directors, for such other
person(s) as he or she may select in place of such nominees.
Signature Signature (if held jointly) Title Dated: , 2001
-------------------- --------------------- ----------------- ----------------
NOTE: Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such. When signing for corporation,
please sign full corporate name by an authorized officer. When signing for a partnership, please sign partnership
name by an authorized person. If shares are held in more than one capacity, this proxy shall be deemed valid for all
shares held in all capacities.
23
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AMERICAN REALTY INVESTORS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 9, 2001
The undersigned hereby appoints KARL L. BLAHA and ROBERT A. WALDMAN, and
each of them, Proxies, with full power of substitution in each of them, in the
name, place and stead of the undersigned, to be at the Annual Meeting of
Stockholders of AMERICAN REALTY INVESTORS, INC., to be held on Monday, July 9,
2001, at 2:00 p.m., or at any adjournments thereof, according to
the number of votes that the undersigned would be entitled to vote if personally
present, upon the following matters:
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)